Ashburton Oil NL v Alpha Minerals NL

I examine first the circumstances of the allotments of 25th May. The meeting at which they were made was held on that day after McEwan had refused, on behalf of the plaintiffs, to buy all the shares in the defendant and despite the statement made to him that there would be a meeting of the board of directors on 26th May to discuss all aspects of the matter. It is obvious that the deals, both with Snowstone Pty. Ltd. and West Coast Holdings Ltd., were made in a great hurry, and, although some explanation of this was offered in relation to the transaction with Snowstone Pty. Ltd., no explanation was given of the even greater haste with which the deal with West Coast Holdings Ltd. was concluded. The shares issued gave both Snowstone Pty. Ltd. and West Coast Holdings Ltd., full voting rights immediately, notwithstanding that only one cent was paid up upon each share allotted to those companies. No explanation was given as to how it was that representatives of Snowstone Pty. Ltd. and West Coast Holdings Ltd. came to be present at the meeting on 25th May, which must have been arranged almost contemporaneously with McEwan being informed that there would be a meeting of directors on 26th May. Furthermore, these allotments were made notwithstanding the assurances given by some directors to McEwan on May 14th and May 18th. Moreover, the letter written to McEwan informing him of the events of 25th May was less than ingenuous and was perhaps scornful. It carries the suggestion that the plaintiffs, faced with the fait accompli of 25th May, might think better of their attempt to take over the defendant, and, having been outwitted, they might decide not to continue to hold a substantial number of shares in the defendant. The letter says, in effect, "You have been thwarted".

On the foregoing there was, I think, evidence that the allotments of 25th May were prima facie to protect the directors of the defendant from the plaintiffs.

Was there in addition, however, a prima facie case that, in making further allotments of shares, the directors would follow the same policy of protecting themselves?

It seems to me important that the option was taken from Stratum Prospecting Co., and the lease with an option to purchase taken from Kinniburgh and others, after the first writ had been issued challenging the allotments of 25th May. It is true that under these arrangements only 700,000 shares were to be issued, but, if the allotments of 25th May were to be set aside, the issue of 700,000 shares to others would deny the plaintiffs a majority holding; they would have but 3,112,500 shares out of 6,700,000 shares issued.

Furthermore, I have found nothing in the history of the matter to suggest either that the directors of the defendant had been "bitten" or that they were "shy". The defendant was contesting the first action; the directors were asserting that, in all their doings, they had not consulted their own interests but had acted for the benefit of the company. Moreover, at least three of the directors had shown that their assurances of restraint given to McEwan did not fetter the action of the board of directors as a whole.

I conclude, therefore, that Anderson J. had evidence upon which he could come to the conclusion that, unless restrained, the directors would do again what they had done prima facie on 25th May. It was in these circumstances that the injunction which he granted restrained the defendant from allotting, issuing, or agreeing to allot or issue, any further shares in the company. The width of the terms of this injunction now require consideration.

To an injunction in the terms granted there are two objections; first that it affords the plaintiffs protection beyond that to which they are or could be, by law, entitled; secondly that it imposes a restriction upon the defendant's lawful freedom of action which is unjustifiably onerous. To these objections the plaintiffs made the one answer, viz. that, having become entitled by their purchase to a majority shareholding in the defendant, they were entitled to an injunction that would maintain their controlling interest. This answer is based upon what I regard as a misconception. The misconception is that a majority shareholding or a controlling interest is a right of property that ought to be preserved against any action on the part of the company in which the shares are held. A shareholder who would be affected by the exercise of a company's powers is entitled to demand and enforce that the company's power should be exercised lawfully; such a shareholder is, however, not entitled to prevent any exercise of that power. The advantage of a controlling interest in the shareholding of a company is not property that a shareholder is entitled to have preserved by the intervention of the court to prevent the allotment of any shares that would disturb it. It may often be the case, of course, that the holding of a majority of shares puts the shareholder in a position of being able to protect his majority by the exercise of his voting strength in accordance with the company's memorandum and articles of association, but to acknowledge this is merely to recognize that the rights and powers of shareholders are governed by the constitution of the company and that every shareholder holds his shares subject to that constitution. It affords no justification for conferring upon a majority shareholder rights which the constitution of the company does not give him in order to secure his position. Accordingly, a blanket prohibition against the issue or allotment of shares, or the making of an agreement to issue or allot shares, which would prevent an entirely proper issue of shares ought never to be made. To illustrate the vice of the order which was made it is only necessary to point out that it would prevent the allotment or issue of shares by the company even if the board of directors were to be completely changed. The plaintiffs are entitled to no more than an injunction against an improper issue or allotment of shares and it is my opinion that the injunction granted by Anderson J. should be varied to restrain making or agreeing to make any allotment of shares for a purpose other than for the benefit of the company and its shareholders as a whole. In the circumstances of this case an injunction in these terms should be coupled with a further order that the company should, before making or agreeing to make any further allotment of shares, notify the plaintiffs of what is proposed in sufficient time to enable them, should they see fit, to seek from the court a declaration that the allotment proposed is for a purpose other than for the benefit of the company and its shareholders and in all the circumstances should not be made, and that, in the event of such an application, the proposed allotment should not be made before the hearing of the application by the court.

