Troy Douglas in his capacity as trustee for the Douglas Family Trust v Belmore 88 Pty Limited

Applicable Legal Principles

1. The Court has power to grant interlocutory injunctions under Supreme Court Act 1970, s 66(4), on terms, if necessary, in any case where "it appears to the Court to be just or convenient".
2. This is an interlocutory hearing, not a final hearing. The Court's task at an interlocutory hearing is not to undertake a preliminary trial and to give or withhold interlocutory relief upon some forecast as to the ultimate result of the factual and legal dispute between the parties, although the relative strengths of the parties' cases are not irrelevant to the exercise of the Court's discretion.
3. The Court's task on an interlocutory hearing such as this one was well expressed by the English Court of Appeal in Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892; [1984] 2 All ER 408; (1984) 81 LSG 2225; (1984) 128 SJ 484 when Sir John Donaldson MR said (at 894H - 895A): "The defendants now appeal. It is of paramount importance that everyone should understand the exercise upon which the judge was, and we are, engaged. There is to be a speedy trial at which the rights of the parties will be determined. That has not yet happened. We are concerned, so far as we can, to preserve the rights of the parties meanwhile. It is not our function to decide questions of fact or law which will be in issue at the trial. If they are arguable, that is the time and the place when they should be argued."
4. Later in the same judgment his Lordship further explained the Court's duty in following terms (at 898E-898G): "What then should we do? I stress, once again, that we are not at this stage concerned to determine the final rights of the parties. Our duty is to make such orders, if any, as are appropriate pending the trial of the action. It is sometimes said that this involves a weighing of the balance of convenience. This is an unfortunate expression. Our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are usually asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing, we are seeking a balance of justice, not of convenience."
5. In deciding whether to grant an interlocutory injunction the Court must consider whether there is a serious question to be tried and then whether the balance of convenience and questions of hardship and related factors warrant the grant of an interlocutory injunction. First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) at [21-350] ("Equity Doctrines and Remedies"), discussing the requirements of the Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618; [1968] ALR 469; (1968) 42 ALJR 80; [1968] RPC 301 prima facie case test. Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; (2006) 229 ALR 457; (2006) 80 ALJR 1672; [2006] HCA 46 at [70] - [71].
6. In this case Ms Evans on behalf of Mr Douglas has rightly conceded there is a serious question to be tried. Despite that appropriate concession, some aspects of the relative merits of the parties' cases remain relevant in the exercise of the court's discretion.
7. Then, it becomes a matter of analysing if in all the circumstances of the case, considering the balance of convenience and issues of hardship, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies at [21-350]; and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; (2001) 76 ALJR 1; [2001] HCA 63 and Beese (Managers of Kimpton Church of England Primary School) v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586. Other factors to which the Court will have regard include the adequacy of damages, the possibilities of alternative remedies, whether there has been any laches or delay, the strength of the grounds of defence suggested by the defendant, what, if any, undertakings the defendant is prepared to give, but hardship and the balance of convenience are very important: Equity Doctrines and Remedies [21 - 375]. If any infringement of a plaintiff's right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v Council of the Municipality of North Sydney (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.

Mr Douglas, Mr Hrsto and the Belmore Development

1. Background to the Proceedings. Belmore 88 is a special purpose vehicle originally incorporated in 2011 to act as trustee of the Belmore Trust. Mr Douglas and Mr Hrsto each held upon incorporation 50 of the 100 ordinary shares of Hrsto. The Belmore Trust was settled for the purposes of acquiring and developing the Belmore property.
2. A term of the Belmore Trust required Belmore 88 to keep accounts in accordance with applicable Australian accounting standards: Trust deed, clause 30. Belmore 88 was required to appoint a registered company auditor to ensure that the records and books of account of the Belmore Trust were audited yearly: Trust deed, clause 31. The Trust deed also provided for Belmore 88, to provide each unit holder with unaudited six-monthly management accounts and audited financial statements for the preceding financial year: Trust deed, clause 32.
3. Belmore 88 obtained development approval in June 2017 to construct 141 residential units and nine retail and commercial tenancies, together with three basement levels of car parking. Mr Douglas maintained a case that Mr Hrsto gave him a feasibility study showing an estimated total net profit from the Belmore development for the Belmore Trust of $36.87 million.
4. In July 2018, Mr Douglas, as trustee of his family trust, and Mr Hrsto as trustee of his family trust, and in their personal capacities, entered into a Profit-Sharing Deed with Belmore 88, which provided for the equal distribution of profits and acknowledged that Belmore 88 had provided loans to Mr Douglas of $949,588.99 and that Belmore 88 would provide further advances to Mr Douglas totalling $2,350,000 at various future times. The Profit-Sharing Deed required the profits available for distribution to Mr Douglas to be first set off against the outstanding loans.
