Carpathian Resources Ltd v Hendriks

BETWEEN: CARPATHIAN RESOURCES LTD (ACN 080 273 703)

JUDGE: GILMOUR J DATE: 2 FebrUARY 2011 PLACE: PERTH

REASONS FOR JUDGMENT 1 This case primarily concerns a dispute as to who are the lawful directors of the applicant, Carpathian Resources Ltd. 2 At the heart of the struggle for control of the board of Carpathian are two corporate shareholders: OAG Fund Ltd (OAG) and Highmoor Business Corporation (HBC) the second applicant/second cross-claimant. There is both a claim and a cross-claim which seek respective declaratory relief, principally as to who are the lawful directors. 3 At the commencement of the trial HBC sought leave to be joined as the second applicant. This was opposed as it is a foreign company and the respondents submitted that if the joinder application had been made earlier that they would have sought an order for security for their costs. I reserved the application for joinder to enable the parties to confer with a view to consent orders being made granting the leave sought subject to terms as to security for costs. 4 Proposed consent orders were provided on 2 February 2011, the day listed for delivery of judgment. These, in short, proposed that the leave sought should be granted subject to HBC providing security for the respondents' costs of the application in the sum of $50,000 by the delivery of an executed share transfer form for 3,333,333 shares in Carpathian to the respondent's solicitors. 5 However, the original transfer form, it appears, is en route from Europe. The solicitors for the respondents advised that they would accept an appropriate undertaking from the solicitors for HBC, who are also the solicitors of record for Carpathian to enable leave to be granted. The respondents also sought leave to amend their cross-claim to meet the amended claim. 6 Accordingly, prior to pronouncing judgment I made orders in the following terms: 1. The Court, noting the undertaking by Lavan Legal to deliver the original executed share transfer form for 3,333,333 shares in the first applicant to the respondents' solicitors as soon as it is received, as Highmoor Business Corporation's security for the respondents' costs of this application in the sum of $50,000, hereby grants leave for: (a) Highmoor Business Corporation to be joined as the second applicant to these proceedings; and (b) the applicant to amend its application dated 20 December 2010 in terms of the minute of amended application lodged on 17 January 2011. 2. The respondents have leave to amend their cross-claim in terms of the proposed amended cross-claim lodged on 2 February 2011.

Background 7 Carpathian is a public company listed, since 15 June 2001, on the Australian Securities Exchange (ASX). 8 Since 28 February 2008: (a) OAG, a company incorporated in the Bahamas held 102,723,181 shares (39%) in Carpathian; and (b) International Investments Ltd (II), a company incorporated in the West Indies held 20,564,362 shares (8%) of the shares in Carpathian. 9 Energo Holdings Corporation (Energo) is the beneficial owner of the shares held by OAG and II in Carpathian. 10 Historically, Carpathian's principal activities concerned oil and gas exploration in the Carpathian Ranges in Eastern Europe, particularly in the Czech Republic. In 2009, the shareholders approved a change in the nature of its business activities. Through a subsidiary, Carpathian invested in the industries of retail vehicle fuel and convenient store sales, outdoor mobile advertising, satellite and cable television and prescription eyewear lens distribution. 11 On 10 September 2010, GTIB Inc, a company controlled by Mr Maximiliaan Danishevksi commenced proceedings in the Eastern Caribbean Supreme Court (Nevis Circuit) against Energo (First Nevis proceedings). 12 On 13 September 2010, GTIB Inc obtained an ex parte injunction in the First Nevis proceedings, relevantly, that prevented OAG and II from "voting … against their respective shares" in Carpathian (First Injunction). 13 On 10 October 2010, 8 notices of consent to being nominated as a director of the applicant at the next general meeting of members called by ANZ Nominees Limited and consent to act as a director were sent to Carpathian's registered office. The consents were that of Mr Danishevski, Mr Timothy Lewin, Mr Kiril Dragun, Mr Guido Vivi, Mr Luigi Gallardo, Mr Paul DeCailly, Mr David Hammer and Mr Mitchell Hammer. 14 On 15 October 2010, a date was set for the hearing of an application for the discharge of the First Injunction, that date being 26 November 2010. 15 As at 15 October 2010, the directors of Carpathian were Charles Posternack and James Wiberg, the second and third respondents respectively and who were based in the United States of America, Mr Errol Levitt and Mr Gregory Peacocke each of whom were based in Australia. 16 On 15 October 2010, HBC, a company incorporated in the Marshall Islands, as beneficial owner of the shares held by ANZ Nominees Limited, served a notice dated 14 October 2010 on Carpathian requisitioning a meeting to remove its then directors and proposing four directors (Mr Danishevski, Mr Mitchell Hammer, Mr David Hammer and Mr DeCailly) for election in their place. 17 Mr Danishevski was and is the sole director of HBC. 18 On 20 October 2010, Mr Levitt resigned as a director of Carpathian. 19 On 22 October 2010, HBC, then the holder of 44,227,159 shares being 16.97% of the issued shares in Carpathian issued a notice convening an extraordinary general meeting (EGM) of the members of the applicant pursuant to s 249F(1) of the Corporations Act 2001 (Cth) (the Corporations Act), to be held at the Hilton Sydney, 488 George Street, New South Wales, on Tuesday 23 November 2010 at 10.00am (AEDT). Apart from a proposed share placement the resolutions if passed would have resulted in the removal of the entire Carpathian board and their replacement with eight new directors nominated by HBC. 20 By the constitution of Carpathian (constitution) and by the Corporations Act, Carpathian was obliged to hold its annual general (AGM) meeting by the end of November 2010. On 29 October 2010, it applied to the Australian Securities & Investments Commission (ASIC) for an extension of time until 16 December 2010 to hold its 2010 AGM. The reasons given included the assertions that the First Injunction operated to restrain two of Carpathian's shareholders from voting their shares and that a hearing to discharge the First Injunction was listed for 26 November 2010. 21 On 2 November 2010, Michael Hendriks, the first respondent, was appointed a director of Carpathian in order to fill a casual vacancy. 22 On 3 November 2010, Carpathian's then directors who were the respondents and Mr Peacocke, resolved to postpone the EGM until 16 December 2010 at 11.00 am and to change the venue to Carpathian's registered office at level 20, Tower A, Zenith Centre, 821 Pacific Highway, Chatswood NSW. 23 An announcement was made to the ASX of the board's decision to postpone the EGM to 16 December 2010 and members were informed by both advertisement and letter, as required by Carpathian's constitution. 24 On 4 November 2010, Carpathian's solicitors provided submissions to ASIC in support of the application for extension of time to hold the applicant's AGM. 25 On 15 November 2010, the directors resolved to hold the AGM on 17 December 2010 as it had not been possible for the necessary 28 days notice of the AGM to be given to members for an AGM on 16 December 2010. 26 On 16 November 2010, notice of Carpathian's AGM to be held on 17 December 2010 was given to members. 27 The resolutions that were set out in the notice of the AGM were: (a) the approval of the remuneration report; (b) the re-appointment of the third respondent as a director, following the third respondent's retirement by rotation; and (c) the re-appointment of the first respondent as a director, following the first respondent's appointment to fill a casual vacancy of the board of director. 28 On 16 November 2010, HBC gave notice that it intended to proceed with the EGM on 23 November 2010. 29 On 17 November 2010, Carpathian commenced proceedings in the Western Australian registry of the Federal Court (WAD 351 of 2010) seeking injunctive relief to restrain HBC and Mr Danishevski from holding the EGM on 23 November 2010. 30 On 19 November 2010, this Court granted an injunction restraining HBC from holding the EGM on 23 November 2010 and making any statement to the effect that the EGM had not been validly postponed by Carpathian until 16 December 2010 at 11.00 am AEDT. 31 On behalf of Carpathian, Mr Hendriks wrote to shareholders on 17 November 2010 to provide them with information about Mr Danishevski, Mr David Hammer and Mr Mitchell Hammer. 32 On 24 November 2010, Carpathian's solicitors filed further submissions to ASIC in support of the application for extension of time to hold the applicant's AGM. Again the fact of the First Injunction and its effect were amongst the reasons cited in support. 33 On 10 December 2010, the First Injunction in the First Nevis proceedings was discharged. 34 On 10 December 2010, on behalf of Carpathian, Mr Hendriks wrote to shareholders in relation to the EGM, re-putting various matters relating to Mr Danishevski, Mr David Hammer and Mr Mitchell Hammer and updating shareholders on activities which Carpathian had recently undertaken. 35 On 11 December 2010, Mr Peacocke resigned as a director of Carpathian. An announcement to the ASX to that effect was made on 14 December 2010. 36 On 13 December 2010, Mr Hendriks was appointed Carpathian's chairperson for the EGM and AGM and company secretary. 37 On 13 December 2010, HBC executed a form appointing, amongst others, Mr David Hammer and Mr Matthew Wrigley as its corporate representative pursuant to s 250D of the Corporations Act and on the basis that only one representative could exercise the body corporate power at any one time. 38 On 13 December 2010, HBC also executed a form appointing Mr Matthew Wrigley as its corporate representative pursuant to s 250D of the Corporations Act to vote only one share. 39 On 15 December 2010, Nehoray Properties Karmeil (1977) Ltd and others commenced proceedings and obtained an ex parte injunction in the Eastern Caribbean Supreme Court (Nevis Circuit) against Energo and OAG (Second Injunction) which, relevantly, restrained OAG from voting against any of its shares in Carpathian.