In my opinion the appeal should be allowed and the order made by Anderson J. varied as already indicated.

I have had the great advantage of reading the judgment that my brother Gibbs has prepared. I have nothing to add to his analysis of the facts; and I entirely agree in his conclusions. The argument that we heard seemed at times to proceed as if a majority of shareholders entitled to vote at a general meeting of a company had some kind of proprietary right to have their dominant position preserved against a threatened admission of new members of the corporation. I know of no such right. But I do not doubt that a shareholder can invoke the aid of a court to prevent a threatened issue of further shares that is not being proposed in good faith for the benefit of the company but is designed to serve a private interest. In some cases such an issue if made could be set aside. The facts of the present case shew that there is a substantial case to be tried, a sufficient probability that the appellants will, as the evidence stands, succeed, and that there is a need to preserve the present position pending the trial of the issue. Therefore an interlocutory injunction is called for; and I concur in the form that Gibbs J. proposes it should take.

I am of opinion that the appeal should be allowed and that there should be an interlocutory injunction in the form proposed by Gibbs J. with whose reasons and conclusions I am in agreement.

This is an appeal brought by leave of this Court from a judgment and order of the Full Court of the Supreme Court of Victoria setting aside an order made by the learned primary judge on 2nd July 1970 by which the respondent company was restrained until the hearing and determination of action No. 2718 of 1970 in the Supreme Court of Victoria or until further order from allotting or issuing and from entering into any agreement to allot or issue further shares in the capital of the respondent.

The appellants' application to the learned primary judge for an interlocutory injunction, upon which the order in question was made, was supported by affidavits, and the respondent filed an affidavit in opposition. None of the deponents was cross-examined. A further affidavit was filed by leave of the Full Court of the Supreme Court. The facts as they appear from this material are as follows.

The respondent is a no-liability company and was incorporated in Victoria on 3rd February 1970. Its objects, stated briefly, are to obtain and develop deposits of minerals. The three appellants are also no-liability companies. Until about 25th May 1970 the issued capital in the respondent comprised 6,000,000 shares all fully paid to twenty-five cents. By 14th May 1970 the appellants between them had by purchases in the market acquired a majority of the shares in the respondent; their total holdings amounted to over 3,112,500 shares. However none of the appellants became registered as shareholders until on or about 3rd June 1970 when shares belonging to each of the three appellants, and totalling 1,901,000, were registered.

The appellants, having acquired these shares, wished to exercise control of the respondent company and Mr. McEwan, who is a director of each of the appellant companies, requested that a meeting of the board of directors of the respondent should be held so that he might communicate the views of the appellants to the board. The members of the respondent's board at all material times were Messrs. Niemann (who was the chairman), Stewart, Shirrefs, O'Shannassy and Stevenson. On 14th May 1970 McEwan met two of the directors, Stewart and Shirrefs, in Melbourne. He told them that the appellants had acquired a controlling interest in the respondent and that the existing board of the respondent would be required to resign except that the chairman, Niemann, would be invited to remain on the board. He also said that Stewart, who besides being a director had a contract as mining consultant with the respondent, would be asked to resign and given a lump sum in compensation. Stewart's contract with the respondent entitled him to a fee of $2,333 per month and certain other benefits but was determinable by three months' notice. Shirrefs replied that in the absence of Niemann, who was in another State at the time, no decision could be reached on these matters, which would have to be discussed with the other directors. McEwan asked Stewart what was the present state of the negotiations between the respondent and various other parties, including Snowstone Pty. Ltd., regarding mining ventures and was told that none of these had reached a stage of finality. Shirrefs then stated that the directors of the respondent company intended not to enter into, continue with or conclude any negotiations or transactions relating to any mining venture until the shares of the appellant companies had been registered and recognized by the board of directors of the respondent. At the conclusion of the meeting it was agreed that the appellants would cause an announcement to be made to the Melbourne Stock Exchange concerning their interest in the respondent and on the same day McEwan wrote to the secretary of the Stock Exchange informing him that the three appellants, acting as a consortium, had acquired a controlling interest in the respondent. It was also agreed that a meeting between McEwan and the respondent's board would be held on 18th May 1970.

