In the matter of Phosphate Resources Limited [2005] FCA 1705

46 Section 6 of the Booklet reproduced the 'Implementation Agreement for the Scheme'. The Implementation Agreement was expressed as being between PRL and Asset Backed Holdings Limited. The latter changed its name to CII in June 2005. 47 It is not necessary for present purposes to refer to the terms of the Agreement. Conditions precedent to its performance have already been mentioned. The text of the Scheme of Arrangement was also set out. 48 The Independent Expert's Report was set out in Section 8 of the Booklet. The Evidence - Independent Expert's Report 49 The Independent Expert's Report was prepared by Kenneth Pendergast, a partner of Ernst & Young. Mr Pendergast has 19 years experience in the accounting profession. He began his career with the Audit Division of Ernst & Young in Perth before transferring to their London office for two years. He then returned to Perth and joined the firm's Valuation Advisory Services Division. He has spent 14 years with that Division principally involved in providing corporate and other specialist advice. He has provided independent litigation support, commercial due diligence, advice and assistance in obtaining various forms of finance including public raisings, prospectus preparation and coordination and the preparation of independent expert and valuation reports. 50 In his report, following descriptive preliminaries, he set out the basis of his assessment. He noted that the expression 'in the best interests of shareholders' is not defined in the Act. The Australian Securities and Investment Commission Policy Statement 75 (Independent Expert Reports to Shareholders), aligns the term 'in the best interests' with 'fair and reasonable'. The Policy Statement relates primarily to the preparation of an independent expert report where there is a takeover offer. Under that statement as Mr Pendergast saw it: '(i) a takeover offer is considered "fair" if the value of the consideration being offered is equal to or greater than the value of the securities that are the subject of the offer; and (ii) a takeover offer is considered "reasonable" if it is fair or, where the offer is "not fair", it may still be reasonable after considering the other significant factors which justify the acceptance of the offer in the absence of a higher bid.' 51 In determining whether the Scheme would be in the best interests of the Non-CII PRL shareholders it was necessary to compare the fair value of the Consideration offered by CII with the fair value of the PRL shares the subject of the Scheme. Accordingly, part of his assessment was the determination of the fair value of PRL, the fair value of CII and the fair value of the Merged Group. Fair value he defined as 'the amount at which an asset could be exchanged between a knowledgeable and willing but not anxious seller and a knowledgeable and willing but not anxious buyer both acting at arm's length'. Under ASIC Policy Statement 75, the comparison between the consideration paid and the value of the securities acquired under the takeover offer was to be made assuming 100% ownership of the subject company. 52 Under the heading 'Valuation Considerations', Mr Pendergast examined the value of a PRL share. In his opinion the most appropriate method of valuing PRL was on a capitalisation on maintainable earnings basis. This approach reflected the fact that the life of mine forecast cashflows for PRL's operations on Christmas Island were not readily available. The detailed assessment was set out in Appendix A to the report. A summary of the valuation based on that assessment was as follows: 'Valuation of PRL High Low Maintainable EBITDA ($000's) 4,000 4,000 EBITDA* Multiple (times) 3.4 3.0 PRL's Enterprise Value ($000's) 13,600 12,000 Add: Surplus assets - property 1,629 1,629 Less: Interest bearing debt after deducting available cash ($000's) (529) (529) PRL's Equity Value ($000's) 14,700 13,100 Number of shares on issue (000's) 3,398 3,398 Value of a PRL share on a controlling interest basis ($'s) $4.33 $3.86 The net interest bearing liabilities of the Company excludes the cash deposits that have been allocated to cover redundancy and rehabilitation provisions.'

• EBTIDA means 'Earnings before Interest, Taxes, Department & Amortisation'. Mr Pendergast therefore assessed the fair value of a PRL share, on a controlling interest basis, to be between $3.86 and $4.33. 53 Mr Pendergast then considered the value of a Merged Group share. His valuation was based upon the proposition that the only material asset held by CII in addition to cash was its interest in PRL. He therefore determined the fair value of the Merged Group on a net tangible asset backing basis by reference to the assessed value of PRL plus the value of CII's other assets and liabilities. Details of that valuation were contained in Appendix B to the report. A table set out the assessed fair value of the Merged Group and a Merged Group share: 'The Merged Group - Valuation High Low $000's $000's Current Assets Cash 1,850 1,850 Non-Current Assets Investment in PRL 14,700 13,100 Total Assets 16,550 14,950 Current Liabilities Payables 4 4 4 4 Net Assets 16,546 14,946 Number of shares on issue (000's) 81,148 81,148 Value per Merged Group share ($'s) 0.20 0.18' He assessed the fair value of a Merged Group share to lie between 18 cents and 20 cents. The value of the Merged Group did not incorporate any 'synergistic benefits' from the merger. However, given the nature of each company's operations, such benefits were not likely to be material. 54 Having regard to the valuations placed on the PRL shares and the Merged Group shares, Mr Pendergast assessed the fair value of the Consideration under the Scheme. His calculation in that respect was set out in a table: ' Comparison High Low $'s $'s Fair Value of a PRL Share