5. The Profit-Sharing Deed also provided for Mr Douglas to resign as a director of Belmore 88, then to transfer all his shares in Belmore 88 to Mr Hrsto and that a solicitor, Mr Dennis Bluth, the third defendant would be appointed in his place. The Profit-Sharing Deed provided that if Belmore 88 committed an irremediable and unremedied breach of its terms that Mr Douglas would be reappointed as a director of Belmore 88 and his shares in Belmore 88 would be retransferred to him.
6. Mr Douglas alleges that he performed the Profit-Sharing Deed in accordance with its terms. Mr Douglas concedes that Belmore 88 made advances of $1.7 million to him under the facility provided for in the Profit-Sharing Deed.
7. The contest in these proceedings arises out of the subsequent conduct of the Belmore development and its financial management. The details are less important than the nature of the allegations.
8. In December 2017 Belmore 88 entered a design and construct contract with Aland Developments Pty Limited ("Aland"), a company associated with and controlled by Mr Hrsto. Belmore 88 drew down on construction finance facilities between December 2018 and April 2020, constructed the development and repaid the construction finance by approximately November 2020.
9. Belmore 88 does not contest that Belmore 88 has not made any payment to the Douglas Trust in respect of any profit generated by the project. In his Statement of Claim Mr Douglas alleges that Belmore 88 made a series of related party loans without approval to companies associated with Mr Hrsto, specifically to Aland and to Aland Realty Pty Limited and to other related parties of Mr Hrsto. Mr Douglas alleges these loans were made without the fully informed consent of Mr Douglas and on terms which were highly advantageous to the business entities associated with Aland and Mr Hrsto. Mr Douglas alleges that a number of unapproved transactions took place between Belmore 88 and entities related to Mr Hrsto.
10. Mr Douglas alleges that Mr Hrsto has caused Belmore 88 to incur excessive legal fees unrelated to the Belmore development and overcharged Belmore 88 for management services and has failed to provide proper trust accounts and financial reports for the operations of the company.
11. Mr Douglas also alleges that Mr Hrsto approved variations under the construction contract which provided substantial benefits to companies related to Mr Hrsto and did so without proper Belmore 88 board approval and without following the processes required by the Trust deed.
12. Mr Douglas now seeks relief in the Statement of Claim, replacing Belmore 88 as trustee of the Belmore Trust, the appointment of a new trustee, declarations that Belmore 88 has breached the terms of the Trust deed, an order for specific performance of the Profit-Sharing Deed, to appoint Mr Douglas as a director of Belmore 88, and orders for an account and the preparation of the accounts of the Belmore Trust.
13. There may be a case for the interim appointment of an independent trustee in a case such as this, where the parties have totally fallen out and the account of the Belmore Trust is so contentious. At the very least, as these reasons later discuss, there is a sound case for sending in a Court expert, with authority to require documents from the parties, to give the Court a quick assessment of the financial picture inside the Belmore Trust.
14. Belmore 88's Defence contests much of Mr Douglas' case. But importantly it defends the allegations of failure to distribute profits on the basis that the allegation does not take into account Belmore 88's liabilities, including for taxation and the set-off of loan amounts that Belmore 88 has advanced to Mr Douglas.
15. In Belmore 88's Cross Claim it seeks recovery of loans made pursuant to the Profit-Sharing Deed, an instrument which consolidated a number of loans to Mr Douglas going back to 2013. The Cross Claim also claims recovery of loans pursuant to a loan agreement made in April 2019. A feature of both these loan instruments is an entitlement to charge interest at the rate of 30 per cent per annum.
16. Mr Douglas' Defence to the Cross Claim admits the receipt of much of the money claimed to have been loaned, contests the interest rate being charged on the proper construction of the Profit-Sharing Deed and the loan agreement and seeks to set off those claims against his unascertained claim to a profit share.
17. The present proceedings are part of a wider matrix of proceedings being case managed in the Court. It is unnecessary to describe those proceedings individually. But some of them are "investor claims" by individuals who purchased lots in the Belmore development by advancing funds in the form of loans to Belmore 88 which they claim entitled them to enforce contracts for sale of particular apartments in the Belmore development. They seek specific performance of those agreements. In yet other proceedings Belmore 88 claims that when Mr Bluth was acting as a director of Belmore 88 some of the funds received from investors were misapplied by payment to Mr Douglas or his interests. These various other proceedings are being mediated on 1 March 2023.
18. Background to the Motion. On 13 December 2022 Belmore 88 filed a motion seeking orders restraining Mr Douglas from taking any steps to deal with or create any interest in the Double Bay property. The claim for the restraint is based upon a provision of the Profit-Sharing Deed in which Mr Douglas undertakes not to dispose of the Double Bay property. It is not in question that this contractual provision does not create a caveatable interest in the property.
