Eastone Mining Pty Ltd v Eastone Holding Pty Ltd

[2019] NSWSC 1850

Supreme Court

New South Wales

Medium Neutral Citation:

Eastone Mining Pty Ltd v Eastone Holding Pty Ltd [2019] NSWSC 1850

Hearing dates:

21 March 2019, last written submissions received 12 April 2019

Decision date:

19 December 2019

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

Plaintiff successful in part: see [72]

Catchwords:

CORPORATIONS — Joint venture agreement — Company and shareholders parties to Agreement — No constitution — Relationship between replaceable rules and joint venture agreement.

 

CORPORATIONS — Directors and officers — Removal of director — Purported removal by board — No constitution — Joint Venture Agreement provided for shareholder nominees — No power for other directors to remove — Declaration of no validity.

  CORPORATIONS — Meetings of members — Reasonable time and place — Whether Beijing reasonable place — Australian company — Australian and Hong Kong corporate shareholders — Directors variously in Western Australia, New South Wales and China — Beijing unreasonable.

Legislation Cited:

Corporations Act 2001 (Cth), ss 134, 135, 136, 180, 181, 182, 203C, 248C, 248D, 248F, 248G, 249H, 249R, 1322
Mining Act 1978 (WA)

Cases Cited:

Bell v Burton (1993) 12 ACSR 325
Carr v Finance Corp of Australia Ltd (No 1) (1981) 147 CLR 246; [1981] HCA 20
Cody v Live Board Holdings Ltd (2014) 97 ACSR 606; [2014] NSWSC 78
Colbern Nominees Pty Ltd v Prime Minerals Ltd (2009) 74 ACSR 236; [2009] WASC 289
Commissioner of Taxation v Sara Lee Household & Body Care (Aust) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35
Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60
Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185; [2005] NSWSC 1005
Hickey v Aselford [2003] NSWSC 185
Howard v Mechtler (1999) 30 ACSR 434 at 444; [1999] NSWSC 232
In the matter of BG Iron and Steel Pty Ltd [2014] NSWSC 1283
In the matter of Lesso Building Material Trading (Sydney) Pty Ltd (administrators appointed) [2018] NSWSC 1486
In the matter of Mosman & Co Pty Ltd [2019] NSWSC 1155
Lee v Chou Wen Hsien [1984] 1 WLR 1202; [1985] BCLC 45
Mackay v Dick (1881) 6 App Cas 251
McMaster v Eznut (2006) 58 ACSR 199; [2006] WASC 109
Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635; [1993] HCA 45
Petsch v Kennedy (1971) CLC ¶40-015
Re Duomatic [1969] 2 Ch 365; [1969] 1 All ER 161
Re Rectron Electronics Pty Ltd [2013] VSC 384
Russell v Northern Bank Development Corp Ltd [1992] 3 All ER 161; [1992] BCLC 1016
Shearwood (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 1451
Smith v Sadler (1997) 25 ACSR 672; (1997) 15 ACLC 1,683
Wun v CellOS Software Ltd (2018) 132 ACSR 316; [2018] FCA 1947

Texts Cited:

Austin & Black’s Annotations to the Corporations Act (LexisNexis, looseleaf)
C Gleeson, “Filing of submissions without leave” (Summer 2011–2012) Bar News 59
Ford, Austin & Ramsay’s Principles of Corporations Law explain (LexisNexis, looseleaf)
Hammerschlag’s Commercial Court Handbook (LexisNexis, 2019)
L.S. Sealy, “The Enforcement of Partnership Agreements, Articles of Association and Shareholder Agreements” in P.D. Finn, ed., Equity and Commercial Relationships (Law Book Company, 1987)

Category:

Principal judgment

Parties:

Eastone Mining Pty Ltd ACN 622 915 244 (Plaintiff)

  Eastone Holding Pty Ltd ACN 161 111 066 (First Defendant)
Jing Wang (Second Defendant)
Li Ma (Third Defendant)
Dongxiao Zhang (Fourth Defendant)
Guizhi Chen (Fifth Defendant)
Jade City Holding Ltd (Sixth Defendant)

Representation:

Counsel:
Mr G. Gee (Plaintiff)

 

Solicitors:
Bartier Perry (Plaintiff)

  The Fifth Defendant appeared on her own behalf, and on behalf of the other individual defendants, with the assistance of Mr D. Wisenor as amicus curiae.

File Number(s):

2019/27133

Judgment

1. HER HONOUR:   This case concerns mining tenements in Karratha, Western Australia, which are being explored for jade by the first defendant, Eastone Holding Pty Ltd. The plaintiff, Eastone Mining Pty Ltd, made an investment of $250,000 in Eastone Holding and also entered into a joint venture agreement. The parties have fallen out. The question is whether a meeting of Eastone Holding — at which Eastone Mining’s appointee to the board, Tony Tao, was removed from office — was valid, and whether orders should be made to prevent similar attempts to remove Mr Tao as a director or prevent him for managing Eastone Holding, or to restrain the defendants from terminating the joint venture agreement other than according to its terms. Eastone Mining is entitled to most, but not all, of the relief it seeks.

2. Unfortunately, the week before the hearing of this matter, the defendants’ solicitors ceased to act. At the hearing on 19 March 2019, there was no appearance for the defendants, although emails had been sent by the fifth defendant, Guizhi (also known as “Jo”) Chen, a director of Eastone Holding, to my chambers seeking an adjournment. I gave the defendants until noon on 20 March 2019 to serve any Interlocutory Process and affidavits in support of an application to further adjourn the hearing or transfer the proceedings to Western Australia and listed the matter for hearing on 21 March 2019. On that occasion, Ms Chen appeared by telephone link, assisted by her partner Daniel Wisenor as amicus curiae. Ms Chen had authority from the other defendants to speak on their behalf. In this manner, the hearing was conducted by telephone. The plaintiff relied on affidavits sworn by Mr Tao. The defendants relied upon an affidavit sworn by Ms Chen. Neither witness was cross-examined. At the conclusion of the hearing, I made directions for the parties to attend to a range of matters to ensure that the plaintiff’s written submissions were corrected, court book references added and authorities supplied to Ms Chen; for the defendants to serve any objections to the plaintiff’s affidavits or exhibits together with any written submissions; and for the plaintiff to serve any response to the defendants’ objections or written submissions.

3. The defendants provided submissions and also a further affidavit of Ms Chen, which was not envisaged by the orders I made at the conclusion of the hearing and the plaintiffs, unsurprisingly, objected to the affidavit being read. It is impermissible to file further materials after the conclusion of the trial without the leave of the court: Hammerschlag’s Commercial Court Handbook (LexisNexis, 2019) at [2.33.19] citing Carr v Finance Corp of Australia Ltd (No 1) (1981) 147 CLR 246 at 258; [1981] HCA 20 per Mason J, and C Gleeson, “Filing of submissions without leave” (Summer 2011–2012) Bar News 59. After receiving the plaintiff’s reply submissions, I received further submissions from Ms Chen. Again, no leave had been granted to file these further submissions and I did not have regard to them.

