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[2016] WASC 22
Supreme Court of WA
2016-01-28
Mitchell J
Original judgment source is linked above.
First Defendant by Counterclaim : Norton Rose Fulbright Australia
Second Defendant by Counterclaim : Norton Rose Fulbright Australia
Third Defendant by Counterclaim : Norton Rose Fulbright Australia
1 In these reasons, I shall refer to the plaintiff by counterclaim as Cauldron Energy. I shall refer to the defendants by counterclaim collectively as the defendants and individually as Beijing Joseph, Joseph Investment and Guangzhou City. I shall refer to Guangzhou Joseph Investment Co Ltd, a company in the same group as Beijing Joseph and Joseph Investment, as Guangzhou Joseph.
2 This litigation concerns letter agreements for the placement of shares in Cauldron Energy with the defendants and Guangzhou Joseph (Placement Agreements). Cauldron Energy entered into the Placement Agreements with the defendants and Guangzhou Joseph on 6 June 2014. The Placement Agreements provide for the issue of shares in consideration for payment of subscription sums totalling $2 million by Beijing Joseph and Joseph Investment acting jointly, $1 million by Guangzhou City and $2 million by Guangzhou Joseph.
3 The Placement Agreements also provide for a general meeting of the shareholders of Cauldron Energy to approve the issue of shares under the Agreements. The shareholders of Cauldron Energy approved the placement of shares with the defendants on 30 September 2014. Shareholder approval for the placement of shares with Guangzhou Joseph has never been sought or obtained.
4 The defendants and Guangzhou Joseph have not paid subscription sums under the Placement Agreements.
5 Cauldron Energy seeks to recover the subscription sums payable by the defendants under the Placement Agreements as contractual debts. It also seeks to recover its wasted expenditure in obtaining shareholder approval for the placement of shares with the defendants, as damages for breach of contract.
6 In essence, the defendants contend that their obligation to pay the subscription sums was conditional upon shareholder approval of the placement being obtained in accordance with all applicable laws including the ASX Listing Rules and the Corporations Act 2001 (Cth). They contend that the resolutions passed at the general meeting on 30 September 2014 are invalid because they were not obtained in accordance with all applicable laws including the ASX Listing Rules and the Corporations Act. As a result, the defendants contend that their obligation to pay the subscriptions sums never arose. The defendants contend that no valid resolution was passed in accordance with the applicable rules because the shareholders of Cauldron Energy were not given all information material and reasonably necessary to decide whether or not to vote in favour of the resolution.
7 I have found that the Placement Agreements only require payment of the subscription sums after shareholder approval of the placement of the shares has first been obtained in accordance with the ASX Listing Rules. The approval obtained on 30 September 2014 was obtained in accordance with the ASX Listing Rules.
8 However, the efficacy of the shareholders' approval for the purposes of the Placement Agreements does not depend on shareholders being provided with all information material and reasonably necessary to decide whether or not to vote in favour of the resolutions. In any event, the only material information not provided to the shareholders concerned a proposal for further investment by Guangzhou City.
9 It follows that the subscription sums were payable under the defendants' Placement Agreements, and Cauldron Energy is entitled to recover the contractual debts due under those agreements. Cauldron Energy is also entitled to damages, being the wasted expenditure in obtaining shareholder approval of the placement of shares with the defendants on 30 September 2014. Due to the requirements of the ASX Listing Rules, it will be necessary for Cauldron Energy to again obtain approval for the issue of shares to the defendants.
10 Cauldron Energy also advances a tortious claim against Beijing Joseph and Joseph Investment, alleging that they induced or procured Guangzhou City and Guangzhou Joseph to breach their Placement Agreements. I have rejected these claims, even on the assumption that the elements of the tort of interfering with contractual relations have been established. This is essentially on the basis that the evidence does not support an award of damages beyond compensation for the wasted expenditure in obtaining shareholder approval for the placement of shares with Guangzhou City (for which damages are awarded in any event). Further, Guangzhou Joseph was under no obligation to make any payment under its Placement Agreement because shareholder approval was never obtained, so Guangzhou Joseph did not breach the payment obligations of its Placement Agreement.
11 It follows that Cauldron Energy's contractual claims against the defendants succeed, but its additional claims for tortious damages for interference with contractual relations fail.
12 My more detailed reasons for reaching these conclusions follow.
13 At trial, Cauldron Energy read the following affidavits:
14 Ms Grant was crossexamined on her affidavits and subject to reexamination. Nothing in the crossexamination or reexamination gave me cause to doubt the reliability of her evidence.
15 Cauldron Energy also tendered a book collating Placement Agreements contained elsewhere in the affidavits (exhibit 1) and Chapter 7 of the ASX Listing Rules (exhibit 2).
16 The defendants did not seek to adduce any evidence at trial.
17 At the conclusion of the trial I gave the defendants leave to file and serve supplementary written submissions. Attached to those submissions was a copy of a letter from Guangzhou City which was said to be an omitted attachment to an email dated 23 September 2014 contained in Ms Grant's affidavit. I have referred to that email in finding facts below. In its supplementary written submissions, Cauldron Energy indicated that the attachment had no evidentiary value as it was not tendered at trial. Cauldron Energy did not challenge the fact that the attachment was sent but said, if leave was granted to rely on it, it supported Cauldron Energy's case.
18 I do not think that anything turns on the receipt of the attachment. As I indicate below, I would infer that a letter to substantially the same effect was given to Cauldron Energy on 23 September 2014 even without the attachment to the email of that date. In those circumstances, and in the absence of any challenge to the authenticity of the document as the attachment to the email or any assertion of prejudice by Cauldron Energy, it is appropriate to grant the defendants leave to tender the letter. I will designate the letter exhibit 3.
19 Shortly prior to trial, the defendants unsuccessfully sought an adjournment of the trial. The evidence adduced on the adjournment application comprised:
2, Affidavits of Dylan Christopher McKimmie affirmed on 27 and 30 November 2015;
20 Ms Grant was also crossexamined on her affidavit in the adjournment application.
21 The following facts appear from the affidavits tendered at trial, which principally comprise documents attached to the affidavits. These findings of fact are based on evidence which was not contradicted by other evidence or substantively challenged at trial.
22 Cauldron Energy is a company incorporated under the Corporations Act whose securities are listed for official quotation on the Australian Securities Exchange (ASX). Cauldron Energy is an Australian resources company holding interests in uranium projects in Australia and Argentina.
23 The defendants have not always been consistently named in documents forming part of the evidence or in the proceedings themselves. In part, this appears to be due to the fact that the English names of the first and third defendants have been translated from Chinese. The length of the names, and in some cases a lack of attention to detail, may also be contributing factors. In some cases I have inferred from the context which company is being referred to in the documentary evidence.
24 Beijing Joseph is a company incorporated in the People's Republic of China, and owns all of the shares in Joseph Investment. Joseph Investment is a company incorporated in the British Virgin Islands.
25 Guangzhou City is a company incorporated in the People's Republic of China.
26 The evidence is not clear as to the relationship, if any, between Guangzhou City and the other defendants. It was treated by Cauldron Energy and the defendants, in their dealings with each other, as an independent company.
27 Guangzhou Joseph was described as an 'affiliated company' to Beijing Joseph and Joseph Investment in an email from Peter Shen to Ms Grant on 4 June 2014. On 9 June 2014, Peter Shen advised Ms Grant that Beijing Joseph held 51% of the shares in Guangzhou Joseph.[2] In the absence of any contrary evidence, I infer that those statements by Peter Shen were correct.
28 As at 10 October 2014 there were 225,680,527 issued shares in Cauldron Energy. At that time Joseph Investment held 24,256,324 shares, or 10.748% of Cauldron Energy's issued share capital. Guangzhou City held 33,898,318 shares, or 15.020% of Cauldron Energy's issued share capital.[3] These shares did not include shares to be issued under the Placement Agreements described below.
29 On 6 June 2014 Cauldron Energy entered into four Placement Agreements with the defendants and Guangzhou Joseph. The Placement Agreements were signed by Tony Sage as executive chairman of Cauldron Energy, Vincent Shen as managing director of Beijing Joseph and Joseph Investment, and the chairman of the board of Guangzhou City.
30 The Placement Agreements were in materially identical terms aside from the dates on which certain steps were to be taken. Each of the defendants' three Placement Agreements provided for the issue of 8,474,588 fully paid ordinary shares in consideration for payment of a $1 million subscription sum.
31 Beijing Joseph and Joseph Investment jointly entered into two Placement Agreements, respectively providing for payment of the subscription sum by 23 July 2014 and 1 December 2014. The date for payment of the subscription sum under the first of these Placement Agreements was subsequently extended to within two days of the allocation of shares being approved by shareholders of Cauldron Energy.
32 Guangzhou City entered into one Placement Agreement providing for payment of the subscription sum by 3 November 2014.
33 Ms Grant dealt with Peter Shen in relation to the Placement Agreement with Guangzhou Joseph.[4] That Placement Agreement provided for the issue of 16,949,176 shares in Cauldron Energy for a subscription sum of $2 million. This Placement Agreement provided for the issue of shares in two tranches. Payment of the $300,000 subscription sum for the first tranche was required by 1 December 2014. Payment of the $1.7 million subscription sum for the second tranche was required by 1 December 2015.
34 Each of the Placement Agreements noted that shareholder approval was required for the placement of shares in accordance with ASX Listing Rules, which 'will be required to be obtained at a general shareholders meeting'. It was stated that:
Upon receipt of your Firm Commitment and from the other parties anticipating in the Placement, [Cauldron Energy] will initiate the process to obtain Shareholder Approval for the Placement as soon as practicable.
35 Clause 1 of the Placement Agreements contains a confirmation of 'the following irrevocable and firm allocation of Placement Shares to you', and specified the number and value of shares.
36 Clause 2 of the Placement Agreements provides for an 'indicative timetable'. Each timetable contains dates for the receipt of the signed acceptance advice, shareholder approval, payment of the subscription sum, the issue of placement shares and the expected trading of those shares. The timetable provides for these events to occur in that order. Clause 2 also provides:
Please note that the above timetable may change without consultation with you and, subject to the terms of this letter, you are bound by the agreement arising from your acceptance of this offer notwithstanding any such changes to the timetable.
Your obligations in respect of the Firm Commitment are Irrevocable unless Shareholder Approval is not obtained.
38 Clause 8 contains a number of general provisions, including that time is of the essence and that the agreement was governed by the laws of Western Australia.
39 Clause 9 of the Placement Agreements provides for the acceptance of the 'Firm Commitment' by execution of an attached 'Acceptance Advice'. The clause provides:
The Acceptance Advice constitutes an application for the Placement Shares which are the subject of your Firm Commitment.
40 Clause 9 also provides that to 'confirm your irrevocable acceptance of the terms of your Firm Commitment' the contracting party must sign and return the Acceptance Advice by 5.00 pm on 6 June 2014.
41 Clause 9 provides for the contracting party to pay the Subscription Sum into a specified bank account held by Cauldron Energy by the specified dates. It also provides that:
Your subscription proceeds will be held on trust pending the issue of the Placement Shares.
42 Clause 10 of the Placement Agreements provides that:
The Placement Shares will be issued as soon as practicable after receipt of subscription proceeds and subject to Shareholder Approval being obtained.
43 One of the Placement Agreements with Beijing Joseph and Joseph Investment, and the Placement Agreement with Guangzhou Joseph, provide for the issue of options for the allocation of further shares. In each case:
The Option Offer (which also requires Shareholder Approval) is a condition of the successful completion of the Placement. For any avoidance of doubt, the Placement will not proceed should Shareholder Approval not be obtained for the Options Offer.
