Supreme Court New South Wales Medium Neutral Citation: In the matter of JK Meats Pty Ltd [2018] NSWSC 525 Hearing dates: 1 March 2018 Date of orders: 01 March 2018 Decision date: 01 March 2018 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Interim injunctive relief granted Catchwords: CORPORATIONS — Members' rights and remedies — Oppression — interim injunctive relief – where breach of shareholders agreement – where shareholder/director employed by competitor – interim injunction granted Legislation Cited: (CTH) Corporations Act 2001 ss 233, 237, 241(1) 1324, 601AB Category: Procedural and other rulings Parties: Yuhai Wang (First Plaintiff) Guobiao Fang (Second Plaintiff) Dao Hua (Tom) Wang (First Defendant) JK Meats Pty Ltd (Second Defendant) Representation: Counsel: B Michael (Plaintiffs) S Bell (First Defendant) Solicitors: ClearSky Legal (Plaintiffs) Lloyd Truman Sadiq Solicitors (First Defendant) File Number(s): 2018/ 55289 Judgment (ex tempore) 1. The first plaintiff Yuhai (Jeff) Wang and the second plaintiff Guobiao Fang each hold 30 percent of the issued share capital in the second defendant company JK Meats Pty Ltd. The first defendant Dao Hua (Tom) Wang holds the remaining 40 percent. 2. By an originating process filed on 19 February 2018, the plaintiffs seek by way of final relief an order, said to be under (CTH) Corporations Act 2001, s 233, that the first defendant cease to hold office as a director of the second defendant – an order in respect of which I have reservations as to the Court's jurisdiction to make – and alternatively an order, said to be pursuant to Corporations Act, s 233 (but probably intended to be a reference to s 237), authorising the plaintiffs to institute proceedings in the name and on behalf of the second defendant against the first defendant, seeking declarations that he breached his statutory duties as a director, and compensation under Corporations Act, s 1317H therefore and equitable relief in connection with alleged breaches of the first defendant's fiduciary duties as a director. 3. Further, or alternatively, the plaintiffs seek injunctive relief, said to be pursuant to Corporations Act, s 1324 or s 233, restraining the first defendant from being involved in a competing business, or in a business that carries on business in the same industry or field as that which has been carried on by the plaintiff; from using the plaintiffs' property; and from engaging in negotiations for renewal of a lease of a property at Silverwater, the relevance of which will, in due course, become apparent. 4. Presently before the Court is the plaintiffs' application for interlocutory relief in the terms of paragraph 5 of the originating process, which is as follows: Upon the plaintiffs giving the usual undertaking as to damages, under the Courts inherent jurisdiction, or alternatively under s 1324(4) of the Corporations Act, an order that, until further order, unless authorised by the second defendant, the first defendant: a. refrain from being involved in any business, aside from the business of the second defendant, that sells beef, pork, lamb or poultry meat products, or delivers beef, pork, lamb or poultry meat products sold by it, within 100km of XX Stanley Street, Silverwater, NSW 2128; b. in the alternative to paragraph a, refrain from selling, or being involved in the sale by any other person of beef, pork, lamb or poultry meat products to any of the persons or businesses to whom the second defendant has sold any meat products in the 12 months proceedings this order, except where such sale is made by the second defendant; c. refrain from using any property of the second defendant (including the funds of the second defendant) otherwise than for the purpose of the second defendant; d. refrain from leasing or engaging in any negotiations for a lease, or assisting any other person to lease or engage in any negotiations for a lease, over the property known as XX Stanley Street, Silverwater, NSW, 2128, other than any lease or negotiations engaged in by or on behalf of the second defendant or unless informed by the second defendant that the second defendant no longer wishes to lease the property known as XX Stanley Street, Silverwater, NSW, 2128. 1. As is well established, on an application for an interlocutory injunction the question is whether there is a sufficiently seriously arguable case for final relief that, having regard to the strength of that case, the balance of convenience favours the grant rather than the withholding of interlocutory relief. 2. In what follows, many of the facts are either uncontentious or sufficiently plain. On an interlocutory application I am not involved in making final findings of fact, and what I say either reflects facts that are uncontentious or plainly established or, where they are contentious, at the very least what the evidence seriously arguably supports at this stage. 3. Tom came to Australia from China as a student in 1989, and subsequently obtained permanent residence. In 1998, he commenced operating a chicken shop in North Sydney, and in about 2008 commenced the business of wholesaling fresh chicken from premises in Artarmon – for which purpose the company was incorporated on 27 June 2008, with him then as the sole shareholder and director. By 2011 the success of the company's business meant that larger premises were required, and the company moved to premises at XX Stanley Street Silverwater, of which the registered proprietor was then Geoffrey Hugh Davis. 