O'CALLAGHAN J:
1 Section 249G of the Corporations Act 2001 (Cth) (the Act) provides that the court may order a meeting of a company's members to be called if it is impracticable to call the meeting in any other way.
2 Section 1319 of the Act provides: "Where, under this Act, the Court orders a meeting to be convened, the Court may, subject to this Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit".
3 The trial of this proceeding commenced on 27 May 2021. It was scheduled to take three days. Having read the written submissions and the filed affidavits, it seemed to me that the defendant's case was unlikely to succeed. I thus called on counsel for the defendant first, and we quickly got to the heart of the matter, for reasons which I will explain below. As a result, the need for a three-day trial, in which the defendant proposed to cross-examine the plaintiffs' witnesses (including their solicitor), was obviated.
4 After hearing from the parties on 27 May, I made the following order and direction:
1. Pursuant to section 249G of the Corporations Act 2001 (Cth), a meeting of the members of Lempriere (Australia) Pty Ltd be called on 31 May 2021 or on the earliest practicable date thereafter.
2. Pursuant to section 1319 of the Corporations Act 2001 (Cth), at the meeting referred to in order 1, one member holding more than 50 percent of the shares of Lempriere (Australia) Pty Ltd present (including pursuant to clause 11.1.2 of the constitution of that company) at the time when the meeting proceeds to business shall constitute a quorum.
5 These are my reasons for doing so.
6 The background facts were not in dispute.
7 I start by identifying the parties. The first plaintiff is Laine Commodities Pte Ltd (receiver appointed) (Laine Commodities). The second plaintiff, Emerald Jade Limited, sues in its capacity as attorney of Laine Commodities (Emerald Jade). The third plaintiff, Mr Luke Furler, sues in his capacity as receiver of Laine Commodities.
8 Laine Commodities holds 51% of the shares in Lempriere (Australia) Pty Ltd (the Company), and is entitled to vote at meetings of the Company.
9 The defendant, CS Agriculture Pty Ltd, holds the remaining 49% of the shares in the Company.
10 It is necessary to summarise how the dispute between the parties came about.
11 In 2015, Emerald Jade and a company called Emerald Foods Group (HK) Limited (the Borrower) entered into a Facility Agreement. Pursuant to that agreement, Emerald Jade made various facilities available to the Borrower, and Mr Jerry Liu, Ms Chenran Qiu and Mr Yafu Qiu, each of whom is a director of the Company, were made guarantors of the Borrower's obligations.
12 The facilities are secured by various security arrangements, including:
(a) a Specific Security Deed, by which Laine Commodities granted Emerald Jade a security interest over 51% of the shares in the Company;
(b) a Contingent Guarantee given by the defendant and CSTT Co Holdings Pte Ltd in favour of Emerald Jade; and
(c) two Specific Security Deeds, which granted Emerald Jade a security interest over all of the shares in Emerald Foods Limited (EFL), as well as its parent company, Emerald Foods Group (NZ) Limited (EFGL NZ).
13 The primary purpose of the Facility Agreement was to provide for the acquisition of shares in EFL by the Borrower, which occurred in 2015.
14 From 2015 until 2021, EFL's business suffered from financial distress leading to working capital shortfalls. As a result, Emerald Jade provided further working capital by way of bridge financings to the Borrower and EFGL NZ, and extended the term of Emerald Jade's Facility Agreement by a total of 15 months.
15 But multiple defaults ensued, and, as at 31 July 2019, the amount outstanding under the Facility Agreement was about US$54 million.
16 Emerald Jade then entered into a series of voluntary forbearances with the Borrower and the security providers to the Facility Agreement, on the basis of certain assurances.
17 It was agreed, for example, that funds would be provided to Emerald Jade upon the sale of a 49% interest in the land and water rights of "Cubbie Station", a very large cotton farm.
18 Multiple forbearance letters dated May, July, August and September 2019 (each signed by Mr Liu) gave the following assurance: "Please note that the Obligors and Security Providers have been working diligently to arrange for payment in full of all amounts due in respect of the Finance Documents through the Cubbie Sale". The Contingent Guarantee given by the defendant (among others) in favour of Emerald Jade also provided that the guarantors "irrevocably and unconditionally guarantee to the Lender immediately following the Cubbie Station Sale the payment and discharge of all Guaranteed Obligations from time to time incurred by the Obligors under the Finance Documents".
