Frigger v Campbell-Smith - [2010] WASC 353

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FRIGGER -v- CAMPBELL-SMITH [2010] WASC 353

CORAM: KENNETH MARTIN J

HEARD: 10 SEPTEMBER 2010

DELIVERED : 2 DECEMBER 2010

FILE NO/S: CIV 1727 of 2009

BETWEEN: ANGELA FRIGGER
HARTMUT FRIGGER
Plaintiffs
AND
DONALD CAMPBELL-SMITH
First Defendant
SANDRA MAY BANNING
Second Defendant
BANNING HOLDINGS
Third Defendant
GRAEME TREVOR LEAN
Fourth Defendant

Catchwords:

Judgment debt - Court appointed receiver - Sale of share in proprietary company - Sale to directors of judgment creditor - Preemptive provisions in articles of proprietary company - Directors discretion to refuse registration of share transfer - Judgment debt removed in interim - Receiver's lien for remuneration and costs - Stay of proceedings to enforce sale of share by receiver

Legislation:

Civil Judgments Enforcement Act 2004 (WA)
Corporations Act 2001 (Cth), s 1071F
Supreme Court Act 1935 (WA)

Result:

Application for a permanent stay granted

Category: B

Representation:

Counsel:

Plaintiffs:     Mr N Dillon
First Defendant            :     Mr T R Stephenson
Second Defendant        :     Mr T R Stephenson
Third Defendant           :     Mr T R Stephenson
Fourth Defendant         :     Ms K F Banks-Smith

Solicitors:

Plaintiffs:     Dutton Legal
First Defendant            :     Eastwood Law
Second Defendant        :     Eastwood Law
Third Defendant           :     Eastwood Law
Fourth Defendant         :     DLA Phillips Fox

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

Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; (1923) 33 CLR 199
Beck v Tuckey Pty Ltd [2007] NSWSC 1065
Computer Accounting & Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [2010] WASCA 171
Computer Accounting And Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 2] [2010] WASC 318
Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133
Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215
Hunter v Chief Constable of the West Midlands Police [1982] AC 529
Jeffrey and Katauskas v SST Consulting [2009] HCA 43; (2009) 239 CLR 75
Leaver v Taxi Combined Services (Launceston) Pty Ltd [2002] TASSC 2; (2002) 10 Tas R 362
Monzu v Central City Ltd [2007] WASC 60
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183
Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; [1982] 1 All ER 354
Smolarek v Liwszyc [2006] WASCA 50; (2006) 32 WAR 101
TK, PB & LS v Australian Red Cross Society (1989) 1 WAR 335
Wentworth v Attorney-General (NSW) (1984) 154 CLR 518

