Federal Court of Australia

Hillier v Martin (No 11) [2022] FCA 407

ORDERS

THE COURT NOTES THAT:

1.    The applicant through his Counsel has given the usual undertaking as to damages in respect of the restraint referred to in paragraph 1 of these Orders.

THE COURT ORDERS THAT:

1.    The order in paragraph 4 of the orders made on 29 March 2022 is to remain in force until 5:00pm (ACST) on 28 April 2022.

2.    The respondents have liberty to apply, on two business days’ notice, for an order varying or revoking the order referred to in paragraph 1. Such liberty may be exercised by filing an affidavit deposing to the facts upon which the respondents rely. Any rule of the Court requiring the filing of an interlocutory application in respect of any such relief is dispensed with.

3.    On or before 11 April 2022 the applicant is to advise the respondents and the Court as to whether an application for orders in terms of paragraphs 1 to 6 of the interlocutory application dated 4 April 2022 is pressed. To the extent that the application for any one of those orders is pressed, the application is, by this order, set down for case management at 9:30am (ACST) on 28 April 2022.

4.    On or before 20 April 2022 the respondents, if so advised, are to file and serve any affidavit material upon which they rely in opposition to the order in paragraph 7 of the interlocutory application dated 4 April 2022.

5.    On or before 26 April 2022 the applicant is to file and serve any affidavit material strictly in response.

6.    The application for an order in terms of paragraph 7 of the interlocutory application dated 4 April 2022 is set down for hearing at 9:30am (ACST) on 28 April 2022.

7.    Liberty to apply.

8.    Costs of today reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

CHARLESWORTH J

1    This action has been set down for trial commencing on 16 June 2022. It is beset with interlocutory activity, much of it concerning the first respondent’s obligation to discover and produce for inspection financial information contained in what has been referred to as the Xero Database. The information relates to the operation of a hamburger business trading as Nordburger (the Nordburger business), the ownership of which is disputed. An order for standard discovery was made with the consent of the first respondent on 10 December 2020. A series of unsuccessful interlocutory applications brought by one or both of the respondents has resulted in the production of the materials in the Xero Database to the applicant only recently.

2    At present, the legal owner of the assets constituting the Nordburger business is the second respondent, Nordburger Operations Pty Ltd. The respondents assert that Operations hold and is entitled to hold the assets on trust on terms summarised below. Mr Hillier disputes that entitlement.

3    On 29 March 2022 I made orders relevantly in the following terms:

3.    There be a further case management hearing at not before 4.30pm (ACDT) on 6 April 2022.

4.    Pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth), the first respondent and second respondent be restrained and an injunction is granted restraining them, whether by themselves, their servants or agents or otherwise, including Mr Thomas Martin, from making any payments out of the revenue, funds or assets, or otherwise dealing with the funds or assets, or the entities, trusts or businesses, which trade under the Nordburger name (Nordburger businesses) or brand except in payment of the expenses of the Nordburger businesses in the ordinary course of business.

5.    The order in paragraph 4 is to remain in force:

(a)    until 5.00 pm on 4 April 2022; or

(b)    if an interlocutory application is filed in accordance with the order in paragraph 2, until such time as the interlocutory application is determined.

6.    The respondents have liberty to apply at short notice to vary the orders in paragraphs 4 and 5.

4    I will refer to the order in paragraph 4 as the “original restraint”. It is in terms similar to an interlocutory order sought on the face of the originating application filed on 11 August 2020 against the first respondent (Mrs Victoria Martin) as the only respondent at that time. With the consensus of senior counsel for the applicant (Mr Hiller) and Mrs Martin, I have previously ordered that Mr Hillier’s application for interlocutory orders as sought on the originating application (or as varied) be deferred until discovery was complete. I have taken the view that the recent (belated) discharge by Mrs Martin of her discovery obligations makes it now permissible for Mr Hillier to agitate for the relief he sought at the outset of the proceeding, notwithstanding the proximity of this matter to trial. I am satisfied that he has acted promptly after gaining access to the information upon which he relies.

5    As can be seen, the original restraint was expressed to apply for a few days, anticipating the filing of an interlocutory application by Mr Hillier. At the time that it was made, Mr Hillier had provided a minute of order seeking for the restraint to apply until further order. In addition, he sought a series of orders providing for the appointment of a receiver to Operations or the Nordburger Holdings Trust (NH Trust) on the basis of actual or suspected insolvency. He sought to have the application (raised by way of the minute) programmed to an urgent hearing.

