In the matter of JC Jewels Pty Ltd ACN 628 983 773

1. [1]

   These proceedings concern what appears to be a breakdown in the relationship between the four owners of the first defendant, JC Jewels Pty Ltd (JCJ).

2. [2]

   JCJ was set up in 2018 and in substance is owned by the first plaintiff (Miller) and the second to fourth defendants, Steven Braun (Braun), Vincenzo Bonfa (Bonfa) and Timothy Demmy Sung (Sung) (the other owners) (together, the Board). It is a wholesale seller of lab grown diamonds, mined diamonds and diamond jewellery.

3. [3]

   Prior to 6 April 2024, Miller was the CEO of JCJ and the second plaintiff, Lonn Miller (Lonn), Miller’s brother, its sales director. On 6 April 2024, JCJ purportedly terminated their employment.

4. [4]

   By an amended originating process filed 23 April 2024, the plaintiffs seek a variety of final relief including an order declaring that the conduct of JCJ’s affairs is and has been, oppressive to, unfairly prejudicial to, or unfairly discriminatory against, Miller.

5. [5]

   This judgment deals with the plaintiffs’ claims for urgent interlocutory relief, principally related to their reinstatement as CEO and Sales Director of JCJ, respectively. The plaintiffs seek the following interlocutory relief:

6. [6]

   An interlocutory hearing was held on 3 May 2024. The plaintiffs were represented by Mr S Phillips of counsel and relied on two affidavits of Mr Miller made 19 April 2024 and 1 May 2024. The defendants were represented by Mr G Gee of counsel and relied on two affidavits made by the second defendant on 30 April 2024 and 2 May 2024. There was no cross examination.

Overview of the Facts

1. [7]

   There was considerable dispute between the parties as to a number of the underlying facts. I set out below the relevant facts including where those facts are in dispute. Given the nature of the interlocutory hearing, it is not possible for the Court to make any final determination of these disputes.

2. [8]

   JCJ was incorporated on 24 September 2018. An ASIC search reveals it has the following directors:

3. [9]

   The search also reveals four issued ordinary shares, to the third plaintiff (a company associated with Miller) and corporate entities associated with the other owners.

4. [10]

   There was a dispute on the evidence as to whether Miller was involved in the initial discussions to establish the business. On Miller’s version, he was involved and there was a brainstorming session between Miller, Braun, Bonfa and Sung where it was agreed to form JCJ. On Braun’s version, Miller was not involved and instead it was Braun who registered the JCJ for operation on 24 September 2018. It was he and Bonfa that started JCJ. According to Braun, Miller played no role in the business until in or around mid-2019. Who is correct in this regard is of no present moment.

5. [11]

   It was not in dispute that the four shareholders, prior to the establishment of JCJ, each had considerable experience in business, including the jewellery industry and in particular diamonds:

6. [12]

   In about May 2019, the parties entered into a Term Sheet which was at the centre of the claim for interlocutory relief.

7. [13]

   The Term Sheet records that each of the parties was a 25% shareholder in JCJ and relevantly provided:

8. [14]

   Appendix A includes:

9. [15]

   Miller says that he started as the only full-time employee of JCJ as CEO. Braun paints a picture that it was he who opened the first office in Melbourne, building out the logistics and operations of the company, as well as interviewing, onboarding and hiring all but one staff member to date.

10. [16]

    In mid-2019, an employment agreement was executed between Miller and JCJ (Employment Agreement).

11. [17]

    The Employment Agreement provides that Miller would be employed as CEO with a probation period of three months. Critically for present purposes, clause 17 deals with “Termination” and is in the following terms:

12. [18]

    Item 9 of Schedule A to the Employment Agreement sets out varying periods of notice depending on the period of continuous service with JCJ, ranging from 1 weeks’ notice where there has been less than one year of service, up to four weeks’ notice where there has been more than five years’ continuous service.

13. [19]

    Lonn was employed by JCJ as Sales Director by a written document entitled Heads of Agreement and dated 6 October 2020. The agreement provided that 5% Class B Shares would be created as an option to Lonn upon him reaching a target of $2,000,000 in revenue within a 12-month time frame.

14. [20]

    The agreement also provides that it would be superseded by a more comprehensive contract within Lonn’s trial period, “with all of the above points to be included and expanded upon”. It would appear that no further agreement was ever executed.