Facts

4. As I understand the records of the Western Australian Department of Mines and Petroleum, the mining tenements in question were first surveyed by Martin Heymans in 1995. Peter Martinus acquired an interest in about 2010; his wife is Ms Chen. In 2014, Mr Heymans entered into a Deed of Ngarluma Native Title & Exploration & Mining Agreement (Ngarluma Agreement) with the Ngarluma Aboriginal Corporation, which provided for payment of a performance bond and annual fees to exploit the mining tenements.

5. In about 2015, Mr Martinus transferred his interest in the mining tenements to Eastone Holding and the Ngarluma Agreement was varied accordingly. Eastone Holding was then wholly owned by a Hong Kong company, Jade City Holding Limited, the sixth defendant, which itself was owned by All Globe Limited, a company incorporated in the British Virgin Islands. The directors of Eastone Holding were the second defendant Ms Jing (also called “Jeanette”) Wang, the third defendant Ms Li Ma and the fourth defendant Mr Dongxiao Zhang, who lived variously in Karratha, Hong Kong or mainland China. Much of the communications between the parties was in Mandarin, and including WeChat messages (WeChat being a social media platform popular amongst the Chinese community).

6. In 2016, Mr Martinus passed away. Ms Chen says that, since June 2016, she has been actively involved in the mining operations and the mining tenements and it does appear that, after her husband died, Ms Chen became the person in Australia who managed the mine for the shareholders and directors of Eastone Holding. Ms Chen was appointed a director of Eastone Holding and changed the registered office of the company to LXK Consulting, an accounting firm in Subiaco, Western Australia. Xuekun Li of that firm was retained to prepare Eastone Holding’s accounts and did so for the financial years ended 2014, 2015 and 2016. The financial statements record that Eastone Holding’s principal activity was mineral exploration and that its ability to continue as a going concern was dependent upon its parent company’s continuing financial support to provide adequate working capital. The financial statements report annual losses, negative equity and increasing loans from its parent company.

7. Mr Tao is a chartered accountant whose business is called “TTBW Advisory”. Mr Tao is the sole director and shareholder of TTBW Holdings Pty Limited. In about August 2017, Mr Tao appears to have been retained by Eastone Holding to prepare accounting and documentary material to assist the company to defend forfeiture proceedings then on foot in the Warden’s Court in Perth, Western Australia where it was contended that Eastone Holding had not complied with its expenditure obligations under the Mining Act 1978 (WA) and no work had been done on the site. Eastone Holding’s solicitors in the proceedings were Ensign Legal and its consultant was Tenement Administration Services Pty Limited. In September 2017, Mr Tao provided accounting and documentary evidence to Ensign Legal for use in the forfeiture proceedings.

Investment and Joint Venture Agreement

8. Mr Tao became interested in investing in the mine. Eastone Holding was in need of funds to work the mining tenement and progress towards making the mine operational. On 20 October 2017, Mr Tao came to visit the mining tenements with three others, presumably the gentlemen who became directors and shareholders of Eastone Mining in due course. In November 2017, Mr Tao retained Bartier Perry Lawyers to document an agreement with Eastone Holding in respect of the investment. Mr Tao instructed his solicitor, “This investment is through a very good friend, hence we prefer the final agreement to be relatively simple”. On 17 November 2017, Eastone Mining was incorporated for the purpose of the investment: Mr Tao was one of four directors and TTBW Holdings was a 25% shareholder. A heads of agreement was signed and Bartier Perry proceeded to draft an “Investment and Joint Venture Agreement”.

9. On 21 November 2017, even before the agreement was finalised, Ms Chen lodged a Change to Company Details form with the Australian Securities and Investments Commission (ASIC) appointing Mr Tao as a director of Eastone Holding. Mr Tao forwarded the draft agreement to the defendants. WeChat messages between Mr Tao and Ms Wang indicate that Ms Wang had the documents reviewed by her professional advisor and requested various amendments. On 5 December 2017, Mr Tao provided further changes to Bartier Perry noting, “At the moment, we need to work on the tenement in order for it to be workable. This is the reason they want us in and also need our capital to do so”. Mr Tao also requested his solicitors to provide for various tranches in the agreement as “I need a bit [of] time to allow me [to] have a good assessment on the mine before putting in the funds”.

10. Mr Tao travelled to China where the Investment and Joint Venture Agreement (the Agreement) was executed on 20 December 2017. Under the Agreement, Eastone Mining agreed to subscribe for 12 ordinary shares in Eastone Holding, described as the “Tranche 1 Subscription Shares”, for $250,000: this would give Eastone Mining an 11% interest in the company. Eastone Mining also agreed to subscribe for a further 13 shares in the company, referred to as “Tranche 2 Subscription Shares”, for a price determined in accordance with clause 2.5 of the agreement:

2.5   The Tranche 2 Subscription Price will be the lesser of:

(a)   $250,000; and

(b)   any further investment required for the purposes of the Business, as determined and called on by the Board by Unanimous Resolution, or $13 if the Board either makes no such determination on or before 30 September 2018 or determines that no further investment is required.

11. Importantly, clause 3 provided:

Board of Directors and Management Milestones

3.1   On and from Tranche 1 Completion, [Eastone Mining] may nominate:

(a)   one Director at any time and may remove or substitute that Director; and

(b)   one manager at any time and may remove or substitute that manager.

3.2   The quorum for a meeting of the Board is two Directors, of which one is an EOM Director.

“EOM Director” was the director nominated to the board by Eastone Mining under clause 3.1. The Agreement did not otherwise refer to the role of the manager.

12. The parties agreed that Eastone Holding would conduct the Business — of ongoing mine tenements management and maintenance and mine lease operation for production — in accordance with the Business Plan to further the Management Milestones specified in Schedule 3 of the Agreement, being negotiations with native title holders in respect of surveying the mining lease area; management of litigation in the Perth Warden’s Court; finalising environment impact assessments, a feasibility study and mining plan; and any other tasks required as part of the mining preparation. Eastone Holding agreed to grant all operation and production rights in respect of the mining tenements to Eastone Mining on an exclusive basis once the mine became fully operational.

13. The Agreement could be terminated in various circumstances including with the unanimous agreement in writing of all shareholders: clause 15.1(a). The Agreement was to prevail to the extent of any inconsistency with the Constitution of Eastone Holding, although no Constitution was in evidence, nor does one appears to have been lodged with ASIC: clause 19.2. Finally, clause 19.5 provided that the Agreement was governed by the law of New South Wales and each party submitted to the jurisdiction of the courts in New South Wales.

