McKerlie v Drillsearch Energy Ltd [2009] NSWSC 488 | Case summary

3009/09 JAMES DAVID McKERLIE & ANOR v DRILLSEARCH ENERGY LIMITED & 3 ORS JUDGMENT 1 The first plaintiff, Mr McKerlie, is a director of the first defendant, Drillsearch Energy Ltd ("Drillsearch"). The second plaintiff is a member of Drillsearch. The remaining defendants - Mr Simpson, Mr Wicks and Mr Langusch - are, like Mr McKerlie, directors of Drillsearch. There are two other directors, Mr Choo and Mr Lingo. Neither of them is a party to the proceedings. Mr Lingo is the recently appointed managing director. 2 Drillsearch is a company that has been admitted to the official list of Australian Securities Exchange ("ASX"). Its shares are listed for quotation on the stock market maintained by ASX. 3 During April 2009, steps were taken towards the convening of two separate general meetings of Drillsearch, one to consider proposed resolutions removing Mr Choo and Mr McKerlie as directors and the other to consider proposed resolutions removing Mr Simpson, Mr Wicks and Mr Langusch as directors. Early in May, however, arrangements were made for all five proposed resolutions to be placed before a single general meeting. On 4 May 2009, a notice convening that single meeting was given to ASX and despatched to Drillsearch's members. The meeting is to be held at 12 noon on Wednesday next, 10 June 2009. 4 The day after despatch of this notice, Beach Petroleum Ltd announced to ASX a takeover offer for all shares in Drillsearch. 5 These proceedings were commenced on 28 May 2009 and came before the court for urgent final hearing on 2 June 2009. The plaintiffs' complaints centre on an announcement made by Drillsearch to ASX on 26 May 2009. Mr Simpson is the executive chairman of Drillsearch. He authorised the announcement in that capacity. The announcement (which I shall call "the 26 May announcement") was in these terms: " Drillsearch Energy Limited 26 May 2009 Postponement of EGM and update on board renewal process Drillsearch Energy Limited ('Drillsearch') is pleased to announce that the board has resolved today that it will be postponing the EGM scheduled for the 10th June, 2009 by opening and adjourning the meeting to 31st July, 2009 at the Sydney Hilton at 12:00 noon. The meeting of 10th June, 2009 is to be moved from the Sydney Hilton to the Drillsearch Sydney offices. The board advises that the Chairman for statutory reasons is required to open the meeting but will be immediately adjourning the EGM, to the 31st July, 2009. The board has come to this decision, as it has now agreed to a renewal process. The first part of the process has been completed with the appointment of Managing Director Elect, Brad Lingo on 19th May, 2009. On 15th June, 2009 it is envisaged that the Executive Chairman will relinquish his Drillsearch executive role when Brad takes up the Managing Directors role. Mr Lingo will officially commence his duties as Managing Director on 15 June 2009 following completion of a short leave period with the Commonwealth Bank. Stage two of the renewal process to find a new Chairman and a number of non-executive directors is well underway. The board is confident that the reconstitution of the board, with a number of non-executive directors will be completed over the next 4-6 weeks and well before the EGM. It is envisaged that the board will be reconstituted to a board of 4-5 that will consist of Brad Lingo as the Managing Director, a new Chairman to replace retiring Chairman Peter Simpson, and two new non-executive directors. The board recognises the absolute need for a successful transition, which is paramount that will ensure the full and complete transfer of leadership and knowledge that will maintain and enhance shareholder value. Further enquiries, please contact Peter Simpson at Drillsearch Energy 61 2 XXXX XXXX. PETER SIMPSON EXECUTIVE CHAIRMAN " 6 As will be seen, the 26 May announcement begins by stating that "the board has resolved today that it will be postponing the EGM scheduled for the 10th June, 2009 by opening and adjourning the meeting to the 31st July, 2009 at the Sydney Hilton at 12:00 noon". 7 It has been established that three directors of Drillsearch - Mr Simpson, Mr Wicks and Mr Langusch - each signed a purported resolution that the meeting be postponed and that a particular form of announcement be released to ASX. Each signed on or after 22 May 2009. Mr Lingo signed a document saying that he abstained from voting on the resolution. I shall assume that all four signatures were affixed on 22 May 2009, although that it appears that some may have been affixed a day or so later (nothing really turns on this). Neither Mr McKerlie nor Mr Choo signed any relevant document. The form of announcement that accompanied the documents signed by Mr Simpson, Mr Wicks and Mr Langusch was similar to the 26 May announcement in its final form but did not state the date, time and place to which the meeting had been "postponed". It referred only to "a later date to be advised". 8 The plaintiffs maintain that the purported "resolution" of directors said to have been brought about by the actions of Mr Simpson, Mr Wicks and Mr Langusch on 22 May 2009 was invalid. They seek a declaration to that effect. 