Pal v Perth Technical College Pty Ltd
[2020] WASC 78
•11 MARCH 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: PAL -v- PERTH TECHNICAL COLLEGE PTY LTD [2020] WASC 78
CORAM: HILL J
HEARD: 18 FEBRUARY 2020
DELIVERED : 18 FEBRUARY 2020
PUBLISHED : 11 MARCH 2020
FILE NO/S: COR 190 of 2019
BETWEEN: SIMLA DEVI PAL
First Plaintiff
YASH PAL
Second Plaintiff
AND
PERTH TECHNICAL COLLEGE PTY LTD
First Defendant
GURJANT SINGH SANGHA
Second Defendant
ASIF ALI
Third Defendant
Catchwords:
Practice and Procedure - Application for interim mandatory injunctions - Mandatory interim injunction sought for reinstatement of director - Serious question to be tried - Delay in bringing proceedings - Requirement for an undertaking as to damages - Injunction granted in part
Legislation:
Corporations Act 2001 (Cth), s 1324
Result:
Interim injunction granted in part
Category: B
Representation:
Counsel:
| First Plaintiff | : | S K Shepherd |
| Second Plaintiff | : | S K Shepherd |
| First Defendant | : | A J Aristei |
| Second Defendant | : | A J Aristei |
| Third Defendant | : | A J Aristei |
Solicitors:
| First Plaintiff | : | Law Mantra Lawyers |
| Second Plaintiff | : | Law Mantra Lawyers |
| First Defendant | : | Delta Legal |
| Second Defendant | : | Delta Legal |
| Third Defendant | : | Delta Legal |
Case(s) referred to in decision(s):
Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd [2002] NSWSC 741; (2002) 42 ACSR 605
Australian Securities and Investments Commission v Parkes [2001] NSWSC 377; (2001) 38 ACSR 355
Australian Securities and Investments Commission v Pegasus Leverage Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561
Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105
Westpac Banking Corporation v Official Liquidator of Bell Group Ltd [2017] WASC 77
HILL J:
(These reasons were delivered extemporaneously at the conclusion of the hearing. They have been edited from transcript to correct matters of grammar and so as to include complete references in the form of footnotes.)
By originating process dated 14 October 2019, the plaintiffs seek an interim injunction pursuant to s 1324(4) of the Corporations Act 2001 (Cth) (Act).
Specifically, the plaintiffs seek an injunction to:
(a)reinstate the second plaintiff as a director of the first defendant;
(b)require the second and third defendants to make the books and records of the first defendant available for inspection by the plaintiffs;
(c)provide the plaintiffs with electronic access to the bank accounts of the first defendant;
(d)require the written consent of one of the plaintiffs to any payment made from the accounts of the first defendant; and
(e)require an extraordinary general meeting of the first defendant to be called within 28 days at which meeting the shares of the third defendant shall not be counted and the second plaintiff shall, to the extent necessary, be reinstated as a director of the first defendant.
In submissions before me this morning, the plaintiffs did not press the order in terms of the fifth matter.
In support of their application, the plaintiffs rely upon two affidavits of the second plaintiff; one sworn on 14 October 2019 and the other sworn on 2 December 2019.
The application is opposed by the defendants. The defendants relied upon an affidavit of the third defendant sworn 5 November 2019.
It is important to emphasise at the outset that this matter came on for hearing before me as an interlocutory application. It is sufficient to observe that there is a significant dispute between the parties as to the facts of this matter. It is not possible on an interlocutory application without the benefit of the parties giving oral evidence and being cross-examined to resolve the extensive factual disputes between the parties.
Threshold issue
In their affidavits, the plaintiffs contend that the affairs of the first defendant are governed by its constitution as well as a shareholders agreement. The shareholders agreement is dated 19 January 2015 and signed by the second plaintiff, the second defendant, and Virender Singh.