On the afternoon of 18th May 1970 McEwan, with other representatives of the appellant companies, attended a meeting at which three members of the respondent's board, Shirrefs, Stevenson and Stewart, were present. He repeated his request that no transactions or negotiations be continued or entered into by the respondent until such time as the board was re-constituted in favour of the appellant companies and Shirrefs renewed his assurance that his request would be respected. Stevenson and Stewart stated that they agreed with this assurance. It appears from the evidence that the secretary of the respondent company made a note of the request, although it is not stated that he made a note of the assurances; this however may be an oversight. The minute so made by the secretary was not tendered and there is no evidence as to its exact terms.

On 19th May 1970 McEwan wrote a letter addressed to the chairman of the respondent company, confirming the discussions of 14th and 18th May, repeating the statement that the consortium made up by the three appellants was now a majority shareholder in the company, and stating that the stockbrokers had been requested to expedite transfers for registration and requesting that the respondent's registry do the same. The letter added:

We now request that you convene a board meeting as soon as possible, with a view to discussions on resigning in our favour. We feel that it is most important at this juncture that we exercise full control over the company for the benefit of all shareholders.

On 21st May Niemann, who had returned to Victoria, telephoned McEwan and asked whether the appellants were prepared to acquire the remaining shares in the respondent by an issue of shares in one of the appellant companies. McEwan could not give an immediate answer but on the next day (Friday, 22nd May) he telephoned Niemann and informed him that the appellant companies were not willing to acquire the remaining shares in the respondent and that it was the intention of the appellants to operate the respondent as a separate company, retaining its identity. He also requested that an early meeting of the board of directors be convened so that the board might be re-constituted. Niemann, in reply, expressed regret that no amicable settlement could be negotiated and said that a meeting of the respondent would next be held on Tuesday, 26th May 1970, to discuss all aspects of the matter.

On the following Monday, 25th May, Niemann wrote to McEwan, at an address in Perth, a letter which read as follows:

Thank you for your letter of 19th May and I have noted the advice contained therein.

To date, no shares in this company have been registered in the names of Ashburton Oil N.L., Academus Minerals N.L. or Day Dawn Minerals N.L., but some transfers have been received.

As large shareholders, the companies represented by you will be interested in the enclosed advice to the Stock Exchange.

If they continue to hold a substantial number of shares, you may be interested in discussing the appointment of a board member to represent their interests.

The copy of the report of the board of directors of the respondent company to the Stock Exchange, which was attached to the letter, revealed that the respondent had taken up a thirty per cent interest in Snowstone Pty. Ltd. for the purpose of developing what was described as "a substantial high grade quartz deposit". It stated that the vendors' terms included an allotment of 3,000,000 shares credited as paid to one cent each; these shares were not to be traded on the Stock Exchange for twelve months, no call was to be made on them before 1st June 1971 and thereafter calls were not to exceed five cents per share in any successive six-monthly period, but in all other respects the shares were to rank equally with all other issued shares. The report further stated that a joint venture had been negotiated with West Coast Holdings Ltd. with regard to their Mt. Burgess mineral claims. The respondent was to obtain a thirty-nine per cent working interest for a consideration which included an allotment of 1,000,000 shares paid to one cent each on the same terms as those allocated to the vendors of Snowstone Pty. Ltd. The result of these arrangements, as the advice to the Stock Exchange pointed out, was to increase the issued capital of the respondent to 10,000,000 ordinary shares of which 6,000,000 were fully paid and 4,000,000 were paid to one cent each. The further result, to which the advice did not allude, was to reduce the proportionate interest of the appellants in the respondent from about fifty-two per cent to about thirty-one per cent.

The learned primary judge found that the 4,000,000 shares were allotted on 25th May and that of this total 3,000,000 were issued to three persons, O'Shannassy, Cook and Ley, who were the vendors of the interest in Snowstone Pty. Ltd. and 1,000,000 were issued to West Coast Holdings Ltd. I can see no evidence as to the names of the vendors of the interest in Snowstone Pty. Ltd. or as to the date of the allotment of the shares, although these matters were alleged in the statement of claim in action No. 2543 which I shall later mention. However the findings of the learned judge on this point were accepted by the Full Court and were not in any way challenged before us and are in no way vital to the present proceedings. The evidence does however show that the directors of Snowstone Pty. Ltd. were O'Shannassy, Cook and Ley, and that O'Shannassy, who as I have said was one of the directors of the respondent, was also a director of West Coast Holdings Ltd.

