Australian Energy and Electrical Holdings Pty Ltd v Clements
[2003] QSC 48
•13 March 2003
SUPREME COURT OF QUEENSLAND
CITATION:
Australian Energy & Electrical Holdings Pty Ltd & Anor v Clements & Ors [2003] QSC 048
PARTIES:
AUSTRALIAN ENERGY & ELECTRICAL HOLDINGS PTY LTD ACN 094 046 090
(first applicant)
TEXAS-AUSTRALIA POWER INC
(second applicant)
STEVEN ALEXANDER CLEMENTS
(first respondent)
ROSEWOOD FARMS & MANAGEMENT PTY LTD
ACN 088 201 665
(second respondent)
YELLOW BARK PTY LTD ACN 010 833 851
(third respondent)
RAINBOW QUEENSLAND PTY LTD ACN 073 727 198
(fourth respondent)
MACAILER INVESTMENTS PTY LTD (formerly GENRENT INDUSTRIAL PTY LTD) ACN 088 235 125
(fifth respondent)
TAWNEY INTERNATIONAL PTY LTD
ACN 088 235 152
(sixth respondent)
OCTOBER ENTERPRISES PTY LTD ACN 088 235 164
(seventh respondent)
ANGEL HEIGHTS PTY LTD ACN 088 235 134
(eighth respondent)FILE NO/S:
SC1606 of 2003
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court, Brisbane
DELIVERED ON:
13 March 2003
DELIVERED AT:
Brisbane
HEARING DATE:
11 March 2003
JUDGE:
McMurdo J
ORDER:
Upon the applicants giving the usual undertaking as to damages, and upon the applicants undertaking to pay the sum of $75,000 to the trust account of their solicitors, to be held by them until further order as security for the undertaking as to damages and as security for any costs which the applicants are ordered to pay to the respondents, it is ordered that until the trial or further earlier order, the first, second, sixth and eighth respondents, whether by themselves their servants or agents, be restrained from:
(a) representing in any manner whatsoever in trade commerce to any person or entity that the first applicant has no interest in the generators and associated infrastructure used to supply electricity to the Eloise Mine situated in North West Queensland;
(b) requesting and/or otherwise informing or representing, in trade or commerce, to any person or entity that payments by any party, including Amalg Resources NL for the supply of electricity to the Eloise Mine, by onsite generators, should be made to any entity other than the first applicant;
(c) representing in any way whatsoever in trade or commerce to any person or entity that a cheque payable to Generator Sales & Service, or to the proprietor of that business, should not be put into the possession of the first applicant;
(d) representing in trade or commerce to any person or entity that generators hired or leased to customers of a business conducted under the name “Generator Rentals” or “Generator Sales & Service” are not generators which the first applicant is entitled to so hire or lease.CATCHWORDS:
INJUNCTIONS – Interlocutory – application for interlocutory injunctions – where applicants allege misleading and deceptive conduct – whether serious question to be tried – whether court should exercise discretion on balance of convenience
Corporations Act 2001 (Cth), s 438B
Trade Practices Act 1974 (Cth), s 52, s 80COUNSEL:
R N Traves with R J Anderson for the applicants
G Newton for the first and second respondents
D Tucker (sol) for the third, fourth, fifth and seventh respondents
No appearance for the sixth and eighth respondentsSOLICITORS:
Boulton, Cleary & Kern for the applicants
Russell & Company for the first and second respondents
Tucker & Cowen for the third, fourth, fifth and seventh respondents
No appearance for the sixth and eighth respondents
McMURDO J: This is an application for interlocutory injunctions. The amended originating application filed on 28 February 2003 seeks interlocutory orders against each of the eight respondents. At the commencement of the hearing I was informed that an administrator has been appointed to the third, fourth, fifth and seventh respondents. Mr Tucker appeared as the solicitor for the administrator. Mr G Newton appeared for the first and second respondents, instructed by Russell & Company who had previously represented all eight respondents in this proceeding. There was no appearance for the sixth and eighth respondents, who had been duly served through Russell & Company. The applicants did not seek leave to proceed against the third, fourth, fifth and seventh respondents and informed me at the outset that they sought interlocutory relief only against the first and second respondents. But at the conclusion of the hearing, the applicants told me that they were seeking the same relief against the sixth and eighth respondents, together with a further order which I shall mention below. No one suggested that the sixth and eighth respondents were also companies under administration, and as they have been and apparently are companies owned by the first respondent, Mr Clements, I would have been informed by his counsel of the appointment of an administrator to them had that been the case. Ultimately then, this is an application for interlocutory orders against the first, second, sixth and eighth respondents.
