PNJ Investment Holding Pty Ltd v ST.K Family Pty Ltd atf ST.K Family Trust [2021] NSWSC 530 (14 May 2021)

Last Updated: 14 May 2021

Supreme Court New South Wales

Case Name:	PNJ Investment Holding Pty Ltd v ST.K Family Pty Ltd atf ST.K Family Trust
Medium Neutral Citation:	[2021] NSWSC 530
Hearing Date(s):	4 May 2021
Date of Orders:	7 May 2021
Decision Date:	14 May 2021
Jurisdiction:	Equity - Duty List
Before:	Henry J
Decision:	Interlocutory relief sought by the cross-claimants refused.
Catchwords:	EQUITY – interlocutory injunctions – application to restrain members’ meeting of unit trustee and other proposed actions of trustee – whether serious question to be tried as to validity of share and unit transfers, removal of director of trustee and replacement of trustee – whether balance of convenience in favour of imposition of restraints –serious questions to be tried established but claims not strong – risk of losing commercially favourable refinance – questions about adequacy of undertaking as to damages – interlocutory injunctions refused
Legislation Cited:	Conveyancing Act 1919 (NSW), ss 52A, 54A
Cases Cited:	Andrews v Australia & New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230 Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1 Dabbs v Seaman (1925) 36 CLR 538; [1926] HCA 26 Jonsue Investments Pty Ltd v Balweb Pty Ltd [2013] NSWSC 325 Labracon Pty Ltd v Cuturich [2013] NSWSC 97 Lawrence v Ciantar [2020] NSWCA 89 Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 Lescap Group Pty Ltd v Pacific Resort Holding Pty Ltd [2012] NSWSC 580 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 Re Application of Sutherland [2014] NSWSC 821 Re Bicher & Son Pty Ltd [2020] NSWSC 711 Re Mosman & Co Pty Ltd [2019] NSWSC 1155 Remrose Pty Ltd v Allsilver Holdings Pty Ltd (2005) 225 ALR 588; [2005] WASC 251 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; [1968] HCA 8
Texts Cited:	J D Heydon, Heydon on Contract (2019, Thomson Reuters) Robert P Austin and Ian M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths)
Category:	Procedural rulings
Parties:	PNJ Investment Holding Pty Ltd ACN 621 816 439 (Plaintiff/First Cross-Defendant) ST.K Family Pty Ltd ACN 610 890 778 atf ST.K Family Trust (First Defendant/First Cross-Claimant) Havilah Green Pty Limited ACN 620 452 502 atf Havilah Green Unit Trust (Second Defendant/Second Cross-Defendant) Heyday Investment Pty Ltd ACN 649 300 970 (Third Defendant/Second Cross-Claimant) Everpro Investment Pty Ltd ACN 630 605 088 (Fourth Defendant/Third Cross-Claimant) AONE Development Partners Pty Ltd ACN 632 439 582 (Third Cross-Defendant) Lindfield Development Pty Ltd ACN 621 866 920 (Fourth Cross-Defendant) Lindvest DM Pty Ltd ACN 621 965 660 (Fifth Cross-Defendant)
Representation:	Counsel: D Pritchard SC with J Lee (Plaintiff/First, Third and Fourth Cross-Defendants) A Flecknoe-Brown (First, Third and Fourth Defendants/First, Second and Third Cross-Claimants) Solicitors: Yingke Law Firm (Sydney) (Plaintiff/First, Third and Fourth Cross-Defendants) L’Orient Legal (First, Third and Fourth Defendants/ First, Second Cross-Claimant and Third Cross-Claimants)
File Number(s):	2021/102403
Publication Restriction:	Nil

JUDGMENT

1. On 4 May 2021, I heard an application by the cross-claimants for interlocutory relief seeking to restrain the second defendant, Havilah Green Pty Ltd (Company), from holding a meeting of members that was scheduled to take place on 5 May 2021 and from taking certain steps in relation to a real estate development project on land located on Havilah Road, Lindfield (Project) which is owned by the Company.
2. Given the urgency of the circumstances, the parties were content for me to indicate my decision at the end of the hearing, which I did in short, summary form, with more detailed reasons to follow. These are my reasons for declining to grant the interlocutory relief sought.
3. The cross-claimants’ application, and the opposition to it, arises out of disputes primarily between the plaintiff and first cross-defendant, PNJ Investment Holding Pty Ltd (PNJ), and the first defendant and first cross-claimant, ST.K Family Pty Ltd (ST.K), about rights to units in the Havilah Green Unit Trust (HG Unit Trust) and shares in the Company, and whether the Company continues to be the trustee of the HG Unit Trust or has been replaced by the third defendant and second cross-claimant, Heyday Investment Pty Ltd (Heyday). The cross-claimants contend that PNJ has invalidly transferred ST.K’s units and shares to itself and its related companies and that Heyday was validly appointed as trustee on 9 April 2021.
4. There was no dispute about the legal principles to be applied.
5. In determining the cross-claimants’ application for interlocutory relief, the Court must first determine whether the cross-claimants have made out a prima facie case in the sense that, if the evidence remains as it is, there is a probability they will be entitled to the final relief claimed. This does not mean that the cross-claimants must establish that it is more likely than not they will succeed on a final hearing, but only that there is a “sufficient likelihood of success” to justify the preservation of the status quo pending the trial in the circumstances: Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46 (ABC v O’Neill) at [65] (Gummow and Hayne JJ), quoting Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 at 622–3; [1968] HCA 1 (Beecham v Bristol).
6. The other inquiry required is whether the inconvenience and injury the cross-claimants would be likely to suffer if interlocutory relief were refused outweighs or is outweighed by the injury which PNJ and the other cross-defendants would suffer if the injunctions were granted: Beecham v Bristol at 623.
7. Also relevant to the exercise of the Court’s discretion, and as raised in this case, is the relative strengths of the parties’ cases and the adequacy of the undertaking as to damages. The stronger the case for final relief, the less may be required to tip the balance of convenience to one side’s favour. The greater the balance of convenience falls to one side, the less strong a case for final relief may be required: ABC v O'Neill at [65], [71].
8. PNJ submitted that the cross-claimants had not established the existence of a prima facie case or serious question to be tried, or at the least that their case was weak. It also submitted that the balance of convenience was against the grant of injunctive relief in circumstances where a refinance of the Project on commercially advantageous terms was at risk if injunctive relief was granted and there was reason to doubt the worth of ST.K’s undertaking as to damages.
9. Before addressing these matters, it is necessary to summarise the factual background and claims made in these proceedings.