Niemann in an affidavit which was filed on behalf of the respondent gave an explanation of these transactions. He said that the respondent had on 13th February 1970 commenced negotiations with Snowstone Pty. Ltd. in connexion with the acquisition of an interest in certain quartz leases in Western Australia and that there were a number of discussions on this question between February and May but that no agreement was concluded because it was necessary to have certain drilling tests made in order to determine the reserve of quartz available at the site of the leases. He said that during April or May a report became available to the respondent which provided certain further information about the quartz leases and that by that time the directors of the respondent had determined to acquire shares in Snowstone Pty. Ltd. although the price had yet to be determined. He said that negotiations continued between the directors of the respondent and those of Snowstone Pty. Ltd. during May and that on 25th May 1970 he saw for the first time a report of the drilling tests at the quartz leases. He did not say what the report showed and it was not produced. He went on to say that the directors of the respondent intended to hold a meeting on 26th May but, because it was convenient to the directors of Snowstone Pty. Ltd., who were in Melbourne on 25th May, it was decided to meet on that date for the purpose of considering the report and certain proposals which the directors of Snowstone Pty. Ltd. desired to make. He said that at the meeting on 25th May the directors of Snowstone Pty. Ltd. explained that because of the cash position of some of the vendors of shares in Snowstone Pty. Ltd. it was imperative to conclude the sale immediately and that an offer, which was then tabled before the board of the respondent, would be the final offer made to it and that the vendors requested immediate consideration of the offer.

Niemann further said that he first became aware on or about 17th May 1970 that West Coast Holdings Ltd. was also interested in entering into a joint venture with the respondent in connexion with certain mineral claims at Mt. Burgess and that an offer for sale of a thirty-nine per cent share of an interest in those mineral claims was made on behalf of West Coast Holdings Ltd. at the same time as the offer by Snowstone Pty. Ltd.

Niemann went on to say that the two offers were most advantageous and satisfactory to the respondent and that the directors of the respondent resolved to accept them. He said that the acceptance of the offers by the respondent was absolutely unconnected with the acquisition by the appellants of shares in the respondent and had no other purpose than to achieve a beneficial result to the respondent company and its members including the appellants.

On 9th June 1970 the appellants commenced against the respondent and other defendants an action in the Supreme Court of Victoria (No. 2543 of 1970) seeking declarations that the allotment and issue, or purported allotment and issue, on 25th May 1970 of 3,000,000 shares to O'Shannassy, Cook and Ley and 1,000,000 shares to West Coast Holdings Ltd. were not made in good faith and for the benefit of the company as a whole but were ultra vires the directors of the respondent and were void and of no effect, and seeking orders that these allotments or purported allotments should be set aside, and other relief.

On the same day the solicitors for the appellants wrote to the secretary for the respondent a letter which referred to the commencement of this action and included the following paragraph:

In view of the commencement of the above action we now seek an assurance from your company that it will not, without seven days' prior notice in writing to our clients, make any further allotment or issue of shares to any person or persons, or enter into any commitment or agreement which would bind the company to issue or allot any shares, pending the determination of the action. If your company is not prepared to give this assurance, our clients will seek relief by way of interlocutory injunction to prevent the issue or allotment of any further shares in Alpha Minerals N.L. or the entry into any such commitments or agreements. No reply has been received to this letter.

Between 11th and 17th June there were some discussions between representatives of the respondent and the appellants in an effort, which proved unsuccessful, to reach agreement in the matter. During the course of these discussions no reference was made to the possible acquisition by the respondent of any interests in mineral claims in Western Australia or of any leases at Mt. Clifford or to the possibility of any discussions taking place between the respondent and Poseidon N.L.

On 16th June 1970, without notice to the appellants, Niemann announced to the press that the respondent had taken interests in new mineral claims in several areas of Western Australia and was negotiating the acquisition of eleven leases in the Mt. Clifford area. He further said that arrangements had been made to test and develop an old antimony mine at Steele's Creek in Victoria. A publication of this announcement was made in the Age newspaper of 17th June 1970 and this led to the appellants to commence action No. 2718. The writ in that action was issued on 22nd June and it claimed against the respondent an injunction restraining it from wrongfully allotting or issuing, and from entering into any agreement to allot or issue, further shares in the capital of the respondent for the improper purposes of ensuring that the appellants should not by means of the shares acquired by them in the respondent obtain a majority of the voting power in the respondent and of preserving the continuance in office of the directors of the respondent and of injuring the appellants and preventing them from obtaining and retaining control of the respondent notwithstanding the setting aside by the Supreme Court of Victoria of the allotment and issue of the shares referred to in par. 12 of the statement of claim in action No. 2543. That paragraph referred to the allotment and issue on or about 25th May 1970 of the 4,000,000 shares.

