In the matter of Graziers Pastoral Pty Ltd (No 2)

[2020] NSWSC 1812

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Graziers Pastoral Pty Ltd (No 2) [2020] NSWSC 1812

Hearing dates:

14 December 2020

Decision date:

14 December 2020

Jurisdiction:

Equity - Corporations List

Before:

Leeming JA

Decision:

1. Each of the first, second and third defendants, and the fourth and fifth defendants, account on a monthly basis to the plaintiffs as to the legal fees incurred by them in defence of this litigation.

2. The account to be by way of short narrative, as opposed to a single line item, and also in contradistinction to an itemised bill of costs.

3. The intent of orders 1 and 2 is not to involve the waiver of any privileged information on the part of the first, second, third, fourth or fifth defendants.

Catchwords:

CORPORATIONS – oppression suit – shareholders enter into Deed of Mandate appointing new directors to manage companies' affairs and sell assets following breakdown of trust – one shareholder later alleges oppressive conduct by new directors in conjunction with other shareholder – shareholder seeks interlocutory injunction preventing new directors from being indemnified from company funds for legal expenses – dispute as to existence, source and nature of indemnity – undesirability of resolving that dispute in this application – no necessity to grant injunctive relief where ample company assets - orders made directing new directors provide account to plaintiff of legal fees paid by them in defending litigation on monthly basis – In the matter of Therma Truck Pty Ltd [2016] NSWSC 266 applied.

Legislation Cited:

Civil Procedure Act2005 (NSW), s 56

Corporations Act 2001 (Cth), ss 232 and 233

Cases Cited:

In the matter of Therma Truck Pty Ltd [2016] NSWSC 266

Wollongong Coal Ltd v Gujarat NRE India Pty Limited (2019) 100 NSWLR 432; [2019] NSWCA 135

Category:

Procedural and other rulings

Parties:

John Parilo (1st Plaintiff)
WD Capital Pty Ltd ACN 146 628 837 (2nd Plaintiff)
Parilo Holdings Pty Ltd ACN 605 816 297 (3rd Plaintiff)
Graziers Pastoral Pty Ltd ACN 162 960 634 (1st defendant)
Windsor Livestock Holdings Pty Ltd ACN 605 816 304 (2nd defendant)
Windsor Livestock Pty Ltd ACN 169 917 793 (3rd defendant)
Suelen McCallum (4th defendant)
Riad Tayeh (5th defendant)
Alan Gordon Taylor (6th defendant)
Free Flight Australia Pty Ltd ACN 162 958 563 (7th defendant)
Redglint Pty Ltd ACN 003 922 638 (8th defendant)

Representation:

Counsel:
D Smith (Plaintiffs)
J Hogan-Doran SC (1st-5th defendants)
A Combe (6th-8th defendants)

Solicitors:
StevensVuaran Lawyers (Plaintiffs)
Coleman Greig Lawyers (1st-5th defendants)
William Roberts Lawyers (6th-8th defendants)

File Number(s):

2020/106004

Publication restriction:

Nil

Judgment

1. LEEMING JA: Paragraph 2 of the plaintiffs’ interlocutory process dated 24 November 2020 seeks an order that the fourth and fifth defendants be restrained from applying any funds of the first to third defendants for the defence or conduct of these proceedings. By way of abbreviated background, the fourth and fifth defendants, Ms Suelen McCallum and Mr Riad Tayeh, were appointed as directors of the first, second and third defendants, following the falling out of the natural persons who originated the joint venture in around 2013, namely, the plaintiff Mr John Parilo and the sixth defendant, Mr Alan Taylor.

2. At around the time of their appointment, a Deed of Mandate dated 11 May 2018 was executed. The deed has certain curious features. It is executed only by six persons, whom I am told represent 100% of the members of the corporate joint venture vehicles. However, on its second page, although not on the cover sheet, it is expressed to extend to eight parties, including the fourth and fifth defendants, Ms McCallum and Mr Tayeh. The deed confers upon Ms McCallum and Mr Tayeh the “unfettered authority to act in the best interest of the Shareholders” in “managing the day to day affairs of the Companies” and “undertaking the orderly and arms-length sale of all of the assets of the Companies”. The deed deals with the remuneration of Ms McCallum and Mr Tayeh who are the "Incoming Directors" in at least two places. First, there is cl 3(a)(iii)(B):

“The Shareholders hereby grant a mandate to the Incoming Directors as follows:

(a) The Incoming Directors have the unfettered authority to act in the best interest of the Shareholders of each of the Companies in:

(iii) placing the proceeds of sale of all the assets of the Companies into a trust account under the control of the Incoming Directors to be used to:

…

(B) satisfy all liabilities of the Companies (including but not limited to the fees of the Incoming Directors and any other fees and expenses they may incur in fulfilment of the Mandate)

…”

Secondly, there is an indemnity in cl 4:

“Except to the extent that the Incoming Directors or either of them act in a manner that is in breach of their Mandate or is fraudulent or grossly negligent, the Shareholders agree to indemnify and keep indemnified each Incoming Director and dVT Group, its employees, agents and assigns from any loss they or any of them may suffer arising out of a claim against them in their capacity as directors of the Companies or any of them.”

