PNJ Investment Holding Pty Ltd v ST.K Family Pty Ltd atf ST.K Family Trust

Supreme Court of NSW|2021-05-04|Before: Henry J, Robert P

These proceedings

On 13 April 2021, PNJ commenced these proceedings by summons against ST.K, the Company, Heyday and Everpro seeking urgent interlocutory and final relief.
By way of final relief, PNJ seeks declarations that it is the sole legal and beneficial owner of all unit shares within the HG Unit Trust, that ST.K's units were validly transferred to AONE and Lindfield, and that the resolution at the 9 April meeting and the transfer of one unit in the HG Unit Trust to Everpro are void and have no effect. PNJ also seeks judgment in the sum of $270,000.
On 15 April 2021, consent orders were made by Slattery J that dealt with PNJ's application for interlocutory relief. Those orders restrain Heyday from exercising its alleged power as trustee of the HG Unit Trust and restrain ST.K and Everpro from disposing, encumbering or otherwise dealing with the units they contend they hold until further order of the Court.
On 21 April 2021, ST.K, Heyday and Everpro filed a cross-summons against PNJ, the Company, AONE, Lindfield and Lindvest. The cross-summons seeks a range of declarations by way of final relief, including that: 1. cls 7.6 and 7.7 of the Commercial Loan Agreement are void by reason of uncertainty, penalty or forfeiture or, alternatively, that it is a precondition to their operation that the Commercial Loan Agreement be rescinded; 2. the purported transfers of 82 units in the HG Unit Trust from ST.K to AONE and Lindfield were invalid; 3. ST.K remains the beneficial owner of 82 units in the HG Unit Trust and 18 shares in the Company; 4. the purported removal of Ms Tan as a director of the Company on 19 March 2021 was void; 5. cls 2.1(b) to (e) of the Deed of Variation are void because no special resolution of unit holders was passed at the time of the variation; 6. Heyday was validly appointed as trustee of the HG Unit Trust on 9 April 2021; 7. the Property Development Agreement is not binding on the Company; and 8. the Company is indebted to ST.K in the sum of $3,000,000.

Cross-claimants' application for interlocutory relief

Three aspects of the cross-claimants' case for final relief were relevant to their claims for interlocutory relief.
The first two aspects are the claims that the transfers of ST.K's shares in the Company to PNJ and units in the HG Unit Trust to AONE and Lindfield pursuant to the terms of the Commercial Loan Agreement were invalid, and the resolution of the Company on 9 April 2021 to remove Ms Tan as a director was void. These aspects were said to be relevant to the claim for interim relief seeking to restrain the meeting of members on 5 May 2021.
The third aspect is the claim that parts of the Deed of Variation are void and that Heyday was validly appointed as trustee of the HG Unit Trust on 9 April 2021. This was submitted to be the basis of the second interim injunction sought to restrain the proposed Trustee actions.

