ORDER 15A R 6 OF THE RULES
48 Order 15A r 6 of the Rules provides as follows:
Where-
(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;
(b) after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and
(c) there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision-
the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).
49 The applicant contended that there was reasonable cause to believe that it may be entitled to relief under "at least, sections 793C(2) or 1324 of the Act". This was because there was reasonable cause to believe that OMH had failed to comply with the ASX Listing Rule 14.11 in relation to the impugned resolutions which were passed at the general meeting of members on 23 September 2008.
50 It was contended that the ASX Listing Rule 14.11 required that the notice of the meeting contain a notice which stated that the company would disregard any votes cast in favour of the options resolutions by a person excluded from voting or by an "associate" of that person. Further, the Listing Rule also stated that the relevant interpretation of "associate" for the purposes of the Listing Rule is the interpretation in s 11 and ss 13‑17 of the Corporations Act. Relevantly, s 15 of the Corporations Act provides that the reference to an "associate" includes a reference to a "person in concert with whom the primary person is acting, or proposes to act".
51 The applicant contended that there may have been an agreement or understanding between each of the beneficiary directors and executives that each, as a shareholder, would vote in favour of each of the resolutions to approve the issue of the options to each of the other beneficiaries, provided that each of the other beneficiaries voted in favour of the resolution to approve the issue of the options to him. The existence of such an agreement or understanding would render each of the parties to that agreement or understanding an associate of the others. There was, said the applicant, no disclosure of any such association in the materials which were sent to the members of OMH prior to the general meeting. Further, the applicant said that there was reasonable cause to believe that in breach of the voting exclusion statement in the notice of general meeting, votes from persons who were associates, by reason of being party to the mutual voting pact postulated by the applicant, may have been counted in favour of each of the impugned resolutions. However, said the applicant, it did not have sufficient information to know whether this had occurred because it did not know who had voted in favour of each of the impugned resolutions. The minutes did not reveal which shareholders had voted in favour of each of the resolutions. The applicant contended that the minutes revealed that there were eight people listed as being present and only six of whom were shareholders.
52 The applicant went on to contend that without further information the case was not clear and that the applicant could not make an informed decision as to whether to commence a proceeding for the relief which it was contemplating bringing against OMH.
53 At the centre of the applicant's case is the contention that there may have been a mutual voting agreement or understanding between the directors and executives who were to benefit from the passing of the resolutions in the terms postulated by the applicant.
54 In support of this contention, counsel for the applicant said that there was at least the prospect disclosed on the face of the notice of meeting that there was a "congruence of interest" between the relevant directors and executives in relation to the four resolutions. Further, there were a couple of very large shareholders who had an interest, one of whom is the spouse of the other.
55 Counsel for the applicant also referred to the proxy forms which had been completed by Mr Ong and Mr Low and Mr Low's controlled company. The applicant pointed out that on his proxy form, Mr Ong directed his votes in favour of resolutions approving the issue of options to the other directors and executives but abstained in relation to the resolution for the issue of options to himself. The applicant said that the same pattern was apparent in the proxy forms completed by Mr Low on his behalf and on behalf of his controlled company. This was evidence, said the applicant, of the directors crossing their votes in favour of the resolution approving the issue to each other of the options.
56 Counsel for the applicant also contended that there was an inadequate disclosure in the explanatory memorandum of the spousal relationship between Mr Low and his wife, Ms Heng Siow Kwee.
57 The first question is that which arises under O 15A r 6(a) of the Rules, namely, whether there is reasonable cause to believe that the applicant may have a right to obtain relief from OMH.
58 The principles to be applied in determining whether there is a reasonable cause to believe that an applicant may have a right to obtain relief are set out in the following observations of Hely J in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 153-154, at [26]:
The following propositions emerge from the authorities in which the proper application of O 15A r 6 has been considered by judges of this court:
…
(c) the test for determining whether the applicant has "reasonable cause to believe", as required by subpara (a), is an objective one: Hooper at FCR 11‑12 [39]; ALR 367; IPR 30; Malouf v Malouf [1999] FCA 710; BC9902833 at [16]; Quanta Software International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536 at 541-2 [24]; 49 IPR 25 at 31; Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 391; BC9602085 at 23. Further, the words "or may have" cannot be ignored. The applicant does not have to make out a prima facie case: Quanta Software at ALR 541-2 [24]; IPR 31; Paxus Services at ALR 733; IPR 85;
(d) belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action: John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679; BC200403021 at [13], [14], [17] and [73].
59 More recently, in the case of Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435 at 445-446, at [48] the Full Court observed:
It was not incumbent upon Optiver to establish every element of the relevant causes of action, but a reasonable cause to believe that it "has or may have" the right to relief alleged. Of course, this is not to say that it is not necessary to examine the various elements of the potential cause of action that is sought to be relied upon to determine whether there is a reasonable cause to believe that each of the necessary elements exist (see Austrac Operations Pty Ltd v New South Wales [2003] ATPR 41‑960 at [11]; Leighton Contractors Pty Ltd v Page Kirkland Management Pty Ltd [2006] FCA 288 at [5]; Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450 at [44]). Nor can an application for preliminary discovery be sustained without evidence that must incline the mind towards the matter of fact in question (see Austrac [2003] ATPR 41-960 at [37]; John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [13]-[14], [17], [73]; Dartberg 164 FCR 450 at [44]). (Original emphasis.)
