Cycliq Research & Development (HK) Limited (CR NO. 2582187) v Cycliq Group Ltd
[2025] WASC 179
•14 MAY 2025
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: CYCLIQ RESEARCH & DEVELOPMENT (HK) LIMITED (CR NO. 2582187) -v- CYCLIQ GROUP LTD [2025] WASC 179
CORAM: COBBY J
HEARD: 9 SEPTEMBER 2024
DELIVERED : 14 MAY 2025
FILE NO/S: CIV 1712 of 2024
BETWEEN: CYCLIQ RESEARCH & DEVELOPMENT (HK) LIMITED (CR NO. 2582187)
Plaintiff
AND
CYCLIQ GROUP LTD
First Defendant
CYCLIQ PRODUCTS PTY LTD
Second Defendant
Catchwords:
Application for stay of proceedings - Whether this court a clearly inappropriate forum - Alleged abuse of process - Alleged non-compliance with dispute resolution procedure under shareholders' agreement - Whether procedure an impermissible fetter on powers and discretions of the plaintiff's board of directors - Whether shareholders' agreement has varied plaintiff's articles of association - Exercise of discretion to grant stay - Whether application for security for costs premature
Legislation:
Rules of the Supreme Court 1971 (WA), O 10
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | N A Tiverios |
| First Defendant | : | A D McDonald & T E Ledger |
| Second Defendant | : | A D McDonald & T E Ledger |
Solicitors:
| Plaintiff | : | Trinix Lawyers |
| First Defendant | : | Pragma Lawyers |
| Second Defendant | : | Pragma Lawyers |
Case(s) referred to in decision(s):
Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2016] FCAFC 80; (2016) 113 ACSR 600
Australian Securities and Investment Commission v Macro Realty Developments Pty Ltd [2016] FCA 292; (2016) 111 ACSR 638
Bombardier Inc v Avwest Aircraft Pty Ltd [2020] WASCA 2
Clark v Workman [1920] 1 IR 107
Eastone Mining Pty Ltd v Eastone Holding Pty Ltd [2019] NSWSC 1850; (2019) 142 ACSR 38
Edwards Industrial Products Pty Ltd v Thwin [2025] WASC 48
Elders Forestry Ltd v Bosi Security Services Ltd [2010] SASC 223; (2010) 242 FLR 360
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd (No 2) [2020] WASCA 112
John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113
Joshan v Pizza Pan Group Pty Ltd [2021] NSWCA 219; (2021) 106 NSWLR 104
Micon Mining and Construction Products GmbH & Co KG v Macmahon Mining Services Pty Ltd [2022] WASCA 56
Puttick v Tenon Ltd [2008] HCA 54; (2008) 238 CLR 265
Re Duomatic Ltd [1969] 2 Ch 365
Re Golden Key Ltd (in rec) [2009] EWCA Civ 636
Re Lorebray Pty Ltd (2021) 155 ACSR 443
Rectron Australia BV v Lu [2013] VSC 384
Sakari Resources Ltd v Purvis [2016] WASCA 24
Tang v Lesso Building Material Trading (Sydney) Pty Ltd (admins apptd) [2018] NSWSC 1486
Vango Mining Ltd v Zuleika Gold Ltd [2024] WASCA 54
Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538
Zhu v Treasurer of New South Wales [2004] HCA 56; (2004) 218 CLR 530
COBBY J:
The defendants apply for orders that these proceedings be stayed until further order, alternatively until the plaintiff complies with what is said to be its obligations under cl 15 and cl 16 of a shareholders' agreement dated 10 November 2017 made between the parties, as varied.
The defendants submit that this court does not have jurisdiction to hear the proceedings, or alternatively that this court is not the appropriate forum to determine the proceedings. In the alternative, they submit that the proceedings are oppressive, vexatious or otherwise constitute an abuse of process because other proceedings instituted in Hong Kong by a shareholder in the plaintiff remain on foot.
In the further alternative, they submit that proceedings are an abuse of process, because the shareholders' agreement between the parties required the sole director of the plaintiff to obtain the unanimous approval of the plaintiff's shareholders prior to commencing the proceedings, and he did not do so.
For the reasons which follow, I have determined to dismiss the defendants' application. I am satisfied that this court has jurisdiction and is not a wholly inappropriate forum to hear and determine these proceedings. Further, I am not satisfied that the sole director of the plaintiff was obliged to call a meeting of the plaintiff's shareholders before instituting these proceedings, but if he was, in the particular circumstances of this case it is not appropriate to stay the proceedings.
The plaintiff is incorporated in Hong Kong. Each of Glory Horse Investments Holding Limited (Glory Horse) and the first defendant hold 50% of the issued shares in the plaintiff.
On 10 November 2017, Glory Horse, the first defendant and the plaintiff, together with the then directors of the plaintiff, entered into a shareholders' agreement in relation to the plaintiff.
The sole director of the plaintiff is now Yicheng Chen.
The first defendant is listed on the Australian Stock Exchange. It produces and sells bicycle accessories and safety equipment. The first defendant holds all of the issued shares in the second defendant.
The second defendant is said to be responsible for the manufacture and distribution of bicycle products for the first defendant, although it seems that involves placing orders with a Chinese supplier for the manufacture of that equipment.[1]
[1] Compare [3] and [9], affidavit of David Colin Wheeler sworn 27 August 2024.
The first and second defendants' registered offices are located in Western Australia and the two companies have common directors, all but one of whom are resident in Western Australia. The other director is resident in Victoria.
Following a dispute between Glory Horse and the first defendant, Glory Horse, the defendants and the plaintiff entered into a settlement deed dated 18 November 2020.
That deed contemplated, amongst other things, that Glory Horse and the first defendant would amend the shareholders' agreement to ensure that they would have equal voting rights under it.
By a deed made 18 March 2021 between the plaintiff, the first defendant and Glory Horse, referred to by the parties as the 'Side Letter', the parties agreed to vary the shareholders' agreement in the terms set out in that deed.
The plaintiff's claim
The plaintiff's writ of summons bears an indorsement of claim. The indorsement alleges that the plaintiff was incorporated for the purposes of the joint venture referred to above, and identifies the shareholders' agreement and the settlement deed.
The indorsement goes on to state that cl 6(b) of the settlement deed provides that the first defendant is obliged, as from November 2020, to procure the second defendant to pay a monthly fee to the plaintiff as calculated based on the 'Revenue Share Model', as defined in the settlement deed.
It is then alleged that cl 12 of the settlement deed imposes an express obligation on the first defendant to do all things necessary to enable the plaintiff to have the benefit of the deed, or that the first defendant owes an implicit obligation to the same effect.
