Hanks v Admiralty Resources NL

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 606 of 2011

JUDGE: GORDON J DATE: 8 AUGUST 2011 PLACE: MELBOURNE

introduction 1 The plaintiff (Mr Hanks) is a member of Admiralty Resources NL (Admiralty). Mr Hanks became a member on 28 May 2010. He currently holds 0.00005% of Admiralty's issued capital. The current value of Mr Hanks' shareholding in Admiralty is approximately $1,710.00. 2 Pursuant to s 247A of the Corporations Act 2001 (Cth) (the Corporations Act), Mr Hanks seeks an order permitting him and his solicitor to inspect specified books of Admiralty. Mr Hanks also seeks an order, until further order, that he and his solicitor not communicate or disclose any information they obtain as a result of that inspection to any persons other than Mr Hanks' legal advisers or such other persons necessary to enable the plaintiff to determine whether to apply for leave pursuant to s 237 of the Corporations Act. 3 Admiralty opposes the application. Admiralty submits that, contrary to s 247A of the Corporations Act, Mr Hanks has failed to establish that (1) he is acting in good faith and (2) that there is a case for investigation or that he is seeking to protect some personal right. Further, Admiralty contends that there are other reasons why the Court should, in the exercise of its discretion, refuse to grant the orders sought by Mr Hanks. 4 For the reasons that follow, I would make orders for inspection substantially in the form of the orders sought by Mr Hanks. However, I have reduced the categories of books that he will be entitled to inspect.

legislation 5 Section 247A of the Corporations Act provides: (1) On application by a member of a company …, the Court may make an order: (a) authorising the applicant to inspect books of the company or scheme; or (b) authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf. The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose. (2) A person authorised to inspect books may make copies of the books unless the Court orders otherwise. (3) A person who: (a) is granted leave under section 237; or … (c) is eligible to apply for leave under that section; may apply to the Court for an order under this section. (4) On application, the Court may make an order authorising: (a) the applicant to inspect books of the company; or (b) another person to inspect books of the company on the applicant's behalf. (5) The Court may make the order only if it is satisfied that: (a) the applicant is acting in good faith; and (b) the inspection is to be made for a purpose connected with: (i) applying for leave under section 237; or (ii) bringing or intervening in proceedings with leave under that section. (6) A person authorised to inspect books may make copies of the books unless the Court orders otherwise. 6 There is no dispute that Mr Hanks is a member of Admiralty and that he is eligible to apply for leave to commence a proceeding under s 237 of the Corporations Act. 7 As is readily apparent, the issues for determination are: 1. whether Mr Hanks is acting in good faith and that the inspection is to be made for a proper purpose; 2. if yes to (1), whether there is any other reason why the Court should, in the exercise of its discretion, refuse to grant the orders sought by Mr Hanks.

summary of facts 8 The transaction which lies at the heart of Mr Hanks' concerns is the sale of Admiralty's controlled entity, Sociedad Contractual Minera Vallenar Iron Company (VIC), to Icarus Derivatives Ltd (Icarus) and, in particular, the recommendation of the Admiralty directors to the Admiralty shareholders to vote for the sale without entertaining an offer, or disclosing the existence of an offer, from Hebei Wenfeng Iron and Steel Co Ltd (HWF). 9 On 2 September 2010, Admiralty issued a news release stating that, subject to approval by its shareholders, it had entered into a share sale agreement to sell the whole of VIC to Icarus (the Share Sale Agreement). The news release stated that VIC's main asset was a series of mining tenements in the Harper geological district in Chile. Icarus was described as "part of an international investment group specialising in opportunities in the resource sector generally". 10 The 2 September news release also stated that: Icarus will be entitled to a break fee of $US450,000 in circumstances where shareholders reject the transaction if a competing transaction which is more favourable to shareholders is proposed or announced prior to the meeting held to approve the transaction; … (the Break Fee). 11 On 6 September 2010, Mr Hanks requested Admiralty to provide specific information about Icarus including management names, titles and full contact details. Admiralty responded on 8 September 2010 as follows: … Icarus Investments is a private company and as such details of its management/shareholders are not readily available. As you know, it is part of an investment group, of which the Company hasn't disclosed further details so far. I understand your concern in relation to finding more information about the potential buyer of the tenements in the Northern Region and I can tell you that Dr Andrew Walker related to Icarus and with a public profile (sic). Dr Walker is involved in the Aspen Medical and the Wingate projects. You can find more information on these projects on the following links: Aspen Medical's website is www.aspenmedical.com.au. Aspen has won lots of awards and is currently the ANZ Private Business of the Year. In 2007, it was BRW's #1 fastest growing Company. … 12 Around 28 September 2010, Mr Hanks received notice of an Extraordinary General Meeting of Admiralty to be held on 29 October 2010 (the EGM). The sale of VIC to Icarus was on the agenda for the EGM. The EGM notice was accompanied by an Explanatory Memorandum (the EM). 