Trafalgar West Investments Pty Ltd as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd - [2011] WASC 92

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: TRAFALGAR WEST INVESTMENTS PTY LTD AS TRUSTEE FOR THE TRAFALGAR WEST INVESTMENTS TRUST -v- SUPERIOR LAWNS AUSTRALIA PTY LTD [2011] WASC 92

CORAM: EM HEENAN J

HEARD: 25 MARCH 2011

DELIVERED : 13 APRIL 2011

FILE NO/S: COR 59 of 2011

BETWEEN: TRAFALGAR WEST INVESTMENTS PTY LTD AS TRUSTEE FOR THE TRAFALGAR WEST INVESTMENTS TRUST
Plaintiff
AND
SUPERIOR LAWNS AUSTRALIA PTY LTD
First Defendant
KINGSLEY CRAIG FLUGGE
Second Defendant
MARGARET FLUGGE
Third Defendant
JEROME MATTHEW FLUGGE
Fourth Defendant
LINLEY FLUGGE
Fifth Defendant
DAMIEN CRAIG FLUGGE
Sixth Defendant

Catchwords:

Interim injunctions - Need for auxiliary undertaking as to damages - Case management directions

Legislation:

Nil

Result:

Interim injunction

Category: B

Representation:

Counsel:

Plaintiff:     Mr D Skender
First Defendant             :     Mr M Bennett
Second Defendant         :     Mr M Bennett
Third Defendant           :     Mr M Bennett
Fourth Defendant          :     Mr M Bennett
Fifth Defendant            :     Mr M Bennett
Sixth Defendant            :     Mr M Bennett

Solicitors:

Plaintiff:     Karp Steedman Ross-Adjie
First Defendant             :     Bennett & Co
Second Defendant         :     Bennett & Co
Third Defendant           :     Bennett & Co
Fourth Defendant          :     Bennett & Co
Fifth Defendant            :     Bennett & Co
Sixth Defendant            :     Bennett & Co

