Liwszyc v Smolarek - [2005] WASC 199

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: LIWSZYC & ANOR -v- SMOLAREK & ORS [2005] WASC 199

CORAM: HASLUCK J

HEARD: 18 & 19 AUGUST 2005

DELIVERED : 2 SEPTEMBER 2005

FILE NO/S: COR 144 of 2005

MATTER :Section 1324 of the Corporations Act 2001 (Cth)

BETWEEN: DAVID LIWSZYC
GHEORGHE EMIL DUTA
Plaintiffs
AND
HANNA SMOLAREK
First Defendant
CHRISTINA SMOLAREK
Second Defendant
EZNUT PTY LTD (ACN 102 508 789)
Third Defendant

Catchwords:

Corporations - Corporate governance - Nature and effect of replaceable rules - Validity of resolutions bearing upon the appointment and removal of directors - Effect of remedial provisions - Application for injunctive relief - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 201H(1), s 203C, s 134, s 135, s 250A, s 1072G, s 1322, s 1324

Result:

Defendants' application to set aside interim restraining order dismissed
Plaintiffs' application allowed

Category: B

Representation:

Counsel:

Plaintiffs:     Mr A P Hershowitz
First Defendant             :     In person
Second Defendant         :     In person
Third Defendant           :     No appearance

Solicitors:

Plaintiffs:     Paiker & Overmeire
First Defendant             :     In person
Second Defendant         :     In person
Third Defendant           :     No appearance

Case(s) referred to in judgment(s):

American Cyanamid Co v Ethicon Ltd [1975] AC 396
Australian Securities Commission v Cooke (1997) 15 ACLC 435
Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
Emlen Pty Ltd v St Barbara Mines Ltd (1997) 24 ACSR 303
Mills v Mills (1938) 60 CLR 150
Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
Shepherd Homes Ltd v Sandham [1971] Ch 340
State Transport Authority v Apex Quarries Ltd [1988] VR 187

Case(s) also cited:

Ampol Petroleum Ltd v R W Miller (Holdings) Ltd (1972) 2 NSWLR 850
Australian Securities Commission v Cooke & Ethical Technology Brokers Pty Ltd (1996) 22 ACSR 580
In re City Equitable Fire Insurance Co Ltd [1925] Ch 407
Manning River Co-op Dairy Co Ltd v Shoesmith (1915) 19 CLR 714

HASLUCK J:

Introduction

The plaintiffs in these proceedings seek to be reinstated as directors of the third defendant company, Eznut Pty Ltd. They seek also certain related orders which are said to be directed towards preserving the status quo pending the trial of the matter. These orders are opposed by the defendants upon the basis that they should be regarded as the directors of the company and be at liberty to proceed with the management of the company's affairs, being principally the commercial exploitation of a new type of fastener. This device, which consists of several small pieces of metal, is said to be a self‑tightening fastener which will not come undone under extreme vibration and will be capable of accurate pre‑loading.
I must begin by looking at the background to the present dispute between the parties concerning control of the third defendant. For ease of reference, having regard to the name of the third defendant, I will refer to the invention lying at the heart of the dispute as the "Eznut device".

Background

The first defendant, Hanna Smolarek, was associated with the development of the Eznut device which has now become the subject of various patent applications. She then perceived that it was necessary to enlist assistance in order to create a prototype of the device and to raise capital.
A company was established known as Eznut Pty Ltd being the third defendant in these proceedings. The first defendant negotiated with the plaintiffs to join the company on the assumption that they would bring in managerial and technical expertise and be of assistance in raising capital. The plaintiffs and the first defendant became the directors of the defendant company and steps were taken to raise capital and exploit the device.
It seems that various small investors, including the plaintiffs, were allotted shares in the company. I understand that the amount invested by persons other than the first defendant as at mid‑2005 amounted to $194,000. The first defendant contributed a great deal to the company in the performance of various duties. Her contribution to the company is described at length in her second affidavit. I note that upon the formation of the company she held 95 per cent of the shares; the first named plaintiff held 5 per cent. I understand that the first defendant now holds shares amounting to 64.5 per cent of the total issued shares of the company.
In his affidavit sworn 17 June 2005 the first named plaintiff, David Liwszyc, described the current position in this way:
"9.As at 13 April 2005 the directors of the Company were:
•David Liwszyc;
•      Gheorghe Emil Duta ('Mr Duta'); and
•      Hanna Smolarek
10.As at 13 April 2005 the members of the Company and shareholding in the Company was:
•      Cacobon Pty Ltd – 210,488 shares
•      Henry Zelman Personal Superannuation Fund – 140,326 shares
•      David Liwszyc Family Trust – 467,752 shares
•      Duta Family Trust – 561,302 shares
•      Archimedes Group Trust – 280,651 shares
•      Smolarek Family Trust – 3,017,000 shares"

Areas of disagreement

Areas of disagreement began to emerge between the first defendant and the plaintiffs as to how the project should be advanced. The first defendant formed a view that the plaintiffs wanted to dilute her shareholding and exploit her invention. She came to the conclusion that the plaintiffs had failed to honour certain representations about their capacity to advance the affairs of the company; she began to have doubts as to whether they could be relied upon to progress the project in the way she wanted. Moreover, she believed that she was not being properly rewarded for administrative work undertaken on behalf of the company. All of this led to various email exchanges between the parties reflecting the areas of disagreement.
More specifically, as appears from the first named plaintiff's affidavit the first defendant rejected a proposal to raise further capital by an allotment of shares. The first named plaintiff said this:
"21.A further meeting of the Company was held on 16 April 2005 at which time a proposal was discussed to raise an additional $67,000 in order to prepare a marketing document and support the patents. I annex hereto marked 'DL6' a copy of the minutes of the meeting of the Company held on 16 April 2005 approving the share issue.
22.The First Defendant refused to accept the proposal to raise an additional $67,000. The directors of the Company, with the First Defendant's objection, resolved to raise the $67,000 by issuing $1.5 million shares in the Company and offering the shares to all shareholders in proportion to their shareholding. I annex hereto marked 'DL7' copies of the notices sent to shareholders offering the shares.
23.With the exception of the First Defendant all shareholders agreed to take up their allotment. I annex hereto marked 'DL8' copies of the notices regarding funds for new issue of shares reflecting the shareholding position after the issue.
24.The First Defendant's allotment of shares was picked up by mutual consent by the remaining shareholders in proportion to their respective shareholdings.
25.All shareholders have paid the required amounts into the Company account and ASIC has been advised of the changes to the shareholding of the various members."
Another area of disagreement is reflected in an explanatory memorandum that accompanied the notice of general meeting mentioned below. This memorandum was prepared by the first defendant; that is, the managing director. In regard to the proposed removal of the first named plaintiff as a director the memorandum reads in part as follows:
"Mr Liwszyc failed to act in good faith in the best interest of the company, Eznut Pty Ltd, as required by CORPORATIONS ACT 2001 – SECT 184, when he irrevocably refused to grant company personnel and in particular its managing director access to the, company owned, Junker machine in order to conduct vibration tests that are essential part of company business; the machine is located temporarily at Mr Liwszyc's other proprietary company Jetcut Pty Ltd premises.
Despite Eznut managing director repeated demands, Mr Liwszyc refuses to allow relocation of the testing machine to Eznut business premises.
As the consequence of Mr Liwszyc reckless action the company cannot move forward and finalise its prototyping development stage."
The first defendant summed up her attitude to the first named plaintiff at par 190 of her second affidavit in this way:
"190.The First Plaintiff conduct as the Company director was appalling, virtually starting from the second quarter of the Company existence, when he embarked on pursuing his goal of becoming Eznut inventor, at the Company expense."