4. It seems that the company obtained an oral sublease of those premises at a rental of about $7,000 per month from the head lessee, being M&L Meat Processing Pty Ltd, of which the principal was one Hung Hai Hoang. The head lessee had a demise of the premises for a term of three years expiring on 31 January 2018 with no option to renew, under registered lease AK1682134Q. There is scant evidence of the terms of the sublease, but the notice to vacate dated 4 December 2017 refers to a "verbal sublease from September 2011 until 31 December 2017", with no option to renew. 5. The circumstance that the head lease in evidence is dated 2015 indicates that there must have been an earlier lease by the registered proprietor to M&L, and correspondence in evidence from 2015 indicates that a new lease was negotiated in 2015, resulting in the registered lease to which I have referred; but the precise circumstances under which the company occupied the Silverwater premises before 2015 is of little ultimate significance, at least on the present application. 6. In 2013, the company employed Jeff as a sales manager. According to its financial statements for the financial year ending 2014, the company in that period had revenue of about $2.1 million, gross profit of about $402,000, earnings before interest and tax of about $8,000 (once allowance is made for hire purchase charges and interest on a motor vehicle loan) and earnings before interest, tax, depreciation and amortisation of about $19,000 (EBITDA). 7. By 2015, Tom wished to reduce his workload, and the parties entered into two written agreements. The first was a sale of shares agreement, by which Tom sold and the plaintiffs purchased 60 percent of the issued shares in the company for a total price of $100,000; thus the plaintiffs paid valuable consideration for the acquisition of their shareholding in the company. 8. The second, which appears to have been an annexure to the first, was a shareholders agreement between the three protagonists. It is relevant to refer to a number of its provisions. It recited that on 1 July 2015 Jeff and Fang purchased 60 percent of the shares in the company pursuant to a sale of shares agreement, and that the company "engages in the wholesale and processing of meat products" (recital A), and that Tom and Jeff were to be appointed as directors while Fang would only be a shareholder enjoying the same rights and privileges and the same burdens in accordance with the shareholding which they have in the company (recital B). The objectives of the shareholders in establishing and trading the company were stated in clause 2.1, as follows: (a) Engage in the wholesale and processing of meat products; (b) Being customer focused and maintain the integrity of the business; and (c) Developing and expanding new areas and customer base for the business. 1. "Business" was defined as "the current business conducted and operated from the premises", and "premises" was defined as "the operation centres from time to time rented or purchased by the company". 2. By clause 2.2, and in order to fulfil the objectives in clause 2.1, each shareholder was bound to cooperate and use best endeavours to ensure that the business was carried out successfully, not to use confidential information in a way which damages or is reasonably likely to damage any of the other shareholders, and to be just and faithful in the shareholder's activities and dealings with the other shareholders. 3. Clause 3.2 provided that the shareholders must procure that Tom and Jeff shall be appointed as directors, while Fang would remain as a shareholder only. The respective roles of the directors were defined in clause 3.3, relevantly as follows: 1. Tom will be responsible for merchandising, sale repair and maintenance of equipment (inclusive of motor vehicle), income collection and training of delivery drivers. 2. Jeff will be responsible for the production line, employees arrangement, quality control and inventory check. 1. From that it will be apparent that Tom had what might be called the "front of house" functions, including merchandising and sales, while Jeff had the "back of house" functions. This is important because it meant that Tom – who after all had been the founder of the business and conducted it alone up until this point – would remain on an ongoing basis the face of the business to the public, and in particular to the customers and persons dealing with the business. Clause 3.4 provided that each director was obliged to use his best endeavours to assist the other from time to time in fulfilling their directors' duties. 2. Clause 4.1 provided that, subject to the law and the agreement, all decisions of the board or the shareholders in general meeting would be made by majority vote, with the exception of specific matters referred to in clause 4.3 which required unanimity. Any dispute between the shareholders was to be discussed in general meeting before referral and implementation of the dispute resolution provisions of the agreement, to which I shall come. Clause 4.3 provided that certain issues were be to resolved by unanimous vote, namely: 1. Appointment and removals of directors. 2. Change of directors' duties and/or benefits. 3. Change in employment conditions of employees. 4. The issue of any further Shares or other securities in the Company. 5. Any change in the Dividend policy. 6. Any substantial change in the primary nature of the Business as at the date of this agreement. 7. The sale or acquisitions of any assets with a book value exceeding $1,000. 