Queste Communications Ltd v Suan Australia Ltd - [2002] WASC 124

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: QUESTE COMMUNICATIONS LTD & ANOR -v- SUAN AUSTRALIA LTD & ORS [2002] WASC 124

CORAM: WHITE AUJ

HEARD: 19 APRIL 2002

DELIVERED : 19 APRIL 2002

PUBLISHED : 24 MAY 2002

FILE NO/S: COR 115 of 2002

BETWEEN: QUESTE COMMUNICATIONS LTD (ACN 081 688 164)
First Plaintiff
FORMAINE PTY LTD (ACN 009 423 509)
Second Plaintiff
AND
SUAN AUSTRALIA LTD (ACN 009 142 125)
First Defendant
KEVIN JOHN CROMBIE
Second Defendant
ROBERT DAVID MACMATH
WILLIAM RODNEY HARE
ALLEN HUGH LAFFERTY
Third Defendants

Catchwords:

Interlocutory injunction - Urgent application to restrain the first defendant from proceeding to put to the vote at an extraordinary general meeting any of three resolutions - Whether it would be unjust in all the circumstances to confine the plaintiffs to their remedy in damages - Turns on own facts

Legislation:

Nil

Result:

Application dismissed with costs on first defendant giving an undertaking not to put the third resolution to the vote at the meeting

Category: B

Representation:

Counsel:

First Plaintiff                :     Mr D H Solomon & Mr J C Giles
Second Plaintiff            :     Mr D H Solomon & Mr J C Giles
First Defendant             :     Mr M L Bennett
Second Defendant         :     No appearance
Third Defendants          :     No appearance

Solicitors:

First Plaintiff                :     Solomon Brothers
Second Plaintiff            :     Solomon Brothers
First Defendant             :     Fearis Salter Power Shervington
Second Defendant         :     No appearance
Third Defendants          :     No appearance

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

American Cyanamid Co v Ethicon Ltd [1975] AC 396
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
Evans Marshall & Co Ltd v Bertola SA [1973] WLR 349
Hawkesdale Nominees Pty Ltd v Honda Australia Pty Ltd, unreported; FCt SCt of WA; Library No 8337; 22 June 1990
State Transport Authority v Apex Quarries Ltd [1988] VR 187

Case(s) also cited:

