FEDERAL COURT OF AUSTRALIA

Atlas Holdings Pty Limited (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 923

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs be granted leave to amend the originating process dated 27 June 2017 in order to add an additional prayer for relief being prayer 3A in the following terms: “A declaration that the resolutions passed and referred to as “Resolution 36-Result” are invalid due to a lack of proper notice being given in respect of Resolution 36 in accordance with the requirements of Allied Resource Partners Pty Limited's Constitution and the Corporations Act 2001 (Cth)”.

2.    Pursuant to s 37P(2) of the Federal Court of Australia Act 1976 (Cth) and FCR 30.01 that the issue identified by prayer 3A of the originating process be determined separately and before any other question of final relief in the proceeding.

3.    The application seeking final relief in the terms of prayer 3A of the originating process, and the application seeking interlocutory relief in the terms of prayers 2 and 3 of the interlocutory process dated 17 July 2017, be dismissed.

4.    The plaintiffs pay the defendant's costs of and incidental to the dismissed applications.

5.    The time for compliance with Order 2 made on 30 June 2017 for the defendant to file and serve:

(a)    any affidavit evidence upon which it relies in respect of prayers 3, 4, 5 and 6 of the interlocutory process filed 28 June 2017;

(b)    notice of objections to plaintiffs’ affidavits; and

(c)    notification of its position in respect of the length of the hearing and whether proceedings NSD1031 of 2017 and NSD1032 of 2017 should be heard together,

be extended to 5pm on 25 July 2017.

6.    The parties are to communicate with the Associate to Markovic J in relation to relisting of the matter at a time convenient to her Honour.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

LEE J:

A     Introduction and Procedural Background

1    On 17 July 2017, an interlocutory process was filed by the plaintiffs and was made returnable instanter. The time for service of the interlocutory process was abridged to 6.30 pm on 17 July 2017 and the matter was listed for a case management hearing at 10.00 am on 18 July 2017. On that day, Mr Wells appeared on behalf of the plaintiffs and Mr Withers appeared on behalf of the defendant. Orders were made for the filing of evidence, and prayers 2 and 3 of the interlocutory process were listed for hearing at 9.30 am on 20 July 2017.

2    Those prayers of the interlocutory process seek orders pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) (FCAA) and ss 233(1)(c), (i) and (j), of the Corporations Act 2001 (Cth) (CA). More particularly, the relief sought is to enjoin the defendant, Allied Resource Partners Pty Ltd (Allied), from voting at a general meeting of Leigh Creek Energy Limited (LCK), which is to be held tomorrow (Friday, 21 July 2017), at which meeting LCK seeks to ratify the issue of certain shares (which I expand upon at [10]-[13] below).

3    The plaintiffs had previously, on 27 June 2017, filed an originating process in these proceedings in which orders were sought for the winding up of Allied and the appointment of a provisional liquidator (Substantive Proceeding). In accordance with directions made on 18 July 2017, the plaintiffs indicated that, on the interlocutory application, they intended to rely on specific paragraphs contained in affidavits filed in support of the final relief sought in the Substantive Proceeding. The plaintiffs, with respect sensibly, read only select parts of those affidavits. In accordance with the directions made, the defendant also filed affidavit evidence. None of the deponents of any of the affidavits read by either party were cross-examined.

4    There were essentially three propositions advanced initially in support of the interlocutory relief sought: first, that certain resolutions passed by Allied and referred to as “Resolution 36 – result” (Shareholder Resolution 36) were “invalid due to a lack of proper notice” in accordance with the requirements of Allied’s Constitution (Constitution); secondly, that voting in respect of Shareholder Resolution 36 was based on Allied’s current register of shares and that there was a serious question to be tried in the Substantive Proceeding as to whether or not the share register was regular (and accurately reflected the current position as to shareholding); thirdly, that a director of Allied, Mr Justyn Peters, had a conflict of interest (as he was also a director and chairman of LCK). This last contention was not pressed in aid of the interlocutory relief sought and can be put to one side for present purposes.

