Bagri v Arik
[2022] SADC 27
•10 March 2022
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application for Review)
BAGRI AND ORS v ARIK AND ORS
[2022] SADC 27
Reasons for Decision of his Honour Judge Slattery
10 March 2022
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA
ASSOCIATIONS AND CLUBS
Application involving an incorporated association under the Associations Incorporated Act 1985.
Dispute between two principal factions of an incorporated society based in the Riverland of South Australia. It is alleged that there is a convention agreed between these factions such that, on alternate years at the election of Members of the Board of Management, these two factions would be represented on that board.
A dispute before the Court, the subject of the proceedings, concerned inter alia the holding of the 2019 elections and other conduct.
There has now been a further election of the Members of the Board of Management in 2021. Four new members of the Board of Management were then elected, none of whom were board members in 2019. The applicants in the proceedings, the respondents on the application for review, now challenge the validity of the 2021 elections by a late amendments to their pleadings.
The respondents allege that the resources of the association are being used to pay the costs of the representation of the respondent board members, including the four board members sued by the appellants in the proceedings none of whom were board members following the 2019 election.
The applicants in the proceedings, the respondents on the review sought and obtained an order with injunction in the Magistrates Court restraining the use of the Society’s funds to pay legal costs. An undertaking as to damages was given by each person who sought the orders with injunction.
The second to ninth respondents to the application in the Magistrates Court, the appellants on this review, seek a review of the orders of the learned Magistrate. The appellants have separately provided an undertaking as to damages in an appropriate form and signed by each of them. There has been no challenge to the content of the efficacy of these undertakings as to damages.
• Whether the action is to be properly characterised as an oppression action and whether the Society has an interest in the issue in the proceedings and whether its funds and capital be expended to that end on costs that are incurred.
• Whether the learned Magistrate had jurisdiction to injunct the incurring of costs;
• Whether a prima facie case had been established by the applicants for injunction; and
• Whether in the application of the settled law of Australia, an undertaking as to damages by the respondents to the injunction application, the appellants on this review, would adequately compensate the applicants by an award of damages sustained as a result of the alleged actions of those appellants.
Held:
1. The order with injunction is discharged.
2. The learned Magistrate failed to properly address the question of undertakings as to damages and the balance of convenience when considering the grant of an injunction.
3. The Society has a legitimate interest in the subject matter of the proceedings and so the incurring of costs.
4. In any event, the order with injunction will be discharged following the provision by appellants of a cross undertaking as to damages.
5. The court will hear the parties further in relation to consequential orders and costs.
6. Orders accordingly pursuant to s 38(7)(d)(ii) of the Magistrates Court Act 1991.
Associations Incorporation Act 1985 (SA) s 61; Magistrates Court Act 1991 (SA) s 38; Corporations Act 2001 (Cth) s 237, referred to.
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413 ; Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302; Sellar v Lasotav Pty Ltd [2008] FCA 1766; Sandalciyan v IDC 80 ACSR 31 ; Australian Broadcast Corporation v O’Neill (2006) 80 ALJR 1672; American Cyanamid Co v Ethicon Ltd [1975] AC 396; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, discussed.
Re: DG Brims and Sons Pty Ltd [1995] QSC 53; 16 ASCA 559 ; Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249; [2005] NSWSC 495; Metropolitan Petar v Mitreski [2008] NSWSC 243; Grace v Grace [2007] NSWSC 6; Re a Company (No 1126 of 1992) [1994] 2 BCLC 146; Re Milgate Developments Pty Ltd [1993] BCLC 291 ; Re a Company (No 00450 of 1988), ex parte Johnson [1992] BCLC 701; Food Improvers Pty Ltd v BGR Corp Pty Ltd (No 3) [2007] FCA 97; Re M Dalley & Co Pty Ltd (1968) 1 ACLR 489; Re Kenyon Swansea Ltd [1987] BCLC 514; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60; Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 ; Murphy v Lush (1986) 60 ALJR 523 ; Administrative and Clerical Officers Association, Commonwealth Public Service v Commonwealth (1979) 53 ALJR 588 ; Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425; 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1; Fejo v Northern Territory (1998) 195 CLR 96 ; Fejo v Northern Territory (1998) 195 CLR 96 ; Chappell v TCN Channel Nine Pty Ltd (1988) 14 NSWLR 153; National Mutual Life Association of Australasia Ltd v GTV Corporation Pty Ltd [1989] VR 747; Jakudo Pty Ltd v South Australian Telecasters Ltd (1997) 69 SASR 440 ; Firth Industries Ltd v Polyglas Engineering Pty Ltd (1975) 132 CLR 489 ; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 ; World Series Cricket v Parish (1977) 16 ALR 181, considered.
BAGRI AND ORS v ARIK AND ORS
[2022] SADC 27CIVIL
On 24 September 2021, Magistrate Fotheringham made the following orders:
Terms of Order:
1. Except as provided for in paragraph 2 below, the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth and Ninth Respondents are restrained from using any monies or other assets in which the First Respondent has a legal or equitable interest, to pay for legal fees and disbursements relating to these proceedings.
2. The First Respondent may use monies in which it has a legal or equitable interest, to pay for legal fees and disbursements it incurs or has incurred, in relation to these proceedings, but only to the extent that they relate to obligations it has in respect of discovery of documents or with the leave of this Court.