13 The EM explained that the Share Sale Agreement was entered into on 1 September 2010 with Icarus (a company incorporated in the British Virgin Islands) as purchaser and Corsair Capital Limited (a Hong Kong company) (Corsair), as guarantor. The purchase price was described in the EM as follows: In exchange for the shares in VIC and the transfer from Admiralty and Admiralty Chile to the purchaser of the remaining debt that VIC will owe them at Completion: (a) the Purchaser will assume responsibility for the repayment of US$4 million in debt owed by VIC to Admiralty, and will repay that amount in the following instalments: (i) US$1 million at Completion; (ii) US$1 million eight months after Completion; (iii) US$1 million sixteen months after Completion; (iv) US$1 million twenty-four months after Completion; and (b) the Purchaser will pay the Vendors US$10,000 at Completion. In addition, immediately before Completion, VIC will enter into a royalty agreement with Admiralty (Royalty Agreement), pursuant to which VIC will be required to pay Admiralty a royalty in respect of the iron ore fines extracted after Completion from any area covered by the Mineral Concessions [on certain terms and conditions]. In exchange for VIC's commitment to pay this royalty, approximately US$29 million of the debt owed by VIC to Admiralty or Admiralty Chile will be taken to have been repaid. In the EM, Admiralty's directors recommended the sale to Icarus as being in Admiralty's best interests. 14 Other parts of the EM should be noted. First, the pro-forma balance sheet included in the EM compared the financial position of Admiralty as at 30 June 2010 with its financial position following completion of the Share Sale Agreement. As Counsel for Admiralty submitted, the pro-forma balance sheet recorded that as a result of the sale of VIC to Icarus there would be: 1. an increase in cash of approximately $500,000; 2. a decrease in the value of the asset "mining interests" of $22.45 million; 3. an increase in the value of the asset "other financial assets" of $33.83 million reflecting the directors' valuation of the contingent asset comprised of the cash payments and expected royalty streams under the Share Sale Agreement; and 4. an increase in net assets of $14.054 million. 15 The EM also stated that Admiralty had agreed that, prior to completion of the Share Sale Agreement, it would not engage in any conduct to solicit, encourage or initiate other offers, or participate in any discussions or negotiations in respect of other offers unless Admiralty's board concluded, on advice, that it had a fiduciary duty to do so. The EM also explained the circumstances which would give rise to the Break Fee being payable: see [10] above. 16 Mr Hanks understood from the EM, as was the fact, that the ongoing royalty payments were a significant component of the Share Sale Agreement, and that the value of those payments to shareholders would be reliant on Icarus' ability to successfully develop the mineral concessions after completion. As a result, Mr Hanks studied the EM for information about Icarus and Corsair. Mr Hanks submitted that there was insufficient information in the EM to evaluate the proposed sale and that the contents of the EM suggested that the board of Admiralty had not properly considered the implications of the sale. 17 In relation to Icarus' capacity to complete, the EM stated: Admiralty has been advised by the Purchaser that it and the Guarantor are each privately owned investment companies seeking to acquire assets globally for investment and subsequent development. The Purchaser has been established by the Guarantor specifically for this transaction and is a single-use vehicle. Admiralty has further been advised that the Guarantor owns a range of assets across industries and jurisdictions, is fully audited and has substantial experience in investment and subsequent development of assets, particularly resource focused assets. Accordingly, the Directors have taken into account the experience and commitment of the Purchaser and the Guarantor to complete the Transaction and comply with the ongoing obligations under the Agreement. In addition, Admiralty will retain an indirect interest in VIC, through the grant by the Guarantor of a charge or mortgage to Admiralty over the entire issued share capital in the Purchaser (which will in turn own the entire share capital in VIC), to secure the Guarantor's obligations under the Agreement. ADY must release the charge or mortgage on the earlier of the date on which Admiralty has received all royalty payments payable by VIC under the Royalty Agreement in respect of the first 5 million tonnes of iron ore extracted (or deemed to be extracted) after Completion from the areas covered by the Mineral Concessions and, if the Purchaser terminates the Agreement in the manner referred to in paragraph 6(f), the date on which Admiralty has received all royalty payments accrued up to the date on which all documents necessary to effect the transfer of the Mineral Concessions to Admiralty are signed and delivered by VIC to Admiralty. Importantly, the majority of the consideration payable to Admiralty is comprised of the royalty payments which are payable by VIC under the Royalty Agreement. Accordingly, given that VIC will retain ownership of the Mineral Concessions, the Board is confident that it will be able to comply with these ongoing payment obligations. (Emphasis added.) 