FEDERAL COURT OF AUSTRALIA

Sandalciyan v International Development and Construction Pty Limited [2010] FCA 1145

THE COURT ORDERS THAT:

1.    The plaintiff pay the defendants’ costs of and incidental to the Interlocutory Process filed by the plaintiff on 27 May 2010 (including the costs of the appearance before Foster J on 15 June 2010).

2.    The Interlocutory Process filed by the plaintiff on 26 July 2010 be dismissed.

3.    The costs of the Interlocutory Process filed on 26 July 2010 be costs in the proceeding.

4.    The proceeding be listed for directions at 9.30 am on 1 December 2010 before Foster J.

5.    All parties have liberty to apply generally on three days’ notice.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    On 18 June 2010, I ordered that the Interlocutory Process filed in this proceeding by the plaintiff on 27 May 2010 (the First Interlocutory Process) be dismissed. That order was made upon the application of the defendants in light of an interlocutory regime to which the parties had by then agreed in principle and was not opposed by the plaintiff. It was made after I had embarked upon the hearing of that Process on 15 June 2010 but before that hearing had concluded. On the same day (18 June 2010), I also ordered that the costs of that Process (including the costs of and incidental to the appearances before me on 15 June 2010 and 18 June 2010) be reserved.

2    In the First Interlocutory Process, the plaintiff sought the appointment of a provisional liquidator to the first defendant (IDC). He also sought an order that the costs of the First Interlocutory Process be his costs in the proceeding. The plaintiff did not seek any other specific relief in that Process although, in par 3, he claimed “such further or other order as (the) Court deems appropriate”.

3    On 18 June 2010, notwithstanding that the parties had agreed in principle to an interlocutory regime, the defendants sought their costs of and incidental to the First Interlocutory Process. The terms of the agreed interlocutory regime did not prevent the defendants seeking those costs. It was the defendants’ contention that the plaintiff should never have brought an application for the appointment of a provisional liquidator to IDC and that that application would not have succeeded, had it been pressed by the plaintiff and ultimately determined by the Court. The defendants argued that the plaintiff had abandoned his application when he was served with the evidence filed on behalf of the defendants in opposition to that application and had done so before any interlocutory regime had been agreed.

4    The plaintiff opposes the costs order sought by the defendants. He says that the costs of and incidental to the First Interlocutory Process should be his costs in the proceeding or costs in the proceeding.

5    The defendants want their costs. The first matter to be determined by this judgment is the appropriate costs order in respect of the First Interlocutory Process. Counsel for the defendants has confined his clients’ claim for costs to the period from and including 20 May 2010 to and including 15 June 2010.

6    On 26 July 2010, the plaintiff filed and served a second Interlocutory Process (the Second Interlocutory Process). By that Process, the plaintiff seeks to restrain IDC from paying certain legal fees to the lawyers for the defendants until the final hearing of this proceeding or until further order.

7    In addition to dealing with the costs of the First Interlocutory Process, this judgment determines the plaintiff’s claim made in the Second Interlocutory Process. I will also deal with the question of costs arising from my decision in respect of that Process.

Some Background Matters

8    IDC was acquired by the plaintiff and the second, third and fourth defendants (the investors) in August 2002. At that time, each of those persons acquired 9,999 ordinary shares in that corporation. At the present time, all of the issued capital in IDC is held by the investors in equal proportions. Each investor has retained the 9,999 ordinary shares which were issued to him in 2002.

9    The second and third defendants were appointed as directors of IDC in August 2002. The second defendant is the Secretary of that corporation. The fourth defendant had been a director of IDC prior to its acquisition by the investors. He resigned as a director when the investors acquired that corporation. The plaintiff has never been a director of IDC.

10    IDC was acquired by the investors in 2002 for the specific purpose of purchasing and redeveloping a property known as 28 East Crescent Street, McMahon’s Point (the property). The investors’ plan was to demolish all existing structures on the property and to construct in their place eight luxury residential apartments which would then be sold. The acquisition and redevelopment of the property was then and remains the only business conducted by IDC.

11    The property is located in a highly sought-after suburb of Sydney on the northern side of Sydney harbour. When constructed, the apartments were to have views of the harbour.

12    Each of the investors brought particular expertise to the project: The plaintiff is an architect who was to draw the plans for the development and to monitor construction as the supervising architect and as a quasi-project manager; the second defendant is a finance broker who was to organise the finance for the project; the third defendant is a builder who was to construct the new apartments; and the fourth defendant is a solicitor who was to provide legal services to the project. It seems that, in addition to sharing in the profits of the venture, some of the investors were to be remunerated appropriately for work done on the project. It is not necessary for present purposes to discuss in any detail the precise arrangements pursuant to which investors were to be remunerated. I gather that, to some extent, those arrangements are now disputed. The plaintiff has rendered and been paid some fees for the architectural and project management services provided by him to IDC. He says that additional fees are due to him, some of which have not yet been rendered. He says that, in August 2007, he agreed with the other investors to defer payment of the balance of the fees due to him until after the completion and sale of all eight apartments. The third defendant has also made claims for and been paid substantial sums for the building work carried out on the property by his firm and its subcontractors. The third defendant claims that he is owed further sums for that work.

13    In order to acquire the property and subsequently to redevelop it, IDC borrowed funds from Investec Bank (Australia) Limited (Investec). An amount of approximately $5.6 million was advanced by Investec to IDC in 2003 in order to enable it to acquire the property and to commence demolition. Subsequently, in the period from approximately August 2007 to August 2010, further sums totalling approximately $7.4 million were advanced by Investec to IDC in order to finance the construction costs. At the present time, an amount of approximately $13 million is due from IDC to Investec.

14    The advances made by Investec to IDC are secured by a fixed charge over specified assets of IDC, by a fixed and floating charge over all of the assets and undertaking of IDC and by a registered first mortgage over the property. The investors (except the fourth defendant) and their wives have also guaranteed to Investec repayment of the loans made by it to IDC.

15    From time to time, each of the investors has lent funds to IDC for the purposes of the project. The defendants assert that the total of the amounts lent by the investors to IDC is $3.58 million. They also contend that the respective contributions of each of the investors to that sum has not been equal. For example, it is the defendants’ contention that the plaintiff’s contribution by way of loan funds is $529,240. The plaintiff suggests that his contribution is closer to $632,000.

16    In recent times, further funds have been borrowed from other external lenders. It is not necessary for present purposes to refer in more detail to these further funding arrangements.

17    Construction of the new apartments is now complete. A sales and marketing program began some months ago. Contracts for the sale of one of the apartments have been exchanged at a sale price of $3,350,000. Settlement of that sale is imminent. The remaining seven apartments have not yet been sold. The investors anticipate that the total of the sale prices for the eight apartments in the complex will be between $22 million and $24.5 million. That expectation is supported by sales opinions given by the selling agent and the former selling agent.

18    Barring some unexpected disaster, it is likely that the project will yield a substantial profit to IDC. Each of the investors will then receive his share of that profit as well as any unpaid remuneration for services provided to the project to which he may be legitimately entitled.

19    In about September 2009, the plaintiff effectively withdrew from the project and ceased to provide services to IDC. Since that time, relations between the plaintiff and the other investors have deteriorated. The plaintiff has become suspicious of his co-venturers. The deteriorating relations amongst the investors and the suspicions of the plaintiff came to a head in March 2010 when the second, third and fourth defendants took steps to raise further capital for IDC in circumstances which the plaintiff alleges constituted a breach of his arrangements with his co-venturers and oppression of him in his capacity as a shareholder in IDC.

The Plaintiff’s Initial Complaints

20    By letter dated 17 March 2010, which was first received by the plaintiff on 23 March 2010 by way of facsimile transmission, IDC wrote to the plaintiff. Omitting formal parts, that letter was in the following terms:

Dear Sir

As you are aware the period for completion of the project at 28 East Crescent Street, McMahons Point has now expired. The position in respect of funding from Investec is now being reviewed. I am currently negotiating a carry over position to ensure that the Investec Facility remains available and carries forward to enable us to complete the project.