8. The creation of any encumbrance over any assets of the Company, including by not limited to entering into any contract or financing arrangements with any financial institutions. 9. Any loans to Directors, Shareholders or Related Entities for the purpose of Division 7A of the Income Tax Assessment Act 1936 must be approved unanimously in writing by shareholders. 10. Giving any guarantee or granting any security. 11. Approving the Company's annual budget and business plan. 12. Entering into any transaction which results in a conflict of interest, including but not limited to a transaction with any shareholder, director or their agents, representatives or related entities. 13. No shareholder shall mortgage or create any Encumbrance over his shares without prior approval of all Directors. 1. Clause 7 provided that profits generated by the company at the end of each school term would be distributed to the shareholders in accordance with their shareholdings, payable on the first day of January, April, July and October each year, and that each director was entitled to remuneration of $55,000 per annum. 2. Clause 8 imposed restrictions on the transfer of shares, and provided that a shareholder must not transfer any shares in the company without a reason to the satisfaction of other shareholders, and without prejudice thereto, "None of the shareholders is allowed to transfer its shares for the first three years from the day of this agreement". That three year period would not expire until mid-2018. The intent appears to have been to ensure that, at least for three years, all the shareholders were fully committed to the business. This is reflected in other provisions, to which I shall come. 3. Clause 8.2 then provided a procedure for a shareholder who wished to sell its interest to give notice to the remaining shareholders, and effectively a right of first refusal to the other shareholders. A third party could acquire an interest only with the unanimous consent of the shareholders (clause 8.5), in which case the sale proceeds were to be distributed to the shareholders according to their shareholdings (clause 8.5.1). The same applied if a third party wished to acquire the business of the company (clause 8.5.2). 4. Non-competition covenants were imposed by clause 9.1 and clause 9.2. They are important, and for that reason I set them out in full: 9.1 Each Shareholder covenants that it will not whether individually or as principal, agent, partner, joint venturer or Shareholder, either directly or indirectly without the previous unanimous consent of other Shareholders in writing, be concerned or interested or employed, manage or operate or participate in the management or operation or marketing of any products or services which are in competition, or likely to be in competition with the Company's activities in Australia as long as it remains a Shareholder of the Company. 9.2 Without prejudice to the foregoing, the shareholder who sells its shares of the Company covenants that it will not whether individually or as principal, agent, partner, joint venturer or Shareholder, either directly or indirectly, be concerned or interested or employed, manage or operate or participate in the management or operation or marketing of any products or services which are in competition, or likely to be in competition with the Company's activities for a period of 3 years from the day completion of sale of the shares within NSW, taking into consideration the nature of the business. 1. Again, it will be observed that clause 9.2 is expressed to operate for a period of three years after a shareholder ceases to hold shares in the company. Whether or not that would be more than reasonably required for the protection of the legitimate interests of the company and the other shareholders has not been debated on this application; however, it illustrates that the shareholders were concerned to ensure that a shareholder could not, by leaving the company, immediately put itself in a position where it could set up in competition with the activities of the company – in which the plaintiffs had, as I have said, acquired shares for valuable consideration. 2. Clause 11.1 contained provisions concerning dispute resolution, relevantly that a shareholder would not commence arbitration or court proceedings unless it had first given notice of the dispute and, if it were not possible to resolve it, had it referred for mediation. 3. Termination of the agreement was dealt with in clause 12, which permitted termination by mutual agreement in writing of all shareholders. There is no suggestion that there has been any termination within the meaning of that clause. Relevantly, clause 12.3 provides, "Each shareholder agrees that after termination of this agreement the obligations under clause 9 continue to be in force." Yet again, this illustrates that the parties were concerned to ensure that even if their agreement came to an end, the goodwill which had been acquired for valuable consideration would not be vulnerable, in the short term, to erosion by competition from a departing shareholder. Moreover, that clause apparently operates as a prophylactic, in order to preclude a shareholder from benefitting from the termination of the agreement by being immediately able to enter into business in the same field as that in which the company had been engaged. 4. Although the share sale agreement and shareholders agreement, copies of which are in evidence, are undated, the recitals to which I have referred indicate that they were made in mid-2015, and the ASIC register confirms that the share transfers were notified to ASIC on 29 July 2015. 