Gogo's Resources Pty Ltd v Gogreen Fresh Pty Ltd
[2020] WASC 191
•2 JUNE 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GOGO'S RESOURCES PTY LTD -v- GOGREEN FRESH PTY LTD [2020] WASC 191
CORAM: MASTER SANDERSON
HEARD: 28 APRIL 2020
DELIVERED : 2 JUNE 2020
PUBLISHED : 2 JUNE 2020
FILE NO/S: COR 201 of 2019
BETWEEN: GOGO'S RESOURCES PTY LTD
Plaintiff
AND
GOGREEN FRESH PTY LTD
Defendant
Catchwords:
Corporation law - Application to wind up company on just and equitable ground and on grounds of oppression - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Family Law Act 1975 (Cth)
Result:
Plaintiff's application to wind up defendant dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | C Stokes |
| Defendant | : | CK Pearce |
Solicitors:
| Plaintiff | : | Chris Stokes & Associates |
| Defendant | : | Blackwall Legal LLP |
Case(s) referred to in decision(s):
Barboutis v The Kart Centre Pty Ltd [No 2] [2020] WASCA 41
Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152
MASTER SANDERSON:
This is the plaintiff's application to wind up the defendant. The application is made on three alternative grounds. First, is said under s 232(d) of the Corporations Act 2001 (Cth) the conduct of the company's affairs is contrary to the interests of the members as a whole. Second, it is said that the conduct of the company's affairs is oppressive to the plaintiff contrary to s 232(e) of the Corporations Act. Third, it is said the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to the plaintiff. In other words, the plaintiff is applying to wind up the company on the basis of oppression or on the just and equitable ground.
The application has not had a happy procedural history. The originating process was filed on 28 October 2019. It was supported by a founding affidavit of Govindha Rajalu Govardhan sworn 28 October 2019. On 3 December 2019 I made orders programming the matter through to a hearing on a date after 31 January 2020. In opposition to the application the defendant filed an affidavit of Thaarak Cadayam Dhaamodaran sworn 17 December 2019. A further affidavit of Mr Govardhan was filed on 10 February 2020. Both of these affidavits were slightly late but the slippage was of no consequence.
On 11 February 2020 Acting Master Whitby ordered that by 21 February 2020 the plaintiff file and serve any application to cross‑examine Mr Dhaamodaran and any affidavit in support of that application and submissions in support of the originating summons. The defendant was to file its submissions by 28 February 2020. The matter was set down for hearing on 26 March 2020. The plaintiff did not comply with those programming orders and on 5 March 2020 I made a springing order requiring the plaintiff to comply with the orders of Acting Master Whitby. The special appointment was adjourned. The plaintiff filed submissions on 9 March 2020 and the defendant filed its submissions on 27 March 2020. By order of Acting Master Strk made 31 March 2020 the matter was listed for a special appointment on 28 April 2020.
Despite being given leave to do so by Acting Master Whitby the plaintiff never applied for leave to cross‑examine Mr Dhaamodaran. This decision had a significant impact on the way in which the hearing was conducted. It meant that consistent with the decision of the Court of Appeal in Barboutis v The Kart Centre Pty Ltd [No 2] [2020] WASCA 41 I could decide the matter only on the evidence which was not in dispute. That point was made by counsel for the defendant in both his oral and written submissions and was not seriously contested by counsel for the plaintiff. The affidavits which have been filed throw up a number of issues where there is conflict on the evidence. It seems odd counsel for the plaintiff would have chosen not to cross‑examine Mr Dhaamodaran. But that is a forensic decision taken by counsel – he bears the consequences. In dealing with the evidence I have not bothered to recite that evidence about which there is conflict. There is no point in doing so.
The relevant facts are as follows. The defendant was incorporated on 12 May 2014.[1] The company was to own and operate a business known as 'GoGo's Bello Fresh' from leased premises at the Fiona Stanley Hospital in Perth's southern suburbs.[2] It was to be the hospital's coffee shop and food service provider. At the time of its incorporation the company had three directors – Mr Govardhan, a Mr Dominic Antonio Ielati and Mr Dhaamodaran. It is not in dispute that at the time the company was incorporated and the lease of the premises was taken up, Mr Govardhan was involved because of his professional food and engineering qualifications.
[1] Affidavit of Govindha Rajalu Govardhan sworn 28 October 2019 [13]; Annexure GRG-2.
[2] Affidavit of Govindha Rajalu Govardhan sworn 28 October 2019 [7] – [15].
At the time of incorporation there were 60 fully paid ordinary shares.[3] Twenty shares were owned by the plaintiff, 20 shares were owned by Bello Café Pty Ltd and 20 shares were owned by Mr Dhaamodaran.[4] As matters stand at present, Mr Govardhan is no longer a director of the defendant. He was removed on 29 April 2019.[5] Although in his written submissions counsel for the plaintiff refers to the 'purported' removal of Mr Govardhan there seems to be no doubt that proper process was followed and he has actually ceased to be a director of the defendant. Importantly the defendant continues to trade and although it is not entirely clear, it appears to be trading profitably.[6] There is certainly no suggestion that it is trading while insolvent or is likely to become insolvent in the near future.