Appointment of Dr Wang as director of Cauldron Energy
44 On 9 June 2014, a nominee of Joseph Investment, Dr Amy Wang, was appointed as a nonexecutive director of Cauldron Energy.[5] Her appointment had been a requirement for entry into the Placement Agreements indicated by Peter Shen, an officer of the Mergers and Acquisitions Division of Beijing Joseph who negotiated the terms of the Placement Agreements.
45 On 10 June 2014 Cauldron Energy made an ASX announcement indicating that it had secured $11 million in placement funds from various Chinese investors. This sum comprised:
Placement Agreements with Beijing Joseph and Joseph Investment
46 The additional $4 million investment by Guangzhou City has been made, so the agreement for the issue of those additional shares is not of immediate concern.
47 On 30 June 2014, Cauldron Energy entered into a letter agreement with a company called Starry World Investment Ltd (Starry World) for the issue of shares to that company (Starry World Agreement). The Starry World Agreement provided for the issue of 33,898,318 shares in Cauldron Energy for a subscription sum of $4 million. The terms of the Starry World Agreement generally reflect those of the Placement Agreements. The Starry World Agreement provides for the issue of options to Starry World. It also provides for the board of Cauldron Energy to appoint a nominee of Starry World to the board, subject to the nominee being a suitable candidate to the board as determined by Cauldron Energy acting reasonably.
48 The Starry World Agreement was authorised by Cauldron Energy's directors by circulating resolution made on 30 June 2014.[6]
49 Cauldron Energy issued an ASX announcement in relation to the Starry World Agreement on 1 July 2014.
50 On 3 July 2014 Catherine Grant, the company secretary and chief financial officer of Cauldron Energy, wrote to the ASX requesting a waiver of the requirements of ASX Listing Rule 7.3.2, which required the issue of securities approved by shareholders to be completed within three months of the relevant shareholders' meeting.[7]
Proposed appointment of Mr Huang as director of Cauldron Energy
51 Also on 3 July 2014, Ms Grant circulated to the directors of Cauldron Energy a draft resolution appointing Anson Huang (the nominee of Starry World) as a director of Cauldron Energy.[8]
52 Dr Wang returned a signed resolution at 6.42 pm on 3 July 2014. However, at 9.33 pm she sent a further email, indicating that the previous email was sent in error and requesting that the earlier email and its attachment be disregarded. She said:[9]
There was a misunderstanding regarding the proposed appointment and the investors I represent do not at this stage consent to Mr Huang's appointment.
I'll contact you tomorrow and get back to you ASAP
53 At 10.07 pm on 3 July 2014, Dr Wang sent a further email which indicated:[10]
After discussing this with Joseph, I confirm we do not consent to Anson Huang's appointment.
54 On 9 July 2014 Vincent Shen, as Managing Director of Joseph Investment, wrote to Mr Sage indicating that '[w]e disagree and strongly oppose' Mr Huang's appointment as a director of Cauldron Energy. He gave a number of reasons for that opposition, and urged Cauldron Energy to renegotiate the terms of the agreement with Starry World and 'particularly to not grant the directorship'.[11]
55 Also on 9 July 2014, Cauldron Energy wrote to Beijing Joseph and Joseph Investment indicating that the company had received notice from the ASX that its application to waive the requirements of Listing Rule 7.3.2 would not be allowed. The letter indicated that the general meeting was 'targeted' to be held on 30 August 2014, and that the company would be required to issue any shares approved by shareholders at the meeting by 30 November 2014. The second tranche of shares to Beijing Joseph and Joseph Investment was to be issued in December 2014. Cauldron Energy's letter requested that consideration be given to moving the timing of payment of the second tranche of shares to within three months of the date of the general meeting, to allow placements to proceed in accordance with Listing Rule 7.3.2.[12]
56 Similar letters were sent to Starry World and Guangzhou Joseph. Only Starry World accepted the proposal, and the Starry World Agreement was varied so that the subscription sum was to be paid by 5.00 pm on 30 November 2014 or a date not more than three months from the date shareholder approval was obtained at the general meeting.[13]
57 A meeting of Cauldron Energy's board of directors was held on 14 July 2014. At that meeting Dr Wang raised a number of concerns about the investment by Starry World and the appointment of its nominee as director. The board adopted resolutions for the execution of the deed of variation of the Starry World Agreement and the appointment of Mr Huang as director of Cauldron Energy. Dr Wang voted against both resolutions.[14]
58 A draft notice of general meeting was circulated to the directors of Cauldron Energy on 22 July 2014, including proposals for the approval of the issue of securities under the Placement Agreements and the Starry World Agreement.
59 On 23 July 2014 Peter Shen wrote to Cauldron Energy on behalf of Beijing Joseph and Joseph Investment. He indicated that those companies, Guangzhou Investment and Guangzhou Joseph perceived the Starry World investment and nomination of a new director to be unfair to them. He said:[15]
Given that all the suggestion and opinions we had already raised during the most recent board meetings and the fact that our suggestions and justifications were not respected by the board, we would like to express our common viewpoint that, if the Starry World and new director nomination matters cannot be resolved fairly, we might consider postponing or refusing to pay the remaining placement funds even if all resolutions get approved at the General Meeting.
60 Mr Sage responded to this correspondence on behalf of Cauldron Energy on 25 July 2014. In the course of doing so, Mr Sage noted that Joseph Investment was bound to comply with its Placement Agreement in the same way that Cauldron Energy was bound to comply with the Starry World Agreement. He said that the Starry World Agreement had been executed on approval of all Board members, and as such could not simply be disregarded by Cauldron Energy.[16]
61 On 28 July 2014 Wilson Shen, a solicitor based in Sydney, wrote to Cauldron Energy on behalf of Beijing Joseph. He reiterated Beijing Joseph's objections to the $4 million placement of shares to Starry World and the appointment of Mr Huang as a director of Cauldron Energy. He demanded that action be taken to:
[R]ectify the Board's proposal regarding the $4 million placement and appointment of Mr Yujie Huang (including but not limited to taking appropriate steps to notify all members of the company to revoke the Board's decisions on these two proposed items and remove these two proposed matters from the proposed resolution List for the upcoming general meeting of the Company.
62 Wilson Shen also requested an additional seat on the Board for Beijing Joseph/Joseph Investment.[17]
63 Also on 28 July 2014, Mr Sage responded to the correspondence on behalf of Cauldron Energy, indicating that the requests in Wilson Shen's letter would not be satisfied.[18]
64 A meeting of the directors of Cauldron Energy was held on 29 July 2014. At that meeting, the directors adopted a further resolution appointing Mr Huang as a director of Cauldron Energy.
65 In the course of discussing the resolution Dr Wang said that Joseph Investment was against the Starry World $4 million investment and the appointment of Mr Huang to the board of Cauldron Energy. She indicated that if the resolution to appoint Mr Huang was passed 'Joseph Investment may consider withdrawing from the placement agreement it had previously reached with [Cauldron Energy]'. She said that, in addition, 'Joseph Investment may use its influence to have other participants in other placement agreements (being those announced to the ASX on 10 June 2014) similarly withdraw from the placement'. Dr Wang noted that 'Joseph Investment may take legal action'.[19]
66 On 6 August 2014 Wilson Shen wrote to Cauldron Energy on behalf of the defendants and Guangzhou Joseph. The position of Wilson Shen's clients was summarised in the following passage:[20]
We are instructed that unless [Cauldron Energy] undertakes in writing to [the defendants and Guangzhou Joseph] to take appropriate steps to reject the $4 million placement to [Starry World] and revoke the appointment of Mr Huang Yuie as a new director, [the defendants and Guangzhou Joseph] hereby inform [Cauldron Energy] that the Placement Agreements are rescinded and request [Cauldron Energy] immediately and unconditionally to refund the $4 million subscription proceeds paid by [Guangzhou City].
67 Mr Sage responded to this letter on 15 August 2014, reiterating Cauldron Energy's position.[21] Nothing in that letter indicated that Cauldron Energy accepted the repudiation of the Placement Agreements.
68 On 21 August 2014, Cauldron Energy issued a Notice of General Meeting (Notice) to be held on 30 September 2014. The Notice proposed 12 resolutions for the members' consideration. Resolution 4 approved the issue of 25,896,285 shares to Guangzhou City (which was referred to in the Notice as 'Investor A'). Resolution 5 approved the issue of 33,898,318 shares, and options, to Starry World (which was referred to in the Notice as 'Investor B'). Resolution 6 gave approval for the issue of 16,949,176 shares, and options, to Beijing Joseph and Joseph Investment (which were referred to in the Notice as 'Investor C'). The Notice did not propose any resolution to approve the issue of shares or options to Guangzhou Joseph.
69 The Notice incorporated an explanatory statement, the stated purpose of which was to provide information which the directors believed to be material to shareholders in deciding whether or not to pass the resolutions. In general terms the explanatory memorandum described the effect of the Placement Agreements and the Starry World Agreement. It did not disclose the objections which the defendants and Guangzhou Joseph had made to the Starry World Agreement, or the purported repudiation of the Placement Agreements by those companies.
70 The Notice also incorporated a report by Stantons International Securities dated 5 August 2014, which assessed the issue of shares and options to Joseph Investment as 'not fair but reasonable' to nonassociated shareholders of Cauldron Energy.
Correspondence in relation to section 7.7 of the explanatory memorandum
71 On 3 September 2014 a letter written on behalf of Beijing Joseph and 'Associated Companies' was sent to Mr Sage.[22] The letter relevantly noted that those parties strongly oppose all seven points outlined in section 7.7 of the explanatory memorandum to the Notice, which related to the investment of Beijing Joseph and Joseph Investment. Section 7.7 contained a number of purported statements by Beijing Joseph and Joseph Investment in relation to their intentions with respect to Cauldron Energy. The letter of 3 September 2014 said that the statements had not been made, and were incorrect.
72 Also on 3 September 2014, Mr Sage responded to this correspondence on behalf of Cauldron Energy. Mr Sage said that a near final draft of the Notice was circulated to all directors of the company for comment on 22 July 2014, with the statements in section 7.7 highlighted. In the absence of queries or corrections raised by the Board, 'the disclosures within the [Notice] were taken as accepted'. Mr Sage also noted that Joseph Investment's letter of 23 July 2014 implied that Joseph Investment had received and reviewed the Notice. Mr Sage noted that Cauldron Energy did not receive any objections to the statements included in section 7.7 of the explanatory memorandum. Mr Sage noted that 'the statements are statements as at the date of the [Notice] only' and did not prevent future changes which may transpire in respect of Cauldron Energy and Joseph Investment going forward.[23]
73 Between 22 and 26 September 2014, the assistant to Dr Joseph Chen (who I infer is a senior officer of Beijing Joseph and Joseph Investment and the 'Joseph' referred to in the names of those companies) sent a number of emails to Mr Sage.[24] In those emails, Dr Chen proposed to arrange for Guangzhou City to invest further funds into Cauldron Energy in order to replace Starry World. The proposed investment was of approximately $4 5 million at a share price of 13 cents per share. This was more than the 11.8 cents per share provided for in the Starry World Agreement.
74 On 22 September 2014, Mr Sage responded indicating that '[i]t's too late now' and that '[w]e will still push ahead with asset injection and a new board seat'. On the same day, Dr Chen's assistant responded proposing two 'options if you still want to work with us'. The first option was to call an urgent board meeting to 'replace Starry World with [Guangzhou City's] better offer before the General Meeting and we pass the replacement in the General Meeting'. The second option involved agreeing to vote against the Starry World investment at the general meeting. The email concluded:
Please advise your intent. No matter which way, our sole issue and only objective is to replace Starry World and remove Yujie Huang as a director of the company. Other than this, we are happy to cooperate in any flexible way.