6    The respondents submitted that the application was one that ought to have been made by way of an interlocutory application filed in accordance with the Federal Court Rules 2011 (Cth). I accepted that contention insofar as it concerned the application for an appointment of a receiver, but otherwise expressed the view that the application for an order in terms of the original restraint had already been made on the face of the originating application, such that a separate interlocutory application was not necessary in order for it to be pursued on 29 March 2022.

7    The hearing on 29 March 2022 proceeded as follows:

(1)    Counsel for Mr Hillier asserted urgency attending the application but confirmed that he was still in the course of obtaining instructions as to what relief Mr Hillier might seek arising out of the financial information contained in the Xero Database. In asserting the urgency, Counsel said that an expert report obtained by Mr Hillier had indicated that the Nordburger business was trading whilst insolvent.

(2)    The Court asked Counsel for the respondents whether there was any willingness on their part to give an undertaking in terms of the proposed restraint, to persist for seven days. Counsel said that he did not have those instructions. Counsel confirmed that he had not had the opportunity to read evidentiary material recently filed by Mr Hillier in support of the orders sought in his minute (which at that time included a Chartered Accountant Report annexed to an affidavit of Mr Phil Camens affirmed on 28 March 2022 “Camens Report”).

(3)    Counsel for the respondents proposed that the case management hearing be adjourned for a short period to allow Mr Hillier to file an interlocutory application and any further affidavits relied upon. Counsel said that on his brief perusal of the Camens Report the opinions expressed in it did not support Mr Hillier’s assertion of insolvency.

(4)    The Court invited submissions as to whether interim relief should be granted in the meantime.

(5)    Counsel for the respondents said that he did not know what an undertaking in terms of the original restraint would prevent his clients from doing “so I don’t necessarily see the prejudice in such an order being made for a short period of time”.

(6)    The Court observed that the order would plainly restrain the respondents from granting loans, making distributions, whether trust distributions or otherwise, “and the like”. Counsel repeated that he did not have instructions to give an undertaking in terms of the restraint.

(7)    The Court proposed that an interim injunction be made in the terms sought by Mr Hillier for a short period pending the filing of an interlocutory application in relation to the appointment of a receiver or like relief, and that the respondents be granted liberty to apply to vary or discharge the restraint at short notice.

(8)    Counsel stated “for the record” that the respondents did not consider that grounds for such an injunction arose “but I do accept that in the absence of any prejudice your Honour’s course is appropriate”.

8    The Court emphasised that the original restraint was to apply in the very short term as a holding measure, without descending into the merits. The Court did not at that time descend into the merits of the application, given the respondents’ confirmation that the proposed course was appropriate.

9    By paragraph 7 of an interlocutory application filed on 4 April 2022, the applicant applied for an order to the effect that the original restraint continue in full force and effect until further order, together with orders providing for the appointment of a receiver. The parties next appeared before me on 6 April 2022.

10    At that hearing, the respondents provided a minute of order, by which they sought to have the original restraint immediately discharged. By their minute, the respondents exercised their liberty to apply to vary or revoke the original restraint, as they were entitled to do at short notice:  see [6] of the orders made on 29 March 2022. Counsel for the respondents submitted that the evidence filed in support of the restraint was insufficient to justify both the original order, and its continuation. Attempts to reach a short term compromise were unsuccessful. It was therefore necessary to determine whether there was a proper basis for the original restraint to continue for any period of time. The Court sought submissions as to whether the restraint should continue in force until 28 April 2022, a date then identified for the hearing of the whole of Mr Hillier’s interlocutory application.

11    The hearing on 6 April 2022 commenced outside of ordinary court sitting hours and continued into the evening. At the conclusion of submissions I made an order that the original restraint continue in force until 5.00pm on 28 April 2022. It was not practicable for the Court at that time to prepare written reasons, the parties having previously been informed that the Court was then engaged in the conduct of an ongoing trial. Oral reasons were given in terms that made it plain that they should not be understood to be exhaustive. I now provide written reasons for extending the original restraint to 28 April 2022.

the respondents as trustees

12    When this proceeding commenced, the only named respondent was Mrs Martin. Operations was joined as the second respondent by orders made on 1 July 2021 in circumstances described in Hillier v Martin (No 5) [2021] FCA 949.

