Flinders Diamonds Ltd v Tiger International Resources Inc & Ors No. Scciv-02-1281

FLINDERS DIAMONDS LTD
v
TIGER INTERNATIONAL RESOURCES LTD & ORS
[2004] SASC 119
Full Court: Prior, Debelle and Bleby JJ

THE COURT: On 29 May 2003 a judge of this Court held that the defendants Mr Barry and Mr Campbell had, in breach of s 606 of the Corporations Act 2001 (Cth), reached in June 2002 an agreement or understanding to remove the incumbent directors of the respondent Flinders Diamonds Ltd and to replace them with their own nominees. This was, the judge held, part of a plan for Mr Campbell to become the managing director of Flinders Diamonds Ltd The judge held that for this purpose Mr Barry had in accordance with the agreement or understanding with Mr Campbell, requisitioned a general meeting of the shareholders of Flinders Diamonds Ltd. In accordance with the requisition, the directors of the company had convened the meeting to be held on 5 September 2002. We will later refer to the judge’s findings in more detail.
The judge later heard argument as to the nature of the relief which should be granted. On 12 June 2003 he made the following declarations:
“1Each of the defendants is in breach of s 606 of the Corporations Act (“the Act”).
2 Each of the defendants is in breach of s 671B of the Act.
3Each of the first, second and third defendants is in breach of s 672B of the Act.
4The general meeting of [Flinders Diamonds Ltd] requested by [the defendant Mr Barry], originally to be held on 15 October 2002 and since adjourned (“the General Meeting”) is to be held for an improper purpose.”
The judge then made an order that the general meeting to be held on 15 October 2002 not be held and made further orders divesting each of the first four defendants of their shares in Flinders Diamonds Ltd and investing those shares in the Australian Securities and Investment Commission (“ASIC”). He also ordered that ASIC dispose of those shares within six months from the date of his order for the best price reasonably obtainable, the proceeds to be paid into court pending the further order of this Court. Finally, he ordered that the defendants be restrained from acquiring any interest in Flinders Diamonds Ltd.
The defendants have appealed against the decision and the orders which have been made. The order that ASIC sell the shares has been stayed pending the hearing and determination of this appeal.
In these reasons we will refer to the appellants as “the defendants”. On occasions we will refer to witnesses by their surnames only and intend no disrespect in doing so.
The Parties
Flinders Diamonds Ltd (“Flinders”) is a company listed on the Australian Stock Exchange. It carries on business as an explorer for diamonds in tenements in South Australia, the Northern Territory and in Western Australia. Its directors are Mr Robert Kennedy, Dr Kevin Wills and Mr Ewan Vickery. Mr Kennedy is chairman and Dr Wills is managing director. Flinders has issued 58 million ordinary shares. It has not issued other shares. As this appeal concerns ordinary shares only, we will for convenience refer to the ordinary shares simply as “shares”.
The first defendant Tiger International Resources Inc. (“Tiger Resources”) is a company incorporated in Canada. It holds 17,269,292 shares in Flinders, which is approximately 29.74 per cent of the shares in Flinders.
Mr Patric Barry, the second defendant, is and was at all material times the president and chief executive officer of Tiger Resources and one of its directors. He holds 4 million shares in Flinders, some 6.89 per cent of its shares.
Mr Anthony Campbell is the third defendant. He holds 1 million shares in Flinders, being about 1.72 per cent of its shares. Mr Campbell is the sole director and shareholder of Campbell Corporation Pty Ltd, the fourth defendant, which holds 225,000 shares in Flinders, some 0.39 per cent of its shares. Mr Campbell is also the sole director and shareholder of Balance Tax Pty Ltd which holds 100,000 shares in Flinders, some 0.17 per cent of it shares.
By a letter dated 12 August 2002 Steinepreis Paganin, solicitors for Mr Barry, requisitioned on behalf of Barry a general meeting of shareholders of Flinders pursuant to s 249D of the Corporations Act. The purpose of the meeting was to consider and pass resolutions to remove Messrs Kennedy and Vickery as directors and appoint in their place Mr Lindsay Hay, Mr Joe Cornelius, and Mr John Campbell (the father of the defendant Mr Anthony Campbell). This request was superseded by a request dated 15 August 2002 in which Mr Adrian Lungen was substituted for Mr Cornelius who had withdrawn his consent for nomination as a director. On 5 September 2002 the directors of Flinders convened the meeting which was to have been held on 15 October 2002.
On 11 September 2002 Flinders instituted this action seeking declarations that all five defendants had breached s 606, s 671B, and s 672B of the Act and ancillary relief. Flinders also sought and obtained an injunction restraining the holding of the meeting which had been convened for 15 October 2002.
Flinders claim that the defendants Barry and Campbell had made an arrangement to vote their respective shares and the shares of the defendant companies to remove the board of Flinders and replace them with their own nominees. Having done so, they intended to cause Campbell to become managing director.
The Grounds of Appeal
The Notice of Appeal lists 19 separate grounds. Ground 19 was withdrawn. It was in these terms:
“19Should the above grounds of appeal fail, then the appellants appeal on the further ground that sections 671B, 672B and 1325A infringe the prohibition in the Constitution, Section 51(xxxi), against the acquisition of property otherwise than on just terms, to the extent that they may vest the shares of the appellants in ASIC for failing to lodge those notices.”
Noting that this ground raised a question arising out of the Constitution or involving its interpretation, we asked whether notice had been served under s 78B of the Judiciary Act 1903 (Cth). On being informed that notices had not been served, we expressed the view that, if that ground was to be pressed, the Court had no alternative but to adjourn the hearing of the appeal pending service of the notices. After obtaining instructions, Mr Robson, counsel for the appellants, sought and obtained leave to withdraw ground 19.
The defendants appeal against the findings that they have acted in breach of the Corporations Act. Should that appeal fail, they contend that the orders divesting them of their shares should be set aside. The defendants further complain that the judge made several critical errors in the conduct of the trial. It is not necessary to examine each of the separate grounds of appeal. All have been addressed in these reasons.
The Findings of Fact
The objective facts are not in dispute. No ground of appeal disputes any particular finding of fact. The issues on the appeal are against the findings that Barry and Campbell had acted in breach of s 606, s 671B and s 672B and essentially concerned the inferences to be drawn from the proved facts.
The trial judge was critical of the evidence of Barry and Campbell, describing it as unreliable. He found that Barry had been evasive in cross-examination. He disbelieved the evidence of both Barry and Campbell denying the allegation that they had made an express agreement for the purpose of taking control of the board of Flinders with a view to installing Campbell as managing director. Having read all of the oral evidence and the documents, we respectfully agree with the judge’s conclusions. Both were plainly evasive in cross-examination. The explanations given by each for the documents which were produced to them in the course of the cross-examination are not credible. There is no ground on which to interfere with the judge’s findings of fact.
