Delahunty Enterprises Pty Ltd v Cheers & Ors [2003] QDC 422

DISTRICT COURT OF QUEENSLAND CITATION: Delahunty Enterprises Pty Ltd v Cheers & Ors [2003] QDC 422 PARTIES: DELAHUNTY ENTERPRISES PTY LTD ATF THE DELAHUNTY FAMILY TRUST (ACN 102 011 361) Plaintiff and LESLIE MATTHEW CHEERS First Defendant and VOYAGER CONSTRUCTIONS PTY LTD (ACN 084 807 084) Second Defendant and MICHAEL JAMES HARVEY T/AS ELLIOTT & HARVEY SOLICITORS Third Defendant FILE NO/S: 93/03 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court of Queensland, Southport DELIVERED ON: 20 March 2003 DELIVERED AT: Southport HEARING DATE: 17 March 2003 JUDGE: Alan Wilson SC DCJ ORDER: 1. Dismiss the plaintiff’s application for an interlocutory injunction until trial 2. Discharge the injunction granted ex parte on 26 February 2003, and extended on 3 and 17 March 2003 -- 1 of 7 -- 2 CATCHWORDS: INJUNCTIONS – INTERLOCUTORY INJUNCTION – plaintiff alleging it can trace funds paid to the second defendant under a contract to a solicitor’s trust account – asserting solicitor holds funds on its behalf under a constructive trust – whether Trust Accounts Act 1973, s12(4) creates a cause of action – whether solicitor should be enjoined until trial from dealing with funds – Mareva injunction - balance of convenience – discretionary matters Trust Accounts Act, 1973, s12 UCPR, r260 Cases considered: Active Leisure (Sports) Pty Ltd v Sportsmans Australia Ltd (1991) 1 Qd R 301 re: Burman (1993) 1 Qd R 49 Macquarie Bank Limited v Lin (2002) 2 Qd R 188 Pegang Mining Co Ltd v Choong Sam (1969) 2 MLJ 52 COUNSEL: Mr M Campbell for the applicant plaintiff Mr D Williams for the respondent third defendant and the respondent Lawloan Mortgages Pty Ltd Mr M Treherne (not of Counsel) for the respondent second defendant SOLICITORS: Pilgrim Geddes for the applicant plaintiff Elliott & Harvey for the respondent third defendant and the respondent Lawloan Mortgages Pty Ltd Mark Treherne & Associates for the respondent second defendant [1] In this claim the plaintiff seeks repayment of $80,000 which it allegedly paid to the first and/or second defendants for a consideration which has wholly failed and, against the third defendant, a declaration that he holds part of that sum ($40,000) in trust for it. On 26 February 2003 an injunction was granted restraining the third defendant from dealing with that sum of $40,000 until 3 March. On that day the injunction was extended by consent until 17 March, with an additional order that the plaintiff serve the company Lawloan Mortgages Pty Ltd. [2] The original injunction was granted ex parte. It was supported by an affidavit from the plaintiff’s director Mr John Delahunty, an architectural design and property consultant, who swore that in November 2002 he met Mr Les Cheers who represented himself as an agent of the second defendant which, Cheers also represented, was negotiating with the third defendant to purchase a retirement -- 2 of 7 -- 3 home project at Coral Cove, Bundaberg. Mr Delahunty says he agreed, on behalf of the plaintiff, that it would act as development manager for that project and contribute $40,000 towards obtaining ‘this deal’. On 2 December 2002, Mr Delahunty says, at Cheer’s request he wrote a cheque from his company’s account drawn on the Westpac Bank at Burleigh Heads for $40,000 in cash and, for it, obtained a Westpac Bank cheque for that sum payable to Elliott & Harvey’s Trust Account and gave that cheque to Cheers. Information from the bank shows the cheque was deposited to that trust account on 5 December 2002. [3] Mr Delahunty says in the exchange for that cheque Cheers gave him a loan agreement between the plaintiff and a company called Southern Sea Board Finance Pty Ltd allegedly signed by a Mr Keith Kelly who (as searches confirm) was a director of that company, and the second defendant. Later, Mr Delahunty says, Mr Kelly told him he had not signed that document and his apparent signature on it is a forgery. The loan agreement does not mention any transaction involving the second defendant, or Lawloan, or the Coral Cove property. It simply refers to the plaintiff as “the Lender” and Southern Sea Board as “the Finance Company” and records they have agreed as follows: The Lender wishers (sic) to invest an amount of $40,000 (Fourty (sic) Thousand Dollars). The Finance Company shall pay to the Lenders Bank Account at the Westpac Banking Corporation at Burleigh Heads the interest rate equal to 5% per Month paid monthly in arrears. [4] The plaintiff’s statement of claim alleges, however, that the payment of $40,000 was made pursuant to an agreement between the plaintiff and the first defendant, as agent for the second defendant, the terms of which are said to include a promise on the part of the second defendant to purchase the Coral Cove property and develop it as a retirement village/resort; and, that the plaintiff would pay the third defendant the sum of $40,000 “by way of deposit on this property”. (As the pleading also shows the plaintiff alleges that he paid other sums of $25,000, and $15,000, to Cheers under, it appears, similar arrangements in respect of other properties). [5] Affidavits filed on behalf of the third defendant by Mr Harvey Edwards, a solicitor, show that the third defendant is also the sole director of the company Lawloan Mortgages Pty Ltd. On 2 October 2002 that company