13    The substantive issues in dispute are summarised in Hillier v Martin (No 7) [2021] FCA 1221. In these reasons I will adopt the same abbreviations appearing in that summary:

3    The parties are in dispute as to the ownership and control of a hamburger business trading as Nordburger. Mr Hillier is the brother of the first respondent, Mrs Victoria Martin.

4    Mr Hillier’s case is that there exists a joint venture agreement involving himself, Mrs Martin and the third respondent Erik Vari Pty Ltd. He alleges that, pursuant to the joint venture agreement, the assets of the business were held by the company Nordburger Pty Ltd, of which Mrs Martin was sole director and shareholder. He seeks a declaration to the effect that at all material times Mrs Martin held the shares in Nordburger Pty Ltd on trust for the joint venturers on the terms of the joint venture agreement. The material times date back to late 2012 when the joint venture was allegedly formed. I will refer to the trust alleged by Mr Hillier as the JV Trust. Mr Hillier asserts an equity share in the corpus and income of the JV Trust of at least 40%. He acknowledges Mrs Martin has an interest of at least 20% in the same.

5    Among other things, Mr Hillier alleges that Mrs Martin caused the assets of the business to be transferred to Nordburger Operations Pty Ltd in circumstances constituting a breach of the joint venture agreement, breach of fiduciary obligations arising by virtue of the JV Trust, and a fraud on a power in respect of the JV Trust. He alleges that the transfer had no valid effect on the terms and operation of the joint venture agreement. He alleges that the transfer was undertaken at a time when Mrs Martin was the sole director and shareholder of both Nordburger Pty Ltd and Operations and the controlling mind of each entity. Among other things, Mr Hillier seeks a declaration that Operations holds the business assets on trust for the benefit of the joint venture participants and on terms consistent with the joint venture agreement.

6    The fact of the transfer to Operations does not appear to be disputed. It is Mrs Martin’s case that the transfer occurred in the context of a restructure of the business in late 2019. Mrs Martin denies the existence of a joint venture agreement and so denies the existence of any trust arising out of any such agreement. She alleges that Operations holds the business assets as the duly appointed Trustee of the Nordburger Holdings Trust (NH Trust), being an express trust settled by Deed (the NHT Deed) shortly prior to the transfer. According to the NHT Deed, Mr Hillier and Mrs Martin are the only primary beneficiaries. There appear to be many other persons meeting the description of secondary beneficiaries.

7    It is Mrs Martin’s case that the terms of the NHT Deed are consistent with the terms of a prior family trust and reflect the prior legal relations between her and Mr Hillier in respect of their past business activities. She denies that Vari has any interest in the business, whether by virtue of any joint venture agreement, or at all.

14    I went on to say:

8    The above summary is based on my current understanding of the pleadings and is not intended to be exhaustive of all of the issues to be tried. For present purposes it is sufficient to identify that the legal controversy to be determined at trial concerns the existence (or otherwise) of the JV Trust and the validity of the NH Trust as constituted by the NHT Deed. The factual subject matter of that controversy is a business that is a going concern and that (on the limited materials presently before me) appears to have been in a sound financial state at the time of the preparation of its accounts for the 2019 financial year.

9    It is important to emphasise that on the cases of both Mr Hillier and Mrs Martin, the assets of the Nordburger business are held on trust. Mrs Martin does not plead that Operations is owner of the trust assets other than in its capacity as a trustee. It is convenient to refer to the assets of the whole of the Nordburger business enterprise as the “trust assets” irrespective of the identification of the proper trust governing the relations between Mr Hillier and Mrs Martin. The identification of the proper trust is an issue yet to be tried.

15    On 7 December 2020, Mr Thomas Martin was appointed as a director of Operations and Mrs Martin (his wife) has since resigned her appointment as a director. That leaves Mr Martin as the sole director of Operations.

16    As mentioned in the above summary, Mr Hillier’s position is that the transfer of Mrs Martin’s shares in Nordburger was itself a breach of trust and a fraud on the power of the trustee of the JV Trust. On Mr Hillier’s case, the terms of the JV Trust would not permit Mrs Martin to enter into the transactions that have resulted in Operations (under the directorship of Mr Martin) operating and controlling the Nordburger business without his participation or consent. The validity of the NH Trust is itself the subject of dispute, as is the existence of the JV agreement and the JV Trust. Accordingly, when the respective parties refer to a “breach of trust” it is important to keep in mind that they are each referring to different asserted trusts. Whether the respondents are entitled to exclude Mr Hillier from participation in the business and to deny him information concerning its day to day operations is itself a significant matter of dispute.