It was not disputed that from June 2002 Messrs Barry and Campbell both were active in a common endeavour to replace Messrs Kennedy and Vickery as directors of Flinders and to install Campbell as managing director. The real issue concerned the question whether there was any agreement to vote in breach of s 606 of the Corporations Act.
Flinders was incorporated on 11 January 2000. Barry was one of its original directors and was its first chairman. Early in 2000 Flinders had acquired from Tiger Resources its mineral rights to an exploration project in the southern Flinders Ranges known as the “Springfield Project” as well as rights to other land in the Adelaide Hills.
On 1 December 2001 Barry reluctantly resigned both positions because of concerns which had been expressed as to a perceived conflict of interest. He also resigned his position as a consultant to Flinders. Mr Kennedy was appointed to the board to replace Mr Barry as chairman.
A principal concern of Mr Barry from the time when Flinders had been floated was to implement a scheme to distribute among the shareholders of Tiger Resources the Flinders shares held by Tiger Resources. Mr Barry wanted the distribution to occur at a time when the market was sufficiently strong to absorb the potential selling pressure.
By mid-2002 Barry was quite dissatisfied with the performance of the directors of Flinders. His dissatisfaction was directly related to the sagging market price of the shares in Flinders. This led Barry to develop with Campbell a common interest in implementing a plan for the management of Flinders which would cause the market to view its prospects in a more favourable light.
On 22 May 2002 Flinders issued a public statement giving notice that drilling in the Springfield Basin was about to commence with a target depth of about 480 metres. This caused Barry some concern. On 23 May 2002 he sent an email to Mr Vickery expressing his concerns and suggested that he be invited to re-join the board of Flinders.
On 27 June 2002 Barry sent to Dr Wills an email noting several concerns and stating that he was supporting Campbell in seeking to obtain a place on the board. The email was in these terms:
“Dear Kevin
Flinders is trading now at ten cents a share.
I’ve asked you three times to give me a timetable for a period during which there may be a period when I can distribute the Flinders shares to the Tiger shareholders as I committed to do. Yet the share price keeps declining, and I see no effort - absolutely no effort - on your part to repair the trend to lower prices with abysmal trading volume.
While you are a genius of a geologist, you clearly have no clue as to what it takes to run a public company, and it is time for a change.
In the short run, I’m going to indicate to Anthony Campbell that he has my support to come in and do whatever he can to repair the condition of the company and the Flinders market. Clearly, he couldn’t do as poorly as the existing management has done - which is absolutely nothing.
I’ll copy this email to Anthony Campbell - at least he’s interested in coming in…
Anthony - good luck to you, sir … I hope that you have better success with running Flinders for the benefit of the shareholders.”
He sent a copy of the email to Vickery and to Campbell. The copy to Campbell was accompanied by the following note:
“You asked my position a couple of days ago … read the other e-mail I just sent to Kevin, and this should explain it all.
I suggest that you call Kevin now and tell him that you wish to be invited to join the board of directors of Flinders Diamonds - if not, call a shareholders meeting and I’ll vote you on.
All I can say is good luck – and let me know what you are doing please on a daily basis if need be. Flinders today is ten cents – and this is absolutely unforgivable - I’d like to see this repaired as soon as possible, and I hope that you can do it.”
Later on 28 June 2002 Barry sent another email to Campbell after talking with Mr Peter Taylor, a former director of Flinders:
“Had a nice chat with Peter … and I let him know that you have my irrevocable proxy. Good Luck - I’ll wait for the proxy to come for a) Tiger and b) my own shares.”
It is clear, therefore, that at that time Barry was seeking to reconstitute the board of Flinders and intended to give Campbell an irrevocable proxy to vote to achieve that objective.
On 28 June 2002 Wills received a telephone call from Campbell. He made a file note of the conversation which is in these terms:
“Anthony Campbell phoned and, although I did not know which parts of his call to believe, he did have some interesting things to say.
Anthony said he was phoning to try to resolve things amicably rather than have a public bunfight. Anthony told me that Patric Barry does not want to be directly involved with Flinders, but he (PB) would put Anthony on the Board.
Anthony said that he had been offered another board position in Perth. He also said that he (AC) and Patric had done their sums and could speak for over 50% of the shares. I said that I did not believe him because of the number of small shareholders who have a total of over 28% of the vote. Anthony’s reply was ‘they won’t bother to vote’.
Anthony also said that he now had $10 million in the bank and could buy 50% of Flinders if he wanted to. I said that I thought most shareholders would appreciate the rise in the share price if he did this.
Anthony said that Patric is currently very frustrated because he does not know enough about what is going on and he is being pestered by Tiger Shareholders. Anthony continued by saying that Patric might calm down if I (KW) sent him more communications.”
On 28 June 2002 Barry sent an email to Campbell in these terms:
“I control 21.27 million. You have yours, Peter Taylor has his - they can’t assemble more votes than that to prevent a change.”
On 29 June 2002 Barry wrote to Dr Wills in these terms:
“With regard to your group declining to invite me back on the board - well, you’ll have Anthony Campbell to deal with if he wants on he board and he’ll have the Tiger and my vote to support him. The management of the company (not the geology) is apparently not up to the task, and if a share price of ten cents (and heading lower by all appearances) is the best that you can do, then having someone else there that cares cannot hurt.
With regard to your choosing to not respond to Tiger’s commitment to distribute the Flinders shares, you’ll recall that you extracted that distribution commitment from me some time ago - and I agreed to do it so that you wouldn’t have a sizable block which could risk a takeover. The result of the distribution will be that 17 million shares will be free trading and able to hit the market, and it is certainly the directors’ responsibility to recognise this and deal with it for the sake of the present and future shareholders in the company, and in the interests of maintaining a balanced market. Your denial, and that of your board, of this obligation is a dereliction, Kevin - to deny the obligation just tells me that you and they deny their responsibility.
Remember that the board serves to represent the shareholders - and here is one shareholder that collectively speaks for a large block of shares in the Flinders who is clearly unhappy with the status that I have seen – a low share price and a board which (in this letter today) seems to be content to not share information with the market and the shareholders.”
That letter was followed by an exchange of emails between Campbell and Barry on 30 June. These emails were the subject of a claim for legal professional privilege which was overruled by the judge in the course of the trial. I will later identify other documents which were also the subject of the same claim for legal professional privilege and will deal with the appeal against the judge’s ruling that the documents should be produced for inspection.
On 30 June 2002 Campbell sent this email to Barry:
“Hi Pat, we need 5% to call a meeting so I will require a letter from you from Tiger because I don’t have 5% with Peter or your own…”
Barry replied stating:
“I think what you need is named an irrevocable proxy let me know and I’ll be glad to help.”