15. [21]

    There was a dispute on the evidence as to whether Lonn reached the $2,000,000 revenue target for the issue of the 5% Class B shares. Miller contends that the target was easily reached. Braun contends that there was a dispute about this, which appears to have involved Miller apparently transferring to Lonn a number of Miller’s clients. The option was therefore not offered to Lonn at the time that Lonn raised the issue around the end of 2021. An aspect of the final relief sought in the proceedings is that the shares be issued to Lonn.

16. [22]

    According to Braun, in the financial year of 2021/2022, JCJ achieved over $12 million in revenue but that since then, there has been a downturn in JCJ’s business and profitability.

17. [23]

    On 14 November 2023, there was a meeting of the Board – Miller, Braun, Bonfa and Sung all attended. The minutes record that the meeting was called by Braun “to discuss his updated Temporary Compensation Changes proposal due to declining profitability. Agreement was sought out of session with [Miller] but could not be resolved”.

18. [24]

    Braun proposed certain reductions in compensation. Miller did not agree and put his own proposal to increase profitability. Braun’s reduction proposal was carried on a vote with Miller voting against the proposal. Miller’s salary was reduced by 11%.

19. [25]

    The minutes also record:

20. [26]

    On 4 December 2023, Miller sent an email to the other owners about putting into train a process to sell JC Jewels.

21. [27]

    On 21 December 2023, Miller sent a further email to the other owners. The email begins:

22. [28]

    Attached to the email is a document containing their offer of sale. The attached offer asserts that Miller owns 23.75% and Lonn 5% and offers to sell the 28.75% for $750,000.

23. [29]

    Braun responded briefly on 26 December 2023 to the effect that “we” – being I infer, Braun, Bonfa and Sung – will respond by the end of January. The response also raised that the share structure was incorrect and they did not agree with the valuation. There was no evidence of any further communication or discussion in relation to Miller and/or Lonn being bought out of JCJ.

24. [30]

    On 6 April 2024, and apparently without prior notice, Lonn and Miller received email letters, dated 5 April, issued by Braun on behalf of JCJ to their personal email addresses, stating that their employment with JCJ had been terminated. Each letter purported to be signed by Vince Bonfa.

25. [31]

    The respective letters were in similar but not identical terms. Each stated:

26. [32]

    Below the heading “Reason for Termination” the letter to Miller stated:

27. [33]

    The letter to Lonn included an almost identical paragraph but added:

28. [34]

    The letter to Miller offered that he could resign in lieu of termination and asked him to tender his resignation by 5pm Sunday 7th April 2024. No such offer was made to Lonn. Miller did not resign.

29. [35]

    Miller and Lonn then sought reinstatement which was not responded to. Shortly thereafter, Miller and Lonn’s access to JCJ’s office was cut off.

30. [36]

    The proceedings were then commenced on 19 April 2024.

31. [37]

    In the meantime, JCJ has taken steps to close its Sydney office and has also notified customers of JCJ of the restructure and that Miller and Lonn are no longer with JCJ. There was also in evidence an industry publication discussing the restructuring at JCJ.

32. [38]

    Braun also gave evidence that he has lost trust and confidence in Miller and no longer wishes to work with Miller.

33. [39]

    Braun also gave evidence that there is no intention of excluding Miller from Board meetings of JCJ. There does not appear to have been any Board meetings since Miller’s termination.

34. [40]

    The termination letter for Miller also raised questions in relation to a number of expenses that had been charged by Miller to his JCJ corporate credit card. Braun included in his affidavit evidence some further detail as to these expenses which was then responded to by Miller in his evidence in reply. The suggestion was that Miller had misused his corporate credit card and this appears to have contributed, at least in part, to the breakdown in trust and confidence referred to by Braun. Counsel for the plaintiffs took objection to this material being admitted into evidence on the present application. I admitted it over objection. I do not need to, and do not, make any findings in relation to these allegations. Miller strongly denies that there has been any wrongdoing. The fact that the allegations have been made, and there is a dispute about them, goes to the present state of the relationship between the plaintiffs on the one hand and the other owners on the other.

Relevant legal principles

1. [41]

   Whether the Court should grant the interlocutory relief sought in the present case involves application of the well understood test of:

2. [42]

   The two inquiries are obviously interrelated.

