Federal Court of Australia

Hillier v Martin (No 12) [2022] FCA 952

ORDERS

THE COURT ORDERS THAT:

1.    In these orders, if the first and second respondents are ordered not to do something, they must not do it themselves or through directors, officers, partners, employees, agents or others acting on their behalf or on their instructions or with their encouragement or in any other way.

2.    Subject to paragraphs 3 and 4, the first and second respondents be restrained and an injunction be granted restraining them, whether by themselves, their servants or agents or otherwise, including Mr Thomas Martin, making any payments out of the funds, assets, entities, trusts or businesses that trade or conduct business under the Nordburger name or brand (Nordburger businesses) to the first respondent, her husband, Mr Thomas Martin, or for her or his benefit or at her or his direction, whether in relation to management fees hitherto paid or otherwise, except with the leave of the Court.

3.    The restraint in paragraph 2 does not prevent payments in consideration for work performed by up to two directors acting in that capacity across all companies engaged in any way in the management or conduct of the business trading under the Nordburger name or brand, such payments not to exceed $500.00 per week for each of the two directors, irrespective of the number of companies to which the two directors are appointed.

4.    Any application for leave to engage in a transaction (being an application contemplated by paragraph 2) must be:

(a)    served upon all other parties to the proceeding; and

(b)    supported by an affidavit made personally by Mr Thomas Martin or the first respondent as the case may be, setting out all facts and circumstances relevant to the question of whether or not leave should be granted (whether supportive of the application for leave or not).

5.    The applicant's application for an order in terms of paragraph 4 of his interlocutory application dated 23 June 2022 is dismissed.

6.    The time by which a party may seek leave to appeal from these orders is extended so as to expire 14 days following the transmission to the party of the transcripts referred to in [160] of the reasons for judgment published today.

7.    Liberty to apply.

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

REASONS FOR JUDGMENT

CHARLESWORTH J

1    These reasons explain why the applicant, Mr James Hiller, will be granted the relief sought in [2] and [3] of an interlocutory application he filed on 23 June 2022. Mr Hillier will not be granted the relief sought in [4] of the interlocutory application. Consideration of the relief sought in [5] to [7] of the interlocutory application has been deferred.

2    Paragraph 2 of the interlocutory application is definitional and may be put aside for the moment.

3    For reasons that will become apparent, the order sought in [3] may be referred to as the Broader Restraint. It is expressed as follows:

The first and second respondents be restrained and an injunction be granted restraining them, whether by themselves, their servants or agents or otherwise, including Mr Thomas Martin, making any payments out of the funds, assets, entities, trusts or businesses that trade or conduct business under the Nordburger name or brand (Nordburger businesses) to the first respondent, her husband, Mr Thomas Martin, or for her or his benefit or at her or his direction, whether in relation to management fees hitherto paid or otherwise.

4    The order sought in [4] may be referred to as the Information Order. If made, it would require the first respondent, Mrs Victoria Martin, to file and serve an affidavit in her personal capacity giving “full and detailed disclosure” of:

(a)    all payments made out of the Nordburger businesses to the first respondent, Mr Thomas Martin and Norman Waterhouse Lawyers or for her, his or its benefit or at her or his direction for the period 1 July 2019 to the date of the said affidavit;

(b)    all Division 7A Loans made from the Nordburger businesses to the first respondent, Mr Martin or any person, company or entity at their direction including the VTPD Trust and the Nordburger Holdings Trust, with all such loan documentation and relevant bank statements annexed to the said affidavit;

(c)    [not pressed]

(d)    all bank statements relating to the Nordburger businesses for the period 1 July 2019 to the date of the said affidavit with all such bank statements annexed to the said affidavit;

(e)    the activities undertaken by the first respondent and Mr Thomas Martin which are asserted to constitute the duties performed by each of them in justification for the payment of management fees and/or loans paid to each of them for the period 1 July 2019 to the date of the said affidavit; and

(f)    all assets of the first respondent, Mr Martin, and all companies, trusts and other entities under their control including the VTPD Trust and the Nordburger Holdings Trust, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of their respective interests in the assets.

5    At the hearing of the interlocutory application, the Court granted Mr Thomas Martin an audience, having regard to the nature of the relief sought and to the possibility that the factual findings invited by Mr Hillier on the interlocutory application may be damaging to Mr Martin’s financial and reputational interests. The grant of leave extended to Mr Martin adducing evidence in his personal capacity and to applying for leave to cross-examine Mr Hillier on identified topics. Mr Martin did not otherwise apply to be joined as a party to the interlocutory application. He is not, and has never been, a party to the proceedings.

Jurisdiction

6    In respect of the Broader Restraint, Mr Hillier invokes the jurisdiction conferred under r 7.32(1) of the Federal Court Rules 2011 (Cth). It provides:

The Court may make an order (a freezing order), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.

7    Mr Hillier does not directly invoke r 7.32(2). It should nonetheless be set out here because it bears on questions of construction arising later in these reasons:

A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.

8    In respect of the Information Order, Mr Hillier relies on r 7.33. It provides:

7.33 Ancillary order

(1)    The Court may make an order (an ancillary order) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.

(2)    Without limiting the generality of subrule (1), an ancillary order may be made for either or both of the following purposes:

(a)    eliciting information relating to assets relevant to the freezing order or prospective freezing order;

(b)    determining whether the freezing order should be made.

9    The respondents and Mr Martin submit inter alia that relief sought on the interlocutory application is disconnected from the final relief sought in the proceedings such that the Court’s jurisdiction under the Rules is not enlivened. With those arguments in mind, it is convenient at this juncture to identify the final relief sought by Mr Hillier in the proceedings and the facts alleged by him in support of it.

The dispute on the pleadings

10    Mr Hillier’s action was commenced in August 2020. At that time, Mrs Martin was the sole respondent. By orders made on 1 July 2021, Nordburger Operations Pty Ltd was joined as the second respondent.

11    The primary dispute concerns the ownership of a hamburger restaurant business trading as Nordburger (the Nordburger business). It is common ground that the Nordburger business is presently carried on and its assets are otherwise held by a number of companies that together may be referred to as the Nordburger group. Within that structure, revenue from the hamburger restaurants is or has been derived by trading entities, namely Nordburger Norwood Pty Ltd, Nordburger Frewville Pty Ltd, Nordburger Hindmarsh Pty Ltd and Nordburger Chinatown Pty Ltd. Certain expenses of the trading entities (including wages) are borne by a non-trading entity Nordburger Pty Ltd. Mrs Martin is a director of the trading entities and Nordburger Pty Ltd and is described in business records as having the title “Managing Director”.

12    Argument on the present application proceeded from the footing that Operations is the legal owner of all of the shares in the trading entities and Nordburger Pty Ltd. The sole director of Operations is Mr Martin (the husband of Mrs Martin). As identified below, on any party’s case, Operations holds the shares pursuant to a trust and not for its own benefit or the benefit of its own shareholder(s). The underlying dispute concerns the identity and terms of the trust pursuant to which the shares are held, although Mr Hillier’s case is not confined to property in the nature of shares.

13    The facts and circumstances pleaded by Mr Hillier in the third amended statement of claim (3ASOC) include:

(1)    From 2012 there existed a joint venture agreement between Mr Hillier, Mrs Martin and Mr Andrew Craig on behalf of the third respondent Erik Vari Pty Ltd (hereafter Craig) pursuant to which a hamburger businesses trading under the name Nordburger was established and operated:  3ASOC, [10], [10(p)].

(2)    The parties’ interests in the joint venture are 50% to Mr Hillier, 30% to Craig and 20% to Mrs Martin:  3ASOC [12.5] to [12.5.3].

(3)    Under the terms of the joint venture, the parties were entitled to enjoy the profits of the joint venture according to their shares in the joint venture and Mr Hillier was entitled to participate in the control of the joint venture to the extent of his share:  3ASOC, [14], [14.1] to [14.2].

(4)    In November 2014 the parties agreed to a variation of their interests in the joint venture including by way of Mr Hillier offering to Mrs Martin a further 10% share as a gift:  3ASOC, [15.2.1].

(5)    In March 2015 Heads of Agreement were executed by Mr Hillier, Mrs Martin and Craig confirming matters they had previously discussed as to their ownership interests, reflecting 40% to Mr Hillier, 35% to Mrs Martin and 25% to Craig. The gift offered or made to Mrs Martin has no effect in law or equity because of other pleaded matters, such that Mr Hillier retains a 50% interest:  3ASOC, [16] to [16.3], [17] to [18].

(6)    In March 2013 Nordburger Pty Ltd was incorporated:  3ASOC, [19.2].

(7)    Mrs Martin acquired the legal interest in all of the 100 issued shares on the terms of the joint venture agreement:  3ASOC, [19.3].

(8)    Mrs Martin became the sole director of Nordburger Pty Ltd on 14 March 2013:  3ASOC, [19.4].

(9)    Mr Hillier made further contributions of money and effort to the Nordburger business in the sum of approximately $342,000, primarily devoted to the establishment of a Nordburger restaurant in Norwood:  3ASOC, [19.8].

(10)    Mrs Martin made no monetary contribution to the establishment of the Nordburger restaurant in Norwood and has contributed no capital of her own to the joint venture:  3ASOC, [20].

(11)    By virtue of the joint venture agreement, Mrs Martin has been the trustee “of the businesses and other assets and income” of the joint venture for the benefit of herself, Mr Hillier and Craig in accordance with the terms of the joint venture agreement:  3ASOC [21].

(12)    By virtue of her position as trustee, Mrs Martin has held the shares in Nordburger Pty Ltd and any other corporate entities established by her to conduct the businesses of the joint venture on trust for herself, Mr Hillier and Craig in accordance with the terms of the joint venture agreement:  3ASOC, [22].

(13)    Mrs Martin owes fiduciary duties to Mr Hillier both by virtue of her position as trustee and by virtue of her position as a joint venturer, namely a duty to act in the best interests of Mr Hillier, a duty not to profit from her position as trustee or fiduciary without the informed consent of the other joint venturers, and a duty to avoid a conflict between her own interests and her duties as trustee or fiduciary without the informed consent of the other joint venturers:  3ASOC, [23] to [24.3].

(14)    In addition to the Norwood restaurant, additional restaurants were established at Hindmarsh, Frewville and Chinatown:  3ASOC, [25] to [25.3].

(15)    There have been attempts to establish and document a formal structure for the joint venture in accordance with its terms. In the course of those attempts, Mrs Martin represented to Mr Hillier that he had at least a 40% interests in the joint venture and its assets and businesses, and that she held no more than a 35% interest, and that any interest she had in Nordburger Pty Ltd was held on terms that reflected the ownership interests in the joint venture and its assets and businesses (equity representations):  3ASOC, [26] to [27.3].

