Woodgate Pty Ltd v Garard Pty Ltd

Judgment 1By originating process filed on 8 May 2013, the plaintiffs, Mr Edward Lee and Mr Francis Xiao, who are two of the directors of 3E Steel Pty Limited ("Company") initially sought orders granting leave to bring derivative proceedings on behalf of the Company and, by interlocutory application also filed on that date, sought certain restraining orders directed to the second, third and fourth defendants, who are other directors of the Company, and the fifth defendant, Neo Resources Investment Pty Limited ("Neo Resources"), which is a company associated with two of the Company's directors. On that date, Bergin CJ in Eq made orders abridging the time for service of the originating and interlocutory process, supporting affidavits and a copy of her Honour's orders and permitting service by delivery to a solicitor who had previously indicated that he acted for the second, third and fourth defendants in respect of anticipated litigation concerning the same matters. At a further hearing at which the second and third defendants were represented, her Honour granted interlocutory relief continuing to today. 2When the matter was listed before me today, I was provided with consent orders as between the plaintiffs and the second and third defendants, who are together four of the Company's five directors, which provide for the court, inter alia, to make: "A declaration that in respect of the meeting of directors of [the Company] held on 2 May 2013, a resolution moved by the first plaintiff [Mr Lee] and seconded by the second plaintiff [Mr Xiao] was validly passed and has binding effect on the first defendant [Company] to the effect that the first defendant [Company] accepts the offer to purchase all interests of Eastern Iron Limited in the NSW Iron Ore Venture at the purchase price of $200,000 and proceed with the purchase." 3The primary question before me is whether the Court may properly make that declaration on the basis of the consent of the parties. Certain other orders are also agreed between the parties and are uncontroversial. 4I should first deal with two ancillary matters. The plaintiffs have not served the originating process on the Company. The parties are agreed that, consistent with the just, quick and cheap resolution of the matters in dispute in accordance with s 56 of the Civil Procedure Act 2005 (NSW), the Court should order that service of the originating process, interlocutory process and affidavits on the Company is deemed to have been effected on service of those documents on the second and third defendants. The proceedings were served at least on the second and third defendants, by delivery to their solicitor in accordance with the orders made by Bergin CJ in Eq. While service in that manner does not strictly comply with s 109X of the Corporations Act since it was not personal service upon a director, it can be treated as effective at least on the basis that the delivery of documents that actually come to the attention of relevant company officers with authority to deal with the matter may be treated as giving rise to effective service: Woodgate Pty Ltd v Garard Pty Ltd [2010] NSWSC 508; (2010) 78 ACSR 468. I consider that I can properly make an order treating the service of those documents upon the second and third defendants as effective service upon the Company. 5The second question is whether proceedings can be treated as served upon Mr Xinning Wang, the fourth defendant, who has not appeared today. As I noted, Bergin CJ in Eq had made orders permitting service upon, inter alia, Mr Wang by delivery to the solicitor who had indicated that he acted for him, and service was effected in that manner. I have been advised that Mr Wang is resident in China and does not speak English, but there is no evidence that the relevant documents have not been sent to him or have not been translated for him or at least summarised for him, albeit the time available to do so was short, and albeit there is also no evidence that that has occurred. I am not presently satisfied that service was not effective in accordance with the terms of the orders made by Bergin CJ in Eq. However, little turns upon that where the effect of the declaration to which the second and third defendants consent, if made, will bind both the Company and four of the Company's five directors, even if Mr Wang is not personally bound by it. 6Turning now to whether the Court can make a declaration in the form to which the plaintiffs and the second and third defendants consent, I should briefly set out the factual background. As I noted, the plaintiffs, Mr Lee and Mr Xiao, are two of the Company's five directors. The Company is party to a joint venture agreement with Eastern Iron Limited ("Eastern Iron") in respect of iron ore exploration and a mine development proposal. Clause 16 of the joint venture deed provides a procedure for a party to dispose of its participating interest, after first making an offer to the other participant in the venture. The other participant may accept such an offer within 30 business days after the making of that offer. 7On 28 March 2013, Eastern Iron gave notice that it had received an offer from Neo Resources to acquire certain tenements at a price of AUD$200,000 and sought a waiver of the right of pre-emption by 3E Steel. I interpolate that the third defendant, Mr Fung Wa Wong, is the director and secretary of Neo Resources and owns four of its shares, and six of its shares are held by another entity, Nanyang Mining Resources Investment Pty Limited ("Nanyang"). Mr Fung Wa Wong and the second defendant, Mr Yingkin Wong, are in turn two of the three directors of Nanyang and Mr Yingkin Wong and Mr Fung Wa Wong in turn hold 70,000 of the 100,000 shares in Nanyang. The offeror for Eastern Iron's interests was therefore plainly an entity associated with Mr Yingkin Wong and Mr Fung Wa Wong. 8By letter dated 10 April, the Company confirmed advice from Eastern Iron that it had put an offer to the Company for its 40 per cent interest at a price of $200,000. The parties accept that the time for the Company to accept Eastern Iron's offer expires tomorrow. 9On 11 April, Mr Lee caused a directors' meeting to be convened for 2 May 2013 to vote, inter alia, on a resolution that the Company accept Eastern Iron's offer to purchase its interest in the joint venture at the purchase price of $200,000 and proceed with the purchase. 10On 2 May 2013, Mr Yingkin Wong purported to appoint Mr Fung Wa Wong as his alternate director and Mr Xinning Wang purported to appoint Mr Philip Madden as his alternate director. There is no evidence that, and no party contended that, those appointments were made in accordance with the power to appoint an alternate director under cl 6.15(a) of the Company's constitution which permits such an appointment to be made "with the approval of the directors". The second and third defendants did not contend that such approval had been given, by resolution or otherwise. 11At a meeting of the Company's directors held on 2 May 2013, Mr Fung Wa Wong and Mr Madden relied on their appointment as alternate directors and Mr Lee and Mr Xiao took a point that the requisite approval to that appointment had not been given. A resolution was moved at that meeting to accept the offer to purchase Eastern Iron's interest in the joint venture in the terms foreshadowed in the notice of meeting. Mr Xiao and Mr Lee voted in favour of the resolution; Mr Fung Wa Wong (in his own right and as alternate for Mr Yingkin Wong) voted against and Mr Madden as alternate for Mr Wang voted against. Where it is not established and not contended that the appointments of Mr Fung Wa Wong and Mr Madden as alternate directors were in accordance with the Company's constitution, their votes in the capacity of alternate director must be disregarded and, as both parties accept, the resolution was carried by a majority of votes, constituted by the affirmative votes of Mr Xiao and Mr Lee. There is no suggestion that a quorum for the meeting was not satisfied where three directors were present at it. 12For that reason, the declaration to which the plaintiffs and second and third defendants have consented may properly be made. Other questions such as the potential application of cl 6.5 of the Company's constitution and Ch 2D.1 Div 2 of the Corporations Act dealing with interests of directors and whether a director who is also appointed as an alternate director can exercise two votes or only one vote therefore do not need to be decided. 13On that basis, I am satisfied that I may properly make orders in accordance with the short minutes of order, initialled by me and placed in the file, and I will do so. I note, in accordance with the short minutes of order, that the plaintiffs and the second and third defendants acknowledge the purchase price of $200,000 payable to Eastern Iron under the resolution referred to in order 1 is to be paid out of the Company's accounts. I also direct that exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.