Catto & Ors v Hampton Aust Ltd (in Liq) & Anor No. Scgrg-98-731 Judgment No. S6931

[1998] SASC 6931

CATTO & ORS v HAMPTON AUSTRALIA LIMITED (In Liquidation) & ANOR

[1998] SASC 6931

APPEAL FROM A MASTER

1 MILLHOUSE J.        Appeal from the refusal of a Master to grant an interlocutory injunction pending decision in the action.
2 It is an urgent matter.  A liquidator proposed to distribute, on or shortly after 22 October, the assets of the first respondent.  The application by some minority shareholders for injunction was made on 15 October.  The liquidator has undertaken to take no further action until I have given a decision.  The need for haste really has been brought about by the appellants.  They have known since late in 1997 what the liquidator proposed but did not begin proceedings until May of this year and made the application for injunction only, as I have said, on 15th of last month.
3 Be that as it may, I should make up my mind quickly, as Master Burley did.  The result is that I shall not be able to give detailed Reasons - just the bare essentials sufficient to explain why I have decided as I have.  I shall certainly not be able to do justice to the detailed, interesting arguments of counsel,  Mr  Chris Kourakis QC, with Mr Mark Livesey for the appellants,   Mr Richard Whitington QC for the second respondent and Mr Kevin Nicholson for the first respondent.
4 The appellants are minority shareholders - they have .2 percent of the shares - in the first respondent, Hampton Australia Limited (in liquidation).  There are other minority shareholders to the extent of .1 percent.  The second respondent Kalgoorlie Lakeview Pty Ltd holds 99.7 per cent of the shares in the company.
5 The second respondent has been anxious to wind up the first respondent.  The main asset of the first respondent is its interest in another company, Hampton Jubilee: that company is involved in some joint prospecting venture of potential value.
6 The second respondent tried a couple of years ago, by use of s414 of the Corporations Law to get rid of the minority shareholding of the appellants in the first respondent but did not succeed. I can't see the relevance of that except to shew that it wants to be rid of the minority. To want to be rid of a minority shareholder or holders does not seem to me, of itself, to shew mala fides. It depends on how getting rid of them is to be done.
7 The Master, having heard the application on 20 October, refused it and published his Reasons on 21 October.  The appeal to me is by way of rehearing but still I may have regard to what the Master thought.  I hope that his Reasons may be read in conjunction with mine, the better to understand the facts.
8 Mr Kourakis relied heavily on the authority of Gambotto and Anor v W.C.P. Limited and Anor (1995) 182 CLR 432. In that case by special resolution a company altered its articles of association to enable a holder of 90% or more of the shares to acquire compulsorily shares held by the minority, for a stipulated price per share. Two minority shareholders resisted this: the amendment meant that a particular majority shareholder (who held more than 90% of the shares) would be able to force them to sell. The High Court decided in their favour, regarding the special resolution as oppressive.
9 For present purposes the most relevant passage in the Reasons of the majority (Mason CJ, Brennan, Deane and Dawson JJ) is at p 445:-
"   The exercise of a power conferred by a company's constitution enabling the majority shareholders to expropriate the minority's shareholding for the purpose of aggrandizing the majority is valid if and only to the extent that the relevant provisions of the company's constitution so provide.  The inclusion of such a power in a company's constitution at its incorporation is one thing.  But it is another thing when a company's constitution is sought to be amended by an alteration of articles of association so as to confer upon the majority power to expropriate the shares of a minority."

I emphasise particularly the last two sentences.

10 Mr Kourakis argued that by analogy what the majority is doing here is also oppressive and that  I should follow the decision in Gambotto's Case.    Mr Whitington to the contrary, distinguished it.
11 Mr Whitington pointed out that in Gambotto's Case the majority shareholder by the special resolution had inserted in the articles a power which had not been there at the time when the minority acquired their shareholding: it was not part of the original contract between the shareholders.   This amounted to changing unilaterally the contract, and that is oppression.
12 He pointed me, as he had the Master, to Article 124(1) of the first respondent:-
"If the company is wound up, the liquidator may, with the sanction of a special resolution, divide among the members in kind the whole or any part of the property of the company and may for that purpose set such value as he considers fair upon any property to be so divided and may determine how the division is to be carried out as between members or different classes of members."