5. The nature of the company's business is described by Jeff in his affidavit –which does not in this respect appear to be controversial – and involves purchasing bulk meat and poultry from suppliers, and packaging and delivering smaller portions of meat and poultry to retail meat shops, restaurants and cafes. The company had approximately six full-time employees, including the two directors, and a number of contractors. Of the four other employees, two were responsible for ordering meat and poultry from suppliers and taking orders from customers. 6. There were three delivery vans, which would deliver the orders to "all areas of metropolitan Sydney". So far as I can tell there is no evidence that elaborates on the territory within which the business operated beyond that reference to "all areas of metropolitan Sydney". In particular, there is no evidence which would suggest that the business was operating throughout an area described by a radius of 100 kilometres from Sydney which would reach well beyond Wyong in the north, Katoomba in the west and Wollongong in the south. 7. The business's financial statements for the financial year ending 30 June 2017 report total assets of $166,000, including $70,000 cash at bank; total liabilities of $127,000, including related party loans of $107,000 (presumably directors loans); and net equity of $38,000. Gross revenue was $3.2 million, compared to $3.9 million the preceding year. Gross profit was $487,000, compared to $474,000 the preceding year. Net profit before income tax was $9,000. When adjusted for depreciation, earnings before interest, taxes, depreciation and amortisation (EBITDA) would appear to be around about $28,000, which does appear surprisingly low given the level of revenues. 8. On 4 December 2017 the head lessee and sublessor, M&L Meat Processing, gave the company notice to vacate the Silverwater property by 31 December 2017. The notice was said to be "because we are planning to use the above premise ... for our own business." 9. Unbeknownst to the parties, M&L had in fact been deregistered, pursuant to Corporations Act, s 601AB, with effect from 20 August 2017, but that has little, if any, practical significance for the present application, given what has subsequently transpired. There is also a dispute between the parties as to whether M&L had, earlier in the year, orally indicated that it was going to require the premises for its own purposes and for that reason terminate the sublease, but that issue too does not have practical significance for present purposes. 10. On 22 December 2017 Tom, Jeff and Fang – who, at that stage, was visiting Australia from China – had a discussion about their response to the notice and what they would do. There is some controversy about the outcome. On Jeff's version, Tom said that M&L wanted to run a wholesale business selling pork from the premises. Jeff suggested that they arrange for some cold storage for M&L at the premises until M&L could find a suitable place to operate, which would permit JK to continue to use the premises, and Tom said that he would discuss that proposal with Mr Wang. Tom, on the other hand, says that over a lengthy meeting two options were discussed. One was that if JK Meats were to continue in operation, new premises would have to be found and licences obtained, which he says he thought would cost in the order of $250,000 to $300,000; while the second option was to sell the stock and business equipment of JK Meats and close down the business, collct outstanding money, repay shareholders' loans and distribute the available money to the shareholders. Tom says that they agreed to pursue the second option and close down the business. However, according to Jeff, he then began to search online for potential alternative business premises for JK, and over the period between 26 to 28 December, there was a further conversation between the three shareholders in which Tom said that M&L did not agree with the proposal that a storage facility be provided for them at the premises, to which Jeff says he responded that if M&L insisted on taking the premises on 31 December, at that time of year it seemed like the only option left was to close down the business. Jeff says that by this he meant closing down the operations at the premises, not forever abandoning the business and winding up the company. He says that as he had pending an application for a permanent residence visa, in an employer nomination scheme subclass, it was vital to him personally that JK remain in business. 11. On 24 December, Tom caused payments of $30,000 to be made to each of Jeff and Fang and $40,000 to himself, by way of repayment of directors' loans. On 27 December, he caused $62,500 to be paid to each of Jeff and Fang and $100,000 to himself, by way of dividend. According to Tom, the company ceased operations on 31 December 2017. 