(16)    The equity representations embodied a representation that Mr Hillier was entitled to receive payment of a share of the joint venture profits as and when they were derived proportionate to his share in the joint venture, and to participate in the control of the joint venture as and when the occasion arose, with an effective say proportionate to his share in it:  3ASOC, [31] to [31.2].

(17)    In 2016 Mr Hillier executed a document titled “Deed Poll”. Mr Hillier was induced to execute the Deed Poll in circumstances amounting to economic duress, undue influence, unconscionable conduct in equity and within the meaning of the Australian Consumer Law (ACL) and misleading and deceptive conduct such that it is void at law or liable to be set aside:  3ASOC, [41], [49] to [51.3].

(18)    Mr Hillier received payments out of the income of the joint venture, including payments of $4,000 per week between November 2016 and November 2019. The payments were by way of weekly distributions and not pursuant to a consultancy agreement prepared by Nordburger Pty Ltd (upon which the respondents rely):  3ASOC, [54] to [55].

(19)    Since 29 April 2016 Mrs Martin has taken or assumed the sole and effective control of the joint venture and its assets and its businesses to the exclusion of Mr Hillier:  3ASOC, [56].

(20)    Mrs Martin’s assumption of control constitutes a breach of the joint venture agreement, a breach of trust, a breach of her fiduciary obligations and contraventions of the ACL:  3ASOC, [57] to [57.3].

(21)    Since April 2016, the joint venture has earned profits which have been received and dealt with by Mrs Martin:  3ASOC, [61].

(22)    Mrs Martin has failed to pay Mr Hillier his agreed share of the profits derived from the joint venture since the period she assumed control to his exclusion:  3ASOC, [62].

(23)    The failure to pay Mr Hillier’s agreed share of profits also constitutes a breach of trust, a breach of fiduciary duties, a departure from the equity representations and contraventions of the ACL:  3ASOC, [63] to [63.5].

(24)    Mrs Martin has paid or kept to herself the profits of the joint venture in excess of her entitlement:  3ASOC, [64], [64.1].

(25)    Mrs Martin has paid to herself a salary of $200,000 per annum without providing services to the joint venture commensurate with and justifying such payments:  3ASOC, [64.2].

(26)    The payments were made in breach of the obligations referred to above and in breach of the ACL:  3ASOC, [65] to [65.3], [75.6].

(27)    In January 2020 Mrs Martin informed Mr Hillier for the first time that she had restructured the Nordburger business by utilising a trust structure that provided for him as a beneficiary:  3ASOC, [66].

(28)    In response to a request for information Mr Hillier made under the Trustee Act 1936 (SA), he was provided with documentation relating to a new discretionary trust established on 29 October 2019, the Nordburger Holdings Trust (NH Trust):  3ASOC, [68].

(29)    The documentation provided to Mr Hillier records:

(a)    the establishment of a new entity, Nordburger Operations Pty Ltd (a company then wholly owned and controlled by Mrs Martin):  3ASOC, [69.3];

(b)    the appointment of Operations as trustee of the NH Trust on 2 December 2019:  3ASOC, [69.3];

(c)    Mrs Martin transferred intellectual property owned by the joint venture to Operations:  3ASOC, [69.5]; and

(d)    Mrs Martin claims to be the ultimate economic owner of the assets purportedly the subject of the NH Trust, which assets are properly the assets of the joint venture:  3ASOC, [69.6].

(30)    The actions recorded in the documents were undertaken by Mrs Martin and were undertaken in breach of the joint venture agreement, breach of trust, and breach of her obligations as a fiduciary:  3ASOC, [70] to [70.3].

(31)    The actions recorded in the documents were of no valid effect on the terms and operations of the joint venture agreement and the joint venture:  3ASOC, [70.4].

(32)    Mrs Martin’s actions were undertaken at a time when she was the sole director and shareholder of Nordburger Pty Ltd and Operations and their controlling mind:  3ASOC, [70.5].

(33)    Despite repeated requests, Mrs Martin refuses to produce the books, records and accounts maintained by her as trustee of the joint venture and/or the trust asserted by him (JV Trust):  3ASOC, [71].

14    The relief sought is that specified on the second amended originating application filed on 5 July 2022. By [1], Mr Hillier seeks declarations:

(1)    that he and Mrs Martin are bound by the Nordburger Joint Venture Agreement (JV agreement);

(2)    as to the proportionate shares in which he and Mrs Martin hold their interests in the joint venture, its assets and businesses;

(3)    that at all material times Mrs Martin has held the shares in Nordburger Pty Ltd on trust on the terms of the JV agreement;

(4)    that Mrs Martin holds, and at all material times held, the shares in Operations on trust on the terms of the JV agreement; and

(5)    that Operations holds the shares in Nordburger Pty Ltd and the intellectual property rights purportedly transferred to it by Nordburger Pty Ltd (which transfer is not admitted) on trust on the terms of the JV agreement.

15    Mr Hillier seeks further orders relating to the Deed Poll including a declaration that it is void, and orders that it be set aside in equity or pursuant to s 237 of the ACL.

16    Mrs Martin denies the existence of the joint venture. She alleges that the establishment of the NH Trust, the appointment of Operations as trustee, and the transfer of property to it were actions taken lawfully by her, including in her capacity as sole director of Nordburger Pty Ltd. She alleges that since 2 December 2019 “all rights, title and interests in the Nordburger business” have been held by Operations as trustee of the NH Trust. She alleges that Mr Hillier’s only interest in the Nordburger business is that of an object of the discretionary NH Trust.

17    It is common ground that the primary beneficiaries of the NH Trust (if it be valid) are Mrs Martin and Mr Hillier. The secondary beneficiaries also include Mr Martin, who is now the sole director of Operations as trustee. Distributions under the terms of the NH Trust (if it be valid) are at the discretion of Operations as trustee and so effectively within the control of Mr Martin.

Procedural background

18    The respondents are presently bound by an Undertaking given by each of them to the Court on 29 April 2022 in the following terms:

On the undertaking as to damages previously given by the applicant, Mr Hillier, in support of Order 4 of the orders made and entered on 29 March 2022, remaining in force and attaching to this undertaking,

The First Respondent and the Second Respondent HEREBY UNDERTAKE that they will not whether by themselves, their servants or agents or otherwise, including Mr Thomas Martin, make any payments out of the revenue, funds or assets, or otherwise deal 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.

19    The respondents have foreshadowed an application to have the Undertaking set aside. They applied for an adjournment of the hearing to achieve that purpose. In refusing to grant the adjournment, I had regard to the fact that the respondents and Mr Martin had been earlier granted liberty to apply to have the hearing dates for the interlocutory application set aside, but at a subsequent hearing they informed the Court that they did not seek to exercise that liberty (whether for the purpose of seeking to be relieved from the Undertaking or otherwise). The circumstances in which the Undertaking was made (and of which they complain) were known to the respondents and Mr Martin at the time they declined to exercise the liberty to apply to vacate the hearing date.

20    In addition, I held (and still hold) the view that the relief sought in [2] to [4] of the interlocutory application did not depend on the Court being positively satisfied as to whether or not the Undertaking had been breached. As explained in these reasons, I would grant the Broader Restraint irrespective of whether the Undertaking was given. Whilst they foreshadowed a later application to be relieved from the Undertaking, neither respondent made such an application before me. Nothing in the material relied upon by the respondents in support of the adjournment application persuades me to the view that the respondents are not presently bound by the Undertaking.

21    It is necessary to set out some further background to the present application to the extent that it informs the factual questions that now arise.

22    When these proceedings were first commenced, Mr Hillier sought interlocutory relief, including orders requiring Mrs Martin to grant him access to information concerning the conduct of the Nordburger business and an injunction in the following (now familiar) terms (at [2.1]):

The Respondent be restrained and an injunction be granted restraining the Respondent, whether by herself, her servants or agents or otherwise, until further order from making any payments out of the revenue, funds or assets, or otherwise dealing with the funds or assets, of the entities, trusts or businesses which trade under the Nordburger name or brand (‘the Nordburger businesses’) except in payment of the expenses of the Nordburger businesses in the ordinary course of business.

23    At a case management hearing on 10 December 2020 both parties (including Mrs Martin through her then Senior Counsel) agreed that argument on the interlocutory application should be deferred until after discovery was complete. At that hearing, the parties consented to an order for standard discovery in accordance with r 20.14 of the Rules. On 20 May 2021, the Court ordered that argument on the applicant’s application for interlocutory relief (and all other arguments relating to that application) be deferred pending resolution of disputes about pleadings and the adequacy of discovery:  paragraph 9 of the orders made on 20 May 2021 and Hillier v Martin (No 9) [2021] FCA 1319 at [9]. There followed multiple applications and hearings concerning the scope of Mrs Martin’s discovery and production obligations. The judgments pertaining to that issue are published as:  Hillier v Martin (No 4) [2021] FCA 710; Hillier v Martin (No 6) [2021] FCA 1009; and Hillier v Martin (No 10) [2022] FCA 166 (Anderson J). Mrs Martin (and later Operations as the second respondent) were wholly unsuccessful in their resistance to orders to the effect that information organised in a database referred to as Xero were discoverable and ought to be produced. Many months were expended on that issue with the result that Mr Hillier did not gain access to material contained in the Xero database until 21 March 2022, more than 15 months after the order for standard discovery was made.

24    On 29 March 2022 I made an interim order in the following terms:

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.

25    By an order made on 6 April 2022, I extended the operation of that order until 5.00pm (ACST) on 28 April 2022 (April Restraint). Reasons were subsequently published as Hiller v Martin (No 11) [2022] FCA 407 (Hillier 11).

26    The applicant filed an application for an order to the effect that the April Restraint remain in force until further order. That application was set down for hearing on 28 April 2022. At the request of the parties, the hearing date was subsequently changed to 29 April 2022 and the April Restraint was extended to 5.00pm on that day.

27    At the hearing on 29 April 2022, it was unnecessary for the Court to consider the merits of the application to extend the April Restraint. That was because the respondents gave the Undertaking to the Court in terms equivalent to the April Restraint. The Undertaking was accepted on the basis that Mr Hillier’s original undertaking as to damages continued to apply. Senior Counsel for the respondents told the Court that the Undertaking was given because it was the intention of the respondents to make an application to the High Court for orders that I be disqualified from presiding in the proceedings. The respondents did not make an application to this Court for an order that I be disqualified, nor did they disclose the factual and legal basis for the foreshadowed High Court proceeding. Through their Counsel the respondents acknowledged that any breach of the Undertaking would have penal consequences as if the Court had made an order in the same terms.

