Kingemel Pty Ltd v Rosa Processing Pty Ltd
[2022] WASC 7
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: KINGEMEL PTY LTD -v- ROSA PROCESSING PTY LTD [2022] WASC 7
CORAM: KENNETH MARTIN J
HEARD: 16 - 18 AUGUST 2021
DELIVERED : 13 JANUARY 2022
PUBLISHED : 13 JANUARY 2022
FILE NO/S: COR 145 of 2020
BETWEEN: KINGEMEL PTY LTD
First Plaintiff
SANKALPA PTY LTD
Second Plaintiff
CXO HOLDINGS PTY LTD
Third Plaintiff
LYCKEBO PTY LTD
Fourth Plaintiff
SIRIUS SOLUTIONS PTY LTD
Fifth Plaintiff
EA COLLINS PTY LTD
Sixth Plaintiff
MONTILLA PTY LTD
Seventh Plaintiff
IAN DESMOND BRADSHAW
Eighth Plaintiff
MIKALE PTY LTD
Ninth Plaintiff
AND
ROSA PROCESSING PTY LTD
First Defendant
CAZMAC INTEGRATED SOLUTIONS PTY LTD
Second Defendant
CARRABINA PTY LTD
Third Defendant
ADJCOR PTY LTD
Fourth Defendant
SARJESIAN SUPER INVESTMENTS PTY LTD
Fifth Defendant
ASH-ROSEBUD SUPER PTY LTD
Sixth Defendant
GJERN SUPER PTY LTD
Seventh Defendant
CARDIN SENG BEE LIM DE COSTER
Eighth Defendant
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Ninth Defendant
ROCK MINING AUSTRALIA PTY LTD
Tenth Defendant
Catchwords:
Corporations law - Oppression action by existing shareholders - Sole directors resolution diluting plaintiffs holding member voting control to new shareholders - New shareholders convene general meeting and remove and replace existing director - Breach of constitution by not offering new shares first to existing shareholders - Discretion to grant relief
Legislation:
Corporations Act 2001 (Cth)
Result:
Share issue resolution of 4 November 2019 is invalid
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr L A Warnick |
| Second Plaintiff | : | Mr L A Warnick |
| Third Plaintiff | : | Mr L A Warnick |
| Fourth Plaintiff | : | Mr L A Warnick |
| Fifth Plaintiff | : | Mr L A Warnick |
| Sixth Plaintiff | : | Mr L A Warnick |
| Seventh Plaintiff | : | Mr L A Warnick |
| Eighth Plaintiff | : | Mr L A Warnick |
| Ninth Plaintiff | : | Mr L A Warnick |
| First Defendant | : | Mr M L Bennett |
| Second Defendant | : | Ms R Young |
| Third Defendant | : | Ms R Young |
| Fourth Defendant | : | Ms R Young |
| Fifth Defendant | : | Ms R Young |
| Sixth Defendant | : | Ms R Young |
| Seventh Defendant | : | Ms R Young |
| Eighth Defendant | : | Ms R Young |
| Ninth Defendant | : | No appearance |
| Tenth Defendant | : | No appearance |
Solicitors:
| First Plaintiff | : | Solomon Hollett Lawyers |
| Second Plaintiff | : | Solomon Hollett Lawyers |
| Third Plaintiff | : | Solomon Hollett Lawyers |
| Fourth Plaintiff | : | Solomon Hollett Lawyers |
| Fifth Plaintiff | : | Solomon Hollett Lawyers |
| Sixth Plaintiff | : | Solomon Hollett Lawyers |
| Seventh Plaintiff | : | Solomon Hollett Lawyers |
| Eighth Plaintiff | : | Solomon Hollett Lawyers |
| Ninth Plaintiff | : | Solomon Hollett Lawyers |
| First Defendant | : | Bennett + Co |
| Second Defendant | : | McNally & Co |
| Third Defendant | : | McNally & Co |
| Fourth Defendant | : | McNally & Co |
| Fifth Defendant | : | McNally & Co |
| Sixth Defendant | : | McNally & Co |
| Seventh Defendant | : | McNally & Co |
| Eighth Defendant | : | McNally & Co |
| Ninth Defendant | : | No appearance |
| Tenth Defendant | : | No appearance |
Cases referred to in decision:
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25
Harlows Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483
Howard Smith v Ampol Petroleum [1974] AC 821
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Mills v Mills (1938) 60 CLR 150
Netbush Pty Ltd v Fascine Developments Pty Ltd [2005] WASC 73
Ord Forrest Pty Ltd v Federal Commissioner of Taxation [1974] HCA 57; (1974) 130 CLR 124
Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459; 59 ALJR 798
Weinstock v Beck (2013) 251 CLR 396
Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285
William Buck (WA) Pty Ltd v Faulkner [No 6] [2013]WASC 342
Table of Contents
Introduction
Participants
Resolution
Details of application
Overview of the plaintiffs' three (3) challenges against the validity of the 4 November 2019 directors' resolution
First line of challenge by the plaintiffs: breach of RMA's Constitution
Second line of challenge by plaintiffs: the control of RMA
Relief against statutory oppression
Third line of challenge by the plaintiffs: breach of the director's fiduciary and statutory duty by conflict of interest
Case law: a fiduciary power to issue shares
The purposes of control
Section 1322 Corporations Act
Plaintiffs' trial evidence
Douglas Bruce Minchin
Robert John Campbell
Matthew James Keating
David John Tenni
Other evidence from witnesses for the plaintiffs
First defendant's trial evidence
Second to eighth defendants' trial evidence
Carol Hardie
Other affidavits for the second to eighth defendants
Ron Hawkins
Jane Hawkins
Adam Corbett
Cardin Lim De Coster
Agreed facts
The Board of RMA
The shares in RMA
The trial evidence of Dean Scook
Founders?
The trial evidence of Carol Hardie
The Newco brochure
Project 'Brochure'/'Presentations'
Heading 'Structure and offer' in the February 2018 Newco Brochure
Observations on February 2018 Brochure
Ms Hardie's other trial evidence
RMA shareholdings
RMA's financial position
The trial evidence of David Tenni
Mr Campbell's audit of RMA: Mr Tenni's evidence
The evidence of Robert Campbell (Forensic Audit Report)
The trial evidence of Douglas Bruce Minchin
Objections raised
Closing submissions - Mr Minchin
Breach of fiduciary duty - Mr De Coster
Statutory oppression relief or discrete causes of action to invalidate the 4 November 2019 resolution
Further matters arising under the closing submissions of the defendants
Minority shareholding in Newco
Founders shares
'An economic bargain'
Approval of directors' personal benefits
Section 1322 Corporations Act
Findings advocated under the closing submissions of the second through eighth defendants
More sundries
Concluding orders
KENNETH MARTIN J:
Introduction
This is a Corporations Act application raising allegations of statutory oppression and seeking relief pursuant to s 233 and s 1322(4)(b) of the Corporations Act 2001 (Cth). Underlying the application are three distinct grievances by all plaintiffs against a sole director's resolution allocating shares to eight (8) of the ten (10) named defendants.
Participants
Each of the nine plaintiffs are shareholders in the tenth defendant, Rock Mining Australia Pty Ltd ('RMA'). RMA does not participate and so effectively abides the outcome of the proceedings.
The first defendant, Rosa Processing Pty Ltd ('Rosa') is separately represented. It is a corporation closely associated with Mr Dean George Scook, who is its sole director. Mr Scook is not a party to the present action personally.
The ninth named defendant, the Australian Securities and Investments Commission ('ASIC'), has been advised of these proceedings, but otherwise does not participate. ASIC has been joined to facilitate the ancillary s 1322(4)(b) relief sought. This is sought to rectify the register of shareholders of RMA and to remove all register references to shares issued to the first to eighth defendants under a directors' resolution of 4 November 2019.
The former sole director of RMA was Mr Lee De Coster. He is not a party to this action. Nor was he a witness called by any side at the trial. In these reasons, where I refer to 'Mr De Coster', I am referring to Mr Lee De Coster - and not his son, who is the eighth defendant, Mr Cardin Seng Bee Lim De Coster.
Because this is a Corporations Act application, there were no pleadings. Regrettably, the matter has proceeded instead only on lengthy affidavits filed on each side with voluminous attached documentation assembled and melded ad hoc therein. That has led to a lack of proper focus on the trial issues.
Resolution
In broad terms, the plaintiffs at 4 November 2019 had held the majority of the issued shares in RMA to then. This was aside from a bare 100 shares held by Mr De Coster - as from the time of the incorporation of RMA at 6 April 2018. There were as well some further RMA shareholders prior to 4 November 2019 - who are not parties in this action.
On 4 November 2019, Mr De Coster as sole director of RMA made a resolution allocating more shares to the eight (8) defendants.
This 4 November 2019 sole director's resolution in RMA allocated (in rough terms) what represented, approximately 54% of the shares in RMA to the defendants, including some to himself and to his son.
By reason of the allocation of further RMA shares under the resolution, the level of RMA shareholding in the nine plaintiffs would be as a result, correlatively diluted. So diluted, it would then represent not more than 40% of all the shares in RMA.
The 4 November 2019 resolution, in effect, therefore would, if valid, create and confer a new block of majority RMA shareholder control upon the first through to eighth defendants - based on their combined voting power, voting as a block at a general meeting of RMA shareholders.
The validity of the 4 November 2019 resolution, concerning the proposed allocation of further RMA shares amongst the first to eighth defendants, lies at the heart of all aspects of this statutory oppression action as it is now pursued by the nine plaintiffs.
The proceeding, COR 145 of 2020, was actually begun on 1 December 2020 with RMA as the sole plaintiff. RMA was then seeking relief under s 1322(4) of the Corporations Act.
However, controversy soon emerged over the authority of RMA's decision-makers at the time to bring such an action against the defendants.
Consequently, on 10 March 2021, a substituted originating process was filed by new lawyers on behalf of nine new plaintiff entities.
Under the substituted process, RMA was transitioned from its former status as sole plaintiff, to being named as the tenth defendant. Otherwise from then, RMA no longer participates in the action. It simply abides the trial result.
It is necessary to turn to more closely assess the content of the plaintiffs' substituted originating process of 10 March 2021 (folio 19)
- then issued by the replacement new plaintiffs and from then, claiming relief for alleged statutory oppression as RMA shareholders (members) against, in effect, the first to eighth defendants.
Details of application
The substituting originating process issued by the nine (9) RMA shareholder (member) plaintiffs, reads:
This application is made under sections 233 and 1322 of the Corporations Act (the Act).
The Plaintiffs are shareholders in the Tenth Defendant [i.e. in RMA] and apply for relief under sections 232 and 233 of the Act and for associated orders.
On the facts stated in the supporting affidavit(s), the Plaintiffs claim:
1.A declaration that the resolution to issue shares in [RMA] to parties including the First to Eighth Defendants, passed by the sole director of [RMA] on 4 November 2019 (the Resolution), and the issue of shares in [RMA] pursuant to that resolution (the Issue), were:
(a)contrary to the interests of the members of [RMA] as a whole; or
(b)oppressive to, unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs as members of [RMA] in that:
ithe Resolution and the Issue contravened clause 10.2 of the Constitution of [RMA]; and
iithe Issue was not made for genuine consideration.
2.The following orders under section 233 of the Act:
(a)an order declaring the Resolution, the Issue and the consequent allotment of shares in [RMA] to be invalid and void;
(b)an order that the shares of the Issue have been validly cancelled, or alternatively, an order that the shares of the Issue be cancelled;
(c)an order that the share transfer of [RMA] be rectified to remove any reference to the shares of the Issue;
(d)an injunction preventing the First to Eighth Defendants from exercising or purporting to exercise any rights attaching the shares of the Issue;
(e)a declaration that the holders of shares of the Issue were not entitled to vote at the general meeting of [RMA] held on 1 December 2020 (the General Meeting); and
(f)a declaration that the Resolutions purportedly passed at the General Meeting were of no force or effect.
