First plaintiff v First defendant

PRACTICE AND PROCEDURE - Application to stay or dismiss proceedings - Supreme Court (General Civil Procedure) Rules 2015 (Vic) rr 22.16, 23.01 - Abuse of process of the court - Separate proceeding substantially based on content of document the subject of the implied undertaking - Civil Procedure Act 2010 (Vic) ss 62, 63 - Corporations Act 2001 (Cth) s 1324.

CORPORATIONS - Prohibition against financial assistance to acquire shares - Corporations Act 2001 (Cth) s 260A - Enforcement of pre-emptive rights in company's constitution - Whether financial assistance.

CORPORATIONS - Standing - Pre-emptive rights - Whether exclusively members' rights - Interest of the company - Corporations Act s 140 - Statutory contract.

1 In this proceeding the plaintiffs, Connective Services Pty Ltd and Connective OSN Pty Ltd (collectively, Connective or the Connective companies), seek to enforce pre-emptive rights contained in their respective constitutions.

2 Each constitution contains materially identical terms which, in effect, require a member who wishes to transfer shares of a particular class to first offer those shares to existing holders of shares of that class. The number of shares offered to each shareholder is to be in proportion to the number of shares of that class that they already hold (the pre-emptive rights).

3 The first defendant, Slea Pty Ltd (Slea), holds 33.33 per cent of the shares in the Connective companies. The other shareholders are the third defendant, Millsave Holdings Pty Ltd (Millsave) (as to 50 per cent) and the fourth defendant, Mark Seamus Haron (Haron) (as to 16.67 per cent).[1]

(a) that on about 12 August 2010, Slea entered into an agreement, arrangement or undertaking with the second defendant, Minerva Financial Group Pty Ltd (Minerva), whereby Slea, among other things, would:

(i) refuse to sell, transfer or dispose of any of its shares in the Connective companies to existing shareholders; and

(ii) seek to transfer all of its shares in the Connective companies to Liberty Financial Pty Ltd (Liberty),

(b) that the purpose of the 2010 Agreement was to subvert or avoid the pre-emptive rights; and

(c) that in breach of the pre-emptive rights, Slea failed to offer its shares in Connective to Millsave and Haron.

5 Connective seeks orders compelling Slea to offer its shares in the Connective companies to Millsave and Haron and an order restraining Slea from transferring or dealing with those shares otherwise than in accordance with the pre-emptive rights.[3]

6 By summons dated 4 October 2016, Slea and Minerva seek orders that the proceeding be dismissed or stayed pursuant to rr 22.16 and 23.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules) and ss 62 and 63 of the Civil Procedure Act 2010 (Vic) (CPA).

22.16 Application by defendant for judgment

An application under section 62 of the Civil Procedure Act 2010 by a defendant in a civil proceeding for summary judgment in the proceeding shall be made in accordance with this Part of this Order.

...

23.01 Stay or judgment in proceeding

(1) Where a proceeding generally or any claim in a proceeding -

(a) is scandalous, frivolous or vexatious; or

(b) is an abuse of the process of the Court -

the Court may stay the proceeding generally or in relation to any claim or give judgment in the proceeding generally or in relation to any claim.

...

8 Sections 62 and 63 of the CPA provide:

62 Defendant may apply for summary judgment in proceeding

A defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a plaintiff's claim or part of that claim has no real prospect of success.

63 Summary judgment if no real prospect of success

(1) Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.

(2) A court may give summary judgment in any civil proceeding under subsection (1) -

(a) on the application of a plaintiff in a civil proceeding;

(b) on the application of a defendant in a civil proceeding;

(c) on the court's own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.

9 Further or alternatively, Slea and Minerva seek an injunction pursuant to s 1324 of the Corporations Act 2001 (Cth) (Corporations Act) restraining Connective from prosecuting the proceeding. Section 1324(1) of the Corporations Act relevantly provides:

1324 Injunctions

(1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a) a contravention of this Act;

...

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the firstmentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

(1A) For the purposes of subsection (1):

...

(b) a company's contravention of:

...

(ii) paragraph 260A(1)(a) (financial assistance for share acquisition not to prejudice company or shareholders or ability to pay creditors);

affects the interests of a creditor or member of the company;

...

This subsection does not limit subsection (1) in any way.

(1B) If the ground relied on in an application for an injunction is conduct or proposed conduct of a company or other person that it is alleged constitutes, or would constitute:

(a) a contravention of paragraph 256B(1)(a) or (b), section 257A or paragraph 260A(1)(a);

...

the Court must assume that the conduct constitutes, or would constitute, a contravention of that paragraph, section or provision unless the company or person proves otherwise.

(a) that by commencing the proceeding in reliance on the 2010 Agreement (which had been obtained by Connective through discovery in earlier proceedings), Connective breached the implied undertaking not to use the 2010 Agreement for a purpose unconnected with those proceedings;[4]

(b) that by bringing and prosecuting the proceeding, Connective contravened and will continue to contravene the implied prohibition in s 260A of the Corporations Act on giving financial assistance to a party to acquire shares in those companies; and

(c) that Connective lacks standing either to enforce the pre-emptive rights provisions or to seek the relief sought in the proceeding.

11 Each of the above grounds will be considered in turn.

12 The parties in this proceeding were also parties in proceeding S CI 2011 2114, brought by Haron against Slea and Minerva (Haron proceeding).[5] Slea discovered the 2010 Agreement in its list of documents filed in the Haron proceeding.[6] The trial of the Haron proceeding commenced on 21 October 2013. During the second day of trial, the parties were referred to mediation and the proceeding was settled at the mediation. The 2010 Agreement was not tendered during the trial and Connective has not sought leave to use the 2010 Agreement in proceedings outside the Haron proceeding.[7]

13 The parties in this proceeding are also parties in proceeding S CI 2011 4332 (oppression proceeding). Millsave and Haron were joined as parties to the oppression proceeding in July 2014. Slea discovered the 2010 Agreement in its list of documents filed in the oppression proceeding.[8] Connective has not sought leave to use the 2010 Agreement in proceedings outside the oppression proceeding.[9]

14 The parties have made use of the 2010 Agreement in both the Haron proceeding and the oppression proceeding in a number of ways. First, on 27 May 2016, Slea filed a summons in the oppression proceeding seeking leave under s 237 of the Corporations Act to bring a proceeding on behalf of the Connective companies against their respective directors (Mr Glenn Lees, Mr Mark Haron and Mr Graham Maloney) for breaches of directors duties (derivative leave application).[10] A copy of the 2010 Agreement was exhibited to an affidavit of Marcel Jon Deleuil filed and served on behalf of Connective for the purposes of the derivative leave application.[11]

15 Second, on 6 and 7 June 2016, Connective served subpoenas in the oppression proceeding on Minerva and Liberty and on Sofianos Tsialtas (Tsialtas), the sole director of Slea.[12] In the covering letter accompanying the subpoenas, the solicitors for Connective:

(a) stated that the subpoenas were issued in relation to the derivative leave application;

(b) referred to the 2010 Agreement and asserted that the terms of that agreement significantly encumbered Slea's rights as a shareholder in the Connective companies in favour of Minerva; and

(c) expressed a concern that the proposed derivative claim the subject of the application was not brought by Slea to protect the interests of the Connective companies, but to prosecute Minerva's collateral interests arising out of the 2010 Agreement.[13]

16 Slea and Tsialtas objected to the production and inspection of documents identified in the subpoenas.[14] Their objections were heard by Randall AsJ at an interlocutory hearing on 17 June 2016 (17 June hearing). The written submissions of Connective in support of the subpoenas referred to and relied upon the 2010 Agreement.[15] The 2010 Agreement was also referred to during the hearing before Randall AsJ and those references accordingly appear in the transcript.[16]

17 Third, further subpoena objections were heard before Randall AsJ in the oppression proceeding on 3 November 2016 (after the commencement of the pre-emptive rights proceeding) (3 November hearing). At that hearing, the 2010 Agreement was formally tendered into evidence and marked as an exhibit.[17]

18 Though the facts in Harman are well known, it is instructive to briefly refer to them here. Harman concerned the conduct of a solicitor who was acting for a plaintiff who had brought an action against the Home Office arising out of his treatment in prison. During the course of the action, the Home Office disclosed a large number of documents from which the solicitor selected those required for use at the trial and those documents were subsequently read out by counsel in open court. A few days after the trial, the solicitor allowed a journalist (who had been present during part of the trial) to have access to the documents that had been read out in counsel's opening speech for the purpose of writing a newspaper article.

