Griggs v Sorockyj Investments
[2014] NSWSC 667
•22 May 2014
Supreme Court
New South Wales
Medium Neutral Citation: Griggs v Sorockyj Investments [2014] NSWSC 667 Hearing dates: 22/05/2014 Decision date: 22 May 2014 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Interlocutory injunction granted on conditions. See [22] to [24].
Catchwords: PROCEDURE - Interlocutory orders - Injunctions - where prima facie case agreed - whether to grant interlocutory injunctive on the balance of convenience - whether to grant injunctive relief limited as to subject matter and limited as to time Category: Procedural and other rulings Parties: Daryn Griggs (Plaintiff)
Sorockyj Investments Pty Ltd (First Defendant)
Leepfrog Investments Pty Ltd (Second Defendant)Representation: Counsel:
S Lawrance (Plaintiff)
T L Wong (Defendants)
Solicitors:
Whittens (Plaintiff)
TressCox (Defendants)
File Number(s): 2014/151992
Judgment (ex tempore - revised 22 May 2014)
HIS HONOUR: There is a company incorporated in the Republic of Singapore known as Independent Transaction Solutions International Pte Ltd (ITSI). The legal shareholders in that company are the defendants, each as to 30 per cent, a Mr McKenzie as to 20 per cent, and a Mr Que as to 20 per cent. The plaintiff, Mr Griggs, claims that each of the defendants holds one third of its shareholding in ITSI on trust for him. If that claim is made good, and if the trust is executed by delivery of the shares (as Mr Griggs has demanded), then the four entities named and he would each be 20 per cent shareholders in ITSI.
ITSI is involved in a complex web of companies which apparently carry on a business in relation to credit card rewards and "pay back cash" transactions. The nature of that business does not require present examination.
The matter has come before the Court because the present directors of ITSI are Mr McKenzie and Mr Lee (who is the principal of the second defendant), and Mr Lee has called an extraordinary general meeting proposing to appoint Mr Sorockyj, who is a principal of the first defendant, as a director of ITSI.
At present, the board would be deadlocked if Mr McKenzie and Mr Lee disagree, in which case Mr Lee would have a casting vote. Mr McKenzie has apparently circumvented that possibility by absenting himself from board meetings and declining to participate by telephone (I put the matter that way not with any intention to be pejorative, but by stating the effect of what the evidence appears to be). That is why Mr Lee and Mr Sorockyj wish to appoint Mr Sorockyj as a director. He and Mr Lee would then constitute a quorum. If they agree on any matter, the business would be transacted accordingly. If they disagree, then (in the absence of Mr McKenzie) it would be transacted as Mr Lee, exercising his casting vote, might decide.
The underlying issue appears to be whether a Mr Lovell, who ITSI has appointed as its nominee director to a subsidiary and who appears to be the CEO of that subsidiary and of the group business generally, should be removed as the nominee director.
Mr Sorockyj and Mr Lee support Mr Lovell's removal as a nominee director. Mr McKenzie and Mr Que oppose it. Mr Griggs also opposes it.
To get around the problems on the board, Mr Lee has called an extraordinary general meeting of ITSI to be held tomorrow. The business of that meeting is to consider and if thought fit pass, as an ordinary resolution, a resolution to appoint Mr Sorockyj as a director of ITSI.
On the shareholdings as they stand, if the defendants agree on that (and it may be inferred that they do), the resolution will be passed and Mr Sorockyj will become a director of ITSI.
If that happens then, to the extent that Mr Sorockyj and Mr Lee agree, they will effectively control the business of ITSI, and will be in a position to exercise control over its subsidiaries according to the extent to which ITSI itself controls those subsidiaries.
It has been conceded on behalf of the defendants that Mr Griggs has made out a prima facie case that the shares in question are held on trust for him. It is uncontroverted, and for present purposes I am satisfied, that Mr Griggs does not wish the resolution proposed for consideration tomorrow to be passed. There is a prima facie case at least that, if the meeting proceeds without hindrance, Messrs Sorockyj and Lee between them, through their companies' combined 60 per cent shareholding, will cause the resolution to be passed.