19. When the interlocutory contest first came before Kunc J on 16 December 2022 it was resolved by consent in a regime which provided for restraint upon Mr Douglas entering into a contract for sale of the Double Bay property or completing such a sale, unless appropriate advance notice that the property was to be sold at auction or private treaty was given. If the sale were by private treaty, a longer period of notice is required to be given, the sale could only be to a bona fide purchaser for value, and the net proceeds of sale should be paid into Court.
20. On 13 January 2023 Mr Douglas sent a copy of a draft contract for the proposed sale of the Double Bay property to the solicitors for Belmore 88 in claimed compliance with the 16 December 2022 orders. About the same time Mr Douglas' then solicitors, Watson Webb were ceasing to act for him. Belmore 88 questioned the draft transaction that Mr Douglas was proposing to enter into with Mr Hilton Wood to sell the Double Bay property for $4.7 million. On 19 January 2023 Belmore 88 sought confirmation from Mr Douglas that he would not exchange contracts with Mr Wood otherwise they, Belmore 88, would approach the Court.
21. In the event, confirmation was not given and the matter came before Meek J on 20 January 2023. On that occasion Mr Douglas told the Court that contracts had been exchanged. Mr Douglas handed up to the Court, an executed contract for the sale of the Double Bay property for $4.7 million to Mr Wood, for $4.7 million, showing a deposit of $950,000 and a balance due of $3,750,000. Mr Douglas told Meek J that contracts had been exchanged with Mr Wood on 18 January 2023 but the deposit sum of $950,000 had been paid on 18 January 2023.
22. Upon receipt of the contract for sale, Belmore 88 disputed the accuracy of the draft contract for sale that had been provided to them on 13 January, contending that an important "vendor acknowledgement" in special condition 24 of the contract had been omitted from the draft. Clause 24 acknowledged that Mr Wood had loaned Mr Douglas $600,000 secured by a caveat over the Double Bay property and together with interest the amount owing by Mr Douglas to Mr Wood was $950,000. The clause further noted that payment of the $950,000 "is to be substituted as the deposit paid to the vendor" under the contract for sale. Although inexpertly drafted, the clause appears to contemplate Mr Douglas' loan obligations to Mr Wood would be set off against and satisfied by Mr Wood's obligations under the contract to pay a deposit of $950,000. Mr Douglas disputed it had been omitted.
23. Meek J adjourned the proceedings to the Registrar on 31 January 2023 and they were then referred to the Duty List. Mr Douglas conducted the proceedings on his own behalf on that day and engaged Ms Evans for the adjourned date of 9 February 2023. The Court was much assisted by the involvement of Ms Evans on the adjourned date in gathering the evidence and presenting issues for determination on behalf of Mr Douglas, who would otherwise had been unrepresented.
24. On 20 January 2023 Mr Douglas undertook to take no further steps to complete the contract for sale up until 31 January 2023. Since 31 January an order to the same effect as this undertaking has been substituted for it and has continued up until the Court gives judgment. In orders made on 27 February 2023 those orders were continued until 3 March on the terms set out below.
25. It is not neither necessary nor desirable to canvas the full range of evidence presented to the Court on each side at the hearing but a number of features of the evidence should be noted.
26. First, one impediment to settlement of the contract for sale is four caveats on the Double Bay property by the following caveators, apart from Mr Wood, by Nova Ciptulum Pty Limited, Horace Dipasqua, Hazel Marie Loh and Makari & Co Pty Limited ("the caveators"). Disputes exist between Mr Douglas and the caveators about the total quantum of monies owed.
27. Second, Mr Wood has undoubtedly advanced funds to Mr Douglas to pay substantial amounts for his legal fees. The period of the advances from Mr Wood substantially coincides with the period during which Mr Douglas was incurring legal fees to Watson Webb. Belmore 88 disputes that Mr Wood's advances were all on account of legal fees. Precise findings are not possible or practicable in hearings such as this, but it is probable that substantially more than half of the loans made from Mr Wood to Mr Douglas, which the contract for sale quantifies at $600,000, were likely to have been made on account of the legal fees of Mr Douglas in these and related proceedings. Mr Douglas' capacity to meet and to continue to meet his legal fees is an important consideration in giving him access to the administration of justice to resolve his disputes with Belmore 88.
28. Moreover, with the assistance of Ms Evans he has indicated that he has obtained an estimate from Ankura Consulting (Australia) Pty Limited ("Ankura") for that firm to provide an expert forensic accounting report as to the accuracy of financial records and use of funds relating to Belmore 88 for which a tentative figure of $200,000 has been quoted by Ankura.
29. Third, there is a contest between the parties about the adequacy of Belmore 88's undertaking as to damages. The balance sheet of the Belmore Trust discloses total current assets as $15.62 million and total liabilities in the same amount, less $100. But the "liabilities" include obligations of $5.52 million and $7.19 million due respectively for distribution of profits to Mr Hrsto and Mr Douglas' family trusts. Features of the balance sheet and the contest concerning it give the Court no confidence as to its quality. The balance sheet records an unpaid GST liability of $1.87 million, presumably associated with the sale of the units in the development. The balance sheet for the Belmore Trust as at 30 June 2022 is only described as a "draft" which is annexed to an affidavit of the general counsel of Aland who says on information belief it has been prepared in accordance with applicable accounting standards.
