Reported Decision : (2000) 34 ACSR 614 New South Wales Supreme Court CITATION : POMFRET & ORS v. CUMBERLAND & ANOR [2000] NSWSC 400 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1108/00 HEARING DATE(S) : 10/05/2000 JUDGMENT DATE : 10 May 2000 Philip Edward Pomfret - First Plaintiff Richard Highland - Second Plaintiff Julio Cesar Labraga - Third Plaintiff Two Lands Group Pty Ltd - Fourth Plaintiff PARTIES : Two Lands Advertising Pty Ltd - Fifth Plaintiff Two Lands Services Pty Ltd - Sixth Plaintiff Two Lands Property Pty Ltd - Seventh Plaintiff Two Lands Development Pty Ltd - Eighth Plaintiff Ronald James Cumberland - Defendant JUDGMENT OF : Bryson J at 1 COUNSEL : N. Cotman SC/J. Priestley for Plaintiffs R. Dubler/N. Beaumont for Defendants SOLICITORS : McCabes Lawyers for Plaintiffs Frank G. Kalyk for Defendants CATCHWORDS : CORPORATIONS - interlocutory injunction sought restraining the passing of a resolution proposed in notice of extraordinary general meeting - resolution purported to vest unit trust and distribute assets to unitholders - principal litigation seeks winding up of companies on ground of oppression - whether directors had power to make resolution - whether applicant for injunction had standing as director to enforce Unitholders Agreement - whether resolution in breach of Unitholders Agreement - application refused - appointment of provisional liquidator refused - PRACTICE AND PROCEDURE - Mareva order restraining dealings with term deposit - application to vary order to allow use of funds for purchase of property and mortgage in favour of bank - application refused as enforcement would be unduly complex DECISION : See para.26 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON J. WEDNESDAY 10 MAY 2000 1108/2000 EDWARD POMFRET & ORS v RONALD JAMES CUMBERLAND & ORS JUDGMENT 1 HIS HONOUR: The notice of motion of the defendant, Mr Cumberland, filed on 5 May 2000 is a further stage in this litigation, some issues in which I decided on 27 March 2000 for reasons then stated. I have also dealt in another judgment with the Mareva orders. 2 The first substantive claim in the notice of motion is claim 2, which seeks to restrain the plaintiffs by injunction from passing any resolution at a meeting of Two Lands Group Pty Limited as or in the nature as proposed in a Notice of Extraordinary General Meeting signed by Mr Pomfret, a director of TLG, and directed to the four companies which are members and unitholders of TLG. 3 The resolution proposed would accelerate the Vesting Day of the Two Lands Unit Trust to 19 May 2000, and dealt with the distribution of assets equally to the unitholders, and the appointment of a chartered accountant to collect and realise the assets and make the payments and distributions. 4 This application is ancillary to the principal litigation which is the claim by Mr Cumberland in his cross-claim dated 2 March 2000 for winding up a number of companies including TLG. Until the present notice of motion, little if anything had been done to advance the cross-claim, which is based on alleged oppression, and arises out of many conflicts amongst the Principal to whom I referred in my earlier judgment, each of whom controls one of those four shareholder and unitholder companies. 5 There is in my view a plain need for a full and particular statement of the facts on which the claim to wind up TLG is based. It seems unfortunate that so little progress has been made, and that there is no statement of claim, which would establish and illustrate what factual issues are involved. 6 In the Two Lands Unit Trust Deed, Exhibit B in this application, dated 19 February 1997, there are provisions establishing that the Vesting Day is to be an unstated day in 2071, but the definition of Vesting Day extends as follows: "(b) such date being earlier than the day so specified as the trustee may appoint the Vesting Day......" 7 "The trustee" refers to TLG as trustee of the unit trust. Whether or not the power to specify an earlier date should be exercised is on the face of things a matter for decision by TLG according to its own internal structure. However, it is further dealt with in the Unitholders' Agreement of 19 February 1997, of even date with the trust deed, the parties to which are TLG and the four shareholder and unitholder companies. Plainly enough Mr Cumberland does not have standing to enforce any contractual entitlement therein; standing would be held by the Eggshell Group Pty Limited, a party to the Unitholders' Agreement, referred to as trustee for the Cumberland Family Trust and controlled by him. 8 Mr Cumberland's counsel said to the effect that he wished to add that company as an applicant. It is not an applicant, and an amendment of that kind does not appear to be appropriate in an application which has been presented as a very urgent one. Furthermore, it is an application which ought to be supported by an undertaking as to damages, and there is no information available as to the Eggshell Company's financial responsibility. 