In the matter of A Twins Spare Parts Pty Limited

[2019] NSWSC 1347

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of A Twins Spare Parts Pty Ltd [2019] NSWSC 1347
Hearing dates:	3 October 2019
Date of orders:	04 October 2019
Decision date:	04 October 2019
Jurisdiction:	Equity - Corporations List
Before:	Rees J
Decision:	Interlocutory injunction granted: see [33]
Catchwords:	CIVIL PROCEDURE — Interlocutory injunctions — Where suit for oppression — Mandatory interlocutory injunction sought to continue weekly loan payments from company in dispute — Appropriate standard for mandatory interlocutory injunction — Prima facie case conceded by respondent — Company appears to have sufficient resources — Payments secured by shares in property-holding company soon to be liquidated — Balance of convenience favours applicant — Injunction granted.
Legislation Cited:	Corporations Act 2001 (Cth), s 233 Income Tax Assessment Act 1936 (Cth), Div 7A Superannuation Industry (Supervision) Act 1993 (Cth)
Cases Cited:	Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1 Bingham v 7-Eleven Stores Pty Ltd [2003] QCA 402 Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499 Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 National Commercial Bank Jamaica Ltd v Olint Corporation Ltd [2009] UKPC 16 Racecourse Totalizators Pty Ltd v Totalisator Administration Board of Queensland (1995) 58 FCR 119 at 123; [1995] FCA 1405 Shepherd Homes Ltd v Sandham [1971] Ch 340 Tymbook Pty Ltd v State of Victoria (2006) 15 VR 65; [2006] VSCA 89 Warner-Lambert Co LCC v Apotex Pty Ltd (2014) 311 ALR 632; [2014] FCAFC 59
Texts Cited:	Heydon, Heydon on Contract: The General Part (Lawbook Co, 2019) Heydon, Leeming & Turner, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed., LexisNexis, 2014)
Category:	Procedural and other rulings
Parties:	Oreste Bercich (Plaintiff)   A Twins Spare Parts Pty Limited ACN 000 752 867 (First Defendant) Giovanni Bercich (Second Defendant) Dino Bercich (Third Defendant)
Representation:	Counsel: Mr D Parish (Plaintiff) Mr A Gander (Defendants)   Solicitors: Matthews Dooley & Gibson (Plaintiff) Frank Law (Defendants)
File Number(s):	2019/211253

Judgment

1. HER HONOUR: This is an application by the plaintiff, Oreste Bercich, for an interlocutory mandatory injunction against the first defendant, A Twins Spare Parts Pty Limited (A Twins) that it pay him $1,200 per week pending determination of these proceedings or further order. In the substantive proceedings, Oreste seeks relief from oppression under section 233 of the Corporations Act 2001 (Cth) in respect of the operation of A Twins. The second defendant, Giovanni (John) Bercich, is the plaintiff’s twin brother. The third defendant, Dino Bercich, is also a brother. Without intending any disrespect to the parties, I will refer to them by their Christian names to avoid confusion. Relief from oppression is also sought by Oreste in related proceedings in respect of another family company, Riverside Spares Pty Limited (Riverside). Until recently, A Twins and Riverside traded in the business of selling spare parts for motor vehicles.

Facts

2. Some factual background is needed. Oreste and John were born in 1956 and are now 62 years old. In 1970, A Twins was incorporated by their parents. The share structure is complex but Oreste owns some 25% of the shares of A Twins. In 1976, Riverside Spares was incorporated by their parents and Oreste owns between 20% and 25% of the shares of that company. Oreste is a director of Riverside and used to be a director of A Twins. John and Dino are directors of both companies. Their father passed away some years ago. Their mother was a director of both companies but, sadly, now suffers from dementia and thus has ceased to be a director.

3. In December 2012, Oreste went to live in Kenya. Before leaving Australia, he resigned as a director of A Twins and also entered into a loan agreement to lend $56,000 to A Twins with interest, to be repaid by 31 December 2017.

4. The only available financial statements for A Twins are for the year ended 30 June 2015, which are unsigned, and indicate that the company made a loss that year but had net equity of some $2.5 million. A Twins owns land at Girraween which was recorded in the accounts at $1.75 million. The company was owed some $1.2 million by Oreste, John, their mother and Riverside. The company’s liabilities did not refer to monies owed to Oreste and it may be that the loan agreement had been repaid by this time, although Oreste says not.