75 On 23 September 2014, Dr Chen's assistant sent an email attaching an 'official commitment letter' from Guangzhou City.[25] Although the copy of Guangzhou City's letter was not included in the First Grant Affidavit, I infer that such a letter was attached in the absence of any contrary indication in Ms Grant's testimony. As noted above, I have received the attached letter as exhibit 3. It indicated a proposed $5 million investment at a price of 13 cents per share, 'subject to the conditions that Starry World's $4 million share placement is rejected and Yujie Huang is removed as a director or other management position of' Cauldron Energy.
76 A general meeting of Cauldron Energy's shareholders was held on 30 September 2014, and the 12 resolutions were passed by a very substantial majority of eligible voting members of the company, without any discussion of the motions in terms of resolutions 4, 5 and 6.[26] No resolution was put to shareholders, on 30 September 2014 or subsequently, for the approval of the placement of Cauldron Energy's shares with Guangzhou Joseph.[27]
Demand for payment of subscription sum for first tranche of shares
77 As noted above, the Placement Agreement for the allocation of the first tranche of $1 million in shares to Beijing Joseph and Joseph Investment was varied to provide for payment of the subscription sum within two days of the allocation of shares being approved by shareholders of Cauldron Energy. On 30 September 2014, Ms Grant sent an email to Peter Shen, Vincent Shen and Dr Chen advising that the resolutions had passed and the first payment of $1 million was due by 2 October 2014. On 2 October 2014, Ms Grant advised that the funds had not been received.[28] A letter of demand was sent by Mr Sage to Dr Chen on 2 October 2014. This letter concluded:
If you do not pay the Subscription Sum or I do not hear from you within 3 business days of the date of this letter, Cauldron [Energy] will be obliged to assume that [Beijing Joseph and Joseph Investment] do not intend to meet your obligations under the Placement Agreement. In that respect, Cauldron [Energy] will fully reserve all of its rights in relation to the Placement Agreement.
Resignation of Dr Wang as director of Cauldron Energy
80 The above account shows that, on 6 June 2014, the defendants and Guangzhou Joseph all entered into Placement Agreements with Cauldron Energy. Those agreements provide for the placement of shares in Cauldron Energy with the companies subject to approval of the placement at a general shareholders' meeting.
81 Beijing Joseph, Joseph Investment and Guangzhou Joseph were companies associated with Dr Joseph Chen. The relationship (if any) between Guangzhou City and the other defendants is unclear.
82 On 30 June 2014 Cauldron Energy entered into the Starry World Agreement, which provided for the placement of $4 million in shares and for the appointment of Starry World's nominee as a director of Cauldron Energy. The defendants indicated their objection to this investment and appointment and sought to prevent the allocation of shares and the appointment of Starry World's nominee, Mr Huang, as a director of Cauldron Energy. The defendants did this by threatening to withhold payment of their subscription sums under the Placement Agreements and ultimately refusing to make the payments. Dr Chen also proposed an additional investment by Guangzhou City to 'replace' the investment by Starry World at a greater price per share than was offered by Starry World and without the requirement of a seat on the board of directors.
83 Resolutions approving the placement of shares with the defendants and Starry World were passed at a general meeting of Cauldron Energy's shareholders on 30 September 2014. The information provided to shareholders at that meeting did not disclose the defendants' objections to the Starry World Agreement or the prospect of a substituted investment on more favourable terms. Nor did the information include the objections which Beijing Joseph and Joseph Investment had made to the statements attributed to them in section 7.7 of the explanatory memorandum to the Notice.
84 No resolution approving the placement of shares in Guangzhou Joseph was ever proposed to or passed by the shareholders of Cauldron Energy.
85 The following subscription sums payable under the Placement Agreements remain unpaid:
86 I infer from the correspondence set out above that the only reason the defendants have not made payment of the subscription sums provided for in their Placement Agreements is their objection to the investment by Starry World and the appointment of Mr Huang as a director of Cauldron Energy.
Procedural history Application for injunction in the Supreme Court of New South Wales
87 On Sunday 12 October 2014, the defendants commenced these proceedings in the Supreme Court of New South Wales against Starry World, Cauldron Energy Ltd, Mr Huang and Mr Sage. There was an urgent ex parte hearing before Lindsay J, in which an order was made giving the defendants leave to file the summons in court, to be returnable before the duty judge on 15 October 2014.
88 The originating summons sought an order that, until further order or pending final resolution of the proceedings, Starry World, Cauldron Energy, Mr Huang and Mr Sage be restrained from dealing with Cauldron Energy's shares owned by or held in the name of Starry World, or money paid by the defendants or Starry World for those shares. An order was also sought restraining Starry World, Cauldron Energy, Mr Huang and Mr Sage, until further order or final resolution of the proceedings, from enforcing or acting upon the demand for subscription fees made to Beijing Joseph and Joseph Investment. A declaration was sought that all and any shares held by or in the name of Starry World in Cauldron Energy were held on trust for the defendants. The summons also sought damages and equitable compensation against Starry World, Cauldron Energy and Mr Huang, further relief or other relief as the court thinks fit and costs.
89 An affidavit of Wilson Shen sworn on 11 October 2014 indicated that the basis for the defendants' claim was that:
90 On 12 October 2014, Lindsay J made orders which included an order (order 4) that, upon the defendants and Mr Chen giving to the court the usual undertaking as to damages, Starry World, Cauldron Energy and Mr Huang be restrained from:
(a) dealing with shares in [Cauldron Energy] owned by, or held in the name of, [Starry World].
(b) dealing with funds held by [Cauldron Energy] being, or being comprised of, any subscription sum paid by or on behalf of the [defendants] for shares in [Cauldron Energy].
(c) enforcing, or acting upon, the demand for subscription fees dated 2 October 2014 made by [Cauldron Energy] (by [Mr Sage] acting as executive chairman of [Cauldron Energy]) on [Beijing Joseph and Joseph Investment].
91 The injunction granted by Lindsay J operated until 5.00 pm (Sydney time) on 15 October 2014 or further order of the court.
92 On 14 October 2014, Cauldron Energy and Mr Sage gave notice of a motion for orders which included an order discharging the injunction referred to above, dismissing the action against Mr Sage and a transfer of the proceedings to this court pursuant to the Jurisdiction of Courts (Crossvesting) Act 1987 (NSW) (NSW Crossvesting Act). Alternatively, orders were sought for security for the undertaking as to damages and variations of the injunction.
93 On 15 October 2014, Pembroke J made orders discharging orders 4(b) and 4(c) made on 12 October 2013, and extending order 4(a) until further order of the court on the defendants giving the usual undertaking as to damages. As against Cauldron Energy and Mr Sage, order 4(a) was varied so that it restrained them from:
Registering any transfer, dealing or encumbrance of any shares in [Cauldron Energy] in the name of [Starry World].
94 Pembroke J stood over Cauldron Energy and Mr Sage's application for a transfer of the proceedings and security for the undertaking as to damages to 5 November 2014, and stood over the balance of the application in the defendants' notice of motion until further order.
95 Therefore, the injunction restraining action on the demand for payment of outstanding subscription fees was maintained only from 12 15 October 2014. From 15 October 2014, the only restraint was against the registration of shares in the name of Starry World.
96 The application for transfer was heard by Robb J on 5 November 2014. A large volume of affidavit material was filed either in support of or opposition to that application.
97 On 11 December 2014, Robb J delivered his reserved decision on the application for transfer,[32] and ordered that the proceedings forthwith be transferred to this court pursuant to s 5(2) of the NSW Crossvesting Act.
98 At the time of the transfer order Starry World and Mr Huang had not been served with the originating summons. It appeared that service would need to be effected on those parties outside Australia. Service has never been effected on either Starry World or Mr Huang.
99 Following the transfer of the proceedings into this court, the matter came before me for directions on 4 February 2015. At that time I made various programming orders. Order 1 required the defendants to file and serve any application for leave to serve Starry World and Mr Huang outside Australia by 9 February 2015, and listed that application for hearing on 18 February 2015. Orders 4 6 provided for the filing of a statement of claim by 18 February 2015, defences and any counterclaim by 4 March 2015 and any reply and defence to counterclaim by 18 March 2015.
100 The plaintiffs did not file any application for service outside Australia, or any statement of claim. However, the parties asked that the matter still be called on 18 February 2015.
101 On 17 February 2015, the defendants filed a notice purporting to wholly discontinue their action against Starry World, Cauldron Energy, Mr Huang and Mr Sage. At the hearing on 18 February 2015, Cauldron Energy and Mr Sage indicated that they sought an opportunity to challenge the efficacy of the notice of discontinuance filed without leave. I made programming orders and listed that question for hearing on 25 March 2015.
102 On 25 March 2015, I held that leave to discontinue was required, so that the purported notice of discontinuance was ineffective in its attempt to bring an end to the proceedings. I made a declaration to that effect.[33]
103 The defendants then indicated that they sought leave to discontinue the proceedings. I directed the parties to confer in relation to the discontinuance of the proceedings and adjourned the directions hearing to 15 April 2015.
104 On 1 April 2015, Cauldron Energy and Mr Sage filed their defence and Cauldron Energy's counterclaim in the proceedings. The defence noted that a statement of claim had not been filed and denied that the defendants were entitled to the relief claimed in the summons except to the extent that relief had already been granted. The counterclaim at that stage was confined to a claim for $3 million said to be due by the defendants under the Placement Agreements.
105 The parties put forward competing minutes of proposed orders at the directions hearing on 15 April 2015. Both minutes provided for the defendants to be given leave to discontinue their claim against other parties, subject to conditions. However, the defendants indicated that they challenged the validity of Cauldron Energy's counterclaim, and said that no orders should be made in respect of it. Cauldron Energy sought orders requiring the defendants to file a defence to the counterclaim and listing the proceedings on the counterclaim for further directions. As I noted at the time:[34]
The practical significance of the debate as to the validity of the counterclaim concerns service. The first and third plaintiffs [now defendants] are companies incorporated in the People's Republic of China, while the second plaintiff is a company incorporated in the British Virgin Islands. None of the plaintiffs appear to have any substantial presence in Australia. [Cauldron Energy] seeks to avoid the difficulties in serving new process on the plaintiffs. It seems clear that the plaintiffs' submissions that the counterclaim is invalid are motivated by their desire to take advantage of the existence of those service difficulties.
106 On 27 May 2015, I held that the counterclaim had been validly filed. I ordered that the defendants' primary action be discontinued on conditions, and ordered the defendants to file and serve their defence to Cauldron Energy's counterclaim by 16 June 2015. An undertaking which was a condition of the discontinuance of the primary action was provided on 16 June 2015.
107 The matter came on for further directions on 17 June 2015. At that time the defendants had not filed a defence to the counterclaim, but sought leave to file a 'second counterclaim'. I refused leave, and ordered the defendants to file and serve a defence to the counterclaim by 4.00 pm on 18 June 2015. I also made orders for a reply by 1 July 2015, for Cauldron Energy to file and serve any further affidavits in support of its claim on or before 22 July 2015 and for the defendants to file and serve any further affidavits in support of their defence on or before 19 August 2015.
108 The defendants filed their defence to the counterclaim on 18 June 2015. Cauldron Energy filed its reply to the defence on 7 July 2015.
109 On 28 July 2015, Wilson Shen filed a chamber summons applying for an order that his firm, Shen's Lawyers, had ceased to be the lawyer acting for the defendants. That application was listed for hearing on 5 August 2015.
110 Shen's Lawyers' application was supported by an affidavit of Hao Ran Shen dated 28 July 2015. That affidavit attached an email from the defendants' legal department dated 22 July 2015, sent from the address 'legalcontroldept@josephbj.com'. The email said:
This letter is being written on behalf of [Beijing Joseph, Joseph Investment and Guangzhou City], the plaintiffs of the Supreme Court of Western Australia Case (FILE NO/S: CIV 2769 of 2014) to confirm that as today 21/07/2015, we will terminate Shen's Lawyer's retainer.