KENNETH MARTIN J: This is a matter which I have case managed in the CMC List since June 2009. The issue chiefly under consideration is whether these proceedings should be stayed in the exercise of the court's inherent jurisdiction to prevent abuse of process: see Jeffrey and Katauskas v SST Consulting [2009] HCA 43; (2009) 239 CLR 75 [93] ‑ [94].
The action has the character of 'spin‑off' litigation from Supreme Court action CIV 2265 of 2006 (the Primary Action), in which the plaintiff corporation is Computing Accounting and Tax Pty Ltd (CAT). The directors of CAT are the plaintiffs in this action, Mr and Mrs Frigger (the Friggers).
In the Primary Action, CAT was successful at trial on a claim for damages (statutory compensation) against Professional Services of Australia Pty Ltd (PSA), as well as against the late Mr Banning, who was a director of PSA: see Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133.
However, the trial outcome in favour of CAT was significantly diminished due to a successful appeal by PSA and Mr Banning. The appeal reduced the damages awarded by the trial judge, by approximately $680,000: see Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183. A subsequent application by CAT for special leave to appeal to the High Court of Australia against the Court of Appeal's decision was refused.
Some background to the hotly contested litigation between CAT and PSA is conveniently found in the recent reasons for judgment of Newnes JA in Computer Accounting & Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [2010] WASCA 171 [3] ‑ [12]. I use the word 'hotly' advisedly.
These spin‑off proceedings were commenced by the Friggers in the context an unmet judgment debt due by PSA and the Estate of the late Mr Banning (the Estate). As a part of efforts to recoup the outstanding judgment debt, execution under the Civil Judgments Enforcement Act 2004 (WA) was pursued by CAT against the assets of the Estate. No stay against enforcement of the original judgment debt was obtained.
As well as being a director of PSA during his lifetime, Mr Banning had also been a director and owned one of two issued shares (ie, a 50% shareholding) in a proprietary limited company, Banning Holdings Pty Ltd (BH), the third defendant in this action.
The first defendant in this action, Mr Donald Campbell‑Smith, is the executor of the late Martin Banning's estate. (He replaced the late Mr Banning as a director of BH on 14 July 2008.)
Sandra Banning (second defendant in these proceedings) became a director of BH on 17 November 2008. Mrs Banning holds the other issued share in BH, as beneficial owner. Mrs Banning and Mr Campbell‑Smith currently constitute the board of BH.
As part of the execution process seeking recovery of the original judgment debt (prior to the part reversal result by the Court of Appeal on 23 October 2009), the trial judge had appointed the fourth defendant, Mr Graeme Lean as a court appointed receiver (the Receiver) over one share in BH which, by then, had passed to the Estate.
The trial judge's orders appointing Mr Lean of 21 November 2008 were made pursuant to s 86(1)(b) or (e) of the Civil Judgments Enforcement Act. The orders appoint Mr Lean as receiver of 'the property' (O 1). By O 3 of the trial judge's orders, 'the property' is described in a schedule to the orders in terms:
(i)property held by the second judgment debtor in his name, being one share (50% shareholding) in Banning Holdings Pty Ltd.
Under the orders of the trial judge the Receiver procured his own registration as proprietor of the Estate's one share in BH - the significant asset of the Estate. The directors of BH appear to have facilitated that registration. It saw the Receiver become registered as proprietor of the one share (50% shareholding) in BH on 16 December 2008.
The present proceedings are a consequence of the Receiver's efforts to sell the share in BH, in satisfaction of the judgment debt held by CAT against PSA and the Estate. These sale events were all prior to the heavy modification of the judgment debt by the Court of Appeal under its reasons published 23 October 2009.
The Receiver has attempted to dispose of the BH share by way of a sale to the Friggers for $730,000. But the Receiver holds only $20,000 of that purchase price, in circumstances I will explain.
These proceedings were commenced after the directors of BH (Mrs Banning and Mr Campbell‑Smith) refused to process or register an executed transfer of the BH share delivered by the Receiver to the Friggers ‑ signed on 27 March 2009 by Mr Lean as Receiver (see attachment AF1 to the affidavit of Angela Cecelia Theresa Frigger sworn 10 August 2010 and attachment CTF4 to the affidavit of the same sworn 20 April 2009).
With the October 2009 decision of the Court of Appeal reducing the judgment debt (substantial components of which had also been paid in the interim, before the Court of Appeal's decision) it is now quite apparent that the debt 'landscape' that presented on 21 November 2008, when the trial judge appointed the Receiver to dispose of the Estate's one share in BH, has significantly altered.
The state of the present evidence strongly suggests that there is now no longer any debt due to CAT on the part of PSA or by the Estate. Furthermore, CAT is now in liquidation. There is a real issue whether PSA and the Estate can recoup any overpayment on the judgment debt that has been received by CAT prior to the partial reversal decision of the Court of Appeal.
I was advised by counsel that an application has been made in the Primary Action by PSA and the Estate seeking to discharge the Receiver. The application, I am told, was fully argued before the trial judge, with reasons for judgment being reserved in October 2009. Apparently, the descent into liquidation by CAT carried with it a stay of the Primary Action and thereby interrupted the delivery of reasons on the removal application. However, I was advised at the hearing of argument that the trial judge was recently asked by the parties to deliver the reserved reasons on the application, notwithstanding CAT's descent into liquidation. Since reserving my decision after argument, the learned trial judge has published reasons for decision Computer Accounting And Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 2] [2010] WASC 318 on 10 November 2010, removing the Receiver at [100] that day.
In a number of the plaintiffs' court documents filed in this action, the Friggers describe themselves as 'judgment creditor'. That label of course is inappropriate, since the judgment creditor in the Primary Action was not the Friggers. Rather, it was their corporation CAT, now in liquidation, of which they are sole directors and shareholders. However, it is an inescapable fact that the Friggers personally are so closely associated with CAT in the long‑running events the subject of the litigation in the Primary Action, that the legalities of the distinction are frequently overlooked.
By this action the Friggers still seek to secure their full registration of the share in BH under their contract of sale arrangements with the Receiver entered on 27 March 2009. The Friggers seek to obtain their registration as a joint shareholder of BH alongside the other shareholder, Mrs Sandra Banning, thereby affording the Friggers a 50% shareholding interest in BH. The action is brought because the executed transfer of the share from the Receiver to the Friggers has not been processed by the board of BH. Mrs Banning and Mr Campbell‑Smith flatly refuse to process the Receiver's transfer to the Friggers. They argue that the Articles of Association of BH as a proprietary corporation fully justify their rejection stance.
The board of BH has refused to process and so perfect a registration of the Friggers as the other shareholder in BH in reliance upon two of the Articles of Association of BH. First is Article 22A which provides a right of pre‑emption in favour of the existing shareholders in BH, in a situation where an existing shareholder seeks to dispose of their share. In this action the first, second and third defendants all plead by their defence and counterclaim, that the pre‑emptive provisions in the BH articles in favour of the existing shareholder (Mrs Banning) were not respected by the Receiver ‑ in his attempted disposition of the one share held by him in BH to the Friggers. This is a hotly contested issue of fact raised in the proceedings with the Friggers and the Receiver strongly asserting to the contrary.
Second, and even more fundamentally, the BH Board relies upon the provisions of Article 22 which says:
The directors may decline to register any transfer without giving any reason therefor.
On 23 March 2009 Eastwood Law, solicitors for BH and its directors, advised the Friggers by reference to Article 22, that:
2.The directors have also instructed me that they will, regardless of whether you pay for the share in the meantime, refuse to register any transfer share in the company to you. Whilst they are not obliged to inform you of any reason for this, you are by now (since you were both present in the Supreme Court this morning) aware that the share which the Receiver has purported to sell is the subject of pre‑emptive rights in favour of my client Sandra Banning, and, as the Receiver made no attempt to offer the share to my client for purchase pursuant to those pre‑emptive rights the sale is invalid. I have written to the Receiver separately seeking that he rescind the sale.
Please note that nothing in this correspondence should be taken to imply that my clients withdraw the assertions they have previously made that you may also have purported to purchase the share in bad faith for a gross undervalue, and, quite probably as a result of some improper arrangement with the Receiver. Therefore, it is also the case that my clients reserve their rights to take legal action against you in respect of those matters.
The Board of BH invokes Article 22 to contend that, irrespective of what contractual sale arrangements the Receiver may have reached in respect of the share in BH, that the directors are not obliged to process or register his share transfer to the Friggers, and they refuse to do so. That stand off has resulted with these proceedings commenced by the Friggers (initially with the Receiver as a co‑plaintiff) to compel the Board to process the share transfer to them. The receiver was named as a co‑plaintiff at the time this action commenced. Subsequently, the Receiver was removed as a co‑plaintiff and made fourth defendant.
The Friggers seek a number of remedies within these proceedings against BH's board. First, they seek compulsive relief under s 1071F of the Corporations Act 2001 (WA) (Corporations Act) which provides:
(2)If the Court is satisfied on the application that the refusal or failure was without just cause, the Court may:
(a)order that the transfer or transmission be registered; or
(b)make such other order as it thinks just and reasonable, including:
(i)in the case of a transfer or transmission of shares ‑ an order providing for the purchase of the shares by a specified member of the company or by the company; and
(ii)in the case of a purchase by the company ‑ an order providing for the reduction accordingly of the capital of the company.
That relief lies ultimately at the discretion of the court: see Leaver v Taxi Combined Services (Launceston) Pty Ltd [2002] TASSC 2; (2002) 10 Tas R 362 [7] (Crawford J), referring to a predecessor section: s 1094(1) Corporations Act. Alternatively, the Friggers seek mandatory final injunctive orders to the same end.
A subsequent extinguishment of the judgment debt once held by CAT in the Primary Action now generates the core issue arising, over

