In the matter of Ikon Group Limited

HIS HONOUR: The ultimate holding company of the first defendant company Ikon Australia Pty Ltd ("Ikon A") is Ikon International Hong Kong PCL, a company registered in Hong Kong which is the vehicle for a joint venture between the plaintiff Ikon Group Ltd ("Ikon Group"), of which one Engin Yikilmazoglu is the sole director and shareholder, and Ikon Financial Group Ltd (“Ikon F”), formerly Multitrade Financial Group Holdings Ltd, an entity owned and controlled by the second defendant Naser Taher. Each of Ikon International Hong Kong and Ikon Financial Group Ltd hold fifty per cent of the shares in Ikon Group, and Mr Yikilmazoglu and Mr Taher are its directors. Ikon Group holds all the shares in the third defendant Multitrade Financial Group Ltd ("MFGL") which in turn holds all the shares in Ikon A. The affairs of the joint venture are regulated by a joint venture agreement of 31 December 2012 and three addenda agreements: the first of 30 March 2013, the second of 11 September 2013 and the third of 28 March 2014. I shall in due course refer to certain provisions of those agreements.

Ikon A is an Australian company licensed to conduct a financial services business under (Cth) Corporations Act 2001 which is engaged in foreign exchange trading. For present purposes, it suffices to explain that it operates a “front office” which receives instructions from clients, and a “back office” located in Turkey and apparently under the control of Mr Yikilmazoglu which processes those instructions through bank accounts and provides visibility of the status of the accounts to clients. Funds deposited with Ikon A in this way are then on-forwarded to another company controlled by Mr Yikilmazoglu, Ikon Finance Ltd. Mr Yikilmazoglu says that this is by way of an established practice of hedging in order to reduce risk to Ikon A and its clients.

Over the last several months, disputation between the interests of Mr Taher and those of Mr Yikilmazoglu has intensified, and Mr Taher has apparently expressed an intention to exit from the joint venture, and as a step in doing so, to recover the funds deposited with Ikon F.

The arrangements by which Ikon A hedges with Ikon F have been the subject of some disputation for some time, although there appears to be good evidence that, even if there is not a formal written agreement covering those arrangements, Mr Taher has been aware of them for some considerable time.

In any event, in recent months, MFGL purports to have ratified the appointment of the fourth defendant Yehya El-Taher, the son of Naser Taher, as a director of Ikon A on 15 January 2015. MFGL purports to have appointed the fifth defendant Dominic Lim as a director of Ikon A on 23 April 2015. MFGL purports to have removed Joshua Dentrinos as a director of Ikon A from 23 April 2015. Mr Yikilmazoglu's access to the accounts of Ikon A, which he says is essential to the ability of the back office to process client instructions, has been removed with effect from 10 April 2015, and instructions have been given, purportedly on behalf of Ikon A and Mr Taher, demanding the return to Ikon A of the funds deposited with Ikon F, and that all clients of Ikon A be switched from a hedged arrangement to a fully "B Book" unhedged arrangement.

By originating process filed on 30 April 2015, Ikon Group claims by way of final relief a declaration that the purported appointments of Yehya El-Taher and Dominic Lim as directors of Ikon A are invalid; a declaration that the removal of Joshua Dentrinos and purported termination of his employment was invalid; a declaration that all acts and decisions of Ikon A authorised by Naser Taher, MFGL, Yehya El-Taher and Dominic Lim are invalid; an order that the register maintained by ASIC be rectified by removing the names of Yehya El-Taher and Dominic Lim as directors; a declaration that the payment of US $178,000 by Ikon A to Naser Taher in February 2015 was unauthorised and that the said sum is held upon trust for Ikon A by Naser Taher; and a declaration that by causing the said payment of $178,000 to Naser Taher, by giving or acquiescing in the instructions to transfer all clients of Ikon A into the B Book, by giving the direction to Ikon F to return the funds held on deposit, and by allegedly failing to act on instructions of clients of Ikon A since about 12 April 2014, Yehya El-Taher and Dominic Lim have contravened Corporations Act, ss 180, 181 and 182, by acting in breach of their duties as directors or de facto directors of Ikon A.

