3.3 Analysis
60 In the present application, as the authorities referred to in the previous section indicate, the factors to take into account in the grant of interlocutory relief include whether there is a serious question to be tried, whether there is likely to be irreparable harm such that damages would not be an adequate remedy and the balance of convenience; Castlemaine Tooheys at 153. The interaction between the Court's assessment of the likely harm to the plaintiff, if no injunction is granted, and its assessment of the adequacy of damages as a remedy, is an important factor in the Court's determination of where the balance of convenience and justice lies; Samsung at [63]. In exercising that discretion, the Court is also required to assess and compare the prejudice and hardship likely to be suffered by the defendant, third persons and the public generally if an injunction is granted, with that which is likely to be suffered by the plaintiff if no injunction is granted. In determining this question, the Court must make an assessment of the likelihood that the final relief (if granted) will adequately compensate the plaintiff for the continuing breaches which will have occurred between the date of the interlocutory hearing and the date when final relief might be expected to be granted; Samsung at [66].
61 In the present case, there is no doubt that there exists a serious question to be tried. The evidence indicates that on about 21 June 2017 Seadeck was sailed to Brisbane. The correspondence reveals that by that date Kanki and Ozmen had repeatedly expressed the view that the decision to move Seadeck should be a joint one, preceded by a meeting of the joint venture partners to discuss it. The evidence also discloses that Mr Ozmen requested such a meeting on 15 May 2017 and that Mr Auld agreed that it should be held. Even so, when Mr Clarke met with representatives of Neptune on 18 May 2015 he was rebuffed, because he was not an authorised representative. On 15 June 2017 Mr Koyunoglu, the director of Kanki, indicated in clear terms that the partners and owner of the 50% joint venture did not agree with Seadeck being taken to Brisbane until they had at least had a chance to review the business proposal. The response from Mr Douchkov, a principal of Neptune, was that the matter had been referred to Neptune's accountant, Mr Borella. On 18 June 2017 Mr Ozmen, the owner of the vessel, signalled his opposition to the plan, and concerns as to the state of repair of the vessel. Mr Auld responded on the same day, not disputing the criticisms made as to the condition of the vessel, but rather seeking to explain them.
62 It is apparent that there will be a contest at final hearing as to the correct legal characterisation of the issues raised. On Neptune's part, it is submitted that it was entirely reasonable for Seadeck to be sailed Brisbane, that the business was losing money in Sydney and that an implied term of the JVA must be that Kanki would not unreasonably refuse to provide its consent to decisions concerning the management of the vessel. Conversely, it will contend that there was no fundamental breach and that the purported termination of the JVA and Charter Agreement was invalid and that both agreements remain on foot.
63 In my assessment, purely on the basis of the evidence and arguments advanced on this urgent interlocutory application, there is a reasonably arguable case on the part of the plaintiffs that Neptune acted in breach of the JVA. At least one available construction of clauses 4, 6(a), (b)(i) and (e) of the JVA suggests that Neptune ought to have done more than merely notify Kanki of its decision to take the vessel from Sydney to Brisbane. The letter from Neptune's solicitors of 14 July 2017 indicates that their view at the time was that "there is no obligation set out in the JVA for decisions to be made jointly" and that the JVA only required that "Neptune will manage the business and carry out the daily operations of the vessel while keeping Kanki fully informed". The view so expressed clearly reflected Neptune's own position in relation to the JVA. There is also a reasonably arguable defence.
64 However, in considering the grant of interlocutory relief it is also necessary to have regard to; the likely harm to be suffered by Ozmen and Kanki, the question of whether any harm is compensable by the payment of damages after a final hearing, and the balance of convenience in the context of the relief sought and the harm that the plaintiffs submit they will suffer.