The delays occasioned to the project have resulted from issues relating to the weather and project design. We have been actively engaged in the project and have been attending to the construction works as quickly as has been practicable in the circumstances.

We enclose a copy of the funding breakdown for your information. We have a number of outstanding accounts to sub-contractors which require immediate attention. The proposed capital raising is to complete the project and meet our financial obligations to the lender.

To manage the situation and complete the project a further injection of $1,000,000.00 is required from shareholders. Investec have indicated that they are not prepared to extend the facility by $1,000,000.00. The company’s bankers with National Australia Bank have indicated that if they have no security over the project (security is held by Investec) then they are not prepared to extend the company’s overdraft facility to the required amount. It is necessary to raise the capital amongst shareholders so that we can complete the project and meet all obligations to the sub-contractors and to the mortgagee. Your directors have done everything possible to ensure that works are still continuing but the situation in relation to funding has now become crucial. Further funding is necessary to ensure the project is complete to maximise the return to all shareholders.

We advise that the site now has power and water. We are in the process of commissioning the lift. Your Directors have put into place an active marketing campaign.

We advise that new solicitors have been engaged in respect of all the legal works. Please be assured that the Directors of the Company are seeking to put the development to the market to repay the primary debt to Investec as soon as is practicable and thereafter to maximise your return. As all units will be put to the market we would expect to be in a position to report to you in the near future as to the selection of selling agent and the progress of marketing and potential sales.

The Directors enclose an offer to each of the existing Shareholders in the stated terms. This is an important document and each Shareholder should obtain independent legal advice in respect of its contents. Please note the strict time periods that will apply to the matters stated in the document.

21    Enclosed with IDC’s letter of 17 March 2010 was a Memorandum of Offer. That Memorandum of Offer was expressed to be made pursuant to and in consequence of a resolution of the directors of IDC. The offer document, which was also dated 17 March 2010, contained a statement to the effect that the offer was made individually to each of the four shareholders in IDC. Presumably the offer document was sent to each of the second, third and fourth defendants at the same time as it was sent to the plaintiff. The document included the following:

Particulars of the offer

This offer is made with a view to the company getting in funds thereby enabling the company to finalize its present project. A short description of the nature of the project and the address at which it is presently being carried on by the company are each respectively set forth in the schedule besides the words “address and nature of the company’s sole project”.

Nature of offer

1.    The offer (“the first offer”) is made in the circumstances and on the basis of the directors’ belief in the necessity for the company’s increase in funds to be provided by way of additional share capital which circumstance and basis are set forth on annexure “A” hereto. The directors of the company warrant to all the present shareholders both jointly and each of them severally that the matters referred to in annexure “A” are true to the best information available to them as a board of directors as at the date of this offer.

2.    The first offer is hereby made to each of the shareholders and is the right to apply for 5,000 ordinary shares in the company at the subscription price of $50.00 per share (the allotment price), that is to say, each shareholder who subscribes $250,000 (the full allotment price) will be allotted and issued 5,000 shares in the capital of the company. In the event that any of the present shareholders, i.e. the offerees, do not subscribe for 5,000 shares at the allotment price then that offeree may subscribe for any number of the shares offered for subscription by paying the subscription price in multiples of $50 and will thereby be issued and allotted within ten (10) days after the expiration of the offer period with ordinary shares to the value of the amount subscribed.

The offer period

3.    The offer period commences on the second day (“the commencing day”) after the date of postage by or on behalf of the directors of this written offer and shall continue up to and including 12 noon on the 29th day after the commencing day (the final day).

Time to be the essence

4.    Time and time periods wherever mentioned in this offer shall be the essence of the offer made. That is to say that if the offer be not subscribed by any or all of the offerees by noon on the final day then any such an offeree has ipso facto lost the opportunity to subscribe and the default provisions hereinafter referred to shall, ipso facto, apply to the quantum by which any such a lapsed offer occurs.

22    The Memorandum of Offer went on to provide that, in the event that one or more shareholders did not take up any or all of the shares on offer, the opportunity to subscribe for those shares not taken up would be shared amongst those of the remaining shareholders who did take up the initial offer.

23    Attached to the Memorandum of Offer was a spreadsheet showing, amongst other things, that, as at mid March 2010, additional funding of approximately $970,330.00 was required to complete the project. That estimate was supported by various schedules and primary records kept by IDC.

24    When he received IDC’s letter and Memorandum of Offer on 23 March 2010, the plaintiff retained Piper Alderman (Piper Alderman) as his lawyers to represent him in relation to the offer and its implications.

25    In a letter from Piper Alderman to IDC dated 1 April 2010, Piper Alderman alleged that, if there truly was a legitimate need for further funding in order for IDC to be in a position to complete the project, that funding should be provided by way of loan funds rather than by way of capital. Piper Alderman suggested that the proposed capital raising was a device or stratagem put in place by the second, third and fourth defendants, as the controllers of IDC, which was designed to dilute the plaintiff’s equity in IDC thereby denying to the plaintiff his legitimate share of the substantial profits which were likely to be derived from the project. In their letter, Piper Alderman said that the proposed capital raising was “oppressive, prejudicial, or discriminatory” towards the plaintiff.

26    In that letter, Piper Alderman sought an undertaking that the proposed capital raising would be abandoned by IDC.

27    In the period between 7 April 2010 and 16 April 2010, further correspondence was exchanged between Piper Alderman and IDC. The author and signatory of the correspondence sent by IDC was the second defendant, Mr O’Brien.

28    In a letter dated 14 April 2010 from IDC to Piper Alderman, the second defendant said that he was satisfied that all cheques drawn by IDC had been used to pay legitimate expenses associated with the project. He said that the quantity surveyor retained by IDC as required by Investec had provided an additional safety valve protecting the investors’ interests in this regard. He also said that IDC’s accounts were available for audit by the plaintiff, if he wished to verify the costs to date and the current position of the investors’ loan accounts with IDC. The second defendant said that the cost of such an audit would have to be borne by the plaintiff.

29    By letter from IDC to Piper Alderman dated 16 April 2010, IDC declined to withdraw the proposed capital raising. In that letter, the following was said:

RE:    INTERNATIONAL DEVELOPMENT CONSTRUCTION & ARAM SANDALCIYAN

I refer to your letter received today.

I note that you are still using the tactic of imposing impossible deadlines in this matter.

I confirm my previous correspondence indicating that the capital raising is necessary and crucial to the company completing the project. The shareholders, other than your client, have deposited moneys in accordance with the company’s capital raising. The Directors are acting in good faith and will not withdraw the capital raising proposed by letter dated 17 March 2010. It is a matter for you to advise your client and take such steps as you may be instructed.

I note that you will be producing a copy of your correspondence in respect of the question of costs. The company’s legal representatives will produce a copy of this letter in reply in respect of that issue.

30    On 16 April 2010, the plaintiff commenced the present proceeding. On the same day, having given to the Court the usual undertaking as to damages, he secured an interlocutory injunction in the following terms:

THE COURT ORDERS THAT:

1.    Until further order, pursuant to section 1324(4) of the Corporations Act (Cth), the first respondent be restrained, by itself, its servants and agents (including the second, third and fourth respondents) or howsoever otherwise from taking any step to allot and issue any further shares in the capital of the first respondent to any person or taking any further step to deal in or register any shares purportedly issued pursuant to the Memorandum of Offer dated 17 March 2010.

31    The costs of the application for interlocutory relief dealt with by the Court on 19 April 2010 were reserved. Those costs remain reserved.