It is further alleged that the plaintiff supplied 'Fly 6 Generation 3 Products' from November 2020 to the issue of the writ to the second defendant, but that neither defendant has paid the monthly fees due under the settlement deed.
On that basis, the plaintiff claims damages for breach of contract as against the first defendant, alleging a breach of cl 6(b) of the settlement deed and alternatively a breach of the express or implied obligation to do all things necessary to enable the plaintiff to have the benefit of the deed.
As against the second defendant, the plaintiff claims that the second defendant has retained the amounts due under the Revenue Share Model to the use of the plaintiff. However, the facts set out in the indorsement support a claim for breach of contract against the second defendant for failing to make the payments due under the Revenue Share Model.
It is convenient to address the defendants' contention that this court lacks jurisdiction to determine the proceedings first.
This court is not an inappropriate forum
Although the defendants' summons for the stay of the proceedings asserts that this court does not have jurisdiction, the defendants' submissions were to the effect that this court was a clearly inappropriate forum for the resolution of the parties' dispute, the High Court of Hong Kong being the 'clearly appropriate' forum, because there are proceedings between Glory Horse and the first defendant before the High Court of the Hong Kong Special Administrative Region, being Action No 677 of 2021, and because, so the defendants say, the subject matter of the proceedings is properly located in Hong Kong.
I do not accept those submissions.
I apply, without repeating here, the Court of Appeal's relatively recent summary in Bombardier Inc v Avwest Aircraft Pty Ltd[2] of the law relating to the question whether a Western Australian court is a clearly inappropriate forum for the determination of a dispute.
[2] Bombardier Inc v Avwest Aircraft Pty Ltd [2020] WASCA 2 [18] ‑ [22].
The defendants bear the onus of establishing that it is clearly inappropriate that this court determine the plaintiff's claims. That requires more than simply showing that there is an alternative court which might be more appropriate.[3]
[3] Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538, 565; Sakari Resources Ltd v Purvis [2016] WASCA 24 [47].
Although the shareholders' agreement provides that agreement is governed by the laws of Hong Kong and that the parties thereto submit to the exclusive jurisdiction of the courts of Hong Kong, both the settlement deed and the Side Letter provide that the agreement is governed by the law of Hong Kong, but that the parties agree to the non‑exclusive jurisdiction of those courts.
The fact that the parties submitted to the exclusive jurisdiction of the courts of Hong Kong in relation to proceedings concerning the shareholders' agreement is therefore of no assistance to the defendants, since the plaintiff does not make any claim under the shareholders' agreement. The plaintiff's claim is founded upon alleged breached of the settlement deed, not the shareholders' agreement.
Neither the provision that the settlement deed is governed by the laws of Hong Kong nor the parties' submission to the non‑exclusive jurisdiction of its courts is determinative of the question whether it is inappropriate that this court determine their dispute.[4] It can be inferred from the parties' non‑exclusive submission to the jurisdiction of the courts of Hong Kong that they agreed that litigation between them might take place elsewhere. A non‑exclusive jurisdiction clause 'neither requires litigation to proceed in [the nominated] forum nor precludes either party from suing in another jurisdiction which has jurisdiction to resolve the dispute between the parties'.[5]
[4] Puttick v Tenon Ltd [2008] HCA 54; (2008) 238 CLR 265 [31].
[5] Joshan v Pizza Pan Group Pty Ltd [2021] NSWCA 219; (2021) 106 NSWLR 104 [81].
As to this court's jurisdiction, a court's jurisdiction in a civil action depends upon the plaintiff having served the originating process upon the defendant while the defendant is within the jurisdiction or by invoking 'long arm' provisions such as those contained in O 10 of the Rules of the Supreme Court 1971 (WA).[6]
[6] Micon Mining and Construction Products GmbH & Co KG v Macmahon Mining Services Pty Ltd [2022] WASCA 56 [52] ‑ [53].
Here, both defendants are located in Western Australia. That is sufficient to establish this court's jurisdiction to hear the proceedings.
Further, cl 6(b) of the settlement deed obliges the first defendant to 'procure' payment of the monthly fee. As both defendants are located in Western Australia, any breach of that obligation by the first defendant occurred within Western Australia. While it might be said that any failure to make payment to the plaintiff occurs in Hong Kong, the settlement deed not specifying where payment is to be made to the plaintiff, on the evidence the decisions of the defendants not to make payment must occur in Western Australia, the defendants having their registered offices and principal places of business in Western Australia, and all but one of the directors of the defendants being resident here.
As the defendants are resident in Western Australia, it would seem that the documentary evidence relating to the plaintiff's claims will be present in Western Australia.
The majority of the reasons advanced by the defendants in support of the submission that this court is a clearly inappropriate forum to determine the plaintiff's claims have little or no relevance. Addressing them in turn, the fact that Glory Horse is incorporated in Hong Kong is irrelevant, Glory Horse not being a party to these proceedings, as are the facts that the defendants apparently purchase bicycles from the People's Republic of China and that the term 'Cycliq' is a registered trademark in the Special Administrative Region of Hong Kong, neither of those matters forming part of the plaintiff's claims as disclosed by the indorsement.
Nor is the defendants' claim that some potential witnesses reside in Hong Kong of particular importance, when other witnesses are resident in Perth. That factor is insufficient to make this court a clearly inappropriate forum, whether considered in isolation or in combination with the other matters identified by the defendants.
The defendants' submissions were also premised to a degree on the proposition that Glory Horse was claiming relief pursuant to cl 6(b) of the Settlement Deed in the Hong Kong proceedings.
I do not accept that the Hong Kong proceedings bear upon the question whether this court is a clearly inappropriate forum for the determination of the proceedings.
First, Glory Horse is not a party to these proceedings. There being no allegation that Glory Horse controls the plaintiff, there is no basis for equating the plaintiff's claims in these proceedings with those of Glory Horse in the Hong Kong proceedings.
Secondly, the defendants' submissions were made notwithstanding that service of the writ of summons in the Hong Kong proceedings on the first defendant had been set aside, so far as it concerned [20] and [22] of that writ and (2) and (3) of the relief claimed by Glory Horse, by order of the High Court of Hong Kong Special Administrative Region made 22 January 2022.
The effect of those orders is that no claim is in fact made by Glory Horse in the Hong Kong proceedings pursuant to cl 6(b) of the settlement deed, and no such claim had been on foot for nearly two and a half years prior to the filing of the defendants' application in this court.
Further, as the Hong Kong proceedings concern different claims between different parties, they have no bearing on whether these proceedings are vexatious.