30. In related proceedings Mr Bluth has commissioned a report from FerrierSilvia which criticises many aspects of the accounting of the Belmore Trust for the development. The FerrierSilvia report is untested but its executive summary questions the draft financial statements of the Belmore Trust in the following ways. "1. EXECUTIVE SUMMARY 1. Based on the documents and instructions given to me, there appear to be grounds for questioning whether the Draft Financial Statements for the Vehicle give a true and fair view of the financial result of the Development at [address not published], Belmore in the following respects: 1.1 The sale of twenty-nine (29) residential apartments and seven (7) commercial units to UGF for a total price of $29,251,700 (including GST) on 10 November 2020 may have been a sale at an under value, possibly of approximately $4.4 million. 1.2 The Balance Sheet records an asset as 'Loans Troy Douglas' including interest of circa $5.3 million. There are aspects of this alleged loan which require further investigation. The documents I have seen do not explain whether the total sum is properly charged against Douglas. 1.3 Interest charged against Douglas in the FY 2020 and FY 2021 years appears to have been over-charged, though it is not possible to estimate the extent of the overcharge based on the documents which have been provided to me. 1.4 The Development Costs of the project (i.e., in effect construction costs including land owned and associated professional costs) in FY 2020 of $24,423,232 and FY 2021 of $38,379,869 may have been materially over-stated. For example, the 'design and build' contract was a lump-sum contract for the price of $41,225,515 and contained no provisional sums, being contractual pre-estimates of project elements, which at the time of the contract could not have been accurately estimated as to their ultimate cost. As to, variation claims the contract provides that they must be approved by the Superintendent, whilst the Wingate finance approval requires the approval of the QS. 1.5 The Interim Occupation Certificate ('IOC') for the Development was issued on 19 February 2020. A Variation Claim for $4,607,614 was issued by Aland on 23 October 2020 (as included in Invoice number 52 referred to in paragraph 1.6 below) and paid but was never certified by the QS. Invoices supporting this Variation Claim for $4,607,614 have not been provided to me as requested for review. In this regard it may be relevant that Hrsto, then in effective sole control of the Company (at the time of Bluth's health issues), was a director of the builder, Aland and was also the Superintendent. 1.6 On 23 October 2020 Aland issued three invoices all numbered 52 for $9,400,684, $7,335,779, and $5,575,214. The Company paid the invoice for $5,575,214. The records provided to me do not explain nor have I have seen an explanation as to why the three invoices for substantially different sums were issued with the same date of which only one was processed for payment. 1.7 Legal costs charged as expenses of the Development total $826,330. No costs agreements have been provided to me except for those relating to HWL Ebsworth. Legal costs appear disproportionately high for a project of the subject magnitude. 1.8 Commencing FY 2020 Belmore 88 charged and paid $476,643 for 'management services' to Aland. I have seen no contract for such management services nor evidence the directors approved the retainer of them. Similarly, I have seen no evidence of the benefit the Company derived for the $476,643 it was charged and paid. 1.9 There Is an amount owing to Bluth that, if included in the Draft Financial Statement, appears to be understated. 1.10 There are two (2) Investors (Victor and SBOC Superannuation Fund) who were paid out and Douglas was either charged with the cost of the payout (Victor) or did not get a reduction In the debtor loan balance for amounts paid. 1.11 There are three (3) investors who either have not been included In the Draft Financial Statements or have been included at an unexplained discounted value. Bluth appears to have been included but at a lesser value."
31. On the basis of this kind of evidence and the disputes in these proceedings the Court expressed to the parties it had little confidence in the Belmore Trust balance sheet. That resulted in an undertaking as to damages also being given by Aland. But the fate of that proposal is discussed in more detail in the "Consideration" section of these reasons.
32. Fourth, Mr Douglas says that his future liability for legal fees in this litigation and other litigation currently on foot, based on a written estimate from Watson Webb is slightly in excess of $1 million.
33. Mr Douglas requested an entitlement to retain $60,000 after payment out of the sale of the Double Bay property to be in a position to continue the present litigation in the short term. Belmore 88 submitted that it would not oppose the payment out of $60,000 but only on the basis that Mr Wood would not be given credit for the amount of $950,000 under the contract for sale and that net proceeds of sale be paid into Court on the basis of the full face value of the contract, less mortgagee and caveators' charges.

Consideration

1. The Structure of the Contest. A dominant background factor which frames the present contest is the limited proceeds of sale that will be available upon completion of the Double Bay property, once other liabilities secured over the property are met.