whether or not there remains any residual purpose or utility in these spin‑off proceedings. Ought this action be temporarily or permanently stayed in the exercise of the court's undoubted inherent power to prevent its processes and procedures from being misused, as the first, second and third defendants contend?
Those defendants' submissions as to a sheer pointlessness in continuing the proceedings are framed by hypothesising a notional completion of the share transfer to the Friggers. That outcome should see the Receiver then holding $730,000, as the purchase price received for the BH share sale to them. But the receipt of those funds by the Receiver, in terms of completing the court's processes of execution with respect to a (now) non‑existent judgment debt, would (cost issues aside) now require the Receiver to return the settlement sale funds back to the Estate.
A qualification to that hypothesis arises however by reason of the Receiver having now incurred, in discharge of his functions as an officer of the court, significant costs and fees - since his appointment in November 2008. A court appointed receiver will ordinarily hold a lien over property in respect of which the Receiver has been appointed (in this case over the one share in BH). Issues therefore arise over the Receiver's lien for costs and remuneration potentially being realised out of funds he may come to hold, as a result of a settlement with the Friggers on a completed sale of the BH share to them. Hypothesised deduction of the Receiver's costs and remuneration would deplete the return of funds to the Estate by at least $80,000, or probably more. No doubt the level of the Receiver's costs and fees will only increase in the time he remains in office (now known to end at 10 November 2010), as these proceedings continue.
The Friggers press for a trial, to there seek compulsive orders from the court against the BH director defendants to complete and perfect the Friggers' registration as proprietors of an effective 50% shareholding in BH. This is rationalised on the basis that what has been committed to already by way of the contract of sale to them by the Receiver has been validly done, and that as a result they effectively have acquired a fully vested sale interest in that BH share, which should be respected and enforced by the court, to any extent necessary.
The Friggers also contend that extinguishment of the judgment debt enjoyed by CAT, in the period between November 2008 and October 2009, is a wholly irrelevant subsequent event ‑ that does not detract from vested rights they hold as purchasers of the share in BH from the Receiver. Accordingly, the Friggers press for this action to be allowed to proceed to trial, so they may there seek either orders under s 1071F of the Corporations Act, alternatively obtain final mandatory injunctive relief against the directors of BH (and possibly also against BH, itself) to compel their unqualified registration as legal proprietors of the one BH share.
A re‑amended statement of claim filed on behalf of the Friggers in this action is seen to invoke the relief terminology of 'specific performance', as regards the Friggers' required compulsive orders against the directors of BH for their registration as proprietors of the one share in BH. However the Receiver, correctly in my view, says that he has now done all that he could possibly do, in terms of the transferring to the Friggers his BH share (of which the Receiver currently stands as the registered proprietor) - save for collecting $710,000 from the Friggers. That being so, it is not a case of any required specific performance orders as against the Receiver regarding any further aspects of unfinished performance by him on the incomplete contract of sale to the Friggers. Rather, it is a case of the Friggers seeking compulsive orders of the court to compel the directors of BH to process the Receiver's executed transfer - and so, to thereby register the Friggers on his transfer, as proprietors of one share in BH.
On that analysis there is no issue as to specific performance, arising as against the Receiver, who stands by, ready and willing to receive the balance of the purchase price of $710,000 from the Friggers, and which receipt would essentially complete his involvement in the sale process (albeit he has now been removed on 10 November 2010, as I explained). I prefer that analysis. However, the analysis leaves unresolved the potential impact of Article 22. Obviously, no compulsive orders would be appropriate, if the directors of BH are ultimately vindicated in the negative stance they have taken to date against the processing of the Receiver's transfer to the Friggers.
Upon the fundamental issue over whether these proceedings be allowed to proceed to trial (as the Friggers contend), or whether they should be stayed in the court's inherent jurisdiction to prevent an abuse of its process, the parties all filed extensive written submissions. These written materials were then orally augmented by respective counsel for the parties at a special appointment before me on 10 September 2010.
Before individually assessing the submissions of the respective parties, I think it helpful to identify four fundamental factors I assess to be perennially relevant to the analysis. They go well beyond the significance of the existence of an incomplete contract of sale for the BH share entered between the Friggers and the Receiver in March 2009.