Giving some weight to the plaintiff's choice of jurisdiction, and the parties' choice that the law of Hong Kong was to govern the settlement deed, I am not satisfied that it is clearly inappropriate that this court determine the plaintiff's claims, and I accordingly decline to stay the proceedings on that basis.
The alleged abuse of process
I therefore turn to the question whether the institution of the proceedings constitutes an abuse of process because the plaintiff did not first obtain the unanimous consent of its shareholders to doing so.
As there was no suggestion that the law of Hong Kong governing the construction of contracts differs from that of Western Australia, and no evidence as to the law of Hong Kong in that regard, I have proceeded on the basis that the law of Hong Kong on the subject is the same as that of Western Australia.
Clause 3.2 of the shareholders' agreement provides:
The Board shall be responsible for the overall direction, management and operation of the Company and the formulation of the policies to be applied in the Business. This shall include, but is not limited to:
(a)developing the general policies of the Company;
(b)setting the strategic priorities and objectives of the Company;
(c)approving any business plan of the Company; and
(d)drafting an operating budget for each financial year for approval by the Shareholders prior to 30 June of each year for the following financial year, and which budget is subject to quarterly review by the Shareholders;
(e)decisions which are part of the day-to-day management and operation of the Company, including but not limited to the employment and terminating of employees of the Company.
Clause 5.3 of the shareholders' agreement provided:
5.3Matters Requiring Unanimous Shareholder Approval
Any issue with respect to the Company or the Business that has a material impact on the Company or the Shareholders must be approved unanimously by the Shareholders to proceed and the deadlock procedure in clause 15 shall not apply, and which issues shall include but are not limited to:
…
(q)Commencing or defending any legal action.
At the time the settlement deed was made, Glory Horse and the first defendant each held 50% of the issued shares in the plaintiff. At that time, cl 3.3(a) of the shareholders' agreement provided that the director appointed by the first defendant was to be chairperson of the plaintiff's board of directors and cl 4.3(c) gave the chairperson a casting vote in the event of a deadlock or dispute of the board, so that the first defendant ultimately possessed voting control of the plaintiff's board of directors.
In addition, the then cl 15 provided that the chairperson had the deciding vote where there was a deadlock between the shareholders in relation to the day‑to‑day operations of the plaintiff's business that did not have a material impact on the plaintiff or the shareholders.
Where the deadlock involved a matter which had a material impact on the plaintiff or its shareholders and conferral between the shareholders failed to resolve the deadlock, the then cl 16.2 provided that a shareholder might offer to buy the second shareholder's shares. The second shareholder could then, after 14 days, either acquire the first party's shares in accordance with its offer or, in effect, make an offer to sell its own shares at a specified price. If the first shareholder did not accept that counter‑offer within 14 days of receiving it, the first shareholder was obliged to purchase and the second shareholder required to sell the second shareholder's shares in accordance with the original offer.
Clause 4 of the settlement deed provides:
(a)Upon full compliance of the conditions set forth in clause 5:
(i)The Parties and their respective Related Parties agree to release and discharge each other from any claim, action, demand, suit or proceeding for damages, debt, restitution, equitable compensation, account, injunction, specific performance or any other remedy that the Parties or their respective Related Parties have or may have against each other in respect of the Shareholders' agreement or any actual or alleged breach or infringement of Cycliq HK's Intellectual Property Rights (Released Claims).
(ii)Cycliq and Glory Horse agree to waive their claim, if any, against each other and against Cycliq HK for any operating expenses incurred prior to the date of this Deed.
(iii)Cycliq and Glory Horse agree to waive their claim, if any, against each other and against Cycliq HK for any interest accrued in respect of any loan provided by them to each other and/or to Cycliq HK prior to the date of this Deed.
(b)In support of the release in clause 4(a)(i), Cycliq HK:
(i)covenants with Cycliq not to claim, sue or take any action against Cycliq or its Related Parties in respect of the Released Claims; and
(ii)must indemnify Cycliq severally against all damage, loss, cost or expense arising from any claim, action, demand, suit or proceeding brought or threatened by any person.
(c)Nothing in clauses 4(a) or 4(b) prevents either party or its Related Parties from commencing proceedings to enforce their rights under this document.
(d)Cycliq HK and Glory Horse acknowledge that it is intended that each party and their Related Parties are entitled to enforce this document directly and in the case of any Related Parties to the same extent as if the Related Parties were parties to this document and covenants not to sue any other party or any of its Related Parties in respect of the Released Claims.
Clause 5(e) provided that it was a condition of the release provided in cl 4 that:
(e)either:
(i)Cycliq and Glory Horse agreeing to amend the Shareholders' agreement in a manner which ensures equal voting rights for each of Cycliq and Glory Horse on terms to be negotiated in good faith between Cycliq and Glory Horse, with such amendment to be agreed within 3months of the date of this document (or such later date agreed between the Parties); or
(ii)if Cycliq and Glory Horse fail to agree on the matters in clause 5(e)(i) by the date that is 3 months from the date of this document then, provided Glory Horse has negotiated in good faith, Cycliq paying an amount of $200,000 to Glory Horse by no later than 31 March 2021;
Clause 6 of the settlement deed provides:
(a)The Parties acknowledge that the Revenue Share Model constitute a binding agreement between the Parties and shall apply to all Fly 6 Generation 3 Products, whether sold before or after the date of this Deed.
(b)Cycliq shall procure that Cycliq Products shall pay Cycliq HK's revenue share to Cycliq HK on a monthly basis, calculated based on the Revenue Share Model, commencing from the month in which this Deed is signed.
(c)For the purpose of the Revenue Share Model, Cycliq shall provide, and procure Cycliq Products to provide, to Cycliq HK full transparency in relation to the sales of Fly 6 Generation 3 Products, including unit price and sales volume.
Clause 12 provides that each party is obliged to sign all documents and do all things that may be reasonably required by the other party to carry out and give effect to the terms and intentions of the settlement deed, and cl 13 is to the effect that the settlement deed contains 'the entire understanding between the parties as to its subject matter'.
The parties then entered into the Side Letter on 18 March 2021. The opening paragraph of the Side Letter expressly refers to cl 5(e) of the settlement deed and the 'requirement to amend the shareholders' agreement … in manner which ensures equal voting rights for each of Cyclic and Glory Horse'.
The Side Letter relevantly varied the shareholders' agreement by:
(a)deleting the words 'and the deadlock procedure in clause 15 shall not apply' in cl 5.3, so that the deadlock provisions did apply to decisions within the scope of that clause;
(b)the existing cl 15 and cl 16 were deleted and new deadlock and dispute resolution provisions inserted in their place.
