FEDERAL COURT OF AUSTRALIA

Tygar Enterprise Pty Ltd, in the matter of Tidal Con Pty Ltd [2024] FCA 574

ORDERS

OTHER MATTERS:

A.    Upon Mehmet Sakaci, a director of Tidal Con Pty Ltd (ACN 639 849 120), both in his own right and on behalf of Tidal Con, undertaking by Counsel for Tidal Con that he will:

(a)    submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct), to any person (whether or not that person is a party), affected by the operation of these orders or undertakings or any continuation (with or without variation) of these orders or undertakings;

(b)    indemnify the Second Defendant against:

(i)    any claims made (including by the insurer of Tidal Con) or liabilities arising under or in relation to any building contracts entered into by Tidal Con or work done by Tidal Con from the date of her removal as a director; and

(ii)    any claims made (including by the insurer of Tidal Con) or liabilities arising out of the building project at 8 Mutton Road, Fawkner, VIC 3060;

(c)    as soon as reasonably practicable, take such steps as are reasonably required to close all supplier accounts for which the Second Defendant has provided a personal guarantee of the liabilities of Tidal Con;

(d)    until further order of the Court or the hearing and determination of this proceeding, provide the Second Defendant with:

(i)    read only access to the Xero accounts and bank accounts maintained by Tidal Con; and

(ii)    four business days’ notice of Tidal Con’s intention to enter into any building contract and a de-identified copy of the building contract;

(e)    as soon as reasonably practicable, change the name of Tidal Con to a name that does not include the word “Tidal” or any similar word;

(f)    refrain from taking any steps to commence any new proceedings against the Defendants to recover their loan accounts or concerning any matters the subject of this proceeding pending the hearing and determination of this proceeding; and

(g)    do all things reasonably required of him to reinstate the Second Defendant as a director of Tidal Con if the Court so orders.

THE COURT ORDERS THAT:

1.    Until the hearing and determination of the proceeding the Second Defendant is:

(a)    restrained from acting as a director or secretary of Tidal Con; and

(b)    hereby removed as a director and secretary of Tidal Con,

and the register maintained by the Australian Securities and Investments Commission is to be amended accordingly.

2.    Until the hearing and determination of the proceeding the Defendants do all such things as are reasonably required of them to provide Mehmet Sakaci with access to the email account admin@tidalcon.com.au.

Discovery

3.    By 4:00pm on 1 July 2024, the Plaintiff and the Defendant provide discovery of documents relating to the following issues as disclosed in the affidavits filed to date:

(a)    the value of the Company and its shares;

(b)    the value and cost of the construction projects at:

(i)    12 Hillingdon Drive, Diamond Creek, VIC 3089;

(ii)    7 Gee Court, Nunawading, VIC 3131;

(iii)    1007 Old Calder Highway, Keilor, VIC 3036;

(iv)    2 Culla Hill, Eltham VIC 3095;

(v)    5 Samada Street, Notting Hill VIC 3168;

(vi)    51-52 Beaconsfield-Emerald Road, Upper Beaconsfield, VIC 3808;

(vii)    24 Glenview Place, Lysterfield, VIC 3156;

(viii)    12 Elderfield Circuit, Doreen, VIC 3754;

(ix)    20 Elderfield Circuit, Doreen, VIC 3754; and

(c)    the agreement with the “third-party lender” referred to at paragraph 4 of the affidavit of the Third Defendant filed on 1 May 2024.

Valuation

4.    By 4:00pm on 19 July 2024:

(a)    the parties agree to the appointment of an independent person (Valuer) to express an opinion as to the value of the shares of Tidal Con; and

(b)    take all reasonable steps to agree to instructions to be provided to the Valuer.

5.    By 4:00pm on 2 August 2024, the parties provide to the Valuer:

(a)    a copy of each document either party wishes the Valuer to see for the purposes of the valuation; and

(b)    any instruction or submission the parties wish (or either party wishes) to provide to the Valuer.

6.    The Valuer may inspect all or any of the books of Tidal Con for the purposes of the valuation.

7.    Each party must comply with the reasonable requests of the Valuer, including for the provision of any information or documents, as soon as reasonably practicable after the making of such a request.

8.    The Valuer must complete the valuation and provide a copy to the parties and the Court by 4:00pm on 30 August 2024.