The precise orders sought are set out in a draft order handed up at the commencement of the hearing. That draft provides for interlocutory injunctions in these terms:
“1.That the first and second respondents by themselves their servants or agents:
(a)be restrained from representing in any way whatsoever to any person or entity, or any servant or agent thereof, that Australian Energy and Electrical Holdings Pty Ltd (ACN 094 046 090) (AEEH) has no interest in the generators and associated infrastructure used to supply electricity to the Eloise Mine situated in North West Queensland;
(b)be restrained from requesting and/or otherwise informing or representing to any person or entity, or any servant or agent thereof, that payments by any party, including Amalg Resources NL, for the supply of electricity to the Eloise Mine, by onsite generators, should be made to any entity other than AEEH;
(c)be restrained from representing in any way whatsoever to any person that a cheque otherwise payable to the business known as Generator Sales & Service should not be put into the possession of AEEH;
(d)be restrained from representing in any way whatsoever to any person that cheques made payable to Generator Sales & Service or to the names of or former names of the third to eighth respondents should not be put in the possession of the first applicant;
(e)be restrained from interfering in any way whatsoever with the day to day business of the third to eighth respondents including the payment of and banking of cheques by the third to eighth respondents;
(f)be restrained from representing the generators hired or leased to customers of Generator Rentals or Generator Sales and Service are not the property of the first applicant;
(g)be restrained from in any way whether directly or indirectly carrying on business by or on behalf of the third to eighth respondents.
2.That the first and second respondents by themselves their servants or agents be ordered that should he, it or they represent to any person or entity that the second respondent holds the issued share capital in the third and fourth respondents or in effect owns them that he it or they represent also at that time that that applicants claim that the second respondent is under a legal obligation to transfer the said shares to the first applicant.
3.That the first and second respondents by themselves their servants or agents be ordered should he, it or they represent to any person or entity that the third respondent holds the issued share capital in the seventh and/or eighth respondents or in effect owns them that he it or they represent also at that time that the applicants claim that the third respondent is under an obligation to transfer the shares in or further or in the alternative transfer the assets of the seventh and eighth respondents to the first applicant.
4.That the first and second respondents by themselves their servants or agents be ordered should he, it or they represent to any person or entity that the fourth respondent holds the issued share capital in the fifth and/or sixth respondents or in effect owns them that he it or they represent also at that time that the applicants claim that the fourth respondent is under an obligation to transfer the shares in or further in the alternative transfer the assets of the fifth and sixth respondents to the first applicant.”
The Applicants’ Case
The first applicant, which I shall call “AEEH”, is now a subsidiary of the second applicant, which is a company incorporated in the United States. On the applicants’ case, AEEH carries on a business of the supply, service, and repair of electrical generators and their components, and the building and operation of power stations at remote sites. The business is that previously carried on by one or more of the corporate respondents, a group of companies established and controlled by Mr Clements and known as the Generator Sales & Service Group.
In about mid 2000 Mr Clements had negotiations with the second applicant with a view to Mr Clements’ interests and the second applicant carrying on effectively as joint venturers the business of the Generator Sales & Service Group. Those negotiations resulted in an agreement dated 17 August 2000 under which the second applicant was to acquire half of the shares in AEEH, and the venturers were to have equal representation upon the board of that company. By that agreement, the first respondent (“Rosewood”) effectively warranted that AEEH was the holding company of the other corporate respondents. The agreement required the second applicant to guarantee a loan from the Commonwealth Bank of Australia to AEEH of AUD$2,700,000. It was also agreed that Mr Clements would act as “on the ground manager” of AEEH although his remuneration was left unstated in the written agreement.