Prima facie case

The cross-claimants submitted that they had established a prima facie case in relation to the three aspects of their claims for final relief. As noted above, PNJ disputed the existence of any serious questions to be tried and submitted, in the alternative, that the claims propounded by the cross-claimants for final relief were weak.
As to the validity of the purported transfer of ST.K's shares and units pursuant to the Commercial Loan Agreement, the cross-claimants submitted that there are four bases on which they would be entitled to the final relief claimed, each of which was said to give rise to a prima facie case.
The first is the claim that cls 7.6 and 7.7 of the Commercial Loan Agreement are void for uncertainty, in the sense of being devoid of any ascertainable meaning. The cross-claimants submitted that the concept of "sever[ing] the Borrower's connection with those rights, entitlements and benefits within the Project" prescribed no identifiable legal consequence with respect to the Borrower's rights, entitlements and benefits, and there was a lack of clarity as to what was meant by the reference in those clauses to "within the Project".
PNJ's primary position was that the transfer of ST.K's shares and units was authorised by cls 7.6 and 7.7 of the Commercial Loan Agreement. It submitted that the clauses were not void for uncertainty, contending that the high threshold required for clauses in commercial arrangements to be void for uncertainty had not been met in this case. It argued that the reference to "severance" of the "Borrower's rights, entitlements and benefits within the Project" would be given meaning by the Court having regard to the relevant documents, the position of the parties and the language used.
Given the urgency and interlocutory nature of the application, I did not determine the question of construction of cls 7.6 and 7.7 of the Commercial Loan Agreement, and cl 9.1(b) which also includes the expression "sever the Borrower's connection with [the] rights, entitlement and benefits within the Project." However, I was of the view that there was merit in PNJ's position on the interpretation of those clauses.
The Courts generally strive to uphold commercial bargains and construe the terms of commercial contracts, with an inclination to give effect to the intention of the parties even if that intention may be somewhat obscurely or unclearly expressed and the language used open to more than one interpretation: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436-7; [1968] HCA 8.
As PNJ submitted, the recitals and cl 4.1 of the Commercial Loan Agreement identify that PNJ loaned $3,000,000 to STK for the sole purpose of enabling STK to invest in the Project, with the "Project" defined in the Commercial Loan Agreement to mean "the project for the development and, either sale or rental or a combination of sale and rental, of real property comprised in the Project Land". The interests of ST.K in the "Project" so defined were, in reality, its units in the HG Unit Trust and its shareholding in the Company, such that the power to "sever" ST.K's connection with its "rights, entitlements and benefits" within the Project, as contemplated within cls 7.6, 7.7 and 9.1(b), could be interpreted as relating to those units and shares.
Although "sever" is an unusual word to use, its usual meaning is to "separate", "remove" or "end connection with", which suggests that the parties contemplated that, in the event that ST.K defaulted on the loan, PNJ, acting as ST.K's attorney, would be entitled to "transfer out or away" ST.K's rights and benefits in the Project, in the sense of its interests in the units and shares. I was also of the view that the existence of the trust language in cl 6.6 of the Commercial Loan Agreement and in cls 3.1 and 3.2 of the Side Deed, under which STK acknowledges that its contribution to the unit trust is borrowed from PNJ and that it holds its unit shares on trust for PNJ, supported PNJ's position, as did the evidence on the application that the parties had been negotiating the terms of the Commercial Loan Agreement, including cls 7 and 27.
It was also difficult to see what meaning, other than that advanced by PNJ, could be given to cls 7.6, 7.7 and 9.1(b) based on the language used, the circumstances addressed by the Commercial Loan Agreement, the commercial purpose or objects to be secured, and its context by reference to the suite of documents entered into: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[47].
That said, I accepted the cross-claimants' submission that cls 7.6, 7.7 and 9.1(b) of the Commercial Loan Agreement were "idiosyncratically drafted", it was reasonably arguable that there was some ambiguity as to precisely what was meant by those clauses and there was a serious question as to how the clauses would be interpreted. I was also of the view that this question, and any ambiguity, would need to be resolved at a final hearing with the benefit of further evidence of the surrounding circumstances objectively known to the parties: Lawrence v Ciantar [2020] NSWCA 89 at [101].
Thus, I concluded that there was a serious question to be tried as to the proper construction and operation of cls 7.6 and 7.7 of the Commercial Loan Agreement, including what rights they gave to PNJ to transfer ST.K's units and shares, but that the cross-claimants' case that the clauses were void because of uncertainty was weak.
