Morara Pty Ltd v Kingslane Property Investments Pty Ltd - [2019] WASC 136

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   MORARA PTY LTD -v- KINGSLANE PROPERTY INVESTMENTS PTY LTD [2019] WASC 136
CORAM:   VAUGHAN J
HEARD:   18 APRIL 2019
DELIVERED          :   18 APRIL 2019
PUBLISHED           :   30 APRIL 2019
FILE NO/S:   COR 31 of 2014
BETWEEN:   MORARA PTY LTD
Plaintiff
AND
KINGSLANE PROPERTY INVESTMENTS PTY LTD
First Defendant
EVAN ALEXANDER GEORGE CRANSTON
Second Defendant
JOHN WINDSOR CRANSTON
Third Defendant

Catchwords:

Application for interlocutory injunction - Whether injunction should be granted preventing the first defendant from dissipating judgment sum - Whether first defendant's proposed use of judgment sum is oppressive to, unfairly prejudicial to or discriminatory against the plaintiff - Balance of convenience - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 232, s 233 and s 1324
Supreme Court Act 1935 (WA), s 16 and s 25

Result:

Application refused

Representation:

Counsel:

Plaintiff	:	D H Solomon
First Defendant	:	G D Cobby SC
Second Defendant	:	G D Cobby SC
Third Defendant	:	G D Cobby SC

Solicitors:

Plaintiff	:	Solomon Brothers
First Defendant	:	Douglas Cheveralls Lawyers
Second Defendant	:	Douglas Cheveralls Lawyers
Third Defendant	:	Douglas Cheveralls Lawyers

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

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199
Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Castlemaine Tooheys Ltd v The State of South Australia [1986] HCA 58; (1986) 161 CLR 148
CME Properties (Australia) Pty Ltd v Prime Capital Securities Pty Ltd [2016] WASC 231
Duro Felguera Australia Pty Ltd and Trans Global Projects Pty Ltd 2018 WASCA 714
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 10
Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76
Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd (No 6) (2014) WASC 278; (2014) 102 ACSR 130
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110
Warrington Management Pty Ltd and Kingslane Property Investment Pty Ltd [2019] WASC 2

VAUGHAN J:

(These reasons were delivered orally at the conclusion of the hearing. They have been edited to correct matters of grammar and infelicity of expression. Authorities and other references have also been footnoted rather than appearing in the body of the reasons.)

Introduction

These proceedings were commenced in February 2014. The plaintiff, Morara Pty Ltd (Morara), is a member of the first defendant, Kingslane Property Investments Pty Ltd (KPI). Morara invokes s 232, s 233 and s 461(1)(k) of the Corporations Act 2001 (Cth), ie it alleges statutory oppression, or alternatively, that KPI should be wound up on the just and equitable ground.
The proceedings have been in abeyance pending the hearing and determination of related proceedings. Judgment was handed down in the related proceedings earlier this year. These proceedings have again then been put into abeyance pending an appeal against that decision.
However, by interlocutory process dated 22 March 2019 Morara has sought an interlocutory injunction to restrain KPI from dissipating $381,538.74, the subject of the judgment under appeal. These reasons deal with that application. In substance the application is made on the ground that KPI's proposed acts to apply the money to its legal costs in the appeal, and lack of any intention to remunerate Morara's principal - Christopher Weaver, are oppressive to, unfairly prejudicial to and discriminatory against Morara.

