Varma v Varma
[2009] NSWSC 1086
•2 October 2009
CITATION: Varma v Varma [2009] NSWSC 1086 HEARING DATE(S): 29 & 30 September, 1 October 2009
JUDGMENT DATE :
2 October 2009JURISDICTION: Equity Division JUDGMENT OF: Rein J EX TEMPORE JUDGMENT DATE: 2 October 2009 DECISION: Interlocutory injunction granted. CATCHWORDS: EQUITY – equitable remedies – injunctions – application for interlocutory injunction – application of general principles to facts and circumstances – where plaintiff claims entitlement to beneficial ownership of 100% of shares in company, two-thirds of which shares have been transferred to the defendants LEGISLATION CITED: Corporations Act 2001 (Cth) CATEGORY: Procedural and other rulings CASES CITED: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] 8 HCA 63; 208 CLR 199
Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Plunkett v Bull (1915) 19 CLR 544TEXTS CITED: Meagher, Gummow & Lehane’s Equity: doctrines and remedies, (2002) 4th edition Butterworths LexisNexis PARTIES: Parveen Varma (Plaintiff)
Gautam Varma (First Defendant)
Arjun Varma (Second Defendant)
Taj Food Sales Pty Ltd (Third Defendant)
The estate of the late Sah Dev Varma (Fourth Defendant)FILE NUMBER(S): SC 3886/09 COUNSEL: Mr W Washingston (Plaintiff)
Mr E Petersen, Ms J Baxter (First and Second Defendants)SOLICITORS: Hall Partners (Plaintiff)
Hunt & Hunt (First and Second Defendants)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
Rein J
2 October 2009
3886/09 Parveen Varma v Gautam Varma & ors
JUDGMENT (EX TEMPORE)
1 REIN J: This matter, which came to me as a duty judge matter with an estimate of only two hours, in fact has taken the better part of two days. I will need to keep these reasons brief, but nevertheless there is quite some detail in the matter.
2 The plaintiff, Parveen Varma, whom I will refer to as Parveen, is the daughter-in-law of the late Sah Dev Varma, known as Sid. Sid, until last year, owned most of the shares in the third defendant, a company known as Taj Food Sales Pty Limited, which I shall refer to as Taj Foods. Parveen had one share in this company and her son Vik had one share. Sid was the Managing Director of Taj Foods and its effective controller for many years until 2008. Sid died in November 2008 at the age of 98 years. He left a will dated 16 April 2008 which superseded earlier wills which he made. Parveen, in separate proceedings, seeks probate of a will of 2004 contending in relation to the April 2008 will made by Sid that he did not have sufficient mental capacity to make that will. Prior to his death, Sid signed transfers of two-thirds of his shares in Taj Foods, one-third of the shares he transferred to Gautam Varma and another one-third to Arjun Varma, both of whom are grandsons of Sid.
3 Proceedings were brought by Parveen in 2008 in the name of Sid as his tutor seeking to set aside the transfers of shares to Gautam and Arjun. Those proceedings have been described as "the tutor proceedings" and are numbered 4803/08. Subsequently, proceedings challenging the authority of Parveen to act as Sid’s tutor in the tutor proceedings were brought by Sid and after his death, an administrator ad litem, Mr Bray, was appointed in respect of the tutor proceedings. Mr Bray decided not to continue the proceedings brought in Sid’s name and he sought leave to discontinue the proceedings, which leave was granted by Ward J. The discontinuance took effect on Wednesday 30 September 2009. In the tutor proceedings undertakings had been given by Gautam and Arjun until the determination of those tutor proceedings. Those undertakings, it is agreed, were dissolved as of Wednesday 30 September 2009.
4 In proceedings 110443/09 Parveen seeks that probate be granted of the 2004 will. Gautam and Arjun will seek by way of cross claim to obtain probate of the April 2008 will.
5 In Corporations List proceedings 4300/09 Parveen has sought relief in respect of what she alleges are breaches of duty by Gautam and Arjun as directors of Taj Foods. Some of those matters are reiterated in the current proceedings. Gautam and Arjun dispute any wrongdoing on their part, but they also challenge Parveen's standing to bring those proceedings. Mr Petersen of counsel, who appears with Ms Baxter for Gautam and Arjun, drew attention to specific provisions of s 1324 of the Corporations Act 2001 (Cth) and cases on that section which support the proposition advanced by Gautam and Arjun. However, it is agreed that I do not need to consider those allegations in the context of this particular hearing, which is for interlocutory relief.