3. The question of costs relating to Interlocutory Application FDN 22 are reserved.
The grant of these orders followed the provision by the applicants of an undertaking as to damages. The learned Magistrate published reasons on 1 September 2021.[1] After a review of the evidence, his Honour characterised the issue between the parties as whether the applicants or the respondents before him were the duly appointed committee of management of the Society, the ninth respondent. There was also a dispute about which rules governed the Society (judgment [15]). His Honour found there was a serious question to be tried based upon the pleadings, the conflicts in the affidavit evidence and the dispute as to whether the 1983 Rules or the 2014 Rules applied in the management of the business of the Society.
[1] [2021] SAMC 105.
His Honour then addressed the balance of convenience at [21] and following. In that discussion his Honour referred to a number of authorities including the decision of Byrne J in Re DG Brims and Sons Pty Ltd,[2] the decision of Young J in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd,[3] and the decision of Austin J in Power v Ekstein.[4] His Honour held that, having regard to the fact that this is a “member’s dispute”, damages were not an adequate remedy and the balance of convenience favoured the granting of an injunction.
[2] [1995] QSC 53; 16 ASCA 559 at 591-592.
[3] [1998] NSWSC 413 at 733.
[4] [2010] NSWSC 137; (2010) 77 ACSR 302.
The respondents have issued a notice of review of 7 October 2021, the terms of which are as follows:
1. The Magistrate erred in applying the test for an interlocutory injunction, in that the relief sought by the First to Eighth Respondents on their interlocutory application:
1.1 Did not preserve the subject matter of the proceedings (which relates to the conduct of the 2019 Annual General Meeting), but rather was directed to restricting the use of the Society’s money; and
1.2 Was final or permanent in nature, as it forever prohibits the use of the Ninth Respondent’s funds in connection with the defence of these proceedings save in limited respects.
2. The Magistrate erred in characterising the proceedings as a dispute between members of the Ninth Respondent rather than a dispute involving issues to which the Ninth Respondent was the appropriate respondent (paragraphs 44 and 48 of the Reasons for Decision dated 1 September 2021), in that the Magistrate:
2.1 Failed to find that the Ninth Respondent is the only proper respondent to a claim under s 61 of the Associations Incorporation Act 1985 (the Act) as that section applies to conduct engaged in, or proposed to be engaged in by an association (s 61(1), s 61(4) and s 61(15));
2.2 Instead, weighed the Ninth Respondent’s status as the respondent to a claim under s 61 of the Act as part of the balance of convenience limb of the interlocutory injunction test;
2.3 Failed to find that the substance of the proceedings concerns the identification of the prevailing Rules and conventions of the Ninth Respondent, instead finding only that the dispute was further complicated by those matters;
2.4 Failed to consider that there are no allegations of oppressive or unfair conduct on the part of the Appellants personally beyond the dispute as to the Rules and conventions applicable to the conduct of the 2019 Annual General Meeting; and
2.5 Failed to give due weight to the fact that Committee members of the Ninth Respondent are volunteers.
3. In the alternative to paragraph 2, the Magistrate erred in finding that discovery is the only matter in the proceedings that concerns the Ninth Respondent, in that the Magistrate ought to have found that the following matters are also of concern to the Ninth Respondent:
3.1 The identification of the prevailing Rules and conventions of the Ninth Respondent;
3.2 The conduct of Annual General Meetings prior to 2019 in which the Rules and conventions of the Ninth Respondent were considered and voted on;
3.3 The conduct and fairness of the process for nominating candidates to the Ninth Respondent’s Committee of Management at the 2019 Annual General Meeting, including the conduct of members of the Ninth Respondent in making nominations; and
3.4 The exercise of the Committee of Management’s discretion to adjourn the 2019 Annual General Meeting in response to concerns about the conduct and fairness of the nominations process.
4. The Magistrate erred in finding that the balance of convenience favoured the granting of an injunction, in that:
4.1 The Court has a discretion to make costs orders at the conclusion of the proceedings;
4.2 The Court has power to direct the Appellants to reimburse the Ninth Respondents its costs, if appropriate, pursuant to s 61(4)(d) and s 61(4)(g) of the Act; and
4.3 The payment of costs is a monetary matter and, accordingly, damages would be an adequate remedy.
The application of the appellants seeks that I set aside orders 1 and 2 of the orders made on 24 September 2021 and that I dismiss the interlocutory application filed by the first to eighth respondents on 10 February 2021. In the discussion which follows it is to be understood that the first to eighth respondents to this application for review are the first to eighth applicants on the application for injunction. The ninth respondent to this application is the Society. There has been no appearance before me of the eighth respondent. The Society was separately represented and took no active part in this application. I will collectively refer the balance of the respondents as ‘the respondents’. I have made an order by consent under s 38(4) of the Magistrate Court Act 1991 that all parties have permission to have legal representation.
For the reasons which I set out below, I would exercise my jurisdiction under s 38(7)(d)(ii) of the Magistrates Court Act. I would set aside the orders for injunction. I will make other ancillary orders.
In order to understand this decision, it is necessary to have some familiarity with the facts of the matter. The ninth respondent is the Riverland Singh Society Incorporated (‘the Society’). It is an incorporated association under the Associations Incorporations Act 1985. There have been a number of long running disputes between members of the Society. It is suggested that there are various factions within the society and there are some disputes and differences between the factions; these appear to have given rise to the issues for determination in this matter. Although there are some points of distinction, it appears that these factions exist and notwithstanding the rules of the Society about the election of members of the Board of Management, earlier in time the factions agreed between themselves that on alternative years, there would be particular number of the members of the faction who would sit on the committee of management of the association and for a period of time until the next election.
