FEDERAL COURT OF AUSTRALIA

Coeur De Lion Investments Pty Limited v The President’s Club Limited [2020] FCA 456

ORDERS

THE COURT ORDERS THAT:

1.    The applicant is given leave to appeal from the orders and judgment of the Court in Coeur De Lion Investments Limited v The President’s Club Limited [2020] FCA 204 given on 25 February 2020.

2.    Upon the usual undertaking as to damages, the respondent is restrained, pending the determination of a separate question in QUD 6 of 2020 (of whether steps said to constitute the respondent financially assisting a person to acquire shares in the company engages a contravention of s 260A(1) of the Corporations Act 2001 (Cth) (the “Act”)), from using funds contributed by members of the respondent, either voluntarily or by reason of levies having been issued to particular members of the respondent company, for the purpose of the conduct of class action proceeding QUD 734 of 2019.

3.    The question of whether the impugned steps, said to constitute the respondent financially assisting a person to acquire shares in the company, engages a contravention of s 260A(1) of the Act is to be determined as a separate question from other claims for relief in proceeding QUD 6 of 2020.

4.    The separate question is to be determined on an expedited basis.

5.    The parties are directed to seek to agree a date in April for the conduct of the expedited final hearing of the separate question.

6.    The costs of and incidental to the application for leave to appeal and the application for an injunction pending the determination of the appeal (although the injunction granted by Order 2 operates pending the determination of the expedited separate question only), are reserved for later determination.

7.    The application to restrain the respondent from conducting a meeting of shareholders of the respondent on 8 April 2020 is dismissed.

8.    The costs of and incidental to that application are reserved for later determination.

9.    Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), rule 1.32 and rule 1.36 of the Federal Court Rules 2011, these orders and the reasons for judgment in support of these orders are made and published from Chambers.

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

REASONS FOR JUDGMENT

GREENWOOD J:

1    These proceedings are concerned with three applications.

2    The first is an application by Coeur De Lion Investments Pty Limited (“CDLI”) filed on 27 February 2020 for leave to appeal from a judgment of the Court dismissing CDLI’s application for an interlocutory injunction pending the determination of the principal proceeding (or final order). In the interlocutory injunction application, CDLI sought to restrain The President’s Club Limited (“TPC”) from taking any further steps in connection with the raising of levies from shareholders of TPC or the raising of a special levy from members of TPC, for the purpose of funding a representative proceeding (class action) commenced by Ian Lewis Consulting Pty Ltd (“Lewis”) against CDLI, Palmer Leisure Coolum Pty Ltd (“PLC”) and four other companies related to Mr Palmer, and Mr Palmer personally.

3    Put simply, the class action by Lewis on behalf of the non-Palmer related members of TPC who have effectively opted into the class action, asserts various causes of action and seeks an order that CDLI acquire the interests of the class members in TPC (and related interests) for “fair” value.

4    By the interlocutory injunction application, CDLI also sought to restrain TPC from accepting any further voluntary contributions made by members or directors of TPC for the purpose of funding the class action.

5    The interlocutory judgment dismissing CDLI’s application is Coeur De Lion Investments Pty Limited v The President’s Club Limited [2020] FCA 204, 25 February 2020, Greenwood J. That interlocutory application was made in aid of a particular aspect of financial relief sought in the principal proceeding, QUD 6 of 2020. I will return to that matter shortly.

6    As to the application for leave to appeal (required by s 24(1A) of the Federal Court of Australia Act 1976 (Cth)), it is my practice not to hear applications for leave to appeal from interlocutory judgments given by me. However, the parties have requested me to do so in this case having regard to my particular knowledge of the history of the controversy between them and material relevant to it. Therefore, I have agreed to hear and determine the application for leave to appeal.

7    In QUD 6 of 2020, CDLI seeks final relief in the form of declarations (and other relief mentioned shortly). It seeks a declaration that a particular stratagem adopted by TPC constitutes the operation of an unregistered managed investment scheme within the meaning of s 9 of the Corporations Act 2001 (Cth) (the “Act”), in contravention of s 601ED(5) of the Act. It also seeks a declaration that the particular stratagem constitutes the provision of financial assistance in connection with the process of acquisition of shares in TPC in contravention of s 260A(1) of the Act.

8    The stratagem in question is described in this way at para 18 of the concise statement:

Each of the Payment of Legal Costs for the Benefit of Individual Shareholders, the Indemnity and the Litigation Funding was effected by the directors of TPC so that TPC was and would continue to facilitate, and be the vehicle or conduit through which TPC could raise funds so that some shareholders in TPC could pursue CDLI and interests associated with it to acquire their shares in TPC at the highest possible price, being what the directors of TPC considered a “fair” price, rather than a market price (the Achieve an Acquisition of Certain Shares in TPC Strategem).

9    By paras 2 to 15 and 27 to 32 of the concise statement, CDLI asserts that TPC is conducting a time sharing scheme (of which the stratagem forms part) which constitutes a managed investment scheme for the purposes of Chapter 5C of the Act, in contravention of s 601ED(5) of the Act. By paras 16 to 25 and 32, CDLI asserts that TPC is engaged in conduct that constitutes the provision of financial assistance in the acquisition of shares in the company in contravention of s 260A(1) of the Act.

10    The application for the interlocutory injunction the subject of the interlocutory judgment was only sought in aid of the final relief in the principal proceeding based on the contended contravention of s 260A(1) of the Act.

11    The other relief sought in the principal proceeding consists of three final injunctions based on ss 1324(1) and 1325(2) of the Act. The first is that TPC be restrained from taking or causing to be taken any further steps in connection with the litigation funding, said to be the contended financial assistance. The second is that TPC take steps to withdraw the indemnity given to Lewis. The third is that TPC take steps to return any voluntary contributions by members or directors of TPC made for the purpose of the litigation funding to those persons who contributed those funds.