The EGM - 16 December 2010 40 The EGM was held at Carpathian's offices in Chatswood, New South Wales on 16 December 2010 and was chaired by Mr Hendriks. 41 Ms Susanne Kate Davies, a solicitor from the law firm Freehills in Sydney, attended the EGM as OAG and II's corporate representative. 42 Mr David Hammer attended the EGM as HBC's corporate representative. 43 Mr Matthew Wrigley, a senior associate of Baker & McKenzie, attended the EGM as adviser to HBC. 44 Prior to the commencement of the EGM, Mr David Hammer handed a copy of the order relating to the Second Injunction to Mr Hendriks and Ms Davies. 45 The resolutions that comprised the business of the EGM convened by HBC (the HBC resolutions) were: (a) Removal of Charles Posternack as a director; (b) Removal of James Wiberg as a director; (c) Removal of Gregory Peacocke as a director; (d) Appointment of Maximiliaan Danishevski as a director; (e) Appointment of Mitchell Hammer as a director; (f) Appointment of David Hammer as a director; (g) Appointment of Hon. Timothy Charles Thornton Lewin as a director; (h) Appointment of Kirill Dragun as a director; (i) Appointment of Luigi Gagliardo as a director; (j) Appointment of Paul DeCailly as a director; and (k) Appointment of Guido Vivi as a director. (l) Approval of Share Placement of 50,000,000 shares. 46 At the EGM, the resolution for the removal of Mr Peacocke as a director of the applicant was not put as he had resigned prior to the meeting. 47 At the EGM: (a) Ms Davies voted: (i) OAG's 102,723,181 shares against each resolution put (OAG votes); and (ii) II's 20,564,362 shares against each resolution put. (b) Mr Hammer voted HBC's 40,200,000 shares for each resolution put; and (c) Mr Hendriks, as chairman of the meeting, voted the non-directed proxies against each resolution put. 48 Before the OAG votes were tendered, Mr David Hammer objected to OAG being permitted to vote its shares, relying upon the Second Injunction in support of the objection. 49 In determining the outcome of the poll demanded in respect of each resolution considered at the EGM, Mr Hendriks, as chairman counted the OAG votes. 50 None of the HBC resolutions was passed. If the OAG votes had not been counted the HBC resolutions would have carried with the result that the then board would have been removed and replaced with HBC's eight nominees. 51 According to the Minutes of the EGM, signed on 7 January 2011, as a true record by Mr Hendriks, in his capacity as chairperson, the objection was noted by him and he then determined that OAG's votes were valid and would be counted in the poll. 52 At the EGM no resolution was proposed or moved for the re-election of Mr Hendriks as a director of the Carpathian. 53 Accordingly, under Carpathian's constitution, Mr Hendriks ceased to be a director at the conclusion of the EGM. In the circumstances, there was no director of Carpathian in attendance at the AGM held on 17 December 2010. 54 The corporate representatives present at the AGM included: (a) Ms Davies for OAG (holding 102,723,181 shares) and II (holding 20,564,362 shares); and (b) Mr Matthew Wrigley and Mr David Hammer for HBC (as to 1 and 40,199,999 shares respectively). 55 Proxies for the AGM had been received from: (a) Ian Barraclough (holding 40,629 shares); (b) Kevin Melville Pech (holding 63,000 shares); (c) Salim Nakhuda (holding 50,000 shares); (d) Colin Gordon (holding 16,666 shares); and (e) HSBC Custody Nominees (Australia) Ltd (holding 7,613,971 shares but voting on 370,000 shares only). 56 A number of issues arise for determination. The articulation of these is broadly agreed by the parties. I will consider each in turn.