On the applicants’ case, the terms of that agreement were varied very shortly thereafter, by what the applicants call the “Variable Rate Commercial Promissory Note”, the effect of which was to substitute a loan by the second applicant to AEEH of the sum of US$1,604,610 for the proposed guarantee of the Commonwealth Bank loan. The Promissory Note[1] had a maturity date of 16 August 2001, and provided for quarterly payments of interest. The Note is signed by Mr Clements as the then sole director of AEEH. Mr Clements remained the sole director of AEEH until 23 December 2002.
[1]Exhibit “J” to the affidavit of T R Isbell filed 27 February 2003
The venturers had further negotiations in about January 2001, the outcome of which was an agreement whereby the various companies identified in the August 2000 purchase agreement as subsidiaries of AEEH would be “rolled up into” AEEH. This involved transferring the assets and businesses of the fifth, sixth, seventh and eighth respondents, and the shares in the third and fourth respondents, to AEEH. There was a further meeting in late January or early February 2001 at which there were discussions about, amongst other things, the taxation consequences of this “rolling up” and at which advices as to those matters were provided by Ernst & Young. At least one of those Ernst & Young advices is addressed to Mr Clements of “Generator Sales & Service Group”.[2] Upon the applicants’ case, the “rolling up” was effective, as is evidenced by some of the documents discussed below.
[2]Dated 18 December 2000: Exhibit “SK2” to the affidavit of S Kelly filed 3 March 2003
AEEH defaulted in payment of interest and principal under its Promissory Note. On 22 December 2002, an agreement was made between AEEH, the second applicant, Mr Clements, Rosewood and another party, which was entitled “Standstill Agreement”. This agreement provided that, in one or more of certain events, the second applicant would have the option of acquiring Rosewood’s shareholding in AEEH. The applicants say that such an event occurred, at least by a default in payment of interest under a promissory note, entitling the second applicant to acquire Rosewood’s shareholding as it did on about 13 February 2003. Since then, on the applicants’ case, Mr Clements has made, or caused to be made, misrepresentations as to AEEH’s entitlement to the business once conducted by the Generator Sales & Service Group, the assets used in that business and benefit of contracts made in the course of that business.
On 17 February 2003, Mr Clements wrote to creditors of AEEH, signing as director of “GSS Group of Companies”, being the corporate respondents. By that letter it was effectively represented that:
(a) AEEH used to be a member of the GSS Group;
(b) AEEH had obtained “control of the board and the shareholding in AEEH” by “breaches of confidence and trust”;
(c) Mr Clements had “serious concerns about the solvency of AEEH and its ability to pay its creditors” such that he was encouraging “whatever steps you deem necessary to protect your interests”.
On the same day, he also wrote to customers of the business, by a letter which he signed as director of the fifth respondent. By that letter it was represented that:
(i) the fifth respondent (“Genrent”) was part of the “GSS Group of Companies”;
(ii) AEEH used to form part of that group;
(iii) Mr Isbell had taken control of the board of AEEH and its shareholding;
(iv) the generator used by the customer was leased from Genrent, and did not belong to and had never belonged to AEEH;
(v) rental payments should not be sent to AEEH.
It can be seen from the terms of the orders sought by this application that the applicants wish to enjoin conduct involving representations that AEEH is not entitled to the assets of what was the business conducted by the Generator Sales & Service Group, including the benefit of any contracts with customers. There is a particularly valuable contract under which a number of generators have long been supplied to Amalg Resources NL, the operator of the Eloise Mine in North West Queensland. The applicants also seek injunctions to restrain the making of representations in relation to cheques and their entitlements to the shareholding of some of the corporate respondents.