Factual background

10. On 14 July 2017, the HG Unit Trust was established, and the Company was appointed as the trustee.
11. The initial unit holders of the HG Unit Trust were ST.K, which held 82 units, and Sydrock Pty Limited (Sydrock), which held 18 units: Unit Trust Fixed Deed of the HG Unit Trust dated 14 July 2017 (HG Trust Deed), Schedule 1.
12. On 25 September 2017, PNJ acquired all of Sydrock’s units in the HG Unit Trust.
13. PNJ had been incorporated on 20 September 2017. At that time, Mr Sam You was PNJ’s sole director. Mr You is currently the sole director of ST.K. Between 10 October 2017 and 20 November 2017, Mr Xing Huang was the sole director and secretary of PNJ. Since 20 November 2017, Mr Zecheng Huang (Xing Huang’s son) has been PNJ’s sole director secretary and shareholder.
14. From 31 October 2017 to 19 March 2021, PNJ owned 80% of the shares in the Company. ST.K owned the other 20%. During that period, Xing Huang and Ms Jie Tan (Mr You’s wife and a shareholder of ST.K) were the directors of the Company.
15. The principal assets of the HG Unit Trust are three properties located on Havilah Road, Lindfield (Project properties). The Company, as trustee for the HG Unit Trust, is the registered proprietor of the Project properties. There is a development approval (DA) for the construction of a five-storey residential building containing 43 units and two basement levels over the Project properties. The DA was obtained on 19 May 2020 following proceedings in the Land and Environment Court.
16. According to Zecheng Huang’s evidence, at the time PNJ became a unit holder in the HG Unit Trust, there was no property in the HG Unit Trust other than the rights and interests in relation to a put and call option deed over 7 Havilah Road, Lindfield. Sydrock had paid $230,000 in relation to the put and call option, which PNJ had agreed to reimburse as a condition of acquiring Sydrock’s units in the HG Unit Trust.
17. In September to October 2017, prior to settling the purchase of the Project properties, there were discussions between Mr You and Xing Huang about funds needed for the Project. There is a dispute on the evidence as to precisely what was discussed, although it is common ground that ST.K did not have funds available and PNJ agreed to lend it $3,000,000.
18. On or about 31 October 2017, a range of documents relating to the Project, the $3,000,000 loan, the Company and the HG Trust were signed by PNJ, ST.K and the Company. Zecheng Huang’s evidence is that he had instructed a solicitor to draft those documents to reflect the agreements reached between the parties.
19. Mr You’s evidence is that he and Ms Tan signed the documents at the offices of PNJ’s solicitor although they had not seen them before signing. Mr You gives evidence that he was told by PNJ’s solicitor, “You can sign these documents now. If you don’t agree with their terms, you can ask for amendments later.”
20. The following documents were signed by the parties and are dated 3 November 2017:

(a) the Shareholders Agreement between the Company, PNJ and ST.K, which records that PNJ holds 80% and ST.K holds 20% of the shares and that Xing Huang is PNJ’s and Ms Tan is ST.K’s representative director;

(b) the Commercial Loan Agreement between PNJ and ST.K;

(c) the Side Deed between PNJ and ST.K ;

(d) the Deed of Variation of Fixed Trust; executed by the Company, ST.K and PNJ; and

(e) the Project Development Agreement between the Company, as Owner, and the fifth cross-defendant, Lindvest DM Pty Ltd (Lindvest), as Developer of the Project. Zecheng Huang is Lindvest’s sole director and shareholder. Lindvest lodged the DA for the Project properties.

21. There is evidence of communications between the solicitor for PNJ and the solicitor for ST.K, in the form of emails during the period from 3 to 8 November 2017, that refer to amendments proposed by ST.K to the Commercial Loan Agreement, the Shareholders Agreement and the Project Development Agreement.
22. The Commercial Loan Agreement in evidence includes changes that are identified as having been ‘agreed’ in the emails exchanged between ST.K and PNJ’s solicitors. These changes included an extension to the repayment date of the $3,000,000 loan from 31 August 2018 to 31 January 2019 and a new clause 27 that had been requested by ST.K’s solicitor.
23. Zecheng Huang’s evidence is that the documents referred to at [20] were exchanged on 8 November 2021. Presumably, the reference to ‘2021’ is in error and Mr Huang intended to refer to 8 November 2017.
24. The Commercial Loan Agreement is between PNJ as Lender and ST.K as Borrower for the principal sum of $3,000,000 and is stated to be for the purpose of investment within the Project. It relevantly includes the following provisions:

7. DELAY
...
7.5 Without limiting the Lender’s power, on and after the 31 January 2019, the Lender is entitled to issue a Notice of Demand requesting the Borrower to repay all Money Owing within fourteen (14) days from the issuing date of the Notice of Demand. The parties agree and accept that the time under this clause is reasonable.
7.6 If the Borrower failed to comply with such Notice, the event will be treated as an event of default by the Borrower thereby entitled (sic) the Lender to exercise its power as the Borrower’s attorney to rescind this Agreement and refund all repayment made by the Borrower, if any, and thereby sever the Borrower’s connection with those rights, entitlements and benefits within the Project.
7.7 Further to subclause 7.6, the Borrower hereby gives consent irrevocably that the Principal Sum borrowed from the Lender, held in the Unit Trust, together with all rights, entitlements and benefits in the Project, will be automatically transferred from the Borrower’s name to the Lender’s name in the Project.
...
9. DEFAULT AND TERMINATION
9.1 Consequences of default

(a) If any of the events described in sub-clause 9.2 occurs, the Money Owing, including the Principal Sum, together with all interest accrued on the Principal Sum and not then paid and all other amount payable under this Agreement and unpaid shall, at the option of the Lender and notwithstanding any delay or previous waiver of the right to exercise that option, become due and payable upon demand by the Lender.
(b) If the Borrower is unable to repay the Money Owing when it becomes due and payable, the Borrower irretrievably appoints the Lender as its attorney to sever the Borrower’s connection with the rights, benefits and entitlements within the Project. The Lender needs to pay no consideration to the Borrower for such severance irrespective the (sic) past, current or future market value of the Project at that time.

...
17. POWER OF ATTORNEY
17.1 The Borrower irrevocably appoints

(a) the Lender and its successors and assigns; and
(b) after the occurrence of an event of default under Clause 9 or an event which, with the giving of notice or the lapse of time or both, would be an event of default; or
(c) after the Borrower has failed to comply with any of the Borrower’s obligations under this Agreement or the security or under any Agreement or instrument required under or for the purposes of this Agreement or the security or under any Agreement or instrument collateral to this Agreement or the security or to which this Agreement or the security is collateral, upon request by the Lender,

To do all acts and things and to execute all documents as may, in the Lender’s opinion, be reasonably necessary or desirable or expedient to give effect to any right or power conferred on the Lender by this Agreement or the security.
17.2 If this Agreement is executed on behalf of the Borrower or the Lender by a person authorised to execute it under power of attorney, that person, by his or her execution of this Agreement, states that at the time of such execution he or she had no notice of the revocation of that power of attorney.
...
27. NEW CLAUSE
Notwithstanding any other provisions in this Agreement, if the Lender exercises its right under Clause 7 thereof to sever the Borrower’s connection with those interests, entitlements and benefits within the Project, then, such right will be conditional upon the Lender having procured, at its own costs and liabilities, an unconditional full release and discharge of any guarantees provided by the Borrower (including Borrower’s directors and/or shareholders) for the purpose of any mortgage within the Project only.