• Assessed value of a PRL share 4.33 3.86 Consideration Being Offered by CII
• Cash consideration per PRL share 1.00 1.00
• Value of 11 Merged Group shares for every one PRL share 2.20 1.98 3.20 2.98 Comparison - Consideration Higher/(Lower) (1.13) (0.88)' He concluded that the assessed fair value of the Consideration under the Scheme was at a discount to the assessed value of a PRL share on a controlling interest basis. That discount ranged from a low of 22.8% to a high of 26.1%. It was evident that no control premium was being offered under the terms of the Scheme. 55 Mr Pendergast had regard to other valuation considerations. PRL is an unlisted public company. There was no open market for shareholders to readily trade their shares. In the 18 month period from 1 October 2003 to 31 March 2005 718,100 PRL shares were traded. 182,850 were purchased by CII prior to making its 2004 takeover offer and a further 208,500 were acquired under the offer. The average price at which the shares traded over the period was $2.68. Those purchased by CII during the period represented 54.5% of the total shares traded. Only 4.7% of the shares traded were sold at prices above $3. If the shares acquired by CII under its takeover offer were ignored the average price was reduced to $2.54 with 61.7% being traded at $3, 31.5% below $3 and 6.8% at prices above $3. If all the shares purchased by CII were excluded from the analysis, the average price was reduced to $2.29. The trading prices were substantially less than the assessed value of a PRL share on a controlling interest basis. 56 Mr Pendergast pointed out that under a prospectus dated 22 February 2005 up to 357,000 new PRL shares were offered to certain employees of the company at a price of $1.40 each. Only 241,500 of those shares were taken up. Given the substantial discount to the prices at which PRL shares were then trading it would have been expected that participation in the share issue would have been closer to 100%. That issue was not included in the share trading which he had detailed earlier in his report. 57 Mr Pendergast did refer to the possibility of a control premium. In order to achieve acceptance from sufficient shareholders to gain control of the company, a takeover bid would typically be priced at a premium above market value of the company shares at a date immediately prior to the takeover announcement. Control premiums have generally been between 20% and 40%. The average price of $2.68 at which PRL shares were traded between 1 October 2003 to 31 March 2005 reflected the price at which minority interests were traded. But given the company's unlisted status, its significance should not be overstated. Applying a 20% to 40% premium to the $2.68 average would result in a control premium adjusted average price of $3.20 to $3.75. The low end of that range equates to the high end of the assessed value of the Consideration under the Scheme, namely $3.20. 58 As an alternative to adjusting market value for a control premium the value assessed on the controlling interest basis could be adjusted by the inverse of the 20% to 40% controlled premium. This inferred a minority interest value. The inverse of a 20% premium would be a 16.7% discount and the inverse of a 40% premium would be a 28.6% discount. The minority interest value calculated at the low end of the assessed controlling interest value of a PRL share of $3.86 would be between $2.76 and $3.22. The minority interest value calculated on the high end of an assessed controlling interest value of $4.33 would be between $3.09 and $3.61. The average price of $2.68 at which PRL shares were traded over the 18 month period to 31 March 2005 was lower than these ranges. Mr Pendergast expressed the opinion that the prices at which PRL shares had traded over the 18 months had been significantly influenced by the $3 paid by CII for its shares. With CII holding 39.06% of the issued shares in PRL, in the absence of the Scheme it was difficult to envisage why any other party would be willing to offer a price at a premium to recent trading prices. 59 Mr Pendergast referred to the comparative liquidity of PRL shares and CII/Merged Group shares. He said that the Scheme would provide PRL shareholders with an opportunity of exchanging their illiquid investment in PRL with a more liquid investment in the Merged Group. The increased shareholder base of CII from around 730 shareholders currently to greater than 900 under the Scheme might also have a positive impact on the liquidity of a Merged Group share. Any increase in the liquidity of their investment should be an advantage to Non-CII PRL shareholders. He also referred to other factors arising out of the Scheme. The common purpose and new growth opportunities, the Merged Group's shareholder base and control issues were discussed. 60 Mr Pendergast compared the takeover offer made in 2004 with the Consideration under the Scheme. The Ernst & Young valuation of a PRL share for the purpose of assessing the takeover offer was between $4.20 and $4.71. This compared with the value of a PRL share assessed for the purpose of the Scheme report as between $3.86 and $4.33. The only significant difference related to the net cash balance of PRL. The assessed value of the Consideration under the Scheme, at the high end, $3.20, exceeded the $3 proposed under the takeover offer. 61 There followed a discussion of taxation implications for PRL shareholders, alternative offers and the future for PRL if the Scheme did not proceed. Mr Pendergast observed that while its underlying phosphate mining operations would not necessarily be affected by its continuance as an unlisted public company, PRL's capacity to pursue other growth opportunities would be limited without the ability to access capital markets. It was unlikely that it would be able to raise sufficient capital by itself to make any material acquisitions. Without having a 100% interest in PRL it was unlikely that CII would be able to raise any significant equity or debt funding to support PRL. With the current structure the alternatives for PRL were narrow. In his conclusion he said: 'While our assessed value of the Consideration under the Scheme is at a discount to our value of a PRL share on a controlling interest basis of 22.8% to the low end and at a discount of 26.1% at the high end, the Scheme, in our opinion, presents a number of advantages to the Non-CII PRL Shareholders….' The report was co-signed by Mr Pendergast and also by Mr Martin Alciaturi, a Director and Representative of Ernst & Young Transaction Advisory Services Ltd. 62 In Appendix A to the report, which dealt with the valuation of PRL and PRL shares, it was pointed out that the net interest bearing liabilities of PRL at 31 March 2005 was $529,000 and excluded cash deposits allocated to cover redundancy and rehabilitation procedures. 63 In cross-examination of Mr Pendergast, Dr Elkington, one of the objecting shareholders, put to him that the value of a PRL share, being more than the value of the Scheme Consideration, the proposal was not fair and reasonable and therefore not in the best interests of the shareholders. Mr Pendergast saw the relationship between share value and Consideration as one among a number of factors including liquidity and future prospects which were relevant to the best interests of the shareholders. I accept that as a correct description of the kind of judgment required of the independent expert on this topic. 64 Dr Elkington then referred Mr Pendergast to his calculation of PRL's future maintainable earnings to which he forecast as $4 million for the year ended 30 June 2005. In calculating that figure Mr Pendergast looked at results for the preceding five years. Only one of those preceding figures, that for 2004, was less than $4 million, ie $1,683,000. The other figures were substantially in excess of $4 million. Mr Pendergast defended his calculation by saying that he had regard to underlying factors. This was a less than completely convincing response, importing as it did an unquantifiable basis for discounting the assessed future maintainable earnings for PRL. 65 The next area of cross-examination related to the multiples used by Mr Pendergast to capitalise the future maintainable earnings. He had regard to multiples of companies listed on Australian and overseas stock exchanges and operations similar to, but not identical with, that conducted by PRL. He calculated an implied EBITDA for each of these companies. The multiples ranged from 4.36 to 23.58. That figure was calculated for each company by dividing enterprise value by EBITDA to get the relevant EBITDA multiple. He calculated enterprise value by reference to market capitalisation plus net debt. 66 In determining an appropriate multiple for PRL, Mr Pendergast had regard to a number of factors including the proposition that multiples for unlisted companies are generally at a discount to the multiples for listed companies. He also had regard to the proposition that the reduced liquidity of PRL shares would affect their marketability. It was put to him in cross-examination that the value of the enterprise conducted by a company does not depend on whether it is listed or unlisted. His answer was that the purpose of his exercise was to determine the value of a PRL share. In valuing the enterprise it was necessary to consider the structure in which it sat. It was put to him however that the EBITDA multiple was assessed for the purpose of valuing the enterprise. The value of the shares involved a subsequent calculation. 67 I did not find Mr Pendergast's answers on this issue particularly persuasive. The point being put by Dr Elkington was valid, namely that the value of the enterprise for the company's business does not depend upon whether its shares are listed or unlisted. Whether the shares are listed or unlisted might ultimately be a factor relating to any discount on their value because of limited opportunities for their disposal. But that does not seem to be relevant to valuation of the enterprise. 68 Mr Pauley, another of the objecting shareholders, also cross-examined Mr Pendergast. He questioned his reliance, in the valuation, upon the net cash figure for PRL as at 31 March 2005. Mr Pendergast said that the figure he used was derived from the latest accounts available to him. As appeared from p 35 of Mr Pendergast's report, the net interest bearing debt after deducting available cash was negative $529,000. However it appeared the balance sheet as at 30 June 2005 would have yielded a figure of positive $3.452 million. It was put to Mr Pendergast that had he done his valuation as at 30 June 2005 the enterprise value would have been $3.98 million higher than his figure, equating to a $1.17 per share. He accepted that. Nor did he dispute that, on that basis, instead of a valuation range of $3.86 to $4.36 per share, he would have obtained a valuation range of $5.03 to $5.53 per share. He did say however, that there were 'other considerations in relation to the fluctuation of the cash requirements of the company'. Asked by the Court whether his report had discussed the 'seasonality' of phosphate delivery which impacted on cost fluctuations, he said 'not specifically'. 69 It also emerged in evidence that CII had been invited to participate with the Chinese Government in the ownership and operation of a fertiliser plant in Guizhou Province in South West China. A copy of a report to the directors of PRL relating to that investment had been available to Mr Pendergast. He had referred to it in a report to the directors but did not consider that it would lead to a change in the conclusions in the Independent Expert Report. 70 Mr Pauley put to Mr Pendergast that the proposed project indicated that CII would be 'a very different company to the company that was presented to shareholders in the scheme of arrangement'. Mr Pendergast disagreed that it would be 'very different'. However he said that it did not change or have a material impact on his opinion about the proposed Scheme. He pointed out that among the representations made by CII in support of the Scheme, was that the company intended to seek investment opportunities to enhance its value. This had been presented as one of the benefits being brought to PRL shareholders. In his review of the China transaction, he saw that as an example of what the CII directors had in fact represented. 71 Although Mr Pauley sought to argue that this proposed investment changed the Scheme, it is an argument I do not accept. In my opinion the proposed investment fell within the framework of the claimed benefits of the Scheme. 72 In my opinion, having regard to Mr Pendergast's responses to cross-examination by Dr Elkington and Mr Pauley, his Independent Expert Report was open to question so far as it:

1. assumed a future sustainable earnings figure of $4 million;
2. took into account PRL's unlisted status in assessing its enterprise value; 3. relied upon accounts as at 31 March 2005 in carrying out his valuation without a specific disclaimer or caution in the report about the fluctuating cash position of the company and its impact upon the utility of any valuation conducted at a particular point in time. 73 It might be said that the first two matters could be discerned from the materials set out in the report and its appendices. Nevertheless, not every shareholder would be in a position to weigh up the reliability of the conclusions offered by the kind of examination of the underlying materials undertaken by Dr Elkington and Mr Pauley. More significantly, in my opinion, the failure to refer, in the report, to the effect of the fluctuating cash position on the utility of evaluation undertaken at a particular point in time, had the potential to mislead shareholders. That is so even if one were to assume that all shareholders had read the whole of the report and its supporting appendices. The Evidence - Receipt of Proxy Forms 74 Marion Lehman is an office administrator employed by PRL at its head office at 11 Lyall Street, South Perth. She has worked there since 22 August 2005. In her affidavit sworn on 29 September 2005 she described events which took place on 8 and 9 September 2005 in relation to the receipt and counting of proxy forms for the purposes of the meetings of shareholders which were to be held on 10 September 2005. 75 Ms Lehman believed that 10.30 am (WST) on 8 September 2005 was the cut-off date and time for the company's shareholders to submit their proxy forms. This was based in part on a provision of the company's Articles of Association requiring proxies to be lodged not later than 48 hours before any general meeting of shareholders. The terms of that provision will be referred to later in these reasons. Her belief was also based upon the assumption that the Court order made on 8 August 2005 fixed 10.30 am (WST) on 10 September 2005 as the time for the commencement of the meetings of shareholders. 76 Ms Lehman's affidavit included some comments about her familiarity with the processes of influence in gathering and counting votes, a familiarity evidently obtained as executive assistant to a Federal Minister for four years. She said that in her experience it was common for some people to intentionally sway voters at the last minute. I disregard her evidence as to those processes which does not appear to be relevant to any issue in these proceedings. 77 At approximately 9.45 am (WST) on 8 September 2005, Mr Peter Jooste QC who had been appointed chairperson of the shareholders' meeting to be held on Christmas Island and Mr Tony Galipo, a partner in the accounting practice Prospera Partners, arrived at the PRL office in Perth. Their purpose was to oversee the receipt and counting of proxy forms and 'to witness the cut-off time of 10.30 am (WST)'. Shortly after their arrival the company's fax machine began receiving a large number of proxy forms. Ms Lehman received a telephone call from Ms Wong, PRL's Human Resources Administrator at the Christmas Island office advising that approximately 100 proxy forms were being transmitted to the South Perth office. Ms Lehman was asked to ensure that there was sufficient paper on the machine to print the transmissions. 78 Ms Lehman recorded the time of receipt on the incoming proxy forms. She took her times from a computer which she checked against a Telstra recorded time service. As the proxy forms were received she used a date stamp to stamp the date of receipt as 8 September 2005. Sometimes it rolled back to 6 September 2005 and she hand wrote and initialled a correction. 79 When her computer screen time was displaying 10.30 am (WST) proxy forms were continuing to come through on the company's facsimile machine. Ms Lehman took the proxy forms received before 10.30 am (WST) and put them in a pile on her desk. She then watched forms which continued to be received after 10.30 am (WST). All of these were endorsed by Mr Galipo with the words 'Received after 10.30 am 8-9-95' in hand writing at the top of the page. At about 11 am (WST) Ms Lehman received a telephone call from Mr Kevin Edwards who was at the company's Christmas Island office overseeing the transmission of the forms. According to the transmission notice generated by the machine at the Christmas Island office only 39 out of the 40 pages of the second group of proxy forms had been successfully transmitted. In the event the last proxy form, being proxy form numbered 60, was received shortly after 11 am. 80 Ms Lehman entered the details of proxy forms received that day on a spreadsheet which she entitled 'Proxy Register'. It contained the names and addresses of all the shareholders entitled to attend the meeting, their shareholdings, the proxies they appointed and the directions to their proxies on how to vote. Some of the forms received were marked 'Replacement Proxy'. In those cases Ms Lehman checked that an earlier proxy form had been received from the same shareholder and then updated the Proxy Register to reflect the information on the Replacement Proxy. The Proxy Register treated only those proxy forms received before 10.30 am (WST) on 8 September 2005 as being effective. Ms Lehman devised a colour coding on the Register for each proxy received. The coding indicated whether the proxy was to be exercised for or against the resolution, directed an abstention, or did not direct the proxy on how to vote. 81 Mr Jooste gave evidence on affidavit which broadly corroborated Ms Lehman's evidence and was not contested. 82 Mr Gordon Thomson, who is the General Secretary of the Union of Christmas Island Workers and a shareholder in PRL, said that he was given proxies for some 105 shareholders to represent them at the meeting on Christmas Island. All but 2 of those 105 proxies were marked against the resolution for the merger. The two proxies that were not marked against the resolution were not marked for or against it. Of the proxies some 19 were replacement proxies, which were replacing proxies given previously to other persons. Mr Thomson intended to vote the two 'neutral' proxies against the resolution. 83 He was aware that proxies had to be lodged at the PRL office at least 48 hours before the commencement of the meeting on 10 September 2005. He referred to a proxy form for the 2003 Annual General Meeting of PRL which he noted allowed proxies to be submitted at any one of the offices of the company, including its Christmas Island office. The same was true of the proxy forms used for the PRL Annual General Meeting of 2004. According to Mr Thomson in his experience and dealings with the company its Christmas Island office had always been regarded as the head office and for every meeting of the shareholders proxies had been accepted at the Christmas Island office. 84 Mr Edwards gave evidence on affidavit that he was at the PRL Christmas Island office at about 8.25 am on 8 September 2005 when Mr Thomson arrived at the office. Mr Thomson handed him a bundle of documents and said words to the effect: 'Here are 105 proxy forms signed by shareholders appointing me as their proxy for the meeting on Saturday.' Mr Edwards told Mr Thomson that they couldn't receive proxies at the Christmas Island office. The notice of meeting had given one delivery point for proxies which was the company's registered office in South Perth. Mr Thomson became upset and demanded to speak to the Chairman of the Board of Directors. Mr Edwards told Mr Thomson that the Court had appointed Mr Jooste to be the Chairman. 85 Some further discussion ensued in which Mr Edwards told Mr Thomson that the rules concerning the time and place for lodgment of the proxies formed part of the Orders of the Court and were clearly set out in the Scheme Booklet. Mr Thomson asked what he could do. Mr Edwards said that he would have to fax the proxies in Perth and they would need to be in by 10.30 am Perth time. Mr Thomson said his office fax machine was broken. Mr Edwards agreed to allow him to use the PRL fax machine. Mr Edwards took Mr Thomson to Ms Wong's office where Mr Thomson, helped by Ms Wong, began numbering the proxy forms from 1 to 105. While they were removing staples from the forms Mr Edwards began transmitting the first batch of 40 at approximately 8.40 am Christmas Island time (9.40 am WST). Mr Thomson left the office at 9.30 am Christmas Island time (10.30 am WST) asking Ms Wong to finish sending the remaining forms. About a third remained to be sent at this time. Ms Wong continued to send the proxy forms. It was then that Mr Edwards noticed that although all 40 pages of the first batch were recorded as being transmitted, only 39 pages out of the second batch of 40 were so recorded. He made the telephone call to Ms Lehman to which she deposed in her affidavit. In the event all 105 proxy forms brought to the Christmas Island office of PRL by Mr Thomson were transmitted. 86 Affidavits were sworn by a number of shareholders to the effect that they had given Mr Thomson their proxies or replacement proxies and had intended that their vote be exercised 'against' the merger proposal. The Conduct of the Meeting 87 Mr Jooste gave evidence concerning the conduct of the meeting of PRL shareholders (other than CII) held on Christmas Island. He opened the meeting shortly after 9.30 am Christmas Island time on the basis that that was 10.30 am (WST). The meeting was conducted in the Poon Saan Community Hall. Roberto Monzu was at the entrance of the hall. He kept the attendance register and distributed ballot papers. He was assisted by David D'Ercole, an employee of Prospera Partners, and Peter Torre, the company secretary of PRL. 88 Seated with Mr Jooste was Patrick Chan, an employee of PRL who was fluent in both Cantonese and English. Mr Chan was present to act as an interpreter in case any of the shareholders had difficulty in understanding Mr Jooste's English speech. He did receive requests for translation from time to time. Seated on Mr Jooste's right was Mari Futaesaku, a solicitor with Corrs Chambers Westgarth. She kept minutes of the meeting. 89 Three persons present in person or by proxy or by representative would constitute a quorum for the purpose of the meeting in the terms of the order made on 8 August 2005. That quorum was present. Mr Jooste tabled copies of the Court order, the Constitution of PRL, the Scheme Booklet, the duly executed Implementation Agreement and a Deed Poll entered into by CII. He also tabled the proposed Scheme of Arrangement, the notice of meeting and the proxy form. 90 Mr Monzu then provided information on the proxy forms received by PRL. One hundred and eighty eight proxies had been received at PRL's registered office by 10.30 am (WST) on 8 September 2005. Of the proxies received before 10.30 am (WST), 107 were in favour of the resolution. They represented 995,020 votes. Seventy nine were against, representing 664,150 votes. Two were undirected, representing 35,000 votes. The proxies received after 10.30 am (WST) on 8 September 2005 were some 33 against the Scheme ,representing 207,950 votes and one undirected, representing 3,500 votes. 91 At 10.20 am Christmas Island time Mr Jooste read out the sole item of business for the meeting which was the proposed resolution approving the Scheme of Arrangement. He then adjourned the meeting until shortly after 10.30 am Christmas Island time. He did this because of the possibility that some of PRL's shareholders might have been under the mistaken belief that the meeting was to commence at 10.30 am Christmas Island time. Although the notice of meeting specified the commencement time as '10.30am (WST)' which was 9.30 am Christmas Island time, Mr Jooste had earlier been informed by Ms Futaesaku that the advertisement published in the local newspaper, The Islander, had stated only that the meeting would commence at 10.30 am without specifying a time zone. Mr Jooste decided that formal discussion on the resolution and voting should not take place until after 10.30 am Christmas Island time to ensure that those shareholders who wished to attend the meeting but might have been confused about its commencement would not miss the opportunity to participate in the discussion and voting. He resumed the meeting shortly after 10.30 am Christmas Island time, put the resolution and invited shareholders to speak. 92 Gordon Thomson spoke at the meeting and made the point that some 34 of the 105 proxy forms which he had brought to the Christmas Island office of PRL had not been transmitted to PRL's registered office in South Perth until after 9.30 am Christmas Island time. He argued that all the proxies including the 34 sent after 9.30 am Christmas Island time should be treated as effective and valid. He also complained about misinformation in a Scheme supporter's letter and argued that the dollar value of the Consideration offered under the Scheme was below the true value of PRL shares. 93 Mr Thomson moved for an adjournment of the meeting to enable him to contact shareholders whose proxies had been ruled ineffective and to allow them to attend the meeting in person. He moved that it be adjourned to the following day, Sunday 11 September 2005 at 10 am Christmas Island time. He also moved that it take place at the offices of the Union as the community hall would be unavailable because of Church services being held at the time. Mr Jooste adjourned briefly to consider this motion. In the event he said he ruled against putting the adjournment motion to a vote. 94 According to the minutes of the meeting, Mr Jooste ruled against putting the adjournment motion for the following reasons: '. The advice from the scrutineer that the proposed adjournment would cause a great deal of disorder in the orderly recordal of the attendance and voting process; . it would not, in light of the purpose of the requested adjournment, and the inability to notify all shareholders in time, be correct, practical or fair to order what would in effect become a general "round up" of shareholders on the Island to enable them to be present if they so wished at a different venue, day and time; . the terms of the Order of Court (s8) and Notice of Meeting and Proxy form authorised by the Court to be sent to shareholders; . the provisions of Part 2G.2 of the Corporations Act 2001 and the Articles (12-14) of the Constitution of the Company; and . the wishes of the shareholders who had validly appointed proxies to vote in respect of the resolution must be given due consideration.' The reference to the terms of the Court order appeared to be a reference to Mr Jooste's belief that the Court's order would not permit him to allow the meeting to be conducted over more than one day. This was reflected in comments he made to Mr Thomson. 95 The resolution on the Scheme of Arrangement was then put to the vote and the chairman called for a poll. The results of the poll, as announced by the chairman at the meeting, were as follows: Attendance Present Present and Voting Shareholders in Person or by Representative/Attorney 22 19 Shareholders by Proxy 181 181 TOTALS 203 200