Interchangeably over the following years, other members of the different factions would become members of the committee of management such that there was at least, by appearances, some “changing of the guard” between the factions. I have deliberately used the expression “by appearances” because it was submitted that from time to time, during their period of appointment, some of those who were considered to be a member of one faction may have changed their interest or allegiances to another faction. I do not need to decide if that was the case.
There was some dispute between the parties that this convention in relation to the membership of the management committee existed up to and including the 2019 election. However, as things progressed a semblance of order was achieved by what was described as a half election process so that there would be an election of five new members one year and each alternate year there would be an election of three new members. In his submissions, Mr Henchliffe QC contended that the convention was observed by the election of 4 members on each alternate year. Again, it is not necessary that I resolve that difference because the important point is that there was a convention between the various factions within the organisation such that, on alternative years, there would be a changing of the membership of the committee on what appears to have been a predetermined basis.
Whatever the weaknesses in that agreement and arrangement may be, up until 2019, there does not appear to have been any particular disagreement between the parties, at least on the implementation of that arrangement. An issue is alleged to have arisen in relation to the 2019 election. It is alleged that by subterfuge and notwithstanding the convention, steps were taken by one faction to nominate new committee members all of whom were from one particular faction. In the result, all eight members of the management committee were elected from one faction. It is claimed by the appellants, (the respondents on the original application) that an estoppel arises against the other faction, represented by the first to eighth respondents, preventing those respondents from departing from the understanding in relation to the arrangements.
A number of important developments have occurred since the 2019 election. There has been at least one further general meeting of the association in 2021 at which new board members were appointed and they are appellants here only because they were named as respondents to the injunction application. They were not on the board in 2019 and, it is contended, do not respond to the matters that allegedly arose out of the election at that time. There was an application by the first to eighth respondents here for an injunction to restrain the holding of that meeting but that application failed. At that meeting, there were new nominations considered and new members of the Board were appointed. The appellants here submit that those four new members are not strictly properly joined as respondents to the injunction proceedings.
A principal contention of the appellants before me is that the effect of the 2019 elections is spent; there is no utility in a court giving consideration to a contest about the events of 2019 because it would be inutile to make an order about an event that took place on 16 August 2019. As the argument proceeds, since that time, there has been an election in 2021; there was some suggestion in argument of another election, but I will leave that to one side. It is sufficient that in 2021, there was a General Meeting, there were further nominations and the four new directors were appointed. The court has not yet made any determination about the events surrounding the 2019 election and there will likely be no utility in doing so because there have been further directors appointed in the 2021 year. There is, arguably, no continuing subject of the lis between the parties such that there could be an expectation of a spes between them. In addition, an open offer has been made that, if there is a challenge to the 2021 elections, a fresh election be held in accordance with the rules. It is contended that on no basis would a court grant injunction in the event that such an offer has been made.
It is also contended that the only proper respondent to the applications for injunction was the Society. In light of the state of this action, I do not need to decide that issue.
A second principal contention of the applicants is that the Magistrates Court had no jurisdiction to grant this injunction because an injunction which restrains the payment of costs is not part of the subject matter of the proceedings. The Magistrates Court only has power to grant injunctive relief in respect of the subject matter of the proceedings. It is contended that there is nothing within the relief which is sought, or the pleadings as drafted, which claims the payment of costs is oppressive or would be oppressive under s 61 of the Associations Corporation Act. Notwithstanding all of these contentions, the appellants were also prepared to proceed upon the merits of the matter. Although I consider these submissions of the applicants have considerable merit, it is not necessary for me to make a decision on that topic here.
The learned Magistrate characterised the issue before the Court essentially as a members’ dispute. The relief sought before the learned Magistrate was to injunct the members from using the funds of the Society to pay the costs of those persons sued by the first to eighth respondents in this application in relation to the conduct of the affairs of the Society, the ninth respondent to this application.
In the application in the Magistrates Court, orders are sought that the second to eighth respondents (the first to eighth appellants here) provide all of the Society’s property to the secretary of the Society, who was elected in 2019. Declarations are sought as to who was elected in 2019. However, as I have indicated, the position of the appellants before me is that there has been at least one election since that time. Therefore, the natural term of those persons elected in 2019 has ended. Mr Henchliffe QC for the respondents to this application contends there is a challenge to that election. There has been a late amendment to the pleadings which challenges the validity of the 2021 election. That amendment brings into sharp focus an open offer by the appellants before me that if there is a challenge to the 2021 election then another election should be held and the issue resolved that way. Mr Henchliffe QC submitted that such an offer was irrelevant. I am unable to accept that submission.
Another issue of which this court must remain mindful is that the constitution of the board has changed. It is not obvious against whom costs orders might be made when it is known that some members of the current board are required to respond to the proceedings but were not board members in 2019.
The learned Magistrate relied upon the decision of Austin J in Power v Ekstein.[5] That case concerned an application for leave by a shareholder to bring derivative proceedings pursuant to s 237 Corporations Act 2001. The contention of the plaintiff was that because the proceedings involved a dispute between shareholders rather than a dispute involving the company, the costs of the proceedings should not be borne by the company.[6] Austin J held at [112]-[118] as follows:
[5] 77 ACSR 302.
[6] At 111.
