It was the pink forms which Capital contended were intended to be proxies for the purposes of the Stock Exchange rules and Stirling's articles of association which were said to be invalid because they offended so much of rule 3K(4) as provides that a company shall send out proxy forms which will enable shareholders to vote for or against each resolution with notices convening general meetings of the company. The essence of the submission was that the pink forms did not enable shareholders to vote for or against each resolution because they had pre-empted the shareholders' votes. All a shareholder had to do was to sign the forms with the consequence that he or she could not be said to have cast a vote.
As mentioned earlier, I reached the conclusion that the submission should be rejected. My essential reason for that course was the fact that there had been sent out with each notice of meeting proxies in regular form which unquestionably complied with the provisions of the rule. The obligation provided for in the rule is to send proxy forms with notices convening general meetings of the company. That obligation was complied with. The pink forms were not sent with any notice of meeting but were sent as part of the campaign which the directors of Stirling were waging against the take-over by Capital. Capital itself had sent a not dissimilar form to shareholders although it is true to say that it did not purport to be more than a "How to vote" card. It was accompanied by a blank proxy form. Stirling went further by enclosing two pink proxy forms which, it is true, tended to pre-empt shareholders' votes. But it did so in the context of an exhortation to shareholders to reject the Capital offer. Obviously it was sent as a response to the Capital letter. Like the Capital letter it enclosed two white proxy forms in regular form which left shareholders to complete the voting instructions provided for in their proxies.
In the discussion which took place during the argument, counsel for Capital complained that the directors of Stirling were in breach of their fiduciary obligations to shareholders by taking the stand which they had. He referred to what was described as the "emotive language" in the first paragraph quoted from the Stirling letter of 20 May 1996. I pointed out that I had had no evidence in the matter and that I was not in a position to determine whether or not there had been a breach by the Stirling directors of their fiduciary obligations. I had been asked to determine the matter as a dry question on the face of the various documents. I said then, and I repeat, that I could not find a breach of fiduciary obligation upon the basis of one paragraph in a letter in a situation in which there had been no exploration of the relevant facts and, in particular, no cross-examination of relevant witnesses.
It is important to keep in mind the fact that the question which I formulated, and which the parties accepted as appropriate, referred only to para. 8(a) of the points of claim. Paragraph 8(b) of the points of claim alleges a breach by certain of the respondents of the fiduciary obligations which they owed to Stirling. That is not a question with which I have dealt. I was not asked to deal with it at this hearing and it is a matter for the future.
Nevertheless, I should mention the fact that counsel for Capital referred to some authorities on the question of the duties of directors of companies faced with take-over offers. Reference was made to the decision of the New South Wales Court of Appeal in Advance Bank of Australia Limited v FAI Insurances Australia Limited (1987) 12 ACLR 118. There Kirby P (as he then was) in whose judgment Glass JA agreed (at 142) propounded (at 136-7) a series of principles which were applicable to cases such as this. Principles numbers 5 and 7 were as follows:
"5. Whilst there is no special rule governing the authority of directors in connection with elections or proxy solicitation, the heightened risk of a confusion between private interest and the best interests of the corporation (or corporate purposes) requires scrupulous conduct on the part of directors. It necessitates particular care where that conduct has the effect of influencing the outcome of an election in favour of themselves or their colleagues.
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7. In determining the 'corporate purpose', a court must characterise conduct which will often have mixed purposes. It should be vigilant for ulterior purposes of private advantage. But in the end, what is required is a classification of the conduct of the directors, by reference to the real purposes which primarily motivate their actions."
Reference may also be made to his Honour's discussion of the application of the principles formulated by him to the facts of the case in the Court of Appeal; see at 137 et seq.
The terms of the principles themselves and his Honour's application of them demonstrates the need for a proper investigation of the facts of a case in which allegations such as are contained in para. 8(b) of the points of claim here are raised. They also demonstrate that it would be quite impossible for a court answering a dry question of construction of a rule of the Stock Exchange and its application to certain facts to determine whether or not there had been a breach of any fiduciary obligation. At one point of his argument, counsel seemed to suggest that it would never be appropriate for directors of a company to take a stand for or against a take-over offer otherwise than in the Part B statement required by s.647 of the Law. As an absolute proposition this could not be right and, to the extent that the submission was pressed, I reject it.
In summary then, all that would be done was to answer the question which was asked. I have indicated how I arrived at my conclusion that the question should be answered favourably to the respondents. As I now reflect on the matter, it does not seem that the case was very far advanced by the course which I took. If I had realised that the real complaint which Capital wished to make related to the alleged breach by the directors of their fiduciary obligations to the company, I do not think I would have undertaken the task which I set myself. However, that is what occurred and the answer is as I have indicated.
I certify that this and the eleven (11) preceding pages are a true copy of the reasons for judgment herein of the Honourable Justice Sheppard.