Clause 2.1 of the Side Letter concerned the interaction of the Side Letter with each of the shareholders' agreement and the settlement deed. It provided:
Except as expressly varied by this Side Letter, the Parties confirm the provisions of the Shareholders' agreement. Each of the Parties acknowledges and agrees that they are bound by the Shareholders' agreement as amended by this Side Letter on and with effect from the Effective Date.
For the avoidance of doubt, nothing in this Side Letter shall effect or otherwise impact on the validity and enforceability of the Settlement Deed on the parties thereto. Each of the Parties acknowledges and agrees that they are bound by the Settlement Deed.
The proper construction of the parties' agreements
The defendants submit, in essence, that the shareholders' agreement governs the relationship between the parties, and that the plaintiff was therefore required to comply with the dispute resolution procedures inserted in that agreement by the Side Deed prior to instituting these proceedings. The plaintiff not having done so, the defendants submit that these proceedings constitute an abuse of process.
The plaintiff submits, in essence, that the settlement deed was intended to have effect independent of the dispute resolution procedure under the shareholders' agreement, principally relying on cl 4(c) and cl 4(d) of the settlement deed, and that cl 13 of the deed provided that the deed 'contains the entire understanding between the parties as to its subject matter'.
The principles applicable to the construction of commercial agreements were recently summarised by the Court of Appeal in Vango Mining Ltd v Zuleika Gold Ltd.[7] In short, the proper construction of a commercial contract is to be determined objectively having regard to its text, context and purpose or objects.[8]
[7] Vango Mining Ltd v Zuleika Gold Ltd [2024] WASCA 54 [39] ‑ [44].
[8] Vango Mining Ltd v Zuleika Gold Ltd [39].
I do not repeat those principles here, as they are well known, but the court's task in determining the legal meaning of a written agreement involves weighing up different considerations based on text, context and purpose.[9]
[9] JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd (No 2) [2020] WASCA 112 [139].
The conflicting positions adopted by the parties requires determination, in the first instance, of what was the effect of the settlement deed.
For the reasons identified above, at the time the settlement deed was made the first defendant had greater control over the affairs of the plaintiff than Glory Horse, notwithstanding their equal shareholding.
The releases identified in cl 4 of that deed were stated not to take effect until the conditions identified in cl 5 of the deed were satisfied. Amongst other conditions, by cl 5(e)(i) of the settlement deed Glory Horse and the first defendant expressly agreed that they would take steps to amend the shareholders' agreement to ensure that they would have equal voting rights under the shareholders' agreement.
As a result, the releases in cl 4(1) were not intended to take effect until, amongst other things, the shareholders' agreement had been varied to achieve that end, or payment made to Glory Horse in accordance with cl 5(e)(ii) as compensation for the lack of equality.
In its terms, however, cl 6, involving the adoption of the Revenue Share Model and the introduction of the defendants' obligations to pay the plaintiff's revenue share to the plaintiff, took effect upon execution of the settlement deed, cl 19(a) of the settlement deed providing, in effect, that the deed was binding from the date thereof. The adoption of the Revenue Share Model therefore took effect irrespective of whether the conditions in cl 5 were met, and regardless of whether the releases identified in cl 4 ever came into effect.
A clear purpose of the settlement deed was to resolve disputes regarding the shareholders' agreement and the infringement of the plaintiff's intellectual property rights. Another was to establish a time frame in which Glory Horse and the first defendant would take steps to equalise their voting rights in the plaintiff, failing which the first defendant would pay an agreed amount to Glory Horse, and the third was to record an agreement as to the amounts to be paid to the plaintiff in respect of sales of the Fly 6 Generation 3 Products.
It is against that background that cl 4(d) of the settlement deed, on which the plaintiff relies, is to be construed. That clause provides:
Cycliq HK and Glory Horse acknowledge that it is intended that each party and their Related Parties are entitled to enforce this document directly and in the case of any Related Parties to the same extent as if the Related Parties were parties to this document and covenants not to sue any other party or any of its Related Parties in respect of the Released Claims.
Clause 4(d) is not expressed to take effect only upon satisfaction of the conditions contained in cl 5. It does no more than record the intention of the parties as to whom is to be entitled to enforce the settlement deed and that it is intended that each of those persons, including the parties to the deed, is entitled to do so 'directly'. Although cl 4(d) makes express reference to the plaintiff and Glory Horse, the text of the clause records the intention of all parties to the deed.
The reference to the parties being entitled to enforce the deed 'directly' is odd. So far as the parties to the settlement deed were concerned, that would be the case in any event.
The question is therefore whether, considered in the context of the parties having been in dispute regarding the shareholders' agreement, as evidenced by cl 4.1(a)(i), and in circumstances where the first defendant possessed greater voting rights in respect of the plaintiff, recognised by the parties in cl 5(e), the use of the word 'directly' in cl 4(d) discloses an intention on the part of the plaintiff, Glory Horse and the first defendant that the plaintiff would be entitled to enforce the rights immediately conferred upon it by cl 6(a) and cl 6(b) without the dispute resolution procedure then contained in the shareholders' agreement first being followed.
Ordinarily, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'.[10] Further, a commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.[11]
[10] Re Golden Key Ltd (in rec) [2009] EWCA Civ 636 [28].
[11] Zhu v Treasurer of New South Wales [2004] HCA 56; (2004) 218 CLR 530 [82].
The plaintiff submits, in effect, that it would be a commercial nonsense for the parties to agree, in circumstances where one purpose of the settlement deed is to resolve a dispute between the plaintiff and the first defendant regarding infringements of the plaintiff's intellectual property rights, that the plaintiff's entitlement to enforce the new rights conferred by cl 6(a) and cl 6(b) remain subject to the dispute resolution procedure in the shareholders' agreement.
There are three difficulties with the acceptance of that submission in the present case. The first is that it would have been easy for the parties to state expressly whether compliance with the dispute resolution procedure was necessary, and they did not do so. The cryptic reference to the parties being entitled to enforce the agreement 'directly' falls far short of that.
Secondly, the plaintiff was and is a joint venture vehicle, in which Glory Horse and the first defendant possessed equal shareholdings, so that the first defendant had an interest in ensuring that the plaintiff did not engage in proceedings being instituted against it without there being some mechanism for the resolution of dispute before that step was taken.
Thirdly, Glory Horse accepted, at least in principle, that the voting rights in the plaintiff might not be equalised, and agreed to accept a payment in lieu of equality if agreement was not reached on that matter. Implicit in that acceptance was an acceptance of the possibility that Glory Horse might have less influence on the conduct of the plaintiff's affairs than the first defendant.