111 On 29 July 2015, Shen's Lawyers filed a further affidavit attaching an email chain between the solicitors and Ms Yan Li of the defendants' legal department. The email chain included an email from Shen's Lawyers dated 28 July 2015 which said:
Please find the attached Summons, Affidavit and credit card form for the fee and we filed the Summons in Supreme Court today and ask the court to grant a leave and order for cease act for all defendants in the form mentioned said companies. Please reply this mail when you receive this mail and further confirm for terminated the retainer to SHEN'S Lawyers for the above matter so that we will inform the court your final instructions.
112 The email chain also included a response from Ms Yan Li, of the defendants' legal department, which said:
We have received your mail and confirm that we have terminated the retailer to you. We will contact you to forward documents about this case when we retain new lawyers. Thanks a lot for your services!
113 On 5 August 2015, I made an order that, subject to complying with the requirements of O 8 r 7(1) of the Rules of the Supreme Court 1971 (WA) (Rules) and to Shen's Lawyers serving a copy of the transcript of that day's proceedings on the defendants when serving the order as required by O 8 r 7(1), Shen's Lawyers have ceased to be the solicitors acting for the defendants in these proceedings.
114 The orders which I made on 5 August 2015 also included orders:
115 There was no attendance by the defendants at the directions hearing which had been listed for 26 August 2015. The orders made on that date provided for Cauldron Energy to enter the matter for hearing and file a book of papers for the judge. I also ordered that:
Except with the leave of the court, no party may adduce evidence from any witness whose affidavit has not been served in accordance with orders 4 5 of the orders of 17 June 2015, as extended by orders 3 5 of the orders of 5 August 2015.
116 Two other procedural events of significance occurred on 26 August 2015. First, Cauldron Energy filed an amended counterclaim which introduced claims of interference with contractual relations described below. Secondly, Shen's Lawyers filed a certificate that my orders of 5 August 2015 had been served on all parties 'according to O 8 r 7(1)(a)'.
117 A further certificate was filed by Shen's Lawyers on 5 September 2015, indicating that my orders of 5 August 2015 were served on the defendants on 26 August 2015 and 5 September 2015, in the latter case with the transcript of proceedings on 5 August 2015.
118 A copy of the orders made on 26 August 2015 and the amended counterclaim was served on Shen's Lawyers by registered post, email and facsimile on 26 August 2015. Copies of affidavits filed by Cauldron Energy in the proceedings on 2 October 2015 were served by registered post to Shen's Lawyers and email to Shen's Lawyers and 'legalcontroldept@josephbj.com'. Copies of the affidavits were also personally served on the offices of Shen's Lawyers on 15 October 2015.
119 On 25 November 2015, Norton Rose Fulbright Australia (Norton Rose) filed a notice of change of solicitors on behalf of the defendants. On Friday 27 November 2015 the defendants applied for orders vacating the trial listed for the following Wednesday 2 December 2015. That application was heard on Monday 30 November 2015.
120 The circumstances in which Norton Rose came to be engaged are described in the affidavit of Dylan McKimmie affirmed on 27 November 2015. On 23 October 2015, Mr McKimmie met a partner at a Chinese law firm in Beijing, who advised that he had a client involved in a dispute in Australia to whom he may wish to introduce Mr McKimmie. On 2 November 2015 the partner sent Mr McKimmie an email requesting that he participate in a teleconference on that day, during which Mr McKimmie was introduced to Dr Chen. During this teleconference, Dr Chen advised that there was a hearing in the proceedings listed for 1 December 2015, and that he did not know what the hearing was for.
121 Mr McKimmie subsequently sent Dr Chen a letter outlining the basis on which Norton Rose would be prepared to represent the defendants in the proceedings. Mr McKimmie was engaged by Beijing Joseph on 16 November 2015 and by Joseph Investment and Guangzhou City on 23 November 2015.
122 On 23 November 2015, Mr McKimmie wrote to Cauldron Energy's solicitors anticipating filing a notice of change of solicitors shortly, and seeking confirmation of the date and time of the hearing on 1 December 2015 and copies of the most up to date timetabling orders made in the proceeding. On 24 November 2015, Cauldron Energy's solicitors responded indicating that they did not consider it appropriate to correspond with Norton Rose when that firm was not on the record. Notice of change of solicitors was provided on 25 November 2015, and on the same day Cauldron Energy's solicitors advised Norton Rose that the proceedings were listed for trial on 2 December 2015.
123 Norton Rose sought documents in relation to the matter from Shen's Lawyers, and were provided with access to a 'Google drive' containing documents on 26 November 2015. However, the documents were voluminous, incomplete and not in a logical order.
124 The above account of the procedural history of this matter gives rise to an inference that the defendants have adopted a course intended to frustrate the determination of Cauldron Energy's claim. The defendants had attempted, unsuccessfully, to discontinue their action in a manner which would prevent Cauldron Energy from making a counterclaim in the proceedings. The opportunity to make the counterclaim, in a manner which avoided the difficulties of service on companies with no substantial presence in Australia, was presented by the defendants' engagement of the jurisdiction of Australian courts. After unsuccessfully attempting to discontinue in a way in which would enable the defendants to again enjoy the advantage of those service difficulties, the defendants withdrew the instructions of their solicitor on the record.
125 There has been no explanation for the withdrawal of instructions to Shen's Lawyers. The emails from the defendants' legal department do not give any reason why Shen's Lawyers' instructions were being terminated.
126 The defendants appear to be corporations with substantial resources. The email correspondence between Ms Li and Wilson Shen indicates that they have a 'legal department' which was managing the litigation and giving instructions to Shen's Lawyers.
127 At the time the retainer of Shen's Lawyers was terminated, orders had been made requiring the defendants to file and serve any further affidavits in support of their defence by 19 August 2015. I infer that Shen's Lawyers informed officers of the defendants of the making of those orders. I find that the defendants were aware when instructions were withdrawn that there were extant orders of the court requiring them to file evidence on which they relied, and that a directions hearing was listed on 26 August 2015.
128 Ms Li's email of 29 July 2015 indicates that the defendants' legal department appreciated that there was a need to retain new lawyers.
129 The orders which I made on 5 August 2015 included orders listing the action for trial on 2 December 2015. I am satisfied that the orders of 5 August 2015 were served on the defendants by 26 August 2015. There is an unequivocal certificate, filed on that date by Wilson Shen, indicating that the orders were sent on that date. There has been no attempt to contradict that certificate either by evidence from Wilson Shen (who, the evidence indicates, remains cooperative) or the defendants' officers. At least from 26 August 2015 (and earlier, if Shen's Lawyers complied with their obligation to promptly advise the defendants of the listed trial date), the defendants were aware that the matter had been listed for trial on 2 December 2015.
130 In these circumstances, the defendants did not engage new solicitors until 23 November 2015, the week before the trial date. No explanation for the delay in engaging solicitors has been provided.
131 Mr McKimmie has deposed that Dr Chen told him that there was a hearing listed on 1 December 2015 but he did not know what it was about. I do not doubt that this is what Mr McKimmie was told. However, I am not prepared to give any significant weight to the unsworn hearsay statements of Dr Chen, when giving instructions to his solicitor, in reaching conclusions about the defendants' awareness of the trial date. In any event, the knowledge to be attributed to the defendants is not confined to that of Dr Chen.
132 I conclude that the defendants were aware of the trial date of 2 December 2015 and refrained from engaging new solicitors until the week before trial, when the current solicitors went on the record in these proceedings. No explanation has been offered for that conduct by any officer of the defendants.
133 The inference I draw in the absence of any other explanation is that the defendants deliberately refrained from instructing lawyers until just before the trial in an attempt to delay the trial.
134 Once the defendants' current solicitors became aware of the 2 December 2015 trial dates, they predictably sought and obtained instructions to seek an adjournment of the trial. The adjournment application was made on Friday 27 November 2015 and listed for hearing on 30 November 2015. On 30 November 2015, I refused the application. I gave brief oral reasons for my decision at the time, and indicated that I would give more detailed reasons in this judgment.
135 Order 34 r 4 of the Rules empowers me to adjourn a trial to such time as I think fit if I think it 'expedient in the interests of justice to do so'. That rule is to be construed and applied so as best to ensure the attainment of the objectives referred to in O 1 r 4B(1) of the Rules.[35] Those objectives include promoting the just determination of litigation, disposing efficiently of the business of the court, maximising the efficient use of available judicial resources and facilitating the timely disposal of business.
136 Also relevant to the exercise of my discretion to grant an adjournment is the requirement of O 1 r 4A that:
The practice, procedure and interlocutory processes of the Court shall have as their goal the elimination of any lapse of time from the date of initiation of proceedings to their final determination beyond that reasonably required for interlocutory activities essential to the fair and just determination of the issues bona fide in contention between the parties and the preparation of the case for trial.
137 The discretion to grant or refuse an adjournment must also be exercised consistently with the obligation of the court to determine disputes in a manner which is procedurally fair. However, it is well established that this does not require that a party be given an unlimited opportunity to present a case or defence. What is required is that the parties are provided with a sufficient opportunity to present their cases.[36] A party who is given a sufficient opportunity to present their case, and who fails to take advantage of that opportunity without reasonable cause, cannot complain that they have been denied procedural fairness because the court has declined to provide a further opportunity to do so.
138 In considering whether determination of litigation is just, regard must be had to the interest of other parties to the litigation and other litigants in other cases. Speed and efficiency, in the sense of minimum delay and expense, are aspects of the just resolution of proceedings. Considerations of speed and efficiency cannot detract from the requirement that a party to litigation be given sufficient opportunity to present their case. However, where a party has been given a sufficient opportunity to present their case then a decision about an adjournment to provide further opportunity must take account of the injustice to the other parties which may follow from the delay, expense and disruption which results from a listed trial not proceeding.[37]
139 I accepted that the solicitors and counsel who have recently been engaged by the defendants had an impossible task in being properly prepared for the trial on 2 December 2015. That was a powerful consideration favouring the grant of an adjournment.
140 However, I concluded that the difficult position in which the defendants' legal team has been placed is entirely a product of the defendants' deliberate and calculated course of action, which I have described above. In my view, the defendants have had a sufficient opportunity to prepare for trial and, since the withdrawal of instructions to Shen's Lawyers, have consciously refrained from taking advantage of that opportunity.
141 An adjournment would have a significant effect on Cauldron Energy both by increasing the costs which it would necessarily incur and a delay in obtaining and being able to enforce any judgment which Cauldron Energy may ultimately obtain. The orders proposed by the defendants provided for an amendment of the defence and the filing of evidence, with a response from Cauldron Energy and substituted submissions and papers for the judge. While the defendants said that they could be ready for trial within two months, there were practical difficulties in listing the matter at a time available to the court and Cauldron Energy's counsel. The past history of non-compliance with procedural directions by the defendants did not provide grounds for optimism that the defendants would comply with the timetable they proposed.
142 The delay which an adjournment would produce has a particular impact on the business of Cauldron Energy, and the commercial decisions currently facing its board of directors. The particular issues which Cauldron Energy faces are described in the Fourth Grant Affidavit. Due to the commercial sensitivity of that evidence I will not set it out in these reasons. However, I accept what Ms Grant says in that affidavit, and accept that the particular prejudice which the delay of an adjournment would occasion Cauldron Energy is a significant factor counting against the grant of an adjournment.
143 I have also had regard to the loss of time that the court has set aside to deal with the matter on 2 December 2015. While the weight to be given to this consideration is limited by the fact that the trial was listed for only one day, it is a factor counting against the grant of an adjournment.
144 Taking all of the above matters into account, I was of the view that it is not in the interest of justice for the trial to be adjourned. The critical consideration was that the defendants had been given a sufficient opportunity to prepare their defence and, knowing that the matter was listed for trial, consciously refrained from engaging solicitors until a week before trial.
145 For the above reasons, I concluded that the application for adjournment should be dismissed.
146 Cauldron Energy's primary claim against the defendants is for payment of the subscription sums provided for in the defendants' Placement Agreements as a contractual debt.