First and Second Respondents’ case
The case for the first and second respondents is not yet the subject of extensive evidence. The Originating Application was filed 21 February, against the first to fifth respondents. An appearance was entered for those respondents on 24 February. On 21 February, a solicitor employed by Russell & Company, Mr Hawthorn, swore an affidavit which the applicants tendered before me. This was sworn in relation to an application for urgent relief which the applicants intended to make on 21 February. Although Mr Hawthorn said that he had not had time to take full instructions, he was instructed by Mr Clements that the “matters of substance” sworn to by Mr Isbell for the applicants, “including, but not limited to, the entity which presently is the holder of the electricity supply contract for the Eloise Mine” would be denied. The matter was in the Applications List again on 26 February, when Atkinson J made directions in relation to affidavits and set the application down for hearing on 11 March. A further affidavit of Mr Hawthorn, sworn 11 March, shows that Mr Clements withdrew his instructions (at some time after 27 February), saying that Mr Clements had decided that he would apply his limited resources elsewhere rather than “vigorously opposing the injunctions the subject of the originating application”. But he later decided to resist this application and gave those instructions to his solicitors on 7 March. In the same affidavit, Mr Hawthorn swore that he was instructed that:
1. the purchase agreement, dated 17 August 2000, was never intended to be enforceable according to its terms;
2. in any event, that agreement was “superseded by the parties’ conduct”;
3. the promissory note was not intended to have effect according to its terms, but was intended “only as a form of interim security … until the preparation of formal agreements”;
4. the Standstill Agreement ought to be set aside because Mr Clements had been misled as to the meaning and effect of that document and associated documents;
5. AEEH was not the owner of the relevant business names, Generator Sales & Service and Generator Rentals;
6. AEEH did not “own” the Eloise contract or the assets supplied or used under that contract;
7. AEEH did not own “the large majority of the generators which are hired or leased to customers”.
This second affidavit of Mr Hawthorn was read by Mr Newton in support of an application for an adjournment of the hearing of this interlocutory application. I understood that application to be supported by Mr Tucker, representing the administrator of the third, fourth, fifth, and seventh respondents, who was appointed by Mr Clements, the director of those companies, only on 10 March. I initially reserved the question of whether the hearing should be adjourned until I had heard the submissions for the applicants, so that I could assess the urgency or otherwise of the application and the extent to which further time should be allowed to any of the respondents to meet it. After Mr Traves, who led Mr Anderson for the applicants, had completed his oral submissions, an affidavit was sworn by Mr Clements, and filed and read. The brevity of that affidavit is consistent with its very late preparation, but Mr Clements did swear to a number of matters including the (alleged) disentitlement of AEEH to the business, its assets or contracts. Ultimately, it seemed to me that the respondents should not be given the adjournment sought. They had had ample opportunity to prepare a response and they had defaulted in compliance with the directions of Atkinson J. Having regard to the issues relevant to this interlocutory hearing, it seems to me that even from last Friday, when Mr Clements again decided to vigorously oppose this application, there was sufficient time for him to prepare his response for the hearing on 11 March, and ultimately he did swear an affidavit. In addition, he had instructed his solicitors to require the attendance of Mr Isbell, who lives in Texas in the United States, to attend in person for cross examination, and Mr Isbell travelled to Brisbane for the hearing on 11 March.
In substance, the first and second respondents:
1. dispute that AEEH is entitled to the business or its assets, including the benefits of its contracts and in particular the Eloise Mine contract;
2. accordingly, deny the entitlement of AEEH to be paid for the use of any of those assets or under any of those contracts;
3. deny the entitlement of the second applicant to what had been Rosewood’s 50% shareholding in AEEH.
Serious Question to be tried
It is clear that Mr Clements has made representations in the respects complained of, at least by his letters of 17 February 2003 to creditors and customers. Those representations are alleged to constitute conduct by the respondents in contravention of s 52 of the Trade Practices Act 1974 (Cth) or at least conduct by the corporate respondents in contravention of that section, and in which Mr Clements is a person susceptible to injunctive relief granted under s 80. In substance, the presently relevant issues concern whether Mr Clements' representations are misrepresentations. In my view, the applicants have well demonstrated at least a serious question to be tried.
Indeed, it seems to me that the applicants have demonstrated a relatively strong case. This is firstly because their case is supported by documents either signed by Mr Clements, or which were published with his knowledge. Secondly, there is strong support for the applicants’ case from the fact that payments by the Eloise Mine have for some time been made by electronic transfer to a bank account of AEEH, including for at least many months whilst Mr Clements was its sole director. In his oral evidence, Mr Clements offered an explanation for this matter, but at present the fact that he had arranged for those payments, in excess of $100,000 per month, to be paid to the credit of AEEH provides fairly strong support for a case that it was entitled to them.