Background Facts

Morara is a company owned and controlled by Mr Weaver. At all material times Mr Weaver has been a director of Morara and the owner of its share capital. Morara, in turn, owns 30 of the 90 issued shares in KPI.
KPI's membership consists of Morara (representing Mr Weaver), Kingslane Pty Ltd (representing John Cranston) and Evan Cranston. Kingslane Pty Ltd and Evan Cranston also each hold 30 shares in KPI. Evan and John Cranston are respectively the second and third defendants in these proceedings.
Further background to the formation of KPI, and the subsequent dispute between Mr Weaver and the Cranstons, may be found in the reasons delivered in Warrington Management Pty Ltd v Kingslane Property Investment Pty Ltd[1] (Principal Reasons).
[1] Warrington Management Pty Ltd v Kingslane Property Investment Pty Ltd [2019] WASC 2.
The Principal Reasons are relevant because of orders made in these proceedings by consent on 29 May 2018. Orders were made in these terms:
The court notes the agreement of counsel to this matter, COR 31 of 2014, that if there is a trial in this matter, COR 31 of 2014, following delivery of judgment in matter CIV 2908 of 2013:
(a)all evidence adduced at the trial in CIV 2908 of 2013 shall, by consent, also be received as evidence at the trial in this matter, COR 31 of 2014;
(b)all findings of fact and law (including as to credibility of witnesses) made in the reasons for judgment in CIV 2908 of 2013 [ie the Principal Reasons], shall be binding on all parties at the trial of this matter, COR 31 of 2014, notwithstanding the fact that some of the parties to this matter, COR 31 of 2014, are not also parties in CIV 2908 of 2013;
Accordingly, factual matters in the Principal Reasons are binding on the parties to these proceedings.
The Principal Reasons concern proceedings to which KPI was a party. So too, as a defendant by counterclaim, was Mr Weaver. The plaintiff in those proceedings was another company controlled by Mr Weaver, Warrington Management Pty Ltd (Warrington Management). Warrington Management sought to recover reasonable remuneration by way of restitution. It failed for reasons as set out in the Principal Reasons. However, KPI succeeded in its counterclaim to recover a loan against Mr Weaver. This is the judgment amount of $381,538.74, the subject of the present application.
An appeal has been lodged against the judgment the subject of the Principal Reasons. As I understand it, by the appeal Warrington Management seeks to appeal the dismissal of its claim. However, Mr Weaver does not seek to appeal the judgment entered against him. There is no challenge to the order that Mr Weaver make payment to KPI in the amount of the $381,538.74 (the judgment amount is slightly less than $381,538.74 as this includes interest).
Following entry of judgment KPI made demand on Mr Weaver. Mr Weaver's solicitors responded requiring that KPI provide an unconditional undertaking not to dissipate the funds pending the outcome of the appeal and these proceedings other than with Mr Weaver's consent or an order of the court. That undertaking was refused. However, by email dated 7 March 2019 the solicitors for KPI informed Morara's and Mr Weaver's solicitors that:
My clients undertake not to dissipate the funds, except in the ordinary course of business, which will include legal fees and disbursements in connection with CIV 2908 of 2013 [the proceedings the subject of the judgment in accordance with the Principal Reasons] and CACV 31 of 2019 [the appeal therefrom] but not COR 31 of 2014.
KPI has, through senior counsel, confirmed to the court that it is prepared to proffer that undertaking to the court in answer to the application for an interlocutory injunction.
In the course of oral submissions there was discussion about what was meant by non-dissipation 'except in the ordinary course of business'. I ventured that I understood the undertaking to mean not in the ordinary course of KPI's present business. That present business is, and has been for some time, very limited. It amounts to no more than defending and prosecuting the claims concerning Mr Weaver, Warrington Management and Morara as well as receiving certain deferred fees. The expenses incurred in the ordinary course of KPI's present business are no more than legal fees and various compliance costs.
Senior counsel for KPI confirmed that the conception of the undertaking as I understood it was the sense in which it was proffered. So, for example, if it were intended to alter KPI's current ordinary course of business - or make payments inconsistent with KPI's ordinary course of business - it would be necessary to approach the court to be released from the undertaking.
Following KPI's offer of an undertaking Morara's and Mr Weaver's solicitors responded by letter dated 7 March 2019 stating:
In the circumstances where his Honour made findings in this matter, CIV 2908 of 2013, that Mr Weaver provided services to KPI as Managing Director, and the value of those services far exceeds the amount of the judgment sum in CIV 2908 of 2013, a satisfactory undertaking or, if the issue is not resolved by way of conferral, an injunction, is necessary to maintain the status quo upon payment of the judgment sum because there is a strong prima facie case that it was, and continues to be, oppressive for KPI after the judgment was given to not voluntarily compensate Morara's former nominated director of KPI to the extent of the value of his services as found in the judgment.
The proposed exception to an undertaking 'in the ordinary course of business' is far too broad to provide any protection against the funds being entirely dissipated prior to the determination of CACV 31 of 2019 and COR 31 of 2014, and thereby it renders the proposed undertaking illusory. Indeed, it is likely that the 'legal fees and disbursements in CIV 2908 of 2013 and CACV 31 of 2019' component of 'the ordinary course of business' alone would consume a significant portion of the judgment sum.
In any event an undertaking was provided by KPI not to dissipate the judgment sum pending the determination of this application. Following that undertaking Mr Weaver paid the judgment sum of $381,538.74 (which included an interest component) to KPI. This application was then filed.
It is common ground that KPI does not own any real estate in Western Australia.
Indeed, for the purpose of this application KPI has prepared a financial report for the period ending 29 March 2019. This discloses that:
(1)KPI holds three amounts of cash:
(a)cash on hand - $90;
(b)NAB Business Everyday Account - $389,443.67; and
(c)NAB Cash Maximiser Account - $80,529.28.
(2)KPI's only other asset is a future GST refund of $829.52; and
(3)KPI has current liabilities in the form of accrued charges of $5,250. It has no other liabilities.
KPI's financial statements otherwise disclose that it has incurred and paid substantial legal expenses over the past four years. The legal expenses comprise $13,319.68 (period to 29 March 2019), $264,738.80 (income year to 30 June 2018), $88,435.21 (income year to 30 June 2017) and $44,633.96 (income year to 30 June 2016). That totals $410,767.65. I infer that these costs were largely concerned with the trial of the earlier proceedings involving Warrington Management and Mr Weaver.
In this application Morara seeks to rely on the terms of an 8 March 2019 email sent by KPI's solicitor. The relevant part of the email reads:
In our view, the case by Morara in COR 31 of 2014 does not include a claim for remuneration by Mr Weaver in his personal capacity. Even if it did, we are not yet persuaded that this would provide a basis for an injunction, or that Mr Weaver's alleged claim would give him priority as a creditor against other creditors of KPI.
Morara, in its written submissions, contends that the email shows that KPI has a number of creditors and that it has insufficient funds to pay all its creditors. I reject that submission. The email is dealing with Mr Weaver's position as a matter of principle. In any case the financial report as at 29 March 2019 establishes the present financial position of KPI conclusively.
I would accept, however, that KPI has insufficient funds to pay $683,175.20.
The amount of $683,175.20 is relevant because this is the amount that was assessed in the Principal Reasons as being the appropriate quantum of reasonable remuneration for the professional and project management services provided to KPI. Accordingly, if Warrington Management is successful in its appeal, this is the amount that KPI might be ordered to pay. Alternatively, as will be seen, that is one of the amounts Morara intends to seek in these proceedings.

