Resolution 6
68 Stratford Sun alleges that Resolution 6 is invalid, or should be declared to be invalid, because, by propounding that resolution in the meeting materials, OMH engaged in misleading and deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 1041H(1) of the Corporations Act and that the Court should grant appropriate relief in respect of such conduct. Stratford Sun also alleges that OMH contravened ASX Listing Rules 7.3.4, 7.3.6 and 7.3.8 and that the Court should declare Resolution 6 invalid pursuant to s 793C and s 1101B(1)(d) of the Corporations Act.
69 I shall deal with the case based upon contraventions of the ASX Listing Rules first. I have set out or referred to the relevant ASX Listing Rules at [44]-[51] above.
70 There was no dispute between the parties that the provisions of ASX Listing Rule 7.1 were engaged. For that reason, OMH was required to comply with ASX Listing Rule 7.3.
71 Stratford Sun claimed that the material provided by OMH in the Explanatory Statement in purported compliance with Rule 7.3.4 did not satisfy the requirements of that rule. It submitted that, in the present case, given that the names of the proposed allottees were not known as at the date that the meeting materials were circulated, OMH was obliged to specify in those materials the basis upon which allottees would be identified or selected in the future. Stratford Sun submitted that the information provided in par (d) on p 5 of the Explanatory Statement failed to specify such a basis because the decision as to the identity or selection of the allottees was left entirely to the discretion of the Directors of OMH in consultation with the Joint Global Co-ordinators without any indication of the process which would be undertaken by those persons in making that selection or the criteria which would be applied by those persons in making that selection. The absence of specific objective criteria was said to render the information non-compliant with the requirements of Rule 7.3.4.
72 I do not agree with this submission.
73 As a matter of interpretation of Rule 7.3.4, I think that the statement made in par (d) on p 5 of the Explanatory Statement sufficiently meets the exigencies of Rule 7.3.4. The statement makes perfectly clear to the shareholders of OMH that the identification or selection of allottees at some time in the future has been left to the discretion of the Directors of OMH in consultation with the Joint Global Co-ordinators. It also makes perfectly clear that the basis upon which that decision might be made has also been left entirely to those persons. The statement made in the Explanatory Statement constitutes a "basis" within the meaning of Rule 7.3.4.
74 Stratford Sun then submitted that the information provided as to the intended use of the net proceeds raised by the proposed issue (ie the material set out under the heading "Use of Net Proceeds" on p 4 of the Explanatory Statement read with par (f) on p 5 of that statement), did not satisfy the requirements of ASX Listing Rule 7.3.6 because it did not inform the reader of the specific amount or percentage of the net proceeds that would be laid out on each of the specified uses.
75 In my view, there is nothing in the language of Rule 7.3.6 that requires a corporation in the position of OMH to provide the breakdown which Stratford Sun claimed should have been provided in the present case.
76 The final aspect of the ASX Listing Rules raised by Stratford Sun concerned the interpretation of Rule 7.3.8 and Rule 14.11.
77 Rule 7.3.8 requires a corporation in the position of OMH to include within its meeting materials a voting exclusion statement. The ASX Listing Rules themselves prescribe in some detail the form that such a voting exclusion statement must take (see Rule 14.11). In the present case, the voting exclusion statement included in the Notice of Meeting repeated the language used in Rule 14.11 as faithfully as the circumstances allowed. OMH, therefore, complied with Listing Rule 7.3.8 and Listing Rule 14.11.
78 The difficulty that has arisen between the parties is: What does the voting exclusion statement included in the Notice of Meeting mean? Does it allow a shareholder to form a rational view as to whether it is entitled to vote on Resolution 6 and, if so, whether it should do so? Does it make clear to all concerned whose votes will be counted and whose votes will be disregarded?
79 The difficulty of interpretation thrown up by the language deployed in the voting exclusion statement included in the Notice of Meeting essentially concerns the meaning of the words "may" and "might" in the first two lines of the voting exclusion statement.
80 At [64(e)] and at [67(j)] above, I have set out the competing contentions advanced by the parties on this point. Stratford Sun favoured a strictly literal approach to the meaning of those words whereas OMH advanced a less literal but nonetheless textually satisfying interpretation of those words.
