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[1996] FCA 525
Federal Court of Australia
1996-06-28
Sheppard J
Original judgment source is linked above.
Having heard argument on the matter by counsel for the parties, I reached the conclusion that there had been no contravention of the rule referred to in para. 8(a) of the points of claim. I determined the question accordingly and said that I would publish my reasons at a later time. What follows are those reasons. On 19 April 1996 the applicant, Capital Energy NL ("Capital"), sent a notice to the directors of Stirling notifying them pursuant to s.246(1) of the Corporations Law that it requested the directors of Stirling to convene a general meeting of shareholders of Stirling for the purposes of considering and, if thought fit, passing a number of resolutions. It is unnecessary to refer to the detail of the proposed resolutions. But, for the main part, they concerned either the removal of existing directors or the election of new directors to the company's board. Also on 19 April 1996 Capital delivered a further notice pursuant to s.246(1) of the Law. This also requested the directors of Stirling to convene a general meeting of shareholders for the purpose of considering and, if thought fit, passing some further resolutions. These, if passed, would prevent Stirling from making an allotment of, or granting an option to subscribe for, any of its shares, or agreeing to make such an allotment or grant such an option, except for a particular allotment mentioned in the resolution, or to undertake or announce a rights issue, or issue, or agree to issue, any convertible notes.
On 8 May 1996 Stirling called a general meeting of shareholders for 14 June 1996. The notice of meeting said that the business of the meeting was to consider and (if thought fit) to pass, with or without modification, or to reject, a number of resolutions as ordinary resolutions. The resolutions were those set out in the two notices sent to the directors of the company pursuant to s.246 of the Law. With the notice was a letter dated 10 May 1996 from the chairman of Stirling to each shareholder. The letter mentioned that it enclosed a notice of extraordinary general meeting of the company to be held on 14 June 1996 and a quarterly report for the company for the period 31 March 1996 which was released to the Australian Stock Exchange on 30 April 1996. The letter rejected a take-over offer which had been made by Capital and also recommended that the shareholders reject what was described as Capital's attempt to gain control of Stirling. The letter contained a recommendation from the "Independent Directors" "encouraging" shareholders to vote against the removal of the current directors, against the election of the directors nominated by Capital and against the resolutions in the second notice under s.246 of the Law. The notice of meeting was accompanied by a conventional form of proxy. Article 68 of Stirling's articles of association provides for this form; see also s.250 of the Law. The form complied with the provisions of the relevant Stock Exchange rule, Rule 3K(4), which provides: "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. Such proxy forms shall be blank so far as the person primarily to be appointed as proxy is concerned." Sub-section 777(2) of the Law provides: "For the purposes of subsection (1), a body corporate that is, with its agreement, consent or acquiescence, included in the official list of a securities exchange, or an associate of such a body corporate, shall be deemed to be under an obligation to comply with the listing rules of that securities exchange to the extent to which those rules purport to apply in relation to the body corporate or associate, as the case may be." Subsection 777(1) of the Law empowers the court to order compliance with, or enforcement of, listing rules. The effect of subsection 777(2) is to impose on companies included in the official list of a stock exchange an obligation to comply with the listing rules. Stirling was, accordingly, obliged to comply with Rule 3K(4) of the Rules. It is unnecessary here to set out the form of the proxy but it had a series of blank boxes against which were referred to the various resolutions which were to be proposed. There were two boxes beside each item, one headed "For" and the other headed "Against". There was obviously contention as to what would happen at the meeting, the principal protagonists being Capital, on the one hand, and the directors of Stirling on the other. Stirling did not hold the majority of the shares in the company. The shares acquired by Capital up to the date of the various notices did not amount to a majority holding either. On 15 May 1996 a further notice of meeting was despatched to shareholders. This was in consequence of a further notice to the directors of Stirling pursuant to s.246 of the Law requesting the directors of Stirling to convene a general meeting of the company. The effect of the additional notice of meeting was to add yet a further item of business to those already on the agenda for the meeting of 14 June. That item of business was that a Mr Hovanessian be elected as a director of Stirling. Accompanying the letter sent by Stirling was a supplementary notice of business to be conducted at the meeting to be held on 14 June and a supplementary proxy form which was in regular form. On 17 May 1996 Capital sent to shareholders a document which asked shareholders to support Capital by completing the proxy forms provided by placing a tick in the boxes as indicated in "below". There then followed what was described as a "sample proxy form". It had three headings, "Business", "For" and "Against". Underneath these headings were the various items of business to be considered at the meeting. All boxes marked "For" were ticked except one which recommended a vote against the removal of one of the directors. With this document were enclosed new proxy forms in a regular form. On 20 May 1996 the chairman of Stirling wrote a letter to shareholders advocating that they vote in accordance with the recommendations made by him and not in accordance with the recommendations made by Capital. Amongst other things the letter said: "At the time of writing, the directors of Capital Energy NL are still trying desperately to grab control of your company without having to pay you a fair and reasonable premium. ................................................... If you are unable to make the meeting, or you simply wish to change your vote in support of your company's board, then I urge you to convey your views by signing, dating and mailing the pink proxy form in the reply-paid envelope enclosed." With the letter were enclosed the pink proxy form referred to in the letter, a further pink proxy form made necessary by the inclusion of the additional item of business notified on 15 May 1996 and also two white proxy forms, one described as a supplementary proxy form, both of which were in regular form. The pink forms were in a similar form to the regular forms but provided for the way in which a shareholder was to vote. Crosses were placed in the "Against" column except in the case of item 4 where the cross was in the "For" column. The Stirling directors' recommendation was thus the reverse of the recommendation made by Capital.
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. ................................................... 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.
APPEARANCES Counsel for the Applicant: Mr S.J. Archer Solicitors for the Applicant: Deacons Graham & James Counsel for the Respondent: Mr P.M. Biscoe QC and Mr S.W. Climpson Solicitors for the Respondent: Rosenblum & Partners Date of Hearing: 6 June 1996 Place of Hearing: Sydney Date of Judgment: 28 June 1996
CAPITAL ENERGY NL
STIRLING RESOURCES NL & ORS