Determination of chairperson at egm 57 This issue in its expanded form is whether the determination made by the Chairperson of the EGM to accept and count the votes of the OAG Fund Ltd a determination made in good faith and therefore valid, final and conclusive or alternatively was it a decision that was a fraud on the power of the Chairperson such that the determination should be set aside? 58 As I mentioned, Mr Hendriks chaired the EGM. 59 Regulation 47.1 of the Carpathian's constitution provides that: No objection may be made to the validity of any vote except at a Meeting or adjourned Meeting or poll at which such vote is tendered and every vote not disallowed at any such meeting or poll is valid for all purposes. (Emphasis added) 60 Regulation 47.2 of the constitution provides as follows: The Chairperson of any Meeting is the sole judge of the validity of every vote tendered and the Chairperson's determination is final and conclusive. 61 Immediately prior to the commencement of the EGM, Ms Susie Davies as the Corporate representative of OAG was handed a copy of the Second Injunction. During the course of the meeting Ms Davies completed and submitted a polling paper for OAG. 62 When the chairman, Mr Hendriks, called for a poll in relation to the motions put at the EGM Mr Hammer took objection (as required by cl 47.1) to the vote cast by OAG. Mr Hendriks was given a copy of the Second Injunction. Mr Hendriks advised the meeting that he had been handed a copy of the Second Injunction and told the meeting that: The Company is not a party to the injunction. The Company has taken advice in relation to the injunction and proposes to continue with the meeting today. 63 The applicants submit that, within the meaning of reg 47.2, Mr Hendriks made no determination as to the validity of the OAG votes tendered and that accordingly reg 47.2 was not engaged with the result that there was no determination of the chairman which was final and conclusive. 64 I do not accept this submission. It is plain enough that implicitly in what he stated and by his conduct in admitting OAG's votes, Mr Hendriks made the relevant determination. 65 However reg 47.2 does not render Mr Hendrik's decision as to the validity of the vote cast immune from challenge and curial review: Re Golden West Resources Ltd (2008) 170 FCR 409 at [44]. 66 Amongst other grounds, a chairman's decision will be amenable to review by the Court if he or she makes an error of law: Fast Scout Ltd v Bergel (2001) 25 WAR 244 at [67]; Link Agricultural Pty Ltd v Shanahan, McCallum and Pivot Ltd [1999] 1 VR 466 per Kenny JA at 511 (Batt JA and Buchanan agreeing), followed MTQ Holdings (2006) WASC 96 per Le Miere J at [91] and in Re: Golden West Resources Ltd at [45]. 67 If a chairperson of a shareholder's meeting counts votes which are not entitled to be counted at all, the effect is to impermissibly dilute votes validly admitted. The admission of such votes is a substantive matter and not a procedural irregularity: Concordant Communications (Australia) Pty Ltd v The Communication Group Holdings Pty Ltd (2005) 194 FLR 322 per Palmer J at [101]. Ordinarily, if the outcome of the vote on the resolution would have been different had the chairman made the correct decision in relation to the validity of the votes the Court will intervene to grant relief reversing the declared outcome: See Concordant Communication at [101] and [108] and Re: Golden West Resources at [18]-[24]. 68 Whether or not the OAG votes were validly cast is an issue of law. The applicants submit that the resolution of this is dependent upon the proper interpretation of reg 43.1 of the constitution. 69 However, whether or not there was error in the Chairman's determination will also depend on whether it was made in good faith and for the purpose of the power conferred upon the Chairman in the conduct of the meeting. The determination will be invalid if made in bad faith or for an ulterior or impermissible purpose: Link at [40] per Kenny J (Batt and Buchanan JJA agreeing).