[3] Affidavit of Govindha Rajalu Govardhan sworn 28 October 2019 [13].
[4] Affidavit of Govindha Rajalu Govardhan sworn 28 October 2019 [13].
[5] Affidavit of Govindha Rajalu Govardhan sworn 28 October 2019 [165].
[6] Affidavit of Govindha Rajalu Govardhan sworn 28 October 2019 [20] – [21].
In his first affidavit, Mr Govardhan goes into considerable history as to how and why the defendant was established, how the business was run initially, how things developed and the nature of the disputes between the parties. This evidence is background, it leads to a series of six complaints which the plaintiff says justify winding up the defendant. It is possible to deal with each of these complaints without reciting in great detail the background facts.
The plaintiff's first complaint is that the defendant's business is operating without proper financial accounting or oversight.[7] In particular, three matters are highlighted. The plaintiff says annual financial statements and tax returns have not been prepared and, where necessary, lodged. Second, there has been no proper accounting for income. Third, there has been diversion of moneys properly belonging to the company and its shareholders to finance a separate business known as Melting Point Expresso Bar. It is said this was done without the approval of the board of directors. This complaint can be covered under the rubric of poor financial management.
[7] Affidavit of Govindha Rajalu Govardhan sworn 28 October 2019 [175] – [186].
In response Mr Dhaamodaran does not really engage directly with the plaintiff's claims. At pars 27 through to 34 of his affidavit Mr Dhaamodaran sets out the financial information he has supplied to Mr Govardhan and how he has supplied it. He does not go so far as to say the accounts of the defendant are in good order. But it is difficult to ascertain from the evidence the extent to which the accounts are lacking. In his written submissions counsel for the plaintiff highlighted six points.[8] First, he noted a constant failure to present proper accounts by Mr Dhaamodaran.[9] Second, he refers to different sales figures for the 2015 financial year with gross sales figures changing from $622,000 to $706,658 and then to $677,000.[10] He refers to two sets of 2017 financial accounts with accumulated losses varying from $145,025 to $36,004. He refers to a failure to explain the difference between gross revenues recorded in the company business activity statements and the company financial accounts. Finally, he says there is no recording of alleged loans in the company minutes or directors' minutes.[11]
[8] Plaintiff's outline of submissions dated 9 Marcy 2020, [3].
[9] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(a)(i)].
[10] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(a)(ii)].
[11] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(a)(iii)].
On the uncontested evidence it does seem that there is some lack of proper financial control and a consequent failure to produce consistent, easily understood accounts. But this seems to be a systems failure rather than any attempt by Mr Dhaamodaran to withhold information from or mislead Mr Govardhan. In fact the evidence of Mr Dhaamodaran is that he has gone to some lengths to provide information to Mr Govardhan and to put the books and records of the defendant in some sort of order. Mr Govardhan alleges there has been some diversion of funds away from the defendant which is improper. But the evidence does not support a conclusion to that effect. In my view, what the evidence does disclose is what might be described as a failure of bookkeeping or a failure of accurate recordkeeping. That is a factor to be taken into account and in the balance must weigh in the plaintiff's favour.
The second complaint is that Mr Dhaamodaran has refused to allow the plaintiff access to the books and records of the defendant so that a forensic review of the financial records of the company can be undertaken.[12] I am not satisfied there is any substance in this complaint. I have already referred to parts of the affidavit of Mr Dhaamodaran where he sets out the extent to which he has arranged for Mr Govardhan to have access to the books and records of the company. It is difficult to see that he could have done much more. As pointed out by counsel for the defendant, it was always open to the plaintiff to make an application under s 247A of the Corporations Act for authorisation to inspect the books of the defendant. Given Mr Govardhan is no longer a director of the defendant he does not have the right to inspect the books and records of the defendant (unless that right is provided for in the constitution of the defendant; that constitution is not in evidence). On balance I am not satisfied there is any substance in this complaint.
[12] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(b)].
The third complaint really feeds into the first two – the plaintiff says the defendant has failed to properly maintain taxation records and has not met the obligations of the company.[13] This is, he says, has led to an audit by the Australian Taxation Office. The reasons why the Australian Taxation Office undertakes an audit are many and varied. It may be proper returns have not been lodged; it may be random chance. Either way the fact of the audit itself cannot be seen as oppressive to a member of the company. It is the failure to keep proper accounts and lodge appropriate returns which might be seen as oppressive. The fact that thus led to an audit by the Australian Tax Office (if that is indeed what happened) does not advance the position. It is simply one aspect of a failure to maintain proper financial records.
[13] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(c)].
The fourth complaint is that Mr Govardhan was 'forced' to sign a loan agreement.[14] The genesis of this loan agreement is set out in pars 83 through to 91 of Mr Govardhan's first affidavit. In summary, an officer of the Australian Tax Office who was undertaking an audit of the defendant identified that moneys had been paid from GoGo's Bello Fresh to Melting Point Expresso Bar. It would seem that the officer expressed the view these moneys needed to be accounted for and one way to do that was to treat them as a loan. A loan agreement was duly drawn up and was signed by Mr Govardhan. Mr Govardhan's point seems to be that there was never any loan and the only reason he signed the loan agreement was to satisfy the Australian Taxation Office. This is said, in some way, to be oppressive in the affairs of the defendant.
