May v Smith
[2000] WASC 313
•30 NOVEMBER 2000
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MAY -v- VINCENT SMITH AS ADMINISTRATOR FOR COLE ENGINEERING PTY LTD (UNDER ADMINISTRATION) & ANOR [2000] WASC 313
CORAM: ROBERTS-SMITH J
HEARD: 29 NOVEMBER 2000
DELIVERED : 30 NOVEMBER 2000
FILE NO/S: CIV 2589 of 2000
BETWEEN: KENNETH GEORGE MAY
Plaintiff
AND
VINCENT SMITH AS ADMINISTRATOR FOR COLE ENGINEERING PTY LTD (UNDER ADMINISTRATION)
First DefendantCOLE ENGINEERING PTY LTD (UNDER ADMINISTRATION) (ACN 008 825 689)
Second Defendant
Catchwords:
Corporations Law - Interim injunction - Prevention of meeting of creditors - Application to discharge interim injunction
Practice and procedure - Application to strike out writ of summons and indorsement of claim - Whether application open after entry of unconditional appearance - Whether indorsement sufficient - Principles
Practice and procedure - Claims under Corporations Law and otherwise - Whether proceedings should have been brought under O 81G Supreme Court Rules - Effect of non-compliance
Practice and procedure - Affidavit - Sworn before member of defendant's firm of solicitors who was a commissioner for affidavits - Whether affidavit should be received
Legislation:
Corporations Law, s 449B, s 449E
Supreme Court Rules, O 2, O 2 r 19, O 37 r 15, O 81G
Result:
First defendant's application to strike out indorsement of claim and writ of summons dismissed
Interim injunction discharged
Representation:
Counsel:
Plaintiff: Mr T Mijatovic
First Defendant : Ms A J Robertson
Second Defendant : Ms A J Robertson
Solicitors:
Plaintiff: TRM Legal Services
First Defendant : Phillips Fox
Second Defendant : Phillips Fox
Case(s) referred to in judgment(s):
Bentley v Nelson, FCt SCt of WA, (1963) WAR 89
Cambridge Credit Corporation Ltd v Surfers Paradise Forests Ltd (1977) Qd R 261
Carlton and United Breweries (NSW) Pty Ltd v Bond Brewing (NSW) & Ors, (1987) 76 ALR 633
Daglish v Jarvie 2 Mac & G, 231
Hill v Borough of Luton (1951) 2KB 387
Hubbard v Vosper (1972) 2 QB 84
Kimberley Downs Pty Ltd v State of Western Australia, unreported; Library No 6414; 25 August 1986
Mott v Mount Edon Goldmines (1994) 12 ACLC 319
Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 12 ACLC 594
Petrochemical Industries Ltd (in liq) v Dempster Nominees Pty Ltd (administrator appointed) & Anor 15 ACSR 468
Pontin v Wood (1962) 1 QB 594
Thomas A. Edison Ltd v Bullock (1912) 15 CLR 679
Trustek Australia Pty Ltd v Burke and Ors, SCt of WA; Library No 980121; 16 March 1998
Wilson v Dunn's Gazette Ltd (1912) VLR 342
Case(s) also cited:
Ali v Fahd Shobhoksi Group Ltd v Moneim [1989] 2 All ER 404
Australian Transport Insurance Pty Limited v Graham Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287
Bass Shire Council v King, unreported; SCt of VIC; BC 9604973; 15 August 1994
Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224
Dallinger v Halcha Holdings Pty Ltd (1996) 14 ACLC 263
Evans Marshall & Co Ltd v Bertolda SA [1973] 1 All ER 992
Feiner v Domachuk (1994) 35 NSWLR 485
Hartlepool Gas & Water v West Hartlepool Harbour & Railway Co (1865) 12 LT 366
J Corp Limited v Australian Builders Labourers Federation Union of Australia, unreported; Fed C of A; Library No 6102; 8 September 1992
Jehovah's Witness v Pegasus Leasing & Anor (1996) JUDT 559 68
John S Hayes &Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd (1994) 52 FCR 201
Miller v Jackson [1977] QB 966
National Australia Bank Ltd v Golden Sea Dragon (Hobart) Pty Ltd (1992) 4 Tas R 250
Peter Stannard Homes Pty Ltd v Lyford (2000) 18 ASCE 195
Wilcox: ex parte Venture Industries Pty Ltd (1996) 141 ALR 727
ROBERTS-SMITH J: This matter came on before me in the general Chambers list on last Wednesday, 29 November. Before referring to the various applications sought to be agitated by the parties on that day it is necessary to briefly outline the nature and course of the proceedings and the affidavits filed to that date.
On 20 November the plaintiff filed a writ of summons with an indorsement of claim in the following terms -
"1.The plaintiff claims as against the defendant relief under the Corporations Law for the extension of time to convene a meeting under section 439A(6), the removal of the Administrator and the prevention of the placing of the Company into Liquidation by the First Defendant, breaches of duties by the First Defendant causing the plaintiff and the second defendant losses contrary to the interests of the creditors.
2.The plaintiff claims losses as a result of the actions of the First Defendant, breach of fiduciary duty and other duties under the Corporations Law."
Also on 20 November the plaintiff filed an ex parte chamber summons returnable at 12.45pm that day seeking an interim injunction to prevent the holding of a creditors' meeting scheduled for that day and other orders. Mr Mijatovic, counsel for the plaintiff, appeared before Miller J at that time and it appears that at 1.45pm orders were made in the following terms -
"1.The date of the Hearing of the Application be abridged.
2.There be an extension of time for the convening period of the meeting of creditors of the second defendant under section 439A(5) of the Corporations Law of 28 days after the maximum period of 21 days pursuant to section 439A(6) of the Corporations Law, such extension being an extension of not more than 21 days from today unless further extended by the Court.
3.The First Defendant be restrained from convening the meeting fixed today at 2pm at the Celtic Club in West Perth where the first defendant intends seeking resolutions from a meeting of creditors that the second defendant be placed into Liquidation or be Wound Up under section 439A(4) of the Corporations Law and the meeting be adjourned for not more than 21 days pursuant to section 439A(6) of the Corporations Law or otherwise unless the Court grants a further extension.
4.The Plaintiff serve forthwith on the First and Second Defendant a copy of this order and within 48 hours copies of the accompanying documents.
5.The First and Second Defendants be at liberty to apply on 24 hours notice for orders setting aside or varying these orders.
6.The matter be adjourned for further hearing in Supreme Court Chambers on Wednesday 29 November at 10.30 am.
7.This order stand as the order of the Court subject to the Plaintiff formally extracting the order within 24 hours after service of this copy.
8.Costs be reserved."
It seems that the matter was relisted before Miller J later that afternoon, at which time Mr Mijatovic again appeared for the plaintiff and Mr D Hely appeared on behalf of the first defendant. I accept that the purpose of the relisting was not for his Honour to hear further argument on the substance of the plaintiff's application but merely to address the appropriate formulation of the terms of the orders. As a consequence the following orders were then made by Miller J:
"(1)Order 2 of the order made at 1.45pm be revoked and in lieu thereof the order be:
'The time period affixed by s 439B(2) of the Corporations Law be extended by 28 days and that the adjourned meeting of the meeting of creditors not be held before 21 days from today's date unless otherwise ordered by the Court.'