32    This proceeding was initially commenced in the Victoria Registry of the Court but was transferred to the New South Wales Registry of the Court on 19 April 2010. It was then listed before me on 12 May 2010. On that day, there was no appearance either by or on behalf of any of the parties. The matter was next listed before me on 20 May 2010.

33    When this proceeding was commenced, the focus of the plaintiff’s claims was the foreshadowed capital raising. This was the oppressive conduct about which the plaintiff was then complaining. This was the conduct which provoked his application for interlocutory relief.

34    The final relief sought by the plaintiff in his original Application was a declaration that the Memorandum of Offer dated 17 March 2010 was invalid as being contrary to the terms of s 127(2) of the Corporations Act 2001 (Cth) (the Corporations Act) and an order that the second, third and fourth defendants be required to purchase the plaintiff’s shares in IDC or, alternatively, an order that IDC be wound up. He based his case on ss 127(2), 232, 233(1), 234, 461(1)(e), 461(1)(f), 461(1)(g) and 461(1)(k) of the Corporations Act.

35    Although Piper Alderman had hinted at concerns on the part of the plaintiff that the third defendant (the builder) had been paid moneys to which he was not entitled, they did not demand at that time to inspect the books and records of the company.

Issue 1—The Costs of the First Interlocutory Process

36    At the hearing before me on 20 May 2010, the interlocutory injunction which had been granted by the Court on 19 April 2010 was discharged. An interlocutory injunction in the same terms was then granted by me. The defendants did not oppose the grant of such an injunction. For present purposes, it is not necessary to explain the circumstances in which the original injunction came to be discharged and immediately re-imposed.

37    On 20 May 2010, Counsel who then appeared for the plaintiff told me that his client wished to make an application to the Court for the appointment of a provisional liquidator to IDC. Apparently, he had informed Counsel for the defendants of that fact just before the matter was called on before me on 20 May 2010. Counsel for the plaintiff wanted that application to be heard in early to mid June 2010. He submitted that I should make orders for the filing of evidence by all parties in respect of that foreshadowed application. When the matter was before me on 20 May 2010, Counsel for the plaintiff did not mention to me that Mr Gronsbell-Luntz, an accountant who has been retained by the plaintiff to provide expert accounting assistance to him in respect of his disputes with the defendants, had inspected the books and records of IDC on 4 May 2010 accompanied by the plaintiff and his solicitor and had sworn a second affidavit for use in the proceeding only the day before (19 May 2010). This second affidavit sworn by Mr Gronsbell-Luntz was filed in the Registry of the Court on 20 May 2010, presumably after the hearing before me on that day had concluded. It was served in the morning of 20 May 2010.

38    When Counsel for the plaintiff raised in open Court his client’s intention to make application to the Court for the appointment of a provisional liquidator to IDC, I expressed concern at this turn of events. I cautioned the plaintiff against taking such a drastic step unless it was absolutely necessary, given that the appointment of a provisional liquidator to IDC might trigger default provisions contained in the securities held by Investec and thus jeopardise the orderly and rational disposition of the apartments which were soon to be completed and put on the market. Counsel for the plaintiff informed me that the legal representatives of the plaintiff intended to discuss the need for protection of the assets of IDC with the legal representatives of the defendants and attempt to come to some satisfactory arrangement pending the final hearing of the proceeding.

39    At the conclusion of the hearing before me on 20 May 2010, I granted leave to the plaintiff to file and serve an interlocutory process whereby he sought the appointment of a provisional liquidator to IDC and directed that such process be filed and served by 27 May 2010. I then made orders readying that application (if filed) for hearing on 15 June 2010. Other orders, which are not presently relevant, were also made by me on that day.

40    On 27 May 2010, Piper Alderman filed and served a Statement of Claim, the First Interlocutory Process, the affidavit of the plaintiff sworn on 27 May 2010 and the Consent of the putative provisional liquidator dated 26 May 2010. They also attempted to file an Amended Application but were not permitted to do so at that time by Registry staff. They did serve the proposed Amended Application on 27 May 2010 and ultimately filed it on 18 June 2010.

41    On 25 May 2010, Piper Alderman wrote a three page letter to the defendants’ lawyers (Macpherson + Kelley) seeking a response by 5.00 pm on the very same day. There is no suggestion in the materials which I have seen that any discussions took place amongst the legal representatives of the parties between 20 May 2010 and the time on 25 May 2010 when that letter was sent.

42    In their letter of 25 May 2010, Piper Alderman put a detailed proposal to Macpherson + Kelley which was said to be designed to manage the disposition of IDC’s funds in the future and to ensure the orderly disposition of the apartments. A cursory review of that letter demonstrates that, for the defendants sensibly to consider its contents and to respond in a bona fide and constructive fashion, much more than a few hours would be required. Several days, at the very least, were required.

43    In their letter of 25 May 2010, Piper Alderman asserted that:

(a)    The defendants had failed to keep proper records in relation to expenditure made by or on behalf of IDC;

(b)    There were overruns in project costs and variations to the building contract which were unjustified and unexplained;

(c)    The evidence of Mr Gronsbell-Luntz demonstrated that there was an unexplained “black hole” in the accounting records of IDC to the extent of approximately $3.5 million; and

(d)    The plaintiff was prepared to allow the project to continue without the appointment of a provisional liquidator provided that the defendants agreed to conduct the project in the future in accordance with specific conditions contained in eight numbered paragraphs set out in the letter. Those paragraphs were in the following terms:

1.    All accounts to be paid from this point are to be approved by our client after he and his forensic accountant have had the opportunity to examine the underlying transaction and invoice so as to ensure that they are valid and are represented by a value received.

2.    All future payments by IDC are to be approved by two signatures, one of whom is to be our client.

3.    All necessary funds to complete the project are to be placed in the company’s bank account in the National Australia Bank by your clients in whatever proportion they deem necessary amongst themselves with the exclusion of any contribution by our client. These funds are brought to account as loan funds.

4.    All proceeds from future sales of units are quarantined into a separate new bank account established in the name of IDC with Investec Bank. The signatories on this account are to be our client and one other person with both people to sign.

5.    Prior to release of the funds from this new account, our client and his forensic accountant are to be given the opportunity to review all project costs to date in detail. Any overpayments identified are to be deducted from the cost of the project and/or recovered from the party to whom they were made.

6.    Mr Arapidis and our client’s forensic accountant will jointly prepare the company’s financial statements for the period from 2002 until the present time. The costs of Mr Luntz and Mr Arapidis incurred in conducting the work will be borne by IDC and payment will be made in advance to each of them based upon estimates of costs provided by them.

7.    Your clients are to pay our client’s reasonable legal costs to date in the sum of $85,519.56 and our clients cost of engaging a forensic accountant of $18,550 to date.

8.    Mr Cubelic is to resign as a director of IDC forthwith as he has a conflict of interest being the builder of the project and a director of IDC. Mr Velcic is to be appointed in his place.

44    Towards the end of Piper Alderman’s letter dated 25 May 2010, the following was said:

Finally, can we note and record our consideration of an apparently attractive alternative regime for dealing with differences as between our respective clients. The alternative is that IDC appoint an independent accountant and an independent quantity surveyor to prepare the financial statements that the company requires and in order to independently reconcile the costs of the expenditure on the job. This was the first alternative that occurred to the writer to [sic] this letter. We have rejected this alternative. In our view, this alternative is unsatisfactory because of the time that would be taken and the expense incurred by both people being involved in effectively recreating all of the transactions that the company has entered into since 2002 when they have no background knowledge.

If for some reason the solution involving Mr Luntz and Mr Arapidis did not work out or was unacceptable then it might be necessary to revisit this alternative.

We have in regard to [sic] the court deadlines, could we have your response to this letter, and preferably by no later than 5.00pm on 25 May 2010.