12    CDLI also seeks an award of compensation for the loss and damage suffered by it by reason of the contended contraventions of s 601ED(5) and s 260A(1).

13    The application for leave to appeal is QUD 52 of 2020.

14    The second application is an interlocutory application filed by CDLI on 9 March 2020 that TPC be restrained, until the hearing and determination of the application for leave to appeal, from, first, taking any further steps in connection with the raising of levies from members of TPC or raising a special levy from members of TPC for the purpose of the Lewis proceeding and, second, from dealing with any levies paid or contributions received by TPC from members or directors of TPC for the purpose of funding that litigation. That application is made in the proceeding concerning the application for leave to appeal: QUD 52 of 2020. I proceed on the footing that CDLI is actually seeking these orders until the hearing and determination of any appeal, should leave be granted, even though the application is not framed in that way.

15    The third application is an interlocutory application filed by CDLI and PLC on 23 March 2020 by which they seek orders under s 1324(4) and s 1325(2) of the Act that TPC and Mr Kelly, Mr Lewis, Mr Wallis, Mr Owen and Ms Frecklington (the directors of TPC) be restrained from taking any further steps in connection with giving notice of, or calling, or holding, a general meeting of shareholders of TPC in reliance on s 260B of the Act for the purpose of seeking shareholder approval for the raising of levies from shareholders of TPC, or the raising of a special levy from TPC shareholders, for the purpose of funding the Lewis class action.

16    They also seek an interlocutory order that TPC and the director respondents take steps forthwith to revoke any notice given to shareholders of TPC or the Australian Securities and Investments Commission (“ASIC”) in connection with the proposed meeting.

17    A meeting is to be held on Wednesday, 8 April 2020 at 4.30pm in Brisbane.

18    The interlocutory application to, in effect, prevent the meeting convened for 8 April 2020 taking place is made in a further principal proceeding filed on 19 March 2020, QUD 79 of 2020. Because the meeting is imminent, all three interlocutory applications were heard together on Thursday, 2 April 2020. The reasons addressing each of the three applications are given in this proceeding with consequential cross-references to these reasons published as the reasons in the other interlocutory applications.

19    As to the principal proceeding in which the application is made to restrain the conduct of the meeting (QUD 79 of 2020), CDLI and PLC, in their capacity as the holders of 43.05% of the issued shares in TPC, contend by paras 5 to 17 and 19 to 24(a) to (e) of the concise statement in that proceeding, that TPC is conducting a time-sharing scheme which constitutes a managed investment scheme for the purposes of Chapter 5C of the Act in contravention of s 601ED(5) of the Act. By para 25 of the concise statement, CDLI and PLC contend that the directors have been relevantly engaged in TPC’s contravening conduct which is said to engage contraventions of ss 601EA, 601EB, 601ED, 601FA, 913A and 913B. CDLI and PLC also contend that since 13 March 2012 (when the time-sharing scheme is said to have become an unlawful managed investment scheme), TPC has not been lawfully entitled to issue levy notices to or collect levies from CDLI or PLC under the relevant clauses of TPC’s Constitution (clauses 12, 13, 14 and 15 are identified) conferring the power to issue levies. A declaration to that effect is sought as final relief.

20    The interlocutory application to restrain TPC and the directors from conducting the meeting on 8 April 2020 to ratify and approve the resolutions of the Board of TPC to grant an indemnity to Lewis in relation to the class action; to issue a special levy to all “non-Palmer members” of TPC; and to issue other special levies and take steps in connection with the funds so raised, can only be granted in aid of an aspect of the relief sought in the principal action in which the interlocutory order is sought. The question of whether there is no power to issue levies or whether a power conferred under the Constitution to issue levies cannot be exercised lawfully because the time-sharing scheme is said to have been, since 13 March 2012, an unlawful managed investment scheme (or whether the exercise of the power is otherwise beyond the grant of the power) is not agitated, as Mr Dunning QC for CDLI and PLC concedes, as the basis for the grant of the interlocutory injunction to restrain the meeting on 8 April 2020. It is therefore difficult to immediately see how an interlocutory injunction can be granted to prevent TPC from conducting the meeting if it is not sought to be grounded upon a serious question to be tried in relation to the final relief sought in the principal proceeding in which the application is made. However, I proceed on the footing that the ground upon which the conduct of the meeting is challenged is intended to fall broadly within the declaration that, since 13 March 2012, the power to issue levies is not properly exercised because from that date the time-sharing scheme is said to constitute a managed investment scheme conducted in contravention of the Act, even though no aspect of that formulation is relied upon in challenging the meeting.

21    As to the meeting, CDLI and PLC issued the originating application and concise statement in QUD 79 of 2020 on 19 March 2020. The applicants were told by TPC’s lawyers on 11 March 2020 that TPC was “in the process of calling” an extraordinary general meeting pursuant to s 260B of the Act to approve and ratify the decisions of the Board under challenge on the ground that the steps are said to constitute elements of financial assistance by TPC in the acquisition of its shares. That proposed meeting was the subject of complaint by the solicitors for CDLI, PLC (and Mr Palmer’s related interests) in a letter dated 16 March 2020 to TPC’s lawyers. The notice of meeting issued on 13 March 2020. I will return to aspects of the notice of meeting later in these reasons.

22    CDLI and PLC, by their interlocutory application, seek to prevent TPC from holding the meeting, on the ground that a meeting of members of TPC cannot lawfully be convened for the purpose of passing a special resolution to approve the particular decisions of the Board because the integers of the statutory mechanism which is said to enable such a resolution, s 260B of the Act, is not engaged.

23    Thus, any resolution passed at such a meeting is said to be a nullity.

24    More particularly, CDLI and PLC contend that steps taken by TPC, by its Board, have been found, by the interlocutory judgment, not to engage s 260A(1) of the Act; that CDLI and TPC are bound by the interlocutory judgment on that question; that s 260B is not engaged unless the relevant events engage financial assistance by TPC in the acquisition of its shares; that s 260B operates in a forward-looking way with the result that the postulated financial assistance must not have been already given at the date of the proposed resolution; and, that a “precautionary” resolution is not contemplated by s 260B of the Act.