Numerical Majority (Head Count) In Favour Against Shareholders present in Person or by Representative/Attorney and voting 6 13 Shareholders present by Proxy and voting 108 73 TOTALS 114 86

Voting Majority Total Votes Votes in Votes cast on poll Favour Against Shareholders present in Person or by Representative Attorney 324,850 187,350 137,500 Shareholders present by Proxy 1,611,670 1,021,520 590,150 TOTALS 1,936,520 1,208,870 727,650

96 On the morning of Sunday, 11 September 2005, the day following the meeting, Mr Jooste received a telephone call from Mr Monzu who told him that a further audit of the voting results had revealed that one shareholder's vote was counted twice. That shareholder, who held 6,000 shares, had submitted a proxy form appointing Mr Thomson as his proxy, but then attended the meeting and voted in person. On that basis the votes cast by Mr Thomson should have been disregarded. Mr Jooste then instructed Mr Monzu to contact Mr Thomson and to inform him of the error and to make the appropriate note in his records. On 19 September 2005 Mr Jooste received a further report from Mr Monzu entitled 'Audited results of the count' which described two errors discovered during a number of audits he conducted of the poll results following the meeting. The first error has already been described. The second error related to the last proxy form received by PRL in Perth before 10.30 am (WST) on 8 September 2005. It had been incorrectly treated as received after that time. The poll result reflecting the true position were set out and attached to Mr Jooste's affidavit. They were as follows: Attendance Present Present and Voting Shareholders in Person or by Representative/Attorney 22 19 Shareholders by Proxy 182 182 TOTALS 204 201