45    Macpherson + Kelley did not revert to the plaintiff’s lawyers by 5.00 pm on 25 May 2010. They did respond to that letter on 9 June 2010, after the First Interlocutory Process had been filed and served. For the most part, the conditions sought to be imposed by the plaintiff were not accepted by the defendants. Many of them were unreasonable.

46    The second affidavit sworn by Mr Gronsbell-Luntz (ie his affidavit sworn on 19 May 2010) was the first affidavit or pleading where the possibility that IDC’s funds had been misappropriated by one or more of the defendants was raised. In that affidavit, by a process of reasoning which related and compared the contents of certain Business Activity Statements to other records of IDC, Mr Gronsbell-Luntz suggested that there was a difference between the total amount said to have been expended on the project according to the books and records of IDC and the total amount recorded as having been so spent according to the Business Activity Statements. He said that the difference was approximately $2.5 million and was unexplained. In addition, given that the defendants had sought to raise a further $1 million by means of the Memorandum of Offer dated 17 March 2010, Mr Gronsbell-Luntz then opined that there appeared to be unexplained expenditure totalling $3.5 million. These ideas contained in Mr Gronsbell-Luntz’s second affidavit found their way into the pleadings which were filed or sought to be filed on 27 May 2010. The Statement of Claim contained an entire section under a heading Financial black hole in which the plaintiff contended that approximately $3.6 million in funds belonging to IDC were unaccounted for in the books and records of IDC. Those assertions were then translated into claims for relief against the second, third and fourth defendants personally for breaches of the directors’ duties owed by them to IDC.

47    These serious allegations, which were made for the first time on 20 May 2010, no doubt caused the individual defendants and their lawyers great concern.

48    On 11 June 2010, the defendants filed the affidavits of Edward John O’Brien sworn that day and the affidavit of Andrew Warren Skyring sworn the same day.

49    In his affidavit, Mr O’Brien addressed all of the issues which he perceived might be raised by the plaintiff in support of his application for the appointment of a provisional liquidator to IDC. The contents of Mr O’Brien’s affidavit were not subjected to any testing in Court because the parties ultimately entered into an interlocutory agreement to which I will refer later in these Reasons. Mr Skyring is a chartered accountant retained by the defendants to provide expert accounting advice and assistance to them. He gave a detailed response to the second affidavit of Mr Gronsbell-Luntz sworn on 19 May 2010. Mr Skyring provided a detailed answer to the assertions made by Mr Gronsbell-Luntz that there was a “black hole” of $3.5 million or $3.6 million being funds unaccounted for in the books and records of IDC. He also addressed item by item certain specific matters said to constitute improper or inappropriate payments made with IDC’s funds. The contents of Mr Skyring’s affidavit were also not tested for the same reasons as the contents of Mr O’Brien’s affidavit were not tested.

50    On 15 June 2010, the First Interlocutory Process was listed for hearing before me. The hearing of that Process proceeded some way on that day. Fairly early in the piece, Senior Counsel for the plaintiff submitted that, were I not disposed to appoint a provisional liquidator to IDC, he would press for other protection of his client’s interests in the form of some “ongoing injunction”. Counsel said that he was conscious that the plaintiff did not want to shoot himself in the foot unnecessarily with a last minute appointment of a provisional liquidator to a project where the buildings were complete and the investors were about to commence the sales campaign. Counsel said that, because of the detailed evidence sought to be relied upon by the defendants, if he intended to proceed with his application for the appointment of a provisional liquidator to IDC, he would need further time to respond to the affidavit material filed by the defendants. The hearing was then adjourned for a short time while Counsel conferred. It was later adjourned for a second time whilst Counsel continued to confer. Ultimately, Senior Counsel for the plaintiff informed me that his client would not seek the appointment of a provisional liquidator to IDC but, if necessary, would press a claim for an interlocutory injunction to protect the plaintiff’s position pending a decision as to whether and, if so, how, his client would respond to the detailed material contained in the affidavits of Mr O’Brien and Mr Skyring filed on 11 June 2010. At the point in time on 15 June 2010 when Counsel abandoned the plaintiff’s application for the appointment of a provisional liquidator to IDC, no agreement on an interlocutory regime had been reached, even at the level of principle. Discussions between Counsel were continuing. Counsel for the plaintiff repeated that, should it become necessary for his client to press for interlocutory relief on that day (15 June 2010), his client’s claim for interlocutory relief would be re-cast as a claim for interlocutory injunctive relief. The precise form of this revised relief was never articulated.

51    Counsel for the defendants submitted that the First Interlocutory Process should be dismissed then and there. He also indicated that there was some prospect that a sensible interlocutory regime might be agreed were I to adjourn the proceeding for a couple of days. In light of the prospect that some sensible resolution might be reached by way of an interlocutory regime, I adjourned the further hearing of the First Interlocutory Process to 18 June 2010. Senior Counsel for the plaintiff requested that I not dismiss the First Interlocutory Process on 15 June 2010, as sought by Counsel for the defendants. He obviously wanted to keep that process on foot as a means of applying pressure to the defendants to agree to an appropriate interlocutory regime. However, by the end of the hearing before me on 15 June 2010, the plaintiff had abandoned his claim that a provisional liquidator be appointed to IDC. The plaintiff did not make that concession because he had by then secured a firm interlocutory agreement nor did he do so because it was highly likely that such an agreement would be entered into. He chose to do so, I infer, because he judged that it was in his best interests to do so. He no doubt had good reason for making the choice which he did. At the same time, he maintained the threat that he would apply for interlocutory injunctive relief should a binding interlocutory regime not be agreed in the immediate future.

52    On 17 June 2010, Mr Gronsbell-Luntz swore a third affidavit. That affidavit was filed on 18 June 2010 and was directed to supporting the plaintiff’s revised claim for interlocutory injunctive relief in the event that the plaintiff decided to press for such relief on 18 June 2010. Paragraphs 31, 32 and 33 of that affidavit were in the following terms:

31.    I am informed by the Applicant and verily believer [sic] that the projected sales of the units owned by the First Respondent will be in the vicinity of $25M after deduction of selling costs and it would now appear that the liabilities to the two secured lenders to the First Respondent will be in the vicinity of $15M.

32.    My investigations to date shows that there is a possibility that the sum of $3.5M may have been taken from the First Respondent. If this is the case then the Applicant’s loss amounts to $875,000. In addition, there may be other claims arising for instance from claims by the builder in respect of variations that are not justified.

33.    Provided that the money that remains after paying the secured lenders is quarantined then there will be adequate money available to ensure that the Applicant is compensated for any alleged wrong doing.

53    The terms of par 32 were a far cry from the previously firm assertions made by Mr Gronsbell-Luntz that there was an unexplained “black hole” of $3.5 million or $3.6 million thrown up by his analysis of the books and records of IDC. Further, by 17 June 2010, in Mr Gronsbell-Luntz’s opinion, as long as satisfactory arrangements were made for quarantining the sales proceeds of the apartments (after payment of the secured lenders) there was no need for a provisional liquidator to be appointed to IDC.

54    On 18 June 2010, I was informed that the parties had agreed in principle on an interlocutory regime and that all that needed to occur for that regime to be finalised was for certain details to be inserted into an advanced draft of the Agreement and for the Agreement to be signed.

55    On the same day (18 June 2010), Counsel for the defendants again pressed for an order for costs in respect of the First Interlocutory Process. I declined to deal with his application for costs on that occasion. I directed the parties to send the signed Interlocutory Agreement to me as soon as it was executed. As mentioned at [1] above, I then dismissed the First Interlocutory Process and adjourned further argument about the costs of that Process to 3 September 2010.

56    On 3 September 2010, the further hearing of the costs argument was adjourned to 15 October 2010, at the request of the parties.

