New South Wales Supreme Court CITATION : Pettaras v Pettaras & Ors [2004] NSWSC 1212 HEARING DATE(S) : 25 November, 2004 JUDGMENT DATE : 25 November 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Interlocutory injunction granted. CATCHWORDS : CORPORATIONS - DIRECTORS - REMOVAL - INJUNCTIONS - Whether interlocutory order should be made restraining shareholders from voting at shareholders' meeting to remove a director in breach of shareholders agreement. LEGISLATION CITED : Corporations Act 2001 (Cth) - Carr Boyd Minerals Limited v Ashton Mining Limited (1989) 15 ACLR 599 CASES CITED : - Hopkins Professional Services Pty Limited v Foyster Holdings Pty Limited (2001) 39 ACSR 519 - NWL Limited v Woods (1979) 1 WLR 1294 - Tang v Bongreen Pty Limited (2003) 47 ACSR 400 Steven Pettaras - Plaintiff PARTIES : Theodore Pettaras - First Defendant Nicholas Pettaras - Second Defendant Pettaras Press Pty Ltd - Third Defendant FILE NUMBER(S) : SC 6314/04 COUNSEL : A. Spencer - Plaintiff M. Walton SC, E.A. Collins - Defendants SOLICITORS : Doherty Partners - Plaintiff Freidman Reeves - Defendants JUDGMENT – Ex tempore 1 Yesterday the Plaintiff applied for leave to serve, on short notice, an Originating Process seeking an order that the Third Defendant (Pettaras Press Pty Limited) be wound up. At the same time the Plaintiff filed an Interlocutory Application seeking an interlocutory order restraining each of the First and Second Defendants, who are the other directors of Pettaras Press, from conducting a general meeting of members of Pettaras Press convened by Notice of General Meeting dated 4 November 2004. 2 The purpose of the meeting, as indicated by the notice convening it, is to remove the Plaintiff as a director and secretary of Pettaras Press. Short service was ordered and the matter has come back this afternoon. Mr Spencer appears for the Plaintiff and Mr Walton SC appears for the Defendants. 3 The circumstances briefly are as follows. The Plaintiff and his two brothers are shareholders and directors of Pettaras Press. The Defendant brothers hold between them a majority of the shares in the company. The three brothers have clearly fallen out and indeed, from the evidence filed on both sides, it appears that there is now a very considerable degree of hostility between them. 4 The Defendants together seek removal of the Plaintiff as a director on the ground that his presence in the company's affairs is causing dissension and loss to the company. The Plaintiff says that, on the contrary, his removal as director will occasion the company loss. I am prepared to accept that there has been a considerable degree of personal animosity between the Plaintiff on the one hand and the two Defendants on the other. This, in fact, emerges clearly enough from a shareholders' agreement executed between them in October 2001, one of the provisions of which was to refer disputes between them involving acts of personal aggression to some third party/arbitrator, as it were. 5 The Plaintiff says that the holding of the proposed general meeting and the voting thereat by the First and Second Defendants so as to remove him as a director would be a breach of two shareholders' agreements entered into by the three brothers. There is no contest that the meeting has otherwise been validly convened in accordance with the provisions of the Corporations Law. The contest is whether the voting at the meeting by the two Defendants in such a way as to remove the Plaintiff as director would contravene the terms of the two shareholders' agreements which he relies upon. 6 The first is an agreement which was entered into in about December 1995. Clause 3 of the agreement provides: "During continuation of this agreement, the parties shall be directors of the Company, unless otherwise determined by the shareholders at a shareholders meeting of the Company." Clause 8 of the agreement, relevantly the introductory words to clause 8, provide: "The parties hereto jointly and severally agree that no party, whilst being a director, shall without the prior written consent of the other directors do or acquiesce (whether by act or omission) in the doing of any of the following in relation to the Company:– … (o) Changing or appointment of new auditors, managing director, chairman, secretary, general manager, bankers, solicitors and/or registered office of the company." 7 The second shareholders' agreement was entered into on 10 October 2001. Without setting out at length the relevant provisions, I may summarise them by saying that the agreement provides that if any director commits what may be described as an act of personal aggression against another director or staff, there will be deemed to occur what is called a default, and that default may then be brought before a person who was then an employee of the company, who would make a determination about the circumstances of the default. There are provisions as to what would follow if the default goes unremedied. Clause 6 then provides as follows: "In the event that the Defaulting director fails to strictly comply with any of the provisions of Clause 59i), (ii) and (iii) above, and in the event and that event only the Defaulting director hereby irrevocably acknowledges and agrees that the non-defaulting directors shall be entitled to call a meeting of the directors of the Company, and at that meeting propose a motion and vote upon the removal of the Defaulting director as a director of the Company as well as the termination of the Defaulting director's employment and in this regard the Defaulting director hereby acknowledges and agrees that in the event of such removal as a director and termination of the Defaulting director's employment the Defaulting director shall have no claim of any nature (including no claim for unfair or wrongful dismissal) against the Company or either or both of the non-defaulting directors either jointly or severally arising out of or incidental to either or both of the removal of the Defaulting director as a director and the termination of the Defaulting director's employment with the Company by reason of the matters referred to in this Clause PROVIDED THAT nothing in this Clause shall prevent or disenfranchise the Defaulting director from all and any payments to which the Defaulting director is legally entitled to for any outstanding and unpaid long service leave and annual holiday leave." 