3.An order under section 1322(4)(b) of the Act that [ASIC] rectify its register of shareholders of [RMA] to remove from that register all references to shares of the Issue.
…
Although the substituted process is framed as a statutory oppression action advanced pursuant to s 232 and s 233 of the Corporations Act, an overwhelming focus of its challenges can be seen to be directed against the validity of the 4 November 2019 share issue resolution made by Mr De Coster - as the then sole director of RMA.
The main challenge is grounded on a basal underlying contention that the RMA shares, the subject of the resolution, had been allocated for the improper purpose of retaining or obtaining control over RMA. Consequently, it is said in effect, that the 4 November 2019 issue of the further RMA shares was always invalid.
There is a long line of case authority concerning corporations and firmly establishing that it is beyond a company director's fiduciary powers to act to issue shares in their corporation for a purpose of creating or maintaining a position of voting control.
To that end, the plaintiff refers to and relies on some very well-known corporations case law authorities including Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483; Howard Smith Ltd v Ampol Petroleum, Ngurli v McCann [1953] HCA 39; (1953) 90 CLR 425, 445; and perhaps most significantly, Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285. These cases establish that, even outside the umbrella framework of a s 232 statutory oppression action, that it is a clear abuse of a director's powers to pursue an improper purpose. Such misconduct in the office may still be challenged by a person with standing and duly invalidated if proven, under subsequent orders of a court.
Overview of the plaintiffs' three (3) challenges against the validity of the 4 November 2019 directors' resolution
Under the chosen umbrella of a s 232 Corporations Act statutory oppression action, the nine RMA shareholder plaintiffs raise what is, in effect, a threefold challenge against the validity of the 4 November 2019 share issue resolution and everything later following that was grounded upon it. As there are no pleadings, these matters essentially need to be gleaned from out of the parties variously exchanged written submissions.
First line of challenge by the plaintiffs: breach of RMA's Constitution
First, the nine plaintiffs as RMA shareholders (members) complain about the 4 November 2019 resolution itself - on the basis that it manifests an underlying breach against RMA's Constitution. They say this feature alone must vitiate the 4 November 2019 director's resolution - viewed on a stand-alone basis.
Clause 10.2(a) of RMA's Constitution provides in terms, that:
The Directors can offer shares of a particular class, however, before doing so, they must offer them to existing shareholders of that class. The Company may authorise an issue by ordinary resolution passed at a general meeting.
Factually, in relation to the shares the subject of the resolution, it is undisputed at the trial, that there had been no prior offer of these new RMA shares to existing RMA shareholders. Nor had there been any general shareholders' meeting providing an authorisation for such proposed new share allocations. Consequently, any following issue of RMA shares under the 4 November 2019 resolution has occurred under circumstances where that issue was a direct breach against RMA's Constitution.
Between the participating trial parties, there appears to be no dispute at the trial over what has occurred at 4 November 2019 being a violation of the RMA Constitution. The only controversial question is over the consequences of such a breach.
On behalf of Rosa, it is contended that the resolution did little more than give effect to a prior course of share issue allocation conduct in RMA - which it is put all the nine plaintiffs had known of when they had earlier decided to purchase their shares offered to them in RMA. The same breach of the Constitution occurred for them it is said when they took their RMA shares earlier.
It is also said for Rosa that the plaintiffs had knowledge to the effect that what were to be so called RMA 'Founders' were to receive 60% of all the shares in RMA, leaving the plaintiffs as RMA shareholders (viewed together) with not more than 40% of RMA's shares, ie, a permanent minority voting at a general meeting of RMA shareholders. The RMA 'Founders' always remained at the trial a somewhat loose and undefined term or group of persons, which apparently would embrace, first, Mr Scook or any of the many corporate entities associated with him, and second, Ms Carol Hardie, or Mr De Coster and their corporate entities. There could be more entities given the fluidity of the concept of RMA 'Founders'.
Mr Scook's company, Rosa, contends that as a result of an 'understanding' about Founders or Founders' shares in the plaintiffs, that there was nothing therefore oppressive about what was resolved upon at 4 November 2019.
Further matters are raised by Rosa in attempted answer to the plaintiffs' challenges. First, it is said that essentially, as from inception for RMA as a corporation, that cl 10.2 was always, effectively just ignored. This is in regard to an earlier issuing of RMA shares, essentially to all the nine plaintiffs - other perhaps than by the first issue of RMA shares that, as will be explained, was purchased by Mr Douglas Minchin's superannuation trustee corporation, Kingemel Pty Ltd (Kingemel). Mr Minchin had been contacted by Mr De Coster and later, introduced to Mr Scook. He was eventually persuaded (via Kingemel) to invest in RMA shares through his superannuation trustee corporation. It is presumably said to be implied that Mr De Coster, as RMA's first 100 share owning shareholder, had held no interest himself in exercising any pre‑emptive rights under RMA's Constitution to acquire more RMA shares - so the new RMA shares were happily just issued to Kingemel. Mr De Coster at the time had actively been seeking, at Mr Scook's behest, to attract equity investors like Mr Minchin into RMA. Later issues of more RMA shares, however, ought strictly to have first observed the pre-requisite conditions of cl 10.2 - but never did. The Constitution of RMA was effectively ignored.
Apart, however, from showing a general lassitude in the way RMA was managed at this time by its board (Mr De Coster), in my assessment, the 'just ignore cl 10.2(a)' submission does not go anywhere, once persons do (like the nine plaintiffs) raise the problem of a constitutional violation, and object. No waiver or estoppel submission was put.
A second proposed answer from Rosa, by its written submissions, asks the court to exercise its power under the s 1322(4)(a) of the Corporations Act, to effectively excuse the violation of RMA's Constitution. And so, the court is asked to validate the 4 November 2019 directors' resolution, essentially as being only a procedural irregularity - as regards what is ostensibly, a clear breach of the RMA Constitution around it.
As I will explain in the reasons to follow, I am ultimately not minded, as a matter of discretion, to take this excuse route as proposed by Rosa.
Second line of challenge by plaintiffs: the control of RMA
There is no doubt about the state of the law underlying the second broad line of challenge (articulated under the broader s 232 canopy). The second challenge sees the plaintiffs contend that the 4 November 2019 issue resolution was additionally invalid (ie, voidable) - as it had sought at the time to create, or to maintain a scenario of majority shareholder voting control within RMA for the persons or entities associated with Mr Scook (the eighth defendants).
To this end the plaintiffs invoke Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285, which had itself applied the earlier observations of Dixon J made in Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, as follows (at 294): at 186.
As a matter of logic and principle, the preferable view would seem to be that, regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, 'the power would not have been exercised'.
As already explained, Mr Scook stands behind Rosa the corporation. He also stands behind a number of the other corporate entities featuring in these proceedings.
By an affidavit affirmed on 25 March 2021 (folio 22), Mr Scook sought to resist the relief that is now sought by the plaintiffs. He said therein, in respect of the 4 November 2019 resolution, at par 41 of his affidavit (and which evidence I would accept) that:
The decision to divide the shareholding in RMA in that way was a result of discussions between me, Ms Hardie and Mr De Coster between January and April 2018. During those discussions, we decided that the Founders would be issued with a controlling stake in RMA as, in my view, it was important for the Founders to retain control of the company. That was because I wanted to ensure that the project reached practical production. In my experience, there is always a risk that if you do not have control over a project, the project can stall and never get off the ground. (my emphasis in bold)
Naturally enough, Mr Scook was closely questioned about this aspect of his evidence whilst under cross‑examination on day two of the trial (at ts 210), by counsel for the plaintiff. This exchange unfolded and a further key admission was made then by Mr Scook (which I also accept):
And so that decision to divide the shareholding that way was another thing that came out of your early discussions with those other two people, wasn't it? Ms Hardie and Mr De Coster?---It was joint decisions, but yes.
And you decided, between the three of you, that the founders would be issued with a controlling stake, because you wanted to keep control of the company to make sure the project happened; is that right?---Correct.
That evidence alone from Mr Scook, I find, would be determinative of the purposive control object issue in this trial around the 4 November 2019 directors' resolution. It is enough, by itself, for the plaintiffs to make good their second line of challenge - as regards proving an existence of a subjective object of pursuing RMA control - as underlying and thus, as invalidating that RMA directors' (ie, Mr De Coster's) resolution of 4 November 2019.
It is of course not that unusual to encounter commercial transactions that are structured around a commencement of a new business or venture - that utilise a newly formed corporation as the venture vehicle. And to that end, there is also seen an accompanying written shareholders agreement - entered at the outset as between all the participant venture commencing shareholders. Such an agreement of the shareholders can legitimately identify therein that a certain proportion of the corporate vehicles' shares are to be allocated to and held by the various venture participant interests as they see fit. Provided all participant venture vehicle shareholders agree and commit, there is usually no difficulty. But that is far from the present case factually - and the absence of an RMA shareholders' agreement is at the root of the problems.
In present circumstances there never was any perfected RMA shareholders agreement put in place as between shareholders and concerning the topic of future RMA share allocations to RMA's promoters - or addressing the rights of so-called, but always unnamed, 'Founders' such as Mr Scook or his lieutenants. Nor was there ever any documented agreement under which the early RMA equity investor shareholders of 2018, who subscribed for their shares in RMA at, or shortly after, RMA was incorporated in April 2018 - ever contractually committed to a binding agreement - by which some 60% of the issued RMA shares would be agreed to be allocated to persons who would pay no money to RMA for those shares. Usually, the plaintiff RMA shareholders subscribed on a basis of paying $1.00 per share for their allotments, albeit at times later, with applied discounts, or by receiving bonus share entitlements - under circumstances where they had been offered and had accepted bonus shares as a part of an RMA allotment.
But absent a clear and binding contractual commitment under a binding shareholders' agreement from the subscribing plaintiff RMA shareholders - they might justifiably look askance having no voting input towards the question of a later majority (54%) allocation of more shares in RMA, some 19 months after RMA was incorporated, to a diverse group of entities who would receive their RMA shares under a mere directors' resolution voted on by RMA's then sole director at a five minute meeting. And, supposedly, those persons would take their RMA shares in return for their unspecified contributions - referred to by counsel as 'sweat equity'. The expression 'sweat equity' is, of course, a colloquially loose and nebulous concept, at best.
From the RMA decision making control perspective, the factual position, as from the commencement of incorporation of RMA, at 6 April 2018, saw a sole director of that corporation (Mr De Coster), who was on my assessment, invariably acting on the instructions of and was effectively doing the bidding of Mr Scook regarding RMA management decisions of any consequence.
I find that Mr De Coster's job given to him by Mr Scook, had been to raise money for equity subscriptions from investors into another Newco venture of Mr Scook - for which Mr De Coster was to be loosely rewarded by Mr Scook, depending on how successful his fundraising endeavours were.
There do not appear to have been any general meetings of RMA shareholders convened in a period between April 2018 and December 2020.
Mr Scook from the incorporation of RMA was sole signatory to the bank account of RMA - into which all raised funds as had been subscribed by incoming RMA shareholders (including by the plaintiffs, save for Mr Brayshaw), were paid.
There soon followed some heavy drawings against that RMA account by Mr Scook, once it was opened and in funds.
From April 2018, Mr Scook exercised, on my assessment, a de facto control over RMA's affairs, by reason of his hold over RMA's 'purse strings' and because RMA's sole director, Mr De Coster, was essentially doing Mr Scook's bidding. Ms Hardie was essentially an associate of Mr Scook and was RMA's bookkeeper. She likewise I find acted in accord with Mr Scook's instructions and directions to her.
Part of the surrounding factual tapestry framing the second tier control purpose challenge of the plaintiffs, is a related contention that the first, second and third defendants, as corporate entities closely associated with Mr Scook and Ms Hardie, had been more than fulsomely remunerated for any pre incorporation work endeavours by them (such as they were) from payments they received from RMA's early subscription funds - once funds were subscribed inter alia by the plaintiffs for their RMA shares post RMA's incorporation.
