Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Pty Limited

[2012] NSWSC 462

Supreme Court

New South Wales

Medium Neutral Citation:	Mathews Capital Partners Pty Ltd v Coal of Queensland Holdings Limited [2012] NSWSC 462
Hearing dates:	27 and 30 April 2012
Decision date:	08 May 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Application for leave to bring statutory derivative proceedings not granted - order for inspection of documents not granted.
Catchwords:	CORPORATIONS - Statutory derivative action - Application to bring proceedings on behalf of company - Corporations Act 2001 (Cth) s 237(2) - Whether the Court is satisfied that the applicant is acting in good faith and in the best interests of the company in bringing proceedings - Whether there is a serious question to be tried. CORPORATIONS - Application for inspection of company's books - Corporations Act 2001 (Cth) s 247A - When the Court should make such an order.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 228, 237, 237(2), 237(2)(a), 237(2)(b), 237(2)(c), 237(2)(d), 237(3), 237(3)(a)(i), 242, 247A, 247A(3)-(4), 247A(5)
Cases Cited:	- Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606 - Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780; 227 FLR 43; 65 ACSR 661 - Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 - Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95; 187 ALR 92 - Fitzpatrick v Cheal [2010] NSWSC 717 - GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 - Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91 - Chen v Laredo Pty Ltd [2005] WASC 58 - Codelfa Construction NSW Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 - Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 - Maher v Honeysett and Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 - Majestic Resources NL v Caveat Pty Ltd [2004] WASCA 201 - Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA 13; (2001) 205 CLR 1 - MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31 - Power v Ekstein [2010] NSWSC 137 - Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 - Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618 - South Johnstone Mill Ltd v Dennis and Scales [2007] FCA 1448; (2007) 64 ACSR 447 - Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 - Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763 - Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45
Category:	Principal judgment
Parties:	Mathews Capital Partners Pty Ltd (Plaintiff) Coal of Queensland Holdings Ltd (Defendant)
Representation:	Counsel: P.J. Brereton SC/R.C.A. Higgins (Plaintiff) J.C. Hewitt (Defendant) Solicitors: Minter Ellison (Plaintiff) Clifford Chance (Defendant)
File Number(s):	12/112786

Judgment

1. By Originating Process filed on 11 April 2012, the Plaintiff, Mathews Capital Partners Pty Limited ("MCP") brings an application under s 237 of the Corporations Act 2001 (Cth) for leave to bring proceedings ("Proposed Proceedings") in the name of the Defendant, Coal of Queensland Holdings Limited ("COQ Holdings") in the form of a draft Summons and draft Commercial List Statement which are in evidence. MCP also seeks orders under s 247A of the Corporations Act that two persons employed by its solicitors be authorised to inspect specified books of COQ Holdings.

Factual Background

1. COQ Holdings raised $35.6 million by two capital raisings in mid-2011. As a result of participating in the first of these capital raisings, MCP acquired a 15.4% interest in COQ Holdings. Interests associated with the Teoh family, which also support the present application, also acquired an interest of 48.49% in COQ Holdings. Part of the amount raised by COQ Holdings, $20.5 million, was then paid by it to Queensland Coal Corporation Pty Limited and Queensland Coking Coal Pty Limited ("QCC Parties") to acquire shares in Coal of Queensland Pty Limited ("COQ") and the balance to subscribe for new shares in COQ. The funds subscribed for new shares in COQ were in turn to be applied by COQ to explore and develop certain coal tenements ("Tenements") owned by COQ. As a result of these transactions, COQ Holdings acquired an interest of approximately 21.4% in COQ which, through subsidiaries, owned the Tenements. The remaining ordinary shares in COQ were owned by the QCC Parties. COQ Founders Nominees Pty Ltd ("Founder") also holds 4 million converting shares in COQ.

1. A first capital raising ("Raise 1") for COQ Holdings took place in June 2011 and potential investors were provided with a written investor presentation dated 18 June 2011. That presentation referred to a proposed Initial Public Offering ("IPO") of shares in COQ Holdings involving a raising of a further $51m, with $30m to be paid to the QCC Parties, with the outcome that COQ Holdings would hold all of the shares in COQ. The appendix to that presentation, which was expressly described as "indicative", also set out the capital structure of COQ Holdings following a listing and showed the QCC Parties as holding 50% of the shares in COQ Holdings. A letter dated 18 June 2011 from Grant Thornton, COQ Holdings' then financial adviser, to MCP also attached an annexure setting out the "indicative capital structures of COQ Holdings and COQ on each capital raising", but emphasised that "the indicative targeted capital structure may be amended at any time and may vary depending on the then prevailing conditions".

1. MCP contends that, on or about 18 June 2011, the QCC Parties, COQ Holdings and COQ entered into a shareholders agreement which, it contends, contemplated the parties would use their best endeavours to enter into formal documentation that was fuller, but consistent with, the terms of that document. (MCP refers to that document as the "Initial Shareholders Agreement" and I will also adopt that term, although whether that document had contractual effect is in issue). That document is headed "Shareholders Agreement" and commences with the words:

"This document is legally binding and records the key terms to be incorporated into a formal Shareholder Agreement between the parties set out in Item 1 ("Shareholders Agreement")".

That document then identifies the "primary objectives and purposes of COQ" including a condition that the QCC Parties (or their nominee) would be issued that number of shares in the IPO that will equate with 50% of the issued capital of COQ Holdings immediately after the IPO, assuming an IPO raising $51 million and, in consideration for those shares, the QCC Parties would transfer all of their shares in COQ to COQ Holdings which would then directly or indirectly own 100% of the Tenements.