5. In 2016, sadly, Giulio, the brother of Oreste, John and Dino, passed away unexpectedly. Oreste returned to Australia. Giulio had run the Riverside business and the roles of family members in the businesses changed so that Dino became responsible for running the Riverside business and Oreste began to work for A Twins. Oreste was told that he was still a director of A Twins, and it appears that his 2012 resignation had never been registered with the Australian Securities and Investments Commission. The brothers began talking about what to do with Riverside’s business and discussed closing the business and either selling the Girraween property or finding a tenant.

6. In March 2017, John obtained accounting advice for the Bercich Family Group in respect of the tax implications of selling the property or businesses of Riverside and A Twins. The accountant noted that neither company had a payroll system, wage book or leave records in respect of their staff.

In general, there is a lack of supporting information and low quality of accounting and payroll information. There are significant tax risks in each entity.

In particular, the accountant referred to the lack of documentation of loans to officeholders in the company, which may be subject to Division 7A of the Income Tax Assessment Act 1936 (Cth) and presented significant tax risks. As I understand it, the accountant was indicating that payments by a company to a shareholder may be treated as dividends and assessable income in the hands of the shareholder and the absence of proper documentation of these loans increased their risk of such tax being assessed. Such tax, however, would be payable by the shareholder, not the company.

7. Further, the accountant noted numerous transactions between A Twins and its superannuation fund which appeared to be in contravention of the Superannuation Industry (Supervision) Act 1993 (Cth). The accountant concluded:

There are substantial capital gains tax free assets and concessions available to the shareholders.

However, there are considerable risks to the Directors personally and to the shareholders, in consequence, due [to] the lack of transparency and lack of substantiation of accounting and payroll records.

It would appear that the lack of accounting records has not been remedied since.

8. In December 2017, Oreste returned to Kenya for 6 months. He says he did so because he had been excluded from the companies, although this is denied by his brothers. Whilst in Kenya, Oreste decided not to return to work at A Twins: Dino had closed the Riverside business and was now running A Twins. But in about mid-2018, Oreste and his family returned to Australia to live in a rental property in Castle Hill until they received sufficient funds out of the companies to afford to buy a house and set themselves up financially in Sydney. Oreste and his wife lived on their savings whilst Oreste’s wife tried to find a job. Oreste had no superannuation to draw upon as he had made some property investments in Kenya which had proved unprofitable.

The alleged loan

9. On 10 October 2018, Oreste went with his accountant to inspect the books of Riverside. Oreste and his brother John had a conversation. According to Oreste, John said that they were going to sell Riverside’s property. Oreste was pleased to hear this but said that he did not have any income and needed $1,200 a week to pay rent and other expenses until the property was sold. John said “Okay. I’ll organise it. I’ll set up a loan account.” John’s recollection of this conversation is different. He says that Oreste approached him for a personal loan of $1,200 only, to which John initially agreed, but then changed his mind without telling Oreste that he had done so.

10. Some text messages are in evidence: Oreste texted his bank account details to John, then a further text saying “No credit in the account yet” and John replied, “Okay” with a thumbs up emoji. On 13 October 2018, Oreste says that he called John and said that the money had not come through but he would go to the bank and withdraw it each week, to which John agreed. John denies this. Either way, $1,200 was withdrawn on a weekly basis from October 2018 to April 2019 from the bank account of either Riverside or A Twins Spare Parts.

11. In December 2018, Oreste commenced proceedings against Riverside, John, Dino and their mother for oppression. In January 2019, a Change to Company Details form was lodged with ASIC, certified by John, that Oreste had ceased to be a director of A Twins on 11 December 2012. It would appear that Oreste did not become aware that this had happened until April 2019, when he received an email from the National Australia Bank informing him that he had been removed as a director.

12. In April 2019, Oreste found that he could no longer withdraw the $1,200 a week from the bank account of A Twins and on 18 April 2019 withdrew $2,000 from Riverside’s bank account and on 24 April 2019 a further $5,000 from Riverside’s bank account in an endeavour to get funds for his family in the absence of the weekly payments. John became aware of these withdrawals and froze Riverside’s account. On 30 April 2019, Oreste’s solicitor wrote to the defendants saying:

Our client has young children who are financially dependent upon him. The actions taken by your clients have left our client impecunious and unable to support himself and his family.

Our client require $3,600 (being 3 weekly payments) … failing which we will commence proceedings. … we will file an interlocutory process for the urgent reinstatement of the weekly payments to our client.