Regulation 43.1 70 The applicability of reg 43.1 of the constitution requires consideration of whether the order made by the Eastern Caribbean Supreme Court (Nevis Circuit) on 15 December 2010 was a restriction attaching to the shares of OAG for the purposes of reg 43.1 of Carpathian's constitution which disentitled OAG from voting the shares registered in its name at the EGM. 71 Regulation 43.1 of the constitution provides: Subject to any rights or restrictions for the time being attached to any shares, votes may be given either personally or by proxy or by attorney under power or in the case of a corporation by its duly authorised representative. No person is entitled to vote unless he is a Member and present in person or by proxy or attorney or is the duly authorised representative of a corporation which is a Member. (Emphasis added) 72 OAG is the registered owner of 102,723,181 shares in Carpathian which is approximately 40% of the issued share capital. Those shares are all beneficially owned by Energo Holdings Corporation. OAG was restricted from voting at the EGM by virtue of the Second Injunction ordered by the Eastern Caribbean Supreme Court, Nevis Circuit on 15 December 2010. 73 The Second Injunction restrains Energo and OAG as follows: whether by themselves, through their directors, officers, servants, agents and or registered agents, shareholders, nominees, transferees, assignees, proxies or otherwise from dealing with and or carrying out any actions as it relates to the assets of [Energo and OAG] whether located within the jurisdiction or not, with specific note to the shares in Carpathian until such matters is and rights are properly determined before the Court and shall be further restricted and stopped, until further order by this Court, from voting, selling, transferring, encumbering, pledging and or borrowing against any respective shares in Carpathian. (Emphasis added) 74 The applicants submit that, having regard to the terms of the Second Injunction and reg 43 of the constitution, a restriction for the time being attached to the shares held by Energo and OAG that required the exclusion of any votes cast by OAG at the EGM. 75 The respondents submit and I accept that on its true construction the 'rights' referred to in reg 43 are the bundle of rights conferred on a member by the corporate compact (the constitution) between the members of the company and the word 'restrictions' should be similarly construed; that is, restrictions means restrictions 'attached to the Shares' by the constitution: HNA Irish Nominee Ltd v Kinghorn (2010) 78 ACSR 553 at [37] per Keane CJ, Jacobson and Rares JJ. 76 The Court in HNA Irish stated at [37]: [37] In Archibald Howie Pty Ltd v Cmr of Stamp Duties (NSW) (1948) 77 CLR 143 at 154; [1948] 2 ALR 489 at 491, Dixon J spoke of the "interest" or "share" of shareholders in a company as "an interest consisting of a congeries of rights in personam", making the point (at CLR 152; ALR 490) that "these rights all arise out of the contract inter socios". It is a long hallowed usage in this field of discourse to speak of the bundle of rights conferred on a shareholder by the corporate compact between the members of a company as the "rights attached" to that member's share: see Greenhalgh v Arderne Cinemas Ltd [1946] 1 All ER 512 esp at 515-16; White v Bristol Aeroplane Co White v Bristol Aeroplane Co Ltd [1953] Ch 65 at 70 and 75. 77 That is sufficient to dispose of this point. However, it is relevant to note that interlocutory injunctions, such as the order made by the court in Nevis, operate in personam attaching to the conscience of the person restrained rather than to the property to which it extends: Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 13 WAR 407 at 435 per Owen J; Meagher, Gummow & Lehane's Equity: Doctrines and Remedies 4th Ed 2002, [21-450]; Maritime Union of Australia v Patrick Stevedores Operations Pty Ltd [1998] 4 VR 143. 78 Accordingly, the Second Injunction does not 'attach' to the shares registered in OAG's name.

Good faith 79 I am satisfied that Mr Hendriks acted in good faith in determining to admit the vote of AOG. Confronted by the objection to AOG voting he immediately took legal advice and acted upon it. The advice, in terms, was, it appears, to the effect that as Carpathian was not a party to the injunction it should proceed with the AGM. I regard that, in context, as advice to the effect that the injunction by its terms did not affect Carpathian, or its chairperson at the AGM from admitting the votes of OAG. That, after all, was the point of Mr Hammer's objection and in relation to which the advice was sought. 80 I do not regard the fact that Mr Hendriks had, on behalf of Carpathian, sought extensions of time for holding its AGM from ASIC, relying in part, on the fact that OAG had been restrained from voting against its Carpathian shares, as evidence of a lack of good faith on his part when he admitted OAG's vote. The First Injunction was in different terms from the Second Injunction which was in force at the date of the AGM. Specifically, the First Injunction, unlike the Second Injunction, does not contain the heading "PARTIES OTHER THAN THE APPLICANT AND THE RESPONDENTS" and the text that follows thereafter under the sub-headings "Effect of this order", "Set off by Banks" and "Withdrawal by the Respondents". Importantly, in the Second Injunction, the entire second paragraph under sub-heading (a) "Effect of this Order" is not contained in the First Injunction. It is in the following terms: It is a contempt of Court for any person notified of this order knowingly assist in or permit a breach of this order. Any person doing so may be sent to prison, fined or have his assets seized. Provided that, in so far as this Order purports to have any extraterritorial effect, no person shall be affected thereby or concerned with the terms thereof until it shall be declared enforceable or be enforced by a foreign court and then it shall only affect them to the extent of such declaration or enforcement unless they are: (a) a person to whom this Order is addressed or an officer of or an agent appointed by a power of attorney of such person or (b) persons who are subject to the jurisdiction of this Court and (i) have been given written notice of this Order at their residence or place of business within the jurisdiction, and (ii) are able to prevent acts or omissions outside the jurisdiction of this Court which assist in the breach of the terms of this Order. (Emphasis added)

Purpose 81 A chairperson's determination on the admission of votes of a meeting will be invalid if made for an ulterior or impermissible purpose: Link at [40]. 82 I have already found that there were no restrictions, for the purpose of reg 43.1 of the constitution, to AOG voting at the EGM on the resolutions proposed. 83 The additional question confronting the Court, however, is whether, having regard to the Second Injunction which, by its terms, and upon the appreciation of Carpathian, including Mr Hendriks, restrained OAG from exercising its voting rights attaching to its shares in Carpathian, Mr Hendriks ought, as a proper exercise of power, to have disallowed OAG voting at the EGM. 84 Mr Hendriks was aware, as at the date of the EGM, that Carpathian had before it resolutions seeking to replace the existing board with a new board. He was aware that Carpathian had, in order to obtain relevant extensions from ASIC for holding its AGM, informed ASIC that OAG could not exercise its voting rights as a consequence of the First Injunction. He also knew that if the OAG votes were not admitted that the constitution of the board would change. He knew or ought to have known that the terms of the Second Injunction purported to have extraterritorial reach so far as concerned OAG. The extraterritorial limitation to which the respondents refer does not apply to "a person to whom this Order is addressed". That of course includes OAG. 85 I have concluded, nonetheless, that Mr Hendriks did not make his determination to admit the OAG vote for an ulterior or improper purpose. I find that he acted within power in admitting OAG's vote. 86 The respondents correctly point out that the Second Injunction expressly recognises the limitations in its extraterritorial effect and records that, "... no person shall be affected thereby or concerned with the terms thereof until it shall be declared enforceable or be enforced by a foreign court and then it shall only affect them to the extent of such declaration or enforcement ..." 87 They submit that as neither Carpathian nor its directors were parties to the Second Injunction that Carpathian and its directors were entitled not to be "concerned with" its terms as it had not been declared enforceable as against them by an Australian court. 88 They contend correctly that, whilst the Second Injunction contemplates that it may have some extraterritorial effect if certain conditions are met, there is no evidence that the relevant conditions were met. 89 The terms of the Second Injunction were not such as to affect in any way the constitutional entitlement of OAG to vote against its Carpathian shares. Of course, by voting as it did, it would appear, on its face, that OAG contravened the Second Injunction and is answerable before the Eastern Caribbean Supreme Court (Nevis Circuit) in that respect. That, however, is a separate question. 90 Mr Hendriks, in my opinion, was entitled to ignore the terms of the Second Injunction for the purpose of exercising his power of determination under reg 47.2. The very terms of the extra-territorial limitation upon the reach of the Second Injunction render the cases dealing with the binding nature of injunctions upon non-parties, cited by Carpathian, inapplicable. 91 For these reasons I find that the determination by Mr Hendriks to permit OAG to vote against its shares on the HBC resolutions at the EGM was a proper exercise of power. There is no basis upon which the Court should interfere with the outcome of the EGM.

