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I S Schache and K Schache as t'ees for the Schache Superannuation Fund and as representative for investors in the Arafura Pearl Project for the financial year 2005/2006 & Ors v GP No 1 Pty Ltd & Ors [2011] QSC 413 - QSC 2011 case summary — Zoe
I S Schache and K Schache as t'ees for the Schache Superannuation Fund and as representative for investors in the Arafura Pearl Project for the financial year 2005/2006 & Ors v GP No 1 Pty Ltd & Ors [2011] QSC 413
[2011] QSC 413
Supreme Court of Queensland|2011-12-23|Before: Martin J
– BALANCE OF CONVENIENCE GENERALLY – INJUNCTIONS TO PRESERVE STATUS
Source
Original judgment source is linked above.
Catchwords
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORYINJUNCTIONS – SERIOUS QUESTION TO BE TRIED –RELEVANT CONSIDERATIONS– BALANCE OF CONVENIENCE GENERALLY – INJUNCTIONS TO PRESERVE STATUSQUO OR PROPERTY PENDING DETERMINATIONOF RIGHTS – where the applicants areinvestors in managed investment schemes – where the applicants seekinterlocutoryorders with respect to the management of the schemes – wherethe applicants sue as representatives of the other investors ineach particularscheme – where the second respondent was responsible for operating each ofthe schemes – where the schemesinvolved the propagation of culturedpearls in nurseries located in various off-shore places in the NorthernTerritory – wherethere were separate schemes for each financial year– where each scheme had a scheme constitution and a management agreement– where the scheme agreements are in similar terms – where onentering the schemes the growers executed the relevant
scheme’s management
agreement – where the applicants contend that the appointment of the first
respondent as manager
of the projects conflicts with the limited power of
delegation conferred on the second respondent by the management agreement
–
where the applicants contend that the management agreement does not give
the first respondent the right to sell the growers’
pearls – where
the applicants contend that the management agreement does not allow for the
pooling of pearls – whether
a declaration should be made as to the
ownership of the growers’ oysters and pearls propagated in the Arafura
Pearl Project
Managed Investment Schemes for the years 2005/2006, 2006/2007,
2007/2008, 2008/2009 and 2009/2010 – whether a declaration should
be made
as to the location of the said oysters and pearls – whether a declaration
should be made as to the ownership of all
funds derived from the sales of any of
the said oysters or pearls – whether an injunction should be granted
permanently restraining
the respondents from dealing with, or attempting to deal
with, the said oysters and pearls – whether an injunction should be
granted permanently restraining the respondents from in any way disposing of or
dealing with the proceeds derived from the sale of
any of the said pearls
– whether on the balance of convenience the orders sought should be
granted – whether the interlocutory
injunctions sought would act to
preserve the status quo
Corporations Act 2001 (Cth), s601FB
Uniform Civil Procedure
Rules 1999 (Qld), r 75
Cameron v National Mutual Life Association of Australasia Ltd (No 2)
[1992] 1 Qd R 133, cited
Burns Philp & Co Ltd v Bhagat [1993] VicRp 13
[1993]
1 VR 203, cited
Hancock v Scattergood [1955] SASR 1,
cited
Minister for Industrial Development of Queensland v Taubenfeld
[2003] QSC 23
[2003] 2 Qd R 655, cited
Wilson v Church (1878) 9 Ch D 552,
cited
Judgment (100 paragraphs)
[1]
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - SERIOUS QUESTION TO BE TRIED - RELEVANT CONSIDERATIONS - BALANCE OF CONVENIENCE GENERALLY - INJUNCTIONS TO PRESERVE STATUS QUO OR PROPERTY PENDING DETERMINATION OF RIGHTS - where the applicants are investors in managed investment schemes - where the applicants seek interlocutory orders with respect to the management of the schemes - where the applicants sue as representatives of the other investors in each particular scheme - where the second respondent was responsible for operating each of the schemes - where the schemes involved the propagation of cultured pearls in nurseries located in various off-shore places in the Northern Territory - where there were separate schemes for each financial year - where each scheme had a scheme constitution and a management agreement - where the scheme agreements are in similar terms - where on entering the schemes the growers executed the relevant scheme's management agreement - where the applicants contend that the appointment of the first respondent as manager of the projects conflicts with the limited power of delegation conferred on the second respondent by the management agreement - where the applicants contend that the management agreement does not give the first respondent the right to sell the growers' pearls - where the applicants contend that the management agreement does not allow for the pooling of pearls - whether a declaration should be made as to the ownership of the growers' oysters and pearls propagated in the Arafura Pearl Project Managed Investment Schemes for the years 2005/2006, 2006/2007, 2007/2008, 2008/2009 and 2009/2010 - whether a declaration should be made as to the location of the said oysters and pearls - whether a declaration should be made as to the ownership of all funds derived from the sales of any of the said oysters or pearls - whether an injunction should be granted permanently restraining the respondents from dealing with, or attempting to deal with, the said oysters and pearls - whether an injunction should be granted permanently restraining the respondents from in any way disposing of or dealing with the proceeds derived from the sale of any of the said pearls - whether on the balance of convenience the orders sought should be granted - whether the interlocutory injunctions sought would act to preserve the status quo
D R Cooper SC for the first, second, third and fourth applicants
[10]
A J H Morris QC with V G Brennan for the second respondent
[11]
MacGillivrays for the first, second, third and fourth applicants
[12]
[1] This is an application for interlocutory orders. The applicants are investors in certain managed investment schemes ("the schemes") and they sue as representatives of the other investors in each particular scheme.
