Pal v Perth Technical College Pty Ltd [No 2] - [2020] WASC 83

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
CITATION:   PAL -v- PERTH TECHNICAL COLLEGE PTY LTD [No 2] [2020] WASC 83
CORAM:   HILL J
HEARD:   5 MARCH 2020
DELIVERED          :   6 MARCH 2020
PUBLISHED           :   12 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 to vary interim injunction - Balance of convenience - Where effect of previous orders prevents first defendant from making payments - Requirements of constitution - Previous orders varied

Legislation:

Corporations Act 2001 (Cth), s 1324(5)

Result:

Order 5 of the orders made 18 February 2020 varied

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):

Nil

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.)

On 18 February 2020, the plaintiffs' application for an interim injunction pursuant to s 1324 of the Corporations Act 2001 (Cth) (Act) came before me for hearing.
On that occasion, I summarised the principles governing the court's powers to grant an injunction under the Act and do not propose to repeat them again.
After hearing from counsel who appeared for the parties on that date, I found there was a serious question to be tried concerning first, the removal of the second plaintiff as a director of the first defendant, and second, whether the withdrawals of funds from the first defendant's trust account by each of the second plaintiff, second defendant and third defendant had been done for a proper purpose.
At that time, I noted that the evidence filed by the plaintiffs did not specifically address the balance of convenience. At best, the plaintiffs' evidence asserted that the second and third defendants' conduct was oppressive to the shareholders of the first defendant and the students who used the services of the first defendant. No specific evidence was filed in respect of how the interests of students were impacted by the conduct of the second and third defendants, or how this would be remedied by the grant of relief sought.
On the evidence then before me, I considered that the balance of convenience favoured the reinstatement of the second plaintiff as a director and for orders to be made to preserve the property of the first defendant, including the bank accounts of the first defendant.
As a consequence, on 18 February 2020, I made the following orders:
1. The second plaintiff be reinstated as a director of the first defendant.
2. The second plaintiff be given electronic viewing access to all bank accounts of the first defendant.
3. Each of the second plaintiff, second defendant and third defendant sign all documents required by the first defendant's bank to enable the access referred to in paragraph 2 to be granted.
4. The second plaintiff, second defendant and third defendant be restrained from making any payments from the bank accounts of the first defendant, other than in the usual course of business.
5. No payment shall be made from the bank account of the first defendant, other than with the written consent of the second plaintiff and one of the second defendant or third defendant.
The defendants sought to re-list this matter before me on an urgent basis to seek to discharge and‑vary order 5. The defendants filed two affidavits in support of their application; namely, an affidavit of Mr Andotra, the marketing and operations manager of the first defendant, and an affidavit of the second defendant, both filed 3 March 2020.
The basis for the defendants' application is that the present orders are unworkable, as the second plaintiff has refused or failed to authorise payment of expenses incurred in the ordinary course of business of the first defendant. They submit that the effect of the orders has been that the second plaintiff has an effective power of veto in relation to payment of the first defendant's debts and expenses.
The application is opposed by the plaintiffs. They filed an affidavit of the second plaintiff on 4 March 2020. I note that the second plaintiff's affidavit does not address some of the matters raised in the affidavits filed on behalf of the defendants, including the conversation between the second plaintiff and Mr Andotra, referred to in Mr Andotra's affidavit. Rather, the second plaintiff acknowledges that he has not authorised payment of the invoices forwarded to him, but asserts that this is because he has not been provided with sufficient information to understand the basis for the proposed payments and to discharge his obligations as a director of the plaintiff.
It is important to emphasise that both this matter and the original application came on for hearing as an interlocutory application. It is apparent from the papers that have been filed that there is significant animosity between the parties, as well as significant factual disputes as to what has occurred.
It is not possible on an interlocutory application, without the benefit of the parties giving oral evidence and being cross‑examined, to resolve these factual disputes.

Legal Principles

Pursuant to s 1324(5) of the Act, the court may discharge or vary an injunction previously granted under s 1324(1), (2) or (4) of the Act.
Counsel for the plaintiff accepted that I have the power to discharge or vary the injunction.