The AGM 92 The following account as to what occurred at the AGM substantially reflects the evidence of Ms Davies and Ms Naulls-Johnstone which I accept. 93 The meeting was attended by Mr Hendriks, Mr Beaumont, Ms Naulls-Johnstone, Mr Hammer, Mr Wrigley and Ms Bethany Treloar from Baker & McKenzie, a Mr Hamish Gidley-Baird from ComputerShare, Share Registry Service, Mr Leo Robertson and Mr Campbell Welsh from State One Stockbroking. 94 Just after 10.00 am Mr Hendriks started to address those who were present. 95 Mr Hammer said words to the effect that he objected to Mr Hendriks chairing the meeting and there was an exchange between Mr Hammer, Mr Beaumont, Mr Hendriks and Mr Wrigley as to whether or not the meeting had been opened formally. 96 Mr Hendriks said words to the effect that five valid proxies had been received by the company and that the meeting was properly constituted and that he declared the meeting to be open. 97 Mr Hammer said that he objected to Mr Hendriks purporting to chair the meeting. He said that he would explain his reasons and distributed a copy of a letter that he had received from Lavan Legal earlier that morning. 98 Mr Hammer said words to the effect: "Take a few moments to carefully read the letter". Mr Beaumont asked that the meeting be adjourned and Mr Hammer said words to the effect: "I decline". Mr Beaumont said words to the effect: "The letter itself says that Mr Hendriks should obtain immediate legal advice as to his position". Mr Wrigley then said words to the effect: "You can consult". Mr Beaumont said that he would take the chairman outside to consult. Mr Hammer said that Mr Hendriks was not the chairman. Mr Beaumont responded with words to the effect that he was the chairman. Both Mr Hendriks and Mr Beaumont then left the room. 99 Ms Naulls-Johnstone joined Mr Hendriks and Mr Beaumont outside of the room. 100 Whilst Mr Beaumont, Mr Hendriks and Ms Naulls-Johnstone were out of the meeting room, Mr Hammer started to speak. He said words to the effect: Under clause 40 of Carpathian's constitution, members are required to wait 15 minutes for a director to chair the meeting before they can choose one of the members present to be chairperson. 101 Ms Davies stood up and opened the door so that Mr Hendriks and Mr Beaumont could see what Mr Hammer was doing and could hear what he was saying. 102 Mr Hendriks, Mr Beaumont and Ms Naulls-Johnstone returned to the room and Mr Beaumont said to Mr Hammer words to the effect: "As the properly appointed legal representative of Carpathian I am asking you to stop speaking". Mr Hendriks added the words: "Excuse me" to Mr Hammer and also words to the effect: "Stop speaking". Mr Hammer continued to speak about clause 40 of the company's constitution. 103 Mr Beaumont said to Mr Hammer words to the effect: "I am warning you, as a properly appointed representative of the company, I will talk to clause 40", to which Mr Hammer said: "Go ahead". Mr Beaumont then said words to the effect: While the assertions made by Lavan Legal in their letter are not agreed to and I do not concede that they are correct, if the position is as stated in the letter, there are no directors of the company currently present at the AGM. The effect of clause 40 would mean that it would be up to the members present to choose a chairman. 104 He then said words to the effect: "The members who are present should discuss and agree upon who should be chairman". 105 Mr Hammer said that he voted for himself to be appointed chairperson and Mr Robertson said words to the effect that he nominated Mr Hammer as chairman. 106 Ms Davies requested an adjournment so that she could get instructions. Mr Hammer said that he did not consent to an adjournment. 107 Mr Beaumont said words to the effect: Susie Davies is here acting as a corporate representative. It is appropriate that she be given an opportunity to get instructions from the shareholders that she is representing. 108 Mr Hammer responded with words to the effect: I am not adjourning the meeting. I am carrying the meeting forward. Those against my appointment as chairman should indicate on a show of hands. 109 Mr Beaumont said words to the effect: "That is inappropriate". Ms Davies then raised her hand and said words to the effect: I will vote against Mr Hammer's appointment as chairman. For the record I am in attendance here today as the corporate representative of two shareholders. 110 Ms Davies said she supported Mr Hendriks. 111 Mr Hammer said words to the effect: It doesn't matter because under clause 43.3(a) of Carpathian's constitution, where a corporate representative is representing more than one member, on a show of hands, that person only has one vote. Despite the number of members you represent, you are entitled to one vote only. 112 Both Mr Beaumont and Mr Hendriks said no. 113 Mr Hammer said words to the effect: "The motion carries. I am chairman". He also said words to the effect: "I declare the meeting open and Watson Mangioni are discharged". Mr Beaumont and Mr Hendriks both said "No". 114 There were further exchanges between Mr Beaumont and Mr Hammer the substance of which concerned which clauses of Carpathian's constitution applied. 115 Mr Beaumont said words to the effect: "The meeting has become unruly and can no longer continue. Votes will be taken by poll, so please provide me your poll forms". 116 Mr Robertson said words to the effect: "I rescind my vote for Mr Hammer in order to get the meeting organised". 117 Poll forms were distributed to Ms Davies, Mr Robertson and to Mr Hammer. 118 Mr Beaumont said to Mr Wrigley words to the effect: "Speak to your client. He is not the chairman. In the circumstances, he doesn't have any authority as chairman". 119 Mr Wrigley said words to the effect: The meeting does not have a chairman as we don't have a director present and a vote as to who should be chairman was not conducted. There are three shareholders here other than my client. The members present have to choose a chairman. 120 Mr Beaumont referred to clause 42 of Carpathian's constitution and said words to the effect: The meeting is so unruly it can no longer continue. It is appropriate that votes be taken by poll. 121 Mr Robertson said words to the effect: "In relation to getting the business of the meeting underway, taking a poll is the only alternative" and "The meeting has become a mess". Mr Beaumont said words to the effect: "Please complete the poll papers and return them to me". Mr Hammer said to Mr Beaumont words to the effect: "You have no right to be speaking. Please leave. You have been discharged". Mr Hammer also said to Mr Beaumont words to the effect: "We will be taking proceedings against you and your firm". Mr Beaumont responded by saying words to the effect: "You have no authority to discharge me". He then said words to the effect: "A poll has been taken and for the purposes of the meeting, I want it minuted that as returning officer I have taken the poll". 122 Mr Beaumont and Mr Hendriks left the room to consider the results of the poll and while they were out of the room Mr Hammer continued to talk and called for voting on Resolution 1 in the Notice of Annual General Meeting on a show of hands. Ms Davies said words to the effect: I note for the record of the meeting that I have submitted poll forms on behalf of OAG and II to Michael Beaumont of Watson Mangioni. 123 Mr Hammer responded with words to the effect: "I note for the record that you are in contempt of a Court order". 124 Mr Hammer then asked for proxies and Mr Gidley Baird from ComputerShare said words to the effect: "Mr Beaumont of Watson Mangioni has been appointed by Carpathian as returning officer. I do not hold a position. The proxies are submitted to the returning officer". 125 Mr Hammer said words to the effect: "In considering Resolution 1, the Nevis Injunction excludes OAG from voting, hence any votes cast by OAG are invalid. Accordingly the resolution fails". 126 Mr Hammer started to read Resolution 2 from the Notice of Annual General Meeting when Mr Hendriks and Mr Beaumont re-entered the room. Mr Beaumont said to Mr Hammer words to the effect: "Unless you do not wish to vote, you should submit a poll form". Mr Hammer continued to call for Resolution 2 to be voted on a show of hands. 127 Ms Davies said to Mr Hammer words to the effect: Mr purported chairman, I note for the record of the meeting that I have submitted poll forms on behalf of OAG and II to Michael Beaumont of Watson Mangioni. 128 Mr Beaumont then said words to the effect: "I am calling the poll closed in the next 30 seconds". Mr Hammer continued talking. Approximately 30 seconds later Mr Beaumont said words to the effect: "The meeting is closed". 129 With the exception of Mr Hammer, all others present left the room in which the meeting had been held. 130 Outside the meeting room Mr Beaumont said to Mr Wrigley: "I am going to call security to have Mr Hammer removed from the premises". Mr Wrigley say to Mr Beaumont: "Go ahead". Mr Wrigley said to Mr Beaumont words to the effect: "How do you think the meeting went? Do you think the meeting occurred at all?" Mr Beaumont responded with words to the effect: The meeting was opened by the chairman. The process for the members to elect an alternate chairman failed and the meeting became unruly and could not continue, so a poll was taken. After the poll was taken the meeting was closed.