The agreement refers to the business of the partnership being Australian Technical College Western Australia for the provision of vocational education training. The firm name is Perth Technical College Pty Ltd, the first defendant in these proceedings. The defendants drew my attention to the fact that pursuant to cl 29 of this agreement, all disputes between the parties are required to be referred to a single arbitrator in accordance with, and subject to, the provisions of 'the Arbitration Act 1902 or any statutory modification thereof for the time being in force'.
I note that there is no West Australian Act of that name, although there was an Industrial Conciliation and Arbitration Act 1902 (WA). Accordingly, it is my view that the meaning of this clause is ambiguous and evidence would be admissible as to the proper construction of this clause.
In any event, it is not clear from the evidence filed by the defendants whether they accept this agreement is a binding agreement on the parties concerning the affairs of the first defendant.
On its terms, the arbitration clause binds only the second plaintiff and the second defendant, and not the remaining parties to these proceedings. As such, it is not clear whether there is a binding agreement (and, if so, between whom) to refer all disputes concerning the first defendant to arbitration.
Counsel for the plaintiffs also drew my attention to the fact that the defendants filed an unconditional appearance and, as a consequence, have accepted the court's jurisdiction. In addition, the plaintiffs say that the proceedings assert breaches of the Act which do not fall within the jurisdiction of the arbitration.
I accept both of these submissions. For these reasons, I do not consider that I am required to refer this dispute to an arbitration.
Legal principles
The legal principles governing the court's power to grant injunctions under s 1324(4) of the Act were summarised by Palmer J in Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd[1] as follows.
[1] Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd [2002] NSWSC 741; (2002) 42 ACSR 605 [36].
First, the jurisdiction which the court exercises under s 1324 of the Act is a statutory jurisdiction and not in the court's traditional equity jurisdiction. Second, Parliament has made it increasingly clear by successive statutory enactments that the court in exercising its statutory jurisdiction is not to be confined by the considerations which would be applicable if it was exercising its traditional equity jurisdiction.
Third, among the considerations which the court must take into account in an application for an injunction under s 1324 are the wider issues referred to by Austin J in Australian Securities and Investments Commission v Sweeney and Australian Securities and Investments Commission v Parkes[2] and Davies AJ in Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd;[3] they may be gathered under the broad question as to whether the injunction would have some utility or would serve some purpose within the contemplation of the Act.
[2] Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114; Australian Securities and Investments Commission v Parkes [2001] NSWSC 377; (2001) 38 ACSR 355.
[3] Australian Securities and Investments Commission v Pegasus Leverage Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561.
Fourth, these considerations are to be taken into account regardless of whether the application is for a permanent injunction under s 1324(1) or for an interim injunction under s 1324(5).
Fifth, when an application under s 1324(4) is made by ASIC rather than a private litigant the court is more likely to give greater weight to the broader question as to whether the injunction would serve a purpose within the contemplation of the Act.
Sixth, where there is an appreciable, that is, not fanciful, risk of particular future contraventions of the Act by a defendant, it would serve a purpose within the contemplation of the Act that the court grant not only a permanent injunction but, in an appropriate case, an interim injunction restraining such conduct.
Seventh, although the questions whether there is a serious question to be tried and where the balance of convenience lies will not circumscribe the court's consideration in an application for an interim injunction under s 1324(4), the interests of justice will always require that those questions be examined carefully when restrictions are sought to be imposed before the case has properly been examined by the court, even where the protection of the public is said to be involved.
Eighth, the balance of convenience will be viewed differently according to whether the applicant under s 1324(4) is ASIC or a private litigant. Where ASIC is acting to protect the public interest, the absence of an undertaking as to damages which is exempted by s 1324(8) will usually be of little consequence. However, where the proceedings are brought to advance the plaintiff's private interests then, if such an undertaking is not proffered even though it may likewise be exempted by s 1324(8), the court may take that circumstance into account as a matter of practicality, common sense and fairness in determining where the interests of justice lie and whether it is desirable to grant the injunction.