9 The plaintiffs also say that the conduct of Drillsearch in releasing the 26 May announcement to and through ASX was misleading or deceptive and therefore contravened s 1041H(1) of the Corporations Act 2001 (Cth) or, in the alternative, s 52 of the Trade Practices Act 1974 (Cth). A declaration to that effect is sought. 10 The plaintiffs seek injunctive relief as against Mr Simpson, Mr Wicks and Mr Langusch. Each should, it is said, be restrained from acting as chairman of the general meeting of Drillsearch to be held on 10 June 2009 or, alternatively, from acting upon or giving effect to the purported written resolution to which Mr Simpson, Mr Wicks and Mr Langusch were signatories (including by not taking the purported resolution into account "in considering whether or not to exercise the power conferred by article 37.1 of" Drillsearch's constitution). 11 Finally, there is a claim for an order under s 1324 of the Corporations Act or s 80 of the Trade Practices Act requiring Drillsearch to issue to ASX and to publish in the press a particular form of corrective notice. 12 Two questions of power arise for consideration. The first is the power of a company or its directors to postpone a general meeting of which notice has been duly given. The second concerns the power of the chairman of a general meeting to adjourn the meeting. 13 The first matter may be dealt with briefly since, in the end, it was not controversial. There are two points. First, the general power of directors, under the constitution, to manage the company and to exercise its powers does not allow the directors to postpone a duly convened general meeting. For the directors to be able to do that, there must be some express power given to them by the constitution. This was established by Smith v Paringa Mines Ltd [1906] 2 Ch 193 which did not arise for consideration in this country until Bell Resources Ltd v Turnbridge Pty Ltd (No 2) (1988) 13 ACLR 429 and was followed both in that case and in many subsequent cases. There is no provision of Drillsearch's constitution conferring any such express power on the directors. 14 The second point is that the actions of Mr Simpson, Mr Wicks and Mr Langusch in signing the documents of 22 May 2009 did not, in any event, have effect as a resolution of the directors. The relevant provision of Drillsearch's constitution is article 52.1. It says that the directors "may pass a resolution without a directors' meeting being held if the majority of the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document". As at 22 May 2009, there were six directors in office and all six were entitled to vote. Statements "that they are in favour" were therefore required from four - being "the majority of" the six entitled to vote. The concurrence of three was insufficient and, for that reason alone, there was no resolution of the board as reported in the 26 May announcement. 15 Since, to this point, nothing has happened which has had the effect of postponing the general meeting scheduled for 10 June 2009, action to prevent its proceeding to business on that occasion will be capable of being taken only within the confines of the meeting itself. That raises the general issue of adjournment. 16 The constitution deals with adjournment of general meetings in article 37: "37.1 The chairman may adjourn a meeting of shareholders to any day, time and place. 37.2 The chairman must adjourn a meeting of shareholders if the shareholders present with a majority of votes at the meeting agree or direct the chairman to do so. The chairman may adjourn the meeting to any day, time and place. 37.3 When a meeting is adjourned new notice of the resumed meeting must be given if the meeting is adjourned for more than a month. 37.4 Only unfinished business is to be transacted at a meeting resumed after an adjournment." 17 The reference here to "the chairman" is to be understood in the context of article 35. That provision specifies who is to be chairman of a general meeting: "35.1 The chairman of Directors is entitled to chair all meetings of shareholders. 35.2 If there is no chairman of Directors, or if the chairman is not present within 10 minutes after the time appointed for the meeting or is unable or unwilling to act, the deputy chairman of Directors may chair the meeting. If there is no deputy chairman, or if the deputy chairman is not present within 10 minutes after the time appointed for the meeting or is unable or unwilling to act, the directors present must elect one of themselves to chair the meeting. If they do not do so, the shareholders present must elect a person to chair the meeting." 18 Mr Simpson is the chairman of directors. There is no deputy chairman of directors. In the ordinary course of events, Mr Simpson, if able and willing to do so, will chair the general meeting convened for 10 June 2009. If he is unable or unwilling to act, the directors present will be obliged to elect a director to chair the meeting. If they do no do so (including for the reason that no director is willing to act), the shareholders present will be obliged to elect "a person" to chair the meeting. 