17    I have previously determined that there is a serious question to be tried in the substantive action:  Hillier v Martin (No 7). Counsel for the respondents invited me to revisit that question. I decline to do so, principally because Counsel’s submission on the point was expressed at a high level of generality without specifying why the Court’s previous assessment on the question was wrong. The Court was not taken to specific evidence, nor did Counsel explain why Mr Hillier’s claims were untenable. There has been no prior application for summary judgment, notwithstanding prior threats on the part of the second respondent to bring one.

18    Whatever Mr Hillier’s legal entitlements may be, I am satisfied that he has been denied access to information concerning the conduct of the Nordburger business from some time prior to the commencement of this action and that the interlocutory application is precipitated by the detailed financial information that has only recently been made available to him by virtue of the standard discovery order and Mrs Martin’s associated production obligations. It is plainly open to Mr Hillier to rely on the financial information as the source of his concerns.

19    In determining whether the original restraint should continue, I have taken the view that it is in the interests of justice that the assets of either asserted trust (be it the JV Trust or the NH Trust, whichever is valid) be preserved and maintained for the period of the restraint. In my view, the restraint is in large part a reflection of a trustee’s duties in relation to the conduct of an asset in the nature of a business, irrespective of which trust applies. As discussed below, I have not considered it necessary to form a concluded view as to whether any prior transactions constitute a breach of the NH Trust, nor to form any view concerning the solvency of the entities operating the Nordburger business or holding its assets. The focus of the Court is on whether future transactions other than those permitted by the order itself should be restrained. In that context, it is relevant to consider whether there is a risk that the value of the trust assets (together constituting the Nordburger business as a going concern) will be diminished if the order is not made. In short, the order sought by Mr Hiller seeks to restrain the activities of the respondents whilst they remain in effective control of the trust assets pending the resolution of whether they may validly exercise any such control on the terms they assert.

20    Again in the absence of evidence to the contrary, it is reasonable to infer that the terms of either trust include an obligation on the trustee to carry on the Nordburger business as trustee, that is, in the best interests of the beneficiaries, whoever they might be. The obligations of a trustee and fiduciary are well established and need not be discussed here:  Breen v Williams (1996) 186 CLR 71; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Chan v Zacharia (1984) 154 CLR 178.

21    I have not considered it necessary to categorise the restraint as being in the nature of a “freezing order” or to apply any other label to it, except to say that the general thrust of Mr Hillier’s submissions is that the Court should restrain activities that may result in the diminution of an asset, the ownership and control of which is the very subject matter of the underlying dispute.

Criteria for an interlocutory injunction

22    As Gleeson CJ and Crennan J said in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 (at [19]):

… in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff’s entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed.  …

23    In determining where the balance of convenience lies, the Court must compare the prejudice likely to be suffered by each party if an injunction is granted or not granted as the case may be:  Lucisano v Westpac Banking Corporation [2015] FCA 243, Gordon J (at [7]).

24    The criteria for the grant of an injunction interrelate, such that the extent to which it is appropriate to examine the merits of an applicant’s claim for relief will always depend on the circumstances of the case:  Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199, Gleeson CJ (at [18]).

25    In Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238 the Full Court (Dowsett, Foster and Yates JJ) said:

61.    The requirement that, in order to obtain an interlocutory injunction, the plaintiff must demonstrate that, if no injunction is granted, he or she will suffer irreparable injury for which damages will not be adequate compensation (the second requirement specified by Mason ACJ in Castlemaine Tooheys at 153) was not mentioned in Beecham. Nor was it referred to by Gummow and Hayne JJ in O’Neill. Nonetheless, Gleeson CJ and Crennan J included that requirement in their articulation of the relevant ‘organising principles’ (at [19] in O’Neill). They also agreed with the explanation of those principles given by Gummow and Hayne JJ at [65]–[72] in the same case. One way of reconciling the views of Gleeson CJ and Crennan J with those of Gummow and Hayne JJ on this point is to treat ‘irreparable harm’ as one of the matters which would ordinarily need to be addressed in the Court’s consideration of the balance of convenience and justice rather than as a distinct and antecedent consideration. This has been the approach taken by some judges (eg Ashley J in AB Hassle v Pharmacia (Australia) Pty Ltd (1995) 33 IPR 63 at 76–77; Gordon J in Marley New Zealand Ltd v Icon Plastics Pty Ltd [2007] FCA 851 at [3]; Kenny J in Medrad Inc v Alpine Medical Pty Ltd (2009) 82 IPR 101 at [38]; and Yates J in Instyle Contract Textiles Pty Ltd v Good Environmental Choice Services Pty Ltd (No 2) [2010] FCA 38 at [55]–[64]).