25. The Side Deed provides that it is interdependent with the Commercial Loan Agreement and, by the Deed, the parties agreed to make additional arrangements in connection with the Project: Background A and B, cl 2.1. It includes the following:

3. AGREEMENT TO INTEREST PAYMENT
3.1 STK acknowledges that the $3,000,000 it loaned to the Unit Trust is borrowed from PNJ by five instalments.
3.2 STK accepts that it holds its part of the unit shares on trust for PNJ.
3.3 STK therefore understands and accepts that it will not be entitled to any interest payment on the $3,000,000 from the Unit Trust unless the full amount of $3,000,000 has been fully repaid to PNJ together with other money payment described under the Commercial Loan Agreement.

26. Clause 4.1 of the Side Deed provides that PNJ will have the exclusive right to the management and access to the Bank Accounts for the purpose of the development of the Project.
27. The Deed of Variation between the Company, ST.K and PNJ relates to the HG Trust Deed, which is referred to as the “Fixed Deed”. It includes the following:

RECITALS
...
D. Under clause 89 of the Fixed Deed, the Trustee may vary the Fixed Deed but only by a special resolution of the Unit Holders;
E. The Unit Holders have passed a special resolution and the trustee has signed the resolution to vary the Fixed Deed.
F. The Trustee varied the Fixed Deed in the manner set out in this Deed and the Unit Holders are the parties to this Deed to record their irrevocable consent to those amendments hereunder.
...
2. AMENDMENTS TO FIXED DEED
2.1 With effect from the Effective Date, the Fixed Deed is irrevocably amended by:

...
(b) Page 17 – Clause 85

by delete (sic) the current Clause 85 and insert (sic) new clause 85 read as follows:
“The unit holders must not remove any trustee at any time unless by passing a unanimous resolution”

(c) Page 16 – Clause 82

by delete (sic) the current clause 82 and insert (sic) new clause 82 read as follows:
“The unit holders may only appoint a new trustee by passing a unanimous resolution. They may appoint a single trustee or more than one. The appointment is effective when the new trustee executes a deed binding the trustee to comply with this Deed. Registration of the Deed is not required unless the law demands it.”

28. The HG Trust Deed provided that a new trustee may be appointed by passing a resolution passed by 75% of unit holders (special resolution): cl 82. It also provided that the Company could vary the HG Trust Deed by resolving to do so in writing, although variations concerning the issue, transfer or redemption of units, the appointment or removal of a trustee and the variation of the deed itself will not be effective unless the unit holders consent to it by passing a special resolution at the time of variation or before it: cl 89.
29. Settlement on the purchase of the Project properties occurred between 6 December 2017 and 14 March 2018. The evidence on this application indicates that:

(a) the total amount paid to settle the purchase of the Project properties was $20,354,387.90, of which $13,354,387.90 was paid by PNJ. The amount paid by PNJ included the $3,000,000 that it had loaned to ST.K. The balance of $7,000,000 was funded by way of loan finance from NAB; and

(b) except for its assistance in applying for the mortgage with NAB, ST.K did not make any financial contribution to the purchase, exchange or settlement of the Project properties.

30. On or about 8 February 2018, PNJ agreed to loan a further $500,000 to ST.K. Zecheng Huang’s evidence is that this loan was also due for repayment on 31 January 2019. He deposes that the $500,000 was advanced by PNJ to LSM Constructions Pty Ltd, a company of which Mr You is the sole director and secretary.
31. Zecheng Huang deposes that, during 2019 and 2020, he sent a number of communications to Mr You in which he sought repayment of the loans to ST.K. His evidence is that ST.K paid $230,000 towards the $500,000 loan during that period but no repayment was made towards the $3,000,000 loan.
32. On 23 February 2021, PNJ’s solicitor sent a letter to ST.K demanding repayment of the sum of $3,493,150.68, comprising the $3,000,000 principal sum plus interest, within 14 days (letter of demand). The demand was stated to be made pursuant to cl 7.5 of the Commercial Loan Agreement.
33. The letter of demand asserts that failure to comply with the demand would be treated as an event of default by ST.K entitling PNJ to exercise its power under cl 7.6 of the Commercial Loan Agreement to rescind the Agreement and refund all repayments made by ST.K (which on their instructions was none) and “thereby sever [ST.K’s] connection with those rights, entitlements and benefits within the Havilah Project”. The letter went on to state that, if that occurred, PNJ would be ready, willing and able to procure an unconditional full release and discharge of any guarantees provided by ST.K for the purpose of any mortgage within the Project.
34. It is common ground that ST.K did not pay any amount in response to the letter of demand. Zecheng Huang’s evidence is that he was informed by his solicitor that the letter of demand was not complied with.
35. On 19 March 2021, Zecheng Huang, in his capacity as the sole director and secretary of PNJ and purporting to act as attorney of ST.K pursuant to cl 17.1 of the Commercial Loan Agreement, signed a share transfer form transferring the two shares in the Company held by ST.K to PNJ “for $2 or in accordance with clauses 7.6 and 7.7 of the Commercial Loan Agreement”.
36. On the same day, Zecheng Huang, in his capacity as the sole director and secretary of PNJ and on the basis that PNJ was the only member of the Company, held a meeting of the Company and passed a special resolution that purported to:

(a) remove Ms Tan and Xing Huang from their position as directors and Ms Tan as secretary of the Company;

(b) appoint Zecheng Huang as sole director and secretary of the Company; and

(c) authorise the Company to enter into a loan agreement and associated documents with Centennial LN Pty Ltd (Centennial) for the purposes of the Project. Centennial was a financier who had made an offer to the Company for a loan of $30 million in order to refinance the NAB facility and undertake construction on the Project.

37. On 19 and 22 March 2021, Zecheng Huang, in his capacity as the sole director of PNJ and purporting to act as attorney of ST.K under cl 17.1 of the Commercial Loan Agreement, signed two Deeds of Transfer of Units pursuant to which 41 units in the HG Unit Trust were transferred from ST.K, as vendor, to AONE Development Partners Pty Ltd (AONE), as purchaser, on 19 March, and 41 units were transferred from ST.K, as vendor, to Lindfield Development Pty Ltd (Lindfield), as purchaser, on 22 March.
38. On 19 March 2021, ST.K lodged caveat AQ890598 on the title to the Project properties, which had by then been amalgamated, claiming a beneficial interest in them by virtue of the operation of cls 14 and 15 of the HG Trust Deed.
39. Clauses 14 and 15 of the HG Trust Deed provide:

14 Trustee holds the assets of the trust as a separate fund on trust for the unit holders. The beneficial interest in the trust at any time is vested in the holders of units in the trust at that time, in proportions determined in accordance with the rights attaching to the units.
Each unit entitles the holder to an equal share with each other unit holder of a unit in the beneficial interest in the trust as a whole.
15. Despite any other provision of this deed, in accordance with clause 14, each unit holder is presently entitled to their proportionate share in:
• the income of the trust, subject only to the proper payment of expenses by and of the trustee relating to the administration of the trust; and
• the trust’s assets.

