Riverfront Nominees Pty Ltd v Beacon Minerals Ltd

[2012] WASC 154

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RIVERFRONT NOMINEES PTY LTD -v- BEACON MINERALS LTD [2012] WASC 154

CORAM:   LE MIERE J

HEARD:   23 FEBRUARY 2012

DELIVERED          :   23 FEBRUARY 2012

PUBLISHED           :  9 MAY 2012

FILE NO/S:   COR 28 of 2012

MATTER                :Sections 181 and 1324 of the Corporations Act 2001

Beacon Minerals Ltd

BETWEEN:   RIVERFRONT NOMINEES PTY LTD

Plaintiff

AND

BEACON MINERALS LTD
First Defendant

MATTHEW VANCE EGAN
Second Defendant

PAUL GEOFFREY LLOYD
Third Defendant

DARRYL REGINALD JOHN HARRIS
Fourth Defendant

Catchwords:

Corporations law - Interlocutory injunction - Directors' duties - Pre­completed proxy - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 181

Result:

Application dismissed

Category:    B

Representation:

Counsel:

Plaintiff:     Mr S J Penrose

First Defendant             :     Mr M L Bennett

Second Defendant         :     Mr M L Bennett

Third Defendant           :     Mr M L Bennett

Fourth Defendant          :     Mr M L Bennett

Solicitors:

Plaintiff:     Tottle Partners

First Defendant             :     Bennett & Co

Second Defendant         :     Bennett & Co

Third Defendant           :     Bennett & Co

Fourth Defendant          :     Bennett & Co

Case(s) referred to in judgment(s):

Nil

1. LE MIERE J:  On 23 February 2012 the plaintiff commenced proceedings by originating process seeking interim and permanent injunctions restraining the first defendant (the Company) issuing or dispatching to its shareholders any pre‑completed proxy form in relation to the meeting of the company's shareholders to be held on 12 March 2012 and restraining the second, third and fourth defendants from causing or taking any step to cause the company to issue or despatch with shareholders any such pre‑completed proxy form.  By interlocutory process of the same day the plaintiff sought interim or interlocutory injunctions in the same terms.

2. The plaintiff filed a certificate that the application was of such an urgent nature that it was required to be heard immediately.  I heard the application on the afternoon of 23 February 2012.  I was satisfied the application was of such an urgent nature that it should be heard immediately.  Counsel appeared for the defendants.  I ordered that the time for service of the application be a breach to enable it to be heard and determined immediately.  After hearing counsel for the parties I ordered that the application for interim or interlocutory relief be dismissed for reasons which I then stated.  This is an edited version of those reasons.

The facts

1. The application is supported by an affidavit of Marcus Michael sworn on 23 February 2012.  Mr Michael is the sole director and shareholder of the plaintiff.  The plaintiff is the holder of not less than 4.8 million shares in the capital of the Company.  The Company is listed on the Australian Stock Exchange (ASX).  There are approximately 995 million shares on issue in the Company.  The second, third and fourth defendants are the current directors of the Company.

2. On or about 27 January 2012 various shareholders of the Company requisitioned a meeting of the members of the Company for the purpose of removing the existing directors and replacing them with various people, including Mr Michael.  The Company issued a notice of meeting and proxy form in response to this requisition on or about 15 February 2012.

3. On or about 6 February 2012 the Company issued a notice of meeting and proxy form seeking shareholder approval for the sale of the main undertaking of the company, being mining lease ML77/1254.  Mr Michael does not support the sale of the mining lease.  He has caused to be sent out to shareholders an open letter which opposes the sale of the mining lease and sets out his reasons for that position.

4. The notice of general meeting which was sent out to shareholders was accompanied by a proxy form which was uncompleted to the extent that it permitted shareholders to vote for or against the resolution.  The Company caused a notice to be posted on the ASX announcement board on 23 February 2012.  The notice is in the form of a letter addressed to the Company's shareholders.  The letter commences:

   Dear Shareholder

   You will have recently received a letter in the mail from [the Company] regarding a Notice of Meeting for the sale of Barlee mining lease M77/1254 (Transaction) to Ramelius Resources Ltd (Ramelius) (Ramelius Offer).  This Transaction is subject to shareholder approval at the General Meeting which will be held on 12 March 2012.

   In the opinion of the [Company] directors [Directors] the Transaction with Ramelius provides the best return for all [Company] shareholders.  We urge all shareholders to support this Transaction.

5. The letter then goes on to set out in essence the reasons why in the opinion of the directors the Transaction is in the best interests of the shareholders.  The notice posted on the ASX contains the following paragraph preceding the letter to shareholders:

   To have your say in the future direction of your company you just fill in your proxy form and return it to the company 2 days before the meeting for it to be valid.  Otherwise your say in your company doesn't count.  If you haven't filled in a proxy form already, a pre‑completed prox form voting in favour of the resolution is attached.  For further information we refer you to the Notice of Meeting dated 8 February 2012 on the company website.

Plaintiff's case

1. The plaintiff says in essence that in sending out the letter and the attached pre‑completed proxy form voting in favour of the resolution referred to in the announcement, the directors have breached their obligations under s 181 of the Corporations Act 2001 (Cth). Section 181(1) provides:

   A director or other officer of a corporation must exercise their powers and discharge their duties:

   (a)in good faith in the interests of the corporation; and

   (b)for a proper purpose.