9 I have not been shown any material about the constitution of Two Lands Group Pty Limited from which I can understand whether a decision such as specification of an early Vesting Date is within the powers of management conferred on the directors, whether it may also be exercised by the members at an extraordinary meeting or whether the power is exclusive to one or the other. 10 The radical nature of a decision to precipitate resolution of the Unit Trust which is the reason for the company's existence suggests that it may be doubtful whether the directors are empowered to make that decision; I do not have the basic material and I do not know. What Mr Pomfret, who called the meeting, is proposing to do proceeds on the assumption, the validity of which I am in no position to decide, that the decision specified is within the powers of an extraordinary general meeting. I certainly make no decision whether the resolution if passed would be or would not be valid. 11 The claim to restrain the meeting arises under clause 12, "company operation" of the Unitholders' Agreement, which states principles which govern the operation of TLG and other companies "unless otherwise agreed unanimously by the parties hereto," the parties being the shareholder and unitholder companies. 12 One of the principles stated is "(f) all significant decisions affecting the operation of the company... shall be made unanimously by the directors of the company. In the event that the parties cannot reach agreement on what constitutes 'significant' decision, this issue will be determined conclusively by an independent expert appointed by the solicitors of the companies." 13 The theory of this application is that as Mr Cumberland is a director and has not joined in the proposed decision to change the Vesting Day or (it may be) the decision to call a meeting, there has been a breach of the principle in (f). 14 The claim to restrain this part of the proposed internal workings of the company is then based on the proposition that holding the meeting or passing the proposed resolution would be in breach of clause 12 and the principle in (f). 15 As I have already indicated Mr Cumberland in my opinion has no standing to invoke this contractual right, notwithstanding that he is a director. 16 The question whether an injunction ought to be made on his application or that of the Eggshell Group Limited involves among other things, as a discretionary decision, consideration of whether enforcement of a contractual obligation by injunction is appropriate. I bring to bear on this interlocutory application my understanding of the affairs of TLG and the companies and persons interested or related to it, formed at the hearing of the proceedings in March and expressed in the reasons which I published on 27 March. 17 I am unable to see any irreparable injury or significant injury at all to the interests of parties, or of shareholders in TLG, or of the Eggshell Company or for that matter of Mr Cumberland, in steps which precipitate the early resolution of the trust and the winding up and distribution of the assets, as an alternative to leaving that matter unresolved until the year 2071. Quite otherwise, general resolution of the interests of the principals, their companies and those interested in the Unit Trust appears to me to be altogether advantageous. 18 An injunction should not be made merely to vindicate a contractual obligation. It is significant to consider whether the obligation is negative in character, and even if it is, what is the balance of advantages between the Court's intervening or leaving the parties to operate as they choose, even if they choose to operate in breach of contract subject to whatever other remedies others have. In my view postponement of resolution of the affairs of the trust is quite undesirable and should not be furthered by an injunction. 19 Claim 3 claims that a provisional liquidator be appointed, and read literally refers to TLG and the four companies whose affairs are associated with it. Apparently the precipitating event which induced the application to appoint a provisional liquidator was the calling of the extraordinary general meeting. The winding up litigation was commenced on 2 March, and no particular step forward had been taken since then. The proceedings have not been conducted with urgency, or in any way appropriate to circumstances which are now said to require short term intervention and provisional liquidation. Again, Mr Cumberland has no standing. The Eggshell Company would have standing. It is not a cross-claimant or an applicant in the notice of motion, and again counsel indicated at a late stage in the presentation of submissions the wish to add it as a party, which I do not regard it as appropriate to grant. 