18 Under the heading "Corsair Guarantee", the EM also stated that Corsair (the parent company of Icarus) would guarantee Icarus' obligations to repay the US$4 million debt as well as the "Royalty" that was payable in respect of the first 5 million tonnes of iron ore extracted from any area covered by the Mineral Concessions and that Corsair's obligations under the Guarantee were secured by a charge or mortgage over the shares in Icarus. 19 Following receipt of the EM, Mr Hanks attempted to find out about Corsair, Icarus and the proposed sale, including asking questions of Admiralty's directors at the EGM. For example, on 18 October 2010, in response to a question about the consequences of the sale not being approved, Mr Hanks was told "there is no need to speculate in relation to the actions the Company will undertake in the event of a vote against the Icarus transaction. The directors have recommended the shareholders to vote FOR the transaction as they believe it is in the best interest for the Company and its shareholders." 20 The next event is that on 15 September 2010 Admiralty received an "offer" from HWF. The offer referred to the Share Sale Agreement and set out alternative proposals for HWF to purchase VIC. Significantly, the letter stated "[HWF] feel it is likely that [HWF] can also improve on other aspects of the Icarus Agreement but it cannot do so unless Admiralty is prepared to immediately engage in good faith negotiations in respect of our offer and assist us in understanding the details of the Icarus Agreement. It would seem the best time to do that is now rather than to have us review the upcoming shareholders circular with a view to having to glean, if possible, the details necessary for a level playing field competitive offer". On the same day, Admiralty's solicitors wrote to HWF rejecting the offer. In general terms, the solicitors stated that Admiralty had determined that neither of the transactions proposed by HWF was "a superior proposal" to the Share Sale Agreement. 21 On 18 October 2010, HWF wrote again to Admiralty. The letter stated: Further to our letter of September 15, 2010 we hereby make a further offer which we believe is superior to that of [the] Icarus offer in the hope that you will recognize it as such and negotiate a formal agreement, or at least provide us with the executed agreement with Icarus so that a signed binding offer with full terms and conditions can be sent to you. Reference is made to the terms of the VIC share sale agreement with Icarus as disclosed in your shareholders circular dated September 28, 2010. [HWF] hereby reconfirms its willingness and ability to a) meet each of the terms and conditions of the Icarus Agreement (to the extent they were disclosed in your circular) and b) hereby offers $6 million of guaranteed cash payments compared with the $4 million agreed by Icarus and [HWF] also offers to increase the high-rate royalty baseline from 10 million tonnes to 15 million tonnes which we believe increases the value of the deal to Admiralty by 50% or potentially some US$25 million. [HWF] will provide suitable financial guarantees that it is sure will very favourably compare with those of Corsair on the basis of financial wherewithal and experience in mining. There is no due diligence condition for this offer. [HWF] believes that the 50% premium over the Icarus offer reflected hereby as well as its superior wherewithal requires the board to engage in good faith negotiations absent any other better third party offers. We hope to hear from you within two business days that you are prepared to negotiate in good faith to secure these superior terms for your shareholders. 22 HWF's 18 October offer was considered by Admiralty's board on 27 October 2010. The minutes of the meeting record that the board considered HWF's offer as "not superior" for six main reasons: 1. it was non-binding and there was a significant risk that an acceptable contract would not be agreed upon by both parties. Moreover, even if the negotiations did result in a contract, it could be some considerable time before both parties were ready to sign; 2. the expected timelines of production from each of the parties. The directors expected Icarus would be in production sooner than HWF; 3. they did not consider HWF's offer to be bona fide because its offer stated that it hoped Admiralty would accept "their offer to negotiate a deal"; 4. HWF had been in discussions with Admiralty for nine months and had shown little to suggest they would conclude an agreement attractive to Admiralty; 5. none of the board members had a material personal interest in the Icarus transaction or the HWF offer; and 6. the directors had sought and considered legal advice and had been adhering to it. 23 Counsel for Mr Hanks submitted that the minutes of meeting record no consideration of the financial terms of the Share Sale Agreement and the HWF offer, no comparison of the respective financial terms and no consideration of whether a 50% increase on the key financial terms in the HWF offer outweighed the time that might be taken to negotiate a binding deal with HWF. Further, there was no consideration of production times which were critical to the timing of the income stream from the royalty payments. The HWF offer was rejected on 28 October 2010, the day before the EGM. 24 On 29 October 2010, the sale of VIC to Icarus was considered by the shareholders of Admiralty at the EGM. The minutes of the EGM record an exchange between Mr Hanks and the executive director of Admiralty which, in part, included: 2.1.1 What due diligence did [Admiralty] do on Icarus and Corsair Capital regarding their financial ability to purchase and act as Guarantor to complete the transaction and comply with the ongoing obligations under the agreement? Response from the Executive Director: We have been provided with information that has satisfied the Board that Icarus has the ability to complete the transaction and Corsair has the ability to support the agreement. 