13. In July 2019, Oreste commenced these proceedings against A Twins for oppression and also filed an Interlocutory Process seeking, inter alia, an order that the defendants pay $1,200 per week to Oreste pending the determination of the proceedings or further order. On an inquiry from the defendants’ solicitor as to the basis of the claim for such an order, Oreste’s solicitor advised that the basis was an agreement for a loan from A Twins to Oreste to be recorded in the books and records of A Twins as a loan account in the name of Oreste. The Interlocutory Process was amended accordingly.

Mandatory interlocutory injunctions

14. On an application for an interlocutory injunction, the question is whether the plaintiff has made out a prima facie case and whether the balance of convenience favours the grant of the injunction. As to whether there is a prima facie case, a plaintiff does not need to show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient to show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks: Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 at [87].

15. The second question is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the defendant would suffer if an injunction was granted: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1; Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46. Whether an applicant for an interlocutory injunction has made out a sufficient prima facie case and whether the balance of convenience favours the grant of such relief are related, not independent, questions: Warner-Lambert Co LCC v Apotex Pty Ltd (2014) 311 ALR 632; [2014] FCAFC 59 at [70]; Mineralogy v Sino Iron at [87].

16. In respect of a mandatory interlocutory injunction, both parties cited Heydon, Leeming & Turner, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed., LexisNexis, 2014). The learned authors note, at [21-395]:

… mandatory injunctions are comparatively rare. … The interlocutory mandatory injunction is particularly unusual. This is partly because a mandatory injunction is usually more onerous for a defendant to comply with than a prohibitory injunction. It is partly because the usual purpose of an interlocutory is to preserve the status quo, a consideration inapplicable to mandatory injunctions. But there is nothing to prevent a court from issuing an interlocutory mandatory injunction. …

In truth, a court hearing an application for an interlocutory mandatory injunction must apply exactly the same tests as it would in the case of an application for an interlocutory prohibitory injunction, not some different or more exacting test.

17. The defendants emphasised the rarity of interlocutory mandatory injunctions as discussed by J D Heydon in Heydon on Contract: The General Part (Lawbook Co, 2019) at [28.530]:

In part this is because interlocutory mandatory injunctions, by compelling the defendant to take positive steps, are more likely to inconvenience the defendant and cause the defendant harm less capable of being remedied by the plaintiff’s undertaking as to damages if the plaintiff fails at the final hearing.

For this reason, the author referred to authority to the effect that in an interlocutory application for an enforcing mandatory injunction, the Court must feel “a high degree of assurance that at the trial it will appear that the injunction was rightly granted”: Shepherd Homes Ltd v Sandham [1971] Ch 340 at 351 per Megarry J. This approach was considered by Hoffmann J (as his Lordship then was) in Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 at 680–1: (emphasis added)

The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the “wrong” decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong” in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.

… If it appears to the court that, exceptionally, the case is one in which withholding a mandatory interlocutory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel a “high degree of assurance” about the plaintiff’s chances of establishing his right, there cannot be any rational basis for withholding the injunction.

18. In Australia, the test for a mandatory injunction is no different to an ‘ordinary’ prohibitive injunction. Nor has the requirement for “a higher degree of assurance” found wide acceptance. The authorities are canvassed and helpfully summarised by Newnes JA, with whom McLure P and Corboy J agreed, in Mineralogy v Sino Iron at [76]–[85]. His Honour concluded that no different standard applies. In short, Gummow J rejected the “high degree of assurance” test in Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499, noting at 503:

… it has long been the case that interlocutory mandatory injunctions would be more likely to issue where the defendant was compelled, not to embark upon a fresh course of conduct, but, as here, to revert to a course of conduct pursued before the occurrence of the acts or omissions that provoked the litigation.

This has some resonance here, where Oreste is asking A Twins to revert to a course of conduct pursued before events which provoked this litigation, of which cessation of weekly payments was one.

19. See likewise Kiefel J in Racecourse Totalizators Pty Ltd v Totalisator Administration Board of Queensland (1995) 58 FCR 119 at 123; [1995] FCA 1405; Bingham v 7-Eleven Stores Pty Ltd [2003] QCA 402 at [108]; Tymbook Pty Ltd v State of Victoria (2006) 15 VR 65; [2006] VSCA 89 at [33]–[35] per Maxwell P and Charles JA; National Commercial Bank Jamaica Ltd v Olint Corporation Ltd [2009] UKPC 16 at [19]–[21] per Lord Hoffmann for the Privy Council.

Prima facie case

20. The defendants accept that there is a prima facie case that there was an agreement by A Twins to lend Oreste $1,200 a week until the Riverside property was sold. Oreste submitted that the prima facie case was strong, pointing to the corroboration of his version of the conversation on 10 October 2018 by text messages and the subsequent conduct of the parties.

