Iscorp Investment Pty Ltd (ACN 100 517 708) v Yohana

Supreme Court of NSW|2010-11-15

Judgment 1HIS HONOUR: In November 2010, an application was made by the Plaintiff, for an interlocutory injunction restraining the Defendant from selling a unit situated at The Horsely Drive, Wetherill Park. The claim for relief was sought in Paragraph 1 of a notice of motion dated 27 October 2010 and filed in Court, subject to the Plaintiff's solicitor paying the necessary filing fees, without objection, on 15 November 2010. Other relief was also sought in the notice of motion, but the only part proceeded with on that day was the application for the interlocutory injunction. 2The duty Judge, originally in September 2010, had referred the case to me, and I have had to deal with various issues that have arisen, on a number of different occasions, since then. A regime of interlocutory orders was put in place, by consent until the notice of motion could be heard and determined. 3I am satisfied that I may deal with the issue that has been raised in the present application. In any event, both parties requested that I should do so. 4In about October 2002, the Plaintiff became the registered proprietor of a unit at The Horsley Drive, Wetherill Park ("Lot 7"); it also came to have an interest in Lot 3, Lot 4 and Lot 8 in the same building. 5The Defendant operates a bridal business at Level 2 of the building. 6In about May 2008, the Plaintiff transferred the legal title of Lot 7 to the Defendant. 7The circumstances surrounding the transfer of the legal title of Lot 7 are the subject of substantial dispute between the parties. The Plaintiff asserts that, by a written agreement made on 26 March 2008, it agreed to transfer its legal, but not its beneficial, interest in Lot 7, to the Defendant, to enable the Defendant to discharge and refinance certain liabilities. The Defendant was to reconvey the legal title of Lot 7 to the Plaintiff within 12 months. That was not done, a request having been made by the Plaintiff in about November 2008. 8The Plaintiff seeks to have Lot 7 reconveyed to it and seeks to have the Defendant account to it for the rent received by him from the tenant of Lot 7. 9The Defendant asserts that the written agreement relating to Lot 7 formed part of a chain of transactions and events and that its proper construction and effect is to be determined in the context of those transactions and events. In broad terms, he says that the Plaintiff initially purchased Lot 7 from him, and borrowed moneys, at least in part, to pay the purchase price of Lot 7 ($400,000). 10The Defendant also asserts that the Plaintiff defaulted in respect of the repayment of the debt secured by mortgage registered over Lot 7 and that, as a surety of that debt, he was called upon to remedy the default. He states that following the inability of the Plaintiff to refinance the mortgage debt, the Plaintiff requested him "to take a temporary transfer of Lot 7 and the Plaintiff's half interest in Lot 4 and to use those properties as security to borrow sufficient moneys to discharge the Plaintiff's loan secured on Lot 7". He says that the Plaintiff was to be responsible for the loan repayments referable to Lot 7 and half the loan repayments referable to Lot 4. 11The Defendant asserts that in order to meet the Plaintiff's request, he borrowed $679,000 in about June 2008, and that the amount borrowed was applied to repay the debt owed by the Plaintiff secured on Lot 7, and also in connection with the costs and expenses of transferring Lot 7 and the Plaintiff's interest in Lot 4 to the Defendant. 12Since its transfer to the Defendant by the Plaintiff, Lot 7 has been tenanted. The Defendant asserts "the Defendant became entitled to receive and be exonerated out of the income of Lot 7 and the Plaintiff's beneficial share from Lot 4 in respect of liabilities incurred by him". However, he also asserts that the Plaintiff has collected, or diverted, some of those rentals. He asserts also, that the Plaintiff has, wrongfully, occupied part of Lot 4 for its own use. 13Pursuant to an agreement of the parties made in September 2010, the rental from Lot 7 has been used to make the instalments due under the mortgage now registered over Lot 7. 14The precise relief sought by the Plaintiff in respect of Lot 7 is its reconveyance to the Plaintiff and an accounting of all moneys received and disbursed by the Defendant in respect of the tenancy of Lot 7. 15In his statement of cross-claim, the Defendant seeks a declaration that he "is entitled to be exonerated and indemnified out of the half interest in Lot 4 ... formerly held by the Plaintiff and Lot 7... in respect of a loan secured over those properties and the costs and expenses incurred by the Defendant in holding those properties". He also seeks an order for an account to be taken, as between the parties, in respect of income and outgoings in respect of Lot 4 and Lot 7. 16The Defendant accepts that if the beneficial interest in Lot 7 is to be reconveyed to the Plaintiff, such an order would only be made "on terms of the Plaintiff doing equity by repaying the indebtedness presently secured over Lot 7, by indemnifying the Defendant in respect of all expenses and liabilities incurred in respect of Lot 7 and by fully accounting to the Defendant for all rentals and other benefits received by the Plaintiff or its officers". 17In relation to the Plaintiff's interest in Lot 4, the Defendant asserts that "he is entitled to retain title to Lot 4 until [he is repaid] half the debt secured on Lot 4 and otherwise be indemnified in respect of half the costs and expenses incurred by the Defendant in holding half the interest in Lot 4". He repeats that if the relevant beneficial interest in Lot 4 is to be reconveyed to the Plaintiff, such an order would only be made "on terms of the Plaintiff doing equity by repaying the indebtedness presently secured over Lot 4, by making a full and equal contribution to the expenses and liabilities incurred in respect of Lot 4 since it was agreed to be purchased by them both, and by fully accounting to the Defendant for all rentals and other benefits received by the Plaintiff or its officers". 18The parties have agreed upon the identity of an accountant, as a referee, to enquire and report in respect to various matters that have been identified (see, Order 9 dated 29 September 2010 and the Schedule to the Order). The report, when produced, may establish the amounts, if any, owed by one party to the other. 19At the date of the hearing of the interlocutory application, the referee's report was not available to the court and to the parties. 20There are other disputes of fact that involve Lot 3 and what are said to be agreements between the parties in respect thereof. 21The Plaintiff accepts that it has not been possible for it to refinance, or to repay its share of the mortgages that are secured over Lot 7 and over Lot 4. Various reasons, all involving the conduct of the Defendant, have been proffered for the Plaintiff's failure to do so. 22The Defendant states, and the Plaintiff does not dispute, that the total monthly mortgage for the loan secured on Lot 7 is approximately $5,000. Outgoings equate to $300 per month. 23The value of Lot 7, as at 31 August 2010, is estimated to be $424,000. 24The Defendant tendered a letter addressed to the Plaintiff's solicitors that states he has been approached by a real estate agent, who has indicated that he has a prospective purchaser for Lot 7, at a price of $500,000 plus commission. It was stated that the proposed purchase price was significantly more than the estimated value of Lot 7 and that the Defendant intended to enter into a contract to sell it. 25It was the threat by the Defendant to sell Lot 7 that prompted the Plaintiff's application for an interlocutory injunction. 26Undertakings have been given, and continued, by consent, which has enabled the status quo to continue pending the determination of the question whether an interlocutory injunction should be granted. One such undertaking has been the usual undertaking as to damages given by the Plaintiff and its director, Henrik Isaac, in respect of any damages arising out of, or caused by, any restrictions imposed upon the Defendant by reason of undertakings, including not to enter into a contract for the sale of Lot 7, which have been given by the Defendant. 27In addition, the parties have agreed that all rental income received in respect of Lot 7 and Lot 4 will be applied towards meeting the costs of servicing the mortgages over those Lots, and to the extent there is any surplus, to apply that surplus towards payment of council rates, water rates, strata levies (not including any special levies) referable to those Lots.