2. The contract for sale provides for the Double Bay property to be sold to Mr Wood for $4.70 million. Some of the deductions from the sale price of $4.70 million are uncontentious. But the quantum of other deductions is contentious, even before the disputed deposit of $950,000 is considered.
3. Agent's commission ($88,000), adjustments on sale ($14,000), and the amount due to the first mortgagee, NAB ($2,619,386), are not in dispute. The total of these figures is $2,721,386 ($2.72 million which rounded to 2 decimal places).
4. The caveators on the four caveats on the Double Bay property claim a total of $1.48 million. Mr Douglas says that the caveator's claims are overstated. His estimate of the total value of these caveator claims is $1.05 million.
5. Thus, apart from the removal of the contested $950,000, the Double Bay property would generate net sale proceeds of $500,000 (being $4.70 million less $2.72 million less $1.48 million). If the lower figure of the caveators' claims is accepted, the net sale proceeds would rise to $930,000.
6. But deducting the $950,000 deposit as the contract for sale provides, leaves a shortfall that will immediately affect the interests of the caveators. If Mr Wood retains the $950,000 deposit the caveators will suffer a shortfall on their best-case claim of approximately $456,000, and on Mr Douglas' estimate of their claim, a shortfall of $24,000.
7. Thus, retention of the deposit by Mr Wood will substantially diminish the caveators' financial interests in the proceeds of sale of the Double Bay property, unless they accept Mr Douglas's valuation of their claims, in which case the overall diminution is relatively minor. Quite apart from Belmore 88's claim, the contract for sale gives Mr Douglas considerable negotiating leverage over the caveators.
8. As registered proprietor of the Double Bay property Mr Douglas has the primary interest in the proceeds of sale. His interest is subject to the claims of the caveators, and in turn to such restraints as can be justified by an unsecured creditor such as Belmore 88.
9. The Competing Considerations. As Ms Evans acknowledged, the logic above shows that caveators should be heard before final interlocutory orders are made. The orders below direct that a copy of these reasons be provided to the caveators for their consideration before final orders are made. But the parties need a structure for orders, on the basis that the caveators do not wish to intervene or otherwise resolve their differences with Mr Douglas.
10. On the other side, the Court has little confidence either in Aland's or Belmore 88's evidence of assets to back an undertaking as to damages in support of the continuation of the injunction. Aland was offered an opportunity to substantiate its out-of-date, 30 June 2021 balance-sheet evidence by the day following the hearing on 9 February. Supplementary evidence was filed on 10 February 2023. That evidence shows that Aland's June 2022 accounts have not been finalised but that a related company Aland B & W Pty Limited has, on an authenticated 30 June 2022 balance sheet, current assets of $61.9 million and current liabilities of $51.5 million and cash presently at the bank of $1.043 million. But in a case where unexplained intercompany loans to Aland related parties are a prominent feature of the contest the Court should exercise great caution. This appears on its face to be satisfactory. Given the risks to Mr Douglas of granting this injunction the undertaking should be secured, to minimise risk to him. Moreover, should it be required, arranging a bank guarantee or a payment into Court in the short term should not be difficult for Aland or Belmore 88.
11. On Mr Douglas' side, the risks associated with continuing this injunction are unusually high. Those risks are principally (a) the loss of a valuable contract for sale at or slightly above market value, and (b) the stultification of Mr Douglas's capacity to conduct this litigation any further because of inability to fund legal advisers.
12. Ms Evans points to an uncontentious public fact that the real estate market is falling in an environment of rising interest rates. According to the agent this appears to be a slightly above market sale. The agent's evidence suggests that realistic buyer interest in the Double Bay property falls in the range $4.1 million to $4.5 million with the figure probably closer to the lower end of that range.
13. If an injunction is granted, Mr Douglas suffers a real risk (indeed almost an inevitability) of losing the sale at $4.7 million to Mr Wood and potentially facing action by Mr Wood for damages if Mr Douglas is unable to complete the January contract, including for the loss of his bargain. Giving weight to the agent's estimates, if the sale is aborted by the injunction and Mr Douglas is forced to resell it is not unrealistic to anticipate a risk of resale that only achieves a sale price of about $4,000,000.
14. Mr Douglas says he is not readily able to source funds to prosecute or defend himself in this litigation. Belmore 88 stoutly challenges that claim, saying that Mr Douglas has put on insufficient evidence about his net financial position and that he has not explained how he applied the monies that he borrowed from Belmore 88. The Court cannot undertake a detailed fact-finding exercise on matters such as this on an interlocutory application. But two matters point compellingly to the truth of what Mr Douglas says. He is selling his own residence, the Double Bay apartment. It is heavily mortgaged and bears a number of other charges. And Mr Douglas appeared unrepresented before the Court on 31 January and has engaged Ms Evans on a time limited retainer. The Court does not assess his case as an elaborate charade to hide substantial assets. This litigation has undoubtedly been expensive. Mr Douglas is involved in other expensive investor litigation. If Mr Douglas had substantial hidden wealth, it would be odd that he would not deploy some of it to press forward with this litigation, for which if his case is made out, the rewards to him may well be substantial.
