MJJK Investments Pty Ltd acting as trustee for the Martha Kennedy Family Trust v Kennedy; Kennedy v MJJK Investments Pty Ltd acting as trustee for the Martha Kennedy Family Trust

Solicitors: McLachlan Thorpe Partners (Plaintiffs/Cross-Defendants) Artemide Law Pty Ltd (Defendants/Cross-Claimants) File Number(s): 2024/347965

EX TEMPORE JUDGMENT (REVISED)

1. The background in this matter is set out in my judgment of 14 June 2024 in Aberdeen Bear Pty Ltd v MJJK Investments Pty Ltd. [1] To repeat: "This is a family dispute relating to the ownership of a business conducted by the sixth defendant, Kennedy Watches & Jewellery Pty Ltd ('the Business'). The Business is a distributor of luxury watches and has franchise distribution agreements with brands such as Rolex, Patek Phillippe, Omega, Cartier, Longines and many others. The family members are Mrs Martha Kennedy and her sons, James and Justin. The parties adopted the convention of referring to these individuals by their given names and, without intending any overfamiliarity or disrespect, I will do the same. … Until the parties entered into the Heads of Agreement, the Business was owned, through a holding company, by the first to third defendants, MJJK Investments Pty Ltd, MJJK Investments No. 2 Pty Ltd and MJJK Investments No. 3 Pty Ltd (together, 'the MJJK Interests') as trustees for three family trusts, the beneficiaries of which were Martha, James, and Justin. Martha controlled those trusts and thus, in effect, the Business. … The effect of the Heads of Agreement was to achieve a restructure of the Business whereby, on the happening of specified events, James was to become the owner of 80% of the Business and the MJJK Interests the remaining 20%. [2] … Clause 2 of the Heads of Agreement is in these terms: 'Staged decrease of our (We) equity in The Business and increase of your (You) equity in The Business as follows: Stage/Conditions a) Refinance NAB/Longreach - Following the execution of this [H]eads of [A]greement, the Business will borrow funds from Longreach, which will fund the repayment of the existing NAB debt in the Business. As part of such repayment, NAB will release the existing personal guarantees. We will not be required to provide a personal guarantee to Longreach. You will be issued equity in the Business, such that the equity holdings in the Business will be: (We 49%, You 51%) b) Procurement of discharge of NAB mortgages of Rose Bay, Southport and Bondi Beach (as Tax Free Capital) - On or Before 30/06/23 You will repay and discharge these mortgages held by Martha and Justin (provided Martha and Justin must not directly increase the amount owed under such mortgages and ensure all mortgage payments are paid when due. You will not be required to pay more than the amount owed as at the date of this agreement). c) Procurement of $5.6m sum as Tax Free capital - You will make each of the following payments for the benefit of Martha, on or before the corresponding dates set out below: i. $3,000,000 - 30/6/24 ii. $866,666 - 30/6/25 iii. $866,666 - 30/6/26 iv. $866,666 - 30/6/27 d) Following the payments in 2(b) and 2(c), You will hold an equity interest in the Business, such that the equity holdings in the Business will be: (We 20%, You 80%)' (Emphasis in original.) [3] These clauses set out how the 'staged decrease' of the interests of the MJJK Interests in the Business and the 'staged increase' of James's interests in the Business contemplated by the Heads of Agreement would occur. This was to be done by the three stages set out in subcll 2(a), 2(b), and 2(c). The first stage, set out in subcl 2(a), was a refinance of the existing facility of the Business with the National Australia Bank ('NAB') such that the 'existing personal guarantees' were discharged, [4] at which stage the shareholding in the Business was to be adjusted so that James held a controlling interest of 51% and the MJJK Interests held 49%. The second stage, set out in subcl 2(b), was the procurement, inferentially by James, of the discharge by 30 June 2023 of mortgages over three identified properties, evidently owned by Martha and/or Justin and securing personal and not Business obligations. [5] The third stage, set out in subcl 2(c), was the procurement of four payments 'for the benefit of Martha', totalling a fraction under $5.6 million, to be made annually and commencing on 30 June 2024. The shareholding consequences of these matters are set out in cl 3: 'The equity position contemplated in Stage 2(b) and 2(c) will be implemented 'immediately' after execution of this agreement and satisfaction of 2(a). If any payment required under Stage 2(b) and 2(c) is not made by You, We are entitled to interest on the $3m sum (see point 2(c)(i)) at 5% per annum from 1/7/24 until paid and to clawback from You any equity interest in excess of 51%.' Those consequences were, first, that the shareholding in the Business was to be adjusted 'immediately' so that James held 80% and the MJJK Interests held 20%. However, and vitally, this was subject to the entitlement of the MJJK Interests to 'clawback ... any equity interest in excess of 51%', that is 29% of the shares in the Business, leaving James with 51% and the MJJK interests with 49%. This would occur in the event that 'any' of the payments contemplated by subcll 2(b) and 2(c) were not made. Thus, the shareholding, immediately after execution of the Heads of Agreement, and after the MJJK Interests were released from their obligations as guarantors to the NAB as contemplated by subcl 2(a), would be 80:20. But this would be conditional on James performing all of his obligations under subcll 2(b) and 2(c), including making each of the four payments listed in subcl 2(c), the final one of which is due on 30 June 2027. That final, unconditional state of shareholding could not be knowable until 30 June 2027." (Emphasis in original.)