On 30 June Campbell replied requesting the irrevocable proxy “on letterhead”. On the same day Barry responded stating:
“Ah, is there a format that’s used in Australia? I know that in Canada one director can sign over seal, or two directors without a seal … so I can sign over seal and fax it to you.
… but what I’m asking is if there is a format you want followed, or do I just write a letter granting Anthony Campbell the irrevocable proxy over the (exact number) shares held in Flinders Diamonds by Tiger International Resources until (date).
There has to be a final date on the proxy since if I do the distribution then the proxy would lose its validity - and I won’t do the distribution until a) your effort has worked …”
On 15 July 2002 Campbell sent another letter to Mackie and others concerned with Tennant Creek Gold Pty Ltd seeking their support. It is sufficient to refer to the first two paragraphs only of that letter which read:
“I have been approached by Tiger Resources and Pat Barry to take control of the board and management of Flinders Diamonds Ltd.
I currently have support from other shareholders who have the same concerns as the above. In total about 43% of the issued capital I have been promised irrevocably the proxies for.
Plainly the support from 43 per cent of the shareholding to which Campbell refers in the position paper and in the above letter is based on his having irrevocable proxies from Barry and Tiger Resources.
It is unnecessary to recapitulate all the subsequent findings of fact. They are in the reasons of the trial judge and reference can be made to them. Many of those findings relate to the attempts made by Barry and Campbell, especially Campbell, to enlist the support of other shareholders of Flinders for their proposal to reconstitute the board. What is of importance is that, when seeking that support, Campbell continually referred to the fact that he had proxies from Barry and Tiger Resources. This support was mentioned in what came to be called at the trial the “position paper” which set out the proposal. The position paper was a letter signed by Campbell in these terms:
“Current Proposal
Given the support of Mr Patric Barry and Tiger Resources as well as other major shareholders who have give (sic) irrevocable proxies there is support from about 43% of the shareholding to take some form of action.
It is proposed therefore
1That a letter be sent to the Board of Flinders Diamonds Ltd advising of the calling of a shareholder’s meeting (need only 5% of capital for this).
2     At that meeting to remove the existing Board and replace them with
a.     Mr A J Campbell as Managing Director
b.     Mr J K Campbell as Executive Chairman
c.     Mr Alister (sic) Mackie as Technical Director
3Mr Wills’s ability as a geologist is well known and consideration is to be given to employing him in this capacity.
Request for Support
The group proposing these changes already has a commitment of 43% of the shareholding. Your collective 4 million shares would give the group about 48% of the vote and on a poll should win support for the proposal at a special general meeting. The group would also like to request the services of Mr Alister (sic) Mackie as Technical Director.
Your support for the proposal is requested.
ANTHONY J CAMPBELL
Co-ordinator”
It will be noticed that Campbell signed this as “co-ordinator”, a position entirely consistent with the fact that he and Barry had agreed upon the objectives set out in the position paper.
A copy of that position paper had been sent on 16 July 2002 to a Mr Mackie, a director of Tennant Creek Gold Pty Ltd, which with its directors held about seven per cent of the shares in Flinders. Campbell sought to enlist the aid of Mackie and Tennant Creek Gold Pty Ltd, offering Mackie a seat on the board of Flinders as an inducement. Mackie declined the proposal. The position paper was sent to other shareholders or directors who were shareholders. They included a Mr and Mrs Lillis. Mr Lillis gave a copy of the position paper to Dr Wills.

On 25 July 2002 Campbell informed Mr Cornelius, a geologist based in Perth, of the intention to reconstitute the board of Flinders and asked Cornelius to become a director. Mr Cornelius at first consented but later withdrew his consent. This is the reason for the change in the directors in the request for the meeting sent on behalf of Barry on 12 August and 15 August 2002 mentioned earlier in these reasons. Cornelius gave evidence that Campbell had told him that he had about 43 per cent of the votes and listed the shareholders who supported the proposal.
In an email dated 8 August 2002 Barry wrote to another shareholder in Flinders, Amity International Pty Ltd, seeking its support. In that letter he said:
“Anthony Campbell is a Perth shareholder, and has wanted to be appointed to the Flinders board from soon after it floated. I’ve decided, and made my intentions clear, that I am supporting Anthony Campbell to the full extent of my vote for my personal shares and those of Tiger totalling some 21.3 million shares. Other supporters have elected to join to support Anthony, and so there will be a special meeting called in the near future for the shareholders to consider electing new management.
Anthony will contact you and I’d suggest that you meet him and decide on whatever position you and Linda may choose to take. I’m not playing favourites here - while I have the greatest respect for Kevin as a professional and a friend, I am clear in my mind that he lacks the ability to lead Flinders to the heights we expect and demand. Consequently the alternative is the management team chosen by Anthony, and I’m prepared to support that team with the hope that they will make a success of Flinders, generate buying support and liquidity which will lead to financing support, and hopefully make a success of the company.”
In the meantime Barry and Campbell continued to have frequent telephone conversations and exchanged emails concerning the proposed spill of the board.
As earlier mentioned, Mr Lillis had handed a copy of the position paper to Wills. On 19 July 2002 Flinders served a direction on Barry, Tiger Resources and Campbell pursuant to s 672A of the Corporations Act. This required them to make the disclosure required by s 672B. Section 672B requires disclosure, among other things, of relevant interests in shares. They each responded by simply nominating their own individual shareholding. They did not disclose any relevant interest in shares. For reasons which follow later, they had an obligation to disclose the relevant interest they had acquired through the understanding reached between Barry and Campbell.
On 8 August 2002 a meeting was held at the office of Grange Consulting, a form of corporate advisers in Perth, to discuss how to enlist shareholder support for the intended spill of the board. Cornelius was present at the meeting. He gave evidence that the question of the request for substantial shareholding notices was discussed and a solicitor stated that, as Campbell had control of 46 per cent of the votes, he may be a substantial shareholder.
On 12 August 2002 Steinepreis Paganin sent the request on behalf of Barry for a general meeting of the shareholders of Flinders to consider and vote upon the resolution to replace Messrs Kennedy and Vickery with Messrs Cornelius, Campbell and Hay. On 15 August the request was amended substituting Messrs Hay and Lungen as the new directors. On 5 September 2002 the directors of Flinders convened the meeting. As already mentioned Flinders later obtained an injunction restraining the holding of the meeting.
The judge found that Barry had been in possession of the position paper for some time before 14 September 2002 when Barry claimed to have seen it for the first time. There was ample evidence to support that conclusion. It included an email sent by Campbell to Barry on 3 August in which he referred to the position as being “our position paper”. He was complaining that Mr Lillis was a “bloody idiot” in giving Wills “our position paper as it is the cause of our pain (672A etc.. you and me).” The email indicates the concern, not only about s 672A, but also a concern as to any public disclosure of the understanding between Barry and Campbell.
