Kornerstone Pty Ltd v CLB Training and Development Pty Ltd
[2012] VCC 1046
•28 June 2012
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-12-02560
| KORNERSTONE PTY LTD (ACN 096 423 808) | Plaintiff |
| v | |
| CLB TRAINING & DEVELOPMENT PTY LTD (ACN 105 177 044) | Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 and 28 June 2012 | |
DATE OF JUDGMENT: | 28 June 2012 | |
CASE MAY BE CITED AS: | Kornerstone Pty Ltd v CLB Training & Development Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1046 | |
REASONS FOR JUDGMENT
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Catchwords: CHARGE – right to inspect chargee’s documents – mandatory order- whether objective grounds justifying inspection required - authorised representatives to inspect – offers of inspection made by charge - matters relevant to making of order
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I D Martindale SC and Ms J Turfrey | MCK Legal |
| For the Defendant | Mr D Farrands | Kliger Partners |
HIS HONOUR:
1 By summons on Originating Motion dated 24 May 2012, the plaintiff (Kornerstone) seeks orders, the effect of which is to invoke Clause 6.2(d) of a Charge Deed, to allow two authorised representatives who were, at least initially, nominated as Mr Mitch Karafili, an accountant for the plaintiff, and Mr Dale Harrison, as authorised representatives of the plaintiff, to attend the premises of the defendant, which are in South Melbourne, to inspect and take copies of:
(a) any register under the Corporations Act;
(b) any record of information;
(c) any financial report or financial records;
(d) any document
of the Defendant (each as defined in the Corporations Act).
2 Evidence was given by affidavits by Mr Harrison, by Mr Karafili, on behalf of the plaintiff, and by Mr Block, the solicitor for the defendant, and by Mr Cobbledick, a director of a related company.
3 There was considerable discussion as to whether I was being asked to determine an interlocutory application, or to make orders in the nature of final orders. I am satisfied that by invoking the originating motion procedure and then moving by summons seeking dispensation of the requirements of the Rules, that this is the final hearing of the application.
4 Therefore, the plaintiff must persuade me that it is entitled to the mandatory relief that is sought. This case needs to be considered in conjunction with a County Court proceeding between Kornerstone Pty Ltd and Newco CLB Training & Development Pty Ltd, which is matter number CI-11-03582, in which Kornerstone sues on a commercial agreement to recover the sum of $2.6 million. That agreement is a share and unit sale agreement made on 1 July 2010 between Kornerstone and Newco CLB Training & Development Pty Ltd. That agreement was subsequently amended. The plaintiff alleges that he was entitled to recover the balance of purchase monies in the sum of $2,690.100.
5 In the other County Court proceeding, it is alleged that CLB Training & Development Pty Ltd was a registered training organisation and as trustee of the CLB Unit Trust, conducted a business providing training programs to small to medium enterprises, corporate and government clients.
6 The defendant in its counterclaim in that proceeding relies on a failure to reach agreement as to the relevant price and the failure to agree to a determination of that price by an independent expert. It also relies on alleged breaches of financial statements and warranties, a breach of a disclosure warranty, and claims loss and damage. It also relies on allegations of misleading and deceptive conduct alleged to be in breach of the Trade Practices Act. The trial of that proceeding is fixed for October.
7 The application before me is to enforce a clause of a fixed and floating charge that was dated 1 October 2010. The parties to the charge are CLB Training & Development Pty Ltd and Kornerstone Pty Ltd as trustee for the CLB Trust and as trustee for the Dale Harrison Equity Trust. The recital to the charge states that it was made to better secure the secured money owing to the chargee from the debtor, who is defined as Newco CLB Training & Development Pty Ltd.
8 Under the terms and conditions of the share and unit sale agreement, the chargor agreed to grant a fixed and floating charge over the charged property on the terms and conditions of this deed. “Charged property” is defined to mean the chargor’s interest in all its property anywhere, real and personal and present and future, whether in its own right or as trustee of the trust.