3. [43]

   An aspect of the second inquiry – balance of convenience – involves consideration of whether damages would be an adequate remedy. In this regard, Brereton J stated in Goyal v Chandra (2006) 68 NSWLR 313 at [42] that:

Consideration

1. [44]

   I deal first with whether there is a serious question to be tried.

2. [45]

   The serious question to be tried relied upon by the plaintiffs was a breach of s 232 of the Corporations Act 2001 (Cth) (Corporations Act) by reason of the removal of the plaintiffs from their positions and the associated closure of the Sydney office. Reliance was placed on the decision of Brereton J In the matter of Optimisation Pty Ltd [2018] NSWSC 31 at [214] – [301] for the proposition that:

3. [46]

   So the argument ran:

4. [47]

   The other owners contended that there was no serious question to be tried because, in substance:

5. [48]

   I am prepared to proceed on the basis that there is a prima facie case/serious question to be tried that the conduct of the other owners – in taking the decisions that they did to close the Sydney office and terminate Miller and Lonn’s employment – is in contravention of s 232 of the Corporations Act. This is on the basis that, based on the Term Sheet, Miller expected that decisions such as who are to be the senior employees of JCJ and its strategic direction are matters which would be determined by agreement between the four owners. He was excluded from the decisions recently taken to close the Sydney office and terminate his and Lonn’s employment.

6. [49]

   The plaintiffs’ case is, however, by no means straightforward.

7. [50]

   There is, in my view, an issue about how the Term Sheet and the employment agreement – at least in relation to Miller – are to be read together. The logical consequence of Miller’s argument that unanimity is required under the Term Sheet would appear to be – as the defendants’ characterised it – that Miller had a right of veto over his own employment. Another construction of what occurred may be that all four shareholders were unanimous in relation to Miller’s employment, namely that it was governed by the terms of the employment agreement and provided any termination was in accordance with JCJ’s rights under the employment agreement – and it was not suggested that the termination was in breach of the terms of the agreement – there could be no complaint. Mr Phillips’ response to this point, as I understood it, was that any decision for JCJ to exercise its rights to terminate the employment agreement needed to be made unanimously by all four directors and this did not occur. This response leads again to effectively giving Miller a veto right.

8. [51]

   When confronted with this consequence in argument, Mr Phillips contended, in effect, that he did not need to go so far and it was likely that the Term Sheet would be circumscribed by requirements of reasonableness. Mr Phillips was unable to further identify what would be involved in notions of reasonableness in this context.

9. [52]

   There is also the contention raised by the defendants that it is by no means certain that excluding Miller from a decision in relation to his own employment – where he has an obvious conflict – is contrary to the numbers as a whole. It must be remembered, in this regard, that the decisions recently taken went beyond the termination of Miller and concerned the strategic direction of JCJ more generally. Miller would be unlikely to have a conflict on these broader issues.

10. [53]

    Turning now to the balance of convenience, there are, in my view, a considerable number of factors which weigh heavily against granting the interim relief of reinstatement.

11. [54]

    First, there appears to me to be a lack of utility in granting the interlocutory relief sought in the context of the final relief sought. The claim for final relief is, in substance, for a buy out order to remedy the allegedly oppressive conduct. There is no claim for permanent reinstatement of either Miller or Lonn. So much makes sense in circumstances where they want to be bought out.

12. [55]

    Mr Phillips contended, in substance, that Miller and Lonn’s primary position was to remain working with JCJ and thus suggested that the final relief of a buyout was in substance a fall-back position. I do not accept this contention. As set out above, there is no claim for final relief of reinstatement. Further, it is clear, as set out above, that in late-2023, Miller stated that he thought the directors were not compatible as partners. He raised the prospect of the entire company being sold and then, on 21 December 2023, put an offer on behalf of he and Lonn, to be bought out.

13. [56]

    There is no reason in my view, to make an interlocutory order for reinstatement when the final relief sought is a buyout: see ABC v Lenah Game Meats (2001) 208 CLR 199 at [16] per Gleeson CJ.