19 Given that, in the ordinary course of events, Mr Simpson will be the chairman of the general meeting, the plaintiffs have an apprehension that he, being the signatory of the 26 May announcement and a party to the ineffective resolution of 22 May 2009, will simply proceed in the way set out in the second paragraph of the circular - that is, that he will open the meeting then immediately adjourn it to 31 July 2009 in accordance with the supposed decision "of the board" that this should be done. 20 It is therefore necessary to examine the nature and scope of the power of adjournment conferred by article 37.1 which, it may be noted, is not in the usual form. The approach commonly taken is that now reflected in the s 249U(4) replaceable rule, that is, that the chairman will adjourn a general meeting if the members present agree or direct, by a majority of votes, that there should be an adjournment. Under that kind of provision, the chairman's power to adjourn is qualified so as to be subject to the will of the meeting. There is no such qualification in this case. 21 The constitution confers the article 37.1 power on the chairman of the meeting, whoever he or she may be and regardless of whether or not the chairman happens also to be a director. It is, furthermore, a power exercisable at and in relation to a general meeting of members. These factors necessarily shape the power. It forms part of the totality of the powers a chairman possesses for the purposes of the particular meeting chaired by him or her. 22 A well-known passage in the judgment of Chitty J in National Dwellings Society v Sykes [1894] 3 Ch 159 affirms that it is the duty of the chairman and his or her function to preserve order and to take care that the proceedings are conducted in a proper manner and that the sense of the meeting is properly ascertained with regard to any question which is properly before the meeting. 23 Wishart v Henneberry (1962) 3 FLR 171 concerned a trade union meeting. Spicer CJ, Dunphy J and Joske J said (at 173): "Authority to preside over a meeting does not give dictatorial power. It merely makes the chairman, 'first among equals', and imposes on him certain duties including taking the chair and carrying on the business so that the business of the body in question before the meeting is disposed of as the meeting desires, and also preserving order at the meeting." 24 A particular responsibility is cast upon a chairman with respect to the calling of a poll. That is very frequently a power given to the chairman by the constitution in terms apparently absolute and unfettered. Yet it is clear that the power is to be exercised not according to the chairman's personal desire or preference but to ensure that the true will of the membership is discovered on the particular proposal: Second Consolidated Trust Ltd v Ceylon Amalgamated Tea & Rubber Estates Ltd [1943] 2 All ER 567. 25 Where a director accepts appointment as a member's proxy for the purposes of a general meeting, that director incurs the fiduciary duties of an agent towards the appointor: Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559 at [152]; and this will be so where the appointee director is chairman of the meeting. 26 The Whitlam case draws a sharp distinction between the duties and responsibilities of the chairman of a general meeting and those of a director. Where a director is acting as chairman of such a meeting, he or she does not thereby cease to be a director or to be subject to the duties of a director. But the point is made at [150] that not everything a director does that affects his or her company is an exercise of a director's powers or a discharge of (or even governed by) directors' duties. 27 There is a developing jurisprudence about the duties of a director who occupies the position of chairman of the board of directors: Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) 44 ACSR 341; Australian Securities and Investments Commission v Rich [2004] NSWSC 836; (2004) 50 ACSR 500. That is irrelevant for present purposes. The concern in this case is with the duties of the chairman of a general meeting, whether or not he or she is the chairman of the board or even a director. 28 There is a reference in Might SA v Redbus Interhouse plc [2003] EWHC 3514 (Ch); [2004] 2 BCLC 449 at [10] to "the fiduciary nature of presiding as chairman at an extraordinary general meeting". That characterisation is a reflection of the expectation that a person occupying a position of ascendancy or influence in relation to others whose interests may be affected by the person's actions owes duties to those others to prefer their interests to his or her own. 29 It is not necessary to decide whether, in relation to the exercise of the article 37.1 power, a chairman is subject to fiduciary duties or to identify the beneficiary or beneficiaries of any such duties. It is sufficient to say that the power is one constrained by the notion a fraud on the power as explained by Bryson J in Lancedale Holdings Pty Ltd v Heath Group Australia Pty Ltd [1999] NSWSC 609 at [71]: "It is very common to find that the manner of exercise of powers is limited by requiring that they be exercised in good faith and for the purposes for which they were conferred; sometimes this is a limitation imposed in Equity on the conduct of trustees or other persons with fiduciary responsibilities who deal with rights which exist only in Equity; and sometimes a control of that kind is implied in the terms of the instrument creating the power. Similar implications are usual for powers in public law. In my view a limitation of that kind applies to the exercise of the power of amendment in Rule 13(1)(d)." 