19 At first instance, the solicitor was held to be in contempt of court for breaching the undertaking implied at law not to use documents obtained in discovery for purposes other than those of the action in which they were disclosed. The solicitor appealed unsuccessfully to the Court of Appeal and the House of Lords.

20 Relevantly, for present purposes, counsel for the solicitor submitted that the obligation arising from the implied undertaking terminates when and to the extent that the documents are read in open court.[18] The House of Lords did not agree. On this question, Lord Diplock said:

... it is, in my view, beyond question that anyone who had in his or her possession the two bundles that had been prepared for the purposes only of the trial and contained copies of documents belonging to the Home Office and disclosed by them in obedience to the judicial process of discovery had a great advantage over anyone who did not have access to those bundles if it was desired to use them for some collateral or ulterior purpose unconnected with the proper conduct of the action by Williams against the Home Office in which they were disclosed. This is why an order for production of documents to a solicitor on behalf of a party to civil litigation is made upon the implied undertaking given by the solicitor personally to the court (of which he is an officer) that he himself will not use or allow the documents or copies of them to be used for any collateral or ulterior purpose of his own, his client or anyone else; and any breach of that implied undertaking is a contempt of court by the solicitor himself. Save as respects the gravity of the contempt no distinction is to be drawn between those documents which have and those which have not been admitted in evidence; to make use for some collateral or ulterior purpose of the special advantage obtained by having possession of copies of any of an adverse party's documents obtained upon discovery is, in my view, a contempt of court.

...

I would myself add this as a reason (additional to those based on the desirability of encouraging full and unreserved discovery of documents before trial that were given in the courts below) why public policy requires that the implied undertaking given by a solicitor to the court, on obtaining production of discovery of documents belonging to his own client's adversary, that he will not take advantage of his possession of copies of those documents to use them or to enable others to use them for some collateral purpose, does not terminate as respects each individual document at the very moment that that document, whether admissible or not, is actually read out in court.[19]

It is argued for the appellant that there exists a rule of law to the effect that once a document made available under discovery has been read out in open court, in the course of the litigation for the purposes of which it has been produced, the obligation not to use it for any other purpose automatically flies off. It is clear enough that no such rule of law had anywhere been laid down at the time when the appellant made the documents available...

Upon the question of whether such a rule of law should now be judicially declared, I am of the clear opinion that it should not. Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purposes of securing that justice is done. In so far as that must necessarily involve a certain degree of publicity being given to private documents, the result has to be accepted as part of the price of achieving justice. But the fact that a certain inevitable degree of publicity has been brought about does not, in my opinion, warrant the conclusion that the door should therefore be opened to widespread dissemination of the material by the other party or his legal advisers, for any ulterior purpose whatsoever, whether altruistic or aimed at financial gain. The degree of publicity resulting from a document being read out in open court is not necessarily very great. There may be nobody present apart from the parties and their legal advisers. The argument for the appellant, however, goes the length that because the public are notionally present, and anyone might have come in and noted down the contents of any discovered document which is read out, the implied obligation against improper use comes to an end. That is not a proposition which I can find acceptable upon any rational ground consistent with the proper administration of justice. The theory behind the proposition is that the reading out of the document destroys its confidentiality, and that, apart from considerations of copyright and defamation, the law does not prohibit the dissemination of documents which are not confidential. The implied obligation not to make improper use of discovered documents is, however, independent of any obligation existing under the general law relating to confidentiality. It affords a particular protection accorded in the interests of the proper administration of justice. It is owed not to the owner of the documents but to the court, and the function of the court in seeing that the obligation is observed is directed to the maintenance of those interests, and not to the enforcement of the law relating to confidentiality. There is good reason to apprehend that, if the argument for the appellant were accepted, there would be substantially increased temptation to a litigant to destroy or conceal the existence of relevant documents which would fall properly within the ambit of discovery. There is also reason to apprehend the introduction into proceedings of tactical manoeuvrings on either side designed to secure that discovered documents are or are not read out in full. Both these developments would be undesirable from the point of view of the proper administration of justice.[20]

22 Lord Roskill expressed 'complete agreement' with Lord Diplock and Lord Keith and made some observations of his own. Among other things, he referred to pragmatic considerations:

There are other considerations of a pragmatic kind which should not, I think, be overlooked. In litigation involving very large numbers of documents - today the means of mechanical reproduction and telex machines have vastly increased the number and size of bundles of documents in many classes of litigation - it may be a matter of chance whether a particular document is read aloud in open court or not. Some judges may in order to save public time and the pockets of litigants read large bundles of documents out of court and thereafter firmly discourage repetitive reading by counsel. Other judges may read ahead of counsel while counsel is reading and equally firmly discourage counsel from thereafter reading slowly that which the judge has already rapidly and sufficiently absorbed by his perusal of the printed page. Yet others may wish, irrespective of the consequent expenditure of time, to have every word of every document read aloud, though one hopes that this uneconomic procedure has become increasingly unusual in modern times. I mention these matters because a rule which made freedom of access to discovered documents depend upon whether or not particular documents are actually read aloud could and well might operate capriciously; and for one letter to be freely available because it had been so read while the answer to it remained subject to the undertaking seems, at least to me, difficult to justify in principle.

...

My Lords, with all respect to those who take the other view, I regard it as of crucial importance that the undertaking should be maintained and not eroded. The interests of the public are amply safeguarded by the present practice. If a party wishes to use the documents read in open court for some purpose other than the immediate purpose of the litigation, the proper course is for him to seek the consent of the owner of those documents, or conceivably, in some cases, to seek the leave of the court.[21]

23 Shortly after it was decided, Harman was considered in Sybron Corporation v Barclays Bank PLC.[22] There, a bank employee attended court under a subpoena to produce documents and produced documents relating to accounts of the defendant companies. Some of the documents which had been produced were referred to and read from by the judge when giving judgment in the main action, which concerned fraudulent conspiracy. In reliance upon those documents, the plaintiffs commenced an action against the bank.

24 The plaintiffs sought a declaration that they did not need leave to use the material derived from the disclosed documents set out in the judgment. Relevantly, Scott J said:

The contents of this note appear in the judgment at pp 110 to 111. Mr Brodie accepts that these three attendance notes, each of which was contained in a document produced by the bank in the main action pursuant to the subpoena, were together with all the other documents so produced or subsequently discovered protected by the implied undertaking. He submits, however, that once documents have been incorporated into a judgment of which there is a written record, such as a transcript, the undertaking does not prevent information being obtained from that record and used for any purpose the extractor of the information may wish. The undertaking, he submits, prevents the use of information obtained directly from the discovered documents but it does not, he says, prevent the use of information if the information is obtained from some other source. In the instant case the other source is the transcript of Walton J's judgment. The source might equally well, in another case, take the form of counsel's or a journalist's notes of an extempore judgment. The principle would, if Mr Brodie is right, apply also to written records of counsel's speeches or witnesses' testimony. If in the course of such speeches or such testimony the contents of a discovered document were read, the undertaking would not, submits Mr Brodie, prevent the use of information about the documents derived from a written record of the speech or testimony. And the same would presumably be said to be the case if reliance were placed on the memory rather than on a written record of what has been said in open court. I am unable to accept the submission. It is necessary, in my judgment, to distinguish between the party on whom the undertaking is imposed on the one hand and third parties on the other hand. The undertaking binds the former, it does not bind the latter, who have given no undertaking. This distinction was recognised in Home Office v Harman [1983] 1 AC 280. In that case the solicitor for the party to whom discovery had been made had herself given an undertaking and had then released copies of the discovered documents to a journalist. Some of these documents had already been read in open court and their contents could have been read from a transcript if anyone had bothered to obtain a transcript. The House of Lords, affirming the Court of Appeal and the judge at first instance, held that what the solicitor had done was a breach of the undertaking and a contempt of court. It was accepted that if the journalist had gone to the trouble of obtaining a transcript of the proceedings he, the journalist, could have used, as could any member of the public have used, the information comprised in the transcript. Mr Brodie seeks from this premise to argue that if the solicitor had obtained a transcript of the proceedings she could have used such information about the documents as could be derived from the transcript without regard to the undertaking that she had given. It is correct that nothing in Home Office v Harman expressly states the contrary. Mr Brodie's proposition was not in point in that case. But his proposition does not, in my judgment, follow from his premise. The reason why the journalist or any third party could have used information derived from a transcript is that third parties have not given and are not bound by any undertaking. If proceedings are held in open court information derived from any record of those proceedings can be used by third parties without regard to undertakings which may bind the parties thereto or their solicitors. But the position of the parties themselves depends not on what third parties may be able to do but on the scope of the undertaking that binds them. The purpose of the undertaking is to protect, so far as is consistent with the proper prosecution of the action, the confidentiality of the party's private documents, and thereby to encourage the full and proper disclosure of documents that the administration of justice requires. It seems to me unacceptably inconsistent with that purpose that the protection of the undertaking should be lost on account of the fortuitous reading in open court of the document.

... a judge in preparing or delivering his judgment ought to be able to do so without the inhibition that by merely reciting a document he would be affecting the rights of the person who had produced that document. It would be, in my opinion, contrary to the public interest that there should be any such inhibition. In my judgment the undertaking that binds the party on whom it is imposed prevents use by him of the information contained in a discovered document unless he has obtained the information from a source which is independent of and is not derived from the discovery. If counsel reads a discovered document, if a witness refers to it or if the judge refers to it or reads it, in each case the use being made of the document would be a use made possible by the discovery and a transcript thereof could not in my judgment be regarded as an independent source. It follows that the fact that the contents of a discovered document may have reached the public domain does not, in my judgment, per se relieve a party from the implied undertaking.[23]

25 Slea relied on a number of Australian authorities decided after Harman. The first of these is Hamersley Iron Pty Ltd v Lovell.[24] In that case, Hamersley Iron had commenced a civil proceeding against a number of unions, including the 'CEPU'[25] and four of its officials. Mr Lovell, CEPU's solicitor, inspected documents discovered in the proceeding by Hamersley Iron and was provided with copies of four documents.

26 The CEPU (and others) had applied to strike out or stay the proceedings for want of prosecution or as an abuse of process. The application was dismissed at first instance, but the CEPU was granted leave to appeal to the Full Court of the Supreme Court of Western Australia. The CEPU applied to the Full Court for leave to adduce fresh evidence at the hearing of its appeal, and filed affidavits which exhibited the four documents which the solicitor had obtained through discovery. These documents were not read out during the application, which was ultimately dismissed.

27 Prior to the Full Court handing down its decision:

(a) the solicitor conducted a radio interview during which he referred to the existence and contents of some of the documents obtained through discovery;

(b) that the CEPU published documents for circulation to all workers at Hamersley Iron which referred to the existence and contents of the discovered documents and, in one instance, set out its terms; and

(c) that one of the documents was provided to a national newspaper for the purposes of articles it was writing.

28 The issue for consideration was whether the solicitor and the CEPU had committed contempt of court by, among other things, publishing the discovered documents in breach of the implied undertaking. The Full Court held that the solicitor and the CEPU were guilty of contempt of court.[26]

29 In his reasons, Anderson J described the case as 'a neat illustration of the dangers of any relaxation of the common law rule laid down by the majority in Harman'.[27] His Honour elaborated as follows:

Pursuant to its obligations to do so, and on no other basis, the applicant made discovery of documents which were confidential to it. During the course of a procedural hearing reference was made to the documents as "fresh evidence". The question whether they were admissible in evidence as fresh evidence was hotly contested. The transcript does not show that any of the documents were read aloud. There was no member of the media present in court. So far as appears, there was no media interest at all in the proceedings, either at the time or subsequently. Yet the contemnors claim that the fact that the documents were referred to in open court for the above very limited purpose (in a procedural application to decide their admissibility) gave the contemnors the right to take the documents in their entirety and use them publicly to their own advantage for purposes unconnected with the legal proceedings. In my opinion, there is no justification for such a substantial erosion of the "private right to keep one's documents to oneself": see Riddick v Thames Board Mills Ltd [1977] QB 881, per Lord Denning MR (at 896). As was so forcefully pointed out by Lord Keith and Lord Roskill in Harman ... there is no reason why the fact that a document belonging to a party has been referred to in open court should destroy the private right of that party to prevent the public dissemination of it by the party who has obtained discovery of it.[28]

30 Pidgeon J and Ipp J agreed with the reasons of Anderson J but did not express a concluded view with regard to the consequences that might flow, generally, from a reference to discovered documents in open court.[29]

31 Anderson J was cognisant of, and commented upon, a statement made by Mason CJ in Esso Australia Resources Ltd v Plowman,[30] which he notes appears to run counter to the majority speeches in Harman. In that case, Mason CJ said:

The implied undertaking is subject to the qualification that once material is adduced in evidence in court proceedings it becomes part of the public domain, unless the court restrains publication of it.[31]

32 Anderson J stated that he did not consider that Mason CJ intended to lay down a new exception in Australia to the rule in Harman, noting that Mason CJ had cited Harman with unqualified approval.[32] Anderson J remarked that his Honour probably had in mind third parties such as the media (i.e. persons not bound by the implied undertaking) and their freedom to publish the contents of documents adduced in evidence.[33]

33 In British American Tobacco Australia Services Ltd v Cowell (representing the Estate of McCabe (deceased)) (No.2),[34] the Victorian Court of Appeal considered the statement of Mason CJ in Esso and made observations to similar effect:

It is possible that Mason CJ had in mind no more than that making public the document or its contents (a result which may not follow simply from the document's being marked as an exhibit in the proceeding) may well work, to some extent at least, an easing of the undertaking or its consequences for the party (if the party's position is pro tanto like that of the stranger to the litigation); and such an easing would amount to a "qualification" on the operation of the undertaking, if not on the undertaking itself. But it would not mean that every time a document is put in evidence the undertaking ceases ipso facto.

Be that as it may, the observation of Mason CJ was but a passing remark[35] of no direct relevance to the issue then before the Court (which was whether an implied undertaking attached at all to documents produced upon discovery in an arbitration); the remark itself followed closely upon the citing of Harman without qualification; and no reasoning was offered to support the introduction of such a general exception to the common law as that for which the respondent now contends. However deserving of respect, the dictum is not enough in itself to establish the respondent's case in this regard.[36]

34 Cowell concerned an application by the plaintiff to strike out the defence of the defendant manufacturer. During the course of the hearing of that application, documents were produced by the defendant in response to a notice to produce, a call for production made during the hearing and two subpoenas. Many of these documents were put in evidence at the insistence of the plaintiff's counsel during cross-examination of deponents of affidavits filed on behalf of the defendant, together with the defendant's answers to interrogatories and a witness statement from an expert prepared for the trial.

35 Subsequently, in a separate proceeding, the plaintiff sought a declaration that she was no longer subject to any implied undertaking of confidentiality which would prevent her from disclosing the contents of those documents to regulatory authorities. At first instance, the court held that the undertaking had come to an end upon the admission of the documents into evidence and that the plaintiff was free to use the documents for such purposes as she wished.

36 On appeal, it was common ground that all 38 documents were produced only as a result of the coercive processes of the court and that all 38 documents were subject to the implied undertaking. The question for determination was whether the marking of the documents as exhibits during the strike-out application brought the implied undertaking to an end.

