BSG Mining LLC v MRC Graphite (Norway) Pty Ltd - [2023] WASC 128

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   BSG MINING LLC -v- MRC GRAPHITE (NORWAY) PTY LTD [2023] WASC 128
CORAM:   HILL J
HEARD:   15 MARCH 2023 & 4 APRIL 2023; WRITTEN SUBMISSIONS 6 APRIL 2023
DELIVERED          :   21 APRIL 2023
FILE NO/S:   CIV 1217 of 2023
BETWEEN:   BSG MINING LLC
Plaintiff
AND
MRC GRAPHITE (NORWAY) PTY LTD
Defendant

Catchwords:

Practice and procedure - Interlocutory injunction - Application to restrain defendant from voting at extraordinary general meeting of company - Resolutions to be considered at meeting for removal and appointment of directors nominated by defendant - Dispute between shareholders as to whether defendant has committed events of default under shareholders deed - Whether serious question to be tried that defendant is a defaulting party under shareholders deed and not entitled to vote at any shareholders meeting - Balance of convenience - Turns on own facts

Legislation:

Nil

Result:

Interlocutory injunction granted

Category: B

Representation:

Counsel:

Plaintiff	:	J Garas SC & T C Russell
Defendant	:	R Young SC & J Y Wang

Solicitors:

Plaintiff	:	Gilbert + Tobin
Defendant	:	King & Wood Mallesons

Case(s) referred to in decision(s):

Atlas Holdings Pty Ltd (Trustee), Re Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 923; (2017) 122 ACSR 345
Carr Boyd Minerals Ltd v Ashton Mining Ltd (1989) 15 ACLR 599
Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; 194 FLR 322
Paringa Mining and Exploration Co plc v North Flinders Mines Ltd (1989) 14 ACLR 587
Re Freehouse Pty Ltd; Jordan v Avram (1997) 26 ACSR 662
Turnbull v National Roads and Motorists' Association Ltd [2004] NSWSC 577; (2004) 186 FLR 360
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110

HILL J:

On 3 March 2023, BSG Mining LLC (BSG) commenced these proceedings by way of writ of summons against MRC Graphite (Norway) Pty Ltd (MRC). On the same date, BSG sought an urgent interlocutory injunction to prevent an extraordinary general meeting (EGM) of Skaland Graphite AS (Skaland, or the Company) scheduled for the following Monday, 6 March 2023 at 5.30 pm from proceeding.
The application for an injunction came on before Forrester J on 3 March 2023 who made orders to adjourn the EGM until after a decision is made on BSG's application. Orders were also made for the defendant to file any responsive evidence in opposition to the application.
The matter was initially listed before me for hearing on 15 March 2023. On that day, I raised a specific query with the parties on the proper construction of cl 4.3 of the Shareholders Deed which had not been addressed by the parties in their submissions at that time. As a result, the parties agreed to adjourn the hearing until 4 April 2023 and orders were made for the filing of further affidavits and submissions. At the conclusion of the hearing on 4 April 2023, I gave the parties leave to file short written submissions and otherwise reserved my decision.
In brief, the plaintiff seeks an interlocutory injunction to restrain the defendant from exercising its voting rights at any EGM of Skaland and, in particular, any meetings at which the resolutions proposed to consider increasing the representation of MRC's nominees on the board of Skaland or otherwise changing the composition of the board. The only exception to this is that BSG does not object to MRC seeking to remove Mr Hancock as a director of Skaland and replacing him with a director to be nominated by MRC.
In support of the application, BSG relied on six affidavits: four affidavits of Timothy Paul O'Leary, a partner of Gilbert + Tobin, BSG's solicitors, two filed on 3 March 2023, one on 15 March 2023 and one on 29 March 2023 (which annexed an affidavit of Bjarte Bogstad, a partner of the Norwegian law firm Bull & Co Advokatfirma AS, affirmed 29 March 2023), and two affidavits of Aidan Anthony Nania, a director of the plaintiff, one affirmed on 2 March 2023 and filed on 10 March 2023, and one affirmed on 14 March 2023.
The application is opposed by the defendant who filed four affidavits: two affidavits of Adam Daniel Bick, the interim chief executive officer of Mineral Commodities Ltd, the parent company of MRC, filed 12 March 2023 and 15 March 2023, and two affidavits of Arild StØren Frick, a partner of the Norwegian law firm Wikborg Rein Advokatfirma AS, filed 12 March 2023 and 29 March 2023.
For the reasons that follow, it is my view that MRC should be restrained from exercising any voting rights attached to its shares at any general meeting or EGM of Skaland until trial. I accept that the effect of this restraint is that MRC is prevented from exercising a valuable right attached to its shares. For this reason, I consider the matter should be listed for trial at the earliest convenience.