[13]
[2] In each financial year from 2005/06 to 2009/10 a scheme was conducted under the name "Arafura Pearl Project" or similar. The schemes were operated by the responsible entity for each scheme - the second respondent ("Arafura"). These schemes involved the propagation of cultured pearls in nurseries located in various off-shore places in the Northern Territory. There was a separate scheme for each financial year. Each of the schemes had a scheme constitution and a management agreement. Those agreements are in similar terms for each of the schemes. On entering into the schemes, each of the growers executed the relevant scheme's management agreement.
[14]
[3] The management agreement provides for, among other things,:
[15]
(a) That a grower may elect to collect the harvested pearls (clause 19). This clause allows a grower to notify Arafura within three months of the commencement date that it elects to collect the harvested pearls and take sole responsibility for the marketing and sale of the harvested pearls.
[16]
(b) Sales of pearls (clause 20). This clause provides that, unless the grower makes the election, the pearls shall be pooled with the other non-electing grower's pearls for the purposes of marketing and selling the non-electing growers' pearls. It further provides that Arafura is appointed to the exclusion of the grower and all others as the growers' agent for the purposes of marketing and selling the non-electing growers' pearls including negotiating sales contracts on such terms as Arafura considers appropriate and advantageous to the grower.
[17]
[4] Clause 21 of the management agreement provides for what is to happen with the proceeds of sale:
[18]
The Responsible Entity will direct any purchaser of the Non-electing Growers' Pearls to pay the Gross Pearl Sales to the Responsible Entity, who will deposit those proceeds into one or more Proceeds Funds.
[19]
If the Grower is a Non-electing Grower, the Responsible Entity shall provide the Grower with a certificate within 21 days of receipt of the Gross Pearl Sales, setting out in relation to the Non-electing Grower:
[20]
(b) the total quantity of pearls included in the sale;
[21]
(c) the number of oysters producing the pearls included in the sale; and
[22]
(d) the application of any amounts in accordance with clause 21.3.
[23]
On receipt of the Gross Pearl Sales, the Responsible Entity will, within 30 days of the sale of the Pearls:
[24]
(a) calculate the Grower's Proportional Interest in the Gross Pearl Sales;
[25]
(b) apply the Grower's Proportional Interest in the Gross Pearl Sales in the following priority:
[26]
(i) firstly, by deducting from the Grower's Proportional Interest in the Gross Pearl Sales and the Sales and Marketing Fee;
[27]
(ii) secondly, by deducting payment of the Deferred Management Fee owing by the Grower;
[28]
(iii) thirdly, by deducting payment of the Manager's Bonus payable by the Grower;
[29]
(iv) fourthly, if directed to do so by the Grower under clause 17.2, by deducting payment of the Deferred Management Fee Shortfall (if any); and
[30]
(v) fifthly, by distributing the Grower's Proportional Interest in the Gross Pearl Sales, net of the expenses and deductions set out above.
[31]
For the avoidance of doubt, the above clause only applies in relation to Non-electing Growers."
[32]
[5] Clause 21 demonstrates that growers are not to be recompensed according to the particular, identifiable pearls which are sold but according to a formula that relies upon the calculation of a "proportional interest".