14. Following entry into the Agreement, “Tranche 1 Completion” occurred and Eastone Mining was issued 12 ordinary shares in Eastone Holding. Mr Tao was nominated as Eastone Mining’s director to the board of Eastone Holding and was also nominated manager of Eastone Holding. On 27 December 2017, Ms Chen took Mr Tao to the ANZ Bank and authorised him to operate Eastone Holding’s bank accounts. In January 2018, Mr Tao wrote to LXK Consulting, copied to Ms Chen, advising that one of his first tasks was to update the financials “to truly reflect what has happened in the past”, noting that although Ms Chen had provided LXK Consulting with information in the past, he would take on that responsibility going forward. Whilst Mr Tao says he understood that the accounts for the 2016 year had been audited, going forward “I would like it to be recorded properly”. Ms Chen understood that, in the joint venture, Mr Tao would be the managing director for Eastone Holding and responsible for interacting with third parties including government departments but the mining operations would remain the responsibility of the other directors of Eastone Holding.

Falling out

15. Bartier Perry’s fees for preparing the Agreement, of $8,800, were paid from Eastone Holding’s bank account. Mr Tao says that this payment is offset by travel expenses said to be owed to him, being the costs of travelling to Karratha in October 2017, apparently to show the site to potential investors including himself. The defendants take exception to this. In February 2018, Mr Tao travelled to Karratha, apparently to show an interested investor the site. He communicated with Ms Chen about car rental and, instead, purchased a car for some $9,000. Ms Chen took exception to this, although Mr Tao says that the vehicle is used by the company on site.

16. A more significant problem shortly emerged: Eastone Holding had some $150,000 in unpaid debts, of which Mr Tao does not appear to have been aware before deciding to invest in the company. In April 2018, Mr Tao wrote to Jade City requesting the payment of these debts, including some $116,000 owed to Ngarluma Aboriginal Corporation and $21,000 owed to LXK Consulting. Mr Tao complained that the purpose of Eastone Mining’s investment was to develop the tenements towards production, not to pay down debts that were the responsibility of the “previous administration which is supported by Jade City”. Ms Chen says that she understood that the $250,000 would be used by Eastone Holding for any operational expenses including legal fees, accountants’ fees, the Ngarluma Aboriginal Corporation fees and Tenement Administration Service fees. In any event, Mr Tao negotiated the payment of LXK’s outstanding fees with Ms Li and, by mid-May 2018, had reached an agreement to pay a reduced amount of $15,000 in three monthly instalments. Mr Tao also negotiated the payment of outstanding fees owing to Ngarluma Aboriginal Corporation.

17. In June 2018, two of the directors of Eastone Holding, Mr Zhang and Ms Chen, forwarded a proposal to Mr Tao in relation to how best to progress the mine, suggesting that as the current financial situation of Eastone Holding was not conducive to deep exploration, drilling and exploration costs be kept to under $20,000. Further:

Since collaboration with [Eastone Mining] started, the financial management of Eastone has yet to conform to standards. In view of the development of the company business, financial cost will increase and there is a need to introduce rules and professionalism into our management. It is now proposed that Director Tony and Director Jing Wang must be notified in advance of every single expenditure item for Eastone company; any expenditure item more than AUD 2,000 must be signed by Director Tony and Director Jing Wang; while expenditure item more than AUD 5,000 must be signed and approved by an additional Director.

The status of this proposal is not clear, although Ms Chen appears to have proceeded upon the basis that it became a binding direction. It does appear that the directors of Eastone Holding continued to make decisions as they had done before Eastone Mining became a shareholder and before the Agreement was entered into. Ms Chen understood that the bank account would be managed by Mr Tao and herself jointly and any payment in excess of $2,000 had to be notified to Ms Wang and payments in excess of $5,000 had to be notified to Ms Wang and another director. Mr Tao says the only monetary restriction placed on the operation of the bank account was that, when he was added as a signatory, he requested that the bank put a daily threshold at $10,000.

18. In August 2018, Mr Tao issued a notice of meeting to directors of Eastone Holding proposing resolutions to:

1. reimburse him for travel costs incurred in October 2017;

2. appoint TTBW Advisory to prepare the company’s Business Activity Statements and financial statements;

3. demand the repayment of outstanding debts of some $150,000 by Jade City; and

4. in accordance with clause 2.5 of the Joint Venture Agreement, to discuss the cash flow of the company and determine whether further investment was warranted if Jade City defaulted on its payment.

Other resolutions were proposed which are not relevant for present purposes. Whilst I can well understand that Mr Tao was far from pleased to discover that Eastone Mining’s investment might be used to pay the pre-existing debts of Eastone Holding, the Agreement did not address this matter.

19. There are two versions of the minutes of the August meeting, one prepared by Mr Tao and the other by Ms Wang. Whilst both versions of the minutes recorded agreement to appoint TTBW Advisory, the minutes are otherwise dissimilar. In Mr Tao’s minutes, the company agreed to pay for the travel expenses of the October 2017 trip, whilst Ms Wang’s minutes record that the expense would be claimed for tax purposes but not actually borne by the company. What is apparent from both minutes is that there was significant disagreement about the pre-existing debts of Eastone Holding: according to Mr Tao’s minutes, if Jade City did not pay the debts quickly then Eastone Mining reserved its rights to take legal action against the company, and, if Eastone Mining was asked to take any further investment risk beyond what had been agreed, then one of the conditions for doing so would be that Eastone Mining would have control of Eastone Holding. According to Ms Wang’s minutes, Mr Tao suggested that Eastone Holding had misled Eastone Mining when it invested in the company and Eastone Mining would not bear the cost of pre-existing debts. Ms Wang considered the allegation to be very serious and vehemently denied misleading Eastone Mining and considered that the monies paid by Eastone Mining for its shares were available for general use by the company, including to pay its debts. The directors and shareholders have never really progressed beyond this issue.

20. On 6 September 2018, Ngarluma Aboriginal Corporation pressed for payment of some $90,000 and Ms Chen sent an email to all directors concurring with a proposal by Ms Wang that Mr Tao should pay the debt that day. Ms Chen sent an email to Mr Tao advising that he was obliged to abide by the resolutions of the company and thus pay the debt. There is no evidence that the company passed a resolution to that effect at the August meeting. It is apparent that the directors of Eastone Holding had a practice of circulating resolutions which, if approved by the majority of the directors, were considered binding on all. The directors did not appear to understand the ramifications of the Agreement on this practice.

21. It is reasonably clear from emails between Mr Tao and Ms Chen that, from henceforward they were at war with each other. Ms Chen insisted that Mr Tao attend to payment of the debt, noting that one of the reasons why Eastone Holding sought out an investor was to pay these bills and suggested that he was slandering her abilities. As three of the directors had agreed that the bills should be paid, he was said to be obliged to do so. Mr Tao replied, firmly suggesting that the failure to disclose these outstanding debts to Eastone Mining amounted to a misrepresentation and that, whatever rules had governed the business before the Agreement, it now governed the position of directors’ resolutions going forward. Mr Tao threatened to take legal action. He also asked Ms Chen to stay out of dealings with the Ngarluma Aboriginal Corporation and Ensign Legal as, he said, a key element of the Agreement was that Eastone Mining would control ongoing business operations.

