Streeter v Western Areas Exploration Pty Ltd
[2009] WASCA 214
•3 DECEMBER 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: STREETER -v- WESTERN AREAS EXPLORATION PTY LTD [2009] WASCA 214
CORAM: OWEN JA
BUSS JA
HEARD: 11 NOVEMBER 2009
DELIVERED : 11 NOVEMBER 2009
PUBLISHED : 3 DECEMBER 2009
FILE NO/S: CACV 109 of 2009
BETWEEN: TERRENCE ERNEST JAMES STREETER
First Appellant
DAVID CHARLES COOPER
Second AppellantJUNGLE CREEK GOLD MINES PTY LTD (ACN 008 795 033)
Third AppellantAND
WESTERN AREAS EXPLORATION PTY LTD (ACN 076 025 066)
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :EM HEENAN J
Citation :WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [No 3] [2009] WASC 213
File No :CIV 2126 of 2006
Catchwords:
Practice and procedure - Application to continue interim suspension order until disposition of the appeal or further order - Turns on own facts
Legislation:
Civil Judgments Enforcement Act 2004 (WA), s 15(1)(b), s 15(3)
Corporations Act 2001 (Cth), s 259B(1)
Result:
Interim suspension order continued until disposition of the appeal or further order
Category: B
Representation:
Counsel:
First Appellant : Mr C L Zelestis QC & Mr M D Howard SC
Second Appellant : Mr C L Zelestis QC & Mr M D Howard SC
Third Appellant : Mr C L Zelestis QC & Mr M D Howard SC
Respondent: Mr M L Bennett
Solicitors:
First Appellant : Maxim Litigation Consultants
Second Appellant : Maxim Litigation Consultants
Third Appellant : Maxim Litigation Consultants
Respondent: Lavan Legal
Case(s) referred to in judgment(s):
Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308
Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79
Kwa v Bank of Western Australia [2003] WASCA 163
Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203
Professional Services of Australia Pty Ltd v Computer Accounting & Tax Pty Ltd [2008] WASCA 222
Smolarek v McMaster [2006] WASCA 216
OWEN JA: I am grateful to Buss JA for his reasons. They adequately and effectively explain why I joined in the order continuing the interim suspension.
BUSS JA: On 20 August 2009, after a trial in the Supreme Court of action CIV 2126 of 2006, EM Heenan J entered judgment for the respondent, Western Areas Exploration Pty Ltd (WAE), who was the plaintiff in the action.
The trial judge decided that the first appellant (Mr Streeter) and the second appellant (Mr Cooper), as directors of WAE, had acted in breach of their fiduciary duties in diverting and using to their own advantage the opportunity to avail of, or participate in, a commercial proposal (known as the ANPC proposal). His Honour found that the ANPC proposal had been diverted from WAE to a new company, Western Areas NL (WANL), which was formed for that purpose [485].
The trial judge also decided that the third appellant, Jungle Creek Gold Mines Pty Ltd (Jungle Creek), acting by its director, Mr Streeter, was knowingly involved in Mr Streeter's breaches of duty and participated in wrongly obtaining the advantages of those breaches, namely, the rights to acquire shares and options in WANL. His Honour found that several of Mr Streeter's breaches of duty resulted in Jungle Creek taking or acquiring the opportunity which was originally, or could originally have been, WAE's, and which was wrongfully derived by Mr Streeter [486].
The trial judge granted declaratory and other relief. The other relief included:
(a)requiring Jungle Creek, on being paid $1,590,000 with interest at 6% per annum, to transfer 10,675,000 shares in WANL to WAE (order 4);
(b)requiring Mr Cooper, on being paid $160,000 with interest at 6% per annum, to transfer 400,000 shares in WANL to WAE (order 5); and
(c)requiring the appellants to pay WAE's costs of the action (order 8).
On 9 September 2009, the appellants filed an appeal notice against the whole of the trial judge's judgment.
The appellants' application for an interim suspension order
On 15 September 2009, the appellants made application for, relevantly, an interim suspension order pursuant to s 15(1)(b) of the Civil Judgments Enforcement Act 2004 (WA) (the Act).
On 24 September 2009, Owen JA made an interim suspension order until 4.00 pm on 11 November 2009 or further order.