Factual background

BSG and MRC are both shareholders in Skaland, a Norwegian company. BSG holds 9.99% of the shares in Skaland, and the remaining shares are owned by MRC. Skaland's primary asset is the Traelen Graphite Mine in Norway, which is the largest graphite producer in the European Union.
Skaland is governed by articles of association, which were last modified on 16 March 2020 (Constitution). Under the Constitution, Skaland is required to have a minimum of two directors and a maximum of eight.
The relationship between BSG and MRC as shareholders of Skaland is governed by a shareholders deed dated 13 February 2020 (Shareholders Deed). One of the notable aspects of this case is that the Shareholders Deed deals with the arrangements between the parties concerning a Norwegian company but is, on its terms, expressed to be governed by West Australian law (cl 17.1). The affidavit evidence of the two Norwegian law experts, one on behalf of each party, is that a number of the provisions of the Shareholders Deed are contrary to Norwegian law.
The proper construction of the Shareholders Deed is central to the resolution of the application. For this reason, I address the relevant aspects of the Shareholders Deed separately before considering whether there is a serious question to be tried.
Mr Nania's evidence is that BSG has been concerned 'for some time' that MRC and its nominee directors have been managing Skaland as if it were a wholly owned subsidiary of MRC, without regard to BSG's minority interests and the terms of the Shareholders Deed.[1]
[1] Affidavit of Aidan Anthony Nania filed 10 March 2023 [25] ‑ [26].
On 30 November 2022, BSG issued a dispute notice to MRC under cl 9.1 of the Shareholders Deed (Dispute Notice).[2] In the Dispute Notice, BSG contended a number of matters were in dispute between the parties and proposed that a meeting be held on 2 December 2022 to discuss a resolution of the dispute. Specifically, BSG asserted that MRC had breached the Shareholders Deed in a number of respects including:
(a)MRC obtaining additional funding of USD $10 million for Skaland without Special Majority Board and shareholder approval;[3]
(b)MRC diverting certain corporate opportunities (downstream graphite initiatives) away from Skaland to other MRC subsidiaries, without Board approval or the fully informed consent of shareholders;[4]
(c)MRC refusing and failing to provide BSG's nominee Director, Mr Nania, with management and financial information and reports necessary for him to understand the financial affairs of Skaland, and to control the efficient operations of Skaland;[5]
(d)MRC and its nominee Directors failing to appropriately manage conflicts of interest;[6]
(e)MRC making payments from Skaland's bank account to third parties for services unrelated to Skaland;[7]
(f)MRC marketing, managing and selling Skaland's graphite products without Board or Shareholder approval;[8] and
(g)MRC commencing a Skaland drilling program in Norway without Board or Shareholder approval, and without first consulting with the indigenous landowners, which may jeopardise Skaland's ability to obtain indigenous landowner approvals in the future.[9]
[2] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-6'.
[3] Dispute Notice [13(e)].
[4] Dispute Notice [13(g)].
[5] Dispute Notice [13(h)].
[6] Dispute Notice [13(i)].
[7] Dispute Notice [13(j)].
[8] Dispute Notice [13(k)].
[9] Dispute Notice [13(l)].
On about 7 December 2022, Mr Nania and Mr Bick met to discuss the matters the subject of the Dispute Notice.[10] Following the meeting, Mr Nania received a memorandum from MRC which provided further information in answer to the requests for information.[11]
[10] Affidavit of Aidan Anthony Nania filed 10 March 2023 [31].
[11] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-23'.
On 12 December 2022, MRC responded to the Dispute Notice denying it had breached the terms of the Shareholders Deed.[12] It provided a detailed response to each of the matters raised by BSG.
[12] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-24'.
On 14 December 2022, BSG issued a notice of default to MRC (Default Notice).[13] The Events of Default identified in the Default Notice were the matters set out in the Dispute Notice set out at [13].
[13] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-7'.
BSG says MRC has not remedied the events set out in the Dispute Notice and that, as a result, it is a defaulting party under cl 8.2(a) of the Shareholders Deed. BSG says two consequences flow from this: one, MRC is not entitled to vote at any meeting of shareholders of Skaland until the event of default is remedied (cl 8.2(a)); and second, the compulsory share sale procedure set out in cl 8.3 of the Shareholders Deed applies and MRC's shares are required to be valued and sold.
On 20 December 2022, MRC's solicitors wrote to BSG's solicitors denying each of the Events of Default, for the reasons that had been set out in MRC's letter of 12 December 2022, and requesting that no further steps be taken until the dispute resolution process under the Shareholders Deed had been completed.[14]
[14] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-26'.
On 22 December 2022, BSG's solicitors responded to this correspondence asserting that MRC had not remedied or could not remedy the Events of Default set out in the Default Notice.[15] On the same date, Mr Nania wrote to Skaland's auditor to request that BDO assess the fair value of shares in Skaland for the purpose of the compulsory share process contemplated by cl 8.3(a) of the Shareholders Deed.[16] On 23 December 2022, MRC's solicitors requested that BDO not undertake this valuation.[17] BDO subsequently confirmed that it would not undertake the valuation of shares until the dispute between MRC and BSG had been resolved.[18]
[15] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-28'.
[16] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-27'.
[17] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-29'.
[18] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-30'.
On 20 January 2023, Mr Tipper, the chairman of Skaland, sent an email to the other directors of Skaland requesting they sign a circular resolution to call an extraordinary general meeting to enable MRC to 'exercise its right to nominate and have appointed board directors'.[19] A dispute then arose between the directors of Skaland as to whether the circular resolution should be signed. At that time (and at the date of the hearing), the board of Skaland comprises the following people: Mr Tipper (an MRC nominee), Mr Hancock (an MRC nominee); Mr Lowrie (an MRC nominee), Mr Abelsen, Mr Skulbru (the employee representative) and Mr Nania (the BSG nominee).[20] There is a dispute between the parties as to whether Mr Abelsen is a nominee of MRC or an independent director, which I address in more detail below.
[19] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-32'.
[20] Affidavit of Aidan Anthony Nania filed 10 March 2023 [18].
On 12 February 2023, Mr Tipper sent a notice by email to representatives of BSG and MRC giving notice that an EGM would be held on Monday, 20 February 2023 (Notice of Meeting).[21] The resolution to be considered at the EGM concerned the composition of the board of directors. The Notice of Meeting stated that:
The company's majority shareholder, MRC Graphite (Norway) Pty Ltd (MRCGN), wish to, among other things, exercise its rights pursuant to the Deed to nominate and have appointed board directors.
MRCGN will comply with the notice requirements pursuant to clause 4.3(c) of the Deed prior to the general meeting.
The following proposed resolution is presented:
The proposal for board composition as presented by MRC Graphite (Norway) Pty Ltd is approved.
[21] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-38'.
While it is not specified in the Notice of Meeting, it is not in dispute that the reference in the Notice of Meeting to 'Deed' is a reference to the Shareholders Deed.
On 16 February 2023, BSG issued a further dispute notice to MRC (Second Dispute Notice).[22] The Second Dispute Notice contended the following disputes had arisen between the parties:
(a)MRC's entitlement to call the EGM under cl 4.3 of the Shareholders Deed;
(b)MRC's obligation under cl 8.2(a) of the Shareholders Deed to refrain from voting at the EGM;
(c)whether Skaland was obliged to recognise or ignore any votes cast by MRC at the proposed EGM.
[22] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-8'.
In the Second Dispute Notice, BSG invited MRC to withdraw its Notice of Meeting and adjourn the EGM until the dispute between them had been determined pursuant to the dispute resolution provision of the Shareholders Deed.
On the same date, BSG's solicitors wrote to MRC's solicitors seeking confirmation MRC would not vote on any resolution at the EGM.[23] This was on the basis of BSG's contention that MRC was not entitled to vote at any EGM because it was in breach of the Shareholders Deed and was, under the express terms of the Shareholders Deed, prevented from voting at any meeting of shareholders.
[23] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-41'.
On 16 February 2023, MRC's solicitors responded to BSG's solicitors and denied it was in breach of the Shareholders Deed.[24] MRC proposed that the EGM be adjourned for two weeks until Monday, 6 March 2023 at 5.30 pm, which was agreed to by BSG's solicitors.[25]
[24] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-42'.
[25] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-43'.
On 2 March 2023, MRC sent by email to Mr Nania and Skaland a notice of removal of directors and appointment of directors (Notice).[26] The Notice sought to remove Mr Abelsen and Mr Hancock as directors and to appoint Adam Bick, Steinar Anshus, David Williams and Brian Moller as directors of Skaland.
[26] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-51'.
BSG does not dispute MRC is entitled to remove Mr Hancock as a director (or any of the other nominees of MRC) and to replace him on the board with a nominee director. However, BSG objects to the removal of Mr Abelsen. BSG says Mr Abelsen is an independent director and is not a nominee of MRC.
If these resolutions were passed at the EGM, the number of directors would increase from six to eight. Six of the directors would be nominees of MRC, being Mr Tipper, Mr Lowrie, Mr Bick, Mr Anshus, Mr Williams and Mr Moller. BSG's nominee director, Mr Nania, is not sought to be removed as a director of Skaland by MRC nor is the employee representative, Mr Skulbru.

