Waikato (Proprietary) Limited & Anor v Kaplan & Anor [2002] VSC 310 (7 August 2002)

Last Updated: 19 August 2008


IN THE SUPREME COURT OF VICTORIA		Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 6322 of 2002

WAIKATO (PROPRIETARY) LIMITED	First Plaintiff

- and -

CONTINENTAL LINEN HOLDINGS (PROPRIETARY) Limited	Second Plaintiff

v

DAVID MICHAEL KAPLAN	First Defendant

- and -

SNUGFIT AUSTRALIA PTY LTD (ACN 070 837 151)	Second Defendant

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JUDGE:	GILLARD J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	24 July 2002
DATE OF JUDGMENT:	7 August 2002
CASE MAY BE CITED AS:	Waikato (Proprietary) Limited and Anor v Kaplan and Anor
MEDIUM NEUTRAL CITATION:	[2002] VSC 310

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INTERLOCUTORY INJUNCTION – No real defence to payment of money – Whether court should make order – In effect claim for part summary judgment – Injunction refused – Order made to preserve fund of money pending trial.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D. Hyde	Nathan Kuperholz

For the Defendants	Mr P. Cawthorn with Mr R. Short	Gadens Lawyers

TABLE OF CONTENTS

HIS HONOUR:

1 The return of a summons in a proceeding instituted by writ, by plaintiffs seeking interlocutory relief against the defendants.

Parties

2 The first plaintiff, Waikato (Proprietary) Limited (“Waikato”), and the second plaintiff, Continental Linen Holdings (Proprietary) Limited (“Continental”), are companies registered in South Africa. Continental wholly owns Waikato. The two companies are part of a group called Continental Linen Holdings Group of companies.

3 The second defendant, Snugfit Australia Pty Ltd (“Snugfit”), is a company which was registered in Australia on 23 August 1995 and carries on business at 158 Woodlands Drive, Braeside. The first defendant, David Michael Kaplan (“Mr Kaplan”), is the sole director and shareholder of Snugfit. According to documents lodged with ASIC, Mr Kaplan owns four shares beneficially and is the registered holder of six shares which he does not beneficially hold.

The Proceeding, Causes of Action and Complaint

4 On 10 July 2002, the plaintiffs issued a writ in this Court against the defendants. The statement of claim pleads in some detail the history of the relationship between the plaintiffs and the defendants and it is alleged that Mr Kaplan was in breach of an employment agreement, in breach of his fiduciary duties owed to both Waikato and Continental, in breach of duties under ss.180-183 (inclusive) of the Corporations Act 2001, and guilty, with Snugfit, of conversion of property and theft. The plaintiffs claim urgent ex parte and interlocutory relief and permanent relief by way of declaration.

5 On the same day, the plaintiffs applied to the Court ex parte for orders in effect of a Mareva type, to restrain the defendants from dealing with their assets. The Court granted an order on that day.

6 The order was continued on 12 and also on 19 July 2002.

7 In the meantime, the plaintiffs filed an amended statement of claim.

8 The managing director of each of the plaintiffs, Neville Nathan Kobrin (“Mr Kobrin”), swore a long, detailed affidavit in support of the application. Mr Kaplan responded by also swearing a long, detailed affidavit, together with many exhibits. Mr Kobrin followed up with a responding affidavit.

9 Much of the material in the affidavits is irrelevant to the application but demonstrates the high level of hostility existing between Messrs Kobrin and Kaplan.

10 After discussions with counsel, it was not difficult to identify and isolate the real complaints existing between the parties.

11 The plaintiffs make and sell mattress protectors. They have a factory and distribution centre at Midland in South Africa. It is a moderate-size organisation, employing some 250 staff.

12 Messrs Kaplan and Kobrin have been business associates. Since about 1 July 1997, Mr Kaplan has owned a number of shares in Continental and Mr Kobrin owns the balance. Depending on which version is accepted, Mr Kaplan’s share is 8.37% or 17%.

13 In 1995, Snugfit was registered, ultimately with Mr Kaplan being the only director, secretary and the only shareholder.

14 An arrangement was entered into between the plaintiffs and Snugfit, involving Messrs Kobrin and Kaplan, pursuant to which the plaintiffs supplied mattress protectors to Snugfit which, by the beginning of 2002, had a distribution agreement with a company called Playgro Australia Pty Ltd (“Playgro”), pursuant to which the total goods supplied by the plaintiffs were sold to Playgro. One of the directors of Playgro is Mr Gavin Trakman, who is the brother-in-law of Mr Kaplan. Playgro’s business is also conducted from the same premises as Snugfit, namely, 158 Woodlands Drive, Braeside.