2.1.2 Corsair is the parent company of Icarus, registered in Hong Kong. The notice of EGM states that Icarus owns a range of assets across industries and is fully audited. The notice also implies it has substantial experience in investments and many other fields. My research shows it is only a shell company with a single director, a Mr George Mercadal, who resides in Singapore and the registered address is a private apartment, which is completely different to how you portray the company in section 10 of the notice of EGM. As he (Mr Mercadal) holds only one share, do we know who the other directors in Corsair are? Response from the Executive Director: Icarus is a new vehicle created for the sole purpose of this transaction and as a result the Board required a guarantee of its ability to support the agreement. As per the previous statement, we have been provided with sufficient information that satisfies the Board that Corsair has interests over assets in varied industries. 2.1.3 Corsair annual returns for 2006-2010 show nil, yet the notice of meeting states it is fully audited. Had the directors, acted in the best interests of the shareholders and done due diligence, then you would have discovered this, in doing so their offer to purchase would have been rejected on the basis of non disclosure. Response from the Executive Director: The presence of nil Hong Kong returns is consistent with the information received by the Board supporting Corsair's assets. 2.1.4 Since the announcement to sell to Icarus, has ADY received any other offers? Response from the Executive Director: Yes, ADY has received another offer which the Board does not believe was a superior offer. As per the agreement with Icarus, ADY is only to consider any offers that are superior to the Icarus offer. I have reason to believe there has been another offer substantially better than the offer from Icarus, why as shareholders have we not been informed? Is the offer superior? Response from the Executive Director: The Board has considered the offer and does not believe it is a superior offer. In reaching this conclusion the Board considered legal advice received. … 2.1.6 If this transaction goes ahead, we are to be paid one million dollars on completion. Are you aware completion times in Chile could take up to 15 months? Response from the Executive Director: Completion is expected within the next one to two weeks. The sale of VIC to Icarus was passed at the EGM. 25 In the period leading up to the EGM, Mr Hanks continued to make enquiries and contacted both the Australian Stock Exchange (ASX) and the Australian Securities and Investments Commission (ASIC). It is unnecessary to set out each of the steps he took. For present purposes, is sufficient to record that: 1. in about early October, Mr Hanks contacted ASIC; 2. ASIC referred the matter to a specialist team within ASIC; 3. on 29 October 2010, ASIC wrote to Mr Hanks and informed him, amongst other things, that he should obtain his own legal advice and that if they required further information or evidence from him, they would contact him directly; 4. on 22 November 2010, ASIC wrote to Mr Hanks stating that it had finalised its investigation of the issues raised by Mr Hanks and would not be taking any further action but that it did not comment on regulatory action ASIC may or may not be taking against particular entities. Mr Hanks did not produce a copy of this letter. 26 On or about 3 November 2010, Mr Hanks received a report from Stock Resource containing a "sell" recommendation for Admiralty shares. The report stated, in part, that [DH-15]: Admiralty Resources has sold / exchanged the majority of its iron rights in Chile for a potential series of payments and royalties from an opaque British Virgin Islands incorporated company with no obvious mining credentials and uncertain financial capacity - which in turn is guaranteed by a similarly opaque Hong Kong incorporated company. Is this really the best deal Admiralty can do for its shareholders? "Admiralty's directors appear to have chucked in the towel in their efforts to create a serious mining company, and we recommend abandoning ship at this time." … The sales agreement is with [Icarus] and is guaranteed by [Corsair]. However, it is apparent that the purchaser is yet to raise the funds necessary to support funding for development, with Admiralty simply stating that the purchaser "expects to have access to sufficient financing to fund the full development of the Mineral Concessions within a year to 18 months." (Emphasis added.) Given that any future financial benefit to Admiralty shareholders relies on the ability of Icarus / Corsair to deliver (both financially and