The second prima facie case asserted by the cross-claimants was that cls 7.6 and 7.7 of the Commercial Loan Agreement are unenforceable as either an unconscionable forfeiture of proprietary rights or a contractual penalty as they purported to entitle PNJ to not only rescind the Agreement and refund all repayments but also to confiscate ST.K's shares and units on no or inadequate consideration, such as the $1 per unit which was applied.
The cross-claimants submitted that the forfeiture of rights was an additional liability that secured enjoyment of a collateral object and beyond any kind of pre-estimate of the loss occasioned by a default, and hence an invalid penalty, relying on Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 (Legione v Hateley), Andrews v Australia & New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 and Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28. It was also submitted that the clauses operated as an unconscionable forfeiture of property against which equity relieved because the shares and units were property which went beyond a mere contractual licence, referring to Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230 at [211]-[212].
In denying that a serious question arose that cls 7.6 and 7.7 were unenforceable as a contractual penalty or an impermissible forfeiture, PNJ submitted that the arrangement agreed to by the parties was for ST.K's units to operate as security for the $3,000,000 loan advanced to STK and were held on trust for PNJ, relying on cl 3.2 of the Side Deed and cl 6.6 of the Commercial Loan Agreement. It was submitted that cls 7.6 and 7.7 could not be a penalty where ST.K's failure to repay the loan on demand meant that PNJ's beneficial interest in the trust arrangement over the units converted to a proprietary interest which was beneficial and, consequentially, legal. It was also submitted that the transfer of units away from ST.K was not an unconscionable assumption of property where PNJ was, at all times, the beneficial owner of the units.
While there was merit to PNJ's submission based on the trust language used in the Side Deed and the Commercial Loan Agreement, I considered it to be arguable that ST.K retained a proprietary interest in the units and that a claim based on forfeiture could arise. This was because the clauses operated to determine ST.K's interests in the Project (namely its units and shares) in favour of PNJ by way of forfeiture as a means of securing performance of the primary stipulation to repay the loan and arose on the occurrence of the event of default in repayment of the loan and breach of the Commercial Loan Agreement.
However, based on the evidence on the application, I came to the view that the claim was not a strong one.
It was difficult to see how cls 7.6, 7.7 or 9.1(b) operated in a penal way or involved an unconscionable forfeiture of proprietary rights in circumstances where ST.K accepted at the hearing that it owed PNJ $3,000,000 and, according to the unchallenged evidence on this application, ST.K had not contributed any monies towards the purchase of the Project properties, the only real assets of the HG Unit Trust. There was also no evidence led by the cross-claimants that supported a finding that the forfeiture of ST.K's units and shares for non-payment of the loan far exceeded or was out of all proportion with the value to ST.K of its units and shares and thus, was unconscionable or inappropriate in the circumstances. Based on the arrangements between the parties and PNJ's legitimate commercial interests as the funder of the Project, this did not seem to me to be a case of an "ill-merited windfall" for PNJ. There was also no suggestion that PNJ's conduct contributed to ST.K's breach of the Commercial Loan Agreement or that the breach was trivial or slight. The loan had been outstanding for two years and no payments had been made: Legione v Hateley at 429 (Gibbs CJ and Murphy JJ), 449 (Mason and Deane JJ).
The third basis on which the cross-claimants contended there was a prima facie case that the purported transfers were invalid was the contention that the consequences prescribed by cl 7.6 and 7.7 could only operate if PNJ took the step of rescinding the Commercial Loan Agreement. It was submitted that PNJ had not demonstrated that rescission of the Agreement had occurred and that, absent such evidence, it must be presumed that it had not occurred.
PNJ did not take issue that rescission was necessary under cl 7.6. Rather, it submitted that there was evidence that rescission of the Commercial Loan Agreement had occurred by PNJ's conduct, of which ST.K was aware, of transferring the units of ST.K to AONE and Lindfield and the shares to itself as attorney of ST.K. PNJ also relied on the letter from PNJ's solicitor to ST.K's solicitor dated 26 March 2021 which states that "All necessary enforcement actions pursuant to the Commercial Loan Agreement … prescribed in [the letter of demand] have been taken and effected", ST.K was no longer a unit holder in the HG Unit Trust and the shares in the Company had been transferred to others.
An innocent party may elect to rescind a contract by disaffirming it. The rescission will not be effective unless an unequivocal intention to disaffirm the contract is communicated to the other party, which may be done by words or conduct: J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [31.170], [31.190].