19 Cubbie Station was duly sold, but, in the events that occurred, none of the proceeds found their way to Emerald Jade.
20 The amount owing under the Facility Agreement as at early 2021 was US$89 million.
21 Unsurprisingly, Emerald Jade took enforcement action.
22 Among other things, it enforced its security interest over 51% of the shares in the Company, which was given by Laine Commodities under the Specific Security Deed.
23 The Specific Security Deed grants extensive powers to Emerald Jade. It allows Emerald Jade to direct Laine Commodities to exercise its voting rights in the Company as Emerald Jade sees fit, and to do anything in the name of Laine Commodities or otherwise that Laine Commodities could do in relation to the shares in the Company. It also grants Emerald Jade all other rights conferred by law in relation to the shares in the Company, makes it an attorney of the Company, and grants it the power to appoint a receiver.
24 Emerald Jade appointed a receiver to Laine Commodities on 25 January 2021.
25 As at that date, as a result of its exercise of powers under the Specific Security Deed, Emerald Jade owned 51% of the Company's shares but had no directors of its choice on the Company's board.
26 Emerald Jade then sought to replace some the Company's current directors with its own nominee directors.
27 Over the last four months or so, the plaintiffs have made many unsuccessful attempts to hold a meeting of the Company.
28 On five separate occasions, the plaintiffs have attempted to hold a properly constituted meeting. But on each occasion the defendant has declined to attend, rendering the meetings inquorate. (Clause 11.1.1 of the Company's constitution provides that "[n]o business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. The quorum for a general meeting is two".)
29 The evidence also disclosed that the plaintiffs have tried on multiple occasions to change the composition of the Company's board by obtaining the defendant's consent to circulating resolutions, but to no avail.
30 The plaintiffs' case is simple. They say that the defendant's actions have had the result that no meeting of the Company can be held and no business of the Company can be conducted. There is a deadlock, with the majority shareholder frozen out of playing any role in the running of the Company. They say that relief of the type sought should be granted.
31 The proposition that it is "impracticable" to conduct (or call) a meeting of a company when it is likely that those in a position to render it inquorate will do so is supported by ample authority. See, for example, Re El Sombrero Ltd [1958] 3 WLR 349 (Wynn-Parry J); Re Opera Photographic Ltd [1989] 1 WLR 634 at 636-7 (Morritt J); Favretto v Eagland (1995) 18 ACSR 196 at 197-8 (Young J); Beck v Tuckey Pty Ltd [2004] NSWSC 357; 49 ACSR 555 at 563-4 [40]-[46] (Austin J); Northwest Capital Management v Westate Capital Ltd [2012] WASC 121; 264 FLR 424 at 456 [169]-[170] (Edelman J); Re Statewide Office Furniture Pty Ltd [2015] NSWSC 142; 293 FLR 275 at 281-2 [18]-[19] (Black J).
32 As became clear from my exchanges with counsel for the defendant, the defendant had two submissions to make in opposition to the relief sought, neither of which could be assisted by cross-examination or repetition.
33 The first was a point of construction. The second went to discretion.
34 As to the construction point, the defendant submitted that the Act "contains a plain and sequential scheme: (1) calling a meeting; (2) arranging to hold a meeting; and (3) holding or conducting a meeting. Each has its specific requirements. The terms are not interchangeable, lest the operation of the scheme be upset … It follows that while [the Company] may not have held or conducted a meeting of members by reason of the lack of a quorum, it has successfully called meetings". The defendant relied in particular on NSX Ltd v Pritchard (2009) 178 FCR 151, a decision of Lindgren J concerning the application of ss 249D and 249E of the Act to quite different circumstances.
35 When I asked counsel for the defendant whether his construction left a lacuna in the Act in a case such as this, where the majority shareholder says that it is locked out of the management of a company, it was submitted that there was no such lacuna, because the majority shareholder could bring an oppression action under ss 232 and 233 of the Act against the minority shareholder.
