Barjeba Pty Ltd v Bogg

[2020] WASC 195

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   BARJEBA PTY LTD -v- BOGG [2020] WASC 195

CORAM:   MASTER SANDERSON

HEARD:   5 MAY 2020

DELIVERED          :   8 JUNE 2020

PUBLISHED           :   8 JUNE 2020

FILE NO/S:   COR 261 of 2017

BETWEEN:   BARJEBA PTY LTD

Plaintiff

AND

KIM BOGG

First Defendant

JOHN PATRICK MCMAHON

Third Defendant

Catchwords:

Injunction - Serious question to be tried - Balance of convenience - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Plaintiff's application dismissed

Category:    B

Representation:

Counsel:

Plaintiff	:	M Robson
First Defendant	:	PT Arns
Third Defendant	:	No appearance

Solicitors:

Plaintiff	:	Robson Legal
First Defendant	:	Arns & Associates
Third Defendant	:	In Person

Case(s) referred to in decision(s):

Nil

MASTER SANDERSON:

1. By motion filed 4 March 2020, the plaintiff sought an order the first defendant, in her capacity as sole director of Timefocus Pty Ltd (Timefocus), be restrained until further order of the court from declaring any dividends or otherwise reducing the share capital of Timefocus.  Although it is not expressed in the order sought by the plaintiff, the application is for an interlocutory injunction up to the date of trial.  This matter was commenced in November 2017.  In fact the founding affidavit of Mr Paul Patrick McMahon was sworn 16 June 2017.  I understand this affidavit was forwarded to the defendants so that negotiations could take place prior to proceedings being issued.  Be that as it may, the action has been on foot for well over two years.  It has made only sporadic progress.  At present, discovery is incomplete and counsel for the plaintiff indicated further orders in relation to discovery would be sought from the registrar.  Counsel for the plaintiff thought the matter could be entered for hearing and perhaps even heard before the end of this calendar year.  Counsel for the first defendant was less sanguine.  He was of the view that expert evidence would be required before the matter could be entered for hearing.  Having looked again at the nature of the claim I am not sure counsel for the first defendant is correct.  For the purposes of this hearing I am prepared to assume any injunction which is granted would be for a period of around six months.

2. The plaintiff's claim as presently framed is found in an amended statement of claim filed 7 June 2019. That is a rather complicated document running to 107 paragraphs. Distilled to its essence there appear to be two issues between the parties. The plaintiff claims that it is a shareholder of one fully paid ordinary share in Timefocus and a joint shareholder with the first defendant of one fully paid ordinary share. This is denied by the first defendant (the third defendant has taken no part in the proceedings). The plaintiff says it is owed over $700,000 in unpaid dividends, which are due under Article 91(2) of the Timefocus constitution. The plaintiff pleads it case in two ways. First, it says the conduct of the defendants was a breach of statutory duty – that is to say paying dividends to some shareholders but not the plaintiff ‑ was improper. Second, it says the conduct of the company's affairs was oppressive and contrary to s 232 of the Corporations Act 2001 (Cth). The plaintiff says, correctly, that it is necessary for it to prove a breach of statutory duty to obtain the relief sought under s 233.

3. In fact the relief sought by the plaintiff is pursuant to s 233(1)(d) of the Corporations Act.  Relevantly the prayer for relief in the amended statement of claim reads as follows:

   The First Defendant, further and alternatively, the Third Defendant purchase the Plaintiff's shares in the Second Defendant at a value to be determined pursuant to directions that the value be adjusted to have regard to the effects of the First Defendant's and the Third Defendant's conduct.

4. On 27 September 2017 the first defendant gave an undertaking to the plaintiff she would not, without notice to the plaintiff, declare or pay any dividends from Timefocus.  A copy of that notice appears as attachment MAR 3 to the affidavit of Michael Anthony Robson sworn 4 March 2020 and filed in support of the injunction application.  What the first defendant was required to do pursuant to that undertaking was give notice to the plaintiff's solicitor if she intended to pay any dividend to particular shareholders or reduce the capital of Timefocus.  The first defendant did in fact give such notice.  It was not the plaintiff's contention the first defendant was in breach of her undertaking.  Rather it was submitted the injunction ought be granted to replace the undertaking and to preserve the status quo.

5. It was also not in issue that it was open to the court to grant an injunction against the first defendant, which would have the effect of stopping Timefocus from declaring a dividend.  Counsel for the first defendant did not argue that for such relief to be granted Timefocus would need to be a party to the proceedings.  In fact when the proceedings were first issued Timefocus was a party.  The plaintiff has discontinued its action against Timefocus.  Given the nature of the relief now sought in the amended statement of claim, it is clear why Timefocus is not a party to the proceedings.  Anyway, there was no issue between the parties that granting the injunction sought by the plaintiff was in any way ineffective or inappropriate.