9.    The parties pay the costs of the Valuer in equal shares in the first instance.

Other

10.    The matter is listed for a case management hearing at 10:00am on 13 September 2024.

11.    Costs reserved.

12.    Liberty to apply.

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

REASONS FOR JUDGMENT

NESKOVCIN J:

INTRODUCTION

1    On 13 February 2024, the plaintiff, Tygar Enterprise Pty Ltd, commenced this proceeding seeking relief pursuant to s 233 of the Corporations Act 2001 (Cth) in relation to the conduct of the affairs of the fourth defendant, Tidal Con Pty Ltd, based on the alleged oppressive conduct of the first to third defendants.

2    On 13 February 2024, Tygar also made an interlocutory application seeking an order to remove the second defendant, Ms Daniella Sciacca, one of two directors of Tidal Con, pending the final hearing and determination of the proceeding.

3    On 28 May 2024, I made orders granting the application. These are the reasons.

4    In support of the application Tygar relied on six affidavits of Mr Mehmet Sakaci, the other director of Tidal Con, affirmed on 13 February 2024, 7 March 2024, 15 March 2024, 3 April 2024, 15 May 2024 and 22 May 2024 and an affidavit of Mr Erkan Sakaci, brother of Mr Sakaci, affirmed on 15 May 2024.

5    The first to third defendants, parties who are aligned with Ms Sciacca and her family’s interest in Tidal Con, opposed the application (for the purpose of the application, the defendants). The defendants relied on four affidavits of Ms Sciacca sworn on 16 February 2024, 14 March 2024, 1 May 2024 and 20 May 2024; two affidavits of the third defendant, Mr Alessandro Sanvincenti, sworn on 18 March 2024 and 1 May 2024; and two affidavits of Mr Norman Fryde, solicitor for the defendants, sworn on 28 February 2024 and 18 March 2024.

BACKGROUND

6    In this section I set out certain matters relevant to the background to this application. The purpose is to identify the disputes that exist between the parties which are affecting the management of the affairs of Tidal Con.

7    Tidal Con carries on a building and construction business. Its shareholders are Tygar, who holds its shares in Tidal Con effectively on behalf of the Sakaci family, and the first defendant, who holds its shares effectively on behalf of the Sciacca family. Each family had their own building sites for which they were responsible. However, Mr Sakaci is the only person who is a registered domestic builder, which enabled Tidal Con to obtain builders warranty insurance to carry out building work. Mr Sakaci and Ms Sciacca are guarantors and have joint and several liability in respect of the builders warranty insurance.

8    In late 2021, the relationship between the Sakaci and Sciacca families began to break down. By mid-2022, the parties agreed to go their separate ways and to close off current building projects. However, Mr Sakaci wishes to continue to pursue other building projects and, to that end, says that he needs to do so through Tidal Con because it holds the builders warranty insurance and it would take more than nine months to transfer that insurance to a new entity.

9    On 16 February 2024, upon Tygar providing an undertaking as to damages, Justice Beach made orders giving sole authority to Mr Sakaci to transact any business and complete any project or transaction currently engaged in by Tidal Con on its behalf and required the defendants to give Mr Sakaci access to all Tidal Con email accounts.

10    On 20 February 2024 Mr Sakaci obtained access to the Tidal Con email accounts and discovered that Ms Sciacca had sent 541 emails to her personal email account and then deleted them from the system. Ms Sciacca says that she deleted the emails as she did not want Mr Sakaci or Erkan to read her personal emails and she was concerned that they might be deleted once Mr Sakaci had access to the email account.

11    On 1 March 2024 Mr Sakaci sought consent from Ms Sciacca to enter into a building contract for a project at a property in Fawkner, Victoria (Fawkner project). This contract was not covered by Justice Beach’s orders made on 16 February 2024 as it relates to future work.

12    On 7 March 2024 Ms Sciacca requested certain information about the Fawkner project in order to properly consider whether, in the discharge of her obligations as a director, she should consent to Tidal Con entering into a contract for the Fawkner project.

13    On 22 March 2024 Mr Sakaci declined to provide the information requested.

14    On 25 March 2024 Ms Sciacca proposed providing consent to Mr Sakaci entering into contracts either on his own behalf or through another entity he controls. Mr Sakaci declined on the basis that it would take up to nine months to transfer the builders warranty insurance to another entity.

15    On 11 April 2024 Mr Sakaci provided Ms Sciacca with a copy of the contract for the Fawkner project (Fawkner contract) which he had signed as a director of Tidal Con and requested Ms Sciacca’s consent to Tidal Con undertaking the Fawkner project.

16    On 15 April 2024 Ms Sciacca requested further information from Mr Sakaci about the Fawkner contract in order to consider whether the contract was in the best interests of Tidal Con.

17    On 16 April 2024 Mr Sakaci declined to provide the further information requested to Ms Sciacca.

18    On 1 May 2024 Ms Sciacca refused to consent to the Fawkner contract on the basis that the information provided was inadequate to determine whether it was appropriate for Tidal Con to enter into the contract.