(2)Order that the Plaintiff within 24 hours file and serve an affidavit detailing his assets and liabilities, and his capacity to meet the undertaking for damages.
(3)There be liberty to apply for all parties on 24 hours notice.
(4)Costs of these proceedings be reserved."
The first and second defendants filed an unconditional memorandum of appearance on 21 November and also on that date the plaintiff filed a chamber summons for "removal and appointment of administrator and review of remuneration". That was returnable on 29 November and sought the following orders:
"1.The first defendant be removed as the administrator of the second defendant and that George Aubrey Lopez be appointed in his place as the Administrator of the second defendant pursuant to sections 449B, 447E(1) and 447B(2) of the Corporations Law.
2.The first defendant be hereby restrained from incurring any further losses, liabilities or expenses on behalf of the second defendant or in selling or prejudicing any of the assets, income or business of the second defendant or making any further withdrawals from or utilising the accounts of the second defendant and that the first defendant do all things necessary to prevent any further losses or expenses to the second defendant.
3.The remuneration of the first defendant as administrator of the second defendant be reviewed by this Court and the same be reduced and the first defendant do pay the amount of the reduction to the general account of the second defendant within 7 days pursuant to section 449E(2) of the Corporations Law.
4.That the plaintiff's costs of this Application be paid by the first defendant in any event to be taxed."
That was supported by an affidavit of Kenneth George May filed on 22 November and another affidavit of Mr May sworn 21 but also filed on 22 November (with annexures this being 115 pages). On 27 November the first defendant filed a chamber summons for orders to discharge the injunction granted by Miller J on 20 November and to strike out the plaintiff's writ and indorsement. An order was also sought that the plaintiff pay the first defendant's costs on a full indemnity basis. Those applications were supported by affidavits from each of Christopher John Munday, Christopher Lucien Pougnault and Anthony John Wheeler, filed on 27 November, and an affidavit of Vincent Anthony Smith sworn 27 November and filed the following day. With annexures that last affidavit ran to some 171 pages.
On 28 November the plaintiff filed an affidavit of Gregory Octavius Cole and a further affidavit of Mr May both sworn that day. In the course of the hearing before me last Wednesday, counsel for the first defendant handed up an affidavit of Dean Prosper Hely sworn 28 November and a further affidavit of Mr Smith sworn 29 November.
In correspondence to the Court and in his outline of submissions Mr Mijatovic foreshadowed that in light of the volume of material now before the Court and the application made by the first defendant the matter should be adjourned to a special appointment within the next 10 days (that time being suggested because the interim injunction granted by Miller J had 11 days to run) with an estimated hearing time of four hours.
Making that submission at the hearing he observed that the matter had been made returnable by Miller J on 29 November initially for the purpose of directions or for consideration of any inadequacy of the undertakings given by or on behalf of the plaintiff but substantial other issues had been raised since then.
Ms Robertson, counsel for the first defendant, for her part argued strongly that the hearing should proceed. She also foreshadowed substantial objections to some of the affidavits filed on behalf of the plaintiff.
From that background it can be seen that the several applications and issues sought to be dealt with at that stage were -
(1)The plaintiff's application for an adjournment;
(2)The first defendant's objection to the plaintiff's affidavits;
(3)The plaintiff's application for removal of the administrator, further injunctive relief and a review of the first defendant's remuneration;
(4)The first defendant's application to strike out the writ and indorsement;
(5)The first defendant's application to discharge the injunction and
(6)The sufficiency of the undertakings provided by the plaintiff.
In support of his application for an adjournment Mr Mijatovic handed up a copy of a letter from the Australian Securities and Investment Commission ("ASIC") dated 29 November addressed to him and referring to his client's chamber summons dated 22 November which the letter says was served on ASIC that morning and referring also to the writer's telephone conversation with Mr Mijatovic on 29 November. The writer confirmed that ASIC would require a reasonable opportunity to consider the application and supporting affidavits and to that end was willing to consent to a limited adjournment of the summons. He requested that the letter be brought to the attention of the Court. ASIC is of course entitled to be heard on the application for the removal of the administrator unless the Court otherwise orders - O 81G r 16.
In the present circumstances I would be inclined to think that the Court would likely be assisted by ASIC on that issue. However, as events transpired it was not necessary for me to give further consideration to the question of ASIC's appearance as that substantive issue was not one I had to deal with that day.
Although initially minded to refer the matter to the Corporations list for a special appointment next Tuesday, 5 December and to direct that the plaintiff file and serve a statement of claim in the meantime, I was persuaded by counsel for the first defendant to deal with the first defendant's application to strike out the writ and to discharge the injunction and as part of that to deal also with her objections to the plaintiff's affidavit material. I accordingly heard argument confined to those issues but which nonetheless occupied the remainder of the day.
It is not only convenient but necessary for me to turn first to Ms Robertson's objections to the plaintiff's affidavits and so I do that now. Details of the particular parts of specified affidavits to which objection was taken was set out in the outline of submissions filed on 28 November on behalf of the first defendant. Those were further articulated by Ms Robertson at the hearing, and in addition, she adumbrated objections to the affidavits of Mr May and Mr Cole of 28 November.
In addressing these objections Mr Mijatovic did not deal with any of them individually but contented himself with a broad response that this was an interlocutory hearing, latitude had to be allowed and that in any event the first defendant's affidavits were replete with the same sort of difficulties and subject to the same criticisms as had been claimed in respect of the plaintiff's affidavits - although he did not descend to identify any specifically.
Whether that be so or not the position is that Mr Mijatovic has taken no specific objection to anything in the first defendant's affidavits, save for one point, and has advanced no argument against the grounds of objection raised by Ms Robertson. The one specific objection Mr Mijatovic did make was to the validity of Mr Smith's affidavit of 29 November on the ground that it was sworn before Mr Peter Beekink, a commissioner for affidavits, who is also a partner of the firm Phillips Fox who are the first defendant's solicitors.
The situation is covered by O 37 r 15 which stipulates that an affidavit is not to be sworn before a solicitor or his agent. The Rule provides that:
"An affidavit is not sufficient if sworn before any solicitor who has participated in any way in the preparation of the affidavit or in the proceedings in which the affidavit is intended to be filed or before the party himself."
As the learned author of the red book observes in the commentary at par 37.12.1 in respect of that Rule:
"The Rule is much wider than its predecessor. It permits practitioners in a legal firm to swear the affidavits of their firm's clients provided that they have had nothing whatsoever to do with the relevant litigation. If an affidavit is sworn in breach of this Rule the party who has filed it may not be able to rely upon it."