5    As will be seen, the argument as to invalidity was a confined and relatively narrow one. It occurred to me, and I raised with the parties at the outset, that the allegation of invalidity concerning Shareholder Resolution 36, as framed, was inapt to be dealt with on an interim basis and such relief would usually be advanced by an affected person seeking declaratory relief on an urgent final basis as to whether or not the resolution had legal effect.

6    In Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540, Gummow and Hayne JJ said, at 590-591 [128], that an “…“interlocutory declaration” is a form of order not known to the law”. The same point was made in Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 at 363 [143] per Hayne and Callinan JJ. Accordingly, it did not seem to me to be a proper exercise of judicial power for me to be invited to make some sort of unorthodox interlocutory determination as to the validity of Shareholder Resolution 36; the course best suited to facilitating the overarching purpose would be to make a final determination of this aspect of the controversy.

7    The expedient adopted was that the plaintiffs sought leave to amend the originating process by including a new prayer 3A, whereby a declaration was sought that Shareholder Resolution 36 as passed was invalid due to a lack of proper notice being given in accordance with the requirements of the Constitution and the CA. The proposal was that this prayer for final relief was then heard together with the application for the interlocutory relief sought in prayers 2 and 3 of the interlocutory process.

8    Argument proceeded on the basis that the plaintiffs would make whatever contentions they wished to make in arguing for invalidity. The position of the defendant was reserved until the conclusion of the plaintiffs’ submissions (in order for the defendant to form the view as to whether or not it would suffer any prejudice by reason of the amendment). The approach was a sensible one as, following the plaintiffs’ articulation of the argument as to invalidity, Counsel for the defendant was able to inform the Court that no real prejudice could be identified and, although there was no formal consent to the amendment, it was not opposed with any force. Accordingly, I granted leave for the amendment to be made, pursuant to s 37P(2) of the FCAA and FCR 30.01.

9    In summary, what is currently before the Court is somewhat unusual as it involves the final determination of part of the substantive relief sought by the plaintiffs (prayer 3A) together with what might be described, with no disrespect, as the remnant of the argument in relation to the relief sought in prayers 2 and 3 of the interlocutory process. Henceforth, I shall refer to these collectively as the Application unless it is convenient or necessary to identify the particular relief sought.

B    Factual Background

10    Allied is a private mining, energy and infrastructure investment company which owns a substantial stake (31.5% of the issued shares) in LCK. Allied was incorporated in June 2011, at which time the founding shareholders signed a Shareholders’ Agreement (Agreement). The substantial stake that Allied holds in LCK is the source of the current dispute. In 2016, LCK undertook a capital raising by which it was proposed to sell three tranches of shares to a foreign company, China New Energy (CNE). In evidence are a number of announcements apparently made pursuant to the continuous disclosure obligations of LCK under the CA, in which the market has been informed as to aspects of the capital raising process. By March 2017, LCK had completed a capital raising of $21.85 million involving the placement of 150 million shares, 136.3 million of which were to be issued to CNE.

11    There is no evidence before me as to the market price of LCK shares at the time the capital raising was first proposed or when it was completed. In any event, the average price struck for the placement was 14.7 cents per share (to the extent that the shares were to be issued to CNE) and 13.5 cents per share for the remainder, which were to be placed with institutional and private investors. The capital raising occurred in what has been described as three tranches.

12    The first tranche was for 30 million shares at a price of 13.5 cents per share, which raised $4 million. The second tranche was for 22.8 million shares at a price of 15 cents per share, which raised $3.5 million. The third and final tranche proposed is for an issue of 83.5 million shares at 15 cents per share, raising the final amount of $12.5 million. It is by this process that a total of 136.3 million shares have been issued to CNE for an average price of 14.7 cents, with the intention of raising a total of $20.1 million.

13    As I noted above, tomorrow (21 July 2017), LCK intends to convene a meeting of its shareholders to ratify the first two tranches. A consequence of this will be that if the resolution passed, it will effectively reset the caps on the capital raisings that have already taken place and allow the board to engage in further share issues without requiring shareholder approval. In a practical sense, of course, this may involve a dilution of the shareholding of Allied.