The terms of the letter of demand from PNJ's solicitor dated 23 February 2021 seemed to me to unequivocally communicate an intention on the part of PNJ to exercise powers under cl 7.6 and 7.7 of the Commercial Loan Agreement in the event ST.K did not make payment in accordance with the demand, which included the rescission of the Agreement. I was also of the view that the 26 March 2021 letter unequivocally communicated that PNJ had purportedly exercised those powers.
However, there is no express reference to any rescission or termination of the Commercial Loan Agreement in the 26 March letter and no notice was given to ST.K that PNJ disaffirmed that agreement after ST.K's default. While ultimately this may give rise to an issue of form over substance, I was persuaded that it was arguable that the cross-claimants had established a prima facie case on the documents although, again, I accepted that it was not a strong case.
The fourth matter relied on by the cross-claimants was the contention that the purported compulsory transfer of ST.K's units in the HG Unit Trust was unenforceable as it did not comply with ss 52A and 54A of the Conveyancing Act 1919 (NSW). The cross-claimants made three submissions on this issue: that the transfer of ST.K's beneficial interests as unit holders in the trust properties was a transfer of interests in land and must have amounted to a sale of land; that the Commercial Loan Agreement itself did not purport to effect the transfer of units and thus is not a contract for the sale of land; and, absent such a contract, the transfer was unenforceable as it could not comply with ss 52A and 54A of the Conveyancing Act 1919 (NSW).
PNJ submitted that the writing requirements of ss 52A and 54A of the Conveyancing Act 1919 (NSW) did not apply to a transfer of units in the HG Unit Trust and, therefore, those sections were no impediment to the efficacy of the transfer of ST.K's units.
The parties did not refer me to any particular aspects of the HG Trust Deed and its related agreements or any authorities in support of their submissions on the question of whether ss 52A and 54A of the Conveyancing Act applied in this case.
A unit holder in a unit trust may have a proprietary interest in trust property. Whether this is so will depend on the terms of the unit trust: Jonsue Investments Pty Ltd v Balweb Pty Ltd [2013] NSWSC 325 (Jonsue Investments) at [20], [25], [36]. Based on cl 14 of the HG Trust Deed, aspects of which are similar to the terms considered in Jonsue Investments, I accepted that there was a serious question to be tried that a transfer of ST.K's units in the HG Unit Trust would involve a transfer of ST.K's equitable and beneficial interests as unit holder in the trust properties and, thus, a disposition of an interest in land.
That said, I had some doubt that the transfers of units in the HG Unit Trust from ST.K amounted to sales of land within the meaning of s 52A of the Conveyancing Act or that the present is an action or proceeding brought upon a contract for the disposition of an interest in land within the meaning of s 54A.
Further, even if the purported exercise by PNJ of the right to sever and effect a "compulsory transfer" of ST.K's units involved a disposition of an interest in land, it seemed to me that the requirement of writing was likely satisfied as the relevant dispositions were evidenced by the Deeds of Transfer of Units dated 19 and 22 March 2021 between ST.K and AONE and ST.K and Lindfield respectively rather than the Commercial Loan Agreement itself which, as the cross-claimants contended, did not purport to effect the transfer.
In summary, I was satisfied that the cross-claimants had established the existence of a serious question to be tried or a prima facie case as to the validity of the transfers of ST.K's units and shares but accepted PNJ's submission that the claim was not strong and aspects of it were weak.
In relation to the removal of Ms Tan as a director of the Company, the cross-claimants submitted there was a serious question to be tried that this amounted to oppression or unfair discrimination against a minority shareholder, relying on the principles set out in Re Bicher & Son Pty Ltd [2020] NSWSC 711 at [76]-[79]. It was submitted that the purpose of removing Ms Tan was to enable PNJ to determine the commercial decisions to be made by the Company as purported trustee, contrary to the wishes of ST.K as the minority shareholder and majority unitholder, and prevent ST.K from having any opportunity to participate in the Company's decision making. This was submitted to be unfair, particularly in the context of the alleged penal operation of cls 7.6 and 7.7 of the Commercial Loan Agreement.
PNJ submitted that Ms Tan's removal does not amount to oppression because she is not presently acting in the interests of the Trust. It argued that this was evidenced by her refusal, until the morning of the hearing, to take steps to permit the Company to protect its position by lodging lapsing notices for the caveats or to appoint a solicitor to appearing in these proceedings. It also said that the prior attempts to remove Ms Tan and any associated defects in procedure are irrelevant to the present application, which concerned the members' meeting scheduled for Wednesday 5 May 2021.