13 This article was in when the appellants acquired their shares: they knew the power to wind up was there: it was part of the contract between them and the other shareholders.  They could not complain now of its being used by the majority.  The actions of the second respondent are not oppressive in the same way as  in Gambotto's case..
14 I accept the distinction between the present case and Gambotto.
15 The Master said any other evidence of "alleged improper purpose is relatively slight."  With respect, I'd go further and say "non-existent".    Mr Kourakis argued that there is some vague right of shareholders to continue to enjoy their shareholding as long as they like but I could not pin him down to being more specific.  Mr Whitington denied that there is any such right and I accept that there is not.
16 That then, disposes of Mr Kourakis' argument regarding oppression and is sufficient, alone, to dispose of the appeal.  There is no oppression and so there will be no injunction.
17 However there is one other matter equally decisive against granting an interlocutory injunction.
18 Exhibited to an affidavit which the Master received was a letter, by fax, dated 7 November 1997.  I set it out in full:-

"******************************************************
FACSIMILE TRANSMISSION SHEET

To  Fax NUMBER:      [phone]
ATTENTION:              Mr David Hillier
COMPANY:                Normandy Poseidon
LOCATION:                Adelaide
FROM:  ROB CATTO
  Aura Borealis Pty Ltd, A.C.N. 003 123 569
  Batoka Pty Ltd.  A.C.N. 002 904 930
  12th Floor
  75 Pitt Street, SYDNEY NSW 2000
  PO Box R86, ROYAL EXCHANGE  NSW
1225
  Telephone: [phone]
  Facsimile:   02 9251 5022

PAGE  1 of 2 pages
         DATE:  7th November 1997
         SUBJECT:
         If incomplete or otherwise unsatisfactory, please contact Sydney
9251 6200 or Fax [phone].
*******************************************************
Dear Mr Hillier,

Just a couple of comments following my reflection on last night's call.

1. If agreement were to be reached it is normally my policy to grant an undertaking 'not to disclose the conditions of the solution.'  If there were to be a solution in this case, I would ensure that Sir Brian would similarly agree to such a condition.  Even though such a proviso would not solve your problem concerning 'fair price', it would solve your problem as to not being seen by the public to have capitulated.

1. I imagine that you know it is the investment philosophy of my Batoka group to actively participate in minority situations as they evolve - both by buying into them as soon as the characteristics of a profitable squeeze are perceived AND by then proceeding with litigation and other administrative manoeuvres (if they are justified) in order to derive maximum commercial advantage out of the situation.  As you can imagine there are presently, and in the future are likely to be, a number of such situations within the Normandy Poseidon group.

One 'exit' from a situation recently involved a preparedness on my part not to involve myself actively by investment, or encouragement others in such situations within the offeror group for a period of five years.  In the event that an outcome was satisfactorily negotiated at this time in regard to Hampton Australia Limited, I would be prepared to enter into such an understanding in regard to the Normandy Poseidon and GCM groups AND I would unwind our presently small and watching situations in regard to Mt Leyshon Gold and North Flinders and Wiluna.

1. I shall be back in Sydney this evening and would be available on my home telephone [phone] over the weekend.

Regards
(Signed)
Rob Catto

Dictated and signed in Rob Catto's
temporary absence.
(Signed)
P.W. Etheridge"

19 The letter makes it clear, on the face of it, I suggest, that Mr Catto (whom Mr Whitington described without any protest from Mr Kourakis or his junior,  as a "professional minority shareholder") simply is after money  and the more he can squeeze out of the situation the better he will be pleased.  Indeed, if one is looking for improper purpose, one may well scrutinize Mr Catto's intentions and actions.  Equity will not stand by and watch a minority shareholder hold a company to ransom for his own benefit.
20 A price fixed by valuation which has not been challenged, is being offered for Mr Catto's minority shareholding.  The inference must be that a payment of money would be a sufficient remedy for any damage which the appellants may suffer if the liquidation, by the distribution of assets, proceeds.  That is a second reason why injunctive relief should not be granted.
21 The Master decided correctly.  The appeal is dismissed.