[112] In Re DG Brims & Sons Pty Ltd (1995) 16 ACSR 559, Byrne J said (at 591-2):
Many thousands of dollars of company funds have been spent on lawyers, accountants and valuers in defending these proceedings on behalf of the majority shareholders. This is unfair and infringes the basal principle that 'the powers, and the funds, of a company may be used only for the purposes of the company'. No doubt a small part of the expenditure was justifiable; for example, in discovery, and in resisting such orders as that the company purchase the shares or pay a dividend for 1991. Expenditure to protect its discrete interests or for other proper purposes of the company may be made from company resources. The essential dispute here, however, is between the shareholders; and company funds should not have been used to defend the majority shareholders.
[113] These principles were approved by Young J in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 733; [1998] NSWSC 138, and by White J in Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249; [2005] NSWSC 495 at [90]-[91]; see also Metropolitan Petar v Mitreski [2008] NSWSC 243; Grace v Grace [2007] NSWSC 6; compare Sellar v Lasotav Pty Ltd [2008] FCA 1766. The last of these cases indicates a different approach to the other authorities. According to Foster J in Sellar (at [30]), the Court will be generally reluctant to interfere at the interlocutory stage of the payment of legal fees and expenses unless there is good reason to do so. With respect, while that may be so as a general proposition, it is not an accurate reflection of the approach in Australian and English authority where the question relates to expenditure of company funds on costs of litigation involving a dispute between shareholders.
[114] As to English authority, Foster J places some reliance on Re a Company (No 1126 of 1992) [1994] 2 BCLC 146. In that case Lindsay J reviewed the English case law on the question whether a company should become involved in oppression proceedings between its shareholders, and reached a series of conclusions (at 155-6) which included the following:
…there is no rule that necessarily and in all cases active participation and expenditure is improper;
the test of whether the company's participation and expenditure is proper is whether it is necessary or expedient in the interests of the company as a whole;
in considering that test the Court's starting point is a sort of rebuttable distaste for such participation and expenditure, and initial scepticism as to its necessity or expediency, and so a company that has actively participated bears a heavy onus.
[115] His Lordship's "rebuttable distaste" for the expenditure of the company's funds on litigation involving a dispute between shareholders stands in contrast with the observations of Foster J. In Re Milgate Developments Pty Ltd [1993] BCLC 291 and Re a Company (No 00450 of 1988), ex parte Johnson [1992] BCLC 701, injunctions were granted to prevent shareholders or directors from causing their companies to actively defend proceedings, subject to an exception for compliance with obligations such as discovery. On balance, it seems to me that Lindsay J's statement of the principles emerging from the English cases reflects the preponderance of Australian authority and I should follow that approach in preference to the approach taken by Foster J in Sellar.
[116] There is some evidence that the Companies' funds are being used in defence of the proceedings. The plaintiff's written submissions refer to a letter written by Horowitz & Bilinsky dated 22 June 2009, in which it asserted that:
The cases are a profligate waste of the companies' resources for no proper purpose.
This is an admission that the companies' resources had been used in conducting an active defence of the proceedings, but the letter did not supply information about how much had been spent, notwithstanding that the plaintiff's solicitor had asked for that information.
[117] This is a somewhat unusual case because the issues flow in two broad rivers, which might be called the equity river and company law river. Flowing down the equity river are all the questions about the family trust and the proper construction of the will of Otto Ekstein, leading on to questions of breach of trust, an application to remove Mr Ekstein from his position as trustee, etc. I infer that the equity issues will occupy a very substantial part of the final hearing. The company law issues are essentially threefold: relating to claims for relief on the oppression ground, derivative claims asserting breaches of duty, and issues about constitutional compliance on such matters as rotation of board positions. My assessment of the case is that the company law issues, though there seem to be more of them, will take rather less time to cover, in an evidentiary sense, than the equity issues.
[118] I make the broad distinction between the equity issues and the company law issues because it seems to me that the Companies have no interest in the equity issues, and so a substantial part of the final hearing will not affect them. They should not be active participants in that part of the case and their funds should not be used to conduct that part of the litigation - subject to an exception to allow them to meet their discovery obligations as parties to the proceedings.
Then at [119], Austin J distinguished a number of authorities and said as follows:
[119] The company law issues are partly in a different category. To the extent that company law claims will be asserted derivatively on their behalf, the Companies need not have any active involvement and under my orders, they will be indemnified by the plaintiff in respect of costs. What remains, broadly speaking, are the oppression claims and the claims about constitutional non-compliance. As I understand the oppression claims, relief is sought against each company except Elysee for an order, inter alia, for compulsory purchase of shares. It seems to me that an application for a compulsory purchase order against a corporate defendant brings the company's interests into play and it can no longer be said that the dispute is purely between shareholders. The company (that is, the body of members as a whole) has an interest in resisting a compulsory purchase order; ensuring that the burden of the order, if made, falls fairly on all relevant defendants; and making sure that the terms of any such order as to matters such as valuation of the shares are fair in the company's interests. Therefore it would be wrong to restrain the company from participating actively in the litigation, so far as it relates to an application against the company (or defendants including the company) for compulsory purchase of the plaintiff's shares.
[120] It also seems to me that a company has a legitimate interest in responding to a challenge to the validity of its decision-making, and hence the Companies should be permitted to respond to the plaintiff's allegations about failure to comply with constitutional provisions about rotation of directors leading to an absence of directors. That argument does not just affect the directors; it affects the integrity of the company and the interests of its members as a whole, by challenging the validity of its corporate actions.
