McCormick, C.D. v Electrum N.L

[1986] FCA 531

IN THE FEDERAL COURT

)

OF AUSTRALIA

)

WESTERN AUSTRALIA

) No. WA G67 of 1986

DISTRICT REGISTRY

)

GENERAL DIVISION

)

B E T W E E N :

CHARLES DAVID McCORMICK

Applicant

and

ELECTRUM N.L.

3

CORAM: MUIRHEAD J.

2 July 1986

- 9 A R Y i

REASONS FOR DECISION (M TEMPORE)

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This application and the statement of claim were

yesterday, the applicant applying for injunctive relief pursuant

to 3.80 of the Trade Practices Act 1974. The issue arises from

the resolution of the respondent to issue shares to existing

shareholders on a one-for-three basis, consequential acceptance of

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an offer to underwrite the rights issue, and subsequent steps

including an announcement to the Stock Exchange by letter dated 7

May last, a circular issued by the Underwriter on 13 May and,

perhaps of more importance a letter of offer by the respondent to

shareholders dated the 26 May 1986. The applicant asserts that

certain statements Included in that documentation (and perhaps

omissions) contained representations which were misleading or

deceptive, or likely to mislead or clecelve in contravention of

s.52 of the Act. The applicant, a director of the respondent

company, a shareholder and a person who may well be termed its

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founder, supported the application by his own affidavit supported by a host of exhibits, the most significant of which perhaps is a telex sent by the applicant to the company dated 12 May last and

which the evidence suggests has not been answered and which

pre-dated the letter of offer dated 26 May. The telex clearly

raised the ssential issues debated upon the interlocutory

proceedings. These commenced yesterday as it is proposed (and I am

told the rules of the Stock Exchange so provide) that the

certificates in respect of shares allotted are	to be despatched to
applicant shareholders today.

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By his application the applicant seeks orders

restraining the allocation of shares; an order that the respondent

disclose to the public or to its shareholders the current state of

its financial affairs and an injunction in a form designed to

enable those shareholders who have taken up their rights, the

right to withdraw their acceptances. I make no comment as to

whether it is in the power of the court to make the latter order.

Appreciating as I do the wide powers of the Court under

s.80 I make no comment as to whether it is in the power of this

Court to make the latter Order sought.

The respondent contests the allegation contained in the statement of claim. The affidavit of another of its directors,

Terry Brittliffe. and the exhibits thereto, are in evidence and

have received my consideration. As may be expected the matter, at

this interlocutory stage, has been conducted in haste and it is

virtually impossible for me to make fair and considered findings

on some aspects which go to the financial administration of the

to its future fortunes: matters such as that.

Because of the background to the proceedings, the

critical nature of the litigation from the company's point of

view, it is I have decided preferable that I should pronounce no

detailed findings as to matters which are or may yet be in

dispute. It is sufficient if I state at this stage that I am

satisfied the applicant has brought these proceedings bona fide

and that the evidence upon which he relies is to say the least

persuasive. He was subjected to cross-examination which in my view did not impinge upon the accuracy of his affidavit evidence. That cross-examination was of course in the circumstances limited

and did not range as far as would be the case upon a substantive

hearing. It suffices to say his credit was not shaken - he indeed

carries a genuine concern as to current developments. Be that as

it may, the nature of the proceedings indeed the nature of the

mining industry in which the company is engaged, makes precise

findings as to the conduct of the company and those who

effectively control its destinies an exercise which must be

approached with caution. It suffices to say that I am well

satisfied there is a serious question to be tried within the meaning of Epitoma Ptv. Ltd. v. Australian Meat Industrv Employees' Union (1984) 3 F.C.R. 55 and a host of subsequent

decisions referred to by Neaves J. in his recently published and

unreported judgment in Strathfield Car Radios Ptv. Ltd. v.

Car Radios Ptv. Ltd. and Anor. (No. C168 of 1986 NSW District

Registry) published on 11 June 1986.

