Reliance Financial Services v Lemery Holdings

Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 CASES CITED : Re Express Engineering Works Ltd [1920] 1 Ch 466

Reliance Financial Services Pty Ltd - First Plaintiff Sam Peter Cassaniti - Second Plaintiff PARTIES : Lemery Holdings Pty Ltd - First Defendant Ghandi Faizi Sobbi - Second Defendant Zakiyeh Sobbi - Third Defendant

I Young - Plaintiffs COUNSEL : T Tzovaras, solicitor - Defendants

Leonard Deane Lawyers - Plaintiffs SOLICITORS : Tzovaras Legal - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

3696/05 RELIANCE FINANCIAL SERVICES & ANOR v LEMERY HOLDINGS PTY LTD & ORS JUDGMENT - Ex Tempore

30 JUNE 2005 1 HIS HONOUR: This is an application for an interlocutory injunction in proceedings which were begun two days ago. The first plaintiff, Reliance Financial Services Pty Ltd ("Reliance"), is a financier which is substantially under the control of the second plaintiff, Mr Cassaniti. The first defendant, Lemery Holdings Pty Ltd ("Lemery"), is a company which, now, has the second and third defendants, Mr and Mrs Sobbi, as its directors. 2 The statement of claim seeks a declaration that Lemery is bound by a charge over its undertaking and assets. Alternatively, it alleges that Mr and Mrs Sobbi entered into an agreement that Lemery would grant a charge. There is evidence which is not contested that Lemery owes to Reliance a principal amount of $645,000, arising from Lemery having guaranteed an advance which Reliance made to Mr Alan Sobbi. It may well be that there is also some accrued interest on that loan. 3 There is a serious question to be tried about whether some short minutes of order, made on 2 October 2003, amount to an agreement to give a charge. The short minutes are in proceedings 4109 of 2003. Those proceedings named Mr and Mrs Sobbi and Mr Cassaniti as parties. Lemery was also named as a party. Even though Lemery was a party to the proceedings, it never appeared in the proceedings. The proceedings were ones in which Mr and Mrs Sobbi, as plaintiffs, sought to regain control of Lemery from Mr Cassaniti. 4 The short minutes of order made provision for agreement for orders to be made whereby Mr Cassaniti would deliver up the shares he held in Lemery, acknowledge that he had never been a director and secretary of Lemery, and take certain steps to calm a financier who was concerned about the apparent uncertainty about who controlled Lemery. The short minutes of order went on to note an agreement. The agreement was that Lemery would grant to Mr Cassaniti or an entity nominated by him, a fixed and floating charge over Lemery's assets to secure to Mr Cassaniti and entities associated with him certain moneys. There was provision for a charge document to be drawn up, and for the precise amount which was secured by it to be ascertained. 5 In the present proceedings Reliance and Mr Cassaniti make two different types of allegation. One is that Lemery was party to the agreement constituted by the short minutes. Lemery did not actually sign the short minutes of order, and, as I have said, was not represented in the proceedings which were settled by the short minutes of order. Even so, on the evidence now before me, it appears that the only contenders for being either shareholders or directors of Lemery were Mr and Mrs Sobbi and Mr Cassaniti. The plaintiffs submit that there is a serious question to be tried about whether the entry of the short minutes of order, agreed to as it was by Mr and Mrs Sobbi and Mr Cassaniti, amounted to an informal corporate act of Lemery itself, in accordance with principles like those expressed in Re Express Engineering Works Ltd [1920] 1 Ch 466. In my view there is a serious question to be tried about whether that contention is correct. 6 An alternative submission which the plaintiffs put is that, even if Lemery was not a party to the agreement, Mr and Mrs Sobbi agreed that Lemery would give the charge, and Mr and Mrs Sobbi ought now be ordered to do whatever is necessary to make sure that Lemery gives that charge. In my view there is a serious question to be tried about whether that contention is correct. Mr Tzovaras, for the defendants, submits there would be defences to any such application. In my view, for the reasons discussed with him in the course of submissions, whether a defence exists will depend on facts adduced at the trial. Hence the possible availability of a defence does not detract from the conclusion that there is a serious question to be tried. 7 There has been some evidence, the effect of which is that, at least at one time, Reliance contended that Lemery owed it considerably more than the $645,000 plus accrued interest which arises from the loan made to Mr Alan Sobbi. There is evidence of an acknowledgment in an affidavit by Mr Sobbi that Lemery guaranteed a loan which Reliance made to a company called House of Diamonds Pty Ltd, which has not been repaid, and which has resulted in an amount of the order of $1.03 million being owing by Lemery to Reliance as at 23 October 2003. Mr Sobbi's affidavit appears on its face to acknowledge that Reliance has made the demand upon Lemery for the full amount of that principal and interest. There is, it seems to me prima facie evidence that this additional indebtedness exists. That prima facie evidence is not something which is relevant to whether there is a serious question to be tried concerning the present litigation, because the present litigation does not depend on it. Rather, it is a matter which I take into account in connection with the balance of convenience. 8 The plaintiffs submits that the agreement between Mr Cassaniti and Reliance on the one hand, and the Sobbis (and, perhaps, Lemery) on the other went further than that expressed in the short minutes of order. They assert that agreement was reached between the respective solicitors for the Sobbis and Reliance on the terms of the charge which was to be granted. Mr Fordyce was the solicitor acting for the plaintiffs in connection with the granting of that charge. He has given evidence that he has a clear recollection that Mr Zwar, the solicitor acting for the Sobbis in the transaction, said to him on the telephone that he had instructions to have a charge document in a particular form executed. The Sobbi side in effect denied in their evidence that any such instructions were given to Mr Zwar. Even if that is right, there still remains a serious question to be tried about whether Mr Zwar had ostensible authority to say what Mr Fordyce claims he said. 9 If it were to be the case that the precise terms of the charge were not agreed upon, there would still, in my view, be a serious question to be tried about whether the terms contained in the short minutes of order alone amounted to an agreement to give a charge which the Court would enforce against Lemery, on the principle that the Court will complete subsidiary terms in an agreement to give a security - Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 per Handley JA. 10 Mr Tzovaras puts that there was no consideration passing to Lemery. In my view there is a serious question to be tried about whether there was sufficient consideration, in the form of Lemery having the dispute which appears to have been crippling it, disposed of. In saying that I do not suggest that no other consideration might not be alleged. 11 In these circumstances I am satisfied that there is a serious question to be tried about whether the orders for enforcement of a charge contained in the statement of claim should be enforced. 12 The statement of claim has various subsidiary claims for relief, which have not really been explored in the evidence before me, and are not particularly well fleshed out in the pleading itself, but the existence of a serious question to be tried about whether there is an agreement to grant a charge suffices for present purposes. 13 So far as the balance of convenience goes, there is evidence that Reliance has a registered first mortgage over the home of Mr and Mrs Sobbi. The evidence before me includes an informal valuation, the precise basis of which is not clear, but which I am prepared to act on for the purpose of these interlocutory proceedings, to the effect that Mr and Mrs Sobbi's home has a value in the range $1.2 million to $1.4 million. It was put that, in those circumstances, the balance of convenience favours interlocutory relief being denied, because Reliance has ample security for the debt which is owed to it arising from the loan to Mr Alan Sobbi. A difficulty with that submission is that Mr and Mrs Sobbi are seeking to set aside the registered first mortgage to Reliance, in other proceedings in this Court, in which Reliance seeks possession of their home. 14 Mr Young, for the plaintiffs, put a submission that there was a significant risk of dissipation of the assets of Lemery, if the present interlocutory relief sought were not granted. Mr Tzovaras, correctly in my view, did not put any submissions to the effect that there was no risk of dissipation of assets if the interlocutory relief were not granted. 15 In my view the balance of convenience favours the granting of the interlocutory order which is sought. 16 The present situation concerning the assets of Lemery is that a fund of money is in Court, being the proceeds of sale of a property at Macquarie Street Liverpool which Lemery owned. It was paid into court pursuant to an order of White J made on 1 June 2004. As well, there is an injunction in place which restricts Mr and Mrs Sobbi from dealing with certain jewellery which was an asset of Lemery. 17 The order which is currently sought is an order by way of asset preservation against Lemery and Mr and Mrs Sobbi restraining them from dealing with the assets of Lemery being an amount paid into Court pursuant to the order made by White J on 1 June 2004 in proceedings 3082 of 2004. That amount is one which was not paid into Court until some time after 1 June 2004, but there is no dispute about the identity of the only fund in Court which relates to these proceedings. 18 Upon the plaintiffs by their counsel giving to the Court the usual undertaking as to damages, I make order 5 in notice of motion filed 29 June 2005. * * * * * * * * * *