6 In these proceedings Parveen claims she is entitled to the beneficial ownership of 100% of the shares in Taj Foods. This is based upon her claim that Sid had promised her that he would transfer to her on his death 100% of the shares in Taj Foods. In 1990 Parveen says she owned a half interest in a partnership that she had with Sid, namely the conduct of a business known as UV Enterprises, which business was taken up into Taj Foods. She asserts through an affidavit of 14 September 2008, that she had a conversation with Sid in 1990 in which, in effect he agreed that in return for her relinquishment of her half interest in the partnership and hence the absorption of the business of UV Enterprises in a company to be established, i.e. Taj Foods, he would ensure she received on his death the shareholding in Taj Foods.
7 The claim, on the pleadings, is framed as one based on representations and estoppel arising out of those representations. Mr Washington of counsel, who appears for Parveen, acknowledges that the pleading is not adequate, because any supposed claim in contract is not properly pleaded, but he submits his client does have a claim in contract. I proceed on the basis that the pleading can be amended to properly reflect that claim. There are a number of other causes of action in the statement of claim, but Mr Washington, for the purposes of interlocutory relief relied solely on the contract/estoppel claim.
8 Mr Petersen put forward a number of arguments to demonstrate the weakness of Parveen’s case. Insofar as he attacked the promissory estoppel claim, I do not think I need to dwell on that since Parveen does put her case forward as one of contract as well.
9 Other points that Mr Petersen advanced included:
(1) That there is ample evidence before the Court in the affidavits of Arjun and Gautam, and Mr Ronald Czinner, Sid’s solicitor, and Mr Dennis Castino, Sid’s the accountant, that Sid did not regard himself at any time after 1990 as having agreed to bequeath all of his shares in Taj Foods to Parveen.
(2) That there was evidence that when informed of Sid’s intention in 2007 to pass one-third of his shares to Arjun, Parveen wrote to Sid complaining about this saying: "This decision came as a shock to me as my 20 years of service to you has resulted in such insecurity in my life", but saying nothing about the alleged agreement formed in 1990.
(3) That the agreement as deposed to by Parveen was very limited and at that time Taj Foods was not established.
(4) That although there was some evidence that Parveen was a partner in UV Enterprises (see page 16 of the affidavit of Parveen of 17 September 2008) there was other evidence (see Exhibit 1) which suggested that she was not really a partner and hence that she gave no consideration in return for Sid’s promise.
(5) That when the shares were transferred by Sid to Gautam and Arjun, the company paid the legal fees for him and that Parveen, as financial officer of Taj Foods, approved the payment (see GV23 to the affidavit of Gautam of 29 September 2009).
(6) That the failure of Parveen to do anything about the transfer of shares until the commencement of these proceedings constitutes laches affecting the claim.
(7) The fact that Sid advised Parveen in 2002 that he was proposing to transfer some of his shares to Arjun put Parveen on notice that he was proposing to do something that was inconsistent with the contract which she alleged she had made with Sid, but she did nothing about it.
(8) That there is no evidence put forward by Parveen to establish that Gautam and Arjun were aware of the alleged agreement between Sid and Parveen. Mr Washington accepted that this was the position. In this context, Mr Petersen submits that since Sid held legal title in the shares and Gautam and Arjun gave consideration for the transfer of shares because they agreed to and did sign a new irrevocable authority promising never to alienate their shares, Parveen, even if entitled to the estate against Sid, which is disputed, has no claim against Gautam and Arjun.
(9) That courts look very carefully at evidence brought in support of the claims that are made in relation to what deceased persons have said or agreed to. See, Plunkett v Bull (1915) 19 CLR 544, particularly at 549 per Isaac J.
(10) That Parveen, in pursuing a claim as tutor for Sid in the tutor proceedings, relied on a certificate given by her solicitor, Mr Hall, in which Mr Hall certified that Parveen "does not have an interest in these proceedings that is adverse to the interests of Sah Dev Varma". Mr Petersen contends that Parveen, having commenced proceedings on the basis of that certification, cannot in later proceedings propound a contrary claim as this, in effect, amounts to approbating and reprobating.
10 I should note Parveen did hold a power of attorney from Sid, but it was apparently revoked on 8 October 2008 after the tutor proceedings had been commenced. On the question of the certificate to which I have just referred, Mr Hall was aware at the time he gave the certificate that Parveen claimed that she was entitled to all the shares in Taj Foods on Sid’s death, and must have been aware that by transfer of 66% of the shares prior to Sid’s death, Sid had precluded the operation of the bequest at least as to 66% of the shares. Since by the tutor proceedings, Parveen was really endeavouring to retain the recovery of the shares for her own benefit and not for Sid's benefit, a question arises as to how the certificate could have been given by Mr Hall. Mr Washington submitted, in effect, the key words are "in those proceedings” because Parveen’s attempt to recover the shares for Sid was not part of the adverse interest that Parveen had vis-a-vis Sid; that interest, he submitted, would only arise once the shares were in fact recovered.
