Medina Property Services Pty Ltd v Starin Ltd as trustee of the Macquarie Business Centre Unit Trust

Medina Property Service Pty Ltd and its parent, Toga Hotel Management Holdings Pty Ltd, seek a continuation of an interlocutory injunction and confidentiality orders that I granted on 7 December 2018 until the final hearing of this matter; now fixed for 12 and 13 February 2019.

The injunction restrains the defendants, Starin Ltd and Sydney Rainbow Pty Ltd from mortgaging, charging, encumbering, selling, disposing, transferring, assigning or leasing their interests in a property in Lane Cove Road, Macquarie Park. Starin is the registered proprietor of that property as trustee for the Macquarie Business Centre Unit Trust.

On the return of the summons on Monday 10 December 2018, Mr Aspinall who then appeared for Starin and Sydney Rainbow, and now appears for the liquidators of those companies in circumstances to which I will return, sought an adjournment of the proceedings for a day so that evidence could be adduced to answer Medina's and Toga's foreshadowed application of the interlocutory injunction being continued. I acceded to that application and adjourned the proceedings until 11 December 2018 and extended the 7 December 2018 orders until 5pm that day.

On 11 December 2018, the hearing of Medina's and Toga's application for continuation of the injunction commenced. It became apparent during that hearing that there was deficiencies in the evidence that Starin and Sydney Rainbow sought to deploy. Accordingly, Mr Aspinall again sought an adjournment. I adjourned the proceedings until today and extended the injunctions until 5pm today for the express purpose of enabling Starin and Sydney Rainbow to produce evidence in proper form and to put before the Court any material that was thought appropriate to resist continuation of the injunction until the hearing date.

On 11 December 2018, by consent, I made directions for the service of further evidence by Starin and Sydney Rainbow by 10am yesterday and for evidence in reply by 5pm yesterday.

On the following day, 12 December 2018, the members of Starin and Sydney Rainbow resolved that each company will be wound up voluntarily and that Mr Rahul Goyal and Mr Scott Langdon be appointed liquidators.

Neither the solicitors then acting for Starin and Sydney Rainbow, nor those companies' directors gave Medina or Toga or its solicitors, or the Court, notice of those events. Medina's and Toga's solicitor, Mr Benjamin Giles, ascertained these matters from searches he conducted at the Australian Securities & Investments Commission.

Neither Starin nor Sydney Rainbow has served evidence in accordance with my direction.

In those circumstances, by notice of motion to be filed in Court today but served yesterday on the liquidators, Medina and Toga seek leave to proceed against each company under s 500(2) of the Corporations Act 2001 (Cth).

I propose to give that leave for the reasons that follow.

First I turn to the background. As I said, Starin is the registered proprietor of the Macquarie Park property as trustee for the Macquarie Business Centre Unit Trust. It planned to build a hotel on the land. The hotel was to be leased to Sydney Rainbow and then operated by Medina as an "Adina Apartment Hotel”

So far, Starin has procured development consent to carry out that development. It has undertaken initial construction, work including demolition of the previously existing structure, excavation of the site, establishment of peering and footings, installation of temporary ground anchors, placement of a basement, retaining walls and transfer slabs. That work has cost in the order of $3.3 million.

Starin put out to tender the task of constructing the proposed hotel. A builder has estimated that the building costs will be something in order of $42 million. However, Starin has not been able to raise finance for that work. Accordingly, it wished to sell the property. It has received offers for the property of some $32.5 million (in May 2018) and $28 million (in August 2018).

On 11 August 2016, Medina and Toga on the one hand and Starin and Sydney Rainbow on the other entered an "Agreement for Management Agreement" (the "AFMA").

Pursuant to the AFMA, Starin and Sydney Rainbow agreed to build the hotel and on completion grant Medina management rights over it. There are terms of the AFMA that:

The agreement provided that Medina was entitled to withhold its consent to a sale of the land if the proposed transferee was not prepared to enter into a deed to assume by novation or as required by Medina all of Starin’s rights and obligations under the AFMA.

Toga agreed to guarantee certain of Medina's obligations under the AFMA.

In June 2018, Medina and Toga became aware that Starin was marketing the land for sale.

On 2 August 2018, Starin's solicitors, Norton Rose Fulbright wrote to Toga requesting consent to disclosure of the full terms of the AFMA to a number of identified prospective purchasers, as well as to other not yet identified prospective purchasers, subject to such parties entering into confidentiality agreements.