The Legal Principles 28The legal principles are not in dispute and may be set out, in a summary way: (a) The court has power to grant an interlocutory injunction in all cases in which it appears to be just or convenient that the order should be made. The remedy is discretionary, but the discretion is not at large. (b) The High Court has explained the threshold legal considerations applicable for an interlocutory injunction: Australian Broadcasting Corporation v O'Neill ("O'Neill") [2006] HCA 46; (2006) 227 CLR 57 [19], [65]-[72] and in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199, 217. (c) The purpose of an interlocutory injunction is to preserve the status quo until final hearing: Lenah (at [62]) per Gaudron J; (at [64]) per Gummow and Hayne JJ; (at [159(4)] per Kirby J; see also (at [6]) per Gleeson CJ; R Meagher, J Heydon, M Leeming, Meagher, Gummow and Lehane's Equity Doctrines and Remedies , 4th ed (2002), Butterworths Lexis Nexis (at [21-340]). (d) The general question for consideration, as McClelland J said in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, at 535, is: "...the Court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled..." (e) It is not the function of a judge hearing an application for interlocutory injunctive relief, to conduct a preliminary trial of the action. Nor is it, in general, his, or her, function to resolve the conflict between the parties' evidence and grant or refuse the application upon the basis of such findings. (f) Where an interlocutory injunction is sought, it is necessary to identify the legal (including statutory), or equitable, right(s) which are to be determined at the trial and in respect of which final relief is sought: Lenah ; O'Neill (at [54]) per Gummow and Hayne JJ. (g) In O'Neill, it was stated that the applicant must demonstrate that: (i) There is a serious question to be tried that is a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. (ii) The injury which the applicant is likely to suffer must be one for which damages will not provide an adequate remedy. (iii) The balance of convenience must favour the granting of an injunction. The balance of convenience requires a consideration of the relevant matters favouring, or militating against, granting an injunction. (h) As the apparent strength of the applicant's case diminishes, the balance of convenience moves against the making of an order: Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 54 - 55; Todd v Novotny [2001] WASC 171. (i) The grant of an injunction involves balancing the injustice which might be suffered by the respondent if the injunction is granted and the applicant later fails at trial, against the injustice which might be suffered by the applicant if the injunction is not granted and the applicant later succeeds at trial: Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; Madaffari v Labenai Nominees Pty Ltd [2002] WASC 67 at [14]; Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 at [11]; Romeg Holdings Pty Ltd v Kelly [2010] WASC 404.