technically) it is perplexing why there is so little disclosure on its capabilities. Equally, these technical and financial functions are something that shareholders should reasonably expect Admiralty to be providing in the normal course of its business. (Emphasis added.) Perhaps there is a clue in the investor presentation material for last week's EGM (correction released earlier today), as well as in the text of its recently released annual report, where Admiralty repeatedly misstates its resources, confusing the difference between 'millions' and 'thousands'. These are very basic errors that do not inspire confidence. … 27 Around 22 November 2010, Mr Hanks received a letter from HWF addressed to Admiralty's shareholders. The letter stated, inter alia, that: 1. HWF is a privately owned corporation listed in China which includes a number of companies within HWF group engaged with mineral exploration, mining and iron refining projects and assets in Canada, Africa, Latin America and Chile, and holds assets of US$2.26 billion; 2. On 4 May 2010, HWF was invited to submit proposals for joint ventures with VIC and undertook due diligence of VIC's assets from July to September 2010 in preparation for making an offer for purchase of assets and joint venture opportunities with Admiralty and VIC; 3. On 1 September 2010, HWF was advised by Mr Stephen Prior, the CEO of Admiralty, that Admiralty had entered into a binding agreement with Icarus for the sale of a significant portion of VIC's assets, including those assets upon which HWF was undertaking due diligence; HWF was denied the opportunity to place an offer to the board or shareholders of Admiralty; 4. On 15 September 2010, HWF offered to Mr Prior that it would match and exceed the offer made by Icarus. On 18 October 2010, HWF made an offer to Admiralty to meet each of the terms and conditions of the Icarus agreement and to increase the cash payments and royalty payments by 50% above the Icarus transaction. 5. On 28 October 2010, HWF was informed by Admiralty's legal representative that the Admiralty board did not consider that its 50% higher offer was superior. At no time has HWF been advised why a 50% higher offer was not superior. 28 On 30 November 2010, Admiralty's Annual General Meeting was held (the AGM). Mr Hanks attended and again asked questions. At the AGM, the directors (via a slide presentation) informed the shareholders that the board had concluded that the offer from HWF was "not a superior offer". The board did not inform shareholders of the basis for that conclusion. 29 On 12 May 2011, Mr Hanks wrote to Admiralty requesting to inspect Admiralty's books. The specific books requested were set out in a schedule. In the letter, Mr Hanks alleged that there were reasonable grounds for suspecting that Admiralty's directors had not acted with due care and diligence and had failed to make proper disclosure regarding the sale to Icarus and the HWF offer. 30 On 30 May 2011, Admiralty refused Mr Hanks' request. It is for those reasons that Mr Hanks now applies for an order under s 247A of the Corporations Act for an order authorising Mr Hanks to inspect specified books of Admiralty.

Legal principles 31 Some of the principles relevant to an application to inspect documents under s 247A of the Corporations Act were conveniently summarised in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 at [29]: 1. The requirement that the applicant is acting in good faith and that the inspection is to be made for a proper purpose expresses a composite notion and the court will determine whether each has been demonstrated by applying an objective test. 2. The onus is on the applicant to demonstrate that he is acting in good faith and that the inspection is for a proper purpose. 3. The section operates where the applicant seeks to protect some specific or personal right by the making of the order. Examples are … where a shareholder reasonably takes the view that a transaction could adversely affect his investment and he seeks to investigate the transaction for the purpose of determining what action he should take … 4. If the applicant's primary or dominant purpose is a proper purpose, it is not to the point that an inspection may be of benefit to the applicant for some other purpose. 5. The rights provided by s 247A should not be regarded as affecting the basic rule of company law that a shareholder should not ordinarily have recourse to the courts to challenge a managerial decision made by or with the approval of the directors. 6. Since every shareholder has a right to apply under the section for an inspection order, it is no answer to an application that, if an order is made, the applicant may acquire information not available to other shareholders and thereby be in a more advantageous position than those shareholders. 7. Applicants do not necessarily lack a proper purpose merely because: (a) they are hostile to other directors; or (b) they will, after inspection, have more information than other members. 8. The procedure under s 247A is not intended to be a process as wide-ranging as the process of discovery of documents so that, as a general rule, inspection will be confined to, say, the results of decisions of directors rather than all the documents such as board papers leading to decisions. I emphasise that this is a general rule. There may be occasions where it is proper to admit inspection of board papers. … 9. Even where an applicant is acting bona fide and has shown a proper purpose, the court has a discretion whether to order inspection. (Citations omitted and emphasis added.) 