19    On 7 May 2024 Mr Sakaci was unable to log into Tidal Con’s Xero account, to access the accounting software Tidal Con which uses to manage its business, because the account was suspended due to non-payment. Mr Sakaci contacted Ms Sciacca to request access to the Xero account to pay the outstanding fees.

20    After Ms Sciacca refused to provide Mr Sakaci with access, Mr Sakaci contacted Xero, paid the outstanding fees and was assigned as a subscriber to the Xero account. Ms Sciacca alleges that Mr Sakaci sent emails from her account with her signature to authorise the assignment.

GROUNDS

Tygar

21    During the interlocutory hearing, Tygar amended the relief it sought to seek an order restraining Ms Sciacca from acting as a director of Tical Con, which was dealt with as an application to amend under r 17.01(3) of the Federal Court Rules 2011 (Cth).

22    Tygar submitted that Ms Sciacca should be restrained from acting as a director of Tidal Con pending the final hearing and determination of the proceeding as she is hampering the ability of Mr Sakaci to carry on the business of Tidal Con which, in turn, is impeding his ability to earn an income.

23    Tygar submitted that Ms Sciacca’s refusal to consent to Tidal Con entering into the Fawkner contract is unreasonable because Mr Sakaci has agreed to provide an undertaking as to damages and indemnify Ms Sciacca against all liability incurred on jobs to which any new contract relates.

24    Tygar submitted that the Court should grant the relief sought because damages are not an adequate remedy due to Ms Sciacca’s current financial position and the balance of convenience favours an order restraining Ms Sciacca from acting as a director of Tidal Con.

Defendants

25    The defendants oppose the application. They submitted that the facts do not satisfy the criteria for granting injunctive relief as there is a real and substantial prospect that Tygar’s claim will not succeed, there were no contentions made against the adequacy of damages as a remedy and the balance of convenience does not favour Ms Sciacca’s removal as a director.

LEGAL PRINCIPLES

26    There are two inquiries that must be undertaken in relation to the grant of an interlocutory injunction: first, whether the applicant for an interlocutory injunction has a prima facie case in respect of its claim to final relief; and second, as to the balance of convenience: StarTrack Express Pty Ltd v TMA Australia Pty Ltd [2023] FCAFC 200 at [50]-[57].

27    The principles to be applied in determining whether or not to grant interlocutory relief were considered by the High Court in Australian Broadcasting Corporation v O’Neill [2006] HCA 46; 227 CLR 57 at 81-82 [65] (Gummow and Hayne JJ):

The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd [(1968) 118 CLR 618]. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued [at 622-623]:

“The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.”

By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument [at 620]. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal [at 622]:

“How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.”

28    The issue of whether an applicant has established a prima facie case and whether the balance of convenience favours injunctive relief are related inquiries. Whether there is a prima facie case is to be considered together with the balance of convenience: Samsung Electronics Co. Ltd v Apple Inc. [2011] FCAFC 156; 217 FCR 238, 261 [67] (Dowsett, Foster and Yates JJ); StarTrack at [54].

29    In StarTrack, the Full Court said at [54]:

In cases where the grant of interlocutory relief would be tantamount to the grant of final relief, the strength of the prima facie case will often attract particular scrutiny. But the strength of an applicant’s prima facie case may still be relevant in other cases as the grant of interlocutory relief may still be warranted even if the balance of convenience is finely balanced where the prima facie case is relatively strong. Likewise, the grant of interlocutory relief may be warranted where the applicant has a strong case on the balance of convenience, but its prima facie case (while made out) is less compelling: see Bullock v Federated Furnishing Trades Society of Australia (No 1) (1985) 5 FCR 464 at 472 (Woodward J, with whom each of Smithers J and Sweeney J agreed); Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238 at 261 [67] (Dowsett, Foster and Yates JJ). Similarly, in GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser Healthcare (UK) Ltd [2013] FCAFC 102; (2013) 305 ALR 363 at 384-85 [81(j)], the Full Court (Bennett, Jagot and Griffiths JJ) observed that “the question of whether there is a serious question or a prima facie case should not be considered in isolation from the balance of convenience because they involve related inquiries and the apparent strength of the parties’ substantive cases will often be an important consideration to be weighed in the balance”.

30    Finally, an applicant for interlocutory injunctive relief must, in showing that the balance of convenience favours that outcome, point to inconvenience for which an award of damages at trial would not be a sufficient remedy: Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; 161 CLR 148, 153 (Mason ACJ); Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Blue Star Pacific [2009] FCA 726; 184 IR 333, 339 (Greenwood J).