57    On 7 July 2010, the parties entered into the foreshadowed Interlocutory Agreement (the Interlocutory Agreement).

58    The Interlocutory Agreement provides some measure of protection to the plaintiff. However, its terms are not as favourable to the plaintiff as the proposal contained in Piper Alderman’s letter to IDC dated 25 May 2010 nor do those terms place control of the affairs of IDC and control of the project in the hands of an independent third party in the same way as the appointment of a provisional liquidator would have done had the plaintiff pressed for such an appointment and succeeded. I shall refer to the terms of that Agreement in more detail later in these Reasons.

59    It seems to me that the above account of the attempt by the plaintiff to have a provisional liquidator appointed to IDC demonstrates the following:

(a)    The foundation for the allegations that funds of IDC had been misappropriated was the material contained in Mr Gronsbell-Luntz’s second affidavit (that sworn on 19 May 2010) which was based upon Mr Gronsbell-Luntz’s analysis of information and documents obtained by him from an inspection of the books and records of IDC carried out by him on 4 May 2010;

(b)    Whilst Mr Gronsbell-Luntz may have had a sufficient basis for seeking an explanation from the defendants in relation to the matters of concern raised by him, he had no proper basis for asserting as firmly as he did the proposition that funds of IDC had been misappropriated and/or misused by the defendants;

(c)    The plaintiff and his lawyers did not afford a fair and reasonable opportunity to the defendants and their lawyers to deal with the serious allegations of misappropriation and misuse of IDC’s funds which were to be relied upon as the basis for the plaintiff’s application that a provisional liquidator be appointed to IDC before the plaintiff filed the First Interlocutory Process and triggered the hearing of that Process on 15 June 2010. Indeed, the Piper Alderman letter seems to me to have been a disingenuous attempt to appear to be reasonable;

(d)    The time which Piper Alderman and the plaintiff allowed to the defendants to respond to the Piper Alderman letter dated 25 May 2010 was manifestly inadequate;

(e)    The application for the appointment of a provisional liquidator was filed on 27 May 2010 at a time when there was no real or immediate threat to the assets of IDC and no evidence that it was insolvent;

(f)    The filing of the First Interlocutory Process on 27 May 2010 in the circumstances in which it was filed was precipitate and, at the very least, premature. It was a drastic remedy which had the potential to cause great harm to the investors and should only have been brought if all other avenues or solutions had failed;

(g)    The benefits and protections obtained by the plaintiff through the Interlocutory Agreement were far less than those which might have been secured had the application for the appointment of a provisional liquidator been pressed and been successful;

(h)    Although, given the terms of par 3 of the First Interlocutory Process, the plaintiff was entitled to seek injunctive relief as an alternative to the appointment of a provisional liquidator without amending that Process, the shift by the plaintiff to seeking such relief on 15 June 2010 was too little too late; and

(i)    The plaintiff’s application for the appointment of a provisional liquidator was abandoned by him in favour of a more sensible form of relief (injunctive relief) before there was any interlocutory agreement in place, even at the level of principle.

60    I am conscious that the evidence that would have been adduced upon the hearing of the First Interlocutory Process has not been examined in detail nor has it been tested for the purposes of the disposition of the defendants’ application for costs in respect of the First Interlocutory Process. Ordinarily, it would be inappropriate for the Court to attempt to evaluate the likely prospects of such an application in order to determine how best to deal with the question of costs.

61    I do not need to decide the merits of the claims made in the First Interlocutory Process in order to decide the question of costs with which I am now confronted. The substance of the matter is that the application for the appointment of a provisional liquidator to IDC was made before the defendants had had a fair opportunity to respond to the allegations upon which the application was founded and the application was abandoned once the defendants had put on their evidence. Although made in light of the fact that an interlocutory regime was quite likely to be put in place, the abandonment of that application nonetheless constituted a unilateral withdrawal of the plaintiff’s claim for the appointment of a provisional liquidator to IDC. The plaintiff received nothing in return for that abandonment. It was tantamount to a discontinuance or withdrawal of the plaintiff’s application without the consent of the defendants and without the leave of the Court. Ordinarily, a party who discontinues in those circumstances will be ordered to pay the other party’s costs occasioned by the discontinuance (Rickus v Motor Trades Association of Australia Superannuation Fund Pty Ltd (2010) 265 ALR 112 at [116]–[118] (pp 136–137)).

62    I think that the appropriate order for costs is an order that the plaintiff pay the defendants’ costs of and incidental to the First Interlocutory Process (including the costs of the appearance before me on 15 June 2010). The defendants have not sought an order for costs in respect of 18 June 2010. Nor have the defendants sought an order that their costs be taxed and paid forthwith. In any event, I would not be disposed to make such an order had it been sought.

63    The fact that I am prepared to make an order for costs in favour of the defendants in respect of the First Interlocutory Process is not to be taken by the defendants as an indication on my part that I agree with their contention made in argument that all of those costs should be borne by IDC alone because, so the argument goes, those costs were incurred properly by IDC in defending itself against the plaintiff’s application that a provisional liquidator be appointed to IDC, a matter which Counsel for the defendants submitted is essentially a matter for the corporation under attack. I expressly refrain from making any finding or observations at this stage on the question of whether or not the costs incurred by the defendants in dealing with the First Interlocutory Process may all be properly regarded as costs for which IDC and IDC alone should be held responsible as between the defendants and Macpherson + Kelley or as between the plaintiff, on the one hand, and the defendants, on the other hand. This is a matter which must await the final disposition of these proceedings or the agreement of the parties.

Issues 2 and 3—The Plaintiff’s Claim for an Interlocutory Injunction in respect of Legal Fees and the Costs of that Claim

64    By letter dated 20 July 2010, Macpherson + Kelley gave notice to Piper Alderman pursuant to cl 2.3 of the Interlocutory Agreement that IDC proposed to pay the amount of $69,630.96 to Macpherson + Kelley at the expiration of seven days from 20 July 2010.

65    This notice provoked a strongly worded letter from Piper Alderman dated 22 July 2010 in which Piper Alderman demanded that the defendants withdraw the notice and undertake to ensure that IDC did not make the payment of the legal fees covered by the notice.

66    The notice was not withdrawn. In those circumstances, the plaintiff filed the Second Interlocutory Process filed on 26 July 2010.

67    I listed the proceeding and the Second Interlocutory Process on 26 July 2010 on an urgent basis. On that day, upon the plaintiff giving to the Court the usual undertaking as to damages, IDC undertook to the Court that it would not pay the legal fees which had been the subject of the notice from Macpherson + Kelley dated 20 July 2010 until after the determination by the Court of the Second Interlocutory Process or until further order. On the same day, I directed a timetable for the filing and service of evidence to be led by the parties in relation to the Second Interlocutory Process and fixed the hearing of that Process for 3 September 2010. At the request of the parties, that hearing was adjourned to 15 October 2010. The plaintiff’s application was heard on that day.

68    At the hearing of the Second Interlocutory Process, there was no evidence as to the retainer agreement between the defendants and Macpherson + Kelley nor was there tendered in evidence before me the tax invoice (or tax invoices, if more than one) by which the total amount of $69,630.96 was rendered.

69    I was told from the Bar Table by Counsel for the defendants that the relevant tax invoice or tax invoices had been rendered to all four defendants (not to IDC alone) and that, although the work covered by that tax invoice or tax invoices encompassed more than work done on behalf of the defendants in respect of the First Interlocutory Process, by far the bulk of the work had been done in relation to that Process. Senior Counsel for the plaintiff had not seen the retainer agreement as between Macpherson + Kelley and the defendants nor had he seen the relevant tax invoice or tax invoices. He had not been aware before 15 October 2010 of the matters conveyed to me from the Bar Table.

70    Senior Counsel for the plaintiff submitted that there was a serious question to be tried. He relied on two matters. First, he submitted that the payment of the defendants’ legal fees was not something which could be paid out of “Project Funds” within the meaning of the Interlocutory Agreement because it was not a payment within the class of payments contemplated by cl 2.3 of that Agreement. He submitted that the foreshadowed payment would be a breach of the Interlocutory Agreement. The second basis upon which Senior Counsel submitted that there was a serious question to be tried was that the payment of the contentious legal fees by IDC alone would arguably constitute a further act of oppression.