The general meeting

In late April and early May 2005 certain steps were taken by the first defendant which led eventually to a general meeting of the company being held on 27 May 2005. At this meeting the shareholders of the company purported to resolve that the first plaintiff be removed as a director and the first defendant's 20‑year‑old daughter, Christina Smolarek, be appointed as a director.
Shortly before the meeting, on or about 5 May 2005, the first defendant had purported to transfer to her daughter 1000 shares in the company. The only persons physically present at the 27 May meeting were the first defendant and her daughter Christina. Due to inadvertence, the plaintiffs failed to attend the meeting. The resolutions just mentioned were passed on the assumption that there was a quorum constituted by the first defendant and second defendant as shareholders of the company. The first defendant held various proxy forms and the minutes of the meeting suggest that the first defendant as Chair elected to vote the undirected proxies.
Soon after the meeting the first defendant purported to attend to the formalities evidencing a change in the directors of the company by filing forms to the effect that the first plaintiff had been removed as a director and the second defendant had been appointed as a director.
In addition, forms were completed to the effect that the second plaintiff had ceased to be a director of the company. The first defendant's position in that regard was that the second plaintiff had been appointed as a director by the other directors of the company upon the basis that his appointment was to be confirmed by resolution at a general meeting within two months. However, as no such resolution had ever been passed, in the first defendant's view, he had ceased to be a director.

The legal proceedings

It was against this background that the plaintiffs commenced proceedings by way of an originating process dated 17 June 2005 which was supported by the affidavit of the first named plaintiff sworn 17 June 2005 mentioned earlier. I note in passing that the notice of general meeting concerning the 27 May meeting appears at page 36 of the first named plaintiff's affidavit. The minutes of the meeting appear at page 45 (albeit being wrongly dated as 27 June 2005). I have before me also the affidavit of the plaintiffs' solicitor Harold Paiker sworn 16 August 2005.
The plaintiffs came before a Master of the Supreme Court and obtained an interlocutory order to the effect that the defendants be restrained from binding or purporting to bind the third defendant without the approval and consent of the plaintiffs and/or the Court. Programming orders were made providing for the parties to file and serve affidavits bearing upon the matters in issue.
The first defendant filed and served an affidavit sworn 27 June 2005 in support of an application to set aside the injunction. She later filed a lengthy responsive affidavit sworn 26 July 2005.
The restraining order was varied on 27 July 2005 so as to allow the first defendant to communicate with the patent agencies in the United States and China with a view to keeping in force or maintaining the applications lodged with those agencies for and on behalf of the defendant company save that the first defendant was not at liberty to incur costs or expenses on behalf of the company.

The hearing

It was against this background that the matter came on for hearing in Chambers on Thursday, 18 August 2005. The plaintiffs were represented at the hearing by a barrister. The first and second defendants appeared on their own behalf.
The plaintiffs sought orders in terms of a minute of proposed orders dated 18 August 2005 the terms of which are as follows:
"1.The plaintiffs be reinstated forthwith as directors of Eznut Pty Ltd.
2.Until further order or pending the determination of the action herein, the second defendant be restrained and an injunction be granted prohibiting her from acting as a director of Eznut Pty Ltd.
3.The appointment of the first defendant as secretary of Eznut Pty Ltd be set aside.
4.The first defendant take all steps necessary and sign all documents necessary to give effect to paragraphs 1 and 3 above.
5.The first defendant pay the costs of this application.
6.Liberty to apply."
The position of the plaintiffs was that the defendant had initiated, then carried into effect, a plan to exclude the plaintiffs from the management of the company. The first named plaintiff's affidavit puts the allegation at par 11 in this way:
"11.As appears more fully hereinafter, the First Defendant has embarked on a course of conduct in terms whereof she has unlawfully caused:
(a)Mr Duta and me to be removed as directors of the Company;
(b)her daughter, the Second Defendant, to be appointed as a director of the Company;
(c)to be issued to the Second Defendant 1,000 shares; and
(d)the shareholding in the Company to be altered."
Notwithstanding an assertion to the contrary in certain of the evidentiary materials before the Court, counsel for the plaintiffs accepted that the company did not have an operative constitution and that the appropriate point of reference were the replaceable rules allowed for under provisions of the Corporations Act 2001 (Cth).
Counsel went on to submit that in various respects the provisions of the statute and of the replaceable rules had not been complied with. This meant that the purported removal of the first plaintiff and the appointment of the second defendant as a director were invalid. He said that restraining orders should be made in terms of the plaintiff's minute in order to preserve the status quo until the trial of the matter.
Counsel for the plaintiffs recognised that as at the date of the hearing the company could not function because the plaintiff directors had arguably ceased to be directors and the defendant directors were presently restrained from representing the company. Counsel informed the Court that this did not give rise to matters of urgency of the usual kind in that the company was not being pressed to meet outstanding debts to financiers or to creditors, nor did it have to meet the wages of any employees. However, there was a need to keep certain patent applications in force. Counsel went on to say that the matter essentially in issue concerned the future of the company.
Counsel for the plaintiffs submitted that the balance of convenience favoured the grant of an injunction. The orders sought were necessary in order to preserve the status quo pending the trial of the action and to ensure that the funds invested by third parties were not dissipated as a consequence of any precipitate action taken by the defendants on the assumption that they were fully in control of the company's affairs. Counsel pointed out that the plaintiffs' proposed orders allowed for the first defendant, Hanna Smolarek, to continue as a director until the trial of the action.
I will turn to the irregularities complained of by the plaintiffs in due course. These principally concern events preceding or taking place at the 27 May meeting. In essence, the plaintiffs contend that the attempt to transfer 1000 shares to the second defendant was flawed with the result that the directors and shareholders of the company were not afforded an opportunity to object to the transfer in the manner allowed for by provisions of the Corporations Act. It is said that this invalidated the transfer of shares to the second defendant with the result that the 27 May meeting did not take place in the presence of a quorum. This meant that the resolutions purporting to remove the first plaintiff and to appoint the second defendant as a director were ineffective. The plaintiff submitted also that the attempt to remove the second plaintiff as a director was ineffective.