The plaintiff also points to the entire agreement clause as evidencing the parties' intention that the dispute resolution procedures in the shareholders' agreement not apply to any claim made pursuant to cl 6 of the settlement deed.
In my opinion, the entire agreement clause does not provide any great assistance in construing the settlement deed.
Lundberg J recently summarised the general effect of 'entire agreement' clauses in Edwards Industrial Products Pty Ltd v Thwin[12] as follows:
The usual effect of such a clause is to exclude evidence outside the instrument 'either to prove terms additional to what different from the written instrument or collateral contracts or to construe the instrument in a way different from the meaning to be inferred solely from its terms'. The inclusion of such a clause may also be taken to mean that the parties 'have merely expressly avowed that the totality of the contract, about the relevant subject matter, is to be found within the four corners of the document'.
Such clauses have limits. Ordinarily, they will not prevent the admission of evidence of pre‑contractual conduct in support of a claim of rectification, or equitable estoppel. It has been contended that entire agreement clauses cannot prevent regard being had to context forming part of 'surrounding circumstances'. (citations omitted)
[12] Edwards Industrial Products Pty Ltd v Thwin [2025] WASC 48 [77] ‑ [78].
A principal difficulty with the construction advanced by the plaintiff, to the extent that it relies upon the entire agreement clause, is that the parties agreed to address voting control of the plaintiff at the same time they were agreeing to the implementation of the new rights conferred on the plaintiff by cl 6 of the settlement deed. That does not suggest that the parties intended that the settlement deed stand apart for their existing arrangements, as the plaintiff contends.
In my judgment, on its proper construction the settlement deed does not impact upon the operation of the dispute resolution procedure contained in the shareholders' agreement, so that, subject to what follows, compliance with that procedure would be necessary if the plaintiff were to institute proceedings to enforce its rights.
The Side Letter removed the chairperson's deciding vote in the case of a deadlock between the directors of the plaintiff, thereby removing the first defendant's voting control of the plaintiff's board, and introducing new deadlock and dispute resolution provisions in the shareholders' agreement.
Clause 2.1 of the Side Letter expressly provided that nothing in that deed would affect the validity and enforceability of the settlement deed. Putting the amendments made to the shareholders' agreement thereby to one side, the Side Letter did not itself impact upon the position regarding the plaintiff's ability to institute proceedings to enforce the settlement deed.
The applicability of the dispute resolution procedure
The plaintiff submits that the dispute resolution process required under the shareholders' agreement, as varied by the Side Letter, did not apply to the institution of these proceedings in any event. It identifies portions of that process which it says cannot apply to the plaintiff.
Article 3 of the plaintiff's articles of association is in the following terms:
3.Directors' general authority
(1)Subject to the Ordinance and these articles, the business and affairs of the company are managed by the directors, who may exercise all the powers of the company.
(2)An alteration of these articles does not invalidate any prior act of the directors that would have been valid if the alteration had not been made.
(3)The powers given by this article are not limited by any other power given to the directors by these articles.
(4)A directors' meeting at which a quorum is present may exercise all powers exercisable by the directors.
Consistent with art 3 of the plaintiff's articles of association, cl 3.2 of the shareholders' agreement provides for the management of the plaintiff to be vested in the company's board of directors.
Article 28(2) of those articles empowers the directors to call a general meeting of shareholders.
The articles of association also reserve power to the members of the plaintiff to intercede in the management of the business by its directors, in that art 4 provides:
4.Members' reserve power
(1)The members may, by special resolution, direct the directors to take, or refrain from taking, specified action.
(2)The special resolution does not invalidate anything that the directors have done before the passing of the resolution.
There is no suggestion that a special resolution was passed directing the directors of the plaintiff to refrain from instituting the current proceedings.
Nor has there been any suggestion that the present director of the plaintiff, Mr Chen, has agreed to be bound by the shareholders' agreement.
Clause 5.3 of the shareholders' agreement prohibits the plaintiff's directors from 'proceeding' with a decision in the circumstances identified in cl 5.3, including where the decision has a material impact on the interests of a single shareholder. Clause 5.3 suggests that, in that situation, the directors of the plaintiff must convene a meeting of shareholders to consider whether to implement the directors' decision.
I address whether that requirement constitutes an impermissible fetter on the powers and discretions of the directors of the plaintiff below.
The Side Letter deleted cl 15 and cl 16 of the shareholders' agreement as they stood at the date of the settlement deed, and replaced those provisions with the following:
15.Deadlock
15.1Adjourned meeting
If a matter has arisen requiring the approval of the Board, unanimous Shareholder approval in accordance with clause 5.3 or ordinary Shareholder approval and such matter is raised in good faith, but not passed, the proposing Shareholder must cause the following procedure to be followed:
(a)(if the matter is proposed at a Shareholders' meeting) the meeting will, at the request of a Shareholder, be adjourned to a date not earlier than 5 Business Days and not later than 10 Business Days after the date of the original meeting and the resolution must be proposed again and reconsidered at the adjourned meeting; or
(b)(if the matter is proposed as a Shareholders' written resolution) the resolution will be proposed again in the form of a Shareholders' written resolution for circulation among the Shareholders at the earliest date as permitted by the applicable laws and the Constitution.
15.2Deadlock applies to all deadlocks
If, following the procedure in clause 15.1, the relevant matter requiring approval has not been passed, then any Shareholder may at any time within 10 Business Days of completing the procedure in clause 15.1, notify the other Shareholders that a deadlock is taken to have occurred (Deadlock), in which case the provisions of clause 15 shall apply.
16Dispute Resolution
16.1Amicable Negotiation
If a Deadlock occurs, a party may give to the other parties a notice in writing specifying the nature of the Deadlock or why the Deadlock has occurred (Deadlock Notice) and the parties undertake in good faith, having regard to the best interests of the Company and so as to maintain the Company as a going concern (but without being required to make concessions against their interest or act uncommercially), procure that the principles of the parties shall discuss the Deadlock in good faith with a view to settling the Deadlock within 10 Business Days of receipt of the Deadlock Notice.
16.2Continued performance required
Without prejudice to the rights each party may have under this Agreement or the applicable laws, each party must, in good faith and to the extent practicable, continue to perform its obligations under this Agreement despite the existence of a Deadlock.
16.3Resolution by mediation
(a)If the Deadlock the subject of the Deadlock Notice has not been resolved within 10 Business Days of receipt of the Deadlock Notice (or such later date as agreed in writing between the parties) the parties must refer to Deadlock to mediation at the Hong Kong International Arbitration Centre (HKIAC) and in accordance with its then current Mediation Rules, and the Deadlock must be resolved as expeditiously as possible and the parties shall use their best endeavours to procure that the Deadlock be resolved by no later than 20 Business Days after referral to the mediation process.
