Walden v Foodco Group Pty Ltd

CATCHWORDS : CORPORATIONS - application for interlocutory orders pending hearing of oppression suit - application by plaintiff for order restraining other parties from acting upon and giving effect to resolution of general meeting removing plaintiff as a director - where alleged defect is deficiency of one, two or three days in notice period of twenty-one days - application for order that company produce certain documents and give certain information to defendant - reliance on s 198F - section confers right of inspection only - apparent attempt to obtain discovery and interrogatories - where notice to produce already answered - application for order compelling trustee of unit trust to make distributions to plaintiff - where dispute whether plaintiff still a unit holder - interlocutory order would be in the nature of final relief

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 9, 198F, 232, 233, 290, 1322(1) and (2),

CASES CITED : Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 Re Pembury Pty Limited [1993] 1 Qd R 125

TEXTS CITED : Sir Frederick Jordan: "Chapters on Equity in New South Wales"

Jonathon Nigel Walden - Plaintiff Foodco Group Pty Limited - First Defendant Muffin Break Pty Ltd - Second Defendant Jamaica Blue Pty Ltd - Third Defendant PARTIES : Jahnus Pty Ltd - Fourth Defendant Norman Fitzgerald - Fifth Defendant Robert Symonds - Sixth Defendant Sergio Infanti - Seventh Defendant Stephen Kerr - Eighth Defendant Waker Holdings Pty Limited - Ninth Defendant