22. Undeterred, on 13 September 2018, Ms Chen circulated a budget for mine site expenses for the 2019 financial year of some $325,000. It would appear that the other directors of Eastone Holding were interested in progressing the development of the tenement by obtaining the monies for Tranche 2 shares under Clause 2.5. Mr Zhang agreed with the budget but noted that Eastone Mining had yet to resume investment in accordance with the Agreement, and that its continued failure to provide further funds would require the board to explore new channels for financing. Mr Zhang also shared his views on Australian law and threatened to sue Mr Tao, expressing his “utmost rage” at Mr Tao’s “contempt” in rejecting the decision of the board. Mr Tao replied that he had yet to hear about Jade City’s payments of pre-existing debts and that, unless unanimous agreement was reached by 30 September 2018 under the Agreement, then Tranche 2 would be $13 only. This was not well received by Ms Wang who said that, as Ms Chen’s budget for the mine for 2019 had now been approved by three directors, it had become binding. It was suggested that Eastone Mining was attempting to blackmail Eastone Holding by withholding approval of the budget and Tranche 2. Mr Tao did not resile from his position. The way in which each of these directors thought it appropriate to communicate with one another was inflammatory and unhelpful.

23. On 26 September 2018, the registered office of Eastone Holding was changed to Mr Tao’s address in Brighton Le Sands. Whilst Ms Chen takes great exception to this, I note that LXK Consulting suggested that this be done in an email copied to Ms Chen and the directors had unanimously resolved that TTBW Advisory would take over from that firm.

24. In October 2018, Ms Wang wrote to the directors advising that, as Eastone Mining was not responding to the budget, it had become necessary for Eastone Holding to consider obtaining funding from another source and all major investments and plans for developing the mine were suspended with all company expenditure to be managed strictly. Mr Tao was urged to cancel the password put on Eastone’s account (it is not clear what account is being referred to) “and end the act of putting the company under his control, in contempt of the board”.

25. On 13 October 2018, Ms Chen filed a Change to Company Details form with ASIC, changing the registered office of Eastone Holding back to LXK Consulting. On 22 October 2018, Ms Wang issued a memorandum to the directors of Eastone Holding calling a meeting on 1 November 2018 proposing a number of resolutions. On 29 October 2018, Mr Tao wrote to the directors advising he was not available for the board meeting and asked that it be postponed but provided his comments in respect of each of the agenda items and also attached a pamphlet prepared by Bartier Perry, “A guide to director’s duties”. I assume the meeting did not go ahead.

The Warden’s Court

26. On 30 November 2018, the application for forfeiture of the mining tenements was heard in the Perth Warden’s Court. Evidence was called from Michael Henry that he had not witnessed any activities on the site. Mr Tao also swore three affidavits setting out the expenditure made on the mining tenements. Because there were problems with an affidavit sworn by Ms Chen, an adjournment was granted to enable these problems to be rectified. An extensive report of proceedings was sent by Ensign Legal to Mr Tao together with the solicitor’s invoice. In December 2018, Mr Tao attended to payment of Ensign Legal by a series of withdrawals from Eastone Holding’s bank account. These payments appear to me to have been appropriate but Ms Chen and Ms Wang were not happy given the ‘resolution’ referred to at [17].

27. In December 2018, Mr Tao became aware of a second application for forfeiture commenced against Eastone Holdings in the Warden’s Court for failure to pay royalties on the tenements. Furious emails ensued between Mr Tao and the other directors of Eastone Holding. The other directors declared that they had “had enough”. As best I can understand these emails, the directors of Eastone Holding had told Mr Tao, before the investment of Eastone Mining, that only samples had been taken from the mining tenements whilst in fact some 20 tonnes had been removed and shipped to China giving rise to an obligation to pay royalties. Further affidavits were filed by Eastone Holding on 18 December 2018 in accordance with an extension of time granted by the Warden’s Court in the first forfeiture matter.

28. On 8 January 2019, Eastone Holding received some good news, when the Department of Mines, Industry Regulation and Safety notified Mr Tao of approval to commence development and operation of the project. Mr Tao promptly notified investors in Eastone Mining and the other directors of Eastone Holding but noted that there were a number of issues which had delayed the company’s progress and needed to be resolved. In particular, in light of the royalty claim, there was an issue as to whether Eastone Holding was solvent and whether an administrator should be appointed. Perhaps oddly, Mr Tao advised that he was going to request ASIC to investigate some of the investors and directors and their related entities and asked the other directors as to their whereabouts. Mr Tao was fixated on determining the identity of those standing beyond Jade City and All Globe Limited. This appears to have been the final straw.

Ms Chen and Ms Wang step in

29. On 9 January 2019, Ms Chen asked Ensign Legal for details of legal fees paid, and Mr Tao reprimanded her for contacting the solicitor directly as it was “very unprofessional and it adds the cost to the company for no reason”. Ms Chen apparently expressed concern about the amount of legal fees paid and Mr Tao responded in somewhat inflammatory terms suggesting, inter alia, that the legal fees had been incurred by reason of her mismanagement of the company in the past. Ms Chen and Ms Wang went to the ANZ Bank and obtained bank statements from December 2017 to date.

30. On 9 January 2019, Ms Chen and Ms Wang also met with the royalties officer of the Department of Mines, Industry Regulation and Safety and explained that the company had taken about 20 tonnes of stone to China in February 2017 for sale as construction stone, but that the customer had not accepted the shipment. The stone was still in China and remained unsold. An invoice was created in January 2017 for the purpose of the sale but the company was not paid nor made any profit from the stone. According to Ms Chen, the royalties officer advised that no royalty fees were payable in the circumstances. The royalties officer required a property report to be lodged in the royalties management system as soon as possible as the stone had been shipped out to China almost two years before. The royalties officer obtained Ms Chen’s authority to inform Tenement Administration Services to do so, and Tenement Administration Services lodged the property report accordingly. On 10 January 2019, Tenement Administration Services sent an email to Ms Chen and Mr Tao, noting:

Following [Ms Chen’s] meeting with Stacey Jackson from the Mines Department, I have now lodged a production report for the March 2017 quarter for the 20050kg of chert which was extracted and shipped to China but never sold. I have also lodged NIL Royalty Returns for that period and up to the current period which ended in December 2018. Going forward quarterly Royalty Returns and Production reports must be lodged with the DMIRS Royalty reporting system. I will ensure that this is done and will assume a NIL return and NIL production report unless advised by yourself otherwise.

Mr Tao was, unsurprisingly, somewhat bewildered as to why Ms Chen and Ms Wang had taken it upon themselves to visit the Department of Mines without letting him know, and instructed Tenement Administration Services to lodge returns.

31. On the evening of 11 January 2019, Mr Tao found that his online access to Eastone Holding’s bank accounts had been disabled. He called the bank and was informed that his name had been removed as the operating authority for the accounts.

Meeting

32. Also on 11 January 2019, late in the evening, Ms Chen sent Mr Tao a notice of an urgent meeting of directors to take place at 9.00 pm, Perth time, on 16 January 2019, at which resolutions were proposed to replace TTBW Advisory with LXK Consulting and to change the company’s director. How, precisely, the company’s director was to be changed was not specified in the notice.