By 7 October 2009, the appellants, in accordance with Owen JA's orders of 24 September 2009:
(a)filed and served written undertakings as to damages as well as separate undertakings that they would hold the shares in question unencumbered in escrow to abide the outcome of the appeal; and
(b)entered into 'Restriction Deeds' concerning the shares.
The appellants' application to continue the interim suspension order
The appellants applied for a continuation of the interim suspension order until disposition of the appeal or further order.
On 11 November 2009, the court heard this application.
The appellants sought orders in these terms:
1.Until disposition of the appeal or further order pursuant to section 15 of the Civil Judgments Enforcement Act, 2004 it is ordered that the operation of paragraphs 4 to 7 [sic: 4 to 8] of the judgment dated 20 August 2009 in CIV 2126 of 2006 be suspended on the following conditions:
1.1Within 14 days the first second and third appellants file with the Court and serve a written undertaking to pay to the plaintiff [the respondent] such compensation as may be assessed by this Honourable Court in accordance with such directions as may be given by this Honourable Court as may be just arising from the suspension of the judgment;
1.2Within 14 days the first and third appellants:-
1.2.1file and serve a written undertaking to the respondent and the court that they will hold 10,675,000 unencumbered shares in Western Areas NL in escrow to abide the outcome of the appeal
1.2.2enter into a Restriction Deed in the form attached as annexure A hereto, for the purpose of better securing the undertaking referred to in order 1.2.1 above
1.2.3consent to the registration of a company charge against the third appellant in favour of the respondent to give notice of the respondent's interest in the shares pursuant to the judgment, and the Restriction Deed
1.2.4the first and third appellants provide security for their undertakings as to damages by filing and serving a further undertaking that:-
(a)They will agree to set off any damages liability against the liability of the respondent pursuant to Order 1 of the judgment
(b)They will within 21 days arrange for the removal of any encumbrances against the parcel of 1.7 Million shares in the respondent presently held by Jungle Creek, and will undertake not to encumber or transfer those shares pending the outcome of the appeal (including assessment of any damages payable pursuant to the undertaking as to damages) and to otherwise hold those shares subject to an undertaking to transfer them if, and on terms, directed by the Court.
1.3Within 14 days the second appellant:-
1.3.1file and serve a written undertaking that Fidene Nominees Pty Ltd will hold 400,000 unencumbered shares in Western Areas NL in escrow to abide the outcome of the appeal;
1.3.2have Fidene Nominees Pty Ltd enter into a Restriction Deed in the form attached as annexure A hereto, for the purpose of better securing the undertaking referred to in order 1.3.1 above.
1.4The appellants exercise any votes, rights, benefits or conditions on the escrow shares in accordance with the written consent and agreement of the respondent, or not at all;
1.5Where the exercise of any rights attaching [to] such shares requires the expenditure of money if the appellants or any of them provide such money so as to exercise any rights, the rights upon exercise shall be held and secured along with the escrow shares to abide the outcome of the appeal (subject to a charge in favour of the appellants to secure payment of the amount of any expenses incurred in relation to the exercise of the rights, together with interest thereon to be calculated in the same manner as set out in paragraphs 1 and 2 of the judgment);
1.6The appellants' liability to pay the respondent's costs of the action pursuant to order 8 of the judgment be suspended on condition that the appellants provide security for the costs of the action by payment of $500,000 to be made directly to the respondent's solicitors, with the appellants' liability to make such payment being conditional upon the respondent's solicitors first giving a personal undertaking that they will repay the amount of such payment to the appellants in the event that the order for the payment of the costs of the action is subsequently reversed on any appeal;
1.7The appellants provide security for the costs of the appeal by payment of $120,000 into their solicitor's trust account with the monies to be held by those solicitors to abide the further order of the Court;
1.8The parties shall have liberty to apply upon 24 hours notice;
1.9The costs of and incidental to this application be reserved until the Appeal is determined.
Counsel for WAE opposed the grant of a complete suspension of the judgment on the ground that the appeal did not have reasonable prospects of successfully reversing or setting aside the whole of the trial judge's orders. Counsel devoted most of his attention, however, to the orders which this court should make if it were persuaded that there should be a continuation of the interim suspension order in relation to the whole of the judgment. It was submitted on behalf of WAE that orders should not be made in terms of pars 1.2.4(b), 1.4 or 1.5 of the appellants' minute. Otherwise, counsel for WAE did not make any submissions against the relief sought in the minute, subject to pars 1.6 and 1.7 being amended in accordance with an oral agreement or understanding made between counsel for the parties shortly before the commencement of the hearing.