Nil

WHITE AUJ: This was an application, as a matter of urgency, for an interlocutory injunction restraining the first defendant from proceeding to put to the vote at an extraordinary general meeting of the first defendant to be held at 4 o'clock on 19 April 2002 any of the first three resolutions contained in the agenda included in the notice of meeting attached to the explanatory memorandum sent to shareholders and dated 19 March 2002.
The matter came before me on the morning of 19 April 2002 and the first defendant undertook not to put to the vote at the meeting to be held that afternoon resolution 3 which refers to the ratification of the issue of the further 2,082,142 shares. On the basis of and subject to that undertaking, I dismissed the application for an interlocutory injunction and said I would publish my reasons in due course. These are my reasons for that decision.
The principles applicable to the grant of an interlocutory injunction are well settled. The applicant must satisfy the court that the claim is not frivolous or vexatious, in other words that there is a serious question to be tried: Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153; Hawkesdale Nominees Pty Ltd v Honda Australia Pty Ltd, unreported; FCt SCt of WA; Library No 8337; 22 June 1990. If there is a serious question to be tried, the court must consider whether the balance of convenience is for or against the grant of the injunction. If common law damages would be an adequate remedy, and the respondent would be able to pay them, an injunction would not normally be granted: American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 408. The proper test is whether, in a particular case, it is just in all the circumstances to confine the plaintiff to a remedy sounding in damages: Evans Marshall & Co Ltd v Bertola SA [1973] WLR 349 at 379; State Transport Authority v Apex Quarries Ltd [1988] VR 187 at 193.
Where other factors are evenly balanced, it is appropriate to preserve the status quo: American Cyanamid Co v Ethicon Ltd (supra).
The first plaintiff is represented by its director Mr Khan, and the second plaintiff by its director, Mr Sklenka.
In accordance with a substantial shareholder notice given to the first defendant, Messrs Khan and Sklenka are recorded as the holders of 2,939,168 shares in first defendant.
The plaintiffs base their claims on three written agreements into which they entered with the first defendant, known respectively as the first Mandate, the second Mandate and the third Mandate. The 1st Mandate has been performed. It was, in fact, an agreement whereby Messrs Khan and Sklenka undertook to provide certain services to the first defendant in consideration of the issue to them of 3 million shares in the first defendant.
The second Mandate is dated 13 July 2001 and, again, Messrs Khan and Sklenka agreed to provide certain services to the first defendant.
It contained, inter alia, the following terms:
"1. Role and Services
Advisors is hereby appointed by SUA on an exclusive basis from the date of acceptance of this offer to:
(a)Identify, evaluating and assisting SUA in the acquisition of a complementary business activity to that presently conducted by SUA and in particular to that conducted by its wholly owned subsidiary, 'The Computer Engineers';
(b)Assist SUA in structuring the terms and conditions of any potential acquisition of a complementary business as referred to in the preceding paragraph.
2. Fees
In consideration for the above services, Advisors will be paid the following fee:
(a)A fixed fee of Three Million (3,000,000) ordinary shares in SUA. The shares are to be issue upon completion of the acquisition and if necessary SUA will call an Extraordinary General Meeting ('EGM') of SUA to approve the payment of the consideration together with the approval for the acquisition referred to herein. SUA directors agree to vote in favour of this resolution and to use their best endeavours to enable this resolution to be passed. Should the resolution not be passed at the EGM, the shares still remain due and payable by SUA.
SUA acknowledges that the Advisors may separately charge a fee to the company or business located and identified by them that SUA may acquire in terms of this mandate and that SUA consents to this happening and raises no objections to the same.
... "
The third Mandate, dated 15 November 2001, is made in the names of the plaintiffs (represented, respectively, by Messrs Khan and Sklenka) and records an agreement by the first defendant to pay to each of the first and second plaintiffs what is called a fee of 1.5 million shares for services rendered. It provides that the shares are to be issued immediately. That was not done. As at 15 November 2001, the total issued share capital of the first defendant was 20,906,436. Subsequently, a further 3 million shares were issued to Magaya Pty Ltd on 21 December 2001 and a further 2,082,142 shares have been issued but not ratified by shareholders pursuant to the Listing Rule 7.1 of the ASX.
The purpose of bringing the present application is said to be:
"18.In summary, the plaintiffs apply for an urgent interlocutory injunction to restrain the holding of the EGM of Suan (other than resolution 4 referred to in the notice of meeting) as:-
18.1each of the plaintiffs will be deprived of their respective right to vote the 1,500,000 shares each are entitled to under the Third Mandate at that meeting. Each of the plaintiffs will be deprived of the opportunity to have an influence on the decision whether or not to acquire DSG;
18.2the plaintiffs are gravely concerned that the consideration due to them under the Second Mandate will not be provided and that the holding of Suan's EGM, if the acquisition of DSG is approved, will, when the ASX listing rules are considered, prevent the plaintiffs from enforcing their rights under the Second Mandate;
18.3the plaintiffs are concerned to ensure that their entitlement to the consideration due under the Second Mandate is considered by shareholders at the same meeting as the transaction to which it relates is considered by shareholders, and that it is considered by the shareholders entitled to vote at that meeting and not a later body of shareholders;