8 Mr Spencer contends that what is proposed to be done at the general meeting to be held tomorrow will be a breach of clause 8(o) of the first shareholders' agreement and will also be a breach of the second shareholders' agreement in that the dispute between the parties has not been submitted to the nominated person for what I might call resolution procedures before action is taken to remove the Plaintiff. 9 As I say, the shareholders' meeting was convened by notice dated and served apparently on 4 November 2004 and the meeting convened is to be held tomorrow, 26 November 2004. 10 Evidence has been filed today by the Defendants listing what are alleged to be many acts of violent behaviour on the part of the Plaintiff. The first application which the Plaintiff makes is that there should be an adjournment of his application for interlocutory relief in order to give him time to respond to that evidence. He says that he is not presently able to meet that evidence. He would wish to do so but he will be absent on his honeymoon for some period, I think commencing this Saturday, and he wishes the injunction to be granted to hold the position until he is able to return and answer on affidavit the evidence which has been filed against him today. I would not make any order restraining the meeting on that basis. 11 As a general rule, an applicant for an interlocutory injunction should have the evidence available to support the application when the defendant appears to contest it. The applicant cannot, as a rule, say that he does not now have sufficient evidence to support the application and wishes later to adduce better evidence but, nevertheless, there should be an injunction granted in the meantime until he can procure that evidence. 12 The application will, therefore, be dealt with now on its merits. It will either succeed or fail upon the evidence presently filed and the submissions now made. 13 The Defendants say that the usual course adopted by the courts where an application is made to restrain a shareholders' meeting or a directors' meeting is to refuse the application, at least when such application is made on an interlocutory basis, because the policy of the court is to allow the shareholders or the directors, as the case may be, to exercise their rights. One should therefore wait until one sees how those rights have been exercised before deciding whether or not some damage has been done or some wrong has been committed. 14 The authorities in that respect are reviewed by McDougall J in Tang v Bongreen Pty Limited (2003) 47 ACSR 400, at 405. They are also reviewed by Barrett J in Hopkins Professional Services Pty Limited v Foyster Holdings Pty Limited (2001) 39 ACSR 519. 15 The point is made in the authorities referred to that the court, in considering the balance of convenience in an application for interlocutory relief, seeks to preserve the status quo. Generally speaking, preservation of the status quo in a shareholders' or directors' dispute means that such rights as the shareholders or directors have under the constitution of the company and the Corporations Act 2001 (Cth) are left to be exercised as the shareholders or directors determine. 16 There is, however, as has been pointed out in these authorities, an exception to that general proposition. When the shareholders have regulated their rights, as they have done by two agreements in this case, and have thereby provided that they shall exercise their votes in a certain way or shall not exercise their votes in a certain way, then the status quo is represented by the agreement of the shareholders as to what will be done in a certain circumstance. That distinction was well made in the decision of the West Australian Full Court in Carr Boyd Minerals Limited v Ashton Mining Limited (1989) 15 ACLR 599, particularly by Brinsden J at 607. 17 There is another consideration which is applicable in the present case. If interlocutory relief is not granted and the Defendants exercise their votes at the meeting tomorrow, as they have stated that they will do, then the Plaintiff will, once and for all, have been removed from office as a director. As I have said, there is no contest that the meeting has been validly convened in accordance with the provisions of the Corporations Act. The only wrongful act that may be committed by the Defendants in removing the Plaintiff as a director at tomorrow's meeting will therefore be, possibly, a breach of the contractual obligations imposed upon them by the various shareholders' agreements. 