One document supporting the applicants’ case is that described as a valuation of AEEH prepared by Ernst & Young in October 2002. It is expressed to be prepared in accordance with an engagement letter dated 1 October 2002 from Rosewood. There are letters dated 13 September and 25 October 2002 and each signed by Mr Clements which were addressed to Ernst & Young in relation to this valuation report from which it appears that Mr Clements was personally involved in the provision of information and instructions for that report. At page 4 of the report, Ernst & Young say that:
“Prior to September 2000, AEEH comprised three principal operating entities and six subsidiary companies. This structure has since been unwound and replaced with the simpler structure whereby AEEH is the sole operating entity through which the business lines of Generator Sales & Service and Generator Rentals are run.”
The report also contains purported extracts from the accounts of AEEH, for the year ended 30 June 2002 and for the ten months to 30 June 2001. (It will be recalled that the purchase agreement and Promissory Note agreement were made in August 2000). These extracts are plainly referable to only AEEH, and not to a group of companies, as a comparison with what is set out at page 7 of the report shows. In his oral evidence, Mr Clements said that the valuation report misstated the position. That may well be ultimately demonstrated, but at present the report, coupled with Mr Clements’ contribution to and likely knowledge of its content, strongly supports the applicants’ case.
There is also the document entitled “Australian Energy & Electrical Holdings Pty Ltd Confidential Information Memorandum Equity Raising” dated August 2002. It is stated to have been prepared by “the Board and Senior Management” of AEEH, although Mr Clements gave oral evidence that it was prepared by “our CEO with input from our administration manager”. Mr Clements did acknowledge that he saw it after it was printed but around August 2002. That document represents that AEEH was carrying on the business formerly conducted by “the Generator Sales & Service Group”[3] and that although AEEH had paid three principal operating entitles until September 2000, the structure was “unwound” in September 2000 into the simple structure that exists today, whereby “AEEH now operates as a single company, providing services and product to the power generation industry”, operating under the business names “Generator Sales & Service” and “Generator Rentals” on “an internal divisional basis”. Again, it is possible that insufficient care was given to the terms of this document, and that it should have represented that it was proposed to put the whole business into the one entity, being AEEH. However, the document strongly supports the applicants’ case.
[3]Page 5
Then there is a letter dated 31 August 2000 signed by Mr Barry upon the letterhead of the third respondent. I was told that Mr Barry was a solicitor acting on the instructions of Mr Clements. The letter is written in response to a letter of the previous day from the bank addressed to Mr Barry and to Mr Clements. By that letter, the bank had sought a balance sheet for AEEH and a statutory declaration confirming that it had acquired all of the assets of “GSS, Gelite and Generator Rentals” as well as confirmation that AEEH would be the recipient of the leased rentals from the Eloise Mine. Mr Barry’s response of the following day enclosed a statutory declaration by Mr Clements and a balance sheet of AEEH, and it confirmed that the payments from the Eloise Mine “are directed to be paid to AEEH consequent upon the company restructure arrangements”.
Accordingly, there is strong support in documentary evidence of the applicants’ case that all relevant parties have agreed that AEEH would be the proprietor of the business and entitled to use any assets of the business, including generators and would be entitled to the benefit of contracts and to be paid directly by the customer. The evidence also strongly indicates that the applicant and the respondents have proceeded accordingly for some time and probably since August 2000. It follows that there is a serious question to be tried as to whether the respondents have engaged in conduct in contravention of s 52.
Balance of Convenience
The likely impact of the conduct complained of is the subject of evidence sworn by Mr Isbell. It is likely that AEEH will be affected seriously in its business by at least some of the conduct sought to be enjoined. It is obvious enough that there is a likelihood of damage from representations to customers that AEEH has no entitlement to the equipment hired or otherwise provided for the service of the customer. It is also plain that AEEH will suffer a substantial detriment from representations to customers that they should not pay it, and instead they should direct their money elsewhere. In turn, the second applicant will be affected not only through a shareholding in AEEH but as a substantial creditor of that company.