18.4the resolution in relation to ratifying the issue of shares which have already been issued at the Suan EGM will be invalid as the issue of those shares was a contravention of ASX listing rule 7.1, which cannot be remedied by a vote of shareholders pursuant to ASX listing rule 7.4; and
18.5in light of the failure to disclose or discuss any of the foregoing, the notice of meeting which is annexure FK‑9 is highly misleading. Consequently, the meeting has not been validly called."
I refer to each of those matters seriatim:
18.1 While it is, no doubt, true that the plaintiffs will not be entitled to vote the 3 million shares to which they claim to be entitled under the third Mandate, I am persuaded that they have no such right at present, for the reasons set out hereunder in relation to the third Mandate. As existing shareholders, Messrs Khan and Sklenka, would however have an opportunity to influence the decision whether or not to acquire DSG.
18.2 For the reasons set out hereunder in relation to the claim pursuant to the second Mandate, I am satisfied that the plaintiffs have no present entitlement to the remuneration under that Mandate. Moreover, there is evidence that the chairman of the first defendant has proxies from shareholders holding in excess of 16 million shares (comprising an absolute majority of the total of the issued shares in the first defendant) in favour of the proposed resolutions. Their complaint suggests that the plaintiffs may want to oppose the resolution, which may be thought surprising in the circumstance that, as they concede, their alleged entitlement to remuneration pursuant to the second Mandate is dependant upon the completion of the acquisition. The plaintiffs' shareholding, even with an additional 3 million shares, would be insufficient to defeat the resolution on a poll.
18.3 My comments in regard to par 18.2 above apply equally to par 18.3.
18.4 I have accepted an undertaking from the first defendant that it will not put to the vote the third resolution proposed in the agenda.
18.5 By reason of the matters set out above, I am of the opinion that there is no serious question to be tried as to whether the meeting has been validly called.
In relation to the plaintiffs' claims under the first and second Mandates, the following material is relevant.
As to the second Mandate, it is clear from that the plaintiffs did not perform any of the services referred to in cl 1 thereof, in relation to the acquisition of DSG and that the acquisition of that company has not yet been completed, as required by cl 2 thereof. Accordingly, I accept that the plaintiffs have not raised any serious question to be tried as to any entitlement to remuneration pursuant to the second Mandate. There is the additional difficulty that, having received a letter from the first defendant terminating all agreements between the parties, the first plaintiff wrote to the first defendant, purportedly also on behalf of the second plaintiff, claiming damages for breach of the second Mandate. It is not clear to me what is the alleged breach of the second Mandate, unless it is the termination thereof by the first defendant and, in that case, it is not apparent that such termination was a breach of contract.
In relation to the third Mandate, if the plaintiffs and Messrs Khan and Sklenka are associates for the purposes of the Corporations Act, as they seem obviously to be, the addition of a further 3 million shares to their existing holding of 2,939,168 shares in the first defendant would represent a holding in excess of the 20 per cent referred to in s 606(1) of the Corporations Act and would be in breach of that Act. In this regard, it is the plaintiffs' contention that at all material times in relation to the first and second Mandates, Messrs Khan and Sklenka were acting as agents for the plaintiffs as undisclosed principals. In par 4 of his affidavit, Mr Khan says:
"At all material times in my dealings with the first defendant ("Suan") I have acted as a director and agent for the first plaintiff."
In par 4 of his affidavit, Mr Sklenka says:
"At all times in dealing with the first defendant ("Suan") I acted as a director of the second plaintiff and agent of the second plaintiff."
In the result, I find that the plaintiffs have not established a serious question to be tried in relation to their claims for an interlocutory injunction, save in respect of the ratification of the third resolution to which the first defendant's undertaking relates. If I am wrong in that conclusion, the balance of convenience is clearly in favour of allowing the meeting to be held. A clear majority of the shareholders in the first defendant are in favour of the proposed resolutions and I am not persuaded that there would be any serious prejudice to the plaintiffs in permitting the meeting to be held.
I have indicated the view that the plaintiffs have not shown any entitlement to payment pursuant to the second Mandate. In relation to the claim pursuant to the third Mandate, the plaintiffs contended that they were entitled to an immediate issue of the shares in question, as at 15 November 2001. The plaintiffs took no steps to enforce their alleged claim for some four months. There is no explanation for this delay. In the end, comparatively little notice of their present application was given to the first defendant.
There is nothing in the material before me that would tend to establish that, if the plaintiffs are able to establish claims arising from alleged breaches of the second and third Mandates, damages at common law would not be an adequate remedy. The first defendant is a public company whose shares are listed on the stock exchange.
I am of the opinion that it would not be unjust in all the circumstances, to confine the plaintiffs to their remedy in damages, even if they are able to establish lawful claims pursuant to the second and third Mandates.
As I have indicated, I dismissed the application on the afternoon of 19 April 2002. The question of costs was not fully argued before me. In my opinion, costs should follow the event.