Port Kennedy Golf Country Club Pty Ltd v Port Kennedy Resorts Pty Ltd

[2000] WASC 186

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

CITATION:   PORT KENNEDY GOLF COUNTRY CLUB PTY LTD & ORS -v- PORT KENNEDY RESORTS PTY LTD & ORS [2000] WASC 186

CORAM:   ANDERSON J

HEARD:   17 MAY 2000

DELIVERED          :   21 JULY 2000

FILE NO/S:   CIV 1644 of 1999

CIV 1718 of 1999
CIV 1266 of 1999
CIV 1717 of 1999
CIV 1737 of 1999
Consolidated by order 7 September 1999

BETWEEN:   PORT KENNEDY GOLF COUNTRY CLUB PTY LTD (ACN 060 885 252)

First Plaintiff

HO SWEE HUAT
Second Plaintiff

SIEW TIEN CHOW
LIM YUE KHIM
MOHAMED JAMIL BIN MOHAMED AMIN
Third Plaintiffs

PAC-ASIA HOLDINGS PTE LTD
Fourth Plaintiff

AND

PORT KENNEDY RESORTS PTY LTD (ACN 061 115 348)
First Defendant

RICHARD ANTHONY LUKIN
GARY KEVIN SHEEHAN
Second Defendants

PAUL ANDREWS
JOHN MacKAY MATHESON
TEOW KIM CHNG
STEPHEN WILLIAM MARSHALL
Third Defendants

FLEURIS PTY LTD (ACN 009 010 495)
Fourth Defendant

Catchwords:

Injunctions - Interlocutory - Plaintiff claiming to be entitled to be represented on defendant's board of directors - Interim relief pending trial - Form of orders - No point of principle

Legislation:

Nil

Result:

Application allowed in part

Representation:

Counsel:

First Plaintiff                :     Mr S M Standing

Second Plaintiff            :     Mr S M Standing

Third Plaintiffs             :     Mr S M Standing

Fourth Plaintiff             :     Mr S M Standing

First Defendant             :     Mr D H Solomon

Second Defendants       :     Mr D H Solomon

Third Defendants          :     Mr D H Solomon

Fourth Defendant          :     Mr D H Solomon

Solicitors:

First Plaintiff                :     Freehills

Second Plaintiff            :     Freehills

Third Plaintiffs             :     Freehills

Fourth Plaintiff             :     Freehills

First Defendant             :     Solomon Bros

Second Defendants       :     Solomon Bros

Third Defendants          :     Solomon Bros

Fourth Defendant          :     Solomon Bros

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

Port Kennedy Golf Country Club Pty Ltd & Ors v Port Kennedy Resorts Pty Ltd & Ors [1999] WASC 253

Port Kennedy Golf Country Club Pty Ltd & Ors v Port Kennedy Resorts Pty Ltd & Ors [2000] WASC 136

Port Kennedy Golf Country Club Pty Ltd & Ors v Port Kennedy Resorts Pty Ltd & Ors [2000] WASC 15

Case(s) also cited:

Nil

1. ANDERSON J:  By summons dated 15 October 1999, the present plaintiffs in this action and Port Kennedy Golf Country Club Pty Ltd, which was the first plaintiff, but is now the fifth defendant, sought interlocutory relief relating to the management of the affairs of the first defendant, Port Kennedy Resorts Pty Ltd.  Shortly before the application came on for hearing before me on 19 November 1999, the then first plaintiff, that is, Port Kennedy Golf Country Club Pty Ltd, discontinued its action.  The other plaintiffs have since joined the first plaintiff as a defendant and, as I have said, it is now the fifth defendant.  The defendants then made substantial attacks on the statement of claim, mainly contending that the statement of claim did not disclose a cause of action for the final relief that was sought.  For the most part, these attacks were successful.  The most recent version of the statement of claim was filed only recently.  I mention these matters only to explain the delay in adjudicating on the application for interlocutory relief made over nine months ago.  This is my judgment in respect to that application.