The court decided, at the conclusion of argument, that the interim suspension order should be continued in relation to the whole of the judgment until disposition of the appeal or further order, substantially on the conditions set out in the appellants' minute.
The material differences between the appellants' minute and the orders made by the court are to be found in pars 1.2.4, 1.4, 1.6 and 1.7. Those paragraphs in the orders made by the court, with the material differences from the appellants' minute emphasised, are as follows:
1.2.4The first and third appellants provide security for their undertakings as to damages by filing and serving a further undertaking to the Court that:-
(a)They will agree to set off any damages liability against the liability of the respondent pursuant to Order 1 of the judgment
(b)They will within 21 days arrange for the removal of any encumbrances against the parcel of 1.7 Million shares in the respondent presently held by Jungle Creek, and will undertake to the Court not to encumber or transfer those shares pending the outcome of the appeal (including assessment of any damages payable pursuant to the undertaking as to damages) and to otherwise hold those shares subject to an undertaking to the Court to deal with them if, and on terms, directed by the Court.
…
1.4The appellants exercise any votes, rights, benefits or conditions on the escrow shares in accordance with the written consent and agreement of the respondent, or not at all, and in the event of any disagreement, the parties have liberty to apply;
…
1.6Subject to the respondent's solicitors first giving a personal undertaking that they will repay the amount of such payments to the appellants in the event that the order for the payment of the costs of the action is subsequently reversed on any appeal, the appellants pay the respondent's costs of the action pursuant to order 8 of the judgment as follows:-
a)by payment of $500,000 to be made directly to the respondent's solicitors within 21 days; and
b)by a further payment to make up the balance of such further amount as is determined by taxation or agreement, to be paid directly to the respondent's solicitors within 21 days of such taxation or agreement.
1.7Within 14 days the appellants provide security for the costs of the appeal by payment of $120,000 into their solicitor's trust account with the monies to be held by those solicitors to abide the further order of the Court, failing which, the appeal shall be stayed and the suspension order herein shall lapse.
When the court announced that the interim suspension order should be continued, it said that it would publish reasons in due course. These are my reasons.
The salient legal principles relating to the granting of a statutory suspension order
By s 15(1)(b) of the Act, relevantly, a person against whom a judgment is given may apply for an order suspending the enforcement of all or part of the judgment, to a court that is dealing with an appeal against the judgment. By s 15(3), on such an application the court may only make such an order if there are 'special circumstances' that justify doing so. The principles which govern the exercise of the discretion under s 15 are not materially different from those which applied to an application for a stay of execution before the introduction of the Act. See Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203 [3]; Smolarek v McMaster [2006] WASCA 216 [33]; Professional Services of Australia Pty Ltd v Computer Accounting & Tax Pty Ltd [2008] WASCA 222 [17]. The power to make a suspension order under s 15 is exercisable only upon an application by the person against whom a judgment is given and not by the court of its own motion.
The nature of the criteria which are relevant to the exercise of this court's discretion to grant a stay of execution, pending an appeal, are well established. The applicable principles are summarised by Murray and Parker JJ in Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308 [9]. See also Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79, 81 ‑ 87, 89 ‑ 95; Kwa v Bank of Western Australia [2003] WASCA 163 [8] ‑ [9].
The appellants' prospects of success in the appeal
I am satisfied, on the basis of my examination of the trial judge's reasons and the appellants' case, that the appellants have sufficient prospects of success to justify a continuation of the interim suspension order pending the determination of the appeal.
The balance of convenience
I am also satisfied, on the basis of the affidavits and other information before the court, that:
(a)The relevant subject matter of the appeal is a substantial number of shares in WANL. The shares comprise about 6.5% of WANL's issued ordinary share capital, quoted on the Australian Stock Exchange (ASX), and had a value of about $56,814,750 as at 22 October 2009.
(b)WAE does not have any significant assets. Indeed, a balance sheet as at 27 October 2009 (annexed to an affidavit of Ian Michael Klevansky sworn 6 November 2009) reveals that the company has net liabilities of $177,024. There is an unacceptable risk that if the appellants are successful in the appeal and the suspension order is not continued until disposition of the appeal or further order, then Jungle Creek and Mr Cooper would not recover their shares in WANL from WAE and, in consequence, could not be restored to their former position.