15 The supply of the mattress protectors from the plaintiffs to Snugfit and ultimately to Playgro had been in place for some years prior to 1 January 2002.

16 What the precise relationship between the plaintiffs and Snugfit was with respect to the provision of the mattress protectors is not clear on the evidence. The evidence leads to the conclusion that the goods were provided to Snugfit either as an agent for the plaintiffs to on-sell to Playgro or were actually sold to Snugfit, which in turn on-sold to Playgro.

17 The business was simple and straightforward. The plaintiffs despatched the goods by ship to Australia. Snugfit cleared them and placed them in their warehouse in Braeside. Each week, pursuant to a distribution agreement with Playgro, the latter took a quantity of the goods and every fortnight, paid for the goods to Snugfit. The supply was effected by Snugfit moving the goods from its end of the factory to the other end occupied by Playgro. Snugfit’s expenses, including rent, handling charges and office expenses, were taken out of the proceeds. Mr Kaplan’s remuneration was taken out of the proceeds and the balance was forwarded back to the plaintiffs in South Africa.

18 This straightforward and simple procedure was followed for a number of years until May this year.

19 From 15 May 2002, Snugfit has refused to pay to the plaintiffs the monies received from Playgro, less expenses.

20 Hence the proceeding in this Court. What the plaintiffs seek is immediate payment of the amounts which have been received from Playgro, less expenses, from 15 May to the present. The amount owing is in the order of $250,000.00, although there is some dispute about that amount.

21 The plaintiffs seek interlocutory injunctions requiring Snugfit to account to them for the monies it has received in accordance with the arrangements which were honoured up to the middle of May this year.

22 The application came on for hearing before me as a contested matter. Unfortunately, there is a great deal of affidavit material, much of which is irrelevant and which involves allegation and counter-allegation by Messrs Kaplan and Kobrin as to their dealings in the past. Each asserts of the other, that he is dishonest and cannot be trusted.

23 After discussions with counsel concerning the causes of action pleaded and the true nature of the dispute between the parties, the real issue appeared to be whether the Court should grant an injunction which would have the effect of requiring Snugfit to honour its contractual obligations and pay monies which were due and owing to the plaintiffs or whether the monies should be placed in a joint account pending the outcome of the proceeding.

24 The defendants offered undertakings to the Court that they would agree to pay the net monies received from Playgro into a joint account, pending the determination of the proceeding or further order. The plaintiffs’ counsel sought an order that the monies which were due and owing to date and had been received by Playgro should be the subject of an order requiring the defendants to pay the net proceeds to the plaintiffs.

25 The affidavit material shows that Snugfit has received substantial sums of money from Playgro but Mr Kaplan swears that he has claims against the plaintiffs and further, that the company, Snugfit, is wholly owned by him. The plaintiffs dispute the assertion and contend that Snugfit is wholly owned by Continental.

26 It is apparent to the Court that there is a substantial factual dispute between the parties and it is also apparent that each is using the litigation to pressure the other into settling their differences.

27 Mr Kaplan has sworn an affidavit in which he states that on 30 April 2002, he and Mr Kobrin settled their differences and made provision for certain things to occur. Mr Kaplan asserts that as a result of the agreement, he now wholly owns Snugfit and the plaintiffs agreed, through Mr Kobrin, to discharge certain obligations of Mr Kaplan. He says that Mr Kobrin has not honoured the contract and hence, Mr Kaplan is at financial risk if he pays over the money to the South African plaintiffs. Mr Kobrin, for his part, has sworn that there was no binding agreement between the parties and the position is that the plaintiffs own Snugfit, and Snugfit is obliged to honour the arrangements which have been in place for years, by paying the net amounts received from Playgro.

Interlocutory Injunction

28 The plaintiffs’ summons seeks orders in the form of a mandatory injunction compelling Mr Kaplan to cause Snugfit to pay to Waikato the sum of $336,056.16, being the amount then outstanding, and a sum of approximately $400,000 which will become due and owing in the future. Further, orders are sought in the nature of a Mareva injunction to restrain the defendants from dealing with their property and in the alternative, the plaintiffs claim an order that the monies be paid into a joint account pending the outcome of the proceeding.

29 The principles which guide a court on an application for an interlocutory injunction are well established.

30 The Court has an inherent jurisdiction to grant an injunction. The jurisdiction is now the subject of statute. Section 37(1) of the Supreme Court Act 1986 provides –

“The Court may by order, whether interlocutory or final, grant an injunction or appoint a receiver if it is just and convenient to do so.”