CONSIDERATION

Prima facie case

31    The defendants relied on the above passage from Startrack at [54] and submitted that the grant of interlocutory relief in this case would be tantamount to the grant of final relief and, accordingly, the Court is required to scrutinise the strength of the prima facie case. Although the defendants conceded in oral submissions that there was a prima facie case, the defendants submitted that the removal or resignation of Ms Sciacca in these circumstances is tantamount to final relief, as it affects her substantive rights, and the Court cannot be satisfied there is a strong prima facie case for relief.

32    Tygar seeks relief pursuant to s 233 of the Corporations Act in relation to the conduct of the affairs of Tidal Con. In particular, Tygar seeks relief in the form of orders that the first defendant sell its shares in Tidal Con to Tygar for fair consideration, that Ms Sciacca and Mr Sanvincenti discharge their debt or debts to Tidal Con, and it seeks an order for the removal of Ms Sciacca as director and secretary of Tidal Con. Tygar does not seek an order that Tidal Con be wound up.

33    Each side alleges wrongdoing by the other. The material filed on behalf of the parties in respect of the application is extensive. It is unnecessary to set out the evidence in detail. Both parties accept the evidence establishes a state of deadlock or breakdown that is preventing Tidal Con from functioning properly.

34    The defendants submitted as follows in their written submissions:

A failure of shareholders and directors of a company to cooperate in a way that leads to deadlock has not traditionally been considered to be an instance of shareholder oppression. By contrast, other (and more recent) authority suggests that oppression may be constituted by a state of deadlock for which neither or both sides are responsible. For example, where directors and shareholders are in a state of deadlock and cannot maintain a regime of proper corporate governance, this will be contrary to the interests of the members as a whole. However, a mere breakdown of relationship without actual deadlock will not constitute oppression. The breakdown must prevent the company from functioning properly. [footnotes omitted]

35    In support of the legal principles referred to in paragraph 34, the defendants relied on authorities such as Re Wyndham Park Estate Pty Ltd [2019] VSC 92 at [33]-[37], [50] (Sifris J) and Khamo v XL Cleaning Services Pty Ltd [2004] NSWSC 1134; 51 ACSR 397 at 403, [27] (Barrett J). In Khamo, in granting the orders sought under s 233 of the Corporations Act, Barrett J (at [27]) described the situation as one of “deadlock, mutual distrust and a complete breakdown in communication and relationships which make the company unable to function in its current configuration.”

36    The defendants accepted that the final part of the quote in paragraph 34 is apt to describe Tidal Con’s current position and that the breakdown is preventing Tidal Con from functioning properly.

37    On the basis of the affidavits referred to in paragraphs 4 - 5 above and the matters referred to in paragraphs 33 - 36 above, I am satisfied that Tygar has established a strong, alternatively sufficiently strong, prima facie case to final relief.

Balance of convenience

38    The defendants submit that the balance of convenience is in favour of refusing the application for the following five reasons:

(1)    it cannot credibly be contended by Tygar that Ms Sciacca is obstructing the operation of Tidal Con;

(2)    it would be unjust to remove Ms Sciacca as a director in the circumstances of the proceeding;

(3)    Ms Sciacca is jointly and severally liable with Mr Sakaci under Tidal Con’s insurance policy;

(4)    an order for Ms Sciacca’s removal would be tantamount to final relief and Tygar has not proved its entitlement to that relief; and

(5)    removal of Ms Sciacca as a director would liberate Tygar to sue her on the alleged loan account.

Whether Ms Sciacca is obstructing the operation of Tidal Con

39    The defendants submitted that the balance of convenience was in favour of refusing the application because it cannot credibly be contended by Tygar that Ms Sciacca is obstructing the operation of Tidal Con.

40    I may accept that Ms Sciacca genuinely believes she is acting in the proper discharge of her duties as a director of Tidal Con in refusing to consent to the Fawkner contract until she has the information she says she requires in order to consider whether the contract is in the interests of Tidal Con. I may also accept that Mr Sakaci genuinely believes he is within his rights to refuse to provide all of the information that Ms Sciacca has requested in order for her to consider whether to consent to the Fawkner contract.

41    In my view, it is not necessary to decide if Ms Sciacca is or is not obstructing the operation of Tidal Con or to attribute blame. It is plain that the current position is untenable. The breakdown in communications and relationships has meant Tidal Con is unable to function. Moreover, Mr Sakaci decided to go ahead and sign the Fawkner contract on behalf of Tidal Con, even though I am told the Constitution requires the signature of both directors. As a result, Mr Sakaci does not know whether Ms Sciacca might later contend that Mr Sakaci was acting ultra vires the company.