Disposition

Before turning to deal with the specific issue before me, I note that counsel for the defendants referred to the second plaintiff in written submissions and in oral submissions as a 'minority director'. As I noted in my exchange with the defendants' counsel during the course of the hearing, this is not a concept that is known at law. Pursuant to the orders that I made on 18 February 2020, the second plaintiff has been reinstated as a director of the first defendant and has the same duties and obligations to the first defendant as the second and third defendants.
I accept that on the evidence before me, since my orders were made on 18 February 2020, the second plaintiff has not consented to any payments being made by the first defendant, save for the variations to order 5, made on 4 March 2020. There is a dispute on the evidence as to the cause of this. The defendants say that the second plaintiff is acting unreasonably in requiring additional information prior to approving the payment of any invoices. The plaintiffs contend that the defendants have prevented the second plaintiff attending the business of the first defendant, or providing him with sufficient information to enable him to approve payment of invoices. In effect, the plaintiffs submit that the defendants have caused this problem and that it lies ill in their mouth to now assert that the orders should be varied.
The second plaintiff put into evidence the correspondence that has passed between the parties' solicitors. It is apparent from this correspondence that there is a significant dispute between the parties as to the rights of the second plaintiff now that he has been reinstated as a director and, in particular, whether he is entitled to attend the business premises of the first defendant, what information he is entitled to access, and whether the requests of the second plaintiff for further information are reasonable.
It is not entirely clear on the evidence currently before me as to what information the second plaintiff was provided with in requesting his consent to the approval of certain payments.
The email that was sent by Mr Andotra on 21 February 2020 does not make plain what information or documents were attached. His evidence at par 7 of his affidavit is that he emailed the second plaintiff at 2.52 pm on Friday, 21 February 2020, attaching invoices, agent commissions and student refund requests. In respect of the student refund requests, the information attached to Mr Andotra's affidavit includes completed forms of the first defendant by various students making an application for a refund, together with evidence that money had been received from the relevant student. The second plaintiff does not address in his affidavit what information he received or whether he disputes receiving this information.
I consider there is a serious question to be tried as to why the second plaintiff has not provided his consent to the payments; namely, whether this is because the defendants have not provided information to the second plaintiff in response to his queries as to the basis upon which costs have been incurred by the first defendant or on which invoices have been rendered, or whether it is because the second plaintiff is exercising an effective power of veto. If the second plaintiff was provided with the information concerning the student refund requests set out in the affidavit of Mr Andotra, this may support an inference being drawn that the second plaintiff was unreasonably withholding his consent to the approval of at least these payments.
This issue cannot be resolved on an interlocutory basis without the opportunity for the parties to give evidence and be cross‑examined. I accept that the evidence before me gives rise to a serious question to be tried as to whether the second plaintiff continues to be excluded from the management of the first defendant.
That said, as was acknowledged by counsel for the plaintiffs, the affairs of the first defendant are governed by its constitution (Constitution). Clause 66 of the Constitution relevantly provides:
All cheques, promissory notes, bankers drafts, bills of exchange and other negotiable instruments and all receipts for money paid to the company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be, by any two directors, except where the number of directors is one. Then by one director only or in such other manner as the directors from time to time determine.
There is no evidence before me that the directors of the first defendant have made any other such determination.
I also note that the parties agree that the affairs of the first defendant are governed by a shareholders agreement. This agreement does not deal with who can authorise payments from the bank accounts of the first defendant.
In my view, it is strongly arguable that on a proper construction of cl 66 of the Constitution, this clause applies to the operation of all bank accounts of the first defendant, both deposits and withdrawals. That is, I consider it is strongly arguable that the first defendant's Constitution requires that all transactions on the bank accounts of the first defendant require the signatures or approval of two directors, unless the directors have otherwise authorised.
The Constitution does not specify who those directors should be. In particular, the Constitution of the first defendant does not give the second plaintiff the right to consider and authorise all payments of the first defendant.
Neither of the parties drew my attention to this clause of the Constitution during the hearing on 18 February 2020. In my view, in the circumstances of this case, the orders of the court should not give the second plaintiff rights that he does not otherwise have under the Constitution. The question as to whether any payments have been made which are not for a proper purpose, or can otherwise be challenged, should be left to determination at the substantive proceedings.
In any event, while I accept there is a serious question to be tried as to whether the second plaintiff has been excluded from the management of the first defendant, I accept on the basis of the evidence before me that the effect of order 5 of the orders I made on 18 February 2020 is that the first defendant has not been able to make any payments since that date. While I accept that this situation is one that the defendants have, at a minimum, contributed to, as the first defendant is an operating company and taking account of the interests of its employees, third party creditors and the students who attend the first defendant's institution, I consider this is a situation that cannot continue.
On the last occasion I noted that the plaintiffs had not adduced any evidence as to the balance of convenience. On that occasion the plaintiff submitted that in considering the balance of convenience it was important to take account of the interests of the students who may be impacted by the conduct of the defendants. I agree that the interests of these students should be taken into account in assessing the balance of convenience.
The evidence that has now been adduced by the defendants is to the effect that the balance of convenience favours a variation of order 5 that I made on 18 February 2020 to require that any payments made from the bank accounts of the first defendant be authorised in accordance with cl 66 of the Constitution. That is, the payments should be authorised by two directors of the company.

Conclusion

For these reasons I consider that the existing order 5 should be discharged and a variation of the order made in its place. I also consider that it is important that this matter should be listed for trial at the earliest opportunity.

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 Hill
12 MARCH 2020