Moraitis Fresh Packaging (NSW) Pty Limited v Fresh Express Australia Pty Limited

LEGISLATION CITED : Supreme Court Rules Uniform Civil Procedure Rules

CASES CITED : Air Express Limited v Ansett Transport Industries (Operations) Pty Limited (1981) 146 CLR 249 European Bank Limited v Robb Evans of Robb Evans & Associates [2010] HCA 6

PARTIES : Moraitis Fresh Packaging (NSW) Pty Limited (Plaintiff) Fresh Express Australia Pty Limited (Defendant)

COUNSEL : Mr M. Jones (Plaintiff) Mr F. Douglas, QC and Mr R. Newton(Defendant)

SOLICITORS : Hicksons (Plaintiff) David Legal (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2006/ 260307 MORAITIS FRESH PACKAGING (NSW) PTY LIMITED -v- FRESH EXPRESS AUSTRALIA PTY LIMITED JUDGMENT 1 HIS HONOUR: This is an enquiry as to damages claimed by the Defendant, Fresh Express Australia Pty Limited, pursuant to an undertaking given to the Court by the Plaintiff, Moraitis Fresh Packaging (NSW) Pty Limited, on 8 January 2007, as a term of interlocutory relief then sought, and obtained, by the Plaintiff. The enquiry has been conducted consequent upon a notice of motion filed by the Defendant on 15 April 2009, seeking such damages and the determination of the amount thereof. 2 The factual circumstances which have given rise to the present enquiry as to damages are set forth in the judgment of Justice Windeyer at first instance on 14 June 2007 and in the subsequent judgments of the Court of Appeal (especially the judgment of Justice Giles) on 2 December 2008. 3 Those facts and circumstances can be summarised as follows. The Defendant is, and at all material times has been, the owner of the right to occupy stands 5 and 6 ("the stands") in Shed A at the Sydney Markets, which stands it held from Sydney Markets Limited. 4 Consequent upon a deed dated 6 June 1996, the Plaintiff asserted that it has been given by the Defendant what has been referred to as "a right of first refusal" to purchase the stands, in the event that the Defendant wished to sell or to assign any interest in the stands, and that the effect of the provisions of that deed was that the Plaintiff could acquire the stands from the Defendant for a purchase price of $85,971. It was asserted by the Plaintiff, both at first instance and before the Court of Appeal, that that right of first refusal had been enlivened and that the Defendant was obligated to sell the stands to the Plaintiff for $85,971. 5 In December 2006, another entity, Golden Fruit Supply Pty Limited ("Golden"), which conducted its business at the Sydney Markets in adjacency to the stands, expressed an interest (according to the Defendant, a keenness) to purchase the stands from the Defendant. It was asserted by the Defendant that Golden had offered a price of $1,800,000. 6 The Defendant, which had an entitlement to other stands at the Sydney Markets, had by that time already removed its business from the subject stands to those other stands, and was keen to sell to Golden, in order, amongst other reasons, to reduce its financial indebtedness. When the Plaintiff became aware that the Defendant was contemplating selling to Golden its entitlement to the stands, the Plaintiff asserted a right to purchase the stands for $85,971. 7 The Plaintiff commenced the present proceedings by summons filed on 21 December 2006, by which it sought, inter alia, injunctive relief to prevent the Defendant from selling or alienating the stands other than to the Plaintiff, "without first offering to transfer that right to occupy to the Plaintiff on the terms expressed in clause 3 of the said deed". The Plaintiff tendered a cheque in the foregoing sum of $85,971 to the Defendant on or about 4 January 2007. That cheque was never presented and was returned by the Defendant to the Plaintiff on 19 January 2007. No sale of the stands from the Defendant to the Plaintiff was ever effected. 8 The proceedings came before Justice Adams, sitting as Vacation Judge, on 8 January 2007. Before His Honour mutual undertakings were given by the respective parties. The Defendant undertook not to dispose of the stands, and the Plaintiff gave the usual undertaking as to damages.

