The Checkout Pty Ltd v Cordell Jigsaw Productions Pty Ltd

Consideration and determination

There was no dispute that, if it remains on foot, the SSA operates to entitle Cordell Jigsaw to 40% of TCPL's net income from any PDV Offsets and other income related to series one to six of The Checkout.
At the hearing, counsel for TCPL and Giant Dwarf also accepted that there was a serious question to be tried as to whether the SSA had been validly terminated. In my view, that concession was appropriately made having regard to the terms of the Quit Claim Deed which required Cordell Jigsaw to release the ABC and TCPL in relation to any further series of The Checkout. I accepted Cordell Jigsaw's submission that it is seriously arguable that the releases sought in the Quit Claim Deed went beyond what Cordell Jigsaw was obliged to do under cl 5.3 and cl 9.7 of the SSA: Fox Entertainment Precinct Pty Limited v Centennial Park and Moore Park Trust [2004] NSWSC 214 at [197]. I was also satisfied that it is seriously arguable that Cordell Jigsaw's refusal to sign to Quit Claim Deed or to make the other acknowledgements sought were not in breach of the SSA or any implied obligation of cooperation and thus did not provide a proper basis for TCPL and Giant Dwarf to terminate the SSA.
Cordell Jigsaw also argued that there were serious questions to be tried that it would be entitled to 40% of the PDV Offsets as an accrued right that survived termination of the SSA (assuming it had been validly terminated), or on the basis that Giant Dwarf and Mr Morrow engaged in misleading and deceptive conduct. As Cordell Jigsaw had established there was a serious question to be tried that, at the final hearing, it would be entitled to relief in relation to payment of 40% of the PDV Offsets on the basis that the SSA had not been validly terminated, it is not necessary to deal with those aspects, other than to note the following.
Based on the evidence on the application, I was also satisfied that it was seriously arguable that Giant Dwarf and Mr Morrow had engaged in misleading and deceptive conduct as alleged in the cross-claim by failing to inform Cordell Jigsaw of their communications with the ABC in respect of a proposed new consumer affairs show and the possibility of a further series of The Checkout and, in that context, by Mr Morrow indicating to Mr Murray that he wanted to finalise the SSA to gain access to Giant Dwarf's share of the retained earnings for the 2018 PDV Offset to pay an outstanding loan. I was also satisfied that it was seriously arguable that the conduct was in trade and commerce and relied on by Cordell Jigsaw in entering into the SSA. TCPL and Giant Dwarf's counsel did not contend otherwise at the hearing.
Cordell Jigsaw submitted that, if it succeeded with its claim that Mr Morrow and Giant Dwarf engaged in misleading and deceptive conduct it would be entitled to payment of 40% of the PDV Offsets either as damages or because the SSA was rescinded and it would have a right to a proportion of the PDV Offsets as a reinstated shareholder. I note that, as pleaded, damages for the alleged misleading and deceptive conduct would be payable by Giant Dwarf and/or Mr Morrow, rather than TCPL.
TCPL and Giant Dwarf did not accept that there was a serious question to be tried that Cordell Jigsaw's entitlement to 40% of TCPL's net income survived termination as an accrued right. It argued that payment to Cordell Jigsaw under cl 4.2 of the SSA was subject to acts of performance by both parties after the purported termination on 28 June 2019, including the provision of information by Cordell Jigsaw to TCPL.
I did not assess Cordell Jigsaw's accrued rights claim to be as strong as its claim that the SSA has been invalidly terminated, although I was satisfied that there was a serious question to be tried that it had an accrued right to 40% of TCPL's net income calculated by reference to the 2017 PDV Offset.
Based on the evidence, it seemed to me to be reasonably arguable that, as at 28 June 2019, Cordell Jigsaw had fulfilled its obligations under the SSA and no further acts of performance were required in so far as the right to claim an entitlement to 40% of TCPL's net income based on the 2017 PDV Offset. To the extent Cordell Jigsaw's right to payment was future and contingent on some events, such as TCPL or Giant Dwarf's application to the ATO and the ATO's determination, those events were arguably external to and did not depend on further performance of the SSA: Westralian Farmers Limited v Commonwealth Agricultural Services Engineers Limited (1936) 54 CLR 361 at 380.