On 22nd June 1970 the learned primary judge made an interim order restraining the respondent until after the hearing and determination of a summons for an interlocutory injunction or until further order from allotting or issuing, and from entering into any agreement to allot or issue, further shares in the capital of the respondent. It was not proved that this interim order was served on the respondent. The summons for an interlocutory injunction was issued on 23rd June.

During some time in June 1970 (the exact date does not appear) the respondent obtained from one Moss, acting on behalf of a firm called Stratum Prospecting Co., about which the evidence is silent, for a consideration of $12,000, an option to purchase certain mineral claims at Mt. Clifford. According to the undated option agreement, the option was to be exercised "on or before the third day of the hearing of the Warden having jurisdiction thereover which is set down for 5th August (or any adjournment thereon) for recommendation of the said mineral claims for registration", and if not exercised within the prescribed time the option was to lapse automatically. The form of proposed contract which accompanied the option agreement provided that the consideration for the sale should include the issue to a nominee of Stratum Prospecting Co. of 500,000 shares in the respondent paid to one cent each upon which no call is to be made before 30th June 1971, no call is to exceed five cents per share and no call is to be made within six months of any previous call, but which otherwise are to rank pari passu with the ordinary shares.

On 24th June 1970 Niemann informed the press that discussions were taking place with Poseidon N.L. with respect to a joint exploration venture in Western Australia.

On 25th June the respondent took a lease from four persons named Kinniburgh, McGill, Vale and Walker of land at Steele's Creek. The lease gave the respondent the option of purchasing the land for a consideration which included the issue of 200,000 fully paid shares in the capital of the respondent. The option was to be exercisable at any time during the period of the lease or any renewal or extension thereof. The lease was dated 25th June and was for a period of six months.

Niemann asserts in his affidavit that both the option to purchase the Mt. Clifford mineral claims and the option to purchase the land at Steele's Creek were taken for the benefit of the respondent company and not for any of the purposes suggested in the endorsement on the writ. He claims that the rights given by the options are potentially very valuable and that if the respondent cannot exercise them it is likely to suffer substantial loss. It does not appear from the evidence whether or not the times for the exercise of these options have expired during the time that has elapsed between the hearing by the learned primary judge and the hearing of this appeal.

Niemann also states in his affidavit that the respondent has no intention of allotting or issuing any shares in its capital, or of entering into any agreement to allot or issue further shares, otherwise than for the purpose of enabling the respondent to achieve the objects for which it was incorporated and in particular has no intention of allotting or issuing, or agreeing to allot or issue, any shares for a purpose inimical to the interests of any of the appellants or for the purpose of preserving the continuance in office of any of the directors of the respondent or for the purpose of influencing the control of the respondent or the composition of its board. He further states that it is very common in the mining industry for mining companies to issue shares in their capital as the consideration for mining rights, and that it is likely in his opinion that further agreements into which the respondent would desire to enter in the ordinary course of its business operations would involve the issue of further shares in its capital to joint ventures and to lessors or vendors of mining properties.

The learned primary judge held that prima facie the allotment of 4,000,000 shares on 25th May 1970 was made for the purpose of reducing below fifty per cent the shareholding of the appellants and for ensuring that the position of the directors of the respondent would remain secure. He said that "a reasonable assumption is that the further agreements" (i.e., those in relation to the Mt. Clifford leases and the land at Steele's Creek) "likewise made in breach of the assurances" (given on 14th and 18th May) "may well be for the same purpose". He held further that on the balance of convenience an interlocutory injunction should be granted but he was prepared to impose a special condition to permit the respondent, if it thought fit, to allot shares in the event that it took up the option to buy the land at Mt. Clifford. This condition was that in the event of the respondent deciding to take up that option the respondent would be required before it issued any shares to the nominee of the vendor of that lease to offer to the plaintiffs the same number of shares on the same conditions, thus preserving the appellants' majority shareholding in the respondent company. (It was not necessary to suggest a similar condition in relation to Steele's Creek because that option was to remain open at least until December 1970.) Counsel for the respondent not unnaturally refused to accept a condition of the kind suggested and the judge made an unconditional order.