25    The text of s 260B(1) does not expressly confine or require the passing of the resolution prior to the provision of financial assistance. As to s 260B(1)(b), it simply provides that shareholder approval for financial assistance by a company must be given by a resolution agreed to at a general meeting by all ordinary shareholders. There is no express temporal element. As to s 260B(1)(a), CDLI and PLC rely upon a commentary concerning s 260B in Austin & Black’s Annotations to the Corporations Act which contends for an implication in the construction of the section. The sources of the implication are put this way:

The drafting of the present provisions implies that shareholder approval is effective only if the approving resolution is adopted before the financial assistance is given … s 260B(1)(a) refers to no vote being cast in favour of the resolution by “the person acquiring the shares” suggesting that at least the acquisition, if not the financial assistance, has not yet occurred; and the corresponding provisions for holding company approval (s 260B(2) and (3)) apply if, respectively, the company “will be” a subsidiary of a listed domestic corporation immediately after the acquisition, or, immediately after the acquisition, the company “will have” an ultimate Australian holding company.

26    As to s 260B, it is true that s 260B(1)(a) refers to no vote being cast in favour of the resolution by “the person acquiring the shares (or units of shares)”. However, it is important to keep in mind (as Austin & Black keep in mind) the distinction between any acquisition of shares, yet to occur when the resolution is passed, and the things said to constitute the provision of financial assistance by the company which, in all likelihood, will have occurred before the acquisition occurs and may have occurred before the resolution is passed. Consistent with the text of s 260B(1)(b), financial assistance might well have been provided before the passing of the resolution, with the acquisition to occur after the passing of the resolution.

27    Let it be assumed that the reference to “acquiring” in s 260B(1)(a) suggests that the resolution must be passed before the act of acquisition occurs. To the extent that s 260B(1)(a) requires the passing of the resolution prior to the acquisition of the shares, no relevant acquisition has, in this case, occurred having regard to the way in which any contended remedial order for the disposition and transfer of shares to CDLI might be made assuming the class claimants are able to make good their claims, and orders are made.

28    There is, in my view, no implied limitation to be found in the text of s 260B(1) to the effect that shareholder approval must be given before the company financially assists the relevant person “to acquire shares (or units of shares) in the company”, even though the special resolution must be passed before the act of acquiring the shares occurs.

29    As to s 260B(2), that subsection contemplates a specific set of circumstances. Again, it focuses upon acquisition such that if, immediately after the acquisition of shares, the company will then be a subsidiary of a listed domestic corporation, the financial assistance must also be approved by a special resolution passed at a general meeting of members of the listed domestic corporation. Let it be assumed that s 260B(2) requires the resolution to be so passed by that corporation before the acquisition renders the company a relevant subsidiary. The subsection does not derogate from subsection (1) where shareholder approval may be given by the relevant resolution where a person has been financially assisted by a relevant act and the acquisition has not yet occurred.

30    Subsection (3) contemplates another specific acquisition of shares such that if, immediately after the acquisition of the shares, the company has an unlisted domestic corporation as its holding company, which is not itself a subsidiary of a domestic corporation, the financial assistance must be approved by a special resolution of members of the body corporate that, immediately after the acquisition, will be the holding company. Again, there is nothing in the text of s 260B(3) that requires the special resolution to be passed prior to an act of financial assistance, assuming the resolution must be passed prior to the acquisition rendering the company as having a holding company as described in the subsection.

31    Subsection (4) operates in the context of a company (or other body) calling a meeting for the purpose of subsection (1), (2) or (3). It requires the company to include, with the notice calling the meeting, a statement “setting out all the information known to the company … that is material to the decision on how to vote on the resolution”. CDLI and PLC contend that the notice fails to identify s 260B of the Act; how the section is engaged; and how it operates in the relevant circumstances. I will return to this matter later in these reasons.

32    CDLI and PLC also emphasise subsections (5) and (6) of s 260B. Subsection (5) provides that before the notice of meeting (for the purposes of subsections (1), (2) or (3)) is sent to members, the company must lodge with ASIC a copy of the notice of meeting and any document, “relating to the financial assistance”, that is to accompany the notice of meeting. Subsection (6) provides that the company must lodge with ASIC, at least 14 days “before giving the financial assistance”, a notice in the prescribed form, stating that “the assistance has been approved under this section”. It would, of course, be impossible for a company to give ASIC notice of approval of financial assistance under the section 14 days before giving financial assistance to the relevant person to acquire shares, if the resolution is passed after the company has given the financial assistance (even though the acquisition has not yet occurred). Subsection (7) provides that a special resolution passed for the purposes of subsections (1), (2) or (3) must be lodged with ASIC by the company, the listed domestic corporation or the holding company within 14 days after it is passed.

33    Subsection (6) suggests that s 260B is intended to operate on the footing that shareholder approval for financial assistance by a company must be given by the relevant subsection (1), (2) or (3) resolution before the giving of financial assistance by the company. Subsection (6) contemplates shareholder approval under the section first obtained, followed by the giving of financial assistance by the company to the relevant person, with regulatory supervision provided for by an obligation to give ASIC 14 days’ notice that the assistance has been approved under the section. Subsection (7) addresses the time for lodgement of a copy of the resolution with ASIC.

34    Subsection (6) is relevant for present purposes to the question of construction of s 260B rather than whether a failure to comply with the requirements of the subsection might otherwise be cured under the Act.

35    However, it is important to remember that s 260A(1) is concerned with whether a company may financially assist a person “to acquire” shares. An acquisition of shares is central to the contended financial assistance. That is why subsections (1), (2) and (3) of s 260B contemplate a resolution in relation to financial assistance concerning a future acquisition.