1. That document was provided to MCP as an annexure to the offer letter dated 18 June 2011 which stated that COQ, COQ Holdings and others "have agreed" to use the their best endeavours to enter into various agreements including a Shareholders Agreement between the QCC Parties, COQ Holdings and others regarding COQ. The document which is in evidence is not executed and COQ Holdings contends that it was not executed.

1. A detailed Shareholders Agreement was executed between COQ Holdings, COQ, the QCC Parties and Founder on 28 June 2011 ("Shareholders' Agreement"). Clause 5.1(a) of the Shareholders Agreement (as amended on 10 August 2011 as noted below) provides that:

"The parties agree to negotiate in good faith and use reasonable endeavours to agree the terms of and complete a compliant IPO by the IPO Date."

The term "IPO Date" is defined in the Shareholders Agreement as 30 April 2012. (It should be noted that the hearing before me commenced on Friday 27 April 2012 and was completed on Monday 30 April 2012.)

1. Clause 5.2 of the Shareholders Agreement in turn required each shareholder, including the QCC Parties, COQ Holdings and Founder, to do all things and provide all assistance as was reasonably required to complete a Compliant IPO by the IPO Date, including specified matters. Clause 5.5 of the Shareholders Agreement provided that, if for any reason other than breach of the Transaction Documents (including the Shareholders Agreement) by the QCC Parties, a Compliant IPO had not been completed by the IPO Date, then the board of COQ may take certain steps and, without prejudice to the rights of the QCC Parties under clause 6, the Shareholders (referring to the shareholders in COQ including the QCC Parties, COQ Holdings and Founder) will use reasonable endeavours to work together to identify a revised timeline for a Compliant IPO and discuss an alternative process for the Shareholders to realise their investment in COQ. In that situation, the QCC Parties also have the right to take certain steps under clause 6.1 of the Shareholders Agreement.

1. A representative of the Teoh family attended a meeting concerning a second capital raising by COQ Holdings in July 2011 ("Raise 2") and received an offer letter and investor presentation for Raise 2 on 28 July 2011. A number of entities associated with the Teoh family invested in Raise 2 after that meeting.

1. The Shareholders Agreement was further amended by a Deed of Amendment effective as of 10 August 2011 following the completion of Raise 2. The terms of the amended document ("Amended Shareholders Agreement") were updated to refer to Raise 2 and were otherwise substantially consistent with the Shareholders Agreement.

1. An exchange of emails between several advisers to the parties took place on 27 October 2011, which was copied to executives of the parties. In the first of those emails, a representative of Grant Thornton (then the financial adviser to COQ Holdings) sent an email to the solicitors for the QCC Parties stating that he understood "a change to the IPO Date has been agreed with an extension to 30 June 2012 (previously 30 April 2012) to reflect the revised development timeline" and requested the QCC Parties' solicitor to draft a variation agreement for that extension; an officer of the QCC Parties then confirmed that that document should be prepared. A presentation by COQ Holdings to investors on 27 October 2011 also referred to a timeline for an IPO in the period April-June 2012. By a further email on 2 November 2011, Grant Thornton followed up on that variation and the QCC Parties' solicitor indicated that he would prepare a variation document.

1. A non-executive director of COQ Holdings, Mr Carroll, gives evidence that, in November 2011, he was sent a draft deed of amendment of the Amended Shareholders Agreement by Grant Thornton which provided for extension for the IPO Date to 30 June 2012 but, shortly after receiving that document, he was advised by the then Chief Operating Officer of the QCC Parties that the QCC Parties did not intend to sign that deed of amendment and did not think it was in their interests to give an extension of the IPO Date. A second non-executive director of COQ Holdings, Mr Vorias, also gives evidence that, to the best of his knowledge, the IPO date was not extended to 30 June 2012.

1. The QCC Parties also rely on a document circulated on 25 January 2012 which referred to a timetable for a Compliant IPO by the end of the June quarter 2012.

1. By at least March 2012, a dispute had arisen between MCP and the QCC Parties as to the terms on which the QCC Parties' shares would be transferred to COQ Holdings in connection with an IPO. By letter dated 23 March 2012, MCP's solicitors gave notice of the Proposed Proceedings to COQ Holdings. By letter of the same date to solicitors for COQ Holdings' directors, MCP's solicitors asserted that the Shareholders Agreement contained clauses which were materially adverse to COQ Holdings compared to the Initial Shareholders Agreement.

1. COQ Holdings wrote to the QCC Parties on 26 March 2012 requesting an extension of the date for a compliant IPO from 30 April 2012. That request was declined by the QCC Parties.

1. By letter dated 30 March 2012, the solicitors for COQ Holdings advised the solicitors for MCP that, inter alia, COQ Holdings had been working towards, and continued to work towards, a Compliant IPO; that achieving a Compliant IPO by 30 April 2012 became more difficult and was now "very likely to be practically unachievable"; and that COQ Holdings had been advised by the QCC Parties on 29 March 2012 that they did not agree to any extension to the IPO Date and had never agreed to extend that date beyond 30 April 2012.

1. The Proposed Proceedings were considered by the Board of COQ Holdings on 13 April 2012, which decided not to bring them. The board meeting was attended by the two non-executive directors of COQ Holdings, Mr Carroll and Mr Vorias; a third director, Ms Ward, who is associated with the QCC Parties, did not attend that meeting. Mr Carroll's evidence is that, in deciding not to bring the claim, his aim was to maximise shareholder value for shareholders in COQ Holdings and COQ, including the QCC Parties, by maximising the prospects of a successful IPO of COQ Holdings and avoiding action that would harm those prospects, and he expressed the view that bringing the Proposed Proceedings would harm those prospects. I should note that MCP vigorously criticises this reasoning for failing to distinguish the interests of COQ Holdings, COQ and their respective shareholders.