There is nothing before me to suggest that Mr Beekink has had any involvement in the proceedings and in the absence of any reason to believe otherwise I think I should act on the assumption that he has not. The affidavit is therefore properly sworn and I receive it.
Ms Robertson's first objections were to parts of the affidavit of Mr May sworn on 21 November. Before I turn to deal with that I should, I think, make some very brief observations about the second affidavit sworn by Mr May dated the 21st but filed on 22 November. I should say something, I think, about the physical condition of that affidavit. Annexures KM1, KM2 and KM3 are fax documents printed on what appears to be scrap paper from Mr Mijatovic's office. On the reverse of KM1 is a copy letter to the Crown Solicitor's Office dated 13 November 2000 in relation to a District Court action, which is identified, requesting a specific amount to be paid by way of fees and containing further information. On the reverse of KM2 and KM3 is a draft letter with manuscript amendments to Dun and Bradstreet giving personal details of debtors in respect of whom searches were being requested. The undesirability of this is obvious and I make no further observation about it other than to express the earnest hope that it will not occur again.
I return now to the affidavit of Mr May dated 20 November and filed on 22 November and to Ms Robertson's objections in respect of it. Objection is first taken to a portion of par 3. That paragraph reads:
"I am the proxy and have been authorised by a large number of unsecured creditors of the company to act on their behalf as to the actions of the defendants and that of the first defendant in destroying the value and goodwill of the second defendant during the time of which he has been the administrator of the company."
Objection is taken to the words "in destroying the value and goodwill of the second defendant". The objection is that this is a statement of opinion or belief without the source or grounds being stated, it is vague, it is mere assertion and unsubstantiated by any evidentiary material whatsoever. I accept the objection and order that the words be deleted.
In relation to par 6 I accept the objection that the first portion of that paragraph again is a statement of opinion or belief without the grounds of the belief being stated, that it is vague and again is mere assertion unsubstantiated by any direct evidence. I accordingly direct that the words, "The first defendant has acted contrary to the interests of the second defendant and its unsecured creditors and" be deleted. In passing I observe that Mr May purports to be a creditor of Cole Engineering Pty Ltd and describes himself as the Farm Action Group coordinator.
Further objection was taken to the last paragraph (which is incorrectly numbered 5 - it should in fact be number 8) as it is said that the proposition there articulated, "That the first defendant seeks to place the second defendant into liquidation at a meeting of creditors today" is a mere statement of opinion or belief. Again, on the material before me, however, it seems to me that that objection ought not to be upheld. The standing of Mr May as a creditor of Cole Engineering would, I think, be sufficient to enable him to make such a statement.
I turn now to the affidavit of Mr May sworn 21 November 2000. What I propose to do from this point on is simply to indicate the paragraphs in respect of which I have accepted the objections and in respect of which I propose to direct there be some deletion made. I will indicate to the parties that if for some other purpose at some later stage details of the reasons for these directions are required, then I will provide them separately. I think that would be more satisfactory than spending a considerable amount of time now going through them.
In relation then to that second affidavit of Mr May I deal first with par 6. I uphold the objection and direct that the whole of the paragraph be deleted; likewise par 7, par 8, par 9 and par 10, the whole of each of which is to be deleted; similarly par 12, par 13, par 14 and par 15; likewise the whole of par 17, par 19, par 20 and par 22, par 24 and par 30. In relation to the other particular paragraphs to which objection was taken I do not accept the objections and do not direct there be any deletion in respect of them.
The affidavit of Mr May sworn 28 November: in respect of that I direct that par 6 and par 7 be deleted in their entirety; in respect of par 12 the words at the end of that paragraph commencing from "Rather" be deleted, so that the words, "Rather than managing and administering the same to ensure profitable and continued income without substantial losses," is deleted; that the whole of par 13 is deleted and the whole of par 15 is deleted.
The affidavit of Gregory Octavius Cole sworn 28 November: par 6, the first line is to be deleted so that the words, "The remuneration of the first defendant is substantially excessive and" are deleted. The whole of par 9 is deleted, as is the whole of par 10, par 13, par 14, par 16, par 31 and in par 32 the last phrase, the words after, "By customers," so the words, "Which the first defendant has solely prejudiced and affected," are to be deleted.
The whole of par 34 is to be deleted. In respect of par 48, the last two lines after the word "systems," the words "which have led to the appointment of the administrator to the second defendant," are to be deleted. The whole of par 55, par 58, par 59, par 60, par 62 and par 63 are to be deleted. In respect of the other paragraphs to which objection was taken, I do not uphold the objections.
I return now to the substance of the applications.
Whatever the first defendant's procedural options may have been having regard to the way in which the application for discharge of the injunction was made and presented, the question before me is not whether on the material available to Miller J the injunction should have been granted, rather it is whether there was full disclosure to his Honour and, if not or in any event, whether on the evidence now put before the Court, of which it is said his Honour should have been apprised, there were in fact proper grounds for an interim injunction to issue.
As I said, in the course of hearing in these circumstances I am not sitting in any sense on appeal from his Honour's decision, much less am I being called upon to second-guess it. The point is more fundamental.
I come now to the first defendant's application to strike out both the writ of summons and the endorsement and the chamber summons for interim relief before Miller J on 20 November.
The first argument of the first defendant is that if the writ of summons and the endorsement fall, so necessarily does the chamber summons. Counsel for the first defendant contends that the application and the endorsement to the writ claim relief under the Corporations Law and, that being so, the only manner in which the plaintiff could commence the proceedings was by way of an originating process in form 2 of the seventh schedule, pursuant to O 81G r 10(3)(a).
She further submits that the only manner in which the plaintiff could bring the application for interim relief was by way of interlocutory process in form 3 of the seventh schedule pursuant to O 81G r 10(4)(a). She also submitted that the plaintiff had failed to serve a copy of the originating process on ASIC as required by O 81G r 16(3) although, as I have already noted, it appears service was ultimately effected on ASIC.
The first defendant's submission accordingly is that by reason of these claimed deficiencies both the writ of summons and the ex parte chamber summons are invalid and must be struck out and if that is done then the injunction made on 20 November must thereby be discharged.
Non-compliance with the Rules is an irregularity and does not nullify the proceedings nor any step taken in them; see O 2 r 1.
Pertinently to the present submissions, O 2 r 3 provides:
"The Court shall not wholly set aside any proceedings or the writ or other originating process by which they were begun on the ground that the proceedings were required by any of these Rules to be begun by an originating process other than the one employed."
No injustice has been advanced by the first defendant flowing to him from commencing the proceedings by what, on his behalf is submitted, was a wrong process. Given that, and as the proceedings would not be vitiated even if they should properly have been commenced under O 81G, for the purposes of these applications I need make no ruling on that and I do not do so, nor do I need to make any determination in respect of Mr Mijatovic's submission that because of the filing of the writ of summons in the civil jurisdiction on 20 November the "subsequent" chamber summons was filed "in a proceeding already commenced in the Court" - O 81G r 10(1)(a). He contended that in those circumstances the Rules required the chambers summons to be filed in the civil jurisdiction.