COUNSEL : Mr J J J Garnsey QC - Plaintiff Mr B A J Coles QC - Defendants

SOLICITORS : Access Business Lawyers - Plaintiff Freehills - Defendant

• 3 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

6070/07 Jonathon Nigel Walden v Foodco Group Pty Limited & 8 Ors

1 In these proceedings brought under ss 232 and 233 of the Corporations Act 2001 (Cth), the plaintiff makes allegations that the affairs of the four defendant companies have been conducted in a way that is oppressive to, or unfairly prejudicial to, the plaintiff or contrary to the interests of the members as a whole. 2 The plaintiff, as well as being a shareholder in the first defendant, Foodco Group Pty Limited, is or was a holder of units of the Foodco Unit Trust of which that company is the trustee. One of the issues in the proceedings is whether the plaintiff continues to be a unit holder or whether his units have been redeemed by the trustee. 3 The proceedings are set down for trial for three days commencing on 10 March 2009. I have today heard an interlocutory process filed by the plaintiff on 12 December 2008. Mr Garnsey QC, who appeared for the plaintiff, indicated that he pressed for orders 4 and 6 in the interlocutory process, plus a varied and substituted form of order 5. The orders sought are: " 4. An order restraining the Defendants from acting upon or implementing, in any way, any of the resolutions or decisions made at the purported Annual General Meeting of the First Defendant held on 5 December 2008, and particularly any resolution removing the Plaintiff from the position of Director or preventing the Plaintiff from exercising the office of Director of the First Defendant. 5. Order and direct that the First Defendant produce to the Plaintiff within 10 days of the date of this order the documents and information listed in paragraphs 1, 2, 3, 4, 5, 6, 9, 10, 11, 12, 13, 19, 23, 26, 27, 31, 32, 33, 34, 53, 77, 78 and 79 and 76, 82, 83, 84 and 85 of the attached Schedules of Requests. 6. An order that the First Defendant, as trustee of the Foodco Group Unit Trust, pay to the Plaintiff, within 14 days: (a) a distribution of the Plaintiff's share of profits for the financial year ending 30 June 2008 in accordance with the Trust Deed of the Foodco Unit Trust; or (b) an amount equivalent to all drawings taken by Sergio Infanti during the financial year ended 30 June 2008; or (c) an amount equal to one eighth (1/8) of all drawings taken by James Fitzgerald or Waker Holdings Pty Limited during the financial year ended 30 June 2008." 4 The application for order 4 must be approached in the light of the circumstances that, at a purported annual general meeting of Foodco Group on 5 December 2008, there was passed a resolution removing the plaintiff from office as a director and that notice of less than the required twenty-one days was given of that meeting. It is apparently accepted that the deficiency was one, two or three days. While there is pleading alleging wrongful and invalid action to redeem the plaintiff's units in the unit trust, the deficiency of notice in relation to the annual general meeting seems to be the only complaint in relation to the 5 December 2008 meeting. 5 An immediate problem with order 4 is to know what it means. A resolution removing a director has a once and for all effect. If it was validly passed the person ceased to be a director when it was passed. If it was not validly passed the person continues as a director. The concept of acting upon or giving effect to such a resolution is obscure. 6 It is likely that the validity of the proposed meeting and the resolutions passed at it will be determined upon the final hearing. There is a claim for declaratory relief on the matter in paragraph 13 of the further amended originating process, although, as Mr Coles QC pointed out on behalf of the defendants, no case seems to be pleaded on that issue in the amended statement of claim. 7 Bearing in mind that the order now sought refers solely to the purported resolutions at the 5 December 2008 meeting and that the only complaint about that meeting seems to be that one, two or three fewer days' notice was given than should have been given, the threshold question on this interlocutory application is whether there is a serious question to be tried as to the effectiveness of the resolutions of a meeting convened by deficient notice of that kind. 8 On this I accept the submission of Mr Coles that, having regard to s 1322(2) of the Corporations Act, read in the light of the meanings of "proceeding" and "procedural irregularity" in s 1322(1), the resolutions passed on 5 December 2008 will not be held to be invalid because of the deficiency of notice unless it is found, first, that the want of notice caused or may cause substantial injustice that cannot be remedied by an order of the court and, second, that the court should make a positive declaration of invalidity. 9 Those questions will be approached in a context where the deficiency was one, two or three days in a notice period of twenty-one days, where there were only three members entitled to attend the meeting and where those members had already arranged to meet together for another purpose on the particular day at the particular place. 10 Mr Coles pointed out that the "substantial prejudice" which may undermine the preserving effect of s 1322(2) is confined to prejudice flowing from the irregularity itself, thus leaving to one side prejudice flowing from the proceeding and the results of the proceeding. He quoted in that connection observations of Byrne J in Re Pembury Pty Limited [1993] 1 Qd R 125 at 127: "The burden Creevey and East bear is to show that one or other of the irregularities occasions a 'substantial injustice'; not that the "proceeding" (the meeting and its resolutions) caused or may yet cause substantial injustice: see Bell Resources Ltd v Turnbridge Pty Ltd (No 2) (1988) 13 ACLR 762 at 766; cf Broadway Motors Holdings at 58 where Powell J said, 'It must be shown that there is a nexus between the procedural irregularity which has occurred and the matters of prejudice relied upon as constituting the injustice.'" 11 In the present case, therefore, it would have to be shown that "substantial prejudice" flowed from the circumstance that the period of notice given was twenty or nineteen or eighteen days instead of twenty-one. 12 The prospects of this being established are very slim, given the contextual matters to which I have referred. There is barely a serious question to be tried, if any at all. 13 In any event, the balance of convenience is against the making of order 4. The order should, I think, be seen as one altering the status quo. Added to that is the fact that there have been in place for some time consent orders that have the effect of constraining activities of the company concerned pending trial. Parties including Foodco Group are restrained from engaging in any transaction or dealing with or disposing of any of their assets or undertaking and from making any payments otherwise than in the ordinary course of business without prior notice to the plaintiff. That regime sufficiently preserves the situation pending trial. The first order sought will not be made. 14 In moving for order 5 in its varied and substituted form, Mr Garnsey relied on s 198F of the Corporations Act. He submitted that, if the plaintiff is still a director of Foodco Group, s 198F(1) forms a basis for the making of the order; and, if the true position is that he is no longer a director the applicable provision is s 198F(2). Section 198F is as follows: "Right while director (1) A director of a company may inspect the books of the company (other than its financial records) at all reasonable times for the purposes of a legal proceeding: (a) to which the person is a party; or (b) that the person proposes in good faith to bring; or (c) that the person has reason to believe will be brought against them. Note: Section 290 gives the director a right of access to financial records.

Right during 7 years after ceasing to be director (2) A person who has ceased to be a director of a company may inspect the books of the company (including its financial records) at all reasonable times for the purposes of a legal proceeding: (a) to which the person is a party; or (b) that the person proposes in good faith to bring; or (c) that the person has reason to believe will be brought against them. This right continues for 7 years after the person ceased to be a director of the company.

Right to take copies (3) A person authorised to inspect books under this section for the purposes of a legal proceeding may make copies of the books for the purposes of those proceedings.

Company not to refuse access (4) A company must allow a person to exercise their rights to inspect or take copies of the books under this section.