Numerical Majority (Head Count) In Favour Against Shareholders present in Person or by Representative/Attorney and voting 6 13 Shareholders present by Proxy and voting 108 74 TOTALS 114 87

Voting Majority Total Votes Votes in Votes cast on poll Favour Against Shareholders present in Person or by Representative Attorney 324,850 187,350 137,500 Shareholders present by Proxy 1,605,670 1,016,520 589,150 TOTALS 1,930,520 1,203,870 726,650

97 Mr Monzu gave affidavit evidence generally consistent with that given by Mr Jooste. He was cross-examined by Mr Thomson but nothing affecting the outcome of the meeting appears to have turned on that cross-examination. 98 Mr Thomson gave evidence on affidavit about the conduct of the meeting on Christmas Island. He said he spoke to Mr Jooste about the 'late' disallowed proxies. Mr Jooste said he had no power to change their status. His role was to chair the meeting and prepare a report for the Court about the conduct of the proceedings and the outcome of any resolutions at the meeting. Mr Thomson said that all but two of the 19 replacement proxies which he had lodged were allocated to the chairman who voted for the resolution. I take it that this was intended as a reference to the proxies that would have been replaced but for the time at which their replacement proxies were lodged. 99 Mr Thomson also said that when he moved his adjournment motion the chairman did not allow it to be put to the vote. According to Mr Thomson, the chairman said that the Court order required him to conduct the meeting on 10 September 2005. 100 After the meeting was closed Mr Thomson approached the company secretary, Mr Torre, and those standing with him including Mr Monzu, Ms Wong and, nearby, Ms Futaesaku. He asked Mr Torre why he did not advise him of the disallowance of the proxies so that he could have attempted to secure the personal attendance of those shareholders whose proxies had been disallowed. Mr Torre said that he had no obligation to tell Mr Thomson that the proxies had been disallowed. The Evidence - the CII Meeting 101 The CII meeting ordered by the Court on 8 August 2005 took place as directed on 10 September 2005 at Level 15, Woodside Plaza, 240 St George's Terrace, Perth at 10.30 am (WST). The meeting was chaired by Melvin Yeo, appointed as chairman by the Court order. Mr Mark Caruso, the appointed representative for CII arrived at the meeting before 10.30 am. He presented the notice of his appointment. The meeting was convened. Mr Caruso was given a ballot paper. The resolution was put and Mr Caruso voted in favour of the resolution. The meeting closed at 10.33 am. The Evidence - PRL Articles of Association 102 The Articles of Association of PRL were exhibited to the affidavit of the Chairman of the Board, Lai Ah Hong. Article 12 deals with proceedings at general meetings. Article 12.14 gives the Chairperson responsibility for the general conduct of such meetings: '12.14 General Conduct of Meetings (a) The chairperson will be responsible for the general conduct of general meetings and for the procedures to be adopted at general meetings. (b) The chairperson may make rulings, adjourn the meeting without putting the question (or any question) to the vote if such action is required to ensure the orderly conduct of the meeting. (c) The chairperson may require the adoption of any procedures which are in the chairperson's opinion necessary or desirable for the proper and orderly casting or recording of votes at any general meeting of the Company, whether on a show of hands or on a poll. (d) The chairperson may determine conclusively any dispute concerning the admission, validity or rejection of a vote. … (f) Nothing contained in this Article 12.14 will be taken to limit the powers conferred on the chairperson by law.' 103 The adjournment of general meetings is dealt with in Article 12.13 thus: '12.13 Adjournment of general meetings If so directed by the general meeting, the chairperson will adjourn the meeting from time to time and from place to place; but no business will be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.' 104 Article 13 deals with 'Votes at General Meetings' and provides, inter alia: '13.1 Number of votes Subject to any special rights or restrictions for the time being attaching to any class of shares in the capital of the Company and Article 13.8: (a) on a show of hands at a general meeting every person present who is either an Eligible Member, a proxy, an attorney or a Representative of an Eligible Member has one vote; and (b) on a poll at a general meeting every Eligible Member (not being a corporation) present in person or by proxy or attorney and every Eligible Member (being a corporation) present by a Representative or by proxy or attorney has one vote for each share that Eligible Member holds, … 13.4 Chairperson to determine disputes relating to votes In the case of any dispute as to the admission or rejection of a vote, the chairperson may determine the dispute and such determination made in good faith will be conclusive. … 13.7 Proxy not to vote if Member present If an Eligible Member is present at a meeting of the Company and a proxy or attorney for such Eligible Member is also present, the proxy or attorney is not in respect of shares to which the proxy or attorney relates entitled to vote on a show of hands or on a poll.' 105 Article 14 deals with 'Proxies and Representatives' and provides, inter alia: '14.1 Right to appoint proxy/attorney (a) An Eligible Member is entitled to appoint not more than 2 other persons (whether Eligible Members or not) as the Eligible Member's proxy or proxies or attorney or attorneys, as the case may be to attend and vote instead of the Eligible Member at the meeting. … 14.2 Proxy or attorney will be written An instrument appointing a proxy or attorney: (a) will be in writing under the hand of the appointer or of the appointer's attorney duly authorised in writing or, if the appointer is a corporation, under its common seal or the hand of its duly authorised attorney; and (b) may contain directions as to the manner in which the proxy or attorney, as the case may be, is to vote in respect of any particular resolution or resolutions. A facsimile of a written appointment of a proxy or a power of attorney is valid. 14.3 Directors or chairperson decide validity The Directors' or chairperson's decision as to the validity of a proxy or power of attorney or a facsimile thereof will be final and binding. … 14.5 Power of attorney and proxy form to be deposited before meeting An instrument appointing an attorney or a proxy and, the power of attorney or other authority (if any) under which it is signed or a copy of that power or authority certified as a true copy by statutory declaration or a facsimile of any of the documents referred to in this Article, will be deposited at the Office not less than 48 hours before the time scheduled for commencement of the meeting (or any adjournment of that meeting) at which the person named in the instrument intends to vote. … 14.7 Member may indicate whether proxy is to vote for or against resolution (a) Any form of proxy sent out by the Company to Members in respect of a proposed general meeting of Members will make provision for the Member to indicate whether the Member wishes to vote for or against any resolution. (b) The Eligible Member may but need not give an indication or direction as to the manner in which a proxy is to vote in respect of a particular resolution. (c) Where an indication or direction is given, the proxy is not entitled to vote on the resolution on behalf of that Eligible Member except in accordance with that indication or direction. … 14.10 Failure to name appointee Any instrument of proxy in which the name of the appointee is not filled in will be deemed to be given in favour of the chairperson or such other person as is nominated by the Directors in the notice convening the relevant general meeting.' 106 The term 'office' used in the Articles is defined in Article 1.1 as '…the registered office for the time being of the Company'. The term 'Eligible Member' means: '… in relation to a meeting of the Company (including a meeting of any class of Members), any person who is or was the registered holder of a share at the time prescribed for this purpose under Article 11.4 in the notice convening the meeting.' Statutory Framework 107 The application for approval of a scheme of arrangement is made under Pt 5.1 of Chapter 5 of the Actheaded "EXTERNAL ADMINISTRATION". Part 5.1 is entitled 'ARRANGEMENTS AND RECONSTRUCTIONS'. Section 411(1) deals with the Court's power to order a meeting and approve the requisite explanatory statement. Subsections (1A) to (1C) concern group arrangements and are not relevant for present purposes. Subsection (2) provides for notice to the ASIC in relation to an application for an order for a meeting and for approval of the Explanatory Statement. Subsection (3) deals with the requirements of the draft Explanatory Statement. Subsection (4) and succeeding subsections which are relevant for present purposes provide: '411(4) A compromise or arrangement is binding on the creditors, or on a class of creditors, or on the members, or on a class of members, as the case may be, of the body and on the body or, if the body is in the course of being wound up, on the liquidator and contributories of the body, if, and only if: (a) at a meeting convened in accordance with an order of the Court under subsection (1) or (1A): (i) in the case of a compromise or arrangement between a body and its creditors or a class of creditors - the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors included in that class of creditors, present and voting, either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy, or of the creditors included in that class present and voting in person or by proxy, as the case may be; and (ii) in the case of a compromise or arrangement between a body and its members or a class of members - a resolution in favour of the compromise or arrangement is: (A) passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and (B) if the body has a share capital - passed by 75% of the votes cast on the resolution; and (b) it is approved by order of the Court.; 411(5) Where the Court orders 2 or more meetings of creditors or of a class of creditors, or 2 or more meetings of members or of a class of members, to be held in relation to the proposed compromise or arrangement: … (b) in the case of meetings of members - the meetings are, for the purposes of subsection (4), taken together to constitute a single meeting and the votes in favour of the proposed compromise or arrangement cast at each of the meetings is [sic] to be aggregated, and the votes against the proposed compromise or arrangement cast at each of the meetings is [sic] to be aggregated, accordingly. 