Targus Group (UK) v Targus Group

[2018] NSWSC 1171

Supreme Court

New South Wales

Medium Neutral Citation:	Targus Group (UK) v Targus Group [2018] NSWSC 1171
Hearing dates:	27/07/2018
Date of orders:	27 July 2018
Decision date:	27 July 2018
Jurisdiction:	Equity - Commercial List
Before:	McDougall J
Decision:	Order that the general meeting of the first defendant be postponed until 2pm on Thursday 2 August. Otherwise refuse application for interlocutory relief.
Catchwords:	CORPORATIONS – interlocutory application by third defendant to restrain plaintiff from proposing a resolution for appointment of additional directions and voting on those resolutions – whether plaintiff and third defendant agreed that each party was entitled to appoint two directors – whether plaintiff estopped from denying this is the case – unnecessary to determine on interlocutory application although serious question to be tried with regard to the former – where minimal detriment to third defendant if meeting proceeds – where some evidence of irregularities that appointment of independent directors could remedy – balance of convenience points strongly towards refusal of interlocutory relief – application refused.
Category:	Procedural and other rulings
Parties:	Targus Group (UK) Ltd UK Company Number 02989548 (Plaintiff) Targus Group Pty Ltd ACN 003 527 008 (First Defendant) Heathmere Pty Ltd (Second Defendant) Alenka Tindale (Third Defendant)
Representation:	Counsel: I M Jackman SC / M R Tyson (Plaintiff) F Roughley (First Defendant) K Morgan SC / B Ng (Third Defendant)   Solicitors: Corrs Chambers Westgarth (Plaintiff) Yeldham Price O'Brien Lusk (First Defendant) Watson Mangioni Lawyers (Third Defendant)
File Number(s):	2018/173956

Judgment   (EX TEMPORE – REVISED 27 JULY 2018)

1. HIS HONOUR:   The plaintiff (Targus UK) holds 51% of the issued shares in the first defendant (Targus Australia). The other 49% of those shares is owned by the third defendant (Mrs Tindale). The second defendant, a company controlled by Mrs Tindale that agreed to provide her services to Targus Australia, can be put to one side.

2. The relationship between Targus UK (more accurately, its predecessor Targus Group PLC) and Mrs Tindale dates back to 1991. In that year, they made a "participation agreement" for the purpose of enabling Targus UK (as I shall call it regardless of temporal niceties) to appoint Targus Australia (then known as Windate Pty Ltd) as the sole distributor for Targus goods and products in Australia and neighbouring areas. The participation agreement provided that two nominees of Targus UK would be directors of Targus Australia, as would Mrs Tindale and her father, the late Dusan Lajovic.

3. The parties have fallen into dispute over a number of issues. A final hearing has been fixed for 11 October 2018. I am concerned today with a notice of motion brought by Mrs Tindale which seeks to restrain Targus UK from proposing a resolution for the appointment of additional directors to Targus Australia, and voting in respect of any such resolution. It seeks, further, an order adjourning a general meeting of Targus Australia which is scheduled to take place on Monday next, 30 July 2018.

4. The meeting represents the third attempt by Targus UK to consider the appointment of additional directors. The first two attempts fell away. The first attempt did not go anywhere because the parties tried to mediate their differences. The second went away for personal reasons on Mrs Tindale's part that do not need to be recounted.

5. Targus UK wishes Targus Australia in general meeting to consider appointing, and if thought fit appoint, two gentlemen who are described as independent directors. They are certainly independent, in the sense that neither is an employee or officer of, or consultant to, Targus UK. Nor, so far as the evidence shows, does either have any previous association with the parent company of Targus UK. Mr Winterbottom is a well-known insolvency and restructuring expert. Mr Griffiths is a former executive of a leading Australian bank, who now appears to be working in the quieter area of mutual lending (in a credit union).

6. Mrs Tindale's case is founded upon two alternative propositions. The first is that on the proper construction of relevant provisions of the participation agreement, the parties have agreed, notwithstanding the provisions of the Constitution of Targus Australia, that each side (that is to say, Targus UK on one side and Mrs Tindale on the other) is entitled effectively in perpetuity to appoint two directors. The alternative proposition is that having regard to the way the parties have conducted themselves since 1991, Targus UK is estopped from denying that this is the case.

7. I should note that Targus UK had filed an originating process in the Corporations List of this Court. By that originating process, Targus UK sought a declaration that the notice of general meeting was valid and that the resolutions proposed, if passed, would likewise be valid. However, I am dealing with the interlocutory application brought by Mrs Tindale. It follows that I am required to consider the usual matters: whether there is a serious question to be tried and where the balance of convenience might lie.

