In the matter of Gandangara Services Limited and others
[2014] NSWSC 546
•07 May 2014
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Gandangara Services Limited and others [2014] NSWSC 546 Hearing dates: 7 May 2014 Decision date: 07 May 2014 Jurisdiction: Equity Division Before: Brereton J Decision: Interlocutory injunction restraining defendants from acting as directors continued with minor variations. Defendants referred for pro bono assistance. Matter referred for mediation.
Catchwords: EQUITY - equitable remedies - injunctions - interlocutory injunctions - application for continuation of orders restraining directors and chief executive officer from dealing with assets, altering or removing books or records, convening or holding meetings, or holding themselves out as directors - efficacy of directorships impugned - where expedited final hearing only three weeks away - whether sufficiently seriously arguable case for final relief that, having regard to the balance of convenience, injunctive relief more appropriate than not - relief continued on certain undertakings.
CORPORATIONS - membership, rights and remedies - members' remedies and internal disputes - proceedings on behalf of company by member - statutory derivative action - rebuttable presumption that grant of leave not in best interests of the company does not arise - leave to sue in the name of the company granted.
PROCEDURE - subpoena - leave to issue - documents sought not relevant - leave refused.
PROCEDURE - miscellaneous procedural matters - referral to registrar for pro bono assistance.
PROCEDURE - miscellaneous procedural matters - referral for mediation - mediator to be agreed by parties - in default joint protocol to apply.Legislation Cited: Corporations Act 2001 (Cth) s 237, s 1322
Aboriginal Land Rights Act 1987 (NSW) s 66, s 216, s 236, s 237
Civil Procedure Act 2005 (NSW) s 26
Uniform Civil Procedure Rules 2005 (NSW) r 7.36, r 7.37Cases Cited: Darkinjung Pty Limited v Darkinjung Local Aboriginal Land Council [2006] NSWSC 1008, 203 FLR 394 Category: Interlocutory applications Parties: Gandangara Local Aborginal Land Council (first plaintiff)
GLALC Development Services Limited (second plaintiff)
Gandangara Management Services Limited (nominal third plaintiff)
Gandangara Services Limited (first defendant)
Gandangara Health Limited (second defendant)
Cinderella Cronan (third defendant)
George Bloomfield (fourth defendant)
Carolyne Joy Brown (fifth defendant)
John Thomas Dickson (sixth defendant)
Mervyn Gregory Donovan (seventh defendant)
Denis Thorne (eighth defendant)
Rohan Tobler (ninth defendant)
Mark (Jack) Johnson (tenth defendant)
Gandangara 101 Limited (eleventh defendant)
Gandangara Employment & Training Limited (twelfth defendant)
Gandangara Future Fund Limited (thirteenth defendant)
Gandangara Health Services Limited (fourteenth defendant)
Gandangara Housing Services Limited (fifteenth defendant)
Gandangara Transport Services Limited (sixteenth defendant)
Lot 3 (South) Barden Ridge Limited (seventeenth defendant)
Marumali Limited (eighteenth defendant)
Sproule Road Limited (nineteenth defendant)
Statewide Aboriginal Services Limited (twentieth defendant)
Sydney Aboriginal Services Limited (twenty-first defendant)Representation: Counsel:
M Oakes SC w D Smallbone (Plaintiffs)
M Johnson (in person) (Tenth Defendant)
Solicitor:
Watson Mangioni Lawyers Pty Ltd (Plaintiffs)
File Number(s): 2014/100748
Judgment (ex tempore)
HIS HONOUR: The plaintiff Gandangara Local Aboriginal Land Council - which, for the sake of convenience, I shall call "the Council" - is a local aboriginal land council established under the provisions of the Aboriginal Land Rights Act 1987 (NSW) - which I shall call "the Act" - in respect of aboriginal lands located in south-western Sydney in the general vicinity of Liverpool. Principally as the result of successful claims under Part 2 Division 1 of the Act, the Council has acquired substantial landholdings in the Liverpool and Sutherland local government areas.