The Present Proceedings

Among other things these proceedings claim statutory oppression in terms of s 232 of the Corporations Act 2001 (Cth). The primary relief sought is a buy-out order as against the Cranstons. Alternatively, it is sought that KPI purchase Morara's shares with an appropriate reduction in capital. If a buy-out or buy-back order is not made, Morara seeks a winding up order.
Winding up is also sought on the just and equitable ground. However, that may be put to one side for the purpose of the present application.
Morara has also foreshadowed seeking additional relief. That relief is in respect of alleged oppression in failing to pay reasonable remuneration to Mr Weaver, as Morara's nominee director, as is said to be consistent with the findings in the Principal Reasons. Counsel for Morara stated in oral submissions that this would now be the primary relief sought in these proceedings. It was said that, pursuant to s 233(1)(j) of the Corporations Act 2001 (Cth), an order would be sought seeking that KPI make payment of the $683,175.20 on account of the services provided by Mr Weaver.
In its written submissions in support of this application Morara raises three historical matters of oppression.
•First, the November 2013 appointment of additional directors to KPI, thereby diminishing Mr Weaver's voting position as Morara's nominee.
•Second, the December 2016 removal of Mr Weaver as a director of KPI.
•Third, a lack of cooperation on the part of KPI in the provision of financial statements and financial reports.
A further argument as to alleged oppression was advanced following the delivery of the Principal Reasons. The argument is put in this way in Morara's written submissions:
It was held in the Primary Reasons at [301] that, if Warrington proved the intended remuneration agreement, the doctrine of unanimous consent would apply, and at [318] and [353] it was held there were discussions between Mr Weaver and the Cranstons to the effect that Mr Weaver would be remunerated for services to be provided to [KPI] in accordance with a remuneration structure to be agreed. The doctrine of unanimous consent is likely to be applied at trial to find that [KPI] agreed to Mr Weaver, being Morara's nominated director, being remunerated (if Mr Weaver could not nominate another entity to receive the remuneration) …
It was found at [416] of the Primary Reasons that the quantum of reasonable remuneration for the professional and project management services provided to [KPI] over 17 August 2010 to 6 December 2013 was $683,175.20. Accordingly, since the judgment was given in the civil action, it has been, and continues to be, oppressive to Morara for [KPI] to not voluntarily compensate Morara's former nominated director of [KPI], namely Mr Weaver, to the extent of the value of his services in accordance with the agreement referred to…and the findings at [318], [324], [325] and [353] of the Primary Reasons. It will also be unfairly prejudicial, and unfairly discriminatory, if [KPI] dissipates the money, despite Mr Weaver's and Morara's objection, by paying undisclosed creditors before the determination of the appeal and these proceedings COR 31 of 2014.
Accordingly, the alleged oppression is said to be twofold. First, it was and continues to be oppressive to Morara not to compensate its nominated director for the value of his services. Second, it will be oppressive to dissipate the proceeds of the judgment sum in paying KPI's creditors before the determination of the appeal and these proceedings.
A third act of alleged oppression is developed later in Morara's written submissions. It is contended that it was oppressive to even demand payment of the judgment sum. Morara contends that instead that should have been offset against KPI's obligation to reasonably remunerate Mr Weaver as the nominee director of Morara.