Probability that COQ Holdings will bring the Proposed Proceedings

1. In order to grant leave under Corporations Act s 237(2), the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. The first requirement, under s 237(2)(a) of the Corporations Act, is that it is probable that COQ Holdings will not bring the proceedings. That requirement is satisfied, since, as noted above, the board of COQ Holdings has resolved not to bring the Proposed Proceedings.

Whether MCP is acting in good faith

1. The second criterion, specified in s 237(2)(b) of the Corporations Act, is that MCP is acting in good faith. MCP must establish this matter to the Court's satisfaction: Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780; 227 FLR 43; 65 ACSR 661; Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618 at [77]. Factors relevant to the good faith requirement include the applicant's honest belief that a good cause of action exists and has reasonable prospects of success (although that belief will be tested against whether a reasonable person in the circumstances would hold that belief) and whether the applicant is seeking to bring the action for a collateral purpose, and it is relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased: Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at 320-321; Maher v Honeysett and Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [29]; Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91 at [110]-[111]; Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [58].

1. The Court does not consider the merits of the claim in deciding whether the applicant has satisfied the criterion under s 237(2)(b) since they are considered in respect of the question in s 237(2)(d) whether there is a serious question to be tried: Fitzpatrick v Cheal [2010] NSWSC 717 at [41]. The Court will otherwise have regard to all the circumstances of the claim to decide whether a person seeking orders under s 237 is acting in good faith: Fitzpatrick v Cheal above. It is not essential that an applicant say, by sworn evidence, that he or she believes in the existence of a good cause of action with reasonable prospects of success in order to establish good faith and inferences can be drawn from the nature and circumstances of the case sought to be brought: Maher v Honeysett and Maher Electrical Contractors Pty Ltd above at [28].

1. No officer of MCP has given evidence asserting that it is acting in good faith. However, MCP is a current shareholder of COQ Holdings and, if the Proposed Proceedings succeeded, would benefit as a shareholder in COQ Holdings from preserving the opportunity of a Compliant IPO as a result of the orders made in them. The commencement of the proceedings are supported by the Teoh family, another major shareholder in COQ Holdings. There is no obvious collateral purpose to be served by MCP in promoting the proceedings and it has acted diligently in its pursuit of the application under s 237 of the Corporations Act. I would accordingly find that the application is brought in good faith.

Whether grant of leave is in the best interests of COQ Holdings

1. The third criterion, under s 237(2)(c) of the Corporations Act, is that the grant of leave is in the best interests of the company. This test requires more than a prima facie indication that the proceedings may be or are likely to be in the interests of COQ Holdings and the court must be satisfied that the proposed action actually is, on the balance of probabilities, in the company's best interest: Swansson v Pratt above. Relevant matters include the prospects of success of the proceedings, their likely costs, the likely recovery if the proceedings are successful and the likely consequences if they are not: Maher v Honeysett and Maher Electrical Contractors Pty Ltd above at [44]. In Re Gladstone Pacific Nickel Ltd above at [57], Ball J observed that:

"In considering what is in the best interests of the company, it is necessary to consider the prospects of success of the action, the likely costs and likely recovery if the action is successful and likely consequences if it is not. One relevant matter in considering these issues is the nature of any indemnity the applicant has offered to the company if the action is brought and the likelihood that the company will recover under that indemnity. It is also necessary to consider the resources the company will be required to devote to the action and the resources it has available, together with the effect that the action may have on other aspects of its business. Finally, it is necessary to consider whether some other remedy is available to the applicant so as to make the proposed action unnecessary from its point of view ..."

1. MCP contends that matters which indicate that the Proposed Proceedings are in COQ Holdings' best interests are the potential loss to COQ Holdings arising from the failure to hold a Compliant IPO and the loss of the alleged "Uplift Right" (to which I will refer below); that there is no alternative means available to obtain the redress which MCP seeks, since shareholders in COQ Holdings are not parties to the Amended Shareholders Agreement; and that the scale of the QCC Parties' interests in the Tenements is such that they can meet at least a substantial part of any judgment in favour of COQ Holdings. (I should note, however, that the proposed Summons seeks relief other than damages.)

1. The primary basis of MCP's contention that the Proposed Proceedings are in COQ Holdings' interest is that they are necessary to preserve COQ Holdings' alleged right, on a Compliant IPO, to acquire from the QCC Parties, for a fixed consideration, all of the remaining shares in COQ Holdings. The evidence indicates that such a right, if it exists, would be potentially very valuable to COQ Holdings. MCP contended such a right, which it described as the "Uplift Right", existed and COQ Holdings denied that such a right existed. The existence of that right is not itself raised in the Proposed Proceedings but is relevant to the extent of the commercial benefit which COQ Holdings might obtain if the Proposed Proceedings were successful so as to preserve any such right.

1. The Uplift Right depends on the proposition that the QCC Parties will transfer all of their shares in COQ to COQ Holdings for payment of the specified amount and the issue of a 50% interest in COQ Holdings or another IPO vehicle (together referred to as "IPOco"). There are several difficulties with that proposition, as a matter of construction of the Shareholders Agreement and the Amended Shareholders Agreement:

• Clause 5.1(b) of the Amended Shareholders Agreement is expressed as a statement of the "assumptions" on which the definition of Compliant IPO has been prepared and clause 5.1(c) is a definition of that term. Neither provision is expressed in terms of obligation.