The judge also relied on the exchange of three emails between Campbell and Barry on 11 and 12 September 2002. These emails were also included in the documents for which legal professional privilege had been claimed, which claim had been overruled by the trial judge. By email dated 11 September 2002 Mr Barry wrote to Mr Campbell:
“Having just filed a six page letter with ASIC saying I had no knowledge of where the Flinders folk learned that you would be going on the board, I’d say a couple of things at this stage:
(a)obviously the position paper was poorly thought out. Send me a copy, I’ll pass it on to ASIC with a lame excuse, and try to put it behind me.
(b)I’d say that now you’ve told me that you have a securities violation, minor as it is, that you should decide to not become a director of the company – the ex directors will crucify you and the company if you do. With your father on there you’ll still have the input and control, just not the formal identity of the directorship.”
Mr Campbell replied:
“You have a copy and when I get on the board, if Kevin resigns they will be all gone and will have no avenue to winge (sic) … my lawyers said my banning was caused by my dealer and there [sic] lawyers (admin blunder) at my expenses [sic] and of no significance … don’t worry all is well … I have more up my sleeve to sort them out.”
Mr Barry replied on 12 September 2002:
“I want one with a new dispatch date on it … I’m going to send a copy of [sic] to ASIC, since Kevin will forward it to them now as support for his getting your ambition into the mailing materials, and I will submit it first with a mark that it was not an ‘official’ document but merely a plan and that, as such, any reference to it did not belong in the mailings and was unethical etc. Please send me a copy.
Thanks
Pat.”
We agree with the trial judge that Barry was asking for a fresh copy of the position paper with a recent transmission date so that he could endeavour to explain to ASIC that he had only just received a copy. Campbell’s response indicates that he had not been quick enough to pick up the drift of Barry’s request which was repeated in Barry’s second email of 12 September.
It is apparent from this review of the evidence that, from at least late June 2002, Barry and Campbell had resolved upon a plan to replace the board of Flinders. That of itself is not sufficient to constitute a breach of s 606. Something more than that each had a common intention to bring about the desired result is required. The evidence shows that, not only did they have that common intention, but that Barry had also agreed to give Campbell an irrevocable proxy to vote. The intention to give that proxy was communicated as early as 28 June 2002 and was frequently mentioned in later emails and other correspondence exchanged between Barry and Campbell. The position paper sent to Mackie by Campbell on 16 July 2002 confirms the existence of the understanding. Campbell might have been overstating the position when he asserted that about 43 per cent of the shareholding supported the proposal but the reference to the support he had from Barry and Tiger Resources was accurate. Campbell asserted that fact because of the understanding he had reached with Barry. Barry and Campbell endeavoured to explain that Campbell was doing no more than acting as some kind of agent on behalf of Barry. The judge rejected that explanation for entirely satisfactory reasons.
It is apparent that both Barry and Campbell were alert to the implications of their actions and were concerned that they should not be acting in concert. That is clearly evident from the concerns expressed by Campbell in his email to Barry of 3 August 2002 when he expressed his concern that Lillis had handed the position paper to Dr Wills. The trial judge’s finding that Campbell had provided Barry with the position paper before 13 September 2002 is plainly open on the evidence. Campbell described it as “our” position paper and, given the close relationship between Barry and Campbell, it would be incredulous that Barry did not have a copy soon after its preparation, if he did not also assist in its preparation. The exchange of emails between Campbell and Barry on 11 and 12 September 2002 only serves to reinforce that conclusion, a conclusion which could have been reached even without any reliance on that exchange of emails on 11 and 12 September. The trial judge’s description of this exchange as a “subterfuge” is justified.
For these reasons we are satisfied there is no ground on which to interfere with the trial judge’s conclusion that from 30 June 2002, if not earlier, Barry and Campbell had an understanding that they would vote collectively the shares in Flinders held by Barry, Tiger Resources and Campbell and that the arrangement extended to the shares held by Campbell Corporation Pty Ltd and Balance Tax Pty Ltd. The noun “understanding” is of wide import: Adsteam Building Industries Pty Limited v The Queensland Cement and Lime Company Ltd (No. 4) [1985] 1 Qd R 127 at 131 – 132. The evidence clearly established that Barry and Campbell had an understanding as to the means by which they proposed to achieve their common goal of spilling the board of Flinders. To that extent, they were also acting in concert to achieve that end: Adsteam Building Industries Pty Limited v The Queensland Cement and Lime Company Ltd (No. 4) (supra).
A breach of s 606?
Section 606(1) of the Corporations Act provides:
“(1) Acquisition of relevant interests in voting shares through transaction entered into by or on behalf of person acquiring relevant interest A person must not acquire a relevant interest in issued voting shares in a company if:
(a)the company is:
(i)a listed company; or
(ii)an unlisted company with more than 50 members; and
(b) the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person; and
(c) because of the transaction, that person’s or someone else’s voting power in the company increases:
(i)from 20% or below to more than 20%; or
(ii)from a starting point that is above 20% and below 90%.”
Flinders is a listed company and has more than fifty members.
The next question is whether a person acquired a relevant interest in the issued voting shares of Flinders through a transaction in relation to securities entered into by or on behalf of that person. “Securities” is defined by s 92 of the Corporations Act to include shares. Thus, the question is whether there was the required transaction in relation to shares. Section 64 defines “entering into a transaction” in relation to shares for the purposes of Chapter 6 of the Corporations Act as including “entering into, or becoming party to, a relevant agreement in relation to the shares”. Mr Robson contended that the word “transaction” had the same meaning as in ordinary usage, namely, “an instance of buying or selling something; a business deal”. This submission must fail, given the combined effect of the extended definition of “transaction” in s 64 and the definition of “relevant agreement” in s 9, which is in these terms:
“relevant agreement” means an agreement, arrangement or understanding:
(a) whether formal or informal or partly formal and partly informal; and
(b) whether written or oral or partly written and partly oral; and
(c)whether or not having legal or equitable force and whether or not based on legal or equitable rights;…”
It is manifestly a definition expressed in very wide terms. The noun “understanding” would embrace and subsume “agreement and arrangement”: Adsteam (supra). It is not necessary for the agreement, arrangement or understanding to be enforceable. As Wicks J said in New AshwickPty Ltd v Wesfarmers Ltd (2000) 35 ACSR 263 at [33]:
“The expression “relevant agreement” goes well beyond agreements strictly so called to include all manners of arrangements and understandings.”
The understanding reached by Barry and Campbell plainly falls within the definition of a relevant agreement.