65 In relation to the relief sought, the plaintiffs seek the appointment of Mr Silvia as receiver and manager of the business of the joint venture pending final hearing. Mr Silvia is a principal of BRI Ferrier, who completed accounting qualifications in 1977, and since 1981 has accepted several hundred insolvency appointments. Those appointments include acting as provisional and official liquidators in respect of businesses in the shipping industry, including acting as official liquidator of CTC Package Holidays Pty Ltd, which involved addressing questions concerning the catering for passengers and crew. He has also acted as provisional liquidator for businesses in the hospitality and catering industry and acted in various insolvency capacities for numerous hotels, motels, pubs and other establishments that operate licensed premises.
66 The orders that the plaintiffs seek are, in summary, that Mr Silvia and his colleague Mr Currie be appointed receivers and managers of Seadeck and the business established by the JVA, and that they take possession of the vessel and make any and all decisions as they consider appropriate to conduct the business on an ongoing basis, including taking possession of the bank accounts and other assets of the business, undertaking repairs or maintenance of the vessel, employing staff and exercising such other powers as may be agreed in writing between the parties and receivers. The receivers would, under the proposed regime, pay all expenses and debts of the vessel and the business operated from it from money received from the operations of the business. The proposed orders provide that the receivers are entitled to draw their professional fees as and when incurred on a time cost basis, that they are to provide a report to the Court within 28 days of each calendar quarter (the first being 31 December 2017) and that in the event that takings from the business are insufficient to discharge the obligation of the receiver to pay the costs of the business, receivers will have a right of indemnity and security over the vessel and also from Kanki and Neptune. The proposed orders provide that within 7 days Neptune is to deliver up possession of the vessel as well as control of all staff records, accounting and finance records, website domains, and unperformed contracts and permits and licences concerning the operation of the vessel.
67 Aside from opposing the appointment of the receiver, Neptune raised no specific criticisms of the terms of appointment other than to dispute the entitlement of the receivers on an interim basis to receive a right of indemnity and security from Neptune.
68 At this point it is necessary to note that Neptune, during the course of closing submissions and subsequently confirmed in writing offered the following undertakings to the Court until the final determination of these proceedings:
1. The Defendant undertakes not to make any additions or alterations to the Vessel without the consent of the First Plaintiff;
2. The Defendant undertakes to keep the Vessel in the same condition and state of repair as at the date of the filing of the Originating Application;
3. The Defendant undertakes to allow the First Plaintiff's representatives to inspect the vessel on three days' notice.
69 I now turn to the questions of harm, convenience and adequacy of damages.
70 The status quo is that Neptune has been in control of the day to day operations on board Seadeck since it commenced operations in March 2016. Although Kanki has had the right under the JVA to have a full-time representative on-board, no evidence suggests that it has done so. In essence, Neptune has maintained the Vessel, procured catering and event management services and organised bookings for it. It has continued to do so throughout the Sydney 2016/2017 cruise season and also did so in Brisbane. It is perhaps not surprising that in its first season in Sydney it did not perform as well as expected given that it is a fledgling hospitality business.
71 Seadeck was controversially taken to Brisbane in June 2017, where it traded for 10 weeks or so. The evidence suggests that during this period Neptune was reasonably successful in attracting business and raising revenue. Neptune continued to promote Seadeck cruises on Sydney Harbour and it took substantial bookings for the Sydney 2017/2018 cruise season. The evidence indicates that Seadeck will resume operations in Sydney by 30 September 2017. All the while, Neptune has remained in day-to-day control of the vessel.
72 Against this background, I do not accept the plaintiffs' submission that the status quo is that there is no current business operation or reputation in the business operated on Seadeck. A better characterisation is that a fledgling business has started to get some traction in Sydney. The question is whether the balance of relevant considerations favours the interlocutory relief sought. In this context, I have accepted there is an arguable case for breach of the JVA and Charter Agreement. I also accept that there is an arguable case that the agreements have been validly terminated. The question of the strength of the defences to these claims is not for present determination, although I also note that they are also reasonably arguable. However, in respect of past conduct (the trip to Brisbane and events that took place there) damages will have to be the remedy. The present analysis must necessarily focus on the likelihood of harm in the immediate future until trial. In this regard, I note that the plaintiffs were offered an opportunity for the matter to be listed for early final hearing. They contended that the proceedings could not be prepared sufficiently quickly for that to take place and pressed on with their current application.