The reasons in Hillier 11

28    In assessing the balance of convenience in Hillier 11, I had regard to the circumstance that the April Restraint would remain in force for a relatively short period (just over three weeks) and to the circumstance that the respondents had not identified a transaction within their contemplation at that time that would be prevented if the April Restraint was imposed:  Hillier 11, [7] and [44]. I considered some factual issues that are now raised again on the present application. They may be referred to as the Financial Position issue, the Capital Account issue and the Loans issue. They were dealt with in Hillier 11 as follows.

The Capital Account issue

29    Mr Hillier deposed that on 26 March 2022 he had observed transactions in Xero affecting the balance of an account referred to as the Capital Account. On the basis of what he observed, he expressed concern that it appeared that an amount of $250,000.00 had been dissipated from the Nordburger business without a recorded explanation. As at 6 April 2022, Mr Hillier had sought an explanation for the transaction from the respondents’ solicitor but no explanation had at that time been provided. The April Restraint was not based on that transaction, as the Court had no reason to expect that an explanation would not be forthcoming to Mr Hillier’s recent request:  Hillier 11, [29].

The Loans issue

30    The evidence drawn from Xero showed that entities in the Nordburger group had advanced loans to Mr and Mrs Martin. Argument concerning the April Restraint (as on the present application) proceeded on the common understanding that loan monies extended by a company to an associated entity would be treated as income in the hands of the recipient for taxation purposes unless the requirements of Div 7A of the Income Tax Assessment Act 1936 (Cth) are met (including the requirements for minimum repayments). In Hiller 11, I drew an inference that the terms of the loans advanced to Mr and Mrs Martin or their associates were as (or more) attractive than they could have obtained elsewhere. I drew a further inference that the loans were not drawn for purposes related to the proper conduct of the Nordburger business. On the basis of the evidence then before me I concluded that the loan balances exceeded $600,000.00:  Hillier 11, [35].

Financial Position issue

31    On the evidence then available, I concluded that revenue and profits of the Nordburger business had declined in successive years and that the business was not in a strong trading position.

32    Among other aged payables, the Xero records showed that more than $428,000 was owing to the Australian Taxation Office (ATO). The evidence also showed that there were aged debts owing to a bread supplier. The financial position disclosed in the Xero records related to the Loans issue, as explained in Hillier 11:

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.

Affidavits

33    Mr Hillier relied on the following affidavits or parts of affidavits made by him on various dates:

(1)    6 April 2022 (Hillier 6 April), [1] – [44];

(2)    28 April 2022 (Hillier 28 April), [1] – [4];

(3)    23 May 2022 (Hillier 23 May), [26] – [29], [31], [32], [37].

(4)    21 June 2022 (Hillier 21 June);

(5)    21 July 2022 (Hillier 21 July).

34    These affidavits were read subject to a ruling under s 136 of the Evidence Act 1995 (Cth) to the effect that the Court will not have regard to Mr Hillier’s opinions as to whether any entity in the Nordburger group is or is not solvent as defined in s 9 and s 95A(2) of the Corporations Act 2001 (Cth). To the extent that Mr Hillier’s evidence contains expressions of opinion on that discrete topic, the evidence is not employed in these reasons for that purpose.

35    The respondents asked the Court to read a single affidavit, that of Mr Martin made on 12 July 2022 (Fifth Affidavit).

36    Mr Martin relied on the Fifth Affidavit as well as two further affidavits made on 21 July 2022 and accepted for filing at 11:08:56 am and 11:08:53 am (ACST) 22 July 2022 (respectively the Sixth Affidavit and the Seventh Affidavit). In addition, Mr Martin asked the Court to read his earlier affidavit made on 26 April 2022 (Fourth Affidavit) and the affidavit of Mr Stephen Williams made on 6 April 2022.

37    Neither Mr Hillier nor the respondents submitted that the additional evidence adduced by Mr Martin in his personal capacity should not be taken into account in assessing (for example) the effect of the proposed orders on the respondents.

38    In the course of argument an issue arose as to whether Mr Martin’s reference to the affidavit of Mr Williams made on 6 April 2022 ought to have been a reference to a later affidavit of Mr Williams made on 28 April 2022. As Counsel for Mr Hillier submitted, the affidavit made on 6 April 2022 appears to be inconsequential such that Mr Martin may have intended to refer to a further affidavit of Mr Williams made on 28 April 2022. Neither Mr Martin nor the respondents corrected Counsel’s understanding.

39    The affidavit of Mr Williams made on 28 April 2022 contains evidence that favours the respondents’ case in respect of a particular supplier, and it has been read by the Court for that purpose. Mr Hillier otherwise sought to rely on taxation records annexed to that affidavit on the basis of admissions revealed in them about the amount owing to the ATO. Neither the respondents nor Mr Martin objected to Mr Hillier referring to the 28 April 2022 affidavit for that purpose.

40    With the Court’s leave (and subject to rulings on topics) Mr Hillier and Mr Martin were cross-examined.

Factual issues

41    Mr Hillier’s evidence and submissions broadly concern four factual matters:

(1)    the continuing losses incurred by the Nordburger business;

(2)    the amount of management fees recorded as expenses in the Nordburger business which he claims are excessive, including transactions recorded in Xero after the Undertaking that are said by the respondents to be attributable to Mrs Martin exercising an entitlement to be paid cash in lieu of annual leave;

(3)    Mr Hillier’s asserted status as guarantor under one or more of the leases for premises from which the Nordburger restaurants operate; and

(4)    continuing concerns about the Capital Account transaction.

42    In circumstances described below, Mr Hillier’s concerns about the Capital Account transaction were not ultimately pressed as a basis for the Broader Restraint or the Information Order.

43    As to the remaining factual issues, the respondents submitted that Mr Hillier’s application constituted an impermissible attempt by a person having nothing more than a beneficial interest in shares to interfere with the business judgment of those in control of the corporate entities. It was submitted that it was not the Court’s function to second-guess the respondents’ judgments, at least not at the behest of Mr Hillier. As explained elsewhere in these reasons, that submission misstates the matters that may be taken into account in the exercise of the power conferred under r 7.32 and wrongly conceptualises the nature of Mr Hillier’s case in the litigation.

44    The discrete factual issues are considered against a background where the Court has previously determined that there is a serious question to be tried between the parties in the substantive proceedings. Indeed, the trial of the action was previously listed to commence on 16 June 2022, the respondents having brought no application for summary judgment before that time.

45    The respondents raise an additional question concerning whether Mr Hillier has an arguable claim for the particular relief sought on the interlocutory application having regard to his pleaded case. I will defer consideration of that question to later in these reasons. As will be seen, the answer is illuminated by the facts as found below.

Guarantees

46    I am satisfied that Mr Hillier is presently the guarantor of the lessee’s obligations under what may be referred to as the Hindmarsh lease. So much is apparent on the face of a copy of the lease Mr Hillier was able to obtain from one of the lessors.

47    I am also satisfied that Mr Hillier is presently a guarantor of the lessee’s obligations under a lease for premises from which the Nordburger Norwood restaurant operates. That is demonstrated by an assignment agreement in evidence before me.

48    Mr Martin annexed a copy of the Chinatown lease to his Fifth Affidavit. On its face, it does not disclose that Mr Hillier has guaranteed the lessee’s obligations under it. There is no explanation as to why a copy of that lease was not provided earlier in response to Mr Hillier’s correspondence.

49    As explained later in these reasons, the process by which Mr Hillier has obtained the documents necessary to establish his status as guarantor has not been easy, principally because his repeated and reasonable requests to be provided with copies of the leases (first made in early May 2022) went unanswered.

50    Rather than provide Mr Hillier with a copy of the current lease for the Norwood premises, Mr Martin annexed to his Fifth Affidavit historical correspondence concerning the assignment of that lease to a new lessee in 2016. In that correspondence Mr Martin (writing under Mr Hillier’s name) expressed a legal opinion about the effect of the assignment on Mr Hillier’s obligations to continue to indemnify the obligations of the outgoing lessee. I give Mr Martin’s legal opinion no weight. The terms of the assignment documents speak for themselves. They show that Mr Hillier has guaranteed the liabilities of the incoming lessee. A copy of the renewed lease for the Norwood premises as currently in force was not produced to Mr Hillier until late in the hearing, notwithstanding that he had first requested a copy of it about 10 weeks prior.

51    In response to the Court’s criticism concerning the late production of a lease during the course of the hearing, Mr Martin complained that the Court had assumed that Mr Hillier’s assertions that he was a guarantor had been made in good faith. I will treat that accusation as a submission. It is an unusual submission to make, given that it has always been within the respondents’ power to obtain copies of leases and provide them to Mr Hillier in response to his reasonable requests for copies. It is unfortunate that the dispute over Mr Hillier’s status of guarantor could not have been resolved by the respondents taking the sensible step of providing him with copies of the documents in the nature of leases or other contracts that relate to the issue.

52    Mr Hillier was cross-examined on his affidavit evidence concerning conversations he had with the lessor’s agent for the Chinatown lease. The questioning was to the effect that Mr Hillier had failed to qualify his evidence about the effect of the conversation. I am satisfied that Mr Hillier deposed to the effect of the conversation as he subjectively understood it to be. However, I consider very little turns on the question of whether his understanding was objectively correct.

53    Mr Hillier’s asserted personal interests in the financial management of the Nordburger business by reference to his status as guarantor are proven on the basis of the Hindmarsh and Norwood leases alone. Resolution of his status in relation to the Chinatown lease does not take the analysis much further. In any event, the Broader Restraint will not be ordered for the purpose of protecting Mr Hillier against his exposure under the contracts of guarantee per se. The purpose for which the order will be made must be more confined.

Financial position

54    In his Fourth Affidavit, Mr Martin asserted that the Xero database constitutes a working platform that is regularly updated. He said that records in Xero may be changed in the course of processes used by accountants when tax returns are prepared. Accordingly, he asserted, the database cannot be assumed to represent the final or correct position in relation to any particular issue. That may well be the case, however Mr Martin himself sought to rely on information extracted directly from Xero to support a submission that the Nordburger business was profitable and to otherwise present an unqualified rosy picture of its trading position to the Court. In addition, he relied on journal entries contained in Xero to explain transactions, rather than direct evidence from the persons responsible for making the entries.

55    I am satisfied that it is reasonable for Mr Hillier to rely on material contained in the Xero database to evidence the financial position of the Nordburger business and transactions occurring within the Nordburger group. The circumstance that there may exist better evidence does not preclude him from relying on raw data of the kind contained in Xero. It is within the respondents’ capacity to adduce evidence independently of that contained in the Xero database to rebut inferences that might otherwise be drawn from the raw data.

56    In his Fourth Affidavit, Mr Martin asserted that expert reports upon which Mr Hillier had originally intended to rely were inaccurate. However, the expert reports were not adduced on the present application and Mr Martin’s views in connection with them are of no present significance to the Court.