In about 2010, a corporate structure was established to facilitate the pursuit of certain of the Council's objects and functions. This involved the establishment of a number of companies limited by guarantee. At the peak of this structure was the second plaintiff Gandangara Development Services Limited - which I shall call "Development" - of which the Council was the sole member. Beneath it sat the nominal third plaintiff, Gandangara Management Services Limited - which I shall call "Management" - of which Development was the sole member. Beneath Management sat ten further companies - which I shall call "the special purpose companies" - in each of which Management was the sole member. Those companies are the eleventh to seventeenth, and nineteenth to twenty-first defendants. The eighteenth defendant is a subsidiary of one of the special purpose companies.
Under the practically identical constitution of each of these companies, the member was entitled to vote at meetings, but the board was comprised of the persons who were elected as members of the board of the Council. The member may also have been entitled to any surplus on winding-up; at least that is so according to the copies of the constitutions that are in evidence, although there was a suggestion that that may not have been the final form of the constitutions. If so, that will need to be clarified before the final hearing.
On 15 October 2012, the Minister for Aboriginal Affairs appointed one Mr Kelvin Kenney as an investigator of the affairs of the Council, pursuant to s 216 of the Act. On 11 April 2013, the investigator lodged a report with the Minister.
Prior to 20 August 2013, the third to ninth defendants were the members of the board of the Council and the directors of each of the special purpose companies, and the tenth defendant Mr Johnson was the chief executive officer of the Council and of each of the special purpose companies. On 20 August 2013, the Minister appointed Mr David Lombe as administrator of the Council, pursuant to s 222(1) of the Act. This appointment was a "partial" one, in the sense that the administrator was appointed to exercise only specified functions, and not all of the functions, of the Council. With effect from 17 September 2013, s 66(1)(k) of the Act provided that directors are automatically disqualified upon the appointment of an administrator for a term of five years, unless the Aboriginal Land Rights Registrar exercises a discretion to the contrary. By correspondence of 4 December 2013, the Registrar purported to give interim relief under s 66(3), pending a final decision and on the basis he had not yet formed the view required by s 66(3).
The Council's annual general meeting was held on 4 December 2013. At that meeting, the then administrator presented a proposal for a corporate restructure to a so-called "hub-and-spoke" model, under which each of the special purpose companies would become a direct subsidiary of the Council, eliminating the interposition of Development and Management. At that meeting, as there were no more candidates for election to the board than there were vacancies, the nominated candidates were declared elected unopposed without a ballot, they being the third to ninth defendants.
On 15 January 2014, the third defendant Ms Cronen caused to be incorporated two new companies of which she was the sole member, namely the first defendant Gandangara Services Limited - which I shall call "New Services" - and the second defendant Gandangara Health Limited - which I shall call "New Health." New Services was purportedly admitted as a member of Management, and New Health was purportedly admitted as a member of one of the special purpose companies, Gandangara Health Services Limited - which I shall call "Old Health." Development then resigned as a member of Management. The effect of this was to sever the membership link between the Council and Management, and to create, in effect, three groups: the first comprising the Council and its subsidiary Development; the second comprising New Health and its subsidiary Old Health, and a further sub-subsidiary; and the third comprising New Services, its subsidiary Management, and Management's subsidiaries, the other special purpose companies.
When these steps were taken, they were taken without the knowledge of the administrator, but the administrator and the Minister were subsequently notified of them. On 6 March 2014, the then administrator terminated the employment of Mr Johnson as chief executive officer of the Council. So far as I can tell, unlike the position with the directors, his tenure as CEO of the special purpose companies was not dependent upon his tenure as chief executive officer of the Council, and thus his termination as CEO of the Council did not affect his tenure as CEO of the special purpose companies.
