RTP Holdings P/L & Anor v Roberts & Ors (No 2) No. Scgrg-00-838

RTP HOLDINGS PTY LTD AND RTP TECHNOLOGIES PTY LTD V ROBERTS AND ROBERTS AND MODERN MACHINERY SYSTEMS PTY LTD (NO. 2)

[2000] SASC 390

Civil (Ex Tempore)

1................ LANDER J....... This is an application for orders in relation to Mareva injunctions. The plaintiffs in this matter are related companies. The first two defendants are directors and shareholders of both plaintiff companies. The third defendant is a company controlled by the first two defendants.

The plaintiffs’ action has been brought by leave pursuant to s 237 of the Corporations Law at the instigation of four other directors and shareholders of the plaintiffs. The other directors and shareholders of the plaintiffs are Mr and Mrs Turner and Mr and Mrs Phillips.
Mr and Mrs Phillips introduced Mr and Mrs Turner to Mr and Mrs Roberts in late June 1998 for the purpose of discussing a potential investment.
A meeting was held on 5 July 1998 at which the parties discussed forming a company to sell or lease a timber milling machine. It was contemplated that Mr Roberts or, an entity associated with Mr Roberts, would build the machine and the company which was to be formed would buy the research and development costs and the intellectual property from Mr Roberts for a price to be determined.
Initial capital contributions were discussed at that meeting and it was agreed that the total capital required to initiate the project was $230,000 of which Mr and Mrs Turner would contribute $120,000, Mr and Mrs Phillips $60,000, and Mr and Mrs Roberts $50,000.
The parties contemplated that a company controlled by Mr and Mrs Roberts which, in due course, turned out to be the third defendant, would be one of two principal contractors to the project. It would undertake the building of the electrical and hydraulic aspects of the machine and a company controlled by Mr and Mrs Phillips, Nylastex Pty Ltd, would undertake the manufacture of the components.
On 6 July 1998, Mr and Mrs Turner signed a handwritten order form from “XYZ Company Pty Ltd” to the third defendant for a timber milling machine. The order form did not refer to a price but referred to a price to be determined.
The plaintiffs were incorporated on 10 July 1998 and the directors held regular board meetings or, nearly, regular board meetings until May 2000.
At a meeting of the board on 12 August 1998, it was resolved that ownership of parts etc would pass from the third defendant to RTP Technologies Pty Ltd at the time of payment.
On 24 December 1998, the six directors entered into a shareholders’ agreement by which the parties agreed that 814 shares would be issued to Mr and Mrs Roberts, 124 to Mr and Mrs Turner and 62 to Mr and Mrs Phillips. The parties further agreed to contribute the amount of capital in the sums to which I have already referred.
It can be seen, therefore, that Mr and Mrs Roberts received the greater share of the capital for reasons unassociated with a direct contribution of capital. It can be assumed, and it was confirmed from the bar table, that their share was referable, in some way, to the intellectual property contributed.
In that shareholders’ agreement, the parties also agreed that the two principal contractors would be the third defendant and Nylastex Pty Ltd. Those companies could sell their labour and parts to RTP Technologies Pty Ltd in respect of parts at cost price, multiplied by 1.5 and, in respect of labour provided by Modern Machinery Systems Pty Ltd at $80 an hour. Nyalstex Pty Ltd was entitled to sell its labour at different prices.
At a meeting held on 2 September 1998, the directors of RTP Technologies Pty Ltd agreed that the two principal contractors would be paid their costs when they fell due but would only be paid the profit margins on parts and labour once the machine, which was to be constructed by the principal contractors, had been sold.
RTP Technologies Pty Ltd has paid to the third defendant the sum of $159,538.19. It has not paid the invoices which were delivered to it in February 1999. At that time, the company did not have sufficient capital to pay those invoices.
I think I am right in assuming that it is the plaintiffs’ case that the total costs of the manufacture of this machine, payable to the third defendant, is $538,148. Of that sum, as I say, $159,538 has already been paid. A balance remains owing by the plaintiffs to the third defendant of $378,607. The plaintiffs claim that there is presently owed to them, out of the proceeds of sale from the machine, the sum of $419,719.
The machine was completed in February 1999 and efforts were made thereafter to sell it. An initial price of $3.5m was sought which was, by June 1999, reduced to $2.8 million and later that month reduced to $952,000.
At about this time inquiries were made of the third defendant about the total cost of the manufacture of the machine and the third defendant provided a document entitled ‘TM 2000 Costings’. That document claimed that a further $57,000 had been spent in modifying the machine. It is claimed by the plaintiffs that that modification was done without the approval of the board and that amount is therefore not payable because of the provisions of the shareholders’ agreement.
The reduction in the selling price of the machine, over the period to which I have referred, meant that the profit available to the parties was considerably reduced. This was discussed at a board meeting on 20 July 1999 when Mr Roberts proposed that Mr and Mrs Turner’s profit share be increased to 24.8 per cent and Mr and Mrs Phillips’ profit share be increased to 12.4 per cent. The parties agreed to that proposal. They further agreed that the sale price for the machine should be $952,000.
The plaintiffs claim that Mr Roberts and the third defendant held out to various potential purchasers that the machine was the property of RTP Technologies Pty Ltd, as was intellectual property associated with it.
For example, the plaintiffs say, in August 2000, the third defendant sent a fax to Mr and Mrs Phillips and Mr and Mrs Turner in which it claimed it was owed $382,906.39 and
“Should RPT not sell the TM 2000 in the very near future, enabling the company to pay its debts, our advises (sic) have instructed that Modern Machinery Systems may have no choice but to recover the amount owed or continue to retain ownership of the MT 2000 and dispose of the machine.”
The plaintiffs assert that no moneys were then owing in relation to the machine and no moneys became owing until such time that the machine was sold.