Background

1. The first defendant carries on business as the developer of the Port Kennedy Development Project.  It is a large project comprising a marina, harbour and tourist facilities, golf courses and accommodation in the form of an hotel and short‑stay and permanent residential accommodation.  This project was started by the fourth defendant, Fleuris Pty Ltd, which was party to a State agreement which was necessary to facilitate the development.  At some time prior to 1995, the benefit of the State agreement was assigned by the fourth defendant to the first defendant in return for the issue of 2,000,000 ordinary shares of $1 each in the capital of the first defendant. 

The plaintiffs' case

1. There is evidence that in early 1995 the fourth defendant approached the fourth plaintiff (which I will refer to as Pac‑Asia) for funding to continue the development.  By the statement of claim and in affidavits filed on behalf of Pac‑Asia, it is claimed that the discussions which ensued resulted in the making of an "investment agreement", whereby Pac‑Asia agreed to provide substantial funds to the first defendant and/or the fourth defendant on certain terms and conditions.  It is the pleading of this investment agreement which has caused so much trouble.  The difficulties have been adumbrated in the judgments which I have handed down from time to time on the pleading applications.  See  Port Kennedy Golf Country Club Pty Ltd & Ors v Port Kennedy Resorts Pty Ltd & Ors [1999] WASC 253; Port Kennedy Golf Country Club Pty Ltd & Ors v Port Kennedy Resorts Pty Ltd & Ors [2000] WASC 15; Port Kennedy Golf Country Club Pty Ltd & Ors v Port Kennedy Resorts Pty Ltd & Ors [2000] WASC 136.

2. There is no need at present to go into the whole of the statement of claim which now runs to 57 pages.  Speaking very broadly, it would appear from the material before me, including the voluminous affidavits, that the plaintiffs' case is that an arrangement was made whereby Pac‑Asia would actually participate in the project by investment of equity capital and would also procure loan finance for completion of the project.  The investment or equity participation would be in the form of a subscription to the capital of the first defendant.  As Pac‑Asia was a foreign (Singaporean) company, Australian governmental approvals would be necessary to allow Pac‑Asia to receive the proposed allotment of shares in the first defendant.  There were also restrictions in the State agreement on changes in the beneficial ownership of the first defendant, so approval was required at State level before Pac‑Asia could obtain any substantial allotment of shares in the first defendant.  It was anticipated that these approvals would take time to obtain, but the need for funds was immediate.  So the arrangement was that the fourth defendant would, as a first step, take up the shares in the first defendant and grant to Pac‑Asia a call option over the shares.  (I gather that no difficulties were expected or encountered in obtaining approval from the State authorities for the allotment of shares in the first defendant to the fourth defendant.)  Pac‑Asia would provide the funds to enable the fourth defendant to take up these shares.  These funds ($6,000,000) would flow through to the first defendant immediately on the allotment of shares to the fourth defendant.  When approval was obtained for Pac‑Asia to assume ownership of the shares, Pac‑Asia would exercise the call option and the shares (6,000,000 in number) would be transferred to it.  Meanwhile, Pac‑Asia would be represented on the board of the first defendant and would go ahead with the procuring of loan funds. 

3. What I have said above must not be taken as a statement of findings.  It is nothing more than a general statement of what it is possible to glean from the statement of claim and the affidavits filed in support of the application for interlocutory relief now sought and from counsel's submissions.

4. It is not in dispute that the four entities concerned, that is, Pac‑Asia, and the first, fourth and fifth defendants, entered into eight formal instruments.  None of the eight formal instruments was executed by all four of these entities.  The instruments are all dated 1 June 1995 and are as follows:

   (a)A shareholders' agreement between the first, fourth and fifth defendants.

   (b)A share mortgage between Pac‑Asia and fourth defendant.

   (c)A deed of charge between Pac‑Asia and the first defendant.

   (d)A call option between Pac‑Asia and the fourth defendant and others.

   (e)A consent deed between Pac‑Asia and the fourth and fifth defendants.

