Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers (Sawmilling) Pty Ltd (No 3)

1. [1]

   I gave judgment in this matter on 22 August 2019: Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers (Sawmilling) Pty Ltd [2019] NSWSC 1069. I shall use the same abbreviations here.

2. [2]

   It followed from my reasons that Hurford was entitled to judgment against Kempsey Timbers in the sum of $234,740 together with interest.

3. [3]

   I entered judgment and made an order for interest on 17 September 2019.

4. [4]

   That judgment will be satisfied from funds that, on 20 September 2019, I ordered be paid out of Court to Hurford from the fund referred to at [7] of my August judgment.

5. [5]

   It also followed from my reasons that Hurford was entitled to the bulk of its costs.

6. [6]

   On 19 September 2019, I ordered that Kempsey Timbers pay Hurford’s costs, other than in relation to the long service leave issue, on the ordinary basis until 22 October 2018 and on an indemnity basis thereafter: Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers (Sawmilling) Pty Ltd (No 2) [2019] NSWSC 1248.

7. [7]

   Hurford’s solicitor has deposed that Hurford’s actual costs at the time of judgment were in the order of $570,000.

8. [8]

   Unless, as seems unlikely bearing in mind the history of this matter, the parties can agree as to the quantum of the costs to which Hurford is entitled, the matter will have to proceed to assessment. I am told that the process of assessment is likely to take up to 12 months.

9. [9]

   As set out in the August judgment, by contract made in November 2017, Kempsey Timbers sold Hurford its timber mill and sawmill business for $6.8 million. Between then and August 2018, pursuant to its entitlement under the contract, Kempsey Timbers sold the Processed Stock at the mill for some $2.5 million. In May and July 2018, Kempsey Timbers sold two other properties it owned at Kempsey for a total of $760,000.

10. [10]

    Kempsey Timber’s remaining asset is a property a Wauchope valued at some $1.5 million.

11. [11]

    Hurford contends that Kempsey Timbers has been taking steps to diminish the value of its equity in the Wauchope property by causing it to be encumbered by a mortgage to a related company, Oakley Investments Pty Ltd. Hurford contends that the effect of its conduct is to create a danger that the costs order I have made will be unsatisfied.

12. [12]

    In those circumstances, Hurford seeks an order that Kempsey Timbers not dispose of, deal with, or diminish the value of the Wauchope property to an unencumbered value of $650,000 pending satisfaction of the costs order.

13. [13]

    My conclusion is that no such order should be made.

14. [14]

    In my opinion, a fair view of the evidence is that, rather than seeking to diminish the value of its equity in the Wauchope property, Kempsey Timbers is seeking to increase the value of such equity. That is because Kempsey Timbers is seeking to develop the property by subdividing it into industrial lots, and thus increase its value. It is using the funds advanced, and to be advanced to it by Oakley Investments, for that purpose.

The Oakley Investments facility

1. [15]

   Oakley Investments has been making advances to Kempsey Timbers since prior to May 2016. The amount owing by Kempsey Timbers to Oakley Investments on 12 May 2016 was some $58,500.

2. [16]

   Until March 2019, the advances made by Oakley Investments to Kempsey Timbers were unsecured.

3. [17]

   At one point, in March 2017, the amount owing by Kempsey Timbers to Oakley Investments was some $2.1 million.

The mortgage

1. [18]

   At the time Kempsey Timbers granted a mortgage to Oakley Investments in March 2019, the loan had been reduced to some $534,000.

2. [19]

   The mortgage is not in evidence before me. Evidently, it is not registered. The only evidence of the circumstances in which the mortgage was entered is in an affidavit sworn by Mr Graeme Dowsett on 18 September 2019. Mr Dowsett is the accountant for Kempsey Timbers and Oakley Investments. The following passage from Mr Dowsett’s affidavit was received without objection:

Mr Dowsett’s 2018 Affidavit

1. [20]

   Shortly after these proceedings were commenced, Hurford sought orders restraining Kempsey Timbers from calling on it to make the final payment of $500,000 due under the contract.

2. [21]

   In that context, Mr Dowsett swore an affidavit on 18 September 2018 in which he did not refer, in terms, to the advances made by Oakley Investments to Kempsey Timbers. In that affidavit Mr Dowsett said Kempsey Timbers had “a secured creditor in the sum of $500,000” and that “the companies have nil external debt”. In fact the amount due by Kempsey Timbers to Oakley Investments on the date of Mr Dowsett’s 2018 Affidavit was at least some $834,000. It may have been some $984,000 as $150,000 was repaid by Kempsey Timbers to Oakley Investments that day.

3. [22]

   Mr Dowsett’s 2018 Affidavit was in those circumstances, to say the least, incomplete. That is unsatisfactory. However, Mr McCall, who appeared for Hurford, did not seek to cross-examine Mr Dowsett about that matter.

Further drawdowns

1. [23]

   Since Kempsey Timbers granted Oakley Investments the mortgage in March 2019, Kempsey Timbers has made a number of drawdowns under its facility with Oakley Investments.