40. On 26 March 2021, PNJ’s solicitor sent a letter to ST.K’s solicitor advising that, as a result of ST.K’s failure to make any substantive response to the 23 February letter of demand, “all necessary enforcement actions pursuant to the Commercial Loan Agreement” as prescribed in the letter of demand had been taken and effected. The letter went on to assert that ST.K was no longer a unit holder of the HG Unit Trust and that all rights, benefits and entitlements held by ST.K had been severed or otherwise relinquished and the shares in the Company held in ST.K’s name had been assigned and transferred pursuant to the Commercial Loan Agreement and the letter of demand.
41. On 2 and 7 April 2021, further correspondence was exchanged between ST.K and PNJ’s solicitors. In that correspondence, PNJ requested that ST.K withdraw the caveat. ST.K refused to withdraw the caveat and asserted that the purported transfers of ST.K’s interests under the Commercial Loan Agreement were invalid because they were not in writing, PNJ had not rescinded the Commercial Loan Agreement, and Ms Tan remained a director of the Company.
42. On 7 April 2021, PNJ called for a meeting of members of the Company to be held on 29 April 2021 at 10 am to pass a resolution that Ms Tan be removed as director. Zecheng Huang’s evidence is that he called the meeting because of the dispute as to whether or not Ms Tan had been validly removed as a director of the Company with effect from 19 March 2021. The meeting was postponed due to the orders made by consent on 28 April 2021 in these proceedings, referred to at [52] below.
43. On 9 April 2021, ST.K purported to hold a meeting of unit holders in the HG Unit Trust. Zecheng Huang attended the meeting on behalf of PNJ. A representative of Everpro Investment Pty Ltd (Everpro), the fourth defendant and third cross-claimant and a company to whom ST.K had purportedly transferred one unit in the HG Unit Deed, was also in attendance.
44. During the meeting, a vote was taken on a resolution proposed by ST.K to remove the Company and appoint Heyday as trustee of the HG Unit Trust. Mr You is the sole director and secretary of Heyday. Zecheng Huang voted against the resolution, having noted his objection to the vote on the basis that any change in trustee had to be by unanimous resolution according to the Deed of Variation. ST.K and Everpro voted for the resolution and it was announced that the resolution passed by a majority.
45. On 12 April 2021, ST.K’s solicitor sent to PNJ’s solicitor a copy of the minutes of the meeting held on 9 April 2021 and a Deed of Appointment in relation to Heyday’s appointment as trustee.
46. On 14 April 2021, Heyday lodged caveat AQ960440 on the title to the amalgamated Project properties claiming that the land was held by the Company on trust for the benefit of unit holders and that, by special resolution on 9 April 2021, the unit holders had resolved to remove the registered proprietor and appoint the caveator as the trustee.

These proceedings

47. On 13 April 2021, PNJ commenced these proceedings by summons against ST.K, the Company, Heyday and Everpro seeking urgent interlocutory and final relief.
48. By way of final relief, PNJ seeks declarations that it is the sole legal and beneficial owner of all unit shares within the HG Unit Trust, that ST.K’s units were validly transferred to AONE and Lindfield, and that the resolution at the 9 April meeting and the transfer of one unit in the HG Unit Trust to Everpro are void and have no effect. PNJ also seeks judgment in the sum of $270,000.
49. On 15 April 2021, consent orders were made by Slattery J that dealt with PNJ’s application for interlocutory relief. Those orders restrain Heyday from exercising its alleged power as trustee of the HG Unit Trust and restrain ST.K and Everpro from disposing, encumbering or otherwise dealing with the units they contend they hold until further order of the Court.
50. On 21 April 2021, ST.K, Heyday and Everpro filed a cross-summons against PNJ, the Company, AONE, Lindfield and Lindvest. The cross-summons seeks a range of declarations by way of final relief, including that:

(a) cls 7.6 and 7.7 of the Commercial Loan Agreement are void by reason of uncertainty, penalty or forfeiture or, alternatively, that it is a precondition to their operation that the Commercial Loan Agreement be rescinded;

(b) the purported transfers of 82 units in the HG Unit Trust from ST.K to AONE and Lindfield were invalid;

(c) ST.K remains the beneficial owner of 82 units in the HG Unit Trust and 18 shares in the Company;

(d) the purported removal of Ms Tan as a director of the Company on 19 March 2021 was void;

(e) cls 2.1(b) to (e) of the Deed of Variation are void because no special resolution of unit holders was passed at the time of the variation;

(f) Heyday was validly appointed as trustee of the HG Unit Trust on 9 April 2021;

(g) the Property Development Agreement is not binding on the Company; and

(h) the Company is indebted to ST.K in the sum of $3,000,000.

51. The cross-summons also seeks interlocutory relief to restrain the meeting of members of the Company which PNJ had called to be held on 29 April 2021.
52. On 28 April 2021, I made orders by consent listing the hearing of the cross-claimants’ claim for interlocutory relief before me on 4 May 2021 and noted, on a without admissions basis, the undertaking of PNJ and the Company, by its director, Zecheng Huang, not to proceed with and to adjourn the meeting of members of the Company until 4 pm on 5 May 2021.
53. At the hearing on 4 May 2021, I granted the cross-claimants leave to file an amended cross-summons to include an additional claim for interlocutory relief seeking to restrain the Company from taking any of the actions described in the affidavit of Zecheng Huang affirmed 30 April 2021 at [56] (proposed Trustee actions), being:

(a) to remove the caveats lodged by ST.K and Heyday;

(b) to finalise and settle the finance on offer from Centennial;

(c) to commence construction of the Project using the proceeds of the loan from Centennial; and

(d) to otherwise act as trustee and in the best interest of the HG Unit Trust.

54. There was no appearance by the Company at the hearing. I was informed this was because ST.K’s solicitor had taken issue with PNJ’s solicitor purporting to act on its behalf. The only parties who appeared at the hearing were ST.K, Heyday and Everpro (the cross-claimants) and PNJ.
55. At the start of the hearing, the cross-claimants made an open offer to resolve the matters in dispute. The offer was for Ms Tan, in her capacity as a director of the Company, to agree to the lodging of lapsing notices in relation to the caveats on the Project properties on the condition that PNJ relented from attempting to remove Ms Tan as a director.
56. The offer was not accepted by PNJ because of its conditionality and the hearing proceeded.
57. In support of their application for interlocutory relief, the cross-claimants read the affidavit of Sam You dated 21 April 2021. Mr You gave evidence of dealings between ST.K and PNJ, details of which are included in the background section above. He also asserted that ST.K’s rights as a holder of the majority of units on the HG Unit Trust and minority shareholder in the Company may be affected if the meeting of the Company proceeded as proposed by PNJ and Ms Tan was removed as director.
58. PNJ relied on two affidavits of Zecheng Huang affirmed 13 April and 30 April 2021 and the documents exhibited to those affidavits (Exhibits A and B).
59. In addition to matters set out in the background section above, Mr Huang deposes that the current mortgage and loan with NAB is due to expire on 30 September 2021 and that the terms offered by the loan from Centennial, which he had been negotiating since October 2020, are commercially favourable. His gives evidence that, in his view, mortgage loans from commercial banks with lower interest rates normally include pre-sale conditions, which the HG Unit Trust is unlikely to meet before the NAB loan expires in September 2021, and that Centennial’s interest rate of 7% is lower than the rates of 13% to 14% which would otherwise be available on loans without pre-sale conditions, based on his enquiries.
60. Mr Huang deposes that the Centennial loan had been due to settle on 21 April 2021, that the date for settlement had been extended and that Centennial would consider not proceeding if the loan is unable to settle by 17 May 2021. He states that the Company would be exposed to costs if the Centennial loan did not settle, which he estimated to be around $100,000 as at 30 April 2021.
61. At the end of oral submissions, the cross-claimants sought to adduce a further affidavit to address issues raised by PNJ regarding the adequacy of the undertaking as to damages. I adjourned the hearing until 4 pm and stated that I would consider any application at that time, noting PNJ’s objection to any further evidence.
62. When the matter resumed, the cross-claimants sought to rely on a second affidavit by Mr You dated 4 May 2021, which I admitted in part noting that some of the admitted parts were read as submission. In the affidavit, Mr You deposes that Hong Da Investment Pty Ltd (Hong Da), a company of which Ms Tan is the sole director and he and Ms Tan are the only shareholders, has developed and owns townhouses in Turramurra, some of which are available for sale. Mr You’s evidence is that some townhouses have already been sold for $1.7 million each, and the remaining townhouses still owned by Hong Da give rise to available net assets of the company of about $5 million after accounting for its debts.
63. At that time, Counsel for the cross-claimants also informed the Court that he was instructed by Ms Tan that Hong Da would give the undertaking as to damages.