Legal principles

The principles to be applied on an application for an interlocutory injunction are well-known and are not in dispute. The court must consider whether there is a serious question to be tried, whether the plaintiff will suffer irreparable injury for which damages is not adequate compensation, and whether the balance of convenience favours the grant of the injunction.[27]
[27] Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] ‑ [12].
The first inquiry does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient if the plaintiff can show there is a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks.
In considering where the balance of convenience lies, the inquiry for the court is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the defendant would suffer if an injunction was granted.
Whether an applicant for an interlocutory injunction has made out a sufficient prima facie case and whether the balance of convenience favours the grant of such relief are related, not independent, questions.

Relevant provisions of Shareholders Deed

On 13 February 2020, BSG, MRC, and Skaland entered into the Shareholders Deed. The recitals include the provision that:
The parties intend that the relationship between the Company and the Shareholders (in their capacity as shareholders of the Company) and the relationship of the Shareholders with each other will be governed by this deed.
Clause 4 of the Shareholders Deed sets out the provisions governing the operation of the Company. Clause 4.2 deals with shareholders meetings and cl 4.3 with the board of the Company.
Relevantly, cl 4.2(e) provides that:
A resolution to be considered at a meeting of Shareholders and dealing with a matter listed in schedule 1 must be passed by Special Majority.
Special majority is defined in cl 1.1 of the Shareholders Deed to mean 'at least 75% of the votes that are entitled to be cast by persons present (either in person or, where proxies are allowed, by proxy) in respect of the resolution'.
Under cl 4.3 of the Shareholders Deed, each Shareholder is entitled to appoint one director if they hold between 5% and 75% of the total issued capital of Skaland (cl 4.3(a)(i)(A)), and a minimum of three directors where a Shareholder holds not less than 75% of the issued share capital (cl 4.3(a)(i)(B)). A Shareholder is entitled to remove any person they appointed as a director under cl 4.3(a) and appoint another person in their place (cl 4.3(b)).
An independent director may be appointed by simple majority (cl 4.3(a)(iv); cl 4.6).
Clause 4.3(d) of the Shareholders Deed provides that:
Each Director is entitled to cast one vote at a meeting of the Board except that:
(i)Directors present at the meeting appointed by the holders of not less than 50% in aggregate of the total issued share capital of the Company may resolve that, in respect of a specified resolution, each Director is entitled to cast a number of votes equal to the number of Shares held by the Shareholder or Shareholders which appointed the Director, in which event each Director will be entitled to cast that number of votes in respect of that resolution;
(ii)if there is more than one Director present appointed by the same Shareholder, only one of those Directors (as agreed between them) may vote; and
(iii)the Director referred to in clause 4.3(a)(iv) [the Independent Director] will have a casting vote only.
Clause 4.3(e) requires that where a resolution to be considered at a meeting of the Board deals with a matter listed in sch 1, it must be passed by a Special Majority.
Schedule 1 of the Shareholders Deed is entitled 'Resolutions of the Board and Shareholders which require approval by a Special Majority'. Fifteen matters are listed in sch 1. These include the incurring of capital expenditure of more than USD $1 million by Skaland which is not in the current Business Plan (9), the granting of a guarantee, security, indemnity, or assurance involving a potential liability of more than USD $1 million (10), and incurring additional borrowings or financial accommodation in the amount of USD $100,000 (14).

