Kimpura Pty Ltd v Walter
[2002] WASC 166
KIMPURA PTY LTD -v- WALTER & ORS [2002] WASC 166
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASC 166 | |
| Case No: | COR:176/2002 | 18 JUNE 2002 | |
| Coram: | WHEELER J | 27/06/02 | |
| 11 | Judgment Part: | 1 of 1 | |
| Result: | Application for interim orders refused | ||
| B | |||
| PDF Version |
| Parties: | KIMPURA PTY LTD (ACN 006 048 479) JULIAN ALAN WALTER JULIAN WALTER HOLDINGS PTY LTD (ACN 008 872 357) J-CORP PTY LTD (ACN 009 063 076) |
Catchwords: | Corporations Winding up Appointment of Provisional Liquidator Appointment of investigator Turns on own facts Corporations Directors Disclosure to shareholders Administration of Employee Discount Scheme |
Legislation: | Corporations Act, s 236 |
Case References: | Boral Resources (WA) Ltd v Innovative Precast Systems Pty Ltd (1998) 16 ACLC 1570 Alati v Wei Sheung (2000) 34 ACSR 489 H & G Group v Pilot Developments [2002] NSWSC 257 Miller v Scorey [1996] 3 All ER 13 State of South Australia & Anor v Barrett & Ors (1995) 13 ACLC 1,369 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
JULIAN ALAN WALTER
First Defendant
JULIAN WALTER HOLDINGS PTY LTD (ACN 008 872 357)
Second Defendant
J-CORP PTY LTD (ACN 009 063 076)
Third Defendant
Catchwords:
Corporations - Winding up - Appointment of Provisional Liquidator - Appointment of investigator - Turns on own facts
Corporations - Directors - Disclosure to shareholders - Administration of Employee Discount Scheme
(Page 2)
Legislation:
Corporations Act, s 236
Result:
Application for interim orders refused
Category: B
Representation:
Counsel:
Plaintiff : Mr C L Zelestis QC & Mr B D Luscombe
First Defendant : Mr J Gilmour QC & Mr M D Howard
Second Defendant : Mr J Gilmour QC & Mr M D Howard
Third Defendant : No appearance
Solicitors:
Plaintiff : Mallesons Stephen Jaques
First Defendant : Clayton Utz
Second Defendant : Clayton Utz
Third Defendant : No appearance
Case(s) referred to in judgment(s):
Boral Resources (WA) Ltd v Innovative Precast Systems Pty Ltd (1998) 16 ACLC 1570
Case(s) also cited:
Alati v Wei Sheung (2000) 34 ACSR 489
H & G Group v Pilot Developments [2002] NSWSC 257
Miller v Scorey [1996] 3 All ER 13
State of South Australia & Anor v Barrett & Ors (1995) 13 ACLC 1,369
(Page 3)
- Portions of this judgment have been suppressed pursuant to orders made by this Court on 27 June 2002, as amended.
WHEELER J:
The application
1 By an originating process dated 14 June 2002, the plaintiff seeks orders winding up the third defendant, the appointment of a Liquidator, and leave to issue proceedings under s 236 of the Corporations Act in the name of the company against the first defendant, Mr Walter. By an interlocutory application, the plaintiff sought orders for the appointment of a Provisional Liquidator, and the appointment of Mr Coates as an investigator. In the interim, however, the plaintiff seeks orders in terms of a minute of proposed orders which imposes very significant restrictions upon the first defendant's exercise of powers as managing director of the third defendant ("the Company"), and seeks the appointment of Mr Coates as an investigator.
Background to the application
2 The plaintiff is a company of which Mr Leonard Buckeridge is a director. It owns 50 per cent of the Company. It is implicit in the materials before me, that it is a company controlled by Mr Buckeridge and in which he has a significant shareholding, although the precise extent of that shareholding is not clear. Mr Walter either directly or through the second defendant, of which he and his wife are the sole shareholders and of which he is the sole director, owns the other 50 per cent of the Company. The third defendant was a company originally owned by Mr Walter and others which in 1985 operated a home building business. In 1986, after certain negotiations, the plaintiff purchased its 50 per cent interest in the third defendant.
3 At the time of Mr Buckeridge's purchase of his interest in the Company, he owned a company or group of companies which sold building supplies. He was at that time having difficulty finding purchasers for those supplies outside his own group of companies, and made it clear to Mr Walter that he considered it important that the company purchase its building supply requirements, so far as practicable, from the BGC building supply group ("BGC Suppliers"). It appears that it was agreed in principle that providing they were competitive as to price and quality, the Company would purchase building supply requirements
(Page 4)
- from the BGC Suppliers. This agreement was intermittently a source of friction between the two men. Mr Walter on occasion took the view that the Company could purchase either cheaper or better quality products outside the BGC Suppliers, while Mr Buckeridge considered this view to be incorrect.