2. [24]

   The amount currently due by Kempsey Timbers to Oakley Investments is $1,050,000.

3. [25]

   That fact, and the existence of the mortgage and the $1.5 million facility, was revealed by Kempsey Timbers’ solicitor, Mr Worthington, on 11 September 2019 in response to an enquiry made by Hurford’s solicitor.

4. [26]

   On 3 June 2019, $166,149 was drawn down. Mr Dowsett deposed that the money was used to pay the following expenses:

5. [27]

   In relation to the $50,000 paid in respect of the “Solomon Island project” Mr Dowsett said:

6. [28]

   As Mr McCall submitted, it is hard to understand why Oakley Investments needed to advance to Kempsey Timbers money needed by another related entity, Musashi Group Pty Ltd, in relation to the Solomon Islands venture. Oakley Investments could simply have loaned the funds directly to Musashi Group. However, Mr McCall did not object to Mr Dowsett’s evidence and did not seek to cross-examine him about it.

7. [29]

   The barristers’ fees paid with this drawdown were those incurred by Kempsey Timbers in relation to these proceedings.

8. [30]

   On 1 August 2019, shortly after the conclusion of the hearing before me, Kempsey Timbers drew down a further $150,000 under its facility with Oakley Investments.

9. [31]

   Mr Dowsett has deposed that that drawdown was used to pay the following expenses:

10. [32]

    The legal fees referred to are those associated with these proceedings.

11. [33]

    Mr McCall accepted that all of the expenses paid for from this drawdown were those of Kempsey Timbers but pointed out that Mr Dowsett’s explanation does not account for $64,700 of the $150,000 drawdown. The evidence is to that extent incomplete. However, Mr Dowsett was not cross-examined about this.

12. [34]

    On 1 and 2 September 2019, shortly after I delivered the August judgment, the final drawdown of $200,000 was made.

13. [35]

    Mr Dowsett deposed that this drawdown was used to pay the following expenses:

14. [36]

    As to the $50,000 paid to Dr Head, Mr Dowsett deposed:

15. [37]

    The $50,000 said to have been owed by Kempsey Timbers to Dr Head was not disclosed, in terms, in Mr Dowsett’s 2018 Affidavit. As I have said, Mr Dowsett then said that “the companies have nil external debt”. It may be that Mr Dowsett did not regard an amount owing to Dr Head to be “external debt”. The matter was not explored in cross-examination.

16. [38]

    Mr McCall submitted that I should be cautious about accepting that $50,000 was in truth owing by Kempsey Timbers to Dr Head. However, in absence of any challenge to Mr Dowsett’s evidence about this, I must accept that what he has deposed to reflects the facts.

Imminent development approval of the Wauchope property

1. [39]

   The bigger picture here is that Kempsey Timbers has sought development approval to subdivide the Wauchope property into 40 lots, each of 1,000 m2.

2. [40]

   There is no dispute that development approval is likely to be granted by the relevant development assessment panel by the end of October 2019.

3. [41]

   On 18 September 2019, a licensed real estate agent, Mr Michael Marsh, wrote to Dr Head expressing the following opinion in relation to the value of the Wauchope property once development approval is granted. Mr Marsh’s letter was received without objection:

4. [42]

   Thus, Mr Marsh’s opinion is that the Wauchope property will increase in value from some $1.5 million to $2.5 million once development approval is granted and, if the subdivision proceeds, sale revenue between $12 million and $15 million is likely to be achieved.

5. [43]

   Mr McCall criticised the opinions expressed by Mr Marsh and submitted that he was being unreasonably optimistic.

6. [44]

   That may be so, but Mr McCall did not object to the tender of Mr Marsh’s letter nor seek to limit the use to which it could be put.

7. [45]

   Nor did Mr McCall challenge this evidence given by Mr Worthington in relation to the Wauchope development:

8. [46]

   This evidence satisfies me that Kempsey Timbers intends to develop the Wauchope property by seeking development approval and thereafter causing it to be subdivided as Mr Marsh and Mr Worthington have described.

9. [47]

   This shows, in my opinion, that Kempsey Timbers is intent on maximising its equity in the Wauchope property, rather than diminishing it, let alone diminishing it with a view to stifling Hurford’s ability to recover its costs.

10. [48]

    The matters that must be demonstrated to justify a freezing order have been stated in many cases.

11. [49]

    A convenient summary is that of McColl JA in Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [72] to [75]:

12. [50]

    I am not persuaded that Hurford has shown that Kempsey Timbers is engaging in conduct which is calculated to have the effect of causing Kempsey Timbers to evade its obligations to meet the costs order I have made. I see no sign of any abuse of process by Kempsey Timbers.

13. [51]

    For those reasons, my conclusion is that Hurford’s application should be dismissed.

14. [52]

    I make the following orders:

    1. (1)

       The plaintiff’s Notice of Motion of 12 September 2019 is dismissed.

    2. (2)

       Set aside order 1 made by me on 17 September 2019.

15. [53]

    I will hear any submissions as to costs.