21. The defendants submitted that the prima facie case was not strong: the terms of the alleged loan agreement are not clear; there is no allegation as to when the recurrent loan payments were to cease or when the loan was to be repayable, save that the loan is “pending the sale of Riverside’s property at Chipping Norton”; the terms of the agreement are said to be inconsistent with final relief sought in these proceedings being that the payments continue until A Twins is wound up. Although the agreement is said to have been made between Oreste and A Twins, the evidence does not clearly demonstrate why John would be found to be acting on behalf of A Twins, as opposed to on behalf of Riverside or even in his personal capacity. The objective circumstances are equivocal. The conversation is said to have taken place on A Twins’ premises but during the inspection of books of Riverside and in the context of a discussion about selling the property owned by Riverside. The text messages corroborate no more than an agreement for a single payment of $1,200 and shed no light on the identity of the lending party.

22. Further, the defendants say that if there was a loan agreement, it was an implied term that it was terminable at will by A Twins and was in fact terminated in October 2018. The defendants rely on Heydon on Contract at [27.410]: (footnotes omitted)

A contract to lend money (with or without security) is generally regarded as not specifically enforceable by either the borrower or the lender.  In theory, damages are adequate: whatever higher costs (for example, interest and transaction costs) have to be paid in the market to obtain the sum of money promised to be lent, but not lent.  On the other hand, “if the borrower has a contract to lend without security or on inadequate or unusual security, or if money is not readily obtainable for the sort of loan to which the contract entitled him, the legal remedy is not adequate”.

23. This extract rather highlights why it is that a court might order specific performance of a loan agreement in this case: it would appear from the evidence on the Interlocutory Application that Oreste was not in a position to obtain finance otherwise than from a family company, and certainly not on unsecured, interest-free terms. The evidence suggests that Oreste did not have security to offer a lender for a loan, nor employment to repay it: that is why he needed the loan. Whilst the defendants criticised Oreste for failing to adduce evidence of his efforts to obtain employment or secure a loan from other sources, I think it is reasonably clear from the evidence relied on by both sides that Oreste was not in a position to easily achieve either result.

23. As to the strength of Oreste’s prima facie case, based on the evidence on this interlocutory application — which may differ from that relied upon at a final hearing — it appears that there was an arrangement in place to pay Oreste $1,200 a week, which arrangement ceased peremptorily after the Riverside proceedings commenced. Oreste had returned from Kenya to Australia with a young family and, for whatever reason, was not working in the family business anymore. His financial circumstances appear to have been limited. It appears to have been in contemplation to sell the Riverside property. There was a history of the family companies making loans to family members. Oreste’s prima facie case is corroborated, at least partially, by text messages and, perhaps more significantly, by six months of regular weekly payments which John says were unauthorised but went apparently undetected by him for that period. The prima facie case appears sound.

Balance of convenience

25. Riverside owns a property in Chipping Norton which was purchased before introduction of capital gains tax and, in 2017, was valued by John at some $7 million. The property is unencumbered. In the Riverside proceedings, I was informed that the parties have agreed to appoint a liquidator to Riverside to sell the property, although orders have yet to be made and, given the mother’s physical condition, there may be some delays inherent in having orders made. Assuming that Oreste is entitled to 20% of the proceeds of sale, he can expect to receive some $1.4 million which, of course, does not allow for his share of the liquidator’s expenses, the costs of sale, nor any other liabilities of Riverside of which there is no evidence. As the property was purchased by Riverside before the introduction of capital gains tax, it seems unlikely that such tax would be payable on sale of the property.

26. I was told that the property is industrial property. It is reasonable to think that the property may be sold and the proceeds available for distribution within six months. There are references to loans to Oreste in the accounts of A Twins totalling some $408,000, although the existence and balance of these loan accounts is in issue in the substantive proceedings. But even taking these loan accounts at face value, and assuming that for some reason Oreste was obliged to repay these loans from the proceeds of sale of the Riverside property, and making an allowance for liquidator and sale costs, it seems to me that Oreste stands to receive some $950,000 in the reasonably near future from his share of the proceeds of sale of the Riverside property. If this process takes six months then, during that period, A Twins would have advanced Oreste a further $28,800 if I make the order sought.