The Application for an Injunction

Morara seeks an injunction in these terms:
[A]n injunction be granted restraining the first defendant from taking any steps, or any further steps, to dispose of, deal with, diminish the value of, encumber or by any other means dissipate the sum of $381,538.74 that was provided to [KPI] by or on behalf of Christopher William Weaver, pursuant to paragraph 2 of the orders made by the Honourable Justice Vaughan on 7 February 2019 in proceedings CIV 2908 of 2013, or any part thereof, without the written consent of Mr Weaver, and until the delivery of judgment in these proceedings or further order.
The application is made under s 16 and s 25 of the Supreme Court Act 1935 (WA), further or alternatively, s 1324 of the Corporations Act 2001.
Morara says that there is a serious issue to be tried and it has established a prima facie case of oppression.
It is evident from the terms of the proposed injunction itself that the concern informing the application is one of dissipation risk. Given the terms of KPI's undertaking, as rejected by Morara, the dissipation risk is very narrow. The funds will only be applied in the ordinary course of business. In practical terms, given that KPI is not conducting any business of note, that will only see application in legal fees on the appeal or other proceedings more generally or limited day to day business compliance costs. Notably, the terms of KPI's undertaking will prevent application in meeting legal expenses in these proceedings.
Morara's written submissions nevertheless continue to emphasise possible dissipation risk. It is said that there is a real risk that the judgment sum will be entirely dissipated before the appeal and these proceedings are heard and determined. Morara contends that because of KPI's then inability to pay if the appeal is allowed or Morara is successful in these proceedings, the balance of convenience lies in favour of an injunction being granted.
Before addressing the applicable principles for the grant of an interlocutory injunction, I should say that I have difficulty with the proposition that the judgment sum will be entirely dissipated before the appeal and these proceedings are heard and determined.
The undertaking as proffered will prevent the funds being spent on the costs of these proceedings. Other ordinary business expenses are likely to be minimal. So it is really a question of whether legal expenses in connection with the appeal will exhaust the proceeds of the judgment sum.
I cannot see how that would be the case. The appeal is likely to be a one day appeal. The appellants will bear the costs of preparation of the appeal books and the like. KPI's costs will be in preparation of a respondent's answer and the hearing itself. Those costs should be well short of the $80,529.28 held by KPI ignoring the judgment sum proceeds.
Accordingly, I do not accept Morara's contention that there is a real risk that the judgment sum will be entirely dissipated prior to the appeal and these proceedings being heard and determined.

Principles on Application for Interim Injunction

The principles governing the grant of interlocutory injunctive relief were summarised by Beech J (as his Honour then was) in Twinside Pty Ltd v Venetian Nominees Pty Ltd.[2] His Honour drew on the High Court decision in Australian Australian Broadcasting Corporation v O'Neill.[3] In identifying the relevant principles consideration should also be given to Mineralogy Pty Ltd v Sino Iron Pty Ltd[4] and Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2].[5]
[2] Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] - [12].
[3] Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [65] ‑ [71].
[4] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 [87].
[5] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 [130] - [131].