was directed, under an order made by Holmes J, to wind up a mortgage it held over the Coral Cove property (and under which, it appears, it had taken possession of the land secured by the mortgage) and, for that purpose, it entered an agreement with the second defendant on 21 November 2002 to sell the mortgage to it for $400,000. The deposit under that contract was paid by bank cheque to the third defendant’s trust account on 5 December 2002, in the sum of $40,000. The cheque was delivered by Mr Kelly, or Mr Cheers, but not Mr Delahunty. Despite extensions of time, that contract was -- 3 of 7 -- 4 never completed and Lawloan has now entered into another contract to sell the mortgage to another party. [6] On 17 March the plaintiff sought the continuation of the existing ex parte injunction on an interlocutory basis until trial. The plaintiff asserts the deposit of $40,000 paid by the second defendant under its contract with Lawloan is, in truth, the money paid by the plaintiff under its agreement with the second defendant; that the third defendant (and, by inference, Lawloan) now hold that sum on a constructive trust for the plaintiff; and, they should be enjoined not to disburse it until trial. [7] The matters asserted in the plaintiff’s statement of claim and affidavits satisfactorily establish there is a serious question to be tried between it, and the first and second defendants. So far as the third defendant is concerned the plaintiff asserts a triable issue occurs on two grounds: first, as a consequence of rights said to vest in the plaintiff, in the circumstances here, under s 12(4) of the Trust Account Act 1973; and, secondly, under a constructive trust. [8] S 12(4) provides: (4) Where, before the making of a payment pursuant to subsection (3), a trustee has received notice in writing from any person who was a party to the business, proceeding or transaction in respect of which the moneys were received that the ownership of the moneys is in dispute, the trustee shall not without the written consent of the parties make payment of any such moneys until such time as - (a) all parties to the business, proceeding or transaction notify the trustee in writing that the dispute has been resolved and inform the trustee as to the person to whom the moneys are to be paid, whereupon the trustee shall forthwith pay the moneys to that person or as that person may direct in writing; or (b) the trustee is advised that legal proceedings have been commenced to determine the ownership of the moneys whereupon the trustee shall forthwith pay the moneys into the court in which the proceedings have been taken to abide the decision of the court; or The Act imposes statutory obligations upon solicitors, but does not appear to provide an actual cause of action to any “party” referred to in this subsection. I am not, in any event, persuaded that the section applies in the present circumstances. [9] The ordinary definition of “party” is “a person or persons forming one side in an agreement or a dispute”1; or “a person immediately concerned in some transaction or legal proceeding”2. While it is arguable (but not certain) that the plaintiff 1 Australian Oxford Dictionary 2 Macquarie Dictionary -- 4 of 7 -- 5 entered into some form of agreement with the second defendant it had no legal relationship, contractual or otherwise, with the third defendant or Lawloan. The “business or transaction” to which the subsection might refer is, here, the money received under the contract for the sale of the mortgage by Lawloan to the second defendant and, again, the plaintiff had no connection with that contract. [10] In construing provisions to do with parties in UCPR r 69(1)(b)(i) Holmes J, in Macquarie Bank Limited v Lin (2002) 2 Qd R 188 at 192 applied Lord Diplock’s formulation in Pegang Mining Co Ltd v Choong Sam (1969) 2 MLJ 52: Will the (person’s) rights against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action? Here the plaintiff’s rights against the second defendant remain, at the highest, that of a party to an agreement with that defendant (or, Southern Sea Board) irrespective whether the funds held by the third defendant are paid into Court, or not. Any relief that might be granted in any proceedings between the second defendant and Lawloan would not affect that right. (To hold otherwise would create, as was submitted for the third defendant, a form of security interest and turn the plaintiff’s unsecured loan to the second defendant (or some other entity) into a quasi- caveatable interest against a third party.) [11] As to the claim for the imposition of a constructive trust over the funds received by the third defendant, the plaintiff must be able to demonstrate some right over that money as against the third defendant, or Lawloan. Paragraphs 5-12 of the statement of claim, which are said to establish a constructive trust, show no more than that the plaintiff was a party to an agreement with the second defendant but do not establish any legal relationship, contractual or otherwise, with the third defendant or Lawloan. [12] So far as appears, the funds paid to Elliott & Harvey by the second defendant were received by it as agent for Lawloan, and not as a stakeholder; hence, upon receipt, the third defendant held those funds on trust for Lawloan3. The deposit was not paid over in a fashion which would make it trust money or property; rather, it was a part payment pursuant to the contract between Lawloan, and the second defendant. The third defendant received that money as agent for Lawloan, which is legally entitled to assert an interest in it after the second defendant failed to complete its contract with Lawloan, as appears to have occurred. (No evidence was presented suggesting that the second defendant has commenced any proceedings against Lawloan in respect of that matter). 