Under the Shareholders Deed, an Event of Default is defined as 'any of the events or circumstances described in clause 8.1'. Clause 8.1 sets out a number of matters which comprise an Event of Default. These include:
(a)a Shareholder failing to perform its obligations under, or otherwise breaching, a provision of the Shareholders Deed which is expressed to be a condition or committing a material breach of the Shareholders Deed, which is incapable of remedy or, if capable of remedy, continues for 15 Business Days after receipt of a notice from the non-defaulting party requiring the failure or breach to be remedied (cl 8.1(a));
(b)a Shareholder is repeatedly or persistently in breach of, or in default under, any of the provisions of the Shareholders Deed and that results in a material adverse effect on:
(i)the ability of that Shareholder to perform its obligations under the Shareholders Deed (cl 8.2(b)(i)); or
(ii)any other Shareholder or Skaland (cl 8.2(b)(ii));
(c)a Shareholder defaulting in fully performing and observing any provision of the Shareholders Deed (other than a provision requiring the payment of money as described in cl 8.1(e)), and if the default is capable of remedy, it has not been remedied within 20 Business Days of the occurrence of the default (cl 8.1(f)).
Where a Party commits an Event of Default, the consequences are set out in cl 8.2 of the Shareholders Deed. This clause is subject to cl 8.5 (which concerns unpaid monies) which is not relevant to this application. The consequences include:
(a)the loss of an entitlement to vote at Shareholders meetings until the Event of Default is remedied (cl 8.2(a));
(b)if the relevant default is not remedied within five Business Days after a Shareholder serves notice on the Defaulting Party requiring the default to be remedied or if the relevant default is incapable of being remedied then cl 8.3 (which provides for a compulsory share sale) applies (cl 8.2(b)); and
(c)the obligation to indemnify each other Shareholder and Skaland against any loss, liabilities, costs and expenses incurred arising directly out of the Event of Default (including the costs of implementing the procedure in cl 8.3) (cl 8.2(e)).
Clause 8.3 sets out the provisions which govern the sale of a defaulting party's shares. For the purposes of this application, this clause is not relevant.
Clause 9 of the Shareholders Deed sets out the dispute resolution mechanisms agreed between the parties. These include a meeting between the chief executive officers of each party (cl 9.2(a)), a mediation (cl 9.2(b)), and then, if not resolved, the ability to commence legal proceedings (cl 9.4).
The relationship between the parties is set out in cl 11 of the Shareholders Deed. This includes an obligation of the parties to act in good faith in relation to 'all matters relating to' Skaland and its business (cl 11.2).
Both parties retained experts in Norwegian law who filed affidavits prior to the hearing. The experts agree that under Norwegian law, a shareholders' agreement is valid as long as it is consistent with or not contrary to the Norwegian Private Limited Liability Companies Act 1997 (Norway) (Norwegian Companies Act).
At the initial hearing, I raised with the parties the proper construction of cl 4.3(d) of the Shareholders Deed and whether this clause had any impact of the utility of the interim relief sought. The hearing was adjourned so that the parties could adduce expert evidence on the effect of this clause under Norwegian law. The opinion of BSG's expert is that cl 4.3(d)(i) is invalid and void between the parties, which is disputed by MRC's expert. However, both experts agreed that as a matter of Norwegian law:
(a)these provisions do not bind Skaland and that a resolution passed in accordance with these provisions would not be a valid resolution;
(b)under the Norwegian Companies Act, each director of Skaland is entitled to one vote at a directors' meeting with the casting vote to be exercised by the chair of the meeting.
BSG's expert expressed the view that this position applies even if the shareholder who the director represents is in material default of their obligations under the Shareholder Agreement. The expert retained by MRC was not asked to and did not express an opinion on this question.
On the basis of this evidence, I accept that cl 4.3(d) is not relevant to the determination of this application and that there is utility in the relief sought by BSG.