31 Sub-section (2) enables the Court to make an order subject to terms and conditions.

32 The jurisdiction is indeed a wide one. It requires the Court to be satisfied of two matters, namely, that it is just, and convenient, to grant an order.

33 An interlocutory injunction is merely provisional in its nature and does not conclude or determine any rights. Its object is to preserve the position which is in dispute in statu quo until the hearing and determination of the dispute or further order. The Court does not in general seek to anticipate the determination of the right but merely gives its opinion as to whether or not there is a serious issue to be determined and if the case has been made out for the preservation of a right which has been breached or threatened.

34 The Court considers four general issues.

35 First, it is necessary for the party seeking the injunction to establish that he has a right which is recognised as legal or equitable and there is an infringement or threatened infringement of that right by some unlawful act.

36 In The Siskina [1979] AC 210 at 256, Lord Diplock stated –

“A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent on there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened, by him of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the Court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action.”

37 But as Lord Woolf MR said in Broadmoor Special Health Authority v Robinson (2000) 2 All ER 727 at 732, that valuable dicta has to be applied with a degree of caution. His Lordship said –

“It is far from being an exhaustive statement of the extent of the Court’s powers to grant an injunction or as a guide as to who is entitled to bring proceedings to claim an injunction.”

38 His Lordship quoted with approval the statement of principle in Spry Equitable Remedies, 5th ed at p.323. The learned author observed –

“The powers of courts with equitable jurisdiction to grant injunctions are, subject to any relevant statutory restrictions, unlimited. Injunctions are granted only when to do so accords with equitable principles, but this restriction involves, not a defect of powers, but an adoption of doctrines and practices that change in their application from time to time.”

39 His Lordship concluded that he agreed with what Lord Cooke said in TV3 Network Ltd v Everready New Zealand Ltd [1993] 3 NZLR 435 at 438, when his Lordship stated –

“The remedy of injunction should be available whenever required by justice.”

40 The second matter that has to be considered is the question whether there is a serious or substantial question to be decided, or, depending on the particular circumstances, whether the plaintiff has established something more than a serious or substantial question to be decided. The general rule was stated by the House of Lords in American Cyanamide Co v Ethicon Ltd [1975] UKHL 1; [1975[ AC 396. The House of Lords held that in the great majority of cases involving an application for interlocutory injunction, all the plaintiff had to prove was that there was a serious or substantial question to be decided. That is the established view now in Australia. See The Australian Coarse Grain Pool Pty Ltd v The Barley Marketing Board of Queensland (1982) 57 ALJR 425, Murphy v Lush [1986] HCA 37; (1986) 60 ALJR 523, and Re Minister for Immigration ex parte Fejzullahu (2000) 74 ALJR 830 at 832.

41 However, there are exceptions to the general rule, and depending upon the circumstances, a party claiming an interlocutory injunction may have to establish something more than the fact that there is a serious question to be tried in the principal proceeding. By way of example, where a party seeks a mandatory interlocutory injunction.

42 In the present application, the plaintiffs are in effect seeking a mandatory injunction. They seek an order that the defendants pay to the plaintiffs monies owing for mattress protectors provided by the plaintiffs to Snugfit and an accounting and payment of the monies that have been received from Playgro.

43 In effect, what the plaintiffs are seeking is an order that Snugfit comply with the trading arrangements in place before the parties fell out at the beginning of May or, as Mr Kaplan would have it, before the parties agreed in April 2002 to settle their differences which resulted in him owning Snugfit outright.

44 But realistically, what is sought is an interlocutory mandatory injunction. In those circumstances, the party seeking the injunction has to established that it has a good case, i.e. the Court “must feel a high degree of assurance that at trial it will appear that the injunction was rightly granted” – per Megarry J in Shepherd Homes Ltd v Sandham [1971] Ch 340 at 351, and Films Rover and Canon Film Sales [1986] 3 All ER 772 at 780-81.

45 The third matter that has to be addressed is the balance of convenience, which requires the plaintiff establishing that if the injunction was refused, he would suffer a greater injury than a defendant would suffer if the injunction was granted.

46 The final matter concerns the discretionary factors that may be applicable to a particular case. For example, delay causing prejudice or a failure by the plaintiff to disclose all relevant matters to the Court.