The position of the defendants

The defendants contended that the Court lacked power to provide injunctive relief pursuant to s 1324 of the Corporations Act because the provision requires that conduct complained of must amount to conduct which constitutes or would constitute a contravention of the Act. It was said that in the present case no provisions of the Act had been contravened.
The defendants placed reliance upon s 135(3) of the Corporations Act which provides that a failure to comply with the replaceable rules as they apply to a company is not of itself a contravention of the Act (with the result that the provisions about criminal liability, civil liability and injunctions do not apply).
The defendants placed reliance also upon s 1322 of the Corporations Act concerning irregularities. By that provision, unless the contrary intention appears, a reference to a procedural irregularity includes a reference to the absence of a quorum and a defect, irregularity or deficiency of notice or time. Section 1322(2) provides that a proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceedings to be invalid.
As to matters bearing upon the balance of convenience, the first defendant's first affidavit contained these passages bearing upon her application to set aside (or vary) the initial restraining order and upon the need to keep US patent application 10/257,576 in force:
"9.I have always acted in the best interest of the company and looked after the patents to the best of my abilities.
10.Not long ago the Second Plaintiff has written an email to me, which I believe is attached to my main affidavit, already lodged in the Court's office in which he stated, and therefore recognized, that this company 'is my baby'. Surely, no mother would act to harm her baby.
11.I spent last eight years inventing and developing my invention. It would be my personal tragedy if this patent application is made to lapse.
12.The consequences of such a failure will have negative impact not only on the Company and me, but also on the Plaintiffs themselves, the rest of the shareholders, the state of Western Australia and our nation.
13.All of the above entities would forego a potentially substantial revenue, as I believe the fasteners, which are subject of the invention are best and safest in the world and have a potential of substituting a substantial portion of the 70 billion fastener market, worldwide."
In essence, the first defendant's stance was that the plaintiffs were acting to the detriment of the company and, therefore, as she was the majority shareholder, and had an intimate association with the Eznut device, the balance of convenience weighed against the grant of an injunction.
It will now be useful to look briefly at principles bearing upon the grant of injunctive relief in the circumstances of the present case.

Legal principles

Section 1324 of the Corporations Act provides that where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute a contravention of the Corporations Act the Court may, on the application of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.
By s 1324(4) where, in the opinion of the Court, it is desirable to do so, the Court may grant an interim injunction pending determination of an application under the earlier provision.
The decided cases indicate that the usual interlocutory injunction test applies here: Australian Securities Commission v Cooke (1997) 15 ACLC 435; Ken Robson's Annotated Corporations Act 2002 page 1,658.
The principles applicable to the grant of an interlocutory injunction are well known. The applicant must satisfy the Court that the claim is not frivolous or vexatious; that is, that there is a serious question to be tried: Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153.
If there is a serious question to be tried, the Court must consider whether the balance of convenience is for or against the grant of the injunction. If common law damages would be an adequate remedy, and the respondent would be able to pay them, an injunction would not normally be granted: American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 408. The proper test is whether in a particular case, it is just in all the circumstances to confine the plaintiff to a remedy sounding in damages: State Transport Authority v Apex Quarries Ltd [1988] VR 187 at 193.
Where other factors are evenly balanced, it is appropriate to preserve the status quo: American Cyanamid Co v Ethicon Ltd (supra).
I am conscious that in the present case, the plaintiffs' minute of proposed orders contemplates that an order will be made in the nature of a mandatory injunction providing for the plaintiffs to be reinstated as directors of the third defendant.
In Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471 Kennedy J held that the normal rule is that a court does not undertake a preliminary trial in granting or withholding interlocutory relief upon a forecast as to the ultimate result of a case. However, there are cases when an evaluation of the strength of the plaintiff's case for final relief can determine which claim to legal rights is more likely to be unjustly defeated by refusing or granting an injunction.
His Honour observed further that the relevant enquiry on an application for the granting of any interlocutory injunction is as to the risk of injustice. The Court must feel a high degree of assurance that at trial it will appear that injunction was rightly granted. Usually, the risk of injustice is higher where an injunction is mandatory in character as opposed to an injunction which simply preserves the status quo until trial. In the case before him, his Honour held that there was a very high degree of assurance that the plaintiff would be able to establish a right to the name "Cash Converters" at trial and the balance of convenience favoured the plaintiff with the result that an injunction was granted restraining the defendants from using the name "Cash Converters".
Put shortly, then, a court granting a mandatory interlocutory injunction must feel a high degree of assurance that the plaintiff will ultimately succeed and that the injunction will, after a full trial, be shown to have been rightly granted: Shepherd Homes Ltd v Sandham [1971] Ch 340 per Megarry J at 351.
As to the legal principles bearing upon the duties and liabilities of directors, I note that the power to control the management of a company, its property and affairs is vested in the board of directors. With this power comes the opportunity for mis‑management and fraud. Thus, the law subjects the directors to strict statutory and fiduciary duties. The broad duty to act in good faith overlaps with the statutory requirement that a company officer shall at all times act honestly: Ford's Principles of Corporations Law (11th ed) at par 8.010.
The classic position of the standard of diligence, skill and care required by the general law is that contained in the judgment of Roma J in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 428. First, a director need not exhibit a greater degree of skill than may reasonably be expected of a person of his knowledge and experience. Second, a director is not bound to give continuous attention to the affairs of his company. Third, a director is, in the absence of grounds for suspicion, justified in trusting other officials or employees of the company to perform their duties honestly.
The general duties of good faith, care and diligence are now reflected in s 180 and s 181 of the Corporations Act which commenced operation on 15 July 2001. For example, s 180 now provides that directors must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in the corporation's circumstances and occupied the office held by and had the same responsibilities within the corporation as the director.
In accordance with the duty to act in the company's best interest, directors must exercise their powers for their proper corporate purposes. Thus, director's powers must be exercised for the purposes for which they were conferred and in the manner which promotes the interests of the shareholders as a whole: Mills v Mills (1938) 60 CLR 150 at 169.
I note that in the present case the plaintiffs have raised issues as to whether the first defendant, contrary to her common law fiduciary duties, the replaceable rules and her statutory duties under the Corporations Act caused the plaintiffs to be removed as directors of the company, the second defendant to be appointed as a director of the company, herself to be appointed as the company secretary, transferred certain of her shares to the second defendant and attempted to issue herself with more shares in the company.