8. As to the proper construction of the participation agreement, the argument put by Ms Morgan of Senior Counsel, who appeared with Ms Ng of Counsel for Mrs Tindale, is that when one considers cl 3(a) of the participation agreement in the context of the document as a whole and the relationship that the parties clearly intended to institute, equality in terms of control was intended. Ms Morgan submitted that the participation agreement was in the nature of a joint venture agreement. She referred to cl 7(b), whereunder each of Targus UK and Mrs Tindale were entitled to 50% of net profits notwithstanding the slight inequality in their shareholding. She referred, further, to cl 18, which bound the parties to deal with each other with all fidelity and good faith to ensure the commercial viability of the business.

9. Mr Jackman of Senior Counsel, who appeared with Mr Tyson of Counsel for Targus UK, drew attention to the fact that in two separate places in the participation agreement, reference was made to what were (in 1991) the Articles of Association of Targus Australia. In those two places, the participation agreement recognised that it would or might be necessary to amend the Articles so as to ensure that they conformed to the intention of the parties as expressed in the participation agreement. Thus, Mr Jackman submitted, this was not a case where the participation agreement was a shareholders' agreement that was intended in effect to supplant the bargain formally recorded in the company's Constitution.

10. Mr Jackman submitted, further, that the construction for which Ms Morgan contended went well beyond the wording of clause 3(a). He submitted that clause 3(a) did no more than record the position that would prevail after the parties commenced their trading relationship, and for as long as they did not alter the basis on which they would deal with each other.

11. There are cases where it is both possible and desirable to resolve a construction argument upon the hearing of an interlocutory application. This is not one of them. The approach to construction of commercial documents is well understood. It has been considered by the High Court and the Court of Appeal on many occasions in the last 20 years. There is no need to give citations. The authorities all recognise that considerations of factual matrix or context are important. Whether or not such matters can be relied upon as aids to construction if there be no ambiguity is still, I think, an open question. What is clear beyond doubt is that reference to such matters may be had at least for the purpose of resolving whether there is any ambiguity. I observe in passing that this distinction is one that many non-lawyers might find somewhat puzzling.

12. In the present case, an understanding of the factual matrix well beyond that which I have on this interlocutory application would be necessary. In the absence of such an understanding, I can do no more than say that it appears to me that the case based on cl 3(a), although arguable, does not appear to be open and shut. It may perhaps be thought that if it were open and shut the parties would not be here. There are considerations tending either way. In the circumstances, I do not think that there is a great deal to be gained by elaborating them for the benefit of counsel’s submission in October.

13. I turn to the question of estoppel. That seems to me to have a very significant obstacle. That obstacle is that although detriment is generally thought to be essential to make the estoppel bite, it is very difficult to see what detriment Mrs Tindale would suffer if Targus UK were permitted to resile from what is said to be its represented, or the conventional, position.

14. Behind that, and at a more detailed factual level, it has to be said that Mrs Tindale's conduct in the past has not been entirely consistent with what she says is the conventionally assumed or mutually understood position of the parties. At one point in 2005, when there was only one representative of Targus UK on the board of Targus Australia, the former company notified Mrs Tindale of its desire to have two directors. For reasons that are entirely unexplained, Mrs Tindale refused to accept their suggested nominees. That is not the conduct of someone who wishes to argue that the position that she now maintains has been observed invariably and uniformly over the past 27 years.

15. Again, there is the uncomfortable fact that when there was no equality of representation on the board, Mrs Tindale and her father manoeuvred, through a circular resolution, to appoint her as chairman. Her appointment as chairman gives her a casting vote in the event of a deadlock on the board (see Article 46). It might be thought that Mrs Tindale's reliance on this provision of the Articles is not entirely consistent with her argument that the participation agreement prevails over the Articles, but that is a matter for later consideration.

16. I do not think that the estoppel case, by itself, is of sufficient strength to justify the grant of interlocutory relief.

17. Nonetheless, as I have said, I do think that there is a serious question to be tried on the proper construction of cl 3(a) of the participation agreement.

18. That requires consideration of the balance of convenience. It has not been put for Mrs Tindale that if the meeting goes ahead and the two additional directors are appointed, they in conjunction with the nominees of Targus UK would do something terrible or underhand. There is absolutely no basis for thinking that, if appointed, those two gentlemen would act in anything other than a proper way, taking into account what they perceive to be the best interests of the company as a whole. It is certainly the case that if there are two appointments of the kind proposed, Mrs Tindale would not enjoy automatically the benefits of chairing the meeting, so as to enjoy the benefit of a casting vote in the event of a deadlock. But it cannot be assumed that a deadlock situation would arise. On the other hand, no doubt, there may be situations where if the two additional directors are appointed, they may take a differing view among themselves as to what is in the best interests of the company. All those are matters of speculation.