• Clauses 5.1 (b)(v) and 5.1(c)(iv) of the Amended Shareholders Agreement expressly contemplate that the QCC Parties' interest in the IPO vehicle will be "not less than 50%" (emphasis added) and that the remaining terms of a Compliant IPO are to be such terms as the parties may "mutually reasonably require". The proposition that the QCC Parties' interest in the IPO vehicle will be "not less than 50%" necessarily contemplates that it may be more than 50%, which is inconsistent with the proposition that the QCC Parties are bound to transfer their COQ shares in exchange for an agreed 50% interest in COQ Holdings.

• Clause 5.1(c)(v) of the Amended Shareholders Agreement provides for the QCC Parties to sell a portion of their shares in COQ equating to $29.5 million; that clause does not, in terms, impose any obligation upon the QCC Parties to sell shares beyond the value of $29.5 million. MCP relies on a reference in this clause to "maintain a 50% interest in IPOco", but that reference does not support the Uplift Right since it is directed to the situation where a sale of ordinary shares of that value would leave the QCC Parties with less than a 50% interest in IPOco, rather than requiring the sale of all of the QCC Parties' shares in COQ for $29.5 million in order to give no more than a 50% interest in IPOco.

1. MCP contends that the investor presentations to which I have referred above reflect the Uplift Right and relies on them as part of the surrounding circumstances. Whether reference to the investor presentations can assist in construction of the terms of the Amended Shareholders Agreement will depend, at least in part, on whether the relevant clauses are ambiguous or susceptible of more than one meaning as MCP contends: Codelfa Construction NSW Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45. I consider that question to be seriously arguable. However, the statements in the investor presentations that those capital structures were "indicative" and subject to amendment are a significant obstacle to any suggestion that they contemplate a "right" to the suggested uplift. MCP also points to Mr Wright's evidence that MCP invested in COQ Holdings on the understanding that an Uplift Right exists. That matter may give rise to a claim for misleading and deceptive conduct if any representation to that effect was misleading, but does not take the question of contractual construction further. MCP also relies on the fact that definitions of "Raise 1" and "Raise 2" in the Amended Shareholders Agreement refer to the investor presentations made to investors in COQ Holdings; however, those definitions are not used in a manner which affects the content of clause 5 of the Amended Shareholders Agreement.

1. The Initial Shareholders Agreement, even if it was executed or otherwise took effect, also does not seem to take the contractual claim further since the relevant clauses of the Shareholders Agreement and Amended Shareholders Agreement are in different terms to the Initial Shareholders Agreement and the Amended Shareholders Agreement is now the operative document. As noted above, MCP has itself contended, in correspondence to the directors of COQ Holdings, that the terms of the Shareholders Agreement materially adversely affect the rights set out in the Initial Shareholders Agreement particularly having regard to the Uplift Right.

1. In my view, there is therefore a real doubt whether the Uplift Right exists, and the doubt as to its existence must be taken into account in assessing whether it is in the best interests of COQ Holdings to incur the detriments to which I will refer below in order to seek to preserve it.

1. Two of the three directors of COQ Holdings, Messrs Carroll and Vorias, gave evidence of matters which led them to form the view that the Proposed Proceedings were not in COQ Holdings' best interests. The third director of COQ Holdings is also an executive of the QCC Parties and has properly excluded herself from consideration of this issue. Mr Carroll is the chairman and a non-executive director of COQ Holdings and COQ and has substantial experience in the mining industry, initially as a mining engineer and subsequently in marketing and business development. Mr Vorias has 25 years experience in coal mining projects and operations. MCP contended that Messrs Carroll and Vorias had a conflict of interest in considering the question whether the Proposed Proceedings should be brought, both because COQ (of which they are also directors) would be a defendant in the proceedings and because, as they accepted in cross-examination, the Proposed Proceedings would necessarily involve scrutiny of their conduct. There is some force in this contention and I have had regard to these matters in assessing their evidence as to their assessment of COQ Holdings' interests. I nonetheless generally accept that evidence, which accorded with the commercial probabilities.

1. The evidence of Messrs Carroll and Vorias indicates that, if the Proposed Proceedings led to the IPO being completed by 30 June 2012 as MCP seeks, that would not, in their view, be in COQ Holdings' interests. Their evidence is that two investment banks with very substantial experience in public offerings have advised COQ Holdings that the best timing for an IPO would be, respectively, in the fourth quarter of 2012 or the end of 2012 or early 2013. Mr Carroll also identified the fact that COQ Holdings has not yet appointed a suitably qualified chief executive officer as a factor affecting its readiness for an IPO and gives evidence of the steps which have been taken to seek to do so and the difficulties in doing so. Mr Vorias also gives evidence of his view of the importance of a detailed analysis of the quality of the coal identified, which is presently being undertaken, in order to demonstrate the market for the coal and because it is likely to result in the higher valuation for the shares issued in an IPO.

1. Mr Carroll also gives evidence of potential adverse impacts of the commencement of the Proposed Proceedings, including the diversion of time which could otherwise be spent on pursuing the IPO or other arrangements which maximise value for shareholders; the risk to the prospects of a successful IPO if stakeholders are involved in litigation; the prejudice to the relationship between COQ Holdings and the QCC Parties; the likelihood that it will be more difficult to appoint a chief executive officer to COQ Holdings if there is litigation between the stakeholders; and the risk that shareholder value would be destroyed by ongoing litigation. Mr Vorias expresses similar concerns to Mr Carroll in relation to the risk of diversion of COQ Holdings' resources and prejudice to the relationship with the QCC Parties. The fact that litigation would itself damage the prospects of raising additional capital was treated as a relevant matter in Gladstone Pacific Nickel Ltd at [100]. I consider that these detriments are real and should be given significant weight.