Whether it would be unjust to remove Ms Sciacca as a director

42    The defendants submit that it would be unjust to remove Ms Sciacca as a director because to do so would result in the Court “picking a side” and it would mean Tidal Con is under Mr Sakaci’s sole control and the risk of irreparable harm to Ms Sciacca was too high.

43    The parties have agreed to go their separate ways. Tygar seeks to acquire all of the shares in Tidal Con because it will take nine months to transfer the builders warranty insurance to a new entity. The Sciacca family have no ongoing interest in relation to Tidal Con, save in relation to the “Tidal” name (which is the Sciacca family’s ‘brand’) and the builders warranty insurance, which I will turn to next. The Sciacca family’s interest in the “Tidal” name can be addressed by Tygar undertaking to change the name of the company as soon as reasonably practicable, which it has agreed to do.

44    The other potential harm to Ms Sciacca, that was identified if Mr Sakaci was in sole control of Tidal Con, was the risk of loss of access to the Xero account and Ms Sciacca’s email account and that Tidal Con might commence enforcement proceedings in respect of loans. I am satisfied the potential harm or risk to Ms Sciacca in respect of those matters is able to be addressed by the undertakings Mr Sakaci has agreed to provide, in his own right and on behalf of Tidal Con.

Ms Sciacca’s joint and several liability under Tidal Con’s insurance policy

45    Tygar submitted that Ms Sciacca’s concerns regarding her joint and several liability under Tidal Con’s insurance policy is addressed by Mr Sakaci proffering to indemnify Ms Sciacca against all liability incurred on jobs to which any new contract relates. Further, Counsel for the plaintiff confirmed that Mr Sakaci is prepared to give an undertaking as to damages and to indemnify Ms Sciacca against any claims made by the insurer in relation to contracts entered into after she ceases to be a director.

46    Ms Sciacca submitted, however, that whether Ms Sciacca continues to have any liability under the builders warranty insurance (either before or after she ceases to be a director) is a matter for the insurance company and Ms Sciacca does not immediately cease to have liability under the builders warranty insurance once she ceases to be a director.

47    That may be so, however, the application and removal of Ms Sciacca as a director do not affect any liabilities that may already have accrued. Further, the majority of Tidal Con’s existing projects are completed and there is one other project on which Tidal Con is awaiting an engineer’s certification in relation to defects. I am satisfied that Ms Sciacca’s risk in relation to new contracts or under the builders warranty insurance is addressed by Mr Sakaci’s undertaking as to damages and agreeing to indemnify Ms Sciacca in respect of claims made (including by the insurer) or liabilities arising under or in relation to any building contracts entered into by Tidal Con after her removal as director. Mr Sakaci also agreed to provide an indemnity in relation to claims arising out of the Fawkner project.

Whether Tygar has not established an entitlement to relief

48    I have dealt with this ground in paragraph 37 above.

Tygar’s ability to sue Ms Sciacca on the alleged loan account

49    In the originating process, Tygar also seeks relief in relation to a debt or debts owed by the Sciacca family. The question of the loans made by and debts owed to Tygar is a matter to be addressed in the substantive proceeding. In the course of the interlocutory hearing, I indicated that if the Court were to make an order restraining Ms Sciacca from acting as a director, it would also make an order that Tidal Con not take any steps to enforce any loans involving the Sciacca family pending the final hearing and determination of the proceeding. Counsel for Tygar indicated that Mr Sakaci would give an undertaking to that effect.

Adequacy of damages

50    The adequacy of damages forms part of the broader balance of convenience question: Liberty Financial Pty Ltd v Jugovic [2021] FCA 607, [283] (Beach J). The defendants submitted that the Court should refuse to grant Tygar the relief sought in the application because Tygar had failed to demonstrate that damages are not an adequate remedy. The defendants further submitted that there were no contentions made against the adequacy of damages as a remedy. That submission has little substance because Tygar put in issue whether an award for damages would be satisfied due to Ms Sciacca’s current financial position and, in that sense, Tygar did contend that damages would not be an adequate remedy. I have taken this into account as part of the broader balance of convenience question.

CONCLUSION

51    For the reasons set out above, I am satisfied that Tygar has established a strong, alternatively sufficiently strong, prima facie case to final relief. Assessing the balance of convenience alongside the strength of Tygar’s prima facie case, in my view, granting the application involves the lesser risk of injustice.

Associate:

Dated:    4 June 2024

SCHEDULE OF PARTIES