Against this likely damage to the applicants, the first and second respondents cannot point to any substantial damage likely to be suffered by them in the event that they are restrained on an interlocutory basis in the terms sought by the applicants. There is a potential impact upon one or more of the respondents, including those now under administration, in that Mr Clements would be restrained from advising customers to make payments to one or more of them rather than to AEEH. Should it be established that one or more of the respondents is truly entitled to those payments, recourse could be had to the undertaking as to damages and also to remedies otherwise available to a party whose money has been wrongly received by someone else. At that point it is relevant to assess, so far as is presently possible, the financial strength of the applicants. The balance sheet contained within the Ernst & Young evaluation report shows that as at 30 June 2002 the net assets were of the order of $742,000. However, that is upon the premise that AEEH is entitled to the business and its assets, and it provides no indication of the worth of that company in the event that Mr Clements’ contentions are ultimately upheld. In Mr Clements’ affidavit, he refers to a recent demand by the Commonwealth Bank for the company. This is a cause for concern but it does not of itself demonstrate insolvency. There is also exhibited to that affidavit some correspondence between AEEH and creditors, in which some indulgence is sought until after the hearing of this application. That is indicative of financial weakness but it may be fairly attributable to the conduct complained of; in other words, if AEEH is able to secure payments from creditors who were uncertain as to the proper payee, its present problems might be overcome. Should it ultimately be held that AEEH was not entitled to those payments, it does not appear that its net worth would be insufficient to meet its obligations to one or more of the respondents under the undertaking as to damages or otherwise. None of the respondents says that, between now and trial, it wishes to conduct the business with the relevant assets and that it would suffer damage from the proposed injunctions by being effectively restrained from doing so.
The applicants have offered to provide security for their undertaking as to damages in the sum of $75,000 to also constitute security for costs. If this litigation runs its course, that may be less than the respondents’ costs, but for present purposes, the offering of that security is material.
Mr Clements owes duties by reason of s 438B of the Corporations Act, and Mr Newton correctly submits that any order should be in terms which permit him to discharge those duties. Mr Tucker has provided the draft of a qualification to the orders sought by the applicants which would meet this requirement.
It seems to me that the balance of convenience fairly strongly favours the granting of injunctive relief, and that the application is also affected by the relative strength of the applicants’ case. The strength or otherwise of the parties’ respective cases is relevant to the exercise of the court’s discretion on these applications.[4] There should be interlocutory injunctions granted, and the question then is whether they should be granted in precisely the terms sought.
[4]See Meagher Gummow & Lehane’s Equity Doctrines and Remedies (4 ed) at [21-375] and the cases there cited
Orders
Mr Newton submits that the orders sought might conceivably restrain the respondents from defending these proceedings. Whether that is so, the respondents’ position is sufficiently protected by the restraint being limited to conduct in trade or commerce. The words “in trade or commerce” should be inserted after the word “whatsoever” in paragraph 1(a) of the Draft Order. There should be a change to the same effect to paragraphs 1(b), 1(c) and 1(d) of the Draft. It is also appropriate to delete from paragraph 1(d) the words “or to the names of or former names of the third to eighth respondents”, because I am concerned that this might affect the receipt of cheques to which AEEH, even upon its case, is not entitled. The remaining effect of paragraph 1(d) is then met by 1(c).
I do not think it is appropriate to make an order in terms of paragraph 1(e) of the Draft, especially having regard to the fact that some of those respondents are now under administration.
There should be an order in terms of paragraph 1(f), with the words “the property of the first applicant” being substituted by “generators which AEEH is entitled to so hire or lease”.
In my view the orders proposed by sub-paragraphs (a), (b), (c), (d) and (f) of paragraph 1 of the Draft, amended as I have indicated, are sufficient to protect the applicants until trial or further order. The order sought by paragraph 1(g) of the Draft is, in my view, too wide. The orders sought by paragraphs 2, 3 and 4 seem to me to be unnecessary in the present circumstances. Upon the applicants’ case any relevant asset or contract is something to which AEEH is entitled, and if the respondents are restrained from representing otherwise, it does not seem to me that the applicants need the protection said to be advanced by orders in terms of those paragraphs. The operation of such orders would be problematical and conducive to further proceedings.
The applicants also sought an order in terms of paragraph 6 of the amended originating application, against the sixth and eighth respondents. It seems to me that an order in terms of that paragraph would be too widely expressed, and that it is sufficient that the sixth and eighth respondents be restrained in the same terms as the order against the first and second respondents.
There will be orders accordingly, upon the applicants giving the usual undertaking as to damages and upon their further undertaking to provide security in the sum of $75,000, to constitute security for their undertaking as to damages and for costs as may be ordered to be paid in these proceedings by the applicants to any of the respondents.
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