1. I also find it difficult to see that it could be in the best interests of COQ Holdings to grant leave to commence the Proposed Proceedings where it is unlikely that contested proceedings involving relatively complex issues and several parties (in which MCP seeks access to a wide range of documents to make good its claims, as I will note below) could be heard and determined, any appeal from them heard and determined, and then the IPO process completed after their determination, all in less than two months to 30 June 2012. In my view, the fact that it is unlikely that the proceedings and an IPO could be completed by 30 June 2012 is a factor which supports the conclusion that it is not in the best interests of COQ Holdings to expose it to the detriments arising from the Proposed Proceedings.

1. The question whether it is in the best interests of COQ Holdings to bring the Proposed Proceedings therefore depends on the prospects of the claim to the Uplift Right, to which I have referred above, and the risks of loss of that right if the Proposed Proceedings are not pursued and concluded prior to 30 June 2012; whether the prospects of an IPO will be improved by deferring the timing of any IPO until late 2012 or early 2013, consistent with the view of Mr Carroll and COQ Holdings' financial advisers; the risk that the Proposed Proceedings and a subsequent IPO could not in any event be completed by that date, which seems to me to be substantial; and the disadvantages involved in commencing the proceedings, which are also significant. Having regard to all of these matters, I am not satisfied that it has been established that the Proposed Proceedings are, on the balance of probabilities, in COQ Holdings' best interests and, consistent with Swansson v RA Pratt above, that finding is sufficient to decline leave to bring the proposed proceedings.

Indemnity for costs of proceedings

1. The risk of prejudice to COQ Holdings from the costs and expenses of litigation or an adverse costs order could be addressed by making leave conditional on MCP undertaking to the Court to pay and indemnify COQ Holdings against all costs, charges and expenses of and incidental to bringing and continuing the derivative claims for which leave is granted: Gerard Cassegrain & Co Pty Ltd v Cassegrain above; Power v Ekstein [2010] NSWSC 137 at [108]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763 at [137]-[13], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31. MCP has offered such an indemnity. There are difficulties with the form of that indemnity which would have needed to be resolved if leave were otherwise to be granted. In particular, MCP appears to hold its interest in COQ Holdings as trustee of the Searchlight Asia Pacific Fund and there is no evidence whether MCP has assets available in its own right, or a right of indemnity as against the assets of that fund, so as to support such an indemnity. It is not necessary to address those matters further given the other findings which I have reached.

Rebuttable presumption against grant of leave

1. A rebuttable presumption that granting leave is not in the best interests of the company arises, in respect of proceedings by the company against a third party, in the circumstances set out in s 237(3) of the Corporations Act. MCP contends that the first criterion prescribed by s 237(3)(a)(i) is not satisfied, because the proceedings will be brought against not only third parties, the QCC Parties and Founder, but also COQ which is a "related party" of COQ Holdings for the purposes of s 228 of the Corporations Act. COQ is a "related party" of COQ Holdings because it is controlled by the directors of COQ Holdings but not by COQ Holdings, by reason that the QCC Parties hold a 78.6% shareholding interest in COQ. Conversely, COQ Holdings contends that this criterion is satisfied where proceedings are against a third party, notwithstanding they are also against a related party.

1. The terms of s 237(3)(a)(i) do not make clear whether the section is intended to apply where both third parties and related parties are party to the contemplated proceedings. However, the statutory purpose of the section would not, in my view, support its application where a related party's role in the proceedings is more than formal in character or insignificant. While the primary target of the Proposed Proceedings is the QCC Parties, I do not think that it could be said that the role of COQ in them is merely formal or insignificant, where specific performance is sought, inter alia, of obligations on COQ. In these circumstances, I do not consider that the presumption in s 237(3) applies in the present circumstances. It is therefore not necessary for me to deal with MCP's other submissions as to why it contends that s 237(3) of the Corporations Act would not be applicable in the present case.

Whether there is a serious question to be tried

1. The fourth criterion for the grant of leave, under s 237(2)(d) of the Corporations Act, is whether there is a serious question to be tried in the proceedings. Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson v RA Pratt Properties Pty Ltd above at [25]; Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534; South Johnstone Mill Ltd v Denis and Scales [2007] FCA 1448; (2007) 64 ACSR 447 at [78]; Vinciguerra v MG Corrosion Consultants Pty Ltd above at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra above. In Re Gladstone Pacific Nickel Ltd, Ball J summarised the test as to whether there is a serious question to be tried as follows at [56]:

"The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. For that reason, cross-examination going to the merits of the case will only be permitted with leave of the court and then only to a limited extent. Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result. As the Full Federal Court explained in Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163 ; 74 ALR 505 at 509-10:

However, applying the "serious question" test, it is clear that the inquiry whether there is a serious question to be tried must be answered with reference to the circumstances of the case. There may be cases in which the facts are so clearly and comprehensively established at the time of the application for the interim order that the court would conclude that the applicant had no arguable case. At the opposite extreme there may be cases in which the applicant has had little opportunity to ascertain the facts and to adduce evidence but there is some material to suggest an entitlement to relief. Upon further investigation that material may turn out to be capable of ready refutation or explanation but, in the meantime, it may be appropriate for the court to intervene. Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief."