3 Mr Edwards’ affidavit, Exhibit HWE5, clause 1(c); re Burman (1993) 1 Qd R 49 at 54 -- 5 of 7 -- 6 [13] Nothing arising from the circumstances in which the third defendant received the funds, nor the manner in which they came to be held by or for Lawloan, involved any unconscionable conduct on the part of either of those parties. In particular, there is no evidence suggesting that the bank cheque for $40,000 was paid over in circumstances which ought to have alerted either of them to the matters about which the plaintiff now complains. I was referred, by the plaintiff’s counsel, to a passage in Butterworth’s “Court Forms Precedents & Pleadings (Queensland)” in which it is suggested that a constructive trust may be imposed where the holder of legal title may not in good conscience retain the beneficial interest4 but, as discussed earlier, the deposit here was paid by bank cheque and, I am satisfied, there was no notice of any kind to the third defendant or Lawloan that it was not being paid by the second defendant. In the circumstances no element of unconscionability clouds the third defendant’s receipt of the funds, vis-à-vis the plaintiff. [14] As to the balance of convenience, the plaintiff asserts the first defendant is now in prison, and there is no evidence as to the financial position of the second defendant – save that it is known that it is has not completed its contract with Lawloan. These things, it is said, give rise to a need to preserve the status quo until the respective rights of the parties to these funds have been determined. [15] Against that, an inference arises on the evidence that the ex parte injunction already granted may have impeded the contract between Lawloan and the second defendant; and, could impede further attempts by Lawloan to sell the Coral Cove property, or its mortgage over it. The local authority has issued a notice for sale as a result of unpaid rates and, in the absence of any proceedings by Voyager for its deposit, Lawloan is in a position to use the forfeited sum to protect its interests, and those of its contributors. I accept, too, that future attempts by Lawloan to effect a sale will involve commercial considerations arising from its ability to use the forfeited deposited – e.g., the price it is prepared to accept. [16] Some other matters also touch the question whether the relief sought by the plaintiff should, in the Court’s discretion, be granted. The first is whether or not the sum in the third defendant’s trust account is, in truth, the amount paid by the plaintiff. The plaintiff can trace that sum, through its bank, to the third defendant, and the latter has not adduced any evidence to suggest he received any similar amount from any other party referable to Lawloan’s transaction with the second defendant – or, a similar sum on or around the relevant date. It seems likely the bank cheque obtained by the plaintiff was ultimately received by the third defendant, by way of deposit for the second defendant’s purchase from Lawloan. [17] Even if he succeeds on that point, however, the plaintiff faces some obvious evidentiary difficulties at trial including, rather vividly, the loan agreement he 4 At p 73, 027 -- 6 of 7 -- 7 accepted from Southern Sea Board Finance Pty Ltd (albeit, perhaps, containing a forged signature of a director on that company’s behalf) which is, on its face, quite inconsistent with the contract he pleads with the second defendant. [18] The solicitor for the second defendant and counsel for the third defendant, and Lawloan also raised concerns about the strength of the plaintiff’s undertaking as to damages. Mr Delahunty has sworn an affidavit showing he holds substantial assets himself, but has not advanced any evidence concerning the plaintiff’s financial position. It is also asserted, for Lawloan, that it should have been served with the original application; and, that it was contractually entitled to forfeit the deposit under its deed with the second defendant; and, that Lawloan consists of contributors with a present legal right to that deposit. [19] It is also relevant, I think, that the plaintiff’s remedies against the first and second defendants can be adequately compensated in damages: Active Leisure (Sports) Pty Ltd v Sportsmans Australia Ltd (1991) 1 Qd R 301, at 311; and, there is presently no evidence to suggest that a judgment against the second defendant would not be met. [20] I am not persuaded the plaintiff has established a serious question to be tried vis-à- vis the third defendant, or that the balance of convenience favours the continuation of the ex parte injunction already granted. Further, I am of the view that a number of factors relevant to the discretion involved in an application of this kind tell against the plaintiff. For these reasons, the application is refused. [21] I will hear submissions as to costs. ----- -- 7 of 7 --