His Honour held that a company has a legitimate interest in responding to a challenge to the validity of a decision maker. It should be permitted to respond to the allegations about failure to comply with constitutional provisions. That is because the argument affects not only the directors but also the company itself.
Of particular interest here is that at [113], Austin J said the decision of Foster J in Sellar v Lasotav Pty Ltd[7] is not an accurate reflection of the approach in Australia where the question relates to the expenditure of company funds on costs of litigation involving a dispute between shareholders.
[7] [2008] FCA 1766.
A distinction is very often made between a more narrow derivative claim and what is more generally described as (a broader) oppression claim. Derivative claims will involve those circumstances where a director has, in breach of, for example, the fiduciary duty owed by that director, taken steps to enrich himself or herself at the expense of the company. An example would be a profit from a related party transaction. Any minority shareholder raising an allegation that the director did so in breach of fiduciary duty would need to apply to the court for leave to bring proceedings in the name of the company because, the offending majority shareholder would not resolve to bring those proceedings. The court will, if satisfied, permit that minority shareholder to bring a derivative action in the name of the company as the appellant.
In those circumstances, it would usually be inappropriate for the majority shareholder to use the funds of the company to defend the proceedings brought by the minority shareholder in the name of the company who then has to pay the costs of the majority shareholder who has breached, for example, the fiduciary duty owed to the company itself.
Turning to the case at bar, where there has been a dispute about the rules of the Society, I accept the Society, being incorporated, has an interest in obtaining from a court, a judgment about the rules of the Society and how they should be implemented. Therefore, in that context, the appellants contend and I accept that this dispute is not a more narrow derivative action but is a broader style of action, the benefit of the determination of which will include a benefit to the interests of the incorporated association.
In Sellar v Lasotav Pty Ltd; Re: Lasotav Pty Ltd,[8] Foster J considered the applicable principles where a court determines an application for legal fees of one of the disputing parties in the context of an oppression suit.
[8] [2008] FCA 1766; [2008] 26 ACLC 1533.
Foster J held at [18] as follows:
The submissions of the parties
[18] The plaintiffs submitted that:
(a) It is well established that the use of company funds to defend oppression proceedings may, in certain circumstances, constitute oppression (see Re DG Brims and Sons Pty Ltd (1995) 16 ACSR 559 at 591–592; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 733; and Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249 at [90] to [99] (pp 267–269); and Food Improvers Pty Ltd v BGR Corp Pty Ltd (No 3) [2007] FCA 97 at [250] to [258]).
(b) Where the issue has been raised prior to the final determination and there is a significant risk of the company’s resources being expended in the defence of the interests of the majority, there is no reason why the Court would not step in at the interlocutory stage and make appropriate orders. In support of this submission, Counsel for the plaintiffs relied upon certain observations made by Brereton J in Grace v Grace (2007) 25 ACLC 141; [2007] NSWSC 6 at [52] and at [61] (second dot point).
(c) The normal test for the grant of an interlocutory injunction applies in the circumstances of the present case;
(d) The plaintiffs have established a strong case that there is a serious question to be tried; and
(e) The balance of convenience favours the grant of an injunction because “…there is a decidedly uneven playing field …” in the sense that the plaintiffs are compelled to fund the litigation in circumstances where they have no assets of any significance whereas their protagonists, the Buskens, have access to company funds.
Foster J said that plaintiffs must show they will suffer irreparable injury for which damages for compensation would not be an adequate remedy unless the injunction is granted. At [30] and [31], his Honour canvassed the difficulties faced by a court considering whether injunctive relief should be granted. That is because, on a preliminary basis, it would be difficult to determine which costs might be regarded as the legitimate responsibility of the corporate defendant over which the oppression suit is being fought and the fact that a court is being asked to make a determination in advance at an interlocutory stage. Courts are reluctant to interfere at that stage. His Honour said:
[30] However, that is not the end of the matter. None of the authorities to which I have been referred involved an application for interlocutory relief founded upon the same ground as the ground relied upon by the plaintiffs in the present application. Further, some of those authorities support the proposition that, because it may be difficult to determine on an interlocutory basis which costs may be regarded as the legitimate responsibility of the corporate defendants over which the oppression suit is being fought, courts are reluctant to make a determination in advance, ie, at an interlocutory stage (Fexuto 28 ACSR 688 at 733; 20–28; Re A Company (No 001126 of 1992) [1994] 2 BCLC 146 at 155–156; Grace 25 ACLC 141; [2007] NSWSC 6 at [49] to [52] and at [59] to [61]). This latter point may not be a very strong point in favour of the first, second, fourth and fifth defendants in the present case but is one that nonetheless needs to be weighed in the balance. It seems to me that the Court is generally reluctant to interfere at the interlocutory stage with the payment of legal fees and expenses unless there is good reason to do so.
[31] In my judgment, the plaintiffs must show that they will suffer irreparable injury for which damages (or compensation) will not be an adequate remedy unless an injunction is granted and that the balance of convenience favours the granting of an injunction.
It is apparent that Foster J gained little assistance from the submissions on the ‘balance of fairness’. His Honour approached his decision by the application of settled principles. In the case at bar, the learned Magistrate has approached his decision by considering the ‘balance of fairness’ argument. In doing so, I consider that his Honour has fallen into error.