14. [57]

    Second, damages would in my view, be an adequate remedy for Miller and Lonn insofar as there are any losses occasioned by their wrongful termination. Further, in the event that the termination is found to amount to, or be part of, oppressive conduct, the financial consequences of the termination would also be taken into account in determining any buy out figure, which is ordinarily done by ignoring the effect of the oppressive conduct as found: see for example Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd (2004) 207 ALR 136 at [72]. Any lost wages would be taken into account. Any diminution in value of JCJ by reason of the exclusion of Miller and Lonn would also be taken into account to the extent that it was related to the oppressive conduct as found.

15. [58]

    Third, and contrary to what was contended by the plaintiffs, reinstatement would not be maintaining the status quo, but rather upsetting it. As was made clear at the hearing, such an outcome is not a complaint of delay in acting but, rather an appreciation of the circumstances as they exist today. Miller and Lonn were terminated on 6 April 2024. They have not occupied their positions since then. Customers have been told of the change in personnel and the restructuring including the closure of the Sydney office. Other persons are now performing the roles previously performed by Miller and Lonn. There is evidence of industry knowledge of the changes. Reinstatement would likely cause some not insignificant disruption to the business at this stage in addition to imposing a financial impost on JCJ in the form of paying Miller and Lonn’s salaries.

16. [59]

    Fourthly, there is the usual reluctance of courts to order specific performance in matters such as this. The plaintiffs’ frankly conceded that they could point to no authority where the relief they seek has previously been granted. They pointed to the decision of Black J in Re Courtesy Real Estate (NSW) Pty Ltd (2013) 96 ACSR 593 but that was a case where his Honour alluded to the theoretical possibility of making such an order but declined on the facts to so order. The case has a number of parallels with the present. The matters relied on by Black J in that case also strongly tell on the facts of the present case against the grant of interlocutory relief: see also Harris v Evans [2018] FCA 1856 at [40] per Collier J.

17. [60]

    Reinstating Miller and Lonn would also bring about an outcome which the majority of the owners of the business do not want in circumstances where there appears to be a breakdown in trust and confidence. Miller said as much at the Board meeting held on 14 November 2023. I do not accept any contention that the assertions of a loss of trust and confidence made by Mr Braun in his affidavit are somehow confected. The termination of Miller and Lonn suggests quite clearly that the majority of the owners no longer want them working in the day to day operations of the business. Miller also seeks a buy out as his primary final relief.

18. [61]

    Miller still retains his rights as a shareholder and director. Braun gave evidence that there was no intention to exclude Miller from any future Board meetings. Miller also did not contend for any interlocutory relief in this regard, such as notice of any future Board meetings, or intention to take any decisions covered by the reserved matters in the Term Sheet etc.

19. [62]

    The plaintiffs’ also contended that they were responsible for producing the bulk of the revenue earned by JCJ and that this provided a reason as to why each should be reinstated. This was disputed and the other owners contended that profitability had improved since Miller and Lonn had been terminated. I am in no position to determine who is correct in this respect. In any event, it is not necessary resolve it, even on an interim basis, as there are a number of other reasons as to why the interlocutory relief should be refused.

20. [63]

    For the reasons set out above, I decline to order any interlocutory relief.

21. [64]

    The parties’ interests would best be served by the proceedings being transferred to the Corporations List to be case managed to an early final hearing on the question of whether there has been oppressive conduct and, if there has been, the question of relief. The parties accepted that the proceedings should be transferred to the Corporations List after the Court has dealt with the claim for interlocutory relief and I will so order.

22. [65]

    It also seems to me that, given the claim for interlocutory relief has failed, the appropriate order is that the plaintiffs’ pay the defendants’ costs of the claim for interlocutory relief. I will not make this order now, but rather will direct the parties to seek to agree costs, and if they cannot, to provide brief submissions on costs and I will determine the issue on the papers.

Order

1. [66]

   The orders of the Court are:

   1. (1)

      The plaintiffs’ claim for interlocutory relief set out at paragraphs 5, 9, 10 and 11 of the amended originating process is dismissed.

   2. (2)

      The proceedings are transferred to the Corporations List and listed for directions on Monday 13 May 2024.

   3. (3)

      The parties are to confer and seek to agree an appropriate order as to costs which is to be provided to my Associate by no later than 5 pm on Monday 13 May 2024. Failing agreement, each party is to provide to my Associate by 5 pm on 13 May 2024 any submissions as to costs, such submissions not to exceed 3 pages, whereupon I will determine the question of costs on the papers.