Zeng v Mossensons Pty Limited

Judgment 1This is an application by the plaintiffs by notice of motion filed on 1 May 2013 for summary judgment under Uniform Civil Procedure Rule 13.1 on part of the plaintiffs' claim. 2The notice of motion also claimed an order for the entry of default judgment for the same relief under Rules 36.1, 16.3 and 30.1 of the UCPR on the ground that the defendants had failed to file a commercial list response within the time allowed by the court . As the first and second defendants filed commercial list responses on 1 May 2013, and the third to seventh defendants did so on 2 May 2013, the plaintiffs did not pursue their claim for default judgment. 3The first plaintiff ("Mr Zeng") is a director and shareholder of the second plaintiff ("Shandong Mining"), a company incorporated in the People's Republic of China. Mr Zeng is also the sole director and shareholder of the third plaintiff ("Shandong Group") which is a company incorporated under the Corporations Act 2001 (Cth). Mr Zeng and Shandong Mining are the claimants for the relief sought in the notice of motion, and will be called collectively "the plaintiffs". Shandong Group was a party to some earlier agreements and was replaced by Shandong Mining by novation. 4The first defendant, Mossensons Pty Ltd ("Mossensons"), is a company which holds, or held, on trust the funds which are the subject of the dispute between the plaintiffs and the third to seventh defendants. The second defendant, Mr Mossenson, is apparently the sole director of the first defendant. The amount held on trust by Mossensons was originally $1,800,036 (the "trust money"). The relevant agreements permitted $100,000 of that sum to be paid from the trust money to the third defendant (which has generally been called "SDT"). The plaintiffs allege that Mossensons paid out a further $412,400 to SDT and $110,000 to the seventh defendant (Steinbruck). Mossensons retains a balance of $1,183,779.83 in a nominated trust account at the National Australia Bank (the "trust account balance"). In substance the effect of the plaintiffs' claim for summary judgment is that the court should order Mossensons to pay the trust account balance to the plaintiffs, and order SDT and Steinbruck to pay to the plaintiffs $412,400 and $110,000 respectively, plus interest. 5There was no appearance for the first and second defendants on the hearing of the plaintiffs' notice of motion. Counsel for the plaintiffs tendered a letter dated 21 June 2013 from Kennedys (Australasia) Pty Ltd, who are the solicitors for the first and second defendants. That letter stated that as the plaintiffs only seek against Mossensons an order that the balance of the funds held in the trust account by Mossensons be paid out to the plaintiffs, and seek no other order against Mossensons and Mr Mossenson personally, they do not wish to be heard in relation to the plaintiffs' claim. They agreed to abide the decision of the court. The court has proceeded on that basis. 6As the third to seventh defendants were the only defendants who took an active part in the hearing of the application, it will be convenient to call them collectively "the defendants" unless it is necessary to refer to them individually. 7On 29 June 2012, after the plaintiffs became aware of the payments which had been made to SDT and Steinbruck by Mossensons, the plaintiffs sought and obtained from the court a preservation order under UCPR 25.3(1) restraining Mossensons, Mr Mossenson, SDT and the fourth defendant (Mr Ehrenfeld) from dealing with the trust account balance until further order. 8In their outline of argument dated 17 June 2013 the plaintiffs put the case for summary judgment on the basis that Mossensons held the money which remained in its trust account on a bare trust for the plaintiffs, and that SDT and Steinbruck held the $412,400 and $110,000 which they had received respectively on trust for the plaintiffs, as they had received those sums from Mossensons knowing that they had been paid out in breach of trust. 9The plaintiffs' claim was based primarily on the terms of a single deed, which they called the September 2010 Deed in the outline, but which is described in the commercial list statement as the "Final Deed". The plaintiffs said that they were required by clause 2.1 of the Final Deed to pay the sum of $1,800,036 (called the "Share Money" in that deed) into a trust account in the name of Mossensons to be held on trust for the plaintiffs (collectively called "Shandong" in the deed) in accordance with the terms of the Final Deed. The plaintiffs also said that clause 4 of the Final Deed governed how the funds in the trust account were to be applied. By clause 4.3 Mr Ehrenfeld was entitled to release the money to SDT on or after the "Release Date". By clause 4.1, if the Release Date did not arise on or before the "End Date" (which was defined as being 16 December 2010) then the plaintiffs were entitled to direct Mossensons to release the funds back to them. The Release Date is defined in the Final Deed as being the date by which all of three events have occurred. Those events were that the shares in SDT have been transferred to the plaintiffs, that the plaintiffs have had the opportunity to appoint up to three directors to the board of SDT, and that a prospectus has been lodged by SDT with ASIC. The plaintiffs' case was that the evidence incontrovertibly demonstrates that the Release Date did not happen before 16 December 2010. Accordingly, so the plaintiffs submitted, whatever other issues may arise in these proceedings concerning alleged breaches of various agreements by the parties, and the possible entitlement of one or other party to damages, the plaintiffs are entitled to the orders sought in the notice of motion on a summary basis. It was said to be clear beyond argument that Mossensons holds the trust account balance for the plaintiffs, and that the other monies which were paid out to SDT and Steinbruck were paid out in breach of trust so that they are payable to the plaintiffs. 10The plaintiffs recognised the principles laid down in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 and Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91. That is, the power to order summary judgments should be exercised with great care, and not unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 99. 11The plaintiffs claimed that they could surmount the difficulties involved in obtaining summary judgment because the effect of the Final Deed was that if the Release Date had not occurred by the 16 December 2010 End Date then the money in the trust account was required to be returned to the plaintiffs, and the fact that the Release Date had not occurred by 16 December 2010 was capable of clear and unambiguous proof. 