32 In addition, the following additional principles emerge from the authorities: 1. An applicant who has a significant holding and who has been a shareholder for some considerable time will more easily discharge the burden of showing good faith than one who has recently acquired a token holding: Quinlan v Vital Technology Australia Limited (1987) 5 ACLC 389 at 393; McNeill v Hearing & Balance [2007] NSWSC 942 at [14]; Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115 at 117. 2. an applicant need not show a difference between its interests and those of other shareholders: Yara Australia Pty Ltd v Burrup Holdings Ltd (2010) 80 ACSR 641 at [116]. 3. The words "proper purpose" means a purpose connected with the proper exercise of the rights of a shareholder as a shareholder, as opposed to the purpose connected with some other interest, such as an interest as a bidder under a takeover scheme, or as a litigant in proceedings against the company: Cescastle at 118. 4. Pursuing a reasonable suspicion of breach of duty is a proper purpose for seeking an inspection of a company's records: McNeill at [17] citing Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 12 ACLR 357 and Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606. 5. It is not necessary that the applicant have sufficient evidence to bring or make out an action: Praetorin Pty Ltd v TZ Ltd (2009) 76 ACSR 236 at [40]. Moreover, an applicant does not need to establish that it will succeed in any future claim. It is sufficient if the issue raised by the applicant is "substantive and not fanciful" and not "artificial, specious or contrived": Re Style Ltd; Merim Pty Ltd v Style Ltd (2009) 255 ALR 63 at [66] - [67]. 6. Unsurprisingly, on the hearing of an application under s 247A, the Court should not determine any substantive questions and should not attempt to do so: Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595 at 601-2 and London City Equities Ltd v Penrice Soda Holdings Ltd [2011] FCA 674 at [12] and [29]. 7. Delay, on the basis that applicant may have had sufficient information at an earlier point in time to make a decision on which course it may wish to take, is not detrimental to an application under s 237A: McNeill at [23]. 8. An applicant cannot be said to be not acting in good faith or seeking inspection for an improper purpose merely because the applicant may have means of obtaining the information elsewhere: McNeill at [24] - [25].

What then is the position here? 33 Mr Hanks submitted that there was a clear basis for investigation. In particular, on the question of the recommendation in favour of the Icarus deal and the "consideration" of the competing HWF offer, he submitted that the evidence so far reveals: 1. As at September 2010 Admiralty, through its wholly owned subsidiary, VIC, held mineral and admiralty concessions in Chile. VIC's exploration activities had been constrained by a lack of financial resources. Admiralty had been exploring the development of VIC's assets with a number of parties (including Icarus and HWF), over several months. Admiralty was incurring significant costs in maintaining VIC's operations and needed to raise funds to develop VIC's assets. 2. On 2 September 2010, Admiralty announced that it had entered the Share Sale Agreement with the terms disclosed to shareholders in the EM: see [9] above. The Share Sale Agreement was subject to an exclusivity arrangement and a Break Fee: see [10] and [15] above. 3. Admiralty's directors recommended the Share Sale Agreement to shareholders: see [13] above. 4. The Share Sale Agreement was to effect a significant change to the nature and scale of Admiralty's activities. Approval of the Share Sale Agreement by shareholders was considered by the directors of Admiralty to be required under ASX Listing Rule 11.1. 5. Given the key terms of the Share Sale Agreement (see [13] above), the directors stated (as was the fact) that the payments to be received by Admiralty under the royalty agreement would be reliant on the purchaser's ability to successfully develop the mineral concessions. 6. The EM contained limited disclosure as to the identity and substance of Corsair and Icarus and did not reveal any independent consideration by Admiralty's directors in relation to the capacity of the purchaser to develop the mineral concessions: see [16] - [17] above. 7. The EM did not contain any rationale or explanation as to why the purchase price or any component of it was appropriate or fair value. 8. Prior to the EGM, HWF made two offers to Admiralty to meet each of the terms of the Share Sale Agreement and to substantially increase the cash and royalty payments. The offers were not disclosed to shareholders prior to the vote: see [27] - [28] above. 34 In this context, it is appropriate to again consider the HWF offers of 15 September and 18 October 2010 and the minutes of meetings of the directors of Admiralty at which those offers were considered. The 18 October 2010 HWF offer responded to the terms of the Share Sale Agreement as set out in the EM. HWF offered to meet the terms and conditions of the Share Sale Agreement as disclosed in the EM, to pay $6 million of guaranteed cash payments compared with the $4 million to be paid by Icarus, to increase the high royalty rate baseline from 10 to 15 million tonnes and to provide guarantees. HWF's offer was subject to negotiation of a "formal agreement" so that a "signed binding offer" could be executed. It was not subject to due diligence. As noted above, that offer was considered by Admiralty's board on 27 October 2010 and considered a "not superior" offer to the Share Sale Agreement for six main reasons: see [22] above. 