claim for interlocutory injunction under the Shareholders deed
42 Having regard to the terms of cl 6 of the shareholders agreement and the facts outlined above, the applicant contends it is entitled to an interlocutory injunction that would, in substance, prevent the respondents from obstructing the applicant and its authorised accountants from entering and inspecting books and speaking with relevant officers of the respondents in relation to the financial circumstances or activities of the respondents and Burrup Nitrate.
43 The interlocutory injunction as framed in effect requires the respondents to allow the applicant to have entry on the terms set out in cl 6, by seeking an order that:
Each respondent must during the inspection period:
(a) do nothing to impede, prevent or hinder the applicant from doing of the following for the purposes defined in (d) below:
(i) entering any premises…
(ii) upon such entry, inspecting and taking any copies of any or all documents…
(iii) making inquiry of, or receiving answer from, any officer…
(b) promptly provide to the applicant, upon written or oral request, for the purposes defined in (d) below:
(i) access to any premises…
(ii) any part or parts of the books
(iii) such facilities as may be necessary to take any copies of any part or parts of the books
…
Where:
(c) the inspection period shall commence on the first business day after this order is made.
(d) the applicant's purposes for inspection are for any of:
(i) auditing the company group;
(ii) valuing the company group; or
(iii) investigating any of:
A the circumstances of the payment and nonpayment of dividends by BHL by its shareholders.
B. the assets, liabilities, profits and losses, payments and receipts, cashflows, solvency, financial accounts, failure to timely prepare financial accounts, the financing arrangements, costs, expenses and revenues of any entities of any company group; and
C. any unauthorised or related party transaction entered into by any entity within the Company Group.
(e) any inspection pursuant to these orders shall be carried out by Grant Thornton, a firm of accountants on behalf of the plaintiff, upon conditions that:
(i) such firm has executed a confidentiality deed in the form annexed… to the affidavit of Song Hee Koh filed in these proceedings… and
(ii) the applicant shall use its best endeavours to
A. complete the inspection within five business days; and
B. minimise any disruption to the operations of any entity in the company group.
44 The respondents contend that unless and until each of the preconditions to access under cl 6 of the shareholders deed have been satisfied, the applicant has no substantive legal right which may be the subject of a proceeding or which may be supported by final injunctive relief or interlocutory injunctive relief.
45 The respondents say there are issues between the parties concerning both the adequacy of notice purportedly given in the letter of 13 October 2010, which is relied upon - and not the subsequent letter of 1 November 2010 from Clayton Utz - and the confidentiality agreement required under cl 6.2. The respondents say the applicant recognises these issues by seeking final relief by way of declaration in relation to the effectiveness of the notice it purportedly gave by letter dated 13 October 2010.
46 The respondents also note that the applicant does not seek any final relief with respect to cl 6.2, namely the signing of the confidentiality agreement as approved by the board.
47 As to the notice purportedly by letter dated 13 October 2010 - the relevant portion of which has been set out earlier - the respondents contend that to be valid the notice must do a number of things of which this letter did not do, namely:
state when a proposed inspection will occur (given that clause 6.1 requires at least 10 Business Days' notice);
specify which of the three available rights set out in clause 6.1 are purportedly being exercised; and
set out the purpose of the proposed inspection of the books in question.
48 The respondents contend that the notice must contain sufficient information along these lines to enable the clause to operate properly in its context. This then enables the company to consider:
whether the applicant has a proper purpose for the inspection;
when it is proposed that the inspection will take place;
who is proposed to conduct the inspection on behalf of the applicant; and
what books or records are requested.
49 The respondents contend that under the approach taken by the applicant a notice could be given that is devoid of content, whereby a proposed inspector could attend at any unspecified date and time in the future and be entitled to inspect books and records immediately upon attendance.
50 The applicant, by contrast, insists that the 13 October 2010 letter was an "unequivocal request to inspect" and not capable of any other construction. It constitutes "notice".
51 In the event, I consider that it is arguable that "notice" was given for the purposes of cl 6 of the shareholders agreement, nothing in the letter from Clayton Utz to the directors of the respondents dated 13 October 2010 expressly refers to the shareholders agreement or cl 6. In effect, the contention made on behalf of the applicant, is that on its proper construction, given the background understanding of the parties as to the content of the shareholders deed and the fact that the access rights of shareholders under the shareholders deed had been previously exercised, the demand made for confirmation in writing that "Yara and its accountants will be provided with unfettered access to the financial records… for the purpose of conducting forensic audit and for the purposes of investigating whether the funds … have been utilised to pay amounts in respect of invoices which are properly to the account of third parties" was a notice for cl 6 purposes.