12. Between 26 and 28 December, according to Jeff, he had a conversation with Tom, in which Tom said that M&L would take over JK Meats stock and vans. This is said by Tom to be "substantially correct", and in due course the three vans were sold as envisaged. There are different views as to whether the stock was sold, or whether it was placed with Mr Wang (or one of his companies) for sale on consignment on behalf of JK. 13. It appears that on 2 January 2018, Tom brought a gentleman by the name of Wei Guo Ji (Jack) to the premises. Tom disputes the first-hand hearsay evidence adduced through Jeff, that he introduced Jack "as the person who will replace you and everything you do effective from 2 January 2018", but admits that he was told by Wang that "Jack will be running things", and that he said to former employees of JK Meats, "Jack is the boss now." 14. On 8 January, there were further conversations between Jeff, Tom and Wang concerning the sale of the stock and vans, and it was agreed that Wang would purchase JK's three vans for $35,000. That sale was completed on or about 10 January, whereupon Tom gave Jeff $21,000 (representing his and Fang's 60% of the sale proceeds). According to Jeff, in one of the conversations on 8 January about the sale of the stock, Wang said, "Tom is my manager now. I need to ask him about this". Tom says that he "does not recall" Wang saying that Tom was his manager, and that as far as he was concerned he was helping Jack out for a period of time and ensuring left-over stock of JK Meats was sold. However, on 10 January 2018, the business name "JI Meats" was registered by Ji. It was probably therefore lodged a few days before then. 15. According to Jeff, on 11 January he had a conversation with Tom, who allegedly said that Wang was not very happy about the deal on the vans, and wanted JK Meats' stock removed from the premises, and continued, "Here is what we are going to do. From 1 February 2018 onwards the entire business of JK will be transferred to Wang's company". To which Jeff responded, "No, JK must continue to operate. I don't agree to the transfer of the business". After some further conversation, Jeff suggested that he would not agree to the transfer of the business unless Wang's company paid for it. This conversation is disputed by Tom. 16. On 14 January 2018, Jeff found at the premises a number of documents, including a number of tax invoices generated that day in the name "JI Meats Pty Ltd", a notice confirming that an ABN had been allocated to Mr Ji and, of most relevance, an application (apparently undated) by Mr Ji for a meat vehicle licence, which nominated as the authorised contact person "Tom", described as "director", who was said to have an existing New South Wales food authority licence, the number for which was that of JK's licence. 17. Copies of rental property searches printed out on 15 January 2018 tend to corroborate that at least by that date Jeff was searching for alternative premises suitable for JK Meats' business. 18. Tom sought to say that prior to this time there had been some arrangement between Jeff and Wang whereby a business would be operated through JK Meats in order to allow Jeff to obtain a visa, and that this arrangement broke down. This was effectively put forward by the defendant as an explanation for what is said to be Jeff's change of position in mid-January. However, there is no skerrick of admissible evidence – even of the kind that could be received on an interlocutory application – to support that proposition. 19. On 18 January 2018, Jeff found in JK Meats' MYOB system invoices generated on 14 and 15 January in the name of JI Meats Pty Ltd. On the same day, he approached Tom about finding new premises and, according to Jeff, Tom said that he had no opinion on the matter and did not care. Tom's affidavit does not contradict this, at least in direct terms. 20. On 5 February 2018, Jeff discovered at the premises an application for commercial credit with Inghams in the name of JI Meats, which nominated Tom as the contact person. 21. On 9 February, Jeff discovered a sales ledger in the name of JI Meats for the day of 9 February 2018, containing 56 customer names of which 41 also appear on JK Meats' December sales ledgers. 22. Tom says (at paragraph 38 of his affidavit) that shortly before 31 December 2017, he had a conversation with Wang in which Wang asked him to "stay and help him", and he thought that he would be helping to sell meat on consignment and would be able to collect money owed to JK Meats. Wang agreed to pay him $1,000 per week, and Tom says he thought he would be there for about three months. 23. It is difficult to understand why, if his role was to sell meat on consignment for the benefit of JK Meats, Wang would be paying him at all. It is difficult to accept that he thought he would only be "helping out" for a short time, when he is described as a director on the application by JI Meats for a licence, and nominated as the contact person on the application for commercial credit with Ingham's. The sales ledger for JI for 9 February 2018 demonstrates, as I have said, numerous sales made that day to customers, many of whom overlap those of JK. In my view, at least as the evidence stands, it is very clear that the business formerly carried on by JK Meats is now being carried on in the name of JI Meats, using the same premises, the same delivery vans, at least some of the same employees and servicing very many of the same customers. It is also quite clear that Tom is in some capacity engaged in that business and at least seriously arguable that that engagement extends beyond merely "helping out" to sell on consignment the residual stock of JK Meats. 