Directors' duties in relation to proxy forms

1. The directors of a company are not required to remain neutral in relation to a resolution which is put to the company's shareholders.  R P Austin and I M Ramsay in Ford's Principles of Corporations Law LexisNexis, March 2012 at [7.460] discuss directors' duty to inform shareholders.  The learned authors write:

   Directors wishing to recommend particular action to members may send a circular with the notice paper.  They may inform members as to why they have adopted a particular policy and may urge members to support the maintenance of that policy in the future against others who disagree with the policy.  Indeed, it is said that the directors have a duty to inform members.  Provided directors act in what they honestly see as the interests of the company as a whole, they may defray out of the company's assets the reasonable cost of informing members:  Peel v London and North Western Railway Co [1907] 1 Ch 5. Apart from the requirement in s 249N to circulate resolutions for general meetings upon request and the requirement in s 249P to circulate certain statements provided by members upon request, directors are not obliged to circulate the views of members opposed to the board's policy: Campbell v Australian Mutual Provident Society (1908) 24 TLR 623; 77 LJPC 117. In Fraser v NRMA Holdings Ltd (1995) 55 FCR 452; 127 ALR 543; 15 ACSR 590; 13 ACLC 132 the Full Federal Court held that satisfactory disclosure may be achieved without setting out the 'no case' on a proposal for demutualisation, but it was inadequate for the disclosure document to acknowledge that the proposal had disadvantages which were not identified, explained or compared with the perceived advantages: 13 ACLC at 159.

   However, directors cannot ordinarily use company funds to support or oppose in a partisan way candidates for election to the board:  Advance Bank of Australia Ltd v FAI Insurances Australia Ltd (1987) 9 NSWLR 464; 12 ACLR 118; 5 ACLC 725. There can be exceptional cases where they can draw the attention of members to the obvious unsuitability of a particular candidate who, for example, had a criminal record. However, they must do so in a balanced and unemotional way consistent with informing members to enable them to make a decision.

2. It is not a breach of a director's duty to inform shareholders of matters relevant to a resolution being placed before the shareholders.  It is not a breach of a director's duty to advise the shareholders to vote one way or other in relation to that resolution.  It is not a breach of a director's duty to use company funds to cause such information or notices to be provided to the shareholders.

3. Counsel for the plaintiff submitted the plaintiff does not object to the directors of the company informing members how the directors say members should vote in relation to the proposed resolution.  The plaintiff objects to the directors causing the company to send out to shareholders a pre‑completed proxy form which is completed so as to be in favour of the proposed resolution.

4. The plaintiff says that such a course of action is improper in the context of the relevant listing rule.  Listing rule 14.2 provides:

   A notice of meeting must include a proxy form which must satisfy the following rules.

   14.2.1The proxy form just provide for the security holder to vote for or against each resolution.

   Note:  the form may also provide for the security holder to abstain from voting on each resolution or for the proxy to exercise a discretion to vote for or against each resolution.

5. In this case the notice of the meeting did include a proxy form which provided for the security holder to vote for or against each resolution.  However, counsel for the plaintiff submits in effect that by causing the company to subsequently send out a further notice, which included a proxy form completed in favour of the resolution, the directors negated or defeated the purpose of r 14.2.1.

6. I do not accept that submission.  The purpose of the rule requiring a notice of meeting to include a proxy form which provides for the security holder to vote for or against each resolution is to enable or to facilitate a shareholder to vote for or against the resolution without attending the meeting.  That purpose is not defeated by the shareholder receiving a subsequent proxy form which is completed for or against the resolution.  Nor is that purpose defeated by the directors causing the company to send a pre‑completed proxy form to the shareholders.

Directors' duties of good faith

1. The next question is whether there is a prima facie case that the directors of the company breached their obligations of good faith which requires a director to exercise their powers and discharge their duties in good faith and in the best interests of the company and for a proper purpose by causing the company to send out the pre‑completed proxy form in favour of the resolution.  In my view it does not follow that merely because the directors have caused to be sent out a pre‑completed proxy form that is an improper exercise of their powers.  It might of course be an improper exercise of their powers if they have exercised that power for some ulterior purpose, or in some other way improperly exercised their power.  However, in this case there is no such evidence.  The case rests solely on the fact that the directors have caused the company to send out the pre‑completed proxy form.  I am not satisfied to the requisite degree that that of itself, and without anything more, is an improper exercise of the directors' powers.

2. I said that I am not satisfied to the requisite degree.  This is of course an application for an interim injunction.  The plaintiff must make out a prima facie case that there has been a breach of the directors' powers, that they have exercised their powers for an improper purpose.  I must also have regard to the fact that the practical effect of granting an injunction in this case would be to prevent the defendants sending out the notice with the pre‑completed proxy form prior to the meeting which is to take place on 12 March 2012.  That is, this is one of those cases where the grant or refusal of the interlocutory injunction is in practical terms the grant or refusal of final relief, as well as interlocutory relief.

Conclusion

1. I am not satisfied that the plaintiff has made out a prima facie case.  In those circumstances it is not necessary for me to give consideration to the further matters submitted by counsel for the defendants which relate to the nature of the relief to be granted, that is it is in effect mandatory injunctive relief rather than merely gaining an injunction restraining the defendants from taking certain action.

2. Nor is it necessary for me to consider the balance of convenience.  In my view the matter of importance in this case is that a prima facie case has not been made out, and for that reason the application will be dismissed.