15. The circumstances point to the need for protection for Mr Douglas if the injunction is continued. Belmore 88's undertaking as to damages must be scrutinised closely so that there is no risk of the Court's coercive powers being misused.
16. Such risks to Mr Douglas are not balanced here by a Belmore 88 case, with strong prospects of success. Indeed, the situation is arguably tilted the other way when Belmore 88 is considered as a defendant and as a cross claimant.
17. As to Belmore 88 as a defendant, the starting point is that Belmore 88 is a trustee. Belmore 88 has been asked to account to its beneficiary, Mr Douglas. The case that it has not done so looks readily maintainable. A trustee's duty to account would normally be satisfied by providing a clear set of accounts funded out of the trust estate to show with precision exactly how trust assets have been realised, precisely what expenses were brought to account and how trust distributions have been calculated. The nature of the accounts will vary according to the nature of the trusteeship and the enterprise in question. Belmore 88 says it has supplied many documents to Mr Douglas pursuant to Court orders. The duty to account is more a subtle duty than this. The FerrierSilvia report demonstrates that there are serious question marks about Belmore 88's accounts. Mr Douglas is not required to try and work out the trustee accounts for himself. They must be clear and fit for purpose upon an objective assessment.
18. As to Belmore 88 as a cross claimant, the position is little better. There is no doubt that Mr Douglas received an advance of approximately $4,000,000 on the profits to be distributed from Belmore 88. And he seems to have received an advance of another $2,000,000. But the real contest on the cross claim is how in the space of little more than 18 months this obligation balloons into a debt of over $14,000,000. Interest compounding at a rate of 30% in the loan agreement is a start at explaining this debt inflation. But that factor falls a long way short of accounting for the sum claimed on the Cross Claim, which Belmore 88 says exceeds any distribution to which Mr Douglas might be entitled in his primary claim for an account.
19. Added to this, Ms Evans says that Mr Douglas only entered into the loan agreement on disadvantageous interest terms because of Mr Hrsto's representation to him that he would share 50% of the expected $36,000,000 profit from the Belmore development estimated in the feasibility study. Such a representation might well account for Mr Douglas taking a risk on 30% interest rates. Moreover, if such an express representation were made in a context where 30% interest rates were agreed, the express representation arguably brings with it an implied representation that Belmore 88 would provide a transparent final accounting reasonably expeditiously, so the loan could be repaid without incurring a heavy interest burden, which may not have been done.
20. Ms Evans properly concedes that even if the misrepresentation case is successful Mr Douglas must set off the approximately $6,000,000 that he has received from the $18,000,000 he expects to receive from Belmore 88, once it gives a proper accounting. Even if Mr Douglas is successful that $6,000,000 would attract interest up to judgment at rates fixed under Civil Procedure Act 2005, s 100. But if Mr Douglas' claim results in a substantial upward revision of the distribution to him from Belmore 88, closer to $18,000,000 plus interest at Civil Procedure Act rates, Mr Douglas may yet be entitled to figure in a range centring around $12,000,000.
21. Belmore 88 may be successful in showing that it is entitled to interest at 30%. But even if it does it is yet to provide a calculation that gives the Court confidence that the quantum of its loan claims is in the order of $14,000,000. Moreover, the available criticism of Belmore 88's accounting tends to support Mr Douglas having a reasonably arguable claim to a substantial distribution which is probably greater than Belmore 88 has conceded.
22. This state of the contest on the claim and cross claim has implications for both the undertaking as to damages and the terms upon which any injunction might be granted.
23. Balanced against this as Mr Asfar argues, is the potential for serious loss to Belmore 88, if the injunction is not continued. It has a loan agreement which clearly contains a negative stipulation against the sale of the Double Bay property. The property has been sold. Belmore 88 has a prima facie right to an injunction to enforce the negative stipulation. That right will be lost if the injunction is not continued in some form. This right to seek relief is probably what would be classified as not as an equitable estate or interest but a "mere equity", or a "personal equity", which may not bind third parties because it is not ancillary to or dependent upon an equitable estate or interest. But mere equities will ground equitable intervention, and Belmore 88 therefore has a platform for relief which is more powerful than would apply upon an application for a freezing order.
24. Mr Asfar submits that the history of these interlocutory proceedings should be weighed in the balance in favour of the continuation of the grant of an injunction. He argues in substance the following: that the terms of the injunction were well settled before Kunc J by consent on 16 December 2022 and orders were then made until further order, that Mr Douglas is in breach of those orders; and, that because of Mr Douglas' conduct there is a strong case for the Court's intervention now to uphold these prior orders of the Court.