36    In any event, these questions of construction of s 260B, whether in relation to the meeting convened for 8 April 2020 or any meeting of members convened for that purpose (having regard to the relevant circumstances), will ultimately be addressed more fully in the principal proceeding, QUD 79 of 2020, relevantly framed to contemplate relief relevant to the operation of the section. It is sufficient to note that there is a serious question to be determined as to whether s 260B is engaged, or not engaged (as CDLI and PLC contend), if a person has already been financially assisted to acquire shares prior to the resolution giving shareholder approval for the financial assistance. No authorities have been cited to me on the question of construction of s 260B.

37    More fundamentally, CDLI and PLC say that the section is not engaged because the Court has already determined in the interlocutory judgment that s 260A(1) is not engaged having regard to the sequence of steps said by CDLI to constitute the financial assistance. As to those matters, these reasons should be read together with the reasons in the interlocutory judgment.

38    Thus, there is said to be no financial assistance by TPC upon which a shareholder resolution might operate, consistent with s 260B. CDLI and PLC contend that there is no room within the text of s 260B for a “precautionary” resolution to be passed by shareholders “in case” s 260A(1) might be thought to have been engaged by relevant acts on the part of the company.

39    It is, of course, true that in the interlocutory judgment for the purposes of determining the interlocutory application, the Court was satisfied that s 260A(1) was not engaged. The application was not dismissed on discretionary grounds. The Court concluded that taking into account the factors raised by the affidavit evidence filed on that application, s 260A(1) was not engaged. With the benefit of a final hearing in the principal proceeding (QUD 6 of 2020), CDLI seeks to demonstrate that s 260A(1) is indeed engaged. Moreover, CDLI seeks leave to appeal from the interlocutory judgment. It contends that the steps taken by TPC of issuing levies to those members of TPC who have not opted out of the class action, so as to pay legal costs of the class action, and granting Lewis an indemnity (limited to the amounts raised by levies or otherwise voluntarily contributed by directors and participating members) is financial assistance by TPC in the acquisition of shares in the company. TPC and the directors contend otherwise. Thus, there is a continuing controversy to be quelled in the principal proceeding by judgment arising out of the final hearing.

40    In the principal proceeding and any appeal arising out of the interlocutory judgment, TPC will contend that s 260A(1) is not engaged. Although CDLI and TPC are bound by the interlocutory judgment arising out of the determination of the interlocutory application, that interlocutory judgment does not bind TPC or the directors in the sense of operating as a prohibitory determination of whether the directors, as a matter of governance and prudential management of TPC, might elect to convene a meeting of shareholders of TPC to consider, and if thought fit, approve the decision of the directors in the terms to be put to the meeting.

41    A question will, of course, arise for later determination of whether a special resolution passed at such a meeting to approve the steps taken by TPC and the directors is a valid resolution. The answer to that question will fall to be determined in part, at least, by whether s 260B is, as it seems to be, an exhaustive mechanism contained within the Act for shareholders to approve steps said to constitute financial assistance by a company to acquire shares, and whether s 260B is engaged having regard to the construction of the section and the relevant facts as found.

42    CDLI and PLC will contend in the principal proceeding, as they do now on the interlocutory application, that s 260B is not engaged having regard to their contentions on construction as to the scope of operation of s 260B and its limitations. It is likely that they will also contend in QUD 79 of 2020, consistent with the position adopted by CDLI in QUD 6 of 2020, that the steps earlier identified, taken by TPC and the directors, engage s 260A(1).

43    In such circumstances of continuing controversy as to whether s 260A(1) is engaged, notwithstanding an interlocutory judgment, an application for leave to appeal and a potential appeal on the question, what are prudent directors to do in seeking to address that controversy at least within the terms of the Act available to them? One course is to convene a meeting and seek to secure a special resolution to approve the steps said (although denied) to constitute financially assisting a person to acquire shares in TPC.

44    If, contrary to the view of TPC and the directors, the steps complained of engage financial assistance to a person to acquire shares, and s 260B as a matter of construction is engaged, and a special resolution is passed approving the steps said to constitute financial assistance, the special resolution, subject to any other question raised in the principal proceeding, will operate according to its terms.

45    If, on the other hand, the relevant steps taken by TPC and the directors are found, after a final hearing, not to engage s 260A(1), the resolution cannot operate as shareholder approval of financial assistance to a person to acquire shares, as the relevant subject matter simply does not arise.

46    If s 260A(1) is engaged and s 260B is not engaged, the special resolution will either be invalid or not operate as shareholder approval.

47    These are matters to be determined later in time in light of full argument and submissions. It seems to me that there is utility in the members considering the matters put before them, and the Court determining the validity and operation of any resolution arising out of the meeting later in time in the context of the specific controversy raised in the principal proceeding.

48    In principle, the meeting ought to take its course on 8 April 2020 and the Court ought not to enjoin the conduct of the meeting.

49    However, CDLI and PLC say that the point of distinction they emphasise is that the well-recognised reluctance of Courts to intervene to restrain the conduct of a meeting of members at which the members will express their views on the relevant subject matter, arises in circumstances where the meeting is “regularly” convened and they contend that the upcoming meeting is not regularly convened because s 260B is not engaged for the reasons of construction earlier identified.

50    The matter of construction of the integers of s 260B, however, remains to be decided at a later date and the meeting, although there may be doubts cast over the validity of any resolution, ought to be allowed to express its view on the subject matter of the resolution. The legal efficacy of any resolution will be determined taking into account whatever status any special resolution may be then seen to enjoy.

51    CDLI and PLC also emphasise clauses 7, 9, 10, 12, 14, 15, 17, 19 and 21 of the Explanatory Statement (“ES”) accompanying the Notice of Meeting of 13 March 2020. They say that the ES fails to satisfy the requirements of s 260B(4) of the Act. Thus, it is necessary to examine aspects of the ES.

