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Judgment 1BARRETT JA: This is an application for leave to appeal against the making of an interlocutory order of the District Court (Curtis DCJ) dismissing a statement of claim under rule 13.4 of the Uniform Civil Procedure Rules 2005 on the ground that no reasonable cause of action was disclosed. 2The applicants for leave to appeal (plaintiffs in the District Court) held options to subscribe for shares in the capital of the respondent (defendant below). The options were issued pursuant to a prospectus, along with shares, in 2003. Each option was an option to subscribe for one share at a price of 20 cents at any time up to 30 November 2008. 3At the time the options were issued in 2003, the respondent was a public company admitted to the official list of the Australian Securities Exchange. The terms of issue of the options stated that: "Subject to the Corporations Act, the Listing Rules and the Company's Constitution, the options are freely transferable." 4In or soon after September 2005, all the issued shares in the capital of the respondent came to be owned by a single party, Coffey. The respondent was later converted to a proprietary company. Options to subscribe for shares, including those held by the applicants, nevertheless remained outstanding. 5The applicants were not the original allottees of options. They acquired their options by transfer while takeover activity by Coffey in relation to the respondent was in progress. 6In December 2005, after all the shares in the capital of the respondent had become owned by Coffey, the respondent sold the whole of its assets (consisting of shares in other companies) to Coffey at their book value as recorded in the respondent's books. 7The decision of the respondent to sell the assets was made for it by its board of directors which, since October 2005, had consisted of three persons each of whom was also one of the five directors of Coffey and had been appointed to the respondent's board by Coffey. 8In the District Court proceedings, the applicants, as plaintiffs, sued the respondent for damages for breach of contract. The contract upon which each applicant relied was the contract by which the applicant's options to subscribe for unissued shares in the respondent were created. 9The term of each such contract allegedly breached by the respondent is an implied term pleaded as follows at paragraph 22 of the statement of claim: "It was an implied term of the option contract that decisions taken by Farsands in the conduct of its business would be made by persons who did not have obligations that were in conflict with the obligations they owed to Farsands. This term is implied from 'the nature of the contract itself': Liverpool City Council v Irwin [1977] AC 239." 10The breach by the respondent was pleaded at paragraph 23: "In the present case, on a date on or after 6 December 2005 but not later than 16 December 2005, Farsands permitted Coffey to procure the transfer of all of the shares in all of Farsands' operating subsidiaries to Coffey. This was a breach of the implied term of the option contract that decisions taken by Farsands in the conduct of its business would be made by persons who did not have obligations that were in conflict with the obligations they owed to Farsands." 11Allegations of damage, by way of reduction in the value of the applicants' options to zero, followed in paragraphs 24 to 28. 12As the reference to Liverpool City Council v Irwin [1977] AC 239 in paragraph 22 shows, the case the applicants sought to make through their statement of claim is that the term pleaded in paragraph 22 is, as described by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 345, "a legal incident of a particular class of contract". 13In Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 453, McHugh and Gummow JJ saw the basis for implication of this kind as being "lest the contract be deprived of its substance, seriously undermined or drastically devalued in an important respect". Implication of the term must thus be necessary to the maintenance of the integrity of contracts of the class to which the particular contract belongs. 14The proposition on which the applicants based their case (and which the primary judge found to be untenable) is that every contract under which a company grants to a person an option to subscribe for shares in the company has, as a legal incident, an implied term that the company will never have as one of its decision-makers (and, in particular, as one of its directors) any person who owe duties or has allegiances that may come into conflict with the duties that the person owes to the company. 15As the primary judge observed, the duties of the individual directors are owed by them to the company. Breach of such a duty, if actionable at all, is actionable at the suit of the company: Foss v Harbottle (1843) Hare 461; 67 ER 189. It is the company - and the company alone - that is the proper plaintiff. If the management of the affairs of the company is in the hands of persons who will not cause the company to seek redress for alleged breach of the duty owed to it, the proceedings may, subject to the leave of the court under s 237 of the Corporations Act 2001 (Cth), be brought on the company's behalf by a member, former member, officer or former officer of the company or another person with standing under s 236. 