As will be apparent from that short summary of the final relief claimed, much of it is focused on the purported removal of Mr Dentrinos and appointments of Yehya El-Taher and Dominic Lim as directors, and on the payment of US$178,000. None of those matters are the subject of the interlocutory relief claimed in the application presently before the Court. By way of interlocutory and ultimately also final relief, Ikon Group claims the following orders pursuant to Corporations Act, s 1324:

At present, the only defendants before the Court are the first defendant Ikon A, the second defendant Naser Taher, and the fifth defendant Dominic Lim. The application for interlocutory relief was made returnable on an urgent basis. The third and fourth defendants are not located in Australia; nor for that matter is the second defendant, but an appearance has been filed on his behalf.

At this point, it is appropriate to refer to certain provisions of the joint venture agreement and addendums. The principal joint venture agreement of 31 December 2012 was made between Mr Yikilmazoglu, Mr Naser Taher, and a number of companies called the "EY Companies" (being companies owned and controlled by Mr Yikilmazoglu), a number of companies called the "NT Companies" (being companies owned and controlled by Mr Taher), and a number of companies called the "JVC Companies" (being companies that formed part of the joint venture).

Relevantly, MFGL was one of the joint venture companies, Ikon Finance Ltd was one of the EY companies, and Multitrade Financial Group Holdings Ltd was one of the NT companies. Clause 8 provided that the board – that is to say, the board of the joint venture vehicle, Ikon International Holdings PLC – shall manage the joint venture company and its business, and in turn, the JVC Companies, with Mr Yikilmazoglu to have primary responsibility for trading operations and Mr Taher to have primary responsibility for marketing and sales.

Clause 8.6 provided that directors of the other JVC companies, being the joint venture companies excluding the joint venture vehicle itself, shall be appointed by the board of the joint venture company. Ikon A was, as I have said, one of the other JVC companies, prima facie subject to that provision.

Clause 27 (Governing Law and Jurisdiction) provided that the agreement and any disputes or claims arising out of or in connection with it were governed by and construed in accordance with the law of England and the parties submitted to the exclusive jurisdiction of the English Courts. Provision was made for addresses for service at the offices of solicitors in England.

In the second addendum dated 11 September 2013, cl 28 provided as follows:

In the third addendum of 28 March 2014, cl 6.3 makes provision in respect of the JVC bank accounts and their control, relevantly as follows:

Ikon A was one of the JVC trading companies.

Also in the third addendum, cl 22 (Dispute Resolution Procedure) provided that should any dispute or difference arise out of, in relation to or in connection with the joint venture documents, then the parties shall follow the procedures set out in that clause, which involve a notice of dispute followed by a good faith attempt to resolve the dispute by meeting and then by mediation, such mediation to take place in London. The parties were prohibited from commencing arbitration proceedings unless the dispute resolution procedure had first been complied with. Subject thereto, any dispute was to be finally resolved by arbitration under cl 23 (Arbitration), which provided for all such disputes to be referred to and finally resolved by arbitration under the London Court of International Arbitration Rules (“LCIA Rules”). Provision was made that all previous agreements under or in connection with the joint venture documents conferring jurisdiction on the Courts of England and Wales are no longer operative or effective. The LCIA Rules were deemed to be incorporated, and the governing law of the arbitration shall be the substantive law of England and Wales.

On 4 May 2015, a London solicitor David Michael Green, purporting to act for the joint venture company and for Ikon A on the instructions of Mr Naser Taher, issued and sent a notice of dispute on behalf of the joint venture company, Mr Naser Taher, MFG Holdings Ltd and Ikon A, to Mr Yikilmazoglu and the EY companies. Accordingly, the dispute resolution procedures referred to in cl 22 have in that way been invoked.