52    The ES refers to earlier communications to TPC’s members concerning the Board’s decision of 26 November 2019 to indemnify Lewis concerning any liability in connection with the class action and to raise levies to help fund the action. It refers to information about those matters set out in the notice to members of 20 December 2019. It refers to the special levy to the non-Palmer members of TPC in an amount of $1,500; the payment by 245 such members of the special levy; and the contribution by each of the five directors of their directors’ fees of $12,000 each. It refers to the raising of approximately $430,000 by this mechanism as at 13 March 2020.

53    At para 7, it says that CDLI has applied to stop the indemnity operating and to stop the special levy by way of an injunction application in the Federal Court of Australia.

54    By para 8, it says that the view of the directors is that Mr Palmer is seeking to stop the special levy because Mr Palmer does not wish to confront the claims made in the class action.

55    By para 9, it says that TPC’s legal advice is now, and always has been, that what is being done (the steps taken by the directors) does not, in any way, contravene the Act and, in the circumstances, is “wholly appropriate”.

56    By para 10, it says that Mr Palmer’s application (by CDLI) before the Federal Court was dismissed on 25 February 2020 on the footing of no serious question raised that there was anything wrong with what was being done (which is a reference to the granting of the indemnity, issuing the levies and conducting the class action).

57    By para 11, it says that Mr Palmer is now seeking leave to appeal from the interlocutory judgment and that he is seeking to delay the progress of the class action.

58    By para 12, it says that Mr Palmer has sought a further injunction to prevent the money raised from being used for the class action until after his application for leave to appeal is determined.

59    By para 14, it says that TPC’s advice remains that there is nothing wrong with the way that the class action is being funded and that the interlocutory judgment is correct.

60    By para 15, it says this:

However, in an effort to short circuit Palmer’s injunction, the directors have been advised that if the members, by special resolution, ratify and approve, the directors’ resolution of 26 November 2019 and the special levies issued and raised, that will totally undercut Palmer’s attempts to stop the levy. This is because there can be no breach of the Corporations Law if a special resolution of shareholders is resolved to approve it.

61    By para 16, it says that the directors believe that the proposed resolution is in the best interest of TPC and the directors recommend that all members vote in favour of it.

62    The ES, under the heading “Reason for special resolution”, says at para 17 that the resolution does nothing other than ratify and approve the resolution of the directors made on 26 November 2019; at para 18, that all members who received the Opt Out Notice on 20 December 2019 have proceeded on the basis that the resolution is valid and, in particular, all those members who have contributed money to the fund have done so on the basis that the resolution is valid; at para 19, that the legal advice received by TPC is that if the shareholders resolve to ratify and approve the special resolution, “that is the quickest way to bring to an end Palmer’s attack on the special levy”; and by para 20, that once the attack is “cleared away”, the class action can proceed quickly, which the directors understand is what all members (other than Mr Palmer’s interests) and, in particular, the class members, “want to happen”.

63    At para 21, the ES says that the directors of the company are not aware of any information that will be reasonably required by members in order to make a decision on how to vote on the special resolution, other than the information set out in the ES or as previously disclosed to members.

64    CDLI and PLC say that TPC has failed to comply with s 260B(4) of the Act on the footing that TPC has failed to set out “all the information known to the company that is material to the decision on how to vote on the resolution”. Mr Dunning says that the ES fails to make any reference to s 260B as the basis upon which shareholder approval for the subject matter of the resolution is sought and there is no discussion of s 260A of the Act and its relationship with s 260B of the Act. CDLI and PLC say that the ES ought to canvas those matters with the members of the company. They also say that it is “arguably an abuse of the Court’s process” as well as an abuse of the Corporations Act and an abuse of the duties of directors under the Act, to seek to pass a resolution of the kind proposed for the meeting on 8 April 2020 “as a tactical manoeuvre to outflank” an appeal from the interlocutory judgment. They say that it is also “misleading of the wider shareholders to do so”. They focus upon, particularly, para 15 of the ES and observations related to para 15 to the effect that the meeting has been convened to secure a resolution from the members “in an effort to short circuit Palmer’s injunction” (which is a reference to CDLI’s application for leave to appeal and, should leave be granted, the appeal), and the observation in para 15 that approval by the members of the decision of the directors of 26 November 2019 “will totally undercut Palmer’s attempts to stop the levy”. They contend that TPC openly embraces the notion that a proposed resolution will be put to the members at the meeting of 8 April 2020, that is, contrary to the interests of the members as a whole or oppressive to or unfairly prejudicial to or unfairly discriminatory against a member or class of members in the sense contemplated by s 232(d) and (e) of the Act. They contend that the conduct of the directors in convening the meeting calls into question whether the directors are conducting the affairs of TPC in accordance with their statutory duties under ss 180 to 182 of the Act.

65    The starting point is the scope of the statutory obligation. The obligation arising under s 260B(4) in relation to a meeting called for the purpose of s 260B(1) is to include with the notice, a statement setting out all the information known to the company or body that is material to the decision on how to vote on the resolution. The subsection also provides that the company does not have to disclose information if it would be unreasonable to require the company to do so because it has previously disclosed the information to its members. The scope of the information previously disclosed to members is not entirely clear. However, previous information has been circulated to members in connection with the decisions of the Board made on 26 November 2019 and the class action having regard to the information distributed on 20 December 2019. More particularly, CDLI and PLC have been closely engaged in all of these matters and understand precisely the context within which all of these questions have arisen. As to the wider members, the ES tells the members generally that CDLI has sought relief in the Federal Court to stop the indemnity and the issue of levy notices to raise funds for the class action. It says things about the effect of the legal advice it has obtained. It refers to the earlier information in relation to the Opt Out Notice and the mechanism being deployed to raise funds to conduct the class action. It refers to the interlocutory application by CDLI and the interlocutory judgment, the outcome and the confidence TPC and the directors hold in that judgment according to the advice they have received. It notes that an application for leave to appeal has been made by CDLI. It is true that the ES does not identify the content of the challenge by CDLI to the steps inherent in the decision of the directors to grant the indemnity to Mr Lewis and issue levy notices to raise funds for the class action, as conduct said to contravene s 260A(1) of the Act. Nor does it identify that s 260B of the Act is the basis upon which the directors have elected to call a meeting to seek to obtain shareholder approval for something which is said to constitute financially assisting a person to acquire shares. The ES tells members, in effect, that whatever the basis for CDLI’s application for an injunction to restrain TPC from engaging in the steps under challenge might be (and any leave to appeal and consequent appeal), a special resolution to ratify and approve the decision of the directors on 26 November 2019 will result in there being no breach of the Act.