In Fexuto,[9] Young J said as follows:
In Re DG Brims and Sons Pty Ltd (1995) 16 ACSR 559, Byrne J in the Supreme Court of Queensland said at p591-p592, "Many thousands of dollars of company funds have been spent on lawyers, accountants and valuers in defending these proceedings on behalf of the majority shareholders. This is unfair and infringes the basal principle that "the powers, and the funds, of a company may only be used for the purposes of the company.... Expenditure to protect its discrete interests or for other proper purposes of the company may be made from company resources. The essential dispute here, however, is between the shareholders; and company funds should not have been used to defend the majority shareholders."
This passage is supported by other authorities; see eg Re M Dalley & Co Pty Ltd (1968) 1 ACLR 489, 492; Re Kenyon Swansea Ltd [1987] BCLC 514, 521; Re A Company; Ex parte Johnson [1992] BCLC 701 and Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60, 94. It is sometimes difficult to determine just what is the dividing line between expenditure on legal costs to protect the company's real interests and those to support the majority and, for this reason, courts will not make a determination in advance; see Re A Company [1994] 2 BCLC 146.
Some of the English cases make the point that the expenditure by the company in this way is not something about which a plaintiff can complain as the only proper complainant is the company. However, for the same reasons as I mentioned in relation to the National Bus Company, under the Australian law, the court is not so inhibited.
[9] [1998] NSWSC 413; 28 ACSR 688 at 733.
Young J was mindful of the difficulties in determining what is that dividing line between expenditures on legal costs in a company’s interest and those to support a majority.
In Sandalciyan v IDC,[10] Foster J referred to the criticisms of his earlier decision in Sellar by Austin J in Power v Ekstein. His Honour there said as follows:
[81] Senior Counsel for the plaintiff drew my attention to the decision of Austin J in Power v Ekstein (2010) 77 ACSR 302. In that case, Austin J suggested that the approach which I took in Sellar was a departure from older authority in England and other authorities in the Supreme Courts of Queensland and New South Wales. I do not agree with the observations of Austin J. I think that the views which I expressed in Sellar correctly encapsulate the relevant principles. Each case has to be decided on its merits. One of the critical matters to be taken into account by the Court in approaching the question of whether it is appropriate to grant an interlocutory injunction restraining the corporation which is the subject of the oppression suit from paying legal fees of the parties on one side of the record is whether the appropriate adjustments can most likely be made in the final judgment. As I said in Sellar at [30], because it may be difficult to determine in advance which costs may be regarded as the legitimate responsibility of the corporation over which the oppression suit is being fought, it may be inappropriate to grant interlocutory relief. This aspect may not always be determinative but has to be weighed in the balance.
[10] 80 ACSR 31 at [81].
To the extent that it is necessary to make any particular finding, I prefer the approach of Foster J which appears to be the favoured approach in Australia.
In the papers before the learned Magistrate, there was no indication that the Society would suffer some irreparable harm if the injunction was not granted. In any event, the relevant members of the Board are before the court and they are answerable to any order the court might make in relation to loss or damage suffered by the association. It follows, that in my view, a proper approach to an application such as this is to be very mindful of any difficulty in attempting to make a determination in advance of what costs might be regarded as the legitimate responsibility of the Society, where the application is in the nature of an oppression suit and whether or not an interlocutory relief should be granted.
I turn then to that question of interlocutory relief.
In Australian Broadcast Corporation v O’Neill[11] at [65]-[71], Gummow and Hayne JJ said as follows:
[11] (2006) 80 ALJR 1672.
Interlocutory injunctions
[65] The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd.[12] This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:[13]
[12] (1968) 118 CLR 618.
[13] (1968) 118 CLR 618 at 622‑623.
The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.
By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument.[14] With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:[15]
[14] (1968) 118 CLR 618 at 620.
[15] (1968) 118 CLR 618 at 622.
How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.
[66] For example, special considerations apply where injunctive relief is sought to interfere with the decision of the executive branch of government to prosecute offences.[16] Again, in Castlemaine Tooheys Ltd v South Australia,[17] Mason ACJ, in the original jurisdiction of this Court, said that "[i]n the absence of compelling grounds" it is the duty of the judicial branch to defer to the enactment of the legislature until that enactment is adjudged ultra vires, and dismissed applications for interlocutory injunctions to restrain enforcement of the law under challenge.
[16] Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 156 per Mason ACJ.
[17] (1986) 161 CLR 148 at 155‑156; cf the earlier assumption in Murphy v Lush (1986) 60 ALJR 523 at 526; 65 ALR 651 at 655 that "a triable issue" of invalidity was sufficient to pass to consideration of the balance of convenience.
[67] Various views have been expressed and assumptions made[18] respecting the relationship between the judgment of this Court in Beecham and the speech of Lord Diplock in the subsequent decision, American Cyanamid Co v Ethicon Ltd.[19] It should be noted that both were cases of patent infringement and the outcome on each appeal was the grant of an interlocutory injunction to restrain infringement. Each of the judgments appealed from had placed too high the bar for the obtaining of interlocutory injunctive relief.
[18] See, for example, Administrative and Clerical Officers Association, Commonwealth Public Service v Commonwealth (1979) 53 ALJR 588 at 591; 26 ALR 497 at 502; Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425; 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283 at 284; 52 ALR 651 at 653; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 24 [21]; Fejo v Northern Territory (1998) 195 CLR 96 at 122 [26].
[19] [1975] AC 396.