37 The Court of Appeal followed Harman and held that the mere marking of the documents as exhibits did not bring the implied undertaking to an end.[37] The Court observed that the documents had been disclosed in response to the coercive processes of the court, and were produced in advance of trial for the limited purpose of preparation for trial. It held that the implied undertaking which recognises a party's own documents as personal and private was not qualified or diminished by the documents' tender, although publicity attaching in consequence of their tender may serve to qualify or diminish the need for protection.[38] The Court noted that these were the considerations underlying the judgment of Scott J in Sybron and expressly adopted those considerations.[39]

38 The Court did, however, express some reservations about aspects of the decision of Scott J as follows:

In Sybron, Scott J held that even disclosure of the documents within the reasons for judgment did not entitle the party to whom they had been discovered (as distinct from any member of the public) to make free with the contents of the documents. Indeed his Lordship was apparently of the view that that party was not free (without leave) to make use even of the transcript of proceedings or (as we follow it) the contents of the judgment itself, in so far as that transcript or that judgment dealt in any detail with discovered documents. With respect, however, we take leave to doubt that that is correct. It seems to us that if the party has available an alternative source of information about the contents of the documents, even a source deriving from the discovery of the documents, then, if that source be public, the party to whom the documents were first discovered should arguably be as free to make use of that alternative source of information as any member of the public undoubtedly is...but that is not the point of the case under appeal. What the respondent seeks in this instance is to make use of the documents themselves...'[40]

The parties are the very persons who will be aware of the status of documents produced under coercion and it is only the parties who are made subject to the implied undertaking. Strangers to litigation are entitled to make what use they can of what they hear in open court ... or read in the transcript of the proceedings ... or see in the reasons for judgment once published.... As already mentioned, we do not as yet subscribe to the opinion expressed by Scott J that the parties may not make use of what appears in the judgment; we should have thought that once a document is copied or quoted in the reasons for judgment, its contents to that extent are public knowledge and use can accordingly be made, by party and non-party alike, of what appears in the judgment. That is merely to emphasise the possible difference between the documents themselves and some alternative, albeit derivative, sources of information. But, as with all the other evidence at trial, it will be the parties who are well aware of the special status of the documents provided between them under compulsion and it is only the parties who are affected by the distinction. The party gaining access to another's documents is properly regarded as in a privileged position by reason of the court's processes, and it is that privilege which ought not to be abused.[41]

40 One crucial matter for present purposes which was considered by the court in Cowell was the contrast between a document which has passed into evidence (by reason of the document being marked as an exhibit), and use of information about the document of which the public has become aware by reason of its use in open court. The Court said in this respect:

Given the particular considerations requiring that a party's privacy be respected so far as compatible with the administration of justice in open court, there seems no logical, or indeed practical, reason why the mere passing of the document into evidence (as witness its being marked as an exhibit) should be taken to relieve the party bound by the implied undertaking from its obligations in that respect. Arguably at least, it would be different if that party was seeking not to make use of the document itself, but to use only the information about it of which the public had become aware (or which, to use another phrase, had passed into "the public domain") by reason of its use in open court. We include in this last the use of a transcript of the proceedings in court or judgment delivered in which reference is made by counsel, the witness or the judge to the document in question. As to information which is thereby made known generally to the public at large - but only as to such information - there may well be no reason to distinguish between the position of the party bound by an undertaking as to the document itself and the position of any stranger to the litigation. But that is not this case.[42]

41 On this issue I was referred to Citicorp Life Insurance Ltd v Lubransky,[43] the facts of which are similar to the facts in this case and give rise to similar issues. The issue in that case concerned whether the contents of medical reports which had been discovered in one proceeding and had been read in open court (and thus recorded on transcript) remained the subject of the implied undertaking. There was no dispute between the parties that by reason of their discovery in the first proceeding the medical reports were the subject of the implied undertaking. The issue was whether and (if so) to what extent the party had been relieved from the consequences of that implied undertaking because the medical reports had been referred to in evidence in the first proceeding.

42 Hargrave J traversed the relevant authorities including Harman, Sybron, Hamersley and Cowell, and paid particular attention to the reservations about Sybron expressed by the Court of Appeal in Cowell. His Honour concluded that reference to the medical reports in evidence at the trial of the first proceeding did not operate to relieve the party of its implied undertaking. He did so in the following terms:

In my view, the reference to the Steiner reports in evidence at the trial of the Bagiotas proceeding has not operated to relieve Citicorp of its implied undertaking to only use those documents for the purposes of the Bagiotas proceeding. In this regard, I follow Harman, Sybron and Hamersley Iron. In my opinion, the fact that the Steiner reports were not admitted into evidence is conclusive. However, even if they were admitted into evidence, this would not, by itself, be enough to extinguish the implied undertaking in respect of them. This was the narrow point decided in Cowell.

I recognise that there are indications in a number of the dicta in Cowell that the Court of Appeal may, when the issue is before it for decision, impose a qualification on the implied undertaking in respect of information about the contents of documents which enters the public domain "in all respects". However, as the law stands at the present time, I take the view that I ought to apply Harman, Sybron and Hamersley Iron.[44]

43 Slea submits that the claim in this proceeding centres upon the 2010 Agreement and that Connective is in possession of that agreement only because it was produced by way of discovery in the Haron proceeding and, more recently, in the oppression proceeding. Accordingly, Slea submits that the implied undertaking that arose in the Haron proceeding and the oppression proceeding prevents Connective from using the 2010 Agreement in this proceeding. Slea says that Connective remains bound by the undertaking despite the events outlined above.

44 Slea submits that the fact that Connective put the 2010 Agreement in issue during the 17 June hearing to justify the issue of subpoenas, and that respective counsel referred to the 2010 Agreement during the hearing, is not sufficient to release Connective from the implied undertaking. Relevantly, Slea submits that Harman is authority for the proposition that the mere fact that a discovered document is referred to in open court is not sufficient to release the implied undertaking. As a corollary, Slea submits that the transcript (derived from that reference) cannot be used by a litigant bound by the implied undertaking as another source of information to commence a separate proceeding[45] and (if it matters) that the 2010 Agreement referred to at the 17 June hearing was not formally tendered,[46] nor was the affidavit to which it was exhibited read at that hearing.

45 Further, Slea submits that tender of the 2010 Agreement at the 3 November hearing did not release Connective from the implied undertaking, and even if it did, it did not cure the earlier step taken by Connective in August 2016 to commence the pre-emptive rights proceeding in breach of the implied undertaking. Slea contends that at the time the proceeding was commenced there was an abuse of process, and for that reason the proceeding ought to be dismissed or stayed, whether or not the undertaking was subsequently released.[47]

46 Connective submits that the matters pleaded in the statement of claim[48] have entered the public domain and are therefore no longer subject to the implied undertaking.[49]

(a) the 2010 Agreement is referred to in particulars to Slea's amended defence in the Haron proceeding[50] in the context where Mr Boyle, a person associated with Minerva, disclosed the agreement during a conversation with directors of the plaintiffs (Mr Lees and Mr Maloney) in the course of a meeting in January 2012;

(b) the terms of the 2010 Agreement referred to in Connective's pleadings were referred to and read aloud in open court during the 17 June Hearing; and

(c) the 2010 Agreement was tendered as an exhibit during the 3 November hearing,

and that accordingly, the only use made of the 2010 Agreement is the fact of its existence and its terms as revealed in open court, and that the document itself was not deployed in the statement of claim.

48 Relying on the above obiter dicta in Cowell, Connective submits that nothing prevents a party from making use of the fact of the existence of a document or its contents if there is another publicly available source for that information; that in pleading the relevant paragraphs of the statement of claim they were simply making use of what was publicly available to them, and the only part that was not publicly available (being a conversation between Mr Boyle, Mr Lees and Mr Maloney) does not attract the implied undertaking and is therefore not objectionable.

