FEDERAL COURT OF AUSTRALIA B J McAdam Pty Limited ACN 000 288 639 v Jax Tyres Pty Limited ACN 000 955 840 [2012] FCA 600 Citation: B J McAdam Pty Limited ACN 000 288 639 v Jax Tyres Pty Limited ACN 000 955 840 [2012] FCA 600 Parties: B J MCADAM PTY LIMITED ACN 000 288 639, BRUCE JAMES MCADAM, MERIM HOLDINGS PTY LTD ACN 112 224 807 and SHIRLEY MARLENE MCADAM v JAX TYRES PTY LIMITED ACN 000 955 840, JAX FRANCHISING SYSTEMS PTY LIMITED ACN 060 109 891, JAX TYRES INVESTMENTS PTY LIMITED ACN 112 266 832, IAN FREDERICK HURRELL, VAKOFA PTY LIMITED ACN 003 318 625, COLNAGOW INVESTMENTS PTY LTD ACN 128 667 532, QUICKFIT TYRE SERVICE PTY LTD ACN 071 116 615, JAX QUIKFIT FRANCHISING SYSTEMS PTY LIMITED ACN 112 050 058, CHYLOS PTY LIMITED ACN 001 402 562, VALNOCK PTY LIMITED ACN 010 596 077, JAX TYRES FINANCE PTY LIMITED ACN 112 213 895 and JEFFERY DAVID BOARD File number: NSD 402 of 2010 Judge: PERRAM J Date of judgment: 6 June 2012 Catchwords: PRACTICE AND PROCEDURE – Interlocutory injunction – interlocutory application to restrain declaration of dividend by first defendant – application listed for hearing – meeting of board of first defendant scheduled prior to hearing of application – board intending to declare dividend – further interlocutory application made on urgent basis to restrain declaration of dividend until listed hearing – whether injunction would preserve status quo – whether damages an adequate remedy – assessment of balance of convenience Date of hearing: 6 June 2012 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 13 Counsel for the Plaintiffs: Mr AW Street SC Solicitor for the Plaintiffs: Garland Hawthorn Brahe Counsel for the Fourth Defendant: Mr D Neggo Solicitor for the Fourth Defendant: Macpherson + Kelley Lawyers Counsel for the Twelfth Defendant: Mr A Harding Solicitor for the Twelfth Defendant: DibbsBarker Counsel for other defendants: The other defendants did not appear IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 402 of 2010 BETWEEN: B J MCADAM PTY LIMITED ACN 000 288 639 First Plaintiff BRUCE JAMES MCADAM Second Plaintiff MERIM HOLDINGS PTY LTD ACN 112 224 807 Third Plaintiff SHIRLEY MARLENE MCADAM Fourth Plaintiff AND: JAX TYRES PTY LIMITED ACN 000 955 840 First Defendant JAX FRANCHISING SYSTEMS PTY LIMITED ACN 060 109 891 Second Defendant JAX TYRES INVESTMENTS PTY LIMITED ACN 112 266 832 Third Defendant IAN FREDERICK HURRELL Fourth Defendant VAKOFA PTY LIMITED ACN 003 318 625 Fifth Defendant COLNAGOW INVESTMENTS PTY LTD ACN 128 667 532 Sixth Defendant QUICKFIT TYRE SERVICE PTY LTD ACN 071 116 615 Seventh Defendant JAX QUIKFIT FRANCHISING SYSTEMS PTY LIMITED ACN 112 050 058 Eighth Defendant CHYLOS PTY LIMITED ACN 001 402 562 Ninth Defendant VALNOCK PTY LIMITED ACN 010 596 077 Tenth Defendant JAX TYRES FINANCE PTY LIMITED ACN 112 213 895 Eleventh Defendant JEFFERY DAVID BOARD Twelfth Defendant JUDGE: PERRAM J DATE OF ORDER: 6 JUNE 2012 WHERE MADE: SYDNEY UPON THE APPLICANT GIVING THE USUAL UNDERTAKING AS TO DAMAGES TO: (a) submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely effected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and (b) to pay the compensation referred to in (a) to the persons there referred to. THE COURT ORDERS THAT: 1. Until the determination of the application to be heard on 17 July 2012, the first, fourth and twelfth respondents, by themselves or their agents, be restrained from taking any steps to declare any dividend from the first respondent. 2. The question of costs be reserved until 17 July 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 402 of 2010 BETWEEN: B J MCADAM PTY LIMITED ACN 000 288 639 First Plaintiff BRUCE JAMES MCADAM Second Plaintiff MERIM HOLDINGS PTY LTD ACN 112 224 807 Third Plaintiff SHIRLEY MARLENE MCADAM Fourth Plaintiff AND: JAX TYRES PTY LIMITED ACN 000 955 840 First Defendant JAX FRANCHISING SYSTEMS PTY LIMITED ACN 060 109 891 Second Defendant JAX TYRES INVESTMENTS PTY LIMITED ACN 112 266 832 Third Defendant IAN FREDERICK HURRELL Fourth Defendant VAKOFA PTY LIMITED ACN 003 318 625 Fifth Defendant COLNAGOW INVESTMENTS PTY LTD ACN 128 667 532 Sixth Defendant QUICKFIT TYRE SERVICE PTY LTD ACN 071 116 615 Seventh Defendant JAX QUIKFIT FRANCHISING SYSTEMS PTY LIMITED ACN 112 050 058 Eighth Defendant CHYLOS PTY LIMITED ACN 001 402 562 Ninth Defendant VALNOCK PTY LIMITED ACN 010 596 077 Tenth Defendant JAX TYRES FINANCE PTY LIMITED ACN 112 213 895 Eleventh Defendant JEFFERY DAVID BOARD Twelfth Defendant JUDGE: PERRAM J DATE: 6 JUNE 2012 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Yesterday I fixed for hearing the determination of the applicants' interlocutory application wherein they would seek orders which would restrain the declaration of a dividend by the first defendant and, in effect, a supplementary order regulating the manner in which any dividend was paid. 2 This morning there was communicated to the applicants' solicitors an email which indicated that the board of the first respondent (that is, the respondent who might be declaring the dividend) was to be convened at 8 am tomorrow morning by phone. The email suggested that the only item of business for that meeting was to resolve to pay a dividend of $500,000. 3 The applicants' complaint in relation to the dividend is as follows. In the past, earlier this year, when dividends have been declared by the first respondent, they have been dealt with in a fashion which has resulted in a payment of cash to the interests associated with Mr Hurrell and Mr Board, but in relation to the interest associated with Mr McAdam, the crediting of a debt in favour of the McAdam interests against a loan account under which they are said to owe the first respondent money. The existence of the debt said to underpin that loan account is a matter in dispute in these proceedings. The effect of the arrangement, Mr Street SC submitted, was that, when dividends were declared by the first respondent, money would move out of the company to the Hurrell and Board interests and no money would move to the McAdam interests. This was to be seen as a species of oppression. 