[33]
[6] On 21 April 2011 Messrs Duncan and Powell were appointed joint and several administrators of Arafura. On 28 April 2011 two other gentlemen were appointed joint receivers and managers of certain assets of Arafura by its secured creditor, Macasins Pty Ltd.
[34]
[7] The administrators sought to find another responsible entity to take over the role with respect to the schemes but were unsuccessful. Arafura, therefore, had to continue to perform its obligations as the responsible entity of the schemes.
[35]
[8] Difficulties arose with the management of the schemes because the receivers and managers were in possession of a number of Arafura's assets and that, together with other incidents, caused considerable problems for the future conduct of the schemes. The administrators did not have sufficient funds to perform its obligations as a responsible entity to preserve the schemes' property. This was resolved by Macasins' security being assigned to the first respondent ("GP") upon the Macasins' debt being paid out by that company.
[36]
[9] The administrators, on behalf of Arafura, entered into an agreement with GP for it to undertake the management and maintenance of the schemes. Arafura also entered into an agreement with the third respondent ("Pearlautore") for the sale of the pearls. Pearlautore is responsible to Arafura - and not GP - for the sale of the pearls.
[37]
[10] Arafura also owned its own pearls and these had been mixed with pearls which had been unsold from the 2009 and 2010 harvests. It is clear that there has been a mixing of scheme pearls and Arafura pearls.
[38]
[11] Each of the named applicants is an investor in one of the schemes conducted from 2005/06 to 2008/09.
[39]
[12] At the hearing of this application Mr Cooper SC said that the applicants were not persisting with their application so far as the 2009/10 scheme was concerned.
[40]
[13] One of the issues raised during argument was the standing of the named applicants to proceed as the representatives for the other, unnamed investors in the various schemes. Two things need be said. First, this matter should not have been commenced by way of originating application. Given the manner in which the applicants have proceeded there is nothing to suggest that there was insufficient time to prepare a claim and, it must have been completely clear to the applicants, that this was not a case in which a substantial dispute of fact was unlikely. Further proceedings will be subject to directions about the filing of appropriate pleadings.
[41]
[14] The second matter concerns the representative capacity of the named applicants. A person may start a proceeding and represent all of the persons who have the same interest and could have been parties in the proceeding under r 75 of the Uniform Civil Procedure Rules 1999 (Qld) ("UCPR"). This is a descendant of the representative action developed in the Court of Chancery whereby such an action could be brought even though some of those said to share an interest with the plaintiff knew nothing of the action, or even were opposed to its being brought.[1] If a person did object to being represented by the plaintiff then that person could ask to be made a defendant.[2] If there is to be an issue raised as to the appropriateness of having a representative plaintiff or applicant it should be resolved at the earliest possible opportunity.[3]
[42]
[15] For the purposes of this application I am proceeding on the basis that the representative claim is available to the named applicants.
[43]
[16] The applicants seek the following interlocutory orders:
[44]
(a) That the respondents preserve the oysters and pearls (said to be the property of the applicants who invested in the schemes) together with the proceeds of the sale of such oysters and pearls;
[45]
(b) That the respondents not sell or deal with those oysters and pearls without the written consent of the applicants;
[46]
(c) That Arafura not pay to GP the fees referred to in cl 6.1 of the Arafura Management Agreement of 23 June 2011 without the written consent of the applicants whose pearls have first been harvested by GP in 2011;
[47]
(d) That GP file and serve upon the solicitors for the applicants an affidavit identifying by reference to a plan or other appropriate means the precise growers' panels or pearl farms from which it has harvested pearls in 2011 and stating the number of pearls harvested from each panel or farm;
[48]
(e) That Arafura file and serve upon the applicants an affidavit identifying by reference to a plan or other appropriate means:
[49]
(i) The precise growers' panels or pearl farms from which pearls were harvested in 2009, 2010 and 2011 and the number of pearls harvested from each panel or farm;
[50]
(ii) The present location of all the said pearls which have not been sold;
[51]
(iii) The amount received from the sale of pearls from the 2009, 2010 and 2011 harvests and in whose possession such proceeds of sale presently reside and if any proceeds have been disbursed by or at the direction or with the consent of Arafura full particulars of when, to whom and for what purpose each disbursement was made, and the amount disbursed on each occasion.
