Citizen Kane Advertising & Design Pty Ltd (Atf Kane Family Trust) ACN 058 567 614 v Health One Plus Pty Ltd

HIS HONOUR: Counsel have commendably confined the argument on a relatively complex interlocutory application to the limited available time. For similar reasons, these reasons will also be limited in their extent.

On an application for an interlocutory injunction such as the present, the question is whether there is a sufficiently seriously arguable case for final relief that, having regard to the balance of convenience, an interlocutory injunction, if wrongly granted, will occasion less injustice than if wrongly refused.

Although the substantive suit is mainly an oppression suit, for the purposes of the present application the claim for final relief is one that would impugn the proposed issue of additional units in the trust of which the first defendant is a trustee to two of the unit holders, being the fourth and fifth defendants, they being family trusts associated with the second and third defendants who are two of the three directors of the first defendant, the second plaintiff being the other director and the first plaintiff being the other unit holder in the trust.

At present, the units are held as to 30 per cent by the plaintiff, as to 40 per cent by the fourth defendant and 30 per cent by the fifth defendant. At a meeting on 5 August, convened for the purpose of discussing and exploring the resolution of what for convenience I will call the “oppression dispute” in which in substance the second plaintiff complains that he has been excluded from management of the first defendant, the other defendants served on him a notice that the first defendant in its capacity as trustee of the trust had resolved to issue additional units in order to raise $165,000 for the trust. The plaintiffs allege that that resolution of the trustee was not a bona fide exercise of the trustee's discretion for the benefit of the trust as a whole, but for the improper purpose of diluting the first plaintiff's unit holding in the trust.

Ultimately, there is an issue as to whether the subject business is beneficially owned and operated by the trust or by the company, but the present application assumes, against the plaintiffs' primary case, that it is beneficially owned and operated by the trust, which appears to be the position for which the defendants contend.

Accordingly, I am satisfied that while at the final hearing it is quite possible that the opposite will be established, there is at least a seriously arguable case that the resolution of the trustee to raise capital by issuing additional units was not bona fide for the purposes of the trust, but for the improper purpose to which I have referred.

That then brings me to the question of the balance of convenience. If the proposed issue is not restrained, then presumably the fourth and fifth defendants will take up the units offered to them, the effect of which will be to dilute the plaintiff's unit holding from 30 per cent to, it is said, something below 25 per cent. That may have, although I am not yet persuaded of it, some effect on the ability of the plaintiff to resist certain types of resolution, but I give no particular weight to that matter. What it will plainly mean is that, should the plaintiff ultimately succeed, it would be necessary to set aside the issue and provide for the cancellation of the units so issued and the return of the subscription moneys to the defendants. While the defendants have indicated that they would be on notice of that possibility, the fact remains that the court would have to unscramble that situation and, if the funds were applied to the business, their ready availability to enable restitution would not be necessarily straightforward. I do not suggest that these problems are insuperable ones, but they are an indication that some difficulties will arise in terms of the plaintiff's status as a unit holder until the final hearing, and in terms of restitution if that be required at the final hearing, which will not be occasioned if the status quo is maintained.

Against that, the defendants point to a litany of potential risks for the trust if the additional capital is not raised. As I have said, many of these seem to me to be speculative in the extreme, but even if they are all perfectly real, present and imminent, the short answer is that if the trust needs $165,000 and the fourth and fifth defendants are prepared to advance that sum to the trust, then they can do so by way of loan and protect their position with appropriate security on such terms as they may negotiate with the first defendant and without, through the issue of equity, diluting the plaintiffs' position. For that reason it seems to me that there is no detriment involved to the defendants in the grant of the injunction proposed if it turns out to be wrongly granted, and certainly none that could not be addressed by the usual undertaking as to damages.

Accordingly, the court orders that:

It is noted that the usual undertaking is proffered.