49 Second, Connective submits that the 2010 Agreement was tendered as an exhibit at both the 17 June hearing and the 3 November hearing and each tender operated to relieve the Connective companies from their undertaking. With respect to the 17 June hearing, Connective concedes that the traditional oral formulation for formal tender was not uttered, but submits that the 2010 Agreement was treated by each party and the court as though it were in evidence and that senior counsel for Slea handed a copy of the 2010 Agreement to the court.[51] Accordingly, Connective submits that the 2010 Agreement was 'in evidence' at the 17 June hearing.

50 Relying on Hearne v Street[52] and Esso, Connective submits that if a document is tendered in evidence, the implied undertaking in respect of that document is released or satisfied.[53] Connective says that any conflicting authority (including Cowell) is no longer good law.

51 The third and fourth defendants did not advance separate submissions but adopted the Connective companies' positions.

52 In my view, the references made to the 2010 Agreement in oral argument by respective counsel before Randall AsJ at the 17 June hearing do not:

(a) operate to relieve Connective of its implied undertaking to only use the 2010 Agreement for the purposes of the Haron proceeding or the oppression proceeding; or

(b) enable Connective to rely on the recording of those references in the court transcript of that hearing as an 'alternative source' of information not subject to the implied undertaking.

53 Further, I do not accept that the tender of the 2010 Agreement as an exhibit in the 3 November hearing makes any difference in this case.

54 Connective relied on Cowell[54] as authority for the proposition that the Harman undertaking does not prevent a party from making use of information contained in a discovered document if there is a secondary source of the information publicly available and the information is derived from that secondary source. Connective sought to apply this proposition to the facts of the case to justify having pleaded the relevant matters in the statement of claim. In my view, however, Cowell does not stand for the proposition espoused.

55 Connective's proposition overstates what was said in Cowell. In Cowell, the Court of Appeal, in obiter dicta, expressed an opinion that parties and non-parties alike should be able to make use of what appears in reasons for judgment, and that once a document is copied or quoted in reasons for judgment the parties should be free to make use of that published information.[55] The Court doubted the correctness of a statement of Scott J in Sybron to contrary effect.[56]

56 Other than in respect of information that appears in reasons for judgment, the Court of Appeal was relatively circumspect, observing that its remarks about the use of the contents of the reasons for judgment by party and non-party alike was 'merely to emphasise the possible difference between the documents themselves and some alternative, albeit derivative, sources of information'.[57] In my view, it does not follow from the persuasive observations in Cowell that the position would be the same with any publicly available secondary source. Further, I note that it is apparent from observations made in Cowell that the position in any given case may be influenced by whether the discovered document has been tendered in evidence and whether the disclosure of information from a discovered document has occurred at an interlocutory stage or at trial.[58]

57 In this case, the information from the 2010 Agreement has not been copied or quoted from reasons for judgment (or from a transcript of reasons for judgment). Instead, the information sought to be relied upon in the statement of claim was disclosed in court (substantially by counsel for Connective) during argument at the hearing of an interlocutory application in circumstances where the discovered document being read from had not been tendered in evidence.

58 I am not persuaded by Connective's submission that the transcript of the argument at the 17 June hearing was able to be freely used by Connective as a secondary source of the contents of the document for the purposes of commencing this proceeding. If Connective's submissions were accepted, a party could effortlessly sidestep the obligations which otherwise attach to private and personal documents disclosed under the coercive process of discovery. The practical consequence would be to enable a party bound by the implied undertaking to self-reference the contents of a document through its counsel during argument, and in the process easily evade the substantive obligation inherent in the implied undertaking (to the extent that counsel has been able to read the document aloud and thereby cause the contents to be transcribed). If the contents of private and personal documents could be so easily accessed, it would likely operate as a disincentive to a party giving proper discovery and lead to 'tactical manoeuvrings'[59] by parties to ensure that discovered documents were or were not read out in court.

59 In my view, this outcome cannot have been what the Court of Appeal in Cowell intended in its passing remarks about 'alternative, albeit derivative, sources', particularly given that the Court followed Harman and expressly endorsed the considerations underlying the decision of Scott J in Sybron. Rather, I expect the sources in contemplation include information derived from the transcript of reasons for judgment or information derived from the transcript of an unrelated court proceeding, where the contents of a discovered document in evidence in that unrelated proceeding are revealed in open court and are therefore truly in the public domain.

60 A key theme in the authorities, expressly or by implication, appears to be whether the contents of documents have entered the public domain. The position is not uniform between jurisdictions.[60]

61 In Deputy Commissioner of Taxation v Karas,[61] J Forrest J had occasion to consider whether certain affidavits and exhibits used in interlocutory applications for freezing and related orders (which contained documents or information disclosed pursuant to coercive court orders) could be used by the Deputy Commissioner in the course of enforcement of a judgment debt obtained in a separate proceeding.[62]

62 In determining whether the contents of documents had entered the public domain, J Forrest J stated that the mere filing of an affidavit in the course of a proceeding does not mean that its contents (or any exhibits) have entered the public domain and that, at the very minimum, it is necessary for the relevant affidavit to have been deployed in open court - in the sense that it constituted admissible evidence on a particular application or in a trial and was, in fact, utilised for the purpose of the decision. His Honour observed there may be cases where, notwithstanding the use of the affidavit and exhibits in the course of an application, the disclosed material could not properly be said to have entered the public domain.[63] The approach taken by J Forrest J in Karas fortifies my view that the contents of the document in issue in this case cannot properly be said to have entered the public domain.

63 I do not accept Connective's submission that the implied undertaking was spent because the document had been in evidence at the 17 June hearing (this assertion was disputed) or the 3 November hearing (as was the fact).

64 Connective submitted that in Cowell, the Court of Appeal held that upon a document or information passing into evidence the implied undertaking is spent and no longer serves its purpose.[64] I do not accept this submission. The reference in Cowell to the undertaking being spent occurred in the confined context of discussion about particular types of documents - namely, answers to interrogatories and witness statements. The Court held that such documents have been brought into being solely for the purpose of going into evidence at trial and that once that has occurred, the undertaking which initially attached to those documents in order to protect them from misuse before trial 'would appear to be spent'.[65]

It is otherwise with documents provided to an opponent upon discovery or the like, for such documents commonly predate the commencement of the proceeding and ordinarily have not been brought into existence for the purposes of the litigation. Hence the greater need for care to guard against their being used by an opponent for a 'collateral or ulterior purpose' even after they have been marked as exhibits in the proceeding in which they were made available.[66]

66 The 2010 Agreement falls into the latter category, being a discovered document that had not been brought into existence for the purpose of the litigation. Accordingly, there is a greater need for care.

67 Cowell is authority for the proposition that a party is not freed from the implied undertaking simply because the document in question is marked as an exhibit in a proceeding. The court held that although members of the public are free to make use of that knowledge, the party affected by the undertaking remains bound as to the use of the document itself.[67] The court was not attracted to the idea of the implied undertaking ceasing at the moment a document is passed into evidence, and preferred an outcome where the party that seeks to use such a document is still required to apply for leave to use the document otherwise than for the purposes of the proceeding.[68] This is consistent in all respects with Harman and Sybron.

68 It is also necessary to refer to the case of Hearne v Street.[69] Hearne v Street concerned the conduct of directors of companies involved in legal proceedings who sent documents served by the plaintiffs to a third party unconnected with the proceedings. The plaintiff filed a notice of motion and statement of charge against each director for contempt of court for a breach of the implied undertaking. At first instance the charges were dismissed.[70] On appeal, the New South Wales Court of Appeal made orders finding each director to be guilty of contempt.[71]

69 The High Court affirmed the decision of the Court of Appeal and held that the implied undertaking not to use documents filed in court for a purpose unrelated to the conduct of the proceeding was a substantive obligation and bound a third party if the third party knew of the origins of the documents in the legal proceedings.[72]

70 Relevantly, for present purposes, the following passage appears in the joint judgment:

Before turning to the appellants' submissions in relation to the extent and enforceability of the "implied undertaking", it is desirable to set out some background legal principles which were not in controversy.

Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.[73]

71 Connective relied on this passage as authority for the submission that the current law in Australia is that if a document is tendered in evidence the implied undertaking in relation to it is released or satisfied.

72 Slea contended that the statement was obiter dictum, intended merely as a background statement, was not directed to an issue in controversy and was not the subject of any reasoning or argument. Slea says that nothing in the decision was sufficiently critical of Harman or its continued authority so as to displace Harman's clear principle.

73 For the reasons given by Slea, I am not satisfied that the plurality in Hearne in passing remarks characterised as 'background legal principles ... not in controversy' intended to establish the proposition that if a document is tendered in evidence the implied undertaking is released or satisfied. As the point is moot in this case, it is not necessary to form a concluded view on the issue.

74 During the 17 June hearing, the 2010 Agreement was not tendered in evidence or marked as an exhibit. Instead, it appears that the document was used as an aide memoire or working document during the course of argument.[74] Whether the parties deliberately chose not to tender it, did not think it was necessary to tender it or overlooked tendering it does not much matter. For the purposes of argument, the parties chose to allow reference to be made to the document and the presiding Associate Judge may have looked at a copy of the document at the invitation of the parties, but this does not change the objective fact that it was not tendered.

75 Moreover, although the 2010 Agreement was tendered into evidence in the 3 November hearing, in my view this did not operate (even if it did release the undertaking) to retrospectively remedy the breach of the implied undertaking that occurred at the time proceedings were commenced in August 2016. No authority was cited by Connective to suggest otherwise.

76 In my view, the reference during argument to the 2010 Agreement at the 17 June hearing did not give Connective permission to use the transcript of that hearing as an 'alternative source' of information to institute this proceeding. Furthermore, the implied undertaking was not spent or released when the 2010 Agreement was used during the 17 June hearing. That it was tendered and marked as an exhibit at a subsequent interlocutory hearing (on 3 November 2016) does not remedy the breach.

77 The central core of the claim in this proceeding turns on the terms of the 2010 Agreement. I consider that the circumstances of the commencement of the proceeding, involving as it did the use of the information from the transcript of the 17 June hearing, amounted to an abuse of process of the court.

78 In light of these reasons, it is strictly unnecessary to deal with the other grounds; however, I will deal with them briefly.

Ground 2: Prohibition against financial assistance

79 Slea alleges that in bringing this proceeding Connective contravened, and continues to contravene, the implied prohibition in s 260A of the Corporations Act against giving financial assistance to acquire shares.

80 Section 260A relevantly provides:

(1) A company may financially assist a person to acquire shares (or units of shares) in the company or a holding company of the company only if:

(a) giving the assistance does not materially prejudice:

(i) the interests of the company or its shareholders; or

(ii) the company's ability to pay its creditors;

...

81 The effect of the section is that the party seeking to defend financial assistance has the onus of proving that the financial assistance does not materially prejudice the interests of the company or its shareholders or the company's ability to pay its creditors.[75] Applied to this case, to the extent that Slea can prove that bringing or maintaining the proceeding constitutes the giving of financial assistance, it will be for Connective to prove an absence of material prejudice.

82 In substance, Slea submits that the relief sought by Connective in the proceeding is an order that Slea offer its shares in the Connective companies to Millsave and Haron, which would grant Millsave and Haron the option to purchase those shares.[76] Slea says that it follows that the bringing and maintaining of the proceeding constitutes the giving of financial assistance by Connective to Millsave and Haron to acquire shares in the Connective companies,[77] and involves the use of company monies to fund the proceeding for the benefit of Millsave and Haron.[78] Slea adduced evidence that the estimated cost of running the proceeding is at least $525,000 to $755,000 (excluding GST), in addition to any potential adverse costs order if the relief is not granted.[79]

83 Slea claims that the situation is analogous to the Connective parties funding a proceeding brought by Millsave and Haron themselves for the enforcement of their pre-emptive rights.[80] Slea argues that such a case would clearly contravene the prohibition.

84 Slea otherwise claims that there has been material prejudice to shareholders by diminution of the companies' resources caused by expenditure of company funds on litigation.[81] Further, Slea submits that Connective did not produce any evidence to establish that there was no material prejudice and, having regard to the onus of proof requirements, has failed to satisfy the court that there is no material prejudice.[82]

85 Connective resists Slea's arguments on three grounds.

86 First, the Connective companies say that they are not giving assistance to any person to acquire shares but are simply funding their own legal costs (and accepting exposure to the risk of an adverse costs order) to enforce pre-emptive rights provisions in their respective constitutions; that is, they are merely seeking to enforce pre-existing statutory contractual rights.[83]

87 Connective submits that if Slea is found to have triggered the pre-emptive rights clauses of the relevant constitutions then it must deliver a statement in accordance with those provisions. Connective says that the relief that would be ordered (being the right to receive an offer to acquire shares) would not affect any share acquisition nor confer any entitlement to a share acquisition not already in existence. Connective says that the relief is a right which exists independent of the proceedings and inheres in the constitution, and is not something that comes from the proceeding.[84] Connective submits that Millsave and Haron do not therefore gain anything by the relief sought in the proceeding that they do not already have. On this basis, Connective says that there is no 'assistance' but simply management of its own affairs.

88 Second, Connective points to the absence of any 'transaction' in respect of the financial assistance that could found a claim.[85] In this regard, Connective relies on the explanatory memorandum to the Company Law Review Bill 1997 (Cth) which enacted the reforms giving rise to the prohibition, and which states:

The Bill therefore prevents a company giving financial assistance to a person who acquires shares, or units of shares, in the company or a holding company if the transaction would materially prejudice the interests of the company or its shareholders, or materially prejudice the company's ability to pay its creditors (Bill, s 260A(i)(a)). This is subject to the exception that a company will be able to give financial assistance if the transaction has been approved by the company's shareholders in the manner set out in section 260B (Bill, s 260B (Bill, s 260A(i)(b)). This approach is intended to minimise the difficulties currently experienced for ordinary commercial transactions. In particular, for transactions which do not involve material prejudice, the new rules will make it unnecessary to decide whether the transaction involves the giving of financial assistance. The new rules will bring the requirements for financial assistance more closely into line with those proposed for capital reductions.[86]

89 Connective also points to the commercial approach taken by Hoffmann J in Charterhouse Investment Trust Ltd v Tempest Diesels Ltd,[87] who said that it was necessary to look at all interlocking elements in a commercial transaction as a whole, and to determine where the net balance of financial advantage lay.[88] Connective says in this case that there is no 'transaction' other than the provision of legal services to the Connective companies for a fee, and that the prohibition is not intended to embrace this situation.[89]

90 Third, Connective argues that the mere enforcement of a company's constitution against those acting contrary to it cannot be materially prejudicial to its interests or that of its shareholders.[90] Connective says that this is plain from an examination of the nature of the proceeding, and no other evidence is required.

91 In reply, Slea accepted that Millsave and Haron already had whatever rights they had under pre-emptive rights provisions in the respective constitutions, but submitted that the effect of the proceeding is to have those rights recognised, and that recognition of those rights at law was sufficient to constitute assistance. Slea further clarified its position and submitted that the proceeding was to bring about or perfect an offer which would, in turn, give Millsave and Haron an option which (if accepted) would enable them to acquire the shares. Slea says that this is, in substance, assistance of a financial kind.

92 In my view, the prosecution of this proceeding does not contravene the implied prohibition against giving financial assistance under s 260A of the Corporations Act.