On 17 March 2014, the Aboriginal Land Rights Registrar refused each of the board members' requests to exercise his discretion not to disqualify each of them as a board member pursuant to s 66(3) of the Act, and purported to state that their disqualification took effect from 20 August 2013, when the administrator had been appointed.
On 18 March 2014, New Services, as sole member of Management, purported to appoint the previous board members as replacement directors of Management, and Management purported to appoint the previous board members as replacement directors of each of the special purpose companies.
On 20 March 2014, Mr Hillig was appointed administrator of the Council, pursuant to s 222(1). This appointment, unlike the previous appointment of Mr Lombe, which had expired, was a "full" appointment, to exercise all the functions of the Council.
By originating process filed on 3 April 2014, the Council and Development claimed declaratory and injunctive relief to the effect that the purported changes in the membership of Management and Old Health were ineffective and nullities, or avoiding them and reinstating the antecedent position, restraining the former directors from acting or holding themselves out as such, declaring that Management and the special purpose companies hold their assets and undertaking upon trust for the Council; and appointing Mr Hillig as receiver of Management and the special purpose companies.
The matter is one with a strong claim for urgency in the public interest, and also lest assets of the special purpose companies be depleted, as Mr Hillig fears they will, by unsustainable ongoing trading losses. For that reason, the proceedings have been set down for final hearing for four days commencing 27 May 2014.
That is the background that informs the court's consideration of the interlocutory process now before the court, filed by the plaintiffs on 3 April 2014, and the tenth defendant's motion filed on 17 April 2014.
The first and fundamental matter for consideration is the plaintiffs' application for the continuation until the hearing of interim relief that was first granted ex parte on 3 April, and subsequently continued, with some minor variations, on 9 April, 24 April and 1 May 2014, until today. The relief, as last granted, is relevantly in the following form:
1. Until and including 24 April 2014 the third to tenth defendant and each of them be restrained from, by themselves, their servants or agents, removing, transferring, encumbering or further encumbering, disposing of, or otherwise adversely dealing with, any assets or money of any of Gandangara Management Services (ACN 143 178 965) and the eleventh to twenty-first defendants and from causing or permitting such assets or money to be so dealt with.
2. Until and including 24 April 2014 the third to tenth defendants and each of them be restrained from, by themselves, their servants or agents, removing, disposing of, destroying, or altering any of the books or records of any of Gandangara Management Services Ltd (ACN 143 178 965) and the eleventh to twenty-first defendants, provided that this order shall not prevent any person from causing, permitting or suffering additional information to be recorded or additional records to be brought into existence as part of the books and records of those companies.
3. Until and including 24 April 2014, the first to tenth defendants and each of them be restrained from, by themselves, their servants or agents, convening or holding any meeting of any of Gandangara Management Services Ltd (ACN 143 178 965) and the eleventh to twenty-first defendants or passing any resolution thereof, and from nominating, recommending, approving or registering any new member as a member of any of those entities.
4. Until and including 24 April 2014, the first to tenth defendants and each of them be restrained from holding or convening any meeting of Gandangara Management Services Ltd (ACN 143 178 965) and the eleventh to twenty-first defendants from passing any resolutions thereat, for the purpose of removing Clayton Hickey of Lawler Partners from office as auditor of any of Gandangara Management Services Ltd (ACN 143 178 965) and the eleventh to twenty-first defendants.
5. Until and including 24 April 2014, the third to tenth defendants and each of them be restrained from, by themselves, their servants or agents, holding themselves or any of them out to be, directors or chief executive officers of any of Gandangara Management Services Ltd (ACN 143 178 965) and the eleventh to twenty-first defendants.
Given the proximity of the final hearing, the plaintiffs are content with the continuation of the existing injunctions until further order, although had there been a lengthier time until final hearing the plaintiffs would have pressed for further relief.
On an application for an interlocutory injunction, the test is whether there is a sufficiently seriously arguable case for final relief that the risk of prejudice from not granting an injunction outweights the risk of prejudice from doing so.