33. On Saturday, 12 January 2019, Mr Tao attended the bank, but staff were unable to assist him with a business banking enquiry on a weekend. He attended the police station and filed an incident report.

34. On Monday 14 January 2019, a flurry of email and WeChat communications ensued. In short, Bartier Perry wrote to ANZ Bank on behalf of Mr Tao and requested that the accounts be frozen immediately. Mr Tao advised his fellow directors that the bank accounts had been frozen as a suspected fraud had been committed and Bartier Perry had been appointed to carry out an urgent investigation. He also advised that he had received a notice of meeting that afternoon via WeChat and was unable to attend the board meeting on 16 January 2019 and requested the meeting be postponed to a later date. He also asked Eastone Holding’s solicitors to stop work due to an immediate cash flow issue with the company. His actions, with respect, appear to have been an overreaction on his part, as it must have been readily apparent to him who had changed the authority to operate the bank account, and likely why, even if they should not have done so.

35. On 15 January 2019 at 6.14 pm, Ms Wang wrote to the directors of Eastone Holding giving a friendly reminder that there was a directors’ meeting to be held at 9.00 am the next morning. Attached to the email was the notice of meeting which referred to the meeting taking place at 9.00 pm.

36. On 16 January 2019, Mr Tao replied that he was not available for a meeting at 9.00 pm Western Australian time, which was midnight in New South Wales, and complained that the notice given was too short. The suggested resolution to change the company’s director was said to be meaningless and, if it was suggested that he be replaced, clause 3 of the Agreement provided that the company must have a director from Eastone Mining at any time and it was for Eastone Mining to remove him, not Eastone Holding. Nor did he agree to the meeting being held by WeChat. Ms Wang replied that the meeting had been rescheduled at noon Perth time, that day, that is, 3.00 pm New South Wales time, to be held at the company’s registered office at LXK Consulting in Subiaco and by WeChat link. Mr Tao replied that being given less than two hours’ notice of a meeting was unreasonable and that was he unavailable for a meeting at that time in any case. Nor did he consent to the use of technology to hold a meeting under section 248D of the Corporations Act 2001 (Cth).

37. The meeting took place in any event. Ms Chen attended in person and the other directors via WeChat. The company’s accountant was replaced with LXK Consulting. (Ms Chen complains that there are outstanding BAS statements due to be lodged for Eastone Holding, while Mr Tao says that, as there is no GST liability, late lodgement will not incur any penalty.) Critically, the minutes record that the following resolution was passed:

As the director of the Company as well as the director of Easton Mining Pty Ltd, Tony Tao has been acted in conflict of interests. All directors present at the meeting believe that Tony Tao manipulated and overruled other directors of the Company and he declared that the Board is dysfunctional. His manner and behaviours have affecting the Company normal operating.

All directors have passed this resolution that Tony Tao is no longer suitable to be the director of the Company and shall be removed immediately.

The minutes also record that Mr Tao had transferred more than $10,000 from the company’s account without the board’s approval, which I take to be a reference to the payment of the company’s solicitors, and that he had frozen the company’s bank accounts unilaterally. One overreaction was met with another.

Removal of director

38. On 17 January 2019, Ms Chen lodged a Change to Company Details form with ASIC to remove Mr Tao as a director of the company. Mr Tao sent the directors of Eastone Holding a proposed costs agreement with Bartier Perry in relation to the investigation into the suspected fraud. Mr Tao, having obtained more information from ANZ Bank as to what had happened, found that there were now three signatories to the account being Ms Chen, Ms Wang and himself, and that a restraint had been placed on the account. Mr Tao reprimanded Ms Wang for having added herself as a signatory to the account without his approval or consent and requested that all signatories go to their bank branch to unlock the restraint and also for Ms Wang to remove herself as a signatory.

39. On 18 January 2019, letters before action were sent by Bartier Perry for Mr Tao. On 21 January 2019, Ideal Legal Services of Perth wrote to Bartier Perry on behalf of Eastone Holding and other directors, advising that Mr Tao was not authorised to retain Bartier Perry to conduct an investigation for Eastone Holding as he had been removed as a director. Various allegations were made in the letter, both against Mr Tao and Bartier Perry. Notwithstanding clause 3 of the Agreement, the resolutions passed at the meeting on 16 January 2019 were said to be valid as Mr Tao had deliberately and wilfully not attended in order to vitiate the meeting and endanger the functioning of the company.

Further notices of meeting

40. On 24 January 2019, Ms Wang issued a notice of urgent meeting of shareholders to be held on 31 January 2019 with the agenda including the approval of the minutes of meeting on 16 January 2019 and to discuss whether to terminate the Agreement.

41. On 25 January 2019, these proceedings were commenced before Lindsay J as Duty Judge. Orders were made for short service and an interim injunction was granted restraining the defendants from holding the meeting on 31 January 2019, or from removing Mr Tao’s authority to operate Eastone Holding’s bank accounts, or from authorising any transactions on those accounts without his prior written consent. Mr Tao sought the authority of Ms Wang and Ms Chen to make two outstanding payments to Ensign Legal and ASIC. Ms Wang replied that the bank account had been frozen at his request and thus he should arrange for the bank account to be unfrozen so that the outstanding bills could be paid.

42. By 29 January 2019, the stop on the accounts had been removed by ANZ Bank. Also on that day, Ms Wang again circulated a notice for an urgent meeting of the shareholders of Eastone Holding, to be held on 15 March 2019 in China with the same agenda as for the proposed meeting on 31 January 2019. Mr Tao objected to the notice of meeting, saying that it should take place in Australia or otherwise by way of WeChat or some other form of agreed technology. Mr Tao expressed concerns for his personal safety in travelling to China, given threats that were said to have been made to him. Further, if there was a dispute under the Agreement or the other directors wished to terminate it, then they needed to do so in accordance with the Agreement; it was not a matter on which shareholders could simply vote. Mr Tao said he was prepared to discuss the future of the joint venture but this need not take place at a meeting of the company. Ms Chen believed that Mr Tao would not attend any directors’ meetings unless organised by him and in his way.

Relief sought and submissions

43. Eastone Mining sought a declaration that the 16 January meeting was not validly convened; that all business transacted at the meeting including the resolution to remove Mr Tao as a director was null and void and of no effect; and an order restraining the directors of Eastone Holding from convening another meeting without a proper quorum as required by clause 3.2 of the Agreement or resolving to Mr Tao or any other nominee of Eastone Mining as a director of the company, being a restraint of the threatened further interference with Eastone Mining’s rights: Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185; [2005] NSWSC 1005 at [162]; In the matter of BG Iron and Steel Pty Ltd [2014] NSWSC 1283 at [30]–[34]. Eastone Mining also sought an order requiring the defendants to take all necessary steps with ASIC to have Mr Tao reinstated as a director of the company.