Observations about corporate governance

It will be useful at this stage also to make some general observations about corporate governance under the new regime established by the Corporations Act.
Under earlier regimes provision was made for a company to have a Memorandum of Association and for the adoption of Articles of Association. However, under the new regime, s 134 provides that a company's internal management may be governed by provisions of the Corporations Act that apply to the company as replaceable rules, by a constitution or by a combination of both.
By s 135(1), a provision whose heading contains the words "replaceable rule" applies as a replaceable rule. By s 135(3) a failure to comply with the replaceable rules as they apply to a company is not of itself a contravention of this Act (so the provisions about criminal liability, civil liability and injunctions do not apply).
Section 141 contains a table setting out the provisions of the Act that apply as replaceable rules. For present purposes, I note that the table includes s 201G (company may appoint a director), s 203C (removal of director by members), s 249C (calling of meetings of members by a director), s 249T (quorum), s 250J (how voting is carried out), s 1072F (registration of transfers) and s 1072G (additional general discretion for directors of proprietary companies to refuse to register transfers).
Section 140(1) provides that a company's constitution (if any) and any replaceable rules that apply to the company have effect as a contract between the company and each member, between the company and each director and between a member and each other member under which each person agrees to observe and perform the constitution and rules so far as they apply to that person.
It is thought that the deeming of the constitution to be a contract supplies the member with standing to sue on a cause of action in contract and to obtain a declaration as to his or her rights. However, the legislation does not create a deemed contract for the benefit of anybody other than the company and the members or operate so as to impose duties on outsiders: Ford's Principles of Corporations Law (12th ed) pars 6.030 to 6.040.
Section 1322 of the Corporations Act deals with irregularities. By s 1322(2) a proceeding under the Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceedings to be invalid. A reference to a procedural irregularity includes a reference to the absence of a quorum at a meeting of members and a defect, irregularity or deficiency of notice or time.
This provision was designed to prevent minor errors invalidating resolutions of meetings as well as other proceedings unconnected with meetings. It has been said that the section is a remedial measure which should be given a liberal construction. However courts have expressed different views in relation to whether a procedural irregularity deliberately achieved can be validated pursuant to this provision. It has been held that a deliberate choice to convene an invalid meeting is not a procedural irregularity falling within the provisions: Ford's Principles of Corporation Law (supra) at par 7.580 to par 7.583.
It seems that the onus is on the person opposing resolutions to show substantial injustice, which cannot be remedied by any order of the Court, and that the resolutions would not have been passed if there had been irregularities. However, where the irregularity results in a decision adverse to the interests of those complaining about the irregularity, and the irregularity is also comprised of a denial of an opportunity to speak against the decision, the Court is likely to make a declaration of invalidity, no matter how unlikely it is that the complainant will be able to persuade a future meeting to vote against the same decision. Ken Robson's Annotated Corporations Act 2002 at pages 1645 to 1646.
The power allowed to the Court to grant an interim injunction pursuant to s 1324(4) of the Corporations Act requires the applicant to establish that a person has engaged or is proposing to engage in conduct that constitutes or would constitute a "contravention" of the Act.
It emerges, then, having regard to s 135(3) (which notes that a failure to comply with the replaceable rules is not of itself a contravention) and s 1322 (which allows that a proceeding is not invalidated because of any procedural irregularity), that considerable care must be exercised by the Court in dealing with an application for relief based upon an alleged lack of compliance with procedural matters, especially if the lack of compliance concerns a replaceable rule. In many circumstances it will be open to the party resisting the application for injunctive relief to rely upon the remedial provisions just mentioned.
However, at the same time, the Court is obliged to take account of the fact that the remedial provisions have been drafted carefully so as to ensure that significant errors and omissions which might give rise to an injustice or to a disregard of the contractual rights established by the constitution are not overlooked entirely.
Thus, as to s 135(3) it is important to give proper weight to the notion that a failure to comply will not "of itself" amount to a contravention. This wording clearly contemplates that if the transgression complained of occurs in the context of or is accompanied by other acts of misconduct including breaches of fiduciary duty or breaches of the underlying contract between the members then the matters complained of may amount to a contravention sufficient to justify the grant of injunctive relief.
Further, as to s 1322(2) it is open to the Court to form an opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court. If the applicant for relief is able to establish that an injustice may occur it might follow that the procedural irregularity cannot be overlooked.
Accordingly, I must take account of these basic precepts of corporate governance when the time comes to address the specific issues raised by the applicant for relief in the present case.
In the meantime, before turning to the plaintiffs' submissions, it will be useful to look at some of the principal documents bearing upon the matters in issue.