1. MCP contends that the Court should find that the Proposed Proceedings have good prospects of success because the solicitor acting for MCP is prepared to bring them; Mr Wright gives evidence that he considers that certain matters are in the best interests of COQ Holdings and MCP; and MCP undertakes to fund the proceedings, if leave is granted. I note that Mr Wright's evidence is directed to the desirability of a Compliant IPO; while that may be the outcome of the Proposed Proceedings, if they succeed, it does not indicate anything as to the prospects of their success. I do not consider that these matters are sufficient to establish that the Proposed Proceedings raise a serious question to be tried, which requires consideration of the claims advanced in the proposed Summons and List Statement.

Alleged agreement to extend IPO Date

1. First, MCP seeks to have COQ Holdings advance a claim in the Proposed Proceedings that the date for completion of the Compliant IPO has been extended, by email and verbal agreement, to 30 June 2012 (Teoh affidavit [34]; first Wright Affidavit [20]-[25]; APW1 Tabs 8-11). I have referred to the relevant emails in paragraphs 10-11 above. MCP contends that the email exchange can be characterised either as recording an anterior oral agreement among the parties to the Amended Shareholders Agreement, prior to the sending of the emails, to extend the date for a Compliant IPO from 30 April 2012 to 30 June 2012 or as itself constituting a written agreement to do so. The List Statement also relies on information given to investors in COQ Holdings, at a presentation on or about 27 October 2011 that a change had been made to the timetable for the IPO which was expected to take place in the period April to June 2012 and the discussion paper dated 25 January 2012 to which I have also referred above.

1. COQ Holdings points out that clause 22.1 of the Amended Shareholders Agreement provides that the agreement may only be varied by a document signed by or on behalf of each party. Such a provision would not exclude the effect of a subsequent implied or oral contract which varied the Amended Shareholders Agreement, if that contract were otherwise established; however, the fact that the clause exists is to be taken into account in interpreting the subsequent conduct of the parties, and it makes it more difficult to draw an inference that the parties did intend, by an oral agreement or by emails between their advisers, to vary the terms of the Amended Shareholders Agreement: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 at [215]ff.

1. In order for such a variation agreement to have contractual effect, whether it was established by prior discussions of the parties or the exchange of emails, it would be necessary (where it was not made by deed) to show the other requirements of a valid contract, including that there must be real consideration for the agreement: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95; (2002) 187 ALR 92 at 99; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd above at [216]. Irrespective of whether consensus existed between the advisers, and even their clients, as to the variation of the IPO Date, the List Statement does not plead and the evidence before me does not show that the discussions between the parties were in the nature of mutual promises or that any party gave consideration for an agreement to vary that date. So far as the variation agreement is said to arise from the emails themselves, there is no reason to assume, and no evidence before me to establish, that the advisers who were party to the email exchange had their respective clients' authority to themselves form a binding contract to vary the Shareholders Agreement, rather than to progress the drafting of a variation instrument for their clients' consideration. This evidence of Mr Carroll to which I have referred in paragraph 11 above, if accepted at a final hearing of the Proposed Proceedings, would also weaken this claim.

1. The Proposed Proceedings seek a declaration that the "IPO Date" in the Amended Shareholders Agreement has been extended from 30 April 2012 to 30 June 2012. The Proposed Proceedings also seek mandatory orders that:

• the QCC Parties and COQ negotiate with the other parties to the proceeding in good faith and use reasonable endeavours to agree the terms of, and to complete, a Compliant IPO (as defined in the Amended Shareholders Agreement) by 30 June 2012 or a later date arising from other orders sought in the Summons;

• the QCC Parties and COQ do all things and provide all assistance as reasonably required to complete a Compliant IPO of COQ Holdings by 30 June 2012, or such later date by reason of the orders sought, including the matters set out in clause 5.2(a)-(m) of the Amended Shareholders Agreement.

1. It would, in my view, be very unlikely that COQ Holdings could obtain mandatory orders to that effect, which do not define the conduct which the QCC Parties and others must undertake with specificity but would leave them exposed to sanctions for breach of a Court order if they were not complied with: Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA 13; (2001) 205 CLR 1 at [60]. The form of the orders sought also raise real difficulty as to the likelihood that continued supervision of the Court would be required, so as to resolve disputes as to what was necessary in order to ensure the execution of the order: Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 12.

1. While I recognise that the "serious question to be tried" test is not a particularly demanding one, particularly where MCP has not had access to COQ Holdings' documentation, I do not consider a serious question to be tried has been established in respect of this aspect of the Proposed Proceedings.

Alleged breach of QCC Parties' obligations

1. The second contention which MCP seeks to have COQ Holdings advance in the Proposed Proceedings is that the QCC Parties are in breach of obligations imposed on them by the Shareholders Agreement (including cls 5.1(a), 5.2(k), 5.5(b)(i) and 22.6), to use all reasonable endeavours to raise $49.5 million on a Compliant IPO. The Proposed Proceedings would seek:

• a declaration that the QCC Parties have breached their obligations under clauses 5.1-5.2 of the Amended Shareholders Agreement, and a consequential order that the parties to the Amended Shareholders Agreement comply with their alleged obligations under clauses 5.1-5.2 of the Agreement to negotiate in good faith and use reasonable endeavours, and do all things and provide all assistance as reasonably required to complete a Compliant IPO by such date beyond 30 June 2012 as the Court sees fit by reason of that alleged breach; and

• an injunction restraining the QCC Parties from taking any of the steps provided by clauses 5.5(a) or 6 of the Amended Shareholders Agreement until such time as the QCC Parties have negotiated with the other parties to the Amended Shareholders Agreement in good faith and use reasonable endeavours to agree the terms of, and complete, a Compliant IPO of COQ Holdings.