57    Mr Martin also referred to a payment to a Nordburger entity in the amount of $540,000.00 as compensation from the State Government for the compulsory acquisition of a property from which the Nordburger Frewville restaurant formerly operated. He asserted that the delayed payment of compensation was a substantial reason for the tightened cash flow in the Nordburger group. He said that the receipt of the funds had alleviated the cash flow issue to a considerable degree. He went on to explain certain aged payables that were the subject of consideration in Hillier 11.

58    Mr Martin disclosed that there had been previous payment arrangements with the ATO which had lapsed due to a delay in filing tax returns for the 2020 and 2021 financial years. He deposed to an expectation that there would be a sizeable tax return in 2022 which would be allocated to paying down the ATO debt. Mr Martin asserted that the COVID-19 pandemic had impacted the profitability and trading position of the Nordburger business, but denied that the negative profitability was as severe as that asserted by Mr Hillier.

59    The affidavit of Mr Williams made on 28 April 2022 also annexes correspondence explaining why a debt to a bread supplier remained outstanding. It supports an inference that the failure to pay the debt may be due to circumstances relating to the quality of the supply and perhaps to a delay in the provision of invoices. In light of that evidence, I have no regard to the bread supplier debt for the purposes of the present application.

60    Also annexed to that affidavit is a document showing that Nordburger Pty Ltd is subject to a payment plan with the ATO created on 27 April 2022. It evidences an outstanding debt owing as at that date of $490,699.83. The plan total (including estimated general interest) is $535,162.47. Those amounts are higher than the amount identified in Hillier 11 as presently owing to the ATO.

61    The Hillier 21 June and Hillier 21 July affidavits drew on information contained in Xero to illustrate declining profits across the Nordburger business at the time that those affidavits were made. The most recent information is that contained in the Hillier 21 July affidavit, based on information contained in Xero on 19 July 2022. The information is summarised by Mr Hillier as follows:

62    The four entities referred to as Norwood, Hindmarsh, Frewville and Chinatown are the trading entities deriving revenue from trade. The zero profit attributable to Frewville in the 2022/2023 financial year is occasioned by the closure of that restaurant upon the compulsory acquisition of the leased premises. The row titled Nordburger Pty Ltd sets out the expenses incurred by that entity in the periods nominated in the second row. In cross-examination, Mr Martin acknowledged that those expenses included wages payable to employees working for the trading entities. That circumstance renders it appropriate to consider the profitability of the Nordburger group as a whole and to have regard to management fees paid to non-operational staff.

63    The information contained in Xero discloses that the sum of $540,000.00 paid in compensation for the acquisition of the Frewville premises has been treated in the accounts in a way that reduces Nordburger Pty Ltd’s loss in the 2021/2022 financial year by the same amount. If it were not so treated, the overall losses recorded in the above table would be increased by the same amount, so presenting a more straightened position.

64    Accordingly, whilst I place some weight on the recent receipt of $540,000.00, the receipt can only take matters so far. I am satisfied that the trend is one of declining financial performance, including over a period that cannot be explained away by generalised inferences concerning the impact of COVID-19.

65    In his Fifth Affidavit, Mr Martin denied that the Nordburger business is in a poor trading position. He went so far as to say that Mr Hillier’s evidence concerning the financial position was “wholly misconceived”. He relied upon documents that he described as “profit and loss analysis for each of the three Nordburger restaurants, showing that each restaurant is trading at a profit”. If that analysis were to be accepted, it would support a finding that in the 2021/2022 financial year, the Norwood, Chinatown and Hindmarsh restaurants achieved net profits of $509,204.00, $133,555.00 and $932,811.00 respectively. If I am wrong in that calculation it remains that Mr Martin has given evidence on oath describing the restaurants as profitable.

66    This aspect of Mr Martin’s evidence is rejected. It was plainly within Mr Martin’s knowledge that significant expenses in the nature of wages attributable to the trading entities are not recorded as expenses in the so-called profit and loss analyses upon which he relies.

67    I do not consider Mr Martin was merely mistaken in making the unqualified deposition that he did (he did not suggest mistake in any event), nor do I consider the evidence can be explained by naivety on his part. Under cross-examination in respect of this important issue, Mr Martin made a poor impression. Whilst he readily accepted that wages were not included in his analyses, he was defensive and evasive in responding to questions about the consequences of that critical omission. He acknowledged that the profit and loss “analyses” he relied upon was not comprehensive (a qualification not made in his affidavit), but curiously resisted the suggestion that the documents he relied upon did not represent the true position.

68    Mindful of the seriousness of the finding, I consider the analyses provided by Mr Martin omitted critical information concerning a significant trading expense (that of wages) that he knew to be missing.

69    Mr Martin then said that the information contained in Xero was not indicative of the true position, and yet the information input into his own analyses was itself based on information contained in Xero. The reports based on that information were annexed to his affidavit without qualification as records that were said to support his strident criticism of Mr Hillier.

70    Mr Martin’s conduct in seeking to portray an inaccurate picture as to the profitability of the Nordburger business has two important consequences. The first is that there is an absence of reliable evidence that might shed light in any meaningful way on the reasons for the poor trading position of the Nordburger business. The second is that the Court cannot have confidence that Mr Martin is a person who presently monitors the financial position of the Nordburger group, in any serious way. Whether any such monitoring forms a part of his responsibilities within the Nordburger business is somewhat unclear.

71    Concerns about the deteriorating financial state of the Nordburger business are well-founded. On the evidence before me I am satisfied that the Nordburger group is in a precarious financial position, principally evidenced by declining profits, net losses and the amount and age of the debt owed to the ATO. Put simply, the present revenue is insufficient to meet the expenses. As Mr Martin deposed in his Fourth Affidavit, the compensation payment alleviated what appears to be a serious cash flow problem. However, Mr Martin pointed to no other readily accessible resource from which the expenses of the Nordburger business might be paid in circumstances where trade revenue is insufficient to meet them. These findings should not be understood as equating to a conclusion that any one or more of the entities in the Nordburger group is presently insolvent. It is simply to observe that the present ability of the Nordburger group to meet expenses is uncertain on the limited evidence before me.

72    I am satisfied that the circumstances just described have persisted through the 2020/2021 financial year to the present day. As explained below, over that same period significant loans have been advanced or increased for the direct or indirect benefit of Mr and Mrs Martin.

Loans

73    The respondents do not deny the existence of the Div 7A loans, although Mr Martin did take issue with the amounts owing. In his Fourth Affidavit, he asserted that the figures relied upon by Mr Hillier in support of the April Restraint were inflated, however he did not state in his affidavit what he asserted the present balances to be. When asked of the balances in cross-examination, he could not say. On the basis of the information contained in Mr Hillier’s affidavits, I find that Mr and Mrs Martin or their associated entities are presently indebted to Nordbuger Pty Ltd or other entities in the Nordburger group in the amount of $604,953.00.

74    There is no reason to depart from the findings expressed in Hillier 11 concerning the purposes of the loans. I am satisfied that the loans were advanced to provide money to Mr and Mrs Martin for personal purposes and that they are accordingly unrelated to the conduct of the Nordburger business. I again draw the inference that the credit was extended on terms that Mr and Mrs Martin could not have obtained if they were to apply for finance elsewhere. Whilst it is Mr Hillier who bears the onus of proof on the present application, I observe that neither of the respondents attempted to explain how the provision of the loans was in the best interest of the relevant company or companies, including as to how they were in the best interest of Operations in its capacity as shareholder and trustee of the asserted NH Trust. It is apparent that Operations as shareholder and trustee has not questioned the activities of the director(s) of the subsidiary companies in granting loans to Mr and Mrs Martin.

75    The circumstance that the loans might have been advanced on terms that satisfy the requirements of Div 7A of the Income Tax Assessment Act is hardly to the point. It remains that Mr and Mrs Martin have had credit extended to them by one or more entities in the Nordburger business and, as a consequence, the money advanced to them is not able to be utilised in the course of trade (including to meet expenses). Whilst Mr Martin has acknowledged to some extent the cash flow problems faced by the Nordburger business, he has not dealt with the obvious inference that the advancement of the Div 7A loans caused or contributed to the cash flow issues.

76    Whilst in the ordinary course it might be inferred that Mr and Mrs Martin (and their associates) meet their obligations to make repayments on the loans from their own resources, even that topic involves some complexity in light of further evidence given by Mr Martin in re-examination, discussed elsewhere in these reasons.

Management fees

77    Mr Hillier deposed that the Nordburger business was established using a model that utilised full time managers who have day-to-day decision making responsibilities, and that his role involved the oversight of those managers. He deposed to his understanding that an employee, Ms Clare Surridge, presently has the day-to-day decision making responsibilities and that any oversight that might be required by Mrs Martin would be minimal.

78    Mr Hillier deposed that the Xero records showed a weekly amount of $6,310.07 drawn from the business in “management fees” continuing after the date of the Undertaking, of which $4,000.00 per week was paid to Mrs Martin and the remainder to Ms Suridge. He asserted that in the period from 6 July 2021 to 5 April 2022, management fees totalled $256,657.54.

79    Mr Hillier deposed that if management fees continue to be paid to Mr and Mrs Martin, the financial position of the Nordburger group would continue to deteriorate. He referred to his status as guarantor of certain leases and expressed a concern that if the obligations under the leases were not met, he would be exposed to significant losses.

80    On 9 May 2022, Mr Hillier (through his solicitor) raised those concerns with the respondents and requested that they reduce the fees paid to Mr and Mrs Martin to $1,500.00 per week. The respondents’ solicitor responded in terms that his “clients” had been receiving a weekly sum “by way of wages” for many months, that the payments were made in the ordinary course of business, and there was no reason why the payments should be reduced on any ground.

Payments to Mr Martin

81    It is not contested that Mr Martin presently draws income from the Nordburger business in the amount of $1,000.00 per week. In his Seventh Affidavit, Mr Martin dispelled prior confusion arising in the Xero records which wrongly described payments to him as being in the nature of loan money. He deposed that the weekly payments are in consideration for services performed by him.

82    The various affidavits relied upon by Mr Martin and the respondents do not contain information as to the services performed by Mr Martin in consideration for that payment. No contract for services is in evidence. The hours worked by Mr Martin in the performance of the services are not stated. There is insufficient evidence to support a conclusion that any services in fact provided to any entity in the Nordburger group are either indispensable, or that they are services that only Mr Martin could provide, or that they are provided in the performance of a contract for services presently on foot.

83    In cross-examination Mr Martin said that he had performed services in the conduct of legal proceedings by which he challenged the assessment of compensation for the compulsory acquisition of the Frewville property. I accept his evidence that he has been involved in the conduct of that litigation, however it remains that this Court has very little information to enable an assessment to be made as to whether and if so how the interests of any company in the Nordburger group would be adversely affected if the Broader Restraint was ordered. In the absence of evidence establishing the existence of a contract for services or some other basis to charge any entity in the Nordburger group the sum of $1,000.00 per week, I am not prepared to draw an inference that the cessation of that arrangement would be detrimental to the interests of any entity in the Nordburger group. Counsel for the respondents did not advance any submission to that effect in any event.