24. As to the current status of JK Meats, there are undoubtedly some objective matters that point to a conclusion that in late December 2017 a decision was made that it would close down its business. Those matters include, first, Jeff's admitted words to that effect; secondly, the sale or proposed sale of all the tangible assets of the business – motor vehicles, plant and equipment – to Wang; thirdly, the distributions made to shareholders, including repayments of their directors' loans and distributions of large dividends which substantially returned to shareholders their investment, both equity and loan capital, although leaving some funds still in the company; fourthly, the apparent cessation of employment of any employees, at least other than Jeff, and that those employees, or at least some of them, were thereafter apparently employed by JI Meats; and fifthly, the necessary cumulative effect of all this on any goodwill. In particular, the sale of the tangible assets, the transfer of employees and the provision of the stock (whether by sale or on consignment) to Wang, meant that thereafter someone other than JK Meats would be dealing with employees and, vitally, with customers. Once the stock was sold and the business closed, it was inevitable that customers would have to look elsewhere for their product, and the existing customer connection would be seriously jeopardised and rapidly lost, at least if not re-established in a very short time. For that reason, the events of late December 2017 were in many ways calculated to have such an impact on the company's goodwill that it seems probable that there was then an intention to close the business. 25. But there is some evidence to the contrary. The first is the testimonial evidence of Jeff to that effect, which was unchallenged. The second is that there is some corroboration of that evidence, at least in the searches for new premises made by him on 15 January – although it is not impossible that there had been a change of mind on his part by 15 January. But there is, as I have said, absolutely no evidence to support the theory that he changed his mind. 26. It also seems to me that it is seriously arguable that there remained some residual goodwill, and that it is not impossible that the company could resume business at the same or alternative premises and perhaps recapture some of the lost goodwill. Whatever might have been the position in late December, it appears to be the wish and intent, at least of the majority of shareholders, to pursue that course. 27. Moreover, even if in late December there was a decision in effect to "abandon" the business, that does not mean that any one of the directors/shareholders was at liberty to exploit what was left of it for his own benefit or for the benefit of some third party, as distinct from for the benefit of the company JK Meats as a whole. If, after the sale of the tangible assets and the stock, there remained intangible assets – including goodwill and customer connection and the like – which would have been of benefit to, for example, M&L Meat Processing or JI Meats, then the company's interests lay in exploiting that intangible property and obtaining the best possible price for it in the circumstances, rather than in facilitating its gratuitous conferral on M&L or JI Meats. For that reason, given what I have found to be Tom's apparent role in JI Meats – including that it is far more than merely selling JK's stock on consignment – and given also his historical role in JK Meats, where he was the face of the business, his involvement in JI Meats - as I have said, at the same premises, with the same employees, the same products and the same customers – has the potential very materially to contribute to the perfection of the appropriation of JK Meats' goodwill by JI Meats. For that to happen without consideration is contrary to the interests of JK Meats. 28. I have referred above to the shareholders agreement and, in particular, clause 9.1. The defendant's argument was that it was not contravened because, in circumstances where JK Meats no longer had a business, it could not be said that Tom was involved in managing or operating or marketing products or services which competed or were likely to compete with JK's activities. However, in my view, properly construed, clause 9.1 is not limited to the current immediate present and short term activities of JK Meats. The very reference to services and products which "are likely to be in competition" with those of the company involve a futuristic element; they would preclude involvement in the marketing of products which were in a field in which JK was not presently competing but would likely in the future compete. 29. Regardless of whether there was at the end of December an intention to close down the business permanently, that is no longer the intention of the majority of shareholders, who wish to resume the business. The shareholders agreement defines the business, and imposes obligations on Tom to cooperate in the prosecution of that business. The field in which the shareholders agreement provides for the company to operate – that is, the field of activities of the company which it describes – are practically identical with those in which JI Meats is presently engaged. Tom is involved in some capacity, directly or indirectly, in the marketing of products and services by JI Meats which compete with the activities of JK Meats, namely, its business as described in the shareholders agreement. In my view, this is so notwithstanding that the business may not currently be in operation, at least if, as I have found, there is an intent to resume those operations. In essence, by being involved in the business of JI Meats, Tom is seriously interfering with any prospect that JK Meats could ever successfully resume business, and he is doing so while he remains a director of and shareholder in JK Meats. 