6. In his written submissions counsel for the plaintiff set out four reasons why he submitted the injunction ought be granted.[1]  First it was said the plaintiff had a prima facie case for its claim that is a shareholder of Timefocus.[2]  In other words, it was a submission that there was a serious question to be tried.  In fact counsel for the first defendant did not really take issue with that submission although he did suggest the plaintiff's claim was weak.  Taking into account the pleadings and the evidence which has been filed to date, it is clear there is a serious question to be tried.  This is not the appropriate forum to determine the strength or otherwise of the plaintiff's claim.  In a matter as complex as this it is sufficient if I say that I am satisfied the first limb of the requirement for the grant of an interlocutory injunction is satisfied – that is, there is a serious question to be tried.

   [1] Plaintiff's outline of submissions dated 8 April 2020, [8].

   [2] Plaintiff's outline of submissions dated 8 April 2020, [8.1].

7. The second point made by counsel for the plaintiff was that payment of dividends would be contrary to s 232 of the Corporations Act and should not be countenanced.[3]  Really that is a restatement of the plaintiff's position there is a serious question to be tried.  As I have noted above the basis of the plaintiff's claim is that the first defendant is in breach of her statutory duty by paying dividends to some shareholders and not to others.  The question is whether the plaintiff is a shareholder.  That is a serious question to be tried.  If the plaintiff is a shareholder then, because there is a breach of statutory duty, the conduct may well be oppressive.  But that is the issue for trial. 

   [3] Plaintiff's outline of submissions dated 8 April 2020, [8.2].

8. The third point made by counsel is that damages are not an adequate remedy.[4]  With respect, that cannot be correct.  The relief claimed by the plaintiff is purchase of the plaintiff's shares in Timefocus with the purchase price adjusted to account for the conduct of the defendants.  It may well be that as a necessary precursor to the relief presently claimed the plaintiff would need a declaration that it is a shareholder in Timefocus.  But it does not seek to have those shares transferred to it.  Rather, when and if the declaration is made, it seeks to have the defendants purchase those shares.  It may be true to say the plaintiff claims a proprietary interest in the shares.  But that is only a step in the process of obtaining a money value for the shareholding.  Although it may well be a misnomer to say the plaintiff is seeking damages, it cannot be correct to say that 'damages' or payment of compensation in the form of an adjusted price for purchase of the shares is not adequate compensation.

   [4] Plaintiff's outline of submissions dated 8 April 2020, [8.3].

9. Finally, there is the issue of the balance of convenience.[5]  Counsel for the plaintiff points out Timefocus is no longer trading and there appears to be no urgency in paying dividends.  In other words, the defendants will not suffer as a consequence of the injunction. 

   [5] Plaintiff's outline of submissions dated 8 April 2020, [8.4].

10. It is not entirely clear from the evidence how much in the way of dividends might be paid if the injunction is not granted.  In opposition to the application the defendants filed an affidavit of Gino Terriaca sworn 26 March 2020.  Mr Terriaca is an accountant who advises the first defendant.  Attached to his affidavit is a draft set of accounts for Timefocus.  Those accounts show net assets of $841,783.  Just over $75,000 is held in cash.  Over $700,000 is listed as 'Loan ‑ J McMahon'.  Although that amount is shown as a current asset, it seems clear that if any distribution is made it would have the effect, so far as the third defendant is concerned, of reducing his indebtedness to the company.  Given it is the defendants' position they are the only two shareholders of the company, it would presumably be the case that the first defendant would receive her dividends in cash and the third defendant would have part of his loan reduced.  As I say, the position is not entirely clear and Mr Terriaca's affidavit says no final decision has been made.  It may well be the actual effect on Timefocus of any dividend distribution would be to reduce the cash on hand to zero. 

11. In the end I am not satisfied the injunction sought by the plaintiff ought be granted.  While I would accept there is a serious question to be tried, I am not satisfied the balance of convenience favours the granting of the injunction.  Effectively what the plaintiff is seeking is a freezing order.  I accept the submission of counsel for the first defendant this is not an appropriate case for such an order to be made.  The key issue is the nature of the relief sought by the plaintiff.  The defendants are not proposing to dispose of an asset which is unique and which, if it passed out of the hands of the defendants, would be irrecoverable.  Any distribution made from Timefocus would enhance the financial position of both defendants.  If the plaintiff is ultimately successful in its application then the enhanced financial position of the defendants would assist in actually obtaining funds consequent upon any purchase order.  To restrict the first defendant in the way proposed by the plaintiff would be inappropriate.

12. For these reasons the plaintiff's application will be dismissed.  The plaintiff should pay the first defendant's costs of the application including reserved costs.

Orders

1. I will make the following orders:

   (1)The plaintiff's application be dismissed.

   (2)The plaintiff pay the first defendant's costs of the application, including reserved costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CB
Associate to Master Sanderson

8 JUNE 2020