Who was Eligible to be chairperson at AGM 131 The following eleven persons were present at 10:00am at the AGM: (a) Mr Hendriks (previous director and previous company secretary of the applicant); (b) Mr David Hammer (as a Corporate representative of HBC which was a member of Carpathian); (c) Mr Michael Beaumont (a solicitor at Watson Mangioni); (d) Ms Saxon Naulls-Johnstone (a solicitor at Watson Mangioni); (e) Mr Matthew Wrigley (a solicitor at Baker & Mackenzie); (f) Ms Bethany Treloar (a solicitor at Baker & Mackenzie); (g) Mr Leo Robertson (as corporate representative of Leo Robertson Electric Pty Ltd, a member of Carpathian); (h) Ms Susanne Davies (as corporate representative of OAG and IIL, members of Carpathian); (i) Mr Campbell Welsh (of State One Stockbroking); (j) Ms Kay Barrett (of Hall Chadwick); and (k) Mr Hamish Gidley-Baird (of Computershare).

Mr Hendriks 132 On 2 November 2010, Mr Hendriks was appointed pursuant to reg 52.1 of Carpathian's constitution to fill a casual vacancy on the Board. The resolution for his reappointment as a director was announced in the notice of AGM released on the ASX on 16 November 2010. 133 By resolution of directors dated 13 December 2010, Mr Hendriks was appointed Chairperson of the Board of directors pursuant to cl 67 of the constitution (see too the definition of 'Chairperson' at clause 2.1). Mr Hendriks tenure as 'Chairperson' lapsed on him ceasing to be a director in the circumstances set out below. 134 The EGM was convened by HBC, a shareholder of Carpathian, and fixed for 16 December 2010 at 11:00 am. 135 Regulation 52.2 of the constitution provides as follows: Any Director, other than a Managing Director, appointed under Regulation 52.1 holds office only until the conclusion of the next General Meeting of the Company and is eligible for re-election at that meeting but if that General Meeting is an Annual General Meeting such Director shall not be taken into account in determination of the number of Directions who are to retire by rotation at such Meeting and shall not be regarded as a Director retiring by rotation at such Meeting. [Emphasis added] 136 The EGM held on 16 December 2010 was a 'General meeting of the company' within the meaning of clause 52.2 (see the definition of 'General Meeting' and 'Meeting and General Meeting' at reg 2.1 of the constitution). 137 No resolution was either proposed or moved at the EGM for the re-election of the Mr Hendriks as a director of Carpathian. 138 Mr Hendrik's period of office as a director expired at the conclusion of the EGM. This is conceded by the respondents. 139 In accordance with the notice of AGM, the AGM was due to commence at 10.00 am. However there was no chairperson or director present at the meeting. By 10:15 am, there was still no chairperson or director present at the meeting. Mr Hendriks was not eligible to chair the AGM: he was not a member of the company.