81 I prefer the interpretation favoured by OMH essentially for the reasons advanced by OMH.
82 The interpretation of the voting exclusion statement which I have concluded is the correct interpretation feeds into other complaints made by Stratford Sun about the meeting materials.
83 For the reasons which I have set out at [70]-[82] above, Stratford Sun has failed to establish that OMH contravened any of the ASX Listing Rules. It has therefore failed to establish any entitlement to relief pursuant to s 793C or s 1101B(1)(d) of the Corporations Act.
84 The second broad basis of attack mounted by Stratford Sun to Resolution 6 is that which is based upon allegations to the effect that important information was omitted from the meeting materials which should have been disclosed to the shareholders of OMH thus rendering Resolution 6 amenable to attack upon the basis that OMH was guilty of misleading and deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 1041H(1) of the Corporations Act.
85 The principles governing the general duty of disclosure imposed upon the directors of a corporation in respect of meeting materials circulated to the shareholders of that corporation for their consideration have been helpfully and comprehensively exposed by Austin J in ENT Pty Ltd at [14]-[23] (pp 630-633). In that case, at those paragraphs, his Honour said:
(i) The directors' duty of disclosure
14 Section 249L(1)(b) requires that a notice of a meeting of a company's members must state the general nature of the meeting's business. The plaintiff does not contend that the notice in the present case fails to comply with this statutory provision in a formal sense, but it argues that the disclosure in the explanatory materials is inadequate.
15 The plaintiff contends that the court should interfere with the meeting process, by injunction, because the directors of Sunraysia have not discharged the duty they owe to the shareholders of the company to provide such material as will fully and fairly inform the shareholders of what is to be considered at the meeting and enable them to make a properly informed judgment on the matters in question, including an assessment of the financial effect of the sale proposal on the company and on their interest in the company. The duty they invoke is sometimes called "the Bulfin v Bebarfald's duty", identifying the leading judgment by Long Innes CJ in Eq, Bulfin v Bebarfalds Ltd (1938) 38 SR (NSW) 423: generally, see RP Austin, HAJ Ford and IM Ramsay, Company Directors: Principles of Law and Corporate Governance, LexisNexis, Sydney, 2005 at [12.16]-[12.18].
16 Although the plaintiff contends that the directors of Sunraysia have not discharged their duty, the directors have not been joined as parties to the proceeding. Senior counsel for both parties informed me that their clients do not raise any issue as to the absence of joinder of the defendants. I infer that senior counsel for the defendant made that statement to the court with the authority of the board of directors of Sunraysia. Even so, in the absence of separate representation of the directors, it would not be appropriate for me to decide that any breach of the directors' duty has already occurred. It is enough, for the purposes of the present case, to consider and determine whether there would be a breach of the directors' duty if the shareholders' meeting proceeded with no more information than has been provided. I shall proceed in that manner.
17 The plaintiff places particular reliance on the decision McLelland J in Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94. Like the present case, that case involved a meeting of shareholders to approve a sale of assets by their company, though on that occasion the shareholders were also asked to give effect to a reduction of capital, subject to confirmation by the court as required by the law of that time. Unlike the present case, there the application was for an interlocutory injunction, and so the plaintiff had only to establish an arguable case and show that the balance of convenience favoured the making of the order.
18 After finding that the directors of the company had complied with the company's constitution by giving a notice that disclosed the general nature of the business of the meeting, his Honour turned to consider the fiduciary obligation of the directors, and said (at 96):
Where directors take it upon themselves to urge or recommend or advise members to exercise their powers in general meeting in a particular way, they are in general required to make a full and fair disclosure of all matters within their knowledge which would enable the members to make a properly informed judgment on the matters in question: (citing Bulfin v Bebarfald's and Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956).