411(6) The Court may grant its approval to a compromise or arrangement subject to such alterations or conditions as it thinks just. … 411(10) An order of the Court made for the purposes of paragraph (4)(b) does not have any effect until an office copy of the order is lodged with ASIC, and upon being so lodged, the order takes effect, or is taken to have effect, on and from the date of lodgment or such earlier date as the Court determines and specifies in the order. 411(11) Subject to subsection (12), a copy of every order of the Court made for the purposes of paragraph (4)(b) must be annexed to every copy of the constitution of the body issued after the order has been made. 411(12) The Court may, by order, exempt a body from compliance with subsection (11) or determine the period during which the body must comply with that subsection. … 411(17) The Court must not approve a compromise or arrangement under this section unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement; but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b).' 108 Also invoked in the present case are ss 249L and 250B of the Act. Section 249L in the relevant parts provides: '(1) A notice of a meeting of a company's members must: (a) set out the place, date and time for the meeting (and, if the meeting is to be held in 2 or more places, the technology that will be used to facilitate this); and (b) state the general nature of the meeting's business; and (c) if a special resolution is to be proposed at the meeting - set out an intention to propose the special resolution and state the resolution; and (d) if a member is entitled to appoint a proxy - contain a statement setting out the following information: (i) that the member has a right to appoint a proxy; (ii) whether or not the proxy needs to be a member of the company; (iii) that a member who is entitled to case 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise. … (3) The information included in the notice of meeting must be worded and presented in a clear, concise and effective manner.' 109 Section 250B, which relates to proxy documents provides: '(1) Documents to be received by company before meeting. For an appointment of a proxy for a meeting of a company's members to be effective, the following documents must be received by the company at least 48 hours before the meeting: (a) the proxy's appointment; (b) if the appointment is signed, or otherwise authenticated in a manner prescribed by regulations made for the purposes of subsection 250A(1), by the appointor's attorney - the authority under which the appointment was signed or authenticated or a certified copy of the authority. (2) Documents received following adjournment of meeting. If a meeting of a company's members has been adjourned, an appointment and any authority received by the company at least 48 hours before the resumption of the meeting are effective for the resumed part of the meeting. (3) Receipt of documents. A company receives a document referred to in subsection (1): (a) when the document is received at any of the following: (i) the company's registered office; (ii) a fax number at the company's registered office; (iii) a place, fax number or electronic address specified for the purpose in the notice of meeting; and (b) if the notice of meeting specifies other electronic means by which a member may give the document - when the document given by those means is received by the company as prescribed by the regulations. (5) Constitution or notice of meeting may provide for different notification period. The company's constitution (if any) or the notice of meeting may reduce the period of 48 hours referred to in subsection (1) or (2).' 110 Regulation 5.6.36 of the Corporations Regulations also deals with the time for lodging proxies thus: 'A person named in a notice convening a meeting as the person who is to receive: (a) an instrument appointing a proxy; or (b) any other document relating to the validity of the appointment of a proxy; must not require that instrument or document to be received more than 48 hours before the meeting.' Compliance with the Court Order and Statutory Requirements 111 Subject to the issues raised by the objectors, I am satisfied that PRL has complied with the requirements of the Court's order of 8 August 2005 and the statute. Meetings were convened on Christmas Island and at Perth on 10 September 2005 as directed. 112 As required by s 412 of the Act Notice of the Meetings together with an Explanatory Statement explaining the effect of the Scheme and setting out prescribed information and other information material to the making of decisions by shareholders was sent. As deposed to in the affidavit of Mari Futaesaku sworn 30 September 2005, the Explanatory Statement was registered with ASIC in accordance with s 412(6). 113 On the count accepted by Mr Jooste at the Christmas Island meeting 114 members voted in favour of the scheme and 87 against. On a poll, that represented 1,203,870 votes in favour and 726,650 against. At the meeting of CII, the one member present, namely CII represented by Mr Caruso, voted in favour. On a poll, that represented 1,327,180 votes in favour of the scheme. 114 Pursuant to s 411(5)(b) the results of the two meetings were to be taken together as though occurring at a single meeting and the votes for and against the proposed arrangement aggregated. On the aggregated results there were 150 shareholders in favour of the Scheme and 87 against, representing 56.9% and 43.1% of shareholders present and voting respectively. These represented in turn 2,531,050 votes in favour and 726,650 against. The votes in favour of the Scheme were 77.69% of those cast. The votes against were 22.31%. 115 The Act requires that for a scheme to be approved there must be a majority in numbers of members present and voting in favour and 75% or more of the votes cast on the resolution in favour - s 411(4)(a)(ii)(A) and (B). The number of shareholders in favour being 56.7% and the number of votes in favour being 77.69%, on the chairman's count as audited by Mr Monzu, the requisite majorities were achieved (subject to the dispute as to disallowed proxies). 116 Rule 3.4 of the Corporations Rules required that PRL publish a notice of the hearing of the application under s 411(4) for approval of the Scheme. Advertisements of the hearing were published in accordance with that Rule as deposed to by Ms Lehman in her affidavit sworn 10 October 2005. 117 Absent the procedural objections relating to the time specified in the Court's order, the associated question of the disallowance of the proxies and the refusal to adjourn the Christmas Island meeting, I would be satisfied that the requirements of the Court's order, the Act and the Rules have been complied with. It is necessary to have regard to the procedural objections and the more substantive objections before considering the general question whether, in the light of those objections, the Scheme should be approved. The Disallowance of Proxies 118 Mr Thomson submitted that Mr Jooste wrongly disallowed proxies for lateness because he misinterpreted the Court's order made on 8 August 2005. The order made no reference to Western Standard Time in fixing the time for the commencement of the PRL shareholders' meeting on Christmas Island. 