That is not how I would be inclined to read O 81G r 10(1)(a). It seems to me only to be concerned with the circumstances in which an application must be initiated either by originating process or by interlocutory application, and to require the latter where the application arises in respect of a matter already the subject of proceedings; but as I say, I do not need to consider that further, which brings me to the first defendant's submissions as to the substantive reasons why the writ and endorsement must be struck out.
I will address them with more particularity shortly, but they generally raise what might ordinarily be characterised as pleading points, which I might describe in substance and very broadly at this point as failure to disclose a cause of action, failure to disclose the remedy sought, failure to disclose the duties or provisions of the Corporations Law being relied upon and a general lack of specificity to any degree sufficient to identify and found a cause or causes of action.
In response to this, Mr Mijatovic submits the first defendant's application should be seen as no more than an attempt to prevent what he termed "the real issues" coming before the Court. He emphasised that the substantive applications of the plaintiff were only first to have the administrator changed and to review the amount of his remuneration (I say "his" because although there are joint administrators, the plaintiff is concerned only with the remuneration of the first defendant); secondly, to extend the time for the holding of the relevant meeting. The purpose of the latter apparently being to give time for the first defendant to be replaced and a different administrator appointed who would presumably, it is anticipated, recommend to creditors that they approve a deed of company arrangement proposed by the plaintiff or the return of the company to the control of the directors rather than sale to a third party or liquidation.
Mr Mijatovic's threshold submission in this respect was that the defendants had filed an unconditional appearance and thus are now precluded entirely from arguing that the plaintiff has commenced the proceeding by a wrong process (with which argument I have already dealt), or that the writ or endorsement should be struck out. He submits that an endorsement on a writ is not a pleading and is not subject to the rules of pleading. The first argument may be shortly dealt with.
An application to strike out an endorsement on a writ may be made before appearance, but that option is additional to and is not exclusive of an application to strike out under O 20 r 19(1) which may be made at any time. I refer in that regard to the unreported decision of Wheeler J in Trustek Australia Pty Ltd v Burke and Ors, SCt of WA; Library No 980121; 16 March 1998 in which her Honour had to deal with a similar contention, in respect of which she said at 14:
"The plaintiff relies upon O 6 r 1 which appears to suggest that such an application must be made prior to appearance. However, in my view, this rule is in addition to, and does not exclude, O 20 r 19, which allows the court to 'at any stage of the proceedings …. Order to be struck out …. the indorsement of any writ'."
Her Honour went on in that case to hold that the endorsement there disclosed no reasonable cause of action and should be struck out.
With respect, I agree with and adopt her Honour's view in that regard. O 20 r 19 clearly relates to pleadings and endorsements and has the effect envisaged by her Honour.
The present applications to strike out here were not based on principles of case flow management but on matters of legal and procedural substance. I note in passing that on a consideration of such an application under O 20 r 19(1)(a) no evidence shall be admissible.
Mr Mijatovic says that the unconditional appearance precludes the point being taken. I do not accept that argument. Reliance may be placed upon Wilson v Dunn's Gazette Ltd (1912) VLR 342 in which Madden CJ held that the equivalent Rule in Victoria showed that objections to pleadings are not affected by the fact that something in the nature of pleading over them had been done by the party attacking the pleading.
In dealing with an application of this type I take the relevant principles to be those which were usefully summarised by Master Staples in Kimberley Downs Pty Ltd v State of Western Australia, unreported; Library No 6414; 25 August 1986. That concerned a statement of claim but the learned Master set out very conveniently at p 6 of his reasons for decision a useful summary of the principles. I adopt them without repeating them now. The plaintiff's submissions on this aspect accordingly have no substance. It is plainly open to the first defendant to apply to strike out the writ and endorsement at this stage.
So I turn to the substance of the first defendant's submissions. The first one was the phrase in the endorsement by which it was said, "An extension of time to convene the creditors meeting under s 439A(6) was sought" does not plead a cause of action which would be necessary to base that claim for relief.
The argument is that the claim for relief is wrong at law. In any event it is submitted the convening period under s 439A(6) was over by the time the application was made. The meeting had already been convened. What was sought was that it not be held until some future date. That, in any event, was the form of the interim injunction granted.
It is true that there is no statutory nor other basis referred to in the plaintiff's claim to that relief. The endorsement, however, does claim relief under the Corporations Law for the extension of time to convene a meeting and although there may be some difficulty about the phraseology of that it seems to me that looked at in a global way, really nothing turns on it. It is clear that what was sought was deferral of the meeting and that was reflected in the injunction actually granted. It is also clear that as a creditor the plaintiff was entitled to apply under the Corporations Law to have the meeting so deferred.
In relation to the first defendant's objection to the claim in the endorsement for the removal of the administrator and prevention of the placing of the company into liquidation by the first defendant it is argued that that is merely a claim for relief and again no cause of action upon which the claim might rest is pleaded. In the abstract that is true. However, the material does indicate I think clearly the basis of dissatisfaction the plaintiff holds with respect to the administrator and again as a creditor is entitled to make such an application. I do not know that one needs to found an application of that kind under the Corporations Law on what might otherwise be described as a cause of action.
The other point taken is that it is a claim for relief from a non-existent wrongdoing in that it is said that the first defendant cannot place the company into liquidation because that is something only the creditors may resolve to do.
The submission that the first defendant cannot place the company into liquidation is, I think, somewhat too pedantic. It is true that the administrator cannot do that himself but however inelegant or badly phrased the wording may be, the clear effect of what is said is that the relevant relief sought is the placing of the company into liquidation. Again no basis for this claim of relief is stated and there is no reference to any relevant provision of the Corporations Law which of course would have been required by O 81G r 10(3)(1) and r 4(b)(1) had the proceedings been instituted under that order.
That aside, the affidavit material does show that what the plaintiff seeks is removal of the administrator and the appointment of another. The plaintiff seems to expect a new administrator would not be inclined to make a similar recommendation to creditors that the company be liquidated. That expectation, I would have thought, could very likely prove to be disappointed if a new administrator were appointed.
Be that as it may, there is no doubt that Mr May as a creditor has standing to apply to the Court under s 449B of the Corporations Law for removal of the administrator and the appointment of a new one and for review of the administrator's remuneration under s 449E(2), see also Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 12 ACLC 594 and Petrochemical Industries Ltd (in liq) v Dempster Nominees Pty Ltd (administrator appointed) & Anor 15 ACSR 468.
I am mindful also that where an endorsement of claim lacks particularity the defect does not render the writ a nullity: Pontin v Wood (1962) 1 QB 594. The defect may be cured by amendment or by service of a statement of claim: Hill v Borough of Luton (1951) 2KB 387. The present case is to be distinguished from Trustek as in that case there was simply no intelligible cause of action identified by the plaintiff in the endorsement to the writ.
Again, whilst I am inclined generally to accept the other deficiencies in the present endorsement complained of by the first defendant, applying the principles summarised in Kimberley Downs I am not able to conclude they are sufficient to vitiate the endorsement and necessitate that it and the writ be struck out.