In this case, the interlocutory relief sought by the plaintiffs are mandatory interlocutory injunctions. As was held by Newnes JA in Mineralogy Pty Ltd v Sino Iron Pty Ltd,[4] the test for a mandatory injunction is no different to that for a prohibitive injunction although, the fact that a mandatory injunction is sought may tilt the balance of convenience in favour of the defendant. His Honour observed that this may be one of the reasons that mandatory interlocutory injunctions are rare.
[4] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 [76].
The plaintiffs do not need to show that it is more probable than not that they will succeed at trial. It is sufficient that they show that there is a sufficient likelihood of success to justify the preservation of the status quo pending trial. How strong the probability needs to be is dependent on the nature of the rights asserted by the plaintiffs and the practical consequences likely to flow from the orders sought by them.
The second question is whether the inconvenience or injury which the plaintiffs would be likely to suffer if an injunction is refused outweighs or is outweighed by the injury the defendants will suffer if an injunction is granted. These questions are related and not independent questions.
I turn now to examine carefully whether there is a serious question to be tried and where the balance of convenience lies. In doing so, I note that on an application for an interlocutory injunction, the court is not undertaking a preliminary trial or giving relief on a forecast of the ultimate result. However, it is necessary for the court to assess the strength of the plaintiffs' probability of ultimate success. This is a critical factor in the determination of the application.
Serious question to be tried
Whether the plaintiffs have been removed as directors of the first defendant
Turning first to the question as to whether the plaintiffs have been removed as directors of the first defendant, the evidence before the court at its highest is that the second and third defendants resolved to remove the second plaintiff as a director at a meeting of directors of the first defendant on 29 April 2019. The plaintiffs admit that a meeting took place but deny that it was a properly constituted directors' meeting.
Pursuant to cl 56(1) of the constitution of the first defendant (Constitution), a director holds office until removed by resolution of the company at a general meeting. There is no evidence before me that a general meeting of the company was held at which the shareholders considered any resolution to remove the second plaintiff as a director of the first defendant.
Accordingly, I consider that there is a serious question to be tried as to whether the second plaintiff was removed as a director of the first defendant. In my view, on the information currently before the court, the second plaintiff has a very strong case that he has not been removed as a director.
Number of shares on issue and who the current shareholders are
The plaintiffs raise three issues in respect of the shareholdings of the first defendant.
First, the plaintiffs allege that the second defendant has changed the number of shares in the first defendant and the respective shareholdings of each of the parties without notice to the plaintiffs. The second and third defendants allege that the second plaintiff changed the number of shares in the first defendant without notice to them.
There is a factual contest between the parties as to the correct number of shares on issue and what shares are owned by each of them. It is sufficient to say that I accept there is a serious question to be tried in respect of this issue.
Second, the plaintiffs assert that one of the founding shareholders, Virender Singh, sold his shares to the third defendant without first offering them to the plaintiffs in breach of the shareholders' agreement.
As noted above, it is not clear from the evidence filed by the defendants whether it is conceded that the sale of Mr Singh's shares was governed by the shareholder agreement.
Clauses 28 to 32 of the Constitution deal with the transfer of shares by a shareholder. These clauses include a right of pre‑emption and a process by which shares can be transferred. There is no evidence before me that this process was followed.
Third, the plaintiffs allege that 42,001 additional shares have been issued to the third defendant without notice to the plaintiffs. Clause 37 of the Constitution requires that all unissued shares of a particular class shall, before issue, be offered to the existing shareholders in proportion to the number of shares already held by them. There is no evidence before me that this process was followed.
The second and third defendants contend that this share issue was authorised by the directors of the first defendant including the second plaintiff. Minutes of meeting have been produced by the defendants which state that the directors agreed in February 2019 to equalise their shareholdings. However, the minutes do not state how the directors propose to do this or whether they resolve to issue shares to any of the parties. The issue as to what was authorised by the directors to give effect to this resolution will need to be the subject of evidence from the parties.