44. Eastone Mining submitted that there are four reasons why the purported resolution removing Mr Tao as a director was invalid. First, the directors of Eastone Holding did not have the power to remove a fellow director. The company has not adopted a constitution pursuant to section 136 of the Corporations Act and thus the replaceable rules applied: section 135. Section 203C provides that a proprietary company may by resolution remove a director from office, and may by resolution appoint another person as a director instead. That is, the power to remove a director from office is given to the shareholders in general meeting, not to the directors. Therefore, the directors did not have the power to pass any resolution removing Mr Tao as a director of the Company. The purported resolution was ultra vires.

43. Second, Ms Chen and Ms Wang failed to give Mr Tao reasonable notice of the 16 January meeting. Section 248C of the Corporations Act provides that a directors’ meeting may be called by a director giving “reasonable notice” individually to every other director. In Bell v Burton (1993) 12 ACSR 325 at 329, Tadgell J said that an “ineluctable prerequisite for a valid meeting is reasonable notice, to those entitled to attend, that a meeting will be held, and an indication of when and where or how it will be held”. The purpose of adequate notice is not of “ensuring that the directors’ interests will be represented, but of ensuring that a director will be able to make the necessary representation of the interests he or she has in his or her hands” (at 329). What constitutes a “reasonable” time for notice of the meeting depends upon the circumstances and its limit is determined by what is fair to all parties: Hickey v Aselford [2003] NSWSC 185 at [26] per Gzell J. However, in the absence of some exceptional circumstances, ordinarily notice of a meeting about to be held instanter would not constitute reasonable notice: Petsch v Kennedy (1971) CLC ¶40-015 at 27,191–2 (Jacobs JA, with whom Holmes JA agreed); McMaster v Eznut (2006) 58 ACSR 199; [2006] WASC 109 at [167]. In the circumstances, Mr Tao was not given reasonable notice of the meeting and the business transacted at the meeting was a nullity: Bell v Burton at 329.

44. Third, the directors’ meeting was proposed to be held via WeChat. Previous directors’ meetings had been held in person, and Mr Tao did not consent to the use of WeChat for holding directors’ meetings. Therefore, holding the proposed meeting by WeChat contravened section 248D of the Corporations Act because not all of the directors (namely Mr Tao) had consented to using that technology to hold directors’ meetings.

45. Fourth, the meeting was held in breach of the Agreement as it lacked a properly constituted quorum as required by clause 3.2. Eastone Mining’s nominee, Mr Tao, did not attend the meeting. In these circumstances, it was submitted that the Court could issue a mandatory injunction to enforce the terms of clause 3.2 to reverse the outcome of the meeting: see In the matter of Lesso Building Material Trading (Sydney) Pty Ltd (administrators appointed) [2018] NSWSC 1486 at [23] per Black J. However, it was submitted that such relief would not be necessary if the Court was otherwise satisfied that the meeting, and the business transacted at that meeting, was a nullity.

46. By notices of meeting issued since the commencement of these proceedings, it was said to be plain that the defendants wished to convene a meeting to remove Mr Tao as director and terminate the Agreement. The notice of 24 January 2019 was said to be invalid because it contravened section 249H of the Corporations Act by failing to give at least 21 days’ notice of the proposed meeting of members. The second notice issued on 29 January 2019 was said to be invalid because it contravened section 249R of the Corporations Act by proposing that the meeting to be held in Beijing, and requiring attendance in person. The proposed meeting was not convened at a reasonable time and place. Eastone Mining submitted that such resolutions could not be validly passed by the members of Eastone Holding at any meeting of members because the members, being Eastone Mining and Jade City, are bound by the terms of the Agreement and it would be a breach of the Agreement by Jade City if, as a member of the company, Jade City exercised its votes as a member to pass such resolutions which removed Mr Tao as Eastone Mining’s nominee director, in breach of clause 3.1, or terminated the Agreement without the shareholders’ unanimous consent in breach of clause 15.1.

47. Eastone Mining submitted that the court should declare that Jade City is not entitled to use its voting rights as a shareholder of Eastone Holding to pass a resolution purporting to remove Mr Tao as a director and restrain Jade City from exercising its voting rights in that way. Likewise, it was submitted, the Court should declare that Jade City was not entitled to use its voting rights as a shareholder of the company to pass a resolution purporting to terminate the Agreement and, further the Court ought to restrain Jade City from using its voting rights as a shareholder to do so. Further, it was submitted, the Court should make a declaration that it is not “reasonable” within the meaning of section 249R of the Corporations Act for the company to convene a meeting of its members in person in Beijing, China, or any other place outside of Australia.

48. Finally, Eastone Mining submitted that the Court should order the defendants to reinstate Mr Tao as a signatory of the company’s bank accounts as his ability to manage the company, as provided for by the Agreement, would otherwise be frustrated.

49. The defendants’ submissions sought a range of orders, notwithstanding that no cross-claim had been filed, and made a number of serious allegations against Mr Tao unsupported by the evidence and which I will not repeat in this judgment. By these submissions, the defendants requested that the matter be transferred to Western Australia, although no Interlocutory Process was filed seeking such an order, nor was such an application envisaged by the orders I made at the conclusion of the hearing. At their heart, the defendants’ submissions queried how Eastone Holding could retain a director such as Mr Tao who, it was said, was not acting in the interests of Eastone Holding. The Agreement was not considered to affect the existing management arrangements for the company or its directors.

Effect of the Agreement

52. At the core of this dispute is, it seems to me, a lack of understanding on the part of the defendants as to the effect of the Agreement. The purpose which may be served by a shareholders agreement was explained by the learned Professor Sealy in an early article (L.S. Sealy, “The Enforcement of Partnership Agreements, Articles of Association and Shareholder Agreements” in P.D. Finn, ed., Equity and Commercial Relationships (Law Book Company, 1987)) at 107–108:

A shareholder agreement is, of course, a contract and … is in principle enforceable by all the normal contractual remedies, including damages, mandatory and restraining injunctions and specific performance …

The typical shareholder agreement, as we normally think of it, will be an express contract, made between all the founders or proprietors of a smallish company — an incorporated joint venture, a “quasi-partnership” or a family business. The device can regulate virtually every aspect of internal management within the company, so as to exclude or restrict the operation of the principle of majority rule and most of the other accepted fundamentals of corporate governance.

53. Section 134 of the Corporations Act provides:

Internal management of companies

A company’s internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution or by a combination of both.

Section 135 provides that the replaceable rules apply to companies as modified by the company’s constitution. Section 136 provides that a company adopts a constitution, relevantly, by special resolution. Whether the Agreement can displace or modify the replaceable rules is unclear. I was not taken to, and have not found, authority which decides the point. The interaction between a shareholders’ agreement and a constitution has been considered, for example, Russell v Northern Bank Development Corp Ltd [1992] 3 All ER 161; [1992] BCLC 1016; Cody v Live Board Holdings Ltd (2014) 97 ACSR 606; [2014] NSWSC 78; Shearwood (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 1451, and by me in In the matter of Mosman & Co Pty Ltd [2019] NSWSC 1155. In Re Rectron Electronics Pty Ltd [2013] VSC 384, it was held that the principle of unanimous assent (see Re Duomatic [1969] 2 Ch 365; [1969] 1 All ER 161) can have the effect that a shareholders’ agreement can, without more, amend a company’s constitution, being effective “as a resolution of the members”: at [68]. In this case, the Agreement refers to a Constitution although there is no evidence that there was in fact a constitution. It may be that the Agreement stood as the company’s constitution as it was adopted unanimously by the members and thereby displaced or modified the replaceable rules.

