Attard v Stuart
[2017] NZHC 690
•10 April 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-617 [2017] NZHC 690
BETWEEN LUKE ATTARD
Applicant
AND
GORDON STUART Respondent
Hearing: 10 April 2017 Counsel:
DJ Chisholm QC for respondent
L Attard, applicant in person
Judgment:
10 April 2017
JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 10 April 2017 at 4 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Burton & Co, Auckland
To: L Attard, Auckland
Attard v Stuart [2017] NZHC 690 [10 April 2017]
Introduction
[1] This matter first came before the Court late in the afternoon of Friday, 7 April
2017, as a without notice application for an injunction pursuant to s 164 of the Companies Act 1993 (“Act”). Mr Attard seeks an order effectively “unfreezing” an overdraft facility held by the company Lightning Cleaning Services Ltd (“Company”) with Westpac Banking Corporation (“Westpac”). Mr Attard is a director of the Company, and a director of a shareholder in the Company, Rapid Group NZ Limited (“Rapid Group”). The order is sought against Mr Stuart, a former
director of the Company.1
[2] The matter was initially considered by Courtney J who, rightly in my view, observed that it ought not to be dealt with on a without notice basis. Courtney J accordingly directed that the various papers filed by Mr Attard be served on Mr Stuart and that the matter be listed in the Duty Judge List today.
[3] The matter was called before me, as Duty Judge, in the list this morning. Mr Attard appeared in person. Mr Chisholm QC appeared on behalf of Mr Stuart. Consistent with Courtney J’s orders, it seems Mr Stuart had been served with the papers either late on Friday or sometime on Saturday 8 April 2017. Mr Chisholm sought leave, which I granted, to file a notice of opposition and affidavit of Mr Stuart, opposing the granting of the order sought by Mr Attard.
[4] Mr Attard emphasised the urgency of the matter, in that if the overdraft facility is not “unfrozen” today, he may be required to put the Company into liquidation.
[5] Having heard the parties, I adjourned the matter, so that I could consider the papers, including those just filed by Mr Stuart, more fully. I confirmed that if I were minded to grant any interim orders on the application, I would provide the parties with a further opportunity to be heard, given Mr Stuart had only been served with the papers a day or so ago.
Background
[6] In his application, Mr Attard alleges that there have been a number of disputes between Mr Stuart and Rapid Group over a lengthy period of time, pursuant to a Shareholders’ Agreement between those two parties (“Agreement”).2 Having heard from the parties this morning, and reviewed the various papers and affidavits filed, it is clear that there is a range of disagreements and disputes between Rapid Group and Mr Stuart under the Agreement, and also in respect of actions said to have been taken by Mr Stuart while he was a director of the Company. The various disputes are summarised in Mr Attard’s affidavit filed in support of the application
and Mr Stuart’s affidavit sworn in opposition.
[7] There are also issues in respect of a loan agreement between Mr Stuart and the Company (Mr Stuart alleging that the Company has not complied with the terms of that loan agreement).
[8] Issues also arise in relation to share transfers that Mr Attard has registered in respect of the Company with the Companies Office. It seems that an “in principle” agreement, by which Mr Stuart would transfer his shareholding to Rapid Group, was arrived at in around December 2016, though arrangements in that regard were never completed. On the basis of that in principle agreement, Mr Attard amended the shareholding of the Company on the Companies Office website to record that purported share transfer. Mr Attard acknowledged in Court this morning, however, that it may have been an error by him to have made that change, though noting that he had only done so on the basis of the in principle agreement referred to above. For the purposes of this application, I have proceeded on the basis that Mr Stuart remains a shareholder in the Company (though that fact is not determinative in any event).
[9] In the time in which the Court has had to consider this matter, and on the basis of the (limited) materials filed to date, it is impossible to assess the precise nature of the disputes between the shareholders, let alone their respective merits.
[10] As flagged in the introduction above, however, the heart of the present application is the fact that the Company presently has an overdraft facility with Westpac. The facility is for a maximum of $170,000. Mr Attard states that there is approximately $41,000 remaining to be drawn down on the facility. Mr Attard deposes that funds are urgently required to pay contractors, wages and other day to day expenditure of the Company. He deposes that, unless the funds are released very soon, he may be required to put the Company into liquidation.
[11] Mr Stuart (and his wife) are guarantors of the Company’s overdraft facility and credit card balances with Westpac. The have provided security over their home to secure those amounts. Mr Stuart deposes in his affidavit that Mr Attard is also a guarantor of the Company’s debts to Westpac, although he has not provided security to support that guarantee.
[12] By email dated 31 March 2017, Mr Stuart’s solicitors wrote to Westpac confirming a conversation that appears to have taken place earlier that morning. The email stated that Mr Stuart was in a dispute with Mr Attard in relation to the Company. It also noted that, despite the Companies Office website recording a transfer of Mr Stuart’s shares to Rapid Group, Mr Stuart remained a shareholder of the Company, as any agreement in relation to the share transfer had not been completed.