The plaintiffs impugn the efficacy or validity of the admission of New Services as a member of Management, the admission of New Health as a member of Old Health, and the resignation of Development as a member of Management, on four grounds, namely first, that those acts were in contravention of the Aboriginal Land Rights Act or constituted an evasion of it; secondly, that those acts involved an excess or abuse of power by fiduciaries, whether in their capacity as company directors or as trustees; thirdly, that they were procedurally deficient or incomplete; and fourthly, that there were no directors of any of the entities in office on 15 January 2014 who could have authorised them.
Given the proximity of the final hearing and that, in all probability, I will be the trial judge, it is undesirable at this stage to descend to a detailed exposition and analysis of those issues. As expressed in the course of argument on the interlocutory process on 1 May, while it cannot be said to be unarguable, I am not at this stage persuaded there are strong prospects of the plaintiffs succeeding on the fourth ground, which pertains to the validity of the appointment of directors at the AGM on 4 December 2013. Further, there must be at least reasonable prospects that any procedural deficiency relied upon in connection with the third ground, would be remediable under Corporations Act 2001 (Cth) s 1322.
But it is unnecessary to examine those issues further because, as it seems to me, in the light of the judgment of this court constituted by Barrett J, as his Honour then was, in Darkinjung Pty Limited v Darkinjung Local Aboriginal Land Council [2006] NSWSC 1008, 203 FLR 394, there must at least be a serious question to be tried in respect of the first two grounds. That means the claim for interlocutory relief then turns on the balance of convenience, in the context that there is a period of about four weeks until the final hearing.
Even before the commencement of the litigation, in practice the bank accounts of the eleventh to twenty-first defendants were under the control of the administrator, who had control of the "toggle" which permits access to those accounts. The administrator has indicated he will continue to pay the proper ordinary business expenses of the special purpose companies pending the hearing, and I intend to require an undertaking to that effect as a condition of the continuation of that injunction. Subject to that undertaking, and subject to the couple of exceptions to which I shall come, it seems to me that in circumstances where, on any view, there is grave doubt that there are any directors of the special purpose companies in office as, regardless of what transpired previously, the appointment of Mr Hillig under s 222(1) on 20 March 2014 had the effect that all the directors of the Council were thereupon removed, and the constitutions of the various special purpose companies would seem to have the effect that in that situation all their directors also ceased to hold office, and do not seem to provide for the appointment or re-appointment of the directors so removed in that situation - the preferable course is that the injunction, with the modifications to which I shall come, and subject to that undertaking, continue.
The injunction does not prevent the relevant special purpose companies from dealing with their assets in the ordinary course of business. What it does is prevent control by the former directors, and it does that in circumstances where, for the reasons just given, it seems to me highly likely that they are no longer directors. While I do not accede fully to the plaintiffs' submission that the payment of outgoings should be left to the judgment of Mr Hillig - for reasons that include that he has not been appointed administrator or receiver of the special purpose companies as distinct from the Council, at least at this stage - and while I will require the further assurance of an undertaking that the proper business expenses of those companies will be paid as and when they fall due, the governance vacuum left by the removal of the directors makes it undesirable that persons who are, in all likelihood, not currently directors be left to approve expenditure.
Mr Johnson has sought, in particular, that resources of the special purpose companies be made available to fund their defence of the proceedings. This course has been opposed by the plaintiffs on the footing that that would, in effect, be making the company's funds available as a war chest for one side of what is said to be essentially a shareholders' or controllers' dispute.
While I was initially attracted by that argument, and the array of authorities cited in support of it, on consideration I do not think that is a proper analysis of this dispute. Here the plaintiffs in substance seek a declaration that the special purpose companies are trustees of their assets and undertaking for the plaintiff and not entitled beneficially to them. In addition, the plaintiffs seek to have a receiver, in the form of Mr Hillig, appointed to the special purpose companies. The dispute over the special purpose companies is not just a shareholders' or controllers' dispute, but a dispute concerning the beneficial ownership of their assets, as between the plaintiff and the relevant special purpose company, and whether the special purpose companies should be subjected to receivership. Those are circumstances in which companies ordinarily would not be restrained from expending assets or resources on the defence of their assets and undertaking.