I turn to the next point taken which was the standing of Mr May. It is submitted that he is the only plaintiff and that references to the interests of the Rural Action Movement and the Town of Kellerberrin are wholly irrelevant to the Court's consideration of the injunction. There is considerable dispute as to whether or not Mr May does or does not act for "a large number of unsecured creditors" as claimed in his affidavit dated 20 November at par 3 or the "majority of unsecured creditors" as claimed in his affidavit dated 21 November 2000 also at par 3.
Submissions were directed to that and indeed a deal of the affidavit material, particularly from Mr Smith, was later directed to an examination of what were described as proxies and a "petition" and the questions whether or not they had any effect, whether or not they were legitimate and indeed what in fact they purported to mean or to be. It was common ground that Mr May had the necessary standing, however, because he is a creditor of the second defendant. Thus it seems to me for that purpose evidence as to whether he was or was not authorised to act in some way on behalf of other creditors and the legal effect, if any, in these proceedings of what were described as proxies or in one instance, as I have mentioned, a "petition" seems to me to be wholly irrelevant.
In the end Mr Mijatovic conceded this but argued the evidence that Mr May represented other unsecured creditors was nonetheless a relevant consideration when it comes for me to consider the application to discharge the injunction. I put that to one side for the moment. As to the principal contention I am satisfied Mr May has standing in his own right as a creditor and I note the proceedings do not purport to show him acting in any relevant representative capacity within the meaning of O 18 r 12.
I turn now to the application to discharge the injunction and again it is useful to look at some brief reference to the relevant principles. They were usefully articulated in Mott v Mount Edon Goldmines (1994) 12 ACLC 319 at 321, these being the principles relevant to the grant of an interlocutory injunction. They were summarised in these terms: (1) the applicant must first satisfy the Court that there is a serious question to be tried; (2) even if there is a serious question to be tried the Court will not grant an injunction if common law damages would be an adequate remedy; (3) if there is a serious question to be tried and damages would not be an adequate remedy the Court must then consider whether the balance of convenience lies in favour of granting or refusing the relief sought; (4) when considering the balance of convenience it is appropriate for the Court to take into account the relative strength and weaknesses of the applicant's case; (5) at the hearing the Court should not attempt to decide factual conflicts that arise from the affidavit material and nor should it determine difficult questions of law which require detailed argument.
In respect of the consideration of the balance of convenience and the extent to which it is appropriate for the Court to take into account the strengths and weaknesses of the applicant's case, it is apposite to recognise that the Court is required to take account of the totality of the evidence. It is not just the evidence of the applicant which is to be considered. In Hubbard v Vosper (1972) 2 QB 84 at 86 Lord Denning said:
"In considering whether to grant an interlocutory injunction, the right course for a judge is to look at the whole case. He must have regard not only to the strength of the claim but to the strength of the defence and then decide what is best to be done."
Of course, in reality, it is difficult to segregate consideration of the significance of the risk to the applicant, or its seriousness, from issues that are relevant to the balance of convenience, and it must always be borne in mind that this is a discretionary remedy. It must also be borne in mind that the balance of convenience requires attention to be given to the interests of third parties as well as to those of the parties to the proceedings.
The only other observation I think it necessary to make at this point in relation to a consideration of the evidentiary material is to remind myself that in interlocutory proceedings decided on affidavit evidence, the Court will rarely, if ever, form views on credibility.
It is no part of the Court's function in an application for an interlocutory injunction, and I include in that, of course, an application to discharge an interim injunction, to pre-empt the findings at trial by determining those matters. However, that does not mean that the Court concentrates on and necessarily accepts the evidence put forward by the applicant - in this case, the plaintiff. The evidence tendered by the defendant must also be taken into account. It becomes then, I think, a balancing exercise as part of the determination of the serious question to be tried or the balance of convenience, although a Court, as I have noted, will be reluctant to withhold relief if the only ground for doing so involves the rejection of evidence on credibility grounds.
Mindful of these principles and, in particular, the constraints upon a Court of determining an application for the grant or discharge of an interlocutory injunction on credibility grounds, I turn to the evidence before me.
It is convenient to start with the affidavit of Mr May sworn on 21 November and filed the following day. It explains that he is the coordinator of the Rural Action Movement incorporated in Western Australia, which he describes as a non-profit incorporated association of persons and organisations who support farming interests and companies in Western Australia.
He contends in that affidavit that he is a proxy for and has been authorised by a majority of the unsecured creditors of the second defendant to act on their behalf and to proceed with legal action against the first defendant in regard to his conduct of the administration of the second defendant.
The second defendant carries on a registered business in a farming community at Kellerberrin, near Northam, in Western Australia called Cole Steel and is a trustee for the Cole Unit Trust, which carries on the registered business of Cole Kellerberrin. The business employs between 20 to 50 staff per annum and, it is said by Mr May, provides the town of Kellerberrin with its major employer. The business produces, manufactures and supplies steel trailers, parts and steel products for the farming and regional community in the wheat belt of Western Australia and has done for over 50 years. Mr May stated in his affidavit that from 24 August the first defendant has proceeded to take steps to wind up or liquidate the second defendant and has informed the unsecured creditors that after his accounting fees, legal fees and the Challenge Bank secured creditor payment, the unsecured creditors are not likely to receive any funds from the second defendant.
He says he is personally informed by Mr Greg Cole that there is some $169,000 left in the accounts of the second defendant as of that date and that was after the withdrawal of $75,000 for fees by the first defendant on 30 October 2000 before the approval to do so was given by the creditors in a meeting on 1 November.
He says he has been informed by Mrs Wendy Cole, a director of the second defendant, that the $75,000 was withdrawn from the accounts of the second defendant before the creditors meeting on 1 November. He contends that the first defendant is not conducting or managing the business of the second defendant at all and has refused to operate the business on normal terms but has recommended that the second defendant be placed into liquidation and that he will be the liquidator.
Certain documents were annexed which, he says, go to show a loss of orders caused by the first defendant, and also confirming that the first defendant withdrew $75,000 without authority from the accounts of the second defendant before the meeting of creditors. I note, in particular, that also annexed as KM5 is a copy of a letter by the second defendant's directors to the first director's firm asking for an explanation as to that withdrawal. The next annexure, KM6, is a copy of the letter from the first defendant's accounting firm to the second defendant's directors dated 14 November in response.
I do not propose to read the whole of that letter but suffice to say it is a letter from Mr Hughes, the other joint administrator, confirming that the amount was transferred from the second defendant's account but it was transferred into his firm's trust account; that is, Norgard Clohessy, chartered accountants. Mr Hughes went on to say:
"It is standard procedure of the firm in many other insolvency practices to transfer funds from an administration trading account to a trust account where they remain in trust on behalf of the company during the period of an administration, the purpose of that being to ensure that sufficient funds are available to pay administrator's fees and expenses."