93 The words 'financial assistance' are not defined in the Corporations Act. In Charterhouse Investment, Hoffmann J considered the meaning of 'financial assistance' and said:

The words have no technical meaning and their frame of reference is in my judgment the language of ordinary commerce. One must examine the commercial realities of the transaction and decide whether it can properly be described as the giving of financial assistance by the company, bearing in mind that the section is a penal one and should not be strained to cover transactions which are not fairly within it.[91]

94 In considering whether something amounts to 'financial assistance', the task of the court is to consider the transaction as a whole, with all of its 'interlocking elements', and to consider whether the commercial realities of that transaction indicate the provision of assistance of a financial kind.[92]

95 Further, although a contravention of the prohibition does not affect the validity of the financial assistance or of the transaction connected with it, and the company is not itself guilty of an offence,[93] any person involved in a contravention of the section may be subject to a civil penalty[94] or other form of punishment if there is dishonesty involved.[95] In light of these potential consequences, a court should not strain the provision to cover transactions that do not fall squarely within it if a transaction has a lawful and bona fide purpose.[96]

96 Slea says that the fact that it does not identify any transaction that could amount to financial assistance is immaterial. Slea says that although the word 'transaction' is referred to in the Explanatory Memorandum, it is not found in s 260A and is not a necessary element of the prohibition. Whilst this is so, in my view the fact that there is no transaction tends to suggest that the company is pursuing the action for its own purposes. Looking at the commercial realities, it cannot be readily described as the giving of financial assistance by the company.

97 Although I recognise that the categories of financial assistance are not closed, in my view some guidance can be obtained by looking at other examples of financial assistance. All seem to involve a transaction such as the making of a gift,[97] the issue of a debenture,[98] the giving of security over a company's assets,[99] the giving of a guarantee or indemnity or the company incurring a personal obligation.[100] No authority has been cited to suggest that the section will be engaged absent a transaction or in circumstances analogous to the present. It seems to me that the better view is that the Connective companies have simply brought the proceeding in order to ensure that their constitutions are followed according to their terms.

98 I accept the Connective companies' submissions that there is no conferral of any benefit on Millsave and Haron. I accept that there is a relevant distinction to be made between the provision of an offer which would be the result of a proceeding if the Connective companies succeeded, and the acquisition of shares which could only occur if such an offer were taken up. A legitimate objective of the proceeding, it seems to me, is to ensure that existing shareholders' rights are properly recognised and administered according to the constitutions. No new rights are being created. Although the Connective companies are spending funds on the litigation, it is for a proper purpose - ensuring adherence to their respective constitutions. To expose the directors of the Connective companies to personal liability with respect to such a course of action does not seem to me to further the aims of the legislation.

99 Ground three concerns the right of the Connective companies to bring an action to enforce their statutory contracts (that is, their constitutions) under s 140 of the Corporations Act.

100 Section 140 of the Corporations Act provides:

(1) A company's constitution (if any) and any replaceable rules that apply to the company have effect as a contract:

(a) between the company and each member; and

(b) between the company and each director and company secretary; and

(c) between a member and each other member;

under which each person agrees to observe and perform the constitution and rules so far as they apply to that person.

101 Slea submits that the Connective companies lack standing to enforce the pre-emptive rights for three reasons.

102 First, Slea says that s 140 of the Corporations Act creates three separate statutory contracts (not one), with each contract containing the rights and duties only in respect of the categories of persons bound by that contract and to the extent that those rights apply to those parties.[101]

103 Slea says that the pre-emptive rights clauses in the relevant constitutions only impose a duty on and grant rights to members, and therefore only form part of the statutory contract created by s 140(1)(c) (i.e. between members).[102] Slea says further that the relief sought in the proceeding (being a mere offer to purchase shares) does not involve or 'apply to' the Connective companies, and that the Connective companies are only affected after an offer is made and accepted and a transfer is required to be effected in their share registers.[103] In light of this, Slea says that the Connective companies do not have standing to enforce what are exclusively members' rights and obligations.

104 Second, Slea says that even if the pre-emptive rights formed part of the statutory contract created by s 140(1)(a), the Connective companies lack standing to enforce them as they have not given any consideration for those promises.[104]

105 Finally, Slea points to authorities that provide that a company is not a necessary party to an action between members to enforce a pre-emptive rights provision in a company's constitution,[105] and says that it follows that the company is not a person whose rights and interests are affected and that the rights are personal rights between members only.[106]

106 Connective's position is that there is only one statutory contract created by s 140, not three, and that the Connective companies are entitled to enforce the pre-emptive rights within that contract vis-à-vis their members. Connective says that they have standing to ensure that their constitutions are complied with so that they can register a valid transfer under the remainder of the rules of the constitutions.[107] Otherwise, they say, they may be presented with an invalid certificate which they could not legally act upon. Connective submits that this proposition is not invalidated even if there are three separate contracts, because one of the contracts is between the company and each member and the company has an interest in observance of the contract because the company has an interest in ensuring that the manner in which shares pass from one person to another is in accordance with the constitution.[108]

107 Connective argues that the words 'so far as they apply to that person' in s 140 do not identify and limit who is able to enforce terms, but simply provide that a person agrees to observe and perform the terms that apply to them.[109] Connective says that the provision says nothing about rights of enforcement, which should be left to general principles.

108 Finally, Connective contends that the proposition that it lacks standing because the promises contained in cl 77 of the respective constitutions are not supported by consideration has no basis as the contract is a deemed contract.[110]

109 For present purposes, it is not necessary to decide whether s 140 of the Corporations Act creates one or three statutory contracts.

110 Under s 140, each contracting party 'agrees to observe and perform the constitution and rules so far as they apply to that person'. In my view, this does no more than oblige each party to perform the obligations in the statutory contract that concern them. It says nothing about who is entitled to enforce the contract.

111 In my view, the Connective companies are entitled to enforce the statutory contract that they have with their members, regardless of whether the specific obligation the subject of the dispute includes an obligation on the companies. Even if the specific obligation does not concern the Connective companies, the companies are nevertheless party to a contract with each member through which they can enforce their constitutions. A company has an interest in ensuring compliance with the terms of its constitution and ought not to be shut out from acting to ensure compliance, even if a member chooses not to do so.

112 In any event, I accept the submission on behalf of Connective that Connective does have a relevant specific interest in this case in the observance of the statutory contract: the companies have an interest in ensuring that the manner in which shares pass from one person to another is in accordance with their respective constitution.[111] Enabling Connective to enforce compliance with the pre-emptive rights provisions is a practical means of avoiding non-observance of the respective constitutions.

113 I am not satisfied that consideration by the Connective companies is necessary to enforce the members' promise. The contract is a statutory deemed contract and common law rules relating to consideration do not apply.[112]

114 Finally, I note that I do not accept Slea's contention that because a company is not a necessary party to an action as between members to enforce pre-emptive rights, it follows that the company is not a person whose interests are affected or cannot enforce those rights itself.

115 Slea and Minerva advance three grounds for the relief they seek in this application. Two of these grounds are not sustained. I have concluded that the Connective companies have not contravened the implied prohibition in s 260A of the Corporations Act on giving financial assistance to a party to acquire shares and that they do not lack standing either to enforce the pre-emptive rights provisions or to seek the relief sought.

116 Nevertheless, by commencing this proceeding in reliance on the contents of the 2010 Agreement (which had been obtained by the Connective companies through discovery in the earlier proceedings), the Connective companies breached the implied undertaking not to use the 2010 Agreement for a purpose unconnected with those proceedings. This amounts to an abuse of the process of the court. In circumstances where the central core of the claim turns on the terms of the 2010 Agreement, in my view the appropriate remedy is to stay the proceeding generally pursuant to Order 23.01 of the Rules. I will make an order to that effect.

[1] Affidavit of Justin Taede Vaatstra dated 4 October 2016, [4] ('First Vaatstra affidavit').

[2] Originating process dated 11 August 2016, [29].

[3] The precise relief claimed is set out at pp 13 and 14 of the statement of claim. No relief is sought against the third or fourth defendants, who have been joined as proper and necessary parties to the proceeding.

[4] Harman v Secretary of State for the Home Department [1983] 1 AC 280 ('Harman').

[5] Haron brought the proceedings against Slea and Minerva seeking 25% of Slea's and Minerva's shares in the Connective companies.

[6] Document No. 56, described as 'Accommodation agreement between Slea Pty Ltd as trustee for the Tsialtas Family Trust and Minerva Financial Group Pty Ltd'. The list of documents dated 12 August 2010 is set out at Exhibit JTV-3 to the First Vaatstra affidavit.