18 The first question which I have to determine is whether there is a serious question to be tried as to whether removal by the Defendants of the Plaintiff as director will constitute a breach of the two shareholders' agreements. Mr Walton SC has argued strenuously that there will be no such breach. He points to clause 3 in the first agreement, which seems to indicate that a director is entitled to remain a director of the company only for such time as he is not removed by determination of the shareholders at a shareholders' meeting. 19 Mr Walton says that the prohibition on removing a managing director or changing a managing director contained in clause 8(o) in the same agreement does not affect, nor is it inconsistent with, the provisions of clause 3. He says that to change a managing director under clause 8(o) is not the same thing as to remove a managing director. Secondly, he says that in any event one can remove as director someone who is the managing director without thereby removing him as managing director. 20 I think those last two propositions are, to put it neutrally, highly questionable. I think that there is a serious question at least to be tried as to the proper construction of clauses 3 and 8(o). 21 Mr Walton submits that I should conclude that the Plaintiff has not been appointed as managing director of the company. As to this there is a conflict in the evidence. It is a conflict which it is not appropriate to resolve in an interlocutory application of this kind. 22 I do not think I need to dwell at length on the provisions of the second memorandum of agreement. There are difficulties in the construction of that agreement. There are difficulties in whether or not the mechanism for dispute resolution is at all enforceable and, if that mechanism is not enforceable, whether those provisions can be disregarded pursuant to clause 13 of the second agreement. 23 It is sufficient for my purposes to hold that, in my view, there is a serious question to be tried as to whether the removal of the Plaintiff at the general meeting tomorrow would constitute a breach by the First and Second Defendants of their obligations under clause 8(o) of the first shareholders' agreement. 24 I now turn to the balance of convenience. I take into account that the Plaintiff says there will be dire consequences suffered by the company if he is removed as director. On the other hand, I take into account that the Defendants say that there will be dire consequences to the company if the Plaintiff is not removed as a director. The matter is highly arguable and I do not think that it is desirable or appropriate, or even possible, at this stage in the proceedings to resolve that particular issue. 25 In my view, the decisive element in the consideration of the balance of convenience is that if the Plaintiff is removed as a director in breach of the Defendants' contractual obligations, he will nevertheless be validly and finally removed as director in accordance with the Corporations Act. It seems to me that the considerations expressed by Lord Diplock in NWL Limited v Woods (1979) 1 WLR 1294, at 1307 (quoted with approval by Malcolm CJ in Carr Boyd Minerals Limited v Ashton Mining Limited at 607) are apt and applicable in the present case. 26 If the interlocutory relief sought is refused, that will have the practical effect of putting an end to the right of the Plaintiff, if he has such a right, to remain a director of the company until such time as the contractual provisions of the shareholders' agreement are complied with. 27 I take into account also that if, as seems to be the case, the position in this company has reached an impasse in its management due to ineradicable differences between the brothers, then the Plaintiff either may proceed to seek a winding-up of the company on the just and equitable ground or the Defendants, as a majority of the board of directors, may take such action as they are permitted to take under the shareholders' agreements, to regulate the affairs of the company in such a way as will minimise the perceived harm being caused by the Plaintiff. 28 In other words, it does not seem to me that the retention of the Plaintiff as a director of the company, at least for the time being, will inevitably cause the Defendants and the company itself some irreversible loss or damage. It may be the case indeed that within a relatively short time the company will be simply wound up at the instigation of one or other of the parties, regardless of the identity of the directors constituting the board. 29 Accordingly, in my view the balance of convenience favours the grant of the injunction which is sought. However, the court would require as a condition of granting the injunction that the usual undertaking as to damages be proffered. SPENCER: I do so. 30 HIS HONOUR: I would make an order in terms of para 2 of the Interlocutory Application. I make an order that, until further order, the First and Second Defendants be restrained from acting or acquiescing in the removal of the Plaintiff as managing director or secretary of the Third Defendant, which includes an order restraining the First and Second Defendants from voting in favour of any resolution to the effect that the Plaintiff be so removed at a general meeting of the company, the Third Defendant, to be held on 26 November 2004, or any adjournment of that meeting. [Counsel addressed on costs.] 31 In the circumstances of this case the costs of this motion should be reserved and should be costs in the proceedings. [Discussion on Expedition List.] 32 I stand the matter into the Corporations List on Monday 29 November 2004. The exhibits may be returned. ~ oOo ~ Last Modified: 12/17/2004 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.