Case: Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 259
Outcome: followed
Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 259 , Young CJ was asked to wind up an unregistered managed investment scheme. Part of the relief sought was an injunction restraining the exercise of rights under a vendor mortgage until after inquiry by an Associate Justice. The vendor mortgage purportedly secured debts due by investors in the scheme in respect of their purchase of the subject property. Issues had arisen as to the parties to the vendor mortgage and as to the amount due to the mortgagee under it. Young J decided to grant an injunction to preserve the status quo and to prevent the mortgagee from enforcing any rights it might have under the vendor mortgage. He did so for two reasons. First, because of the desirability of preserving rights pending determination of the issues as to the amount due to the mortgagee under the mortgage. Secondly, because there was a serious question as to breaches by the management company of its obligations to the investors which justified an enquiry. Primelife sought to distinguish this case from the present circumstances under consideration on the basis that it involved an inter partes proceeding and a dispute about scheme property. Such a distinction is not warranted. The case involved issues as to the implementation of the winding up of the scheme and was not an inter partes proceeding in the sense that it involved a dispute outside the framework of the winding up of the scheme. Primelife contended that whereas Warne v GDK Financial Solutions Pty Ltd (supra) involved a dispute about scheme property, the issue here involved Primelife's right to rescind which could not be classified as scheme property. That distinction is not valid. Primelife's right to rescind is in respect of the sale contract, which is executory and is scheme property. Although the investors in the present case contended that they had a cause of action available to them for misleading and deceptive conduct which would give rise to an injunction restraining enforcement of the sale contract, relying on s 87 of the Trade Practices Act 1974 (Cth), they were not seeking the injunction for the purposes of enabling them to proceed with such a cause of action. Nor were they seeking an injunction to enable them, or for that matter, the liquidator, to institute a proceeding against the Primelife interests for not carrying out their obligations in relation to the promotion, implementation and administration of the schemes. Rather they wished the liquidator to have time to consider whether he might consider such actions being brought by him on their behalf. However, I consider such a possibility as an insufficient basis for the grant of an injunction. Even if such causes of action might be available to the investors or to the liquidator of the schemes on their behalf, such causes of action do not depend for their existence or prosecution on the fact that the sale contract is still alive, executory and capable of being completed by transfer if there were funds or finance available to enable the sale contract to be completed. If the sale contract were to be rescinded such causes of action would still be available to the investors. Of course, whether such causes of action might be successful depends on how the investors put their case and the strength of the evidence that is available to them. Put another way, there is no practical reason for the injunction to be granted or for the status quo in respect of the sale contract to be preserved. The investors do not suggest that they wish to complete the sale contract and they cannot obtain the finance to do so. If the sale contract is rescinded by the vendor, such causes of action as they may have available to them will not, by virtue of that rescission alone, be lost to them. Turning to the order sought that the liquidator be entitled to bring proceedings in his name as liquidator of the schemes on behalf of the schemes and/or Kastabon and/or Novena, there are conceptual difficulties in making such an order. Novena has gone into liquidation and has been de-registered. As counsel for Primelife pointed out, the liquidator is not the liquidator of Kastabon or Novena; rather he is liquidator of the scheme. But what is the scheme? It is not a legal entity as such. Each scheme was defined in the orders of 26 September 2005 winding up the schemes as the partnership formed pursuant to the partnership agreement dated 30 June 1999 between Kastabon as manager for the investors in the Kastabon Syndicate and Novena as manager for the investors in the Novena Syndicate.