The first fundamental factor is the obvious and inseparable linkage which plainly exists between the Friggers and the original judgment creditor CAT, in the Primary Action. That nexus is a significant and unique feature of this litigation. It can be illustrated by par 18 of the plaintiffs' reply and defence to counterclaim, filed by the Friggers (then acting in person) on 17 August 2009. Paragraph 18 reads:
Save to deny the Plaintiffs are seeking to take advantage of any situation but have acted in the best interests of the Judgment Creditor to whom they owe a duty of care as directors and say further that had they not purchased the Share for $730,000 the Receiver was obliged to sell it to the next best offeror for $201,000 the plaintiffs do not admit the allegations contained therein.
The second correlative fundamental factor, is the necessary recognition that the Receiver, as part of the execution process in respect of what was then a substantial and unsatisfied judgment debt, did not enter a sale contract (in respect of the asset over which he was appointed receiver) with a purely disinterested, arms length, third party purchaser. Nor was court approval sought to sell the BH share to the Friggers. The Receiver's contract of sale for a 50% shareholding in BH to the Friggers, being parties inseparably aligned with the judgment creditor in the Primary Action CAT, is rather unique. The motivation underlying the Receiver's arrangements with the Friggers is explicable by reference to the Receiver's report filed in the Primary Action on 10 March 2009, and as attachment ACTF 6 to Mrs Frigger's affidavit of 20 April 2009 in this action.   In this report the Receiver Mr Lean, said:
1.I have completed my market valuation of one Share (50% shareholding) in Banning Holdings Pty Ltd, which I value at $1,278,110 (one million two hundred and seventy eight thousand one hundred and [sic] ten dollars).
2.I am aware that my market valuation does not take into account the limitation on this share in relation to:
(a)Ability of a third party shareholder to be involved in the management of the company. In particular any new shareholder would be concerned with the Directors desire to pay creditors of other entities with Banning Holdings Pty Ltd cash funds.
(b)Potential future conflict between the third party shareholder and the other 50% shareholder, Mrs Sandra Banning.
(c)I expect an independent third party would discount the value by 90% when taking the above into consideration.
...
5.I received four written offers for the purchase of the share from the following:
(a)Merv Aim and others   $10,500
(b)Kieron Strahan   $55,000
(c)Wiera Nominees Pty Ltd              $201,000
(d)Hartmut and Angela Frigger         $730,000
...
6.I accepted the offer of the highest bidder, namely Hartmut and Angela Frigger and have sold the share to them.
It is apparent then that, as of 10 March 2009, the Receiver recognised that he was not disposing of the share in BH to an independent third party. No doubt the 90% discount he recognised as likely from an independent third party purchaser of the share, was a material consideration to his selection of the purchaser.
Third and also correlative to the earlier considerations, is an obvious and intense antipathy that has arisen and continues to manifest, between what I refer to as the 'Frigger interests' (including CAT), as against the 'Banning interests', including PSA, BH, the Estate, as well as Mrs Banning and Mr Campbell‑Smith. As I have witnessed, the hostility spills over so as to manifest even as between the parties' legal representatives, on occasions. I have observed this from time to time when the matter has been listed for directions hearings in my CMC List, and particularly in a period when the Friggers were not legally represented, so that Mrs Frigger appeared in person at some directions hearings. There are numerous references in affidavit materials filed in this action that buttress a conclusion as to the intense hostility that subsists. Perhaps this is unsurprising, given an intensive saga of litigation between the parties, that now approaches almost four years' duration and has seen CAT enter liquidation in 2010 and the Receiver be removed. PSA also entered administration before completing a deed of company arrangement (DOCA).
In recent reasons in Computer Accounting & Tax (in liq) v Professional Services of Australia Newnes JA made these observations, which accord with my assessment as to these parties' hostile relationship:
The proceedings below arise out of lengthy and obviously hard-fought litigation between the appellants on the one hand and the first respondent and the late Mr Banning on the other. It is evident that there is a good deal of ill-will between at least some of the current parties, which regrettably appears to have spilled over to some extent to some of their legal representatives [3].
As a further illustration, I note the plaintiffs' reply and defence to counterclaim of 17 August 2009 at par 15.23, currently standing in these terms:
As to par 15(c)(17) of the Defence and Counterclaim the Plaintiffs say their offer of $730,000 was made after they made an assessment of the risks involved in becoming a shareholder in a company with untrustworthy directors and shareholder based on the Plaintiffs' own personal knowledge and otherwise deny the allegations contained therein. (emphasis added)
(See also par 15(b)(9) at page 17 of the defence and counterclaim of the first, second and third defendants filed 1 July 2009, raising allegations by those defendants as to threats made by the Friggers at a creditors' meeting.)
I do not propose to apportion blame or ascribe fault towards the obvious state of intense ill‑will that subsists between these parties. But a demonstrable reality from the existence of such evident hostility, bears upon the BH directors' power and discretion under Article 22 ‑ to decline to register a share transfer to the Friggers (and without giving reason for such a decision).
It is apparent that any hypothetical (two) shareholder general meeting as held between Mrs Sandra Banning as shareholder, with the Friggers as the other shareholder, would be likely to generate, by reason of the intense ill‑will that obviously subsists, a meeting of shareholders in combination, that would likely be volatile and deadlocked.
The fourth significant factor emerges from what I assess to be a significant level of tactics engaged on the part of the Friggers, in their pursuit of the share in BH. My firm impression is that the Friggers seek to obtain the BH share so as to then assert maximum pressure on the existing management of BH, such as by demanding that investigations be made concerning prior dealings of BH, whilst under the influence of the late Mr Banning, as well as after his death. This view is fortified by what, on the face of it, looks to be an uncommercial ongoing pursuit of the BH share, at a sale price of $730,000 - in circumstances where there is evidence of BH's asset dissipation and as well there is no assurance as to any likely BH board representation for a new 50% incoming shareholder.
It is trite that a shareholding interest in a corporation does not confer upon a shareholder any direct interest in the assets of the corporation: see Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; [1982] 1 All ER 354 applied in Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215. Yet it is obvious here that the Friggers have had a very keen eye on the overall assets of BH and framed their $730,000 offer of March 2009 accordingly. In an affidavit sworn by Mrs Frigger in this action filed on 18 August 2009 she said:
6.These proceedings stem from a Judgment given in CIV 2265/06 of his Honour Justice Simmonds and subsequent enforcement orders appointing the 4th defendant to secure, preserve and realise the only asset of any value in the 2nd judgment debtor being the Deceased Estate of Martin Paul Banning. The 1st defendant in these proceedings is executor of that estate.
7.The 4th defendant has not been able to secure and preserve the share pursuant to the Receiver Orders of this Honourable Court and the directors of the Banning Holdings Pty Ltd continue to dissipate the value of the Share as follows:
(a)Real property at 55 Benara Road, Caversham, was sold, albeit it in part satisfaction of the judgment sum and interest;
(b)Real property at 9 Lacey Street, Perth, has been sold however, I am unaware of the sale price;
(c)A fleet of vintage cars, some of which were subject to a Property (Seizure and Sale) Order dated 15 August 2008, are being sold by the directors …
(d)I believe that all cash funds in the Company's bank account at ANZ bank have been withdrawn;
With the exception of 'a', all the above are contrary to the freezing orders of this Honourable Court. Of assets totalling $4,255,000 when my husband and I purchased the share, only one property at 215 Masters Road, Darling Downs remains having value of approximately $1,000,000.
In circumstances of the BH asset deterioration, as perceived by Mrs Frigger, it is difficult to comprehend the continued commerciality in the Friggers proceeding with an acquisition of the share in BH at a purchase price of $730,000 - whilst it is asserted at the same time that only a Darling Downs property with a value of approximately $1 million, remains the main asset of BH.
Having identified those pervasive factors, I turn to consider further aspects of the parties' individual positions.