A very considerable amount of RMA's funds does look to have been paid out as fees to corporate entities controlled by Mr Scook and Ms Hardie.
That full reward by payment contention is a part of the plaintiffs' arguments to contend that in that light, the RMA share allocation directors resolution of 4 November 2019 can be viewed essentially as 'double-dipping' for these defendants at that time - given high levels of fee and invoice payments to them already drawn upon and paid over to those related entities by RMA.
The plaintiffs say there was little, if any, underlying commercial rationale for any further levels of reward to RMA's promoters, or to its so called 'founders' at November 2019. To support this 'double‑dipping' allegation end, an auditor's report came to be privately commissioned for RMA and was eventually provided by a Mr Campbell, an auditor.
Following RMA's 6 April 2018 incorporation, there does appear to have soon followed a significant volume of RMA funds drawn as fees paid favouring various corporate entities associated with Mr Scook and Ms Hardie, after April 2018. Such payments were rendered for their so‑called 'management', 'consultancy' or 'administrative' service charges which were rendered as invoices to RMA, under various fee for service contract arrangements. On examination, they are seen as expressed in generalised and rather vacuous terms - as regards obligations to RMA to a point where the RMA subscription funds had been paid out of meeting fess and invoices of such a magnitude that RMA's funds dwindled to the order of only about $400,000 or so remaining, at around November 2019.
Nevertheless, on my assessment, it is not necessary to go so far as to show such alleged 'double-dipping' at this trial. That is because even if there had been no RMA fee payments at all made to those corporate Scook/Hardie entities, once the substantial purpose underlying the 4 November 2019 directors resolution is proved to be motivated (as it is) by an objective of a maintenance of, or a continuation or an attainment of the control over RMA, then such a resolution to those ends must be invalid, irrespective of any 'double dipping' conduct.
As I will explain, the 4 November 2019 resolution, and the subsequent conduct following it, had carried the effect at that time of shoring up a position of RMA voting control - for the Scook aligned beneficiaries (i.e. the eight defendants) of that allocation resolution as a strategic RMA member voting block (essentially, to support control by Mr Scook of RMA with his lieutenants and affiliates). This was under circumstances where some level of member unrest had then been emerging, or was on RMA's horizon to possibly pose a future threat against what had been till then the de facto RMA control that Mr Scook had exercised via Mr De Coster doing Mr Scook's bidding. Mr Scook, I find, effectively from RMA's incorporation was a shadow director of RMA - by reason of Mr De Coster doing his bidding and by Mr Scook being sole signatory upon RMA's bank account.
Relief against statutory oppression
As now related, the nine (9) plaintiffs are all shareholders (ie members) of RMA. They had all obtained their RMA shares prior to 4 November 2019.
By the substituted originating process, they seek relief by reason of alleged statutory oppression under s 232(d) or (e) in part 2F.1 of the Corporations Act. This is unlike what was sought at the outset by RMA process, as it was originally filed - which was then purely filed as an application for relief under s 1322 of the Corporations Act. I briefly turn to canvass s 232 and s 233 of the Corporations Act.
By s 232 of the Corporations Act:
The Court may make an order under s 233 if:
(a)the conduct of the company's affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, or a class of members of a company;
is either
(d)contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members within that capacity or in any other capacity…
Where statutory oppression is established within the parameters of s 232, then a court's power to grant relief is essentially at large. Section 233(1) provides:
The Court can make any order under this section that it considers appropriate in relation to the company, including an order (c) regulating the conduct of the company's affairs in the future…
Towards the issue of who can apply for s 232 relief, s 234(a) identifies that a member of a company may do that. Many cases have discussed Corporations Act s 232 and s 233 and their statutory Australian predecessors. Briefly, I mention the observations of the High Court in Campbell v BackofficeInvestments Pty Ltd [2009] HCA 25; 238 CLR 304, which I discussed in an earlier statutory oppression decision: see William Buck (WA) Pty Ltd v Faulkner [No 6] [2013] WASC 342.
Towards present circumstances, it will be noticed in the substituted originating process that the relief sought pursuant to s 233 is directed at challenging the validity of the 4 November 2019 resolution by the (then) (sole) director of RMA, Mr De Coster.
Essentially, the plaintiffs attack the 4 November 2019 resolution of the sole director - which allotted RMA shares at the time to each of the first through eighth defendants. The directors' resolution is challenged by the plaintiffs as being made contrary to s 232(d) or (e). The resolution itself may be found as attachment DJT-18 at page 137 of Mr Tenni's affidavit.
Upon examination, the resolution reads as being the minutes of a directors' meeting of RMA of 4 November 2019 at 8.00 am. There is recorded as being present only the sole director of RMA at the time, Mr De Coster.
Under the heading 'Business' and a subheading, 'Allotment of Founders' Shares' the 4 November 2019 minutes, record:
The director acknowledges that the Founders and promoters were responsible for the initial set up of the company, researching, negotiating and acquiring the Yarri tenements P31/2088; P31/2089; P31/2090; P31/2091; P31/2093 and P31/2096.
The Founders sought interested parties to invest in the company by purchasing shares to assist the company to achieve its objective of acquiring the Yarri tenements, allowing the Founders and/or their nominees to plan the development of an environmentally friendly semi‑modular processing plant by utilising a sorter and thiosulphate in lieu of cyanide to explore, extract and process gold or for sale from the tenements.
The company will have a total of 15 million ordinary shares allotted at the completion of its planned capital rating of AUD $6 million. It will require unanimous shareholder approval to increase the number of shares on issue.
The Founders presented to interested parties that a capital raising of AUD $6 million in total will entitle those parties to receive 40% of the total shares being 6 million shares. The Founders are entitled to receive 60% of the total shares being 9 million shares.
The Founders, at their absolute discretion, will provide some of their share entitlement as a bonus entitlement to selected investors for their participation as investors in the 40% of the allotted shares.
Resolved
The director requests the corporate manager to allot the Founders' shares, as listed below and register with the Australian Securities & Investment Commission (ASIC).
Entity
Share #
Rosa Processing Pty Ltd
2,039,593
Cazmac Pty Ltd
562,500
Carrabina Pty Ltd
1,477,093
Adjcor Pty Ltd
908,980
Sarjesian Super Investments Pty Ltd
238,607
Ash-rosebud Super Pty Ltd
102,260
Gjern Super Pty Ltd
340,867
Cardin Seng Bee Lim De Coster
300,000
Lee De Coster and/or nominee
600,000
The director declares a conflict of interest in that he has a beneficial in 600,000 shares to be issued to himself and Cardin Seng Bee Lim De Coster is related to him.
There being no further business the meeting closed at 8.05 am.
The end of the minute displays a signature of Mr L De Coster above his name - typed adjacent to the written date of 4/11/2019. Above Mr De Coster's signature there is noted words, 'there being no further business the meeting closed at 8.05 am'.
As may now be seen then, a five minute RMA sole director's meeting of 4 November 2019 seemingly resolved, then, to issue the aggregate amount of 6,569,900 RMA shares to so called 'Founders' and promoters - on a basis of a suggested entitlement, as expressed, to receive 60% of total RMA shares of 9,000,000 [arithmetically, 6,569,900 RMA shares amounts to 73% of 9,000,000 shares and 43.7% of 15 million shares].
Later, in December 2019, Mr De Coster came to renounce his 600,000 RMA shares that were a part of his sole director's allotment resolution - to himself.
On that as reduced basis, the 4 November 2019 issue was reduced to 5,969,900 RMA shares.
Of the issued shares in RMA at that time, that amounted to a 54.5% allocation out of what would then be 10,950,000 RMA shares on issue.
Third line of challenge by the plaintiffs: breach of the director's fiduciary and statutory duty by conflict of interest
The third tier of the plaintiffs' attack contends, essentially, for a breach of Mr De Coster's general law as well as his statutory obligations as an RMA director, contrary to s 181 of the Corporations Act.
It is contended by the plaintiffs as well that Mr Scook and Ms Hardie were RMA shadow directors and were also in breach of their duties to RMA.
Mr De Coster, of course, was never a participant party or even witness in the present action and trial. I have not overlooked that feature in rendering my findings in the trial. He was not a witness called by either side at the trial, albeit I find he could have been called. His son, Cardin, is the eighth defendant.
Case law: a fiduciary power to issue shares
Grounded upon fulsome High Court of Australia authority, including Mills v Mills [1938] HCA 4; (1938) 60 CLR 150 at 185, Ngurli Ltd v McCann [1953] HC 39; (1953) 90 CLR 425 at 439 - 440, and Ord Forrest Pty Ltd v Federal Commissioner of Taxation [1974] HCA 57; (1974) 130 CLR 124 at 156 (Mason J), there is no doubt that the fiduciary power that is afforded to the directors of a corporation to issue shares must be exercised in good faith and in the best interests of their corporation. As was stated in Ngurli (at 439 - 440), in the directly analogous factual context of an exercise of the fiduciary power by a director to issue new shares:
The power must be used bona fide for the purpose for which it was conferred; that is to say, to raise sufficient capital for the benefit of the company as a whole. It must not be used under the cloak of such a purpose for the real purpose of benefiting some shareholders or their friends at the expense of other shareholders or so that some shareholders or their friends will wrest control of the company from the other shareholders.
Later, applying Ngurli v McCann, Mason J in Ord Forrest Pty at 156 observed:
When issuing shares which have a value greater than the consideration payable for them the directors must give close consideration to the rights of the shareholders under the memorandum and articles.
As was also observed by Dixon J in Mills v Mills (at 185), the exercise of a fiduciary power by a director so as to obtain some private advantage or for a purpose foreign to the power, is 'corrupt and void'.
A further point to be made is that these are all stand-alone principles of law outside statutory oppression. Presently they are, of course, seen as ventilated as part of a global statutory oppression umbrella challenge raised under s 232 and s 233 of the Corporations Act. No objection is put by any of the defendants against the umbrella approach at this trial. However, the transgression by directors against a cardinal principle of corporate fidelity was also capable of being pursued on a stand-alone cause of action basis - by a person with sufficient standing. RMA shareholders whose shareholdings are significantly diluted in their general meeting voting power potentially, by the 4 November 2019 resolution delivering at the time no tangible consideration to their corporation, in my view, would hold sufficient individual standing to challenge the validity of the directors' resolution on that basis alone.
The purposes of control
A related case law principle concerning an aspect of the fiduciary duty owed by directors to their corporations emerges from a series of Privy Council and High Court of Australian decisions.
These cases establish that an issue of shares for an improper purpose of creating or maintaining a position of corporate control, is also a breach of that directors' fiduciary duty. To that end, see the observations by the Privy Council in Howard Smith v Ampol Petroleum [1974] AC 821 at 837(d) and (g). There it was said:
… it must be unconstitutional for directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority, or creating a new majority which did not previously exist. To do so is to interfere with that element of the company's constitution which is separate from and set against their powers. (my emphasis in bold)
The High Court of Australia came to apply those Privy Council observations in Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285. In the joint reasons of Mason, Deane and Dawson JJ at 289 to 290, it was said:
The reason why, as a general rule, it is impermissible for the directors of a company to exercise a fiduciary power to allot shares for the purpose of destroying or creating a majority of voting power was identified by the Privy Council in Howard Smith v Ampol Petroleum. It lies essentially in the distinction between the indirect proprietorship and ultimate control of the shareholders on the one hand and the powers of management entrusted to the directors on the other.
It is simply no part of the function of the directors as such to favour one shareholder or group of shareholders by exercising a fiduciary power to allot shares for the purpose of diluting the voting power attaching to the issued shares held by some other shareholder or a group of shareholders. (my emphasis in bold)
To the same essential point were earlier observations by Barwick CJ, McTiernan and Kitto JJ as rendered in Harlows Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483, at 493:
The principle is that although primarily the power is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons relate to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends. (my emphasis in bold)
The fiduciary principle is thus unquestioned. Its violation provides a stand-alone basis to invalidate a board resolution - outside the statutory oppression regime of the Corporations Act.
