Noble Investments Pty Ltd v Southern Cross Exploration NL; In the matter of Southern Cross Exploration NL ACN 000 716 012

REASONS FOR JUDGMENT 1 This is an application by the defendant by way of notice of motion for summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). 2 The defendant seeks summary judgment in relation to paragraphs 3, 4, 6, 7, 8, 9, 10 and 11 of the prayer for relief in the originating process. 3 On 25 January 2007 the plaintiffs commenced a proceeding against the defendant seeking an order that Mr Timothy Owen Lebbon be appointed director of the defendant company and consequential orders relating to the constitution of the company. 4 The character of that proceeding changed during the course of interlocutory hearings to the point where the plaintiffs sought pre-trial discovery from the defendant. On 7 August 2007 Finn J made orders in favour of the plaintiffs giving the plaintiffs the right to inspect and copy a number of documents in the defendant's possession. 5 The orders were made on the plaintiffs' lawyers' undertaking to keep the documents confidential, even from their clients. 6 On 2 October 2008 this proceeding was commenced by the plaintiffs against the defendant by originating process in which the plaintiffs seek the following orders: 1. A declaration that the conduct of the affairs of the company is contrary to the interests of the members of the company as a whole. 2. Further, or in the alternative to 1, a declaration that the conduct of the company's affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the plaintiffs. 3. In the alternative to 1 and 2, a declaration that the company's failure to demand repayment by Nadi Bay Beach Corporation Limited ("NBBC") is contrary to the interests of the members as a whole. 4. Further, or in the alternative to 1, 2 and 3, a declaration that the company's failure to demand repayment by NBBC is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the plaintiffs. 5. An order for the appointment of a receiver over the company's interests pursuant to the mortgage granted by NBBC dated 30 November 1984 ("mortgage") pursuant to Section 233(1)(h) of the Act. 6. In the alternative to 5, an order requiring the company to require repayment pursuant to the mortgage pursuant to Section 233(1)(c) and (j) of the Act. 7. A declaration that NBBC is in breach of its obligations pursuant to clause 3 of the mortgage. 8. Upon the sale of the land the subject of the mortgage, an order determining the value of the plaintiffs' interest in the defendant. 9. An order pursuant to section 233(1)(d) of the Act requiring Boris Andrew Ganke and / or his nominee(s) to purchase the plaintiffs' shares in the capital of the defendant at the valuation determined pursuant to order 8. 10. In the alternative to order 9, an order pursuant to section 233(1)(e) of the Act requiring the defendant to acquire the shares held by the plaintiffs in the capital of the defendant at the valuation determined pursuant to order 8 and authorising and directing reductions accordingly in the defendant's capital. 11. In the alternative to orders 9 and 10 an order that the defendant be wound up pursuant to section 233(1)(a) and 461(1)(k) of the Act. 12. An order as to costs. AND 13. Such further or other orders as this Honourable Court deems appropriate. 7 The plaintiffs have now abandoned the relief sought in paragraph 7. In due course, I will make an order striking out that paragraph. 8 The originating process was accompanied by an affidavit of the plaintiffs' solicitor which exhibited the plaintiffs' proposed statement of claim. The plaintiffs adopted that procedure so as to ensure compliance with the orders made by Finn J to keep the contents of the documents confidential. Because of the undertakings given to the Court, the plaintiffs themselves and their director, Mr Lebbon, were unaware of the contents of the discovered documents at the time this proceeding was commenced. 9 After the proceeding was commenced and on the application of the plaintiffs, I made an order releasing the plaintiffs' lawyers from the undertaking they had given to the extent that they were permitted to provide Mr Lebbon (who is a director of the plaintiffs) with the documents which had been discovered by the defendant. 10 Subsequent to the hearing of this application I made an order allowing the plaintiffs to file the statement of claim, which is exhibited to Mr Clarke's affidavit sworn on 23 September 2008 but in a sealed envelope marked "Not to be opened other than by order of a judge of the Court". 11 The plaintiffs are shareholders in the defendant. They own in the order of 20% to 25% of the capital of the defendant. The defendant was incorporated in 1969 and is a publicly listed company being quoted on the official list of the Australian Securities Exchange Ltd (formerly Australian Stock Exchange Ltd) (ASX). Mr Boris Ganke has been a director of the defendant since 1976. Ms Goh has been a director since 1990. Mr Ganke is a substantial shareholder of the defendant. 12 Nadi Bay Beach Corporation (NBBC) is a company which was incorporated in Fiji in 1969, of which Mr Ganke and Ms Goh are directors. Mr Ganke and Ms Goh are shareholders of NBBC holding 145,001 shares of the 401,000 issued shares. 13 Acron Pacific Ltd (Acron Pacific) was incorporated in 1953 and has as its directors Mr Ganke and Ms Goh, who are also majority shareholders. 14 Northern Star Investment Pty Ltd (Northern Star) was incorporated in 1970 and is a wholly owned subsidiary of the defendant. Mr Ganke has been a director of Northern Star since 1976 and Ms Goh since 1991. 15 The defendant owns about 20% of the capital of NBBC. Northern Star also owns about 20% of the capital of NBBC. 16 As at 30 November 1984 NBBC was indebted to Aureole Investments Pty Ltd (Aureole Investments) in the sum of $2,577,605. At the same date, Acron Pacific was indebted to Offshore Oil NL (Offshore Oil) in the sum of $802,140. 17 The two debts were secured by a mortgage given by NBBC in favour of Aureole Investments and Offshore Oil as mortgagee over 39 pieces of land in Fiji owned by NBBC. 18 The plaintiffs assert that in August 1988 the mortgages were purchased by Mr Ganke who, in turn, transferred 50% of his interest as mortgagee to the defendant and Northern Star and consolidated the other 50% of the mortgage in a company controlled by Mr Ganke (Bonds and Securities (Trading) Pty Ltd) and another entity controlled by Mr Ganke (Mitre Securities Ltd) and Mr Ganke himself. The plaintiffs contend that since that date the defendant has been entitled to 50% of the principal outstanding on the mortgage and entitled to 50% of the interest payable on the mortgage. 