[68] Lord Diplock was at pains to dispel the notion, which apparently had persuaded the Court of Appeal to refuse interlocutory relief, that to establish a prima face case of infringement it was necessary for the plaintiff to demonstrate more than a 50 per cent chance of ultimate success. Thus Lord Diplock remarked:[20]
[20] [1975] AC 396 at 406.
The purpose sought to be achieved by giving to the court discretion to grant such injunctions would be stultified if the discretion were clogged by a technical rule forbidding its exercise if upon that incomplete untested evidence the court evaluated the chances of the plaintiff's ultimate success in the action at 50 per cent or less, but permitting its exercise if the court evaluated his chances at more than 50 per cent.
[69] In Beecham, the primary judge, McTiernan J, had refused interlocutory relief on the footing that, while he could not dismiss the possibility that the defendant might not fail at trial, the plaintiff had not made out a strong enough case on the question of infringement.[21] Hence the statement by Kitto J in the course of argument in the Full Court that it was not necessary for the plaintiff to show that it was more probable than not that the plaintiff would succeed at trial.
[70] When Beecham and American Cyanamid are read with an understanding of the issues for determination and an appreciation of the similarity in outcome, much of the assumed disparity in principle between them loses its force. There is then no objection to the use of the phrase "serious question" if it is understood as conveying the notion that the seriousness of the question, like the strength of the probability referred to in Beecham, depends upon the considerations emphasised in Beecham.
[71] However, a difference between this Court in Beecham and the House of Lords in American Cyanamid lies in the apparent statement by Lord Diplock that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, then there will be a serious question to be tried and this will be sufficient. The critical statement by his Lordship is "[t]he court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried."[22] That was followed by a proposition which appears to reverse matters of onus:[23]
So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought. (emphasis added)
Those statements do not accord with the doctrine in this Court as established by Beecham and should not be followed. They obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.
[21] (1967) 118 CLR 618 at 619.
[22] [1975] AC 396 at 407.
[23] [1975] AC 396 at 408.
At [19], Gleeson CJ and Crennan J said as follows:
[19] The principles were discussed, for example, in Chappell v TCN Channel Nine Pty Ltd[24] (a decision referred to by Crawford J in a passage quoted above), National Mutual Life Association of Australasia Ltd v GTV Corporation Pty Ltd,[25] and Jakudo Pty Ltd v South Australian Telecasters Ltd.[26] As Doyle CJ said in the last-mentioned case, in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff's entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ,[27] and their reiteration that the doctrine of the Court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd[28] should be followed.[29] In the context of a defamation case, the application of those organising principles will require particular attention to the considerations which courts have identified as dictating caution. Foremost among those considerations is the public interest in free speech. A further consideration is that, in the defamation context, the outcome of a trial is especially likely to turn upon issues that are, by hypothesis, unresolved. Where one such issue is justification, it is commonly an issue for jury decision[30]. In addition, the plaintiff's general character may be found to be such that, even if the publication is defamatory, only nominal damages will be awarded.
[24] (1988) 14 NSWLR 153.
[25] [1989] VR 747.
[26] (1997) 69 SASR 440 at 442-443.
[27] See [65]-[72].
[28] (1968) 118 CLR 618.
[29] See also Firth Industries Ltd v Polyglas Engineering Pty Ltd (1975) 132 CLR 489 at 492 per Stephen J; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 at 708 per Mahoney JA; World Series Cricket v Parish (1977) 16 ALR 181 at 186 per Bowen CJ.
[30] As to the practice concerning trial by jury in various Australian jurisdictions, see George, Defamation Law in Australia, (2006) at 225-226.
Kirby and Heydon JJ dissented. The organising principles are those stated by Gummow and Hayne JJ. In this decision, reference was made to the speech of Lord Diplock in American Cyamid Co v Ethicon Ltd.[31] I will return to this decision later in these reasons.
[31] [1975] AC 396.
It is necessary first to decide whether the applicants in the proceedings before the learned Magistrate made out a prima facie case in the sense that if the evidence remained as it was, there was a probability that at the trial of the action, the plaintiff would be held entitled to relief. There would then be an enquiry as to inconvenience or injury. The strength of the probability needed to depend on the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders sought.
In his submissions, Mr Duggan QC for the appellants contended that as a result of the 2021 election, there can no longer be a serious issue to be tried or, alternatively, and perhaps better expressed, that no prima facie case arises and so the court would never grant the relief sought in paragraphs 29, 30 and 31 of the application. That is because the court would never hand back control of an Association to a board that was elected in 2019 when there has been subsequent board elections and the membership of the board has changed. The court would, he contended, never retrospectively impose upon an organisation that has conducted further elections, the position as it pertained in 2019. This is particularly important when it is known that an injunction was sought to restrain the holding of the 2021 meeting but that injunction application was refused by the same learned Magistrate. In that context, only 4 of the 8 persons who are appellants in this application for review are effectively parties to the orders sought. The balance of the appellants are non-parties to that issue. That creates a real doubt as to against whom a costs order might be made and also brings into stark relief the question of the open offer that has been made by all persons joined as respondents and applicants in this application to hold a further election.
I am also mindful that it was only two weeks prior to the hearing of this application that an application has been made by the applicants to amend pleadings to challenge the 2021 election. In that context, the appellants contend that there is no serious question to be tried because all that is occurring is that the respondent faction simply wants to take over the association in a way which has never been contemplated by them. I am unable to accept that submission and what flows from it; the challenge to the 2021 election is now an extant issue before the Court. It will be resolved by a judgment.