54. Here, in return for an initial investment of $250,000 and the prospect of further investment by Eastone Mining, Jade City agreed to modify the way in which Eastone Holding conducted its business going forward: Eastone Mining would be represented on the board of directors and would appoint a manager to the company; the company would undertake a series of tasks directed to bringing the mine into operation at which point Eastone Mining would be entitled to operate the mine. To the extent that the directors of Eastone Holding had, before entry into the Agreement, formed ways of making decisions and running the business, the Agreement obliged them to change these decision-making processes going forward so that Eastone Mining was represented in that decision-making process. Thus, in this case, although Eastone Mining was only an 11% shareholder after its initial investment, the Agreement gave Eastone Mining important rights in the management of Eastone Holding which its directors and Jade City were legally obliged to observe. That does not mean that Mr Tao was entitled to take each of the actions which he did, but it does mean that Ms Chen and Ms Wang were not entitled to take matters into their own hands to remove him. The framework for decision-making was now in the Agreement which amended Eastone Holding’s Constitution, if indeed it had one.

Removal of director

55. Importantly, the defendants were not entitled to remove Mr Tao under the Agreement. Clause 3 (set out at [11]) provided that Eastone Mining was entitled to appoint one director and to remove or substitute that director for another. That does not mean, of course, that Eastone Mining had the ability to control the decisions made by the board, as Mr Tao was one of five directors, but simply that he could not be removed from the board by anyone other than Eastone Mining.

56. No power for the directors to remove Mr Tao by resolution exists outside the Agreement either. Section 203C of the Corporations Act provides:

Removal by members—proprietary companies (replaceable rule—see section 135)

A proprietary company:

(a)   may by resolution remove a director from office; and

(b)   may by resolution appoint another person as a director instead.

57. As the authors of Ford, Austin & Ramsay’s Principles of Corporations Law explain (LexisNexis, looseleaf) at [7.230.3]:

In proprietary company the members in general meeting cannot by majority remove a director unless the constitution or, if the company is one to which the replaceable rules apply, s 203C confers that power. Section 203C provides that a proprietary company may by resolution remove a director from office. Any attempt to remove a director without that power would be an attempt to vary the contract as between members and between the director and the company that the directors shall hold office for the period contemplated by the constitution.

See likewise Austin & Black’sAnnotations to theCorporations Act (LexisNexis, looseleaf) at [2D.203C]: (emphasis added)

Section 203C, where it applies as a replaceable rule, confers constitutional authority on the shareholders of a proprietary company to remove a director from office by ordinary resolution (that is, a resolution passed by the majority of those present and voting at the meeting, without any special notice requirement).

58. By the notice of meeting of 11 January 2019 and the minutes of meeting on 16 January 2019, the directors purported to remove Mr Tao as a director and, according to the Agreement and section 203C, they did not have the power to do so, absent such power being conferred by a constitution of the company: cf. Lee v Chou Wen Hsien [1984] 1 WLR 1202; [1985] BCLC 45 (Privy Council). As I have said, there is no evidence of any constitution conferring such a power here. It is appropriate to make a declaration to that effect, and to order ASIC to rectify its register accordingly: having regard to the circumstances, I consider that the prerequisite in section 1322(6) to the making of an order under section 1322(4)(b) is amply satisfied.

Conduct of meetings

59. The Agreement did not make any provision for the calling of meetings, or the conduct of meetings, save that clause 3.2 provided that, for a quorum, two directors had to be present, of whom one had to be the director appointed by Eastone Mining: set out at [11]. Thus the Agreement may be considered to modify section 248F of the Corporations Act, being a replaceable rule to the following effect:

Unless the directors determine otherwise, the quorum for a directors’ meeting is 2 directors and the quorum must be present at all times during the meeting

60. Section 248C of the Corporations Act provides that a director’s meeting — and that is what Ms Wang called on 16 January 2019 — may be called by a director giving reasonable notice individually to every other director. Further, section 248D provides:

A directors’ meeting may be called or held using any technology consented to by all the directors. The consent may be a standing one. A director may only withdraw their consent within a reasonable period before the meeting.

Section 248G(1) provides that a resolution of the directors must be passed by a majority of the votes cast by directors entitled to vote on the resolution. To call a meeting of members, section 249H provides that at least 21 days’ notice must be given although a company’s constitution may specify a longer minimum period of notice and, if members with at least 95% of the votes that may be cast at the meeting agree beforehand, a company may call a meeting on shorter notice.

61. The notice of meeting was sent on Friday, 11 January 2019 at 10.19 pm and sent again on Monday 14 January 2019 at 12.14 pm, with a “friendly reminder” sent on Tuesday, 15 January 2019 at 6.14 pm, albeit changing the time of the meeting from 9.00 pm the following day to 9.00 am. It is not necessary to consider whether this amounted to giving reasonable notice to Mr Tao, or whether he could be taken as having consented to holding a meeting using technology, as assuming that all of those requirements had been complied with, the directors attending the meeting on 16 January 2019 did not have the power to remove Mr Tao as a director, either under the Agreement or the replaceable rules.

62. The notice of meeting issued on 24 January 2019 was for an urgent meeting of shareholders. The problem with this notice was that, although the meeting sought to be called was of shareholders rather than directors and the shareholders, under the replaceable rules at least, had the power to remove a director:

1. Section 249H required at least 21 days’ notice to be given, and only seven days was given, although this would be “automatically” cured by section 1322(2).

2. Approving the minutes of the directors’ meeting of 16 January 2019 may cure the ultra vires quality of the resolutions made by the directors but not the fact that removal of Mr Tao as a director was in breach of the Agreement.

3. As the Agreement provided that it could be terminated if there was unanimous agreement in writing signed by all shareholders of Eastone Holding (clause 15.1(a)), it was not a matter which could be terminated by a resolution at a meeting of shareholders.

63. On 29 January 2019, Ms Wang issued a third notice of an urgent meeting of shareholders, this time to take place on 15 March 2019. The requirement for 21 days’ notice, at least, had been cured, but the same items to be discussed at the meeting were problematic for the reasons already set out. Further, the meeting was to take place in Beijing.