Ikon Group does not, in the interlocutory application before this Court, rely on the joint venture agreements, evidently because were it to do so, such an application would be liable to be met by objections to forum, and the ADR and arbitration clauses to which I have referred. Rather, Ikon Group invokes Corporations Act, s 1324, to seek injunctive relief in respect of the affairs of Ikon A.

Corporations Act, s 1324, relevantly provides as follows:

It is clear that this extends to a mandatory injunction [see s 1324(2)] and an interim injunction [see s 1324(4)]. It is not necessary where a person has engaged in contravening conduct that the Court be satisfied that the person intends to continue or engage again in such conduct, nor is it necessary that the person have previously engaged in such conduct, nor that there is an imminent danger with substantial damage [see s1324(6), (7)].

The plaintiff is not a member of Ikon A but is a shareholder – a fifty per cent shareholder – in Ikon A’s ultimate holding company. I am content to accept for present purposes that it is a person whose interests may be affected by breaches of duty of the directors of Ikon A, and thus that it has the requisite standing under s 1324(1) to apply for an injunction restraining the directors from engaging in breaches of such duty [Oates v Hawkins [2010] NSWSC 491, [66]-[68] (Bergin CJ in Eq); Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69, 92 [112]-[114] (Campbell JA, Spigelman CJ and Allsop P agreeing); Fayad v Bellpac Pty Ltd [2004] NSWSC 755, [74]-[78] (White J)].

Granted such standing, the touchstone of s 1324 is a contravention, past or threatened, of the Corporations Act. It is in respect of conduct that constitutes, constituted or would constitute a contravention, or ancillary thereto, that the power to grant an injunction under that section is conferred.

In the originating process, the only alleged contraventions of the Corporations Act that are identified are to be found in paragraph 7, and are said to be contraventions of the directors' duties provisions, ss 180 - 182. In particular, the acts said to give rise to such contraventions are the payment of US $178,000 to Naser Taher, in respect of which no interlocutory relief is sought; the giving of the B Book instruction; the giving of the Ikon F direction; and the alleged failure to act on the instructions of clients since 12 April 2014, which essentially refers to the failure to process instructions for the withdrawal of funds deposited.

Against that background, it is appropriate to turn to each of the orders sought by way of interlocutory relief, to which I have referred in summary form above. The first (Originating Process, paragraph 8) is as follows:

This order is directed at the alleged contravention said to be constituted by the failure to process client instructions.

Where interim relief is sought under s 1324, the relevant considerations will usually be whether there is a sufficiently seriously arguable case of an actual or threatened contravention of the Act, the balance of convenience, and whether there are any other discretionary considerations informing the grant of interlocutory relief.

I accept that directors may contravene their duties to act in good faith in the interests of the company, and to act with the requisite degree of care, skill and diligence, if they were to facilitate breaches by the company of obligations owed to third parties, such as clients, in circumstances where doing so would be calculated to expose the company to liabilities and thus jeopardise the position of the company. I accept also that in some circumstances, the failure of a financial services business such as Ikon A to act promptly on clients' instructions may be damaging to its reputation and future business.

But it is far from plain on the evidence that there is any wilful failure on the part of Ikon A to act upon client instructions in that respect. There is evidence that at least some clients have had difficulties in having their instructions acted on in recent weeks, and that this has triggered concerns and complaints by those clients, but this difficulty appears not to be any result of a decision by those presently controlling the company not to act on client instructions, but of a breakdown in the passage of information between the front office and the back office, such as to deprive the back office of information which Mr Yikilmazoglu insists on having if he is to process those instructions through the back office.