Accordingly, I consider there is a serious question to be tried as to the validity of each of these transactions.
Withdrawal and use of funds from the first defendant's bank account by the plaintiffs and the second and third defendants
The plaintiffs refer to three separate matters. First, the withdrawal of funds from the trust account of the first defendant, second, the diversion of funds to Innovative Business Proprietary Limited, and third, the diversion of the first defendant's funds for a business project in Hobart.
Withdrawal of Funds
The plaintiffs allege that on 27 March 2019 each of the second and third defendants withdrew $100,000 from the account of the first defendant. The second and third defendants admit the withdrawals but deny this conduct was in breach of their director's duties.
The third defendant's evidence is that these withdrawals occurred after an unauthorised withdrawal by the second plaintiff and were done in order to protect the funds of the first defendant. The second plaintiff admits that it withdrew the sum of $65,000 from the trust account of the first defendant but says that this was withdrawn as part repayment of a loan made by him to the first defendant and that this only occurred after the second and third defendants had withdrawn $100,000 each from the account. There is no evidence before the court as to whether this withdrawal was discussed with or approved by the directors of the first defendant.
The third defendant asserts that the monies that were withdrawn by the second and third defendants were returned to the trust account of the first defendant by the end of May 2019.
The bank statements of the trust account of the first defendant were in evidence before me. These statements disclose that on 27 March 2019, payments of $35,000 and $65,000 were transferred to the accounts of the second and third defendants, and $65,000 was transferred to the account of the second plaintiff. The bank statements suggest that the payments to the second and third defendants occurred prior to the transfer to the second plaintiff although an email from the second plaintiff admits that his transfer occurred first in time. The question as to which payment occurred first in time will need to be the subject of evidence.
The bank statements also show that:
(a)on 23 April 2019 the third defendant transferred $100,000 and the second defendant transferred $60,000 to the trust account of the first defendant;
(b)on 29 April 2019 the third defendant withdrew $100,000 and the second defendant withdrew $95,000 from the trust account of the first defendant; and
(c)on 28 May 2019 the third defendant transferred $80,000 and the second defendant transferred $95,000 to the trust account of the first defendant.
It is not clear from the evidence before the court as to the reasons for each of these transactions, whether any of these transactions were authorised by the directors of the first defendant, or whether the second and third defendants have repaid the first defendant all monies withdrawn by them.
For this reason, I consider there is a serious question to be tried as to whether the withdrawal of funds from the first defendant's trust account by each of the second plaintiff, the second and third defendants were for a proper purpose.
Innovative Business Pty Ltd
The plaintiffs allege that in or about March 2015 the second defendant and Mr Singh formed Innovative Business Proprietary Limited (IBPL) which entered into a contract with the first defendant to provide kitchen facilities. The plaintiffs assert that the payments charged by IBPL were in excess of the value of the services and that the arrangements were entered into without proper disclosure to the plaintiffs.
The defendants agree that the services have been provided by IBPL to the first defendant pursuant to an agreement and contend that the second plaintiff was a signatory to that agreement. Neither party adduced a copy of any agreement in evidence before me.
For this reason, it is not possible on the evidence before the court to express any view as to whether there is a serious question to be tried in respect of this matter.
Diversion of funds for business project in Hobart
The plaintiffs allege that approximately $200,000 has been paid by the first defendant for a proposed college in Hobart including payments made to a company called TR 7 Corporations Proprietary Limited. The plaintiffs assert that the first defendant has not received any benefit from these payments.
The defendants contend that the second plaintiff was aware of and participated in this project and that no breach has occurred.
In my view, it is not possible on the evidence currently before the court to express any view as to whether there is a serious question to be tried in respect of this allegation.
Whether the third defendant has breached his duties as a director of the first defendant
The plaintiffs assert that the third defendant has worked as a student agent for other colleges and businesses which compete with the first defendant and that the third defendant has, without the consent of the directors of the first defendant, transferred funds of the first defendant overseas. In support of this allegation, the plaintiffs rely on a spreadsheet that has been prepared by the second plaintiff. No bank statements were produced in evidence to support these contentions which are denied by the third defendant.