47 Whatever test the plaintiff has to satisfy, the question of the balance of convenience assumes importance and it has been recognised that if the Court was of the view that the issue to be decided showed a weak plaintiff’s case, the strength of his case on the balance of convenience may tilt the balance in favour of granting the relief. I refer to what Sir George Lush said in Slater Walker Superannuation Pty Ltd v Great Boulder Gold Mines Ltd [1979] VicRp 13; [1979] VR 107 at 110, quoted with approval by the Full Court in Magna Alloys and Research Pty Ltd v Coffey [1981] VicRp 3; [1981] VR 23 at 28.

48 Most applications, and this is no exception, are heard on affidavit material untested in any way. The Court is not in a position to resolve disputed questions of fact and often, time constraints make it difficult for the Court to resolve conflicts and difficult questions of law. But that is not to say that the Court should not, where possible, make an attempt to form some view of the strength of the applicant’s case and in the present case, because the plaintiff is seeking in effect the whole relief by its application, the Court should make an attempt to form a view of the strength of its case. Having said that, it is not an invitation to the Court to speculate.

49 In Series Five Software Ltd v Clarke [1996] 1 All ER 853, Laddie J held that a court was not precluded from considering the strength of the parties’ cases on an application for interlocutory relief, but should not attempt to resolve difficult issues of fact or law and express a view as to the strength of the respective cases unless it is apparent from the affidavit evidence and exhibits that one party’s case was much stronger than the other. It is a trite observation to make that each case must depend upon its own circumstances and that the ultimate question for the Court is whether it is just and convenient to grant an injunction. That involves a consideration of the justice of the situation, that is, justice to both parties.

50 The Court should endeavour to do its best to make some assessment of the cases but bearing in mind that the material often is inadequate, incomplete and has not been tested.

Causes of Action

51 What rights do the plaintiffs claim?

52 It is alleged that Mr Kaplan had an employment agreement with a number of parties, including Waikato and Snugfit, and that he had fiduciary obligations pursuant to that agreement. It is said against Mr Kaplan that he owed fiduciary duties as he held the shares in Snugfit in trust for Continental, that he was in breach of the original employment agreement, subsequent distribution agreement and supply arrangements, and that he also had fiduciary and statutory duties as a director and officer of Snugfit as well as obligations as a trustee.

53 It is asserted that since May this year, he has failed to remit monies which are immediately due and payable pursuant to a variety of agreements. It is also said that he was guilty of fraudulent conduct, unconscionable conduct and bad faith.

54 These are the rights that the plaintiffs claim against Mr Kaplan and Snugfit.

55 They claim a declaration that Snugfit is wholly owned by Continental and that the shares held by Kaplan in Snugfit are held in trust for Waikato or, alternatively, Continental, and then seek consequential orders to ensure that the true owner of the shares controls the company. Claims for damages are made against Mr Kaplan fro breach of his fiduciary duties for conversion and breach of his employment agreement, and as against Snugfit, damages for conversion and/or goods sold and delivered.

56 All of these matters are strenuously contested by Mr Kaplan and Snugfit. He has sworn that an agreement was entered into involving the relevant parties on 30 April 2002 and all matters in dispute have been compromised with the result, inter alia, that he now owns Snugfit beneficially.

Issues to be Tried

57 I am satisfied, whatever test is applied, that there are serious issues to be tried between the parties, that they are very much in dispute, and, further, that the Court feels a high degree of assurance that if an injunction was granted to preserve the amounts of money owing by Snugfit to the plaintiffs, at trial it would appear that the injunction was correctly granted.

58 I am also satisfied that the plaintiffs have good prospects of establishing that Snugfit owes them monies for the mattress protectors supplied pursuant to orders made.

Balance of Convenience

59 The plaintiffs seek an order that the amounts now owing are remitted to it in South Africa. Mr Kaplan, in his affidavit, accepts that the trading relationship between Snugfit and Waikato, whereby Snugfit when paid by Playgro would pay Waikato, was still in place and that was even after the agreement of 30 April 2002, which he contends binds the parties. He accepts on the face of his affidavit that there are some monies owing to Snugfit. However, he claims some credits in respect of certain matters, for example, damaged goods and freight charges and that Snugfit had been overcharged by reason of the wrong conversion rate being applied. However, he contends that although Snugfit has taken possession of quantities of mattress protectors, they have not as yet been sold to Playgro. Accordingly, those amounts are not due and owing to Waikato.

60 He also swears that Waikato owes him approximately A$98,000 by way of loan and he asserts, by reason of the 30 April agreement, that Waikato was to repay the loan by reducing the price it would charge Snugfit over a three year period. He contends that Waikato has failed to reduce the price and hence, the loan is now due and owing. He claims that as a form of set-off. Also, he asserts he did provide some security for loans provided to Waikato and also, under the 30 April 2002 agreement, he contends that it was agreed that he would be released from these sureties and the amount involved is A$300,000.