(b)Without limiting the rights of any party under this Agreement, if after exhausting the procedure set out in clause 16.3(a) the mediation is abandoned by the mediator or is otherwise concluded without the Deadlock having been resolved then clause 16.4 shall apply.
16.4Deadlock
(a)A Shareholder (Offeror) may, within 10 Business Days of the date that the mediation is abandoned by the mediator or is otherwise concluded without the Deadlock having been resolved, offer by notice in writing (Offer Notice) to the other Shareholder (Offeree) to purchase all of the Offeree's Shares:
(i)for a price per Share in cash consideration only and payable in one instalment (Purchase Price); and
(ii)on any other terms and conditions as set out in the Offer Notice, provided that the terms and conditions provide that completion occurs within 60 days of acceptance of the offer contained in the Offer Notice.
(b)Within 5 Business Days of receipt of the Offer Notice, the Offeree may either:
(i)submit an offer by notice in writing (Counter Offer) to the Offeror to purchase all of the Offeror's Shares:
(A)for a price per Share in cash consideration only and payable in one instalment which is not less than US$50,000 more than the Purchase Price (Increased Purchase Price); and
(B)on any other terms and conditions as set out in the Counter Offer, provided that the terms and conditions provide that completion occurs within 60 days of acceptance of the offer contained in the Counter Offer; or
(ii)take any of the following actions:
(A)accept the offer contained in the Offer Notice by issuing a written notice to such effect to the Offeror;
(B)reject the offer contained in the Offer Notice and waive its right to make a Counter Offer to the Offeror in accordance with clause 16.4(b)(i) above by issuing a written notice to such effect to the Offeror; or
(C)do nothing, in which case the Offeree will be deemed to have rejected the offer contained in the Offer Notice and to have waived its right to make a Counter Offer to the Offeror in accordance with clause 16.4(b)(i) above.
(c)If the Offeree makes a Counter Offer in accordance with clause 16.4(b)(i) each of the Offeror and Offeree will have the opportunity to submit further counter offers in accordance with clause 16.4(b)(i) (with the necessary changes made) (each a Further Counter Offer), until such time that a Further Counter Offer is accepted by a Shareholder in accordance with clause 16.4(b)(ii)(A), or such time that a Further Counter Offer is rejected or deemed to have been rejected by a Shareholder in accordance with clause 16.4(b)(ii)(B) or (C).
(d)If the Offeree rejects, or is deemed to have rejected, the offer contained in the Offer Notice, in accordance with clause 16.4(b)(ii)(B) or (C), the offer contained in the Offer Notice shall automatically lapse and cease to have any effect.
(e)Upon acceptance of an Offer Notice, Counter Offer or Further Counter Offer (as applicable) (Accepted Offer), the purchase of Shares by the applicable buyer will take place on the date specified in the Accepted Offer by the applicable buyer:
(i)making payment of the Purchase Price or Increased Purchase Price (as applicable) to the applicable seller in immediately available funds;
(ii)receiving from the applicable seller the share certificates and duly executed transfer of the relevant Shares; and
(iii)ensuring that the Company repays all amounts then owing by the Company to applicable seller (if any).
(f)Any transaction contemplated by clauses 16.4(a) to 16.4(d) is subject always to Cycliq's compliance with any applicable listing rules of the Australian Securities Exchange.
(g)If no Shareholder issues an Offer Notice within the time required by this clause 16.4, the Shareholders may either:
(i)agree in writing that the Deadlock has not been resolved and that the status quo shall prevail; or
(ii)take any legal action as each Shareholder deems appropriate in the circumstances to resolve the Deadlock.
Addressing the construction argument raised by the plaintiff, the dispute resolution procedure contained in cl 16 of the shareholders' agreement, as varied by the Side Letter, is expressed to be available '[i]f a Deadlock occurs'. In that circumstance, cl 16.1 permits, but does not require, a party to the shareholders' agreement to instigate the dispute resolution procedure by giving a written notice to the other parties specifying the nature of the Deadlock or why it has occurred.
Clause 15 addresses how a Deadlock arises.
In its terms, cl 15 is limited in its application to matters 'requiring the approval of the Board, unanimous shareholder approval in accordance with cl 5.3 or ordinary shareholder approval' and the matter has been raised in good faith but not passed. In each of those circumstances, the 'proposing Shareholder' must follow the procedure set out in cl 15.1(a) and (b).
As the plaintiff has a single director, it can be inferred that Mr Chen resolved to institute these proceedings. If cl 5.3(q) is valid, then the plaintiff's board was required to cause a meeting of shareholders to be convened to consider whether to permit the board to implement the board's resolution.
It can be argued that cl 15 assumes that there is a shareholder who has proposed the particular matter for decision, so that there will be no 'proposing Shareholder' to cause the implementation of the procedure specified by cl 15.1 if the meeting has been convened by the plaintiff's board. Clause 15.2, which provides that a shareholder may give notice that a Deadlock has arisen, is premised on the proposing Shareholder having taken steps to ensure the procedure set out in cl 15.1 is followed.
However, the better construction is that any shareholder may act as the proposing Shareholder identified in cl 15.1. The obligation imposed by cl 15.1 is to do no more than ensure that the procedure set out in cl 15.1(a) and (b) is implemented. Any shareholder may take the steps required by those subclauses, including a shareholder opposed to the passing of the proposed resolution.
The dispute resolution process contemplated by cl 15 and cl 16 of the shareholders' agreement therefore applies where the matter for determination arises from a decision of the plaintiff's board within the ambit of cl 5.3 of the shareholders' agreement, if cl 5.3 is valid and enforceable, notwithstanding the potential lack of a 'proposing Shareholder', in the sense of a shareholder who has acted as a proponent of the particular matter for determination.
In this regard, the plaintiff submits that it defies 'the text of the Settlement Deed, Shareholders' Agreement and commercial common sense to force the plaintiff into a deadlock process that it could never properly avail itself of'.
For the reasons I have given, the settlement deed does not impact upon the operation of the shareholders' agreement or otherwise stand apart from it in the way the plaintiff contends. As to the drafting of the shareholders' agreement, while cl 15.1 could be better expressed, given the nature of the obligations imposed by the clause it has operation even where the plaintiff's board, rather than a particular shareholder, proposes a resolution for consideration by the shareholders in general meeting.
As to the third point, the plaintiff is a party to the shareholders' agreement. It has agreed, with its shareholders, that its affairs will be conducted in a particular way.
I therefore do not accept the plaintiff's submissions as to the operation of cl 15 and cl 16.