16As the judge correctly stated, a member of a company cannot bring an action in respect of wrongful conduct of directors diminishing the value of the member's shares. It is the company that suffers the relevant loss. Dr Birch SC, who appeared for the applicants on the present application, did not seek to argue otherwise and in fact drew attention to the decision of the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 which supports the proposition (see also Johnson v Gore Wood and Co [2002] 2 AC 1 where it was recognised that a shareholder may not recover for a loss which is merely consequential upon or derivative from loss suffered by the company). 17The judge then said that an option holder cannot be, in this respect, in any better position than a shareholder. That was the essential basis of his decision that the proceedings based on the particular implied term alleged in paragraph 22 had no reasonable prospects of success. 18On the hearing of the application for leave to appeal, however, Dr Birch submitted that, having regard to certain statements in the judgment, the judge's decision was, in substance, one going beyond the particular term pleaded in paragraph 22 of the statement of claim and that his Honour had proceeded on the basis that the law would never imply into a contract creating an option to subscribe for shares a term requiring the company to comply with the law or a term by which the company promised that decisions of its decision-makers would always be consistent with legal and fiduciary constraints to which those decision-makers were subject. 19The applicants say that that more far-reaching proposition is unsupportable and that, if the particular term pleaded in paragraph 22 was objectionable because it disclosed no reasonable cause of action (something that the applicants do not concede), the correct approach would have been for the judge to strike out that and related paragraphs (or perhaps the statement of claim as a whole) but with liberty to replead so that some other implied term might be advanced. In the course of argument, the following was put forward as a possible alternative: "That Farsands would not engage in conduct that would diminish the value of options issued by Farsands for its shares being conduct of Farsands that was brought about by unlawful conduct of the directors." 20It is said that because dismissal of the proceedings precluded any attempt at reformulation along these lines, the discretion of the judge miscarried. 21As submitted by Mr Coles QC on behalf of the respondent, this Court cannot proceed on the basis that the primary judge ruled against any implied term other than the paragraph 22 term. The applicants pleaded their case with precision, although perhaps somewhat sparsely when it came to breach and particulars of breach. They made a clear articulation of the implied term for which they contended. They could have framed their statement of claim on the basis of some other implied term or argued for the implication of one of several alternative terms, given that the only determinant of the scope of the implication was the nature of the class of contracts to which the particular contracts belonged. The applicants did neither of those things. Nor, so far as the material before this Court discloses, did they canvass at the hearing before the primary judge possible alternatives to the particularly pleaded term or any question of leave to replead. They adopted an all or nothing approach based wholly on an implied term in the precise words set out in paragraph 22. The judge was bound to proceed accordingly and did so. 22In University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 59 ALJR 481, the High Court said: "It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so." 23The principle that an appellant generally cannot raise on appeal matters that were not relied on at first instance is well established: see also, for example, Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1; Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491; Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418; O'Brien v Komesaroff [1982] HCA 33; (1982) 150 CLR 310. 24The applicants have not suggested any basis on which it might be permissible or appropriate to allow them to depart from that principle in this case. The present application must therefore be approached by reference to the implied term and alleged breach for which the applicants contended, that is, the term pleaded in paragraph 22 and the breach pleaded in paragraph 23. They are the matters with which the primary judge actually dealt. This Court cannot approach the matter on the footing that, on appeal, the applicants might be able to make some new case with respect to some other implied term (and breach of it) that has better prospects of success than the case on which they elected to stand or fall before the primary judge. 25When the application for leave to appeal is viewed in that light, the first question is whether there is scope for implication of any term (as a legal incident of contracts of the relevant class) into these particular option contracts. 