3. As I mentioned, the deed gives rise to some questions of construction. The plaintiffs’ position is that there is no indemnity granted by the companies to the Incoming Directors which extends to legal expenses incurred defending these proceedings. I interpolate that after the appointment of the fourth and fifth defendants as Incoming Directors of the joint venture vehicles, and the resignation of Mr Parilo and Mr Taylor as directors of those companies, Mr Parilo claims that the new directors, together with Mr Taylor, have engaged in conduct which is oppressive within the meaning of the ss 232 and 233 of the Corporations Act 2001 (Cth). The details of those allegations do not presently matter.

4. Conversely, the fourth and fifth defendants maintain that either by way of contract or by way of estoppel - for they deny that they are parties to the Deed of Mandate - they are entitled by way of indemnity for the legal costs that have been incurred in defence of the proceedings. To date, the evidence discloses that those costs are likely in the order of, or slightly in excess of, $200,000.

5. It is not necessary for me, and in my view it would be undesirable, having regard to the limited argument and the potential complexity, to rule on the issue. I bear in mind that the document is a deed which expressly names the fourth and fifth defendants, who, although they had not executed it, may fall within what was said in Wollongong Coal Ltd v Gujarat NRE India Pty Limited (2019) 100 NSWLR 432; [2019] NSWCA 135 at [55]. It is certainly not desirable to adjudicate on the questions of construction or estoppel for the purposes of today's application. But I am conscious that one aspect of the plaintiffs’ application is that the incoming directors are left with either such rights as they have against the shareholders, or what they may be able to enforce as a result of a favourable costs order at the end of the proceedings.

6. The outcome of the exchange of written and oral submissions that has taken place in connection with this application, which has been constructive, is that all of the first to fifth defendants, and those acting and appearing for them, are conscious of the plaintiffs’ concerns and their obligations under s 56 of the Civil Procedure Act. The orders that I propose to make will enhance transparency, with a view, in part at least, to reducing the scope of disputes between the parties.

7. I do not regard it as appropriate on the evidence presently before me to grant the injunction in the terms sought by the plaintiffs, bearing in mind the relatively recent background of this dispute - by which I mean the recent appointment of people who I understand to be “outsiders” for the limited purpose essentially of undertaking an orderly and arm’s-length sale of the joint venture assets. Happily, the position seems to be that there is a substantial excess of amounts in the companies. That tells against the need for injunctive relief at this stage, because if and when it is established that companies’ money was expended without authorisation, there may be an appropriate adjustment.

8. I propose to take a course, essentially as proffered on behalf of the first to fifth defendants by Mr Hogan-Doran SC, which accords with what occurred in In the matter of Therma Truck Pty Ltd [2016] NSWSC 266, namely, to impose a regime which will give the same level of transparency in relation to legal costs as the clients will be receiving, essentially by ordering that for the balance of the interlocutory stages of this litigation, fees rendered by the solicitors be disclosed to the plaintiffs.

9. That course has the advantage identified by Black J at [47]:

“It does not seem to me to be necessary to determine the issues as to the Company’s expenditure of legal costs to date in order to determine this application. The December undertakings, as they have been amended, seem to me to be sufficient to address this issue. If the undertaking as to access to financial information is complied with, then Ms Espinosa will have visibility of any legal expenses incurred by the Company in the defence of these proceedings on an ongoing basis.”

That does not preclude, as Black J indicated in Therma Truck itself, some further properly grounded application being made by the plaintiffs.

10. Further, and since it has been a matter the subject of submissions before me today, and as indicated to Mr Hogan-Doran, the regime that I propose will involve an articulation of which of the costs in each period are attributable to the first to third defendants, as opposed to the fourth and fifth defendants.

11. I propose then the following orders:

1. Each of the first, second and third defendants, and the fourth and fifth defendants, account on a monthly basis to the plaintiffs as to the legal fees incurred by them in defence of this litigation.

2. The account to be by way of short narrative, as opposed to a single line item, and also in contradistinction to an itemised bill of costs.

3. The intent of orders 1 and 2 is not to involve the waiver of any privileged information on the part of the first, second, third, fourth or fifth defendants.

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Decision last updated: 15 December 2020