62.    The assessment of harm to the plaintiff, if there is no injunction, and the assessment of prejudice or harm to the defendant, if an injunction is granted, is at the heart of the basket of discretionary considerations which must be addressed and weighed as part of the Court’s consideration of the balance of convenience and justice. The question of whether damages will be an adequate remedy for the alleged infringement of the plaintiff’s rights will always need to be considered when the Court has an application for interlocutory injunctive relief before it. It may or may not be determinative in any given case. That question involves an assessment by the Court as to whether the plaintiff would, in all material respects, be in as good a position if he were confined to his damages remedy, as he would be in if an injunction were granted (see the discussion of this aspect in Spry, The Principles of Equitable Remedies (8th ed, 2010) at pp 383–389, 397–399 and 457–462).

26    The Court went on to say that the elevation of “irreparable injury” into a separate and antecedent criteria in every case would be to adopt a too rigid approach (at [63]).

27    Against those principles, I will now identify the financial and other matters referred to in my oral reasons on 6 April 2022 as justifying the continuation of the original restraint.

CONTINUATION OF THE RESTRAINT

28    The evidence relied upon by Mr Hillier is contained in the report of Mr Camens, an affidavit of Mr Gene Sykes Bidstrup and an affidavit of Mr Hillier. I have read and considered parts of that material, being those parts that disclose the financial position of the Nordburger business (or more specifically the corporate entities that hold its assets). I have relied upon the financial records disclosed in the affidavits to the extent that they speak for themselves.

29    Mr Hillier relied upon an unexplained transaction involving $250,000, resulting in its apparent withdrawal from a capital account and its apparent disposition from the Nordburger business. I have given no weight to the evidence relating to that transaction, principally because it is not presently apparent on the material before me that the transaction was other than for the purpose of meeting an expense of the Nordburger business. Mr Hillier has sought an explanation for the transaction and the Court has no reason to expect that an explanation will not be forthcoming.

30    That transaction aside, there are three salient matters evidenced in the financial records of the relevant entities that are of particular concern. The first is the existence and nature of aged payables and the identity of the persons to whom they are owed. The second is declining profits. The third is the apparent provision of credit in the form of loans to Mr and Mrs Martin or to trust structures associated with them. These features together give rise to a real risk that the respondents may, if not restrained, apply the assets and income of the Nordburger business to purposes unrelated to the payment of its debts as and when they fall due, and that their doing so would affect the viability of the business as a going concern.

31    The evidence of aged payables is summarised by Mr Camens as follows:

3.19    Aged Payables

3 20    I have reviewed the aged payables summaries of Group entities. As at 21 March 2022 the position is as follows (Annexure 13):

3.21    The Consolidated Financial summary as at March 2022 as set out on Annexure 12 records the following major liabilities:

•    Accounts Payable net of items in suspense    $1,076,275

•    June BAS                    $124,241

•    HP Finance                    $129,082

•    Sub Total                    $1,329,598

3.22    A more detailed analysis shows major payables (Annexure 13), and in particular, those in arrears, as at 21 March 2022 as follows:

3.23    It is apparent that as of March 2022, the major arrears relate to the supplier Five Star Bakery, rent obligations, insurance obligations, Norman Waterhouse and the ATO. Specific details are as follows:

3.24    A review of detailed ledger reports reveals the following as at March 2022:

3.25    ATO -The majority of the June 2021 BAS remains owing ($119,241). The September BAS is unpaid ($128,848) the November IAS is unpaid ($23,412), the December BAS is unpaid ($125,079) and the January IAS is unpaid ($22,674).

3.26    Revenue SA – Payroll Tax for January and February remains outstanding ($8,618 in total).

3.27    Norman Waterhouse – Invoice payments back to August 2020 remain owing ($378,885 owing in total).

3.28    Five Star Bakery - I have reviewed Xero reports which indicate payments are being made to reduce the liability to this supplier on a regular basis.