64. Section 249R requires that a meeting of members be held at a reasonable time and place. As Middleton J explained in Wun v CellOS Software Ltd (2018) 132 ACSR 316; [2018] FCA 1947 at [67]: (emphasis added)

The requirements of s 249R apply to both annual general meetings and other general meetings of members. The section imposes an obligation on directors when deciding the time and place of the annual general meeting to have regard to the convenience of members in being able to attend the meeting. There is a common law principle that directors have a fiduciary duty to convene meetings of members at a time and place suitable for members to attend: Smith v Sadler (1997) 25 ACSR 672. …

See also Smith v Sadler (1997) 25 ACSR 672; (1997) 15 ACLC 1,683 per Young J, as to the position at general law, Howard v Mechtler (1999) 30 ACSR 434 at 444; [1999] NSWSC 232 per Austin J as to the interrelationship between the general law duty and the newly-introduced Corporations Law provision; Colbern Nominees Pty Ltd v Prime Minerals Ltd (2009) 74 ACSR 236; [2009] WASC 289 per Le Miere J at [12].

65. While any breach of this section will turn of the facts of the particular case, the requirement is not a trivial one. As von Doussa J said in Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 at 93:

An annual general meeting is not a mere formality, particularly for members who have no other opportunity to ask questions about the affairs of the company, To hold a meeting at a time and place where members are unlikely to be able to attend is tantamount to not holding a meeting at all.

I consider his Honour’s observations apt in this case, notwithstanding that the meeting was not an AGM. I have not found any reported cases in which a meeting of an Australian company was conducted overseas, although it may well be that a reasonable place to hold a meeting would be overseas in the circumstances of a particular company.

66. Eastone Holding is an Australian company. It conducts business in Karratha, Western Australian. The minority shareholder, Eastone Mining, is also an Australian company based in Sydney whilst the other majority shareholder, Jade City, is a Hong Kong company. Some of Eastone Holding’s five directors live in China although it is not clear to me which directors live there and, at least according to the addresses for the directors as notified to ASIC, none lives in Beijing. It does not seem to me that a reasonable place to hold a meeting of members in these circumstances is Beijing. Further, in circumstances where the members of a company are in dispute, it would be prudent to select the venue for a meeting conservatively and meet locally.

67. Having entered into the Agreement, Jade City and Eastone Mining are contractually bound to conduct the business of Eastone Holding in accordance with that Agreement or, if the Agreement is silent on a particular subject, then by reference to the replaceable rules or the general law. This means that Jade City cannot remove the director or manager appointed by Eastone Mining or terminate the Agreement, other than in accordance with the Agreement. In circumstances where Eastone Mining has made a contribution to the company’s activities of $250,000 and, under the Agreement, may be obliged to contribute further funds, this was the bargain that was struck with Jade City and which it is contractually obliged to adhere to.

68. Going forward, there is nothing to stop meetings of the directors being called on giving reasonable notice or meetings of the members being called on giving 21 days’ notice and being held in a reasonable place. But resolutions passed at such meetings cannot endeavour to produce a result which is contrary to the Agreement. That does not mean that Eastone Mining is entitled to have final say at such meetings: Eastone Mining is only an 11% shareholder and, whilst entitled to be present at any meeting of the board, it does not have a casting vote and may well be out-voted by the directors appointed by Jade City. Of course, the obligations of the parties to avoid engaging in oppressive conduct contrary to section 232 of the Corporations Act ought not be forgotten.

66. Nor can Eastone Mining or its nominee, Mr Tao, bring the operations of Eastone Holding to a halt by absenting itself from board meetings properly convened. Whilst these matters were not the subject of argument — the defendants being unrepresented and there being, for practical purposes, no contradictor — the following matters come to mind:

1. The director appointed by Eastone Mining to Eastone Holding has a statutory obligation to exercise their powers and discharge their duties with reasonable care and diligence, in good faith in the best interests of Eastone Holding and for a proper purpose (sections 180, 181, Corporations Act) and must not improperly use their position to gain an advantage for someone else (such as Eastone Mining) or to cause detriment to the company (section 182, Corporations Act).

2. A general obligation of co-operation arises in contract law, such that Eastone Mining is obliged to perform its obligations in good faith and not to derogate from the grant of rights conferred by the Agreement on Eastone Holding (Mackay v Dick (1881) 6 App Cas 251; Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635 at 659; [1993] HCA 45; Commissioner of Taxation v Sara Lee Household & Body Care (Aust) Pty Ltd (2000) 201 CLR 520 at 547; [2000] HCA 35), which may include an agreement to work together to bring the mine into operation by achieving the Management Milestones, such work to be achieved in the ordinary course by the directors making decisions at board meetings.

3. In extraordinary circumstances, the general meeting may exercise the power of the board when the board in unable to act (see Ford, Austin & Ramsay’s Principles of Corporations Law at [7.130]).

This is not to say that Eastone Mining or Mr Tao have breached any of the obligations thus far but simply to say that, going forward, Eastone Mining, as well as Jade City, is obliged to honour the terms of the Agreement.

70. Eastone Mining also seeks orders that Mr Tao be reinstated as a signatory of Eastone Holding’s bank account. As I understand it, Mr Tao remains a signatory of the bank account together with Ms Chen and Ms Wang and it is not necessary to make such an order. Although the Agreement provides that Eastone Mining is entitled to appoint a manager, the Agreement is otherwise silent as to how the bank accounts may be operated and by whom. Given the level of disputation between the parties, it is probably sensible that payments be approved by Mr Tao and a second director. Directors of Eastone Holding need to reach a practical arrangement to ensure that the company’s debts can be paid as and when they fall due, failing which an application might be made by either a creditor or by a shareholder to appoint a liquidator, for example, on just and equitable grounds.

71. Eastone Mining also sought further orders to restrain Jade City from exercising its voting rights as a shareholder of Eastone Holding to cause it to terminate the Agreement. Such relief does not appear to me to be necessary as the Agreement does not provide for Eastone Holding to terminate the Agreement itself and thus it does not matter whether Jade City agitates for this result or not.

Orders

72. For these reasons, I make the following orders:

1. Declare that the resolution passed at the meeting of directors of the first defendant on 16 January 2019 to remove Tony Tao as a director of the first defendant was null and void and of no effect.

2. Order pursuant to section 1322(4)(b) of the Corporations Act 2001 (Cth), that the register of organisations kept by the Australian Securities and Investments Commission be rectified to record that Tony Tao is and has been a director of the first defendant at all times since 20 November 2017.

3. Order the defendants to take any and all necessary steps to have Tony Tao reinstated as a director of the first defendant in the register of organisations kept by the Australian Securities and Investments Commission.

4. Direct the plaintiff to serve a copy of these reasons and orders on the Australian Securities and Investments Commission.

5. Order that the second, third, fourth and fifth defendants are restrained from passing, or purporting to pass, any resolution at any meeting of directors of the first defendant to remove Tony Tao or any other nominee of the plaintiff as a director of the first defendant.

6. Declare that the sixth defendant is not entitled to use its voting rights as a shareholder of the first defendant to remove the plaintiff’s nominee director, Tony Tao, as a director of the first defendant.

7. Order that the sixth defendant is retrained from exercising its voting rights as a shareholder of the first defendant to remove the plaintiff’s nominee director, Tony Tao, as a director of the first defendant.

8. Order that the defendants pay the plaintiff’s costs of the proceedings.

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