14    On 20 December 2016, the Annual General Meeting of Allied took place. In attendance were Mr Peters, Mr David Shearwood, the then chief executive officer and an executive director of Allied (who was subsequently to leave Allied on 1 June 2017), Mr Tony Lawry, the company secretary, and various members, including Mr George Raftopulos and Mr David Klinger, who attended by telephone. During the course of the meeting there was some discussion relating to what were described as “winding up options”. Mr Shearwood reminded members that the Agreement contemplated a form of exit strategy to be progressed from early 2017.

15    More relevantly, Mr Raftopulos expressed concern that if Allied directors continued to vote Allied shares as a block “re LCK matters”, the views of members of Allied may not always be correctly represented. The directors agreed that, henceforth, the views of individual Allied members would be reflected in any votes relating to LCK because such voting would occur on what was described as a “proportionate basis”.

16    On 7 July 2017, notice was given of “Shareholder Resolution – No. 36”, that is, of Shareholder Resolution 36. Provided also were explanatory notes and a background, which read as follows:

At the [Allied] AGM on 20 December 2016, it was agreed by the Board and [Allied] shareholders that Directors would from now on represent individual [Allied] member’s voting preferences on a proportionate basis regarding resolutions before [LCK] shareholders and at LCK General Meetings (GM). This decision should be ratified by a formal [Allied] Shareholder Resolution.

17    The background went on to give details of the two tranches I have described above and the announcement by LCK that it was holding a general meeting a fortnight later to ratify the placement of shares.

18    There were, effectively, two resolutions the subject of the notice. They were as follows:

(1) That from the date of this Resolution, being the [sic] 7 July 2017, that the [Allied] Board will cast votes at all future [LCK] General Meetings in accordance with individual [Allied] shareholder’s preferences on a proportionate basis; and

(2) that shareholders authorise the [Allied] Chairman (who was Mr Peters) to cast their votes in proportion to their shareholding in [Allied] relative to the following resolutions proposed for the [LCK] General Meeting on 21 July 2017:

[LCK] Resolution 1 – “That for the purposes of ASX listing rule 7.4 and for all other purposes, the placement of 43,685,181 Shares by the Company on 4 April 2017 at an issue price of 13.5 cents is approved”.

[LCK] Resolution 2 – “That for the purposes of ASX listing rule 7.4 and for all other purposes, the placement of 22,788,429 Shares by the Company on 12 May 2017 at an issue price of 15 cents is approved”.

19    Six days later, on 13 July 2017, members of Allied received a document entitled “Result of Shareholder Resolution # 36”. This document notified the outcome of the poll conducted on the “item of ratification set out in Shareholder Resolution No. 36 dated 7 July 2017 (voting closed at 5.00 pm, Wednesday 12 July 2017) ...”.

20    The voting recorded in relation to resolution 1 was as follows:

21    The voting recorded in relation to resolution 2 was as follows:

22    Details were then given of the poll result by identifying the members who voted, the percentage of shares owned and the way in which they had voted. It is unnecessary to go into this in any detail other than to note that the interests associated with Mr Klinger (the second plaintiff in these proceedings) and with Mr Shearwood (who, as trustee of a superannuation fund, is the third plaintiff and, in his individual capacity, is the fourth plaintiff) accounted for 31.155% of the 37.83% that voted against resolution 2 (T 58).

C    The Separate Argument – The Validity of shareholder Resolution 36

Relevant Facts – the Irregularity

23    The argument as to invalidity was explained by Counsel for the plaintiffs as follows. As noted above, on 7 July 2017, the Allied board provided notice of Shareholder Resolution 36 to shareholders. The results, although dated 13 July 2017, were in fact sent the following day, on 14 July 2017 (T 30).

24    Clause 8.1(b) of Allied’s Constitution provides:

8.1 Calling general meetings

***

(b) A general meeting may be called and arranged to be held only as provided by this rule 8.1 or as provided by sections 249D, 249E, 249F and 249G of the Act.

25    The term ‘Act’ used at the end of clause 8.1(b) was a reference to the CA. It is common ground that no general meeting of Allied was called or held in relation to Shareholder Resolution 36 under the specified provisions of the CA (T 31).

