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Judgment - ex tempore

1. On 30 October 2015 I made orders, on an ex parte basis, restraining the Second, Third and Fourth Defendants, Mr Nicholas Kalantzis, Mr Constantine Kalantzis and Ms Andrea Kalantzis, from engaging in conduct that prevented or interfered with the performance of the duties of the Plaintiff, Mr Valentino Kovacic, as a director or officer of the First Defendant, Centura Holdings Pty Limited ("Company"). I made those orders for reasons set out in an ex tempore judgment on that date, on a relatively narrow basis, that a serious question to be tried was established that a shareholders meeting of 26 October 2015 which purported to remove Mr Kovacic as director of the Company was not called on reasonable notice and was invalid, and that the balance of convenience otherwise favoured the grant of relief. That order was subsequently continued pending a further hearing, which took place today.
2. Mr Kovacic now seeks broader orders restraining the Second-Fourth Defendants from engaging in conduct that disrupts or interferes with or engaging in day to day management and operation of a business known as the Eat Street Cafe at Gosford, orders restraining the Second-Fourth Defendants from entering the premises, orders that Mr Kovacic be entitled to manage the day to day operations of the cafe, and orders that the Second-Fourth Defendants sign and lodge documents with the Australian Securities and Investments Commission to record his name as a director of the Company. As matters have developed in submissions, a more appropriate form of order, if a serious question to be tried is established and the balance of convenience supports the grant of interlocutory relief, appears to be one that would restrain the Second-Fourth Defendants from conducting themselves as, or holding themselves out as, directors or officers of the Company and would restrain the Fifth and Sixth Defendants from conducting themselves as, or holding themselves out as, shareholders in the Company, pending a final hearing. That form of order, which was not opposed by Mr Amirbeaggi who appears for Mr Kovacic, may be more appropriate both because it is clearer and simpler and more readily enforced, than orders 8 to 12 sought in Mr Kovacic's Amended Originating Process.
3. Mr Allen, who appears for the Second to Sixth Defendants, namely the Messrs Kalantzis, Ms Andrea Kalantzis and their associated companies, accepts that a serious question to be tried has been established as to whether the Second-Fourth Defendants are directors of the Company and whether the Fifth and Sixth Defendants are shareholders in the Company, but submits that Mr Kovacic's case is not a strong case and that the balance of convenience does not favour the grant of the interlocutory relief sought by Mr Kovacic. Mr Allen, on behalf of the Second - Sixth defendants in turn seeks different interlocutory relief against Mr Kovacic, which I will address below. Notwithstanding the concession made by Mr Allen, it is important that I address the evidence as to whether there is a serious question to be tried that the Fifth and Sixth Defendants are not shareholders in the Company, and whether there is a serious question to be tried that the Second-Fourth Defendants are not directors of the Company, because the strength of any such serious question to be tried is relevant to whether interlocutory relief should be granted, since interlocutory relief will more readily be granted where a stronger case appears at an interlocutory level.
4. In determining whether an interlocutory injunction should be granted, I should apply the principles set out by the High Court of Australia in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 at [65], which in turn reflected earlier authorities requiring that there be established a prima facie case or a serious question to be tried in respect of the application. In order to obtain interlocutory relief, Mr Kovacic must not only demonstrate a prima facie case or serious question to be tried as to his entitlement to the relief sought at the final hearing, but also that damages would not be an adequate remedy, so as to warrant the grant of injunctive relief, and that the balance of convenience favours the grant of an injunction on an interlocutory basis. The essential questions are whether Mr Kovacic has a seriously arguable case and the balance of convenience, and those questions are interrelated, since the greater the extent to which the balance of convenience favours one course over another, the less strong a case for final relief might be required to justify an injunction and, conversely, the stronger the case for final relief, the less may be required to tip the balance of convenience in Mr Kovacic's favour.
5. There is a strongly arguable case that Mr Constantine Kalantzis is not a director of the Company, and the Defendants may not contend to the contrary, since there is no evidence of his appointment to that position although there are two minutes of meetings which record him purportedly acting in that position. I turn to the question whether there is a serious question to be tried that Mr Nicholas Kalantzis and Ms Andrea Kalantzis are not directors of the Company, and that Buildcon Constructions Pty Limited and Brokers Property Holdings Pty Limited are not shareholders in the Company. As I have noted above, Mr Allen has conceded the existence of serious questions to be tried as to each question. If a serious question to be tried exists that Mr Kalantzis and Ms Andrea Kalantzis are not directors, and that Buildcon Constructions Pty Limited and Brokers Property Holdings Pty Limited are not shareholders, of the Company, it would follow that there is also a serious question to be tried that Mr Kovacic is the only shareholder in the Company and the only director of the Company.