For that reason, I am inclined to the view that, were solicitors to be appointed to act for the defendants, and were a suitable assessment of costs put before the court, the expenditure of an appropriate amount to fund the defence in the interests of the special purpose companies would be permitted. That, of course, has not yet happened, and may never happen, and I do not think it appropriate simply to give a blanket authorisation for expenditure of that nature. That said, I am far from persuaded that the defendants' case is so weak that such expenditure would be unreasonable.
The tenth defendant's motion also seeks to vary the restraint contained in o 5 of 9 April, by removing the reference to "chief executive officers." While the plaintiffs submit that to do so would enable Mr Johnson to perform his former role as chief executive officer of the special purpose companies, though not of the Council, I am unable to see why this should not be the case, when he has not been removed as chief executive officer of the special purpose companies. There does not appear to me, from the evidence, to have been any attempt, let alone valid exercise of power, to remove or terminate his appointment as chief executive officer of the special purpose companies. In those circumstances, I am unable to see why he should be restrained from holding himself out as such. True it is there are no directors, and the very absence of directors may limit the role of a chief executive officer to a caretaker one, but the removal of the directors does not terminate the appointment of the chief executive officer. Accordingly, I propose to vary order 5 by deleting the words "or chief executive officers."
The plaintiffs seek leave, pursuant to Corporations Act, s 237, to sue in the name of Management, the nominal third plaintiff. As the plaintiffs submit, s 236 permits a former member as well as a current member to apply for leave under that section. It is said Management has an interest as plaintiff in the relief sought in prayers 1, 4, 5, 6, 7, 8, 9, 13, 14, 18, 20, 21 and possibly 12 in the originating process. While I do not think it is a necessary party, at least as plaintiff, in respect of many of those claims, it does seem to me that at least in respect of the relief sought in claims 4 and 5, which relate to the membership of Old Health, Management is a proper, if not necessary, plaintiff. Management will not bring the proceedings itself, as more probably than not it has no directors who can authorise the proceedings, and alternatively - if the third to ninth defendants are still directors - they oppose the relief sought. There is nobody else who would bring the proceedings.
I accept that the applicants for leave are acting in good faith in the relevant sense, and in the apparent interests of Management. It is, I think, clear enough that it can be perceived to be in the best interests of Management that leave be granted as, if the proceedings were successful, Management would remain or once again become the sole member of Old Health.
Section 237(3) does not apply. There is a serious question to be tried, for the reasons I have already shortly outlined, and in circumstances of urgency it is appropriate to grant leave even though the notice requirements of paragraph 237(2)(e)(i) were not satisfied, particularly where more than 14 days have elapsed between the commencement of the suit and the appointment of a date for hearing of the application for leave.
In paragraphs 6, 7 and 8 of his motion, Mr Johnson seeks leave to issue three specified subpoenas. Leave is required because he is a litigant in person. However, the documents of which they seek production appear to relate to issues quite outside the scope of these proceedings as presently framed. Leave should not be granted for the issue of those subpoenas. That is not to say that the defendants ought not be permitted to issue other subpoenas, provided the subject matter is relevant.
By paragraphs 10, 11, 12 and 13 of his motion, Mr Johnson sought a number of orders relating to the further conduct of the proceedings. Most of those issues are resolved by the appointment of the hearing to commence on 27 May. However, I do propose to make a number of further orders in connection with the preparation of the matter for hearing. Those orders will include the referral of the defendants to the registrar for pro bono assistance under Uniform Civil Procedure Rules 2005 (NSW) r 7.36 and r 7.37, and the referral of the matter for mediation, if that can possibly take place before the hearing. The case is an important one with significant public interest elements, and it is evident that the underlying issues are not exclusively legal and might well be better addressed, if they can be, in an ADR process.