The removal of a director which has been appointed by a member may constitute oppression where doing so excludes the member from participating in management of the company contrary to the common understanding between members and a legitimate expectation of that member of such participation in management: Remrose Pty Ltd v Allsilver Holdings Pty Ltd (2005) 225 ALR 588; [2005] WASC 251 at [73]-[74], [125]-[127]; Re Mosman & Co Pty Ltd [2019] NSWSC 1155 [83]-[84]; see also Robert P Austin and Ian M Ramsay, Ford, Austin and Ramsay's Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths) at [10.460.15] and the cases cited therein.
I was persuaded that it is arguable that the removal of Ms Tan as a director would be in breach of the Shareholders Agreement, as it provides that only ST.K could remove its representative and appoint a replacement: cl 3.7(b). This was a factor that supported ST.K's prima facie case of oppression as the Shareholders Agreement could be said to provide a basis for which ST.K, as a minority shareholder, had a legitimate expectation of a right to be involved in the management of the Company.
The claim of oppression and unfair discrimination is, however, dependent on the success of ST.K's claim about the validity of PNJ's actions in transferring ST.K's units and shares. It was only if those transfers were invalid that ST.K remains a minority shareholder in the Company and majority unitholder in the HG Unit Trust, although arguably ST.K holds the units on trust for PNJ.
The evidence on this application also suggests that there will be a significant dispute about whether Ms Tan's removal would be considered to be commercially unfair and oppressive in the circumstances of this case. As noted above, the evidence is that PNJ, as majority shareholder, had contributed the settlement funds for the Project properties. There is also evidence that Zecheng Huang took the lead in seeking out refinance for the Project, was liaising with the NAB in relation to paying out the existing mortgages and took the lead in pursuing the DA approval for the Project properties. No evidence was led by the cross-claimants that Ms Tan had been actively involved in the management of the Company or had sought such involvement, or what expectation she and ST.K had to be involved in the day to day management of the Company.
Accordingly, I accepted that STK's claim of oppression was also arguable but that it was a weak case based on the evidence on this application.
Turning to the third aspect of their case, the cross-claimants submitted a prima facie case arose that Heyday had been validly appointed as the replacement trustee of the HG Unit Trust based on the documents in evidence.
They submitted that the Deed of Variation, which provided for a unanimous resolution for removal of a trustee, contravened the entrenching provision of cl 89 of the HG Trust Deed in relation to variations concerning "the appointment or removal of a trustee" as there was no evidence that a special resolution of unitholders had been made consenting to that variation. As a consequence, they submitted that it was seriously arguable that the resolution voted on at the 9 April 2021 meeting appointing Heyday as trustee was passed by a sufficient majority of unitholders to comply with the requirements of the HG Trust Deed (cls 82, 85) and the Company was "immediately" required under that Deed to take steps to transfer its interests in the Project properties to Heyday as the new trustee.
In response, PNJ contended that it was not arguable that Heyday had been validly appointed as trustee. It submitted that the Deed of Variation amended the procedure for removing a trustee to require a unanimous resolution of unitholders and that ST.K was estopped from denying that it did so. PNJ pointed to the recitals to the Deed of Variation which stated that the unit holders had passed the special resolution required to amend the HG Trust Deed.
Where an unambiguous proposition or allegation of distinct facts is made within a deed, including statements made in the recitals, a party to the deed is estopped from denying the truth or operation of that proposition: Dabbs v Seaman (1925) 36 CLR 538 at 549-550; [1926] HCA 26; Re Application of Sutherland [2014] NSWSC 821 at [90]. The principle is founded on the solemnity of a deed: Labracon Pty Ltd v Cuturich [2013] NSWSC 97 at [132].
Estoppel by deed only operates in an action on the deed. In other proceedings, the recitals can operate as an admission, but not as an estoppel: Lescap Group Pty Ltd v Pacific Resort Holding Pty Ltd [2012] NSWSC 580 at [43].
The parties did not make submissions on the question of whether the claim raised in the present proceedings involves an action on the Deed of Variation or is more properly characterised as proceedings brought in respect of transactions which are collateral to the Deed, and, in the time available, I did not come to a final view on that matter. Nevertheless, in the absence of any evidence being adduced by the cross-claimants that negated the implication of fact from the recitals that a special resolution had been passed and in circumstances where the Deed of Variation was signed by Ms Tan on behalf of the Company and representatives of ST.K and PNJ, I was not persuaded that it was seriously arguable that ST.K could resile from the recitals and claim that the Deed of Variation was not binding on it.
Accordingly, I was not satisfied that the cross-claimants had established a prima facie case that Heyday was validly appointed as trustee of the HG Unit Trust on 9 April 2021, in the sense that, if the evidence remained as it was, there was a sufficient likelihood that they would be entitled to the final relief claimed on that aspect of the case.