60 Thus, whilst it is the case that O 15A r 6 permits fishing, nevertheless, there must be an evidentiary foundation, which will permit a belief or tilting of the mind towards the existence of the factual premise upon which the potential cause of action being contemplated by the applicant, is founded.
61 In my view, the case made by the applicant does not, on the evidence before the Court, rise above the level of speculation or conjecture.
62 First, the existence of a mutual agreement or understanding between the four directors and executives who stood to benefit by the passing of the impugned resolutions, postulated by Mr Kuzmenkov in his affidavit (see [39] above), is inconsistent with, and undermined by the fact two of the four beneficiaries, mainly, Mr Toth and Mr Wong were at the relevant time, not shareholders of OMH. Those two persons, therefore, lacked capacity to vote at a general meeting and were, therefore, not in a position to confer the reciprocal benefit essential to the postulated pact, on the other beneficiary directors and executives.
63 Secondly, the fact that the proxies lodged by Mr Ong and Mr Low showed that each voted for the resolutions approving the issue of the options to the other beneficiaries, does not, in my view, comprise evidence of the existence of the mutual voting agreement or understanding postulated by Mr Kuzmenkov. Such action on the part of Mr Ong and Mr Low is quite consistent with the exercise of an independent free choice by each of them. Without more, there is nothing in that conduct which gives rise to the tilting of the mind towards the existence of the voting pact postulated by Mr Kuzmenkov in his evidence.
64 In my view, the evidence does not permit an inclination of the mind towards the existence of the mutual voting agreement or understanding which underpins the claim which the applicant alleges that it is contemplating bringing against OMH.
65 Further, I reject the applicant's contention that there was an inadequate disclosure of the spousal relationship between Mr Low and his wife. The explanatory memorandum made it clear that Mr Low was Ms Heng Siow Kwee's spouse. The explanatory memorandum also made clear the extent of Ms Heng Siow Kwee's direct and indirect holdings in OMH. In any event, there is the unchallenged evidence of Ms Wolseley that Ms Heng Siow Kwee did not, either on her own behalf, or on behalf of her sole controlled company, vote in favour of resolutions 4-7.
66 In addition, in light of the extent of the disclosure already made, the applicant has not identified the added benefit that getting access to the nominated OMH documents would bring to the making of its decision as to whether to commence a proceeding.
67 It follows that I am not satisfied that the applicant has satisfied the requirement of O 15A r 6(a) of the Rules. On that basis, I dismiss the application.
68 In any event, I would in the exercise of my discretion, not have granted the relief sought by the applicant. This is because, for the following reasons, I am not satisfied that the applicant did not commence this application for the ulterior purpose of putting pressure on OMH as part of a wider commercial stratagem.
69 First, I am not satisfied that the applicant has identified with sufficient specificity the benefit it would obtain from any relief available to it in this Court founded on a breach of the ASX Listing Rules. During argument counsel for the applicant was nebulous as to the practical benefit to the applicant of obtaining a direction from the Court under s 793C(2) of the Corporations Act. Further, as counsel for the applicant correctly conceded, it is problematic as to whether any relief would be available under s 1324 of the Corporations Act in relation to the postulated breach of the ASX Listing Rules.
70 As Allsop J observed in relation to the predecessor section to s 793C of the Corporations Act, in the case of Re Delta Gold (2001) 40 ACSR 347 at 356, at [33]:
The terms of s 777 make it plain that a breach of the listing rules is not an unlawful act. The legislation provides for a method of enforcement of those rules; but breach of the listing rules is not to be equated with breach of a statute or acting in a contravention of a statute.
71 Further, the applicant did not identify any other causes of action that it was contemplating bringing. Any such causes of action which might be available to it would presumably be those afforded by Bermudan law. However, there was no evidence of Bermudan law and no evidence identifying any claim founded on Bermudan law, which the applicant was contemplating bringing.
72 Secondly, at the forefront of the applicant's application as filed, was a contention that the directors of OMH may have acted for an improper purpose in approving the issue of the impugned options to the directors and the executives. Mr Kuzmenkov deposed that the applicant was contemplating bringing a claim on the basis that one of the directors' purposes in approving the issue of the options to the recipients may have been to dilute the shareholding of the applicant in OMH. Evidence on the public record in the form of notifications to the ASX showed that the decision to issue the options was made in advance of the applicant commencing to acquire shares in any substantial numbers in OMH. Further, there was no challenge to the evidence of Ms Wolseley that OMH first learned of the applicant's interest in shares in OMH on 27 November 2008 - some two months after the general meeting, and some six months after the initial ASX announcement in relation to the intention to issue options to Mr Toth and to Mr Ong.
73 It is the case that counsel for the applicant did not press the "improper purpose" contention at the hearing. However, Mr Kuzmenkov's willingness to file an affidavit which deposed to evidence in support of this, correctly abandoned, contention, is probative on the question of the applicant's purpose in commencing this proceeding.
74 The reason I have not made a positive finding that the applicant's application was brought to exert commercial pressure on OMH as part of a wider commercial stratagem, is that it would, in my view, be unfair to make such a finding in the absence of the cross‑examination of Mr Kuzmenkov.
75 The application is dismissed with costs.
I certify that the preceding seventy‑five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.