…

32    For present purposes, I will put aside the evidence of amounts owing to Norman Waterhouse.

33    The evidence of amounts payable (and well overdue) to the Australian Taxation Office totalling more than $400,000 supports the inference that the entities are, for one reason or another, not attending to the payment of their debts as and when they fall due. In addition, the circumstance that there are aged payables relating to a bakery (on any view an important supplier in a hamburger business) supports the inference that the business is not in a strong financial position. Whilst the liability to the bakery is being reduced over time, the inference arises that the bakery has extended some form of financial accommodation and that the relevant entities may not presently be in a position to fully discharge those particular debts in full. Overall, the inference arises that the relevant entities do not presently have sufficient cash to pay their aged creditors in full and that they may be relying on the creditors’ accommodations. At the very least, I consider there to be a real risk that the business presently faces a cash flow problem. Whether that is or is not a temporary problem is not necessary to decide.

34    The financial records show revenue and profit declining in successive years. There may be many reasons for that. It is sufficient to observe that the business is not in a strong trading position. That intensifies the concern arising from the nature and amount of the aged payables.

35    Against that background, it is of concern to the Court that the relevant entities have non-current assets in the form of loans in significant amounts. The loans appear to be the consequence of drawings attributable to Mr and Mrs Martin. The facts evidenced by the financial records are summarised by Mr Camens as follows:

5.2    Funds drawn over the period identified is as set out below:

….

5.4    As at 21 March 2022, the loan balances were as follows:

•    V & TMartin                    $503,953

•    VTPD Trust                    $101,394

5.5    In summary, The First Respondent, her Husband and the entity VTPD Trust have drawn the following sums during 2020, 2021 and YTD March 2022:

•    2020                        $185,275

•    2021                        $228,296

•    YTD March 2022                $146,812

36    Having regard to the entries beside these loans in the relevant balance sheet, and in the absence of evidence to the contrary, it may be comfortably inferred that the debtors under these loans are either Mr and Mrs Martin personally, or the controllers of trusts or other structures representing their personal interests. Counsel for the respondents said nothing to contest that inference.

37    The loans are described in the financial records as “Div 7A” loans. It is common ground that the reference to “Div 7A” is a reference to laws regulating the grant and terms of loans to associated entities and their treatment for the purposes of tax laws. It is reasonable to infer that the terms of the loans extended to Mr and Mrs Martin or their associated entities were as (or more) attractive than they could have obtained elsewhere. The inference fairly arises that the loans were not drawn for purposes related to the proper conduct of the Nordburger business. I am fortified in that view by the respondents’ brief and curious submissions on the topic.

38    Counsel submitted that the loans might exist because Mr and Mrs Martin have rendered services to the Nordburger entities. On the material before me, that cannot be correct. The financial records plainly record the transactions as being in the nature of non-current assets of the relevant entities, that is, debts owed by Mr and Mrs Martin (or their associates) to the entities. It has not been explained how the provision of services by Mr or Mrs Martin to the entities could result in the entities owing debts to them in amounts exceeding $600,000. The asserted fact that Mr and Mrs Martin have rendered services to the Nordburger business cannot adequately explain the loans for the additional reason that the business has directly incurred considerable expenses in the nature of “management fees” paid to them over the same period. The records show that management fees and superannuation were paid in 2020 and 2021 in the amounts of $298,140 and $227,760 respectively. In the present year up to 21 March 2022 management fees and superannuation totalling $237,753 have been paid. Those amounts belie the suggestion that services have been rendered by Mr or Mrs Martin and then treated in a way that could explain the existence of the Div 7A loans as debts owing by them to the company.

39    The circumstance that a business held and operated on trust should be indebted to the Australian Taxation Office in an amount exceeding $400,000 (a debt aged beyond three months), whilst at the same extending credit to Mr and Mrs Martin in amounts exceeding $600,000 is sufficient to give rise to a real concern that the asset forming the subject of the proceeding is at risk of diminution by transactions that would not be lawful on Mr Hillier’s case. Transactions in the nature of loans threaten the financial viability of the business because they convert money that would (indeed should) otherwise be available to meet the expenses of the business into a non-current asset. I infer that the loans presently affect the entities’ cash flows and hence their ability to pay debts as and when they fall due. Putting trust obligations aside, the overall financial position of the entities renders it difficult to justify the future application of the income and capital of the business for any purpose other than the payment of the expenses of the Nordburger business.