What is said to have occurred is that the amount was so transferred and that following the approval given by the creditors at the meeting on 1 November an amount was then transferred from the trust account into Norgard Clohessy's trading account.
The only undertaking as to damages which has been filed is that of Mr May dated and filed on 20 November.
I come now to the affidavit of Mr Cole dated 28 November. Mr Cole is the managing director of Cole Engineering Pty Ltd and deposes that he has been operating and managing, as a director and manager, the businesses of the second defendant for over 25 years. He says the plaintiff is a proxy for him at the creditors' meeting called by the first defendant seeking resolutions to place the second defendant into liquidation which was to be held on 20 November and goes on to say that he is personally aware that a majority of the value of the claims of the unsecured creditors of the second defendant, including himself, had signed proxy and authority forms in favour of the plaintiff to act on their behalf and to proceed with legal action against the first defendant in regard to his conduct of the administration of the second defendant.
He also states that he is "personally aware" that a majority of the value of the claims of the unsecured creditors of the second defendant and himself support the removal of the first defendant as the administrator and a review of his remuneration in the interests of the second defendant and the unsecured creditors and the appointment of one George Lopez as a new administrator.
He refers to the approval of the remuneration on 1 November and complains that the first defendant has ignored or not acted in the interests of the unsecured creditors and has been winding-up, hampering or selling off the second defendant and its businesses since his appointment on 24 August 2000.
At par 11 of that affidavit he asserts that he again personally knows that the costs of a manager and administration position for the second defendant prior to the appointment of the first defendant on 24 August 2000 were not greater than $50,000 per annum and the fees of the first defendant have been $75,000 in nine weeks only, being some ten times greater than before. He asserts that this level of remuneration is unsustainable and is destroying the financial viability of the second defendant and substantially multiplying the expenses and liabilities of the second defendant more than anything before.
He annexes to his affidavit a letter prepared by him specifying certain losses. The letter is a letter apparently sent by fax to his solicitor and purports to set out an account of certain orders being cancelled due to the administrators not authorising approval of the orders and a consequent inability to supply the equipment on time.
In broad terms Mr Cole maintains that the value of the assets and goodwill of the second defendant well exceeds the total liabilities and the income and sales of the company well exceed the loan liabilities owed to its creditors. It is apparent there is a significant difference of view between Mr Cole and the first defendant in relation to such matters.
At par 35 Mr Cole says that there was a bundle of invoices and a computer error which was the sole cause of a paper loss of the second defendant which subsequent thereto was proven to have been inaccurate, such that the second defendant was never insolvent and has traded profitably. What he describes as the Sybiz software did not transfer numerous accounts and invoices to the appropriate program destinations which left out a substantial sum of income from the second defendant's account "which caused the Westpac Banking Corporation Ltd to appoint the first defendant as the administrator".
He says the account system has thereby shown a temporary loss for the second defendant for the first time in 45 years and although he communicated this to the first defendant and Westpac there has been no attempt to investigate the irregularity and reconcile the second defendant's books or to entertain his concerns.
He says he is informed by George Lopez that Mr Lopez has queried the fees of the first defendant and wishes to review them subject to full financial disclosure by the first defendant because he, Mr Lopez, states he feels "the fees are excessive".
Under the heading "Conduct of First Defendant Requiring his Removal as Administrator" Mr Cole essentially complains that prior to the appointment of the first defendant the second defendant had an annual income turnover of $4,000,000 and it is now in the vicinity of $2,000,000. To put it in very brief terms, his contention appears to be that the first defendant has been deliberately running the business down with a view to putting it into liquidation.
I come to Mr Smith's affidavit sworn on 27 November and filed on 28 November. It is a lengthy affidavit and I certainly do not propose to read it here. However, it is I think necessary to make reference to some salient aspects of it. One of the major factors referred to is the circumstances in which he came to be appointed as an administrator. The events leading up to that and as to his prior involvement with or in relation to the company is probably of no great moment. What is important, however, is that at a directors' meeting on 24 August 2000 a resolution was passed to appoint himself and Brian Hughes joint and several administrators.
The directors at that meeting were Gregory and Wendy Cole. The minutes of the meeting are annexed to Mr Smith's affidavit as VS3. On the basis of that he points out that it is not true, contrary to the assertion of the plaintiff at annexure KM 1 of his affidavit sworn 21 November, and elsewhere as I have just adverted, that Cole Engineering was placed under administration by Challenge Bank.
The clear and otherwise uncontested fact is that the appointment was made by Mr and Mrs Cole themselves as directors of the company. Following his appointment Mr Smith held a meeting of creditors on 31 August 2000 and a copy of the minutes of that meeting is annexed to his affidavit as VS4. It is apparent from a perusal of those minutes that certainly at that stage Mr Smith had no particular view as to the outcome of the administration.
Subject to information which might be obtained by him it is clear that the administration may have been terminated and the company returned to the directors - although on the material that would appear to be an unlikely prospect - or the administration could continue to trade for some time resulting in the sale of the business as a going concern or it could be placed into liquidation. It is clear, as I say, that no particular option was being favoured by Mr Smith at that time.
There was a concern about a loan and potential loss of up to $1.2 million to a company called Sports Specific Australia Pty Ltd, a company of which Mr Greg Cole and Mrs Wendy Cole were directors. It seems to me, however, unnecessary for present purposes for me to canvass that nor the other concerns which Mr Smith details in his various reports to creditors and in his affidavit as to the management and conduct of business of the second defendant.
There were other meetings of creditors culminating in the convening of a fourth meeting which was the meeting injuncted in the end by the order of Miller J. It is apparent from the affidavit material that a number of possibilities were being canvassed and put before the creditors, one of which was the possible sale of the business to Farmers Carbon International Pty Ltd which ultimately did not proceed because of a failure of the potential purchaser to provide sufficient information and demonstrate a commitment to proceed.
I make that observation again only to indicate that it cannot be said on any view on the objective material that the administrator's purpose from the outset was to place the company into liquidation. It is clear on all of the material being put to the creditors certainly that there were other options being realistically entertained.
Mr Smith at par 59 and following of his affidavit deals with the allegation made in the material provided by Mr May and Mr Cole that he was responsible for the National Australia Bank refusing finance to the second defendant. Again I will not detail here the content of those paragraphs. Suffice to say on his instructions a Mr Chris Munday of his office telephoned the National Australia Bank and asked simply whether or not the directors' finance application had been approved. The indication was given that it had not been and it was intimated that it was unlikely to be. Mr Smith deposed that following that information and in the course of finalising his fourth report to creditors he telephoned the bank officer to confirm whether or not that was so and the bank officer did confirm that the bank had not completed their review of the application but had a preliminary view that it was unlikely to be approved.
This is supported by a letter from the National Australia Bank, annexure VS14 to Mr Smith's affidavit, the letter being dated 23 November 2000 and confirming that in the telephone conversation with Mr Munday on 6 November the bank advised that no decision had been made by the bank in relation to the company's application for finance but that subsequently the application was declined. The letter concludes:
"We confirm that our telephone conversation with Mr Munday did not in any way influence the bank's decision to decline the company's application for finance."