36 I do not accept that proposition. It would bring about self-evidently absurd consequences and it is at odds with the legislative history. As Austin J explained in Beck v Tuckey Pty Ltd [2004] NSWSC 357; 49 ACSR 555 at 562 [38]ff:
38 It will be seen that there are two components to s 249G(1). First, it must be impracticable to call the meeting in any other way. Second, once impracticability is established, the court has a discretion to make or refuse the order.
39 To understand the meaning of the first component, it is necessary to refer to the legislative history of the provisions. Provisions similar to ss 249G and 1319 have been part of statutory company law for many years: Companies Act 1961 (NSW), s 142; Companies (NSW) Code, s 246; Corporations Law, ss 251 and 1319; and see Companies Act 1948 (UK), s 135. The present two provisions read together, are substantially similar to their predecessors, except in one noticeable respect. The UK Act of 1948 was expressed to apply 'if for any reason it is impracticable to call a meeting of the company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in manner prescribed by the articles or this Act'. The statement of two alternative conditions was adopted in almost identical words in the Uniform Companies Act of 1961. Subsequently, in the Companies Code the word 'call' was replaced by the word 'convene', apparently without changing the [meaning] of the provision, and the Companies Code wording was preserved in the Corporations Law until the 1998 amendments. Then the provisions of the Corporations Law concerning meetings were overhauled in the 1998 amendments, which removed the second alternative condition and changed 'convene' to 'call'.
40 The meaning of 'impracticable' has been considered in several cases on the predecessor provisions. Re El Sombrero Ltd [1958] 3 WLR 349; [1958] 3 All ER 1 was a case under the UK Act of 1948. The applicant had 90% of the issued shares but was not a director. The two respondents, each holding 5% of the shares, were the directors. No general meeting of the company had ever been held. The constitution of the company prescribed a quorum of two members. Wynn-Parry J made an order under the section that a meeting be held to consider motions including motions for the removal of the directors, and that one member would be deemed to constitute a quorum. He said (at WLR 351; All ER 4) that the word 'impracticable' required the court to 'examine the circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held'. It was impracticable to conduct the meeting in the manner prescribed by the company's constitution, which require[d] a quorum of two members, because it was unlikely that two of the three members would attend.
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43 In Favretto v Eagland (1995) 18 ACSR 196; 13 ACLC 1515, also a case under the Corporations Law before its amendments, some shareholders of a listed public company proposed to requisition a meeting, and the court was asked to decide whether it had power to 'facilitate' the conduct of the meeting so requisitioned, under the statutory power then found in s 251. Young J said (at ACSR 197; ACLC 1517) that the section applied in circumstances where it was possible to convene a meeting, but impossible to have the meeting properly conducted, giving as an example a case where it would be impracticable to achieve a quorum. However, he held that the section did not give the court any power to intervene and give directions as to the conduct of a meeting convened by somebody else.
44 Were it not for the change of wording introduced by the 1998 amendments, it would be clear that the section would be available to be used in the circumstances of the present case. Although the plaintiff continues to have the power under the constitution of Tuckey to convene meetings of members, it is unlikely that the second defendant will attend, in view of his non-attendance on four previous occasions, and therefore impracticable to conduct any meeting convened by the plaintiff. The problem is that specific reference to the impracticability of conducting the meeting, as opposed to 'calling' it, has been removed from the section.
45 The 1998 amendments, introduced by the Company Law Reform Bill, were part of the process of simplifying statutory company law. The avowed object of the amendments was to 'significantly improve the substance and the drafting of the current rules, eliminating unnecessary or redundant regulation and making the Law more readily understandable': explanatory memorandum to Company Law Review Bill, [1.2]. Although important changes were made to the power of members to convene meetings, it appears that there was no intention to change the substance of the court's power to order that a meeting be called, but only to 'simplify' the drafting: see explanatory memorandum, [10.22]. It seems to me probable, therefore, that the words of the current provision, 'it is impracticable to call the meeting in any other way', are intended to have the same meaning and effect as the two alternative conditions of the previous law.