The plaintiff also submits, in effect, that interpretation of the shareholders' agreement allows the first defendant to take advantage of its own wrong. It is convenient to address that argument after the question whether cl 5.3 constitutes an impermissible fetter on the powers and discretions of the directors of the plaintiff.
The validity of cl 5.3 of the shareholders' agreement
As noted, art 3 of the plaintiff's articles of association and cl 3.2 of the shareholders' agreement vest the management of the plaintiff in the plaintiff's board of directors.
The decision to institute these proceedings was therefore a matter for the sole director of the plaintiff, not the plaintiff's shareholders.[13]
[13] Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, 837; Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2016] FCAFC 80; (2016) 113 ACSR 600 [37]; John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113
However, on its face, cl 5.3 of the shareholders' agreement operates to prevent the implementation of a decision by the plaintiff's directors where (amongst other things) that decision may have a material impact upon the interests of a particular shareholder. That includes where the directors' decision is in the best interests of the plaintiff.
The general rule is that directors must not fetter their powers and discretions by contract or promises to other persons. Nor can parties enter a shareholders' agreement fettering the discretion of a director in their capacity as director.[14]
[14] Clark v Workman [1920] 1 IR 107.
In Australian Securities and Investment Commission v Macro Realty Developments Pty Ltd,[15] Beach J, considering a scheme whereby an investor agreed to become the sole director and shareholder in a company, but the promoter of the scheme remained the sole decision maker for all business associated with the company, said:
[15] Australian Securities and Investment Commission v Macro Realty Developments Pty Ltd [2016] FCA 292; (2016) 111 ACSR 638.
The Investment Proposal required an investor to become a director of a company in respect of which Macro: (a) was the sole decision maker for all activities of the company; (b) retained control of the company; and (c) remained the sole decision maker for all business associated with the company in circumstances where the investor agreed to do all things that Macro required to run the business of the company 'as [Macro saw] fit'.
The general rule is that directors 'must not fetter their powers by contract with or promises to other persons' (Davidson v Smith (1989) 15 ACLR 732 at 734 (Davidson) per Ipp J). In Boulting v Association of Cinematograph Television and Allied Technicians [1963] 2 QB 606; [1963] 1 All ER 716 (cited with approval in Davidson), Lord Denning MR (dissenting, but not on this point) explained the rule in the following terms (at QB 626 and 627; All ER 723 and 724):
'It seems to me that no one, who has duties of a fiduciary nature to discharge, can be allowed to enter into an engagement by which he binds himself to disregard those duties or to act inconsistently with them. No stipulation is lawful by which he agrees to carry out his duties in accordance with the instructions of another rather than on his own conscientious judgment … [I]f a director of a company becomes a member of a trade union on the terms that he is to act in the company's affairs on the instructions of the trade union … (rather than according to what he thinks best in the interests of the company), such an agreement of membership is unlawful. It is contrary to public policy that any director should be made to deny his trust and throw over the interests of those whom he is bound to protect … In each one of these cases the reason is simple: it is wrong to induce another to act inconsistently with the duty of fidelity which he has undertaken by contract or trust to perform.' (emphasis added)
Because the discretionary powers of directors are fiduciary, in the sense that their exercise is required to be in good faith for the benefit of the company as a whole, an agreement may be void if the directors of a company have purported to fetter wholesale their discretions in advance in relation to the general control and management of the company. Moreover, for directors to purport to so fetter themselves would be a breach of their fiduciary duties and their analogous statutory embodiment in s 181(1).
The terms of the MOU required each investor to establish a company of which he or she was the sole director and to carry out his or her duties as director of the company in accordance with the instructions of Macro. The investor's general and specific powers and discretions as a director were to be fettered in an absolute way upon establishment of the company. The present case is distinguishable from Thorby v Goldberg (1964) 112 CLR 597 (Thorby).
In Thorby, Kitto J said at 605:
'There are many kinds of transactions in which the proper time for the exercise of the directors' discretion is the time of the negotiation of a contract, and not the time at which the contract is to be performed. … If at the former time they are bona fide of opinion that it is in the interests of the company that the transaction should be entered into and carried into effect, I see no reason in law why they should not bind themselves to do whatever under the transaction is to be done by the board.'
Correspondingly, Menzies J said at 616:
'While I wish to guard against being understood as deciding that a director of a company can in an ordinary case bind himself to exercise his power as a director in a particular way, I have not in this case found any ground for objection to the directors of the company committing themselves, as I think they did, to act as set out in the agreement — for example, to allot shares as provided by cl 4 or to resign and accept resignations as set out in cl 5. All the shareholders were party to the agreement and what the directors undertook to do was what all the shareholders committed themselves to ensure that they did. …' (emphasis added)
In Thorby, the court was concerned with a more limited arrangement and in respect of which the directors had, prior to entry into of the transaction, given consideration as to whether it was in the best interests of the company. There was no expansive fettering of the directors' general discretions and powers. But under each MOU, the investor is required to fetter his or her discretion in respect of 'all activities of the company' and 'control of the company', by permitting Macro to be 'the sole decision maker for all business associated with the company', with the investor agreeing to 'do all things required by [Macro] to run the business of the company as [Macro saw] fit'. The MOU was not subject to any qualification or proviso that a director could act other than in the interests or at the direction of Macro in order to avoid breaching his or her duties.
Unlike Thorby, in the present case the fettering was not limited to a more limited transaction or set of transactions. Further, no consideration was to be given to the interests of the company.
Further, the MOU required each investor to agree prior to the establishment of any company to so fetter themselves to act in accordance with Macro's directions. As a result, and by definition, the investor could not, in his or her capacity as a director, give consideration to, and exercise his or her discretion in, the interests of the company. The discretion was fettered in advance of establishment.
In the present case, while the power to make management decisions, including decisions whether to institute legal proceedings, is vested in the plaintiff's board of directors, the implementation of those decisions is subject to the unanimous approval of its shareholders.
There is no evidence that Mr Chen, unlike the plaintiff's initial directors, agreed to the terms of the shareholders' agreement. Although there is no evidence as to when Mr Chen was appointed as a director of the plaintiff, I infer that he was not a director at the time the shareholders' agreement was made, as the shareholders' agreement identifies two other persons as directors as at 14 November 2017.
Accordingly, it is questionable whether Mr Chen, in his capacity as a director of the plaintiff, owes any obligation to comply with the shareholders' agreement, but I proceed on the assumption (without deciding) that he was so obliged, or at least owes some obligation to ensure that he does not cause the plaintiff to contravene the shareholders' agreement.