30 Bryson J was there dealing with a power of amendment that was essentially contractual in nature. But as his Honour pointed out, there are many legal contexts in which the requirements of good faith and proper purpose qualify what appears, on its face, to be an unqualified and absolute power. This is such a context. 31 An aspect of the requirements of good faith and proper purpose is that a decision whether and, if so, how the power should be exercised can only be made upon adequate assessment of the relevant facts as they exist at the time of exercise. An advance agreement or commitment cannot properly be made as to how the power will be exercised at some future time. If the requirements of good faith and proper purpose are not observed, the purported exercise of the power is void. Likewise, any advance agreement or commitment as to the manner of exercise is void. 32 Reference was made in submissions to the decision of the English Court of Appeal in Byng v London Life Association Ltd [1990] Ch 170. That case concerned the residual common law power of a chairman to adjourn a meeting despite a requirement of member concurrence of the kind now found in the s 249U(4) replaceable rule. It was held that the chairman may act unilaterally if circumstances are such that the wish of the meeting itself cannot be ascertained. But the power of the chairman to act unilaterally is, said the Vice-Chancellor (at 188), "tightly circumscribed by reference to the objects for which it exists", which is, "to facilitate the presence of those entitled to debate and vote on a resolution at a meeting where such debate and voting is possible". His Lordship said (at 189) that it is not correct that a chairman's decision can only be impugned for lack of good faith: "In my judgment the chairman's decision must also be taken reasonably with a view to facilitating the purpose for which the power exists." 33 The Vice-Chancellor also said (at 189): "The chairman's decision will not be declared invalid unless on the facts which he knew or ought to have known he failed to take into account all the relevant factors, took into account irrelevant factors or reached a conclusion which no reasonable chairman, properly directing himself as to his duties, could have reached, i.e. the test is the same as that applicable on judicial review in accordance with the principles of Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223." 34 He added (also at 189): "This was the approach adopted by Uthwatt J. in Second Consolidated Trust v. Ceylon and Amalgamated Tea and Rubber Estates Ltd. [1943] 2 All E.R. 567 where he held a chairman's decision invalid on the grounds that he had failed to take into account a relevant factor." 35 I accept that these observations about a chairman's residual common law power to adjourn apply also to the apparently absolute power conferred by article 37.1. The requirements of good faith and proper purpose apply. The administrative law approaches identified by the Vice-Chancellor by reference to Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 are relevant. Failure to proceed accordingly will lead to a conclusion of fraud on the power. In the particular context, the proper purpose requirement has regard to the creation of a convenient forum in which those entitled to speak, consult together and vote may exercise those rights in an orderly and constructive way with a view to making their collective decision on the matters before the meeting. 36 Mr McHugh SC submitted on behalf of the plaintiffs that it is important to remember that a director acting as chairman of a general meeting is playing a particular role created by the company's constitution in giving effect to the organic system of corporate organisation. Certain powers are confided to the directors, others to the company in general meeting. Generally speaking, one organ may not encroach upon the preserve of the other: Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89. 37 A general meeting is the means by which one organ operates. That a director - part of the other organ - is given by the constitution the role of chairing a general meeting does not mean that there is some blurring of the distinction between the two instrumentalities. On the contrary, the identified director acts as chairman not because he or she is a director or because to do so is part of the functions of a director; he or she is chairman as persona designata. This is emphasised by the fact that the chairman need not be a director at all. As has been mentioned, "a person" may be chosen by the members present to chair a general meeting if no director is able or willing to do so. 38 It follows from the nature of the chairman's role and the responsibilities and expectations it entails that it is foreign to the chairman's function to exercise the power of adjournment to further some personal preference of the chairman or some policy of a body of which the chairman is a member. It is thus foreign to the chairman's function, when the chairman is a director, to exercise the chairman's powers to implement some policy or decision of the board of directors. 