Cross-claimants’ application for interlocutory relief

64. Three aspects of the cross-claimants’ case for final relief were relevant to their claims for interlocutory relief.
65. The first two aspects are the claims that the transfers of ST.K’s shares in the Company to PNJ and units in the HG Unit Trust to AONE and Lindfield pursuant to the terms of the Commercial Loan Agreement were invalid, and the resolution of the Company on 9 April 2021 to remove Ms Tan as a director was void. These aspects were said to be relevant to the claim for interim relief seeking to restrain the meeting of members on 5 May 2021.
66. The third aspect is the claim that parts of the Deed of Variation are void and that Heyday was validly appointed as trustee of the HG Unit Trust on 9 April 2021. This was submitted to be the basis of the second interim injunction sought to restrain the proposed Trustee actions.

Prima facie case

67. The cross-claimants submitted that they had established a prima facie case in relation to the three aspects of their claims for final relief. As noted above, PNJ disputed the existence of any serious questions to be tried and submitted, in the alternative, that the claims propounded by the cross-claimants for final relief were weak.
68. As to the validity of the purported transfer of ST.K’s shares and units pursuant to the Commercial Loan Agreement, the cross-claimants submitted that there are four bases on which they would be entitled to the final relief claimed, each of which was said to give rise to a prima facie case.
69. The first is the claim that cls 7.6 and 7.7 of the Commercial Loan Agreement are void for uncertainty, in the sense of being devoid of any ascertainable meaning. The cross-claimants submitted that the concept of “sever[ing] the Borrower’s connection with those rights, entitlements and benefits within the Project” prescribed no identifiable legal consequence with respect to the Borrower’s rights, entitlements and benefits, and there was a lack of clarity as to what was meant by the reference in those clauses to “within the Project”.
70. PNJ’s primary position was that the transfer of ST.K’s shares and units was authorised by cls 7.6 and 7.7 of the Commercial Loan Agreement. It submitted that the clauses were not void for uncertainty, contending that the high threshold required for clauses in commercial arrangements to be void for uncertainty had not been met in this case. It argued that the reference to “severance” of the “Borrower’s rights, entitlements and benefits within the Project” would be given meaning by the Court having regard to the relevant documents, the position of the parties and the language used.
71. Given the urgency and interlocutory nature of the application, I did not determine the question of construction of cls 7.6 and 7.7 of the Commercial Loan Agreement, and cl 9.1(b) which also includes the expression “sever the Borrower’s connection with [the] rights, entitlement and benefits within the Project.” However, I was of the view that there was merit in PNJ’s position on the interpretation of those clauses.
72. The Courts generally strive to uphold commercial bargains and construe the terms of commercial contracts, with an inclination to give effect to the intention of the parties even if that intention may be somewhat obscurely or unclearly expressed and the language used open to more than one interpretation: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 436–7; [1968] HCA 8.
73. As PNJ submitted, the recitals and cl 4.1 of the Commercial Loan Agreement identify that PNJ loaned $3,000,000 to STK for the sole purpose of enabling STK to invest in the Project, with the “Project” defined in the Commercial Loan Agreement to mean “the project for the development and, either sale or rental or a combination of sale and rental, of real property comprised in the Project Land”. The interests of ST.K in the “Project” so defined were, in reality, its units in the HG Unit Trust and its shareholding in the Company, such that the power to “sever” ST.K’s connection with its “rights, entitlements and benefits” within the Project, as contemplated within cls 7.6, 7.7 and 9.1(b), could be interpreted as relating to those units and shares.
74. Although “sever” is an unusual word to use, its usual meaning is to “separate”, “remove” or “end connection with”, which suggests that the parties contemplated that, in the event that ST.K defaulted on the loan, PNJ, acting as ST.K’s attorney, would be entitled to “transfer out or away” ST.K’s rights and benefits in the Project, in the sense of its interests in the units and shares. I was also of the view that the existence of the trust language in cl 6.6 of the Commercial Loan Agreement and in cls 3.1 and 3.2 of the Side Deed, under which STK acknowledges that its contribution to the unit trust is borrowed from PNJ and that it holds its unit shares on trust for PNJ, supported PNJ’s position, as did the evidence on the application that the parties had been negotiating the terms of the Commercial Loan Agreement, including cls 7 and 27.
75. It was also difficult to see what meaning, other than that advanced by PNJ, could be given to cls 7.6, 7.7 and 9.1(b) based on the language used, the circumstances addressed by the Commercial Loan Agreement, the commercial purpose or objects to be secured, and its context by reference to the suite of documents entered into: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]–[47].
76. That said, I accepted the cross-claimants’ submission that cls 7.6, 7.7 and 9.1(b) of the Commercial Loan Agreement were “idiosyncratically drafted”, it was reasonably arguable that there was some ambiguity as to precisely what was meant by those clauses and there was a serious question as to how the clauses would be interpreted. I was also of the view that this question, and any ambiguity, would need to be resolved at a final hearing with the benefit of further evidence of the surrounding circumstances objectively known to the parties: Lawrence v Ciantar [2020] NSWCA 89 at [101].
77. Thus, I concluded that there was a serious question to be tried as to the proper construction and operation of cls 7.6 and 7.7 of the Commercial Loan Agreement, including what rights they gave to PNJ to transfer ST.K’s units and shares, but that the cross-claimants’ case that the clauses were void because of uncertainty was weak.
78. The second prima facie case asserted by the cross-claimants was that cls 7.6 and 7.7 of the Commercial Loan Agreement are unenforceable as either an unconscionable forfeiture of proprietary rights or a contractual penalty as they purported to entitle PNJ to not only rescind the Agreement and refund all repayments but also to confiscate ST.K’s shares and units on no or inadequate consideration, such as the $1 per unit which was applied.
79. The cross-claimants submitted that the forfeiture of rights was an additional liability that secured enjoyment of a collateral object and beyond any kind of pre-estimate of the loss occasioned by a default, and hence an invalid penalty, relying on Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 (Legione v Hateley), Andrews v Australia & New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 and Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28. It was also submitted that the clauses operated as an unconscionable forfeiture of property against which equity relieved because the shares and units were property which went beyond a mere contractual licence, referring to Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230 at [211]–[212].