The key documents

The historical company extract exhibited to the first named plaintiff's affidavit establishes that as at 13 April 2005, prior to the purported appointment of the second defendant, the directors of the company were the first named plaintiff (David Liwszyc), the second named plaintiff (Mr Duta) and the first defendant (Hanna Smolarek). As at 13 April 2005 no company secretary had been appointed.
Under replaceable rule s 203C of the Corporations Act, a proprietary company may by resolution remove a director from office and may by resolution appoint another person as a director instead. It was common ground at the hearing before me that the first defendant was responsible for issuing a notice dated 4 May 2005 with respect to a general meeting of the company to be held on 27 May 2005.
The 4 May notice was expressed in these terms:
"A General Meeting of Eznut Pty Ltd ACN 102 508 789 ("Company") will be held at 9:00 am on 27 May 2005 at Eznut Boardroom 6 Auriol Court, CARINE WA.
The business to be considered at the General Meeting is set out below. This Notice of Meeting should be read in conjunction with the accompanying Explanatory Memorandum which contains information in relation to each of the following resolutions. A Proxy Form also accompanies this Notice of Meeting.
BUSINESS
Resolution 1 – Removal of Mr David Liwszyc as a Director
To consider, and if thought fit, to pass the following ordinary resolution:
'That, in accordance with section 203C of CORPORATIONS ACT 2001, Mr David Liwszyc be removed as a director of Eznut Pty Ltd with immediate effect.'
Resolution 2 – Election of Ms. Christina Smolarek as a Director
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with section 201G of CORPORATIONS ACT 2001, Ms. Christina Smolarek be appointed as a director of Eznut Pty Ltd with immediate effect"
Hanna Smolarek
Company Managing Director
4 May 2005"
It is apparent from par 219 of the first defendant's second affidavit that the second defendant signed a consent to act as a director on 6 May 2005. The first defendant purported to appoint her daughter as a director on 24 May 2005; that is, three days prior to the general meeting.
The first defendant states in her second affidavit at par 239 that the general meeting started at 9.00 am as planned. She and the second defendant (her daughter) endeavoured to proceed in accordance with the Corporations Act. They elected the Chair and waited for half an hour for the plaintiffs and another shareholder, Mr Wes Walczuk. It was common ground at the hearing before me that the plaintiffs did not in fact come to the meeting. The first defendant asserts at par 245 that the general meeting concluded at around 11.00 am.
The first defendant in her second affidavit described the relevant events in this way:
"GENERAL MEETING
236.Three proxy forms from the following Eznut shareholders: Cacabon Pty Ltd, Mr. Henry Zelman, and Ms. Agatha Walczuk, arrived by fax at Eznut office on 25/05/2005 16:41, minimum 48 hours before the GM, as required. Two of them were undirected.
237.On Thursday, 26 May 2005 5:59 PM I sent an email to, Mr. Henry Zelman and Ms. Agatha Walczuk asking them to direct their proxies, see annexure HS38.
238.My last telephone call, before the General Meeting of 27/05/2005, was at 08:58.
239.The GM started at 9 AM as planned. Christina and I attended to it trying to do everything according to the ritual prescribed in the Corporations Act and other documents on the subject, so we elected the Chair and waited for half an hour for the Second Plaintiff, The First Plaintiff and Mr. Wes Walczuk.
240.Paragraph 31 of the First Plaintiff's affidavit incorrectly stated that he held proxies and was armed with proxies. A person becomes a proxy holder at the meeting after registration.
241.The Plaintiffs, should they have cared to come to the meeting, would have been registered as proxy holders there and then.
242.The Second Defendant demanded that poll to be taken and we started filling the forms.
243.It is expected that a responsible Chair had to order the poll, whether it was demanded or not, simply because of the contentious issues of the proposed resolutions.
244.As the Chair, I also voted the proxies, both directed and undirected. The Chair, at her discretion, can become a proxy holder, as described in GM guidelines prepared by the Australian Institute of Company Directors and The Institute of Charted [sic] Accountants of Australia.
245.The GM concluded, I believe, around 11 AM. I had no idea, at the time, why Plaintiffs did not come to the meeting.
246.Ms. Agatha Walczuk, who lives in Brisbane, sent to me an email on Friday, 27 May 2005 10.58 AM, Re: proxy form, see annexure HS39, explaining why she did not direct her proxy. She called me after the meeting past 11 AM to say virtually the same what she had written in her email. Her mobile number is [XXXX XXX XXX]. I said to her that the GM has finished and her father did not attend. Responding to her request I forward the Notice of GM to her, so she could see the date of the GM. I did that during that conversation on Friday, 27 May 2005 11:11 AM.
247.Later on, Friday, 27 May 2005 11:49 AM an email from the First Plaintiff arrived, see annexure HS37. It said: 'For some reason Gheorghe, Wes and myself have mistaken the date of the GM to be tomorrow (Saturday) and only now we discovered it was today.'
248.This email should make it clear that the First Plaintiff's statement, in his Affidavit, paragraphs 32 and repeated in paragraph 38(a), that he has mistaken time of the meeting was incorrect. Instead, what he has mistaken was the date. In view of this email, the alleged fact that the First Plaintiff was present while Mr. Walczuk called me during the GM makes no sense either.
249.I cannot recall Mr. Walczuk calling me during that entire day. Nevertheless on 18/07/2005, I requested, by fax, from the Plaintiff's lawyer information and documents from Mr. Walczuk's communication company confirming that Mr. Walczuk called me on the day of the GM. To narrow the possibilities where he could have called me from, I note that Mr. Walczuk, moved to Perth from Brisbane before GM. He recently invested in the First Plaintiff's business and works with him. His mobile number is [XXXX XXX XXX].
250.The First Plaintiff demanded that we repeat the GM.
251.Although the Act is mute about repetition of meetings it says in S249W that only unfinished business can be transacted at adjourned meeting. I refused the repetition and the First Plaintiff was unhappy with my decision (see annexure HS40).
252.Despite the Plaintiff's allegation, the GM had a quorum because the Second Defendant, who is Eznut shareholder was present all the time. S249T of the Act says, 'The quorum for a meeting of a company's members is 2 members'."
The minutes of the 27 May 2005 general meeting are exhibited to the first named plaintiff's affidavit. I noted earlier that the date attributed to the meeting of 27 June 2005 is in error as it should be 27 May 2005. The minutes are in these terms:
"Minutes of General Meeting
Held on
Friday, 27 June [sic] May 2005 at 9.00 am
At the office of:
Eznut
6 Auriol Court, Carine
Hanna Smolarek was elected chairperson.
The chairperson noted that there was a quorum present.
The following members were recorded as apologies for the meeting:
•   David Liwszyc
•   Gheorghe Duta
The following members send proxy papers:
•   Agatha Walczuk
•   Cacabon Pty Ltd
•   Henry Zelman
All proxy forms were pronounced valid.
Where nominated proxy did not attend the meeting the chairperson, by default, was made the proxy holder.
The chair elected to vote undirected proxies.
The poll was demanded.
It was resolved that:
1.    Mr David Liwszyc was removed as a director of Eznut Pty Ltd with immediate effect.
2.    Ms. Christina Smolarek was appointed as a director of Eznut Pty Ltd with immediate effect.
There was no other business brought forward.
Signed as a true record
…………………………….        27 May 2005
Chairperson"