84    Mr Martin asserts that the payments are his only source of income, such that his personal financial interests would be affected by an order in terms of the Broader Restraint. I take that unchallenged evidence into account and afford it some weight in the exercise of my discretion.

Payments to Mrs Martin

85    It is not in dispute that Mrs Martin was the sole director of Nordburger Pty Ltd at the time that her asserted contract of employment is said to have come into existence in 2013. While Mr Hillier accepts that she has the title “Managing Director” his pleaded case is that she has drawn weekly payments from Nordburger Pty Ltd in the amount of $4,000.00 without performing any services in consideration for the payments:  see [13(25)] above.

86    Mr Hillier deposed that he observed transactions occurring in Xero which showed an amount of $10,301.37 attributed to management fees on 10 May 2022, and the same amount again attributed to management fees on 7 June 2022 (together the May and June payments). He first raised the question concerning the May and June payments by letter dated 8 July 2022 (after this interlocutory application was filed) and again by letter dated 11 July 2022. The respondents explained that the payments were attributed to Mrs Martin receiving cash in lieu of annual leave in the exercise of her entitlements as an employee of Nordburger Pty Ltd. By his Seventh Affidavit, Mr Martin clarified that $2,301.37 from each of the May and June payments was attributable to the cashing out of annual leave owing to Ms Suridge and the remainder (totalling $16,000.00) was attributable to Mrs Martin. I accept the evidence of that correction.

87    The records show that an additional $112,210.53 was paid to Mrs Martin on 28 June 2022, also attributable to her receiving a payment in lieu of annual leave entitlements. On the same day, a further $11,221.05 was drawn, referrable to superannuation payable on the annual leave amount. Mr Hillier submits that these payments demonstrate either that transactions were made in breach of the Undertaking (because the payments were not made in the ordinary course of the Nordburger business) or that they otherwise demonstrate that the Undertaking is insufficient to preserve his interests in the outcome of the proceedings.

88    The respondents rely on the explanations given in the solicitor’s correspondence dated 11 July 2022 in answer to a series of questions posed by Mr Hillier. Mr Martin acknowledged that the answers were provided on his instructions. To consider Mr Martin’s oral evidence on this topic in its proper context, it is necessary to set those exchanges out in full:

2.    Why it is that after the imposition of the restraint and the giving of the undertaking (referred to in paragraph [1] above) an additional $20,602.47 has been paid by the Nordburger Group comprised of two payments of $10,301.37 on each of 10 May 2022 and 7 June 2022 purportedly on account of management fees?

All payments identified by your client as having been made to Mrs Martin in May and June of 2022 relate to accrued employment entitlements. The two transactions with a total of $20,602.47 (comprising two payments of $10,301.37) related to Mrs Martin cashing-out a portion of her accrued employment entitlements to annual leave pursuant to the Fair Work Act 2012 (Cth). A corresponding adjustment was made to Mrs Martin’s annual leave balance at the time of the payments.

Mrs Martin has been employed continuously by Nordburger Pty Ltd as its managing director since 4 July 2013. Payments for annual leave, whether the leave is taken or cashed out, are properly characterised as employment entitlements, and as expenses of the business, and are recorded in the payroll section of the Xero database.

The payments are also recorded in another Xero account with the description ‘wages Management’, which tallies the wages paid to management employees of the business, who are not rostered through the ‘Deputy’ on-line rostering system which is used by all ‘on-floor’ staff. This allows expenses for the overall management of the business to be separated from the cost of operating each individual restaurant, which is useful for budgeting, profit/loss and other purposes.

This is a long-standing arrangement in respect of the salary that Mrs Martin is paid for managing the entire business. The amount of salary she receives is, in fact, unchanged from the amount which was expressly agreed with your client five years ago, in 2017, when he was receiving an equivalent sum as payment for consulting fees, pursuant to an arrangement which was specifically requested by him.

To the extent that your client would seek to portray this employment expense as monies that Mrs Martin has arbitrarily extracted from the business in addition to her lawful contractual entitlements, ‘purportedly on account of management fees’, or, as her Honour said, a form of ‘accounting fraud’, that grossly misrepresents the character and substance of payments that were entirely permissible within the terms of the Court Orders and Undertaking. A matter of which your client is undoubtedly well aware.

3.    Why it is that your clients consider that the payments of management fees since the restraint referred to in paragraph [1] constitute payments in the ordinary course of business given the financial status of the Nordburger Group as deposed to in Mr Hillier’s ninth affidavit made 21 June 2022 at paragraphs [19], [20] and [24]?

As stated above in response to question [2], payment for accrued employment entitlements is undoubtedly an expense incurred in the ordinary course of business. Mrs Martin’s accrued annual leave entitlement was already recorded as a contingent liability within Nordburger’s financial accounts. The characterisation of these payments by your client as being ‘management fees’ in excess of Mrs Martin’s existing, long-standing employment entitlements, is disingenuous and misleading. As to why your client sought to erroneously characterise the payments in this way, despite having unrestricted access to the entire Xero database, including payslips showing the payments directly corresponding to alterations in Mrs Martin's annual leave balance, the Court will reach its own conclusions.

My clients also do not accept that the Nordburger business is currently undergoing the extreme liquidity or solvency problems that your client purports to apprehend, or as your client’s expert witness Mr Camens would opine.

…

7.    Why it is that on the 24 June 2022 the Xero database discloses a Payroll Expense Journal entry recording:

7.1    a transaction recorded in ‘wages-Management’ for $112,210.53; and

7.2    a transaction recorded in ‘Superannuation Payable’ for $11,221.08?

These entries relate to Mrs Martin cashing out accrued annual leave entitlements pursuant to the Fair Work Act 2012 (Cth), in the same manner as she did previously on 10 May 2022 and 7 June 2022, as discussed above at question [2].

89    In his correspondence, Mr Hillier also queried transactions occurring within the Div 7A loan accounts reducing their balances. In response, the respondents explained that Mrs Martin had caused $68,009.53 of the money she received in lieu of annual leave to paying down the loan balances.

8.    Why it is that on 24 June 2022 the Xero Database discloses that ‘wages reconciliation[s]’ are recorded reducing:

8.1    the first respondent’s 2020 Division 7A Loan account by $23,531.53;

8.2    the VTPD Trust’s 2020 Division 7A Loan account by $16,475.00; and

8.3    the first respondent’s 2021 Division 7A Loan account by $28,003.00.

These reconciliations relate to the allocation of cash from further cashing-out of annual leave entitlements by Mrs Martin, as per the response to question [5] above, for the purpose of meeting the minimum repayments for her Division 7A loan accounts in the 2021/2022 financial year.

90    The assertion that Mr Hillier had access to payroll records via Xero is not correct. Nor is the assertion that Mrs Martin’s accrued annual leave entitlement “was already recorded as a contingent liability within Nordburger’s financial accounts” supported by the evidence before me.

91    Three payslips were annexed to Mr Martin’s Fifth Affidavit and a further seven payslips were produced and tendered after Mr Martin’s cross-examination was complete. They contain the following information:

(1)    The payslips are issued by Nordburger Pty Ltd.

(2)    A payment of $4,000.00 is made on the basis of a 38 hour week.

(3)    The hourly rate is identified as $105.2632 (the hourly rate).

(4)    A payslip referable to the last week in October 2017 records that Mrs Martin accrued 2.9151 hours of annual leave in that week and that the balance of accrued leave was at that time 653.6488 hours (17 weeks).

(5)    Payslips for periods between 2017 and February 2022 show annual leave continuing to accrue, such that as at 6 February 2022 the accrual balance was 1,303.7161 hours.

(6)    A payslip for the week ending 8 May 2022 shows an accrued annual leave balance of 1,271.4425 hours, however no draw down of annual leave is recorded in that payslip.

(7)    The first draw down of cash in lieu of annual leave is recorded in a payslip for the week ending 5 June 2022. It relates only to the payment of annual leave and does not record payment for any other earnings. It shows a draw down of 76 hours paid at the hourly rate resulting in a payment of $8,000.00. It also shows that a further accrual of 5.8301 hours of annual leave. From that and other payslips I infer that when Mrs Martin receives cash in lieu of taking annual leave, she is given a further accrual of annual leave as though the leave has in fact been taken, rather than cashed out.

(8)    A payslip for the week ending 26 June 2022 records the cashing out of 1,066 hours of annual leave at the hourly rate, resulting in a payment of $112,210.53. The “year to date” column shows that a total of $128,210.53 had been paid to Mrs Martin to that late date in the 2021/2022 financial year. Consistent with the previous payslip, Mrs Martin was benefited with 81.7753 hours of accrued annual leave in that week, again confirming that Nordburger Pty Ltd is crediting Mrs Martin with annual leave accruals on top of cash drawing of accrued annual leave. With the addition of the 81.7753 hours new accrual, the annual leave balance, as at 26 June 2022, was 237.4536 hours.

92    In cross-examination, Mr Martin stated that Mrs Martin had been an employee of Nordburger Pty Ltd for nine years. He said that she had made a written request to be paid cash in lieu of her annual leave entitlements. He said that the amount paid to Mrs Martin was calculated on the advice of accountants. As I understood his evidence and submissions, he believed that Mrs Martin could cash in all but four weeks of her accrued hours of leave. He said that he had formed the view that the financial position of the Nordburger group was such that the payment could and should be made. His evidence was to the effect that it was Mrs Martin’s statutory entitlement to receive the payment in response to her written request and that, accordingly, the payments were properly to be regarded as transactions occurring in the ordinary course of business.

93    Mr Martin said that he had approved Mrs Martin’s written request to be paid cash in lieu of her annual leave entitlements. He made it plain in his evidence (and later in his submissions) that it was his view that an employer retained a discretion as to whether a written request to receive a payment in lieu of leave should be allowed.

94    Mr Martin said that the employment agreement between Mrs Martin and Nordburger Pty Ltd was formed orally and had not been reduced to writing. However, in cross-examination he could not identify which natural person had caused Nordburger Pty Ltd to enter into the agreement with her. Given that Mrs Martin was the sole director of the company at the time, the question of how an employment contract could have been formed is one that Mrs Martin could resolve but she has not given evidence and so that question will be left hanging.

95    Mr Martin did not assert that Mrs Martin’s salary had been $4,000 for the entire nine years of her employment dating back to 2013. Mr Martin was not asked how it is that annual leave accrued at times when she was paid less than that amount could in subsequent years be paid out at a rate of more than $105 per hour, nor was he asked how an employee could be entitled to accrue additional annual leave by virtue of cashing out accrued annual leave entitlements. For the purposes of the present topic, I place no weight on those particular aspects of the evidence.