66    The ES might have explained more fully the criticism made by CDLI under s 260A(1) of the steps taken by the directors on 26 November 2019 and the basis upon which s 260B is said to be engaged to enable shareholders to approve TPC financially assisting a person to acquire shares, on the basis of an assumption, contested by TPC, that the relevant steps are said to engage s 260A(1) of the Act, notwithstanding that TPC’s advice is that the relevant steps do not engage s 260A(1).

67    However, I am not satisfied that any arguable failure to explain the precise content of the contended difficulty asserted by CDLI arising under s 260A(1) (having regard, for example, to the elements of the discussion at [75] to [106] of the interlocutory judgment) and the precise issues associated with the construction of s 260B and its relationship with s 260A(1), is a basis for restraining the conduct of the meeting in circumstances where the members have been told that the special resolution has been proposed by the directors so as to seek to address the basis on which CDLI has, and is, challenging the decision of TPC to grant Lewis the indemnity and issue levy notices to raise funds for the purpose comprehensively explained in the Opt Out Notice. In other words, the members know why the meeting is being convened and the point of proposing the special resolution. They should not be prevented from having the opportunity to make their decision on that matter. The legal consequences of the resolution in the context of whatever argument is advanced about its validity can properly be addressed after the event. Moreover, the totality of the information disclosed to members, taken together with the ES, will need to be forensically examined to determine whether the contention that all information material to the decision on how to vote on the resolution was not available to members, can be made good. The subject matter of the resolution will determine that which is material. Much has gone before about these issues.

68    As to whether the decision by the directors to call the meeting is motivated by a desire to invoke a mechanism, under the Act, that may have the effect of rendering the contravening conduct complained of by CDLI, no longer contravening conduct (notwithstanding that the directors are of the view based on legal advice that their conduct as challenged does not engage a contravention of s 260A(1)), with the result that a challenge to the conduct of TPC on that basis might fall away should a special resolution be passed by the shareholders in the terms proposed (albeit that invoking the mechanism in the Act to that effect is described as “short circuiting” CDLI’s injunction application or “undercutting” CDLI’s attempts to stop the levy), the step of invoking such a mechanism under the Act, which may bring about that result, is a matter for the directors if such a step is open to TPC and thought to be in the best interests of TPC by the directors acting on advice. The directors say that so acting has the effect of ending continuing controversy over the question in issue. Again, a question will no doubt arise about whether the integers of s 260B are engaged and whether a special resolution passed at such a meeting is valid. However, questions about those matters are not a basis for removing the question of the proposed special resolution from the members. The Court will, in due course, determine the validity of the resolution and whether s 260B is engaged or not.

69    As to the other matters mentioned in [64] of these reasons, CDLI and PLC have been closely aware since at least early December 2019 of the steps taken by TPC to grant the indemnity to Lewis (limited to the funds raised by the issue of levies), and the issue of levies to raise funds for the class action. CDLI and PLC have not raised, by their concise statement in the principal proceeding, a challenge to the exercise of the power to issue levy notices or grant Lewis the indemnity limited to the funds raised by the issue of levy notices, on the ground that the exercise of the power exceeds the scope of the power conferred, or that the decisions taken by the directors engage a contravention of ss 180 to 182 of the Act, or that the decisions are the expression of conduct falling within the description of s 232(d) or (e) of the Act. It seems to me that it is not open to CDLI and PLC in this application, to seek to restrain the conduct of the meeting as an interlocutory order in aid of matters which are not otherwise asserted in the principal proceeding. Again, it may be that CDLI will seek to assert that a resolution passed at the meeting is not valid on the footing of contentions of the kind described above, if and when such contentions are relevantly framed as part of the principal proceeding.

70    Accordingly, I am not satisfied that the conduct of the meeting ought to be enjoined.

71    It is now necessary to note some aspects of the evidence concerning the funds raised by the issue of levies and other contributions, and the use and treatment of those funds. These matters are relevant to the other two applications.

72    Mr Hunter-Smith is a principal of HCS International. That entity provides consultancy services to TPC. Mr Hunter-Smith says that as at 27 March 2020, TPC had received special levies in an amount of $438,105 comprised of special levies from 250 non-Palmer members of TPC; amounts contributed by each of the five directors of TPC; and an amount contributed by another non-Palmer member of the Club. On 9 March 2020, Mr Hunter-Smith was instructed to transfer the funds to McBride Legal, the solicitors for TPC. An amount of $430,745 was transferred to McBride Legal. The amount of $7,360 was received after the date of that transfer. Mr Robson is the principal solicitor from McBride Legal acting on behalf of TPC. Mr Robson says that McBride Legal received the amount of $430,745 from TPC on 13 March 2020. He says that McBride Legal has disbursed money from those funds for the purposes of the class action on 18 March 2020, 20 March 2020 and 26 March 2020 in a total amount of $111,850.57, with the result that an amount of $318,894.43 remains in the trust account of McBride Legal.