It does not appear to me that an order requiring the company to act on the instructions given to it by clients would be an order restraining a director from engaging in a breach of the directors’ duties. An order requiring the second and fifth defendants to do what is necessary to give effect to such instructions might fall within that class, but it is inconceivable that such an order should be made as sought, in respect of, "all instructions given to it by any clients", since some instructions given by clients might appropriately be disregarded; for example, if they were not in accordance with the terms of the arrangements between Ikon A and the client. In any event, Mr Yiklimazoglu has proffered an undertaking that he will make the Back Office perform the Back Office function for Ikon A and that he will make it available for processing withdrawals and deposits on the trading platform, subject to being provided with certain specified information, and the Court has been informed that Ikon A and Mr Naser Taher are prepared to provide that information.

Accordingly, while it is far from apparent that the failure to provide such information as is insisted upon by Mr Yiklimazoglu, constitutes a breach of directors' duties so as to attract jurisdiction under s 1324, it seems, on the current state of the proceedings, that such information will be provided in any event and, accordingly, that there is no necessity for any such order, even if there were an arguable breach.

Order (9) sought in the originating process is as follows:

This is concerned, as is apparent, with access to the bank accounts. It is simply not apparent how a breach of directors' duties is involved in failing to give Mr Yiklimazoglu, or the plaintiff, or a person who has ostensibly been removed as a director, access to bank accounts. I do not see any arguable basis for contending that order (9) is directed to any arguable breach of directors' duties. It may very well be that Mr Yiklimazoglu is entitled to access to the bank accounts in question under the provisions of the Joint Venture Agreement to which I have referred, but that is not a right which is sought to be vindicated on the present application under Corporations Act, s 1324.

Order (10) in the originating process is as follows:

As will be apparent, this is addressed to the direction given to Ikon Finance to return the moneys held by it to Ikon A. In effect, this amounts to a direction to terminate the relationship between Ikon A and Ikon Finance and, in particular, the facility for hedging that that provides.

First, so far as appears from the evidence to date, Ikon Finance does not regard the direction as validly and effectively given or binding on it and does not propose to comply with it. In those circumstances, it is not apparent what utility would be served by an order requiring revocation of the direction. It would seem that the validity of the direction can be tested in due course without requiring the step of interlocutory relief cancelling or suspending its effect.

Secondly, while it is conceivable that giving such a direction, if it would expose Ikon A to liability either to Ikon F or to clients of Ikon A, could constitute a breach of directors’ duties, the position is entirely equivocal in that respect. Whether it would in fact incur liability and jeopardise the position of Ikon A, or whether it might ultimately result in a benefit to Ikon A, is equivocal. Further, even if it eventually incurs liability for Ikon A, not every decision of a director that results in an adverse outcome for the company constitutes a breach of directors’ duties. To my mind it is impossible to say, even on an interlocutory basis, that there is a prima facie or seriously arguable case of a breach of directors’ duties in this respect. The position is that there is conduct which equally may or may not ultimately turn out to be adverse to the company.

The plaintiff emphasised that the Product Disclosure Statement issued by Ikon A on 24 July 2012 was apparently still in circulation, and contained a number of statements, including to the effect that one of the advantages of Ikon A's trading platform was that the client had "full control over his/her account and positions", that "You are reliant on Ikon A's ability to meet its counter-party obligations to you to settle the relevant contract. Being part of the Ikon Group, Ikon A hedges every transaction of Ikon Group and so for the purposes of disposing this risk you should need to consider the procedures and counter-parties used by Ikon Group"; "We are not exposed to market risk as we hedge every transaction with Ikon Group", and "under the Australian client money rules, we must hold your moneys on trust.” The plaintiff contends that if Ikon A no longer hedges transactions, then those statements would be rendered misleading and the PDS defective under Corporations Act, s 1021B(1).