20 Counsel went through Mr Cumberland's numerous complaints about the conduct of TLG, the state of its accounts, and its dealings with public authorities. It appears to me that while those may very well be unsatisfactory, they are in much the same state as they have been throughout the litigation. There is a deadlock in the sense that the provisions of the Unitholders's Agreement, which if conformed with would make Mr Cumberland as a director a necessary party to any decisions, are not being observed. It is said that there is a lack of control of the affairs of the companies related to TLG, which are plaintiffs. It is only in the sense that the Unitholders Agreement is not being followed that there is a lack of control, otherwise the majority of the directors in the case of TLG and directors other than Mr Cumberland are in control, in accordance with the constitutions of the companies, but not in accordance with the Unitholders' Agreement. 21 As I understand it, it was an object of seeking provisional liquidation that any winding up of affairs of the trust should be carried out by a provisional liquidator and not by the company itself. I would seek to keep clear a distinction between winding up the companies and winding up the Unit Trust. TLG should only be wound up on a considered judgment on the claim of oppression which as yet has not been well defined. To me it seems likely that the appointment of a provisional liquidator would precipitate the practical end of TLG's business affairs, which I am not prepared to bring about at this stage. 22 Claim 4 in the notice of motion would recast the protection under the Mareva order, which now takes the form of my order of 28 March. Under that order the Mareva restraint relates to a term deposit held by Mr Cumberland with the Westpac Banking Corporation, said to be in the order of $190,000, but restrained for $120,000; he may roll-over the investment into further accounts, but otherwise he may not deal with the deposit. This provides the plaintiffs with some practical protection, but subject to the serious qualification that the deposit is charged in favour of the Westpac Bank, and it is at least potentially possible that some intervention by that bank may deprive the plaintiffs of their protection. The possibility of such intervention is one of the considerations favouring a general resolution of the interests of the parties. 23 It is now proposed that I authorise Mr Cumberland to employ the fund by allowing him to apply it to settlement of the purchase by the second defendant of a house property at 42/1 Wiley Street, Chippendale, the title to which will be in the name of the second defendant, and in which Mr Cumberland will, at least overtly, have no interest. It is then proposed that the second defendant should give Westpac Bank a mortgage which would take the place of the Bank's present security over the whole deposit. Of course, if I varied the Mareva order to allow this, that permission would have no effect unless Westpac also found the arrangement suitable to the Bank's interests, and I would not intervene in any way in the Bank's decision or judgment of what does suit the Bank's interests. 24 While the plaintiff's Mareva protection relates to an identified sum of money in the term deposit in the name of first defendant, it appears to me in a practical sense it is far more likely to be a useful remedy than some remedy which is to be devised by placing controls on the second defendant and a mortgage which he is to give to the Westpac Bank, the Bank not being a party; exercises of realising the rights of the Bank in a mortgage appear to me to be far more difficult to conceive of and execute than exercises relating to a deposit of an identifiable sum of money in a fixed deposit in a bank. The proposed arrangements seem to me to be unduly complex and insufficiently supported by considerations of expediency when I ask what protection they give the plaintiffs. 25 I am not prepared to vary the present arrangements for the plaintiffs' Mareva protection. 26 Orders: (1) The notice of motion of 5 May 2000 is dismissed with costs. (2) On the cross-claim dated 2 March 2000 I direct that the cross-claim continue on pleadings, the cross-claimant's statement of claim to be filed and served within 14 days, and thereafter proceedings in accordance with the Rules of Court. Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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