96    In the three affidavits relied upon by Mr Martin on this application, none of them contain evidence as to the particular tasks performed by Mrs Martin in the course of her asserted employment, nor as to the terms of the asserted employment contract.

97    As a matter of arithmetic, the payslips appear to me to contain a representation that in nine years of assumed employment with Nordburger Pty Ltd Mrs Martin has not taken any annual leave at all. If I am wrong about that, they at least contain a representation that no leave has been taken since the date of the earliest payslip in time. On that topic, Mr Martin said that arithmetic was not his strong point and that he was not sure how the leave had been calculated in the Xero records.

98    Mr Martin then told the Court:

She is on duty, and she is – she is required to be responsible in the business every day that it operates, and operates seven days a week, so that’s the position.

- - - And any suggestion that she is some passenger, passively, so of, not involved, or disengaged from what is happening in the business day to day, is absolutely wrong and has never been the case, and that’s as much as I could say about the accrual of annual leave.

99    Mr Martin went on to tell the Court that in nine years he had had one holiday with Mrs Martin and that she was working throughout that period. I infer from that evidence that Mr Martin has proceeded on the basis that Mrs Martin is entitled to be paid at a rate of more than $105 per hour for 38 hours each week by virtue of her availability to be called upon (including when on holiday), whether or not she expends 38 hours of effort in the Nordburger business. If he otherwise meant to assert that Mrs Martin has in fact expended 38 hours of actual effort in the Nordburger business for nine years without taking annual leave, I would not accept that evidence at face value, given the poor impression Mr Martin conveyed as a witness with respect to the financial records contained in Xero.

Capital account transactons

100    Mr Hillier gave evidence that on 26 March 2022 he observed a transaction in the Nordburger Capital Bank Account (Capital account) as recorded in Xero which appeared to evidence a $250,000 withdrawal. On 31 March 2022, Mr Hillier (by his solicitor) sought an explanation for the Capital account transaction from the respondents’ then solicitor, Mr Williams.

101    On 4 May 2022 Mr Williams responded to the effect that what Mr Hillier had observed was an internal transaction and that he was awaiting further advice from an external accountant to provide more information. On 5 May 2022 Mr Hillier requested copies of the corresponding bank statements for the Capital account. He received no response to that request. It may be accepted that around that time there was disruption in the respondents’ legal representation occasioned by an application by Mr Hillier to join them as respondents in the proceedings.

102    Mr Hillier gave evidence that on 4 July 2022, he observed a transaction that he believed to be a physical deposit of funds into the Capital account restoring the same amount. He said that on that same day his access to the Xero database was restricted such that he was no longer able to view the transaction history of the Capital account.

103    By his letter dated 11 July 2022 the respondents’ new solicitor, Mr Wright, asserted that Mr Hillier “should still have access to all information, including all bank transactions, within the Nordburger Capital account in Xero”. Mr Wright went on to assert (on Mr Martin’s instructions) that the bank statements were already available to Mr Hiller as at 5 May 2022 “via the bank feed” for the account. In his Fifth Affidavit Mr Martin referred to documents that he described as “bank statements” which he claimed Mr Hillier could always have accessed. The annexed documents were in fact transaction records, not bank statements.

104    At the hearing of the interlocutory application the respondents acknowledged that Mr Hillier did not have access to the bank statements. At the Court’s suggestion, Mr Martin obtained copies of the bank statements over the lunch break. I refused Mr Martin leave to cross-examine Mr Hillier on the bank statements given the late hour at which they had been produced and having regard to the previous requests made of the respondents for copies to be provided to Mr Hillier.

105    Having now had an opportunity to view the bank statements, Mr Hillier does not press his reliance on the observations in the Capital account as founding his application for the Broader Restraint or the Information Order. In the circumstances, it is unnecessary to describe the explanation given for the observations Mr Hillier made of the movements in the Capital account.

106    Mr Hillier’s late abandonment of his reliance on that subject matter does not warrant any criticism of him. To the contrary, I consider that Mr Hillier’s concerns were reasonably based on his observations of the information in Xero at the time that his observations were made.

Sub-rule 7.32(1)

107    Any order made under r 7.32(1) must be directed to the purpose of preventing the frustration or inhibition of the Court’s processes “by seeking to meet a danger that a judgment … of the Court will be wholly or partly unsatisfied”.

108    The frustration or inhibition with which the rule is concerned is that arising from the circumstance that the judgment of the Court will not be satisfied and that the entire litigation may therefore be rendered wholly or partially futile. In a case such as the present the relevant futility is commercial futility.

109    The limitations on the rule were discussed by Gageler, Keane, Gordon and Gleeson JJ in Deputy Commissioner of Taxation v Huang [2021] HCA 43; 395 ALR 616:

17    The power conferred by r 7.32(1) is expressly subject to two limitations:  first, the purpose of the order must be ‘the purpose of preventing the frustration or inhibition of the Court’s process’; and secondly, the order must address that purpose ‘by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied’. The first limitation corresponds with the established scope of the Federal Court’s general powers to grant a freezing order, being the power to make such orders as the Court may determine to be appropriate to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction. Rule 7.32 states explicitly the requirement, stated by this Court in relation to the Federal Court’s general powers to grant a freezing order, that the power must be exercised for the purpose for which it is conferred. Where the order is made in proceedings in which substantive relief is sought against the defendant, that purpose is ‘to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action”. More broadly, a freezing order is directed to dispositions ‘which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his attempt to seek through the court a remedy for the obligation to which he claims the defendant is subject’.

18    The second limitation, that an order made under r 7.32 must serve the specified purpose ‘by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied’, also corresponds with the scope of the Federal Court’s general powers to make a freezing order. Since Jackson v Sterling, it has been accepted in Australia, as a general proposition, that a freezing order could be granted if the circumstances are such that there is a danger of the defendant absconding, or a danger of the assets being removed from the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if successful in obtaining a judgment, will not be able to get it satisfied. The danger must be sufficiently substantial to warrant the freezing order. The need to identify a relevant danger was first articulated in Mareva Compania Naviera SA v International Bulkcarriers SA, where Lord Denning MR stated:

‘If it appears that the debt is due and owing — and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment—the Court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets.’

(emphasis added, citations omitted)

110    Mr Martin submitted that an order in terms of the Broader Restraint would be akin to an order appointing a receiver to the companies within the Nordburger group. It is to be accepted that the appointment of a receiver is a drastic step: see National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386 (at 553-554). However, in my assessment, the likely effect of the Broader Restraint, as identified below, is not analogous to the appointment of a receiver. The receivership cases nonetheless emphasise that limitations on the exercise of the power in question must be observed and I accept Mr Martin’s submissions to that effect.

111    Mr Martin otherwise submitted (and it is accepted) that r 7.32 does not authorise the Court to make orders based merely on an impression as to what might be warranted, nor does it authorise the Court to make orders that reflect (adopting Mr Martin’s words) “idiosyncratic notions of fairness and justice with a view to the story of the case or the comparative disadvantage” of the parties.

112    An order in the exercise of the particular power in r 7.32(2) would in the ordinary course have the effect of depriving a person access to their own assets. However, the factual circumstance in which the requisite danger referred to in sub-r (1) might arise are not limited to the particular circumstances described in sub-r (2), and the means by which the identified danger might be met are not limited to orders freezing the personal assets of the affected person. As the emphasised passage from Huang shows, an order under r 7.32(1) may be directed to restraining dispositions that have the effect of frustrating the applicant (here Mr Hillier) in his attempt to seek through this Court a remedy for the obligations he asserts against Mrs Martin and Operations. That requires a close analysis of the obligations sued upon and the remedies claimed for their breach.

113    The Court’s processes will not be frustrated or inhibited by reason only of the circumstance that a party against whom its judgment may be enforced has insufficient assets against which the Court’s judgment may be wholly satisfied. As the respondents and Mr Martin correctly submitted, the mere decline in the profitability of a business in the ordinary course would not of itself justify the imposition of an order under r 7.32. In that sense, it is correct to say that the purpose of an order under r 7.32 is not to provide a plaintiff security for his or her claim. I accept the submissions of the respondents and Mr Martin to that extent. However, as discussed below, the Court is not presently concerned with an allegation that the profitability of the Nordburger business is declining in the ordinary course.

114    An order in terms of the Broader Restraint would not operate to freeze the assets of either of the respondents. Rather it is an order that seeks to address the relevant danger (identified below) in a more appropriately targeted way.

115    It is convenient at this juncture to identify the likely effect of the order on the respondent parties and on Mr Martin as a non-party. I will then identify the evidence that I consider gives rise to a need to prevent the frustration or inhibition of the Court’s process in the requisite sense.

The effect of the Broader Restraint

116    Among other things, it is necessary to consider whether the order would have the effect of interfering with any contractual relationship between Mrs Martin or Mr Martin and Nordburger Pty Ltd (or other entities). It is relevant to consider whether the order might have the effect of depriving the corporate entities of essential services that can or should be performed only by them.

117    I have earlier found that Mr Martin’s personal interest in receiving a payment of $1,000.00 in consideration for the provision of services will be affected by the order. However, in circumstances where the nature of the services and the terms on which they are provided are unclear, I afford that consideration little weight. It may be that Mr Martin is charging on terms that would not be acceptable to the relevant entities if negotiated on an arms’ length basis. Any arrangement between Mr Martin and entities controlled by him or his wife are not transactions entered into at arms’ length. Whilst I accept Mr Martin’s evidence that the payment of $1,000.00 per week is his sole income, I afford that circumstance little weight in the absence of evidence demonstrating an entitlement payments on commercially prudent terms.

118    With respect to Operations, it is difficult to see how its interests are affected by the Broader Restraint at all. The interests of Operations could not on any reasonable view of the facts or law depart from or conflict with the interests of beneficiaries of the applicable trust (whichever trust be valid). To the extent that it has rights as a shareholder, decisions with respect to those rights are to be made in conformity with the terms of the applicable trust and not in a manner that advances the personal interests of Mr and Mrs Martin. All of that might go to explain why Counsel for Operations did not expressly submit that the Broader Restraint would interfere with any legal right presently enjoyed by Operations. Nor did Counsel point to any effect the Broader Restraint might have on Operations’ ability to discharge its obligations as trustee under the asserted NH Trust.