By reference to those authorities it is well established that:
(1)The two main inquiries that arise are whether the plaintiff has made out a prima facie case and whether the balance of convenience favours the grant of the injunction.
(2)The first inquiry as to a 'prime facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial.
(3)How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks.
(4)The second inquiry is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the defendant would suffer if an injunction was granted.
(5)Whether an applicant for an interlocutory injunction has made out a sufficient prima facie case and whether the balance of convenience favours the grant of such relief are related, not independent, questions. For example, as the apparent strength of the plaintiff's case diminishes, the balance of convenience moves against the making of an order.
On occasion the principles are summarised in terms that there are three things to be shown: (1) that there is a serious question to be tried; (2) that the plaintiff will suffer irreparable injury for which damages will not be adequate compensation; and (3) that the balance of convenience favours the grant of the injunction.[6]
[6] See eg Castlemaine Tooheys Ltd v The State of South Australia [1986] HCA 58; (1986) 161 CLR 148, 153; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 [13].
Recently, in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2], the Court of Appeal has proceeded on the basis that the question of adequacy of damages is an aspect of the balance of convenience.[7] I will take the same approach. Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] also emphasises other important matters where equity's jurisdiction is invoked in an application for an interlocutory injunction. The Court of Appeal observed that:[8]
•The power to grant an interlocutory injunction is not to be exercised by reference to unconstrained notions of what appears to be just. It must be exercised by reference to the rights claimed by the plaintiff in the proceedings.
•It is necessary to identify the legal or equitable rights which are said to be determined at trial and in respect of which final relief is sought.
[7] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [131] (referring to Minerology Pty Ltd v Sino Iron Pty Ltd [85] - [87]).
[8] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [130].
There is no free-standing right to an interlocutory injunction; the first question to be asked of a plaintiff in seeking an interlocutory injunction is: 'what is your equity?'[9] That emphasises that the issue of whether the applicant has a prima facie case is not answered in the abstract. Rather, the question on an application for an interlocutory injunction is whether the applicant has a prima facie case for final relief that justifies and requires protection by interlocutory restraint.[10]
[9] Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [8], [16]; Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [130].
[10] Brimstone Enterprises Ltd v Empire Resources Ltd [2018] WASCA 107 [54].
Finally, on the subject of the adequacy of damages as a consideration relevant to balance of convenience, it should be recalled that in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] the Court of Appeal stated:[11]
[I]n equity's auxiliary jurisdiction, the question of whether the plaintiff will suffer irreparable injury for which damages will not be an adequate compensation involves no more than a consideration of whether the injury cannot properly be compensated in damages, or by an order for accounts or some other interim remedy. The question of whether the injury cannot properly be compensated in damages involves a consideration of whether it is just in all the circumstances that the plaintiff be confined to their remedy in damages.
[11] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [131].
Thus the key question is whether it would be just, in all the circumstances of the case, to confine the plaintiff to a remedy in damages.
The question of whether or not to grant an interlocutory injunction involves balancing the risk of injustice - the injustice which might be suffered by the defendant if the injunction is granted and the plaintiff later fails at trial is balanced against the injustice which might be suffered by the plaintiff if the injunction is not granted and the plaintiff later succeeds at trial.[12]
[12] Twinside Pty Ltd v Venetian Nominees Pty Ltd [11].
It is, however, always necessary for an assessment to be made of the strength of the plaintiff's probability of ultimate success. This impacts in two ways. First, in determining whether the plaintiff has made out a prima facie case that has sufficient strength to justify the grant of an interlocutory injunction. Second, to enable the strength of the case to be taken into account in the assessment of the balance of convenience and justice.[13]
[13] Minerology Pty Ltd v Sino Iron Pty Ltd [23], [102], [117].
Morara also grounded its application on s 1324 of the Corporations Act 2001 (Cth).
The power to order an injunction under s 1324(1) is pre‑conditioned on the court being satisfied in terms of one of s 1324(1)(a) to (f). I understood Morara to contend that the Cranstons, as officers of KPI, were proposing to engage in conduct that would constitute a contravention of the Act; namely, that in causing KPI to dissipate the judgment sum, the Cranstons would be acting in contravention of s 181(1)(a) by failing to exercise their powers and discharge their duties in good faith in the best interests of KPI.
There is a debate in the authorities (reproduced in the parties' written submissions) as to whether s 1324 is to be applied by using the established equitable principles which inform the grant of an interlocutory injunction at general law. Le Miere J referred to the competing views in CME Properties (Australia) Pty Ltd v Prime Capital Securities Pty Ltd. His Honour concluded:[14]
Although traditional equitable principles do not circumscribe the court's consideration of an application for an interim injunction under s 1324(4) of the Corporations Act, the court will always examine carefully whether there is a serious question to be tried and where the balance of convenience lies and will not grant an injunction where it would not have done so if it were exercising its traditional equity jurisdiction unless there are matters relating to the statutory obligation sought to be enforced or the public interest which require the grant of the injunction.
[14] CME Properties (Australia) Pty Ltd v Prime Capital Securities Pty Ltd [2016] WASC 231 [13].
I agree. There is a distinction between a claim for final relief under s 1324(1) and an interim or interlocutory injunction under s 1324(4). The present application is concerned with the latter. The injunction as sought is in form and substance interlocutory rather than final.
Here Morara is a private litigant. There is no public interest involved other than the general public interest in the law being observed and enforced. The principles to be applied are the ordinary principles as earlier identified - broadly, whether the plaintiff has made out a prima facie case and whether the balance of convenience favours the grant of the injunction.