73 For the following reasons, I consider that the plaintiffs have not established that the interlocutory relief sought is warranted.
74 First, I consider it likely that the appointment of the receiver will cause significant disruption to the operations of the business. Mr Silvia will have to become acquainted with the operations, retain staff and organise supply services. His evidence is that it would take him up to 2 weeks upon orders being made for him to undertake assessments of the business and determine appropriate staffing and continuing operations of the business. During that time he would endeavour to keep the business going as an ongoing operation. Nevertheless, it may be accepted that the handing over of the books and records of the business, the examination of its operations and the investigation of existing contracts and key personnel will necessarily cause a disruption to the business and likely a significant disruption. In addition, although there was no attempt to quantify the cost of paying for the services of the receiver, undoubtedly the payment of the receiver's cost would place an additional strain on the resources of the business. I further accept Neptune's submission that the disruption caused by the appointment of a receiver and manager could well cause current and future clients to hesitate in maintaining their bookings. It is also entirely possible that it will cause a cloud to hang over the business such that customers and suppliers alike doubt its on-going viability. This type of reputational harm is difficult to quantify, but there is at least a danger that it could extinguish all goodwill in the business.
75 Secondly, Neptune and its principals have invested about $4.2 million in the preparation of Seadeck for operations. They are, it might be observed, committed to the success of the business on-board the vessel, as the correspondence recited above tends to confirm. Neptune may be criticised, perhaps justifiably, for taking steps without adequate consultation with Kanki, but Neptune's counter allegation is that Kanki was insufficiently engaged in the business operations and ought reasonably to have consented to its operational suggestions. Either way, Neptune's interest appears consistently to have been in the continuation and improvement of the business. There has been no suggestion that Neptune has set out to harm the business. On the contrary, such criticism as is made is in relation to conduct which suggests a zealous interest in maximising the profitability of the business. Such an approach tends in favour of the view that a continuation of the status quo, with Neptune in charge of day to day operations, would not harm the joint asset of the parties being the business operations on board Seadeck.
76 Thirdly, Kanki and Ozmen submit that there is a danger of reputational harm to the vessel Seadeck. In this regard they point to evidence of an email written on 13 January 2013 from Mr Koyunoglu to representative of Neptune that raises concerns about a number of matters such as: the cleanliness of the floors, tables and glasses; the adequacy of customer service and security; marketing of the cruises, and so on. In an email dated 12 March 2017 concerns were expressed about unruly behaviour by guests and that the security and wait staff did not respond appropriately or under adequate supervision. The email chain exhibited includes a lengthy report from a Mr Karin Gharbi from an organisation called "The VIP Sydney" which records in detail the behaviour of various customers and responses by the Seadeck staff. It makes detailed recommendations for improvements and better control of operations. There is no evidence of subsequent correspondence.
77 I interpret this email as being part of an ongoing attempt by representatives of Neptune to ensure better control over operations and supervision of events. In this context, I have noted above the current and past bookings for corporate and other events on-board Seadeck, both in Sydney for the coming season and in Brisbane. In my view, those past and future bookings provide a far more reliable indication of the reputational success of the business than the 2 matters identified above.
78 In summary, the plaintiffs have not demonstrated that there is a sufficient likelihood that Seadeck or the business, will suffer significant reputational harm, or that there is a likelihood that the Seadeck liquor license is in peril.