In his affidavit Mr Smith refers inter alia to what are said to be the plaintiff's proxies. Again for present purposes it seems unnecessary for me to say more about that than simply there is a very significant dispute as to whether or not a number of the individuals or businesses claimed by Mr May as having given him his proxy did in fact do so and in any event, whether or not they did, what the effect of that was understood or intended to be, and further ultimately the extent to which they represented a significant proportion or any other proportion of the creditors, either by value or number, of the company.
Finally in his affidavit Mr Smith refers to the potential purchase of the business of Cole Engineering Pty Ltd, indicating that over the weeks previous to the swearing of his affidavit he had been engaged in ongoing discussions with a particular potential purchaser with a view to them making an offer to purchase the business and that on Thursday, 23 November, he received a written conditional offer to purchase the company's land and buildings, plant and equipment, licences, logos, patents, trademarks and stock in trade.
He says this is the only offer he has received for the business and is confident that as a result of further negotiation the offer will become unconditional. He says that in the absence of any bona fide adequately backed proposal for a deed of company arrangement he considers that the offer to purchase the business as a going concern is the best way to maximise the return to creditors. He also notes that the purchaser has stated to him that it is the purchaser's desire to continue to trade the business of the company in Kellerberrin at its current premises and intends to interview each of the workshop staff with a view to ascertaining whether they will offer the workers employment.
He expresses some concerns as to what the likely outcome will be if the business cannot be sold as part of a going concern sale. He is further concerned that if there are delays in the administration of the company the potential purchaser may not proceed with the sale.
Finally, Mr Smith refers to the financial position of the company as at 24 November and a summary prepared by him showing additional costs incurred as a result of the injunction. In his affidavit he estimates that total extra costs of $129,274.71 have been incurred as a result of the injunction and that the costs associated with it are reducing the amount payable to the bank.
It seems to me, without for present purposes troubling to canvass the evidence in any more detail, that on all the essential or important issues the contest on the evidence is not one of credibility in the usual sense. It is not a question of determining who is telling the truth in the face of directly conflicting assertions of fact.
The evidence of Mr May is in the main hearsay, opinion and speculation. It seems necessarily to be evidence of what he was or must have been told by someone else, primarily Mr Cole, about the situation of the second defendant or the activities and conduct of the first defendant.
For his part the evidence of Mr Cole consists largely of broad assertions of what he believes Mr Smith has said or done, what he believes Mr Smith's motives for such conduct were and what he believes the effect on the company has been. There is very little, if anything, in his evidence which is capable of lending objective support to those assertions of belief.
As against that, the evidence adduced by the first defendant goes directly to the matters raised by the plaintiff and Mr Cole, relevantly constitutes a denial of them and includes cogent objective evidence, for example the minutes of the meetings of creditors and the letter from the National Australia Bank to which I have already referred, which supports the first defendant's account.
If one does have regard to the whole of the evidence now before the Court and without approaching the assessment as turning to any degree on credibility, it is patently clear that the plaintiff's claims are incapable of being made out. There is accordingly in my view no serious question to be tried in respect of the application to remove the administrator.
The same, it seems to me, applies to the application to review the administrator's remuneration. On the one hand, there are bare assertions by Mr May and Mr Cole that it is excessive. They rely on a purported comparison with a position of financial manager or equivalent. The comparison is necessarily entirely invalid.
The first defendant is an administrator under the Corporations Law administering the company thus far at least as a going concern. His evidence is that his fees were in accordance with the insolvency scale and properly approved by a meeting of creditors including Mr Cole who voted, and is shown to have voted, in favour of that approval. The objective evidence is all one way and it is contrasted only with, as I have observed, speculation and belief otherwise unsupported.
I turn to the next issue raised by counsel for the first defendant which is the claim that there was material non-disclosure before Miller J on 20 November. There can be I think no doubt of the law as to this. There is a very clear obligation of uberrima fides in respect of an ex parte application for an injunction. The party inducing the Court to act in the absence of the other party will fail in that obligation unless he or she effectively supplies or takes the place of the absent party to the extent of bringing forward all the material facts which would presumably have been brought forward by that party in defence to that application.
I refer to Thomas A. Edison Ltd v Bullock (1912) 15 CLR 679. At 681, speaking of the material which had been put before him as against the material put before Barton J on the initial application for an interim injunction, Isaacs J said:
"It is an entirely new case and essentially different from that presented to my learned brother. He was not afforded the opportunity of considering the real circumstances, and of exercising his discretion upon them. The law in such a case is well established. There is a primary precept governing the administration of justice, that no man is to be condemned unheard; and therefore, as a general rule, no order should be made to the prejudice of a party unless he has the opportunity of being heard in defence. But instances occur where justice could not be done unless the subject matter of the suite were preserved …"
His Honour made some further observations and then continued:
"The other party may come to the Court and ask for its interposition, even in the absence of his opponent on the ground that delay would involve greater injustice than instant action, but when he does so and the Court is asked to disregard the usual requirement of hearing the other side, the party moving incurs a most serious responsibility."
His Honour then referred to Daglish v Jarvie 2 Mac & G, 231 and at 682 said this, referring to the party bringing the application:
"That party fails in his obligation unless he supplies the place of the absent party to the extent of bringing forward all the material facts which that party would presumably have brought forward in his defence to that application. Unless that is done, the implied condition upon which the Court acts in forming its judgment is unfulfilled and the order so obtained must almost invariably fall. I add the word "almost" in deference to such an exceptional case as Holden v Waterlow 15 WR 139.
Thomas A. Edison Ltd v Bullock was applied in Bentley v Nelson, FCt SCt of WA, (1963) WAR 89 where a letter which had been marked "without prejudice" was not disclosed to the chambers judge in the sense that although its existence was disclosed, its contents were not made known to him. The ex parte order was made, and upon the motion to extend it the without prejudice agreement was then made known to the chambers judge and its full contents disclosed to him. The injunction was continued to trial. The appellant appealed against both orders. The Full Court held that the without prejudice agreement should have been disclosed in its entirety to the chambers judge when the ex parte application was before him and, as it was not, the injunctions would have to be discharged. The Court observed that an ex parte injunction vitiated by non-disclosure must necessarily be discharged and, if not, it extends to vitiate any extension of it.
A number of matters were advanced by counsel for the first defendant as being matters it was said were material and had not been disclosed to Miller J.
The first of those was that the administrators were voluntarily appointed by the directors. What was effectively put before his Honour, it is said, was that the administrators were appointed by the Challenge Bank. It seems to me that although that was apparently the thrust of what was being put to his Honour, as I understand the content of the material there was reference elsewhere in it to the administrators being appointed by the directors.
I have some concerns about this because, as I say, I do have the very strong impression that the case was presented to his Honour on the basis that the administrators were appointed by the bank, but on balance I think there was material before his Honour indicating otherwise and I am not prepared to hold that to be a material non-disclosure or indeed a non-disclosure as such in the circumstances.