147 The existence and express terms of the Placement Agreements are not controversial. The defendants admit that they have not paid the subscription sums.[38]
148 However, the defendants contend that their obligation to pay the subscription sums was conditional upon shareholder approval of the placement being obtained in accordance with all applicable laws, including the ASX Listing Rules and the Corporations Act.[39]
149 The defendants do not admit that Cauldron Energy's shareholders passed a resolution which approved the Placement Agreements. I have found above that Cauldron Energy has established that resolutions approving the placement under the defendants' Placement Agreements were passed at the general meeting of shareholders held on 30 September 2014.
150 The defendants further contend that the resolutions passed at the general meeting on 30 September 2014 were 'not legally passed as a general resolution' and are 'invalid and of no effect'.[40] Further, the defendants contend that the resolutions were not obtained in accordance with all applicable laws including the ASX Listing Rules and the Corporations Act.[41] As a result, the defendants contend that their obligation to pay the subscriptions sums never arose.[42]
151 The defendants contend that no valid resolution was passed in accordance with applicable rules because the shareholders of Cauldron Energy 'were not given all information material and reasonably necessary to make the decision of a shareholder whether or not to vote in favour of the resolution'.[43] The information said to be withheld is that, at the date of the Notice:
152 The defendants contend that the contrary statements attributed to Beijing Joseph, Joseph Investment and their associates in section 7.7 of the explanatory memorandum in the Notice (including that they had no intention to change the business of Cauldron Energy and did not have any intentions to inject further capital into Cauldron Energy) were not made by the defendants and were incorrect.
153 In very general summary, Cauldron Energy joins issue with the allegation that the defendants' obligation to pay the subscription sums was conditional upon shareholder approval; denies that the shareholders' resolution depends on the asserted information being provided; denies that the defendants had the asserted intentions; and says that the intentions were not legally binding or disclosed in a way which rendered the asserted intentions material to the vote to be cast by shareholders.
154 Although it is not pleaded in the substituted defence, written submissions filed by the defendants contend that the shareholders were not informed of the offer by Guangzhou City for a substituted investment to that proposed by Starry World, on better terms than those contained in the Starry World Agreement. They claim that the failure to provide this information constituted misleading or deceptive conduct contrary to s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and s 1041 of the Corporations Act. It is contended that the shareholder approvals were not validly given due to Cauldron Energy engaging in misleading or deceptive conduct.
155 In considering the parties' competing cases, it is convenient to address the following issues:
156 For the following reasons, in my view the Placement Agreements make the defendants' obligations to pay the subscription sums conditional upon shareholder approval of the placement of the shares to which payment relates having first been obtained.
157 The general principles which must be applied in the construction of the Placement Agreements are well established. For present purposes it is sufficient to note the following points made by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[44]
158 The answer to the first question is clear in the case of the first Placement Agreement with Beijing Joseph and Joseph Investment. The date for payment under that Placement Agreement was expressly varied to be within two days of shareholder approval being obtained. The time for payment under that express term would not arise until shareholder approval was obtained.
159 I am also of the view that the obligations to pay the subscription sums under the other Placement Agreements were conditional upon shareholder approval having first been obtained.
160 The Placement Agreements begin by recognising that shareholder approval is required and that, on receipt of the Firm Commitment, Cauldron Energy will initiate the process to obtain that approval as soon as practicable.
161 The timetables in cl 2 of the Placement Agreements provided for the payment of subscription sums after the proposed date for the general meeting. The agreements provided for the timetable to change without consultation with the defendants. That suggests that the dates on which the events provided for in the timetable may change. However, the capacity for the timetable to change does not, in my view, involve a change of the order on which events are to occur. That is plainly the case in relation to the holding of the general meeting, the issue of placement shares and trading of those shares. Placement shares could only be traded after they were issued, and could only be issued after the approval which the Placement Agreements acknowledged to be required. In my view, the capacity to amend the timetable is generally confined to changing the dates but not the order in which the specified events are to occur.
162 To recognise a capacity for Cauldron Energy to alter the timetable so that payment was required before shareholder approval would be to produce an uncommercial result from the perspective of the defendants. Such a capacity would enable the timetable to be altered so as to require payment at a time which may be many months before a general meeting of shareholders is held. During that period the defendants would have paid significant sums of money without any prospect of a return on their investment or any capacity to influence the business of Cauldron Energy in which they sought to invest. While the Placement Agreements provide for the subscription sums to be held on trust by Cauldron Energy pending the issue of the shares, they do not provide for the funds to be invested in an interest bearing account or otherwise dealt with in a manner which would produce a return for the investor.
163 It is also relevant to note that there is no corresponding commercial advantage which Cauldron Energy would obtain from having a capacity to require payment before shareholder approval was obtained. Cauldron Energy is required to hold subscription sums on trust until placement shares are issued, so the funds are not available to the company before shareholder approval is obtained. From Cauldron Energy's perspective it makes little difference whether the subscription sum is paid before or after shareholder approval is obtained.
164 Clause 3 of the Placement Agreements is significant. It provides that the defendants' obligations are irrevocable unless shareholder approval is not obtained. The express obligation which the Placement Agreements impose on the defendants is to pay the subscription sum. Clause 3 provides that this obligation is contingent on shareholder approval having been obtained, and in my view assumes that obligation to make payment arises only after shareholder approval is obtained.
165 Cauldron Energy submits that the reference in cl 3 to shareholder approval not being obtained is to the holding of a valid general meeting at which a resolution for approval is rejected. I do not accept that submission. If the relevant event was the holding of a general meeting, it would have been easy for the clause to say so. The clause simply refers to shareholder approval not being obtained. Further, construing the clause so as to maintain the requirement for payment before shareholder approval was obtained would serve no commercial purpose from the perspective of Cauldron Energy and produce the uncommercial result referred to above from the perspective of the defendants.
166 Clause 9 of the Placement Agreements provides that the defendant must pay the subscription sum by a specified date. The language of cl 9 does not expressly qualify the obligation to pay at a specified date. However, that clause must be read with cl 3, which does qualify the obligation created by cl 9 where shareholder approval is not obtained.
167 Cauldron Energy submits that cl 10 of the Placement Agreements contemplates that payment may be made before shareholder approval is obtained. That clause provides that placement shares will be issued as soon as practicable after the receipt of the subscription sums 'and subject to Shareholder Approval being obtained'. The clause makes clear that issue of shares will not occur without approval, even if payment has been made. It accommodates the possibility that the defendants might choose to make payment before shareholder approval is obtained. However, the clause does not indicate that the defendants are required to pay the subscription sums before that time.
168 In my view, when the Placement Agreements are considered as a whole in light of their commercial purpose a reasonable businessperson would understand them to require payment of the subscription sums only after shareholder approval for the placement of the shares has first been obtained.
169 The next issue is whether the efficacy of the shareholders' approval for the purposes of the Placement Agreements depends on shareholders being provided with all information material and reasonably necessary to decide whether or not to vote in favour of the resolutions.
170 Before considering this issue by reference to the terms of the Placement Agreements, I shall consider the legal requirements for approval arising outside the terms of the agreements.
171 Section 606(1) of the Corporations Act, in its relevant application to Cauldron Energy at the date of the Placement Agreements, required that the defendants not acquire a relevant interest in[45] voting shares in Cauldron Energy through a transaction in relation to those shares if, because of the transaction, a defendant's voting power in the company would increase from below 20% to more than 20%, except as permitted by s 611 of the Corporations Act.
172 As I have noted above, on 10 August 2014 Joseph Investment held 10.748% of the shares in Cauldron Energy. At the date of the Notice, Beijing Joseph, Joseph Investment and their associates were recorded as holding 12.91% of the shares in Cauldron Energy. The issue of shares and exercise of options provided for in the Placement Agreements was likely to provide for Beijing Joseph, Joseph Investment and the associated company Guangzhou Joseph collectively to hold more than 20% of the shares in Cauldron Energy.[46]
173 Whether this would be the case would depend on the shares and options issued to other investors, and whether various options were exercised. For example, if Beijing Joseph and Joseph Investment did not exercise their option for the placement of 20 million additional shares, they would not acquire more than 20% of shares under any of the scenarios described in sch 7 to the Notice.
174 In the event that Beijing Joseph, Joseph Investment and Guangzhou Joseph acquired more than 20% of the shares in Cauldron Energy, the 'voting power' of Beijing Joseph, Joseph Investment and their associates would have increased from 12.91% to more than 20% as a result of the Placement Agreements.
175 Section 606(1A) of the Corporations Act provides that a person may acquire a relevant interest under one or more of the exceptions set out in s 611 without contravening s 606(1) of the Corporations Act.
176 The only exception in s 611 which is potentially applicable to the Placement Agreements is that contained in item 7 of the table to s 611. That item refers to an 'acquisition approved previously by a resolution passed at a general meeting of the company in which the acquisition is made'. There are two further conditions to the exemption. First, no votes must have been cast by the person proposing to make the acquisition or their associates or the persons (if any) from whom the acquisition is to be made or their associates. Secondly, it is necessary that:
[T]he members of the company were given all information known to the person proposing to make the acquisition or their associates, or known to the company, that was material to the decision on how to vote on the resolution.
A number of specific examples of information required to be given are specified, none of which is presently material.
177 It is also relevant to note the purposes of ch 6 of the Corporations Act specified in s 602 of the Act. The purposes most relevantly include ensuring that the acquisition of control over voting shares in a listed company takes place in an efficient, competitive and informed market, and that shareholders are given enough information to enable them to assess the merits of a proposal of a person to acquire a substantial interest in the company.[47]
178 Contravention of s 606(1) of the Act may result in a court making 'any order (including a remedial order) that it considers appropriate'. An application for such an order may be made under s 1325A(3) of the Corporations Act by ASIC, Cauldron Energy (or its members) or a 'person whose interests are affected by the contravention'. A wide variety of 'remedial orders' are identified in s 9 of the Act. No order under s 1325A has been sought in these proceedings.
179 The ASX Listing Rules form part of the operating rules which the ASX is required to maintain under s 793A of the Corporations Act. The Listing Rules inform the exercise of ASX's discretion concerning the admission of an entity to, or its removal from, the official list and the quotation or suspension of its securities. Section 793C of the Corporations Act provides for certain applicants to seek orders about compliance with operating rules against a company that is, with its acquiescence, included in the official list. Orders may also be made under s 1101B of the Corporations Act, on the application of ASIC or the ASX, if it appears that a person has contravened the operating rules.
180 The effect of r 7.1 of the ASX Listing Rules is that, subject to certain exceptions, Cauldron Energy must not, without the approval of holders of ordinary securities, issue or agree to issue shares exceeding 15% of the value of its securities, calculated in the manner provided for in that listing rule.
181 The placements of shares provided for in the Placement Agreements, together with an additional $4 million investment by Guangzhou City at the same time, exceeded the 15% limit provided by r 7.1 of the Listing Rules. Cauldron Energy had placed the shares it had capacity to issue with Guangzhou City on 19 June 2014, and held the remaining money in trust pending approval of the issue of those shares.[48]
182 Rule 7.2 of the ASX Listing Rules provides for a number of exceptions to r 7.1. It relevantly provides that r 7.1 does not apply in the case of an issue of securities approved for the purposes of item 7 of s 611 of the Corporations Act.
183 Rule 7.3 of the ASX Listing Rules provides that, for the holders of ordinary securities to approve an issue or agreement to issue under r 7.1, the notice of meeting must include each of a number of specified matters. It has not been suggested that the Notice omitted any of the information required by r 7.3. Rule 7.3 does not expressly require members of the company to be given all known information material to the decision of whether to approve the issue.