25. This contention is not of decisive weight on the present application for several reasons. Whether there has been a breach of the 16 December 2022 consent orders is contestable and the Court is not able to resolve that contest on this interlocutory hearing. There can be dispute about whether sufficient notice of the proposed sale was given to Belmore 88, whether Mr Douglas deliberately withheld the page of the January contract that shows the deposit was not paid in cash to Mr Douglas, and whether Mr Wood is a bona fide purchaser for value without notice. Moreover, circumstances changed after the contract for sale was entered into on 18 January and the matter came before Meek J shortly thereafter. His Honour made fresh orders on 20 January 2023 and accepted undertakings only up until 31 January 2023. That was in turn extended until 9 February 2023 and then only until the Court gave judgment.
26. The Court is now looking at the matter in significantly changed circumstances. There is a contract for sale in place. There are doubts about the quality of Belmore 88's undertakings to damages. The interests of the caveators and Mr Wood are in play. The Court must look at the matter afresh.
27. Framing Orders. The way to balance these interests is by fashioning relief that attempts to minimise the risks of irretrievable loss to both sides. That means giving an opportunity to Belmore 88 to maintain its injunction but protecting Mr Douglas against the risks from granting an injunction.
28. The Court will take a strict view of requiring security for the undertaking as to damages. The Court will accept undertakings to damages given by Belmore 88 and by Aland, but the undertaking will have to be secured. This should not be a hardship to Aland that claims on paper that it has substantial current net assets. The Court will therefore require as a condition of the grant of any injunction that Belmore 88 pay into Court, or otherwise secures to the satisfaction of the Court, the sum of $850,000 to support its undertaking as to damages. Such a figure can readily be justified on the basis that Mr Douglas may be facing potential loss of $700,000 on resale of the Double Bay property and an allowance of a further $150,000 should be made for the potential litigation he may face from Mr Wood together with his own costs. The Court will not continue an injunction in favour of Belmore 88 unless this condition is fulfilled.
29. But it will be necessary for $100,000 of this sum to be paid into Court in liquid funds. From those liquid funds the Court will allow the payment out to Mr Douglas of $60,000 to his current solicitors Uther Webster and Evans, on the strict basis that the sum is used to defray Mr Douglas' legal fees in these or the related proceedings. Depending on the way that events unfold, Mr Douglas may be able to apply to increase his payment out for costs.
30. The Position of Mr Wood. Before the Court dissolves the existing injunction or allows it to expire, it needs to be satisfied that proper notice has been given to the caveators and to Mr Wood to allow them to appear and contest the terms on which it is finalised. The injunction has been obtained and continued under the Court's supervision and the Court can foresee potential loss to the caveators unless they are notified, and they are given an opportunity to apply to be heard on the form of orders to be made.
31. The position of the caveators must first be considered. Mr Douglas and Mr Wood will have to deal with them before settlement of the contract for sale. But they may wish to approach the Court to ensure that their interests are protected in the journey toward settlement.
32. What will flow from these orders? Belmore 88 will either provide the security for its undertaking as to damages, or it will not. If Belmore 88 does not provide security, the injunction will be dissolved and the caveators will be left to deal with Mr Douglas and Mr Wood before completion.
33. If Belmore 88 provides security for the undertaking as to damages, Mr Wood may wish to apply to be heard to put submissions to alleviate the degree of hardship suffered by him if he loses this contract. He is a potential party in related but as yet uncommenced proceedings. He has potential rights against Mr Douglas in specific performance and damages. Belmore 88 has foreshadowed its claim that he is not a bona fide purchaser and may seek to set aside the contract of sale to him. Whilst the Court is not keen to overcomplicate these proceedings it is desirable that in the framework of these competing rights Mr Wood's interests are considered in a structured legal environment, without incurring unnecessary legal costs. It is difficult to see this contract for sale continuing on foot unless Mr Wood is brought into the picture in some way. These matters should be addressed early. Mr Wood will be given the option, if he chooses, to appear on Friday, 3 March. It may yet be possible to take adequate account of his interests consensually, without the necessity for either Mr Wood or Belmore 88 commencing proceedings and adding to overall legal costs.
34. And it is possible to anticipate aspects of that prospective contest. If the caveators were satisfied at the level suggested by Mr Douglas, that would leave net proceeds of sale of $930,000. Mr Wood would then face much the same argument that has already been rehearsed between Belmore 88 and Mr Douglas. He would be competing with Belmore 88's mere equity, its claim to enforce the negative stipulation in the loan agreement, which is not a claim to an estate or interest in the Double Bay property.
35. The Court cannot speculate on what Mr Wood might say on such an application. But it appears from his presence in the courtroom on 9 February 2023 that he wishes to save the contract for sale. To do that he may wish to argue for some intermediate position in which some portion of the $950,000 deposit which is presently credited to him under the contract for sale, is paid into Court, pending a contest about its fate. He could then argue for the present injunction to be varied to allow the contract for sale to proceed to completion on those terms. Were such an argument to be put successfully for that to occur, the modification or dissolution of the present injunction would probably involve releasing some or all of the security for the undertaking as to damages.