61 In addition, there is a debenture over Snugfit’s assets held by Mr Coleman, and Mr Kaplan is fearful that the amount owing to Mr Coleman, which is $225,000, may be called up by a demand being made on Snugfit. Since the hearing, Snugfit has now received the demand.

62 It is for these reasons that Mr Kaplan is reluctant to pay over all the monies to the plaintiffs.

63 It is clear that if an order was made that he pay the monies due and owing at this time, the Court could protect his interests by ordering that the balance of monies owing be paid into a joint account pending the outcome of the proceeding. The amount in question is in the order of $400,000.

64 The plaintiffs submit that they are entitled to the money and the sums received to date should be paid over, and that Mr Kaplan’s interests will be protected by an order freezing the balance until trial.

Nature of the Relief

65 What in effect the plaintiffs are seeking is a form of summary judgment for part of the amount that they say they are entitled to. They are not using the summary procedure which is available to a plaintiff seeking judgment, in which it is asserted that there is no defence to the proceeding. What is being sought by the present application is something more than the protection afforded by a Mareva injunction.

66 Mr Cawthorn of Counsel, who appears with Mr R. Short of Counsel for the defendants, submits that it is inappropriate on an application for an interlocutory injunction to grant one, which is in effect providing summary judgment for part of the claim. He submitted that the proper course is for the plaintiffs, if they truly believe there is no defence to part of the claim, to make an application for summary judgment. He submitted that the defendants did not come to court to meet an application for summary judgment.

67 The prime object of an interlocutory injunction is to preserve a position which may be at risk, pending the trial and determination of the dispute between the parties. There is a dispute between the parties. On the face of the evidence before the Court at present, the plaintiffs do appear to have a fairly strong case for payment of monies due for the supply of the mattress protectors, but Mr Kaplan has sworn that there are monies which are owing or may become owing by one or other of the plaintiffs to him and Snugfit and that the plaintiffs have refused to honour the agreement dated 30 April 2002.

68 In my opinion, it is inappropriate to make an order which would have the effect of giving summary judgment for part of the plaintiffs’ claim. In effect, they are seeking an account and payment of monies which are due and owing and in my opinion, if they are entitled to summary judgment, then the proper procedure is for them to make an application pursuant to the Rules. Such an application involves proof that there is no defence and this is a different issue to what the Court is presently considering.

69 On the other hand, I am satisfied that there may be some risk to the funds and that it is appropriate that the funds should be preserved in a joint account pending the outcome of the proceeding. The defendants have undertaken to the Court that they are prepared to pay the net monies into a fund after receipt from Playgro.

70 In order to determine what amount is presently due and owing, I required Mr Kaplan to place evidence before the Court as to the amount which is presently outstanding pursuant to the original trading terms. He swore an affidavit on 25 July 2002 and it would appear that the amount received from Playgro from 15 May 2002 until the present totals $237,856.73, but that amount must be reduced by clearance charges and other expenses totalling $31,076.38, leaving a total of $206,780.35. This affidavit caused the plaintiffs’ advisers to question the accuracy of it because it did not seem to accord with earlier documentation. However, an explanation has been given by Mr Kaplan in another affidavit sworn 26 July 2002 and it appeared from the date when the last affidavit was sworn, namely, 26 July 2002, that there is an amount of some $206,780.35 owing if the original trading terms were still in operation. As I have already stated, that is an issue in the proceeding.

71 On 2 August 2002, an order was made entering the proceeding in the Commercial List and orders have been made requiring pleadings by 16 August 2002 and lists of discoverable documents being filed in exchange by 30 August 2002.

72 As the proceeding is now in the Commercial List, the prospects of an early trial are good.

73 In my opinion, it is just and convenient to preserve the monies the subject matter of the trading until trial or further order and in my view, orders should be made rather than accepting an undertaking to the Court. The Court makes the order on the ground that it is appropriate in all the circumstances to preserve the subject matter of the proceeding, namely, the monies which would normally have been paid in accordance with the trading terms between the parties. An order should be made that the second named defendant pay the sum of $206,780.35 into a joint account pending determination of the proceeding or further order, and an order that upon receipt of monies from Playgro, the second defendant pay the net proceeds into the joint account pending trial or further order. The said sum should be paid within five days of receipt of the amounts from Playgro.

74 The Court will hear counsel on the form of orders and the question of costs.

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Authorities Cited4

Referred to (4)