The learned judges who constituted the Full Court took a different view of the facts. They regarded it as unnecessary to canvas the finding of the learned primary judge that prima facie the issue of the shares on 25th May was for the purpose of defeating the appellant's acquisition of a majority holding in the share capital of the respondent, although they were prepared to say that the circumstances in which the allotment took place were enough to excite grave suspicion as to the motives of the directors. However, they held that there was no evidence from which the inference could properly be drawn that the respondent or its directors would unless restrained probably issue or allot further shares otherwise than bona fide for the benefit of the company as a whole. Accordingly they held that the exercise of discretion by the learned primary judge had been vitiated by error in law in a material respect.

Counsel for the appellants in their argument before us submitted that an interlocutory injunction was rightly granted for three reasons, viz., (1) because the evidence establishes that the directors have allotted the 4,000,000 shares for the purpose of defeating an attempt by the appellants to remove them and that there is reasonable ground to apprehend that unless restrained they would act in the same way and for the same purpose again; (2) because the allotments already made were, and those apprehended would be, in breach of the negative undertakings given to the appellants; and (3) because any allotment would adversely affect the position of the appellants as majority shareholders in the respondent company and that position ought to be preserved pending the determination of action No. 2543.

The learned primary judge granted an injunction for the first of these reasons and although he attached importance to the fact that the undertakings had been given and broken, as a circumstance throwing light on the motives of the directors, he did not treat the undertakings as in themselves providing the appellants with an equity to be granted an injunction. In the view that I take it will not be necessary to consider whether the appellants can surmount the difficulties which their second and third grounds present, since the case may be disposed of on the first ground.

The articles of association of the respondent were not put in evidence (although their alleged effect is set out in the statement of claim in action No. 2543), but it seems to be common ground that they confer on the directors a power to issue and allot shares in the company. However powers conferred on directors by the articles of association of a company must be used bona fide for the benefit of the company as a whole and not to obtain some private advantage. Directors are not entitled to use their power of issuing and allotting shares merely for the purpose of defeating the wishes of an existing majority of shareholders or maintaining their own control of the company: Punt v. Symons & Co. Ltd. [1] ; Piercy v. S. Mills & Co. Ltd. [2] ; Mills v. Mills [3] ; Ngurli Ltd. v. McCann [4] ; Harlowe's Nominees Pty. Ltd. v. Woodside (Lakes Entrance) Oil Co. N.L. [5] . If in the present case the learned primary judge was justified in inferring that the directors intended to make more allotments of shares for the purpose of further entrenching their position against an attempt by the appellants to remove them, it was within his discretion to grant an interlocutory injunction.

1. [1903] 2 Ch. 506. 2. [1920] 1 Ch. 77. 3. (1938) 60 C.L.R., at pp. 163, 175, 185-186. 4. (1953) 90 C.L.R. 425, at pp. 438-440. 5. (1968) 121 C.L.R. 483, at pp. 492-494.

A question does however arise as to whether the action in which the injunction is sought was properly constituted for it appears to me, as at present advised, that although the respondent company was properly made a defendant the directors should also have been made defendants. If an objection on the ground of non-joinder had been taken before the learned primary judge he would no doubt have considered the general rule that no cause or matter shall be defeated by the non-joinder of parties and considered further whether he ought to order the joinder of the directors as defendants and to grant any necessary adjournment for that purpose. If the respondent did not take this objection before the learned primary judge, it would not be right to allow it to be raised after the position of the parties had been affected by the lapse of time. It does not appear whether this question was argued either before the learned primary judge or the Full Court although it is raised by one of the grounds of the notice of appeal to the Full Court. The respondent did not rely on this matter in argument before us and I consider that in all the circumstances we should proceed on the assumption that the action is properly constituted. If that assumption is thought to be incorrect the matter can be rectified in the Supreme Court.

The question thus becomes whether the Full Court were right in holding that there was no evidence from which the learned primary judge could properly draw the inference that the respondent or its directors would probably unless restrained make further issues and allotments of its shares otherwise than bona fide for the benefit of the respondent company as a whole. Since the appellants are seeking an interlocutory injunction, the Court is not called upon finally to decide the rights of the parties. The question is whether the appellants have made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the appellants will be held entitled to relief: Beecham Group Ltd. v. Bristol Laboratories Pty. Ltd. [1] .

