In the matter of Optimisation Australia Pty Limited (No 3) [2016] NSWSC 1787

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Optimisation Australia Pty Limited (No 3) [2016] NSWSC 1787 Hearing dates: Tuesday, 15 November 2016 Date of orders: 13 December 2016 Decision date: 13 December 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Application for variation of interlocutory injunction dismissed with costs. Catchwords: PROCEDURE – judgments and orders – variation and setting aside – interlocutory injunction – application to discharge – where original basis no longer exists but alternative basis available – application dismissed Cases Cited: Optimisation Australia Pty Ltd (No 2), In the matter of [2014] NSWSC 1394 Tolco Pty Limited, In the matter of [2016] NSWSC 1069 Category: Procedural and other rulings Parties: Brian Raymond Kearney (plaintiff) Optimisation Australia Pty Limited (first defendant) Gary Williams (second defendant) Susan Williams (third defendant) Sharmark Pty Ltd (fourth defendant) Orchard Office Services Pty Ltd (fifth defendant) Representation: Counsel: A Fernon (plaintiff) M P Cleary (defendants)

Solicitors: O'Neill McDonald Lawyers (plaintiff) Australian Business Lawyers (defendants) File Number(s): 2013/153589

Judgment 1. By notice of motion filed on 9 November 2012, the defendants apply for an order vacating order 4 made on 10 October 2014, which was in the following terms: 2. 4. Upon the plaintiff giving to the court the usual undertaking as to damages the defendants be restrained from by themselves their servants or agents permitting or suffering the first defendant to pay any invoice or other expense or liability in excess of $5000 other than regular salary wages and emoluments of employees except having given seven days written notice by email to the plaintiff such notice to specify the proposed payee and the amount of the payment and to include a copy of the relevant invoice or equivalent supporting document. 3. That order was made for reasons which were expressed as follows: [1] 4. 28 The fourth and final issue is the plaintiff's application for an order that the defendants notify the plaintiff of any payments they intend to cause the first defendant to make in excess of $5,000 prior to those payments being made, but excluding current staff wages. The intent of this application is to afford the plaintiff, who as I have said remains a director of the first defendant, an opportunity to vet significant expenses before they are paid. If he is dissatisfied he can, at his own risk, approach the Court for an injunction. If he does not do so then, unless the defendants agree not to make a payment, the payment can go ahead at the expiration of the notice period. 5. 29 It seems to me that, as a director who retains the legal responsibilities and obligations of a director, it is entirely reasonable that he should at least be notified of proposed significant payments so as to have an opportunity of disputing them if he wishes to do so, at his own risk as to costs. 6. The substantive hearing concluded, after a hearing of a total of 18 days, on 22 June 2016. Judgment presently stands reserved, and is not likely to be delivered until the first quarter of 2017. 7. Shortly after the conclusion of the substantive hearing, on 23 June 2016, the plaintiff Mr Kearney – who had not been employed since his employment was terminated by the defendants on 30 April 2013, and who had in the meantime devoted most of his resources to prosecuting the litigation – resigned as a director of Optimisation Australia, in order to resume work without being at risk of an allegation of breach of his duties as a director or a fiduciary, and commenced operating WebVideosMedia ("WVM") – which he had registered on 29 June 2015 but which had not previously traded – from 29 June 2016. WVM is in the business of video production for marketing purposes, and Mr Kearney intends that in due course it will also offer social media services. The defendants have been aware that Mr Kearney has been operating it since June 2016, but have raised no issue about it until 9 November when they filed the present motion, at the hearing of a motion which the plaintiff had filed on 2 November 2016 for a freezing order consequent upon the advertising for sale of the home of the second and third defendants. 8. While interlocutory injunctions remain open to reconsideration, the court will ordinaryly look for some relevant change of circumstances before varying an interlocutory injunction. The defendants submit that the injunction of 10 October 2014 should be discharged for the reasons that: 1. There is no longer any basis for the order, as: 1. The original basis was that Mr Kearney was a director of Optimisation Australia, and that basis no longer exists; and 2. There is no allegation in the proceedings that the defendants have improperly expended assets of the company for their personal benefit; and 1. WVM is competing with Optimisation Australia and information of the kind which the order requires be provided to Mr Kearney will afford him a competitive advantage. 1. It is true that the original basis of the order, which was founded on Mr Kearney's rights and duties as a continuing director, has gone with his resignation. However, he remains a very substantial (34%) shareholder, who has a seriously arguable case of oppression, aspects of which include (1) the alleged making of substantial payments to the fifth defendant, the Williams' company Orchard Office Services; (2) the alleged overpayment of salary to Mr and Mrs Williams while they were abroad; and (3) their proposals to make prepayments of their legal costs, and back pay to Mr Williams who had resigned. A substantial shareholder in a closely-held company is in my view usually entitled to expect a significantly higher degree of information and consultation than a small shareholder in a listed public company – because of its nature as an incorporated quasi-partnership, and the associated equitable obligations. [2] Thus while Mr Kearney is no longer a director, he has a legitimate interest in monitoring expenditure in circumstances where he is a very substantial shareholder, who has arguably been oppressively excluded from management, in circumstances where it is arguable that the majority have in the past preferred their own interests at least in the three respects to which I have referred. 2. Mr Kearney accepts that there may be some overlap between the businesses of WVM and Optimisation Australia in respect of video and/or social media marketing services for on-line use. Accordingly, he offered to consent to a variation of the order so as to provide that the information would be provided not to him but only to his lawyers, who undertook to keep the documents confidential between themselves, counsel and the court, and not disclose them or their contents to Mr Kearney unless agreed by the parties or by order of the court. An order to that effect was therefore made at the hearing of the motion on 15 November. The result is that the information is compartmentalised to the plaintiff's lawyers, and he will not have access to it. This affords reasonable protection against any risk of misuse of the information. 3. I considered whether the injunction could safely be discharged on the basis that the price applicable to any compulsory purchase order would be fixed by reference to valuations which predated, and would not be affected by, future expenditure. However, the defendants oppose a compulsory purchase order, and it is by no means certain that one will be made. If no such order is made, but the company is wound up, or Mr Kearney remains a minority shareholder, future expenditure could impact the value of his interest. 4. The injunction does not restrain the defendants from paying expenses, but merely requires seven days' notice of their intention to do so, so as to enable expenditure to be monitored, on behalf of a 34% shareholder. A reasonable basis for the injunction remains. Any risk of misuse for competitive purposes is mitigated by the restriction of the information to the plaintiff's lawyers. 5. The Court orders that the defendants' notice of motion filed on 9 November 2016 be dismissed with costs.