Balance of convenience

The cross-claimants submitted that the balance of convenience favoured the grant of interlocutory relief because the terms of refinance proposed by Centennial created potential issues as the Event of Default and Material Adverse Effect provisions would be triggered if the Company had been validly removed and replaced by Heyday as trustee. It was submitted that this could lead to liability for damages secured against the Project properties which may give rise to prejudice to the beneficiaries under the HG Unit Trust, whoever they may be. Pausing here, as I was not persuaded of a prima facie case that Heyday had been validly appointed as trustee, this risk did not seem to me to be significant to the assessment of where the balance of convenience lay in this case.
The cross-claimants also contended that, absent interim relief being granted, ST.K would be shut out from having a say in the conduct of the HG Unit Trust to its potential prejudice. They argued that the Company (and PNJ) would retain power to deal with the Project properties in a manner that may expose the trust assets to other claims, such as unsecured loans, noting that a liability of around $48,289.32 had already been incurred in relation to Centennial's proposal.
The cross-claimants further submitted that there was no particular or immediate benefit to be secured if PNJ's proposal to remove Ms Tan goes ahead as ST.K and Heyday could apply to extend the caveats if the Company issued lapsing notices. In other words, it could not be assumed that the Centennial refinancing would be able to proceed quickly in the absence of clear title to the Project properties.
PNJ submitted that the balance of convenience did not favour the cross-claimants in this case as the grant of interim relief would risk the loss of the commercially favourable loan on offer from Centennial and delay the progress of the Project. It argued that the Centennial loan was preferable to the cross-claimants' position, which did not involve any alternative financing proposal, and did not give rise to any real risk of prejudice for the cross-claimants.
PNJ also took issue with the adequacy of the undertaking as to damages proffered.
The cross-claimants' claims are concerned with a dispute about the respective interests in a private unit trust and corporate trustee. The principal assets of the trust are the Project properties, in respect of which PNJ, not ST.K, had invested significant sums of money and which have DA approval for a real estate development to be carried out on behalf of the Company by Lindvest. It is common ground that some refinancing will need to be put in place in order for the Project to progress within the next four months.
An issue with the cross-claimants' submission that, at a commercial level, it wished to have the opportunity to be involved in this development and, absent interim relief restraining the meeting, it would be "shut out" from doing so, is that the evidence did not, in my view, demonstrate a desire or willingness on the part of ST.K, Ms Tan or the other cross-claimants to be involved in and make decisions to progress the development of the Project with PNJ. There was no indication that, if the relief sought was granted, Ms Tan would participate in and carry out her role as a director in the best interests of the HG Unit Trust.
The evidence and the open offer made at the start of the hearing suggested that there would be little co-operation from Ms Tan in relation to the Company and the Project, noting that there had been no agreement by her to the Company issuing lapsing notices. Relevantly, this is in the context where ST.K's caveat was lodged only after the notice of demand to repay the loan was issued, the refinancing with Centennial was being progressed, and a clause in the HG Trust Deed provides that units holders must not lodge a caveat in relation to an asset or claim any interest in an asset of the trust in any other way: cl 16.
The Company has an offer from Centennial of a loan on financially advantageous terms that provides for Zecheng Huang to be the sole guarantor and which the evidence indicates would be at risk if the interlocutory injunctions were granted. The hearing proceeded on the basis that the cross-claimants, and presumably Ms Tan, will not accede to Centennial's offer despite there being no evidence from Mr You or Ms Tan as to why the terms proposed were not acceptable to ST.K or alternative financing options.