4 Throughout the period from the plaintiff's purchase of its interest in the Company, Mr Walter was managing director of the Company and either Mr Buckeridge or a person nominated by him was also a director. Despite the intermittent friction between the two men about the purchase of building supplies, relations between them appeared to be otherwise generally satisfactory. A summary of the financial position of the Company from 1990 to 2000 reveals that its revenue was well over $1000 million, that dividends paid in that period exceeded $2 million, while in 2000 it had net assets of some $6 million. Although Mr Buckeridge expressed the view that in relation to turnover, the dividends were "never spectacular", it is apparent that the company was, overall, successful.
5 During 1997 however, relations between the two men began to deteriorate. Mr Buckeridge expressed concern about the efficiency with which the Company was run, and again raised the issue of purchase of building supply products. He expressed concern about what he believed to be high rental being charged to the Company for premises which it leased from the second defendant, and in May 1997, as a result of concerns which he had regarding the management of the Company, he refused to provide a personal guarantee on its behalf. From that time onwards, a variety of proposals were made by one or the other of the men to resolve the conflict between them. Proposals included liquidation of the Company, splitting it up, the purchase by one man of the other's interest, or the appointment of an independent manager. A variety of proposals and counter proposals were made but no agreement was reached, and negotiations of a similar kind have continued to the present day.
6 From 1997 onwards, Mr Buckeridge on occasion complained to Mr Walter about certain of the affairs of the Company, and sought information either directly or through his employees about matters of concern to him. There is no evidence in the materials before me that, save for an issue relating to provision of final accounts for the company for the year ended 30 June 2001, Mr Walter has failed to provide information when requested or to respond to concerns which have been raised. On an occasion during the course of the negotiations from 1997 onwards,
(Page 5)
- Mr Buckeridge indicated that he proposed to appoint an alternate director who would take a more active role in the management of the Company, attending to its management approximately one full day per week. This proposal does not appear to have met with opposition from Mr Walter, but it was apparently not pursued. It does appear that from July last year the Company has not provided Mr Buckeridge with monthly financial results; however, correspondence annexed to an affidavit of Mr Buckeridge reveals that Mr Walter asserts that this failure was due to a change in procedure at the company and had not come to his attention until recently. There appears to be no clear evidence of any failure to respond to any reasonable request by Mr Buckeridge to involve himself in the affairs of the company.
The prior application and the BDO Report
7 There was on 11 March 2002 an application made by Mr Buckeridge to this Court for orders pursuant to s 290(2) of the Corporations Act. Orders were made on 28 March 2002, with the consent of the company. Given Mr Walter's position as managing director, the inference must be that he consented to the orders being made. The orders relevantly were as follows:
"1 ...
2 Pursuant to section 290(2) Corporations Act, BDO, Chartered Accountants and Advisers, are authorised to inspect and make copies of the financial records of J-Corp Pty Ltd on behalf of Mr Leonard Buckeridge, a director of J-Corp Pty Ltd, for the purposes of assisting Mr Buckeridge to determine:
(i) the financial position of J-Corp Pty Ltd; and
(ii) the costs incurred by J-Corp Pty Ltd for the construction of homes and any other buildings on behalf of employees and associates of J-Corp Pty Ltd.
3 Financial records shall have the meaning attributed to it in section 9 of the Corporations Act save that it shall not include tenders and quotes to J-Corp Pty Ltd from persons who are competitors to Mr Buckeridge or companies of which he is a director or member.
(Page 6)
- 4 The information obtained by BDO during such inspection shall only be made available to Mr Buckeridge and any copies of the financial records shall only be used for the purposes of assisting Mr Buckeridge.
5 ... "
8 On 31 May 2002, BDO provided a lengthy report to Mr Buckeridge. [Publication of portions of this paragraph has been suppressed]
9 [Publication of this paragraph has been suppressed]
10 [Publication of this paragraph has been suppressed]
Abuse of process argument
11 The first and second defendant made two oral applications at the hearing of the plaintiff's application for interim relief. First, it was submitted that the entire application should be struck out as an abuse of process and that it was appropriate to hear that application as a preliminary matter. Next, it was submitted that in any event the application should be adjourned, since there were serious allegations made in an application of which the defendants had had almost no notice, and that it was important that the first and second defendants be able to provide evidence as to the matters the subject of the BDO report, and as to the practicability of the interim relief sought. In my view, for reasons which will shortly appear, it is not necessary for me to deal with the second application.