Serious question to be tried

Senior counsel for BSG submitted there was a serious question to be tried as to whether MRC was a Defaulting Party within the meaning of that term in the Shareholders Deed. If MRC is a Defaulting Party, pursuant to cl 8.2(a) of the Shareholders Deed, MRC is not entitled to vote at any meeting of Shareholders (including at the proposed EGM) until the Event of Default is rectified.
At the hearing before me, the primary matter relied upon by senior counsel for BSG was the failure to obtain the approval of a Special Majority of the Board and Shareholders to the incurring of additional debt of approximately USD $9.8 million under the Facility Agreement between MRC and Skaland. BSG submitted that on a proper construction of the Shareholders Deed, sch 1 of the Shareholders Deed required both the board and the shareholders to approve the incurring of additional debt of more than USD $100,000 by Special Majority. BSG submitted the obligations in cl 4.2(e) and cl 4.3(e) (requiring approval of a Special Majority) were substantive and not procedural obligations, and that the failure to seek approval of the directors and shareholders of Skaland to an increase in the debt facility was a substantive breach of the Shareholders Deed by MRC.
MRC denied there is a serious question to be tried as to whether it is a Defaulting Party under the terms of the Shareholders Agreement. This was for two primary reasons. First, the matters on which BSG rely do not impose any obligation on MRC in its capacity as a shareholder of Skaland. Second, the evidence on which BSG relies is insufficient to establish a prima facie case. Senior counsel for MRC submitted it would be 'extraordinary' for the court to make any orders restraining MRC from voting at any EGM in the context that MRC owns 90% of the shares in Skaland, MRC is entitled to remove and appoint its own nominee directors, and MRC is entitled to appoint two additional directors under the express terms of the Shareholders Deed.
In respect of the primary event of default relied upon by BSG, senior counsel for MRC submitted the requirement that the matters in sch 1 of the Shareholders Deed be passed by a Special Majority was a procedural provision and did not impose any substantive obligation on MRC. In any event, MRC contended that even if it were a substantive obligation, the requirement to obtain the approval of a Special Majority of Shareholders did not impose any obligation on MRC in its capacity as a shareholder of Skaland. MRC submitted that if there was a failure to obtain the approval of a Special Majority, the only consequence was that the resolution did not pass. It did not mean that any Shareholder had breached an obligation or that it gave rise to an Event of Default under the Shareholders Deed.
On the parties' submissions, for the purposes of this application, two issues need to be determined. First whether, on the proper construction of the Shareholders Deed, the requirement to obtain a Special Majority is a procedural or substantive obligation, or, at a minimum, there is a serious question to be tried as to whether this is the case. Second, whether there is a serious question to be tried that any failure to obtain the approval of a Special Majority for the incurring of additional borrowings of more than USD $100,000 was an Event of Default by MRC.

Is the requirement to obtain a Special Majority a procedural or substantive obligation?

In Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd,[28] in the context of an application under s 1322 of the Corporations Act 2001 (Cth), Palmer J discussed whether an irregularity was procedural or substantive. His Honour expressed the view that the distinction is generally drawn based on the 'degree of injustice or inconvenience caused' rather than the nature of the irregularity. Palmer J summarised the distinction in the following terms:[29]
A wrongful denial of a shareholder's statutory right to vote at a meeting is a denial of a substantive right and is not a 'procedural irregularity' within the scope of s 1322(2) at all. Nevertheless, a pragmatic means of avoiding injustice or undue inconvenience is available by recourse either to the principles upon which the remedy of a declaratory order is given under the general law or by recourse to a validating order under CA s 1322(4)(a).
[28] Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; 194 FLR 322.
[29] Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [87] citing with approval the observations of Gillard J in Re Freehouse Pty Ltd; Jordan v Avram (1997) 26 ACSR 662, 678 ‑ 679.
His Honour went on to conclude:[30]
the following general proposition may be formulated for the purposes of the application of CA s 1322:
•what is a 'procedural irregularity' will be ascertained by first determining what is 'the thing to be done' which the procedure is to regulate;
•if there is an irregularity which changes the substance of 'the thing to be done', the irregularity will be substantive;
•if the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.
[30] Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [103].
In this case, the 'thing to be done' is the obligation to seek the approval of the board and shareholders and for any resolution to be passed by a Special Majority. The failure to seek any approval of the board or shareholders, which means Skaland should not have incurred any additional borrowings of more than USD $100,000, is, in my view, a substantive irregularity. By specifying certain matters in sch 1 as requiring the approval of a Special Majority of the board of directors and shareholders, the parties have chosen those matters which they consider to be significant and fundamental to them and their interests under the Shareholders Deed. It requires notice to be given to the board and shareholders of any resolution to undertake any of the matters in sch 1, for proper materials to be provided to enable a decision to be made, and then a meeting to be held to discuss and vote on the proposed resolution. The failure to undertake any of these steps changes the 'thing to the be done' and is a substantive irregularity.
On this basis, I consider the obligation to obtain approval by a Special Majority of the board and shareholders for any matter in sch 1 of the Shareholders Deed is not a procedural obligation but a substantive obligation.

Is the failure to obtain Special Majority an Event of Default?