1. The proposed List Statement alleges that the QCC Parties do not have, and have not had at any time since the first capital raising by COQ Holdings, an intention of working towards a Compliant IPO of COQ Holdings and have been at least since late 2011 pursuing alternative means of realising the value of their investment in COQ which are inconsistent with a Compliant IPO. That allegation is particularised by reference to a number of statements alleged to have been made by the sole director of the QCC Parties to Mr Teoh. Mr Teoh gives evidence that Mr Paul Williams, the sole director of the QCC Parties, referred to a three pronged strategy involving a trade sale, an off-take or an IPO and in a later discussion to bringing in a partner and then conducting an IPO later; in a further conversation with Mr Williams in late 2011, Mr Williams expressed the view that he did not think an IPO was in the best interests of the company; in another conversation, Mr Williams said "[o]ur intention was never to IPO the company"; and Mr Williams also referred to a further capital raising, although the evidence is unclear as to the entity which was to undertake that capital raising.

1. If accepted at a hearing of the Proposed Proceedings, this evidence would establish that Mr Williams, and, through him, the QCC Parties did not consider that an IPO was in the interests of the QCC Parties or COQ Holdings and that they did not subjectively intend that an IPO would eventuate, or at least that they preferred it did not eventuate. However, that does not establish that the QCC Parties did not comply with their obligations under the Shareholders Agreement, which depends not on what they thought but on what they were obliged to do and what they did. Even if the QCC Parties had formed the view that an IPO was not in their commercial interests, they may have taken the steps necessary to comply with the Amended Shareholders Agreement because they considered they were bound to do so. This emphasises the necessity of focusing, not upon what the QCC Parties thought, but upon whether what they did was or was not compliant with their obligations under the Shareholders Agreement.

1. The List Statement does not identify, with any precision, any step which the QCC Parties were obliged to take which they failed to take. This omission is, in my view, a substantial one since the obligations of the QCC Parties under clause 5.2 of the Amended Shareholders Agreement are expressed in reasonably specific terms. I note that:

• While there is a general obligation on the QCC Parties to "do all things and provide all assistance as is reasonably required" to complete a Compliant IPO by the IPO Date, it remains necessary to determine what was reasonably required to be done by the QCC Parties, as distinct from COQ Holdings, COQ or other shareholders in COQ Holdings.

• The clause also contains specific provisions, for example to give any consent and pass any resolution and appoint financial and legal advisers. However, it is not alleged that any consent should have been given but was not or that any resolution should have been passed but was not or that the QCC Parties should have appointed financial and legal advisers but did not.

• The clause also contemplates that the parties will agree on an appropriate capital structure for IPOco. The obligation to agree on an "appropriate capital structure" is imposed on all parties, not only the QCC Parties, and raises the question what an appropriate capital structure would be. The clause also contemplates that the parties will agree such actions, matters and things as are required for the QCC Parties to affect a sell down contemplated by clause 5.1(c)(v) of the Amended Shareholders Agreement. There is no allegation as to what the QCC Parties should have agreed to but did not.

• The clause contemplates that the parties will cause IPOco to prepare the prospectus or other disclosure documents required for the purposes of the Complaint IPO and prepare necessary material for and the giving of presentations to persons including actual and potential financiers, financial advisers, underwriters and stockbrokers. There is no allegation that the QCC Parties should have, but did not, prepare any such material for or give such presentations.

• The clause also contemplates that the QCC parties will transfer their Shares in COQ in exchange for ordinary securities in IPOco and that raises the question of the terms of that transfer.

1. In the absence of identification of any steps that the QCC Parties were required to, and failed to, take to comply with these obligations, I consider that the allegation in its present form is not sufficient to establish a serious question to be tried that the alleged breach exists.

1. Paragraph 39 of the proposed List Statement then alleges that, by reason of those matters, the QCC Parties have breached their obligation under clauses 5.1-5.2 of the Amended Shareholders Agreement. There follows a conclusory allegation that it will not be possible to complete a Compliant IPO of COQ Holdings by 30 April 2012 due to the alleged breaches of clause 5.1-5.2 of the Amended Shareholders Agreement by the QCC Parties. The material facts supporting the asserted conclusion are not identified. In my view, an allegation in that form is not sufficient to establish a serious question to be tried that the delay was caused or contributed to by the QCC Parties.

1. I should also note that Mr Carroll gave evidence which appeared to provide a cogent explanation of the delay in the IPO without any breach of the QCC Parties' obligations. His evidence was that initial drilling had indicated disappointing results; following a change in drilling approach in about October 2011, promising coal resources were identified; however the delay in the drilling program delayed the work on the IPO. Mr Carroll also pointed to the need to provide information to prospective investors in an IPO and emphasises the relevance of a resource report complying with the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Resources ("JORC Code") in an IPO for a coal company. A geologist's report identifying an "inferred" resource (being the lowest level of geological confidence under the JORC Code) was not available until mid-March 2012. At the time a JORC report was provided, Mr Carroll did not believe it possible to achieve an IPO of COQ Holdings by 30 April 2012 and, based on a timeline previously provided by Grant Thornton and his own experience, he considered the IPO process would take around 4-6 months from the receipt of the JORC report. Mr Carroll's evidence is that he also did not consider that it was a good time to launch the IPO in March 2012 having regard to the prevailing conditions in the financial markets. COQ Holdings also took steps to engage a "first tier" investment bank to assist with the IPO, and Goldman Sachs was appointed as financial adviser in March 2012.

1. Mr Vorias also gives evidence that the main reason that an IPO will not be completed by 30 April 2012 is that the JORC report was not available until March 2012 and there have been further delays since that time in laboratory testing of coal samples from the Tenements, because of the demands on laboratories in circumstances that a large amount of exploration is occurring in central Queensland.