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

Nil

EM HEENAN J: There is before me this afternoon an urgent application for interlocutory relief brought by an interlocutory process dated 24 March 2011 issued in COR 59 of 2011. That application includes a claim for an interim injunction that the first defendant, Superior Lawns Australia Pty Ltd, be restrained and that an injunction be granted restraining it until further order from proceeding with and accepting any moneys in respect of a rights issue proposed in its notice to shareholders dated 18 March 2011.
That rights issue is described in a letter from Superior Lawns Australia Pty Ltd to shareholders dated 18 March 2011, a copy of which appears at page 770, of the affidavit of Patrick Gerard Gladwin Jebb, sworn 23 March, and I need not identify it further. The substance of the application is that if this rights issue were to proceed, it would very substantially dilute the shareholding of the plaintiff in the first defendant and do so in a fashion which would cause prejudice to the plaintiff's claims for relief against alleged oppression.
The details of the alleged oppression are contained in the originating process in this present action, COR 59 of 2011, in an application also filed in the court on 24 March 2011. That is a lengthy application which includes a series of allegations that the affairs of the first defendant have, in various ways by various of the first to the fifth defendants, been conducted to the prejudice of the first defendant by a series of inter-party transactions associated with directors of the first defendant, being variously the second to the fifth defendants.
At the moment, those are allegations which are in the course of investigation and I will not elaborate upon them further. I am satisfied, however, that an arguable case has been shown to establish that if the rights issue were to proceed there is a distinct likelihood that the interests of the plaintiff could be substantially prejudiced. The question is whether or not the balance of convenience calls for the intervention by way of interlocutory or interim injunctive relief.
Before I return to that point, I should say there is another complicating factor, and it is that the allegations which underlie the claims for oppression in these present proceedings call for a thorough investigation of the financial affairs of the first defendant and, in particular, a series of alleged loans, payments and property transactions said to have occurred between the first defendant and one or more of the second and fifth defendants.
Full details of these have not yet been established and it is the case that the last set of financial statements for the first defendant, Superior Lawns Australia Pty Ltd, are for the year ending 30 June 2009 and, even then, those are not accepted sets of accounts. In the papers before me, at pages 646 to 673 inclusive of the affidavit of Mr Jebb, which I have already described, there are a set of draft financial statements for the first defendant for the 12 months ending 30 June 2009, but the affidavit material indicates that these are disputed and that included in them are a series of liabilities or other transactions reflecting the assumed legitimacy of the various transactions which are said to constitute oppressive conduct and which, so it is alleged, constitute oppressive conduct advantaging one or more of the second to sixth defendants.
Because of the dissatisfaction with the state of the financial accounts for the first defendant and the absence of any accounts more recently than the disputed accounts of 30 June 2009, attempts have been made by the plaintiff to have auditors appointed to audit the first defendant's affairs and to produce reliable accounts for the period ending 30 June 2009 and, so I have assumed, accounts for the next 12‑month period, and perhaps even more recently.
A firm of accountants, Grant Thornton, had been engaged to undertake that task and had embarked upon it to some extent whem, for a variety of reasons, including the anticipated cost of completing the proposed audit or audits, that activity ceased. The absence of the audit and established financial accounts is an obstacle to determining the true position of the first defendant and the allegations which the plaintiff seeks to advance in COR 59 of 2011.
As a result, separate proceedings have been commenced by the present plaintiff, Trafalgar West Investments Pty Ltd, against all of the existing defendants, save for the sixth defendant, Damien Craig Flugge, in action number COR 138 of 2010. In those proceedings the plaintiff, Trafalgar West Investments Pty Ltd, is, so I am told, seeking orders under the Corporations Act for the appointment, or reappointment, of Grant Thornton to complete or undertake the audits which I have already described and for orders that the second defendant should make funds available to provide for the costs of the proposed audit.
Those proceedings are contested and are listed for hearing before a master in this court on 5 April. Those proceedings may or may not succeed, but if they were to succeed and auditors were appointed the results of their investigations would more than possibly go a long way towards the resolution of the proceedings which are the subject of COR 59 of 2011. If that application were to fail, it would seem that it would be nevertheless necessary for the plaintiff to obtain evidence showing the true effect of the financial transactions which are the subject of the oppression proceedings which would otherwise expect to have been identified in the proposed audit.
That being the case, the application concerning the appointment of auditors and their funding seems to me to be, or at least to have the potential to be, an important first step in the resolution of the underlying oppression issues in the present proceedings. So closely associated with the present proceedings is that application for the reappointment of auditors that I consider that it is undesirable that both sets of proceedings should proceed independently in this court without being related. After raising the matter with counsel, I am satisfied that orders should be made allowing them to be dealt with simultaneously or at least in conjunction with each other.
Now, coming to the question of a balance of convenience, I am satisfied that the balance of convenience is in favour, at least for the short term, of granting an injunction along the lines sought by the plaintiff in the interlocutory process of 24 March. That is because no immediate prejudice is likely to follow from the grant of such an injunction, whereas substantial prejudice to the plaintiff might follow from its refusal if the rights offer were to be completed.
For those reasons, therefore, I consider that steps should be taken to allow both sets of litigation to be heard together, as I have already described, for them to be brought under the management of a judge presiding over one of the CMC lists and for a short‑term injunction to be granted. Objection to the proposed injunction was made on behalf of the defendants on the basis of alleged inadequacy of financial backing for the usual undertaking as to damages which was offered by the plaintiff on today's application.
Although it was not filed in the registry before these hearings, I was offered a supplementary affidavit of Mr Jebb sworn this afternoon setting out the latest set of financial statements for the plaintiff, or at least of the trust estate of which it is the corporate trustee, for the year ended 30 June 2010.
I have examined those accounts and discussed them with counsel and, although I have no doubt that the plaintiff is solvent and that it has some assets, the substantial assets at least of the trust are matched by corresponding liabilities in the form of loans to beneficiaries so that the current asset position of the plaintiff is modest, to say the least, so modest that I do not consider that it is sufficient to substantiate the undertaking as to damages which is a condition for relief of this kind.
On this point being raised, counsel for the plaintiff indicated that Mr Jebb, whom I have already mentioned and who is a director of the plaintiff, would be prepared to offer his personal undertaking as to damages and/or to guarantee the undertaking which the plaintiff has already offered. As it is now late on a Friday afternoon, I do not imagine that the documents to give effect to that could be completed today, but I will accept the undertaking proposed that Mr Jebb should file such an undertaking or a guarantee of such an undertaking in order to support the injunction.