73    Mr Hunter-Smith says that since 4 September 2012, TPC has issued levies to its members of $13,338 per quarter share (including GST) in total over that period. He says that of the 320 quarter shares in, put simply, the Coolum Project, owned by members other than CDLI and its related entities, the owners of 267 of those quarter shares are up to date with payment of the levies and are thus eligible to vote at a general meeting of members of TPC in accordance with Article 22(c) of TPC’s Constitution. Mr Hunter-Smith says that in the period 1 July 2019 to 30 March 2020, “account statements” have issued to CDLI, PLC and Mr Palmer. The amounts have not been paid. In the case of CDLI, the amount said to be payable to TPC is $226,831.73. In the case of PLC, the amount said to be payable to TPC is $16,705.88. In the case of Mr Palmer, the amount said to be payable by him to TPC is $1,127.71. In the various proceedings, CDLI (and PLC and Mr Palmer) say that these amounts are not payable because TPC has been conducting, in the relevant period (and earlier), a managed investment scheme in contravention of the Act. That contention will be determined upon the determination of the various proceedings in which the contention is raised.

74    It is now necessary to consider the remaining two applications.

75    By application QUD 52 of 2020, CDLI seeks leave to appeal from the interlocutory judgment. The “litmus test” governing such applications is not in doubt. The questions are whether, in all the circumstances of the case, the decision is attended with sufficient doubt to warrant its being reconsidered by the Full Court and whether substantial injustice would result if leave were refused supposing the decision to be wrong: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, Sheppard, Burchett and Heerey JJ at 398-400; Bienstein v Bienstein (2003) 195 ALR 225, McHugh, Kirby and Callinan JJ at [29]. In Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261, Keane CJ, Gilmour and Logan JJ at [20] described the question of “sufficient doubt” as one of whether “there is a reasonable argument” that the order should be set aside. Their Honours at [20] described the question of whether “substantial injustice” would result if leave were refused as one of whether there is “substantial prejudice” to the applicant for leave. In the interlocutory judgment, the application for an interlocutory injunction was dismissed on the ground that s 260A(1) was not engaged and thus, there was no demonstrated serious question to be tried of whether TPC had engaged, or was engaging, in a contravention of s 260A(1) of the Act. That being so, the question then becomes one of a double arguable question in the sense of whether there is a “reasonable argument” that there was at least a serious question to be tried as to whether the impugned conduct fell within the reach of s 260A(1), which would then engage the balance of convenience factors.

76    The two questions the Court considers on an application for leave to appeal ought not to be treated as entirely isolated discrete questions operating independently of one another.

77    If I were to be satisfied, for example, that there is doubt about whether CDLI is likely to suffer “substantial injustice” or “substantial prejudice” should leave be refused, I would nevertheless be satisfied that the question of construction of s 260A(1) and whether it is arguably engaged by the relevant factual circumstances, weighed in the balance of those two factors taken together, is such that the question of whether s 260A(1) is engaged warrants the granting of special leave.

78    The question of the extent to which CDLI might suffer prejudice is an important consideration in the context of whether an interlocutory injunction ought to be granted in the terms sought by CDLI pending the determination of any appeal arising out of a grant of leave.

79    On the question of prejudice, CDLI says that it is relevant to consider whether there is a real risk that it will not be possible for CDLI to be restored substantially to its former position “if the judgment against [it] is executed”. In this case, the interlocutory application was dismissed with an order as to costs. Accordingly, CDLI contends that there is a real risk that it will not be possible for it to be restored to its former position if the order for costs is executed against it. CDLI also says that the monies raised by the levies and otherwise contributed voluntarily are being expended to fund the class action which is properly characterised as litigation taken by those non-Palmer members of TPC against a particular class of members including CDLI. It says that these circumstances should be weighed in the balance in favour of granting an injunction to restrain TPC issuing further levies and to restrain it expending sums in possible contravention of s 260A of the Act. It says that unless an injunction is granted pending the determination of the appeal, a successful appeal and the possibility of success in the primary proceeding “is likely to be rendered nugatory”. CDLI notes that in the interlocutory judgment the Court found that prejudice would be suffered by CDLI. In the interlocutory judgment, the Court said this at [108]:

[I]f, however, the section [s 260A(1)] is engaged by reason of the conduct of the Club entity [TPC], I am satisfied that CDLI is materially prejudiced by incurring legal costs in connection with the representative proceedings in which the order, earlier described in these reasons at [44], is sought.

80    The reference to the order described in [44] of the reasons in the interlocutory judgment is a reference to the order sought by the applicant in the representative proceeding on behalf of itself and the group members. The order sought is in the following terms:

An order pursuant to sub-section 233(1) of the Act, that the Respondents, or one or more of them:

(a)    purchase all Share Parcels (and associated “villa interests” as defined in the concise statement held by the Applicant and Group Members who are existing members at a price determined by the Court, but not less than $65,000 per Share Parcel (and associated villa interests);

(b)    purchase all Share Parcels (and associated villa interests) held by any Group Members who are subsequent members at a price determined by the Court;

(c)    pay compensation for the loss and damage suffered as a consequence of the oppression.

[emphasis in italics added]

81    CDLI says that it relies upon the observation at [108] of the interlocutory judgment as a feature of the prejudice it suffers. CDLI says that if it is successful on appeal and ultimately successful in the principal proceeding, and the conduct complained of is not enjoined, the outcome in the principal proceeding will be illusory as the “sums will have been expended and will be irrecoverable”. CDLI says that sums of money being irrecoverable, to the detriment of an applicant for an injunction pending an appeal, is a recognised and powerful category of prejudice and, in this application, it is said to be “determinative”. CDLI says that it will seek an expedited hearing of the appeal if leave is granted. It also says that its concerns are heightened by the refusal of TPC to extend its undertaking not to use the funds raised by the issue of levies and otherwise contributed, pending the determination of the appeal.