19 The obligation to make full and fair disclosure does not oblige the directors to give shareholders every piece of information that might conceivably affect their voting. The adequacy of the information provided in documentation is to be assessed in a practical, realistic way having regard to the complexity of the proposal: Fraser v NRMA Holdings Ltd (1995) 55 FCR 452; 127 ALR 543; 15 ACSR 590. Speaking of the statutory obligation to avoid misleading or deceptive conduct, while relying on cases concerning the directors' duty of disclosure, the Full Federal Court said in Fraser v NRMA Holdings (at FCR 468; ALR 556; ACSR 603):
The need for an applicant to establish materiality is of particular importance in a case like the present one where the proposal is complex, and involves difficult questions of commercial judgment and matters of degree and conjecture as to the future about which there is room for a range of honestly and reasonably held opinions. If every possible formulation of the commercial objective of the proposal, and arguments for and against every theoretical possibility, were set forth the total package of information to members would be likely to confuse rather than to illuminate the issue for decision, even for people having a familiarity with corporate law and commerce. The need to make full and fair disclosure must be tempered by the need to present a document that is intelligible to reasonable members of the class to whom it is directed, and is likely to assist rather than to confuse: see Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956 at 959; Re Dorman Long & Co Ltd [1934] 1 Ch 635 at 665-66.
20 The question is not whether the explanatory documents provided to the shareholders could have been drafted differently, but what effect the documents will have on "the ordinary shareholder who scans or reads the document quickly, not as a lawyer, but as an ordinary man or woman in commerce or as an ordinary investor": Devereaux Holdings at 958. If a deficiency is identified, the court considers whether there is any reasonable ground for supposing that the deficiency would cause shareholders to vote, or abstain from voting, under a serious misapprehension of the position: Devereux Holdings at 958-9 per Young J, citing Re Imperial Chemical Industries Ltd [1936] Ch 587 at 618 per Clauson J.
21 The Full Federal Court's decision in Fraser v NRMA Holdings Ltd is authority for the proposition (stated at FCR 466; ALR 554; ACSR 602) that "A proper discharge of the duty may require that the directors take reasonable steps to ascertain relevant information for communication to members if that information is not known to the board". That, in turn, is qualified by the proposition that in considering whether the directors should seek out additional information, it is relevant to take into account the time and cost of acquiring and preparing such information, and the delay involved in doing so: Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) (1999) 32 ACSR 701 at 719; [1999] NSWSC 991. But I do not agree with the suggestion in the defendant's submissions that the duty to take steps to ascertain additional information is confined to cases where additional information is required to give a proper explanation of a change of circumstances or to ensure that members are not misled by information already provided.
22 The application of the principle by McLelland J in the Chequepoint case is also of assistance in the present case because of the similarity of the facts. While the directors' explanatory letter in Chequepoint drew the shareholders' attention to the benefits they would derive from the transaction, which would permit them to deal with their gold and oil interests separately, McLelland J held that the letter did not deal adequately with the effect of the transaction in financial terms. He found that the directors had in fact carried out a calculation of the financial effect of the transaction, but no reference was made to this in the material sent to the shareholders.
(ii) Misleading or deceptive conduct
23 There is a close relationship between the operation of the directors' fiduciary duty of disclosure, and the application of s 52 of the Trade Practices Act. In Fraser v NRMA Holdings, the Full Federal Court made the following points (at FCR 465-7; ALR 554; ACSR 601):
• the fiduciary and other duties of directors under the general law, including the directors' duty of disclosure, may assist in determining whether in the circumstances of the case s 52 is contravened by a failure to give information, or by the provision of information only to a limited extent;
• s 52 does not give rise to a duty to provide information, but when information is in fact given in purported discharge of the directors' fiduciary duty, s 52 requires that the information that is given is not misleading or deceptive or likely to mislead or deceive;
• the section also requires that if the directors withhold information, that conduct must not be misleading or deceptive or likely to mislead or deceive;
• there is an overlap between the fiduciary duty of disclosure and the operation of s 52, in that a failure properly to discharge the fiduciary duty may itself constitute a contravention of s 52; and
• in the specific context of disclosure of information to shareholders for the purposes of a meeting, if the information given is not full and fair disclosure of all material facts to enable the members to make a properly informed decision, "the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership".
86 At [23], his Honour related those general principles to the concepts of misleading and deceptive conduct or conduct that is likely to mislead or deceive.
87 Stratford Sun relied upon a number of identified deficiencies in support of the overall proposition that the meeting materials were inadequate and misleading.