26    Clause 8.2(a) of the Constitution provides:

8.2 Notice of general meetings

(a) Subject to this Constitution, the Shareholders’ Agreement and to the rights or restrictions attached to any shares or class of shares, notice of a general meeting must be given within the time limits prescribed by the Act…

27    Section 249H(1) of the CA provides that, subject to s 249H(2), at least 21 days’ notice is required for meetings of members, which in this case has not occurred. It will be recalled that the period of time from the distribution of notice of proposed Shareholder Resolution 36 until the time the results were distributed was less than one week. It should also be noted that shareholders had not agreed to a shorter notice in accordance with s 249H(2) of the CA.

28    In relation to s 249A of the CA, which concerns circular resolutions, as is evident from the results, not all members signed a document containing a statement that they were in favour of Shareholder Resolution 36.

29    Clause 8.7 of the Constitution provided an expedient which allowed Allied to pass a resolution (save to remove an auditor) without a general meeting being called, which, in effect, replicated s 249A of the Act. Although no formal concession was made, no serious contention was advanced on behalf of the defendant that Shareholder Resolution 36 was passed in accordance with the terms of the Constitution.

Relevant Principles as to Irregularity

30    A proceeding under the CA is not invalidated because of any procedural irregularity unless a Court is of the opinion that the irregularity has caused or may cause substantial injustice which cannot be remedied by any order of the Court and, by order, declares the proceeding to be invalid: s 1322(2).

31    In this way, s 1322(2) automatically validates proceedings which would, but for the operation of that subsection, be invalid due to a procedural irregularity. It is trite that a proceeding includes both a meeting and a resolution: Bell Resources Ltd v Turnbridge Pty Ltd (No. 2) (1988) 13 ACLR 762 at 764 per Nicholson J. Given the terms of the section, the primary focus of the Court is on identifying whether or not “substantial injustice” exists or may exist. The onus rests on the party attacking the validity of a proceeding to satisfy the Court of substantial injustice that cannot be remedied by the Court: Re Caysand No. 64 Pty Ltd [1994] 2 Qd R 467 at 472; (1993) 12 ACSR 291 at 296 per Thomas J.

32    The noun “injustice” requires the Court to consider real, and not merely theoretical, prejudice: Bull v The Australian Quarter Horse Association [2014] NSWSC 1665 at [314] per Hallen J. The adjective “substantial” means not every injustice will give rise to a detriment in the sense that it would cause such prejudice overall as to have been unfair or inequitable, taking into account the interests of all those who would have been affected.

The Plaintiffs’ Contention

33    I then turn to how it is that the plaintiffs put the argument that substantial injustice has been occasioned. What Counsel for the plaintiffs submitted was that, by reason of the irregularity, the plaintiffs, as members, were deprived of the opportunity of participating in a shareholders’ meeting at which they could have sought to entreat other members to vote consistently with the position for which Mr Klinger, Mr Shearwood, and their associates advocated. It was not necessary, the argument went, for the plaintiffs to establish what they would have said or done in order to convince other members of Allied to vote against resolution 2 of Shareholder Resolution 36. Neither, it was submitted, was it incumbent upon them to adduce evidence from other shareholders as to their susceptibility to the entreaties of Mr Shearwood and Mr Klinger, such that, if they had been apprised of all relevant information, they would have voted against resolution 2 (T 33-4). That opportunity has been lost and is gone forever, and that has occasioned substantial injustice.

The Defendant’s Contentions and the Plaintiff’s Response

34    Counsel for the defendant advanced four partly overlapping arguments as to why there was no substantial injustice, and as to why the plaintiffs should be prevented from obtaining declaratory relief. First, this aspect of the Application was a final hearing, and there was insufficient evidence to establish the proposition as to what Mr Klinger and Mr Shearwood would or could have done in order to convince members who indicated a concurrence with resolution 2 of Shareholder Resolution 36 to vote against it. Further (and equally fatally), there was no evidence adduced from any shareholder whose votes were recorded in favour of resolution 2 who would have changed their view if they had been apprised of further information.