40    The restraint is otherwise justified irrespective of which trust governs the relations between the parties. The provision of the loans is plainly not in accordance with the JV Trust alleged by Mr Hillier. I am satisfied that an interlocutory injunction is appropriate to protect his asserted interests in the outcome of the proceeding, including to ensure that the proceeding is not rendered financially futile.

41    No party took the Court to the NHT Deed to explain how the grant of the loans may be prohibited or permitted as the case may be in accordance with its terms. It is not necessary to make a positive finding of past breach of that trust to justify the restraint. It may be that the terms of the NH Trust permit a director of Operations (as trustee) to cause the company to extend credit to him or herself (including to the detriment of the company’s cash flow) without the consent of the beneficiaries, but in the absence of submissions on the topic I will say nothing more about it.

42    Counsel for Mr Hillier invited additional findings in relation to the management of the Nordburger business. They included a finding that the entities responsible for operating the Norburger business and the NH Trust itself were insolvent. I do not consider it necessary to express a view on that question and should not be understood to have done so. Nor should I be understood to have made any finding about the rationality of Mr Martin’s prior business decisions in his capacity as a director or agent of Operations. The particular order sought by Mr Hillier would not prevent Mr Martin from controlling Operations pending the outcome of the trial. In my view the present restraint is justified on the basis of the three salient features to which I have already referred without expressing a view as to the rationality of Mr Martin’s conduct in other aspects of the business.

43    I therefore reject the respondents’ submission that there is insufficient evidence to support the continuation of the restraint to 28 April 2022.

Balance of convenience

44    I have considered whether any prejudice might be suffered by the respondents if the restraint should continue in force. It is significant that they were unable to identify a commercial transaction within their contemplation that would be frustrated or prevented should the order be made. It is difficult to conceive of a scenario in which the respondents may suffer loss or damage as a consequence of them being required to apply the assets and income of the Nordburger business to the payment of its expenses.

45    The balance of convenience plainly favours the grant of relief. Any prejudice that might be suffered by the respondents may be ameliorated by granting them liberty to apply should they consider it necessary or desirable to enter into an otherwise lawful transaction that would be prevented by the injunction.

Undertaking

46    Mr Hillier has offered the usual undertaking as to damages. The respondents submit that he should be required to provide security for the undertaking to the value of $250,000 to facilitate its future enforcement. Whether Mr Hillier should be required to provide security is a matter for the Court’s discretion. In my view, he should not be required to provide security (nor should he be made available for cross-examination about his personal financial circumstances) in circumstances where the respondents cannot identify a single lawful transaction the prevention of which would be causative of any loss. The only possible transaction the Court can identify is the making of discretionary distributions to beneficiaries in accordance with the terms of the NH Trust. But it is difficult to see how any such distributions could be justified in circumstances where significant debts remain owing to the Australian Taxation Office and an important trade creditor. The respondents have not suggested that it is within their contemplation to make a distribution to beneficiaries pursuant or purportedly pursuant to the NHT Deed. The grant of liberty to apply adequately protects their interests and affords a means by which they may prevent loss or damage occasioned by the restraint.

47    The orders of 6 April 2022 have since been varied such that the restraint is to remain in force until 5:00pm on 29 April 2022.

Mr Martin

48    Before concluding, I should mention that after the original restraint was granted, the Court received correspondence from Mr Martin in his personal capacity and hence as a non-party. Mr Martin referred to the fact that his name appeared in the Court’s order. He indicated that he may seek an audience before the Court in his personal capacity at the next hearing.

49    There is no dispute that Mr Martin is presently Operations’ sole director and therefore one of its agent within the plain meaning of the order. Operations is bound to comply with the restraints in the order (as continued in force), including (and necessarily) through the actions of its officers and agents. As its sole director, Mr Martin has a duty (by virtue of his status as a director) to cause Operations to comply with all orders of this Court that may be directed to it. That duty arises whether or not Mr Martin’s name is contained in the order. A person who knowingly procures a breach by a company of this Court’s orders may themselves be liable for contempt, whether or not the person’s name appears in the order directed in terms to the Company. Those circumstances alone do not give rise to a right in the person to be heard in connection with the order. To the extent that Mr Martin makes any application to be heard in his personal capacity, the application should be supported by an affidavit deposing to the particular interest (distinct from that of the respondents) asserted by him. As a legally trained person, Mr Martin does not otherwise require any further guidance as to the potential consequences for him personally, should he cause or permit Operations (or Mrs Martin) to breach the restraint.

Associate:

Dated:    6 April 2022