11 This aspect of the matter is clearly one which requires further close consideration, but I do not think it is appropriate to comment further upon it in the context of an interlocutory hearing and I do not intend to treat this point as one which should be given weight in assessing Parveen’s case for the purposes of interlocutory relief.
12 There is a further matter which is that in the probate proceedings Parveen seeks probate of a will which leaves her, I understand, 33% of the shares in Taj Foods. I have some difficulty understanding how she could obtain probate in circumstances where she claims that the only significant asset of the estate (i.e. the shares in Taj Foods) is held on trust for her and not for the beneficiaries under the will.
13 Mr Petersen says that Parveen took no action whilst Sid was alive in relation to the claim which she now brings against the estate. There is a question about whether Parveen, on learning that Sid intended to transfer 66% of his shares in Taj Foods in 2008, was required to take action against him rather than seeking to recover the shares in his name. If the tutor proceedings were legitimate, as is contended on behalf of Parveen, those tutor proceedings could not have dealt with the claim that Parveen wishes to make concerning beneficial ownership of the shares.
14 The principles relevant to the grant of injunctive relief were not in dispute. Both sides accept that on the basis of Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 the plaintiff is required to establish that there is a serious question to be tried at the hearing in order to obtain final relief.
15 There are two further matters which need to be considered.
16 The first is whether there will be irreparable injury to the plaintiff for which damages will not be an adequate compensation if injunctive relief is not granted pending the hearing. The second is whether on the balance of convenience, it is appropriate that the order be made for relief: see Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, 622-626 per Kitto, Taylor, Menzies and Owen JJ; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] 8 HCA 63; 208 CLR 199 at 296 per Callinan J and see Meagher, Gummow & Lehane’s Equity: doctrines and remedies, (2002) 4th edition Butterworths LexisNexis [21-365] – [21-370]. Mr Washington made the point that the existence of the material which contradicts or might contradict Parveen’s case does not disentitle her to the injunctive relief sought.
17 I am persuaded there is a serious question to be tried based principally upon the evidence of Parveen (paras 16 – 22 of her affidavit of 14 September 2008) and the support for her proposition that she was a partner in UV Enterprises in the document to which I have referred.
18 I think that some of the matters relied on by Mr Petersen carry weight which although not sufficient to lead me to reject Parveen’s contention that there is a seriously arguable case, are sufficient to point, on the basis of the evidence before me, to her case not being a strong one. In particular, the matters are:
(1) I regard as of particular significance the absence of any assertion by Parveen to Sid in her letter of 20 July 2007 or at any other time prior to his death of the agreement she now alleges was made or representations made in 1990. I do not accept Mr Washington's contention that the words handwritten by Sid on that letter are of any assistance to Parveen’s case.
(2) This links to the fact that when Parveen did put forward proposals for shareholdings in Taj Foods, none of them involved her personally owning more than 25% of the shares, or together with her son, her daughter-in-law or her husband no more than 50% of the shares of Taj Foods: see annexures GV19, GV20 and GV22 to Gautam’s affidavit of 29 September 2009.
(3) There is considerable evidence that from 1993 to 2008 Sid did not regard himself as under any obligation of the kind alleged by Parveen. He did provide for her in his will to receive one-third of the shares in Taj Foods, which is consistent with her having had an interest in the business, but not with her having a 100% interest.
(4) These matters and the known conduct of Sid, which is referred to in the affidavits relied on by the defendants, assume particular significance given the scrutiny with which the Court will need to make about assertions made by the deceased during his life.
(5) The question of whether it is sufficient to establish breach of trust by Sid as against Arjun and Gautam, who are not affected by notice of the alleged agreement, raises issues of a type which were considered by the High Court in the recent decision Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89. The issue of whether the promise by Arjun and Gautam to enter into irrevocable authorities and their subsequent entry into such authorities means that notice must be established, and if notice cannot be established that Parveen must inevitably fail in her claim, is a point on which I do not have a concluded view, but it seems to me to be a significant matter. I should note Mr Washington did not challenge Mr Petersen’s contention that the promise by Gautam and Arjun relating to the irrevocable authority was sufficient consideration to preclude them being volunteers.
19 What is the irreparable injury which could not be compensated for in damages, about which Parveen is concerned? In broad terms, as I understand her position, Parveen is concerned: firstly, that her entitlement to control the company if her claim for 100% of the shares is established in due course will or may be diminished by the transfer of the shares by Arjun and Gautam to third parties without notice; secondly, she has a concern that Gautam and Arjun might utilise control of the company to produce in the end a company of diminished worth so, in a sense, a fear of wasting. This is linked to a concern about the company declaring a dividend. The company, I was informed, has a very healthy cash balance, in the order of $1.4 million, and has an annual turnover between $7 and $8 million. Specific allegations of wrongdoings by the defendants as directors were not pressed on this hearing and they do not appear to be established on the evidence, in any event. There is no evidence that the defendants are proposing to transfer, encumber or sell their shares. They have through their counsel said they have no intention of doing so, but they were not willing to undertake not to do so. They point to the fact that each have given an irrevocable declaration to Sid that they would not do so. Those irrevocable declarations are in evidence.