6. Mr Kovacic's first affidavit dated 30 October 2015, sworn in support of the initial relief sought, is, not surprisingly, relied upon by Mr Allen, because it provides some support for the suggestion that companies associated with the Messrs Kalantzis were to be allocated, or were allocated, shares in the Company. Mr Kovacic there refers to a previous business relationship with the Messrs Kalantzis, and to an agreement that the Messrs Kalantzis, or more precisely companies associated with their daughters, would be allocated shares in the Company, on the basis that they would equally contribute to the Company's expenses. Indeed, Mr Kovacic there says, in paragraph 29, that he made the Messrs Kalantzis equal shareholders in the Company, and their shares remained in companies that were controlled by their respective daughters, which would appear to be consistent with the Messrs Kalantzis' case in that respect. Mr Kovacic there also gives evidence that, notwithstanding that agreement, a relatively small amount was contributed to the Company's business from another company in which Mr Kovacic and Messrs Kalantzis had interests, and the bulk of the contributions to establishing the Company's business were made by Mr Kovacic personally.
7. In a further affidavit dated 2 November 2015, Mr Kovacic denies that Mr Kalantzis or Ms Andrea Kalantzis were appointed as directors of the Company, and retreats from his earlier evidence that the companies associated with the Messrs Kalantzis were to be shareholders in the Company, by treating that as an agreement that that would occur, once contributions had been made, and denying that he authorised lodgement of the notification of issue of shares to them to the Australian Securities and Investments Commission.
8. Mr Nicholas Kalantzis in turn leads evidence in response, initially by his affidavit dated 5 November 2015. Neither Mr Constantine Kalantzis nor Ms Andrea Kalantzis give evidence in the application, nor does the accountant who was closely associated with the Messrs Kalantzis in respect of the relevant events, and who has produced documents to the Court to which I will refer below. Mr Kalantzis says that he has been told by his accountant that the companies associated with the Messrs Kalantzis hold 34 and 33 shares respectively in the Company and he claimed to have contributed $108,000 in cash to the Company, said to be recorded in an exercise book which is now in evidence, although he gives no evidence as to the source of that cash contribution.
9. In circumstances that a dispute has plainly arisen as to whether shares, in particular, were allocated, it is important to have regard to the documentary evidence of that matter, which is likely to be more reliable than parties' evidence, in a contested setting, particularly where issues of compliance with the requirements of the Corporations Act 2001 (Cth) are involved. A number of documents have been produced by the accountant who acted for the Messrs Kalantzis in respect of relevant matters, and those documents are in turn addressed by Mr Kovacic in his affidavit sworn 9 November 2015. There is evidence, in those documents, of purported transfers of shares by Mr Kovacic to Buildcon Constructions Pty Limited and Brokers Property Holdings Pty Limited on 19 February 2015. Mr Kovacic denies that he signed the transfers, and the transfers do not indicate the name of the signatory and are not witnessed, although Mr Kalantzis in turn gives evidence that he recognises Mr Kovacic's signature on the transfers. In those circumstances, issue is squarely joined as to that matter, and it is not a matter that can or should be determined in an interlocutory application of this kind. Mr Allen is plainly correct that, where that issue is raised, a serious question to be tried exists as to the validity of those transfers. It should be noted, however, that the transfers are also purportedly the subject of a resolution to register them, passed by the Company's directors on the same date, 19 February 2015, although recorded in a minute dated 6 March 2015. The directors who purportedly passed that resolution, are, however, Mr Nicholas Kalantzis and Mr Constantine Kalantzis. There is plainly a serious question to be tried as to the validity of those resolutions, which would ordinarily be required in order to register a transfer of shares in respect of a proprietary company, since it appears, so far as the evidence goes, that Mr Nicholas Kalantzis was not purportedly appointed a director of the Company until some months later, and Mr Constantine Kalantzis was not appointed a director of the Company at all.