Section 1322 Corporations Act
Towards a potential engagement with s 1322(4) of the Corporations Act, I mention the leading decision of the High Court in Weinstock v Beck (2013) 251 CLR 396, concerning the remedial statutory power.
The submissions of the first defendant, Rosa, rely on observations of French CJ which were made after his Honour referred to s 1322(4) and (6) and to statutory precursors. At [39], the Chief Justice had said:
Corporations, in contemporary Australian society, serve the purposes of enterprises large and small, owned and operated by men and women, some of whom are sophisticated, knowledgeable and well‑advised on matters of corporate governance and some, perhaps many, of whom are not. Section 1322(4) and related provisions reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest of the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties. (my emphasis in bold)
However, I would emphasise, from Weinstock v Beck, concerning s 1322, the plurality observations by Hayne, Crennan and Kiefel JJ in that decision. The plurality said (at [52]):
... the words 'by reason of any contravention' provide no basis for drawing a distinction between what cannot be done at all under the Act or under the constitution of a company and what can be done but has not been done validly. In both cases the action taken was invalid. The supposed distinction cannot be drawn when the very premise for the application of s 1322(4)(a) was that what has been done was invalid. (my emphasis in bold)
[see as well the plurality observations at [53].]
Reaching the same conclusion in that appeal, Gageler J observed, concerning s 1322(4), that the power to validate invalid acts needed to be interpreted broadly. He said at [64]:
The specification in s 1322(6)(a) of s 1322(6)(a)(i) as one of three alternative means of fulfilling a precondition to the making of an order under s 1322(4)(a) shows that an act, matter, thing or proceeding declared not invalid by reason of a contravention need not be 'essentially of a procedural nature'. The repeated references ... to a 'contravention or failure' referred to in s 1322(4)(a) also show that 'contravention' is used in s 1322(4)(a) in a sense interchangeable with 'failure': as connoting an absence of compliance with a requirement necessary for validity. (my emphasis in bold)
Gageler J continued (at [65]):
However, s 1322(4)(a) can assist in achieving a result that could in some circumstances be attained under the constitution of a corporation by removing the invalidating effect of any absence of compliance with a requirement necessary for validity in the circumstances that in fact occurred.
As seen earlier, the substituted originating process by the plaintiffs of 10 March 2021, apart from the primary s 232 relief, also seeks an order pursuant to s 1322(4)(b) - that ASIC rectify its register of shareholders of RMA in order to remove from that register all references to the shares of the 4 November 2019 issue resolution.
As also seen, the first defendant Rosa, by its written submissions asks that the court issue orders pursuant to s 1322(4) to validate the 4 November 2019 resolution - insofar as it is invalid by reason of a transgression against cl 10.2(a) of RMA's constitution.
Strictly, by the terms of s 1322(4), Rosa ought to have brought its own 'application' to pursue such relief - which is plainly different to the ASIC register relief that is sought by the plaintiffs, in reference to s 1322.
There is no cross‑claim or counterclaim presently advanced by Rosa.
However, no objection emerged at trial against the informality in the approach of Rosa across, together, the six tranches of written submissions - as came to be exchanged between the parties before and at the hearing of this trial.
Consequently, I will proceed in due course to evaluate on its merits, what is the informally made request of Rosa - on a basis that there is to be treated as being before the court an 'application' pursued pursuant to s 1322(4) by the first defendant.
But as I also explain later, I would, in the end, reject such an application by Rosa - on the basis it presents as being contrary to s 1322(6)(c). It would, in my view, occasion a substantial injustice to those of the named plaintiffs who, in fact, have subscribed real money in order to acquire their shares in RMA, prior to 4 November 2019, unlike for the first to eighth defendants, who did not provide any funds as consideration for their RMA shares.
Plaintiffs' trial evidence
Douglas Bruce Minchin
Because the proceeding is a process under the Corporations Act and rules, trial evidence was largely adduced on affidavits from respective participants on three sides. To that end, the plaintiffs adduced evidence by affidavit from Douglas Bruce Minchin, under his affidavit of 5 February 2021 which included 13 attachments titled DBM1 through DBM13. Mr Minchin's affidavit became exhibit 4. He attended court for cross‑examination at the trial.
Mr Minchin has a mining industry background as an engineer and is now retired. He is a director of the first plaintiff, Kingemel Pty Ltd (Kingemel), which is the trustee of Mr Minchin's superannuation fund.
Within his affidavit, Mr Minchin swears at par 2 that he is authorised by each of the (other eight) plaintiffs to swear his affidavit in support of Kingemel's and the other plaintiffs' applications for relief and for the other orders as seen in the substituted originating process - to which I have referred. He was not challenged about that.
I refer to more of Mr Minchin's affidavit evidence and to his cross‑examination in the trial later in these reasons.
Robert John Campbell
The plaintiffs next adduced evidence under an affidavit of Robert John Campbell, which was affirmed 20 April 2021. The plaintiffs through counsel, Mr Warnick, were at some pains to make it clear Mr Campbell was not providing any expert trial evidence - although he is a registered company auditor.
Mr Campbell had earlier been engaged before this litigation began, by RMA via Mr De Coster, to prepare a report being RJC1 to his affidavit. An ensuing report was entitled 'forensic investigation of payments made to consultants, introduction fees and to related parties'. As will be seen, RJC1 itself is heavily redacted. A version of the report appended as RJC1 itself by its page 6, is not signed. RJC1 looks and presents rather to be an earlier draft of a report. Evidence was provided at trial clarifying the position about the final report, during Mr Campbell's cross‑examination. Mr Campbell's final report, also heavily redacted, is found elsewhere in the evidence - as I will explain.
Mr Campbell's affidavit including the report attachment (draft) became exhibit 5 at the trial.
Matthew James Keating
The plaintiffs also read the affidavit of Matthew James Keating, a solicitor of Williams + Hughes, sworn 15 December 2020. This became exhibit 2 at the trial. Mr Keating was not required for cross‑examination.
The Keating affidavit essentially appends a lawyer's communication of 2 December 2020 as had been dispatched by Williams + Hughes purportedly on behalf of RMA at the time and sent to certain RMA members (shareholders) advising of a commencement of COR 145 of 2020 in the Supreme Court that day by RMA. The starting position as to the plaintiff(s) has subsequently changed, as I earlier related.
Mr Keating then attaches a letter of 7 December 2020 under which a Mr David Sanders, corporate counsel of Bennett + Co, had advised Mr Keating in reply, that a general meeting of RMA had been held on 1 December 2020.
The same letter enclosed minutes of a general meeting as they were signed off by Mr Sanders as chairman of the meeting. Mr Sanders advised that as a consequence of the resolutions passed at the meeting, Mr Tenni (who had replaced Mr De Coster as sole director of RMA during April 2020) was no longer regarded as a director of RMA (a position Mr Tenni does not accept) and that Mr Sanders been appointed by that meeting as a director to replace him. Mr Sanders continued to advise Williams + Hughes:
In the circumstances, we put you on notice that Mr Tenni has no authority to instruct you on behalf of [RMA] and to the extent that your firm purports to accept instructions from him on that basis, all of [RMA's] rights against your firm are reserved.
I refer to minutes for a general meeting as they came to be signed by Mr Sanders on 7 December 2020.
David John Tenni
Also read and relied upon for the plaintiffs was the affidavit of David John Tenni affirmed 5 February 2021 including its attachments DJT1 ‑ DJT38 - over 246 pages of materials.
Mr Tenni attended trial for cross‑examination. His affidavit was admitted as exhibit 3.
Mr Tenni's affidavit explains his other positions as a sole director of the second plaintiff, Sankalpa Pty Ltd, and as well, for the third plaintiff, CXO Holdings Pty Ltd - both of which corporations he relates became shareholders in RMA.
Mr Tenni's affidavit, at par 2, also says he was duly authorised by each of the (other) plaintiffs to swear his affidavit in support of their joint application for relief as is sought under the substituted originating process.
Other evidence from witnesses for the plaintiffs
Further evidence was read and relied upon for the plaintiffs. This included affidavits of Andrew Ronald William Bower, sworn 24 May 2021, which became exhibit 6. Mr Bower was not required at trial for cross‑examination. Essentially, he attached an ASIC communication to the lawyers for the nine plaintiffs (of 20 May 2021) then advising of ASIC's stance, in effect, of awaiting a decision by a court as to the state of RMA's share register in the surrounding dispute.
The last witness evidence read on behalf of the plaintiffs was a statement of agreed evidence for Kym Anthony McClaren of 31 May 2021. This statement became exhibit 7.
The statement essentially related Mr McClaren's meetings with a Mr Dean Scook at mid and then late January 2018, concerning mining tenements (prospecting licences) that Mr McClaren then owned in joint venture with his business partner, James Manson, and which they had held then for sale.
At a first meeting of January 2018, Mr McClaren had provided Mr Scook with a folder containing a description of certain available tenements for sale (essentially including the prospecting licences which came to be known as the Yarri tenements).
At a further meeting between Mr Scook and Mr McClaren in late January 2018, an outright purchase price for the Yarri tenements was discussed. Mr McClaren nominated then a price of $250,000 to which he says Mr Scook had responded with words 'that won't be a problem'.
Later, a sale agreement for these Yarri tenements to RMA came to be executed and perfected through a solicitor acting at that time for Mr McLaren and his business partner, as the vendors of the tenements.
Mr McClaren also said he believed that tenement transfers and a cheque for the amount of $250,000 came to be received by his solicitor acting for the vendors at on or around 10 May 2018.
Mr McClaren's statement was tendered without the need for him to give evidence in person or be cross‑examined. Clearly, all evidence from him can be received and accepted without controversy.
First defendant's trial evidence
For the separately represented first defendant, Rosa, there was read an affidavit of its director, Mr Dean George Scook affirmed 25 March 2021, together with its five attachments.
Mr Scook is the sole director of the first defendant. He related that he was authorised on behalf of the first to eighth defendants to swear his affidavit in opposition to the plaintiffs' substituted originating process.
Mr Scook's affidavit became exhibit 8 and as mentioned earlier, he also attended for cross‑examination at the trial.
Second to eighth defendants' trial evidence
Carol Hardie
For the second through eighth defendants, the primary affidavit read in support of their respective positions was that of Carol Norma Hardie. This was an extensive two lever-arch volume affidavit, containing mostly documents via its attachments CNH1 through CNH88 and comprising together some 677 pages of material sworn 29 March 2021.
Ms Hardie's affidavit disclosed that she was the sole director secretary and shareholder of numerous corporations. These included the second defendant in this action, namely Cazmac Pty Ltd. Ms Hardie explained she was also sole director and secretary of the third defendant corporation, namely Carrabine Pty Ltd.
Ms Hardie said that prior to 2017 she had worked closely with Mr Scook on what she referred to as 'various projects' (par 3). As she explained, 'Dean would find the opportunity and deal with investors and I did the paperwork under direction from Dean.' Throughout the course of the ensuing reasons I will refer to other aspects of Ms Hardie's materials.
Ms Hardie attended trial to be cross‑examined on her affidavit evidence.
Other affidavits for the second to eighth defendants
Four further affidavits were read and relied upon on behalf of the second to eighth defendants.
Respectively, these were the following affidavits, all of which can be accepted without controversy:
Ron Hawkins
An affidavit of Ronald Olding Hawkins sworn 1 April 2021 became exhibit 10. Mr Hawkins is a director of the seventh defendant, Gjern Super Pty Ltd (ACN 169 355 364) ('Gjern'). Gjern holds a share certificate of 4 December 2019 for 340,867 shares in RMA signed by Mr De Coster. In October 2018, Mr Hawkins had paid $50,000 to a company associated with Mr Scook, namely Snowball Minerals Pty Ltd as trustee of the Snowball Minerals Trust. This was for Gjern's investment of 7.5% in certain projects of Mr Scook, the first of which he was told was the Yarri tenements. Later, Mr Hawkins (for Gjern) applied for and received RMA shares under the 4 November 2019 director's resolution.