In my opinion the appellants have made out a prima facie case that the allotment of the 4,000,000 shares was made for the purpose of defeating the appellants' acquisition of a majority shareholding and ensuring that the directors remained secure on the respondent's board. Put very shortly the facts as they appear at present are that within three days after Niemann had expressed his regret that no amicable settlement could be negotiated, the directors, who had been told that the appellants intended to use their controlling interest in the company to remove them from the board, held a meeting a day earlier than had been arranged and, with "indecent haste and scramble" (to use words from Fraser v. Whalley [1] , which seem appropriate to the present case), proceeded, in breach of assurances which, whether or not legally binding, had been solemnly given, to the issue and allotment of shares numerous enough to deprive the appellants of control of the company and which were issued on condition that calls are only to be made on the shares for small amounts after quite substantial intervals. This evidence gave rise to a very strong prima facie inference that at least a substantial purpose of the allotment was the protection of the directors' own positions and that they abused their fiduciary power.

1. (1864) 2 H. & M. 10, at p. 29 [71 E.R. 361, at p. 369].

It is true that the appellants' evidence does not stand alone, for Niemann in his affidavit denies that the acquisition of shares by the appellants had anything to do with the allotments and asserts that their only purpose was to achieve a beneficial result for the respondent company. If the learned primary judge had been conducting the trial of the action, the failure of the appellants to cross-examine Niemann might no doubt have been treated as an acknowledgment that his testimony was not challenged. But as this Court said in Beecham Group Ltd. v. Bristol Laboratories Pty. Ltd. [2] , "where the defendant goes into evidence on the interlocutory application the Court does not undertake a preliminary trial, and give or withold interlocutory relief upon a forecast as to the ultimate result of the case". It would be undesirable to attempt to lay down any general rules as to the circumstances in which a plaintiff who seeks an interlocutory injunction is obliged to cross-examine a defendant who files affidavits. If the defendant's affidavits fully canvass the whole of the facts and make it impossible to form even a prima facie view without lengthy cross-examination it may be necessary to order a speedy trial in lieu of an interlocutory injunction although the urgency of the matter may render it necessary for cross examination to proceed. Where, however, the defendant makes a bald assertion or denial, without fully going into all the facts, it may be possible to determine that the plaintiff has made out a prima facie case although the witnesses have not been cross-examined. In the present case it will not be possible to reach a final conclusion until there has been a trial at which the credibility of the witnesses has been assessed but when all the evidence, including Niemann's affidavit, is weighed, the prima facie inference that I have already mentioned must be drawn.

The crucial question that remains is whether the learned primary judge was entitled to draw the further inference that unless restrained the directors would be likely to make further allotments for the same unauthorized purposes. It was, of course, shown that the directors would probably make further allotments as consideration for the purchase of the mineral claims at Mt. Clifford and the mine at Steele's Creek, and Niemann admitted that it was likely that other allotments would be made as well, but the question is whether it has been established prima facie that a substantial purpose of any such allotments would be to advance the private interests of the directors. The learned judges of the Full Court said that so far from it being reasonable to infer from the incidents of 25th May that the directors would probably act improperly on a future occasion in the allotment of shares, an inference to the contrary would be the more probable. They supported this view by saying, first, that the motive for an improper allotment of shares no longer existed once the allotment of 25th May had been made, unless it be assumed that the directors expected that allotment to be set aside and, secondly, that the risks of making further improper issues in the light of the pending litigation to set aside the prior issues would be such as not to commend themselves to any reasonable body of directors. With all respect I am unable to agree with this view of the matter. It is true that if the allotments made on or about 25th May are not set aside the directors will have achieved their purpose. However, prima facie, those allotments were not made in good faith for the benefit of the company as a whole and are voidable, although if the allottees had no notice of the facts they may have an effective answer to any claim to avoid them. The issue whether they had such notice arises directly in action No. 2543, but in action No. 2718 it is only peripheral and incidental and the only evidence that bears on it is that which reveals the position of O'Shannassy as a director of all three companies. It is certainly not putting the matter too high to say that it may be inferred prima facie that after the writ was issued in action No. 2543 on 9th June the directors may have feared that their attempt to oust the appellants from control of the respondent might possibly fail unless they issued further shares. There therefore existed a motive to issue more shares in an attempt to ensure that even if the appellants won their action they would not gain control of the company, and indeed a further motive of deterring the appellants from pursuing their action by suggesting that the benefits of a victory might be illusory. Such motives do not seem to me in any way unreal nor do I think it contrary to human experience to suppose that directors who have embarked on a course designed to destroy the power of a majority of the shareholders would persist in their endeavours until they had clearly gained their end. Further it would seem to me prima facie that the risks of further litigation would not be likely to deter the directors from pursuing their course. In fact they had received the letter of 9th June from the appellants' solicitors, seeking assurances and threatened an application for an injunction if none were given, but they did not reply to the letter and went on with the transactions relating to Mt. Clifford and Steele's Creek. The allotment of a further 500,000 shares would probably be enough to deprive the appellants of their majority and an additional 200,000 would tip the scales further against them. Niemann in his affidavit has not said what tests and reports, if any, were made and received before the company took the options in respect of Mt. Clifford and Steele's Creek, and he has indeed put very little information regarding those transactions before the Court. In all the circumstances, in my opinion, the inference was open that it was proposed to allot the further shares to achieve the directors' purpose of keeping control of the company. I am, with the greatest respect, unable to agree that the finding of the learned primary judge was vitiated by error of law.