Disposition

Preliminary matters

It is worthwhile emphasising at the outset that there are two matters which the present application is not.
First, the application is not an application to stay enforcement of the judgment. KPI has obtained judgment and the judgment has been satisfied. Despite the appeal, absent some restraint, KPI is entitled to the fruits of its judgment. This includes applying the judgment sum to meet ordinary business expenses including legal costs. That is all the more so when Mr Weaver does not appeal against the order made against him.
Second, notwithstanding the form of the proposed restraint and the concern expressed by Morara as to dissipation risk, the application is not an application for a freezing order.
Nevertheless, due to the obvious analogy between the form of the proposed restraint and a freezing order, it is worthwhile making some observations as to the principles that apply in determining whether to grant a freezing order. Relevantly:
•A freezing order is a drastic remedy that imposes a severe restriction on a party's right to deal with its assets.[15]
•The purpose of a freezing order is not to provide security for a judgment which an applicant hopes to obtain and fears might not be satisfied due to insolvency.[16]
•It is difficult to see how the danger of a judgment going unsatisfied due to disposal of assets will justify the exercise of discretion to grant a freezing order where this arises only because of dealings in the ordinary course of trade - such as the payment of normal trading debts.[17]
[15]Duro Felguera Australia Pty Ltd and Trans Global Projects Pty Ltd 2018 WASCA 714 [44].
[16] Duro Felguera Australia Pty Ltd and Trans Global Projects Pty Ltd [44], [61].
[17] Duro Felguera Australia Pty Ltd and Trans Global Projects Pty Ltd [61], [62].
The payment of business expenses bona fide and properly incurred - as well as reasonable legal expenses - are usually excluded from the operation of a freezing order.[18]
[18] Consolidated Practice Directions PD 9.6.1, par 12.
The considerations I have referred to inform the proper disposition of the present application. It would not be appropriate to grant the interlocutory injunction as sought merely because an appeal might otherwise become illusory. If that were the concern Mr Weaver should have sought a stay or suspension order in the appeal. But of course Mr Weaver does not even challenge the payment order. Nor is the interlocutory injunction to be granted to provide security or to protect Morara, Warrington Management or Mr Weaver against the consequences of insolvency. I must also take into account that ordinarily a successful litigant is entitled to the fruits of its judgment; and that even where dissipation risk is identified which might justify a curial restraint on dissipation by way of a freezing order, there will ordinarily be a carve out permitting the payment of normal trading debts in the ordinary course of trade.
It follows, in my view, that for Morara to be successful in this application it must demonstrate a prima facie case that the application of the judgment sum proceeds in meeting the costs of the appeal would constitute oppressive conduct. It must be prima facie oppressive to, unfairly prejudicial to or unfairly discriminatory against Morara, whether in its capacity as a member or in some other capacity, within the meaning and for the purpose of s 232 of the Corporations Act 2001 (Cth). I will refer to this, by way of shorthand, as 'oppressive conduct'.
For that reason, the arguments of historical oppression are of secondary importance for the proper disposition of this application. For completeness I accept that there are serious questions to be tried as to the appointment of the additional directors, Mr Weaver's removal as a director and the issues as to provision of financial statements and reports. But, as concerns application of the judgment sum proceeds to meet legal costs of the appeal and other ordinary debts, that is not of immediate consequence. Those matters do not bespeak oppression in the application of the judgment sum proceeds to meet legal costs in the appeal.
I turn then to whether there is a prima facie case that it is oppressive conduct within s 232 for KPI to apply the proceeds of the judgment sum in meeting the costs of defending Warrington Management's and Mr Weaver's appeal.