46 Of course, it can happen that the drafters of legislative amendments intended only to simplify the law might fail to give effect to that intention. In the context of corporate law simplification, Hanel v O'Neill (2003) 48 ACSR 378 provides a dramatic recent example of a case where a court has held that to be so. Here, however, it is possible to read the word 'call', in the new simplified language, as a word of more expansive meaning than the word 'convene' in the immediate predecessor legislation, or even the word 'call' in the older legislation. In its modern plain language usage, 'call' could be taken to cover the whole process of convening the meeting and bringing together the members. While it would not strictly be impracticable, here, to convene a meeting in the sense of giving a valid notice of meeting, it would be impracticable to bring the members together in a meeting because of the likelihood that the second defendant will not attend. If, therefore, it were necessary for me to decide, I would hold that the cases decided on the former provisions continue to be applicable notwithstanding the change of wording, and therefore the impracticability requirement is satisfied in the circumstances of this case. My conclusion is supported by dicta in the Full Court of the Supreme Court of Western Australia in Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198 at [139].
37 Counsel for the defendant submitted that Austin J's reasoning in that case was obiter, and that I should not follow it, for the reasons he advanced at [34] above. I decline to do so. In my view, his Honour was, with respect, clearly correct to say that to "call" a meeting within the meaning of s 249G of the Act covers the whole process of convening the meeting and bringing together the members, for the reasons he gave. Any other construction, including that contended for by the defendant, would render the provision unworkable.
38 The discretion point is equally untenable.
39 It was submitted that the court should decline to make the order sought, including because:
(a) there was no imminent risk to the property the subject of receivership and no complaint had been made relating to the profitability, management or proper functioning of the Company;
(b) the receiver had come into the shoes of the entity under receivership, who had bound itself to the Company's constitution (requiring two members to be present to form quorum), and had known that only two members existed and that the management of the company was to be performed by the directors;
(c) the defendant had made "an offer to implement protective measures", such measures including continuing to trade in the ordinary course, disclosing information reasonably requested, not divesting assets without notice, and consenting to the appointment of a single director to represent Laine Commodities;
(d) the court "should have real concerns" about the effect of granting control to the receiver of the 51% shareholder of the Company "when its real interest is in realising the value of the debt rather than promoting the interests of [the Company] as a whole"; and
(e) the current board has deep, industry-specific management experience that the proposed new directors lack.
40 In my view, none of those considerations, even if made out, goes to the exercise of the court's discretion to make or refuse an order under s 249G(1), once impracticability is established. As Campbell J said in Turnbull v National Roads and Motorists' Association Ltd [2004] NSWSC 577; 50 ACSR 44 at 56 [51], in the course of considering whether to make an order under ss 232 and 233 of the Act:
The court is extremely reluctant to interfere, in advance, with the ordinary processes of company democracy. It is a well-established rule of thumb that a court will, only in the rarest of circumstances, injunct the holding of a company meeting.
Questions of what is, or is not, in the interests of the members as a whole are often best left to be decided by the officers, organs and procedures of the company itself, or by the court deciding, after events have happened, whether those events fall short of a legally required standard of conduct by virtue of them not having occurred in the interests of the members as a whole.
41 I adopt, with respect, that same approach here.
42 It was for those reasons that I granted the relief sought.
43 At the end of the hearing on 27 May, counsel for the plaintiffs said that he wished to make an application for indemnity costs. Accordingly, I made directions for the filing of brief written submissions.
44 The plaintiffs say that they repeatedly offered to reconstitute the board with a 4:3 split in favour of the majority shareholder (the Offer), but were rebuffed. They say that this circumstance, combined with the defendant's running of "hopeless" arguments, justifies an order for indemnity costs.
45 The evidence upon which the plaintiffs rely is as follows.
46 On 17 February 2021, the plaintiffs made the Offer, seeking to avoid "the potential for any lengthy, expensive and public court proceedings".
47 Over the next month there were two further unsuccessful attempts to convene a meeting of the Company.
48 On 19 February 2021, the solicitors for the defendant responded to the Offer, offering only an undertaking that the business of the Company would be preserved whilst other proceedings were resolved, which was rejected.
49 Following a further failed attempt to hold a meeting, the plaintiffs commenced this proceeding.
50 On 15 April 2021, the plaintiffs' solicitors again repeated the Offer, and provided draft timetabling orders.
51 On 6 May 2021, the plaintiffs' solicitors again repeated the Offer, requesting a response by 13 May 2021. Their letter stated that the Offer was made on an open basis.