Given the lack of evidence, it is not possible on the evidence before the court to express any view as to whether there is a serious question to be tried in respect of these allegations.
Delay
In considering whether or not to grant the relief sought by the plaintiffs, unexplained delay is a factor that I am required to take into account.
In this case, the plaintiffs rely on events that occurred between March 2015 and 29 May 2019. No explanation is provided as to why the plaintiffs delayed in commencing proceedings until 14 October 2019, apart from correspondence that was exchanged between the parties and the need to obtain advice, or why this matter has taken a significant period of time to be ready for hearing.
The plaintiffs contend that the conduct complained of is a continuing breach and that accordingly, delay is not as relevant as it may be in other circumstances. The defendants submit that the first defendant is currently operating profitably and that this counts against any orders being made by the court.
Balance of convenience
The evidence filed by the plaintiffs does not specifically address the balance of convenience. At best, the evidence asserted that the second and third defendants' conduct was oppressive to the shareholders of the first defendant and the students who use the services of the first defendant. No specific evidence was filed in respect of how the interests of the students were impacted by the conduct, or how this would be remedied by the grant of the relief sought.
The defendants contended that the balance of convenience weighed against any orders being made and submitted that the second and third defendants were concerned that the second plaintiff would object to payments being made from the accounts of the first defendant.
I accept that this is a concern of the second and third defendants. On the evidence before me, I am not able to say whether this will occur. If it did, the defendants can seek to relist the matter and seek to vary the orders of the court on updated evidence.
In my view, subject to consideration of whether an undertaking as to damages should be provided, the balance of convenience supports orders being made for the reinstatement of the second plaintiff as a director of the first defendant and orders being made to preserve the property of the first defendant and to prevent the second and third defendants from making any payments from the first defendant's accounts, other than in the usual course of business and with the consent of the second plaintiff until after these proceedings have been heard and determined.
Undertaking as to damages
It was not in dispute that the plaintiffs have not filed an undertaking as to damages. Paragraph 4.3.4 of the Consolidated Practice Directions of this court makes plain that generally it is a requirement for a party to obtain the benefit of a restraint that they provide an undertaking to pay damages to any party the subject of the restraint. As was noted by Pritchard J in Westpac Banking Corporation v Official Liquidator of Bell Group Ltd,[5] the undertaking is an attempt to ensure that a defendant will receive compensation for any loss suffered by reason of the grant of the injunction if, ultimately, it is shown that the plaintiffs were not entitled to obtain the injunction.
[5] Westpac Banking Corporation v Official Liquidator of Bell Group Ltd [2017] WASC 77 [30].
In considering whether or not to grant the injunction, I have taken into account the failure of the plaintiffs to provide an undertaking as to damages in considering where the interests of justice lie and whether it is desirable to grant the injunction.
In my view, there is a serious question to be tried as to whether each of the second plaintiff, the second defendant and the third defendant have breached their duties as directors of the first defendant. On the evidence before the court, there is a significant factual contest between the parties, particularly in respect of the transfer and issue of shares and payments made out of the accounts of the first defendant. Whether the plaintiffs ultimately succeed in their claim will depend on whose evidence is accepted at any trial of the matter.
In my view, despite my concerns about the conduct of each of the parties, I do not consider that there should be any departure from the usual requirement that an order for the plaintiffs to receive the benefit of any restraint from the court they should provide the usual undertaking as to damages. This view is strengthened by the absence of any explanation from the plaintiffs as to why they have delayed in bringing any application before the court.
Disposition
For these reasons, subject to the provision of an undertaking as to damages in the usual terms, I will grant the plaintiffs' application for an interlocutory mandatory injunction in part.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MG
Research Orderly to the Honourable Justice Hill11 MARCH 2020
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