52 I think for present purposes, it may be accepted as arguable that a notice, pursuant to a provision like cl 6 of the shareholders deed does not actually have to state on its face that it is a "notice given under cl 6 of the shareholders' agreement", although no doubt best practice would suggest that should be done to avoid conflict.
53 The statement of the confirmation in the letter of 13 October 2010 nonetheless when taken with the further statement that if the applicant's demands were not complied with then they would "take the necessary steps" to address the applicant's concerns arguably means that the letter in relevant respects constituted a notice that the applicant by itself or through its accountant proposed to exercise the reasonable access provided for in cl 6.1(a), (b) and (c).
54 The fact that the notice did not spell out that the access would be to do each of the things specified in cl 6.1(a), (b) and (c), again arguably does not matter. The contractual right given by cl 6.1 is that, after giving at least ten business days notice to the first respondent, the shareholder itself or through its accountant or employee (at its own cost) "will be entitled to reasonable access" to do those things. Arguably all that needs to be done for the purpose of exercising those contractual rights is the giving of notice that the access rights provided by cl 6.1 are intended to be exercised. Once ten days business notice has been given then the rights come about.
55 While it is arguable that a valid notice should specify when the access is to be exercised, that is to say when the visit or inspection is to occur, in order for the requirement to give "at least ten days business notice" to be satisfied, for present purposes, I consider it is arguable that where a notice is given on day 1, for the purposes of cl 6.1, then the access right created by cl 6.1 is exercisable upon the expiration of 10 days after the notice. I acknowledge however that it is not the only construction available.
56 Given that the right to reasonable access created by cl 6.1 upon notice may also be conditional upon the signing of the confidentiality agreement by a person appointed by a shareholder to conduct the inspection, under cl 6.2, and that there might be some delays in dealing with the confidentiality agreement issue, something I deal with in more detail below, any construction of cl 6.1 that suggests the notice must be to visit and inspect the premises etc on a very particular day, arguably is an unrealistic one in the context of this clause.
57 Generally speaking, it is open to argument that cl 6 requires the shareholder to give notice of at least 10 business days in order to visit and inspect the premises etc, subject to making appropriate arrangements, from a practical point of view, with the company. If a confidentiality agreement needs to be signed, then the actual date of visit and inspection will necessarily depend on the confidentiality agreement being in place.
58 Of course, it is arguable that these two concerns are able to be reconciled by concluding that a notice under cl 6.1 should never be too short, so that it allows for the settling of a confidentiality agreement and its signing well in advance of the specified date of the visit and inspection.
59 In any event, for present purposes I am not satisfied that the letter of 13 October 2010 is incapable of constituting a notice for the purposes of cl 6.1 of the shareholders deed.
60 The more difficult issue perhaps is the proper construction of cl 6.2 of the shareholders deed and the question whether or not it came into play or was satisfied in the circumstances of this case.
61 The applicant contends that cl 6.2 provides that:
(g) before inspection occurs or access is permitted;
(h) if requested;
(i) any person appointed by a shareholder to conduct the inspection or to be given access must sign a confidentiality agreement;
(j) in the form approved by the board.
62 The applicant says it follows that the clause only operates on a request by the first respondent for a confidentiality agreement. It also follows that cl 6.2 only applies to a shareholder's appointee and not to the shareholder personally -who is already bound to confidence by cl.3.2(b) and cl 13.3 of the shareholders agreement.
63 The appointee must then sign a confidentiality agreement in "the form approved" by the board.
64 In ordinary circumstances therefore if a shareholder gives notice under cl 6.1 in the appropriate form so that its entitlement to access for the purposes specified in cl 6.1(a), (b) or (c) arises then the shareholder, itself or through its accountant or employees and at its own cost, will be entitled to do the things specified.
65 Only if prior to the access a request is made - and here one has to reasonably assume that the request will be made by the first respondent itself, through an authorised person - does the requirement for the confidentiality agreement arise before the right to inspect or enjoy access may take place.
66 The applicant contends on the facts that the board had approved "the form" of a confidentiality agreement on a prior occasion and that is the form that was duly signed by the applicant's accountant and provided to the first respondent. In that regard, it might also be noted that the applicant assumed that a request would be made for a confidentiality agreement and it is now not open to contend no request was ever made.
67 The respondents contend that previous board approval to the confidentiality agreement supplied had run its course and that it cannot be said that it was an approval of a form that remained relevant at the time the applicant's accountant presented themselves to make the inspection at the offices of the respondents on 4 November 2010.