39 This is particularly so in a context such as the present where the purpose of the general meeting is to determine the constitution of the board itself. The right of the general body of members to remove directors by resolution is a statutory right which may or may not have some parallel in the constitution. If, by ordinary corporate processes, a forum is created to enable members to exercise that right if minded to do so, it will be an abuse of the power of a chairman to remove the opportunity to exercise the right except for some good and proper reason calculated to promote the due exercise of the right in more suitable or constructive circumstances at a later time. It will be a clear abuse of power if the chairman removes or postpones the right simply because he or she (alone or in consultation with others) thinks that it would somehow be more conducive to the interests of the company if members were not allowed to exercise the right to remove directors. 40 Against this background, I return to the 26 May announcement. 41 That circular foreshadows certain action by the chairman of the 10 June 2009 meeting. Since the foreshadowed action has the imprimatur of Mr Simpson, Mr Wicks and Mr Langusch as the signatories to the ineffective resolution of 22 May 2009, it may be inferred that, if any of them is the chairman of the meeting, the foreshadowed action will be taken, so that the chairman opens the meeting and then immediately purports to exercise the article 37.1 power to adjourn it to 31 July 2009. 42 It may also be inferred that, if any of the three persons mentioned is the chairman, action to effect an adjournment immediately after the meeting is declared open will be taken because a "renewal process" has been adopted and because three of the directors have agreed in advance that that action should be taken. 43 The "renewal process", as described, entails Mr Simpson's relinquishing his "executive role" which, it seems, is his position as "executive chairman". While this apparently involves his stepping down as chairman of the board of directors, it is not altogether clear whether he will also resign as a director. The fourth paragraph does, however, tend to indicate that that is the intention. 44 The only other director mentioned by name in the 26 May announcement is Mr Lingo. He is described as "Managing Director Elect" but it was accepted at the hearing before me that he was already in office as a director when the 26 May announcement was released. He, as I have said, signed a document indicating his abstention from concurrence in the ineffective resolution of 22 May 2009. Mr Lingo's tenure as a director is represented in the circular as ongoing. 45 There are four directors in addition to Mr Simpson and Mr Lingo. If, as is suggested, Mr Simpson ceases to be a director, there will be five directors in office. The plan or process outlined in the circular apparently envisages the creation of a board of four or five members, who include Mr Lingo as managing director, a new chairman replacing Mr Simpson and two "new non-executive directors". Specifically mentioned, therefore, are four board members of whom three (or, at least, two) are new appointees. What is left entirely unclear is which, if any, of the current directors other than Mr Simpson and Mr Lingo will or may remain in office. 46 The content of the 26 May announcement has implications in two areas. 47 First, if any of Mr Simpson, Mr Wicks and Mr Langusch becomes the chairman on 10 June 2009, he will act otherwise than in accordance with his duties of chairman if he blindly gives effect to the postponement described in the 26 May announcement. I use the word "blindly" to indicate a decision made at the meeting merely to give effect to the postponement in accordance with the ineffective resolution to which the three named directors subscribed, without due consideration of the circumstances existing at and in relation to the meeting and its capacity to be a proper and convenient forum for debate and decision-making by members. 48 Second, it is necessary to address the question whether the content of the announcement is misleading or deceptive and whether release of the announcement to and through ASX was conduct by Drillsearch that was misleading or deceptive. 49 The message conveyed about a planned reconstitution of the Drillsearch board is uncertain. That, of itself, does not make the circular misleading or deceptive. But when the content of the 26 May announcement is viewed in the light of the surrounding facts, it is seen to be misleading or deceptive in ways referred to by Mr McHugh in his submissions: 1. The 26 May announcement says in the first paragraph that "the board has resolved today" that it will be postponing the general meeting. The true facts are that the board of directors did not on 26 May 2009 or any other day pass or adopt any resolution concerning the extraordinary general meeting. At best, three out of the six directors agreed to a proposal that was not agreed to by the other three. There was no resolution of the board and it was misleading to convey the impression that a formal and binding decision of the board of directors had been made. 2. The 26 May announcement says that it is "the board" that "will be postponing" the general meeting. Even if the board of directors had made a regular and binding decision to postpone the meeting, that decision would have been devoid of force and effect. The clear message, however, is that a postponement has been effected, with the result that the meeting cannot proceed to business at the appointed place and time. That message is manifestly misleading. 