30. For those reasons, in my view there is at least a seriously arguable case for a final injunction restraining Tom from contravening clause 9.1 of the shareholders agreement. As I have mentioned, it has not been argued on this application that clause 9.2 would be void as contrary to public policy because of its duration. In any event, if it were necessary to rely on clause 9.2, it would be read down under the (NSW) Restraints of Trades Act. However, it is clause 9.1, which operates only while a shareholder remains a shareholder, that is relevant for present purposes. 31. For the reasons which I have foreshadowed – namely, that the evidence does not support the position that the company's business extends beyond the Sydney metropolitan area – I would confine its geographical extent not only to the 100 metre radius suggested in the originating process, but to the limits of the Sydney metropolitan area. 32. There is also a seriously arguable case for a final injunction restraining Tom from contravening his duties as a director of JK Meats by facilitating – as his involvement in JI Meats' business inevitably does – the appropriation of the company's goodwill by JI Meats. The proper plaintiff for such an injunction is almost certainly the company JK Meats, and to seek final relief the plaintiff would require leave under Corporations Act, s 237. However, Corporations Act s 241(1), appears to confer power to make interim orders on an application for leave if the Court considers it appropriate to do so. That may provide an alternative basis for relief, but having regard to the nature of the order sought and its consistency with clause 9.1, I prefer to rely primarily on the contractual basis. 33. The defendant has submitted that at least if a contractual basis is involved, clause 11 of the shareholders agreement – the ADR clause – is an obstacle. It is well-established that such clauses do not oust the jurisdiction of the court, although they may provide a basis for the court to decline to exercise jurisdiction, or to stay proceedings. In any event, in the context of such clauses, courts usually consider that it is appropriate in any event to entertain applications for urgent interlocutory relief. The present is such an application. There is no application at this stage to stay the proceedings, or to have them referred to mediation. It may well be appropriate that they be referred to mediation, or stayed pending compliance with of clause 11.1, after the question of interlocutory relief is addressed, if the parties are so minded. But clause 11.1 does not operate as an obstacle to the Court dealing with an application for an urgent interlocutory injunction. 34. I turn then to the balance of convenience which, as I have elsewhere said, is perhaps more aptly described as the balance of prejudice. Essentially, it involves comparing the detriment to the defendant if an injunction is wrongly granted, with the detriment to the plaintiffs if the injunction is wrongly refused. 35. If the injunction is wrongly granted, then Tom will be prevented from earning the living which he is presently earning from JI Meats or M&L, whichever it may be. But there is very scant evidence as to the practical hardship that will inflict on him. For example, it is known that, as with the other directors, he has recently received repayment of his director's loan, plus a substantial dividend at the end of 2017, a total of some $160,000; plus a further $40,000 in mid-January of this year and $14,000 on account of the sale of the vans. Next, there is his own evidence that he was already seeking alternative employment as a bus driver by late December of last year. Further, his position will be protected by the plaintiffs' undertaking as to damages. 36. On the other hand, if the injunction is wrongly refused, any prospect of the company resuming its business and recovering its goodwill will be destroyed. It is true that those prospects are already fraught, and it is also true that there is an arguable contention that JI Meats may have to account for any profits to JK Meats; but proceedings for such a remedy are not yet on foot and, as can be seen from the financial statements of JK Meats, reported profits seem to bear very little relationship to the gross revenues that the business has generated. 37. As it seems to me, there is a significant risk that if an injunction is not granted, then any prospect of resuming the business will be lost, and the alternative remedies will be affected by considerable difficulties. The grant of an injunction will not necessarily by any means ensure that the business can be resumed, but it would at least preserve that opportunity which will otherwise be soon lost. In circumstances where the first defendant's duty is to exploit any such opportunity for the benefit of the company – not for his own benefit or for the benefit of JI Meats and M&L – the Court should not countenance the possibility of any such opportunity being destroyed by his continuing on the course on which he has embarked with JI Meats. 38. The Court therefore orders that: 1. Upon the plaintiffs by their counsel giving to the Court the usual undertaking as to damages, the first defendant be restrained until the hearing or further order from being concerned or interested or employed or otherwise involved, directly or indirectly, in the management, operation or marketing of the processing or sale and delivery of beef, pork, lamb or poultry meat products within the Sydney metropolitan area. 2. Costs of the interlocutory application be the plaintiffs' costs in the proceedings. ********** 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. Decision last updated: 26 April 2018