Section 9 of the Act defines the expression a “relevant interest” to have the same meaning as in s 608 and s 609 of the Act. For present purposes, it is sufficient to refer to s 608(1) and s 608(2)(b)(ii). Section 608(1) provides:
“(1) Basic rule – relevant interest is holding, or controlling voting or disposal of, securities   A person has a relevant interest in securities if they:
(a)    are the holder of the securities; or
(b)    have power to exercise, or control the exercise of, a right to vote attached to the securities; or
(c)    have power to dispose of, or control the exercise of a power to dispose of, the securities.
It does not matter how remote the relevant interest is or how it arises. If 2 or more people can jointly exercise one of these powers, each of them is taken to have that power.”
The meaning of power and control is expanded by s 608(2)(b)(ii):
“(2) Extension to control exercisable through a trust, agreement or practice   In this section, power or control includes:
…
(b)    power or control that is, or can be, exercised as a result of, by means of or by the revocation or breach of:
…
(ii)an agreement; …”
Thus, a person acquires a relevant interest in shares through a transaction if that person enters into or is a party to an understanding in relation to shares by which that person has power to exercise, or control the exercise, of a right to vote attached to the shares.
Section 9 of the Act provides that the expression “voting power” has the meaning given by s 610. The effect of s 610(1) is that a person’s voting power is the vote of a person and any associate of that person. The concept of associates is addressed in ss 10-17 of the Act. For the present purposes, it is sufficient to refer to s 12(2)(b) and (c) of the Act, which provide:
“(2)For the purposes of the application of the associate reference in relation to the designated body, a person (the “second person”) is an associate of the primary person if, and only if, one or more of the following paragraphs applies:
…
(b) the second person is a person with whom the primary person has, or proposes to enter into, a relevant agreement for the purpose of controlling or influencing the composition of the designated body’s board or the conduct of the designated body’s affairs;
(c) the second person is a person with whom the primary person is acting, or proposing to act, in concert in relation to the designated body’s affairs.”
Section 15 expands the reference to include acting in concert. The trial judge concluded that Barry and Campbell had become associates within the meaning of s 12(2)(b) by virtue of the understanding they had reached and by virtue of the fact that they were acting in concert. He was correct in doing so. By virtue of s 610 of the Act, Barry and Campbell had the capacity to control more than 20 per cent of the shares in Flinders and so were in breach of s 606.
Section 609 lists a number of situations where a person does not have a relevant interest in shares. It includes appointment as a proxy to vote at a meeting. Section 609(5) provides:
“(5) Proxies   A person does not have a relevant interest in securities merely because the person has been appointed to vote as a proxy or representative at a meeting of members, or of a class of members, of the company, body or managed investment scheme if:
(a)     the appointment is for one meeting only; and
(b)    neither the person nor any associate gives valuable consideration for the appointment.”
We do not think that s 609(5) applies in the particular circumstances of this case because the understanding reached between Barry and Campbell extended beyond the requisitioned meeting. It did not, therefore, apply to one meeting only.
The trial judge also found that Campbell, Barry and Tiger Resources had acted in breach of s 672B of the Act. For the reasons already expressed, he was correct in doing so.
Did Barry Bind Tiger Resources?
The trial judge found that Barry had authority to bind Tiger Resources. Three grounds of appeal complain against that finding.
The first is the judge erred in applying the indoor management rule. Barry was at all material times the president, a director, and the chief executive officer of Tiger Resources. He had sworn an affidavit stating that he was authorised to swear the affidavit on behalf of Tiger Resources in opposition to the plaintiff’s claim. He was cross-examined on that affidavit. He was also cross-examined as to his authority. He said that there was a resolution made several years before authorising him to sign documents between Flinders and Tiger Resources. When relying on the indoor management rule, the judge referred to:
·the offices held by Barry and Tiger Resources,
·the fact that article 18.2 of the articles of association of Tiger Resources authorised the board to confer on officers of the company, including the president, such functions and duties as they think fit,
·the long-standing resolution of the board mentioned by Barry in his evidence,
·the fact that the postal address, email address, telephone number and facsimile number for Barry and Tiger are the same, and
·that over several years all dealings between Flinders and Tiger Resources had been conducted through Barry alone.
In Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146, Brennan J noted that the indoor management rule is a presumption of regularity; it is no more than a presumption of fact. He said at 176 - 177:
“The indoor management rule is really a presumption of regularity. To use the Latin maxim, omnia praesumuntur rite esse acta: Morris v Kanssen [1946] AC at 475. The presumption is no more than a presumption of fact. Whence does it arise? It arises from the likelihood that a company has given to its officers and agents the authority needed to carry on its business and to act for its benefit within the limits of the authority which officers and agents in their respective positions would ordinarily possess. The presumption might reasonably be made when the officers or agents of a company engage in a transaction for the purpose of a company’s business or otherwise for the benefit of the company and the transaction is one that officers or agents in their respective positions would ordinarily be expected to have the company’s authority to undertake. In that situation, a party dealing with the company in good faith is entitled to presume that the officers and agents had that authority: cf Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB at 258. Being a presumption of fact, the indoor management rule is displaced when the circumstances put on inquiry the party seeking to rely on the rule.”
See also the remarks of Brennan J at 178. As is apparent from the facts listed above, there was ample evidence on which the trial judge could apply the rule. This ground must, therefore, fail.
The second ground is that the judge erred in finding that there was a long-standing resolution of Tiger Resources authorising Barry to deal between Tiger Resources and Flinders. Barry had admitted the existence of the resolution in cross-examination. In later answers, Barry asserted that Flinders had a copy of the resolution. Mr Robson relied on that answer and contended that counsel for Flinders should have tendered the resolution. To that, counsel for Flinders replied that the document had not been discovered. The evidence whether Flinders had a copy of the resolution is quite inconclusive. The important fact is that Barry admitted the existence of the resolution. That was sufficient for the case for Flinders. If the resolution was to a contrary effect, it was open to the defendants to prove it. This ground also fails.

Thirdly, the defendants contend that the judge erred in refusing to admit the evidence of a Mr David Kulp and a Mr Fallick, directors of Tiger Resources, to the effect that Barry was not authorised to vote the shares of Tiger Resources in Flinders without a resolution of Tiger Resources. The application to call Messrs Culp and Fallick was made after the trial had concluded.
During the trial there had been no issue as to the extent of Barry’s authority. The defendants’ points of defence did not call his authority into question. Mr Barry’s evidence was that he had authority. On 23 December 2002, after submissions from counsel, the judge reserved his decision. Tiger Resources and Barry then sought leave to re-open the trial to put further submissions. The judge listed the application for hearing on 21 March 2003. On the evening of 20 March 2003 and without prior notice, an application and supporting affidavit of Barry was served by facsimile seeking leave to adduce, among other things, further evidence of Messrs Culp and Fallick. Statements as to proposed evidence of Culp and Fallick were also delivered but those statements did not take the form of affidavits or affirmations. On 21 March, the judge ruled that he would not receive the evidence of Messrs Culp and Fallick.
