Chimaera Capital Ltd v Pharmaust Ltd - [2007] FCA 1539

FEDERAL COURT OF AUSTRALIA
Chimaera Capital Limited v Pharmaust Limited [2007] FCA 1539
CORPORATIONS – directors’ powers and duties – extraordinary general meeting requisitioned for removal of directors – rights issue authorised by directors – claim for interlocutory injunctive relief to restrain allotment on rights issue – alleged improper purpose – alleged oppressive conduct - whether serious question to be tried – balance of convenience – whether a caretaker director doctrine applicable – whether doctrine exists – whether evidence sufficient to raise seriously arguable case of improper purpose on part of directors – seriously arguable case not made out – claim for interlocutory relief dismissed
Corporations Act 2001 (Cth) s 181, s 232
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 cited
Bullock v The Federated Furnishing Trades Society of Australasia (No 1) (1985) 5 FCR 464 cited
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 cited
Chief Commissioner of State Duties (NSW) v Buckle (1998) 192 CLR 226 cited
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 cited
Mills v Mills (1938) 60 CLR 150 cited
Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587 cited
Utilicorp NZ Inc v Power New Zealand Ltd (1997) 8 NZCLC 261,465 cited
Woonda Nominees Pty Ltd v Chng (2000) 34 ACSR 558 cited
Austin RP, Ford HAJ, Ramsay IM, Company Directors Principles of Law and Corporate Governance (LexisNexis, Butterworths, Australia, 2005) at 2.55
CHIMAERA CAPITAL LIMITED v PHARMAUST LIMITED, BRYANT MCLARTY, SIMON OWEN AND HENRY GULEV
WAD 191 OF 2007
FRENCH J
DATE OF ORDERS:   4 OCTOBER 2007
DATE OF PUBLICATION OF REASONS: 9 OCTOBER 2007
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 191 OF 2007

BETWEEN:

CHIMAERA CAPITAL LIMITED
Applicant

AND:

PHARMAUST LIMITED
First Respondent

BRYANT MCLARTY
Second Respondent

SIMON OWEN
Third Respondent

HENRY GULEV
Fourth Respondent

JUDGE:

FRENCH J

DATE OF ORDER:

4 OCTOBER 2007

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.     The claim for interlocutory relief is dismissed.
2.     The costs of the application for interlocutory relief are reserved.
3.Leave to amend the claim for interlocutory relief in terms of the amended claim filed in court today.

4.     The balance of the amendments proposed to be stood over for argument.
5.     The matter be re-listed for a directions hearing on 26 October 2007 at 9.30am.
Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 191 OF 2007

BETWEEN:

CHIMAERA CAPITAL LIMITED
Applicant

AND:

PHARMAUST LIMITED
First Respondent

BRYANT MCLARTY
Second Respondent

SIMON OWEN
Third Respondent

HENRY GULEV
Fourth Respondent

JUDGE:

FRENCH J

DATE OF PUBLICATION OF REASONS:

9 OCTOBER 2007

PLACE:

PERTH

REASONS FOR JUDGMENT ON MOTION FOR
INTERLOCUTORY INJUNCTION
Introduction

On 12 September 2007 Pharmaust Limited (Pharmaust) lodged with the Australian Securities and Investments Commission (ASIC) a prospectus for a 1:1 entitlement rights issue at 3 cents per…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] FCA 1539
Decision Date: 4 October 2007

CaseChat Overview and Summary

In the case of Chimaera Capital Ltd v Pharmaust Ltd, the court was presented with a dispute between shareholders of Pharmaust Ltd, a company in which Chimaera held a significant shareholding. Chimaera, along with other shareholders, sought interlocutory relief to prevent certain actions by the company's directors, alleging that the conduct of the company's affairs was oppressive or unfairly prejudicial. The court had to decide whether to grant the relief based on the strength of the case presented and the balance of convenience.

The legal issues at hand included whether the shareholders' allegations were sufficient to establish a serious question to be tried and whether the balance of convenience favoured the grant of the interlocutory relief. The court had to consider principles established in previous cases, which required the applicant to demonstrate both a serious question to be tried and that the balance of convenience favoured the grant of relief. The court also had to examine the statutory framework provided by the Corporations Act, particularly sections 181 and 232, which govern the conduct of directors and the circumstances under which the court can intervene in the affairs of a company.