80. In denying that a serious question arose that cls 7.6 and 7.7 were unenforceable as a contractual penalty or an impermissible forfeiture, PNJ submitted that the arrangement agreed to by the parties was for ST.K’s units to operate as security for the $3,000,000 loan advanced to STK and were held on trust for PNJ, relying on cl 3.2 of the Side Deed and cl 6.6 of the Commercial Loan Agreement. It was submitted that cls 7.6 and 7.7 could not be a penalty where ST.K’s failure to repay the loan on demand meant that PNJ’s beneficial interest in the trust arrangement over the units converted to a proprietary interest which was beneficial and, consequentially, legal. It was also submitted that the transfer of units away from ST.K was not an unconscionable assumption of property where PNJ was, at all times, the beneficial owner of the units.
81. While there was merit to PNJ’s submission based on the trust language used in the Side Deed and the Commercial Loan Agreement, I considered it to be arguable that ST.K retained a proprietary interest in the units and that a claim based on forfeiture could arise. This was because the clauses operated to determine ST.K’s interests in the Project (namely its units and shares) in favour of PNJ by way of forfeiture as a means of securing performance of the primary stipulation to repay the loan and arose on the occurrence of the event of default in repayment of the loan and breach of the Commercial Loan Agreement.
82. However, based on the evidence on the application, I came to the view that the claim was not a strong one.
83. It was difficult to see how cls 7.6, 7.7 or 9.1(b) operated in a penal way or involved an unconscionable forfeiture of proprietary rights in circumstances where ST.K accepted at the hearing that it owed PNJ $3,000,000 and, according to the unchallenged evidence on this application, ST.K had not contributed any monies towards the purchase of the Project properties, the only real assets of the HG Unit Trust. There was also no evidence led by the cross-claimants that supported a finding that the forfeiture of ST.K’s units and shares for non-payment of the loan far exceeded or was out of all proportion with the value to ST.K of its units and shares and thus, was unconscionable or inappropriate in the circumstances. Based on the arrangements between the parties and PNJ’s legitimate commercial interests as the funder of the Project, this did not seem to me to be a case of an “ill-merited windfall” for PNJ. There was also no suggestion that PNJ’s conduct contributed to ST.K’s breach of the Commercial Loan Agreement or that the breach was trivial or slight. The loan had been outstanding for two years and no payments had been made: Legione v Hateley at 429 (Gibbs CJ and Murphy JJ), 449 (Mason and Deane JJ).
84. The third basis on which the cross-claimants contended there was a prima facie case that the purported transfers were invalid was the contention that the consequences prescribed by cl 7.6 and 7.7 could only operate if PNJ took the step of rescinding the Commercial Loan Agreement. It was submitted that PNJ had not demonstrated that rescission of the Agreement had occurred and that, absent such evidence, it must be presumed that it had not occurred.
85. PNJ did not take issue that rescission was necessary under cl 7.6. Rather, it submitted that there was evidence that rescission of the Commercial Loan Agreement had occurred by PNJ’s conduct, of which ST.K was aware, of transferring the units of ST.K to AONE and Lindfield and the shares to itself as attorney of ST.K. PNJ also relied on the letter from PNJ’s solicitor to ST.K’s solicitor dated 26 March 2021 which states that “All necessary enforcement actions pursuant to the Commercial Loan Agreement ... prescribed in [the letter of demand] have been taken and effected”, ST.K was no longer a unit holder in the HG Unit Trust and the shares in the Company had been transferred to others.
86. An innocent party may elect to rescind a contract by disaffirming it. The rescission will not be effective unless an unequivocal intention to disaffirm the contract is communicated to the other party, which may be done by words or conduct: J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [31.170], [31.190].
87. The terms of the letter of demand from PNJ’s solicitor dated 23 February 2021 seemed to me to unequivocally communicate an intention on the part of PNJ to exercise powers under cl 7.6 and 7.7 of the Commercial Loan Agreement in the event ST.K did not make payment in accordance with the demand, which included the rescission of the Agreement. I was also of the view that the 26 March 2021 letter unequivocally communicated that PNJ had purportedly exercised those powers.
88. However, there is no express reference to any rescission or termination of the Commercial Loan Agreement in the 26 March letter and no notice was given to ST.K that PNJ disaffirmed that agreement after ST.K’s default. While ultimately this may give rise to an issue of form over substance, I was persuaded that it was arguable that the cross-claimants had established a prima facie case on the documents although, again, I accepted that it was not a strong case.
89. The fourth matter relied on by the cross-claimants was the contention that the purported compulsory transfer of ST.K’s units in the HG Unit Trust was unenforceable as it did not comply with ss 52A and 54A of the Conveyancing Act 1919 (NSW). The cross-claimants made three submissions on this issue: that the transfer of ST.K’s beneficial interests as unit holders in the trust properties was a transfer of interests in land and must have amounted to a sale of land; that the Commercial Loan Agreement itself did not purport to effect the transfer of units and thus is not a contract for the sale of land; and, absent such a contract, the transfer was unenforceable as it could not comply with ss 52A and 54A of the Conveyancing Act 1919 (NSW).
90. PNJ submitted that the writing requirements of ss 52A and 54A of the Conveyancing Act 1919 (NSW) did not apply to a transfer of units in the HG Unit Trust and, therefore, those sections were no impediment to the efficacy of the transfer of ST.K’s units.
91. The parties did not refer me to any particular aspects of the HG Trust Deed and its related agreements or any authorities in support of their submissions on the question of whether ss 52A and 54A of the Conveyancing Act applied in this case.
92. A unit holder in a unit trust may have a proprietary interest in trust property. Whether this is so will depend on the terms of the unit trust: Jonsue Investments Pty Ltd v Balweb Pty Ltd [2013] NSWSC 325 (Jonsue Investments) at [20], [25], [36]. Based on cl 14 of the HG Trust Deed, aspects of which are similar to the terms considered in Jonsue Investments, I accepted that there was a serious question to be tried that a transfer of ST.K’s units in the HG Unit Trust would involve a transfer of ST.K’s equitable and beneficial interests as unit holder in the trust properties and, thus, a disposition of an interest in land.
93. That said, I had some doubt that the transfers of units in the HG Unit Trust from ST.K amounted to sales of land within the meaning of s 52A of the Conveyancing Act or that the present is an action or proceeding brought upon a contract for the disposition of an interest in land within the meaning of s 54A.
94. Further, even if the purported exercise by PNJ of the right to sever and effect a “compulsory transfer” of ST.K’s units involved a disposition of an interest in land, it seemed to me that the requirement of writing was likely satisfied as the relevant dispositions were evidenced by the Deeds of Transfer of Units dated 19 and 22 March 2021 between ST.K and AONE and ST.K and Lindfield respectively rather than the Commercial Loan Agreement itself which, as the cross-claimants contended, did not purport to effect the transfer.