Mr Hammer 140 Whether Mr Hammer was eligible involves the construction of the relevant provisions of the constitution being: (a) regulation 40; (b) regulation 2.1 - definitions of 'Chairperson', 'Member' and 'Member Present'. 141 Regulation 40 relevantly provides that the Chairperson of a general meeting shall be: the Chairperson or in his absence the Deputy Chairperson (if any); if there is no Chairperson or Deputy Chairperson, or if he is not present within 15 minutes of the appointed time or is unwilling to act, the Directors present may choose one of their number as Chairperson; if the Directors present do not choose one of their number at act as a Chairperson, the 'Members Present' may choose one of the Directors to be Chairperson (emphasis added); if no Director present is willing to take the chair, the 'Members' may choose one of their number to be Chairperson (emphasis added). 142 Under the constitution, reg 2.1, 'Member' means any person entered in the Register as a member for the time being of the Company. 'Member Present' means a Member present at any meeting of the Company in person or by proxy or attorney or in the case of a corporation, by a duly appointed representative. 143 The respondents submit that as no natural person members attended the AGM there was no one present who was entitled to be Chairperson in accordance with the provisions of the constitution. This, say the respondents, includes Mr Hammer. They submit that this conclusion is consistent with the language of the constitution and recognises the distinction drawn by the draftsperson of the constitution between 'Members' and 'Members present'. In this context they contend that it is significant that a 'Member Present' who was chosen as Chairperson might have his or her authority revoked by the 'Member' appointing him or her, thus effectively preventing the Chairperson from continuing to act in that capacity. 144 I do not accept that 'Member' means only a natural person member. 'Person' under reg 2.1 in the definition of 'Member' is wider than that. It accords with 'member' in s 9 of the Corporations Act 2001 and s 231 of the Act (see too s 22(1) of the Acts Interpretation Act 1901 (Cth), by which a reference to a 'person' includes a body politic or corporate as well as an individual, in contradistinction to the definition of individual, meaning a 'natural person'). Regulation 2.2(b) and (c) of the constitution properly construed incorporate the definitions contained in the Corporations Act. 145 The applicants submit that the respondents construction of reg 40 (chairperson of general meeting) is strained, unworkable and one which deprives the regulation of business efficacy and should be rejected. 146 The constitution should be regarded as a business document, and construed so as to give reasonable business efficacy if such a construction is available on the language used, in preference to one which would or might prove unworkable: Holmes v Lord Keyes [1959] Ch 199 per Jenkins LJ at 215; Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 per Lander J at [232]-[238]; Bundaberg Sugar Ltd v Isis Central Sugar Mill Co Ltd [2007] 2 Qd R 214; (2006) 62 ACSR 502 per Chesterman J at [28]. 147 I accept the applicants' submission that the requirement of reg 40 that 'the members shall choose one of their number to be chairperson' can only sensibly be interpreted as a reference to one of their number present at the meeting. A member not present (in the case of an individual, in person or by proxy or attorney and in the case of a company, by corporate representative) at the meeting could never be chosen to chair the meeting. 148 Further, in the circumstances described in regulation 40, the 'directors present' may choose one of their number as chairperson and in default of their doing so the members present may choose one of the directors to be chairperson and in default of so doing so the 'members' shall choose one of their number (a member present) to be chairperson. 149 The submissions of the applicants on this construction issue are sound. On the construction contended for by the respondents, if all of Carpathian's shareholders were corporations, the directors could forever avoid facing resolutions for their removal either by not attending general meetings or, by refusing to take the chair at such meetings. Similarly, as in this case, despite the directors' failure to convene an AGM within 5 months after the end of the company's financial year (see s 250N(2)) the directors could avoid ever facing scrutiny from shareholders. Regulation 40 ought not be interpreted in a manner which disenfranchises corporate shareholders in favour of individual shareholders. To do so interprets reg 40 in a manner which is inconsistent with the grant to the corporate representative of 'all of the powers that the body [corporate] could exercise at a meeting or in voting on a resolution': see s 250D(4) of the Corporations Act 2001. 150 Upon the construction of reg 40 to which I have come I find that Mr Daniel Hammer was eligible to be chairperson of the AGM.

Was Mr Hammer appointed as Chairperson of the AGM? 151 I have already concluded that Mr Hammer was eligible to be appointed chairperson. The applicants submit that Mr Hammer was duly appointed chairperson of the AGM. The respondents dispute this and submit that, on the evidence, Mr Hammer was not validly chosen to be chairperson of the AGM for the following reasons: (a) the contention that Mr Hammer was elected as Chairperson on a show of hands depends upon Mr Robertson being the duly appointed representative of Leo Robertson Electrical Contractors Pty Ltd. There is evidence that Mr Robertson was not the duly appointed representative of that entity; (b) in any event there was no vote on a show of hands electing him to be the Chairperson; (c) while Mr Robertson may have nominated Mr Hammer to be Chairperson, his evidence is that he did not raise his hand on a show of hands and subsequently withdrew his support for Mr Hammer.

Was Mr Robertson a duly appointed corporate representative? 152 For the AGM, Mr Robertson signed a corporate representative form on behalf of Leo Robertson Electrical Contractors Pty Ltd as its 'sole director and sole secretary'. 153 Section 250D(1) does not specify the manner in which a body corporate is to appoint a corporate representative. 154 Section 127(1) of the Corporations Act provides that a company may execute a document without using a common seal if the document is signed in the manner specified in the section. In particular, s 127(4) provides that the section does not limit the ways in which a company may execute a document (including a deed): Re: John L. O'Brien Consolidated [1975] ACLC 40-230 per Bowen CJ in EQ noting that there was no requirement in the then Companies Act 1961 or in the Court's directions as to the mode of execution of proxies by creditors who were companies, with His Honour noting that it was sufficient for the proxies to be signed (as they were) by the managing director. His Honour expressly noted that the appointment of a corporate representative pursuant to s 140(3) of the Company's Act 1961 was more onerous because, of the then requirement that such an appointment be by a 'resolution of [the body corporate's] directors or other governing body'. Section 250D(1) of the Corporations Act 2001 no longer contains a requirement for such a resolution. 155 By s 128(1) and s 129(5) of the Corporations Act, any person considering the validity of the corporate representative form had the right to assume that the document had been executed by the company and that Mr Robertson was in fact the sole director and sole company secretary, occupying both offices. 156 Further, and in any event, reg 47.1 of the constitution precludes the respondents taking any objection to the votes cast by Leo Robertson Electrical Contractors Pty Ltd at the AGM. No objection was raised at the time to Mr Robertson being the corporate representative of Leo Robertson Electrical Contractors Pty Ltd and it is now too late for any of the respondents to object to him having voted at the AGM in that capacity.