35    Secondly, there had been what was described as a “waiver” by Mr Klinger and Mr Shearwood by reason of: (a) their acceptance at the meeting on 20 December 2016, without demur, of the proposal that the individual members’ views regarding LCK would be represented by voting on a proportionate basis (I pause to note that, as Counsel for the plaintiffs pointed out, this was a matter that really went to resolution 1 rather than resolution 2); and, (b) the failure to raise any concern or complaint when the results of Shareholder Resolution 36 were communicated to them on 14 July 2017, until it was expedient to do so for the purposes of the Application.

36    As I understand the argument, it is not suggested that there has been a waiver in the sense that there has been some act which constitutes an election between inconsistent legal rights or the evidence establishes an abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted: see Kostopoulos v GE Commercial Finance Australia Pty Ltd [2005] QCA 311 at [36]; (2005) ANZ ConvR 583 at 586, per Keane JA. Rather, it was submitted, that the relevant actions, taken in the broad, demonstrate a lack of substantial injustice.

37    Thirdly, reference was made by Counsel for the defendant to the Duomatic principle (derived from In re Duomatic Ltd [1969] 2 Ch 365; [1969] 1 All ER 161 (Buckley J)), and reference was made in this regard to two decisions, being Gibbins Investments Pty Ltd v Savage [2011] FCA 527; (2011) 84 ACSR 1 (Gordon J) and Rinehart v Rinehart [2015] NSWSC 1201; (2015) 108 ACSR 415 (White J). It is convenient to have regard only to Rinehart at 433 [58]-[59], where White J set out the relevant principles.

38    The evidentiary foundation for this argument was contained in Mr Peters’ affidavit sworn on 19 July 2017, in which he deposed to the fact that the cl 8.7 expedient had been modified by practice, in that the board had circulated resolutions to members for voting outside a general meeting. Importantly, this process has been adopted in circumstances where unanimity was lacking, and Allied had adopted resolutions in circumstances when only a majority of shareholders have been in favour of them. For this reason, Mr Peters goes on to depose that what occurred in relation to resolution 2 of Shareholder Resolution 36 accords with past practice adopted by Allied, including at a time when Mr Shearwood was a director and chairman. This evidence was not the subject of challenge and does not inherently lack credibility. In the circumstances, I ought to accept it: see Precision Plastics Pty Ltd v Demir [1975] HCA 27; (1975) 132 CLR 362 at 371 per Gibbs J.

39    Despite this, the plaintiffs contended that the Duomatic principle is not engaged, as the logical extension of the argument is that the “variation” to cl 8.7 could now be adopted in relation to any resolution, in circumstances where the Agreement makes plain that any amendment to the Constitution, or any proposed change to the rights of the shareholders under the Constitution, which would have the effect of occasioning a diminution or impairment to the rights of shareholders, cannot occur without those shareholders giving their written consent: cl 10.1.1(c). The Agreement, to the extent relevant, also includes a ‘no-waiver’ and an ‘entire agreement’ clause: cl 26.

40    Fourthly, Counsel for the defendant contended that the plaintiffs are estopped from seeking declaratory relief. As I understand it, the estoppel is said to arise by reason of either an estoppel by representation or an estoppel on the basis of a common assumption. This seemed to me very much a fall-back argument, and the precise basis for the estoppel was never really articulated with precision, although I presume it relates to the fact that both Mr Klinger and Mr Shearwood had, by their conduct, represented to the other directors and/or members of Allied that they were content for resolutions to be adopted by Allied in accordance with what the evidence establishes was past practice. Alternatively, the efficacy of this past practice in relation to the adoption of resolutions was the common assumption held between all members at the time resolution 2 of Shareholder Resolution 36 was adopted.

Consideration

41    I do not think it is necessary for me to form any final view in relation to whether or not these rather embryonic waiver, Duomatic and estoppel arguments are soundly based. The problem for the plaintiffs is more basic: I do not believe that, on the evidence, the plaintiffs have established substantial injustice. As noted above, the proposed substantial injustice has to be more than merely theoretical. There must be a real injustice to the interests of some person, and this must be weighed against the inconvenience which making the order may cause to Allied, its members and persons with whom it deals: Re Compaction Systems Pty Ltd and the Companies Act [1976] 2 NSWLR 477 at 493 per Bowen CJ in Eq.