The question then arises as to whether there is a serious question to be tried that the failure to seek or obtain a resolution of a Special Majority of either the board or shareholders to the increase in the Loan Facility means that MRC is a Defaulting Party under cl 8.2 of the Shareholders Deed.
'Defaulting Party' is defined in cl 1.1 of the Shareholders Deed as 'a Shareholder in respect of which an Event of Default has occurred'. An Event of Default is defined in cl 1.1 to mean 'any of the events or circumstances described in clause 8.1'.
I accept the submission of senior counsel for MRC that, on a proper construction of the Shareholders Deed, cl 8.1 is an exhaustive definition of what constitutes an Event of Default.
At the hearing, senior counsel for BSG submitted the failure to obtain the approval of a Special Majority of the board and shareholders to the increase in the loan facility agreement was an Event of Default as set out in 8.1(a), 8.1(b) or 8.1(f). Relevantly, these clauses refer to a Shareholder:
(a)failing to perform or being in breach of a material provision of the Shareholders Deed (cl 8.1(a));
(b)being in breach of a provision of this deed which results in a material adverse effect on that Shareholder's ability to perform its obligation under the Deed, any other Shareholder or the Company (cl 8.1(b)); and
(c)defaulting in fully performing and observing any provision of this deed and not remedying any default within 20 Business Days (cl 8.1(f)).
Senior counsel for MRC submitted that each of these Events of Default referred to conduct by a Shareholder. On this basis, it was submitted it was necessary for the conduct to be by a Shareholder in its capacity as a Shareholder (as opposed to any other capacity such as, for example, party to the Facility Agreement). In support of this construction, senior counsel drew attention to the chapeau to cl 8.2 which refers to a 'Party' and not a 'Shareholder'.
I accept that in using different terms in cl 8.1 and 8.2, the general presumption is that the parties objectively intended to refer to different things. Against that presumption is the specific terms of the Shareholders Deed. 'Shareholder' is defined in cl 1.1 of the Shareholders Deed to mean 'at a particular time, the holder of a Share'. 'Party' is not defined in the Shareholders Deed.
My preliminary view is that, on a proper construction of the Shareholders Deed, a reasonable businessperson would consider that:
(a)the definition of 'Shareholder' identifies who at the relevant time is a shareholder of Skaland, as opposed to identifying the capacity in which an entity is acting; and
(b)a Party is an entity who is listed as a party to the Agreement, namely MRC, BSG, and Skaland.
This construction is supported by use of the term 'Shareholder' in a number of provisions within the Shareholders Deed including cl 4.2(b), cl 4.2(g), cl 4.3, cl 4.5, cl 4.6, cl 4.7, cl 4.8 and cl 4.10.
For this reason, my preliminary view is that on a proper construction of the Shareholders Deed, the conduct which is referred to in cl 8.1 as an Event of Default is referring to conduct by a particular Shareholder and not the capacity in which that Shareholder is acting.
This conclusion does not, however, mean that the failure to obtain the approval to the increase in borrowings of more than USD $100,000 of the board and shareholders by Special Majority is an Event of Default by MRC. As senior counsel for MRC correctly submitted, this requires an obligation on the part of MRC to seek the approval of the board and shareholders.
Clause 4.2 of the Shareholders Deed sets out the requirements for the convening of meetings of Shareholders. It includes the requirement that meetings be convened and held in accordance with the Constitution (or statutes). A copy of the Constitution was in evidence before me. It does not contain any provisions dealing with the convening of shareholder meetings, including who is required to convene any shareholder meeting.
In respect of directors' meetings, there is nothing in either the Shareholders Deed nor the Constitution dealing with the convening of directors meeting, including who is required to convene any such meeting.
In this case, the primary matter on which BSG relies as constituting an Event of Default is the failure to obtain or, in fact, seek a resolution of the Special Majority of the Board or Shareholders to an increase in the Loan Facility.
The factual background to the incurring of this additional debt is as follows. In May 2020, MRC, Skaland and Mineral Commodities Ltd entered into a loan facility agreement pursuant to which MRC agreed to provide Skaland with a loan facility of USD $10 million (Facility Agreement).[31] Entry into the Facility Agreement was approved by the directors of Skaland,[32] as well as the shareholders of Skaland on 16 March 2020 at separate meetings.[33]
[31] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-14'.
[32] Affidavit of Adam Daniel Bick filed 12 March 2023 'ADB-3'.
[33] Affidavit of Adam Daniel Bick filed 12 March 2023 'ADB-4'.
Under the Facility Agreement, MRC is defined as the 'Lender' and Skaland the 'Borrower'. Mineral Commodities Ltd is the guarantor of the Lender's obligation under the Facility Agreement. Pursuant to cl 3.2(h), MRC's obligation to provide an advance to Skaland is subject to and conditional upon a number of matters including MRC being satisfied that 'all authorisations from the board of [Skaland] necessary for the Advance have been obtained'.
In about March or April 2021, Mr Nania first became aware that the Loan Facility had been exceeded and in about February or March 2022, became aware that the Loan Facility had been exceeded by approximately USD $9.8 million as at 31 December 2021.[34] It was not in dispute that this occurred without approval of a Special Majority of the Board or Shareholders.[35] This was acknowledged by the then chief executive officer of Mineral Commodities Ltd in October 2022.[36]
[34] Affidavit of Aidan Anthony Nania filed 10 March 2023 [111].
[35] Affidavit of Aidan Anthony Nania filed 10 March 2023 [112].
[36] Affidavit of Timothy Paul O'Leary filed 3 March 2023 'TPO-22'.
In my view, for the following reasons, there is a serious question to be tried as to whether MRC was required to seek the approval of a Special Majority resolution of both the board and shareholders to an increase in the Loan Facility Agreement of more than USD $1 million and that its failure to do so constitutes an Event of Default.
First, as set out above, my preliminary view is that on a proper construction of the Shareholders Deed, the Events of Default in cl 8.1 do not refer to conduct by a shareholder in their capacity of a shareholder. Instead, the use of the term 'Shareholder' is a reference to the identity of the party.
Second, neither the Shareholders Deed nor the Constitution impose any duty on either Skaland or anyone else to convene and hold either directors' meetings or shareholder meetings. This is in contrast to other provisions of the Shareholders Deed which impose obligations on the Company (cl 5.1 and cl 5.5) or the CEO (cl 5.2(a). There is no evidence before the court as to whether meetings have been called and convened by MRC (or BSG), Skaland, or individual directors or whether this position is governed by the Norwegian Companies Act. In circumstances where MRC is the 90% shareholder of Skaland and has three nominee directors on the board, I consider there is a serious question to be tried as to whether any obligation was imposed on MRC to convene a meeting to consider any increase in the Loan Facility Agreement, whether this obligation was only imposed on Skaland or whether each of MRC and Skaland were obliged to seek approval. The fact that the Facility Agreement imposed an express obligation on MRC to obtain a resolution of a Special Majority of the directors and shareholders to the proposed draw-down or advance supports an inference that the obligation to obtain approval was imposed on each of MRC and Skaland.
Third, in circumstances where I consider the obligation to obtain approval of a Special Majority of the board and shareholders to any increase of more than USD $100,000 of the Facility was a substantive obligation, it is my view that there is a serious question to be tried as to whether the failure to seek approval of BSG is a failure by MRC to fully perform or observe a provision of the Shareholders Deed and is an Event of Default under cl 8.1(f) of the Shareholders Deed. I also consider there is a serious question to be tried as to whether this conduct is a repeated or persistent breach of the provisions of this deed which has a material adverse effect on BSG or Skaland, under cl 8.1(b) of the Shareholders Deed.