[52]
[17] The argument for the applicant commences with the appointment by Arafura of GP as the manager of the pearl projects. This is said to be in direct conflict with the limited power of delegation conferred on Arafura by the growers' management agreement. The clause relied upon by the applicants is clause 13. It provides:
[53]
(a) related bodies corporate of the Responsible Entity;
[54]
(b) directors or officers of the Responsible Entity; or
[55]
(c) other persons in any way associated with the Responsible Entity,
[56]
as independent contractors, agents, contractors and consultants notwithstanding their relation to the responsible entity, provided that such delegation shall comply with all relevant pearling licences, laws, regulations, notices or orders including but not limited to the Pearling Licences, the Fisheries Act and the Fisheries Regulations relating to the performance of the Services."
[57]
[18] That is not a clause which restricts delegation; rather it explicitly permits the appointment of persons or entities associated with Arafura - "the Responsible Entity may engage ..."[emphasis added]. It does not proscribe the appointment of any other person as an independent contractor, agent and so on.
[58]
[19] Had clause 13 purported to confine Arafura to appointing only persons or entities falling within clause 13.1(a), (b) and (c) then it would have not been effective because of the provisions of s 601FB of the Corporations Act 2001 (Cth). It provides:
[59]
"(1) The responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's constitution and this Act.
[60]
(2) The responsible entity has power to appoint an agent, or otherwise engage a person, to do anything that it is authorised to do in connection with the scheme. For the purpose of determining whether:
[61]
(b) the responsible entity has properly performed its duties for the purposes of subsection 601GA(2);
[62]
the responsible entity is taken to have done (or failed to do) anything that the agent or person has done (or failed to do) because of the appointment or engagement, even if they were acting fraudulently or outside the scope of their authority or engagement.
[63]
[20] The agreement of 23 June 2011 by which Arafura appointed GP is not invalid for the reason advanced by the applicants.
[64]
[21] It is then submitted that the agreements with GP do not give it the right to sell the growers' pearls. That much is admitted, as the right to sell pearls is subject to the agreement between Arafura and Pearlautore.
[65]
[22] One of the major elements of the applicants' case was that there had been a pooling of the pearls owned by the applicants with those owned by Arafura such that it is no longer possible to identify the sources of those pearls. Another complaint is that GP has recently harvested the applicants' pearls, reseeded the "applicants'" oysters and provided the pearls to Pearlautore for sale.
[66]
[23] It is submitted that these acts have been done without the consent of the applicants. I was not directed to any part of any of the agreements which requires that such consent be obtained. So far as sale of the pearls is concerned, clause 20 of the management agreement appears to allow pooling of pearls.
[67]
[24] Another aspect of the applicants' argument (referred to above) is misconceived in that the oysters are not the property of the applicants - only the pearls are.
[68]
[25] The manner in which the administrators and GP have dealt with the various schemes is not entirely clear but there is evidence to support a finding that there are sufficient records to indicate, at least, the proportion each grower is entitled to with respect to any sale.
[69]
[26] The case for the applicant appears to be premised upon two flawed assumptions:
[70]
(b) That they have some right to receive payment for each pearl grown from their share of the identifiable panels assigned to each scheme.
[71]
[27] As to the oysters, they are owned by Arafura.
[72]
[28] As to the pearls, while the applicants "have full right, title and interest in the Grower's Pearls"[4], those indicia of ownership are subject to Arafura's contractual right to sell the pearls and deal with the proceeds of sale[5] .
[73]
[29] In the Amended Originating Application, the applicants seek three declarations and two injunctions.
[74]
(a) As to the ownership of the growers' oysters and pearls propagated in the Arafura Pearl Project Managed Investment Schemes for the years 2005/2006, 2006/2007, 2007/2008, 2008/2009 and 2009/2010.
[75]
(b) As to the precise location or locations of the said oysters and pearls within the hatcheries at Beagle Bay, Elizabeth Bay and Croker Island and any other hatchery from which the second respondent conducts the operations of all or any of the said Managed Investment Schemes of the said oysters and pearls.
[76]
(c) As to the ownership of all funds derived from the sales of any of the said oysters or pearls.
[77]
[31] The first declaration sought is extremely vague. It does not specify what type of declaration is sought. It could be seeking a declaration with respect to each individual grower's ownership of pearls, or it could be seeking a declaration as to the extent of ownership, that is, the spectrum of rights held by an owner pursuant to the scheme.