27. Oreste offered a signed Irrevocable Authority authorising and directing:

a.   Any liquidator, receiver, administrator or other person appointed to the administration of Riverside …;

b.   Any officer of [Riverside] authorised or empowered to sell the property at … Chipping Norton…;

c.   Any other solicitor, conveyancer, or agent authorised or empowered to sell the Property.

to repay from the proceeds of sale of the Riverside property or any distribution of the surplus assets of Riverside: all amounts advanced from either Riverside or A Twins since October 2018; any amounts which A Twins pays in accordance with an interlocutory mandatory injunction; and, any damages or costs which Oreste is ordered to pay in respect of the interlocutory process plus interest at the rate paid by A Twins on its overdraft facility with National Australia Bank. Oreste also granted a charge over his shares in Riverside to Riverside and A Twins to secure these monies. The signed Irrevocable Authority substantially enhances A Twins’ rights under the alleged loan agreement: security is now proffered over Oreste’s shares in Riverside and A Twins and Oreste has agreed to pay interest on what was an interest free loan. This Irrevocable Authority was not accepted by John or Dino.

28. John deposes that A Twins does not have the cash flow to support a weekly payment of $1,200 to Oreste and would likely have to make a staff member redundant in order to make such a payment. The business records in respect of the financial position of A Twins are scant but it appears:

1. A Twins continues to trade.

2. The Business Activity Statement completed for the company for the quarter ended June 2019 records total sales of $141,367 including GST, purchases of $64,243 and monthly wages of $25,812. A Twins pays wages to John, Dino, Oreste’s son Sebastian and an employee Daniel totalling some $19,350 a month. Importantly, a PAYG income tax instalment of $19,319 is recorded: if one uses the company tax rate of 27.5% applicable to companies with a turnover less than $25 million, this suggests a taxable income for the quarter of some $70,000.

3. John has tendered a bank statement for a bank account in the name of A Twins with a balance of $10,036.68 as at 5 August 2019, an accountant’s bill showing that $19,970 is owing as at 30 June 2019, and a letter from the Australian Taxation Office of 22 July 2019 indicating that A Twins has an overdue tax debt of $8,724.89 for an activity statement.

29. Oreste noted that John’s comments on the cashflow of A Twins was not corroborated by the management accounts of the company; a document the Court would expect to be within the power of John to depose to. I agree. Oreste also submitted that, given the evidence of his loan to the company in 2012, and the absence of any evidence that the loan has been repaid, there was no irreparable damage to A Twins because, at worst, the payment of the $1,200 would amount to a reduction of its liabilities to Oreste if the Court were to find that the payments should not have been made. I am not sure about this given the absence of any reference to this loan in the financial statements of the company for the year ended 30 June 2015.

30. The defendants submitted that the mandatory injunction would overturn the status quo at the commencement of the proceedings, which was that the payments between A Twins and Oreste had ceased and were not ongoing. But if the payments were stopped in breach of an enforceable agreement, and damages is an inadequate remedy, then a mandatory injunction may be appropriate. Otherwise mandatory injunctions would never be available if a wrongdoer was able to defeat an application by having ceased to do what the order seeks that they do.

31. I am concerned that no financial statements have been prepared for A Twins since 30 June 2015. It is now October 2019. I have no detailed financial picture of A Twins’ ability to pay $1,200 a week to Oreste beyond a smattering of financial records and John’s evidence. It appears to me from the BAS statement that the company is trading profitably. If the company had taxable income of $70,000 for the last quarter, then paying $14,400 in a quarter to Oreste seems well within its grasp. In circumstances where it appears that John had the responsibility for keeping the books of A Twins, I am somewhat hesitant to accept his assessment that the company cannot make the weekly payment, although I do not doubt that John’s view is firmly held.

32. Overall, having regard to the strength of Oreste’s prima facie case, which appears sound, and the balance of convenience, I am minded to make the orders sought. Oreste stands to receive some $950,000 in the reasonably near future and, under the orders sought, A Twins will pay him some $30,000 during that period which appears to me to be adequately secured by his signed Irrevocable Authority.

ORDERS

33. For these reasons, I make the following orders:

1. On the signed Irrevocable Authority given by the plaintiff dated 3 October 2019, order the first defendant to pay the plaintiff $1,200 per week into a bank account nominated by the plaintiff until the monies paid by the first defendant to the plaintiff have been repaid in accordance with the Irrevocable Authority, or until further order, whichever occurs first.

2. Otherwise dismiss the Amended Interlocutory Process filed on 3  October 2019.

3. The costs of Prayer 3 of the Amended Interlocutory Process filed on 3 October 2019 are to abide the outcome of these proceedings.

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Decision last updated: 04 October 2019