Mr Hawkins was not required for cross‑examination at trial upon his affidavit. It became exhibit 10.
Jane Hawkins
Jane Elizabeth Hawkins' affidavit sworn 31 March 2021 became exhibit 11. She was not required for cross-examination.
Ms Hawkins is a director of the fifth defendant, Sarjesian Super Investments Pty Ltd (Sarjesian). The other directors are her children.
Ms Hawkins is the former wife of Ron Hawkins. She says that she is now the partner of Mr Ashleigh Richards - and who she explains is director of the sixth defendant in the action, being the corporation Ash‑Rosebud Super Pty Ltd.
Ms Hawkins confirms (as seen already) that her former husband, Ron Hawkins, is a director of the seventh defendant Gjern.
Ms Hawkins says that on or around 4 December 2019, Sarjesian received a share certificate for 238,607 shares in RMA.
The same day Ash Rose‑Bud, she relates, received a share certificate for 102,260 shares in RMA.
Adam Corbett
Adam St John Corbett provided an affidavit sworn 1 April 2021 (exhibit 12). Mr Corbett was not required for cross-examination. He and his wife are directors of the fourth defendant, Adjcor Pty Ltd.
Mr Corbett says he had invested with Dean Scook in early 2017. He looks to have invested some $203,000 for units in the Snowball Unit Trust.
On 29 November 2019, Adjcor Pty Ltd received a share certificate for 908,980 shares in RMA - after causing Adjcor to apply for those shares the same day.
Cardin Lim De Coster
Finally, for the second through eighth defendants, Cardin Lim De Coster provided his affidavit sworn 8 April 2021.
Mr Lim De Coster is the son of Mr Lee De Coster.
He relates that he believes his father, at a time he cannot give specific details of, provided to him a gift of a number of shares in RMA
- although he says he is not aware of any further details.
Mr Cardin Lim De Coster's affidavit became exhibit 13. He also was not required for cross‑examination at the trial.
Agreed facts
For the purposes of the action, the parties before trial had exchanged factual chronologies of relevant events, sourced largely by reference to the documents found annexed to various of the affidavits I have now mentioned.
The parties' chronologies had been provided and exchanged in sequence under case management directions before the trial. First was the plaintiffs' chronology dated 26 May 2021. It became trial exhibit 1.1. There followed a revised chronology which was essentially responsive, or by way of augmentations or adjustments to the plaintiffs' iteration, provided by the second to eighth defendants of 10 August 2021, this became exhibit 1.2.
Last came Rosa's responsive chronology of 12 August 2021. It also was admitted as exhibit 1.3.
For convenience, I will append as Schedule 1 to these reasons the second to eighth defendants' chronology, exhibit 1.2. Whilst the first defendant sought to make some additions by its following chronology, exhibit 1.2 is more factually clinical document to work from. The facts seen as there assembled are so found by me for the purposes of this trial.
The Board of RMA
Still in the context of key introductory facts, it is useful to note as well that the corporation of RMA was registered in Western Australia as an incorporated proprietary limited corporation, on 6 April 2018. Mr De Coster was recorded at that time as RMA's sole director. He was also RMA's company secretary and a holder of 100 RMA shares at that time.
That remained the recorded position for RMA's officially appointed board until 9 March 2020, when Mr Tenni was to become a further appointed director of RMA, joining Mr De Coster.
But less than a month later, Mr De Coster resigned as a director of RMA (as well as company secretary). That left Mr Tenni as the sole director of RMA as from 3 April 2020. Mr Tenni was also appointed RMA's company secretary from that time.
In a chronological sense, the impugned RMA's director's resolution by Mr De Coster of 4 November 2019, took place just over some five months before his resignation as RMA director, leaving Mr Tenni.
The shares in RMA
The shareholding position in RMA is unduly complicated.
A historical company search conducted as at 30 November 2020, (attachment 'DJT-1' to Mr Tenni's affidavit) shows that at that date, RMA had issued 10,950,000 shares, with an amount of $3,490,097 received as shareholder capital.
As mentioned, Mr De Coster had been originally issued with 100 shares at or approximate to the incorporation of RMA, at 6 April 2018.
Prior to the resolution, various other subscribing shareholders appear to have been issued with amounts of ordinary RMA shares. That included the RMA shares that came to be purchased by the first plaintiff, Kingemel (associated with Mr Minchin) and later, purchased by the two corporations associated with Mr Tenni, namely Sankalpa Pty Ltd (second named plaintiff) and CXO Holdings Pty Ltd (third named plaintiff)). More RMA shares came to be issued as well, including to each of the fourth, fifth, sixth, seventh, eighth and ninth plaintiffs.
I will discuss some further details around the relevant RMA shareholding interests for the plaintiffs, defendants and others, later in the course of the reasons. For present purposes, however, it is only necessary to provide an overview towards what is, essentially, the three‑pronged attack as earlier explained that is made by the plaintiffs put against the 4 November 2019 share issue director's resolution and its aftermath events, under the umbrella of their s 232 Corporations Act challenge.
Derivatively impugned as well is the attempt to convene a general RMA shareholders meeting on 1 December 2020 - in utilising for that shareholders meeting, the requisitioning power and then the block voting power of the RMA shares issued to the first to eighth defendants on the basis of the shares the subject of the impugned 4 November 2019 resolution.
Resolutions recorded as having been put and passed unanimously at a 1 December 2020 Rosa shareholder's meeting, had included a resolution that by cl 13.3 of RMA's Constitution 'David John Tenni be removed as director of the company', and that, pursuant to cl 13.3 of the Constitution that 'Mr David Grant Sanders be appointed as director of RMA'.
It appears that none of the nine plaintiffs or any representatives for the plaintiff corporations, attended at the requisitioned RMA shareholders meeting. Nor did Mr David Tenni who, as seen, had been appointed and was acting as RMA's sole director at the time.
The trial evidence of Dean Scook
To address further the third tier fiduciary conflict of interest challenge, it is necessary to discuss further the trial evidence of Mr Scook. I will say, however, at this point as regards Mr De Coster, that his personal conflict of interest in his putting and passing the 4 November 2019 directors resolution - allocating, inter alia, RMA shares to himself and to his son, is both obvious and demonstrable. The minutes of the 4 November 2019 resolution expressly acknowledge his conflict.
Albeit Mr Scook gave evidence for the first defendant after the case of the plaintiffs had closed, it is more convenient to commence a discussion with the trial evidence with Mr Scook's own evidence. This is because, on my assessment, Mr Scook was the architect and was the driving force behind the incorporation of RMA at 6 April 2018.
In large part, on my assessment, Mr Scook was the cause of and is responsible for everything relevant that occurred concerning RMA's significant decision making, thereafter.
I earlier referred to par 41 within Mr Scook's affidavit and to his trial cross-examination on that paragraph of his evidence, as regards the issue of the control of RMA.
Mr Scook's affidavit, read as a whole, reinforces my conclusion that he was the driving force and key decision-maker behind the so-called NewCo 'investment opportunity' promoted at the end of 2017 and in early 2018. Mr Scook had caused Mr De Coster to present this idea to various potential equity investor persons, including to Mr Minchin and Mr Tenni - they being associated with the first, second and third corporate plaintiffs, as explained. Later, post introductions by Mr De Coster, Mr Scook became personally involved and he was influential towards driving the equity investment decisions which these plaintiffs eventually made in RMA shares.
On the trial evidence, I would assess Mr De Coster and Ms Hardie, essentially to have been Mr Scook's lieutenants - acting under his close direction as regards Newco and then RMA. Mr Scook has never taken a position as a formally appointed director of RMA. Nevertheless, my conclusion from out of all the evidence is clear Mr De Coster as RMA's sole director looked to and did Mr Scook's RMA bidding. At this trial, I do not need to hear Mr De Coster as a trial witness to reach that clear conclusion. Mr Scook's own trial evidence is more than enough to that end.
By Mr Scook's affidavit affirmed 25 March 2021, he commences at par 24 saying that he met Mr De Coster in or around 2010, but cannot recall who introduced him. At par 25, Mr Scook commences:
I am aware through my dealings with Mr De Coster over the years that he has experience in raising funds for mining projects.
He added that he thought Mr De Coster could assist he and Ms Hardie to raise funds to progress a 'Project', so he asked him whether he would be prepared to be involved in the Project. Mr De Coster agreed to be in the Project. 'Project' is a word defined at par 20 of Mr Scook's affidavit.
But 'Project' is a somewhat generous description for what presents as more of a thought bubble-like idea Mr Scook had held
- about using CSIRO's green mining technology in a 'Project' exploiting former gold bearing mining tenements.
Mr Scook mentions that he was introduced in late 2017/early 2018 to the Yarri region and to a tenement area located around 160km's north-east of Kalgoorlie on the Yarri Road - which he refers to a Pingin Strike Line (par 19). This he describes as a line that runs parallel to a 'Wallaby Strike Line' - which line Mr Scook refers to as 'being the geological line upon which the Yarri tenements are located.' (See Mr Scook's affidavit at par 19). So much may be accepted.
Next, Mr Scook adds (at par 19):
It was around that time that I became aware of a new, non-toxic environmentally friendly gold processing technology developed by the CSIRO using thiosulphate.
Given that insight to the term 'Project', as it is found deployed in the remainder of Mr Scook's affidavit, I can return to his evidence concerning his association with Mr De Coster - after Mr De Coster agreed to be involved in the Project.
At par 26, Mr Scook says:
While I do not recall the precise dates, Ms Hardie, Mr De Coster and I had a number of discussions regarding the Project and eventually reached agreement to incorporate a new company as the corporate vehicle to own, set up and operate a gold processing plant on the Yarri Tenements.
However that evidence of Mr Snook as to dates and discussions and the reference to a tripartite agreement was not a subject of any binding written agreement put into evidence at the trial.
Mr Scook continues at par 27:
I suggested that we run the Project from a company named Snowball Minerals Pty Ltd ...
Later in his affidavit, Mr Scook explains he was the sole director and shareholder of a further corporation, Snowball Minerals Pty Ltd ('Snowball'), attaching an ASIC historical company search undertaken at 24 March 2021, as attachment DGS‑2.
Snowball was incorporated on 24 April 2018 by Mr Scook. I note that by comparison, the tenth defendant, RMA, is known to have been incorporated at 6 April 2018 - some 18 days earlier.
As now seen, Mr De Coster upon the incorporation of RMA was its sole appointed director. He was issued at inception with its earliest issue of 100 shares. There is no mention of Mr Scook or of Ms Hardie as being either directors or officers of RMA - only Mr De Coster was formally appointed.
Mr Scook relates that Snowball was a trustee company of the Snowball Mineral Trust. He attached a copy of the trust deed of the trust as attachment DGS‑3 to his affidavit. The trust deed makes reference to another of Mr Scook's corporations, Jemamebe Pty Ltd, as an initial Snowball Minerals Trust unit holder (and with Snowball as the trustee). The deed of trust is dated 24 April 2018.
On the subject of the multiple corporations connected to Mr Scook, Rosa is a subject of information under the ASIC extract snapshot provided as DGS‑1 to Mr Scook's affidavit. The record shows Rosa was only incorporated at 13 December 2018. Mr Scook was the sole director and secretary. There were 20 issued shares, held as to 10 each as between Mr Scook and Susanne May Scook.
Mr Scook's affidavit also explains a long business relationship with Ms Hardie. She, of course, has sworn her own affidavit in the action and was a witness for the second to eighth defendants at the trial.