Is Mr Abelsen an independent director or a nominee of MRC?

A secondary issue that arose during the hearing was whether Mr Abelsen had been appointed as a nominee of MRC, as contended by MRC, in which case MRC was entitled under the Shareholders Deed to replace him, or as an independent non-executive director, as contended by BSG. Mr Abelsen's letter of appointment from Skaland of 20 December 2019 describes him as an 'independent non-executive director'.[37]
[37] Affidavit of Adam Daniel Bick filed 12 March 2023 'ADB-7'.
Senior counsel for MRC submitted that this document was a standard form document. In support of this submission, senior counsel referred to the letter of appointment of Mr Lowrie, who both parties accepted was a director nominated by MRC. This letter, which is dated 1 July 2019, also refers to Mr Lowrie as being appointed as an 'independent non-executive director'. The letter is signed by Mr Caruso, as Executive Chairman, but is not countersigned by Mr Lowrie.
Senior counsel for BSG submitted that this factual contest could not be resolved on an interlocutory application and emphasised this letter had not been signed by Mr Lowrie.
In my view, for the following reasons, this factual dispute between the parties as to whether Mr Abelsen is an independent non‑executive director or a nominee of MRC cannot be resolved at an interlocutory hearing.
First, on its face, the letter appointing Mr Abelsen refers to him as an independent director.
Second, the letter relied upon by the MRC in support of its submission that this was a standard letter of appointment and should not be taken as truth of its contents is dated 1 July 2019. The evidence before the court is that MRC acquired the shares in Skaland in October 2019. There was no evidence before the court that Mr Lowrie was appointed as a director prior to the acquisition. The only evidence is that following the acquisition in October 2019, the board of directors included Mr Lowrie.[38] This factual discrepancy, if there is one, has not been explained.
[38] Affidavit of Adam Daniel Bick filed 12 March 2023 [24] ‑ [25].
Third, as emphasised by BSG, the letter is not countersigned by Mr Lowrie. On this basis, it is not clear that this is the final version of the letter governing his appointment.