   (f)A call option deed between Pac‑Asia and the fourth and fifth defendants and others.

   (g)A share mortgage between Pac‑Asia and the fifth defendant.

   (h)A consent deed between Pac‑Asia and the fourth and fifth defendants.

5. The share mortgage between Pac‑Asia and the fourth defendant was of the 6,000,000 shares taken up by the fourth defendant in the first defendant with the moneys ($6,000,000) provided by Pac‑Asia.  The call option between Pac‑Asia and the fourth defendant and others was the call option entitling Pac‑Asia to call for the transfer of the 6,000,000 shares.  There is no need at present to describe the nature of the other instrument.

The present application

1. We now come to the substance of the interlocutory application.

2. Pac‑Asia claims that it was a term of the informal investment agreement that, from the outset, Pac‑Asia would have numerical control of the board of the first defendant.  The term is pleaded in par 11(h) of the present statement of claim as follows:

   "(h)each of Fleuris and PKGCC separately promised to Pac‑Asia that the board of directors of PKR would consist of no more than six persons and that:

   (i)…

   (ii)pending necessary approvals being given to Pac‑Asia, Fleuris would appoint or replace or substitute only two of the six directors of PKR, the balance would be nominated by Pac‑Asia, Fleuris would appoint (and not remove) such nominees as directors of PKR, and such arrangements would be reflected in a shareholders' agreement to be executed by PKGCC, Fleuris and PKR and in such other formal documentation as may be required."

3. A shareholders' agreement was executed on 1 June 1995, but Pac‑Asia is not a party to it.  Only the first, fourth and fifth defendants are parties to that agreement. 

4. Contemporaneously with the shareholders' agreement, however, Pac‑Asia and the fourth defendant executed the share mortgage referred to and this deed contained a cl 8.7 in the following term:

   "8.7Directors

   (a)The mortgagor [the fourth defendant] must not permit to be appointed as a director of the company [the first defendant] more than two persons without the prior approval of the mortgagee [Pac‑Asia].

   (b)The mortgagor must not exercise any powers to appoint or remove more than two directors of the company without the mortgagee's prior approval."

5. On the evidence as a whole, I am satisfied that there is an arguable case that an informal investment agreement was entered into by and between Pac‑Asia and the first, fourth and fifth defendants governing the terms on which Pac‑Asia would provide funds to, or to the use of, the first defendant with respect to the Port Kennedy resort project.  I am satisfied that there is a triable issue on the question whether the parties severally agreed with each other that, pending the acquisition by Pac‑Asia of the 6,000,000 shares in the first defendant through exercise of the call option, the board of the first defendant would be made up only of four directors approved by Pac‑Asia and two directors nominated by the fourth defendant.  That is the substance of par 12 of the affidavit of the second plaintiff, Mr Ho, of 20 August 1999.  Consistently with the existence of such an agreement, there is evidence that, from 1995 at least until February 1999, the board of the first defendant was, in fact, comprised of four nominees of Pac‑Asia and two nominees of the fourth defendant.  It is the kind of holding arrangement one would naturally expect to be put in place as an interim measure, in the circumstances.  In any event, I consider that there is a triable issue on the question whether, pursuant to cl 8.7 of the share mortgage, the fourth defendant was bound not to appoint more than two persons as directors of the first defendant without the prior approval of Pac‑Asia.  The result is that there is a triable issue as to the proper composition of the board of the first defendant and, in particular, as to whether Pac‑Asia is entitled to be represented on the board by four of the six directors approved by it.