THE COURT ORDERS THAT:
(1) The plaintiffs have leave to bring, institute and prosecute the proceedings in the name of Gandangara Management Services Limited for the relief claimed in the originating process;
(2) Upon the plaintiffs by their counsel giving to the court the usual undertaking as to damages, and further undertaking that they will pay, as and when they fall due, the proper and reasonable business expenses of the twelfth, fourteenth, sixteenth and eighteenth defendants, out of the funds of those defendants, the third to tenth defendants and each of them be restrained until the hearing or further order from, by themselves, their servants or agents:
(a) removing, transferring, encumbering or further encumbering, disposing of or otherwise adversely dealing with any assets or money of any of Gandangara Management Services Limited and the eleventh to twenty-first defendants, and from causing or permitting such assets or money to be so dealt with;
(b) removing, disposing of, destroying or altering any of the books or records of any of Gandangara Management Services Limited and the eleventh to twenty-first defendants, provided that this order shall not prevent any person from causing, permitting or suffering additional information to be recorded, or additional records to be brought into existence as part of the books and records of those companies;
(c) convening or holding any meeting of any of Gandangara Management Services Limited and the eleventh to twenty-first defendants or passing any resolution thereof, and from nominating, recommending, approving or registering any new member as a member of any of those entities;
(d) holding or convening any meeting of any of Gandangara Management Services Limited and the eleventh to twenty-first defendants, and from passing any resolutions thereat for the purpose of removing Clayton Hickey of Lawler Partners from office as auditor, of any of Gandangara Management Services Limited and the eleventh to twenty-first defendants;
(e) holding themselves or any of them out to be directors of any of Gandangara Management Services Limited and the eleventh to twenty-first defendants.
(3) The defendants have liberty to apply for provision for the costs of defending the proceedings out of the assets of the eleventh to twenty-first defendants in the event that a solicitor is appointed to act for the defendants.
(4) Pursuant to UCPR r 7.36, the defendants are referred to the registrar for referral to a barrister and/or solicitor on the pro bono panel for legal assistance, being representation generally in the conduct of the proceedings;
(5) Pursuant to Civil Procedure Act 2005 (NSW) s 26, the proceedings be referred for mediation by a mediator;
(6) If the parties cannot agree on a mediator within seven days, the joint protocol described in practice note SC Gen 6 will apply, and the mediator will be the person appointed under the joint protocol;
(7) The motion filed by the tenth defendant on 17 April 2014 be otherwise dismissed.
THE COURT DIRECTS THAT:
(8) Subpoenas may be made returnable before the registrar on 16 May 2014;
(9) Unless and except to the extent that a motion to set aside the said notice to produce has been filed by 15 May 2014, the tenth defendant produce for inspection by the plaintiffs' solicitors the documents referred to in the notice to produce dated 7 May 2014 by noon on 15 May 2014;
(10) The plaintiffs not be entitled to rely at the hearing on any affidavit evidence-in-chief that has not been served by 15 May 2014;
(11) The defendants not be entitled to rely at the hearing on any affidavit evidence that has not been served by 22 May 2014;
(12) The plaintiffs not be entitled to rely at the hearing on any affidavit evidence strictly in reply that has not been served by noon on 26 May 2014;
(13) The plaintiff lodge with my associate and serve an outline of its submissions by 22 May 2014, the defendants lodge and serve an outline of submissions by 26 May 2014;
(14) Service of any documents under these orders may be effected on the defendants by serving the respective documents on the tenth defendant, either by delivering the documents to 80 Dietz Lane, Oakdale, or by emailing electronic copies thereof to [email protected].
(15) There be liberty to apply in the event of any difficulty arising in the implementation of these orders.
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Decision last updated: 05 June 2014
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