[7] First Vaatstra affidavit, [6]-[9].

[8] Document No. 256, described as 'Accommodation agreement between Minerva Financial Group Pty Ltd 12/08/2010'. The list of documents in the oppression proceeding is set out at Exhibit JTV-5 to the First Vaatstra affidavit.

[9] First Vaatstra affidavit, [17]-[18].

[12] First Vaatstra affidavit, [12]-[13].

[13] First Vaatstra affidavit, Exhibit JTV-7.

[14] First Vaatstra affidavit, [15]; Exhibit JTV-8.

[15] First Vaatstra affidavit, [16]; Exhibit JTV-9.

[16] First Vaatstra affidavit, [17]; Exhibit JTV-10.

[17] At the hearing of this application, senior counsel for the Slea and Connective interests agreed that the appropriate course was for the 2010 Agreement to be marked for identification and be available to the court if there was a need for the court to refer to it for the purposes of these reasons. It is not necessary to refer to the document (exhibited to the affidavit of Laura Frances Weston affirmed 16 November 2016), which remains marked for identification only.

[18] Harman [1983] 1 AC 280, 283.

[19] Ibid 304-6 (bolded emphasis added; italicised emphasis in original).

[22] [1985] 1 Ch 299 ('Sybron').

[24] (1998) 19 WAR 316 ('Hamersley').

[25] The Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Workers Union of Australia, Engineering and Electrical Division WA Branch.

[26] The court also found the contemnors guilty of interference with the proper administration of justice arising from Mr Lovell's radio interview and interview with a regional newspaper.

[27] Hamersley (1998) 19 WAR 316, 342.

[29] Ibid 320 (Pidgeon J), 320 (Ipp J).

[32] Hamersley (1998) 19 WAR 316, 341.

[33] Ibid. See also Kirby P (with whom Samuels JA agreed) in Ainsworth v Hanrahan (1991) 25 NSWLR 155, 164 who expressed a preference for the dissent of Lord Scarman in Harman.

[34] [2003] VSCA 43; (2003) 8 VR 571 ('Cowell').

[35] 'Although in Esso both Dawson and McHugh JJ concurred in the Chief Justice's judgment (183 CLR 10 at 39 and 48) it may be doubted whether their concurrences are to be taken as extending to the dictum in question' (Cowell [2003] VSCA 43; (2003) 8 VR 571, 584 n 33).

[43] [2005] VSC 101 ('Lubransky').

[44] Ibid [59]-[60] (emphasis in original).

[46] T 44.27-45.6; First and second defendants' submissions dated 30 November 2016 [14], relying on the principle in R v Pearce [1999] VSCA 221; [1999] 3 VR 287.

[47] This issue becomes relevant due to limitation of action considerations.

[48] Plaintiffs' outline of submissions [26], relying on paragraphs [29] and [30] of the plaintiffs' statement of claim.

[49] Plaintiffs' outline of submissions [26].

[50] Slea's amended defence dated 14 December 2011 [3J].

[51] Plaintiffs' outline of submissions [31].

[52] [2008] HCA 36; (2008) 235 CLR 125.

[54] [2003] VSCA 43; (2003) 8 VR 571, 583 [28], 588 [38], 593 [49]; Plaintiffs' outline of submissions [27].

[55] Cowell [2003] VSCA 43; (2003) 8 VR 571, 588 [38].

[59] Harman [1983] 1 AC 280, 308.

[60] The Federal Court Rules provide that the implied undertaking no longer applies if a document is read or referred to in open court in a way that discloses its contents: rule 20.03 Federal Court Rules 2011 (Cth). Reg 21.7 Uniform Civil Procedure Rules 2005 (NSW) provides that no copy of a document or information from a document may be disclosed or used otherwise than for the purpose of the conduct of the proceeding, except by leave of the court, unless the document has been received into evidence in open court.

[61] [2012] VSC 143 ('Karas').

[64] Plaintiffs' outline of submissions [35].

[65] Cowell [2003] VSCA 43; (2003) 8 VR 571, 590-1 [43].

[69] [2008] HCA 36; (2008) 235 CLR 125.

[70] Street v Luna Park Sydney Pty Ltd [2006] NSWSC 624.

[71] Street v Hearne [2007] NSWCA 113; (2007) 70 NSWLR 231.

[72] [2008] HCA 36; (2008) 235 CLR 125, 160 [109] (Hayne, Heydon & Crennan JJ), 131 [3] (Gleeson CJ agreeing), 145 [57] (Kirby J agreeing).

[73] Ibid 154-5 [95]-[96] (emphasis added).

[74] Transcript of hearing before Randall AsJ dated 17 June 2016 T 20.5-11; First Vaatstra affidavit, Exhibit JTV-10.

[75] Adler v ASIC; Williams v ASIC [2003] NSWCA 131; (2003) 179 FLR 1, 88 [410].

[76] First and second defendant's submissions dated 30 November 2016 [6].

[77] First and second defendant's submissions dated 30 November 2016 [6].

[78] First and second defendant's submissions dated 30 November 2016 [7].

[79] Affidavit of Justin Taede Vaatstra dated 30 November 2016 [10].

[81] First and second defendant's submissions dated 30 November 2016 [7]-[8].

[83] Plaintiffs' outline of submissions [6].

[85] Plaintiffs' outline of submissions [12]-[13].

[86] Explanatory memorandum to the Company Law Review Bill 1997 (Cth) Part 2J.3, [12.75] (emphasis added).

[87] [1986] BCLC 1 ('Charterhouse Investment').

[88] Ibid 10-11 (emphasis added). See also, Adler v ASIC; Williams v ASIC [2003] NSWCA 131; (2003) 179 FLR 1, 74-75 [359].

[89] Plaintiffs' outline of submissions [12].

[90] Plaintiffs' outline of submissions [15].

[91] Charterhouse Investment [1986] BCLC 1, 10. See also Milburn v Pivot Limited (1997) 78 FCR 472, 501-8; Sterileair Pty Ltd v Papallo (1998) 29 ACSR 461, 465.

[92] ASIC v Adler [2002] NSWSC 171; (2002) 168 FLR 253, 339-40 [349]; Adler v ASIC; Williams v ASIC [2003] NSWCA 131; (2003) 179 FLR 1, 74-5 [359].

[93] Corporations Act 2001 (Cth) s 260D(1)(a)-(b).

[94] Corporations Act 2001 (Cth) s 1317E.

[95] Corporations Act 2001 (Cth) s 260D(3).

[96] Anglo Petroleum Ltd v TFB (Mortgages) Ltd [2006] EWHC 258 (Ch), [126]-[127]; Tallglen Pty Ltd v Optus Communications Pty Ltd (1998) 146 FLR 380, 385 quoting Hoffmann J in Charterhouse Investments [1986] BCLC 1, 10.

[97] See e.g. In re VGM Holdings Ltd [1942] Ch 235, 240.

[98] Victor Battery Company Ltd v Curry's Ltd [1946] Ch 242.

[99] Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160.

[100] Burton v Palmer [1980] 2 NSWLR 878.

[101] First and second defendants' submissions dated 30 November 2016 [10].

[102] First and second defendants' submissions dated 30 November 2016 [10].

[104] First and second defendants' submissions dated 30 November 2016 [11], citing generally Trident General Insurance Co Ltd v McNiece Brothers Pty Ltd [1988] HCA 44; (1988) 165 CLR 107, 115-6.

[105] See Rayfield v Hands [1960] 1 Ch 1 and subsequent decisions; First and second defendants' submissions dated 30 November 2016 [12].

[106] First and second defendants' submissions dated 30 November 2016 [12].

[107] Plaintiffs' outline of submissions [20].

[109] Plaintiffs' outline of submissions [21].

[110] Plaintiffs' outline of submissions [23].

[112] Eley v Positive Government Security Life Assurance Co Ltd (1875) 1 Ex D 20.