The Friggers' opposition to a stay of their proceedings

The plaintiffs' position through counsel was that they wished to proceed to a trial of an action seeking enforcement orders against the director defendants to compel full registration of the transfer to them from the Receiver as regards the share in BH.
Reliance was placed upon one of many affidavits sworn in the action by Mrs Frigger. Her affidavit sworn 10 August 2010 attaches contract of sale documentation with the Receiver.
The Friggers also rely upon written submissions prepared by their solicitor, Dutton Legal, bearing date 2 August 2010, but which were not for some reason filed. They were handed up by counsel during his argument on 10 September 2010. Counsel for the plaintiffs also relied upon a prepared chronology of the same date.
During argument I asked counsel for the plaintiffs to confirm that the Friggers were still willing to proceed with their acquisition of one share in BH and pay the outstanding balance of the purchase price ($710,000) to the Receiver.
Mr and Mrs Frigger were present in court sitting behind counsel at the time I requested this clarification. It was apparent that affirmative instructions to counsel were forthcoming, confirming a preparedness to render that outstanding balance payment in full, as their counsel then advised. However, I hold deep concerns about the substance of bare assurances from the Friggers, bearing in mind what Mrs Frigger has sworn in an earlier affidavit of 18 August 2009 (to which I earlier referred at [45] herein). To that can be added what was said by the Receiver in an affidavit sworn in the Primary Action on 5 October 2009 (attached as annexure 5 to Mr Eastwood's affidavit, sworn and filed in these proceedings on 14 October 2009). At par 27 of that affidavit the Receiver said, in the context of his lien over the BH share, securing his remuneration and costs:
The lien over the share only has value if I (or another seller, selling subject to my lien) am able to secure a sale price of substance and the sale completes. For reasons already ventilated before this court, I am concerned that the value of the share in Banning Holdings is declining. Mrs Frigger has already informed me that it is highly likely she would request a variation to the purchase price under the Contract to take into account the current valuation of the share before completing under the Contract. I am left in a state of complete uncertainty as to whether my lien is now of any real value or will remain of any real value.
(I also refer to par 32 of the affidavit of the Receiver.)
It was apparent at the September 2010 hearing, that a clarified position of the Friggers as to an unqualified rendering of the full outstanding amount of $710,000, given through counsel, came as something of a surprise at the time to counsel for the Receiver.
Were this matter to proceed further, I think that it would be wholly appropriate before any trial, for the Friggers to secure to the court and the Receiver's satisfaction, payment of the full balance of the outstanding purchase price. But the anterior issue as to asserted abuse of process, must first be resolved.
From the pleadings in the action, as well as from Mrs Frigger's affidavits, it is clear that the plaintiffs assert that they were promised by the Receiver (under the contract of sale for the share in BH) more than simply a delivery to them of an executed transfer by the Receiver, in respect of his one BH share. By par 11.2 of the plaintiffs' reply and defence to counterclaim filed 17 August 2009, the Friggers contend for this implied term in the contract of sale with the Receiver:
As to paragraph 11(b) of the Defence and Counterclaim the Plaintiffs say that it was an implied term of the contract that upon payment the Share would be registered in the Plaintiffs' names to enable the Plaintiffs to exercise their rights as registered shareholders and the 1st and 2nd defendant have frustrated the sale by refusing to register the Share in the Plaintiffs' names and the parties to the contract have verbally agreed that settlement be deferred until that issue is resolved.
The Friggers' position as to existence of an implied term as to their ultimate registration as BH shareholder, almost accords with the pleaded position of the Receiver, as expressed under par 8(e) of his defence. The Receiver there identifies an express (not implied) term of his share sale contract with the Friggers to the effect that 'the share was to be registered in the names of the Plaintiffs'.
The Receiver on his pleadings then, essentially accepts the Friggers' premise that more was required of him than merely his handing over an executed transfer of his one BH share to the Friggers. He accepts, in effect, that the Friggers were promised the end result of registration, in other words, the enjoyment of all shareholder rights associated with ownership of the acquired share. But this outcome has not been able to be achieved. And given Article 22, it is most questionable as a matter of law whether the Receiver, absent the assent of the BT board, could have got himself to a position of being able to fully perform this promise to the Friggers.
At par 17 of their reamended statement of claim, the Friggers contend that the BH directors' refusal to register the Receiver's transfer to them, is without just cause. They seek relief pursuant to s 1071F(2)(a) of the Corporations Act, asking that the court order that the Receivers transfer be processed and registered by the board of BH. But relief in that respect lies in the court's discretion, by use of the word 'may' in s 1071F(2), as well as under an alternative for the court under s 1071F(2)(b), to make such other order as the court thinks just and reasonable. Compulsive orders in the nature of a mandatory final injunctive relief against the BH directors, directed at the same end outcome of registration, are also sought. Again however, injunctive relief is equitable and ultimately lies in the discretion of the court.
Whether the directors of BH are now acting without just cause in refusing, and continuing to refuse, to register the Receiver's transfer, raises issues of some legal and factual complexity, particularly, by reason of Article 22. The plaintiffs refer to observations of the Court of Appeal in Smolarek v Liwszyc [2006] WASCA 50; (2006) 32 WAR 101 [68], as to the power of directors to reject a transfer, needing to be exercised for a proper purpose, as well as bona fide in the company's best interests. So much is to be accepted. But the plaintiffs' written submissions also recognise (par 21) that in deciding whether or not to register a share transfer, directors of a proprietary corporation can properly have regard to a range of potentially relevant factors. These include the perceived effects of a change on control of the company's administration, the perceived effect of a transfer upon the business of the corporation, possible adverse effects upon the reputation of the corporation, and even that the proposed transferee is a stranger.
The plaintiffs' written submissions accept, as they must, that the onus of establishing that the BH directors lack just cause would rest upon them, as the party seeking to establish its absence: see Leaver [7].
As to evidentiary onus, I note the force of observations made by Brereton J in Beck v Tuckey Pty Ltd [2007] NSWSC 1065 [9]. Significantly, the plaintiffs' written submissions at par 22 cite as an example of just cause being shown, a director's refusal to process a transfer, the situation where:
21.2There was a confrontational and antagonistic attitude between the parties ...
and refer to Leaver [62]:
The applicants have not established that the refusal of the directors to approve the transfers to Mr Newton was without just cause. To the contrary, I am satisfied that the decision was made in good faith and in the interests of the company. Mr Newton had proved to be exceedingly aggressive and abrasive, and disruptive to the orderly and good management of the affairs of TCS. I accept virtually all the evidence presented by the respondents. As a director, Mr Deane had good reason to conclude that Mr Newton was not a fit person to be a shareholder of the company which, as I have said, was in the nature of a cooperative, and that he had not been working in the best interests of the company and its shareholders. Mr Smith had good reason for his views that Mr Newton had, on a great number of occasions, engaged in aggressive, disruptive and undesirable behaviour towards the company and its officers and agents, and had attempted to undermine confidence between the board and its shareholders. It was Mr Smith's evidence, which I accept, that in general the board considered that there had been a breakdown in trust and confidence between TCS and Mr Newton, and that it was undesirable and contrary to the best interests of the company that he should be a shareholder.
In Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; (1923) 33 CLR 199 Isaacs J said:
[A]nd then the disruption of the directorate, a want of harmonious cooperation, and possibly a general prejudicial effect on the Company as a whole (221).
Everything I have observed in the Friggers' materials and from Mrs Frigger in particular, when appearing before me in person in the CMC List, leads me to conclude without a shadow of doubt that the Friggers accession to a position of equal co‑shareholders in BH, would deliver a situation of volatility to the floor of a shareholders general meeting of BH.