[14] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(d)].
Clearly there is no substance to that complaint. Either there was a loan or there was not. This idea that the loan agreement was signed 'just for tax purposes' is fanciful. Mr Govardhan is clearly an experienced businessman and he does not suggest he did not know what he was signing. He can have no complaint.
The fifth complaint is an alleged failure by the company to maintain a consistent approach to all suppliers.[15] It is said that by demanding that a related company of the plaintiff enter into a supply agreement for the supply of food, where other suppliers were not required to do so, was oppressive. But really that is a question for the management of the company. In pars 16 through to 26 of his affidavit Mr Dhaamodaran sets out reasons why he viewed it as necessary to have the plaintiff enter into a services agreement. There may or may not be valid reasons for Mr Dhaamodaran's approach. But on the evidence it cannot be said that he is in some way conducting the affairs of the company in a manner which is oppressive to the plaintiff.
[15] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(e)].
Finally, it is alleged the removal of Mr Govardhan as a director of the defendant was itself oppressive.[16] Mr Govardhan said he had a legitimate expectation that he would be involved in the management of the defendant. That may well be so. But circumstances change. It is clear that there has been a breakdown in the relationship between Mr Govardhan on the one hand and Mr Dhaamodaran and his associates on the other. When circumstances change it is only to be expected that management of the company will change to reflect the true position. That said, there is no doubt removal of Mr Govardhan as a director against his wishes is a circumstance to be taken into account in determining whether or not there has been oppressive conduct.
[16] Plaintiff's outline of submissions dated 9 Marcy 2020, [3(f)].
Taken in the overall I am not satisfied that there has here been conduct which would justify the making of an order under either limb of s 232 or under s 461. It is clear aspects of the management of the defendant have been wanting. It is also clear that personal relationships have broken down making for an unhappy business relationship. Clearly Mr Govardhan feels hardly done by. But taken in the overall, the conduct of the company's affairs is not such as to warrant it being wound up. In reaching this conclusion I am conscious the result is not a happy one for Mr Govardhan and the plaintiff. Mr Govardhan is trapped in an unhappy marriage but does not have recourse to the Family Law Act 1975 (Cth) to bring the relationship to an end once certain conditions are satisfied. But that is a consequence of choosing to do business through a corporate structure. To put an end to a relationship where a corporation is involved, the statutory requirements must be satisfied. No matter how personally painful a continuation of the relationship might be, satisfying the requirements of the statute is the only way out.
In Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 Austin J was confronted with a similar problem. The learned judge said:
235One only has to observe the serious and personal nature of the allegations that the Tomanovic interests have made against the Sayer interests, and (to a lesser extent) the Sayer interests have made against the Tomanovic interests, to realise that there has been and is a breakdown and lack of trust between the two shareholders in this corporate group. The difficulty has been manifest since late 2004 but seems to have escalated in the months after the Second Heads of Agreement failed to mature into a formal transaction.
236But this is a case where one needs to be cautious about the conclusions to draw from the obvious breakdown in the shareholder relationship at a personal level. First, the breakdown in the relationship has apparently not prevented the business interests associated with Mr Sayer and Mr Tomanovic from co-operating. It appears that the MH group and Multi-own continue to refer work to each other. More importantly, the breakdown in the personal relationship does not appear to have had any significant effect on the business of the MH group in a managerial sense. Because Mr Sayer was already in managerial control of the business before difficulties occurred, he has been able to continue on in much the same fashion. There is no deadlock as Mr Sayer controls 55% of the company. It appears that the business has been operated successfully (subject to the vicissitudes of the credit market) for over 5 years since Mr Tomanovic withdrew from active participation.
237 I have reached the reasonably firm view that grounds for relief under Part 2F.1 have not been established. There remains the question whether the Court should make a winding up order on the just and equitable ground in s 461(1)(k). The possibility that I might do so was very much on my mind during the trial. But I have concluded upon review of all the evidence that the plaintiffs' case in the two equity proceedings is not factually strong. And having considered the submissions of the parties, I have decided that it would be unwise to order the winding up of the viable and now reasonably long-standing business, in circumstances where the breakdown in the shareholder relationship is not materially frustrating the commercially viable and sensible operations of the company.
238 It is frustrating for the Court, and even more frustrating for at least one of the parties, that the legal outcome of this case will not be a commercial outcome. Once the legal dust settles, I hope the parties can try again for a mediated resolution. The problems with a renewed buy-out negotiation between the two shareholders are obvious, given the history of the matter, but if the business is able to thrive in an economic upturn, third-party equity may provide a solution.
Accordingly, the plaintiff's application will be dismissed. Subject to hearing from the parties, the plaintiff should pay the 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 Sanderson2 JUNE 2020
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