Balance of Convenience

As has been noted by courts on previous occasions, in proceedings brought by a shareholder to restrain the holding of a general meeting, the court will generally be cautious before interfering on an interlocutory basis in the conduct of a meeting prior to it being held.[39] Courts have long demonstrated an unwillingness to interfere with the democratic processes of a corporation except where it is necessary to do so.[40] A court should not readily restrain the deliberations of shareholders at properly convened meetings, but rather should allow those shareholders to consider and decide upon matters put to them. Except in the clearest of cases, it will often be desirable to ascertain the will of the meeting before considering whether to interfere in the deliberations.
[39] Atlas Holdings Pty Ltd (Trustee), Re Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 923; (2017) 122 ACSR 345 [54]; Turnbull v National Roads and Motorists' Association Ltd [2004] NSWSC 577; (2004) 186 FLR 360 [51].
[40] Atlas Holdings Pty Ltd (Trustee), Re Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [54].
In considering whether an injunction ought be granted, it is necessary to consider the nature and strength of the plaintiff's case, as well as the effect and impact of granting or refusing an interlocutory injunction.
In this case, BSG seeks to restrain MRC from exercising its voting rights at the proposed EGM 'or at any future meetings of the shareholders' of Skaland at which resolutions are proposed which increase MRC's representation on the board or otherwise change the composition of the board.
Senior counsel for BSG submitted the balance of convenience favoured the grant of the injunction. BSG contends that granting the relief sought will preserve the status quo until trial and that if MRC is permitted to vote at the extraordinary general meeting, BSG will suffer irreparable injury. This is said to be the inevitable outcome of any vote at the proposed EGM to 'advance its interest through the appointment of additional directors to have untrammelled control of Skaland'.[41] In particular, senior counsel for BSG emphasised that if the EGM was allowed to proceed and MRC allowed to appoint additional directors, MRC would gain the ability to pass Special Majority resolutions at Board meetings and could pass Special Majority resolutions at Shareholders meetings.
[41] Plaintiff's submissions [68].
In support of this position, senior counsel for BSG relied on the decision of the Full Court of the WA Supreme Court in Carr Boyd Minerals Ltd v Ashton Mining Ltd.[42] In allowing the appeal and amending the form of the injunction that had been granted, Malcolm CJ held that the determination of what is the status quo for the purpose of considering an application for an interlocutory injunction is a question of fact. After referring to the cases that suggest the court is reluctant to interfere in matters relating to the exercise of voting rights by shareholders, including Paringa Mining and Exploration Co plc v North Flinders Mines Ltd,[43] his Honour stated that:
The difference between that case and this is, however, that in the present, there is alleged as the basis of the cause of action an agreement whereby for consideration, Ashton contracted not to exercise its votes in a certain way or not to exercise its powers as a 30 per cent shareholder with a capacity to control in a certain way.
[42] Carr Boyd Minerals Ltd v Ashton Mining Ltd (1989) 15 ACLR 599.
[43] Paringa Mining and Exploration Co plc v North Flinders Mines Ltd (1989) 14 ACLR 587.
MRC denied the balance of convenience favoured the grant of the injunction. Senior counsel for MRC emphasised in considering the balance of convenience, the relevant consideration was not what might occur if the EGM was held and MRC voted to appoint its proposed directors, the relevant consideration is whether the balance of convenience favoured MRC being restrained from exercising its voting rights at the EGM. Senior counsel for MRC submitted that MRC was entitled to have a minimum of three directors on the board and was seeking to have six nominee directors. This was in accordance with both the Shareholders Deed and the Constitution and was not 'problematic or impermissibly prejudicial to BSG'. MRC contended that it would be prejudiced by any continuation of the interim restraint as it would be required to continue to have two nominee directors on the board, one of whom was no longer employed by MRC and 'the other who has acted against [MRC's] interests'.
In my view, for the following reasons, I consider the balance of convenience favours the grant of the injunction.
First, at present, the status quo is that there are six members of the board of Skaland: three appointed by MRC, Mr Abelsen, one appointed by BSG and the employee representative. BSG does not object to Mr Hancock (who is no longer an employee of Skaland) from being replaced by a nominee of MRC. If this occurs, MRC will continue to have three nominee directors on the board. This is consistent with the provisions of cl 4.3(a) of the Shareholders Deed.
Second, I have found there is a serious question to be tried as to whether MRC is a Defaulting Party under the Shareholders Deed. If this is the case, under cl 8.2(a) of the Shareholders Deed, MRC is not entitled to vote at any meeting of shareholders. If, ultimately, MRC is found after trial not to be a Defaulting Party, MRC will then be entitled to convene and hold a board meeting to vote in any additional directors. If, however, an injunction is not granted, the matter which BSG is seeking to protect (namely its rights under the Shareholders Deed to prevent MRC from voting at any shareholders meeting) will have been predetermined in favour of MRC in the absence of an injunction.
Third, in this case, there are only two shareholders of Skaland, both of whom are parties to the Shareholders Deed as well as these proceedings. These matters distinguish this case from the cases on which MRC relied which concern applications to restrain EGMs of public companies where the rights of significant numbers of third parties, namely the other shareholders, will be impacted by any restraint.
Fourth, while I accept that generally the court is reluctant to restrain the exercise of voting rights of shareholders, in this case, the basis for the cause of action is the terms of the Shareholders Deed in which the parties agreed that an appropriate consequence for a Defaulting Party was that they would lose that valuable right.
Fifth, in my view, on a proper construction of the Shareholders Deed, MRC is not entitled as of right to appoint more than three directors to the board of Skaland. While I accept that under cl 4.3(a)(i)(B) of the Shareholders Deed, MRC is entitled to appoint 'a minimum of three directors', this does not, in my view, mean that, on the proper construction of the Shareholders Deed, it is entitled to appoint five or six directors. The question as to whether additional directors should be appointed to the board is a matter for the general meeting of shareholders. There is no requirement for BSG to vote in favour of any additional appointments, in contrast to the obligation to vote in favour of the appointment of three MRC nominee directors.[44]
[44] Affidavit of Arild Storen Frick filed 12 March 2023, 46.
I accept that any interlocutory injunction granted by the court will have the effect of preventing MRC from exercising a valuable right attached to its shares. However, this is in accordance with what MRC agreed under the terms of the Shareholders Deed was an appropriate consequence in the event it was a Defaulting Party. However, in order to ensure that this restraint is for a short a period as possible, I consider the matter should be listed for trial at the earliest convenience. I will hear from the parties as to the programming orders that should be made to program this matter through to a trial as soon as is practicable.

Conclusion

For these reasons, I consider that an interlocutory injunction should be granted until trial to restrain MRC from exercising any voting rights attached to its shares at any general meeting or extraordinary general meeting of Skaland.
I will hear from the parties as to the precise orders that should be made to give effect to these reasons and as to the costs of the application. My preliminary view is that costs should be in the cause.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
21 APRIL 2023