42    I am satisfied that the procedural irregularity is technical, in the sense that there is no evidence before me which would allow me to come to the conclusion that there was a real, and not merely insubstantial or theoretical, argument that a want of compliance made any difference.

43    The matter came on very quickly, and the parties demonstrated a high degree of cooperation and efficiency in marshalling material within a very short timeframe. Having said that, if I was to be satisfied that anything other than a theoretical prejudice was caused, it seems to me that I need some proper foundation in the evidence to form the conclusion that, in the event that the irregularity had not occurred, there was some prospect of the 31.155% voted by the interests associated with Mr Klinger and Mr Shearwood against resolution 2 of Shareholder Resolution 36 being somehow augmented.

44    Further, whether or not substantial injustice occurred is a broad evaluative assessment which the Court is required to make. There is no suggestion, particularly given the past practice of Allied, that the irregularity was caused other than by adopting an expedient that Allied had previously regarded as appropriate. Nor is there a suggestion that any unfair tactics were employed in order to achieve some advantage by want of compliance with the Constitution or the CA. To the extent that the so-called ‘waiver’ argument is said to impact on the notion of substantial injustice, it also appears to me relevant that there was no secret about the fact that votes of this type were to be taken on a proportionate basis and that there was never any complaint about the way in which the vote was to take place, until the 11th hour.

45    It follows that the plaintiffs have not discharged their onus in proving substantial injustice that cannot be remedied by the Court; it follows that they are not entitled to the declaratory relief sought.

D    The Injunction

46    I now turn to the application for interlocutory relief. The evidence adduced by the plaintiffs alleged that if various changes were made to the share register, this may also have had an impact on the vote on resolution 2 of Shareholder Resolution 36. In his affidavit of 27 June 2017, Mr Shearwood referred to the implementation of what was described as a “staff equity scheme”. When this scheme was implemented, it added 4,449,495 new ordinary shares, being an increase of 20.1% to the prior total of 22,128,628 shares, giving a new total of 26,578,123 shares on issue.

47    It was suggested in the evidence that the staff equity scheme, at its maximum, could not exceed 20% of all shares issued in Allied at any one time. The final determination as to what precisely occurred in relation to the staff equity scheme, and whether or not it exceeded authorised thresholds, will, if relevant, no doubt have to await examination at a final hearing. But I consider it as appropriate, for the purposes of the Application only, that I proceed on the basis that the approach to calculations adopted by Mr Shearwood is correct.

48    It seems to me, however, that irrespective of the fact that the scheme involved the allocation of shares to participants in a manner which caused a dilution of the position of Allied, a calculation prepared by Mr Lawry in his affidavit sworn 19 July 2017 does not impact upon the conclusion that, if the share register had been adjusted and if the staff equity scheme was found to be invalid, “it would at most have had a marginal impact on voting”.

49    When an interlocutory injunction is sought, it is necessary to pay regard to the observations of the High Court of Australia in Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57 at 81-82 [65] per Gummow and Hayne JJ. There is no need for me to canvass these well-known principles other than to refer to the review, in the context of CA proceedings, by Foster J in Stratford Sun Ltd v OM Holdings Ltd [2011] FCA 414; (2011) 83 ACSR 84 at 87-90 [7]ff.

50    The first stage of the analysis is that I must be satisfied that there is a serious question to be tried in the sense that if the evidence remains as it is there is a probability that, at the hearing of the action, the plaintiff will be entitled to relief. In stating that, the matters called in aid of interlocutory relief in this matter form only a small part of the overall evidence that, from the affidavit material, is likely to be read on the final application. The question for me is whether or not there is a serious question to be tried in the way in which the argument was articulated on the Application; that is, that the alleged improper dilution, which was the subject of the evidence concerning the scheme, if proved, was of such a character as to justify interlocutory relief.

51    Given the state of the evidence on the Application, it does not seem to me that I can form the conclusion that proof of wrongdoing as to the staff equity scheme at a final hearing would be relevantly material, given the conclusion that I have reached based on Mr Lawry’s evidence that the scheme had minimal impact on the outcome of any vote. Accordingly, I do not believe that, on the arguments deployed on this interlocutory hearing, there is a serious question to be tried in relation to the staff equity scheme having a sufficient impact on the vote to change its outcome.