95. In summary, I was satisfied that the cross-claimants had established the existence of a serious question to be tried or a prima facie case as to the validity of the transfers of ST.K’s units and shares but accepted PNJ’s submission that the claim was not strong and aspects of it were weak.
96. In relation to the removal of Ms Tan as a director of the Company, the cross-claimants submitted there was a serious question to be tried that this amounted to oppression or unfair discrimination against a minority shareholder, relying on the principles set out in Re Bicher & Son Pty Ltd [2020] NSWSC 711 at [76]–[79]. It was submitted that the purpose of removing Ms Tan was to enable PNJ to determine the commercial decisions to be made by the Company as purported trustee, contrary to the wishes of ST.K as the minority shareholder and majority unitholder, and prevent ST.K from having any opportunity to participate in the Company’s decision making. This was submitted to be unfair, particularly in the context of the alleged penal operation of cls 7.6 and 7.7 of the Commercial Loan Agreement.
97. PNJ submitted that Ms Tan’s removal does not amount to oppression because she is not presently acting in the interests of the Trust. It argued that this was evidenced by her refusal, until the morning of the hearing, to take steps to permit the Company to protect its position by lodging lapsing notices for the caveats or to appoint a solicitor to appearing in these proceedings. It also said that the prior attempts to remove Ms Tan and any associated defects in procedure are irrelevant to the present application, which concerned the members’ meeting scheduled for Wednesday 5 May 2021.
98. The removal of a director which has been appointed by a member may constitute oppression where doing so excludes the member from participating in management of the company contrary to the common understanding between members and a legitimate expectation of that member of such participation in management: Remrose Pty Ltd v Allsilver Holdings Pty Ltd (2005) 225 ALR 588; [2005] WASC 251 at [73]–[74], [125]–[127]; Re Mosman & Co Pty Ltd [2019] NSWSC 1155 [83]–[84]; see also Robert P Austin and Ian M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths) at [10.460.15] and the cases cited therein.
99. I was persuaded that it is arguable that the removal of Ms Tan as a director would be in breach of the Shareholders Agreement, as it provides that only ST.K could remove its representative and appoint a replacement: cl 3.7(b). This was a factor that supported ST.K’s prima facie case of oppression as the Shareholders Agreement could be said to provide a basis for which ST.K, as a minority shareholder, had a legitimate expectation of a right to be involved in the management of the Company.
100. The claim of oppression and unfair discrimination is, however, dependent on the success of ST.K’s claim about the validity of PNJ’s actions in transferring ST.K’s units and shares. It was only if those transfers were invalid that ST.K remains a minority shareholder in the Company and majority unitholder in the HG Unit Trust, although arguably ST.K holds the units on trust for PNJ.
101. The evidence on this application also suggests that there will be a significant dispute about whether Ms Tan’s removal would be considered to be commercially unfair and oppressive in the circumstances of this case. As noted above, the evidence is that PNJ, as majority shareholder, had contributed the settlement funds for the Project properties. There is also evidence that Zecheng Huang took the lead in seeking out refinance for the Project, was liaising with the NAB in relation to paying out the existing mortgages and took the lead in pursuing the DA approval for the Project properties. No evidence was led by the cross-claimants that Ms Tan had been actively involved in the management of the Company or had sought such involvement, or what expectation she and ST.K had to be involved in the day to day management of the Company.
102. Accordingly, I accepted that STK’s claim of oppression was also arguable but that it was a weak case based on the evidence on this application.
103. Turning to the third aspect of their case, the cross-claimants submitted a prima facie case arose that Heyday had been validly appointed as the replacement trustee of the HG Unit Trust based on the documents in evidence.
104. They submitted that the Deed of Variation, which provided for a unanimous resolution for removal of a trustee, contravened the entrenching provision of cl 89 of the HG Trust Deed in relation to variations concerning “the appointment or removal of a trustee” as there was no evidence that a special resolution of unitholders had been made consenting to that variation. As a consequence, they submitted that it was seriously arguable that the resolution voted on at the 9 April 2021 meeting appointing Heyday as trustee was passed by a sufficient majority of unitholders to comply with the requirements of the HG Trust Deed (cls 82, 85) and the Company was “immediately” required under that Deed to take steps to transfer its interests in the Project properties to Heyday as the new trustee.
105. In response, PNJ contended that it was not arguable that Heyday had been validly appointed as trustee. It submitted that the Deed of Variation amended the procedure for removing a trustee to require a unanimous resolution of unitholders and that ST.K was estopped from denying that it did so. PNJ pointed to the recitals to the Deed of Variation which stated that the unit holders had passed the special resolution required to amend the HG Trust Deed.
106. Where an unambiguous proposition or allegation of distinct facts is made within a deed, including statements made in the recitals, a party to the deed is estopped from denying the truth or operation of that proposition: Dabbs v Seaman [1925] HCA 26; (1925) 36 CLR 538 at 549–550; [1926] HCA 26; Re Application of Sutherland [2014] NSWSC 821 at [90]. The principle is founded on the solemnity of a deed: Labracon Pty Ltd v Cuturich [2013] NSWSC 97 at [132].
107. Estoppel by deed only operates in an action on the deed. In other proceedings, the recitals can operate as an admission, but not as an estoppel: Lescap Group Pty Ltd v Pacific Resort Holding Pty Ltd [2012] NSWSC 580 at [43].
108. The parties did not make submissions on the question of whether the claim raised in the present proceedings involves an action on the Deed of Variation or is more properly characterised as proceedings brought in respect of transactions which are collateral to the Deed, and, in the time available, I did not come to a final view on that matter. Nevertheless, in the absence of any evidence being adduced by the cross-claimants that negated the implication of fact from the recitals that a special resolution had been passed and in circumstances where the Deed of Variation was signed by Ms Tan on behalf of the Company and representatives of ST.K and PNJ, I was not persuaded that it was seriously arguable that ST.K could resile from the recitals and claim that the Deed of Variation was not binding on it.
109. Accordingly, I was not satisfied that the cross-claimants had established a prima facie case that Heyday was validly appointed as trustee of the HG Unit Trust on 9 April 2021, in the sense that, if the evidence remained as it was, there was a sufficient likelihood that they would be entitled to the final relief claimed on that aspect of the case.