119    At the very least, the payslips in evidence indicate that under the assumed employment contract, payment of a salary to Mrs Martin is conditional upon her working 38 hours per week, such as to accrue about 2.9151 hours of annual leave for each week actually worked. It is against that assumption that I assess the plausibility of the representation impliedly made in the payslips that Mrs Martin has in fact worked 38 hours per week for every week for nine years without interruption. Even if the implied representation were to be restricted to the period of about five years to which the payslips relate, I simply cannot accept the representation at face value. The circumstance that the payslips are admissible as business records says nothing about the weight that might be afforded to representations contained in them, and nothing about whether sound inferences might be safely drawn from them as to the present state of affairs.

120    There is no evidence presently before me to the effect that the terms of the employment contract (if there be one) permit Mrs Martin to receive payments on the basis of working 38 hours in circumstances where she has not in fact worked those hours.

121    The consequence is that there is insufficient evidence upon which to base a conclusion that the interests of any one of the companies in the Nordburger group would necessarily be harmed if the weekly payments to Mrs Martin and any associated activities in her capacity as an employee were to cease. There is a lack of reliable evidence concerning the scope and nature of those activities, sufficient to support such a conclusion.

122    Having regard to the evidence as a whole, and for the limited purposes of the present interlocutory application, I accept Mr Hillier’s evidence that the Nordburger business operates along the lines of the model he described, with the day-to-day operational responsibilities left in the hands of employees (particularly Ms Suridge) who require minimal supervision.

123    I have not overlooked that Mrs Martin is a director of entities in the Nordburger group and owes duties to the companies in that capacity. I have particular regard to the duty to ensure that the companies comply with their legal obligations, including their taxation obligations and their obligations to creditors (particularly employees, suppliers and lessors) and the duty to maintain oversight of the companies’ trading positions. However, the evidence does not permit the Court to populate that general observation with practical examples. I consider this aspect to warrant a modification of the Broader Restraint to the effect that the transactions encompassed by it be restrained “except with the leave of the Court”. The conditions that should attach to any application for leave are considered further below.

124    Mr Martin submitted that an order restraining the payment of management fees to Mrs Martin would be contrary to established principles concerning the grant of interlocutory injunctions because such a restraint would not be directed to preserving the status quo with respect to such payments but was instead directed to altering it. He submitted that Mr Hillier was seeking to unwind longstanding lawful arrangements concerning payments to Mrs Martin “that he was a participant in establishing on his own evidence”. He referred to Mr Hillier’s pleaded claim that Mrs Martin’s entitlement to a payment of $4,000 each week was contingent upon Mr Hillier receiving the same amount by way of a distribution via the JV Trust, describing the plea as “nonsense” and “not even part of the case before the court”. I understand these submission to refer to amendments proposed to be made to the 3ASOC for which leave is not yet made.

125    I do not accept the submissions. The allegation that considerable payments are being made to Mrs Martin in circumstances where she has provided no or inadequate consideration for them has been pleaded by Mr Hillier from the outset of the litigation. It is a live dispute. The status quo in respect of that discrete issue is not at all clear on the evidence before me. Mrs Martin has not asserted a long standing entitlement to be paid $4,000.00 without providing consideration in the form of actual effort, such as that which may be provided under an employment contract. The respondents assert in their correspondence that she is a genuine employee. However, notwithstanding the form of relief sought on the interlocutory application, Mrs Martin has elected not to give evidence on her own behalf as to that asserted status quo. The submission that the Broader Restraint interferes with the status quo is not adequately supported by the evidence before me. Mr Martin’s submissions might have carried more force if Mrs Martin had given evidence confirming that the weekly payments are (and always have been) made to her in consideration for her actual performance of her obligations under a genuine employment contract.

The relevant danger

126    In articulating the relevant “danger” for the purposes of r 7.32(1) these reasons may now employ language that assumes that Mr Hillier will be wholly successful at trial and that he is entitled to the final relief claimed.

127    The causes of action pleaded by Mr Hillier include breaches of trust by Mrs Martin, being a trust owing its existence to the joint venture. A critical act said to constitute the breach of trust (also described as a fraud on the power) is Mrs Martin’s conduct in causing the incorporation of Operations, the establishment of the NH Trust, the appointment of Operations as trustee and the transfer of property to Operations in that capacity. Those acts occurred at a time when Mrs Martin was the sole director of Operations, such that her knowledge may be attributed to the company. In addition, Mrs Martin’s conduct in denying Mr Hillier’s entitlement to participate in the affairs of the business is itself conduct amounting to a breach of trust on Mr Hillier’s case. It is plain that the underlying dispute is one concerned (albeit not solely concerned) with the control of the business. Mr Hillier alleges that Mrs Martin has a legally enforceable obligation to conduct the business not for her own benefit or for the benefit of her husband Mr Martin, or for the benefit of the beneficiaries of the NH Trust, but rather for the benefit of the joint venturers.

128    Mr Hillier’s present concern is that the profitability of the Nordburger business is diminishing in circumstances where his rights to participate in the business are wrongfully denied by virtue of an ongoing breach of Mrs Martin’s obligations as trustee, as just described. His case is that by virtue of that alleged ongoing wrong, he is powerless to prevent transactions that appear to be made for the personal benefit of Mr and Mrs Martin and that imperil the financial position of the commercial enterprise forming the subject of the joint venture.

129    By his remedies, Mr Hillier seeks to have Mrs Martin perform her obligations as trustee, including by returning the joint venture monies wrongfully taken by her. Considered as a whole, the remedies contemplate the continuation of the Nordburger business as a going concern after the trial, with ongoing profits translating into ongoing distributions to the joint venturers who will remain in a legal relationship with each other in accordance with its terms. Mr Hillier’s claim is not limited to claims for damages against Mrs Martin in compensation for losses caused by the asserted breaches. The remedies include accounting and restorative obligations that on their terms assume the survival of the Norburger business as a going concern. Orders of that kind could not be “satisfied” in the relevant sense if the enterprise constituting the joint venture has collapsed such that there exists no ongoing business. I consider r 7.32(1) to be broad enough to protect against all manner of risks that all manner of judgments may not be satisfied in all manner of ways. The focus of r 7.32(1) is not limited in its operation to judgments of a kind that require the unsuccessful party to pay a judgment sum to the successful party. That may well be the focus of the power in r 7.32(2), but that sub-rule is not relied upon by Mr Hillier in respect of the Broader Restraint.

130    Accordingly, in the circumstances described in these reasons, I am satisfied that there is a danger that the judgment of the Court (being the final relief sought by Mr Hillier) will be wholly or partly unsatisfied within the meaning of the rule. The judgment of the Court should enable Mr Hillier to enjoy the benefits of the ongoing joint venture, and not be confined to an award of damages for losses occasioned by its demise. Collapse of the enterprise would have the effect of inhibiting or frustrating the purpose of the litigation and hence the Court’s processes in conducting it.

131    Against that analysis, I reject submissions of the respondents to the effect that to be entitled to the interlocutory relief, Mr Hillier must show that he has a direct proprietary interest in the assets of the Nordburger business. I also reject submissions to the effect that it is necessary for Mr Hillier to establish that he has an arguable case that the joint venture agreement is specifically enforceable. In my view it is sufficiently arguable that a joint venture agreement on the terms alleged gives rise to trust obligations of the kind pleaded. It is sufficiently arguable that equity would intervene to compel Mrs Martin’s observance of the terms of that trust. It is sufficiently arguable that the remedies for restitution and account fairly reflect those obligations.

132    To the extent that it is necessary for Mr Hillier to show that the poor financial position of the Nordburger business is a consequence of deliberate or reckless acts of the respondents or their associates (as opposed to diminishing profits in the ordinary course), I am satisfied that condition is fulfilled, especially in light of the paragraphs that follow. If I am wrong in concluding that the acts are deliberate or reckless I consider that the facts as found in these reasons support a conclusion that the acts of the respondents and Mr Martin together have the necessary effect of inhibiting or frustrating the Court’s processes within the meaning of the majority reasons in Huang (extracted above) in any event.

133    In identifying a relevant danger, I have had regard to evidence given by Mr Martin elicited voluntarily by way of re-examination of himself. That evidence was so significant that the Court sought clarification from him to ensure that his testimony was not misunderstood. Mr Martin did not take issue with the Court seeking that clarification and readily elaborated. This was the exchange:

MR MARTIN:    Yes. This is what I attempted to say at the conclusion of tendentious speeches on several occasions, but this – it was a – a active consideration in the use or the allocation of the cashing out of annual leave to the Division 7A minimum requirements, that due to the existing undertaking, there was no other means of accessing the income, readily, to make those payments which were required, and if we were to avoid certain adverse - - -

HER HONOUR:    Access – in what access? So I can understand, accessing the income, accessing what income?---

MR MARTIN:    …The income or the – from the business, so, you know, it may – that – at the conclusion of the financial year, it may be that there are distributions or dividends that might be made, and that was not something that was possible due to the undertaking that was in place. However, the Division 7A minimum repayments must be made before the end of the financial year, and if they’re not, then there are adverse consequences, and those adverse consequences are in part for the business itself, but in part for the recipient of the funds in that the funds are treated as having been – they’re unfranked dividends, so that it’s a very unfavourable tax treatment for those payments. Now, given the undertaking as to damages that has been given by the applicant, if we were unable to, because of the operation of the undertaking, to access the funds that were required to make those minimum repayments and as a consequence, suffered an adverse tax outcome, then that is something that, on the conclusion of the case, if it’s found that there was no basis for the restraint, would be something that the applicant may have to meet in damages. In other words, the – it may have caused loss for which the applicant would have to compensate.

HER HONOUR:    Are you asking me to find that this was the only means by which you and Victoria Martin could meet your obligation to pay the 7A loans?---

MR MARTIN:        It was.

HER HONOUR:    Can I make – draw that inference?---

MR MARTIN:    Well, it was the most readily available option for doing that, and it certainly was not the anticipated or preferable option when these agreements were put in place – the undertaking of the injunctive relief had - - -

HER HONOUR:    And do you ask the Court to infer, by reference to what you’ve said, that were it not for the undertaking, there would have been profits for the taking of the business, by way of dividends – or the company, by way of dividends – by way of distribution, in accordance with the trust that you assert in the proceedings – that there could have been a distribution through the trust?---

MR MARTIN:    There may have been, to a degree, and bearing – in saying that, it should be borne in mind that there were significant accumulated profits in the Nordburger Proprietary Limited entity, due to the fact that it had operated the business as the sole operating entity for some six years prior to the restructure, and there were also significant franking credits within that entity, and so there may well have been – and we expected to have some facility to – for distributions or dividends to be declared and to contribute to the minimum repayments required.

HER HONOUR:    Just to be – so I can understand what this evidence means, you were saying that were it not for the undertaking, there might have been a profit in the business that would have been payable to the shareholder, which in turn is the trust - - -?---

MR MARTIN:        Yes, yes - - -

HER HONOUR:    - - - of the trust that you assert, which would then – you would have caused that trust or caused the company as trustee to make a payment to yourself - - -?---

MR MARTIN:        A distribution.