52 On 13 May 2021, the plaintiffs' solicitors again repeated the Offer. Their letter stated: "We did not receive a response from you in relation to our letter … the correspondence between the parties may be produced to the Court if required, including without limitation [on] any question as to costs". A response was requested by 14 May 2021. None was provided.
53 On 26 May 2021, the eve of the trial, the defendant made a counteroffer. It offered the plaintiffs a single board seat and repeated its offer of an undertaking to preserve the Company's business. The plaintiffs did not accept this offer.
54 The plaintiffs submit:
First, beginning on 17 February 2021, the Plaintiffs repeatedly made the Offer, which would have produced an identical result to that in fact achieved, and repeatedly emphasised that the letters containing the Offer would be relied on as to costs. Notably, the 6 May 2021 letter made express reference to the Court's encouragement to resolve the matter out of Court. The Offer was declined, with subsequent attempts to engage ignored, for months. This is a settled state of affairs giving rise to adverse costs orders [citing Grbavac v Hart [1997] 1 VR 154 at 165-7 (Hayne JA)], particularly where the rejection of the Offer is properly described as 'imprudent' [citing APF Properties Pty Ltd v Kestrel Holdings Pty Ltd (No 3) [2007] FCA 2016 at [24]-[25] (Heerey J)] and the Defendant's conduct has been 'unreasonable' [citing Black v Lipovac [1998] FCA 699; 217 ALR 386 at 432-3 [218] (Miles, Heerey and Madgwick JJ); Rosselli v Rosselli (No 2) [2007] VSC 438 at [27]-[34] (Forrest J)].
…
Secondly, the alternate proposals put forward by the Defendant's solicitors were manifestly inadequate. The first proposal, made on 19 February 2021, offered no more than an undertaking of no value. The second proposal, made only on the eve of the trial, offered only a single Board seat to the majority shareholder, which was again inadequate.
Thirdly, the Defendant ran a plainly hopeless argument as to the construction of s 249G of the Act …
Fourthly, the Defendant ran a plainly hopeless argument as to oppression; so much is clear from the fact that it simply abandoned that argument …
55 The defendant does not oppose an order that it pay the plaintiffs' costs of the proceeding on a party and party basis, but it resists an order that those costs be paid on an indemnity basis.
56 It submits that, although the plaintiffs were successful, "the fact that the plaintiffs were subjectively confident in their application is not a basis to order indemnity costs against the defendant. The defendant had a short point, made it efficiently and lost. There was no conduct of the proceeding by the defendant that might justify a special costs order".
57 The defendant submits that the construction it advanced with respect to s 249G was arguable.
58 It also submits that "the Court's discretion was a live issue. Being a discretionary power, the granting of relief under s 249G is something upon which reasonable judges might differ. If the Court had concluded that the discretionary factors relied on by the defendant would constitute oppressive conduct, it takes no large leap of logic to conclude that the scope of the discretion, guided by the subject matter, scope and purpose of the Act, would not be exercised in order to permit a member to oppress another member".
59 It also submits that it did not commence an oppression cross-claim, despite having leave to do so, and "only relied on matters that might be seen as oppressive to raise a discretionary basis for withholding relief. When the Court indicated those matters, if proven, would not affect the Court's discretion, the defendant moved efficiently to the statutory construction argument, allowing the matter to conclude before lunch".
60 As to the Offer, and the repeated making of it, the defendant submits that "the plaintiffs made no offer to settle that was better than the outcome of the trial. [They] did demand the defendant to capitulate, but that is no basis for a special costs order. The defendant did not unreasonably reject an offer that should sound in indemnity costs".
61 In my view, this is a clear case for indemnity costs, for the reasons advanced by the plaintiffs.
62 For the reasons I have given, the construction point was untenable. And the "discretion/oppression" point was equally doomed to fail. This is not a type of case where it is relevant to ask whether the Offer was "better than" the outcome. There never was a valid basis for resisting the claim for an order calling a meeting of the Company.
63 I will order that the defendant pay the plaintiffs' costs of the proceeding on an indemnity basis.
I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.