71    The plaintiff has not sued any of the defendants for breach of the Interlocutory Agreement. He does not make any claim for final relief in this proceeding for breach of the Interlocutory Agreement. Further, he has not pleaded that the payment of legal fees by IDC alone in the circumstances in which the 20 July 2010 notice was given would constitute an act of oppression. He has not applied to amend his Application and Statement of Claim in order to raise these claims. For these reasons, there is no claim for final relief to which the injunction sought in the Second Interlocutory Process can properly be anchored. In a matter such as this, it is necessary for the applicant for interlocutory relief to relate his or her claim for interlocutory relief to a pleaded claim for final relief (Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199 at [8]–[21] (pp 216–220) (per Gleeson CJ); [59]–[61] (pp 231–232) (per Gaudron J); and [86]–[92] (pp 237–242); [98]–[100] (pp 244–246); and [105] (p 248) (per Gummow and Hayne JJ)). His failure to do so is fatal to his claim for an interlocutory injunction made in the Second Interlocutory Process.

72    In any event, I am not at all persuaded that the payment of the contentious legal fees would be a breach of the Interlocutory Agreement and thus that there is a serious question to be tried concerning such alleged breach. Nor am I persuaded, on the evidence before me, that there is a serious question to be tried as to whether the payment would constitute oppression.

73    The recitals in that Agreement are in the following terms:

WHEREAS:

A.    These proceedings were commenced by an Application filed in the Federal Court on 16 April 2010. A Statement of Claim pleading the cause of action was filed on 27 May 2010. In his pleadings, the applicant alleged that he has been oppressed by the respondents by the making, on 17 March 2010, of an offer by the board of the First Respondent (‘the Company’) to the shareholders to purchase additional shares in the Company.

B.    The applicant also alleged that the Company’s books of account do not comply with relevant legal and accounting standards, and that there are deficiencies and anomalies in these books which create the need for a taking of accounts in relation to the entitlements of each of the shareholders (i) in respect of their net respective shareholdings in the Company after the realization of the sale of the residential units described in F below; and (ii) in respect of loan accounts and other monies to which they are allegedly entitled.

C.    Within these proceedings, the applicant made an application for interim relief through an Interlocutory Process filed on 27 May 2010. The Interlocutory Process sought the appointment of a provisional liquidator to the First Respondent.

D.    At the first hearing on the Interlocutory Process on 15 June 2010, the applicant stated that he no longer pressed his application for the appointment of a provisional liquidator to the first respondent. At this hearing, the applicant brought an oral application for injunctive relief, the terms of which were stated in paragraph 29 of the applicant’s Outline of Submissions dated 15 June 2010.

E.    The respondents deny any wrong doing and resist the applications for relief described in Recitals C and D above.

F.    The parties are desirous of setting in place a structure and process for the payment of funds by the Company so that the completion and sale of the residential units situated at 28 East Crescent Street, McMahons Point, Sydney, New South Wales is not disturbed.

G.    The parties have entered into this interlocutory agreement with a view to preserving their respective rights and entitlements in accordance with the terms hereof.

74    Clauses 1 to 5 are in the following terms:

1.    Definitions

“Company” means International Development & Construction Pty Limited ACN 050 293 608, being the first respondent to the Proceedings.

“Day” means a calendar day, not a working day. It includes public holidays.

“Interim Account” means the bank account in the name of the Company to be established pursuant to clause 3.1.

“Net Sale Proceeds” means the net proceeds of the sale of any unit in the Project after payment of any agency fees and commissions, any usual adjustments on settlement and the Company’s legal fees relating to the conveyance of such units.

“Proceedings” means Federal Court of Australia Proceedings VID 276/2010 between Aram Sandalciyan, as applicant, and the Company, Edward John O’Brien, Paul Tom Cubelic and Nikola Velcic as first, second, third and fourth respondents respectively.

“Project” means a development of 8 residential units by the Company at 28 East Crescent Street, McMahons Point.

“Project Funds” means any and all funds available to the Company other than the Net Sale Proceeds.

2.    Completion of the Project

2.1    The Company shall be entitled to complete the Project.

2.2    The Company may use the Project Funds to pay the creditors of the Company listed in Schedule A.

2.3    The Company covenants that it will not pay any other creditors from the Project Funds without 7 days written notice by the Company to the applicant or his solicitors of its intention to pay such creditors.

2.4    Upon the passage of 7 days from the giving of a notice according to paragraph 2.3, the Company may pay the Creditor in respect of whom the written notice was issued.

2.5    The Company may pay a creditor notified in accordance with paragraph 2.3, in a period less than 7 days from the issue of a notice in respect of that creditor with the express written consent in writing of the applicant or his solicitor.

3.    Establishment of Interim Account

3.1    The Company will open an interest bearing account in the name of the Company with a bank to be determined in the Company’s sole discretion (“the Interim Account”).

3.2    The parties agree that the Company’s accountant, Mr. Emmanuelle Arapidis, will be a compulsory signatory on the Interim Account.

4.    Payment of Net Sale Proceeds to the Interim Account

4.1    The Company covenants that it will pay the Net Sale Proceeds into the Interim Account.

4.2    The parties agree that nothing in this Agreement is intended to prohibit the Company from directing that the settlement funds from the sale of any unit in the Project be paid to any secured creditor of the Company required to provide clear title to any purchaser. To the extent that this is required, the definition of Net Sale Proceeds will be taken to be amended so as to mean the net proceeds payable to the Company at settlement after such payments.

5.    Use of Funds in Interim Account

5.1    The Company covenants that, subject to clause 5.2, it will only pay out of the Interim Account the following funds, in the order in which they are listed below:

(a)    such funds as are required to pay the liabilities of the Company to the creditors listed in Schedule B, in the order in which those creditors are listed; then

(b)    any creditors in Schedule A not paid after the Project Funds have been exhausted; then

(c)    payment into a separate interest bearing account in the name of the Company, an amount equal to the aggregate of: (i) any claim made by the third respondent against the Company for unpaid building services; and (ii) any claim made by the applicant against the Company for unpaid architectural services; then

(d)    repayment of loans made to the Company by its shareholders on a pro-rata basis (ie repayments, to each shareholder, of an amount proportionate to the amount owed by the Company to that shareholder divided by the total amount owed by the Company to all four shareholders); then

(e)    payment into a separate interest bearing account in the name of the Company, an amount equal to interest on the respective shareholder loans calculated to the date of repayment of the respective shareholder loans, at a rate of 15% per annum.

5.2    The Company covenants that it will not pay any other amounts out of the Interim Account without 7 days written notice by the Company to the applicant or his solicitors of its intention to pay such creditors.

5.3    Upon the passage of 7 days from the giving of a notice according to paragraph 5.2, the Company may pay the Creditor in respect of whom the written notice was issued.

5.4    The Company may pay a creditor notified in accordance with paragraph 5.3, in a period less than 7 days from the issue of a notice in respect of that creditor with the express written consent in writing of the applicant or his solicitor.

75    Clause 6 regulates any necessary refinancing by IDC.

76    Clause 7 is in the following terms:

7.    Adjustments after Sale and Payment

7.1    The parties agree that clauses 7.2, 7.3 and 7.4 will take effect after:

(a)    sale of all of the units in the Project; and

(b)    payment of the Net Sale Proceeds to the Interim Account; and

(c)    payment from the Interim Account of the amounts referred to in clauses 5.1(a), 5.1(b), 5.1(c), 5.1(d), 5.1(e) and 5.2, with any necessary amendment arising from the operation of clause 6.4.