12 So far as the abuse of process argument was concerned, the defendants drew attention to the terms of the order made by Master Bredmeyer and to the terms of s 290 of the Corporations Law. As a matter of construction of the statute, it was argued that the application was necessarily one made by Mr Buckeridge as director and that it followed that the material was to be made available only for the purposes of Mr Buckeridge carrying out his duties as director. It was submitted that it was an abuse of process for material obtained in that way to be used in order to launch an application by a different party – the plaintiff – for its own purposes. A potential difficulty with this argument is to be found in the terms of s 290(4), which permits the court on the making of such an order to make any other orders it considers appropriate, including orders limiting the use that a person who inspects the records pursuant to s 290 may make of information obtained during inspection. This suggests that,
(Page 7)
- absent such an order, the purposes for which such material can be used may be to read only. In any event, it is not entirely clear to me that it is outside the scope of a director's duties to disclose to a major shareholder information which suggests that there are problems with the running of the company which may affect the interests of that shareholder.
13 Alternatively, it was noted that the fourth of the orders made by the learned Master specifically provided that the information obtained by BDO "shall only be made available to Mr Buckeridge", and that copies of the financial records "shall only be used for the purposes of assisting Mr Buckeridge". This order appears to me to be a better foundation for the submission made. It is not without difficulty, however. As counsel for the plaintiff pointed out, the form of the order is such that it may well be understood as a restriction aimed at BDO rather than at Mr Buckeridge; however, given the circumstances in which BDO obtained access to the company's records, BDO would be likely to owe a duty of confidentiality to the company and to Mr Buckeridge not to disclose the information more widely in any event so that presumably some greater restriction was intended.
14 Further, it was submitted on behalf of the plaintiff that it is necessary to consider the context in which the order was made. As Mr Buckeridge is one of two directors, essentially "representing" one of two major shareholders, and concerned to protect the interests of that shareholder against the interests of the person who "represents" the other shareholder, it is submitted that it was implicit in the order that Mr Buckeridge would be able to use the information so obtained for that purpose. Finally, it was submitted that if it were thought an abuse of process for the application to be made by the present plaintiff, that Mr Buckeridge in any event made application to be joined as a plaintiff in respect of the application pursuant to s 236 and s 237 of the Act. That was an application of which the defendants of course had no notice, and their counsel advised me that they would seek time to consider it, if I considered it to be of relevance. There was, it was submitted, a potential question as to whether the court, in the exercise of its discretion, should allow a joinder which would have the effect of curing an application begun as an abuse of process. In any event, it was noted that not all of the relief sought in the present application could be claimed by Mr Buckeridge rather than by the present plaintiff.
15 In my view there is some merit in the submission made by the first and second defendants. However, I am not presently in a position to resolve the application as a preliminary matter. Before I could do so, it would be necessary to hear the first and second defendants' considered
(Page 8)
- submissions on Mr Buckeridge's application, which would on its face remove the difficulty in granting interim relief to him based on the application so far as he was able to make it. If the plaintiff persists in its application, it will be necessary for these matters to be determined. However, I consider it is unnecessary to incur the additional delay, and involve the parties in the additional expense, which would flow from seeking submissions on that point at this stage. Had I reached a view adverse to the defendants on the merits of the application for interim relief, I would do so. However, I am of the view that the interim relief should not be granted in any event.
Need for interim relief
16 The plaintiff notes in its submissions that in Western Australia the court has adopted the test for the grant of injunctive relief as an appropriate means of assessing applications for the appointment of a provisional liquidator: Boral Resources (WA) Ltd v Innovative Precast Systems Pty Ltd (1998) 16 ACLC 1570. I take the same approach to the application for the relief which is sought in the minute which the plaintiff has provided to me. Relevant considerations therefore include the question of whether there is a serious question to be tried, the strength of the plaintiff's case to the extent that it can be ascertained, and the balance of convenience.
17 The plaintiff puts it case in the following way:
[publication of portions of this paragraph has been suppressed]
- It is also asserted by the plaintiff that those circumstances have caused the irretrievable breakdown in, Mr Buckeridge's, and hence the plaintiff's, trust and confidence in Mr Walter.