184 Both parties referred to decisions dealing with the duty of a director to a company and its members where a general meeting of the shareholders of a company has been called to consider, and if thought fit, pass a resolution which affects the company and its shareholders. Those cases recognise that, in those circumstances, the directors are bound to make a full and fair disclosure of all matters which are within their knowledge and which would enable the shareholders to make a properly informed decision on the issue in question. A director may be in breach of this duty when material put before the shareholders is materially misleading or does not include material which is important and relevant to the decision which the shareholders are asked to make.[49]
185 Having noted the position under the general law, I return to the question of the proper construction of the Placement Agreements.
186 As I have noted, the defendants contend that their obligation to pay the subscription sums was conditional upon shareholder approval of the placement being obtained in accordance with all applicable laws including the ASX Listing Rules and the Corporations Act. They contend that the shareholder approval given on 30 September 2014 was not of that character because members of Cauldron Energy were not given all information material and reasonably necessary to make the decision whether or not to vote in favour of the resolutions approving the placement of shares with the defendants.
187 The Placement Agreements condition Cauldron Energy's obligation to issue placement shares on 'shareholder approval' being obtained 'in accordance with ASX Listing Rules'. The defendants' pleading raises the constructional question of whether an approval only operates for the purposes of the Placement Agreements if members voting on the resolution were given all information material and reasonably necessary to decide whether to vote in favour of the placement of shares with the defendants.
188 In my view, the efficacy of shareholder approval for the purposes of the Placement Agreements did not depend on members being given all information material and reasonably necessary to decide whether to approve the placement of shares with the defendants. That is so for seven reasons.
189 First, the Placement Agreements expressly refer to approval being obtained in accordance with the ASX Listing Rules. Rule 7.3 specifies the information which shareholders must have to approve an issue of shares for the purposes of r 7.1. As I have noted, the information required by r 7.3 was provided in the Notice. Approval will have been given in accordance with the ASX Listing Rules so long as the information referred to in r 7.3 is provided.
190 Secondly, the Placement Agreements do not refer to any requirement for approval under the Corporations Act. Shareholder approval would not be required in order to avoid the placement of shares under the Guangzhou City Placement Agreement contravening s 606(1) of the Corporations Act on the information known to both parties. Whether or not shareholder approval would be required to avoid the placement of shares under the Beijing Joseph/Joseph Investment Placement Agreements contravening s 606(1) of the Corporations Act would depend on a variety of circumstances. Those circumstances include the number of shares held by those companies and Guangzhou Joseph when shares are placed under the Placement Agreements and whether the options provided for in the Placement Agreements are exercised. The operation of the Placement Agreements should not be construed as depending on the satisfaction of regulatory requirements which may or may not arise.
191 Thirdly, nothing in pt 6.1 of the Corporations Act provides that a resolution passed without material information is invalid.[50] Such a resolution will not engage the exception in item 7 of the table to s 611, which refers both to the existence of the resolution and the circumstances in which the approval is made. But there will still be an 'acquisition approved previously at a meeting passed at a general meeting of the company' for the purposes of item 7. The resolution is not made invalid, even if it will not be sufficient to engage item 7 of the table to s 611.
192 Fourthly, a condition for the application of the exception in item 7 is that members were given all material information 'known to the person proposing to make the acquisition or their associates', as well as such information known to the company. If shareholder approval only operated for the purposes of the Placement Agreements when the requirements of item 7 were satisfied, the defendants could avoid their obligations under the Placement Agreements by withholding material information known to them but not to Cauldron Energy. That seems an unlikely commercial result. Further, if satisfaction of the requirements of item 7 were a necessary condition for the existence of a shareholder approval of the kind referred to in the Placement Agreements, it would be expected that the agreements would impose an obligation on the defendants to disclose all material information. The absence of any such requirement further counts against construing the Placement Agreements as conditioning the parties' obligations on compliance with item 7 of the table to s 611 of the Corporations Act.
193 Fifthly, conditioning the parties' obligations under the Placement Agreements with a requirement of disclosure of all material information would introduce a considerable degree of uncertainty into the agreements. Whether particular information is material will often involve questions of judgment and degree, on which different minds may reasonably reach different conclusions. On Cauldron Energy's construction of the Placement Agreements, a resolution either is or is not passed in accordance with the ASX Listing Rules. The parties can readily ascertain whether such a resolution has been passed, and so can readily ascertain whether they are obliged to pay the subscription sum and issue the shares. On the defendants' construction, in order to understand whether the obligation to make payment and place shares arose, the parties would need to consider what information was known to each party, whether any of that information was material to the decision to approve the placement of shares provided for in the Placement Agreement and whether that information was given to shareholders. A condition of disclosure of all material information known to the parties would detract from the commercial certainty, and therefore the commercial purpose, of the Placement Agreements.
194 Sixthly, the valid operation of the Placement Agreements does not depend on the engagement of the exception in item 7 of the table to s 611 of the Corporations Act. Section 607 of the Corporations Act expressly provides that a transaction is not invalid because it involves contravention of s 606. Nor is there any basis for saying that a breach of the directors' duty of disclosure, or a contravention of s 12DA of the ASIC Act or s 1041 of the Corporations Act by making misleading or deceptive statements to shareholders, would invalidate the transaction. Those matters involve the duties of directors and the rights of shareholders to whom the directors communicate, rather than the contractual position of Cauldron Energy and persons with whom it enters commercial agreements. Of course, the defendants are also shareholders of Cauldron Energy, but there is no suggestion that they were relevantly misled in relation to any material matter.
195 Seventhly, in many cases there will be no commercial purpose advanced by construing the Placement Agreements as requiring payment for and a placement of shares only where all necessary and material information is provided to shareholders before approval is given. The issue will only arise where approval is given. If material tending to favour approval is withheld, the withholding will not have had any material prejudicial effect because the approval will have been given despite information tending to support the decision not being available. If misleading material counting against the grant of approval is provided, then the provision of that material will not have had any material effect because it did not prevent approval being given. In either of these circumstances there is no basis for any party to claim damages arising from the misleading information, and no reason to apprehend that a court acting under s 1325A of the Corporations Act might set aside the transaction.
196 In the present case the defendants contend that material tending to favour approval of placement of shares with them (being their intentions to further invest in and expand Cauldron Energy's business) was omitted, and misleading information counting against approval (that the defendants had said they did not intend to further invest or change the business) was provided. Had information been provided in the manner for which the defendants contend, it would have reinforced the decision to approve placement of shares with the defendants. I can see no commercial reason why the failure to provide shareholders with information supporting the Placement Agreements should be the occasion for the defendants to avoid the obligation to make payment when shareholder approval is in fact obtained.
197 Having regard to all of the matters discussed above, on the proper construction of the Placement Agreements, the efficacy of the shareholders' approval does not depend on shareholders being provided with all information material and reasonably necessary to decide whether or not to vote in favour of the resolutions. It is sufficient that shareholders' approval is obtained in the manner provided for by the ASX Listing Rules. As the shareholder approval for the placement of shares with the defendants met the requirements of the ASX Listing Rules, there was a 'shareholder approval' for the purposes of the Placement Agreements, and the condition for the existence of the defendants' obligation to pay the subscription sums by the due dates was satisfied.
Was there a failure to provide material information?
198 My conclusion as to the proper construction of the Placement Agreements makes it unnecessary to decide whether there was a failure to provide information which was material to the decision as to whether to approve the placement of shares with the defendants at the shareholders' meeting on 30 September 2014. However, in case the matter proceeds further I will state my conclusion in relation to those matters.
199 By 23 September 2014, prior to the date of the general meeting, Guangzhou City had expressed a willingness to make a further investment in Cauldron Energy. It is true that the intention was not expressed in a legally binding form, and was conditional upon the placement of shares with Starry World not occurring. However, the statement of intention remained relevant to the decision as to whether to approve the placement of shares with Guangzhou City. It was a factor which shareholders could have taken into account in deciding whether approval of the placement was in the shareholders' and Cauldron Energy's best interests.
200 The fact that Guangzhou City was prepared to offer further support to Cauldron Energy was a factor tending to favour approval of the resolution approving placement of shares with that company. It suggested that approval of the placement of shares provided for in Guangzhou City's Placement Agreement might open up further capital raising opportunities in the future. The fact that the intention was not expressed in a contract or some other legally binding form was also relevant, and would need to have been disclosed. But the circumstance that future investment by Guangzhou City was not certain, and could not be compelled, did not make their future intentions for the company immaterial.
201 Cauldron Energy points out that Guangzhou City's willingness to make any investment in the company was conditional upon the Starry World placement not proceeding. It was submitted that these conditions were unacceptable to Cauldron Energy. That is not an answer to the defendants' point. Cauldron Energy's shareholders could have taken the view that the conditions were acceptable and refused to approve the placement of shares with Starry World. A refusal to approve any placement of shares with Starry World would inevitably have led to the removal of Starry World's nominee as director. The conditions of Guangzhou City's proposed further investment did not make their intention to make that further investment irrelevant to a consideration of whether a placement of shares with Guangzhou City ought to be approved.
202 Guangzhou City's conditional proposal for further investment may also have been relevant to the decision as to whether to approve the placement of shares with Starry World, as would the existence of the defendants' expressed objection to that investment. However, the operation of the Placement Agreements did not turn on whether shares were or were not placed with Starry World. Any complaint about nondisclosure by the defendants must be based on the relevance of withheld information to the placement of shares with the relevant defendant, rather than to the placement of shares with some other party. The above conclusions as to the materiality of Guangzhou City's further investment proposal are based on its relevance to the decision to approve the placement of shares with Guangzhou City.
203 I am not satisfied that there was any equivalent intention to invest in Cauldron Energy, expressed by either Beijing Joseph or Joseph Investment, which required disclosure to shareholders.
204 At least so far as Cauldron Energy was concerned, Guangzhou City was not related to Beijing Joseph. The contrary has not been established in these proceedings. Therefore, the suggested investment by Guangzhou City could not be equated with an investment by Beijing Joseph or Joseph Investment. There is no evidence of Beijing Joseph or Joseph Investment having expressed any clear intention to make additional capital investments in Cauldron Energy.
205 Nor do I regard the statement in section 7.7(b) of the explanatory memorandum to the Notice as misleading so far as it conveys the message that Beijing Joseph and Joseph Investment did not have any intention to inject further capital into Cauldron Energy.
206 On 22 July 2014 Ms Grant emailed a 'near final' draft of the Notice to directors including Dr Wang. The draft included section 7.7 in its final form. The covering email said:[51]
Items that you may wish to satisfy yourselves with have been highlighted in blue in the attached (director statements). Unless I hear from you otherwise in the next 24 hours, I'll assume you agree with these statements.
The heading to section 7.7 of the explanatory memorandum was highlighted with the note 'AW to confirm on behalf of Joseph Investment'.
207 There is no evidence either of Dr Wang objecting to the statements in section 7.7 of the explanatory memorandum, or of any officer of Beijing Joseph or Joseph Investment expressly adopting those statements.
208 On 23 July 2014 Beijing Joseph and Joseph Investment threatened to withhold payment under their Placement Agreements. Their objections to the Starry World investment and the appointment of Mr Huang as director were reiterated on 28 July 2014 and, by Dr Wang apparently speaking on their behalf, at the directors' meeting on 29 July 2014. The minutes of the directors' meeting on 29 July 2014 show that the draft Notice was mentioned, but no objection was taken to its contents by Dr Wang.
209 Following the appointment of Mr Huang as a director, the defendants and Guangzhou Joseph purported to rescind the Placement Agreements on 6 August 2014.
211 On 3 September 2014 Beijing Joseph 'and associated companies' indicated that the statements in section 7.7 were untrue and misleading.
212 By 23 September 2014, Dr Chen had indicated that Guangzhou City was prepared to make an investment to 'replace Starry World'.