The argument has dealt not with the question of prima facie case but with the question of balance of convenience. Ms Wong, for the defendants, submitted that there would only be a problem if Mr Sorockyj and Mr Lee agreed; if they did not agree, then the affairs of the company would be conducted as they are now: that is to say, with Mr Lee having the casting vote. She submitted that the appointment of Mr Sorockyj as an additional director would not affect that position but, if Mr McKenzie continued to absent himself, would do no more than provide a quorum which could conduct the business of ITSI.
There is a degree of circularity in that argument, because the very appointment which is proposed is an appointment which, having regard to the concession of a prima facie case, is against the express wishes of the beneficiary of the alleged trust, Mr Griggs.
It may be that there is no absolute rule that a trustee shareholder should use its voting power in accordance with the wishes of the beneficiaries. No doubt there are cases where that cannot be said (for example, because the class of beneficiary it is not closed). But this case is distinguishable, because there is only one alleged beneficiary; there is no doubt that he is capable in law; he has called for the shares to be transferred to him; and it is the prima facie breach of trust which is standing in the way of his exercising his rights, and which, contrarily, facilitates Messrs Lee and Sorockyj's attainment of their wishes.
The next point that Ms Wong raised seems to me to have considerable substance. There is evidence that one of the operating subsidiaries, a company known as PBC Invest Pte Ltd, is in financial difficulty. There has been made upon it, under the laws of Singapore, a statutory demand for payment of a debt of A$60,000. It seems to owe money to the Revenue officials in Victoria. And it may owe money in respect of a licence of intellectual property rights.
It may be inferred that if the statutory demand is not complied with, there will be an application for the winding up of PBC Invest. That would have a serious effect on the PBC Group business.
The parties are at odds as to how this might be resolved. The defendants suggest that if they effectively take control of ITSI, and hence to some extent of PBC Invest (because they will remove Mr Lovell as director), they may be able to solve the problem. Mr Griggs suggests that as long as Mr Lovell remains a director, investors are likely to come to the aid of the Group; but if he is removed they will not.
It seems to me that the simplest way around this is to grant interlocutory injunctive relief, but to do so for a limited time only, to permit Mr Griggs to put forward evidence that the debt in question has been paid, or that some deal has been done with the creditor, so that the risk of winding up no longer hangs over the company.
If the revenue authorities, or the other creditor, likewise give statutory demands, Mr Griggs will need to deal with those matters also.
It seems to me that Mr Griggs has made good a claim to limited injunctive relief on an interlocutory basis. However, the interlocutory relief sought would restrain the defendants from voting their shares at all in any meeting of the company. As Ms Wong submitted, that goes further than the apparent immediate problem. It seems to me that the case made out is one for relief limited to preventing them from voting their shares in favour of the resolution proposed for the EGM tomorrow.
In my view, the balance of convenience favours the grant of relief limited in that way, on the basis that the matter is brought back in a week's time so that the question of satisfaction of creditors' claims can be dealt with. In other words, I conclude that the balance of convenience favours the grant of relief limited both as to subject matter and as to time.
I said in the course of argument, and I wish to make it perfectly clear, that unless I am satisfied that proper arrangements have been made to avert the threat of winding up, it may be difficult to persuade me to extend the relief that I am about to grant.
I note the plaintiff by counsel gives to the Court the usual undertaking as to damages.
I order that the defendants and each of them by themselves, their servants, agents or otherwise, be restrained up until 5pm on 29 May 2014 from voting in favour of resolution 1, proposed to be considered at the Extraordinary General Meeting of Independent Transaction Solutions International Pte Ltd to be held tomorrow.
I make it a condition of that grant of relief that the defendants may, if they wish, cause the Extraordinary General Meeting to be postponed until 30 May 2014; and that, unless the injunctive relief be continued, the resolution may be considered and if thought fit passed; and that the plaintiff must accept this.
I reserve the question of costs.
I adjourn the notice of motion for further hearing before me at 10am on 29 May 2014.
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Decision last updated: 28 May 2014
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