18 It is apparent that Mr Buckeridge and Mr Walter have been on bad terms for some five years. Mr Walter has repeatedly made allegations that Mr Buckeridge has a conflict of interest in relation to the question of purchase of supplies from BGC Suppliers. Mr Buckeridge has over many years complained about a number of aspects of Mr Walter's running of the company. It appears from some of the correspondence that although they have sent each other letters and memoranda, the two men have not spoken to each other for approximately two years. This fact has not stopped the company being run as an apparently profitable enterprise. It has not prevented the making of day-to-day decisions with respect to the operation of the company. Mr Buckeridge may not be happy about some
(Page 9)
- of those decisions, but he has not pointed to any of them which are improper, apart from the matters which I have broadly outlined above. His case essentially rests, [publication of portions of this paragraph has been suppressed]
19 However, it is to be noted that in February 2000 Mr Davey, a director of BGC (Australia) Pty Ltd, and described by Mr Buckeridge as a person with an accounting background who has been employed by him for many years, sought certain information from the Company's group accountant. The information which he received in reply in February 2000 included information that properties had been built for Mr Walter in accordance with what was described in the reply as "the policy that applies to all staff whereby a percentage discount is applied based on years of service up to 10 years. After 10 years of service all staff houses are built on a cost only basis." He was advised that other employee houses had been built in accordance with the same policy. He was advised that fringe benefits tax had not been paid on any of those transactions. He was also advised that some previous advice had stated that there was no FBT liability but that a further opinion was being obtained, and reference was made to a difficulty in estimating the quantum of FBT which would be payable. He was further advised that all transactions involving Mr Walter "are minuted as attached", but the affidavit does not apparently contain the attachment.
20 As a result of further correspondence, a letter of 14 July 2000 addressed to Mr Buckeridge contained a schedule setting out the addresses of properties constructed for Mr Walter and the cost of construction. A letter of July 2000 from Mr Buckeridge to Mr Walter complained that Mr Walter had abused the staff discount scheme. However, so far as I can discern, further information was not sought by Mr Buckeridge. There is nothing which I have been able to discover in the materials before me which suggests that between July 2000 and the present date, he sought access to any of the advice or further advice referred to in the letter to Mr Davey, or that he sought any detail as to the scope of the employee discount scheme and the number of houses constructed. As a matter of fact, my calculations suggest that the number of houses so constructed would represent somewhat under 3 per cent of the total number of houses constructed by the company during the relevant period. I should note, to put these figures in some kind of context, that Mr Buckeridge's affidavit deposes that the Company presently employs more than 300 people on a full-time basis.
(Page 10)
21 Against the background of the history which I have outlined, it is not clear to me why Mr Buckeridge should have cause to be "shocked" [publication of portions of this paragraph has been suppressed]. However, it is in my view a very substantial overstatement of the position to suggest, as the plaintiff's submissions do, that unless a completely independent person is given control of the company's affairs and assets between now and the hearing of the petition (or Mr Walter is significantly restrained in his conduct of the company's affairs) that the affairs of the company will be conducted for the benefit of the interests represented by Mr Walter and to the detriment of the plaintiff.
22 Nor is there evidence, on the material before me, that unless there is an inspection order and such restraint, that it is unlikely, as the plaintiff submits, that the company will provide the Australian Taxation Office with candid and proper assistance in any enquiries it may undertake. [Publication of portions of this paragraph has been suppressed]. However, I have not been pointed to any material that suggests that the decision was made in bad faith or that there was any deliberate effort to avoid tax which was known to be properly payable.
23 So far as the scope of the employee discount scheme housing is concerned, it represents a very small portion of the company's expenditure [publication of portions of this paragraph has been suppressed]. It is particularly important that I give full weight to potential factual disputes which appear on the face of the plaintiff's materials, and that I do not too readily accept adverse inferences which may appear open on those materials, in the circumstances of this application. Those circumstances are that, although the plaintiff's counsel, Mr Zelestis QC, conceded that "we don't say that it's so urgent that an order has to be made today", and although the plaintiff's voluminous affidavit must have taken some little time to compile, the plaintiff chose to make an application accompanied by a certificate of urgency, without giving the defendants any reasonable opportunity to put material in reply before the court. There will be cases of such urgency that serious allegations must be made without affording opposing parties such an opportunity. Where, as here, the matter does not appear to have that degree of urgency, it is important that an applicant not derive undue advantage from the fact that its allegations are, at the time of application, unanswered, and those allegations should be scrutinised with particular care.
24 As against any risk of injury to the interests of the plaintiff, one must place the fact that Mr Walter has been managing the company for approximately 15 years and that it remains a profitable enterprise. It is a
(Page 11)
- building company employing more than 300 people and providing work for at least 1,000 sub-contractors at any point in time. Its business is the business of building private homes. There is a potential for adverse effects upon the interests of employees, sub-contractors, and those for whom the company has agreed to build homes if orders are made which unduly restrict the operation of the company.
25 It is my view that the orders proposed by the plaintiff, even as interim orders, are out of all proportion to the harm which could be anticipated, based upon past conduct, [publication of portions of this paragraph has been suppressed]. So far as the proposed appointment of an investigator is concerned, it is my view that it is not demonstrated at this stage that it is necessary to have an investigation which would to a great extent duplicate the work already carried out by BDO. It is my understanding that the first and second defendants would in any event wish to have their own report provided to the court in relation to those matters.
26 I would therefore decline to determine the strike out application made orally by the first and second defendants and decline to grant any interim relief to the plaintiff.
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