HER HONOUR:    - - - and a beneficiary, I assume?---

MR MARTIN    Yes, but that discretion never arose to be exercised, in that there was no ability, due to the injunctive relief in the undertaking, to make any distribution or pay any dividend out of the business.

134    I have already concluded that the Div 7A loans were advanced for personal purposes and not for purposes related to the proper conduct of the Nordburger business. And I have inferred that Mr and Mrs Martin have the benefit of loan monies extended to them on terms more favourable than they could achieve elsewhere. In addition, I find that at the end of the financial year they had insufficient liquid assets to meet their repayment obligations under those favourable loans. I find that Mr and Mrs Martin believed themselves to be entitled (but for the Undertaking) to utilise the corporate and trust structures in the manner described by Mr Martin to cause income derived in the Nordburger business to be applied to reduce their personal loan balances. I find that the purpose behind Mrs Martin’s decision to assert an entitlement to have her annual leave cashed out (and Mr Martin’s role in the transaction) included the purpose of avoiding the adverse income tax consequences that would flow to them personally from a breach of the terms of the Div 7A loans.

135    Counsel for Mr Hillier submitted that the evidence of Mrs Martin’s lack of capacity to meet her repayment obligations under the Div 7A loans underscored that the transaction was an instance of self-dealing and properly described as extraordinary given the parlous financial condition of the Nordburger business (even on the assumption that the accrued amount of annual leave was correct). Counsel submitted the transaction was a sharp way of avoiding the appearance of a breach of the Undertaking. As explained below, I do not consider it necessary to make a positive finding that the Undertaking has been breached in order to grant relief in terms of the Broader Restraint.

136    For there to be utility in the Broader Restraint it is of course necessary to identify a danger that is not already met (or at least sought to be met) by the Undertaking presently enforceable against the respondents, or that the Undertaking is insufficient in seeking to meet the relevant danger. I am satisfied that the latter circumstance exists.

137    The Undertaking operates to prevent payments being made to Mr and Mrs Martin if the payments are made other than in the ordinary course of business.

138    Whether or not the payment in lieu of annual leave in fact had that character depends upon information in the respondent’s possession. The respondents have not adduced evidence to satisfy the Court that the payments bear the character of transactions in the ordinary course of business, but it is Mr Hillier who bears the onus on this application, not the respondents.

139    In my view, it is sufficient to identify that an obvious question arose in the commercial context of the Nordburger business as to whether Mrs Martin was in fact entitled to the income and accrued annual leave in the amounts shown on the payslips (discrete from the question of whether the annual leave so quantified must be cashed out upon a written request).

140    It may well be the case that a request by an employee to receive cash in lieu of annual leave is one that the employer is legally obliged to allow, such that the resulting payment is a transaction occurring in the ordinary course of business. However, it is not the case that the amount of annual leave asserted by the employee to be owing must be accepted by the employer at face value. The employer is entitled (for example) to refuse the request on the basis that the employee has not in fact performed the work necessary to accrue the annual leave. In my view, any commercially prudent employer faced with a request to pay an amount of nearly $130,000.00 in lieu of accrued annual leave (plus an additional amount in related superannuation) would carefully scrutinise the claim against the terms of the employment contract and the hours in fact worked. The employer may of course refer to payslips, particularly if they constitute a record kept independently of the employee. Here, the payslips were not generated independently of the employer.

141    The facts described illustrate the danger inherent in the corporate structure under which the Nordburger business is presently owned and controlled such that the potential for conflicts of interest and duty to arise is very real. The facts are such that the Court cannot be satisfied that there has been meaningful disinterested scrutiny of the transactions that appear to confer benefits upon Mr and Mrs Martin and that are said to be payments in the ordinary course of business. Mr Martin’s evidence-in-chief reinforces that concern. It shows that were it not for the Undertaking, he would have no compunction in participating in decisions in his relevant capacities resulting in the income of the business being applied (via the mechanism of the NH Trust) to his ultimate personal benefit. I find that a purpose behind the transactions for the cashing out of the annual leave was to deal with the impending problem that Mr and Mrs Martin would default on their Div 7A loans and suffer the personal tax consequences.

142    In the absence of meaningful scrutiny on the part of Mr Martin, that seems to leave Mrs Martin as the only person with actual authority for advancing and protecting the interests of Nordburger Pty Ltd from claims made by her on the employment contract. On the present structure there can never be a dispute between Mrs Martin and her employer. Any claim that she makes on the employer entity could conceivably be described as a transaction occurring in the “ordinary” course of business because the employer (controlled by Mr and Mrs Martin) will not assert otherwise.

143    As to Operations, I consider there to be a real risk that in its capacity as trustee it will not scrutinise the weekly payment of management fees to Mrs Martin so as to ensure that they are in accordance with the terms of a binding employment agreement and the performance of Mrs Martin’s obligations thereunder, nor will it scrutinise the terms of any contract for services entered into by Mr Martin.

144    The lack of scrutiny by Operations extends to the annual leave issue. Speaking in general terms, the presentation of a director’s claim to be entitled to nine years of accrued annual leave as an employee prima facie gives rise to a question that a shareholder (with powers to remove the director) would ordinarily be expected to seriously interrogate.

145    I consider it likely that if the Broader Restraint is not ordered, further transactions will occur by which entitlements are asserted by Mr and Mrs Martin against the relevant entities in circumstances where neither Mr nor Mrs Martin will be willing to scrutinise the claims on behalf of the affected entities. It takes little imagination to conceive what those further asserted entitlements might entail.

146    Given the current state of affairs, I consider it to be likely that Mrs Martin will continue to assert entitlements in her capacity as an employee. By way of illustration only, she may assert an entitlement to paid sick leave, paid parental leave, overtime or bonuses. On the evidence before me I consider there to be a real risk that Mrs Martin will draw income from the business referable to those asserted entitlement under the asserted employment contract in circumstances where there exists no disinterested human actor willing to scrutinise the existence of the asserted entitlement in accordance with the terms of any asserted employment and against independently established facts.

Order with conditions

147    The Broader Restraint should be subject to an exception providing for the payment of up to two directors within the Nordburger group of a modest amount now identified by the Court in the amount of $500.00 per week for each of them. I consider that to be sufficient recompense (on the facts as presently found) for the discharge of the directors’ responsibilities as directors, at least for such time as may be necessary to prepare an application for leave for the payment of a greater amount.

148    In that respect, the order should include a mechanism by which the respondents can seek leave to engage in transactions that might otherwise constitute a breach of its terms. I consider that the exercise of the right to apply for leave should be conditioned by a requirement that the application for leave be supported by an affidavit explaining the nature of the transaction and giving full disclosure of all of the relevant surrounding circumstances relevant to the grant of leave (whether or not supportive of the grant).

149    To the extent that the Broader Restraint imposes a limitation on the use of assets of any entity, the limitation is in my view appropriately adapted to the danger identified in these reasons. With the ability to apply for leave, the respondents may take steps to avoid loss or damage that might otherwise be occasioned to them by the operation of the Broader Restraint. They can (indeed should) exercise the leave to minimise any feared or threatened damage of the kind that has not been the subject of evidence adduced by them on this application.

150    To be clear, I consider the Undertaking presently in force to be insufficient to address the relevant danger including because it depends for its commercial effectiveness on a degree of transparency on the part of the respondents for the detection of its breach. That transparency will not be forthcoming unless the Broader Restraint is made. The ability to apply for leave provides a mechanism by which current payments may resume to Mr and Mrs Martin, albeit on the condition that they at least satisfy the Court of their legitimate entitlement to the payments.

Injunction criteria

151    If I understood his submissions correctly, Counsel for Mr Hillier did not wholeheartedly accept that the criteria for the grant of injunctive relief were applicable on an application for a freezing order. The principles were set out in Hillier 11 and need not be repeated here. I consider the criteria for the grant of an order in terms of the Broader Restraint to be fulfilled in all of the circumstances described in these reasons. I have particular regard to the circumstance that the respondents provided very little evidence going to the balance of convenience. On the limited evidence I am not satisfied that the respondents will be significantly prejudiced. The election by the respondents to adduce limited evidence on that question does not preclude them from exercising the right to apply for leave to relief from the Broader Restraint, however on that occasion I consider they should disclose all information within their possession relevant to the grant of leave.

152    I have rejected the respondents’ arguments based on there being no sufficient question to be tried with respect to the enforceability of the joint venture and the disconnect between the final relief and the Broader Restraint.

The information order

153    I do not consider the Information Order to be “ancillary” to the Broader Restraint. The Broader Restraint operates prospectively such that retrospective information of the kind referred to in the Information Order does not aid its enforcement.

154    Counsel for Mr Hillier submitted (and I accept) that an order under r 7.33 may be made for the purpose of determining whether a further freezing order should be made. However, Counsel did not identify the additional freezing order that might be within Mr Hillier’s contemplation, over and above the Broader Restraint. If the contemplated order is an order directed to preventing Mrs Martin from accessing her personal assets (as perhaps foreshadowed by [4(f)] of the interlocutory application), I do not consider that there is sufficient evidence before me to warrant the order for the provision of information there described. The submissions and evidence did not directly concern a risk that Mrs Martin would dissipate or remove her personal assets, at least to a degree sufficient to support the relevant information order. To obtain such an order I consider it necessary for Mr Hillier to have raised a concern about the dissipation of Mrs Martin’s personal assets squarely on the face of his affidavits.

155    Having the benefit of the Broader Restraint, it is for Mr Hillier to explain the utility in foreshadowing a further prospective freezing order to which an order under r 7.33 may relate.

156    In addition, it appears to me that the information sought in [4(a)], [4(b)], 4(d)] and [4(e)] is information that may in the ordinary course be expected to be divulged by other compulsory processes in the litigation. By way of example, Mrs Martin has continuing obligations to give standard discovery. To the extent that the documents containing the information are directly relevant to a pleaded allegation, the documents should be promptly discovered and produced. That includes documents going to the pleaded dispute about whether Mrs Martin has previously received payments for no or insufficient consideration.

157    As for the Div 7A loan documentation, a notice to produce those documents has been served and the Court has no reason to expect that it will not be complied with.

Other reasons

158    Oral reasons for refusing the adjournment application made by the respondents and Mr Martin were delivered on the day of the hearing. Written reasons for the refusal will be published separately.

159    Following the dismissal of the adjournment application, Mr Martin, in his personal capacity, made an oral application for my disqualification as the presiding judge. I dismissed that application for reasons delivered orally. Written reasons for dismissing that application will also be published separately.

160    In the meantime the parties will be provided with the transcript of the oral reasons. The time in which a person with standing may apply for leave to appeal from this judgment will be extended so as to expire 14 days after the provision of the transcript.

Associate:

Dated:    17 August 2022