Prima Facie Case / Serious Question to be tried

As a preliminary matter KPI argued that there was no oppressive conduct against Morara whether in its capacity as a member or in some other capacity. KPI sought to distinguish between Morara, on the one hand, and Warrington Management and Mr Weaver, on the other. It was said that Morara should not be equated with Warrington Management and Mr Weaver.
I reject that submission. It is at least arguable - indeed strongly arguable - that Mr Weaver was a working director of KPI as Morara's nominee. Mr Weaver was and is the controlling shareholder of Morara. Mr Weaver is also the controller of Warrington Management. As concerns KPI the interests of Morara extend - at least arguably - to the interests of Mr Weaver and Warrington Management.
In respect of whether there is a prima facie case of oppressive conduct, I remind myself that:
•the hallmark of oppressive conduct is commercial unfairness;
•conduct may be oppressive even if it is otherwise completely lawful; and
•for the purpose of showing oppressive conduct, the conduct of the company's affairs may include the conduct of litigation.
It will be recalled that counsel for Morara advanced three grounds of alleged oppression:
(1)It was and is oppressive not to compensate Mr Weaver, as Morara's nominated director, for a reasonable amount as to the value of the services performed for KPI.
(2)It is oppressive to dissipate the proceeds of the judgment sum in paying KPI's creditors before a determination of the appeal and these proceedings. Why? Because KPI would then be unable to pay Warrington Management if it is successful in its appeal. And because KPI will be unable to pay Mr Weaver, as Morara's nominated director, for the value of his services if successful in these proceedings.
(3)It was oppressive to demand payment of the judgment sum as it should have been offset against KPI's obligation to reasonably remunerate Mr Weaver as nominee director of Morara.
The first and third of those contentions can be put to one side. There is no immediate connection between them and the payment of KPI's legal costs of opposing the appeal. As to the first, the only connection is through the second matter. There is no connection at all with the third. In any case I do not understand the submission that there should have been a set-off. On what basis ought there have been a set‑off in circumstances where, in the appeal, Warrington Management contends that it is entitled to reasonable remuneration and Mr Weaver, at least inferentially so far as he controls Warrington Management, accepts he is not? For that reason I do not accept that the third contention gives rise to a serious question to be tried.
I accept, however, that there is a serious issue to be tried as to one aspect of the second of Morara's contentions - that dissipation might mean that KPI becomes unable to pay Mr Weaver, as Morara's nominated director, for the value of his services.
I acknowledge, as submitted by senior counsel for KPI, that the contention that it was and is oppressive not to compensate Mr Weaver, as Morara's nominated director, for the value of his services is inconsistent with the appeal. By the appeal Warrington Management - under Mr Weaver's control, seeks to establish that it is entitled to reasonable remuneration. Morara - also under Mr Weaver's control - seeks to make the same claim to reasonable remuneration on behalf of Mr Weaver in these proceedings. Accordingly, it is proper to characterise the contention advanced in the course of this application as a fall-back position.
Senior counsel for KPI is also correct to observe that, prior to this application, there was no suggestion that Mr Weaver - as distinct from Warrington Management - had an entitlement to receive remuneration from KPI. But the suggestion has now been made, if only as a fall‑back position.
I accept, given the findings in the Principal Reasons, that Mr Weaver might have had - and might still have - a claim against KPI for reasonable remuneration. I also accept that it may be commercially unfair - and therefore oppressive conduct - for KPI not to honour that claim. Similarly, given the broadness of the concept of commercial unfairness, it may be arguably commercially unfair and thus oppressive within s 232 of the Corporations Act 2001 (Cth) to bring about the dissipation of KPI's assets in meeting the legal costs of the appeal, thereby frustrating a potential recovery for Morara - to the benefit of Mr Weaver - in these proceedings.
While there is a serious question to be tried, and in that sense a prima facie case, I do not consider the claim to be strong. It is no more than arguable.
I have formed that view as to the strength of the alleged oppression claim so far as it concerns the application of the judgment sum proceeds in meeting the legal costs of the appeal for the following three reasons:
(1)First, Morara's claim is a fall-back position: Morara's controller, Mr Weaver, has caused Warrington Management to prosecute the appeal by which the claim is made that the entitlement is that of Warrington Management rather than Mr Weaver as nominee director of Morara.
(2)Second, the directors of KPI are faced with causing the company to defend an appeal. They are entitled to rely on a judgment of the court. While there should also be consideration of the interests of future prospective creditors, and Morara's interests in that regard, there is a need to weigh the interests of the company as a whole in defending the appeal. That will necessitate expenditure on legal fees.
(3)Third, for reasons I have given, the costs of the appeal should not be so great as to bring about the dissipation of the entirety of the proceeds of the judgment sum. The $80,529.28 otherwise held in freely available funds (to which no curial restraint is sought) should be ample.
Accordingly, weighing in the balance the various issues of commercial unfairness, I accept that Morara has advanced an arguable case of oppression in the application of the judgment sum proceeds to legal costs in opposing the appeal. But there are countervailing factors which mean that the claim is no more than arguable.