10. Minutes of a shareholders' meeting of the Company, purportedly held on 28 July 2015, record the appointment of Mr Nicholas Kalantzis as a director of the Company. Mr Kovacic denies that he was given notice of that meeting, and there is no evidence of such notice. Oddly, further minutes of a shareholders meeting of the Company on 1 August 2015, purportedly attended by Mr Nicholas Kalantzis and Mr Constantine Kalantzis as shareholders (which it is not suggested they were), or possibly as representatives of shareholders, purport to make the same appointment of Mr Nicholas Kalantzis as director that had purportedly been made previously. There is no evidence of any meeting authorising the appointment of Ms Andrea Kalantzis as director, notwithstanding that notification was subsequently given to the Australian Securities and Investments Commission of such an appointment. On 26 October 2015, notice was given of a general meeting of the Company to seek to remove Mr Kovacic as a director of the Company, and there followed the meeting as to which I previously held that there was a seriously arguable case that reasonable notice was not given, such that the meeting was invalid. Mr Allen has not sought to contend that a serious question does not arise as to that matter.
11. In these circumstances, it seems to me that there is a serious question to be tried as to the preliminary, and fundamental, question whether Buildcon Constructions Pty Limited and Brokers Property Holdings Pty Limited are shareholders in the Company. That question is fundamental, because, if they are not shareholders, then steps subsequently taken by persons representing them at shareholders meetings of the Company do not have legal effect. It seems to me that a serious question to be tried arises as to that issue, first, because it turns on a question of credit, arising from Mr Kovacic's denial that he signed the relevant transfer and, second, from the fact that the resolution to register the transfers was, on the face of presently uncontested evidence, apparently passed by persons who were not directors at the relevant time. I am conscious that the Company's constitution is not in evidence, but the constitution of a proprietary company will commonly provide that a transfer of shares in the company is only registrable with approval of the directors. In those circumstances, there seems to me to be a serious question to be tried, which is strongly arguable, that any transfer of shares from Mr Kovacic to the companies associated with the Messrs Kalantzis was not validly registered, and accordingly that steps subsequently taken by those companies or their representatives on the basis that they were shareholders in the Company were also not valid.
12. The question then arises as to the balance of convenience. In the present circumstances, it seems to me that the balance of convenience favours interlocutory relief, for several reasons. First, the evidence suggests that, whatever the position in respect of any contribution by the Messrs Kalantzis, Mr Kovacic has made a significant financial contribution to the establishment of the Company's business, which is now at risk. Second, it appears that the Defendants presently propose to take steps to seek to remove Mr Kovacic as director. After these proceedings had been commenced, and after interlocutory orders had been made on 30 October 2015, the companies which purport to be to be shareholders in the Company, Buildcon Constructions Pty Limited and Brokers Property Holdings Pty Limited, sought to convene a further meeting for 30 November 2015 to ratify steps which had previously been taken to remove Mr Kovacic as director and to appoint Ms Andrea Kalantzis and Mr Nicholas Kalantzis as directors of the Company. I emphasise that I reach no finding that that step was contrary to the orders which had previously been made by the Court. Mr Amirbeaggi who appears for Mr Kovacic did not make such a submission. I would not reach a finding of that seriousness without, as Mr Allen notes, affording a high level of procedural fairness to the Defendants, particularly if any suggestion were made, which it was not, that that conduct amounted to a contempt. The conduct is relevant, not because of the existence of any suggested breach of the previous orders, but because it indicates that, unless restrained, the Defendants propose to continue to act on the basis that they are shareholders and directors of the Company, notwithstanding that that is the question that this Court will have to determine, and to do so in a manner that will remove Mr Kovacic as a director. Where the Court has held that there is a serious question to be tried as to whether those entities are shareholders in the Company, and where I have noted the apparently significant financial contributions to the Company by Mr Kovacic which are at risk, it seems to me that, absent adequate undertakings from the Defendants, there is no alternative to the grant of interlocutory relief, which may need to be in restrictive terms, in order to preserve the status quo, because the status quo will otherwise be disrupted by a further meeting of this kind.