Overall, there was a lack of evidence put forward by the cross-claimants as to precisely what was prejudicial with the proposals put forward by Zecheng Huang, on behalf of the Company, in finalising and settling the finance with Centennial and commencing the construction using the proceeds from that loan. There was also a lack of evidence from which to infer that, if the meeting of members went ahead and Ms Tan was removed as a director, Zecheng Huang, on behalf of the Company, would act otherwise than in the best interests of the HG Unit Trust or expose the trust assets to claims which would cause injury or prejudice to the cross-claimants.
To the extent that ST.K and Everpro have interests in the HG Unit Trust and ST.K's representative, Ms Tan, should have continued as a director, it seemed to me that those claims could be maintained at a final expedited hearing. In the event they succeed and there is evidence that they have suffered losses, such as the asserted loss of the opportunity to make a profit from the sale of their interests in the Project, any such losses could be expected to be fully compensable by damages.
The evidence, as it stands, is that if the Company does not secure the Centennial loan and it has to go to market, based on interest rate differences, there is a potential loss of $5.4 to $6.3 million over a three-year period. In addition, and while more speculative, it is to be expected that the grant of interlocutory relief would delay the Project and the opportunity for the beneficiaries of the HG Unit Trust to obtain the sale proceeds and realise profits. As PNJ submitted, delay would also carry with it some risk of change in the market.
In the above circumstances, in my view, there a was a greater risk of injury and prejudice to the Company, the HG Unit Trust and PNJ if the relief was granted, than to the cross-claimants if the relief was refused.
In coming to that view, the value of the undertaking as to damages was also a relevant factor. I was not satisfied that the undertaking proffered by ST.K had real substance and provided adequate protection. The reference in the 12 April 2021 letter from ST.K's solicitor that ST.K intended to repay all the debts of the Company, including PNJ's loan, did not dispel the doubts created by ST.K's failure to repay the $3,000,000 loan. The evidence that ST.K had ongoing funding issues also indicated that it would be unlikely to be able to meet a significant damages award in the event the cross-claimants were unsuccessful at trial.
I also accepted PNJ's submission that the evidence adduced late in the day about Hong Da's financial position was insufficient to conclude that there was no risk that the undertaking as to damages it proffered would be inadequate. The evidence identifies that all but two of the eight townhouses owned by Hong Da are subject to a registered mortgage. Three of them also have caveats on their title. Although the draft profit and loss statement and balance sheet for 2020 suggested that Hong Da has sufficient assets to support the undertaking, I was hesitant to accept them given the most recent final financial statement for 2018 showed it operating at a loss of $311,000 and the financial records produced by Hong Da and tendered by PNJ indicated that Hong Da has not filed a tax return since 2018.

Conclusion

Viewing the matter overall, I concluded that the cross-claimants' application for interlocutory relief should be refused. This was primarily because I came to the view that the balance of convenience and the issues raised regarding the adequacy of the undertaking as to damages did not favour the grant of interlocutory relief.
In reaching my conclusion on the balance of convenience, I also took into account that, based on the current evidence, the prima facie case established by the cross-claimants that formed the basis of its claim for interlocutory relief to restrain the meeting of members was not, in my view, strong and there were aspects of their case which I considered to be weak.
Finally, and while not at all determinative, it was a relevant factor in the exercise of my discretion not to grant interlocutory relief that the cross-claimants only moved the Court in response to the proceedings commenced by PNJ. It seemed to me that it could have taken urgent steps to restrain PNJ from exercising any rights under cls 7.6 or 7.7 of the Commercial Loan Agreement after receiving the letter of demand or taken action to restrain PNJ from dealing with the units and shares that ST.K contends were invalidly transferred after receiving notice of those matters in the 26 March letter.