Balance of convenience

The balance of convenience is against the granting of the interlocutory injunction as sought.
The main reason for this is that, to the extent the unjustified conduct of legal proceedings is established at trial as amounting to oppressive conduct, the usual order is that the oppressors compensate the company for the amount of the wrongful expenditure.[19] Accordingly, let it be supposed that application of the proceeds of the judgment sum to meet the costs of the appeal is found, in due course, to be oppressive conduct. Morara has a viable alternative remedy to make good the oppressive conduct. The Cranstons may be ordered to repay the amounts so applied.
[19] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, 734; Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd (No 6) (2014) WASC 278; (2014) 102 ACSR 130 [112].
There is no suggestion that the Cranstons are without means to effect such restitution.
Also relevant to the balance of convenience are the following:
(1)The fall-back nature of Morara's oppression claim as articulated by counsel for Morara at the hearing.
(2)The view I have formed as to the strength of the oppression claim so far as it concerns the application of the judgment sum proceeds to meet the costs of the appeal.
(3)The likelihood that, despite Morara's concerns, funding the legal costs of the appeal will not dissipate the entirety of the proceeds of the judgment sum.
(4)The circumstance that, ordinarily, interlocutory curial restraint will not go so far as to prevent a litigant meeting expenses that are bona fide and properly incurred in the ordinary course of business. In KPI's case, somewhat regrettably, its ordinary course of business involves ongoing litigation with Warrington Management, Mr Weaver and Morara.
(5)The terms of the undertaking that KPI has proffered to the court through senior counsel.

Weighing those matters, I am satisfied that, on acceptance of KPI's undertaking as proffered, it is just to confine Morara to a remedy under s 233 of the Corporations Act 2001 (Cth). The risk of injustice does not require that the interlocutory injunction as sought be imposed. Conversely, it would be unjust to impose the interlocutory injunction in the terms as sought on KPI. In short, based on the balance of convenience, I would refuse Morara's application for an interlocutory injunction.

Conclusion

Morara's application for an interlocutory injunction will be refused. However, the refusal will be on the terms that the court accepts the proposed undertaking as proffered by KPI. The undertaking is accepted on the understanding as to its effect as stated earlier in these reasons.
Subject to hearing from counsel I propose orders as follows:
(1)The court notes and accepts the undertaking of the first defendant, as profferred orally on its behalf by senior counsel for the first defendant, that it will not dissipate the proceeds of the judgment sum in CIV 2908 of 2013 in the amount of $381,538.74, except in the ordinary course of business, which will include legal fees and disbursements in connection with CIV 2908 of 2013 and CACV 31 of 2019, but not COR 31 of 2014.
(2)The application is dismissed.
I will hear from counsel as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Research Associate to Justice Vaughan
30 APRIL 2019