79 Fourthly, the plaintiffs contend that they will suffer unquantifiable financial harm unless a receiver is appointed because of a lack of transparency in the books and records of the joint venture business. In this regard it is necessary to go into a little detail as to the evidence. In the period from February 2017 until June 2017, Mr Clarke attempted to obtain information about aspects of the accounts of the joint venture. It appears that as a result of his concerns as to the adequacy of the records, Neptune appointed Mr Borella as its accountant in March 2017 and also a book keeper. Mr Clarke gives evidence that when he started to receive fortnightly profit and loss statements, there was only one fortnight period between March to May 2017 in which the business traded profitably, all other fortnights recording losses on average of $50,000. Mr Clarke reports that he was concerned about the operations of the business, but on 18 May 2016 was not able to discuss it with Neptune's representatives. He also reports that he was concerned that the business was trading insolvently and requested the provision of the Business Activity Statements sent to the Australian Tax Office on behalf of Neptune. Despite requesting those statements in early June 2017, he had not by the time of his affidavit of 8 August 2017 received any. Emails exhibited by Mr Clarke indicate that Mr Borella was reluctant to submit Business Activity Statement returns until there was an appropriate balancing within the accounting system, which he was attempting to fix. As events transpired, correspondence produced and tendered at the hearing in response to a Notice to Produce served upon Neptune indicate that the Australian Tax Office has levied fines against Neptune for failure to lodge activity statements in the period from February to May 2017 inclusive. Furthermore, it appears that no Pay-As-You-Go tax returns have been lodged by Neptune since January 2017. In addition, the evidence of Mr Clarke reveals that Neptune has a superannuation liability for the period from 12 November 2016 until 12 September 2017 of $89,569. In relation to the accounts of Neptune, Mr Clarke gives evidence that he is unable to review and verify all of the expenses incurred by the business because they have not been correctly recorded in the accounts system and he has not been provided with weekly transactional details of revenue, supplier invoices and payee records.
80 Taking each of these matters at its highest, it appears that there are accounting defects in Neptune's records and that there may be liabilities jointly owned by the joint venture in respect of which there is exposure for Kanki. However, even assuming (in favour of Kanki) that there are such defects and that there was a failure on the part of Neptune to provide records to Kanki on request, in my view this factor does not indicate harm that could not be recompensed in damages.
81 Fifthly, the plaintiffs point to Neptune's unilateral decision to remove the top of the mast of Seadeck so that it could operate on the Brisbane River. This, they contend, was a breach of clause 1(c) of the Charter Agreement. They submit that there is a danger that further unauthorised changes could be made to the vessel, including some which cannot be recompensed by damages.
82 Neptune disputes the contractual significance of its actions in relation to the mast. However, it separately offers the undertaking to the Court set out above. The principals of Neptune have previously been entrusted with the task of transferring Seadeck by sea from Turkey to Australia. Kanki has apparently not availed itself of the opportunity to place a representative on-board Seadeck to observe the day-to-day conduct of operations, but rather has left operational decisions in the hands of Neptune. This is the case, even after the recent appointment of Mr Fox as the representative, at a time when formal letters were being exchanged between solicitors. In my view, the plaintiffs have not demonstrated that there is sufficient likelihood of harm to the vessel. I am fortified in this view by the undertaking to the Court that Neptune has proffered.
83 Sixthly, the plaintiffs submit that the relationship between the joint venturers has broken down. They submit that mutual cooperation was contemplated under the JVA and Charter Agreement. Neptune has refused to provide transparent accounting documents of the events concerning the operation of the vessel in the Brisbane River, which shows that Neptune has arrogated to itself full control of Seadeck, thereby subverting the purpose of the JVA and the Charter Agreement. The plaintiffs submit that unless the relief sought is given, the summer operations of the Seadeck business will in effect be subject to the regular supervision of the Court, with disputes as to management issues brought before the Court. This, they submit, is undesirable.
84 The question of the appropriateness of Neptune's conduct and the level of cooperation required between the parties is substantially a matter for consideration in relation to final relief. The appointment of a receiver pursuant to s 57 of the FCA Act as a form of interlocutory relief must be made having regard to considerations of whether or not it is just and convenient to do so, in light of the principles applicable to the grant of interlocutory relief. In this regard, it is my view that it is not just and convenient on an interlocutory basis, to appoint a receiver. Plainly enough, tensions exist between the parties, but they have consistently maintained communications between each other. Perhaps each side could have engaged more promptly and more fully from time to time. But in weighing the strength of the plaintiffs' case, the balance of convenience and where the justice of this matter lies, I do not consider that the appointment of the receiver is warranted.