Commencing at par 4 and extending through to par 10 of his affidavit, Mr Scook relates how he had met Ms Hardie (who is sole director of the second and third defendants in this action) in or around late 1988. Together, they have been involved in a number of property developments in Western Australia, as well as in a number of mining projects in the Northern Territory, Western Australia and Queensland. The mining projects have included minerals such as gold, copper, uranium, manganese and vanadium. Mr Scook explained that in these mining projects, his roles had extended from acting as the project manager to conducting due diligence in tenement acquisition processes.
Mr Scook next said (at par 5):
On occasion I have presented to prospective investors to explain the metallurgical aspects of a proposed project.
He continued (at par 6):
In all the projects in which I have been involved with Ms Hardie, she has acted in a corporate accounting or management role. I have always been dependent on Ms Hardie to perform those functions as I only have a limited understanding of those roles.
By my assessment, including towards her own trial evidence to be discussed later, Ms Hardie (holding no formal professional or tertiary qualifications) acted over time essentially as a lieutenant to Mr Scook concerning RMA, providing it with rudimentary accounting and secretarial assistance, under Mr Scook's direction.
Unlike for Mr Scook, I do not assess Ms Hardie to have been a shadow director of RMA. Her tasks were I assess far more mundane.
Like for Mr De Coster for the affairs of RMA, Ms Hardie acted, in effect, as one of Mr Scook's minions - assisting, as required and directed by him, so as to enable Mr Scook to operate informally - in the shadows. Nevertheless, Mr Scook always ran the 'show' and he pulled the significant decision making 'strings' on my assessment of the evidence - in terms of the relative association of Mr Scook, Mr De Coster and Ms Hardie, concerning RMA's decision making.
At par 34 of his affidavit, Mr Scook said:
Originally I asked Ms Hardie to incorporate Snowball as the vehicle through which to facilitate the purchase of the Yarri Tenements and undertake the Project …
That changed. Apparently, the change of plan was as a result of Mr Scook's discussion with Mr Minchin (that he refers to in pars 29 and 30) and in a context of Mr Minchin's suggestion (as a potential equity subscriber via Kingemel) to Mr Scook that the word 'Rock' should feature in the name of the Newco company that would run Mr Scook's 'Project'. Mr Minchin had been located and then introduced to Mr Scook by Mr De Coster, as a potential investor (see Mr Scook's affidavit at par 28).
At par 35 of his affidavit, Mr Scook said, rather typically:
I am unsure why Snowball was incorporated subsequent to the incorporation of RMA. To the best of my knowledge, information and belief that was not intentional.
Diverting briefly, I must observe that Mr Scook was obviously not a man for details. My assessment of Mr Scook's trial evidence as given under cross-examination was that it was on the whole, unacceptably vague. Save for uncontroversially agreed facts, or facts established by a document, I generally assessed Mr Scook's cross‑examination evidence otherwise than where I say to the contrary, as unreliable.
Rendering that view, I wish to clarify that I am not saying that I assessed Mr Scook to be an untruthful trial witness - merely that his verbal evidence given at trial was so casual and vague and the details so threadbare, that anything offered by him in the few factually controversial areas of the trial, by my assessment, needs to be treated with an extreme level of caution.
Mr Scook's evidence concerning his corporation Snowball as trustee of the Snowball Minerals Trust continued at par 36, where he said:
It was my intention that the unitholders in Snowball would become 'founders in RMA'.
No objection was taken to such evidence going to Mr Scook's uncommunicated intentions, or as to an inherent vagueness residing in his reference to so-called 'founders'. Still the vague statement as observed above is of little weight and ultimately, it goes nowhere.
Mr Scook at par 36 continued:
However, as Mr Minchin preferred that the project be run from a company with the word 'rock' in its name not all 'Founders' became unitholders in Snowball as they were issued shares in RMA instead.
Mr Scook attaches to his affidavit as DGS‑4, a copy of a unitholder register for Snowball - with page 58 displaying a heading '2019 FY' and page 59 displaying the heading '2020 FY'.
Within DGS‑4 can be located references to various amounts of money paid by present defendant entities, including by Adjcor Pty Ltd (Mr Adam Corbett), Sarjesian Super Investments Pty Ltd (Jane Hawkins) and Gjern Super Pty Ltd (Ron Hawkins) to purchase amounts paid for units in that trust, being $350,000 + $20,000 + $50,000 = $420,000.
Mr Scook was asked about the Snowball Unit Trust register whilst under cross‑examination concerning a contention (as looks to be the case from the trial evidence and accordingly as I so find) that none of those money amounts so recorded (as being received by the Snowball Minerals Unit Trust) were ever moneys that were paid over, so as to be received by RMA. Mr Scook sought at the trial to provide some explanation about all that - but in this respect I found the evidence again to be vague and unsatisfactory and I do not accept it.
As regards the 2020 FY document at page 59, Mr Scook was asked who still holds units in the Snowball Unit Trust. He responded, fairly typically, that he did not know if they did or they did not (see ts 238).
Founders?
Mr Scook's affidavit (at par 36) casually introduced his concept of 'founders' in RMA. That was his first mention of the notion ‑ introduced there by reference to unitholders in the Snowball Minerals Trust. As regards Snowball Unit Trust unit purchases made by Adjcor Pty Ltd, Sarjesian Super Investments Pty Ltd and Gjern Super Pty Ltd, those entities by reference to DGS‑4 would all appear to have subscribed their funds to acquire units in that trust at some time after 26 June 2018. That was some two-and-a-half months after RMA had been incorporated, at 6 April 2018.
Subsequent Snowball unit purchases, for instance by Ash Rosebud Super Pty Ltd, (page 59 of Mr Scook's affidavit), came later. A vague suggestion by Mr Snook that all those Snowball trust unitholders were or became 'founders' in RMA looks to be chronologically incongruent. However, that is not the only problem towards rationally linking Snowball unitholders to their later receipts of RMA shares under the 4 November 2019 resolution.
Mr Scook's state of mind towards his conceived notion of a 'founder' was attempted to be explained by him at par 38, on a basis the proposed structure in RMA was 'unique' to some other Projects in which he had been involved and further that:
... the investor base were to be allocated 40% of the shareholding in RMA for an investment of between approximately $6,000,000 and $6,400,000.
By the balance of that paragraph, Mr Scook speaks of his (ostensibly uncommunicated) state of mind about the remaining 60% shareholding. Mr Scook says the shares were:
… to be held by a group I called the founders comprising ...
Mr Scook then seeks to identify as being 'founders' himself, Ms Hardie, Mr De Coster, Jane Hawkins, Ron Hawkins, Ashley Richards and Adam Corbett.
I will not accept this aspect of Mr Scook's evidence. On its face, it looks to me to be a poor attempt to rationalise what turned out to be rather shambolic money raising efforts - all very loosely conceived by Mr Scook by reference to his Newco and 'Project' ideas.
The 'hook' for this 'Project' idea of Mr Scook to investors was to suggest the using of CSIRO's new and environmentally more friendly gold processing technology. However, I assess this was little beyond being a largely undeveloped idea spruiked to attract money and investors.
Specifically, prior to the incorporation of RMA at April 2018, there was as regards the idea in Mr Scook's head for another 'Project' through a new company ('Newco'): (a) no assets, or money; (b) no mining tenements; (c) no land; (d) no intellectual property or permission or licence from CSIRO; and (e) no plant. But, of course, beauty is in the eye of the beholder.
After RMA's April 2018 incorporation, the Yarri prospecting licence tenements came to be acquired by RMA for $250,000, in May 2018. But that was only after Mr Minchin's corporation, Kingemel (the first plaintiff), following an incorporation of RMA paid the money it subscribed for shares in RMA. With money subscribed by Kingemel, its subscriptions purchase price funds of $250,000 became available for RMA - to acquire the prospecting licences later referred to as the Yarri tenements.
The sketchy detail underlying Mr Scook's conceived 'Project', is reinforced by the essentially vacuous content of a number of 'Brochures' that Mr Scook had instructed Ms Hardie to prepare - for a purpose of interesting his Newco 'Project' to potential investors.
To that end, five different iterations of Newco 'Project' brochures are found within Ms Hardie's affidavit.
However, none of the Newco brochures refers to 'Founders', or to 'Founders' Shares': see Ms Hardie's affidavit and its attachments CNH6, CNH7, CNH8, CNH9 and CNH10. These brochures are to be compared to another Newco 'Project' brochure that Mr Minchin claims was shown by Mr De Coster - before his company, (Kingemel) invested in RMA shares: See attachment DBM2 to Mr Minchin's affidavit. The content of this brochure aligns (mostly) to that shown at attachment CHN9.
Mr Scook's evidence about the content of these brochures was again vague, both within his affidavit and later whilst under cross‑examination: see pars 37 ‑ 47 of Mr Scook's affidavit.
At par 37, Mr Scook says that between in or around 2017 and in or around 2018, he had 'asked Ms Hardie to prepare an investor presentation to inform potential investors about the proposed project (defined as Presentations). These written 'Presentations' were amended and updated from time to time. By his term 'Presentations', Mr Scook was referring to the brochure documents as found in their different iterations in Ms Hardie's affidavit and to the one (February 2018) iteration as found in Mr Minchin's affidavit.
After referring to 'founders' and their associated corporations (at between pars 38 and 39 of his affidavit, which I repeat are concepts not mentioned at all in any iterations of the brochure/Presentation), Mr Scook refers to the pivotal decision to divide the shareholding in RMA, at par 41 of his affidavit - which evidence I earlier quoted and have accepted.
Mr Minchin was also criticised for his failure to accept he had been given current share certificates (ts 67). Again, the criticism was legitimate. But still it does not influence me to conclude it undermines all of Mr Minchin's evidence, generally.
It was then said Mr Minchin failed to accept that other RMA shares were issued to other plaintiffs in contravention of cl 10.2 of RMA's Constitution - and so suffered the same problem as the defendants' RMA shares. That criticism, by my assessment, goes a step too far. It was not for Mr Minchin to render any concession upon a conclusion of law concerning the legal effects of a contravention of cl 10.2 of RMA's Constitution for other shares earlier issued to some or other of the plaintiffs.
Here I should observe that I do not accept as legitimate what is the 'good for the goose' like criticism directed at the plaintiffs - in terms of their shares and suggested breaches of cl 10.2 of RMA's Constitution, arising from more general non‑observances at the times the plaintiffs' own RMA shares subscribed for were then issued to various of the plaintiffs.
That is because, first, principles of waiver and estoppel do not and are not suggested to apply to such a breach of RMA's Constitution. Second and more importantly, at the time of any earlier transgressions against cl 10.2, RMA was not then being managed by the plaintiffs, but rather, by the guiding managerial hands of Mr Scook, albeit Mr De Coster was the sole appointed director.
Those two persons must bear all the responsibility for any earlier non‑compliances with RMA's Constitution - as regards earlier issues of RMA shares by Mr De Coster whilst sole director. The earlier cl 10.2 breach responsibility should not be attempted to be laid at the doorsteps of the plaintiffs.
Third, there is a gulf of differentiation, on my assessment, between shareholders who actually handed over real money in order to acquire their RMA shares - by contrast to other persons or entities as the subject of the 4 November 2019 directors' resolution. They did not provide any funds at the time to RMA in payment or as legal consideration for those allocated RMA shares.
It remains to deal with some sundry criticisms of the plaintiffs' case arising from the written closing submissions of the first defendant and by the second to eighth defendants (both of 18 August 2021).
Breach of fiduciary duty - Mr De Coster
A sub-component of the plaintiffs' s 232 Corporations Act statutory oppression challenge against the 4 November 2019 resolution is grounded upon an alleged breach of his fiduciary director's duty by the sole appointed RMA director, Mr De Coster, at that time.
Breaches of fiduciary duty were also contended against Mr Scook and Ms Hardie as shadow directors. Earlier, I have concluded that Mr Scook was a shadow director of RMA. But my conclusion as to Ms Hardie is to the contrary.