213 Cauldron Energy relied on the absence of comment from Dr Wang to the draft notice as constituting an adoption of the statements in section 7.7 of the explanatory memorandum by Beijing Joseph and Joseph Investment. Given that Dr Wang appears to have been treated by all parties as representing the interests of Beijing Joseph and Joseph Investment as well as acting as an officer of Cauldron Energy, this was not an unreasonable assumption. Section 7.7 reflected the position as it was understood by Cauldron Energy at the date the Notice was issued.
214 It is true that Beijing Joseph had subsequently indicated that the statements in section 7.7 were incorrect. However, neither Beijing Joseph nor any of its 'associated companies' had indicated that they would make a further investment. Beijing Joseph, Joseph Investment and Guangzhou Joseph had threatened not to make the investment required by the Placement Agreements themselves. In all these circumstances the failure to qualify the statements made in section 7.7 was not misleading. Indeed, in all the circumstances it would have been misleading to have stated that Beijing Joseph and Joseph Investment intended to inject further capital into Cauldron Energy.
215 The defendants also contend that several other matters were relevant to the decision to approve the placement of shares with Beijing Joseph and Joseph Investment.
216 These include a proposed injection of assets into Cauldron Energy, and the signing of an investment agreement. The evidence does not disclose any concrete proposal about these matters which would have been material to convey to shareholders deciding whether to approve placement of shares with Beijing Joseph and Joseph Investment. Cauldron Energy was not a party to the first asset injection agreement to which the defendants referred, which concerned a 'lithium asset'. The 'agreement' appears in fact to have been a 'letter of support' signed by Mr Sage.[52] The second asset injection was a vague reference to the signing of an agreement regarding the 'injection of Fanso Battery Technology Co Ltd'.[53] There is no evidence that the investment agreement was signed, and some evidence that it was not.[54]
217 For the above reasons, I have concluded that the proposal by Guangzhou City to invest an additional $5 million was material to the shareholders' decision of whether to approve the placement of shares with Guangzhou City under its Placement Agreement. That proposal was made by 23 September 2014, following the issue of the Notice. The existence of that proposal was not disclosed to shareholders at the meeting on 30 September 2014.
218 The conclusion reached in the above paragraph does not produce any consequences for Guangzhou City's obligation to the pay the subscription sum under its Placement Agreement. Nor could it result in the placement of shares with Guangzhou City contravening s 606(1) of the Corporations Act, as the placement agreements clearly did not provide for Guangzhou City to acquire more than 20% of the shares in Cauldron Energy.
219 I am not satisfied that any other information which the defendants have identified as not being disclosed to the shareholders' meeting of 30 September 2014 was material to the decision to approve the placement of shares with the defendants. Nor am I satisfied that the Notice was misleading or deceptive in any material respect.
220 The defendants' supplementary written submissions allege that 'Cauldron Energy's shareholders were misled or deceived in that they were not provided with complete information enabling them to make an informed decision when voting on the resolutions at the general meeting on 30 September 2014'.
221 In response, Cauldron Energy submits that a defence based on contravention of s 12DA of the ASIC Act and s 1041H of the Corporations Act has not been pleaded, and the submission should be rejected on that basis. While I accept that submission, I will also consider the merits of the defendants' contentions.
222 In part, the defendants say that the statements made in section 7.7 of the explanatory memorandum to the Notice were incorrect and misleading, as was the failure to disclose proposals by Beijing Joseph and Joseph Investment to inject assets into Cauldron Energy.[55] I have already rejected this contention above.
223 The defendants also say that the Notice of Meeting was deficient because it failed to disclose the existence of an alternative investor to Starry World, which was prepared to invest on more favourable terms than Starry World.[56]
224 The defendants invite the court to conclude that, had they been informed of the alternative investment proposal, shareholders would not have approved resolutions 4 and 6, which were not in their best interests because they provided Cauldron Energy a lower price per share and would cause greater dilution of shareholders' shares.[57] I do not accept that submission. There may be greater merit in the contention that, if informed of the alternative investment proposal, shareholders would not have approved the Starry World placement. However, resolutions 4 and 6 concerned the placement of shares with the defendants, not Starry World. Guangzhou City's additional proposal was advanced as a substitute for the Starry World investment, not as an alternative to the investment by the defendants provided for in the Placement Agreements. The defendants have not identified any reason why the additional proposal by Guangzhou City provided any reason for not approving the placement of shares with the defendants. My conclusion that the expressed willingness of Guangzhou City to inject further capital was material is reached on the basis that it was a factor tending to favour approval of the placement of shares under the Guangzhou City Placement Agreement.
225 The fact that the additional proposal by Guangzhou City was material to the decision as to whether to approve the placement of shares under the Guangzhou City Placement Agreement does not necessarily mean that the Notice was misleading and deceptive by failing to include reference to the additional proposal. The additional proposal was communicated after the Notice was issued. I am not satisfied that the omission of this information made the notice misleading or deceptive, or likely to mislead or deceive.
226 Conduct will only be misleading and deceptive if it induces or is capable of inducing error.[58] The defendants accept that whether conduct is misleading or deceptive is a question of fact, to be determined by an examination of the relevant course of conduct as a whole in light of the relevant surrounding facts and circumstances.[59]
227 In all the circumstances of the present case, I am not satisfied that omission of reference to Guangzhou City's additional proposal made the Notice misleading and deceptive or likely to mislead or deceive. While the information was material, its significance to the decision to approve the placement of shares with Guangzhou City was limited. The general tenor of the Notice was that it was in Cauldron Energy's and the shareholders' best interests to approve the placement of Shares with Guangzhou City. The omission of one matter, which I have identified as supporting that recommendation, does not itself mean that the Notice is likely to lead shareholders into error. The Notice did not say anything about Guangzhou City's future intentions in relation to further capital injections, and would not be likely to have led a shareholder to erroneously think that Guangzhou City had no intention to make a further investment.
228 It is also relevant to note that, even if shareholders might have been misled, there is no suggestion that the defendants could have been misled or deceived by the omission of information about Guangzhou City's additional investment proposal. The defendants were aware of the information in any event. They could not have suffered any loss or damage by any contravention of s 12DA of the ASIC Act and s 1041H of the Corporations Act, so as to be entitled to seek relief in respect of such a contravention. Nor can I see any basis on which the omission of information could support an order under s 12GM of the ASIC Act or s 1325A of the Corporations Act interfering with the operation of the Guangzhou City Placement Agreement.
229 Finally, I see no basis for construing the Placement Agreements as conditioning the defendants' payment obligations on an absence of any contravention of s 12DA of the ASIC Act and s 1041 of the Corporations Act related to the shareholder approval.
230 For all of the above reasons, the defendants' allegations of contravention of s 12DA of the ASIC Act and s 1041 of the Corporations Act do not provide a defence to Cauldron Energy's claim for payment of subscription sums under the defendants' Placement Agreements.
Resolution of claim for payment of subscription sums
231 For the above reasons, the Placement Agreements required the defendants to pay the specified subscription sums to Cauldron Energy on the dates indicated in the agreements, subject to the placement of shares having first been approved at a general meeting of Cauldron Energy's shareholders. The shareholders approved the placement of shares with the defendants under the Placement Agreements at a general meeting held on 30 September 2014. The following payments were required, and have not been made by the defendants:
232 Judgment should be entered against each defendant in those amounts.
233 Cauldron Energy also makes a claim against the defendants for damages for breach of the payment obligations in the Placement Agreements, being the estimated $55,000 which it will cost Cauldron Energy to obtain a further approval at a shareholders' general meeting.[60] Further approval is required because ASX Listing Rule 7.3.2 required that the date for the issue of the securities, which the Notice must specify for the shareholders to approve an issue under r 7.1, be no later than three months after the date of the meeting.
234 Ms Grant has given unchallenged evidence that the cost to Cauldron Energy of convening the general meeting on 30 September 2014 was in excess of $55,000.[61] I will award damages against each defendant in the sum of $55,000 reflecting the wasted expenditure on the 30 September 2014 meeting. Because Cauldron Energy should only be able to recover one set of costs, the award of damages should provide that the defendants are jointly and severally liable to pay Cauldron Energy damages in the amount of $55,000.
Inducement of breach of contract by Guangzhou City
235 Cauldron Energy also seeks an award of damages against Beijing Joseph and Joseph Investment for damages for alleged tortious interference with Cauldron Energy's contractual relations with Guangzhou City. Those parties will have committed the tort of interference with contractual relations if they knowingly and intentionally induced or procured Guangzhou City to breach its contractual obligation under its Placement Agreement in a manner which caused loss or damage to Cauldron Energy.[62]
236 Cauldron Energy's pleaded case against Beijing Joseph and Joseph Investment is as follows.
237 Paragraph 32 of the counterclaim pleads that, at all material times, Beijing Joseph and Joseph Investment knew of the existence of the Guangzhou City Placement Agreement and that failure by Guangzhou City to pay its subscription sum would be a breach of that agreement. Paragraph 33 pleads that, on an unknown date after 6 June 2014 and before 3 November 2014, Beijing Joseph and Joseph Investment 'induced, alternatively procured Guangzhou City to breach the Guangzhou City Placement Agreement'. Paragraph 35 pleads that Beijing Joseph and Joseph Investment intended to induce or procure Guangzhou City to breach its Placement Agreement. Paragraph 36 pleads that by reason of this conduct of Beijing Joseph and Joseph Investment, Guangzhou City failed to pay its $1 million subscription sum by 3 November 2014 or at all. Paragraph 37 pleads that by reason of that conduct, Cauldron Energy has suffered loss and damage, particularised as it not receiving the $1 million subscription sum from Guangzhou City.
238 Cauldron Energy's claim for tortious interference with contractual relations was introduced by an amendment to the counterclaim made during the period when the defendants had chosen not to actively participate in these proceedings. The defence to the counterclaim did not respond to the pleadings referred to above.
239 Cauldron Energy relies on the operation of O 20 r 14 and r 15 of the Rules to prove this aspect of its claim.
240 Rule 14 relevantly provides that, subject to subrule (4), any allegation of fact made by a party in its pleading is deemed to be admitted by the opposite party unless it is traversed by that party in its pleading or a joinder of issue under r 15 operates as a denial of it.
241 Subrule (4) provides that any allegation that a party has suffered damage and any allegation as to the amount of damages is deemed to be traversed unless specifically admitted.
242 Rule 15 deals with an implied joinder of issue, but provides in subrule (3) that:
There can be no joinder of issue, implied or express, on a statement of claim or a counterclaim.
243 Cauldron Energy submits that the pleadings in pars 32 36 of its counterclaim have not been traversed in the defence, and that issue cannot be expressly or impliedly joined with those paragraphs. Cauldron Energy submits that r 14(1) therefore deems the allegations of fact made in those paragraphs to be admitted. It says that this aspect of the case should proceed as an assessment of damages.
244 The defendants contend that the allegation that Beijing Joseph and Joseph Investment 'induced, alternatively procured Guangzhou City to breach the Guangzhou City Placement Agreement' states a legal conclusion and not a plea of an individual fact which can be responded to in a pleading. The defendants also say that the court is not bound by the admission, and a deemed factual admission does not require the court to accept facts where there is any doubt as to the correctness of those facts.[63]
245 Counsel for Cauldron Energy was unable to identify what it was that some officer of Beijing Joseph or Joseph Investment did to induce or procure Guangzhou City to breach its Placement Agreement. The evidence adduced in the action does not satisfy me that Beijing Joseph and Joseph Investment acted in that manner. Particularly in those circumstances I have considerable sympathy for the defendants' submissions in relation to the alleged 'deemed admission'.
246 However, it is unnecessary for me to reach any conclusion as to the deemed admission issue. That is because both parties accept that there is no deemed admission as to the existence or amount of damages, and that damage is an element of the cause of action which Cauldron Energy must prove. For reasons I will explain, I am not satisfied that Cauldron Energy has established its claimed amount of damage as a result of the alleged tortious interference with its contractual relations with Guangzhou City even assuming (without deciding) that tortious interference has been established.