The first, second and third defendants' position as regards a stay of this action

The position expressed in written submissions, as well as under a minute of orders (both filed 6 August 2010) on behalf of the first, second and third defendants, seeks a stay of the proceedings, on a permanent basis. The Banning defendants contend as well that the Friggers pleadings, or at least substantial portions of them, should be struck out as an abuse of process. They also seek that provision be made in respect of their interlocutory costs in respect of a number of applications.
The defendants' expressed position also would appear to be that upon a stay, they are willing to dismiss or discontinue their present counterclaims - brought against the Friggers, as well as against the Receiver (see defence and counterclaim of the first, second and third defendants, filed 1 July 2009).

The defendants cite well known case authorities in support of the court's inherent power to prevent an abuse of its processes, reiterating that the classes of cases in which the power may be used is not exhaustive, see Jeffrey andKatauskas v SST Consulting; Hunter v Chief Constable of the West Midlands Police [1982] AC 529, 536; TK, PB & LS v Australian Red Cross Society (1989) 1 WAR 335, 340. As to the court's inherent power to stay proceedings where it is just and reasonable to do so, including by permanent stay, if necessary, see Wentworth v Attorney‑General (NSW) (1984) 154 CLR 518, 526 (and s 16(1)(d)(i) of the Supreme Court Act 1935 (WA)).
The defence and counterclaim of the Banning defendants against the Friggers, raises numerous factual matters in contention (that it would be necessary to resolve at a trial) - in resisting registration of the Receiver's transfer of one share in BH to the Friggers, under the Receiver's contract of sale of March 2009. Matters raised by the Banning defendants include, the Receiver's asserted failure to fully comply with pre‑emptive right provision, entrenched for the benefit of existing shareholders by Article 22A, unconscionable conduct on the part of the plaintiffs (including by the making of threats at a creditors' meeting as I mentioned) and ultimately a discretionary entitlement of the BH directors by Article 22, to refuse registration of a transfer to the Friggers, in an exercise of the directors' powers.
By counterclaim against the Receiver the Banning defendants (see pars 20 ‑ 29 of the counterclaim) also pursue claims in alleged negligence, as well as asserted unconscionable conduct, and a compensation claim under terms of a written undertaking said to have been given in the Primary Action.
Counsel for the Banning director defendants emphasised an asserted inconsistency in the position of the Friggers - over whether or not they remained truly amenable to rendering full payment of the balance of the purchase price agreed with the Receiver for the BH share ($710,000). The statement in the Receiver's affidavit, to which I have already referred, as to the Friggers seeking abatement in the purchase price, was mentioned. Reliance was also placed upon a statement said to have been made in open court before me by Mrs Frigger (whilst acting without legal representation) on 15 October 2009 at a directions hearing. The statement was to the effect that the Friggers had no intention of rendering payment to the Receiver of the full purchase price for the share in BH and intended to ask the court to make orders for abatement of the purchase price, and with Mrs Frigger at the time citing reliance upon a decision, Monzu v Central City Ltd [2007] WASC 60.
I have obtained the transcript of that directions hearing. This is what was said (ts 19 ‑ 20):
You are standing before me as I understand it saying that you are ready, willing and able with your husband to pay $730,000 for the share today.
FRIGGER, MS: Yes, on the condition that we get the share in the same state it was in when we bought it on 10 March. On 10 March ‑ ‑ ‑
KENNETH MARTIN J: That is not what you say in your pleading. You say you are ready, willing and able to purchase now.
FRIGGER, MS: Yes.
KENNETH MARTIN J: For $730,000, no strings attached.
FRIGGER, MS: Your Honour, I would just like to refer you to a case because this question came up the other day in the court in regards to asking for an abatement in the purchase price. I mean, we haven't officially asked for an abatement in the purchase price. We may do. We don't know yet.
KENNETH MARTIN J: Sorry? You may do?
FRIGGER, MS: We may do, yes. I have got a case here where Blaxell J said that is quite on the cards. It is Christine Monzu v Central City Ltd. At paragraph 39 the ‑ ‑ ‑
STEPHENSON, MR: Can you give us the reference to that please?
FRIGGER, MS: The reference is (2007) WASC 60. It says:
'It is significant that the plaintiffs at all material times have been ready, willing and able to settle the purchase price, subject to an appropriate abatement in the purchase price to reflect the reduction in size of lot 50' ‑
which is a piece of real estate that they were purchasing.
Given the nature of the detriment that has occurred to lot 50 since the date of the contract of sale, the plaintiffs are arguably entitled to take this stance.
We may be ready, willing and able to buy the share but at the time when it is registered we may ask for an abatement because the value has dropped considerably.
By reference to the asserted inconsistency in position as between paying the full purchase price and an abated price as stated by Mrs Frigger, it was submitted by the Banning director defendants, that the Friggers continuation of this action was a 'device for other purposes than those stated in the re‑amended statement of claim' (ts 15).
As I indicated, the BH director defendants otherwise appear (see pars 10 ‑ 12 of their minute of orders sought filed 6 August 2010) amenable to having their counterclaims in this action dismissed (on terms as to costs), in the event that the plaintiffs' action was to be permanently stayed as an abuse of process.