26The applicants, as I have said, acquired their options by transfer. The precise process by which they contend that contractual rights and obligations came to exist between them and the respondent has not been explained or explored. The likelihood is, I suppose, that the promulgation of terms of issue by the respondent referring to the options being "freely transferable" indicated some ongoing intention (or perhaps standing offer) of the respondent to enter into a novated contract with a transferee, in the place of the transferor, upon presentation of a transfer. But, of course, any finding of implied term in the District Court proceedings, if they did proceed to a trial, would be binding only on the respondent and the particular party. 27That said, however, the Privy Council, in Forsayth Oil & Gas NL v Livia Pty Ltd (No 2) (1985) 59 ALJR 746, entertained the possibility of the implication of terms in options in a case where the proceedings had been brought by the holders of some 1.2 million out of a total of 70 million options originally issued. 28The theoretical possibility of the implication of some term as a legal incident of contracts of the relevant class may therefore be taken to be arguable. 29Dr Birch referred to cases in which norms of good conduct or sound practice have been found to be legal incidents of contracts of particular kinds or, at least, where that possibility has been recognised. He referred first to Quancorp Pty Ltd v Macdonald [1999] WASCA 33; (1999) 32 ACSR 50 where the Full Court of the Supreme Court of Western Australia held that a company admitted to the official list of a stock exchange owed a contractual obligation to its shareholders to comply with the stock exchange listing rules. The only conceivably relevant contract between the company and its shareholders was the statutory contract created by s 140 of the Corporations Law, as then in force; and the only conceivable means by which the obligation of the company arose was by implication of a term. But the basis for the implication was not explained by the court and may be regarded as elusive. 30Dr Birch also referred to Modahl v British Athletic Federation Ltd [2002] 1 WLR 1192, a case concerning the contractual relationship between an athlete and a body administering athletics. There was discussion in that case of the nature of any implied term concerning the composition of a disciplinary panel established by the administering body. Mance LJ said (at 1227); "Ultimately, the issue is what, if any, term should be implied either as representing the obvious though unexpressed intention of the parties or as necessary for the efficacy of the contract made of the terms of the defendant's rules: see e g Chitty on Contracts, vol 1, pp 644-647, paras 13-004 to 13-009. Approaching the matter in this way, I can well understand it being said that the parties would obviously have intended, and that it was necessary for the efficacy of the contract, that the defendant should, when selecting persons to sit on a disciplinary committee (or indeed an independent appeal panel), (a) act in good faith and select only persons who it believed to be fit and appropriate and (b) (probably) act with reasonable care in that respect. It is a different matter to suggest that it must have been intended or was necessary for the efficacy of the contract that the persons should in fact be free from some characteristic making them unfit, but of which the defendant neither knew nor had any reason to know. It is an even more extreme proposition that the defendant undertook that the persons selected would not, even during the disciplinary process let alone at some subsequent date, commit themselves to unwise statements demonstrating apparent, though not actual, bias." 31These decisions are of limited assistance only in this case. The question here concerns the particular implied term alleged in paragraph 22 of the statement of claim, that is, a term by which a respondent undertakes to every holder of outstanding options over unissued shares that its board of directors (and other decision-making bodies) will never include any person who has an obligation that is "in conflict with" the obligation the person owes to the respondent. 32Four things may be said about the implied term postulated by paragraph 22. 33First and as the primary judge noted, the recognition of such a term as a source of individual redress against the company would place option holders in a more advantageous position than members. That is a powerful consideration against implication of the term. 34Second, although rules of good conduct or sound practice might be found to be implied into some contracts, the particular "rule" reflected by paragraph 22 about the qualities of directors and other decision-makers cannot be viewed as concerned with good conduct or sound practice. In Bell v Lever Bros Ltd [1932] AC 161 at 195, Lord Blanesburgh said: "The principle will be found in the case usually cited in relation to it, although reported only in the Weekly Notes, of London and Mashonaland Exploration Co v New Mashonaland Exploration Co [1891] WN 165, where it was held that, it not appearing from the regulations of the company that a director's services must be rendered to that company and to no other company, he was at liberty to become a director even of a rival company, and it not being established that he was making to the second company any disclosure of information obtained confidentially by him as a director of the first company he could not at the instance of that company be restrained in his rival directorate. What he could do for a rival company, he could, of course, do for himself." 