3. The 26 May announcement says that "the board" has "now agreed to a renewal process", being the process of board reconstitution that is then described. That statement was made in a context where earlier public statements had referred to dissention among directors and moves to convene separate meetings to consider the removal of different groups of directors, followed by adoption of a procedure under which all proposed resolutions for the removal of directors would be placed before a single meeting of members. The 26 May announcement clearly implied that the dissention and differences had been resolved and that some agreement as to board re-constitution had been reached among the directors as a whole or, at least, the five of them affected by the proposed resolutions for removal. This was not the case. Any such agreement was subscribed to only by Mr Simpson, Mr Wicks and Mr Langusch. The announcement was therefore misleading in this respect also. 50 I am satisfied therefore that, as the plaintiffs contend, Drillsearch itself engaged in misleading or deceptive conduct by releasing the 26 May announcement to and through ASX. 51 The plaintiffs say that that conduct was prohibited by s 1041H(1) of the Corporations Act or s 52 of the Trade Practices Act. Drillseach contends that neither provision is attracted. 52 Section 1041H(1) of the Corporations Act is in these terms: "A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive." 53 Section 52(1) of the Trade Practices Act provides: "A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 54 Having regard to s 51AF(2)(a) of the Trade Practices Act (and the definition of "financial service" in s 4 which picks up the definition in s 12BAB of the Australian Securities and Investments Commission Act 2001 (Cth) which in turn takes meaning from the s 12BAA definition of "financial product"), the relationship between the two sections, in a practical sense, is that s 52 does not apply if s 1041H(1) applies. 55 Mr Silver of counsel submitted on behalf of Drillsearch that s 1041H(1) of the Corporations Act does not apply because there was no relevant connection between the publication of the 26 May announcement and a "financial product" or a "financial service". The contrary submission was that there was a relevant connection with shares in Drillsearch, they being within the concept of "financial product" defined by Division 3 of Part 7.1 of the Corporations Act. 56 The latter submission must be accepted. Mr McHugh pointed to the last paragraph of the 26 May announcement: "The board recognises the absolute need for a successful transition, which is paramount that will ensure the full and complete transfer of leadership and knowledge that will maintain and enhance shareholder value." 57 There was a clear statement in that paragraph linking the subject matter of the announcement (the supposedly agreed "renewal process") with enhancement of "shareholder value", that is, the price or underlying worth of shares in Drillsearch itself. The circumstances of this case are relevantly the same to those considered by the Full Federal Court in Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211. It was there held that release to the stock exchange by a listed company of an announcement suggesting strongly positive attributes of a health care product manufactured by the company bore to the company's own shares a relationship caught by s 1041H(1). Although the announcement did not expressly refer to the shares, its optimistic message and the communication of the message to and through the stock exchange were inevitably connected to the company's shares traded on that exchange. 58 The position in this case is the same. The message (misleading as it is) was one of reconciliation and new beginning. It was a positive message having a capacity to affect the price of Drillsearch's shares on the market and was communicated to and through the operator of the market. There is, in this case, the added point, already noted, that the announcement expressly referred to enhancement of "shareholder value". 59 I am accordingly satisfied that the prohibition in s 1041H(1) of the Corporations Act was contravened by Drillsearch when it released the 26 May announcement to ASX. 60 I nevertheless refer, for completeness, to Mr Silver's submission that s 52(1) of the Trade Practices Act would not operate in this case if its application were not excluded by s 51AF(2)(a). The submission is based on the proposition that the conduct of making and communicating the misleading statements in the 26 May announcement was not conduct "in trade or commerce". 61 Mr Silver referred to the joint judgment of Mason CJ, Deane J, Dawson J and Gaudron J in Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 and the need there identified to construe the words "in trade or commerce" in such a way that there is not imposed "by a side-wind, an overlay of Commonwealth law upon every field of legislative control into which a corporation might stray for the purpose of, or in connection with, carrying on its trading or commercial activities". The scope of the section was described thus (at 604): "What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character." 