The contest at the hearing was, in the main, about whether the interlocutory relief sought by Cordell Jigsaw should be granted having regard to balance of convenience factors, whether damages were an adequate remedy and the undertaking proffered by TCPL.
Cordell Jigsaw's Counsel acknowledged that this was an unusual application in the sense that Cordell Jigsaw was seeking an injunction over a "pot of money". But he submitted that the relief sought was warranted as the injunction would not cause TCPL any hardship given it was not currently producing The Checkout for the ABC or any other television content, and because TCPL had 60% of the PDV Offsets available to manage ongoing affairs.
There was some force to the submission that TCPL and Giant Dwarf had not established any real hardship if the Court were to grant the relief sought by Cordell Jigsaw. The evidence led by TCPL and Giant Dwarf as to the impacts on TCPL's business if the injunction was granted was of a very general and high level nature, at outlined at [38] above. It did not identify how the orders would interfere, stultify or prevent TCPL from conducting its business, what funds were needed for its ongoing business or why the remaining income from the PDV Offsets could not be utilised. In my view, that was a factor that weighed in favour of granting the relief sought.
Cordell Jigsaw also submitted that it would be prejudiced if the injunction was not granted and it was left with the undertaking proffered by TCPL. This was said to be because there was a risk that the funds over which Cordell Jigsaw claims to be entitled would be dissipated by TCPL, by being spent on legal fees and other business expenses. Cordell Jigsaw argued that, as TCPL and Giant Dwarf were otherwise impecunious and the undertaking would enable TCPL to use funds to which Cordell Jigsaw claimed to be entitled to pay TCPL's own legal and other expenses, an order for damages would be an ineffective remedy as there would be nothing left to satisfy its judgment and it would be left without any practical recourse.
Cordell Jigsaw relied on the decision of White J (as His Honour then was) in Luxcon Developments No 2 Pty Limited v Ratner [2014] NSWSC 861 (Luxcon Developments), in support of its claims for an injunction over a fund of money rather than a freezing order, and that an award of damages may not be an adequate remedy as Cordell Jigsaw's entitlement to its share of the PDV Offsets was likely to be dissipated.
In Luxcon Developments, White J considered an application by a joint venture partner (applicant) to have his share of profits from the sale of joint venture property paid into a solicitors trust account. His Honour found there was a serious question to be tried that the joint venture agreement contained a negative stipulation to the effect that the sale proceeds should not be dealt with until the final balance was to be distributed to the parties as their share of the profits: at [23]-[24]. His Honour noted there was evidence that, in breach of the negative stipulation, the other joint venture partner (Luxcon) had directed substantial payments to be made from the sale proceeds for purposes unrelated to the joint venture prior to any proper accounting for its own benefit, including to pay personal expenses and as funding for related developments: at [25], [27] and [29].
White J also found there was a serious question to be tried that the applicant was entitled to invoke some restraint on Luxcon's dealing with that part of the sale proceeds to which the applicant was likely to be entitled prior to the taking of an account in circumstances where Luxcon had asserted a need to use the sale proceeds for other developments undertaken by related entries, it appeared likely that Luxcon would have to recover loans made to those entities of $1.5 million to meet the applicant's claim and there were doubts that the related entities had the capacity to repay the loans: at [30], [55] and [58]. His Honour was of the view that an interlocutory injunction should be granted restraining Luxcon from dealing with the net proceeds except to the extent of the applicant's claimed share, to await the outcome of the final account: at [59].
TCPL and Giant Dwarf submitted that the position in this case is relevantly different to and can be distinguished from that considered by White J in Luxcon Developments. I agreed.
At the outset, I note that, unlike in this case, there was no dispute that the applicant in Luxcon Developments was entitled to some share of profits and the amount he asked the Court to set aside did not represent the total of his claim to a proportion of profits following a final account: at [14].
More relevantly, the SSA does not contain a negative stipulation to the effect that TCPL is not to deal with its income in any way until the outcome of some final accounting or other step to be taken pursuant to the SSA. The SSA includes a contractual promise by TCPL to pay to Cordell Jigsaw 40% of TCPL's net income from the PDV Offsets after they have been received, expenses had been taken into account and a tax invoice rendered by Cordell Jigsaw: cl 4.2 of the SSA.