36. The Court will give Mr Wood an opportunity to be heard about these matters, so they can be dealt with before the threat of parallel litigation becomes too costly for these parties.

Conclusions and Orders

1. Mr Douglas is currently gearing up to prepare an expert report to challenge the accounting for the Belmore Trust that has been done so far by Belmore 88. And Belmore 88 may have done similar work. But it seems to the Court that much of this expense need not be to the sole account of Mr Douglas. He is a beneficiary of a trust. The respective accounting related obligations of Mr Douglas and Belmore 88 can be summarised in general terms apart from the terms of the Trust deed set out above. The trustee is obliged to keep proper trustee accounts at the expense of the trust. A beneficiary such as Mr Douglas is entitled to view estate accounts, but the trustee's preparation and communication of additional accounts may be at the expense of the beneficiary.
2. The cost of preparing proper trustee accounts in adversarial litigation can highlight the tension between these two obligations. A trustee may say proper accounts have been prepared. A beneficiary may say they have not and asks for better accounts. Sometimes in such adversarial litigation the better course is to appoint a Court expert at the joint expense of the parties to reduce the scope of such contests. Although this has become adversarial litigation the Belmore Trust nevertheless may have to satisfy the Court as to how it is going to give an account to Mr Douglas's interests in conformity with the Trust deed.
3. There may be enough evidence in the FerrierSilvia report of poor accounting practices by Belmore 88 as trustee to warrant the Court appointing a Court expert under Uniform Civil Procedure Rules r 31.46 to complete accounts, to the extent they are uncontentious, and otherwise investigate and identify any issues that arise from unsatisfactory accounting that may need resolution. This is not uncommonly done in the first instance at the shared expense of both parties. Once the contentious issues are identified, the scope of the adversarial contest may then be significantly narrowed. The Court will direct the parties to consider this option and report back to the Court when the matter is next before the Court.
4. The Court is conscious that Ms Evans has only been retained for a limited time. It is desirable that Mr Douglas has continued legal representation. The Court will only entertain a limited number of further appearances consequent upon the orders made today.
5. For these reasons therefore the Court makes the following orders and directions upon the defendant's motion filed on 13 December 2022 (the Motion"): 1. Upon the basis of the plaintiff's existing usual undertakings to damages the Court will continue until 5.00 pm on Friday 3 March the existing restraining orders 2023 made by Meek J on 20 January 2023 and Slattery J on 31 January and 9 February 2023; 2. Upon the plaintiff by its counsel giving the usual undertakings to damages the Court will continue from 5.00 pm on Friday 3 March the existing restraining orders 2023 made by Meek J on 20 January 2023 and Slattery J on 31 January and 9 February 2023 but provided 1. the plaintiff pays into Court or otherwise secures by first mortgage or bank guarantee or other satisfactory security the sum of $850,000 as security for the plaintiff's undertakings to damages, 2. further provided that of that $850,000 paid into Court that the sum of $100,000 should be in the form of liquid funds; 3. and further provided that from that $850,000 paid into Court, the defendant is authorised to have paid to him out-of-court the sum of $60,000, which amount is to be paid into the trust account of Uther Webster and Evans solicitors, and is to be applied solely on the plaintiff's legal costs and disbursements in these proceedings; 1. Direct that the parties provide a copy of these orders and the judgment to be published with them to each of the caveators on the caveats presently on the title of the plaintiff's Double Bay property the subject of the orders sought in the Motion ("the Double Bay property") and to Mr Hilton Wood the purchaser under the 18 January 2023 contract for sale of the Double Bay property; 2. Direct the parties to evaluate, consider, and draft any necessary short minutes of order for, the appointment of a Court expert under Uniform Civil Procedure Rules r 31.46, in the first instance at the joint expense of the parties, to report to the Court upon the following: 1. as to whether the accounts of the Belmore Trust, of which Belmore 88 is the trustee ("the subject accounts"), have been completed up-to-date and conform with accepted standards of trustee accounts in respect of the undertaking of the Belmore Trust; 2. to identify which parts of the subject accounts have been completed and do so conform, and which parts either have not been completed or do not so conform; and 3. to recommend what further accounting should be undertaken on behalf of the Belmore Trust at the minimum cost to the Belmore Trust to ensure that the part of the subject accounts which have not been completed or do not conform with accepted standards are completed to an acceptable standard. 1. Adjourn these proceedings to Friday, 3 March 2023 at 2.00pm to allow an opportunity for 1. the caveators, or Mr Hilton Wood, to appear and apply to be joined into the proceedings to be heard in relation to any variation to the form of these orders; and 2. the plaintiff the defendant to indicate whether the Court's orders will be continuing beyond 5.00pm on 3 March 2023. 1. Grant liberty to apply.

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. Decision last updated: 28 February 2023