9 Although successful at first instance, the Plaintiff was unsuccessful before the Court of Appeal, which by majority held that the words "the Amount" in clause 3 of the foregoing deed of 6 June 1996 meant the price at which the Defendant would otherwise be selling the stands to another buyer, and that the once and only right of first refusal in favour of the Plaintiff had not been enlivened; and that the Plaintiff was not entitled to prevent the Defendant from disposing of or alienating the stands on the basis (as the Plaintiff asserted) that the Plaintiff had a right of first refusal to purchase them for $85,971. 10 I have had the benefit of receiving written outlines of submissions from Counsel for the respective parties, together with a schedule of damages, claimed by the Defendant, filed on 28 May 2009; an amended schedule of such damages, filed on 10 June 2009; and a revised schedule of damages, dated 19 May 2010, provided consequent upon my request in that regard, at the hearing on 18 May 2010. 11 The present claim by the Defendant for damages is grounded essentially upon the Defendant's assertion that, in consequence of its undertaking given on 8 January 2007 (in return for the cross-undertaking as to damages given by the Plaintiff), the Defendant lost the opportunity to sell the stands, at an advantageous price, to its neighbour, Golden; that the Defendant incurred additional interest charges and was thereby forced to sell its other stands; and that the Defendant then subsequently incurred costs in relocating back to the subject stands. 12 The primary ground upon which the Plaintiff disputed the entitlement of the Defendant to damages in any amount consequent upon the undertaking of the Plaintiff as to damages, and upon which the Plaintiff submits that the present claim of the Defendant should be dismissed, is that, in its terms, the undertaking of the Defendant not to sell or dispose of the stands was an undertaking which had effect only for fourteen days, and that by the terms of that undertaking the Defendant undertook not to sell or dispose of the stands without giving to the Plaintiff fourteen days' written notice of the Defendant's intention to sell or dispose of them. 13 It was submitted by the Plaintiff that, upon the giving of such notice and the expiry of the fourteen day period, the Defendant was no longer restrained by the terms of its undertaking and was free to deal with the stands as it wished. But it gave no such notice and thus (so the Plaintiff argued) the Defendant did not suffer any loss or damage as a result of being restrained by its undertaking (or, at most, suffered damage for a period of only fourteen days). 14 It will be appreciated at the outset that the undertaking as to damages given to the Court by the Plaintiff on 8 January 2007, was given in return for an undertaking by the Defendant in the terms which I have already set forth. That is, by agreement between the parties, an interlocutory situation was created and preserved until the disposition of the proceedings, not (as is frequently the case) by an interlocutory injunction given in return for the usual undertaking as to damages, but by an undertaking in the terms of such an injunction given by the Defendant, in return for the usual undertaking as to damages given by the Plaintiff. 15 For all practical purposes the effect of the undertaking given by the Defendant was identical to the effect of an interlocutory injunction in equivalent terms. 16 Such an interlocutory injunction can always be dissolved by the Court upon application made by the party whose conduct is restrained by the injunction. Such an application is almost invariably made upon notice, and frequently the terms of the injunction include the period of notice to be given. I do not see any distinction between the terms of the Defendant's undertaking that it would not sell or dispose of its interest in the stands without giving to the Plaintiff fourteen days' notice, and the terms of an injunction restraining the Defendant from selling or disposing of its interest in the stands, but either expressly (or, in consequence of the usual practices of the Court, by implication), reserving to the Defendant, liberty to apply for a dissolution or a variation of the injunction. 17 The fact that the terms of the undertaking required the Defendant to give to the Plaintiff fourteen days' notice of any intention on the part of the Defendant to sell or dispose of the Defendant's interest in the stands was to enable the Plaintiff, upon receipt of such notice, to make application to the Court for an interlocutory injunction in the terms of the foregoing undertaking. 18 It does not seem to me that, in consequence of its relief being obtained by way of an undertaking from the Defendant rather than by way of an injunction, the Plaintiff can be placed in a more advantageous situation regarding any ultimate entitlement of the Defendant consequent upon the Plaintiff's undertaking as to damages. 19 I am not persuaded that the effect of the fourteen days' notice in the undertaking given by the Defendant is to limit to a period of fourteen days any damages which may have been incurred by the Defendant in consequence of the Plaintiff's undertaking as to damages. 20 Accordingly, I reject the primary submission of the Plaintiff that the present claim of the Defendant for damages should be dismissed, or should be limited to damages (if any) incurred within that period of fourteen days from 8 January 2007. 21 I pass now to a consideration of the damages claimed to have been sustained by the Defendant consequent upon the undertaking in that regard given by the Plaintiff on 8 January 2007. 22 The leading authorities concerning assessment of damages pursuant to an undertaking in that regard are the decisions of the High Court of Australia in Air Express Limited v Ansett Transport Industries (Operations) Pty Limited (1981) 146 CLR 249, and European Bank Limited v Robb Evans of Robb Evans & Associates [2010] HCA 6 (unreported, 10 March 2010). 23 In the latter case the High Court (in a unanimous judgment) approved of earlier statements made in Air Express by Aickin J at first instance and by Mason J (as he then was) on appeal. At [16] - [18] the High Court in European Bank stated, In Air Express , Mason J said that there was little to be gained from an examination of the authorities dealing with causation of damage in contract, tort and other situations; the Court was better advised to look to the purpose which the undertaking as to damages is to serve and to identify the causal connection or standard of causal connection which is most appropriate to that purpose[ Air Express , at 324].