It is then said that there was a non-disclosure that the administrators had provided four separate reports to creditors summarising the administrators' investigations and their various consideration of alternative proposals other than liquidation. I think there is no substance in this. The fourth report was before his Honour and the fourth report, because it was the fourth report, clearly indicated there were prior reports and indeed some reference was made to them in it. Once again I think, although not necessarily terribly clearly, there were indications in the material before his Honour that the administrators had been contemplating and putting forward or considering other options than liquidation. That includes the prospect that the creditors might approve an agreement for sale to Farmers Carbon and I note the first defendant's letter to Mr Cole dated 16 November in which that was referred to was before Miller J as annexure KM9.
It is said that his Honour was not told that the creditors at the meeting on 1 November had resolved to approve the administrators' remuneration. I do not accept that. My reading of the material is that was disclosed.
It is said that there was a non-disclosure that the current state of the company's finances meant that only the bank would be affected by the application. Reference is made to par 124 to par 129 of the affidavit of Mr Smith and that the employees who signed the petition would be entitled to a priority payment of their claims regardless of whether the meeting proceeded as scheduled and regardless of how the creditors voted. There is reference again to Mr Smith's affidavit at par 78 and par 79.
Those matters, I think, were not disclosed to his Honour but in the circumstances it does not appear to me that they could properly be described as material non-disclosures for the purposes of the relief being sought before him.
It is said then that the plaintiff seriously misled the Court by his affidavits dated 20 and 21 November by stating that he acted for a large number of unsecured creditors or the majority of unsecured creditors when it is asserted that in fact he merely had voting proxies in respect of five unrelated trade creditors with a total value of $7178.43. It is said that on the affidavit evidence advanced on behalf of the first defendant there are over 100 creditors with a total claim of something in excess of $2.2 million.
Further points are made about the petition and proxies and the status of them and whether or not further information in relation to them should have been disclosed to his Honour. Again I have some difficulty with those matters but it seems to me that they probably require further clarification and I do not consider it appropriate at this stage and for present purposes to deal with them on the basis that they constitute non-disclosure for the purposes of this application.
As I say, I have some serious reservations about the material that was placed before his Honour and the adequacy of it, but I am not disposed at this stage certainly to hold that there has been a material non-disclosure.
I turn now to the question of the undertaking as to damages. The undertaking is a very important condition of the granting of interlocutory relief of this kind. In Cambridge Credit Corporation Ltd v Surfers Paradise Forests Ltd (1977) Qd R 261, Dunn J remarked that the worthlessness of the undertaking is a potent factor to take into account when deciding whether to grant the injunction. The same of course must apply when deciding whether or not to continue or discharge an injunction.
What is necessary is an examination of the facts of each particular case to decide whether or not the undertaking sufficiently protects the defendant. It is also relevant to consider whether or not there would be a difficulty in establishing a causal connection between the grant of the injunction and the consequence or loss which would flow from it. If the difficulty of doing that would be too great the Court may well refuse to grant the injunction for that reason; see Carlton and United Breweries (NSW) Pty Ltd v Bond Brewing (NSW) & Ors, (1987) 76 ALR 633. I have already mentioned that there has been an undertaking filed by the plaintiff and it is in the usual form.
I refer again to the affidavit of Mr May sworn 21 November 2000 and filed the following day. In par 36 he says he is the joint registered proprietor of a property at Lesmurdie which has a mortgage liability of $45,000 and a market value of $230,000. He says he is also the owner of chattels and motor vehicles totalling another $40,000.
Of course, as Ms Robertson points out, that reflects a half interest in the property and the end result is, on my arithmetic, a claim that he has assets of some $132,000. As against that the potential losses identified by Mr Smith in his affidavit filed 28 November, par 124 to par 128, and the attached summary or analysis indicates a loss to the first and second defendant, specifically the second defendant, of some $129,000.
In addition to what Mr May claims to be his own income and asset situation, he refers to the fact that he is the coordinator of the Rural Action Movement whose executive supports him in this action. He deposes that he has been given an indemnity from that association for acting in the interests of the rural community and has specifically been given an undertaking that they are supporting the present action and that they have assets of some $1.1 million.
He also deposes that he has entered into an agreement with Mr Cole in regard to the conduct of the action and that all costs and expenses that he will incur under the undertaking will be covered by that. It is annexed as KM14. I think the short point that may be said about those two arrangements is that they certainly are not undertakings to the Court and, secondly, would no doubt provide little relief and great difficulty of enforcement should the defendants need to seek to have them enforced to enable them to recover from Mr May on the basis of his undertaking.
Again I have serious reservations about the undertaking given by the plaintiff. It is simply as a matter of arithmetic barely adequate as things presently stand particularly when it is unsupported by more detailed and cogent verification of the plaintiff's financial circumstances. Nonetheless and not without some hesitation I would not at this stage again and in the present circumstances discharge the injunction for that reason.
I turn to the more general considerations of balance of convenience and the adequacy of damages as a remedy. I put to one side again the submissions made on behalf of the first defendant as to the situation of the proxies or so-called proxies in relation to Mr May's position. However, there are some aspects of the submissions which in my view clearly have merit. First of all, so long as the injunction applies the unsecured creditors are clearly deprived of the right they would otherwise have to decide on the future of the company under s 439C of the Corporations Law.
Furthermore, I accept that the continuation of the injunction will increase the costs of the administration and thereby reduce the dividend payable, and I refer to par 126 and annexure VS23 to the affidavit of Mr Smith. It is true that continuation of the injunction will cause further inconvenience and cost to the unsecured creditors who have now travelled to four adjourned meetings although I do not give great weight to that in the context of the situation generally. It seems to me an inconvenience and albeit a real one to those concerned but not something which even in combination with other considerations should carry much weight in relation to the consideration of whether or not to continue the injunction.
What is I think far more important is that continuation of the injunction will further delay the administration of the company. It would not be in the best interests of the creditors. It will further reduce the amount payable to Challenge Bank which is the major creditor and the secured creditor and, perhaps most significantly of all, it may well jeopardise the potential sale of the business as a going concern which could result in the assets of the business being sold for a significantly lesser sum and may prejudicially affect the future employment of the existing employees. I accept what Mr Smith says about those matters and indeed it seems to me on all the material before me they are not really in dispute in any event.
Overall, therefore, I am satisfied that the balance of convenience too militates in favour of discharging the injunction.
On the question of whether or not damages is an adequate remedy I am not sure that that would be so. The plaintiff wants the company to continue trading, preferably being returned to the present directors. Whatever view one may take about the feasibility or viability of that is perhaps a different question. So be that as it may, in light of the other findings I have made, this consideration cannot in my view lead to any different conclusion.
In summary therefore my conclusions shortly put are these: first, that the first defendant's application to strike out the endorsement and the writ of summons is refused. Secondly, the interim injunction will be discharged.
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