In my judgment, cl 5.3 impermissibly fetters the powers and discretions of the plaintiff's directors, because it prohibits the directors from implementing decisions taken in the best interests of the company without the approval of the shareholders.
Clause 5.3 therefore is not valid and enforceable, and the defendants are not entitled to insist that there be compliance with it.
The position might be different, however, if cl 5.3 formed part of the articles of association of the plaintiff. In that case, the shareholders of the plaintiff would be authorised by the articles to act in the management of the company, to the extent authorised by the articles.[16]
[16] Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [37].
Clause 18 of the shareholders' agreement concerns the interaction between the plaintiff's constitution and the shareholders' agreement, and provides as follows:
The Constitution must in all respects reflect and be consistent with the provisions of this Agreement. If there is any inconsistency between the provisions of this Agreement and the Constitution, the provisions of this Agreement will prevail and the parties must, to the extent they are able to influence activities of the Company having regard only to their shareholding in the Company, move promptly to eliminate any such inconsistency by amending the Constitution.
The shareholders' agreement defines the term 'Constitution' to mean the constitution of the plaintiff. There is no evidence that the plaintiff has a constitution as such. There is, however, evidence that the plaintiff adopted articles of association at the time it was incorporated, and there is no suggestion that those articles have been amended at any time. In those circumstances, I have inferred that the reference to the plaintiff's constitution in the shareholders' agreement is intended to refer to the company's articles of association.
There are three things to note about cl 18. First, it does not import the terms of the shareholders' agreement into the plaintiff's constitution. Secondly, the clause requires that the constitution be consistent with the shareholders' agreement, but it does not itself purport to amend the plaintiff's constitution. Thirdly, the clause identifies the step to be taken where there is an inconsistency between the plaintiff's constitution and the shareholders' agreement, namely that the parties to the shareholders' agreement exercise their rights as shareholders to amend the constitution. The clause therefore contemplates that the constitution and the shareholders' agreement may be inconsistent at times.[17]
[17] See generally Re Lorebray Pty Ltd (2021) 155 ACSR 443 [7]; Tang v Lesso Building Material Trading (Sydney) Pty Ltd (admins apptd) [2018] NSWSC 1486 [9].
It appears that the parties have not taken any step to address the inconsistency between the plaintiff's articles of association and the shareholders' agreement for more than seven years.
Although I accept that a shareholders' agreement may operate to amend a company's constitution by means of the application of the Re Duomatic[18] principle,[19] that has not occurred in this case.
[18] Re Duomatic Ltd [1969] 2 Ch 365, 379.
[19] Rectron Australia BV v Lu [2013] VSC 384 [68], Eastone Mining Pty Ltd v Eastone Holding Pty Ltd [2019] NSWSC 1850; (2019) 142 ACSR 38 [53], but see Elders Forestry Ltd v Bosi Security Services Ltd [2010] SASC 223; (2010) 242 FLR 360 [76] ‑ [77].
The plaintiff's shareholders are authorised by art 4 to intervene in the management of the plaintiff, but there is no suggestion that the necessary special resolution has been passed.
In summary, as the decision to implement proceedings is to be made by the plaintiff's directors, not the shareholders, the decision of Mr Chen to cause the plaintiff to institute these proceedings is valid. I note in this regard that counsel for the defendants, in response to a question from me in the course of argument, told me that the defendants did not contend 'at present' that the decision to commence the proceedings was invalid.
Accordingly, while I accept that the scope of a fiduciary's obligations may be limited by agreement, in circumstances where the terms of the shareholders' agreement have not been incorporated in the plaintiff's articles of association the obligation imposed by cl 5.3(q) is an impermissible fetter on the director's duties.
The position adopted by the first defendant
A further obstacle to the success of the defendants' application is the position adopted by the first defendant to the institution of proceedings in respect of cl 6 of the settlement deed.
Clause 5.1(b) of the shareholders' agreement provides that each shareholder covenants and agrees with each other to 'act in the best interests of the company and in a bona fide manner in all transactions relating to the Company and the Business and to give a true account of the same when and as often as shall be reasonably required by the Company or any of the Shareholders'.
Further, as already noted, cl 12 of the settlement deed provides that 'each party must sign all documents and do all things that may be reasonably required by the other party to carry out and give effect to the terms and intentions of this agreement'.
It is obvious from the making of the defendants' application that the first defendant opposes the institution of these proceedings. Given that they involve the plaintiff seeking to obtain payments said to be due to it pursuant to cl 6 of the settlement deed, the proceedings would seem to be in the best interests of the plaintiff, in the absence of explanation why that is not the case.
I note that the minutes of a general meeting of the shareholders of the plaintiff held 15 June 2022 record that the first defendant voted against a resolution that the plaintiff commence legal proceedings against the first defendant for failing to pay any revenue share under the settlement deed, so that the resolution was not passed. The minutes further record that the first defendant's representative was asked why the first defendant had voted against the resolution, and responded that 'he was not required to supply a reason, only his vote on behalf of' the first defendant.[20]
[20] Attachment DCW-20, affidavit of David Colin Wheeler sworn 4 September 2024.
The defendants made no submission to the effect that it was not in the best interests of the plaintiff to obtain payment of the amounts due to it pursuant to cl 6 of the settlement deed.
There is a strong argument, were it necessary to have regard to it for the purposes of determining the defendants' application, that the first defendant is obliged to approve the institution of proceedings against the second defendant for payment of the amounts due under the Revenue Share Model. The approach taken by the first defendant to the plaintiff's request that the first defendant agree to the institution of proceedings, as referred to above, suggests a lack of good faith on the part of the first defendant.
As I have found that there is no obligation binding on the plaintiff to obtain shareholder approval pursuant to cl 5.3 or to engage in the dispute resolution process outlined in cl 15 and cl 16 of the shareholders' agreement, as varied, which justifies staying the proceedings it is unnecessary to reach a concluded position on this point, but as the evidence stands, the first defendant would be obliged to consent to the institution of these proceedings, so that there would be no utility in granting the stay sought by the defendants.
I am therefore not satisfied that, in all the circumstances, the institution of the current proceedings in Western Australia is clearly inappropriate or an abuse of process. I will accordingly dismiss the defendants' application for a stay of the proceedings.
The application for security for costs
The defendants also applied for, by the same summons, an order for security for costs.
That application was premature, pending (as it necessarily did) the determination of the question whether there should be a stay of the proceedings.
Further, the plaintiff had indicated its willingness to provide security for costs, the plaintiff being an entity incorporated in Hong Kong.
I will accordingly hear the application for security for costs in due course, and will make programming orders upon hearing the parties.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
VR
Associate to the Hon Justice Cobby
14 MAY 2025
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