13. A further basis for the grant of interlocutory relief is that, so far as the evidence goes, there is now significant difficulty in respect of the running of the Company's business, so far as Mr Kovacic is presently in control of the day-to-day operations of the business, whether or not he is entitled to be in that position, but Mr Kalantzis has been advising both Gosford Council, from which the Company leases the relevant land and which is also its regulatory authority so far as local government issues are concerned, and service providers to the Company, that they should deal with Mr Kalantzis and not Mr Kovacic. That process is likely to frustrate any orderly process of obtaining approval for an interim occupation certificate for the Company's café business, a matter to which I will return below, and frustrate the continued operation of the Company's business. I should note that matters need not have developed in this way. I raised with Mr Allen, in the course of submissions, whether it might not be sensible that, so far as the Fifth and Sixth Defendants contended that they were shareholders in the Company, that matter went to an urgent hearing without continued attempts to exercise self-help by seizing control of the Company. That proposition appeared to have developed no particular traction and, absent co-operative conduct by the parties, or conduct that will maintain the status quo, the Court will be required to intervene.
14. For these reasons, and subject to a further issue raised by the Defendants, and the alternative relief which is sought by the Defendants, I am satisfied that there will be a need to grant interlocutory relief, if the Defendants are not prepared to give undertakings that will preserve the business from further interference, in a manner that would allow the matter to go to an early trial so that the substantive issues could be determined.
15. The further issue raised by the Defendants relates to evidence that the business is presently trading without an interim occupation certificate from Gosford Council, and in circumstances that that involves a breach, it is suggested, of the Environmental Planning & Assessment Act 1979 (NSW). The evidence in this regard is by no means clear. In his first affidavit dated 5 November 2015 Mr Kalantzis referred to a letter dated 22 October 2015 from Gosford City Council to Wallabie Constructions (Aust) Pty Limited, a company which appears to be associated with the Messrs Kalantzis, although Mr Kovacic has been the director of it, enclosing an order requiring the Eat Street Cafe to cease trading until such time as an occupation certificate was obtained from the principal certifying authority, and threatening legal action by Council and the imposition of a penalty infringement notice if that did not occur. That order in turn identifies issues that needed to be attended to in respect of the cafe. Oddly, Mr Kalantzis, although he swore his affidavit on 5 November 2015, did not add, in qualification of that evidence, the fact that Council had emailed Mr Kalantzis and Mr Kovacic on 23 October 2015, noting the receipt of a certificate requested by Council, and confirming that a number of non-compliance issues relating to the premises and sewerage system had been rectified, and indicating that Council were permitting the cafe to trade and would review the interim occupation certificate further on 26 October 2015. I make no finding, for the purposes of this application, that Mr Kalantzis deliberately omitted reference to that email, but it plainly was a significant omission, so far as he was seeking to lead evidence of non-compliance with Council's requirements.
16. The position is further complicated by later evidence, including evidence of Mr Kalantzis by his affidavit dated 10 November 2015, which annexes an email sent from an officer of Council to the Defendants' solicitor, which in turn provided a copy of advice provided to Mr Kovacic on 6 November 2015 (which I interpolate, Mr Kovacic had not previously referred to in his affidavit evidence), indicating a final matter to be resolved so that an interim occupation certificate could be issued, in respect of a sewerage management system. That matter appears to relate to certifications to be provided in respect of a waste water management system and commissioning certificate for relevant items. Mr Kovacic responds, by a further affidavit dated 10 November 2015, referring to the relevant conversation with Council, and referring to steps that had been subsequently taken to seek to confirm the issue of the relevant certificate. The position in that regard appears to have been further complicated by the fact that Mr Kalantzis, consistent with the conduct to which I have referred above, had been contacting the relevant contractors and advising them not to speak to Mr Kovacic, because of the dispute as to the ownership of the business, and that in turn appears to have resulted in the contractors' advice on 10 November 2015 that they would issue the final certificate on that date, but would not provide a copy to Mr Kovacic without a direction from a solicitor or Court order, but would send it to Council.
17. Mr Allen submitted, so far as the grant of interlocutory relief in favour of Mr Kovacic was concerned, that the grant of that relief would amount to the Court sanctioning a breach of the Environmental Planning & Assessment Act by the Company. I do not accept that submission. The Court is dealing, in this application, with issues as to the control of the Company that is operating the business. It is a matter for the Company, and its directors, whoever they might be, to comply with the Environmental Planning & Assessment Act, and so far as the evidence goes, Mr Kovacic appears to be seeking to do so, at least to some extent. The Court, in granting interlocutory relief in respect of corporate issues in respect of the Company, does not sanction its day-to-day activities, whether in breach of the Environmental Planning & Assessment Act, or not.