1. Mr Carroll also gave evidence, albeit in a somewhat conclusory manner, that he does not consider the timing of the JORC report, the search for a CEO or the engagement of a new financial adviser by the QCC Parties had been hampered by any lack of assistance from the QCC Parties or QMS, an entity associated with the QCC Parties which provides management services to COQ Holdings. Mr Vorias also indicates that he does not consider that the reason for the IPO not being completed by 30 April 2012 was any non-compliance by the QCC Parties with the Amended Shareholders Agreement.

1. I do not consider that these allegations in their present form establish a serious question to be tried in respect of the alleged breach of the QCC Parties' obligations. I reach this conclusion without relying on the evidence of Messrs Carroll and Vorias which, if, accepted, would also be damaging to the prospects of success of this aspect of the Proposed Proceedings.

1. MCP submitted that the grant of leave under s 237 may be made subject to terms and that, if the Court considered that there are defects in the proposed Summons and Commercial List Statement, leave could be granted subject to an order requiring amendment within a stated period. I do not consider that such an order would be appropriate, since it would require the Court to formulate that amendment without COQ Holdings having had an opportunity to be heard in respect of it. It is, of course, open to MCP, if so advised, to bring a further application for leave under s 237 of the Corporations Act in respect of a differently constituted Summons and Commercial List Statement.

Notice requirement

1. The fifth requirement for the grant of leave is that, at least 14 days before making the application, the applicant gave written notice to the company of its intention to apply for leave and the reasons for applying, or alternatively it is appropriate to grant leave although that provision is not satisfied. MCP by its solicitors gave such notice to COQ Holdings by letter dated 23 March 2012 (first Wright affidavit, Ex APW1, Tab 13). COQ Holdings criticises the extent to which that notice disclosed the grounds of the contentions to be advanced in the proceedings. However, I do not consider that criticism was established, particularly where the directors of COQ Holdings considered that they were sufficiently well-informed as to the issues to reach a decision that the Proposed Proceedings should not be brought. Accordingly, I consider that this requirement was satisfied.

Application for order under Corporations Act s 247A

1. Section 247A of the Corporations Act permits a person who is granted leave to bring derivative proceedings under s 237 of the Corporations Act or applies for or is eligible to apply for leave under that section, to apply to the court for an order authorising that person to inspect books of the company or authorising another person to inspect books of the company on that person's behalf: s 247A(3)-(4) . The court is able to make such an order only if it is satisfied that the applicant is acting in good faith; and that the inspection of those books is to be made for a purpose connected with the application for leave under s 237, or with bringing or intervening in proceedings pursuant to leave granted under that section: s 247A(5); Chuen v Laredo Pty Ltd [2005] WASC 58. In Majestic Resources NL v Caveat Pty Ltd [2004] WASCA 201 at [21], the Full Court of the Supreme Court of Western Australia (Templeman J with whom Malcolm CJ and Wheeler J agreed) held that the court had power to limit the scope of inspection permitted under this section and that the exercise of the court's discretion whether to make an order under the section required the court to consider not only whether it was appropriate to make an order for inspection, but also to consider which of the books of the company should be made available under that order.

1. Mr Wright, the Portfolio Manager of the Searchlight Asia Pacific Fund, of which MCP is trustee, gives evidence that MCP's purpose in seeking access to COQ Holdings' books is "to identify documents which will assist it in prosecuting the proceedings to be brought in the name of [COQ Holdings], if leave to bring such proceedings is given". The list of documents for which application is brought is wide, and it is not clear why all of those documents relate to the Proposed Proceedings, still less why access should be granted to those documents if leave is not granted to bring the Proposed Proceedings. They extend, for example, to documents recording the retainers of COQ Holdings' solicitors and financial advisers in relation to the proposed IPO; it is not clear why such retainers would be relevant to the matters raised in the Proposed Proceedings. They include all documents comprising or recording communications over a period of nearly 12 months between COQ Holdings and any adviser concerning specified matters including the potential IPO. Access is also sought to all communications with representatives of the QCC Parties relating to the specified matters over the relevant period including relating to the potential IPO, any other potential IPO or potential means of capital raising by COQ Holdings or COQ and the obligations of the parties to the Shareholders Agreement (as amended). MCP also seeks access to all documents received or created by COQ Holdings, any director or officer of COQ Holdings or any adviser in the relevant period concerning specified matters.

1. During the course of the hearing, I invited MCP to consider whether it wished to reformulate this list to identify a narrower range of documents against the contingency that it might be unsuccessful in its application for leave to bring the Proposed Proceedings but it did not take up that invitation. I do not consider that I should grant an order for inspection of the specified books under s 247A of the Corporations Act, having regard to the fact that the specified purpose for that order is the conduct of the Proposed Proceedings, which I have not granted leave to bring, and the width of the specified categories appears to reflect that purpose and not to be justifiable other than on the basis of that purpose. I also do not think I should seek to narrow the categories for MCP where it has not sought to do so and COQ Holdings has not had an opportunity to be heard as to any such narrowed categories. It remains open to MCP to bring a further application for inspection of books, if so advised, having regard to the categories of documents which it considers are properly necessary for any other identified purpose.

Orders

1. Accordingly, I order that the Originating Process be dismissed. MCP seeks an order under s 242 of the Corporations Act that COQ Holdings should bear the costs of the application. In the ordinary course, costs will follow the event. However, I will hear the parties as to costs.

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Decision last updated: 11 May 2012