Ultimate Media Group v Adframe Australia [2005] NSWSC 633

New South Wales Supreme Court

CITATION : Ultimate Media Group v Adframe Australia [2005] NSWSC 633

HEARING DATE(S) : 21/06/05

JUDGMENT DATE : 22 June 2005

JUDGMENT OF : White J

DECISION : See para 29 of judgment.

CATCHWORDS : PRACTICE AND PROCEDURE - Interlocutory injunction - Claim to enforce restraints in agreement for sale of shares - Mareva injunction - Injunctions refused on basis of undertakings proffered.

Ultimate Media Group Pty Ltd v Adframe Australia Pty Ltd [2005] NSWSC 538 CASES CITED : Cardile v LED Builders Limited (1999) 198 CLR 380

PARTIES : Ultimate Media Group Pty Ltd v Adframe Australia Pty Ltd & Anor

FILE NUMBER(S) : SC 3629/04; 3286/05

Plaintiff: P M Barham COUNSEL : Defendant: M J Cohen

Plaintiff: Somerville & Co Solicitors SOLICITORS : Defendant: Simpson Freed

LOWER COURT JURISDICTION :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

WHITE J

Wednesday, 22 June 2005

3629/04 ULTIMATE MEDIA GROUP v ADFRAME AUSTRALIA PTY LIMITED 3286/05 ULTIMATE MEDIA GROUP v ADFRAME AUSTRALIA PTY LIMITED & Anor JUDGMENT 1 HIS HONOUR: The plaintiff moves for orders in terms of paragraphs 7, 7.1, 8, 9, 10 and 11 of an amended notice of motion filed 21 June 2005. 2 In these proceedings the plaintiff seeks to enforce an agreement made on 23 May 2002 with the first and second defendants, pursuant to which the plaintiff would initially acquire from the second defendant, 50 percent of the shares in the first defendant. The agreement provides that each of the plaintiff and the second defendant would be entitled to appoint and replace two directors of the first defendant, and that at the expiration of three years, the second defendant would sell the remaining 50 percent of the issued shares of the first defendant at a price to be determined in accordance with a formula based on a multiple of the previous two financial years' average profit after interest and tax. 3 It is a further term of the agreement that the second defendant would be employed by the first defendant on a salary of $5,000 per month inclusive of superannuation during the first three years of the agreement. 4 The defendants deny that the agreement on which the plaintiff sues is enforceable, and say that they were induced to enter into it by misrepresentations by the plaintiff. They accept that there is a serious question to be tried that the agreement is enforceable in accordance with its terms. 5 The agreement of 13 May 2002 records that the second defendant was the beneficial owner of all of the shares in the first defendant. According to an ASIC search which was tendered, he is the company's sole director. 6 These proceedings were commenced on 3 June 2005, although there were earlier proceedings between the same parties, which are still on foot, which raise much the same issues, amongst others, (see the judgment of Hamilton J of 3 June 2005, Ultimate Media Group Pty Ltd v Adframe Australia Pty Ltd [2005] NSWSC 538 at [3]). 7 By its notice of motion the plaintiff seeks an order that the second defendant be restrained until further order from dealing with any assets of the first defendant outside the ordinary course of business. This claim was said to be a form of Mareva relief, to prevent dissipation of the first defendant's assets prior to the plaintiff's acquiring 100 percent of its issued capital as it claimed it is entitled to do. 8 The plaintiff also seeks various orders restraining the second defendant from dealing with his shares in the first defendant and restraining any attempted issue of new shares without the plaintiff's consent. It also seeks an order to restrain the second defendant from appointing any director of the first defendant without its consent. Finally, it seeks an order restraining the first defendant from repaying gross wages and loan accounts to the second defendant or Ms Cienwen Galletti, or any other person, in a sum greater than $5,000 per month, without the plaintiff's consent or further order of the Court. 9 The plaintiff complains it was not until June this year that the second defendant agreed to register transfer of shares amounting to 50 percent of the share capital in the first defendant, and that that followed a three day hearing before Hamilton J. It relied on evidence from which an inference could be drawn that after the date of the agreement, the second defendant caused shares which were registered in the name of third parties, but which, according to the agreement, were beneficially owned by him, to be transferred to himself and his wife. 10 It was submitted that I should infer that the transfer of shares to the second defendant's wife was done with the intention of thwarting any order which might ultimately be made to specifically enforce the contract of 23 May 2002 in relation to the transfer of the remaining 50 percent of the shares to the plaintiff. 11 It is fair to say that this allegation, based on an analysis of the share register and share transfers, was only articulated during the course of final submissions by reference to a few documents contained in a voluminous exhibit. In response to this contention, counsel for the defendants proffered an undertaking to the Court on behalf of the defendants, but without admissions, that until further order of the Court, or final determination of these proceedings, and of proceedings number 3629 of 2004, the defendants will not deal with, mortgage or encumber the balance of the 50 percent of the shares in the first defendant, which the second defendant owns or controls. 12 Assuming, without deciding, that the evidence could justify an interlocutory restraint on the disposal or dealing with the shares in the first defendant, the undertaking which the defendants proffer provides all the protection to the plaintiff which it could reasonably seek. 13 The defendants also, without admissions, proffered an undertaking to the Court that they would appoint Messrs Mount and Cope, or such other persons as the plaintiff may nominate, as directors of the first defendant upon their delivering the requisite consents to act as directors. Clause 4.1 of the agreement provides that the plaintiff and the first defendant would have the right to appoint and replace two directors each to the board of the company, and that as at the date of the agreement, the directors of the company would be the second defendant, Ms Cienwen Galletti, Mr Mount and Mr Cope. 14 In the light of that provision, it would be wrong to make an order restraining the second defendant from appointing any director of the first defendant without the plaintiff's consent. He is entitled to have two nominees, which may include himself, on the board. He is prepared, without admissions, to appoint the plaintiff's two nominees. Whatever may have been the position in the past, there is no threat of any future breach of clause 4.1. 15 It is unnecessary to express a view on whether the second defendant has committed any past breach of clause 4.1, assuming the agreement is enforceable against him. It appears to me that neither party sought to enforce the agreement in accordance with its terms, and the defendants, of course, deny that they are bound by the agreement. 16 The relief sought in paragraph 7.1 of the notice of motion is based on an alleged breach of clause 3.7 of the agreement. That clause provides: "The parties agree that Paul Galletti will be employed by Adframe on a salary of $5000 per month inclusive of superannuation during the first three years of this agreement."