The Receiver's position

The Receiver filed a defence to the plaintiffs' claims on 23 July 2009. The Receiver also filed a defence to the counterclaim brought against him by the first, second and third defendants on 29 July 2009.
Under par 8 of his defence to the Friggers, the Receiver identifies five express terms in the share sale contract of March 2009 with the Friggers. I have already mentioned the importance of express term 8(e).
The Receiver's defence to the Friggers (par 11) is that by reason of a continued refusal of the BH directors to register his transfer of the BH share, that they have not been able to become registered holders of that share by 31 March 2009, in accordance with the terms of the share sale contract (see the express term pleaded in par 8(c) of the defence). Under the contract of sale, the balance of purchase price of $710,000 was payable on or before 31 March 2009. In fact, it was at the time paid in full by the Friggers. Subsequently, however, the Receiver on advice, refunded to the Friggers, $710,000, he retaining only $20,000, as a deposit.
Paragraph 12 of the Receiver's defence pleads that the terms of the share sale contract were impliedly varied by conduct, whereby:
(a)The Fourth Defendant continues to hold the deposit of $20,000 in his trust account and the Plaintiffs have not requested the return of their deposit.
(b)The Fourth Defendant refunded the $710,000 to the Plaintiffs pending the determination of an application by them to the court to compel the First and Second Defendants to register the Share transfer.
(c)The Plaintiffs have commenced these proceedings to determine whether they are entitled to be registered as owners of the Share.
(d)Neither party has given notice of default or notice of termination to the other.
Essentially then, the Receiver under his defence, as I observed earlier, accepts the Friggers' core premise, namely that there needed to be more than simply the Receiver handing over an executed transfer of the BH share then registered in his name. The Receiver accepts that his share sale contract with the Friggers envisaged by a term, that the Friggers would actually become registered as a shareholder in BH in their own names (see the express term at par 8(e) of the Receiver's defence). That has not occurred since March 2009.
The Receiver's defence (par 13) pleads that by variation of the contract of sale with the Friggers, settlement date for his receipt of the unpaid $710,000 has been deferred, until the plaintiffs obtain an order of the court compelling the defendant directors to register the share transfer. This is formulated under par 13 of the defence of the Receiver to the Friggers, in terms:
13(a) if the Plaintiffs are successful in obtaining such an order, then they will be required to repay the balance of the purchase price of $710,000 to the Fourth Defendant in order to obtain registered ownership of the Share; or
(b)if the Plaintiffs are unsuccessful in obtaining such an order, then the Share Sale Contract will be frustrated or otherwise at an end and the Fourth Defendant will be required to refund the $20,000 deposit to the Plaintiffs.
The Receiver's position is that he has done all things required of him as regards the Friggers capable of being done by him, in terms of his facilitating the completion of the BH share sale contract, absent a compulsive order made against the BH director defendants compelling registration of the Friggers as owners of the transferred share in BH from him.
The Receiver also accepts that the Friggers are not yet obliged to complete on the sale by paying the outstanding balance of $710,000 to him - until there has at least been an order of the court compelling the director defendants to process the Receiver's transfer. (That plea is slightly out of harmony with the Receiver's earlier plea of an express term in par 8(e), that requires the Friggers actually be registered in respect of this one share in BH). There is a distinction of course, as between a court making orders to an end effect and the actual event actually coming to its fruition - with the distinction bearing upon when the outstanding balance of $710,000 would be paid to the Receiver by the Friggers.
The Receiver's defence to the counterclaim brought against him by the Banning defendants of 29 July 2009, asserts a complete absence of any wrong doing on his part. The Receiver says that he did meet all pre‑emptive right requirements in respect of the existing BH shareholder (Mrs Banning) arising under Article 22A (see par 10 of the fourth defendant's defence to the counterclaim of the defendants).
However, the written submissions of the Receiver (filed 10 August 2010) take matters somewhat further than the pleading - no doubt in light of the demonstrable inertia - as regards completion on his share sale contract with the Friggers, which subsisted for 18 months from March 2009 to September 2010.
By written submissions the Receiver reiterates that he does not take an active role in this action. The Receiver submits that he does not oppose a stay, albeit pointing to a potentially unsatisfactory position arising regarding an unperfected contract of sale of the share in BH to the Friggers.
Paragraph 11 of the Receiver's written submissions then acknowledges:
The Receiver accepts it is highly unlikely the directors would be compelled to register the transfer because of the apparent ongoing animosity between the plaintiffs and the Banning Defendants.
That submission, in my assessment, both accurately and properly, accepts what is now an overwhelming reality of stalemate ‑ by reason of the BH directors' ultimately controlling veto position under Article 22 of the articles of association of BH, especially seen in the face of the evidently hostile relationship as between the Banning directors and the Friggers.
The Receiver also acknowledges (par 2 written submissions):
In light of the successful appeal with respect to the quantum of damages payable by the defendants in CIV 2265 of 2006, the object of the Receiver's appointment has been satisfied and there is no requirement for his appointment to continue. However, the issue with respect to the share sale contract must be finalised.
On the issue of a stay of these proceedings, the Receiver (par 15 of the written submissions) says:
In this case, if the action is stayed or dismissed, in light of the variation … the Receiver does not require the plaintiffs to complete and the proper course is that the Contract be formally annulled.
The Receiver's submissions conclude (par 34):
The Receiver seeks no relief in these proceedings and takes no position as to whether the directors should be obliged to accept registration of the transfer: that is a matter for the Court. At the same time, he acknowledges that as a result of the relevant appeal, there is no longer any question that the judgment debt has been satisfied and that the object of his original appointment has been satisfied.
The Receiver was of course removed on 10 November 2010, as I mentioned.