247 Cauldron Energy particularises the loss and damage which it has suffered as the fact that it did not receive payment of the $1 million from Guangzhou City by 3 November 2014 or at all. In its written submissions Cauldron Energy also claims the cost of convening a further general meeting to approve the issue of shares to Guangzhou City as damage resulting from the tort. I have already concluded that the defendants are jointly and severally liable to pay damages for the wasted expenditure in convening a general meeting of shareholders.
248 It is not contentious that the object of compensatory damages for tort is to place the plaintiff in the same position as it would have been in if the tort had not been committed. This may be contrasted with the general principle by which damages for breach of contract are assessed, which seeks to put the plaintiff in the same position as it would have been in if the contract had been performed. In both cases the general principle is that the plaintiff should receive a monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant's wrongful conduct.[64]
249 The question in the present case is whether the loss of the $1 million capital sum provided for in the Guangzhou City Placement Agreement reflects the loss or damage which Cauldron Energy has suffered as a consequence of Beijing Joseph and Joseph Investment procuring or inducing a breach of contract by Guangzhou City.
250 In my view, the loss which Cauldron Energy has suffered is not the loss of the capital investment which Guangzhou City would make under the Placement Agreement. Cauldron Energy has not lost that capital investment. The orders I make in these proceedings will require Guangzhou City to pay the contractual debt of $1 million, following which Cauldron Energy will be obliged to issue the shares provided for in the Placement Agreement. If, for some reason, the judgment of this court cannot be effectively enforced against Guangzhou City, then Cauldron Energy would be under no obligation to place the shares with Guangzhou City. It could then issue those shares to another party to secure the capital investment.
251 If the court were to order Beijing Joseph and Joseph Investment to pay $1 million in damages to Cauldron Energy then Cauldron Energy would be in a better position than it would have been if the tort had not been committed. In that event, Cauldron Energy would receive $1 million from, but be under no obligation to place corresponding shares with, Beijing Joseph and Joseph Investment. Cauldron Energy could receive payment of damages equivalent to Guangzhou City's subscription sum without incurring any corresponding obligations to those provided for in the Guangzhou City Placement Agreement.
252 I agree with the defendants' submission that the relevant measure of tortious damages in the present case is not the loss of the $1 million capital sum, but the loss of the use of that sum. That is, the relevant measure of loss and damage is the loss of profit which the capital sum of $1 million would have been used to generate had it been received from Guangzhou City on 3 November 2014, or the loss of the opportunity to make such a profit. Where a company has agreed to allot shares pursuant to a transaction which does not proceed, the resultant loss to the company by reason of the failure of the transaction is not the capital sum represented by the shares to be allotted, but rather the loss of the use of the consideration.[65]
253 In the present case Cauldron Energy has not sought to establish what it would have done with the capital investment by Guangzhou City if it had been received. Even if the element of loss is taken to be established by wasted expenditure on a general meeting to approve the placement of shares (for which damages are to be awarded in any event), the evidence does not support any award of damages for loss of use of the capital which Guangzhou City had contracted to invest.
254 Therefore, on the assumption that the elements of the tort of interfering with contractual relations have been established, the evidence does not support an award of damages beyond compensation for the wasted expenditure in obtaining shareholder approval for the placement of shares with Guangzhou City (for which damages are awarded in any event). The evidence does not warrant any relief to Cauldron Energy beyond that which it should obtain in its contractual claim against Beijing Joseph and Joseph Investment.
Inducement of breach of contract by Guangzhou Joseph
255 Substantially the same kind of claim is pleaded in respect of the alleged inducement or procurement by Beijing Joseph and Joseph Investment of a breach of the Guangzhou Joseph Placement Agreement.
256 The claim in respect of the Guangzhou Joseph Placement Agreement must fail because the agreement did not require Guangzhou Joseph to make any payment in the absence of shareholder approval of placement of shares under that agreement. Guangzhou Joseph did not breach its Placement Agreement by failing to make the payment because, in the absence of shareholder approval, payment was not due.
257 Ms Grant accepted that a resolution approving the placement of shares with Guangzhou Joseph had never been put to or passed by a general meeting of shareholders. There may have been a number of reasons why the directors of Cauldron Energy did not advance such a resolution. However, regardless of the reasons, the fact that no approving resolution was passed meant that the condition for the existence of Guangzhou Joseph's contractual obligation to pay the subscription sum was never satisfied.
258 Despite any deemed admission, the evidence adduced by Cauldron Energy establishes that Beijing Joseph and Joseph Investment could not have procured or induced a breach of the Guangzhou Joseph Placement Agreement because there was no breach of that agreement. I will act on the evidence rather than the deemed admission. Further, because Cauldron Energy was not entitled to receive the $2 million payment under the Guangzhou Joseph Placement Agreement, it can have suffered no loss as a consequence of the defendants' conduct.
259 In addition, for the reasons explained above, the relevant measure of loss and damage would reflect the loss of use of the capital sum to be invested by Guangzhou Joseph rather than the capital sum itself. No damage or loss resulting from the loss of use of the funds has been established. As no general meeting has ever been called to consider the placement of shares with Guangzhou Joseph, no wasted expenditure has been established.
260 For these reasons, I would not make any award of damages against Beijing Joseph or Joseph Investment in respect of the Guangzhou Joseph Placement Agreement.
261 For the above reasons, I would enter judgment for Cauldron Energy:
(a) $1 million from 3 October 2014 to 1 December 2014; and
(b) $2 million from 2 December 2014 until the date of judgment.
262 I will hear from the parties as to the precise form of these orders and any consequential orders which they seek.
[1] Leave to rely on the Fifth Grant Affidavit was granted at trial, without objection by the defendants: ts 107.
[2] Attachment CJG 96 to the Third Grant Affidavit.
[3] Attachment CJG 1 to the First Grant Affidavit.
[4] Third Grant Affidavit par 2 and attachment CJG 95.
[5] Attachment CJG 15 to the First Grant Affidavit.
[6] Attachment CJG 20 to the First Grant Affidavit.
[7] Attachment CJG 28 to the First Grant Affidavit.
[8] Attachment CJG 29 to the First Grant Affidavit.
[9] Attachment CJG 30 to the First Grant Affidavit.
[10] Attachment CJG 31 to the First Grant Affidavit.
[11] Attachment CJG 97 to the Third Grant Affidavit.
[12] Attachment CJG 32 to the First Grant Affidavit.
[13] Attachment CJG 38 to the First Grant Affidavit.
[14] Attachments CJG 39, 40 and 42 to the First Grant Affidavit.
[15] Attachment CJG 44 to the First Grant Affidavit.
[16] Attachment CJG 45 to the First Grant Affidavit.
[17] Attachment CJG 46 to the First Grant Affidavit.
[18] Attachment CJG 47 to the First Grant Affidavit.
[19] Attachment CJG 48 to the First Grant Affidavit.
[20] Attachment CJG 52 to the First Grant Affidavit.
[21] Attachment CJG 53 to the First Grant Affidavit.
[22] Attachment CJG 57 to the First Grant Affidavit.
[23] Attachment CJG 58 to the First Grant Affidavit.
[24] Attachments CJG 61 to CJG 63 to the First Grant Affidavit.
[25] Attachment CJG 62 to the First Grant Affidavit.
[26] Attachment CJG 103 to the Third Grant Affidavit.
[28] Attachment CJG 64B to the First Grant Affidavit.
[29] Attachment CJG 65 to the First Grant Affidavit.
[30] Attachments CJG 66 and CJG 67 to the First Grant Affidavit.
[31] Paragraphs 35 - 43 of the Third Grant Affidavit and pars 2 - 4 of the Fifth Grant Affidavit.
[32] Beijing Joseph Investment Co Ltd v Starr World Investment Ltd [2014] NSWSC 1757.
[33] Beijing Joseph Investment Co Ltd v Starr World Investment Ltd [2015] WASC 110.
[34] Beijing Joseph Investment Co Ltd v Starr World Investment Ltd [No 2] [2015] WASC 186 [12].
[36] Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 [98], [102], [112].
[39] Substituted defence, pars 4(b), 5(b), 8(b), 10(b), 11(c), 13(b), 16(c), 18(b).
[40] Substituted defence, pars 7(b), 12(b), 17(b).
[41] Substituted defence, pars 7(c), 12(c), 17(c).
[42] Substituted defence, pars 7(d), 8(c), 12(d), 13(c), 17(d), 18(c).
[44] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990 [46] [51].
[45] A 'relevant interest' in securities includes the power to dispose of, or control the exercise of votes attached to, securities: s 608 of the Corporations Act. Accordingly, s 606 may be contravened where the members of a corporate group subject to common control collectively acquire more than 20% of the company's share capital.
[46] Some of the different scenarios are set out in sch 7 to the Notice.
[47] Section 602 (a)(i) and (b)(iii) of the Corporations Act.
[48] See p 12 of the explanatory memorandum to the Notice.
[49] See Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1426; (2005) 55 ACSR 583 [37] [40] and cases there cited; see also the discussion in Austin RP & Ramsay IM, Ford, Austin and Ramsay's Principles of Corporations Law (16th ed) [7.460].
[50] This conclusion is not affected by the contrary statement in par 74.20 of ASIC's Regulatory Guide 74: Acquisitions Approved by Members, which does not have the force of law.
[51] Attachment CJG 43 to the First Grant Affidavit.
[52] Attachment CJG 13 to the First Grant Affidavit.
[53] Attachment CJG 59 to the First Grant Affidavit.
[54] See the email of 6 June 2014 in attachment CJG 13 to the First Grant Affidavit. An unsigned copy of an agreement appears as part of attachment CJG 8 to the First Grant Affidavit.
[55] Paragraph 57(a) and 59 of the defendants' supplementary submissions.
[56] Paragraph 57(b) - (e) and 59(b) of the defendants' supplementary submissions.
[57] Paragraph 44 of the defendants' supplementary submissions.
[58] Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; (2000) 104 FCR 564 [63] and cases there cited.
[59] Citing Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 and Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357.
[60] Paragraphs 21.2 and 27.2 of the counterclaim.
[61] Paragraph 31 of the Third Grant Affidavit.
[62] See the recent discussions of the elements of the tort in Jaddcal Pty Ltd v Minson [No 3] [2011] WASC 362 [168] [177] and Donaldson v Natural Springs Australia Ltd [2015] FCA 498 [209] [224]. In the present case there is no need to deal with the more controversial aspects of the tort. Here the only inducement alleged is of a breach of the Placement Agreement, so it is unnecessary to consider whether some other interference with contractual relations could found a claim in tort. There is no suggestion of justification for the alleged interference, and no issue about direct or indirect interference has been raised. There is no question of inconsistent dealing.
[63] Citing Parker v Commonwealth [1965] HCA 12; (1965) 112 CLR 295, 299; Damberg v Damberg [2001] NSWCA 87; (2001) 52 NSWLR 492 [160] and Optical 88 Ltd v Optical 88 Pty Ltd (No 2) [2010] FCA 1380; (2010) 275 ALR 526 [156].
[64] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 98, 116.
[65] Strategic Minerals Corp NL v Basham (1997) 25 ACSR 470, 506; Poseidon Ltd v Adelaide Petroleum NL [1991] FCA 663; (1991) 105 ALR 25, 42, 51; Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431, 530 531; OzEcom v Hudson Investment Group [2007] NSWSC 719 [279] [299].
(2015) 89 ALJR 990
(2000) 104 FCR 564
(2010) 241 CLR 357
(1991) 105 ALR 25
(2009) 239 CLR 175
(2004) 218 CLR 592
(1965) 112 CLR 295
(2001) 52 NSWLR 492
(2010) 275 ALR 526
(1991) 174 CLR 64
(1990) 98 ALR 431