1 JULY 2005 19 HIS HONOUR: In proceedings 4924 of 2004 Registrar Berecry by consent made orders on 4 November 2004 in accordance with short minutes of order bearing that date. The first of those orders is in form a final injunction restraining the defendants in those proceedings (who are also the defendants in these proceedings) from dealing with certain jewellery. The making of such a final order by a Registrar is possible, when it is by consent, but there is evidence that the solicitor for one of the parties did not intend the order to be a final one. The only order which the Court would have made, if it had determined the matter, was an interlocutory order. Mr Young for the parties with the benefit of the order, does not oppose it being set aside, on the basis that he would make application for a replacement order to similar effect, as an interlocutory order in these proceedings. I set aside order 1 made by Registrar Berecry on 4 November 2004. 20 Mr Young makes an oral application to extend the ambit of the interlocutory order which I made yesterday. The application which he now makes is for an interlocutory regime in the terms of paragraph 5 of certain short minutes which he has propounded. The practical effect of the injunction in its amended form would also be to preserve the jewellery referred to in the order just set aside pending the determination of the dispute. In light of the evidence given in yesterday's application and of my reasons for judgment, that application for extension of the order was not opposed. 21 I revoke the interlocutory order made yesterday. I make orders in accordance with paragraph 5 of the draft Short Minutes of Order which I initial, date today's date and shall place with the papers. 22 I direct the plaintiffs to file a consolidated statement of claim by 8 July 2005 which incorporates any claims made by the plaintiffs in 3923 of 2004 or by the defendant in 4924 of 2004 and which have not been disposed of by orders made by me this week. I note that while proceedings 3923 of 2004 and 4924 of 2004 are not finally disposed of, all costs of those proceedings to and including today have been provided for by costs orders already made and all issues remaining in those proceedings will be decided in proceedings 3696 of 2005. I direct that no further documents be filed in either proceedings 3923 of 2004 or 4924 of 2004 without the leave of a judge. I direct the defendants to file a defence and any cross-claim by 22 July 2005. I direct the plaintiffs to file any affidavits by 5 August 2005, I direct the defendants to file any affidavits by 26 August 2005, I provisionally fix the hearing before me on 26, 27, 28 and 29 September 2005 for 4 days. I grant liberty to apply on 2 days notice. I list the matter for further directions before me at 9.30 on 16 August 2005. I shall reserve the costs of the interlocutory hearing. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.