I would repeat, so that there can be no misunderstanding, that the opinions I have expressed as to the facts are provisional views on the evidence at present before the Court and are in no way intended to influence, still less bind, any judge who may come to try the actions.

Before granting an interlocutory injunction it was necessary for the learned primary judge to consider a second question, namely, whether the inconvenience or injury which the appellants would be likely to suffer if an injunction were refused outweighs or is outweighed by the inconvenience or injury which the respondent would suffer if an injunction were granted. He answered this question adversely to the respondent and having regard to the settled principles applicable to the review of discretionary judgments his conclusion on this point cannot be disturbed.

Finally there arises a question as to the form of the injunction. It was submitted that the injunction in the form granted by the learned primary judge was wider than that sought in the indorsement on the writ and for that reason cannot be allowed to stand. No doubt it is true that in the Courts of Chancery before the Judicature Act an injunction could only be granted in the form prayed by the bill (Burdett v. Hay [1] ) although that is not to say that the bill was insusceptible of amendment. However, under the Judicature Act procedure, where a defect in a writ can readily be cured by amendment of the writ itself, or by delivery of a statement of claim without formal amendment of the writ, it is impossible to hold that an injunction is bad simply on the ground of disconformity with an indorsement on the writ. We were referred by counsel for the respondent to a Canadian case, Atkins & Durbrow Ltd. v. Bell and Mainland Foundry Co. Ltd. [2] , but all that that case decides is that, if a statement of claim has been delivered, the case made out by affidavits filed on a motion for an interlocutory injunction should correspond with the allegations in the statement of claim (see also Kerr on Injunctions, 6th ed., p. 642). No criticism can be levelled at the injunction granted in the present case simply because its form is wider than that sought by the endorsement on the writ.

1. (1864) 33 L.J. Ch. 41. 2. (1958) 14 D.L.R. (2d) 94, at p. 97.

It is however a more difficult question whether, putting matters of mere form aside, the injunction granted was more extensive than the justice of the case requires. In the form granted it prohibits the respondent from allotting or issuing, or agreeing to allot or issue, any shares, whether or not such allotment, issue or agreement is made bona fide for the purposes of the company and would thus prevent an innocent and proper, and even a necessary, allotment of shares. On the other hand, an injunction that simply forbids a wrongful allotment of shares, in a case such as the present, where the power to allot is not challenged, but what is in issue is the bona fides of the purported exercise of the power, leaves it to be determined, in relation to each suggested infringement, whether the allotment issue or agreement was made bona fide for the benefit of the company. This would hardly be a satisfactory result, since an injunction ought to make it clear what it forbids, so that the parties may be in no doubt as to their rights and duties and the court may be able readily to enforce its order.

In the circumstances I have reached the conclusion that there should be some variation of the form of order granted by the learned primary judge. In my opinion the injunction granted should forbid the respondent, until the determination of the action or earlier order, from wrongfully allotting or issuing, or entering into any agreement to allot or issue, further shares in the capital of the respondent, but to make this inhibition effective it should further require the respondent, before allotting or issuing, or entering into any agreement to allot or issue, any shares, to give to the appellants notice of its intention to do so, giving full particulars of the proposal, and should provide that if the appellants within a specified period thereafter make application to the Court, the respondent shall not allot or issue, or agree to allot or issue, the shares until such application has been disposed of.

I would however make special provision in relation to the transactions concerning Mt. Clifford and Steele's Creek, since reason has already been shown to doubt the bona fides of those transactions and would order that until the determination of the action the respondent be restrained from allotting or issuing any shares by reason of the exercise of the option to purchase either of those properties, without the prior leave of a judge.

I would only add that since the directors are not parties to the action the injunction cannot be directed to the respondent and its directors although it would be right to restrain the respondent by its directors from allotting or issuing any shares.

I would allow the appeal and affirm the judgment of the learned primary judge subject to the variation that I have suggested. I would allow the appellants their costs of the appeal including the costs of the application for leave to appeal.