18. By Amended Interlocutory Process filed today by leave, Brokers Property Holdings Pty Limited and Buildcon Constructions Pty Limited, which are, as I noted above, companies associated with the Messrs Kalantzis which claim to hold shares in the Company, seek interlocutory orders for verified disclosure of any document which shows the income and expenses of the Eat Street business and also seek an order restraining the Company from operating the business until it receives an interim occupation certificate from Gosford City Council. Another order, order 3, was not pressed, given Mr Allen's concession as to the status of the shareholders and directors of the Company.
19. The first order sought related to a matter which the defendants also relied on, in opposition to the interlocutory relief sought by Mr Kovacic, namely a suggested inadequacy in information which had been provided by Mr Kovacic in compliance with an undertaking made as a term of the continuance of interlocutory relief on 2 November 2015, as to reporting as to the Company's expenses and income. I am not satisfied that a breach of that undertaking has been established. The undertaking required the maintenance of records of income and expenditures in respect of the business and reporting by way of an accounting for such income and expenditure. It may be that the Defendants could properly seek further documentation than that which they have been provided but, as Mr Amirbeaggi points out, the first step in doing so would be to identify and request that further documentation. I am also not satisfied that, in any event, this order could be made in the form in which it is sought. It seeks the provision of any document, by which I assume it means every document, which shows the income and expenses of the relevant business. That would extend to each receipt for each item of food sold by a cafe business. It seems to me that, so far as the Defendants seek interlocutory relief, they can properly be expected to seek to identify documents, at an appropriately high level, such that the provision of them does not become oppressive. This order does not seem to me to do so.
20. The next order sought by the Defendants seeks to restrain the operation of the Company's business based on the proposition to which I referred above, that it is presently operated without an interim occupation certificate and may place the licence provided by the Council to occupy the land. I accept, for the purposes of this submission, that there is a seriously arguable case that the operation of the business, without an interim occupation certificate, and over the Council's opposition could, if maintained, give rise to a risk to the licence. However, the evidence to which I have referred above does not seem to me to establish, at least at this point, a seriously arguable case that there is any intent to operate the business without either an interim occupation certificate or Council consent, and that evidence seems to suggest that Mr Kovacic is taking steps to seek to secure that certificate.
21. In any event, the difficulty with this relief is more fundamental. Mr Allen sought to found the relief on an injunction under at least 1324 of the Corporations Act to restrain apprehended contraventions of s 180 of the Corporations Act, being the duty of care and diligence of a director, and s 181 of the Corporations Act, being the director's duty to act in good faith in the best interests of the corporation and for a proper purpose. It is well established that not every breach of the law gives rise to a breach of directors' duties: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373. In the present circumstances, it seems to me that there is not a seriously arguable case that, even if there has been a contravention of the Environmental Planning & Assessment Act in operating the cafe without an interim occupation certificate, that contravention has yet risen to the level where it would amount to a breach of a director's duties of care and diligence and breach of the duty of good faith. It may, of course, rise to that level at some point in the future, if matters with the Council escalate, or if an interim occupation certificate does not issue promptly, but it does not seem to me to have done so, even to the level of a seriously arguable case at this point. The Defendants' application for interlocutory relief is also not assisted by the fact that, so far as the evidence goes, Mr Kalantzis appears to have done little to promote the issue of an interim occupation certificate, as distinct from taking steps which may have made it more difficult to achieve that result. I am not satisfied that a serious question to be tried has been established so as to support the grant of that relief, or that the balance of convenience favours the grant of that relief. Council and interested persons can properly be left to resolve issues around the interim occupation certificate, if that cannot be done consensually, by bringing appropriate proceedings in the Land and Environment Court.
22. In these circumstances, as matters stand, I would be inclined to grant interlocutory relief, in the form to which I referred above, which would restrain the Defendants respectively from conducting themselves out or holding out that they are directors or shareholders of the Company, pending an early hearing of the matter. However, I do not propose to grant such relief, without first offering the Defendants an opportunity to offer appropriate undertakings. It seems to me preferable that, before an injunction of that kind is granted, the Defendants at least be allowed an opportunity to seek to provide undertakings which would allow the business to be conducted in an orderly way pending an early hearing of the proceedings.