52    Of course the argument at any ultimate trial, as I understand it, will be far more broad-ranging, seeking to justify relief under ss 233(1) and/or 461(1) of the CA that Allied be wound up on the basis that the conduct of its affairs is oppressive and related relief.

53    For the sake of completeness, I do not believe that, even if I had come to a contrary conclusion in relation to the first stage of analysis, the balance of convenience would favour the granting of relief, being the second aspect to which I need to have regard on the application for interlocutory relief and to which I now briefly turn.

54    Courts have long demonstrated an unwillingness to interfere with the democratic processes of a corporation, except where it is necessary to do so: Turnbull v National Roads and Motorists’ Association Ltd [2004] NSWSC 577; (2004) 186 FLR 360 at 373-374 [51] per Campbell J. I have already determined that Shareholder Resolution 36 is not invalid and have declined to make a declaration in those terms. It follows that the defendant is, prima facie, entitled to vote its shares in LCK in accordance with Shareholder Resolution 36. Obviously, it is a matter for another day as to whether or not the underlying circumstances which led to the passing of Shareholder Resolution 36 will play any part in the substantive case that will go to hearing.

55    What is relevant for present purposes is that if I were to interfere, I would deprive Allied of its right to participate in the LCK meeting whereby it seeks ratification of the first two tranches of the share issue. I obviously cannot anticipate what the voting will be at that meeting, but if the vote failed because Allied has been enjoined, that may well have a significant impact on LCK. Although the evidence as to prejudice, including as to the effect such an outcome might have on CNE, is, it is fair to say, expressed at a very high degree of generality, and goes no further than the opinion of Mr Peters, the possibility of real prejudice cannot be discounted.

56    Moreover, the plaintiffs will have the opportunity of having their day in Court in order to agitate many of the complaints which seem to activate their concerns relating to the general conduct of the affairs of Allied. There has been no suggestion that any relief that could be granted at the end of the day would somehow be rendered otiose in the event that I fail to provide interlocutory relief. Whichever way it is looked at, the balance of convenience strongly favours the dismissal of prayers 2 and 3 of the interlocutory process.

E    Costs

57    An application was made by the defendant for its costs of the Application to be paid forthwith on an indemnity basis by the plaintiffs. Correspondence was tendered which demonstrates that the solicitors for the defendant, Johnson Winter & Slattery, wrote to the solicitors for the plaintiffs, Gillis Delaney, on 19 July 2017, indicating that they would consent to prayers 2 and 3 of the interlocutory process being dismissed and not to seek costs. In that context, the defendant also pointed to the significant amount of material it was forced to respond to in a short period of time.

58    The defendant’s offer received a relatively prompt dismissal. Viewed broadly, the offer, in essence, amounted to an offer that the plaintiffs capitulate on the Application. Although the plaintiffs have been unsuccessful, I do not regard the rejection of the offer as ‘unreasonable’ as that term has often been used in the context of the cases relating to special costs orders. The Application did involve matters of some complexity. The plaintiffs did approach the matter consistently with the overarching purpose and significantly narrowed the evidence that was adduced.

59    Given the speed with which matters moved, I do not think the criticism of there being reference to a large amount of material which had been filed in the Substantive Proceeding is entirely justified. In those circumstances, I do not believe that a special costs order, to the extent that costs be paid on an indemnity basis, is warranted. Although Counsel for the defendant pointed to the fact that the ultimate resolution of the Substantive Proceeding may well be some way off, there is no reason to think that delays will be inordinate.

60    It seems to me, doing the best that I can on the limited aspect of the case to which I have had exposure, the circumstances justify that costs should follow the event, and that no further order for costs should be made.

F    orders

61    For these reasons I dismiss prayer 3A of the originating process and prayers 2 and 3 of the interlocutory process. I order that the plaintiffs pay the defendant’s costs of and incidental to the Application.

Associate:

Dated:    16 August 2017

SCHEDULE OF PARTIES