A party seeking an equitable remedy is required to "do equity" and this is the origin of the requirement that the party giving an undertaking as to damages submit to such order for payment of compensation as the court may consider to be just. Given its origin and application to varied circumstances in particular cases, the process of assessment of compensation cannot be constrained by a rigid formulation.

These considerations, bearing upon the interests of justice in the particular circumstances of the litigation, support the following statement by Aickin J in Air Express [at 266-267], made with respect to interlocutory injunctions, but applicable to the interlocutory order made by the Court of Appeal against European Bank. His Honour said: "In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case."

The phrase "could have been foreseen" should be noted. 24 In European Bank the High Court was considering the provisions of Part 28, rule 7 (2) of the Supreme Court Rules. That rule has now been replaced by rule 25.8 of the Uniform Civil Procedure Rules 2005, in which the "usual undertaking as to damages" is described as follows, The "usual undertaking as to damages", if given to the court in connection with any interlocutory order or undertaking, is an undertaking to the court to submit to such order (if any) as the court may consider to be just for the payment of compensation (to be assessed by the court or as it may direct) to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking. 25 Conformably with the decision of the High Court in European Bank, the tests to be applied are the following: (a) What is the loss now alleged? (b) Did that loss flow directly from the order (or, as in the instant case, the undertaking)? (c) Could the loss of the kind actually sustained have been foreseen at the time of the order (or undertaking)? 26 By its revised schedule of damages, dated 19 May 2010, the Defendant claimed the following damages consequent upon the undertaking in that regard given by the Plaintiff on 8 January 2007. 1. Capital value of lost opportunity to sell stands 5 and 6, Shed A, Sydney Markets as at 3 January 2007 for a price of $1,800,000 representing a premium of $1,050,000 over the value opined by J E Brooks (Exhibit 1, paragraph 11.0) Amount claimed: $1,050,000 2. Interest on borrowing which could not be retired by defendant due to lost sale opportunity at $1,800,000 and continuing inability to deal with stands 5 and 6, Shed A, as calculated by Lonergan Edwards & Associates Limited (Exhibit 2, paragraph 14). Amount claimed: $382,302.74 3. Rent paid by defendant to Sydney Markets and electricity charges for stands 5 and 6, Shed A, following move to stands 189, and 190 and until return, as per calculation by Lonergan Edwards & Associates Limited, excluding GST (Exhibit 2, paragraph 19). Amount claimed: $91,517 4. Relocation costs incurred by defendant in relocating from stands 189 and 190 in Shed B, back to stands 5 and 6 in Shed A, as calculated by Lonergan Edwards & Associates Limited, excluding GST (Exhibit 2, paragraph 21) Amount claimed $8,683.30 Total amount claimed $1,624,020. 04 27 I am satisfied that, consequent upon the undertaking given by the Defendant in that regard (equivalent to an interlocutory injunction, restraining the Defendant to the same effect as the terms of the undertaking), the Defendant lost the opportunity to sell the stands to Golden. 28 The expert valuation provided by Richard John Brookes ascribed to the stands a value of $750,000 as at October 2006, and $785,000 as at December 2008. Adrian Spragg, the Chief Financial Officer and Company Secretary of Sydney Markets Limited, in his affidavit of 18 January 2007, stated that the shareholding of the Defendant in respect to the stands at that date carried with it 520,000 Equity Entitlements (which, under the articles of association of Sydney Markets Limited, gave to the stands a value of $520,000). 29 It seems to me that the evidence of Mr Brookes, a professional valuer with expertise in this area, should be preferred to a value based solely upon a share entitlement. 30 Accordingly, I am satisfied that in January 2007 the stands had a value of $750,000. 31 The Defendant asserts that Golden offered to purchase the stands for $1,800,000 and that, in consequence, the value of the Defendant's lost opportunity to sell the stands to Golden was $1,050,000 (being the difference between $1,800,000 and the valuation of $750,000 attributed by Mr Brookes). 32 The evidence concerning the asserted offer by Golden to purchase the stands for $1,800,000 consisted of affidavit evidence from Andrew Musumeci (a director of the Defendant company), who was cross-examined on behalf of the Plaintiff; and oral evidence from Damien Hendricks, a director of Golden. 33 Mr Hendricks had not been willing to provide affidavit evidence for either party in the present proceedings. At the hearing of the enquiry as to damages, Mr Hendricks was called as a witness on behalf of the Plaintiff, and was cross-examined on behalf of the Defendant. 