Interaction with other rules (5) This section does not limit any right of access to company books that a person has apart from this section." 15 The difference between s 198F(1) dealing with a current director and s 198F(2) dealing with a former director is that, in the first case but not in the second, the statutory right does not extend to the company's financial records. This is because a current director has a separately existing right of access to financial records under s 290. 16 It can be said at once in relation to proposed order 5 that s 198F does not give any right to obtain information or any right to have documents produced. The sole right is a right to "inspect" the books of the company, with "books" being understood in the wide sense emerging from the s 9 definition and including any "record of information" and a "document". A company satisfies the s 198F right simply by allowing the person concerned to view the relevant materials. The company cannot be required to search out and make extracts from its books or to provide, otherwise than by means of inspection, information contained in them. 17 For this reason alone an order in the form sought is not an order commensurate with the rights created by s 198F. 18 The application for order 5 is not put, in terms, as an application for discovery or for leave to administer interrogatories, but that is in substance what it is. The plaintiff seeks to cast on to Foodco Group a duty of searching out and providing documents and of answering specific questions. If that is what the plaintiff really wants, then the plaintiff should make an appropriate application in unambiguous terms rather than attempting to dress it up as an application to enforce a statutory right of inspection given to a director or former director. 19 It is noteworthy that the plaintiff has resorted to the rules of court and normal pre-trial processes by serving at least one notice to produce on the defendants. At the defendants' invitation, the plaintiff called on the notice to produce at the end of argument on the application with which I am now dealing. The response was the production to the court of three large boxes of documents. The plaintiff was granted access to the documents produced. 20 I do not intend to make order 5. To the extent that the order is sought by reference to s 198F it goes beyond the entitlement that the section creates. To the extent that the application is a species of attempted backdoor access to discovery and interrogatories it should be rejected with the observation that if that is what the plaintiff really wants, he should approach the matter through the front door. Furthermore, in light of the fact that a large quantity of documents has been produced today and access has been granted in a context where what the plaintiff is seeking to elicit has been known for some time, any question of further documentary production should wait until after the plaintiff has inspected the documents just produced. 21 Order 6 is a curious order. It presupposes an answer to one of the central questions in the proceedings, namely, whether the plaintiff is still a holder of units of the Foodco Unit Trust. On the defendants' case, the plaintiff ceased to be a unit holder on or soon after 13 June 2008, while on the plaintiff's case action taken at that time to redeem his units was ineffective. The court is in no position at this point to make a decision on that question, yet a decision will be needed if the court is to recognise and give effect to the entitlement to distributions on units that necessarily underlies order 6. 22 The reality is that order 6, if made, would effectively be by way of final relief. It would not preserve any status quo pending determination of the central question and would therefore not be of the interlocutory character referred to by Gleeson CJ in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199. Speaking of an interlocutory injunction, his Honour quoted (at [9]) from Sir Frederick Jordan's "Chapters on Equity in New South Wales": "The purpose of an interlocutory injunction is to keep matters in status quo until the rights of the parties can be determined at the hearing of the suit." 23 While that observation was made in relation to interlocutory injunctions (and was acknowledged by Gleeson CJ at [10] not to be a complete statement of the circumstances in which such an interlocutory injunction may be granted), it emphasises the need to be aware of the distinction between determination of the rights of the parties upon the hearing of the suit and the imposition of measures necessary to stabilise the position pending that determination. 24 My decision is that all of the orders sought by the plaintiff, being orders 4 and 6 in the plaintiff's interlocutory process filed on 12 December 2008 and the varied and substituted form of order 5 in that interlocutory process which was handed up by Mr Garnsey this morning, should be refused. I dismiss the claims in paragraphs 4, 5 as amended and 6 of the interlocutory process filed by the plaintiff on 12 December 2008.

[Counsel addressed on costs] 25 The defendants seek their costs of the motion. The plaintiff opposes such an order and submits that the appropriate outcome with respect to the application for orders 4 and 6 is that costs should be reserved or should be costs in the cause; and that with respect to the application for the varied and substituted order 5 there should be no order as to costs. 26 I am not persuaded that there is any reason for departing from the ordinary rule that costs should follow the event. The transcript will show the arguments that have been put. I am not persuaded by them. I order that the plaintiff pay the defendants' costs of the application for orders 4 and 6 and the varied and substituted order 5. **********

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