19 The plaintiffs contend that it was a term of the mortgage that NBBC should sell and dispose of the land which was secured by the mortgage for the purpose of repaying the mortgage. The plaintiffs' case is that apart from two sales some time in March 2006 NBBC has not sold the land as required by the terms of the mortgage. They also contend that in 2007 the amount owed by NBBC to the defendant, including capitalised interest, amounted to $5,519,513. They contend that notwithstanding that the defendant has at all relevant times been entitled, the defendant has not required NBBC to repay the amount owing under the mortgage. 20 Essentially, therefore, the plaintiffs' case is that the defendant has failed to require NBBC to comply with two terms of its mortgage, namely to sell the land to repay the mortgage debt and to repay the mortgage. 21 The plaintiffs claim that the defendant's affairs have been conducted contrary to the interests of the members of the defendant as a whole and its conduct of the defendant's affairs is oppressive to, unfairly prejudicial to, or unfairly discriminates against the plaintiffs. I have identified the relief which the plaintiffs seek. 22 The proceeding is brought pursuant to s 232 of the Corporations Act 2001 (Cth) (the Corporations Act), which provides that the Court can make an order under s 233 if the conduct of a company's affairs or an act or omission by or on behalf of a company is either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity. 23 Section 233 identifies the relief that may be sought. Relevantly, it provides: 233(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order: (a) that the company be wound up; (b) that the company's existing constitution be modified or repealed; (c) regulating the conduct of the company's affairs in the future; (d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law; (e) for the purchase of shares with an appropriate reduction of the company's share capital (f) for the company to institute, prosecute, defend or discontinue specified proceedings; (g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company; (h) appointing a receiver or a receiver and manager of any or all of the company's property; (i) restraining a person from engaging in specified conduct or from doing a specified act; (j) requiring a person to do a specified act. 24 Originally, the defendant sought summary judgment in relation to the whole of the plaintiffs' proceeding but, in written submissions filed before the hearing of this application, limited the application to the prayers of relief in paragraphs 3, 4, 6, 7, 8, 9, 10 and 11 of the originating process. As I have said, the plaintiffs have abandoned the relief sought in paragraph 7 of the originating application. 25 The plaintiffs oppose the application. For the reasons that follow, in my opinion, the application should be dismissed. 26 The defendant by limiting its application under s 31A to the prayers for relief mentioned above accepts for the purpose of the application that the plaintiffs' statement of claim identifies an arguable case under s 232. That is implicit in the revised application which does not seek judgment on the proceeding but only seeks "judgment" in relation to part of the relief sought. 27 For the plaintiffs to succeed in this proceeding they will need to establish that the defendant has acted oppressively, in the sense of unfairly, to the members or to the plaintiffs: Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459. 28 In Jenkins v Enterprise Goldmines NL (1992) 6 ACSR 539 at 550, the Full Court of the Supreme Court of Western Australia said: In our opinion the application of the test involves a question of fairness. It is for the court to decide whether in balancing the interests of the company as a whole against minority interests the directors have acted so as to unfairly prejudice the interests of the minority. The court decides this "according to ordinary standards of reasonableness and fair dealing". Whether the conduct is unfairly discriminatory will be judged on standards which reasonable directors with such skills as directors should have, acting bona fide, would think to be fair. 29 In Jenkins 6 ACSR 539, the Court held that once the Court is satisfied that there has been oppression or unfairness within the meaning of s 232 "it is the obligation of the Court to grant whatever relief is best suited to deal with that conduct": p 561. The Court said at 562: There is nothing in any of the authorities, however, which would tend to place a limit on the grant by the court of an appropriate remedy once it is found that the conduct complained of is oppressive, unfairly prejudicial, or unfairly discriminatory. The powers given to the court are extremely wide. They include the power to make orders regulating the conduct of the affairs of the company in the future. This necessarily involves the court making orders which may interfere with the internal administration of the company. There is nothing in the language of s 320 which suggests that the court should be reluctant to interfere where that is necessary or desirable to give effective relief. There is express power to order the appointment of a receiver and manager. 30 In my respectful opinion, the Court's comments are consistent with the wide powers given to the Court by s 233 and the scheme of s 233 which gives an unfettered discretion to the Court to fashion the appropriate remedy for the particular circumstances proved at trial. 31 The plaintiffs' case is that the defendant, by reason of the conflict which its directors have as shareholders and directors of NBBC, has acted oppressively or unfairly to the members. If the plaintiffs succeed, then they will be entitled to argue for any of the relief which is available under s 233. The relief which will be granted will be determined by reference to the circumstances of the case and will be fashioned so as to ensure that the defendant does not act in such a way as to be unfair to any of its members.