9 Clause 6.2 of the Charge contains general undertakings. Paragraph (d) of that sub-clause provides:
“ The Chargor covenants with the Chargee as follows, except to the extent that the Chargee consents, that the Chargor will:
(d) (keep books) keep proper Books recording its activities (including financial records in accordance with the Corporations Act) and permit inspection and copying by the Chargee or its Authorised Representatives upon reasonable notice.”
10 “Authorised Representative” is defined in the charge to mean –
(a) a company secretary or director of the party or an employee of the party whose title includes the word “manager” or “director”;
(b) a person who is acting temporarily in one of those positions; or
(c) a person or persons holding a position nominated by the party to the other party.
11 The purpose of the clause 6.2 (d) is self-evident and was intended to enable Kornerstone to take steps to protect its rights in respect of the balance of purchase monies that it claims to be due, particularly in respect of any question of solvency that may affect the debtor company.
12 On 9 May 2012, Mr Karafili and Mr Harrison were appointed authorised representatives to inspect the defendant’s books and records. Various requests were then made by Kornerstone or its lawyers or accountant, to inspect the records. The most recent one was dated 9 May 2012. In a letter of 9 May 2012, Mr Karafili, who is the plaintiff’s accountant, recounts the lengthy paperwork trail dealing with the plaintiff’s asserted rights to inspect the books and records, and notes correspondence from the defendant’s solicitors stating that they “will provide the books and records subject to our agreeing to the appointment of third party accountants to conduct the examination of the books and records of CLB”.
13 Mr Karafili’s letter did not accept that proposal and asserts the right to have authorised representatives inspect the records stating:
“Please find attached the authorities signed by Kornerstone Pty Ltd authorising the writer and Dale Harrison to attend to [scil your] premises and examine the books and records of the company.
We are hoping now that you will accommodate our request.”
14 The defendant’s solicitors replied on 11 May 2012, disputing the allegations made by Mr Karafili, and stating that the defendant
“ is solvent and profitable and that has already been demonstrated to you and your client in the extensive financial records and material already provided.”
15 There is reference made to a solvency report prepared by Matchett Partners and the letter states:
“Please provide us with the basis of your insolvency allegations by return letter. If you fail to do that we will take it that you now agree the allegations are baseless.
Further, it would be completely inappropriate for your client to visit our client’s offices due to the breakdown in negotiations between the parties and the intense hostility that exists between the parties which have involved the police.
It is for this reason that we have invited the appointment of independent accounting advisors to undertake the investigation of the books that have been requested by your client so as to ensure that there is no contact between our respective clients.
Our client remains willing to respond to any questions your client raises in relation to the extensive financial information already provided to your client and its various solicitors, including ….”
16 After reference to earlier correspondences, the letter also states:
“Our client has provided well over 100 pages of financial information to your client over the past several months. You have not provided one single question or any analysis in response. As has been stated many times previously, if your client has any specific questions these should be provided to us in writing and our client will provide an appropriate response.”
17 The letter then makes reference to possible future litigation and the response that would be made to it.
18 The defendant opposes the orders that the plaintiff seeks. The essence of the defendant’s response can be identified by reference to paragraph 14 of counsel’s submissions, which states:
“In the light of –
(a) the extensive materials which have been provided to Kornerstone both as to historical and present financial position performance of CLB;
(b) the lack of analysis provided by Kornerstone in response;
(c) the basis of this allegation as to insolvency by Kornerstone;
(d) the extensive and relevant discovery in the Principal Proceeding;
(e) the very real and serious threats of violence against Mr Cobbledick and his family
CLB has refused the plaintiff access to the books and records of CLB.”
19 Those matters were expanded on in the affidavit of Gary William Cobbledick of 21 June 2012. As I have stated, Mr Cobbledick is a director of Newco CLB Training & Development Pty Ltd. He states that shortly after November 2010, Newco and Kornerstone fell into dispute about the price which should have been paid for the business. The Sale Agreement had provisions under which Newco could withhold instalment payments until disputes as to price had been resolved. In accordance with those provisions, Newco has not paid the subsequent instalments of the purchase price as set out in the Deed of Amendments and having already paid $6,459,900, has sought to recover from Kornerstone an amount equal to the overpayment.