The course of the AGM 157 What occurred at the offices of Carpathian on 17 December, in an attempt to conduct the AGM, was variously intemperate, confused, unruly and disorderly. By reason of reg 40, as I have construed it, the members who were present were required to choose one of their member to be chairperson. The attempts to achieve that were ambulatory. Mr Hammer voted for himself. Mr Robertson said words to the effect that he "nominated" Mr Hammer. No show of hands as to this nomination was called for by anyone. Mr Robertson did not raise his hand. Indeed, Mr Hammer called for a show of hands from those who were against his appointment. Ms Davies raised her hand and said she voted against Mr Hammer's appointment and said she supported Mr Hendriks. Mr Hammer said the motion to appoint him chairperson had been carried. There were then heated exchanges between Mr Beaumont and Mr Hammer concerning the application of the constitution. Mr Beaumont called for a poll. Mr Robertson then said that he withdrew his support for Mr Hammer. Poll forms were distributed by Mr Beaumont and his assistant. A poll was purportedly taken following which everyone except Mr Hammer left the room. 158 In my opinion the members who were present did not choose one of their number to be chairperson. Whilst Mr Robertson "nominated" Mr Hammer he then withdrew this because the meeting was in such disorder. There was no "motion" as Mr Hammer had described it. He had actually called for a show of hands from those against his appointment rather than for his appointment. A number of those there were talking over one another. The events I have described occurred over a very short period of time. In these circumstances it is artificial to say, as the applicants do, that Mr Robertson could not withdraw his nomination of Mr Hammer once it had been initially given. Mr Wrigley, a solicitor, and one of HBC's corporate representatives, according to Ms Davies, whose evidence I accept, stated at the meeting that it did not have a chairman. What occurred was, in the overall, a confused attempt by the members present to choose a chairperson. It failed. The appointment of a chairperson is an indispensable part of any meeting: Colorado Constructions Pty Ltd v Platus [1966] 2 NSWR 598 at p 600. 159 It was, by the terms of the several proxies which he held, only if he was appointed chairperson that Mr Hammer would have become the duly appointed proxy of 5 members. That did not occur. 160 Mr Beaumont's interventions, whether in what he said variously to Mr Hammer, or in his calling for a poll were without authority under the constitution. I do not doubt that he thought he was acting appropriately on behalf of his client but his actions were ill advised, misinformed and significantly added to the disorder. He was a stranger to the meeting. This is not a case where a group of members deliberately orchestrated events in order to disrupt the meeting. Mr Hammer, on the other hand, was intent on purporting to act as chairperson in circumstances where it was, or should have been, clear to him that he did not have the support of the members who were present for his chairmanship at a time before he purported to conduct the business of the meeting in the absence of those others who had been present at the beginning. 161 I find that Mr Beaumont had no authority to purport to close the meeting pursuant to reg 42. 162 Rather, the meeting, in the circumstances which I have described, fell into complete disarray and should be treated as adjourned: Colorado Constructions at p 601. 163 I regard the purported poll taken as tainted by fundamental procedural irregularity. It was called by Mr Beaumont who had no authority to do so. Only Mr Hammer or Ms Davies could have called for a poll under reg 44.1 of the constitution. Neither did so. Under reg 44.2 only the chairperson had authority to direct when and where a poll shall be taken. It was called for at a time when Mr Hammer was claiming to be chairperson. That was in dispute. Neither Mr Hammer nor the members he purported to represent by proxy participated in the poll. Resolutions purportedly carried as a result of the purported poll are of no effect. More importantly, I have found that the indispensable requirement that the AGM have a chairperson had not been met. I do not regard that merely as a procedural irregularity. I do not regard the relief, in these circumstances, under s 1322 of the Corporations Act as apt. 164 It follows for all these reasons that the AGM effected no business on the 17 December. None of the resolutions in the Notice of AGM nor those purportedly put by Mr Hammer were validly carried. It will be necessary for Carpathian to convene a further AGM. 165 It follows, pursuant to regulation 53.1 of the constitution that Mr Wiberg who was due to retire at the AGM and submit himself for election remains a director of Carpathian. That regulation relevantly provides that a retiring director shall act as a director throughout the meeting at which he retires. The AGM presently stands adjourned. Dr Posternack also remains a director. 166 Accordingly, for these reasons, the application will be dismissed and there will be judgment for the cross-claimants on their cross-claim to the extent of the following declarations and orders.

Declarations

1. Maximiliaan Henri Danishevski, Mitchell Aaron Hammer, David Eric Hammer, Hon. Timothy Charles Thornton Lewin, Kirill Dragun, Luigi Gagliardo, Paul DeCailly and Guido Vivi are not and have not been directors of Carpathian Resources Ltd.
2. Michael Petrus Hendriks has not been a director of Carpathian Resources Ltd since the conclusion of the general meeting of Carpathian Resources Ltd held on 16 December 2010.
3. Each of James Paul Wiberg and Charles Posternack was and is a director of Carpathian Resources Ltd.
4. No resolutions were validly passed at the Annual General Meeting of Carpathian Resources Ltd on 17 December 2010.

Orders

1. The Australian Securities and Investments Commission be directed to rectify the register containing the names of directors of Carpathian Resources Ltd (ACN 080 273 703) to give effect to the above declarations at (1)-(3).
2. The applicants pay the costs of the respondents and cross-claimants of the proceedings to be taxed if not agreed. I certify that the preceding one hundred and sixty-six (166) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.