6. I should here interpolate to explain that there is evidence that by late 1998 Pac‑Asia had become very concerned about the financial viability of the project.  By this time, it had been called upon to, and had, invested substantial additional funds in the project; that is, funds in addition to the $6,000,000 mentioned and the original lot of loan funds procured.  For their part, the first and fourth defendants took the view that Pac‑Asia's concerns were unwarranted.  Hostilities developed and there was a boardroom upheaval.  The defendants contend that Pac‑Asia's four nominees on the first defendant's board were dismissed and replaced by the defendant's nominees.  Pac‑Asia contends that any purported dismissal of its four nominees was invalid and/or in breach of the investment agreement.  The fact is that since February 1999, the first defendant has been directed (whether validly or not remains to be seen) by a board which does not include any nominee of Pac‑Asia and little information has been provided to Pac‑Asia concerning the affairs of the company or concerning the decisions of the board.

7. There being a triable issue as to whether Pac‑Asia is entitled to be represented on the board by four of the six directors, it is appropriate to grant limited interlocutory relief subject to considerations relating to the balance of convenience.  I am not prepared to make orders which would entitle Pac‑Asia to exercise de facto control of the board.  I am not persuaded, having regard for the balance of convenience, that it is necessary to go that far to protect Pac‑Asia's interests pending trial of the action.  However, I do consider that it is appropriate that Pac‑Asia be provided with information concerning the management and affairs of the first defendant and that it be given notice of any extraordinary transactions which the first defendant intends to enter into.  In short, I think it is appropriate to make orders which will enable Pac‑Asia to keep at least half an eye on the management of the first defendant so as to enable it to seek further specific interlocutory relief should it appear necessary.

8. I do not overlook an important point made by Mr Solomon on behalf of the defendants.  He submitted that Pac‑Asia had only itself to blame for the fact that it is not the registered holder of the 6,000,000 shares in the capital of the first defendant which would, prima facie, give it all the control which its investment entitled it to have.  There is evidence, hardly contested by the plaintiffs, that Pac‑Asia has been requested by the State authorities to provide more information to the State authorities as to the identity of the beneficial owners of its shares and has declined thus far to do so.  There is evidence that it is Pac‑Asia's refusal or failure to provide this information which has held up the necessary approvals to the transfer of the 6,000,000 shares from the fourth defendant to Pac‑Asia.  These are matters which, if proved, might give rise to questions of repudiation and the like and might affect Pac‑Asia's entitlement to equitable relief, but they are matters for trial.  I am concerned to ascertain as best I can from the whole of the evidence whether there is a triable issue concerning Pac‑Asia's entitlement to be represented on the board of the first defendant to the extent which it claims and, if so, whether the balance of convenience favours the making of interim orders.  I am satisfied on both of those matters to the extent that I would grant orders in the following terms.  Until judgment in this action or further order, there should be orders that:

   (i)The first defendant, its servants or agents, be restrained from marketing, advertising or otherwise offering for sale, any land, interest in land or other assets, without giving the plaintiffs five business days' notice in writing of its intention to do so;

   (ii)the first defendant, its servants or agents, be restrained from granting or agreeing to grant any interest by way of security over, or interest in, its assets, to any person, or entering into any loan transaction with any person without first giving the plaintiffs five business days' notice in writing of its intention to do so;

   (iii)the first defendant be restrained from issuing or allotting or agreeing to issue or allot any shares or share options or other interest in the capital of the first defendant to any person without giving the plaintiffs five business days' notice in writing of its intention to do so;

   (iv)the fourth defendant be restrained from dealing or agreeing to deal in any manner with any of the shares held by it in the capital of the first defendant without first giving the plaintiffs five business days' notice in writing of its intention to do so;

   (v)the first defendant do forthwith deliver to Freehills at 140 St George's Terrace, Perth, WA, 6000, the solicitors for the plaintiffs, the financial statements of the first defendant for the year ending 30 June 1999; that is to say, the profit and loss statement for the year, the balance sheet as at the end of the year and a statement of cash flows for the year, together with any notes to the financial statements and the directors' declaration about the statements and the notes;

   (vi)the first defendant do, within 30 days from this date, deliver to Freehills, at 140 St George's Terrace, Perth, WA, 6000, the solicitors for the plaintiffs, the same information with respect to the financial year ending 30 June 2000; and

   (vii)liberty to apply on two business days' notice to dissolve or vary this injunction.