68 In this regard, the respondents note the evidence referred to by the applicant, namely the respondents' solicitors' letter explaining that at the time the earlier confidentiality agreement was approved, there was broad disquiet about its terms and that it was only approved on an interim basis.
69 The question of what the board actually intended to do on the previous occasion, whether or not the form of confidentiality agreement earlier approved was intended by the board to be a standard or proforma agreement to be utilised in all subsequent cases, is not something I can determine at an interlocutory stage of a proceeding. However, I accept that the factual submission made on behalf of the applicant is, at least, arguable.
70 Submissions have been directed to the question of whether or not a fresh request must be given each time notice is given of intention to exercise the access rights, or the need for a confidentiality agreement. In my view, this will always be a question of fact. The board might, as a matter of good business practice, put in place a standard or proforma confidentiality agreement that should ordinarily apply and which is to be utilised, subject to any resolution to the contrary, any time a notice is given for the purposes of cl 6.1. That would save time, disputation and serve the convenience of the parties. On the other hand, if the board were to take the view that the circumstances of each notice of intention to exercise the rights under cl 6.1 required a fresh consideration of the confidentiality agreement, then that too would not seem to be something ruled out by the terms of cl 6.2. It would all be a question of what the board has factually decided to do at the time each notice is given.
71 Here, there is disputation as to exactly what the consequences of the board's earlier actions were. It is arguable, as the applicant contends, that the earlier conduct of the board in fact put in place and approved "the form" by which confidentiality agreements should be signed in the event that it is requested.
72 Generally speaking, then, it seems to me that it is arguable, from the applicant's point of view, that a notice was given, for the purpose of exercising the rights of access created by cl 6.1 of the shareholders agreement, and that a confidentiality agreement signed by the applicant's accountants was properly provided to the respondents that met the requirements of cl 6.2 of the shareholders deed.
73 The question arises, however, whether in these circumstances that is all that the applicant needs to establish in order to obtain an interlocutory injunction. It is understood that to obtain an interlocutory injunction a party needs to establish that there is a serious issue to be tried and that the balance of convenience favours the grant of the injunction.
74 If serious prejudice would be visited upon a respondent by the grant of a interlocutory injunction that the application of an applicant, then a court will necessarily consider closely whether justice is served by the grant of the interlocutory injunction.
75 This is not a case where some status quo is maintained pending the final disposition of a proceeding. Here, if an interlocutory injunction is granted, the Court, in effect, leaves for a later date a determination of the primary question, whether proper notice was issued for the purposes of the access rights identified in cl 6.1 of the shareholders agreement and whether or not the confidentiality agreement signed by Grant Thornton and supplied to the respondents prior to attending the premises of the respondents on 4 November 2010, was one which met the description contained in cl 6.2. At the same time, the interlocutory injunction would prevent the respondents from frustrating the exercise of the purported access rights. In other words, the applicant would get what it wants in terms of an early visit and inspection of the relevant books of the respondents without there being a final determination of the principal matters in issue concerning its current contractual entitlement to enjoy access.
76 Thus, the grant of interlocutory injunction would effectively determine the applicant's final claim, but without there being a final determination in the light of all of the facts and circumstances of the case.
77 The applicant contends that there is no legal impediment on the Court proceeding to grant interlocutory relief even if it might make redundant a final determination of the issues raised in the case. The applicant rejects the respondents' submission that interlocutory relief of the type sort should not be granted because it would, in practical effect, grant final relief by reference to the proposition that it is the legal, rather than the practical effect of a decision that should be considered in such circumstances. In the event, I do not think that that particular test is determinative of whether or not an interlocutory injunction should be granted under s 23 of the Federal Court of Australia Act 1976 (Cth).
78 In pressing his submission, counsel for the applicant refers to what Gibbs CJ said in Carr v Finance Corporation Australia Ltd (No 2) (1981) 147 CLR 246 at 248. There the Chief Justice expressed the opinion that it is "to the legal rather than the practical effect" of a judgment that one should have regard when determining whether a decision appealed from was final or interlocutory. This is not a case where we are grappling with that particular issue.
79 I do not have any doubt that there may well be circumstances in which a court forms a view that an interlocutory injunction should go, even though the effect of granting the injunction might have the practical effect of determining the final issue in the case.
80 However, in my view, it should not be thought that it easily follows that once an applicant for such interlocutory relief demonstrates that there is a serious question to be tried and that the balance of convenience favours seems not to be in issue. While it may be stated that the threshold for establishing the Court's power to issue an injunction is not particularly onerous (see Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2009] FCA 1092; (2007) 189 IR 165 at [39]) there are other factors at play.