[13] Westpac is not a named party to the proceeding and accordingly was not present at this morning’s hearing. However, apparently in response to the notification received from Mr Stuart’s solicitor on Friday, 31 March 2017, Westpac has put a stop on further draw downs by the Company under the overdraft facility. Mr Chisholm informed me this morning that Mr Stuart had also notified Westpac that Mr Stuart and his wife are no longer prepared to guarantee the Company’s debts. There was nothing in Mr Stuart’s affidavit to confirm notification of that fact. The terms of the guarantee provided by Mr Stuart and his wife to Westpac were also not in evidence before me. The ability of Mr Stuart and/or his wife to “pull” that guarantee would of course depend on the terms of the guarantee itself. Presumably, it could not be unilaterally terminated in respect of debts incurred to that point. Be that as it may, however, Westpac’s reaction to being informed of the dispute between
the shareholders is as set out above, namely not to permit any further draw downs under the overdraft facility while the dispute is ongoing.
Jurisdictional issues
[14] Mr Attard has brought this application pursuant to s 164 of the Act. Section
164(1) of the Act provides that:
The Court may, on an application under this section, make and order restraining a company that, or a director of a company who, proposes to engage in conduct that would contravene the constitution of the company or this Act from engaging in that conduct. (Emphasis added)
[15] Section 164(4) also provides that an order cannot be made under s 164 in relation to a course of conduct that has been completed. Section 164(5) provides that a Court may make, as an interim order, any order that it is empowered to make under s 164(1).
[16] Mr Chisholm submitted, rightly in my view, that I do not have jurisdiction under s 164 to make the order sought by Mr Attard. The order sought does not seek to restrain the Company, or a director of the Company. Rather, the order proposes to bind Mr Stuart personally. In addition, and as Mr Chisholm also submitted, the power to make orders pursuant to s 164 is framed in prohibitory terms, namely “restraining” a company or a company directors. The section does not, expressly at least, empower the Court to make mandatory orders. Nor does the section permit a Court to make orders in respect of conduct that has been completed; i.e. in this case, the notification to Westpac on 31 March 2017.
[17] I nevertheless indicated to Mr Attard at the hearing that, if I were otherwise minded to grant the injunction, I would not have declined to do so solely on the basis that the application had been brought pursuant to s 164 of the Act. I therefore turn to consider whether it is appropriate to grant the order sought on the assumption that the application had been brought pursuant to r 7.53 of the High Court Rules.
Is it appropriate to grant injunction under Rule 7.53?
[18] Mr Attard’s application for an interim injunction is not accompanied by an underlying statement of claim or other originating document. It is therefore difficult to discern the precise basis of his claim, or the cause(s) of action involved. That in turn makes it difficult to assess the potential strength of any underlying cause of action, and whether there is a serious question to be tried.
[19] There is nevertheless clearly a dispute between the shareholders of the Company, including in relation to purported breaches of the Agreement and a purported termination of that Agreement by Mr Stuart. As noted, however, it is simply not possible, in the time and manner in which this matter has been brought before the Court, to consider that underlying dispute in any detail. Nor are there sufficient materials before the Court to do so in any event.
[20] However, even if there was further time to assess the underlying disputes between the parties, there is, in my view, a more fundamental issue with the application now being brought by Mr Attard. Mr Stuart has notified Westpac of the fact that there is a dispute between the parties (and that Mr Stuart remains a shareholder in the Company). Irrespective of whether that was an appropriate step, the point remains that, having been notified of the dispute, Westpac has prevented further withdrawals on the overdraft facility. As matters presently stand, I can only assume that Westpac has satisfied itself that, on the terms of the overdraft facility (and any other relevant agreements) between it and the Company, it is able to impose such a “freeze”. Importantly, there is no material or evidence before me to suggest that Westpac does not have the ability to take the steps that it has.
[21] Accordingly, and as I raised with Mr Attard at the hearing earlier today, while the dispute remains on foot between himself and/or Rapid Group on the one hand, and Mr Stuart on the other, it is not possible or appropriate for me to order Mr Stuart to inform Westpac that there is not in fact any dispute. Plainly Mr Stuart and Rapid Group/Mr Attard will need to follow any applicable procedure set out in the Agreement and/or the Company’s constitution for resolving any such disputes. But
again, that does not alter the position that Westpac has taken in relation to the overdraft facility.
[22] Further, and as I also raised with Mr Attard during the hearing, it seems to me that his grievance, at least on the urgent matter now facing the Company, lies with Westpac, and its present unwillingness to permit further draw downs on the company’s overdraft facility.
[23] For these reasons, had the application been brought pursuant to r 7.53 of the High Court Rules, and supported by an appropriate underlying originating document, I would not have been prepared to grant the mandatory order sought by Mr Attard against Mr Stuart.
[24] I also note that Mr Attard has not provided an undertaking as to damages in support of his application for an interim injunction. While that is not expressly required pursuant to s 164 of the Act, it would be required for any injunction pursuant to r 7.53 of the High Court Rules. Mr Attard would have also needed to provide sufficient financial information to demonstrate that the undertaking could be supported, if required.
Conclusion
[25] I accordingly decline to grant the application.
[26] I did not hear from the parties in respect of costs. If costs are pursued, the parties are to file memoranda on costs within five working days of the date of this judgment. Subject to either party requesting a hearing in respect of costs, I will then
determine the matter of costs on the papers.
Fitzgerald J
0
0
0