35 Admiralty rejects the contention that there is a clear basis for investigation. In general terms, it submits that the directors could not have breached their duties having regard to: 1. the HWF offer was "all too late" because the Share Sale Agreement was subject to a "no shop, no talk" exclusivity provision, as a result of which the directors had only to consider whether the offer was "more favourable" than the Share Sale Agreement; 2. the Icarus offer was the only commercially viable offer; there was no other tangible deal available; 3. Admiralty's cash position was weak; 4. had the directors not entered into the Share Sale Agreement, Admiralty's cash resources may have been depleted and they may have had prolonged negotiations with other parties which may or not have resulted in a concluded agreement; and 5. the directors' deliberations were evidently adequate - they considered the offer and formed the view that it was "not superior", they obtained legal advice, they considered that advice and adhered to it and they had spoken to ASIC and the ASX about the HWF offer and explained the position to them. 36 As stated earlier, the Court need not and should not decide the substantive issue on the hearing of this application. That proposition is clearly right given the limited nature of the evidence adduced in relation to this application. However, as far as the evidence reveals, the HWF offer stated that it: 1. would meet every term and condition of the Share Sale Agreement described in the EM (which was the basis on which the directors recommended the Share Sale Agreement to Admiralty's shareholders); 2. would exceed some of the critical financial terms of the Share Sale Agreement by 50%. This could have arguably improved Admiralty's cash position in the short and medium term by 50%, and its long-term prospective earnings from iron ore by 50%. 37 The obligation of Admiralty under the "no shop, no talk" clause of the Share Sale Agreement (see [14] above) was, of necessity, subject to Admiralty's directors fulfilling their fiduciary obligations. Given the terms of the HWF offer, it is at least arguable that the playing field had changed once the HWF offer was made and that detailed consideration of the substance of the HWF offer was required. Whether those obligations were satisfied is a question that cannot and should not be answered in this application. However, having regard to the evidence so far revealed, I consider that there is a clear basis for investigation. The evidence so far does not disclose any attempt by Admiralty to inquire of HWF as to whether it could produce an offer in binding terms within a short period. Moreover, the evidence so far does not disclose that Admiralty's financial position was so strained that it could not permit additional time to be taken to consider the terms on which a sale to HWF could be concluded. 38 I accept that the HWF offer was subject to negotiation of a formal agreement. The fact that the offer was non-binding was one of the principal (if not the principal) reason the directors determined that it was "not a superior offer". That and the other matters identified by Admiralty as to why the HWF offer was not superior to the Share Sale Agreement do not, on their face, support the conclusion that there was a significant risk that a deal with HWF could or would not be concluded in a timely way. Moreover, as noted above, the record of the deliberations by the board of Admiralty discloses no consideration of the significance of the financial terms and why the fact that the offer was "non-binding" outweighed the offer to meet all of the disclosed terms of the Share Sale Agreement and an increase in both the payments and royalties by 50%. 39 As noted above, the principal legal question in a derivative action by the company against the directors (for which Mr Hanks may seek leave under s 237 of the Corporations Act) is whether the directors of Admiralty acted with the degree of care and diligence that a reasonable person would have exercised in causing the sale of VIC to Icarus to be put to a shareholder vote and recommending it to shareholders, without entertaining the competing offer from HWF or informing shareholders of it. I reject the contention that this case is on all fours with Praetorin where Barrett J said at [64]-[65]: The first, eighth, ninth and thirteenth concerns may be dealt with together. They are, in essence, a single expression of concern that TZL or its directors (or both) have committed some legal wrong, including (in the case of the directors) by committing TZL to an unwise or improvident transaction. But there is no expressed or articulated basis for any apprehension that legal wrong has been done. A submission put by Mr Thomas of counsel for TZL on this aspect was as follows: If I was a shareholder of BHP or Macquarie Bank and I wanted a copy of the management agreement from Macquarie Airports, which is a confidential document which had never been disclosed to the market, and I just wanted to check it out that no-one had done anything wrong, because I have a circularity problem and I don't know what I don't know. Now, with respect, that argument is an absurdity and if that is as high as the applicant's case reaches, then this court and every court in the land will be swamped by applications by any shareholder who says well, I would just like to find out a bit of further information about this because I am not sure whether or not they comply with their duties. In the absence of anything in the evidence to ground an apprehension of legal wrong, the position is as Mr Thomas stated. In this case, it cannot be said that "there is no expressed or articulated basis for any apprehension that legal wrong has been done". 