12However, during the course of the hearing of the plaintiffs' notice of motion the ground shifted under the plaintiffs. For reasons which will more fully be considered below it became apparent that, at least arguably, the plaintiffs by their conduct extended the End Date by permitting and encouraging the defendants after 16 December 2010 to continue with the work necessary to achieve the satisfaction of the three conditions which were required to be satisfied before SDT would become beneficially entitled to the money in the trust account held by Mossensons. 13In fact, the possibility of this outcome was inherent in the terms of the plaintiffs' commercial list statement. In pars 28 to 30 of part C the plaintiffs plead the relevant terms of the Final Deed. In pars 31 to 39 they plead the factual matters relevant to the satisfaction by the defendants of the conditions that were required to be satisfied before the End Date. Then in pars 40 to 42 they plead the failure of the defendants to achieve the satisfaction of the conditions before the End Date. Significantly, the plaintiffs plead in par 43 that pursuant to clause 4.4 of the Final Deed they were entitled to direct Mossensons to release the trust money to the plaintiffs, and in par 44 that by letters dated 18 February 2011 and 14 March 2011 the plaintiffs, by their solicitors, directed Mossensons to pay the trust money to the account of the plaintiffs. Par 45 alleges Mossensons failed to comply with the demands. The plaintiffs plead in pars 46 to 48 that the payments made by Mossensons to SDT and Steinbruck out of the trust money were made in breach of the Final Deed, and in breach of trust, and without the authorisation of the plaintiffs. 14These allegations support the plaintiffs' claim for summary judgment for the orders sought in the notice of motion. 15However, the plaintiffs also plead in par 59 that by letter dated 18 July 2012 the plaintiffs, by their solicitors, terminated the relevant agreements, including the Final Deed, and demanded that all of the trust money, including the money paid out to SDT and Steinbruck, be paid to the plaintiffs' solicitors. 16The termination letter was dated some 18 months after the 16 December 2010 End Date. 17The plaintiffs did not specifically plead the basis of their right to terminate the Final Deed in their commercial list statement. Nor did they provide particulars of any breaches relied upon. It may be inferred that the plaintiffs intend to rely upon the making of the alleged unauthorised payments by Mossensons to SDT and Steinbruck on the instructions of SDT or Mr Ehrenfeld as being a breach of the Final Deed which entitled them to terminate that Deed. 18The termination letter relevantly provided: "3. Your clients are in default of the Original Agreement, Variation Agreement and the Final Deed as follows (Breaches): (a) Mr Ehrenfeld has failed to contribute the amount of $650,000 to the fees, costs and disbursements of implementing the Original Agreement, in breach of clause 2.2.4 of the Original Agreement; (b) Mr Ehrenfeld has failed to procure Shandong Australia to enter into an agreement to purchase the Gypsum Mine for the sum of $300,000 payable in cash, in breach of clause 5.1 of the Variation Agreement; (c) In relation to the sum of $1,800,036 which our clients procured the payment to a trust account of Mossensons Australian Lawyers ("Trust Funds"), Mr Ehrenfeld has directed Mossensons Australian Lawyers to release more than $100,000 of the Trust Funds to the following persons, in breach of clause 2.3 of the Final Deed: (i) Shandong Australia; (ii) Steinbruck Management Services Pty Ltd...; and (iii) Mossensons Australian Lawyers. 4. In reliance on the Breaches, our clients hereby give notice of their election to terminate all agreements between your clients and our clients. This termination is effective immediately. 5. As the agreements are now at an end, our clients are entitled to have the Share Money (as defined in the Final Deed) of $1,800,036 repaid to them..." 19Paragraph 3(c) of the termination letter therefore gives the alleged unauthorised payment of part of the trust money as the basis for termination of the Final Deed. 20The termination letter then required Mr Ehrenfeld to pay the sum of $616,256.17 to the plaintiffs' solicitors' trust account and to provide a written authority authorising the release of the $1,183,779.83 held by Mossensons to the plaintiffs. 21The plaintiffs initially put their claim for summary judgment on the basis that the Release Date did not occur before the End Date, and not on the basis upon which they actually claimed in the termination letter to be entitled to payment of the trust money. 22The defendants' response will be considered in more detail below, but in broad sweep it was that the End Date had been implicitly extended by the conduct of the plaintiffs, with the result that the plaintiffs could no longer claim an entitlement to be repaid the trust money simply because the Release Date did not occur by 16 December 2010, and that the plaintiffs are estopped from making that claim. The defendants argued that with the knowledge and implicit consent, and in a number of respects with the positive co-operation of the plaintiffs, the defendants continued to pursue the satisfaction of the conditions necessary to achieve the Release Date after 16 December 2010. They said that they had achieved, or substantially achieved, the satisfaction of the conditions, and claimed that they were hindered in their efforts to finally satisfy the conditions by interference and lack of cooperation by the plaintiffs. 23In their oral submissions in reply the plaintiffs noted that the defendants had not pleaded in their commercial list response that the plaintiffs had by their conduct extended the End Date. However, the plaintiffs acknowledged that the defendants had pleaded in their cross claim that the End Date had been extended. Further, in par 3 of the cross summons the defendants seek a declaration that the monies in the trust account should remain in the trust account and be used pursuant to the Final Deed. 24Ultimately, the position adopted by the plaintiffs was that whether they became entitled to repayment of the trust money because the Release Date did not occur before the End Date, or because that entitlement arose when the Final Deed was terminated, they are entitled to the orders sought in the motion for summary judgment, as the defendants have not claimed title to the trust money themselves. 25Whatever may be the proper resolution of the dispute it is clear that the questions at issue are considerably more complex than the simple basis upon which the plaintiffs initially put their claim for summary relief.