88 First, Stratford Sun submitted that the meeting materials were ambiguous and did not allow shareholders to determine who could and who could not vote in favour of Resolution 6. This allegation is dependent upon the proposition that the voting exclusion statement included in the Notice of Meeting should be interpreted in the manner advocated by Stratford Sun or that that statement was, at least, ambiguous and thus misleading. I have already held that the meaning of the voting exclusion statement was clear enough and did not create the difficulty about which Stratford Sun complained.
89 The second matter about which complaint is made in this context is that the information supplied about the use of the net proceeds of the share issue in the Explanatory Statement did not include express information about the quantum of the planned expenditures and potential debt repayments. This contention was largely based upon the evidence of Mr Paatsch who, as submitted by OMH and noted by me at [67(h)] above, recanted and withdrew his support for it. It was also based, in part, upon certain confidential documents which suggested that, at one time, OMH had been in a position to allocate particular amounts or percentages to particular uses and had gone so far as to do so. One such document was the Listing Application furnished by OMH to HKSE and another was a Draft Notice of Meeting tendered in evidence.
90 I do not think that the mere fact that such an allocation appeared in the documents to which I have referred is a sufficient basis for concluding that the absence of such an allocation in the meeting materials rendered those materials inadequate or misleading. The document relied upon which was submitted to the HKSE was prepared for a very different purpose. It was prepared in order to initiate the listing application and was required to be in a form mandated by the Listing Rules of HKSE. Entirely different considerations were in play when the meeting materials under consideration in this case were prepared.
91 Further, the final amount to be raised could vary by as much as $98 million.
92 There was no evidence to support the proposition that firm and final decisions had been made by OMH as to the particular allocation of funds to the particular uses specified in the Explanatory Statement. Had the evidence supported a conclusion that such a firm and final position had been reached, it may have been appropriate for the particular allocations to be specified. However, my present inclination is that it would not be required, even in that event.
93 The next area of complaint concerned Stratford Sun's allegation that the meeting materials failed to mention the risks and disadvantages of the proposed issue. In support of the need to mention such matters, Stratford Sun relied upon various confidential documents (including the HKSE listing materials) which suggested that OMH had considered various risks and disadvantages of the proposal before bringing it forward.
94 There were risks identified in some of the material to which I was taken. However, those risks were expressed in very general terms and, viewed in that way, would have been very obvious to any shareholder who had the skills and information of the hypothetical shareholder called upon to consider Resolution 6 according to the relevant principles laid down in the authorities. I do not think that these general statements needed to be spelled out in the meeting materials.
95 The next matter concerned the omission of any mention of the impact that the involvement of a strategic investor might have on the proposal. As was the case in respect of risks and disadvantages, it was suggested that OMH, in fact, had in mind locating and courting a strategic investor that would take a significant slice of the proposed issue.
96 The evidence relied upon to support this last factual proposition fell well short of doing so. Minutes of a meeting of Directors held on 23 November 2010 and on 22 February 2011 and a memorandum from an executive of OMH were relied upon. However, it became apparent that each of these documents related to a slightly different transaction from that which is presently under consideration. The thinking which manifested itself in those documents would not be apt to be applied to the present transaction.
97 The potential for a strategic investor to become involved in the proposed allotment would have been very obvious to any sensible shareholder. It did not need to be spelled out in terms.
98 The last group of matters about which Stratford Sun complained comprises those grouped under the general heading of insufficient disclosure of the impacts of dual listing. The impact of the HKSE Listing Rules and the impact of the Hong Kong Takeover Codes were subject matters which would have been alive in the minds of the sensible shareholder. There was nothing which Stratford Sun could identify within those two broad topics which truly required specific mention and information in the meeting materials. This complaint was not supported by Mr Paatsch.
99 The impact of trading volatility and liquidity went nowhere. It was not something about which Mr Paatsch could give relevant evidence (and he conceded as much). The proposition was not otherwise self-evident. Of course, at a very general level, there was potential for the transaction to impact in the future on the share price of OMH but this was a matter, in my view, about which nothing specific needed to be said because, at a general level, it was an obvious matter for consideration.
100 In the end, I am satisfied that the alleged deficiencies in the meeting materials did not render them inadequate for the purposes of the general law or misleading and deceptive or likely to mislead or deceive within the meaning of s 1041H(1) of the Corporations Act.
101 All of the challenges to Resolution 6 fail.