7.2    The parties agree that there shall be a taking of accounts between them whereby each party may identify such claims, set-offs or other allowances or adjustments as they may see fit in relation to the final distribution of the Company's funds to its shareholders.

7.3    The parties agree that, to the extent that any claim, set-off, allowance or adjustment cannot be agreed between them, they will attempt to resolve the same by way of mediation between the parties in dispute.

7.4    To the extent that any adjustment is made in respect of the entitlements of any shareholder, and that adjustment has the effect of varying the amount of a shareholder/s’ loan to the Company, interest payable on the amount of that adjustment shall also be adjusted between the parties.

77    While it is true that the type of payments envisaged by the Interlocutory Agreement may fairly be characterised as legitimate project costs, there is much force in the defendants’ argument that cl 2.3 is not confined to costs of that character but can be legitimately engaged when IDC wishes to pay any of its creditors (including Macpherson + Kelley).

78    Even if the payment of the contentious fees is ultimately characterised as an act of oppression vis-à-vis the plaintiff, the fact that the payment is ultimately so characterised does not necessarily mean that the plaintiff should be the beneficiary of an interlocutory injunction at this stage in respect of the contentious legal fees.

79    I do not need to decide these questions because I have come to the view that, even if all other points were decided in favour of the plaintiff, the balance of convenience and justice are against the grant of the injunction sought.

80    In Sellar v Lasotav Pty Ltd; In the Matter of Lasotav Pty Ltd (2008) 26 ACLC 1,533, I considered the relevant principles to be adopted by the Court when determining an application for interlocutory injunctive relief in respect of the payment of the legal fees of one of the disputing parties in the context of an oppression suit. At [20]–[31], I said:

20     It is common ground between the plaintiffs on the one hand, and the defendants for whom Mr Thomson appears on the other hand, that the test which I should apply in determining the present application is the ordinary test applicable when the Court is considering the grant of an interlocutory injunction in aid of private rights. This test is captured in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at [8] to [21] (pp 216-220) (per Gleeson CJ); at [59] to [61] (pp 231-232) (per Gaudron J); and at [86] to [92] (pp 239-242); at [98] to [100] (pp 244-246); and at [105] (p 248) (per Gummow and Hayne JJ). Gleeson CJ (as he then was) also specifically cited with approval Spry, Principles of Equitable Remedies, 5th ed (1997) pp 446-56.

21     It is sufficient for present purposes for me to cite and rely upon a passage from the judgment of Mason A-CJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153. In that case, his Honour said:

“In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction.”

22    The plaintiffs have chosen to found the present application upon one only of the grounds of oppression pleaded in their Statement of Claim. The ground relied upon is the ground pleaded in pars 88E to 88G of the Statement of Claim.

23    The plaintiffs have established that the legal expenses of the first, second, fourth and fifth defendants are all being paid by the second defendant and that those expenses will continue to be paid by the second defendant unless interlocutory relief along the lines of that which is sought by the plaintiffs is granted.

24    Although reference has been made in the plaintiffs' submissions to the other grounds of complaint pleaded in the Statement of Claim, the plaintiffs have chosen not to support any of those allegations by evidence insofar as the present application is concerned. In those circumstances, whilst my attention can and has been drawn to the nature of the allegations made in the balance of the Statement of Claim, the relevant principles must be applied to the one ground of complaint relied upon in the present application, namely, the complaint concerning the payment of the Buskens’ legal expenses by the second defendant.

25    In the present case, Counsel for the first and second defendants and the Buskens has submitted that the plaintiffs put a case which implicates the first and second defendants in the events and transactions about which complaint is made and that the Buskens are not the sole or even the principal targets of the plaintiffs. Counsel then submitted that a large portion of the legal expenses being paid by the second defendant is legitimately the responsibility of the first and second defendants.

26    I do not agree.

27    Most of the allegations of wrongdoing are levelled at the Buskens. As the evidence stands at the moment, there is little to be said for the proposition that the first and second defendants are separately implicated in the complaints made by the plaintiffs so that the second defendant is justified in paying all of the legal costs.

28     It seems to me that there is a serious question to be tried. That question is whether, in the circumstances of this case, the conduct of the Buskens in causing the second defendant to pay all of the legal expenses of the first, second, fourth and fifth defendants constitutes oppression.

29     The authorities cited by the plaintiffs tend to support the case which they will attempt to make on a final basis in respect of this ground of complaint. Indeed, it may be thought that the authorities relied upon by the plaintiffs justify the plaintiffs in submitting that they have strong prospects of making good this ground of complaint at a final hearing.

30     However, that is not the end of the matter. None of the authorities to which I have been referred involved an application for interlocutory relief founded upon the same ground as the ground relied upon by the plaintiffs in the present application. Further, some of those authorities support the proposition that, because it may be difficult to determine on an interlocutory basis which costs may be regarded as the legitimate responsibility of the corporate defendants over which the oppression suit is being fought, courts are reluctant to make a determination in advance, ie, at an interlocutory stage (Fexuto 28 ACSR 688 at 733; 20-28; Re A Company (No 001126 of 1992) [1994] 2 BCLC 146 at 155-156; Grace 25 ACLC 141; [2007] NSWSC 6 at [49] to [52] and at [59] to [61]). This latter point may not be a very strong point in favour of the first, second, fourth and fifth defendants in the present case but is one that nonetheless needs to be weighed in the balance. It seems to me that the Court is generally reluctant to interfere at the interlocutory stage with the payment of legal fees and expenses unless there is good reason to do so.

31     In my judgment, the plaintiffs must show that they will suffer irreparable injury for which damages (or compensation) will not be an adequate remedy unless an injunction is granted and that the balance of convenience favours the granting of an injunction.

81    Senior Counsel for the plaintiff drew my attention to the decision of Austin J in Power v Ekstein (2010) 77 ACSR 302. In that case, Austin J suggested that the approach which I took in Sellar was a departure from older authority in England and other authorities in the Supreme Courts of Queensland and New South Wales. I do not agree with the observations of Austin J. I think that the views which I expressed in Sellar correctly encapsulate the relevant principles. Each case has to be decided on its merits. One of the critical matters to be taken into account by the Court in approaching the question of whether it is appropriate to grant an interlocutory injunction restraining the corporation which is the subject of the oppression suit from paying legal fees of the parties on one side of the record is whether the appropriate adjustments can most likely be made in the final judgment. As I said in Sellar at [30], because it may be difficult to determine in advance which costs may be regarded as the legitimate responsibility of the corporation over which the oppression suit is being fought, it may be inappropriate to grant interlocutory relief. This aspect may not always be determinative but has to be weighed in the balance.

82    In the present case, the evidence strongly suggests that there will be ample funds available at the end of the project to enable any necessary adjustments to be made should it transpire that the contentious legal fees should not have been paid by IDC. It was submitted on behalf of the defendants that the contentious legal costs were properly a liability of IDC and IDC alone because it was the proper contradictor of the plaintiff in respect of his provisional liquidator application. I have some doubt as to whether this submission is correct. It was also put on behalf of the defendants that the plaintiff had failed to establish that the contentious legal costs were not truly the sole responsibility of IDC. There is considerable force in this submission. It may be, in any event, that the proper approach is for the costs to be apportioned amongst the four defendants (including IDC).

83    Further, it appears that IDC does not presently have sufficient cash with which to pay those fees and that the second, third and fourth defendants (or one or more of them) propose to lend the necessary funds to IDC in order to enable it to make the payment of which notice has been given. The result of such an approach will be that the loan accounts of the lenders of those funds will increase and IDC will become liable to the lenders for the additional sums, or for such proportion of those sums as represents its true liability for legal costs incurred by the defendants in connection with the First Interlocutory Process.