After considering the evidence and arguments presented, the court found that while there was an arguable case against the directors, it was not sufficiently strong to justify the grant of the interlocutory relief. The court concluded that the balance of convenience did not favour Chimaera or the disaffected shareholders. Consequently, the claim for interlocutory relief was dismissed.

ORDERS:
1. The claim for interlocutory relief is dismissed.
2. The costs of the application for interlocutory relief are reserved.
3. Leave is granted to amend the claim for interlocutory relief in terms of the amended claim filed in court today.
4. The balance of the amendments proposed to be stood over for argument.
5. The matter is re-listed for a directions hearing on 26 October 2007 at 9.30am.

Orders

Orders of the court

1. The claim for interlocutory relief is dismissed.

2. The costs of the application for interlocutory relief are reserved.

3. Leave to amend the claim for interlocutory relief in terms of the amended claim filed in court today.

4. The balance of the amendments proposed to be stood over for argument.

5. The matter be re-listed for a directions hearing on 26 October 2007 at 9.30am.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FRENCH J

In my opinion, while it may be said that there is an arguable case raised against the directors, I regard it, on the materials before the Court, as a weak case. Having regard to the weakness of the case the balance of convenience is not sufficiently weighted in favour of Chimaera or disaffected shareholders to justify the grant of the interlocutory relief which is sought. Conclusion For the preceding reasons, the claim for interlocutory relief will be dismissed.

Ratio Decidendi

Legal Principle Established

Established by: FRENCH J

A submission was also made that the arrangement between the shareholders could be in breach of s 606 of the Act by reason of their arrangement or understanding to vote for the removal of the directors. Statutory framework – relevant provisions of the Corporations Act Section 181 of the Act provides: (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose.(2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Section 232 authorises the Court to make orders when the affairs of the company are being conducted oppressively. It provides: The Court may make an order under section 233 if: (a) the conduct of a company’s affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or(c)a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d)contrary to the interests of the members as a whole; or (e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.Section 233 sets out the various orders that a court can make where one of the conditions specified in s 232 is satisfied.Principles governing the grant of interlocutory relief There was no dispute between the parties that the basis upon which interlocutory injunctive relief is granted requires the applicant for relief to demonstrate a serious question to be tried and that the balance of convenience favours the grant: Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148. The two considerations are interdependent. As was said in Bullock v The Federated Furnishing Trades Society of Australasia (No 1) (1985) 5 FCR 464 (at 472): … the two legs of the test need not be considered in isolation from each other. Thus an apparently strong claim may lead a court more readily to grant an injunction when the balance of convenience is fairly even. A more doubtful claim (which nevertheless raises “a serious question to be tried”) may still attract interlocutory relief if there is a marked balance of convenience in favour of it. The claim for interlocutory relief may involve consideration of both the legal and factual merits of the final relief sought. In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, Gummow and Hayne JJ (Gaudron J concurring) pointed to the necessity to identify the legal or equitable rights which are to be determined at trial and in respect of which final relief is sought which may or may not be injunctive in nature. Gleeson CJ said (at 219): The extent to which it is necessary, or appropriate, to examine the legal merits of a plaintiff’s claim for final relief, in determining whether to grant an interlocutory injunction, will depend upon the circumstances of the case. There is no inflexible rule. It may depend upon the nature of the dispute. For example, if there is little room for argument about the legal basis of a plaintiff’s case, and the dispute is about the facts, a court may be persuaded easily, at an interlocutory stage, that there is sufficient evidence to show, prima facie, an entitlement to final relief. The court may then move on to discretionary considerations, including the balance of convenience. Whether there is a serious question to be tried

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 191 OF 2007

JUDGE:	FRENCH J
DATE OF ORDER:	4 OCTOBER 2007
WHERE MADE:	PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 191 OF 2007

JUDGE:	FRENCH J
DATE OF PUBLICATION OF REASONS:	9 OCTOBER 2007
PLACE:	PERTH