Serious Question to be Tried 29The resolution of the question whether there is a serious question to be tried does not involve an assessment of the evidence on the balance of probabilities. Rather, the applicant needs to show that it has "a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial": O'Neill at 82. The "governing consideration" is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought: O'Neill [71]. 30The Defendant has submitted that the Plaintiff fails on this issue, but, in my view, a serious question to be tried has been made out. The Plaintiff asserts an entitlement to reconveyance of Lot 7 to it by the Defendant based upon various written agreements and/or oral conversations. In my view, this is a sufficient claim to support injunctive relief intended to protect the status quo pending resolution of the proceedings. 31The Defendant, himself, has relied upon the parts of his own affidavit in which there are set out conversations between him and Mr Isaac for the Plaintiff. It is clear, even from the Defendant's case, that there was more to each transaction than simply the transfer of the Plaintiff's interest in Lot 7 and in Lot 4 to the Defendant. There is a real dispute as to the events that gave rise to the transfer of Lot 7 and the Plaintiff's interest in Lot 4 to the Defendant. It is impossible, without more, to determine which version of events is likely to be accepted. 32Furthermore, on the Defendant's alternative case, the Plaintiff is entitled to the transfer of Lot 7 "on terms of the Plaintiff doing equity by repaying the indebtedness presently secured over Lot 7, by indemnifying the Defendant in respect of all expenses and liabilities incurred in respect of Lot 7 and by fully accounting to the Defendant for all rentals and other benefits received by the Plaintiff or its officers". 33In my view, the Plaintiff should be allowed the opportunity to take this course, even if the Defendant is successful.

Damages an Inadequate Remedy 34There were no submissions to the effect that if Lot 7 were sold, damages would be an adequate remedy. Assuming the establishment of a serious question to be tried as to the entitlement to have Lot 7 and its prior interest in Lot 4 reconveyed to it, refusal of an injunction would have the effect of destroying, for all practical purposes, that entitlement. A sale to a third party and, perhaps, the creation of another mortgage, would be inconsistent with any such right of the Plaintiff.

The Balance of Convenience 35The more difficult question is consideration of the balance of convenience since there is no evidence, at this stage, to counter the evidence of value of Lot 7 produced by the Defendant. However, this requires me to consider the question whether the inconvenience, or injury, the Plaintiff would be likely to suffer if an injunction were refused, outweighs or is likely to be outweighed, by the injury the Defendant would suffer if an injunction were granted. 36In my view, if relief against the Defendant were to be refused, and Lot 7 was sold by the Defendant, even at a price greater than what is said to be its value, the Plaintiff's claim for re-transfer of that Lot to it would be permanently foreclosed. The Plaintiff would no longer have any opportunity, other than by purchase from the purchaser from the Defendant, of obtaining title to Lot 7. 37In light of the undertakings that have been given, which result in the rental income being used to pay the instalments due under the mortgage secured on both Lots, the balance of convenience also favours the grant of an interlocutory injunction.

The Undertaking as to Damages 38The Plaintiff proffered an undertaking as to damages. The Defendant raised a question concerning the quality of that undertaking. However, Mr Isaac, who stands behind the Plaintiff, was prepared to also give an undertaking as to damages, which the Defendant, following cross-examination, was prepared to accept. In giving that personal undertaking, Mr Isaac's assets, such as they is, are exposed. 39In my view, the status quo should be preserved pending the final hearing. Whether it is preserved on the basis of the undertakings already given which are subject to further order, continuing, or on some other basis, I shall allow the parties to consider. 40Meantime, the parties are, and the court is, awaiting the report of the referee that is intended to deal with a number of accounting issues that exist. The matter was last adjourned until today in the hope that the report would be received at a time well before today so that the parties and the court could consider the way forward. The court has not yet received the report. In those circumstances, I shall simply stand the proceedings to my list on a date convenient to the parties and to the court. 41However, as I have remarked on more than one of the occasions that the matter has been before me, there have been a number of interlocutory skirmishes in these proceedings, all of which have been hard fought. 42Furthermore, it is clear that the proceedings are going to require the parties to expend even more significant amounts of money on legal fees if the proceedings are to be prosecuted to finality. The final hearing is likely to take some days. 43In my view, it may be appropriate, following receipt of the referee's report, that another attempt should be made to assist the parties to resolve their differences as soon as possible and before further significant sums are spent on legal costs. The parties will, by then, be well aware of its, or his, respective case, as well as the amounts involved the subject of dispute. 44I propose to consider whether an order should be made that the parties attend, and participate in, a court annexed Mediation with a view to attempting, again to resolve their disputes. The instructions of each party to participating in a further mediation should be sought. 45I have not heard any argument on costs of the application. Subject to any submissions that either party wishes to make, my present view is that the costs of this interlocutory application should await and depend on the outcome of the hearing and, therefore, that the costs of the application should be costs in the cause. If either party has a different view and wishes to make any submissions on costs, the submissions can be dealt with on the date the matter is next listed for the making of orders. 46I shall stand the proceedings over to a date suitable to the court and to the parties.

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: 11 February 2011

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