Both Mr De Coster and Ms Hardie, on my assessment, acted for RMA under the instruction and direction of Mr Scook, as the chief decision maker.
Objection was taken by counsel for the first defendant (see ts 14) against a contention of breach of director's duty - by reason of the non‑joinder of Mr De Coster and of Mr Scook personally, as parties in the present action.
I noted the objection at the time and I said that I would determine it at the end of the trial.
I reject the objection. It was not necessary, on my assessment, for Mr Scook and Mr De Coster to personally be joined in this action as defendants - in order that the underlying issues arising around the 4 November 2019 resolution be fairly and justly be addressed.
In any event, as a matter of practicality, the interests of Mr Scook from a procedural fairness perspective were, on my assessment, more than amply protected by the participation and the legal representation of his corporation, Rosa Processing Pty Ltd, as a defendant (first defendant) in this action.
I render a like conclusion concerning Ms Hardie as regards the legal representation and participation of the two corporations closely associated with her, as respective second and third defendants. Both Mr Scook and Ms Hardie, of course, were trial witnesses and were cross-examined at trial upon their affidavits, which were read and received at this trial.
The position of Mr De Coster is a little different. But again on my assessment, it was not necessary or required in order to fairly determine the fundamental trial issues arising around the 4 November 2019 directors' resolution in order to address the associated questions of the breaches of fiduciary duty of not only himself, but also, the shadow director who instructed him, Mr Scook. The directors' resolution on its face acknowledges and records Mr De Coster's personal conflict of interest concerning that resolution).
In this quarter, I also reject an allied contention grounded around a Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 submission made concerning the alleged failure by the plaintiffs to call Mr De Coster as their witness at the trial.
The 4 November 2019 resolution was before the court. On its face, it acknowledged Mr De Coster's obvious personal conflict of interest, as regards him receiving 600,000 shares in RMA as was resolved then by him - to be issued to him. That observation is equally applicable to the issue of shares to his son, Cardin Lim-De Coster, the eighth defendant, essentially as a gift - as no legal consideration was ever provided by Cardin Lim-De Coster for his RMA shares. The conflict of interest of Mr De Coster was demonstrable in the 4 November 2019 resolution by him as RMA's sole director. But no relief is being sought against him personally, in this action. Nor against Mr Scook for that matter.
There was little real dispute as well that cl 10.2(a) of RMA's constitution had been violated by the 4 November 2019 resolution - by reason of an antecedent failure to offer these subject RMA shares first, to the existing RMA shareholders - and then, an absence of any resolution carried at a general meeting of RMA, to the same end. Whether the existing RMA shareholders would ever have then taken up the subject shares on the same terms, is not the point. Were the same terms put hypothetically, at a $ nil consideration - they may well have been.
The constitutional transgression against RMA's Consitution cl 10.2(a), is obvious and proved. It was hardly disputed. It was not necessary for the plaintiffs to call or adduce evidence from Mr De Coster as a witness at the trial. He is easily identified as being very closely aligned to the interests of Mr Scook. It was also open to any of the first to eighth defendants to subpoena and to call Mr De Coster as a trial witness, if they had wished to take that course.
I decline to draw any adverse Jones v Dunkel inferences against the plaintiffs by reason of them not calling Mr De Coster as a witness at the trial.
Nor do I draw any adverse inferences against the plaintiffs' case, by reason of only Mr Tenni and Mr Minchin being called at trial for the nine plaintiffs (linked to three plaintiff corporations). Mr Minchin and Mr Tenni both say in their respective affidavits, that they were authorised to give evidence on behalf of all the plaintiffs. There was no argument put at trial that the other plaintiffs (4P to 9P) were not true RMA shareholders before 4 November 2019. The adverse, diluting impact of the 4 November 2019 directors' resolution against the weight of their RMA shareholdings, is self-evident.
By the first defendant's written closing submissions, it was also said on behalf of Rosa (Mr Scook's company):
The evidence establishes that consistently and uniformly [RMA] failed to have regard to the requirements of clause 10.2(a) [of RMA's Constitution].
It is said that Mr Tenni's evidence was to the effect that the plaintiffs knew this, when they commenced the action (referring to ts 194). That I assess in context was a reference to the corporations associated with Mr Tenni, namely the second and third plaintiffs. This exchange occurred at ts 194.
And you know, don't you, that the argument propounded by, amongst others, your companies as plaintiffs in these proceedings would have the effect that the issue of shares to your companies and to everyone other than Kingemel on 13 April of 300,000 shares was not constitutionally valid, don't you?‑ ‑ ‑ Yes.
The company has at all stages, to your knowledge and research as a director, ignored cl 10.1 of its Constitution?‑ ‑ ‑To the best of my knowledge, that's exactly what the company has done. Not that I understood that at the beginning, because I thought it was an initial raising.
But when you commenced these proceedings, you understood that to be the case?‑ ‑ ‑ Yes, yes.
I have already addressed the first defendant's attempted answering submission in the reasons so far. I reiterate that the control of RMA, at the time the plaintiffs acquired their RMA shares was then put in the hands of Mr De Coster as its only director. But Mr De Coster did the bidding of Mr Scook. Mr Scook was a shadow director of RMA, in effect, calling all the shots for RMA. Mr Scook for RMA engaged the secretarial services of Ms Hardie and her corporations. If there were breaches of RMA's Constitution before 9 November 2019 as regards the earlier allocations of RMA shares, then the responsibility lies at the doorstep of Mr De Coster and Mr Scook - not the plaintiffs. The fact that the plaintiffs complain about the 4 November 2019 directors' resolution to allocate a block of RMA shares to the defendants, stands by itself.
There is no application to the Court to invalidate the prior issues of RMA shares to any of the plaintiffs. Nor would I. Save for Mr Bradshaw, they paid over real money to acquire those RMA shares and are registered RMA shareholders. The position with the defendants as the subject of the 4 November 2019 resolution passed in breach of cl 10.2(a) of RMA's Constitution, is distinct and different.
No relief is presently sought in any other quarter towards the potential invalidation of the issue and allocation of shares held by any of the plaintiffs in RMA.
Statutory oppression relief or discrete causes of action to invalidate the 4 November 2019 resolution
A number of the arguments as advanced by the first defendant, and indeed by the other defendants, particularly a contention over equal treatment and that the RMA constitution, look largely not to have been complied with in respect of any issues of shares other than for a first issue of 300,000 shares to Kingemel - essentially goes to arguments over relief and discretion.
Such arguments only present as being available on the present application because the proceeding has been advanced under the umbrella of s 232 of the Corporations Act, rather than on a basis of discrete reliance on each of three invalidating defects - which I have now identified by reference to constitutional breach, issue of shares for the improper purpose of obtaining or maintaining control of RMA in general meeting, and by a serious breach of fiduciary duty at 4 November 2019 by RMA's sole director at the time - in terms of allocating himself 600,000 RMA shares and the even further RMA shares to his son.
Here, overlaying those three discrete and independently terminal deficiencies - is the open-ended umbrella of s 232 and with it then follows the scope for defensive arguments put about a discretionary potential non-intervention by the court. That is a repercussion of the s 232 umbrella approach. No participant in the present case challenged the s 232 approach. There looks to be some level of precedent for it. Nevertheless, it is not an approach that I would generally endorse in cases like the present. Its manifestation at the present trial, on my assessment, caused there to be an unnecessary level of shapeless and loose analysis directed towards rationalising what might otherwise be gleaned as clearly invalidating conduct.
The umbrella approach of utilising s 232 looks to have been endorsed in Netbush Pty Ltd v Fascine Developments Pty Ltd [2005] WASC 73 at [49]. Simmonds J said:
The remedy of declaring the issues and allotments invalid may be available to Netbush even apart from the oppression remedy: see Residues Treatment & Trading Co Ltd v Southern Resources Ltd (No 2) (1988) 51 SASR 177 …
That observation, referring to general law relief available was plainly correct. Simmonds J then continued:
In any event, it is available under the oppression remedy: see Shears (supra) [referring to the Full Court of the Supreme Court of Victoria decision Shears v Phosphate Co-Operative Co of Australia Ltd (1988) 14 ACLR 747 at 754 - 755] …
However, in Shears, O'Bryan J had only said (at 755):
Article 5A not only diluted the voting power of Shears in Pivot but also made more effective the voting power of shareholders opposed to Shears. In my opinion, the article unfairly discriminates against City Farm and Shears by depriving their shares of voting power. Such a consequence imposes a very considerable disability or burden on a member.
O'Bryan J addressed the question of oppression or unfairness examined by a court by reference to the well known observations of Brennan J in Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459; 59 ALJR 798 at 803:
The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair.
O'Bryan J then continued in Shears (at 755):
The directors proposed art 5A to defeat the stratagem of Shears. In dealing with the crisis created by Shears the directors sought, and obtained, very wide powers which they knew or ought to have known would be prejudicial to and discriminatory against Shears by removing voting rights attached to a considerable volume of shares over which Cityfarm held contract.
O'Bryan J concluded in Shears (at 755):
In my opinion, the evidentiary power exercisable by the directors pursuant to art 5A is also unfairly prejudicial and oppressive against Shears in its operation.
It follows that the resolution of the company adopted on 13 February 1987 should be declared void and of no effect. The consequence is that art 5A will be invalid.
In that particular appeal (allowed in Shears), the overlap with what was then a grievance concerning the altered voting power of shareholders and a problematically introduced Article 5A, was advanced by reference to a grievance of prejudice and oppression, contrary to what was then s 320 of the Companies (Vic) Code. An intersection as between that statutory challenge and a discrete general law challenge directed towards the exercise of a fiduciary power by a director to allocate shares for the improper purpose of maintaining or obtaining control over their corporation, was manifest.
For present circumstances however, an aggregation of at least three discrete grievances run together under the s 232 canopy, on my assessment, tended to blur and to render unnecessarily more complicated - the analysis applied against clearly invalidating conduct perpetrated by RMA's sole director and by its shadow director by way of the 4 November 2019 resolution.
An assimilation of these discrete arguments under s 232 has carried with it a wasteful consequence of injecting extra levels of argument over discretion - to circumstances where there would otherwise under the general law be no occasion for such argument, to be noticed.
In any event, by reference to the court's presently held discretion vis‑à‑vis s 232 and so, potentially to not intervene by a grant of relief, I am thoroughly unpersuaded by arguments that the past RMA history of non-conforming, non-observance of cl 10.2(a) of the RMA Constitution, can be legitimately used as a panacea against the egregious nature of the invalidating conduct underlying the resolution of 4 November 2019.
Nor am I moved at all as a matter of discretion towards denying relief by arguments raised about opportunities offered by Mr Scook to Mr Minchin and Mr Tenni to have RMA re-acquire their shares from the corporations if they were dissatisfied with them 12 months on (accompanied by Mr Scook's personal guarantee). What happened is simply too egregious to be mitigated by such opportunities. The member/shareholders of RMA were entitled to expect RMA to have been run in accord with its Constitution and properly managed by its decision makers with appropriate fidelity. It was not - in reference to the 4 November 2019 directors' resolution.
Albeit perhaps a voice in the wilderness, I also caution against a too hasty utilisation of the umbrella statutory oppression approach when invoking s 232 in the future, where the underlying discrete breach of the general law in a corporate context, is clear.
Further matters arising under the closing submissions of the defendants
I turn now to some sundry further matters for resolution, as addressed by the first defendants' closing submissions.
Minority shareholding in Newco
The first defendant's closing written submissions contended (at par 34).
Where the shareholders have expressly agreed to subscribe for shares on the basis that they will be diluted and only hold a minority position, the issue of shares to achieve that end result could never amount to an improper purpose.
In response, I reiterate that no binding RMA shareholders' agreement was proved at the present trial establishing on express terms that the shareholders in RMA prior to 4 November 2019 all agreed to be diluted or to 'only hold a minority position'.