Disposition

Had the Receiver, whilst an unsatisfied judgment debt was owed to CAT, entered an unconditional arms length contract of sale for the BH share, policy considerations going towards recognising a purchaser party's acquired property rights and assisting completion, by implementation of the Receiver's share transfer, would be powerful.
However, here the Receiver's contract was not with a third party at arms length. The Receiver's sale contract was entered with the Friggers - who have an inseparable linkage to the judgment creditor in the Primary Action, CAT. The CAT judgment debt no longer subsists, in the wake of the decision of the Court of Appeal in October 2009, along with the earlier payment of some indebtedness by the defendants under the initial judgment.
An extinction of the judgment debt in the Primary Action, is a strong consideration against the court making discretionary enforcement orders against the director defendants, more particularly so, where the Friggers in seeking that assistance are, for all intents and purposes, to be equated to the position of CAT - the former judgment creditor in the Primary Action and, now, in liquidation.
Ever more significant to my final conclusion is the intrusion into the share sale transfer arrangements of Article 22. That Article allows the directors to exercise a (qualified) right of veto against registration of a proposed transferee, in this case the Friggers.
The Article 22 directors' power must of course be exercised for a proper purpose. But it is prima facie relevant for the BH directors to recognise that a judgment debt, once owed to CAT at the time of the appointment of the Receiver in March 2009, no longer subsists. They may also legitimately consider that a completed transfer of the share in BH by the Receiver under a contract of sale with the Friggers, is a dealing that introduces new shareholder parties as 50% shareholders and introduces shareholders against whom there exist demonstrable levels of ongoing animosity - conceived in almost four years of hostile litigation. There are only two issued shares in BH. The other share is held by Mrs Sandra Banning. The prospect of looming antipathy and disruption to BH as between hostile 50% shareholders looms large. That looming discord is proper basis for the directors to legitimately decline to process a share transfer by the Receiver to the Friggers.
I am alive to the fact that the Banning defendants' solicitors communication of 23 March 2009 advised of the directors' decision to refuse to process the transfer. It then put reliance on the Receiver's failure to observe pre‑emptive rights provisions within Article 22A in favour of Mrs Sandra Banning (that factual issue, of course, remains hotly contested in the present proceedings). However, the communication went further, to maintain assertions previously made by the defendants including as to purchase of the share in bad faith, at a gross undervalue and as a result of an improper arrangement with the Receiver. The letter of 23 March 2009 does not, in my assessment, confine the BH directors, in continuing to decline to process the transfer, to reliance just to issues raised in the correspondence of March 2009.
The consequence is that the issue as to likely hostility between shareholders being live is another relevant, seemingly overwhelming platform, for the Banning directors to refuse to process the transfer, see Crawford J's observations in Leaver [43] ‑ [47] (particularly at [46] ‑ [47]).
Yet another significant consideration is that the Receiver, an officer of the court, (properly and realistically) accepts (in the context of the ramifications of Article 22 and the absence of a subsisting judgment debt now due to CAT in the Primary Action) the force of a seemingly insurmountable obstacle raised by the Banning director defendants' refusal to process the share transfer.
The Receiver's sale of his share in BH in March 2009 to the Friggers, was conceived in a very different underlying factual environment. There was then a subsisting judgment debt to CAT. That is no longer so. The Receiver was removed on 10 November 2010.
In all the circumstances where, even if an Article 22 'road block' could be avoided, the court is asked to exercise a discretion to compel the BH director defendants to process the transfer, the sheer pointlessness in such orders, if the Receiver, having collected $730,000 would then be required to return the realised funds to the former judgment debtor (the Estate) - in the absence of a subsisting judgment debt - looms as an overwhelming consideration against the exercise of discretion.
A side issue concerning the Receiver's lien, over the BH share in respect of unmet costs and remuneration to date, remains. But that unresolved issue simply means that the Receiver may remain as registered owner of the BH share - until the basis for his lien is removed. It is inappropriate, in my assessment, that this side issue concerning costs and remuneration be allowed to deflect attention away from the predominant considerations at issue between these parties. Injection of the Receiver's lien into the equation, is something of a diverting consideration, in my view.
There subsists something of a 'Mexican standoff' now, as a result of the Receiver's lien, particularly bearing in mind the Receiver (unlike the Friggers) has managed to become registered proprietor of the one (50%) share in BH. Prima facie, he is entitled to maintain that position until all monies properly secured by his lien are paid. The circumstances in which the Receiver's lien may be discharged are matters to be resolved as between the first, second and third defendants directly with the Receiver.
The Receiver would also like to receive some clarification by orders of the as to the status of his uncompleted contract of sale with the Friggers. But for that to occur, the Receiver first needs to amend his pleadings against the Friggers to add a counterclaim seeking a declaration as to the legal frustration in law of the contract of sale.
On the face of it, given the Friggers contend that there is an implied term that they were to become registered as a shareholder in BH, with the Receiver contending that there was an express term in the sale arrangements to like effect ‑ a continued and likely future non‑fulfilment of the critical envisaged sale completion event, in terms of the Friggers' registration as shareholders in BH for over 20 months now (March 2009 to November 2010) - does likely present as an event of frustration impacting against the performance of the contract of sale. That issue, however, is a matter for final resolution for another day, on different pleadings.
In all the circumstances then, bearing in mind that I am not making final determinations of fact, but simply resolving the application to permanently stay the proceedings, my view is that a likely need to return the funds raised through sale of the BH share by the Receiver to the Friggers to the former judgment debtor (the Estate), presents as a scenario of such futility that it demands a permanent stay of this 'spin off' action.
The pointlessness scenario provides, prima facie, a basis for the BH's directors to continue to decline to process the Receiver's transfer of the share in BH to the Friggers - based upon power in the directors to reject a transfer under Article 22. Considerations of pointlessness and looming 50/50 shareholder hostility towards the intended transferee shareholders, are overwhelming considerations towards a permanent stay of proceedings. Absent a subsisting judgment debt to be recovered by a Receiver (who is now removed), there is no sufficient underlying rationale in principle to support enforcement orders against the directors of BH compelling the registration of a share transfer to the Friggers. More particularly, that is so when the sale is not a disposition to an arms length third party, but rather to parties inseparably associated with the (former) judgment creditor, CAT.

Had I not ordered a permanent stay of proceedings I would, in any event, still have required the Friggers to provide a bank guarantee to the Receiver for the outstanding purchase price in the amount of $710,000 ‑ before considering allowing the action to proceed further, were it not permanently stayed on the basis of the considerations which I have discussed.
The parties should submit draft orders for a permanent stay of the action, after having had an opportunity to consider these reasons.