Counsel for WAE made, in essence, three points in opposition to the proposed orders in pars 1.2.4(b), 1.4 and 1.5 of the appellants' minute.
First, counsel argued that the undertakings as to damages should be supported by a payment into court. It was proposed that the payment be in the sum of $10,000,000, which represents about 17.5% of the value of the shares in question as at the date of judgment. Counsel said that the sum of $10,000,000 was reasonable having regard to the fluctuations in the price of the shares on the ASX since the date of judgment.
Secondly, counsel argued that any rights attaching to the shares in question, including voting rights, should be exercised in accordance with the directions of WAE. Any benefits obtained should be held by the appellants on the same terms as the shares. It was submitted that there is no reason why WAE should not control the important votes and rights attaching to the shares. According to counsel, the exercise of those rights would not render the appeal nugatory.
Thirdly, counsel argued that the making of an order in terms of par 1.2.4(b) of the appellants' minute would involve a breach of the prohibition in s 259B(1) of the Corporations Act 2001 (Cth), by which a company must not take security over shares (or units of shares) in itself or in a company that controls it, except as permitted by subsection (2) or (3) of s 259B. The exceptions are not relevant for present purposes.
As to WAE's first point, the 10,675,000 shares in WANL, the subject of order 4 made by the trial judge, had a value of about $57,000,000 based on the price of the shares on the ASX as at 11 November 2009 (being the date of the hearing of the appellants' application for a continuation of the interim suspension order). There was no evidence before the court as to whether and, if so, in what manner, WAE would have dealt with these shares (and the shares the subject of order 5 made by his Honour) if this appeal had not been instituted or if the interim suspension order had not been made or was not continued. However, there is, at least, the potential for WAE to suffer loss as a result of the making and continuation of the interim suspension order. If the appeal is ultimately dismissed, and WAE were then to make a claim pursuant to the undertakings as to damages, some difficult issues of causation would be likely to arise. It is not possible, at this stage, to make a reasoned assessment as to the amount of any payment into court that should be made, to support the undertakings as to damages, on account of the possibility that the price of WANL's issued shares might diminish before the appeal is determined. The 1,700,000 shares in WAE which are held by Jungle Creek and referred to in par 1.2.4(b) of the appellants' minute comprise about 10.8% of WAE's issued ordinary share capital. Although WAE is a proprietary company, there was no evidence of the existence of any particular difficulty in selling or transferring those shares as a result of, for example, the absence of a shareholders' agreement facilitating the sale or transfer of a minority interest or the existence of restrictions in WAE's constitution beyond those ordinarily to be anticipated in the case of a proprietary company. In the circumstances, the 'security' which Mr Streeter and Jungle Creek have offered for their undertakings as to damages (that is, the 'negative pledge' and the undertaking in par 1.2.4(b) of the appellants' minute) is, at present, adequate. WAE will, however, have liberty to apply upon 24 hours notice.
As to WAE's second point, I consider that justice between the parties is best achieved by making orders in terms of pars 1.4 and 1.5 of the appellants' minute, subject to the express reservation of liberty to apply in the event of any disagreement between the parties as to the manner in which the appellants should exercise any votes, rights, benefits or conditions attaching to the shares in question. If the parties are unable to resolve any dispute by agreement, then either of them may apply to a judge for resolution of the dispute. The annual general meeting of WANL in respect of the financial year ended 30 June 2009 has already been held. The appeal is likely to be heard in early June 2010. Any dispute that may arise between the parties, in the context of pars 1.4 and 1.5 of the appellants' minute, is therefore likely to be confined.
As to WAE's third point, I am of the opinion that if par 1.2.4 of the appellants' minute is amended in the manner proposed by the court, then the making of an order in terms of par 1.2.4(b) as amended will not involve a contravention of s 259B(1). Paragraph 1.2.4(b) as amended will not confer on WAE an enforceable legal or equitable proprietary interest over any shares in itself.
Conclusion
For these reasons, I concluded that 'special circumstances' within s 15(3) of the Act existed which justified the court continuing the interim suspension order in relation to the whole of the judgment until disposition of the appeal or further order, on and subject to the conditions embodied in the orders made by the court on 11 November 2009.
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