Toga replied on 8 August 2018 seeking more detailed information about those prospective purchasers and explaining why the terms of the AFMA were commercially sensitive. It is not necessary for me to set out what those reasons were save to say that I am satisfied that they have substance.

Correspondence was then exchanged between Norton Rose Fulbright and Mr Giles until mid October, by which time Toga and Medina made clear that they would only consider disclosure of the terms of the AFMA to specified prospective purchasers and only if Starin agreed to make no reference in public marketing materials to the terms of the AFMA.

From 19 October 2018 Starin's Chief Executive Officer and Managing Director, Mr Anurag Thukral, commenced communicating directly with Mr Giles. He continued to request Medina's and Toga's consent to the disclosure of the AFMA this time to a named prospective purchaser "Fife Capital Investments". Mr Giles, quite properly, continued to direct his correspondence to his opposite number at Norton Rose Fulbright; by then Mr Stephen Gorry.

On 26 October 2018, a meeting took place at Norton Rose Fulbright between the parties and their lawyers to discuss a possible way ahead.

Nonetheless Mr Thukral continued to communicate directly with Mr Giles. On each occasion Mr Giles then sought to make contact with Mr Gorry. There were a large number of such communications, the details of which do not matter for the moment.

Finally, on 4 December 2018, Mr Giles sent an email to Mr Gorry asking Mr Gorry to follow up with whoever was dealing with the matter at Norton Rose Fulbright.

Four minutes after that email was sent, Starin sent Toga, but not Medina, a notice purporting to terminate the AFMA. In that notice, Starin drew attention to cl 16 of the AFMA and continued:

The notice did not give Toga, let alone Medina, a "reasonable time" to remedy Toga's alleged "noncompliance" of its obligations under the AFMA.

Nor was the notice addressed to or served on Medina as is required by the AFMA.

In those circumstances, I have come to be satisfied that there is a serious question to be tried as to whether termination was effective for a number of reasons.

First, the default alleged is Toga's unreasonable withholding of consent to the proposed sale. The evidence thus far adduced shows that a matter of vital importance to Medina and Toga is the identity of any party to whom Starin sells the property and the ability of that party to perform the obligations under the AFMA, assuming it was novated in that party's favour.

Further, as has been explained in the correspondence between the lawyers, the terms of the AFMA are such that unnecessary revelation of them to prospective purchasers could cause significant commercial harm to Medina and Toga.

There is in those circumstances a real question to be tried as to whether Medina and Toga have thus far unreasonably withheld their consent to revelation of the AFMA, or let alone to the sale of the property.

In any event, there is a real question as to whether the purported termination is effective, assuming unreasonably withheld consent could be demonstrated.

Starin is only entitled to terminate the AFMA if Medina commits an "Event of Default"; relevantly noncompliance with an obligation where "the noncompliance is not remedied within a reasonable time after the other party [here Starin] gives [to Medina] a notice requiring it to be remedied".

There is no evidence that this has happened, and it appears that it has not.

And the 4 December 2018 notice was not served on Medina.

As to balance of convenience, on 11 December 2018 Mr Aspinall submitted that a number of factors pointed to the conclusion that balance of convenience did not favour the continuation of the injunction. However, as I have mentioned, the evidence earlier adduced did not support those submissions. Since then, rather than adduce evidence to justify the submissions earlier made and to return to Court to argue the point, the members of Starin and Sydney Rainbow have chosen to place the companies in liquidation.

In those circumstances, I am be satisfied that I should grant Medina and Toga leave to proceed under s 500(2) of the Corporations Act.

Leave should be given because:

For that reason, I make orders in accordance with the notice of motion filed in Court today.

In my opinion, in these circumstances, the injunctions should - subject to one matter I will mention in a moment - be continued until the hearing. On 12 December 2018 I fixed the matter for final hearing on 12 and 13 February 2019. I did that because I formed the opinion that it was urgent that these proceedings be resolved and that as the Court had time available in February, the sooner the matter was fixed for hearing the better.

One of matters that Mr Aspinall foreshadowed to be a reason why the orders, at least in their present form, should not continue is that there is what was described as a "risk of slope failure" at the site. I was informed that it was necessary that work be done to, in effect, preserve the integrity of the site. It does appear that Starin has been aware of the need to do that work for some time and has had for over a month a quotation from appropriate contractors to do that work. However that may be, now that the liquidators are in charge of the companies, they will no doubt form a view as to whether it is necessary to make an application to the vacation judge to have the injunctions varied to enable whatever work on the site to be done as necessary.

I propose to give the liquidators leave to make such an application.

I make the following orders: