3.3 Consideration
47 In Brimaud, McLelland J noted that the overriding principle governing the approach of the Court to interlocutory applications is that the Court should do whatever the interests of justice require in the particular circumstances of the case. The ordinary rule of practice is that where an interlocutory order of a substantive nature is made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings, an order to vary or discharge it must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application. I am satisfied that circumstances have shifted in the context of the balance of convenience so as to justify the appointment of a receiver and manager to the operations of the JVA and, to the extent necessary, the Charter Agreement.
48 There is no dispute that the plaintiffs have established that there is a serious question to be tried in relation to their application for the termination of the JVA and the Charter Agreement. In addition to the matters that occasioned reference in Ozmen 1, I consider that there is also a serious question to be tried in relation to the question of whether or not Neptune acted in breach of clause 10(n) of the JVA and whether it failed to comply with its obligations as agent acting for Ozmen in procuring a rating of the Seadeck for 800 passengers. The evidence of Mr Sheller in his affidavits of 27 November 2017 and 21 May 2018 satisfies me that this is so.
49 Furthermore, I am not satisfied that the strength of the cross-claim advanced by Neptune is such as to diminish the strength of the arguable case advanced on the part of the plaintiffs; see F. Hoffman-La Roche AG v Sandoz Pty Ltd [2018] FCA 874 at [27].
50 The primary dispute between the parties is whether or not the balance of convenience has changed since Ozmen 1 and whether it warrants the appointment of a receiver.
51 I commence by noting that Kanki and Neptune are parties to a JVA in which they have agreed to participate in an unincorporated joint venture to undertake the operation of the Business on or from the Seadeck. It is apparent that relations between them have significantly deteriorated since the delivery of Ozmen 1.
52 For the following reasons I am of the view that it is in the interests of justice that a receiver and manager be appointed. The points that I make below do not represent conclusive findings of fact, but are based on the evidence led in the current applications, most of which is based on information and belief.
53 First, I have in section 1.3 of these reasons summarised the course of the litigation since November 2017. It reflects a steady stream of disagreement between the parties as to how they are to administer the conduct of the joint venture. There have been significant differences between them concerning the proper management of the books and records of the JVA. That has occasioned the constant supervision by the Court. There is no sign that the sequence of applications will abate. The opposite is likely.
54 Several sensible solutions have been proposed by the lawyers involved in order to diminish or extinguish the level of disputation between the parties. One was the decision to appoint the referee to consider their accounting disputes, of which there were many. That led to the referee's report, but even then the parties could not agree on its outcome. Indeed, they could not agree on the name of an accountant to conduct the independent reference. It is apparent that underlying the level of disagreement reflected in the process that led to the appointment of the referee was a deep level of distrust between the parties, despite the efforts of their lawyers to resolve them.
55 Ultimately, whilst the referee largely agreed with the final figures as recorded in the accounts maintained by Neptune, the referee saw fit to find that his costs should be borne 80% by Neptune and 20% by Kanki. The rationale for this was that Neptune should have provided greater transparency in its documentation for the operating expenses of the JVA. This observation accords with my observation that it has proved necessary for Neptune to be ordered by Court order to supply access to various documents and computer systems to the accountants of Kanki.
56 As noted in Morkaya at [20], the Court is not equipped to run businesses on behalf of co-venturers pending final determination of their dispute. Nor is it an appropriate use of judicial resources to resolve every dispute that may arise between the parties with respect to the conduct of their businesses pending a final determination. A receiver, if appointed, would act in the interests of all parties.
57 Secondly, the evidence adduced on behalf of Kanki demonstrates that, despite the supervision of the affairs of the conduct of the joint venture by Neptune, some aspects of the administration of the JVA remain unsatisfactory. In this regard, the affidavit of Mr Clarke of 22 May 2018 indicates first that there has been no separation in the accounts that he has seen between the affairs under the JVA on the one hand, and the affairs of Neptune on the other. The joint venture uses the same bank account, tax file number and ABN number. Mr Clarke observes that the legal costs of Neptune have been allocated to the joint venture in the accounts, as have costs of the accountant and book keeper whom he understands to conduct services separately for Neptune and for the joint venture. Furthermore, Mr Clarke notes that the accounts of the joint venture record loans by Messrs Douchkov and Como in the amounts of $2,154,250.11 and $1,567,145.28 respectively, but that as neither is a joint venture party, neither can hold equity in it. No evidence filed on behalf of Neptune disputes these allegations.
58 In relation to the tax liability, Mr Clarke's affidavit dated 22 May 2018 notes that, on 14 September 2017, the records indicate a tax liability of $34,326.67 (excluding interest). His scrutiny of the accounts had not revealed any payment of that liability since then. Neptune answers this by an affidavit from Mr Leather of 27 June 2018 in which he indicates that he has been informed by Mr Borella (Neptune's accountant) that following the lodgment of certain BAS statements, negotiations were entered between Mr Borella and the ATO for the payments of outstanding tax liabilities by the joint venture. These led to an instalment arrangement being put in place on 21 June 2018. However, as the plaintiffs submit, it took an affidavit in the present proceedings to yield any information about this tax liability, notwithstanding a letter from the plaintiffs' solicitors in May 2018 seeking confirmation of the position. Furthermore, the instalments are to be paid fortnightly until 15 May 2020 to pay off the amount owing, being $415,080.41. One would have expected that Neptune would have kept its joint venture partner informed of these developments, but it apparently did not until the lens of litigation was brought to bear.
59 Mr Clarke's affidavit also notes that total wages paid by the Business since it commenced operation total $1,918,101, which would yield a superannuation liability of $180,206. However, the accounts demonstrate payment of only $36,531, leaving $143,767 outstanding. Mr Leather does not address this apparent discrepancy in his responsive affidavit.
60 In my view there is sufficient material to indicate, on an interlocutory basis, that Neptune failed to separate its own accounts from the books and records of the joint venture Business, and pay key creditors (including the ATO) and the superannuation of staff.
61 Thirdly, the allegations most recently made by Neptune against the directors of the plaintiffs reflect a deep distrust between the individuals involved such that it is hard to conceive that they could conduct the Business in a functional manner. (In making the observations here, I do not mean to adjudicate on the correctness of the allegations). Neptune makes a number of allegations about Culture Map, including that it is not entitled to an interest in the subject matter of the proceedings; the proceedings are an abuse of process; and that the provision of a security interest to Culture Map over the vessel is a breach of contract.
62 The current directors of Ozmen are Mr Kartal Altikulacoglu and Mr Gunay Koyunoglu. Mr Altikulacoglu owns 98 shares and Mr Mert Ozmen owns 102 shares in Ozmen. The current directors of Kanki are Mr Koyunoglu and Mr Eric Woo. Mr Koyunoglu owns all of the shares in Kanki. The evidence of Ms Musgrave is that Mr Woo is a nominee for Culture Map. In submissions in support of its position under the current applications, Neptune alleges that Culture Map is a third party who has taken an interest in the subject matter of the proceedings to which it is not entitled. It submits that the proceedings are an abuse of process. The evidence indicates that, on 7 September 2017, Ozmen granted Culture Map a security interest over the Seadeck. In its written submissions, Neptune submits that provision of the security interest was in breach of cl 7 of the Charter Agreement and a breach of Kanki's fiduciary obligations. Moreover, Neptune contends that in April 2018 it reached an "in principle" settlement of the proceedings with Mr Mert Ozmen and Mr Koyunoglu but that Mr Woo intervened to prevent the settlement from proceeding. Since then, allegations of conflicts of interest by Neptune have led to a change of solicitors for Kanki and Ozmen. I do not record these allegations with a view to indicating any concluded view as to their veracity. However, the nature and seriousness of the allegations reflect a significant level of distrust between the joint venture participants and are demonstrative of a breakdown in relations between the joint venture partners.
63 Fourthly, there is a significant dispute between the parties as to the manner in which profits from the JVA and shared costs are to be addressed in the accounts and, ultimately, paid. I address that dispute in more detail in the context of the payment of profits application and the shared costs application. However, it is apparent that leaving the conduct of the Business in the sole hands of Neptune is likely to escalate the areas of dispute between the parties. As I note in section 4 below, it is not appropriate now to adjudicate on differences between the parties concerning the keeping of accounts. However, the present material before me leads to a conclusion, on an interim basis, that there are significant differences between the parties going to the amounts owing to each of them, including as to the correct legal treatment of those amounts. In my view it is appropriate that the receiver and manager enter into the operation and preserve the assets of the Business pending final determination of the proceedings.
64 It is true that the Business has continued to operate since September 2017 without the appointment of the receiver. But the fact is that Neptune has done so during a period of increasingly bitter relations with its co-venturers. They appear to have a high level of mutual distrust. There are fundamental disputes between them that seem incapable of resolution without the intervention of an independent intermediary. Over the last 12 months that has frequently been the case.
65 At the hearing, Ms Gleeson accepted that the parties had a "less than functional relationship". However, she submitted that the relationship was not such as to cause a receiver to be appointed. However, having regard to the matters set out above, I am satisfied that the relationship between the parties has degraded to a point where it is necessary to appoint a receiver.
66 As to the two further submissions made in writing following the conclusion of the hearing, which I refer to at paragraph [40] above, I do not find these arguments persuasive. The first incorrectly characterises the Management Agreement as reflecting the conduct of the proceedings as being for a "collateral purpose". It overlooks the fact that since the inception of the proceedings the plaintiffs have sought a declaration that, on 25 July 2017 and 4 August 2017, the JVA and Charter Agreement respectively were terminated. There is no apparent inconsistency between a desire to pursue the litigation to a successful conclusion with the result (as asserted in the Originating Application) of the termination of those agreements and the return of the Seadeck to Ozmen, and the decision on the part of the plaintiffs to appoint a person to manage the Business. Nor is there any apparent abuse of process to be discerned from the fact that plaintiff companies seek financial assistance from a third party to fund litigation and enter into terms and conditions that enable a loan to be advanced.
67 The second argument proceeds on the premise that Neptune is entitled to make submissions on behalf of individuals who stand behind Ozmen and Kanki. That premise is incorrect. Furthermore, Ms Musgrave, a solicitor of over 30 years' experience, has recently come on the record to act for the plaintiffs and has confirmed (a) that she has instructions to act on behalf of each of the plaintiffs, having obtained instructions from their directors; and (b) that the plaintiffs join in the submissions made to the Court. That being so, there is no material before the Court warranting intervention on the basis of an asserted conflict.
68 Accordingly, in my view the circumstances are such that it is appropriate to make an order pursuant to s 57 of the Federal Court Act 1976 (Cth) (FCA) that a receiver and manager be appointed to preserve the property that is the subject of the agreements between the parties and ensure the orderly conduct of the Business pending final hearing. Later in these reasons I address the conditions precedent that must be satisfied before I will make orders for the appointment, and the form of orders to be made.