I accept that it is at least seriously arguable that if Ikon A no longer hedges its market exposure, and if the current PDS remains in circulation, then in futuro the PDS will be defective, and that its future distribution may well thereby be in contravention of the Act. But it is important to understand that the contravention would be constituted by the circulation or publication of a defective PDS in the future, not by a failure to hedge. The Court has not been referred to any provision which would make the failure to hedge per se a contravention of the Act. True it is that a failure to notify clients of a material change of circumstances may also be a contravention under s 1017B(1)(a). But, again, such contravention would be constituted not by the failure to hedge, but by the failure to inform clients of the change of circumstances. The order sought in this respect is not addressed to preventing or remediating any actual or threatened contravention, but to specifically enforcing the representations contained in the PDS, which is quite a different matter and not within what is contemplated by s 1324.

Order (11) sought is in the following terms:

I did not understand any submissions to be directed to paragraphs 11.2 or 11.4. Paragraphs 11.1 and 11.3 are consequential on the relief sought in paragraphs 9 and 10 and what I have said about those claims sufficiently addresses them. Paragraph 11.5 is addressed to the so-called B Book direction.

I have already referred to cl 28 of the second addendum which, prima facie, specifically authorises Mr Taher to give the B Book direction. It is not inconceivable that a director or de facto director who gives such a direction, even though specifically authorised by the Joint Venture Agreement, could be in breach of his or her duty as a director, if the exercise of that right would result in jeopardy to the company. But it is not self-evident why the B Book direction would incur jeopardy to the company. Hedging reduces risk, but also reduces margin or profit. Transferring to a B Book basis might incur increased risk, but might also result in increased profit.

In any event, despite the contentions that have been advanced, it is quite unapparent why transferring to an unhedged basis would impact in the short term on the net tangible asset position of Ikon A. Essentially, the result would be that Ikon A would hold the cash deposited with it, rather than the benefit of a hedging contract. It does not seem to me that in practical terms, and absent major movements in foreign exchange rates, that would significantly impact on net tangible assets at all.

In circumstances where the B Book direction appears to be specifically authorised by the Joint Venture Agreement, where it is not self-evident that it will jeopardise the position of Ikon A in terms of its assets and undertaking, it does not seem to me that there is a sufficiently arguable case of breach of duty against the directors to warrant relief under s 1324 on an interlocutory basis.

Order (12) sought in the interlocutory process is as follows:

It suffices to say that it is not apparent what contravention of the Corporations Act is involved in not providing to Ikon Group or to Mr Dentrinos the bank account statements and NTA reports referred to in that paragraph.

In summary, it may be that the Ikon F direction and the B Book direction are ultimately shown not to be optimal in the interests of Ikon A, but as things stand, it is also quite possible that that would not be established. It is possible, but quite unclear, that giving those directions constitutes a breach of directors' duties. Even if they do, they constitute a contravention of the Corporations Act in an indirect or secondary way. They are judgments or decisions made by directors as to the internal management of the company and such are matters in which courts are ordinarily very reluctant to interfere. I do not doubt that where there is apparent mismanagement, or decisions of directors which would plainly constitute a breach of duty, the court might interfere. But, ordinarily, if relations between directors or shareholders breakdown to the point that there is not effective management of the company, or that there is such ongoing and irresolvable disputation as to require intervention, the remedy is the appointment of a provisional liquidator, rather than the court reviewing or second-guessing commercial decisions made by directors.

Essentially, as it appears to me, the plaintiff here seeks to maintain what it contends are the current internal arrangements where the apparent director, whose status is not challenged on the interlocutory application, does not wish to do so.

Thus, in short, I am unsatisfied that there is a sufficiently seriously arguable case of a contravention of the Corporations Act to justify the grant of an injunction under s 1324. I am fortified in that conclusion by the view that what is really in issue on the present application is the arrangements between the parties to the Joint Venture Agreement, that more appropriate remedies are likely to be available in pursuance of rights under the Joint Venture Agreement, and that those remedies can be sought in the arbitral proceedings which appear, having regard to the notice of dispute, to be imminent.

For those reasons, I order that the application for interlocutory relief in paragraph 13 of the originating process be dismissed. The costs of the interlocutory application will be the defendants’ costs in the proceedings.