[78]
[32] The second declaration sought appears to have no utility. No other order is sought consequent upon such a declaration.
[79]
[33] The third declaration likewise has the same vice as the first. It is unclear what sort of "ownership" is being spoken about.
[80]
(a) Permanently restrain the respondents from dealing with, or attempting to deal with, the said oysters and pearls; and
[81]
(b) Permanently restrain the respondents from in any way disposing of or dealing with the proceeds derived from the sale of any of the said pearls.
[82]
[35] The likelihood of any such injunction being granted is so low as to be unnecessary to consider. Such injunctions would bring all the schemes to an immediate halt, they would place Arafura, at least, in breach of the Management Agreement and the duties cast upon it as the Responsible Entity under the Corporations Act 2001 (Cth).
[83]
[36] The vice of proceeding without a statement of claim is demonstrated starkly in this case. The "serious question" is to be determined by consideration of all the material raised by both the applicants and the respondents.
[84]
[37] The applicants did not nominate a particular "serious question", but it would appear from the written submissions and the oral argument that it concerned whether or not the applicants' property was being dealt with by the respondents to the disadvantage of the applicants. I do not regard that as having been established on the material.
[85]
[38] I will, nevertheless, consider whether or not, had a serious question been established, what the balance of convenience is in this case.
[86]
[39] The orders sought by the applicants would, if granted, bring the pearl growing and harvesting undertakings to a halt. There is no allegation that the pearl farms are not being managed properly or that the best price possible is not being obtained. It was submitted that the administrator is acting in a self interested way and that if the administrator sells the pearls then that would amount to stealing. I reject that submission as it is based upon a misunderstanding of the scheme documents.
[87]
[40] The interlocutory injunctions sought would require the respondents to "freeze" the operation by not allowing anything to be done, until the determination of these proceedings, with the oysters and pearls and with any proceeds derived from the sale of the oysters and pearls. That would, obviously, dry up the income stream and have serious consequences for the operation of the business.
[88]
[41] Other orders sought seek to enjoin the respondents from selling or dealing in any manner howsoever with the oysters and pearls without the written consent of the growers. There are over 500 growers engaged in the various schemes. It would be impossible for any business to operate if it needed to gain the written consent of over 500 people who are spread around Australia. Further, when the order seeks to enjoin the respondents from "dealing in any manner", that would include maintenance and all other acts necessary to ensure that the project remains physically viable.
[89]
[42] The order sought to restrain Arafura from paying GP the fees referred to in the Arafura Management Agreement without first obtaining the written consent of the growers whose pearls have been harvested by GP in 2011 would place Arafura in breach of its agreement and possibly lead to GP determining the contract. On the evidence, which I accept, to do that would mean that the entire project would be doomed.
[90]
[43] The interlocutory injunctions sought would not act to preserve the status quo; rather, it would cause the business to come to an end.
[91]
[44] While the named applicants have the right to commence a representative proceeding under r 75 of the UCPR, the other unnamed growers are not parties to this action[6] and these orders would place them in a position where their investment would be determined by the actions of others who might or might not agree to the proposals of the administrators.
[92]
[45] The interests of the applicants can be respected by the respondents agreeing to keep appropriately detailed records of their actions in undertaking the business of pearl farming and the sales which take place.
[93]
[46] The balance of convenience is clearly in favour of the respondents. The proposed interlocutory injunctions would be likely to lead to GP ceasing to fund the operations and maintenance of the pearl farms, to threaten the employment of 40 staff members employed by it to manage the farm and place it in danger of insolvency.
[94]
[47] The named applicants have, reluctantly, offered an undertaking as to damages. I do not accept that they are able to offer an undertaking on behalf of persons who are not parties in the usual sense, that is, the other growers, to this action. The applicants did not provide any material to suggest that the undertaking offered by the individual applicants would be sufficient to account for any damage which might be suffered by the respondents.
[95]
[48] The application is dismissed. I will make directions for the further conduct of this matter including directions for the keeping of records by the respondents after hearing from the parties.
[6]Cameron v National Mutual Life Association of Australasia Ltd(No 2)[1992] 1 Qd R 133.
Parties
Applicant/Plaintiff:
# I S Schache and K Schache as t'ees for the Schache Superannuation Fund and as representative for investors in the Arafura Pearl Project for the financial year 2005/2006 & Ors