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But a finding that there is a serious question to be

tried is not sufficient, especially when possibly the fate of the company itself and the interests of its shareholders and I suppose its creditors or co-adventurers may be very much involved. I must

weigh the balance of convenience and in that respect it is proper

that I should endeavour not only to weigh that and seek a balance

as between the parties but consideration must be given to those in

the community who may be affected by the decision, brought as it

is pursuant to the provisions of 9 . 5 2 of the Trade Practices Act,

legislation designed to safeguard the community or interested

sections of the community. Should interlocutory relief not be

granted at this stage, despite Mr Ainslie's stress upon the

importance of individual shareholders (which has some merit), they

nevertheless are entitled to the remedies, if any, which final

resolution of the issue may bring. Those remedies may extend

beyond relief which could be granted by this Court, and could of

course ultimately be reflected in the composition of the company

Itself. There is some merit in Hr Bennett's argument that should

this Court ultimately make a finding which gives rights in the

shareholders qua the company, it is unlikely that shareholders who

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have suffered damage would be forced to individual litigation to

recover their loss. This Court, would I think strive to avoid

that type of situation.

Be that as it may to now order interlocutory relief by

directing a stay of the issue of certificates, will undoubtedly

and whatever the final outcome may be have immediate and grave consequences in the commercial world, not only to the company and its directors, but perhaps to the shareholders whose interests are

.)

5.

paramount. That is to say, should an appeal from my order

granting an interlocutory injunction be successful or should this

Court finally rule against the applicant, the effects of this

interlocutory order will have spent their course and may I fear be

irremedial. It is thus a situation which I must approach with

great caution, appreciating as I do, that I have not heard the

whole story. After admittedly anxious consideration, I have

reached a	firm view that dispassionately weighing the interests
involved,	the balance of convenience mitigates against granting

interlocutory relief; - and I stress this carries with it no

0 criticism of either the applicant or the reasonableness of the

application. As far as I can judge, he had, in the circumstances,

no reasonable alternative. It may be said that the refusal of the

application effectively puts an end to the issue as there is no

further or alternative remedy available. I doubt whether this is

so. The Trade Practices Act is of wide application and

alternative forms of relief to those who may suffer damage should

the essence of the applicant's claims be ultimately established,

may well be available, not necessarily in this Court but in other

forums and under other procedures. That is a matter upon which I

should not speculate; it suffices to say that I am not now

persuaded that an injunction should be ordered. Accordingly the

application must be dismissed.

As to costs, I have given serious consideration to an

order that despite the dismissal of the application, the

respondent company should pay the applicant's costs of and

incidental to the application. It would be an unusual order but

the circumstances here are very unusual and time was perhaps of

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the essence. But I have decided, in deference to the court which

may finally decide the issue, that I should reserve the question

of costs of this application for that court to decide, and in so

doing I merely state that in my view (which may not be shared by

the Judge who finally decides the issue) the application was

entirely reasonable and was brought by the applicant bona fide. I

will therefore reserve the question of costs, but should the

matter not proceed further I give liberty to the parties to apply

on that issue and I believe I have made my own views clear.

The orders will be as follows:

1. The application is dismissed.

2. I reserve the question of costs, with liberty to the parties to apply.

3.	I direct an expedited hearing of the application and I
further direct that the District Registrar of this Court
should as soon as possible after a direction hearing,
communicate with the Registrar to arrange such a hearing, if

possible in Perth.

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4. I direct the parties should attend a directions hearing

before me within 7 days.

During the application I made an order preventing

publication of the evidence which included the affidavit evidence

and exhibits. Being aware of the sensitivity of the issues and

likely reaction in the market place to assertion not yet found to

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be proved I am satisfied that the order should be continued. To

do otherwise may displace the status quo which at present I

consider should be preserved. The order will not of course

continue beyond the commencement of the substantive hearing.

I cert l fy that th ls and the s i x precedlng

pages are a true copy of the reasons for

decision ( ex tempore) of hls honour

Mr Justice Mulrhead.

0 Associate

Dated 2 July 1986