34 It was the evidence of Mr Musumeci that he had had only one conversation with Mr Hendricks. Although in his affidavit evidence he had said that that conversation took place in November 2006, his oral evidence was far from certain or specific as to the date of that conversation. I am in agreement with the submission made on behalf of the Plaintiff that the evidence of Mr Musumeci concerning the circumstances and date of his conversation with Mr Hendricks, as well as the contents thereof, was far from reliable. 35 Mr Hendricks in his oral evidence also said that he had had only one conversation with Mr Musumeci concerning the possible purchase of the stands by Golden, and that that conversation took place in late 2006. 36 It was the evidence of Mr Hendricks that in that conversation he made an offer of $1,200,000 for the stands. He denied under cross-examination, that he had offered $1,800,000. Under cross-examination Mr Hendricks maintained that he was prepared to pay only $1,200,000. I considered that Mr Hendricks had a better recollection of the conversation than had Mr Musumeci, and that the evidence of Mr Hendricks regarding the conversation was more reliable. 37 I preferred the evidence of Mr Hendricks to that of Mr Musumeci concerning the amount of the offer made by Mr Hendricks on behalf of Golden for the stands. I am not satisfied that any offer of $1,800,000 was made for the stands. I accept, however, that an offer of $1,200,000 was made. 38 Whether or not Mr Musumeci would ultimately have come down to the price of $1,200,000, and would have sold the stands to Golden for such price, he was prevented from continuing his negotiations with Mr Hendricks in consequence of the undertaking which the Defendant gave on 8 January 2007. I am satisfied that, consequent upon that undertaking, the Defendant lost the opportunity to sell the stands for $1,200,000. 39 That figure is some $450,000 greater than the value of $750,000 ascribed by Mr Brookes. Accordingly, I am satisfied that the value of that lost opportunity which the Defendant is entitled to recover from the Plaintiff is $450,000. 40 The next item of damages claimed by the Plaintiff is interest on borrowings which could not be retired by the Defendant, due to the lost sale opportunity. In essence, this head of damage is grounded upon the impecuniosity of the Defendant. The impecuniosity of one party is not a matter upon which (at least in the circumstances of the instant case) that party can look to the other party for recompense. 41 I am not satisfied that the Defendant has established any entitlement to recover from the Plaintiff interest on borrowings in the amount claimed, or in any amount. 42 The Defendant claims rent paid to Sydney Market Limited, and electricity charges, upon the stands following the removal of its business activities to other stands owned by the Defendant. However, I am not satisfied that the Defendant has established that that removal to other stands was a direct consequence of the proceedings brought by the Plaintiff against the Defendant, let alone of the undertaking given by the Defendant on 8 January 2007. 43 I am not satisfied that the Defendant has established any entitlement to recover from the Plaintiff such rent or electricity charges. 44 The final head of damages is relocation costs incurred by the Defendant in returning its business back to the subject stands. For the same reasons which I have expressed regarding the claim by the Plaintiff in respect to the foregoing item of rent and electricity charges, I am not satisfied that the Defendant has established an entitlement to recover from the Plaintiff these relocation costs. 45 I summarise as follows my foregoing conclusions. As a direct consequence of the undertaking which it gave to the Court on 8 January 2007 (in return for which the Plaintiff gave the usual undertaking as to damages), the Defendant has been deprived of the opportunity to sell the stands to Golden for $1,200,000, and that the loss of that opportunity resulted in a loss to the Defendant. At the time when the Defendant was deprived of that opportunity the stands had a value of $750,000, and it could have sold them for $1,200,000. I am not satisfied that any other of the alleged losses to the Defendant either flowed directly from its undertaking or could have been foreseen by the Plaintiff at the time of the undertaking. 46 It follows, therefore, that the damages to which the Defendant is entitled from the Plaintiff are in a total sum of $450,000. The Defendant will be entitled to interest upon those damages at Supreme Court rates from 8 January 2007. 47 Accordingly, I make the following orders: 1. Upon inquiry, I find that, consequent upon the usual undertaking as to damages given by the Plaintiff to the Defendant on 8 January 2007, the Defendant has sustained damages in an amount of $450,000. 2. I order that the Plaintiff pay to the Defendant the aforesaid damages of $450,000, together with interest thereon at Supreme Court rates from 8 January 2007 until payment. 3. I order that the Plaintiff pay the costs of the Defendant of the aforesaid inquiry, and of the notice of motion filed by the Defendant on 15 April 2009. 4. I reserve to the parties liberty to apply within 14 days of the date hereof for any variation of order 3 herein, and for any correction of arithmetical calculations. 5. The exhibits may be returned. **********

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