119 PRL relied upon the provisions of s 250B of the Act and Article 14.5 of the PRL Articles for the proposition that proxies were to be lodged '… not less than 48 hours before the time scheduled for the meeting'. It also relied upon Article 14.3 which provides: 'The Directors' or chairperson's decision as to the validity of a proxy or power of attorney or a facsimile thereof will be final and binding.' As to the latter Article it may be said immediately that the responsibility of the Court in determining whether to approve a scheme of arrangement is not to be confined by the finality of the chairperson's rulings on the validity of proxies. If the chairperson's ruling were based upon a misinterpretation of the Court's order then a real question might arise whether a vote in favour of the resolution represented the will of the shareholders expressed according to the statutory majorities required by the Act. 120 At the time that the order of 8 August 2005 was made the Court had before it a draft Scheme Booklet exhibited to the affidavit of Lia Ah Hong, sworn on 22 July 2005. That draft Scheme Booklet did not specify any time for the meeting. The covering letter comprising the first document in the draft stated: 'On [] 2005 the Court granted an order for the Company to convene the Scheme Meetings, to be held as follows: . a meeting for PRL Shareholders (other than CII), to be held on [] 2005 at [] am/pm (WST) at [], Christmas Island, Western Australia; and …' The last paragraph of the draft letter which related to the date by which proxies should be returned specified '…by no later than [] am/pm (WST) on [] 2005'. Corresponding times were left blank in other parts of the draft Scheme Booklet. The Booklet cannot, in my opinion, be relied upon to construe the order in relation to the times that it specifies for the conduct of the meetings. 121 In my opinion, absent the designation of a specific time zone, the time designated in the Court's order of 8 August 2005 must be taken as referring to the local times at the places at which the meetings were to be convened. This accords with the natural meaning of the words and figures used in the order. The order, it may be noted, was made in accordance with a minute submitted by PRL. That does not of course entitle PRL to the construction which it now advances. There was no requirement nor any particular advantage in a requirement that the Perth and Christmas Island meetings be held simultaneously. It is true that the draft Booklet referred at all times to Western Standard Time. That does not mean that the relevant times had to be the same. 122 The first advertisement of the Christmas Island meeting in The Islander newspaper accorded with the order so construed, albeit it was regarded subsequently as mistaken and a later advertisement was put in on the day before the meeting advising of a start time of 9.30 am, ie 10.30 am (WST). In the event, because of the mix-up over the advertisement, the chairman, Mr Jooste, quite properly adjourned the substantive part of the meeting to 10.30 am Christmas Island time. 123 It is true of course that the message in the Scheme Booklet sent to shareholders was clear. The meeting was to start at 10.30 am (WST) and proxies were to be received by 10.30 am (WST) on 8 September 2005. Section 1 of the Booklet specified the place to which the proxy forms were to be sent, albeit it made no reference to sending them by facsimile. However the instructions accompanying the proxy forms in the Scheme Booklet did indicate that they could be delivered by facsimile to PRL's registered office at South Perth. 124 The Court's order did not form part of the Scheme Booklet. There is no evidence that any shareholder acted in reliance upon the Court's order or upon the first advertised time in The Islander newspaper in deciding when to lodge a proxy or replacement proxy. Mr Thomson seems to have left his run with the proxy forms rather late because he assumed he could just deliver them to the Christmas Island office of PRL in accordance with the practice which had been followed for the 2003 and 2004 Annual General Meetings. None of the preceding is material however, for the key question here is whether persons who intended to record a vote against the Scheme were wrongly deprived of the opportunity to do so. 125 It might be argued that, notwithstanding the Court order, the notice of meeting was valid under the PRL Constitution and the proxy lodgment requirements governed by s 250B of the Act and by the Articles on the basis of the meeting time as specified in the notice. It is not necessary to determine that matter here. It is sufficient to say that had the Court's order, properly construed, been followed the latest time for lodgment of proxies would have been 11.30 am (WST) on 8 September 2005 and not the time actually applied. 126 Mr Monzu's affidavit of 29 September 2005 exhibited his handwritten notes relating to proxies received after 10.30 am (WST) in Perth. There were, according to his notes, 33 proxy forms representing 207,950 votes against the resolution and one undirected form representing 3,500 votes. His analysis of the 'invalid' proxies showed that if they were treated as valid there would have been 113 members voting against the resolution, representing 52.8% of the 'head count' and 857,900 votes, representing 25.81% of the voted shares. The number of members voting for the resolution would therefore have represented 47.2% of those voting. The statutory majority required by s 411(4) would not have been achieved. The percentage of shares voted in favour of the resolution would have been 74.19%, which would have been just short of the required majority of 75%. 127 In my opinion the disallowance of the proxies in question had its origins in the misconstruction of the Court order. It is at least a probable result that a significant number of shareholders were deprived of the right to exercise their vote at the meeting on Christmas Island and it appears, on the balance of probabilities at least, that their vote would have resulted in the resolution being defeated. The Refusal of an Adjournment 128 The chairman of the meeting on Christmas Island refused to entertain a motion for an adjournment. It appears from Mr Thomson's evidence, read with the chairman's evidence, that he did so at least in part on the basis that the Court order precluded him from adjourning the meeting from one day to the next. I have no doubt that the chairman acted in good faith in the decision he made. There was however nothing in the Court order to prevent the members from directing the chairman to adjourn the meeting pursuant to Article 12.13 of the PRL Articles of Association. It may be questionable whether Mr Thomson could have mustered the necessary majority to secure an adjournment. But had he done so shareholders on the Island whose proxies had been disallowed could have attended in person at the adjourned meeting and voted at it. There was therefore, in my opinion, a doubt attending the basis upon which the chairman made his decision to refuse an adjournment. If my conclusion in relation to the disallowance of the proxies is correct, then the complaint by the objector shareholders relating to the refusal to entertain an adjournment of the meeting may be academic. It does, however raise, at least as a fallback position, another question about the integrity of the meeting process and the extent to which it can be relied upon as a proper reflection of the wishes of a relevant majority of the shareholders. Whether the Directors Should Have Voted as a Separate Class 129 It was submitted that the directors of PRL, being also shareholders in CII, should have voted as a separate class. As counsel for PRL pointed out however, the directors were ordinary shareholders in the same class as any other ordinary shareholder. Their shareholdings were disclosed in the Scheme Booklet. Neither the Act nor the Court order required that they vote in a separate class. This contention does not raise any basis for refusing approval to the Scheme. The Consideration offered under the Scheme 130 It was contended by Mr Pauley that the Consideration offered for shares in PRL under the Scheme was inadequate. PRL on the other hand, argued that the shareholders are the best judges of whether a scheme is in their commercial interests and that the Court will be reluctant to make a decision contrary to the views expressed at the meeting - Central Pacific Minerals NL [2002] FCA 239 at [13]-[14] Emmett J. See also Application of NRMA Limited (2000) 18 ACLC 533 at 541; In the Matter of Foundation Healthcare Limited (No 2) [2002] FCA 973 at [31]. It is not for the Court to go behind a commercial judgment which it was reasonably open for shareholders properly informed to make. 131 In this case however there are, as I have already indicated, some significant questions about the basis upon which the conclusions of the independent expert were advanced. This is particularly so in relation to the variability of the underlying cash figures on which the valuation of PRL shares was based. Absent clear advice to the shareholders about that variability, it seems to me that there is a real question whether the Independent Expert Report may have been materially incomplete. In so saying, I do not express any view that the proposed merger is not in the best interests of the shareholders. It may well be so when proper account is taken of the range of advantages that it offers. Indeed, subject to the sufficiency of the Consideration, it would be open to a meeting of shareholders properly informed to conclude that PRL would be a lot better off allied with a listed company that has opportunities for fund raising and expansion that are not available to PRL by itself. In my opinion, however, the questions about certain aspects of the Independent Expert's Report do leave a doubt about whether shareholders who read and relied upon the Report were fully and properly informed. Whether the Scheme should be Approved 132 The Court has a discretion to refuse to approve a scheme of arrangement. Generally speaking, in deciding whether to approve a proposed scheme, it is necessary that the Court be satisfied that:

1. the requirements of s 411 have been met; 2. the majority of shareholders voting in favour of the scheme acted in good faith and not in pursuit of some illegitimate purpose; 3. the proposal is sufficiently fair and reasonable that an intelligent and honest shareholder acting alone might approve it - see Application of NRMA Limited. Generally speaking, where a scheme has been approved by properly informed shareholders at duly convened meetings and is fair and reasonable, the Court will be reluctant to go behind the commercial judgment so exercised. In this case however there are, in my opinion, significant questions affecting the integrity of the process by which the shareholders of PRL were brought to the point of their resolution. The factors affecting the integrity of the process in my opinion are:
   1. the misconstruction of the Court's order as to the time of the Christmas Island meeting which had the result that a significant number of shareholder proxies which would have been instrumental in effecting a rejection of the Scheme were wrongly disallowed;
   2. the refusal to entertain a vote on a motion for adjournment of the Christmas Island meeting which would have allowed an opportunity for shareholders who had lodged disallowed proxies to vote in person;
   3. the existence of inadequacies in the Independent Expert's Report particularly as to the variability of figures upon which the valuation of PRL shares was based. 133 In my opinion, and having regard to these factors, I do not consider that I can have real confidence that the meeting was conducted in such a way as to fairly allow all shareholders an opportunity to record their votes. Nor am I satisfied that the shareholders who did vote at the meeting did so on a fully informed basis. For these reasons I decline to approve the proposed Scheme of Arrangement. Application to Extend Time for the Lodgment of Annual Financial Report and Associated Orders 134 On 25 October 2005 PRL lodged an application pursuant to s 1322 of the Act. It sought orders: (a) extending the period within which to lodge its annual financial report under s 319 of the Act to 31 December 2005 - this order was sought under s 1322(4)(d) of the Act; (b) pursuant to s 1322(4)(c) of the Act, an order relieving: (i) the company from any civil liability for contravening the requirement to lodge an annual financial report by 30 September 2005 under s 319(1) of the Act; and (ii) the directors and officers from any civil liability under s 344(1) of the Act. 135 The relevant facts which derive from an affidavit sworn by Peter Torre, the company secretary, on 25 October 2005, were conveniently set out in PRL's written submissions in support of this application. They are as follows:
2. In February 2005 PRL and CII agreed to implement the proposed Scheme. 2. Since that time PRL focussed much of its resources on the implementation of the Scheme. 3. PRL has a small accounting department of five. The cost of preparing the annual financial report for the year ending 30 June 2005 would have been in the vicinity of $200,000. 4. On 8 August 2005 the Court ordered that meetings of PRL's shareholders be held on 10 September 2005. The orders also provided for the application for the Court's approval of the Scheme to be heard on or before 26 September 2005. 5. A Scheme Booklet was dispatched to PRL's shareholders in mid August 2005. 6. PRL anticipated that the Scheme would be implemented before 30 September 2005 which would have enabled it: (a) to synchronise its financial year with CII whose financial year begins on 1 January and ends on 31 December each year; and (b) to lodge its annual financial report as part of the Merged Group within three months from 31 December 2005. 7. Two matters occurred outside PRL's control, namely: (a) the opposition from some PRL shareholders to the Scheme; (b) the postponement of the second Court hearing from before 26 September 2005 to 4 November 2005 to allow, with the support of PRL (which put forward programming directions), those shareholders to be heard. 8. The implementation of the Scheme therefore did not occur before 30 September 2005. 9. PRL caused an application to be made to ASIC for extension of the period within which to lodge the annual financial report and to hold an annual general meeting. 10. ASIC has granted an extension of time within which to hold an annual general meeting to 31 January 2006 but declined to grant an extension of the period in which to lodge the annual financial report. PRL has instructed its auditors, Ernst & Young, to start preparing the report and its solicitors to take steps to seek remedial orders from the Court. 11. The audit will require approximately four staff to travel to Christmas Island. Given their present workload and schedule they will not be able to complete the audit process until early December 2005. 136 Section 1322(4) of the Act provides: 'Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; … (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit.' 137 Section 1322(6) provides: 'The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and (b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and (c) in every case - that no substantial injustice has been or is likely to be caused to any person.' 138 In so far as the late preparation of financial reports may have impacted upon the Scheme approval process, no substantial injustice has been or is likely to be caused having regard to the Court's refusal to approve the Scheme for unrelated reasons. It is said that a refusal to grant an extension would inflict unnecessary liability or inconvenience. PRL's primary focus has been on ensuring that shareholders are provided with all relevant information, both financial and non-financial. The time and resources directed to the Scheme approval process meant that the time for preparation and lodgment of audited annual reports proceeded on the basis of an assumption that was not realised. It is submitted for PRL that this honest inadvertence in circumstances where PRL was doing its best to give all relevant information to shareholders for the Scheme meetings is not one which warrants punishment. 139 There is no reason to doubt the honesty of those who were responsible for the preparation of the financial report and failed to act in relation to its preparation in a timely fashion. The assumption upon which they acted was, however, a risky one. It depended upon the absence of any opposition at the meeting and moreover assumed that the Court would give its approval to the Scheme. It was, of course, open to PRL to apply to the Court for an extension before the period had ended. The failure to do so speaks of a rather casual approach to the obligations imposed by the Act. 140 In my opinion, however, the circumstances which have given rise to the failure to comply with the requirements of the Act were unique in the history of PRL. They reflect distraction, carelessness and wrong assumptions, rather than any dishonesty or reckless disregard of statutory requirements. In the circumstances, I am prepared to make the orders sought. I certify that the preceding one hundred and forty (140) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Counsel for the Plaintiff: Mr SK Dharmananda

Solicitor for the Plaintiff: Corrs Chambers Westgarth

Counsel for CI Resources Limited: Mr M Feutrill Solicitor for CI Resources Limited: Objecting Shareholders: Stenepreis Paganin

Mr G Pauley appeared on his own behalf. Dr G Elkington appeared on his own behalf. Mr G Thomson appeared on his own behalf. Date of Hearing: 4 November 2005

Date of Judgment: 24 November 2005