In my view, cl 4.2 of the SSA does not carry with it some implied negative stipulation that TCPL is not entitled to use income derived from its business, including PDV Offsets, for purposes related to its ongoing business prior to payment of a proportion to Cordell Jigsaw such that there is a serious question to be tried that Cordell Jigsaw is entitled to invoke some restraint on TCPL dealing with any part of the 40% of the PDV Offsets claimed by Cordell Jigsaw pending final determination in this case. Further, if, as Cordell Jigsaw alleges, TCPL has breached cl 4.2 of the SSA, Cordell Jigsaw's loss would seemingly be compensable by a quantifiable award of damages.
TCPL is not currently producing The Checkout, does not have another television show in production and is making less revenue and profits than it did previously. But there is evidence that it continues to receive income from the exploitation of series one to six of The Checkout and is creating content and seeking to secure funding for that program. In that sense, unlike in Luxcon Developments, TCPL's business is continuing.
There is also no evidence that TCPL had used, or intends to use, the PDV Offsets over which Cordell Jigsaw makes a claim for "non-TCPL" purposes, such as to fund different projects undertaken by Giant Dwarf or to pay for Giant Dwarf's or Mr Morrow's unrelated expenses. The evidence is that TCPL intends to use the income available to it for the purpose of exploiting existing intellectual property relating to The Checkout and, in accordance with the proffered undertaking, will retain an amount of cash the subject of the dispute and only use it (if needed) in the ordinary and proper course of TCPL's ongoing business.
In my view, the position in this case also differed to that in Luxcon Developments as to the risk of Cordell Jigsaw being unable to recover the amount to which it claims to be entitled from the 2016 and 2017 PDV Offsets if it obtains judgment.
I accepted that TCPL's 2019 profit and loss statement and other evidence in response to Cordell Jigsaw's security for costs motion raised doubts as to their financial capacity earlier this year. But since then, TCPL has received approximately $680,000 by way of the 2016 and 2017 PDV Offsets and, based on Mr Fraser's estimate, may be entitled to recover an additional amount of just over $400,000 in relation to series one and two of The Checkout. Accepting that there is a serious question to be tried that Cordell Jigsaw is entitled to 40% of those amounts, it seemed reasonable to infer that the financial position of TCPL and/or Giant Dwarf had improved since the beginning of this year, and will continue to improve from the receipt of further PDV Offsets, such that they could no longer be described as impecunious.
I was unpersuaded by Cordell Jigsaw's submission that the financial circumstances of TCPL and Giant Dwarf might incline the Court to the view that damages may not be an adequate remedy in this case. As TCPL and Giant Dwarf's counsel submitted, the availability of the other funds indicated that the risk of dissipation of the "cash" amount referred to in the undertaking (or a significant part of that amount) falls away or is greatly reduced. In my view, this significantly lessened the risk of prejudice that Cordell Jigsaw claimed might arise if the injunction were not granted.
Cordell Jigsaw referred me to GE Capital Asset Services & Trading Asia Pacific Pty Ltd v Rocks Excavations & Plant Hire Pty Ltd [2003] NSWSC 99 (GE Capital Asset Services) at [61]-[62] and Schering Pty Ltd v Forrest Pharmaceutical Co Pty Ltd [1982] 1 NSWLR 286 (Schering) at 290 in support of a submission that an interlocutory injunction may be granted on the basis that damages would be an inadequate remedy because TCPL and Giant Dwarf might be unable to satisfy an eventual award of damages. GE Capital Asset Services and Schering are cases where final injunctive relief was considered appropriate or granted (to hand over building plant and equipment in GE Capital Asset Services, and to restrain a breach of a franchise agreement in Schering), rather than interlocutory injunctions to restrain the disposition of a fund of money pending a final hearing. In each case, the Court had to determine whether the final injunctive relief should be declined because damages would be a sufficient remedy. In doing so, the Court took into account the financial position of the parties from whom the relief was sought.