Exhibited to the first defendant's affidavits are various documents bearing upon these events. In summary, the documents indicate that the first defendant was appointed secretary on 9 May 2005, the second defendant was appointed director on 24 May 2005, a change to the company details stated that the first named plaintiff was removed as director on 27 May 2005, the second named plaintiff was removed on 1 September 2003.
Thus, on the face of forms lodged with ASIC by the first defendant, the plaintiffs are no longer directors of the company. The defendants are the sole directors and the first defendant is company secretary.
In the course of summing up the situation counsel for the plaintiffs drew attention to a share issue which was said to underline that the first defendant, in seeking to exclude the plaintiffs, was arguably acting pursuant to a self‑interested and improper purpose. Counsel said this (transcript page 26):
"By this time, what the first defendant has achieved – she has removed both the first and second-named plaintiffs as directors; she has appointed her daughter as a director in their place; she has transferred some of her shares to her daughter and she has appointed herself as company secretary, but over and above all of that – and we don't seek specific relief in that regard; we need to point to some of the other conduct of the first defendant, because what she did is – she was unhappy with resolutions passed about rights issues and raising share capital. She was unhappy with her remuneration, so she simply issued herself bonus shares in the company, unilaterally without conferring, without resolutions and the necessary approval."
Let me now turn to the various issues mentioned earlier bearing upon the validity of the steps taken by the first defendant. I will deal with each issue in turn before proceeding to other considerations including the balance of convenience.

Appointment of second defendant as a director

It will be apparent from earlier discussion that the plaintiffs' principal submission was that in purporting to appoint her 20‑year‑old daughter as a director of the company the first defendant did not exercise her powers as a director in good faith. The steps she took in order to effect her purpose were designed to exclude the plaintiffs from further active involvement in the affairs of the company. Further, they were designed to promote her own views about the future of the company, notwithstanding that a different course of action had been decided upon at an earlier meeting of the company held on 16 April 2005.
The plaintiffs recognised that s 201H(1) of the Corporations Act enables directors of a company to appoint a person as a director. However, this section is designed to appoint a director in order to make up a quorum for a directors' meeting and/or to ensure that the company is not paralysed if it only has one director. Usually directors have no power to increase their number if the minimum number is already on the board.
In the present case, the plaintiffs submitted, only one director, namely, the first defendant unilaterally appointed the second defendant. It was not a decision of the board of directors of the company and was not a decision taken in good faith and in accordance with the statutory and fiduciary duties imposed upon the first defendant as a director. Thus, it was said, the purported appointment of the second defendant as a director on 24 May 2005, three days prior to the meeting, was ineffective.
The plaintiffs submitted also that the second defendant was not appointed by a resolution at the meeting because the proxies were not handled correctly and there was not a quorum. I deal with these matters below.

Removal of the first named plaintiff as a director

A number of issues were raised concerning this matter. It will be useful to deal with them under separate headings.

Removal of first named plaintiff/the proxy issue

On the plaintiffs' case, notice of the general meeting having been given, proxies to vote against the resolutions proposed at the general meeting were provided to the first named plaintiff. Two of the proxy forms were undirected and only appointed the first named plaintiff as the proxy to vote at the meeting and not the chairperson. One of the proxy forms was directed and appointed only the first named plaintiff to vote against the resolutions.
It is said that the first defendant voted all the proxies both directed and undirected. The first defendant does not say which way she voted the undirected proxies.
Section 250A(4)(c) of the Corporations Act provides that if an appointment specifies the way the proxy is to vote on the particular resolution and, if the proxy is the Chair, the proxy must vote that way.
Further, s 250B(1) of the Act provides that for the appointment of a proxy for a meeting to be effected, the documents must be received by the company at least 48 hours before the meeting. Here, the proxies were not received 48 hours before the meeting as appears from par 236 of the first defendant's own affidavit. They were received at 16:41 on 25 May 2005. It follows that utilisation of and/or reliance on the proxies by the first defendant was unlawful.
The plaintiffs submitted that for all these reasons provisions of the Corporations Act concerning proxies were contravened. This invalidated the subject resolutions because it appears from the minutes that the proxies were improperly brought to account.

Removal of first named plaintiff/the quorum issue

The plaintiffs submitted that the first defendant transferred 1000 shares held by her to the second defendant on or about 5 May 2005 in order to ensure a quorum at the general meeting. It is said that the transfer of the shares was made for the improper purpose mentioned earlier. The transfer was designed to ensure that the first defendant had sufficient numbers to pass the resolutions at the general meeting so that she could carry her purpose into effect.
The plaintiffs acknowledged that the company does not have a constitution providing for pre‑emptive rights. However, s 1072G of the Corporations Act provides that the directors of a proprietary company may refuse to register a transfer of the shares in the company for any reason. This provision is intended to allow proprietary companies to protect their closely held status without need to rely on such a provision in their constitution.
It is said that the actions of the first defendant in removing the first named and second named plaintiffs as directors has ensured that the directors of the company are not able to exercise their discretion to refuse to register the transfer of shares from the first defendant to the second defendant. The timing of the first defendant's actions gave effect to this.
The plaintiffs submitted that the use of powers for improper purposes has arisen in the context of a director's discretion to register share transfers. Previously, proprietary companies were required to restrict the transfer of their shares. Even with the repeal of s 116, companies may choose to continue to restrict the transfer of shares in this way. To this end, replaceable rule s 1072F(3) of the Act allows directors of proprietary companies to refuse to register shares in certain circumstances.
Counsel for the plaintiffs then moved to another matter, namely, an issue concerning the quorum. Counsel drew attention to a company search which indicated that the transfer of 1000 shares to the second defendant was not registered until 28 May 2005; that is, one day after the contentious meeting. He continued as follows (transcript page 23):
"In that regard as to the quorum there is another important point we need to make, your Honour, and that is section 1072F(1) of the act provides that a person transferring shares remains the holder of the shares until the transfer is registered in the name of the person to whom they have been transferred and is entered in the registrar [sic] of members in respect of the shares.
We say that the registration, the transfer was only registered either on 28 May or 30 May which means at the time of the general meeting on 27 May the transfer hadn't been effected and accordingly there was no quorum. The reason we say that is page 70 of the affidavit of the first defendant, 'The ASIC company search reveals that that transfer of the shares to the second defendant occurred either on 28 May or 30 May.' That's page 71, your Honour."
I note that in passing that s 1072F(1) of the Act provides that a person transferring shares remains the holder of the shares until the transfer is registered and the name of the person to whom they are being transferred is entered in the register of members in respect of the shares.
I note in passing that arguably there are indications that the transfer of shares from the first to second defendant was not entered into the register of members in respect of the shares until after the general meeting on 27 May 2005. However, as to this matter, the second defendant submitted that the search entries being relied upon related to the entry and subsequent revocation of the proposed issue of further shares to the first defendant (mentioned earlier) and that, as appears from the Eznut register exhibited to the first defendant's affidavit as HS86 at page 163, the transfer of 1000 shares to the second defendant was registered on 5 May 2005. The defendants placed reliance also upon a company details form concerning the transfer which was dated and stamped 24 May 2005.
It is difficult to resolve an issue of this kind on the basis of affidavit evidence. It is the sort of matter that is usually resolved by findings made at the trial of the action after a full review of the evidence.