Balance of convenience

110. The cross-claimants submitted that the balance of convenience favoured the grant of interlocutory relief because the terms of refinance proposed by Centennial created potential issues as the Event of Default and Material Adverse Effect provisions would be triggered if the Company had been validly removed and replaced by Heyday as trustee. It was submitted that this could lead to liability for damages secured against the Project properties which may give rise to prejudice to the beneficiaries under the HG Unit Trust, whoever they may be. Pausing here, as I was not persuaded of a prima facie case that Heyday had been validly appointed as trustee, this risk did not seem to me to be significant to the assessment of where the balance of convenience lay in this case.
111. The cross-claimants also contended that, absent interim relief being granted, ST.K would be shut out from having a say in the conduct of the HG Unit Trust to its potential prejudice. They argued that the Company (and PNJ) would retain power to deal with the Project properties in a manner that may expose the trust assets to other claims, such as unsecured loans, noting that a liability of around $48,289.32 had already been incurred in relation to Centennial’s proposal.
112. The cross-claimants further submitted that there was no particular or immediate benefit to be secured if PNJ’s proposal to remove Ms Tan goes ahead as ST.K and Heyday could apply to extend the caveats if the Company issued lapsing notices. In other words, it could not be assumed that the Centennial refinancing would be able to proceed quickly in the absence of clear title to the Project properties.
113. PNJ submitted that the balance of convenience did not favour the cross-claimants in this case as the grant of interim relief would risk the loss of the commercially favourable loan on offer from Centennial and delay the progress of the Project. It argued that the Centennial loan was preferable to the cross-claimants’ position, which did not involve any alternative financing proposal, and did not give rise to any real risk of prejudice for the cross-claimants.
114. PNJ also took issue with the adequacy of the undertaking as to damages proffered.
115. The cross-claimants’ claims are concerned with a dispute about the respective interests in a private unit trust and corporate trustee. The principal assets of the trust are the Project properties, in respect of which PNJ, not ST.K, had invested significant sums of money and which have DA approval for a real estate development to be carried out on behalf of the Company by Lindvest. It is common ground that some refinancing will need to be put in place in order for the Project to progress within the next four months.
116. An issue with the cross-claimants’ submission that, at a commercial level, it wished to have the opportunity to be involved in this development and, absent interim relief restraining the meeting, it would be “shut out” from doing so, is that the evidence did not, in my view, demonstrate a desire or willingness on the part of ST.K, Ms Tan or the other cross-claimants to be involved in and make decisions to progress the development of the Project with PNJ. There was no indication that, if the relief sought was granted, Ms Tan would participate in and carry out her role as a director in the best interests of the HG Unit Trust.
117. The evidence and the open offer made at the start of the hearing suggested that there would be little co-operation from Ms Tan in relation to the Company and the Project, noting that there had been no agreement by her to the Company issuing lapsing notices. Relevantly, this is in the context where ST.K’s caveat was lodged only after the notice of demand to repay the loan was issued, the refinancing with Centennial was being progressed, and a clause in the HG Trust Deed provides that units holders must not lodge a caveat in relation to an asset or claim any interest in an asset of the trust in any other way: cl 16.
118. The Company has an offer from Centennial of a loan on financially advantageous terms that provides for Zecheng Huang to be the sole guarantor and which the evidence indicates would be at risk if the interlocutory injunctions were granted. The hearing proceeded on the basis that the cross-claimants, and presumably Ms Tan, will not accede to Centennial’s offer despite there being no evidence from Mr You or Ms Tan as to why the terms proposed were not acceptable to ST.K or alternative financing options.
119. Overall, there was a lack of evidence put forward by the cross-claimants as to precisely what was prejudicial with the proposals put forward by Zecheng Huang, on behalf of the Company, in finalising and settling the finance with Centennial and commencing the construction using the proceeds from that loan. There was also a lack of evidence from which to infer that, if the meeting of members went ahead and Ms Tan was removed as a director, Zecheng Huang, on behalf of the Company, would act otherwise than in the best interests of the HG Unit Trust or expose the trust assets to claims which would cause injury or prejudice to the cross-claimants.
120. To the extent that ST.K and Everpro have interests in the HG Unit Trust and ST.K’s representative, Ms Tan, should have continued as a director, it seemed to me that those claims could be maintained at a final expedited hearing. In the event they succeed and there is evidence that they have suffered losses, such as the asserted loss of the opportunity to make a profit from the sale of their interests in the Project, any such losses could be expected to be fully compensable by damages.
121. The evidence, as it stands, is that if the Company does not secure the Centennial loan and it has to go to market, based on interest rate differences, there is a potential loss of $5.4 to $6.3 million over a three-year period. In addition, and while more speculative, it is to be expected that the grant of interlocutory relief would delay the Project and the opportunity for the beneficiaries of the HG Unit Trust to obtain the sale proceeds and realise profits. As PNJ submitted, delay would also carry with it some risk of change in the market.
122. In the above circumstances, in my view, there a was a greater risk of injury and prejudice to the Company, the HG Unit Trust and PNJ if the relief was granted, than to the cross-claimants if the relief was refused.
123. In coming to that view, the value of the undertaking as to damages was also a relevant factor. I was not satisfied that the undertaking proffered by ST.K had real substance and provided adequate protection. The reference in the 12 April 2021 letter from ST.K’s solicitor that ST.K intended to repay all the debts of the Company, including PNJ’s loan, did not dispel the doubts created by ST.K’s failure to repay the $3,000,000 loan. The evidence that ST.K had ongoing funding issues also indicated that it would be unlikely to be able to meet a significant damages award in the event the cross-claimants were unsuccessful at trial.
124. I also accepted PNJ’s submission that the evidence adduced late in the day about Hong Da’s financial position was insufficient to conclude that there was no risk that the undertaking as to damages it proffered would be inadequate. The evidence identifies that all but two of the eight townhouses owned by Hong Da are subject to a registered mortgage. Three of them also have caveats on their title. Although the draft profit and loss statement and balance sheet for 2020 suggested that Hong Da has sufficient assets to support the undertaking, I was hesitant to accept them given the most recent final financial statement for 2018 showed it operating at a loss of $311,000 and the financial records produced by Hong Da and tendered by PNJ indicated that Hong Da has not filed a tax return since 2018.

Conclusion

125. Viewing the matter overall, I concluded that the cross-claimants’ application for interlocutory relief should be refused. This was primarily because I came to the view that the balance of convenience and the issues raised regarding the adequacy of the undertaking as to damages did not favour the grant of interlocutory relief.
126. In reaching my conclusion on the balance of convenience, I also took into account that, based on the current evidence, the prima facie case established by the cross-claimants that formed the basis of its claim for interlocutory relief to restrain the meeting of members was not, in my view, strong and there were aspects of their case which I considered to be weak.
127. Finally, and while not at all determinative, it was a relevant factor in the exercise of my discretion not to grant interlocutory relief that the cross-claimants only moved the Court in response to the proceedings commenced by PNJ. It seemed to me that it could have taken urgent steps to restrain PNJ from exercising any rights under cls 7.6 or 7.7 of the Commercial Loan Agreement after receiving the letter of demand or taken action to restrain PNJ from dealing with the units and shares that ST.K contends were invalidly transferred after receiving notice of those matters in the 26 March letter.

Costs and orders

128. On the issue of costs, PNJ submitted, and the cross-claimants accepted, that it was appropriate for costs to follow the event.
129. The parties also agreed that the matter should be heard on an expedited basis and indicated they would seek to agree timetabling orders which they would send to chambers.
130. For these reasons, on 7 May 2021, I made the following orders:

(1) The first and second cross-claimants’ claim for interlocutory relief as set out in prayers 1 and 2 of the Amended Cross Summons filed 4 May 2021 be dismissed.

(2) The first and second cross-claimants pay the first cross-defendant’s costs of and incidental to the cross-claimants’ claims for interlocutory relief as set out in prayers 1 and 2 of the Amended Cross Summons filed 4 May 2021 on the ordinary basis.

(3) List the proceedings for directions before the Expedition List Judge at 9.30am on 14 May 2021 for consideration of whether the proceedings ought to be expedited and, if appropriate, orders for disclosure and/or the allocation of a hearing date.

(4) Liberty to restore on 3 days’ notice.

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