62 If it were necessary to decide the point, I would hold that release of the 26 May announcement to and through ASX was conduct "in trade or commerce". The system of listing and trading of securities administered by ASX lies at the very heart of commerce. The need to avoid the creation of a false market in listed securities is the source of the ASX's requirement that listed companies notify and announce information necessary to ensure that the market is properly informed. Announcement of matters of the kind to which the 26 May document related would fall within that requirement. Satisfaction of the requirement is integral to the aspect of commerce in which ASX plays a central role. 63 I pause at this point to re-state the principal findings: 1. There has been no effective postponement of the general meeting to be held on 10 June 2009. 2. The person who presides as chairman of that meeting in accordance with article 35 may not, consistently with the duties of a chairman, give effect to the postponement referred to in the 26 May announcement by exercise of the article 37(1) power to adjourn. 3. It will be the duty of the person who presides as chairman of the meeting to consider any question of adjournment of the meeting according to: (a) the circumstances existing at and in relation to the meeting when it occurs; and (b) a genuine appraisal of those circumstances made in good faith and in light of the purposes for which the power to adjourn exists. 4. The conduct of Drillsearch in releasing the 26 May announcement to and through ASX was conduct prohibited by s 1041H(1) of the Corporations Act . 64 The plaintiffs have thus made out their case. The declarations they seek should be made. Beyond that, however, there are questions about the relief that is appropriate. 65 I should say at once that I do not consider it appropriate to enjoin each of Mr Simpson, Mr Wicks and Mr Langusch from acting as chairman of the 10 June 2009 general meeting. The constitution contemplates that Mr Simpson will preside if he is willing and able to do so and that, if he is not, one of Mr Wicks, Mr Langusch, Mr McKerlie, Mr Choo and Mr Lingo should be chosen. No basis for exclusion has been established. 66 More realistic in the circumstances, is the possibility of an order enjoining a party to the ineffective 22 May 2009 resolution, if acting as chairman, from giving effect to the postponement set out in the 26 May announcement. But care will be required in framing such an order since some adjournment may prove desirable in the circumstances that actually present themselves on 10 June 2009. 67 A feature of the 26 May announcement not so far mentioned is that it purported to change the meeting venue from the Hilton Hotel to the Drillsearch office. There is thus a possibility that some members, being aware of the announcement, will go to the Drillsearch office with a view to attending the meeting, while others who are unaware of the announcement will go to the Hilton Hotel in accordance with the notice of meeting. Yet other members will, no doubt, stay away altogether because they have been led to believe that nothing of substance will happen on 10 June 2009 in any event. Given the ineffectiveness of the "postponement" and the purported change of venue, there will be a real question whether it is appropriate for the members who actually attend at the Hilton Hotel on 10 June 2009 to proceed to transact the business of the meeting. 68 This makes it difficult to formulate any firm view about what should be required to happen on 10 June 2009 (and where). 69 The difficulties just outlined may be reduced if, as Mr McKerlie seeks, Drillsearch is required to undertake corrective advertising (and an ASX announcement) making it clear that the "postponement" has no substance and that the meeting will go ahead at the originally notified time and place. But that too may not be entirely satisfactory when it is appreciated that, because of shortage of time (including the intervention of a public holiday on Monday 8 June 2009), it will not be possible for a document to be sent to each member so as to give adequate notice of reversion to the original plan, added to which members unable to attend who may have held off lodging proxies upon becoming aware of the "postponement" will be unable to lodge before the deadline applicable to a 10 June meeting. 70 I am satisfied that s 1324 of the Corporations Act empowers the court to order appropriate remedial advertising and notification (as would s 80 of the Trade Practices Act, if applicable). But the question of precisely what can usefully be done in that connection is something that requires further submissions. 71 I shall, at this point, merely publish my conclusions and reasons, with a view to entertaining further submissions about relief later in the day. **********

McKerlie v Drillsearch Energy Ltd

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Judgment (14 paragraphs)

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