On 16 August 2000, in response to a call by Mr and Mrs Turner for the holding of a directors’ meeting, the defendants’ solicitors advised Mr and Mrs Phillips and Mr and Mrs Turner that the machine was supplied by the third defendant in 1999 but not paid for.
They further advised that on 28 January 2000 the third defendant had notified them in writing that it intended to take possession of the machine pursuant to the retention of title provisions in the original contract of sale and sell the machine.
It advised that it had sold the machine but the sale process was not then completed.
Apparently, the third defendant has sold the machine for $998,000. It refuses to account to the plaintiffs for any part of the proceeds of sale. The third defendant claims to be entitled to the whole of the proceeds.
The third defendant, as I understand it, also claims to be entitled to a figure in excess of $800,000 which it claims is payable by the plaintiffs in respect of the building of the machine. It, therefore, claims against the plaintiffs the cost of building the machine and it claims to be entitled to the whole of the proceeds of the sale of the machine.
There is, in my opinion, no doubt, a serious question to be tried as between the plaintiffs and the defendants. Indeed, Mr Keen, who appeared for the defendants, acknowledged there was a serious question to be tried in respect of the claim against the first and third defendants. He maintained, as he had on a previous application, that there is no serious question to be tried in respect of Mrs Roberts.
In my opinion, there is a serious question to be tried in respect of all three defendants.
The plaintiffs have not offered an undertaking as to damages. The plaintiffs claim that the shareholders’ agreement prevents them doing so. The plaintiffs assert that, because of the provisions of the shareholders’ agreement, they could not, without the consent of the first and second defendants, offer to all three defendants, an undertaking as to damages. That may be so. However, it is to be noted that Mr and Mrs Turner and Mrs and Mrs Phillips have not, as directors of the plaintiffs, offered an undertaking in respect of the damages.
The plaintiffs claim that the third defendant has received all but $170,000 of the purchase price of the TM 2000 and the third defendant has completely dissipated the proceeds of sale already received.
It is not entirely clear to me whether the proceeds were received and dissipated before or after the call for the directors’ meeting in August 2000 or whether the proceeds were wholly received, except for the $170,000, and partly dissipated before that time. In the end result it does not matter.
The defendants have agreed that the unpaid purchase price be paid into a fund securing any claim that the plaintiffs might have. That sum has not presently been paid because I understand the purchaser is withholding those moneys due to some complaint the purchaser has in respect of the machine. In any event, the defendants are agreeable that the unpaid portion of the purchase price be kept separate from the defendants’ assets so as to secure, as I say, the plaintiffs’ claim.
This application therefore relates only to the proceeds of the sale already received and apparently dissipated.
The defendants have, since the issue of these proceedings, on 6 September 2000, co-operated in disclosing bank statements which show the disbursement of the sale proceeds to the trade creditors of the third defendant. Whilst the defendants are prepared to secure the unpaid portion of the purchase price, they resist any order in respect of any other attack upon any of the defendants’ assets.
Rule 68.03 of the Supreme Court Rules provides for the requirements for a Mareva injunction. Apart from it being necessary to establish that a cause of action exists within the jurisdiction, and that there is a serious question to be tried, a party seeking a Mareva injunction must also establish that there is a danger that the defendant’s assets may be removed from the jurisdiction, or disposed of, and, if such occurs, there is a danger that the judgment which the plaintiff may obtain will go unsatisfied.
In this case, in my opinion, there is no evidence before this Court which would suggest that any of the defendants are intending to remove any of their assets from the jurisdiction. Indeed, the evidence is that the first and second defendants have little or no assets, and the third defendant has no assets apart from the unpaid moneys due on the sale of the TM 2000, which may or may not be an asset of the third defendant, depending upon the result of these proceedings.
The plaintiffs have to establish that there is a danger that the defendants will remove their assets from the jurisdiction. There is simply no evidence in this case, in my opinion, from which it could be inferred that there is any such risk. True it is that the first and second defendants have sold their house, but they have explained the circumstances in which they have come to sell their house. Moreover, from the defendants’ affidavits, it does not appear that the defendants have any equity in the property. It is also true that the first defendant went to Queensland for about one and a half weeks in September 2000, but he has explained his absence from this State and his presence in Queensland on the basis that he was visiting his father who was quite ill. Moreover, the defendants explained the defendants’ absence in Queensland to the plaintiffs in September 2000.
There is no evidence, in my opinion, from which it can be inferred that any of the defendants intend to start any business outside this State.
I am not satisfied that, upon the evidence adduced, there is a danger that the defendants’ assets may be removed from the jurisdiction or disposed of.
Mr Keen also pointed out that the lack of urgency displayed by the plaintiffs on this application indicates the absence of any reason for the making of the order. These proceedings were issued on 6 September 2000. It has taken the plaintiffs more than two months to bring on this application. They have not been able to point to any assets being disposed of during that period of time, except by the third defendant in the ordinary course of its business. I think it can be inferred, from the plaintiffs’ unhurried progress in these proceedings, that there is no need for the orders sought.
The purpose of a Mareva injunction is not to secure the plaintiff before judgment; the purpose is to restrain a defendant from removing assets from the jurisdiction or dissipating those assets. In my opinion, on the evidence presently before me, the plaintiffs’ application must fail.
The application is dismissed.

[2000] SASC 390

15 November 2000