19. What is not a matter of speculation is that, as I have said, there is no evidence of detriment (apart from the expense that would be incurred by the appointments) upon which Mrs Tindale relies. To a large extent, her submissions on this point appear to assume that, contrary to what appears to be the fact, the two gentlemen in question would not in fact be independent. As I have said, there is no basis to raise any suspicion as to want of independence.

20. On the other hand, there is some evidence that the affairs of the company have not been run in an entirely satisfactory way. According to the evidence for Targus UK, there are records of board meetings that are supposed to have taken place, and to have been attended (by telephone) by a nominee director of Targus UK, in which in fact that representative did not participate. If that is correct, it is a matter of some concern.

21. Again, there is the circumstance of Mrs Tindale's appointment (in conjunction with her father) of herself as chairman, at a time when there was no equality of representation. There are other matters complained of in the affidavit as to Mrs Tindale's use of her casting vote.

22. It is suggested that there is evidence of board dysfunction and some want of proper corporate governance. Those matters of themselves may not be of tremendous importance, but it is nonetheless undesirable that, despite the passage of (in one case) four months and (in the other) one month, the warring parties have not been able to agree upon minutes of directors' meetings.

23. The evidence for Targus UK indicates some concern about payments made to Mrs Tindale. It is impossible to say whether those concerns are justified. What is clear is that on the face of things there is some explaining to be done. Those explanations have not been given. There is in addition the rather strange fact that while the mediation was taking place (it occurred on a Friday, Monday and Tuesday) a very substantial sum was paid to Mrs Tindale over the weekend without notice. One would have thought that parties cognisant of their cl 18 obligations of fidelity and good faith, participating in a mediation, would be expected to make the others known of such transactions. That does not appear to have happened.

24. There is in addition some evidence from a former employee that the management of the company is not functioning in a way is conducive to business success. However, again, that is not something on which any finding of fact can be made.

25. It is necessary, having considered the two questions separately, to try and look at them together. That is because, in the usual case where interlocutory relief is sought, the required strength of the case to be tried will depend very much on the consequences of action or inaction. If the consequences of inaction would be very severe, it may be that the threshold for a serious question to be tried is not as high as it might be if the consequences of inaction were inconsiderable.

26. In this case, it seems to me, there is really no detriment to Mrs Tindale if the meeting proceeds. The only issue is that whatever charges the two directors incur (if appointed) will be borne by the shareholders, and thus, as to 49%, by her. However, having acknowledged that fact, it must be the case that the likelihood that they would rack up very substantial charges between now and October 2018 is not very high.

27. As I have said, there is evidence that, if made out on a final hearing, could suggest that there have been irregularities in the conduct of the business of Targus Australia. It is highly desirable that steps be taken to ensure that this (if it has happened) does not continue. The appointment of independent directors is one way to achieve that (and, contrary to what I said a moment ago, if the independent directors are to prosecute that aspect of their role vigorously, the charges incurred might be higher than would otherwise be the case).

28. Balancing the matters as best I can, and recognising that an immediate decision is necessary because the meeting is to take place on Monday, I have come to the conclusion that the application for interlocutory relief should be refused. I say that for three reasons. The first is that I do not perceive Mrs Tindale's case to be strong. The second is that I do not perceive any real element of detriment to her if the relief is refused. The third is that I think there are proper concerns raised as to the governance of Targus Australia, and those concerns ought be alleviated sooner rather than later. The holding of a general meeting and, if thought fit, the appointment of independent directors is one way to achieve that.

29. Accordingly, I order that the notice of motion filed on 16 July 2018 be dismissed. It would seem to me that costs should follow the event but I will hear counsel on that.

[Brief adjournment]

[Counsel addressed]

30. I note that the applicant, Mrs Tindale, by Senior Counsel gives to the Court the following two undertakings: First, not to use her casting vote until after Thursday 2 August; second, not to authorise payments by the company other than in the ordinary course of business other than the filing fee in relation to the application to be filed, if any, by Targus Australia on Monday 30 July until Thursday 2 August. I accept those undertakings.

31. I note that the parties have agreed, and to the extent necessary, the Court orders, that the meeting of the first defendant presently proposed to be conducted at 9.30am on Monday, 30 July 2018, is to be postponed, to 2pm on Thursday, 2 August 2018.

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Decision last updated: 30 July 2018