84    In my view, the fact that the second, third and fourth defendants put IDC in funds in order to enable it to pay the contentious legal fees to Macpherson + Kelley and then procure IDC to make payment of those fees to Macpherson + Kelley will not bind the Court or the plaintiff to a characterisation of those fees as being properly due to Macpherson + Kelley and as being the responsibility of IDC alone. It will clearly be open to the plaintiff to challenge the proposition that the liability for the fees in question was solely or even partially that of IDC and nothing which the defendants may agree amongst themselves, or do, can deprive the plaintiff of that right.

85    For these reasons, I do not think there is any need to grant an injunction to the plaintiff and I decline to do so.

86    The giving of the notice of 20 July 2010 was unnecessary and provocative. Further, the fact that, at the present time, IDC does not have sufficient funds to pay those fees without borrowing from the defendants was not revealed to the plaintiff or to the Court until the hearing on 15 October 2010. On the other hand, the plaintiff has failed in his application for interlocutory relief, on grounds (amongst others) relating to the balance of convenience. In those circumstances, I propose to order that the costs of the Second Interlocutory Process be costs in the proceeding.

Court Assisted Dispute Resolution

87    In very broad terms, the current position of the project may be summarised as follows:

(a)    All of the building works have been completed. In accordance with the Interlocutory Agreement, most, if not all, creditors of the project in respect of the building works (apart from the investors themselves) have been paid;

(b)    IDC will need to maintain the new apartments so there will be some ongoing costs associated with that maintenance;

(c)    Seven of the eight apartments are on the market and one unit has already been sold with settlement imminent;

(d)    The expenses of sale, for the most part, will be deducted from the sale price of each of the apartments;

(e)    There are unlikely to be other substantial expenses in the future, other than legal fees associated with the current disputes amongst the investors; and

(f)    IDC has virtually no cash in its bank account although it is likely to receive cash in the future from the sales of the apartments, particularly when Investec and the other lenders have been fully paid out.

88    When this proceeding was commenced, the issue of most concern to the plaintiff should have been and probably was the need to protect his quarter share in the venture and to protect the future revenues to be derived from the sale of the apartments. Those issues have been reasonably and sensibly addressed in the Interlocutory Agreement and by the interlocutory injunction obtained on 19 April 2010.

89    The essential differences between the plaintiff, on the one hand, and the second, third and fourth defendants, on the other hand, may be broadly summarised as follows:

(a)    The plaintiff asserts an entitlement to be paid fees for architectural and project management services to the project. Some fees have been paid to him ($243,000). He asserts an entitlement to be paid further fees, some of which have not yet been rendered. The second, third and fourth defendants do not accept all of the plaintiff’s claims. There is a need to determine the plaintiff’s entitlement to such fees.

(b)    The third defendant, as builder, has been paid substantial sums for executing the necessary building works. There may be further claims which have not yet been met. The plaintiff has concerns that the total amount claimed by the third defendant exceeds his entitlement under the building contract. Thus, the proper entitlement of the third defendant to be remunerated for carrying out the building works is in issue and needs to be resolved.

(c)    The plaintiff has made allegations that certain expenses have been improperly charged to the project and that there is expenditure totalling $3.5 million–$3.6 million which cannot be reconciled to the books and records of IDC and which remain unexplained. The particular issues raised by the plaintiff need to be addressed and resolved.

(d)    The correct balance of the loan accounts of each of the investors needs to be determined. To some extent, those balances will be affected by the resolution of issues (a) to (c) above.

90    The legal representatives of the parties have recently exchanged correspondence attempting to address some of these matters. Some suggestions have found broad agreement between those legal representatives whilst others have been considered unacceptable.

91    The parties appear to agree that, in the very near future, Mr Arapidis, who is IDC’s company accountant, Mr Gronsbell-Luntz, the plaintiff’s expert, and Mr Skyring, the expert retained by the second, third and fourth defendants, should meet in order to discuss all outstanding accounting issues. It is anticipated that the accountants will attempt to resolve all contentious accounting issues and produce a joint report which reconciles all of the income and expenditure for the project to the records maintained by IDC and identifies for further consideration any issues of an accounting nature which cannot be resolved by agreement. The outstanding point of difference amongst the parties at the present time is: Who should be responsible for the costs of each of the accountants.

92    Given that IDC has no cash readily available at the moment, the sensible way of dealing with the costs of the accountants seems to me to be that the plaintiff should pay for the costs of Mr Gronsbell-Luntz, the second, third and fourth defendants should pay for the costs of Mr Skyring and each of the warring groups (the plaintiff, on the one hand, and the second, third and fourth defendants, on the other hand) should pay half of the costs of Mr Arapidis. In due course, the parties may take the view that their respective contributions to the costs of Mr Arapidis should be regarded as a loan to IDC. The precise treatment of these payments can be left to be resolved later.

93    There is no agreement as to the best method of dealing with the outstanding claims by the plaintiff, on the one hand, and the third defendant, on the other hand. It may be thought that the most appropriate way of addressing these would be for the parties to retain appropriate experts with relevant expertise to determine these claims either in a binding fashion or at least as part of a mediation process.

94    On several occasions when the matter has been listed before me, I have suggested to the parties that they appoint a mediator to assist them to settle their differences. They have not yet done so although they now appear to be willing to do so. Although one or more of the parties might think that the appointment of a mediator at this stage is premature, I have a different view. Given that the project is complete, the parties’ primary focus should be on maximising the sale price of each of the apartments. This may take some time, perhaps several months. However, the disputes amongst the parties concerning the remuneration of the plaintiff and the third defendant will not go away and need to be resolved. The resolution of these disputes does not need to await the sale of the apartments. The proceeding before me will not resolve those disputes and, in any event, is not the most appropriate vehicle through which those disputes should be resolved.

95    I have considered immediately ordering the parties to mediate. I have also considered appointing a referee pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth).

96    I have come to the view that, at this stage, the appointment of a referee would be premature and that, in any event, I should give the parties a further opportunity to choose the dispute resolution process or processes which they favour before compulsorily imposing such processes upon them.

97    However, I think that the parties should immediately appoint a mediator to mediate all of their differences. Included within the matters which the mediator might mediate and assist the parties to have determined should be the outstanding claims for remuneration made by the plaintiff and by the third defendant. I have in mind that, after conferring with the parties, the mediator will have suggestions with which the parties may agree for an appropriate way of having these claims determined in the most expeditious and cost effective manner. The mediation which I have in mind will need to take place over some months and will involve the parties getting together on more than one occasion. The mediator will act as the supervisor of such other processes as the parties might agree, after discussion with the mediator, with a view to determining the underlying building and architectural/project management disputes. The mediator should also be in a position to assist the parties to factor into their dispute resolution processes the product of the conference of accountants which I believe should take place as soon as possible.

98    I have set out the observations which I have made at [87]–[97] above not for the purpose of supporting the making of an order for mediation at this stage but rather to explain to the parties my current thinking on the topic and for the purpose of seeking to persuade them to pursue, in a consensual fashion, mediation along the lines of the model which I have described.

99    For these reasons, I will not make any order for mediation or any order appointing a referee at this stage. However, I will list the matter for mention before me on 1 December 2010 in order to monitor the parties’ progress on the mediation front and to deal with any matters which might assist the parties to mediate their disputes in the manner which I have described.

100    If the parties do not find a way to construct a dispute resolution model which sensibly meets their needs, I will consider imposing such a model. Inevitably, a Court imposed model will not satisfy everyone and, in the present case, is likely to involve greater cost than a model arrived at through a process of consensus.

101    In the circumstances, in accordance with the wishes of the parties, I will not order the proceeding to be prepared for final hearing and will not, at this stage, fix the proceeding for final hearing. The only orders which I will make are those dealing with:

1.    the costs of the first Interlocutory Process;

2.    the Second Interlocutory Process; and

3.    the costs of the Second Interlocutory Process.

102    There will be orders accordingly.

Associate:

Dated:    22 October 2010