4 I am prepared to accept for the purposes of the present application that there is an arguable case about that. In the usual way, the real questions which arose on the application were the ones which were concerned with the balance of convenience. The way Mr Street put the argument was that there was, first, some possibility of an insolvency so that, if the present course were taken, it might not be possible, in the ultimate course, to recover the funds from the first respondent. The second, and perhaps more emphasised way in which he put the argument, was simply to underscore the oppressive nature of that which was occurring and to ask for relief. 5 Mr Harding of counsel, who appeared for the 12th respondent, Mr Board, put that the status quo could be more readily preserved in another fashion. After it became clear this afternoon that this evening's application was going to be made, Mr Hurrell's solicitors communicated to Mr McAdam's solicitors by letter in which they proffered an undertaking to pay any dividend which was declared and came into his hands by way of cash, into a special purpose account pending the resolution of the issue before me on 17 July 2012. During the course of the hearing Mr Neggo of counsel proffered such an undertaking on behalf of the fourth respondent to the Court. 6 During the course of the hearing Mr Harding proffered an undertaking in similar terms. The burden of those undertakings was to suggest that the balance of convenience lay with not making any order. If it transpired that the applicants were successful on 17 July, then the money would, under the undertakings, be repatriated back to the company. The status quo would be preserved. 7 It may be that that is not an answer to Mr Street's insolvency point, but in relation to that Mr Harding made the point that there was really no evidence before me today with respect to that issue. This is perhaps unsurprising, given the speed with which the present application has come on. However, I think that the undertaking does suffer from a defect, which is that it does not seek to prevent the declaration which is envisaged taking place. If the declaration is made by the directors, the effect will be to create a relationship of creditor and debtor between the shareholders and the company, and the mere fact that the shareholders thereafter agree to hold the funds in a suspense account, in effect, will not have any impact upon the fact that the declaration of a dividend has occurred. 8 In circumstances where the undertaking does not include some machinery whereby the declared dividend could be, as it were, undeclared, it seems to me that it is not a complete solution to the status quo problem. That is not to criticise those who have formulated it. That is so because, at the time that it was articulated earlier this afternoon, the order which was being sought by the applicant was in the following terms: an order, until further order, restraining the first, fourth and 12th respondents by themselves or their agents from taking any steps to declare any dividend from the first respondent; that is, to not pay by physical distribution of the dividend in the same manner as to all other shareholders of the first defendant. 9 The point here was that the manner in which that had been formulated meant that it sought much more than simply the restraint of the declaration of the dividend and went as far as effectively seeking to regulate the manner in which the company might go about that process. It is unsurprising, in those circumstances, that the undertaking which was proffered this afternoon did not deal with the problem of reversing the declared dividend. Be that as it may, it seems to me that it does not sufficiently address the status quo question. 10 In that regard, it does seem to me that the declaration of a dividend is likely to have, at least from my perspective at 5:50 on a Wednesday night, unforeseeable consequences in the life and future of the company. When that is combined with the fact that there is to be a hearing of the issue on 17 July, and no suggestion by anyone before me that there was a pressing need for the funds to be utilised elsewhere in the intervening period, it seems to me that the status quo at least appears, on its face, to favour the granting of the relief which Mr Street, in his amended form of order, sought. 11 That is not an answer, however, to Mr Harding's second point, which was that, effectively, damages would be an adequate remedy in this case. There could be, I think, perhaps much to be said for that proposition, if I was fully apprised of the entire position of the companies. The respondents are not to be blamed for not putting that material before me this evening, but I do not feel sufficiently confident that damages will be an adequate remedy to utilise that matter as a reason for declining relief. 12 On the issue of balance of convenience, it seems to me that a very relevant matter in that regard is the circumstances which bring us all together this evening. This issue was ventilated at a directions hearing yesterday morning. It was made clear at that time that the applicants were concerned about the issue of how the dividends in this company were being dealt with and, with the consent of all parties, I fixed that dispute for hearing on 17 July. It is no doubt the right of the parties to do as they will if there is no injunction restraining them, but it is more than a little provocative, in my opinion, to take the steps which were taken this afternoon under the shadow of a hearing about the very matter. In those circumstances, I regard the balance of convenience as favouring the applicants. 13 For that reason I will make the order sought by Mr Street on the usual undertaking which has been proffered by him as to damages; that is, I make these orders: 1. Until the determination of the application to be heard on 17 July 2012, the first, fourth and twelfth respondents, by themselves or their agents, be restrained from taking any steps to declare any dividend from the first respondent. 2. The question of costs be reserved until 17 July 2012. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 6 June 2012