20 So far as a declaration of a dividend is concerned, it is clear that Arjun and Gautam do wish to cause Taj Foods to declare a dividend. They accept that it can only be done according to law and hence, inter alia, only from profits of the company: see, s 254T of the Corporations Act. They both draw a relatively small salary, approximately $40,000, and apparently have personal loans to the company which they would wish to be able to repay. I was informed – and I do not think there was any dispute about this – that the proceedings which had previously been commenced by Parveen have imposed a significant financial burden upon them.
21 The plaintiff, by her notice of motion, seeks the following interlocutory relief, namely, that the defendants be restrained from:
“a) transferring or encumbering any shares held by the defendants in Taj Foods Pty Limited;
b) causing or facilitating Taj Foods Pty Limited to declare any dividend;
c) executing any document on behalf of Taj Food Sales Pty Limited unless the plaintiff in her capacity as a director of Taj Food Sales Pty Limited also signs that document;
d) causing any transaction(s) to be implemented on behalf of Taj Food Sales Pty Limited unless the plaintiff as a director of Taj Food Sales Pty Limited consents thereto in writing;
2. Such further or other order as the Court thinks fit.”e) exercising any rights attaching to their shareholding in Taj Food Sales Pty Limited.
22 As matters stand, Gautam and Arjun at the very least hold the legal title to almost 66% of the shares in Taj Foods with the estate holding 33%. The estate is the fourth defendant to these proceedings, but at the moment there is no representation of the estate as probate has not been granted. Gautam is presently the Managing Director of Taj Foods, Arjun is also a director and both are involved in the business on a day-to-day basis. I think it is agreed that under the April 2008 will of Sid, which Gautam and Arjun seek probate, Parveen would obtain one-third of the shares in Taj Foods (subject to the issue that there is in the will a "no challenge clause”) and under the will that she seeks probate of, she would also obtain one-third of the shares.
23 On the case that she propounds in these proceedings, she would, if successful, be entitled to 100% of the shares of Taj Foods. She is a director of Taj Foods as is her son, Vik. As matters presently stand, she and Vik hold only one share each. It needs to be recognised that because Parveen and Vik hold only one share each and because Parveen has not obtained probate, Gautam and Arjun, as majority shareholders, could take steps to remove both her and Vik as directors.
24 In considering what is a rather complex state of affairs, I need to consider what injunctive relief, if any, should be granted to fairly protect Parveen without unduly interfering with the rights of the defendants and indeed with the proper administration of the company. The conclusion that I have come to is that it is not appropriate to impose any fetter on Gautam and Arjun in the administration of the company on a day-to-day basis. I accept Mr Petersen's contention that it is not appropriate to, in effect, grant Parveen the prima facie right of veto over the conduct of affairs by the Managing Director and the directors generally.
25 In forming a view on what is the appropriate level of interlocutory relief, I take into account that the case, on the basis of the material before me, is not strong and indeed can be described as weak. In my view, the only relief which should be granted to appropriately preserve the status quo in this matter is that:
(2) Until the determination of the matter on a final basis Gautam and Arjun should not be permitted to take any steps to remove Parveen from her position as director for any reason other than that relating to her performance or lack of performance as a director. This does not apply to Vik. This non-dismissal order was not sought by Parveen, but it falls within the description of other relief and I asked Mr Petersen to obtain instructions as to whether his clients would be willing to give that undertaking and they refused to do so. I will grant an opportunity to the parties in a moment to consider the appropriate form of orders in relation to both these matters to which I have referred.(1) Gautam and Arjun should not be permitted to encumber, sell or transfer their shares in Taj Foods. Since they say that they have no intention of doing so, the prejudice to them in the making of that order is minimal.
26 So far as costs, I will hear the parties briefly on costs. My present inclination is that the costs of this interlocutory proceeding should be costs in the cause.
27 [After brief argument] I propose to make the order I indicated, namely the costs of this interlocutory hearing will the costs in the cause. In coming to that view I see some force in the defendants’ submission, however, I think Mr Hall has identified an important aspect, which is this: there was never any indication from the defendants they would accept what I have decided are the minimum terms upon which interlocutory relief should be granted. That is the order I make.
28 I make orders in accordance with the document entitled Short Minutes of Order which I shall initial, and date with today's date in the top right hand corner.
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