Costs and orders

On the issue of costs, PNJ submitted, and the cross-claimants accepted, that it was appropriate for costs to follow the event.
The parties also agreed that the matter should be heard on an expedited basis and indicated they would seek to agree timetabling orders which they would send to chambers.
For these reasons, on 7 May 2021, I made the following orders: 1. The first and second cross-claimants' claim for interlocutory relief as set out in prayers 1 and 2 of the Amended Cross Summons filed 4 May 2021 be dismissed. 2. The first and second cross-claimants pay the first cross-defendant's costs of and incidental to the cross-claimants' claims for interlocutory relief as set out in prayers 1 and 2 of the Amended Cross Summons filed 4 May 2021 on the ordinary basis. 3. List the proceedings for directions before the Expedition List Judge at 9.30am on 14 May 2021 for consideration of whether the proceedings ought to be expedited and, if appropriate, orders for disclosure and/or the allocation of a hearing date. 4. Liberty to restore on 3 days' notice.

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Judgment

On 4 May 2021, I heard an application by the cross-claimants for interlocutory relief seeking to restrain the second defendant, Havilah Green Pty Ltd (Company), from holding a meeting of members that was scheduled to take place on 5 May 2021 and from taking certain steps in relation to a real estate development project on land located on Havilah Road, Lindfield (Project) which is owned by the Company.
Given the urgency of the circumstances, the parties were content for me to indicate my decision at the end of the hearing, which I did in short, summary form, with more detailed reasons to follow. These are my reasons for declining to grant the interlocutory relief sought.
The cross-claimants' application, and the opposition to it, arises out of disputes primarily between the plaintiff and first cross-defendant, PNJ Investment Holding Pty Ltd (PNJ), and the first defendant and first cross-claimant, ST.K Family Pty Ltd (ST.K), about rights to units in the Havilah Green Unit Trust (HG Unit Trust) and shares in the Company, and whether the Company continues to be the trustee of the HG Unit Trust or has been replaced by the third defendant and second cross-claimant, Heyday Investment Pty Ltd (Heyday). The cross-claimants contend that PNJ has invalidly transferred ST.K's units and shares to itself and its related companies and that Heyday was validly appointed as trustee on 9 April 2021.
There was no dispute about the legal principles to be applied.
In determining the cross-claimants' application for interlocutory relief, the Court must first determine whether the cross-claimants have made out a prima facie case in the sense that, if the evidence remains as it is, there is a probability they will be entitled to the final relief claimed. This does not mean that the cross-claimants must establish that it is more likely than not they will succeed on a final hearing, but only that there is a "sufficient likelihood of success" to justify the preservation of the status quo pending the trial in the circumstances: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 (ABC v O'Neill) at [65] (Gummow and Hayne JJ), quoting Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622-3; [1968] HCA 1 (Beecham v Bristol).
The other inquiry required is whether the inconvenience and injury the cross-claimants would be likely to suffer if interlocutory relief were refused outweighs or is outweighed by the injury which PNJ and the other cross-defendants would suffer if the injunctions were granted: Beecham v Bristol at 623.
Also relevant to the exercise of the Court's discretion, and as raised in this case, is the relative strengths of the parties' cases and the adequacy of the undertaking as to damages. The stronger the case for final relief, the less may be required to tip the balance of convenience to one side's favour. The greater the balance of convenience falls to one side, the less strong a case for final relief may be required: ABC v O'Neill at [65], [71].
PNJ submitted that the cross-claimants had not established the existence of a prima facie case or serious question to be tried, or at the least that their case was weak. It also submitted that the balance of convenience was against the grant of injunctive relief in circumstances where a refinance of the Project on commercially advantageous terms was at risk if injunctive relief was granted and there was reason to doubt the worth of ST.K's undertaking as to damages.
Before addressing these matters, it is necessary to summarise the factual background and claims made in these proceedings.

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