No explanation was provided as to why this contention had not been pleaded nor why this evidence had not been previously given. In addition, although the statements of Culp and Fallick were provided, neither Culp nor Fallick had sworn an affidavit or affirmation as to the content of their proposed evidence and no explanation was given for that. A further factor is that the evidence sought to impugn the basis upon which the defendants’ case to that point had been advanced. Against that background, the judge had every reason not to admit this evidence which had all the hallmarks of a last minute attempt to prop up the defendants’ case by a ground not previously relied on.
The Procedural Complaints
The appellants contend the trial judge erred in three material respects in his conduct of the trial. Each constitutes a separate ground of appeal. They are
1.The judge erred in overruling a claim for legal professional privilege in admitting documents obtained from Steinepreis Paganin, solicitors.
2.The judge erred in permitting Flinders to raise issues beyond its pleaded case and in admitting further evidence without requiring Flinders to amend its points of claim.
3.The judge erred in failing to permit Campbell to cross-examine Wills as to whether Wills had canvassed votes of other members of the board and of shareholders of Flinders.
We deal with each ground in turn.
The Privileged Documents
Steinepreis Paganin were the solicitors advising and acting for Barry and Campbell in relation to these dealings with Flinders. They had in their possession copies of some of the emails exchanged between Campbell and Barry. They had been discovered but they were not produced for inspection because a claim for legal professional privilege had been made. The emails were not privileged documents. The claim for legal professional privilege was founded on the fact that they were copies in the possession of the solicitors. The defendants relied on Commissioner of Australian Federal Police v Propend Finance Pty Limited (1997) 188 CLR 501 in opposing the claim by Flinders for production of the documents.
In the course of the pre-trial procedures, Flinders had applied for an order that a number of documents, including the documents the subject of this ground of appeal, should be produced for inspection notwithstanding the claim for legal professional privilege. The application was heard by a master who inspected the documents and made orders that all documents be produced for inspection, other than those the subject of this ground of appeal. In making his decision, the master said:
“Due to the pressure of time, I am not able to go into detail as to the full reasoning in this matter. I consider, however, that without the benefit of evidence and detailed reasoning, it is not possible for me to make the finding for which the plaintiff’s counsel urged. I am not prepared, therefore, to hold that privilege does not apply in relation to the documents other than those which I have already described.”
It is apparent that the master expressly decided not to decide this issue. The application was renewed late in the course of the trial. The trial judge allowed the application, holding that there were reasonable grounds for concluding that the communications effected by the documents were made for some illegal or improper purpose.
The defendants contended that the master had made a decision so that the only means by which it could be reversed was by appeal. It was not competent, it was said, to re-open the application at the trial. We do not agree. It is apparent that the master did not believe he had sufficient evidence, and declined to make a ruling.
The defendants then contended that there were insufficient grounds on which the trial judge could have ruled that there were reasonable grounds for concluding that the communications effected by the document were made for some illegal or improper purpose. The defendants do not question the principle that documents otherwise the subject of legal professional privilege will be ordered to be disclosed if that ground is established: Commissioner of Australian Federal Police v Propend Finance Pty Ltd (supra) and Southern Equities Corporation Ltd (In liq) v Arthur Andersen & Co (1997) 70 SASR 166 per Doyle CJ at 174. The defendants’ contention must fail because, by the time the judge came to make his ruling, there was a substantial body of evidence establishing the existence of an understanding. The application by the plaintiffs was renewed towards the very end of the evidence when Campbell was being cross-examined. By that time, the judge had all the documentary evidence (other than the documents for which privilege had been claimed) and the viva voce evidence of all witnesses, save for Campbell, had been completed. The judge was well equipped to reach his conclusion. There is no ground for interfering with it.
Even if there were merit in this ground of appeal, it would not affect the ultimate result. There was ample evidence of an understanding between Barry and Campbell even if the documents the subject of the claim for legal professional privilege had not been admitted. Several documents mentioned earlier in these reasons referred to the irrevocable proxy held by Campbell to vote the shares of Barry and Tiger Resources which, coupled with the other evidence, provide a substantial body of evidence on which the trial judge could find that the understanding existed.
The Extent of the Pleaded Case
The defendants contend that the trial judge erred in allowing Flinders to traverse beyond the case it had pleaded in paras 16 and 17 of its points of claim. They assert that Flinders was bound to plead and particularise all of the overt acts on which it relied to prove the understanding: Adsteam Building Industries Pty Limited v The Queensland Cement and Lime Company Ltd (No. 4) (supra) at 134.
In paragraphs 16 and 17 of its points of claim, Flinders particularised the grounds relied on by it, including a substantial number of documents. It is apparent from the opening statement made by Barry on behalf of the defendants that the defendants knew the case they had to meet. This ground of appeal seems to rely on the fact that the defendants did not have a proper opportunity to answer the effect of the emails for which legal professional privilege had been claimed and which were required to be produced. That contention is entirely without merit, since it was not possible to give particulars of documents which had not been inspected. Furthermore, the defendants would have been aware of those emails and should have been ready to deal with them, if produced. It is unnecessary to rely on the fact that the defendants did not discover these emails which, on their face, appear to have been discoverable. This ground of appeal also fails.
Cross-examination of Dr Wills
The defendants contend that the judge erred in not permitting Campbell to cross-examine Wills on the question whether he had canvassed voting support from the other two directors and other shareholders of Flinders. The contention is not fairly grounded on what had occurred at the trial.
Mr Campbell had asked Wills whether he had spoken to other shareholders (to which Wills replied he had) and whether he had solicited their votes to support Mr Vickery (which Wills denied). On being asked whether he had spoken to other shareholders of the board as to how they were going to vote, Wills said that he had not done so, but was sure they would vote for Vickery. Plainly, Campbell was being permitted to cross-examine Wills on the question whether he had canvassed votes. Campbell then proceeded to ask questions which represented conclusions of law based on the answers given by Wills. It was this line of questioning only which the judge stopped, explaining to Campbell they were questions of law not properly put in cross-examination, but which could be the subject of comment in the course of final submissions. The judge was plainly correct in ruling in that way. Campbell then informed the judge that he had no further questions. This ground of appeal is, therefore, quite misconceived.
The Remedy
The judge ordered that the first four defendants be divested of their shares and that those shares be vested in the Australian Securities and Investment Commission to be sold, the proceeds of sale to be paid into court pending the further order of the court.