20 Mr Cobbledick also refers to the provision in the Sale Agreement, that provides for the resolution of disputes as to the price. He refers to efforts to appoint an independent expert to resolve that issue and the lack of success in those endeavours. He gives extensive detail of the discovery given in the principal proceeding. He then makes reference to what counsel referred to as threats of violence. It is sufficient for me to Mr Cobbledick’s account of the first of those threats to capture the tenor of what he refers to
“On Wednesday 16th November 2011 at 11.29 am, I received a phone call on my mobile phone from a blocked number that lasted for 34 seconds. The caller did not identify himself but stated: ‘You owe somebody a lot of money. We know where you live. If you don’t pay by the end of the month then ….[the names of family members were given] … will pay’.”
21 The family members include two children aged ten and under. Mr Cobbledick states that he reported the matter to the police. He also describes in his affidavit other threats of violence, which I will not elaborate, but which are very serious events, that are matters for the police to consider. He does however state in his affidavit:
“I do not know whether there is any connection between the threats and the dispute with Kornerstone”
22 Mr Cobbledick states that he told the police that he did not owe anyone any money save for any liability that he or his company may have in respect of the County Court proceedings.
23 Mr Cobbledick states that his reasons for refusing access to inspection were as follows:
“(a) Newco has responded to Kornerstone’s detailed requests for information, providing extensive financial documentation comprising hundreds of pages to Kornerstone, which information discloses, inter alia, the financial position and performance of Newco;
(b) Newco has provided financial information as to its financial position and performance to Kornerstone as required under the Deed of Charge;
(c) Kornerstone has not raised one single query or provided any analysis whatsoever to that material;
(d) The allegations of insolvency are baseless;
(e) Newco has provided extensive and relevant discovery in accordance with its obligations in the Principal Proceeding;
(f) There have been the very serious and real threats of violence to my family and every endeavour should be made to keep the dispute as a commercial arms’ length dispute only to be resolved by professional advisors only and through the provision and documentation as requested.”
24 I have taken all that evidence and the defendant’s submissions into account.
25 However, I consider that a mandatory order, in terms to be further discussed with counsel, should be made to enable the right of inspection contained in Clause 6.2(d) of the Charge Deed to be enforced.
26 In reaching that conclusion, I take into account that the Charge Deed is a commercial agreement or transaction which the parties, no doubt properly advised, freely entered into. I do not see why either party, in this case the plaintiff, is not entitled to seek the Court’s order to enforce the rights given to it by the Charge Deed. I do not consider that the rights given by the Charge should be read down by the addition of requirements, that the party seeking to enforce it must, either establish some acceptable objective purpose to be determined by the Court, or by some objective standard of reasonableness. The exception to this last proposition is where the terms of the agreement itself requires reasonable notice. I do accept however that the Court, in fashioning any order, has the power to determine the terms on which any inspection will occur.
27 I do not consider that the fact that the plaintiff has not satisfied the defendant’s queries as to why it wishes to inspect, or the basis for its inspection, is a reason for refusing a mandatory order. I consider that the commercial purpose of the right to inspect justifies the Court making the order.
28 It is true that that the making of mandatory injunctions is discretionary. I have taken into account the great deal of material that has been provided by the defendant to the plaintiff. However, most of it was provided more than three months ago and I do not see any reason why an order for inspection should not be made.
29 I have given consideration to the allegations of violence that have been made. However, I do not consider that in this case, they provide a basis for refusing the relief sought. Those matters are properly to be considered by the police.
30 I do take into account that it is important that the difficulties that the parties are experiencing in dealing with each other are not exacerbated unnecessarily by the terms of any order I make.
31 I have received competing draft orders from the parties. I need to determine who should carry out the inspection and the date and time of the inspection and some matters relating to its terms. The plaintiff provided a schedule of the documents that are sought.
32 I propose to make an order for inspection but I will hear the parties further about the terms of that order, including who should carry out the inspection.
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