82    The remedies CDLI seeks in the principal proceeding (QUD 6 of 2020) are the declarations described at [7] and [8] of these reasons; the three final injunctions described at [11] of these reasons; and the compensation claim described at [12] of these reasons. Both the declarations are capable of being made after a trial of the principal proceeding irrespective of whether an injunction pending appeal is granted or not. The first final injunction sought could also be made after a trial without prejudice to the remedy. There is presently no further threat to exercise the power to issue levies to raise further funds for the class action.

83    The second and third final injunctions sought in the principal proceeding concern a mandatory order that TPC withdraw the indemnity given to Lewis and that it return to members the monies contributed by them pursuant to the levies, or contributed voluntarily, in funding the class action. Although CDLI contends that its interests are likely to be prejudiced because the funds raised in the way described will continue to be used to fund the class action, a number of things should be noted. First, none of the monies contributed to the fund either by the issue of levies or voluntarily, have been contributed by CDLI or persons or entities related to it and thus, it is not a case of funds contributed by CDLI being used for a purpose collateral to the purpose for which it has contributed any monies. Second, none of the persons who have contributed the funds for the identified purpose contend that raising the fund, and contributing to it, engages a contravention of the Act. Third, if the conduct engages a contravention of the Act such that the prohibition in s 260A(1) is engaged, TPC may be found to hold the funds contributed by the relevant members on a resulting trust for those persons or entities who have contributed the funds, or TPC might simply be susceptible to an order to pay a sum equal to the amount of the contribution to the party making the contribution. Fourth, no monies would be payable to CDLI. Fifth, the real prejudice CDLI contends it suffers is the prejudice to its interests as a member in TPC in seeking a remedy to restore third party members to their former position by returning to them their contributions to the fund raised in circumstances of a contended contravention of the prohibition in s 260A(1) by TPC (if that proposition is made good at trial), notwithstanding that no such person asserts a contravention or a claim for return of the contribution. Sixth, CDLI contends that it is suffering prejudice by exposure to the costs of being put in a position of having to answer a proceeding that would not have arisen but for the contravention of s 260A(1) by reason of the impugned steps said to engage that section. Seventh, TPC has invoked a procedural mechanism for raising funds from the opt in members who wish to participate in the class action and therefore participate in providing funding in support of the indemnity given to Lewis as the party commencing the representative proceeding. In that sense, the exercise of the power to issue levies to raise funds to support the indemnity is said to have been selected by the directors as an administrative mechanism to gather in funds for the purpose of funding the class action. None of the monies so raised by the administrative mechanism adopted by TPC, for the purpose identified, is said to be money of TPC or an asset of TPC.

84    It may be that the directors of TPC, essentially in their capacity as non-Palmer members in TPC, in consultation with Mr Lewis and with a view to Mr Lewis agreeing that his company act as a representative party in bringing a class action, could have established a mechanism by which each of the non-Palmer members were approached with a view to contributing $1,500 to the Lewis entity with a view to establishing a collective fund to support a class action proceeding by that entity as a representative party. Those funds might then have been held by the Lewis entity as trustee for the donors for the dedicated purpose of the contribution and the funds might then have been placed in the trust account of McBride Legal for the dedicated purpose. However, the directors elected to cause TPC to grant an indemnity to the Lewis entity (limited to the funds raised and contributed) to enable that entity to commence a proceeding in which an order is sought for the disposition of shares in TPC by the relevant non-Palmer member participants to, as claimed, CDLI. The grant of the indemnity is challenged on the footing that it forms part of TPC financially assisting a person to acquire shares in the company which, of course, is the subject of the application for leave to appeal. The indemnity has already been granted.

85    The proposed interlocutory injunction does not focus upon the indemnity. By the application, CDLI seeks to restrain TPC from taking any further steps in connection with the raising of levies from members or raising a special levy from members for the purpose of the Lewis proceeding, and to restrain TPC from dealing with any levies paid or contributions received from members for the purpose of funding a class action.

86    As to the first, there is no present threat to issue further levies.

87    As to the second, counsel for TPC asserts that it is acting as a trustee of the funds raised through the mechanism deployed to gather in contributions from the various non-Palmer members. Those monies have now been paid into the trust account of McBride Legal. Nevertheless, TPC remains the trustee of the funds to be used for the purpose for which they were contributed.

88    I accept that even though TPC says that it has invoked the levies mechanism as a convenient administrative arrangement in raising funds from non-Palmer members to support a class action by the Lewis entity, coupled with the grant of the indemnity to that entity, CDLI, if it succeeds in the relief it seeks by way of a final mandatory order that TPC repay the contributed monies to those persons or entities who have contributed those monies (on the footing that TPC is shown to have engaged in conduct of financially assisting a person to acquire shares), the utility or efficacy of that order is likely to be diminished if the funds raised in contravention of the section are dissipated through use (for the identified purpose) between now and the determination of the final relief.

89    Accordingly, I am satisfied that an order ought to be made restraining TPC from using the funds so raised for the purpose of a class action pending the determination of the question of whether the impugned steps constitute a contravention by TPC of s 260A(1) of the Act. However, there are a number of matters that need to be addressed in relation to such an order. The first is that an order will be made that the question of whether the conduct said to constitute financial assistance by TPC of a person in contravention of s 260A(1) will be set aside as a separate question for expedited determination in a final hearing. A date will be identified as soon as possible, for determining that matter, towards the end of April. Second, the question of the outcome of the meeting on 8 April 2020 needs to be kept under review in this context. Third, although leave to appeal is to be granted, the appropriate course is to determine the separate question finally as soon as possible in which event the determination of the appeal on the interlocutory question need not be expedited as the entire question can be decided in a final sense as a matter of urgency. Any subsequent appeal from a final determination of the matter in issue, is a much more useful appellate resolution of the question than an appeal confined solely to the interlocutory question.

90    The costs will be reserved for later determination.

Associate:

Dated:    7 April 2020