Criticisms were then made by Mr Duggan QC about the approach of the learned Magistrate. One criticism included that the learned Magistrate misdirected himself in relation to the question of the balance of convenience by approaching the matter on the basis of fairness and balance. A balance of convenience determination does not involve questions of fairness but rather questions of injury. This is because in this context, the applications of the respondents to this review application, will proceed in the action and so this issue does not affect them. Therefore, the contention of the appellants is that the learned Magistrate effectively misdirected himself on the question of the balance of convenience. I accept these submissions of the appellants. The learned Magistrate misdirected himself and failed to distinguish between the submissions before Foster J, in Sellar and the approach disclosed in his Honour’s judgment.
I have already set out portions of the judgments of the High Court in ABC v O’Neill. They state the law of Australia and so that has always been the law. I can see no utility in attempting to paraphrase those judgements. The majority accepted the approach of the House of Lords in American Cyanamid except to the extent that it is inconsistent with the test in Beecham Laboratories there set out. The High Court did not disagree with the approach of the House of Lords in relation to the governing principles about the granting of injunctions. That was considered by Lord Diplock at p 408 et seq of American Cyanamid.
At p 408, in the speech of Lord Diplock, his Lordship said as follows:
As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff's undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.
It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case.
Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo. If the defendant is enjoined temporarily from doing something that he has not done before, the only effect of the interlocutory injunction in the event of his succeeding at the trial is to postpone the date at which he is able to embark upon a course of action which he has not previously found it necessary to undertake; whereas to interrupt him in the conduct of an established enterprise would cause much greater inconvenience to him since he would have to start again to establish it in the event of his succeeding at the trial.
Save in the simplest cases, the decision to grant or to refuse an interlocutory injunction will cause to whichever party is unsuccessful on the application some disadvantages which his ultimate success at the trial may show he ought to have been spared and the disadvantages may be such that the recovery of damages to which he would then be entitled either in the action or under the plaintiff's undertaking would not be sufficient to compensate him fully for all of them. The extent to which the disadvantages to each party would be incapable of being compensated in damages in the event of his succeeding at the trial is always a significant factor in assessing where the balance of convenience lies, and if the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party's case as revealed by the affidavit evidence adduced on the hearing of the application. This, however, should be done only where it is apparent upon the facts disclosed by evidence as to which there is no credible dispute that the strength of one party's case is disproportionate to that of the other party. The court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party's case.
I would reiterate that, in addition to those to which I have referred, there may be many other special factors to be taken into consideration in the particular circumstances of individual cases. The instant appeal affords one example of this.
The first question to be addressed is whether, if the applicants on the application were to succeed, they would be adequately compensated by an award of damages for loss sustained as a result of the respondents continuing to do what was sought to be enjoined between the time of the application and the time of trial. The trial is set for April 2022. If those damages recoverable at common law would be an adequate remedy and the appellants would be in a financial position to pay them, no interlocutory injunction should normally be granted however strong the respondents claim appears to be at that stage. It would only be if damages would not provide an adequate remedy for the respondents if they succeeded at trial that the court would then consider whether on the contrary hypothesis that if the appellants were to succeed at trial, they would be adequately compensated under the respondents undertaking as to damages. It would only be where there is doubt as to the adequacy of the respective remedies and damages available to either party or to both that the question of balance of convenience arises. That question is open.
Arguendo, I raised with Mr Duggan QC whether an undertaking as to damages had been given by the appellants before me. He undertook to seek instructions. In support of the injunction granted by the learned Magistrate, an undertaking as to damages had been given by the respondents and it was accepted by his Honour. It was given personally by each of the respondents.
I have now received a document which is a formal undertaking as to damages in the following terms:
The second to ninth respondents (to the action) do each jointly and severally undertake:
1. To submit to such order (if any) as the court considers just for the reimbursement to the first respondent of legal costs and disbursements, to be assessed by the court or as it may direct; and
2. If the court considers just, to pay those legal costs and disbursements to the first respondent.
The document is signed by each of the second to ninth respondents to the action in the Magistrates Court. In my opinion, it is an appropriate undertaking as to damages. I raised with Mr Henchliffe QC whether any consideration had been given to the principles outlined in the American Cyanamid decision which constitutes the law of Australia following the decision in ABC v O’Neill on this question of the governing principles for the grant of injunction and undertaking as to damages and the balance of convenience. No consideration had been given to that topic. He accepted my suggestion that if an effective undertaking as to damages was given by the appellants, that would be the end of the matter and there would be no need for an injunction. It was on that basis that Mr Duggan QC undertook to obtain instructions. No contention has been made that the undertaking given is in an unacceptable form or is otherwise challenged. I do not think that reasonably any such challenge could be made. The form is appropriate having regard to the speech of Lord Diplock in American Cyanamid.
Therefore, in my opinion, there is no utility in the injunction having regard to that undertaking. I make the following orders pursuant to s 38(7)(d)(ii) of the Magistrates Court Act 1991.
1.I would discharge the order for injunction.
2.In my opinion, the learned Magistrate has failed to properly address the questions of undertakings as to damages and the balance of convenience when considering the grant of an injunction.
3.The Society has a legitimate interest in the subject matter of the proceedings.
4.In any event, the order with injunction will be discharged following the provision by appellants of a cross undertaking as to damages.
5.The court will hear the parties further in relation to consequential orders and costs.
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