35This observation makes it plain that it is not bad conduct or unsound practice for a company merely to have as a director (or, for that matter, as any other decision-maker) a person who has other allegiances or interests. Nor is it unlawful. Questions of legality and propriety can arise only in relation to particular acts or omissions concerning particular fact situations. The real challenge and responsibility faced by persons holding multiple directorships or having multiple interests is to deal properly with conflicts between duty and duty or between duty and interest as and when they arise: see, for example, Fitzsimmons v R (1997) 23 ACSR 355. It is thus meaningless to speak of "conflict" by virtue of the holding of multiple offices or interests except by reference to a particular factual context. 36This is no doubt why the applicants sought, on the present application, to characterise the primary judge's decision in the unacceptably wide way outlined at [18] above. 37Third, there are objections of principle to any contractual promise by a company as to the way in which its board of directors will be constituted, being a promise breach of which may subject the company to liability for damages. This is because a company has no capacity to decide who will or will not be a member of its board of directors. In Re MIA Group Ltd [2004] NSWSC 712; (2004) 50 ACSR 29, I had occasion to consider a proposed covenant by a company that it would, in a certain event, reconstitute its own board of directors in a particular way. I said (at [16]): "It is by no means clear that a company can itself give any effective covenant as to the composition of its own board of directors where the relevant power of appointment to fill vacancies resides with that company's directors. A decision by directors on the question whether they should exercise their power to fill casual vacancies on the board of directors can only be made by reference to particular persons eligible and available for appointment. A number of factors will influence the decision whether it is to the good of the company that a particular person be appointed at a particular time. Directors could not conscientiously (or effectively) fetter their discretion by contracting to appoint whomever a particular third party might in future propose: see the brief discussion on this subject generally in Re NRMA Ltd (2000) 33 ACSR 595 at [109] to [111] referring to Thorby v Goldberg (1964) 112 CLR 597." 38These observations were made with respect to circumstances where the appointing power resides with the existing directors. Similar considerations apply to appointments where the appointing power is confided to the company in general meeting and the relevant actors are members. The position in relation to removal or dismissal is the same. 39In short, it is not possible to regard the company, as a contracting entity, as having any capacity to promise that the board will be constituted (or not constituted) in any given way. 40The fourth matter may now be noted. A holder of options to subscribe for shares takes the risk that the fortunes of the company will decline - even that the company will go into liquidation - before the options are exercisable or exercised. In Hirsch & Co Ltd v Burns (1897) 77 LT 377, Lord Halsbury LC (at 378) said of a contract creating an option to subscribe for shares: "I think it would be a most serious suggestion that, in the case of a contract of this character - which is in truth nothing more or less than a contract for a sale of shares - there must be imported into it a term that the company will or will not carry on its business in a particular way; that it shall be restricted from carrying on its business in a particular way by reason of the implied term, by which it shall place upon itself fetters so that it cannot continue carrying on the business which it was originally carrying on. I entirely repudiate any such notion as applied to a contract of this character. It appears to me that any such implication would place most serious difficulties in the way of any company carrying on its business, and I cannot find a trace of any such restriction to be implied in the contract which your Lordships are now considering." 41Lord Davey (at 382) rejected the implication of "any term to the effect that the company either would or would not exercise any of its legal powers or deal with its assets in any manner in which it was by law authorised to deal with them". 42In the same way, one should reject the notion that a company issuing options impliedly accepts any fetter as to the manner in which its board of directors and other decision-making bodies will be constituted. 43The four matters I have mentioned point decisively against the proposition that, unless a term having the particular paragraph 22 content is implied into the particular option contracts, those contracts will be deprived of their substance, seriously undermined or drastically devalued in an important respect, to use the terminology found in Byrne v Australian Airlines Ltd (above). 44In my opinion, the applicants have not shown that the primary judge was arguably in error in holding that the statement of claim advancing the case based on the existence of the paragraph 22 implied term disclosed no reasonable cause of action and in exercising his discretion accordingly by dismissing the statement of claim pursuant to rule 13.4. 45I therefore propose that the summons seeking leave to appeal be dismissed with costs. 46TOBIAS AJA: I agree with Barrett JA.