40 Before leaving Praetorin, reference should also be made to Barrett J's analysis of the interaction between the ASX listing rules and the Corporations Act: see [78]-[81]. As his Honour rightly points out, where an applicant under s 247A of the Corporations Act seeks inspection of a company's books to value his or her shares, that may be a basis for inspection in relation to a non-listed entity. However, in the case of a listed entity, it is necessary to assess such an application in the light of the disclosure rules of the ASX and the Corporations Act. In the present case, those considerations may be put to one side. There is no suggestion that Mr Hanks seeks inspection of documents to obtain a value of his shares for the purposes of selling them. 41 Admiralty has thus far produced some of Admiralty's books which it says justifies the conduct of the directors and the disclosures made (or not made). Records produced on the inspection may support the contentions which Admiralty makes on this application. They may not. I accept the submissions of Mr Hanks that it can be concluded on the evidence revealed so far that there is a rational, objective basis for Mr Hanks to inspect specified books of Admiralty. For the same reasons, I accept Mr Hanks' submission that he makes the application in good faith and for a proper purpose.

Other bases for rejecting Mr Hanks' application 42 Admiralty submitted that there were a number of facts and matters which the Court should take into account in the exercise of its discretion and refuse the application under s 247A of the Corporations Act. Those facts and matters were: 1. that ASIC refused to intervene in relation to the EM; 2. Mr Hanks had the benefit of the EM and access to directors at the EGM and the AGM; 3. Admiralty responded to Mr Hanks' email requests; 4. there is an unexplained delay of eight months in Mr Hanks' bringing the application; 5. the evidence reveals that Mr Hanks failed to disclose that he had published material provided to him by Admiralty on an internet website using a user name which did not reveal his identity; and 6. the absence of any evidence of loss to Mr Hanks. 43 In my view, none of the matters listed (taken individually or collectively) support the conclusion that the Court should exercise its discretion and refuse the application. Paragraphs 1, 2 and 3 have already been addressed. In general terms, they ignore the fact of the HWF offer, its non disclosure to the shareholders of Admiralty and whether or not that offer was properly considered by the board of Admiralty. In relation to paragraph 4, the fact that an applicant may have had sufficient information at an earlier point in time to make a decision on which course it may wish to take is not detrimental to an application under s 247A: McNeill at [23]. Similarly, the fact that Mr Hanks appears to have failed to disclose to the Court that he placed information provided to him by Admiralty on the internet website using a username which did not reveal his identity is interesting but not determinative. There is no suggestion that he has engaged in any criminal or quasi-criminal conduct. The internet website was a forum for share traders to exchange information. There is nothing strange or illegal about that activity. 44 Finally, the absence of any evidence of loss to Mr Hanks. This may be disposed of simply. First, as Mr Hanks submitted, financial loss cannot be the only basis for an application under s 247A of the Corporations Act. In the present case, there is real concern about corporate governance and such a question is a proper basis for an application under s 247A. Secondly, until the investigation is complete, Mr Hanks will not know the outcome of that investigation. That is one of the reasons why the application is made and, in my view, should be granted.

FORM OF ORDERS 45 There is no dispute that Mr Hanks and his legal advisers should, in the absence of further order, be subject to a non-disclosure order. The real issue is what documents should be the subject of the inspection order. At the hearing, an amended schedule of documents was sought by Mr Hanks. Counsel for Admiralty submitted that if the application was successful, then the categories of documents sought by Mr Hanks were too broad and, in some specific cases, irrelevant to the application. As these reasons for decision have demonstrated, the fact of the HWF offer is only one of the issues. The other is the conclusion that the HWF offer was "not superior" to the Share Sale Agreement. That basis of investigation necessarily involves consideration of basis for the directors of Admiralty forming that view. 46 In the circumstances, and after hearing argument from Counsel for Mr Hanks and Admiralty, I have redrafted the schedule to limit the categories of books to be inspected by Mr Hanks and his legal advisers. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.