81 This point has been recognised in a number of cases including in NWL Ltd v Woods [1979] 3 All ER 614, a decision of the House of Lords in which Lord Diplock at All ER 625 emphasised that the American Cyanamid Co v Ethicon Ltd [1975] AC 396 (American Cyanamid) rule concerning a serious issue to be tried was not developed in the context of a case where the grant of a interlocutory injunction would, in effect, dispose of the action finally in favour of whichever party was successful in the application, because there would be nothing left on which it was in the unsuccessful party's interest to proceed to trial. His Lordship stated that:
Where, however, the grant or refusal of the interlocutory injunction will have the practical effect of putting an end to the action because the harm that will have been already caused to the losing party by its grant or its refusal is complete and of a kind for which money cannot constitute any worthwhile recompense, the degree of likelihood that the plaintiff would have succeeded in establishing his right to an injunction if the action had gone to trial is a factor to be brought into the balance by the judge in weighing the risks that injustice may result from his deciding the application one way rather than the other.
82 In Cayne v Global Natural Resources PLC [1984] 1 All ER 225, the English Court of Appeal had regard to what Lord Diplock said in NWL Ltd v Woods. The case concerned an attempt to obtain an interlocutory injunction in relation to the control of a company through the allotment of shares. Kerr LJ, at 233, observed that the action was never likely to be taken to trial if the plaintiffs obtained an injunction. On the other hand, if an injunction were refused the plaintiffs may well decide to pursue the action as well as other remedies available to them, even if they lost the battle at the annual general meeting. For his Lordship, the overriding consideration was that if an injunction were granted, the effective contest between the parties would be likely to have been finally decided summarily in favour of the plaintiffs. In those circumstances, he, as were the balance of the Court, was unwilling to grant an interlocutory injunction.
83 Eveleigh LJ in coming to a similar view made it clear that he was expressing no view as to the strength of the defence. What he said he could "safely say" was that on the evidence before the Court, the case for the plaintiffs was not "overwhelming". But that did not mean it was not a good one.
84 As a result, the Court came to the view that the risk of injustice to the defendant was greater than the risk of doing an injustice to the plaintiffs by refusing an interlocutory injunction.
85 This line of authority was applied in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 (Kolback Securities) by McClelland J in Eq, at 536. Kolback Securities has been applied in a number of other cases, including in this Court in Australian Competition & Consumer Commission v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; (2009) 253 ALR 324, per Foster J at [27] - [31].
86 In a way similar to Eveleigh LJ in Cayne v Global Natural Resources, I am in inclined to characterise the argument put on behalf of the applicant for interlocutory injunction under the shareholders deed as not an overwhelming case. That is not to say however it is not a good one. To grant an interlocutory injunction on that basis would effectively give the applicant the final relief that it seeks. There would be nothing left to go to trial on the issue of final relief in such circumstances. That would deprive the respondents of a trial, which they could likely win.
87 While one might have some sympathy on the facts for the position that the applicant currently finds itself in, in that the shareholders agreement plainly provides for a shareholder to exercise access rights in certain circumstances, the contractual position must be regarded and not ignored by the Court.
88 It seems to me weighing up all of the competing factors, that it is not in accordance with the dictates of justice that an interlocutory injunction should go on the terms proposed by the applicant in this instance. If the matter proceeds to a full trial on the current facts, then the full consideration of the facts and determination of the case will follow. There is not, on the face of this proceeding, anything that is so urgent that an interlocutory injunction should go to protect some status quo or otherwise avoid some injustice that would otherwise be suffered by the applicant if an injunction were not to be granted at this point.
89 In coming to this conclusion, I am aware that a number of issues raised in relation to the proper construction and operation of cl 6 of the shareholders agreement are left unresolved. For example, there is a question about the extent of the entitlement of the board of the first respondent to demand a confidentiality agreement in particular terms. That is not something that can be resolved at this point, although in the course of argument I remarked that there would probably be a requirement of reasonableness imported into the exercise of that function or discretion given to the board by the contract of the parties. If the board were to effectively withhold its consent to a reasonable confidentiality agreement, and so frustrate the right of access provided for in the agreement by a minority shareholder, I have little doubt that an aggrieved shareholder could seek appropriate relief. It might even be in such circumstances that the Court could be called upon to authorise the exercise of the access rights on the basis that a confidentiality agreement in particular terms first be signed. But as I say, this is not a matter falling for determination at this point, but is something that might become relevant if the arguments currently pressed by the applicant were not to succeed at trial and the matter required further consideration at a later time.
90 For these reasons, I would not grant the interlocutory injunction that is sought on the basis of the rights claimed by the applicant under cl 6 of the shareholders agreement.