As regards Kingemel, Mr Minchin's company, the content of the February 2018 iteration of the Newco brochure that was given to him is not explicit upon this issue. It does not support an agreement in such terms being found. I reject any such finding.
Likewise for the acquisitions by Mr Tenni's two corporations, the second and third plaintiffs. The position concerning a majority shareholding in RMA/Newco longer term, essentially was left at large. Nothing approaching the certainty of a shareholders' agreement that accepts a position of minority shareholder status, or for that matter, the terms upon which any so‑called 'founders' shares in RMA will be issued in future for no money payment consideration received by RMA, is established. Those matters were all left in the air and were never resolved on any legally binding basis.
Founders shares
By par 37 of the first defendant's closing submissions, it was put:
The issue of shares to the Founders was an expressed recognition of the value of the opportunity given to the investors to invest. The investment was not merely an investment for a hard fixed asset (such as a building) it was the opportunity to invest in a form of environmentally friendly gold ore treatment that could provide an innovative efficient method of treating tailings and ore dumps and could be applied to multiple sites.
With respect, the submission is underwhelming. Rhetoric cannot disguise the underlying vagueness in arrangements around the establishment of RMA and its pursuit of a 'Project' under the guidance of Mr Scook, which were at best only ad hoc. There was no executed shareholders' agreement laying down a basis for future arrangements for an allocation of so-called 'founders shares'. The 'Founders' were never clearly identified, or delineated. Nor were there always nebulous contributions.
By 4 November 2019, it is open to infer that the nine (9) plaintiffs at least would not likely have agreed to the allocation, given RMA's then financial circumstances and, in my view, they would have every right to take that negative position, if afforded the opportunity to express it.
'An economic bargain'
Paragraph 39 of the first defendant's submissions contains the sage observation that the court should not attempt to remake an economic bargain. True enough. But the ground level difficulty with the submission is that no terms of an economic bargain were ever settled upon here as between the nine plaintiffs with any so-called 'founders' of RMA.
Approval of directors' personal benefits
At par 40 of the first defendant's submissions, invoking s 182 of the Corporations Act concerning breach of directors' duties and s 182 of the Corporations Act, it is said:
Plainly, shareholders can approve a director acting in the office of director so as to confer an advantage on himself ... By parity of reasoning, where the shareholders approve the director's conduct (as is the case in the present circumstance) the conduct of the director cannot be impugned.
However, I find no support in the trial evidence for a proposition that the RMA shareholders approved Mr De Coster's conduct in relation to his 4 November 2019 sole directors' resolution allocating 600,000 RMA shares (inter alia) to himself. Existing RMA shareholders prior to that date, did not.
Section 1322 Corporations Act
The first defendant's closing submissions say:
All of the shares issued to the plaintiffs and the defendants should be validated under s 1322 of the Corporations Act.
However, by reference to the principles of law discussed in relation to Weinstock v Beck, I would decline to validate the attempted issue of shares to the defendants under the 4 November 2019 resolution of the director. And I am not asked by the plaintiffs to validate any of the issues of shares in RMA to the plaintiffs.
For the issue of shares to the eight defendants under the 4 November 2019 resolution, a validation, as I have said, would in my view be contrary to s 1322(6)(c) of the Corporations Act. It would occasion a substantial injustice to all of the plaintiffs, save for the eighth plaintiff.
Findings advocated under the closing submissions of the second through eighth defendants
Under the closing written submissions of the second to eighth defendants, the court is advocated on the trial evidence to render three particular findings. The first, at par 63, is in the following terms:
The first finding that the Court should make is that the decision for the founders to hold a controlling stake in the RMA was made when Mr Scook, Ms Hardie and Mr De Coster were forming the company. So much was conceded by the plaintiffs' counsel in stating that this decision was made:
'Right back at the beginning' and 'they just took some 18 months to get around to doing it.'
[Referring to transcript of counsel for the plaintiffs' opening at ts 18.]
If there were to be an agreement about a controlling stake being held by a certain block of RMA shareholders which bound other RMA shareholders, then such an arrangement ought to have been explicitly made the subject of a binding shareholders' agreement - committed to by all participant and incoming shareholders in RMA. That was not the case.
I can accept on the evidence that in loose terms that it was an objective in the head of Mr Scook to control Newco (which became RMA). The plan was to be implemented in part through Mr De Coster being appointed the sole director and effectively acting on Mr Scook's instructions. That inference is easily drawn from the evidence.
Ms Hardie was another of Mr Scook's lieutenants, but more in an administrative and secretarial sense. She assisted Mr Scook at a lower level. But whatever those three persons ever decided as between themselves at a time prior to 6 April 2018, does not relevantly bear upon present considerations. This result is reached either severally, by reference to the three terminal problems as now discussed and as all afflicting the 4 November 2019 resolution, or alternatively, when more globally assessed, under the broad umbrella of oppressive, prejudicial or unfair conduct against the members of RMA, contrary to s 232 of the Corporations Act.
A second finding contended for by the second to eighth defendants is under par 66 of the closing written submissions. This submission reads:
The second finding that the Court should make is that Kingemel signed a guarantee which clearly acknowledged that at most, Kingemel and the 'founders' would hold a combined shareholding in RMA of greater than 50%.
The document referred to is the buy-back letter commitment by RMA made for it by Mr Scook and guaranteed by Mr Scook at 3 December 2018.
The worth of Mr Scook's personal guarantee would only be measurable by reference to his wherewithal to stand behind it. Nothing that I heard at the trial persuades me that Mr Scook did hold and such wherewithal. Indeed, there were some suggestions in the evidence that Mr Scook had said that his personal assets were not worth pursuing (ts 119).
Significantly, however, the subject matter of this document does not on my assessment detract from the invalidation of the 4 November 2019 directors' resolution. A position vis-à-vis unnamed founders of RMA was always vague and never clearly laid out. To bind Kingemel and the other plaintiffs to such arrangements would require more definitively specified entitlements for such 'founders' that were committed to under a shareholders' agreement. That never happened.
The third finding advocated by the second to eighth defendants, at par 69 of the closing written submissions, reads in the following terms:
The third finding that the Court should make is that consistent with these matters, the shareholders other than the defendants presently hold 37.26%, consistent with the 40% that was proposed. The total shareholding is presently 10,095,000, of which 5,969,920 are held by the defendants.
This submission as to the advocated finding culminates at par 72 where it is said:
This is not a case where a 'controlling stake' was created to defeat the voting power of the existing shareholders or to create a new majority. The 60% which was proposed to be held by the 'founders' was contemplated and investors knew they were being offered 40% in RMA, prior to them choosing to invest.'
I do not make such findings. There may have been some Newco shareholding entitlements for so-called 'founders' (never as precise as 60%, but a general meeting controlling vote shareholding interest, nonetheless) contemplated as between Mr Scook and his two lieutenants, Mr De Coster and Ms Hardie.
But their contemplations were just that, mere contemplation, being well short of any perfected and legally binding agreement. I reject the suggested finding that investors 'knew' that they were being offered 40% in RMA. The subscription arrangements for Newco were loose, embryonic and had evolved over time - as a likely position as regards the level of the raised Newco share capital outcome through the various shareholder subscriptions in RMA after 6 April 2018, manifested at levels below $10 million, then below $8 million, then below $6 million - so as to ultimately, as at 30 June 2019 (by RMA's 30 June 2019 financial statements) land at only an amount of raised subscribed capital of less than $4 million. This result displays the hallmarks of a loose mining venture idea unfolding ad hoc as the bulk of the raised money is consumed by fees at the approaching of the end of the 2019 calendar year.
More sundries
Under pars 75 through 79 of their written closing submissions, the second through eighth defendants raise a number of matters they contend bear against a grant of discretionary relief under s 233 of the Corporations Act. Most of the considerations have now been discussed and have been rejected along the way. In the end, either alone or in aggregate, none influence me to deny set aside the relief sought to the plaintiffs against the 4 November 2019 resolution and its aftermath consequences. The five matters as raised against the exercise of a discretion to decline relief, first concern the breach of cl 10.2 of RMA's Constitution being also breached as well by the prior issues of RMA shares to the other plaintiffs. I have already said why I am unmoved by that 'good for the goose' submission.
Secondly, it is said that the omission to comply with cl 10.2 in relation to the 4 November 2019 resolution was an oversight at the time. However, the suggested characterisation, in my view, is unduly generous. I characterise the omission as both significant and in the end, terminal.
The third matter raised is that it is said the plaintiffs have not led any evidence that they could have or would have purchased [RMA] all these shares, if they were first offered to them. It is said there is an absence of proof of any causative loss to the plaintiffs and that this is relevant to the framing of relief. Whilst the principle relied upon is correct, for present circumstances, I am unmoved. It needs to be remembered the 5,969,920 RMA shares that came to be allocated to the defendants plus to Mr De Coster by 600,000 further RMA shares (which he later renounced) - were then purported to be issued for a $ nil monetary return to RMA. Is it suggested that the other plaintiffs could not have matched a $ nil consideration position? The 4 November 2019 resolution, seriously pursued, ought properly to have been put to a general meeting of RMA's then shareholders. And I would infer that a resolution put and explained in such terms then would not likely have been carried at such a hypothetical meeting ‑ bearing in mind the negative positions of the nine plaintiffs expressed on the present action.
A fourth matter raised is in relation to some bonus shares obtained by Kingemel and some free RMA shares issued to the eighth plaintiff, Mr Bradshaw. That is said to suggest that the true value of the shareholding in RMA was not $1.00 per share. It is put that if there is a difficulty in any of the defendants having been issued shares for free, then the same problem must affect Kingemel. Again, with respect, I am left unmoved by the submission. The plaintiffs received their RMA shares when RMA was under the stewardship of Mr Scook (shadow director) and Mr De Coster. The 'deals' offered to Kingemel and to Mr Bradshaw were a product of that former RMA management regime. Such events do not sustain a non-exercise of the court's discretion to grant relief against the 4 November 2019 resolution.
The last matter raised vis-à-vis the suggested non-exercise of a discretion to grant relief under s 233 of the Corporations Act is at par 79 of the closing written submissions of the second to eighth defendants. The submission is put in the following terms:
The fifth matter is the absence of any significant asset holding by RMA. It holds the tenements (purchased for $250,000) and some cash (approximately $366,602 based on the ledger). The issue of just under 6 million shares to the defendants in the circumstances of a relatively low asset base is substantially less significant than had RMA been asset reach.
This consideration also does not bear upon a discretion to decline relief. In terms of the value of RMA's shares from a net asset backing perspective taken for RMA's shares, the position to an outsider looks somewhat less than appealing. Nevertheless, as I have said, beauty is in the eye of the beholder. What the plaintiffs might choose to do in the future if freed of a shareholder voting control block of 5,969,920 RMA shares as allocated to the first to eighth defendants, is for the future, by decisions taken by the pre-November 2019 RMA shareholders (including the plaintiffs) and by RMA's management.
Concluding orders
Consequently, I am of the end view that orders should issue broadly in the terms of the plaintiffs' substituted originating process of 10 March 2021, the terms of which are set out earlier in [18].
In the result, the plaintiffs should prepare and circulate a minute of proposed orders reflecting the orders and declarations sought under par 2 of its substituted originating process and orders concerning the ninth defendant under par 3.
There should ensue a window of opportunity of say, 14 days for conferral with the defendants over the final orders giving effect to these reasons. Conferral also ought to extend to questions of costs of the trial.
Prima facie the plaintiffs as the ultimately successful parties should receive their taxed costs of the action from the first through eighth defendants. However, if the parties cannot agree over costs orders then that issue can be dealt with either on the papers, or by a timetable of directions issued for a hearing over a disposition of costs issues, or towards any other residually controversial issues.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DM
Associate to the Honourable Justice Martin
13 JANUARY 2022
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