BETWEEN : WESTGOLD RESOURCES NL (ACN 009 260 306)

Costs - Matter settled prior to hearing - Whether consultation between the parties prior to suit was adequate

Buyquick.Com Ltd v Foxgold Pty Ltd [2000] WASC 216

1 MASTER BREDMEYER: This is an application dated 6 July 2001 by the applicant made under s 995 of the Corporations Law that a notice convening an extraordinary general meeting of the members of the respondent to be held on 23 July 2001, be set aside. That notice has now been withdrawn and there is no dispute that this action should be dismissed or discontinued. The dispute I have to decide is over costs.

2 Order 59 r 9 of the Rules of the Supreme Court 1971 applies to this kind of application because it is heard in Chambers and not in open court. That rule requires the parties to confer before the application is brought in order to try and resolve the matters giving rise to the application. The rule also provides that the Court may waive the operation of the rule in case of urgency or for other good reason.

3 On 19 June 2001 or thereabouts, the respondent sent out a notice of general meeting to all shareholders giving notice of a meeting to be held on Monday 23 July 2001. The notice gave details of four resolutions proposed to be passed at that meeting. The applicant, which is a shareholder of the respondent, was deeply disturbed by this notice and sought legal advice. On 27 June 2001 Bennett & Co for the applicant sent a three page fax to the respondent setting out the applicant's objections to the notice and to the meeting. The letter quoted an authority and stated that the notice had not fully and fairly informed the shareholders of the matter on which they were asked to vote. The letter demanded a response by the close of business on 28 June 2001. The letter was addressed to the directors of the respondent. A copy was also sent to Mr Paul Blackman, a solicitor of Clayton Utz. The last paragraph of this faxed letter read:

"We await hearing from you within the time specified above. As a matter of courtesy, we have sent a copy of this letter to Mr Blackman of Messrs Clayton Utz who acts not only for Messrs Smith and McKee [two of the directors] but also for the company. In doing so, we expressly reserve the right to contend at any hearing that Mr Blackman and Messrs Clayton Utz are unable to act on behalf of the company in respect of this issue given they clearly have a conflict of interest in representing the company as well [as] the interests of Messrs Smith and McKee."

4 On 28 June 2001 Bennett & Co received a holding reply from Clayton Utz, the solicitors for the company. The relevant part of it reads:

"PMA requires time to consider the matters raised in your letter and expects to be in a position to instruct us to provide you with a substantive response by the close of business on Tuesday 3 July 2001. As the extraordinary general meeting is not scheduled to be held until 23 July 2001, we do not believe your client would suffer any prejudice by having to wait a further two business days for our client's response.

In the meantime, could you please provide us with full particulars of your allegation that 'Mr Blackman and Messrs Clayton Utz are unable to act on behalf of the company ... given that they clearly have a conflict of interest in representing the company as well as the interests of Messrs Smith and McKee'.

Please also let us know why you say that the alleged conflict of interest is relevant to the matters the subject of the extraordinary general meeting."

Clayton Utz received no reply to that letter. Bennett & Co did not provide the particulars of conflict of interest requested.

5 The application under s 995 of the Corporations Law to have the notice convening the extraordinary general meeting set aside was filed on Friday 6 July 2001. At the same time, an application for an interlocutory injunction was filed supported by a lengthy affidavit of Hugh McLernon. Those applications were lodged on the afternoon of Friday 6 July. They were not served on the respondent until Monday 9 July. Meanwhile, the respondent made an announcement to the Australian Stock Exchange at 5.00 pm on Friday 6 July withdrawing resolutions 2 and 3 set out in that notice. Resolution 2 related to an issue of shares to Mr Roderick J H Smith to repay debt and entitlements. He was a director of the company and was to receive 1,108,430 shares at an issue price of 3 cents per share in repayment of all debts and accrued entitlements owed by the company to him. Resolution 3 was a similar resolution to issue 1,261,181 shares to Mr Andrew K McKee, a director, at an issue price of 3 cents to repay all debts and accrued entitlements owing to him. In Bennett & Co's letter of objection, they pointed out that, based upon information given by the company in a memorandum to shareholders dated 27 October 2000, the asset backing of the shares was 11 cents per share, so these resolutions meant that the shareholders were being asked to approve an issue of shares to directors, who presumably have the most accurate information as to the current and likely future value of the vanadium royalty agreement, at a discount of 8 cents per share.

6 Bennett & Co was given no warning that this announcement was going to be made to the Stock Exchange. Counsel for the respondent has stated that the company had obligations not to announce its position prior to the announcement to the Stock Exchange. If the respondent's solicitors had notified Bennett & Co, say by 1.00 pm on 6 July, that an announcement would be made to the Stock Exchange at 5.00 pm that afternoon, which would probably obviate the need for any court application, then the action would not have instituted and the filing fee saved.

7 I consider that the conferral by the applicant's solicitor was reasonable. The faxed letter of 27 June 2001 was detailed and clearly set out the reasons why it was contended that the respondent should withdraw the notice of meeting. The allegation that Mr Blackman of Clayton Utz and Clayton Utz themselves had a conflict of interest was a relatively minor matter and did not, in my view, require any particulars. The details of the conflict are clearly set out in the letter. Here are two resolutions designed to benefit two directors financially at the expense of the company and Mr Blackman purports to act for both the directors and the company. I do not consider that the request for particulars needed to be answered.

8 Order 59 r 9 imposes an obligation on both parties to a dispute to confer to try and resolve the matter. I consider the consultation by the respondent and its solicitors was inadequate. The solicitors' letter of 28 June was simply a holding reply. It was reasonable to ask for a few extra days to consider the matter, but no substantive response was made within that extended time. I consider the proper consultation under O 59 r 9 would have involved some prior notice to the applicant's solicitors that resolutions 2 and 3 were about to be withdrawn. I consider that kind of advice could have been given in a subtle way without the company infringing its obligations to advise the Stock Exchange first. If that advice had been given to the applicant's solicitors, this application would not have been brought. The respondent's solicitor advised the applicant's solicitor of the Stock Exchange announcement on Monday 9 June after he had been served with the application.

9 I propose to dismiss the action. I consider the applicant is entitled to the costs of the action including the costs of the appearance on the return date on 19 July. The costs of the action include the costs of preparing the interlocutory injunction application and the lengthy affidavit of Mr McLernon. I also consider that the applicant is entitled to the costs of arguing this costs application on 13 September 2001. I consider that the respondent is entitled to the costs of an appearance before Master Sanderson on 16 August 2001 when the application was further adjourned at the request of the applicant which was considering serving ASIC and getting it involved in the application. There will be no order as to costs for the appearances by the applicant on 2 and 9 August 2001. Only the plaintiff's solicitor appeared on those days. The formal orders will be as follows:

2. The respondent do pay the applicant's costs of the action including the costs incurred on 19 July and 13 September to be taxed if not agreed.

3. The applicant is to pay the respondent's costs of its appearance on 16 August 2001.

4. No order as to costs on 2 August and 9 August 2001.