Removal of the second named plaintiff as a director

It will be apparent from earlier discussion that as at 13 April 2005 the second named plaintiff was a director of the third defendant company. It emerges from the affidavit of the first named plaintiff that Mr Duta was appointed on 1 July 2003.
The plaintiffs submitted that under replaceable rule s 203C of the Act a proprietary company may by resolution remove a director from office. No resolution has ever been passed removing Mr Duta as a director. Nor has any meeting been convened to pass a resolution removing Mr Duta as a director. It is said that the failure by the first defendant to adhere to the relevant replaceable rule in removing Mr Duta renders the purported removal invalid.
The stance of the first defendant is reflected in her second affidavit as follows:
"201.I did not read much of the Corporations Act before I had to call the GM. While at it, I discovered that a GM must confirm a director appointed by other directors within two months. Consequently, I have written to the first Plaintiff an email on 27/05/2005 explaining the legal requirements (see annexure HS14).
202.Mr. Duta ceased to be a director after 2 months from his appointment by the Company Directors, according to S201H(2) of the Act, since his appointment was never confirmed by Eznut members' resolution. To continue in his role, he had to be reappointed by a GM."
As to this plea by the first defendant, counsel for the plaintiffs challenged the factual assertions made by the first defendant. He referred also to s 9 of the Corporations Act whereby the term "director" embraces one who is not validly appointed if he in fact acts in the position of a director. This is reinforced by s 201M(1) whereby an act done by a director is effective even if his appointment is invalid. Counsel said also (transcript page 25):
"201G says that a director may be removed by resolution and 203C says that a proprietary company may remove a director and appoint another person as a director instead. Neither of those two sections was complied with. That's not disputed. What does the defendant say she did and why she did this? She says, 'That's easy. He wasn't really a director', notwithstanding the historical company extract I have shown you. She said his appointment hadn't been ratified and effectively he wasn't a director anyhow.
Now, your Honour knows that even if one isn't registered as a director under the definitions, section 9 of the Corporation Act, you can be a de facto director just by virtue of what you have done over the years. Whether or not he wasn't properly registered doesn't give the first defendant the entitlement to unilaterally just throw him out."

Appointment of first defendant as company secretary

Section 104D of the Corporations Act provides that a secretary is to be appointed by the directors. The plaintiffs submitted that the first defendant was appointed as secretary of the company on 9 May 2005 without the knowledge or consent of the other directors of the company; that is, she unilaterally appointed herself as company secretary. It is said her purported appointment should be characterised as invalid.
I must now proceed to make finding in respect of the various matters in issue including the balance of convenience matters relied on by the plaintiffs in support of their application for interlocutory relief.

Findings as to the appointment of second defendant as a director

The first defendant purported to appoint her daughter, the second defendant, as a director on 24 May 2005 being three days prior to the general meeting. It is quite clear that the other directors did not participate in this decision and it has to be regarded as a unilateral action.
In the course of argument at the hearing it was put to me that it was open to the first defendant to make such an appointment pursuant to s 201H of the Corporations Act whereby the directors of a company may appoint a person as a director in order to make up a quorum for a directors' meeting (on the assumption that the appointment will be confirmed within two months). This is a replaceable rule provision. It was said also that the appointment in this way was subsequently confirmed by those present at the general meeting three days later.
I pause here to note that the notice of meeting, in referring to the proposed appointment of the second defendant, referred expressly to s 201G of the Corporations Act which provides that a company may appoint a person as a director by resolution passed in general meeting.
In circumstances in which it is quite clear that the other directors were not consulted and played no part in any decision to appoint the second defendant pursuant to s 201H, I consider that there is a serious issue to be tried as to whether an appointment by that avenue can be regarded as valid.
It will be apparent from my observations on corporate governance concerning s 135 and s 1322 that a procedural irregularity such as the unilateral action I have just described may not necessarily result in an invalidity. However, in the circumstances of the present case, I am of the view that there is a serious issue to be tried as to whether the first defendant was acting in an adversarial manner and in breach of fiduciary and contractual duties owed to other members of the company in purporting, by unilateral action, to make such an appointment.
That being so, the failure to comply with the requirement that directors are required to act pursuant to decisions taken at a properly constituted meeting may amount to a contravention of the Act within the meaning of s 1324. Arguably, such a contravention is not excused by s 135 because this is not a case in which it can be said that the procedural irregularity complained of stands alone. The failure to comply is not said to be simply "of itself" a contravention. When the circumstances are considered as a whole there is an arguable case that the facts and matters taken together amount to a significant contravention which lies outside the protection afforded by the remedial provisions.
This brings me to a further question, namely, whether it can be said that the second defendant was appointed as a director pursuant to s 201G by resolution passed in general meeting (although I feel obliged to note in passing that the forms filed by the first defendant speak of the defendant being appointed three days prior to the meeting of 24 May 2005).
A finding that the second defendant was appointed by resolution depends upon the question of whether there was a quorum of two members present at the meeting in question.
The defendants' case is that two members of the company were present at the meeting because the first defendant had transferred certain of her shares to the second defendant prior to the meeting.
However, this brings into play s 1072F of the Corporations Act which provides that a person transferring shares remains the holder of the shares until the transfer is registered and the name of the person to whom they are being transferred is entered in the register of members in respect of the shares. Further, consideration must be given also to s 1072G which provides that the directors of a proprietary company may refuse to register a transfer of shares in the company for any reason. Both these provisions are characterised as replaceable rules.
There is evidence before me that registration of the subject transfer had not been effected prior to the meeting, albeit evidence disputed by the defendants. It is apparent from the facts and matters in issue that in an adversarial situation the other directors of the company had not been afforded an opportunity to seek information about the transfer or to refuse to register the same before an attempt was made to exercise the voting powers associated with the shares the subject of the transfer. In the end, I am of the view that an arguable case has been demonstrated that there was a contravention of the Act as to the transfer rule and the presence of a quorum.
Again, I must take account of the fact that each of the provisions bearing upon this aspect of the matter is characterised as a replaceable rule with the result that consideration must be given to the remedial provisions. However, for the reasons given previously, I consider that there is a serious issue to be tried as to whether the endeavour to appoint the second defendant as a director was attended by an improper purpose and is thus not protected by the remedial provisions. This arguably amounts to a contravention which may warrant the grant of injunctive relief pursuant to s 1324(4) of the Act.
I will turn to the balance of convenience in due course.