The defendants appealed against that order. They contend that the judge should have done no more than order the defendants to deliver s 672B notices in accordance with his reasons, that the Campbell shares were immaterial being 2.28 per cent of the shares of Flinders, that the shareholders of Flinders were entitled to seek a change in its directorship, and that the judge had made no order restraining the existing shareholders from acquiring those shares on the market so that they could acquire a controlling interest without making a takeover bid or paying a premium for that controlling interest.
The court has power pursuant to s 1325A of the Corporations Act to make any orders it considers appropriate including a remedial order. The principles governing the exercise of that power are well-established and are conveniently summarised by Merkel J in Australian Securities and Investment Commission v Terra Industries Inc (1999) 163 ALR 122 at [97]; see also Australian Securities and Investment Commission v Yandal Gold Pty Ltd (1999) 32 ACSR 317 at [118]-[121], affirmed on appeal in Edensor Nominees Pty Ltd v Australian Securities and Investment Commission (2002) 41 ACSR 325. Although a number of those principles address the kind of orders which should be made where there has been an acquisition of shares in contravention of Chapter 6, some are of general application. We extract from the reasons of Merkel J, without citing the authorities on which he relied, those which are relevant to the issue. They are:
(a)One of the primary objectives of Chapter 6 is to ensure that the acquisition of shares in listed companies takes place in an efficient, competitive and informed market. In the context of this action that principle translates to the objective of ensuring the transparent exercise of voting rights, so that control of the corporation cannot be exercised other than in accordance with rights attached to the shares beneficially held and without full disclosure of the nature and extent of that beneficial interest.
(b)The orders to be made in respect of a contravention are, in general, remedial rather than punitive. The discretionary power to make such orders as the court thinks appropriate, although conferred in very wide terms, has been construed as a power to make orders which advance the principal objectives of the statutory scheme.
(c)It is relevant to have regard to the seriousness of the contravention and of the consequences which flow from it.
(d)Orders that ensure that those who contravene the provisions do not enjoy the benefits of their contravention or orders which render their efforts fruitless are within the objects of the statutory scheme.
(e)The exercise of the court’s discretion requires it to consider the range of possible remedies and select the appropriate one in the circumstances of the case. While orders made in respect of a contravention are generally remedial rather than punitive, in considering whether an order is unfairly prejudicial and whether the court should exercise its power in a particular case, it is appropriate to take into account the degree of culpability of persons whose interests are affected by the orders, including whether those persons have acted dishonestly or in a manner that can be characterised as reckless.
With those principles in mind we turn to examine the orders made in this case.
The judge had a wide discretion and this court should not interfere merely because it would have made a different order. The court may only interfere in the circumstances identified in House v The King (1936) 55 CLR 499 at 505.
The trial judge gave as his reasons for imposing the divestment orders, the fact that the defendants had acquired a relevant interest in breach of s 606 of the Corporations Act, that they had done so covertly and had failed to make disclosure of the true position. He considered that the general meeting requisitioned by Mr Barry was not for a proper purpose. He treated the plaintiff’s allegations as “very serious”. He continued:
“This is an extreme case which requires an extreme remedy. Having regard to the way in which the defendants have been prepared to flout the requirements of the Corporations Act and bearing in mind my findings that Mr Campbell and Mr Barry lack integrity, I consider that the appropriate way of protecting the market is by vesting the present shareholdings of the defendants in ASIC … I am concerned that any other remedial order would not necessarily be effective and may be difficult to supervise. This is not a case in which the giving of undertakings by the defendants would suffice. The circumstances disclosed by the evidence do not suggest that the conduct of the defendants could be excused.”
In our opinion the exercise of the trial judge’s discretion miscarried and did so in a manner which justifies interference by this Court. It is apparent from his Honour’s reasons and from the terms of the order that the order is punitive in nature rather than remedial. Not only did it prevent the defendants from exercising their voting rights in accordance with the arrangement or understanding outlawed by the Corporations Act but it prevented them from exercising any voting rights and from retaining any interest in the issued shares of the plaintiff. The order went beyond what was reasonably necessary to remedy the contravention of the Act given the range of alternative remedies which might be available to the Court either generally or by way of available remedial orders contemplated by s 1325A of the Corporations Act.
At the time when the proceedings were instituted the arrangement, although made, had not been implemented. No-one had obtained any interest in shares to which they were not entitled other than by way of an interest deemed to exist by virtue of the Corporations Act. No-one had been wrongly deprived of any shares to which they were lawfully entitled. No person’s rights had been adversely affected. Orders were made early in the course of the proceedings to prevent the general meeting of shareholders from taking place, and such orders have ensured that the status quo has remained throughout the proceedings.
The trial judge made an order which went beyond what was necessary to ensure compliance with the objectives of Chapter 6 of the Act. It was an order depriving shareholders of their chosen investment and depriving them of the opportunity to realise that investment at a price or at a time of their choosing. It was a serious interference with the shareholders’ rights to property in their shares. In our opinion it went substantially further than was necessary, given the nature of the contravention, the fact that consummation of the arrangement has been prevented and the degree of culpability of the defendants.
It is therefore necessary for this court to interfere, to set aside the exercise of the trial judge’s discretion and to exercise the discretion afresh.
Shareholders in a company are entitled to seek to change the composition of the board of directors of that company. In this case, the defendants were exercising their legitimate right to seek to change the board of Flinders. Their fault lay in the fact that they went about the exercise of that right in a manner rendered unlawful by the Corporations Act because of their understanding or agreement as to voting. While it involved some element of secrecy, it was not, in itself, dishonest or deceitful. It did not result in any transfer of property or rights to which the defendants were not entitled. It was not unlawful for Mr Barry to convene a meeting of shareholders to seek to have the existing board replaced. The illegal conduct was entering into the arrangement or understanding in contravention of Chapter 6 to exercise voting rights in a particular way at the meeting. The attempt to remove the incumbent directors other than by way of agreement or understanding as to voting was not in itself unlawful.