In this case, the final relief sought by Cordell Jigsaw, in respect of which the interlocutory relief is claimed to be in aid, is the payment of money or damages rather than some other form of injunctive relief. As a matter of principle, it seemed to me to follow that damages should be an adequate remedy for the wrongs in relation to which the final relief is sought and there was, therefore, arguably no need for equity to intervene at this stage.
TCPL and Giant Dwarf also submitted that the relief sought by Cordell Jigsaw, in reality, amounted to a freezing order. In my view, there was some merit to that submission given the order seeks to restrain TCPL and Giant Dwarf from dealing with cash assets in an amount to which Cordell Jigsaw claims to be entitled until further order. It seemed to me that granting such an order would have an effect akin to creating security for Cordell Jigsaw's judgment in circumstances where there was no evidence that TCPL was disposing of its assets or dissipating them in a way that was said to be in order to defeat a prospective judgment: Frigo v Culhaci [1998] NSWCA 88 (Frigo v Culhaci) at 16.
As the Court of Appeal stated in Frigo v Culhaci at 10, cited with approval by Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders Pty Limited (1999) 198 CLR 380; [1999] HCA 18 at 403-404: A [freezing order], if granted, imposes a severe restriction upon a defendant's right to deal with [their] assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to "provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency" (Abella v Anderson [1987] 12 Qd R 1 and 2-3 per McPherson J).
In my view, the risk of doing injustice to Cordell Jigsaw by not granting the injunction was also ameliorated by the terms of the undertaking proffered by TCPL. The undertaking is, in substance, on more generous terms to the orders initially sought by Cordell Jigsaw in its motion filed on 9 March 2020 as the undertaking extends to future PDV Offsets and limits the use of cash (if needed) to dealings and dispositions in the ordinary and proper course of TCPL's business, including paying business expenses, to those incurred in relation to "The Checkout" and to the intellectual property of TCPL, rather than all of TCPL's business activities and projects, such as those it might be undertaking with Giant Dwarf.
The carve-out for the payment of reasonable legal fees is also limited to TCPL's fees. It seemed reasonable to expect that TCPL would not be bearing the bulk of the legal expenses in this case given Giant Dwarf is a co-plaintiff and most of Cordell Jigsaw's cross-claims are advanced against Mr Morrow personally and Giant Dwarf.
Having considered all the factors, the conclusion I came to was that, while finely balanced, justice was best served by not granting the injunction notwithstanding that Cordell Jigsaw had established there was a serious question to be tried that it was entitled to payment of 40% of TCPL's net income for the 2016 and 2017 financial years from the 2016 and 2017 PDV Offsets. This was primarily for the reason that I considered the status quo was best preserved by the regime provided for by TCPL's undertaking rather than making an order that might interfere with its continuing business. I was also not satisfied that the evidence demonstrated that the undertaking regime would result in Cordell Jigsaw's interests being insufficiently protected such that damages were likely to be an inadequate remedy in this case.
At the hearing, I indicated that some form of notification process would be appropriate to enable Cordell Jigsaw to have visibility of the position in respect of future PDV Offsets. The parties subsequently agreed to a regime which has been incorporated into TCPL's undertaking, as noted by the Court and set out below.
According to the regime, Cordell Jigsaw will be notified of TCPL's claims for and receipts in respect of future PDV Offsets and if TCPL's cash at hand reduces below the levels provided for by the undertaking. Cordell Jigsaw will also be provided with supporting documents and bank statements relating to any reduction in cash levels. To the extent that the documents received by Cordell Jigsaw raise doubts as to the probity with which TCPL has dealt with its cash assets or other matters arise which might indicate some significant detrimental change in TCPL or Giant Dwarf's position, it will, of course, be open to Cordell Jigsaw to exercise its right to apply to the Court for further relief.
At the hearing, there was also some debate about the expenses which should be taken into account in calculating the amount of cash referred to in the undertaking. Cordell Jigsaw did not dispute that the fees charged by Christopher Coote & Co Chartered Accountants for the PDV Audit should be taken into account, but disputed amounts charged by Giant Dwarf. I considered that amounts recorded in two invoices rendered to TCPL by Giant Dwarf for work undertaken in relation to the preparation of PDV Offset applications should be taken into account in calculating TCPL's net income for the purposes of the undertaking as they were, on their face, expenses incurred by TCPL relating to its business.

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