Findings as to removal of the first named plaintiff as a director

The notice of general meeting referred to a resolution for the removal of the first named plaintiff in accordance with s 203C of the Corporations Act. According to that provision, a company may by resolution remove a director from office and may by resolution appoint another person as a director instead. The provision is characterised as a replaceable rule.
As to this matter, the plaintiffs contend that there was a lack of compliance with requirements of the Corporations Act; that is, there were procedural irregularities concerning the manner in which proxies were dealt with and as to the presence of a quorum.
I addressed the quorum issue in my findings as to the appointment of the second defendant as a director. It follows from what I have said then that, in my view, there is a serious issue to be tried as to whether the resolution for removal is invalid and ineffective owing to the absence of a quorum. Further, for the reasons I have given previously, I consider that there is a serious issue to be tried that the remedial provisions are not sufficient to cure the lack of compliance and irregularity complained of owing to the presence of an improper purpose. Upon the trial of the matter it would be open to the Court to form an opinion that the irregularity has caused or may cause substantial injustice.
I am of the same view in regard to the question of proxies. There is a serious issue to be tried as to whether they were received in sufficient time to be effective. A finding to that effect would bear upon the validity of any resolution for removal of a director passed at the meeting. Again, I do not consider that the remedial provisions necessarily cure the situation complained of.

The conclusion I have come to is reinforced by certain of my earlier observations about corporate governance. I noted that where the irregularity results in a decision adverse to the interests of those complaining about the irregularity, and the irregularity is also comprised of a denial of an opportunity to speak against the decision, the Court is likely to make a declaration of invalidity, no matter how unlikely it is that the complainant (because he is in the minority) will be able to persuade a future meeting to vote against the decision.

Other issues

It was clear from the evidentiary materials before me that the second named plaintiff had acted as a director of the company for a considerable period of time without any question being raised as to the validity of his appointment. He was, at least, acting as a de facto director in the manner allowed for by s 9 and s 201M(1) of the Corporations Act. To my mind, there is a serious issue to be tried that the first defendant contravened the Act by seeking to remove him by unilateral action.
Even if it be found eventually that he was appointed pursuant to s 201H(1) without there being any subsequent confirmation by resolution, a question will then arise as to whether such an irregularity is affected by the remedial provisions.
Put shortly, then, there appears to be a serious issue to be tried that it was not open to the first defendant to effect his removal otherwise than by resolution. I am of the view also that it was not open to the first defendant to effect her own appointment as secretary by unilateral action. Section 204D of the Act provides that a secretary is to be appointed by the directors. On any view of the matter, the plaintiffs were directors in early May 2005 when the purported appointment was made, and they did not consent to the appointment.

Findings as to relief

I have made various findings that there are serious issues to be tried as to the validity of the steps taken by the first defendant. An issue was raised by the defendants as to whether the plaintiffs have standing to apply for relief in a case of this kind. However, as to that, I am minded to follow the approach adopted by Wheeler J in Emlen Pty Ltd v St Barbara Mines Ltd (1997) 24 ACSR 303. Her Honour said that for the purpose of an interlocutory application such a matter does not require final determination. It is enough to conclude (as I do) that the plaintiffs have an arguable case as to standing in that, to use the language of s 1324 of the Act, they are persons whose interests have been arguably affected by the conduct complained of.
There are indications that the steps taken by the first defendant were taken pursuant to a sincere belief that what she regarded as being best for the company should prevail. However, the Court has to keep in mind that other investors were involved and investors are entitled to presume that the rules of corporate governance will be observed, for they underpin the contract between the parties. If a majority shareholder pursues her own self‑interest to the exclusion of other concerns that can arguably be characterised as an improper purpose. This is a matter that will have to be dealt with at the trial of the action.
As to the balance of convenience, counsel for the plaintiffs made this submission (transcript page 5):
"So essentially we say the urgency requires that the management of the company needs to be effectively continued. The plaintiffs having been excluded, we say unlawfully, as directors gives the defendants complete control over the management. That may result in a situation where the shareholders have to take some precipitous action about the continuation of the company if the status quo isn't restored, because clearly we say that there will be a minority oppression which is going on here and if it continues in the current form it may result in what everybody wants to avoid because this is a viable, or certainly a potentially very successful corporation, as to what it's attempting to do."
I am of the view that it is necessary in order to preserve the status quo that orders be made in the terms sought by the plaintiffs. The balance of convenience favours such a course in that if the defendants are permitted to assume control of the company in the manner contended for by the defendants then the investment made by various shareholders could be put at risk. The proceedings concern the future planning of the company and it is therefore not a case in which damages would be an adequate remedy.
I take account of the factor also that the second defendant will continue as a director of the company if the proposed orders are made. The second defendant will remain in office but for the time being will be restrained from acting as a director.

Summary

Orders will be made in terms of the plaintiffs' minute of proposed orders dated 18 August 2005 which orders stand in place of the restraining orders previously made. The defendants' application to set aside the interim restraining orders previously made is dismissed. I will hear from the parties as to whether any further orders and directions including a stay of execution are required.
Upon the undertaking of the plaintiffs as to damages the orders in question are as follows:
1.The plaintiffs be reinstated forthwith as directors of Eznut Pty Ltd.
2.Until further order or pending the determination of the action herein, the second defendant be restrained and an injunction be granted prohibiting her from acting as a director of Eznut Pty Ltd.
3.The appointment of the first defendant as secretary of Eznut Pty Ltd be set aside.
4.The first defendant take all steps necessary and sign all documents necessary to give effect to paragraphs 1 and 3 above.
5.The costs of this application be in the cause
6.Liberty to apply.
7.That there be a stay of execution in respect of these orders for a period of 21 days from today.