Although voting arrangements for the purpose of achieving a specific goal, such as the reconstruction of the board of directors, are not the kind of arrangements which on their face offend the spirit of Chapter 6 of the Corporations Act, they are, however, caught by the width with which the terms in s 606 and s 608 and the definitions of material terms in those provisions are expressed. As Merkel J said in Australian Securities and Investment Commission v Yandal Gold Pty Ltd (1999) 32 ACSR 317 at [90]:
“The fact that companies may exercise power or dominion over shares in many and diverse ways, whether direct or indirect (Target Petroleum NL v Petroz NL (1987) 16 FCR 1 at 10; 73 ALR 274; 12 ACLR 11) has led the legislature to use artificial concepts and deeming provisions to ensure that the scheme provided for in Ch 6 is not circumvented. The object of Ch 6 generally is to ensure that the acquisition of shares in companies complies with the Eggleston principles and takes place in an efficient, competitive and informed market: see Brierley Investments Ltd v ASC (1997) 78 FCR 255 at 260-1 per Emmett J; 148 ALR 158; 24 ACSR 629. That objective has been secured, in part, by the use of artificial concepts and statutory fictions such as ‘a relevant agreement’, ‘associations’ and ‘relevant interests’ which have been defined with such width that on some occasions the statutory scheme will inevitably apply to transactions that were not intended to be prohibited as they are not inconsistent with the Eggleston principles. However, the legislature has chosen to deal with such anomalies by conferring extensive power on ASIC under ss 730 and 731 in Pt 6.9 to modify the provisions of Ch 6 and under s 633 to permit and thereby exclude from the operation of s 615 an acquisition of shares ‘made with the Commission’s written approval’: see s 633(c). These provisions suggest that the legislature was cognisant of the possibility that the width of its definitions could lead to some anomalous outcomes, but intended that they be dealt with by ASC granting relief from the operation of the provisions in an appropriate case to avoid anomalies arising. As I stated in Otter Gold Mines Ltd v ASC (1997) 25 ACSR 382 at 388:
For the detailed takeover code in Ch 6 to be workable broad discretions of exemption and modification are necessary and desirable, inter alia, for ‘ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market.’”
At [92] he added:
“These policy considerations demonstrate that the legislature did not intend that a restrictive view be taken of the prohibitions in Ch 6 or of the application of its extended definitions, inter alia, of a ‘relevant interest’ which is a central element in the operation of Ch 6. Rather, any injustice, unfairness or anomaly arising in a particular case was to be dealt with by an appropriate application for relief from the operation of the Corporations Law. As Lord Hutton stated recently in Svenska International Pty Ltd v Cmrs of Customs and Excise (1999) 1 WLR 769 at 786, if Parliament chooses to achieve its objectives by the use of artificial concepts and deeming provisions it is for the courts to apply those concepts or provisions.”
While courts must apply the concepts in Chapter 6, it does not follow that any injustice, unfairness or anomaly is not a relevant factor which must be considered when determining what kind of relief should be ordered.

It is not unlawful for shareholders to discuss the merits of the board or individual members of the board or a change in the composition of the board. Nor is it unlawful for shareholders to seek to persuade other shareholders to the view that the composition of the board should change or to solicit support for a particular resolution.
The provisions of Chapter 6 of the Corporations Act are not intended to render directors of a company immune from the legitimate scrutiny of and control by shareholders. Directors are not immune from replacement by the vote of shareholders. Instead, the intent is that, if shareholders wish to change the composition of the Board, they should not reach secret understandings or arrangements as to voting. In that respect, it is to be remembered that s 609(5) of the Corporations Act provides that the granting of proxies to another to vote at one meeting does not result in the proxy holder having a relevant interest prescribed by s 606.
In short, incumbent directors are not entitled to be placed in some kind of cocoon, immune from having to face a group of hostile shareholders, nor should remedies available to a court necessarily enable incumbent directors to acquire or retain control of the company indefinitely. What the court must do in a case like the present, once the existence of the unlawful arrangement or understanding is established, and where it has not yet been acted on, is to restrain the participants from giving effect to it.
Where transactions have taken place pursuant to the contravention, it may be appropriate for the courts to unravel them as best it can by means of divesting orders or by one of the many possible remedial orders or by a combination of remedial orders contained in the definition of that term in s 9 of the Corporations Act. However, that is not this case.
It might be said that an order merely restraining the defendants from acting on the arrangement or understanding is difficult to police, hard to enforce and does nothing to indicate the court’s disapproval of such unlawful arrangements or to deter these defendants or others from acting in like manner in the future. It should therefore go further and, for example, restrain the defendants from exercising their voting power in respect of the shares either indefinitely or for a certain period, in order to ensure that the arrangement cannot proceed.
It is important for the court to do what it can to uphold the objectives of Chapter 6 of the Corporations Act. However, the difficulty with the approach discussed in the preceding paragraph is that the order becomes penal, not remedial. There may be difficulties in policing the restraining order we propose, but that is a feature of these provisions of the Corporations Act itself. Had the arrangement been brought to fruition, there might well have been good reason for making an order much more severe in effect.
The fact is that the arrangement has been uncovered. Its implementation can be prevented. The directors and those who support them will no doubt scrutinise with some care the behaviour of the defendants, and the defendants will be alive to that probability. Furthermore, the defendants have already been restrained from exercising their voting rights for a period of 18 months while the litigation has progressed. The nature of the arrangements is now the subject of firm findings by this court. The secret and unlawful dealings can be made public and the shareholders informed of the facts and of the court’s orders. All these factors, coupled with what is likely to be a substantial amount that the defendants will have to pay by way of costs of the trial, constitute a significant deterrent against further unlawful action.
Another relevant factor is that the court does not know whether other shareholders support the views of Messrs Barry and Campbell. If they do, it is not appropriate to restrain any further the holding of the requisitioned meeting or to restrain the defendants from exercising the right to vote their shares for a further period in addition to the 18 months which have already elapsed. We have already held that there was nothing unlawful in requisitioning the meeting. It should be allowed to proceed. One final factor is that the present directors are not entitled to seek to secure their place on the board by an order restraining the defendants from voting their shares for an indefinite period. At the same time, any vote upon the composition of the board should be made by shareholders who are fully informed of all the relevant facts. In that way, the objectives of Chapter 6 can be achieved.
Conclusion
For these reasons, we propose to dismiss the appeals against the declarations that the defendants have acted in breach of s 606 and s 671B of the Act and the declarations that the first three defendants are in breach of s 672B of the Act. We propose to set aside the declaration that the general meeting requested by Mr Barry is to be held for an improper purpose.
We propose to set aside paragraphs 1 and 9 of the orders made by the trial judge relating to the holding of the meeting and restraining the defendants from acquiring any securities in the plaintiff and from exercising options registered in the names of the defendants. We propose to substitute for those orders an order that the defendants be restrained from giving effect to the arrangement or understanding whereby they have power to exercise or control the exercise or may in fact exercise or control the exercise of a right to vote attached to the shares of another.
Paragraphs 2 to 5 inclusive of the trial judge’s orders relating to the vesting of the shares in ASIC have already taken effect and should remain. However, we propose to set aside paragraphs 6 and 7 of the orders relating to the sale of the shares by ASIC and disposal of the proceeds of sale.
There should be an order that the shares presently vested in ASIC be revested in the defendants respectively in accordance with their previous holding.
Paragraph 8 of the orders relating to the costs of the proceedings should remain. There is no reason to disturb that order.
We will hear counsel as to the costs of the appeal and as to the precise terms of the order.

[2004] SASC 119

23 April 2004