BETWEEN : WOONDA NOMINEES PTY LTD (ACN 004 853 703)

Corporations - Management and administration - Shareholders' meeting requisitioned to remove directors - Directors purporting to authorise placement of shares - Whether placement for an improper purpose - Resolution passed on casting vote of person purporting to act as chairman - Whether that person properly appointed as chairman - Whether it is an indispensable requirement for a meeting to have a director - Nature and extent of concept of "caretaker directors" pending shareholders' meeting

Corporations Law, s 232, s 236, s 249G, s 1319, Part 2G.2

First Applicants : Mr R L Le Miere QC & Mr B D Luscombe

Third Applicants : Mr R L Le Miere QC & Mr B D Luscombe

Ashburton Oil NL v Alpha Minerals NL [1971] HCA 5; (1971) 123 CLR 614

Automatic Self-Cleansing Filter Syndicate Co v Cuninghame [1906] 2 Ch 34

Beecham Group v Bristol Laboratories [1968] HCA 1; (1968) 118 CLR 618

Jenkins v Enterprise Goldmines (1992) 10 ACLC 136

John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113

Pilbara Iron Ltd & Ors v Bonotto, unreported; SCt of WA; Library No 940204; 20 April 1994

Queensland Press Ltd v Academy Investments No 3 Pty Ltd (1987) 11 ACLR 419

Strong v J Brough & Son (Strathfield) Pty Ltd (1991) 5 ACSR 296

Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285

1 OWEN J: This is an application for an interlocutory injunction to restrain a proposed placement of shares in Prima Resources Ltd ("Prima"). The first applicants are three of the shareholders of Prima. The third applicants are two of the directors of Prima. The originating application also names Prima as a plaintiff, calling in aid the so-called statutory derivative action envisaged in s 236 of the Corporations Law. The respondents objected to the company becoming involved in this way. The issue has been deferred and Prima is not an applicant for interlocutory relief.

2 Prima is a listed public company involved in mining exploration. The applicant Adi Trikarso was its managing director. Frank Johnson was chairman of the company. In January 1999 Trikarso had discussions with the respondent Teow Kim Chng about the future of the company. At that time it had about 200 shareholders on the register and, according to Chng, had lost the support of the major shareholders and was technically insolvent. Trikarso denies that it was insolvent but it is, I think, common ground, that the company needed further capital and a new direction. Trikarso and Chng, who are related by marriage, had discussions about the company.

3 Early in 1999 Chng and the respondent Barry Fehlberg (a geologist) worked up a proposal to transfer a diamond tenement in the Kimberley region of Western Australia to Prima and to use that prospect as the basis on which to raise funds for the company. In April 1999 there was a placement of 7,500,000 shares through brokers William Noall thus augmenting the working capital of the company. In July 1999 there was a rights issue of options which raised a further $500,000. In December 1999 Prima made a placement of 3,800,000 shares at $0.10 with an attaching one for two option through brokers Montague.

4 On 27 March 2000 the shareholders approved a further capital raising and in April 2000 a prospectus was issued. At that time the shares were trading in the range $0.17 to $0.24 but the price deteriorated to $0.08 or $0.09. The issue was, apparently, unattractive to the market and no shares have been placed on the strength of the prospectus.

5 On 15 October 1999 Chng was appointed a director of Prima. On 22 February 2000 there was a board meeting at which Johnson resigned from the board and Fehlberg and the applicant Richard Revelins were appointed as directors. No steps were taken formally to appoint anyone as chairman of the company in place of Johnson. On 22 March 2000 Joseph Yeo, the only other director, resigned from the board. From that time on the board has consisted of Trikarso, Chng, Fehlberg and Revelins. It is common ground that Trikarso and Revelins constitute one "faction" of the board and Chng and Fehlberg constitute a separate "faction".

6 On 23 May 2000 the directors received an offer from Montague to place a further 4,000,000 shares at $0.09 on a best endeavours basis. Chng and Fehlberg were in favour but Trikarso and Revelins were opposed. The question was deferred. On the same day, interests associated with Revelins requisitioned the calling of an extraordinary meeting of shareholders to remove Chng and Fehlberg from the board and to appoint Bryan Frost as a director. Subsequently, other interests associated with Lam Meng Tuk, a person described as friend of Chng, also requisitioned a meeting to remove Trikarso and Revelins from the board and to appoint Garry Roberts as a director. The two requisitions were acted on and a shareholders' meeting has been convened for 12 July 2000, effectively to consider a board "spill".

7 On 7 June 2000 the directors purported to authorise the placement of 4,000,000 through Montague. That meeting also approved the calling of the shareholders' meeting for 12 July 2000. After the meeting Chng purported to accept the Montague offer on behalf of the company by signing and returning a copy of the letter of offer. Trikarso immediately wrote to Montague saying that the offer had not been properly authorised by the board and instructing them not to proceed with the placement. What Montague has since described as a "volley of correspondence" from the parties and their advisers ensued. On 13 June 2000 Montague retracted the offer. On 15 June 2000 Montague wrote a further letter saying that in view of the correspondence they would proceed on the basis of the offer on receipt of a certified copy of a board minute authorising Chng to sign the acceptance and approving the placement.

8 Meanwhile, notice had been given of a further directors' meeting to be held on 15 June 2000 to consider among other things "Montague placement and correspondence" and "removal of A Trikarso as Managing Director". These proceedings were then commenced and on the afternoon of 15 June 2000 I was asked to restrain the holding of the meeting. I granted an interim injunction permitting the meeting to go ahead on the following day (16 June 2000) but restraining the implementation of any resolutions passed at it until 4 pm on Wednesday 21 June 2000 which would permit time for full argument on the application for interlocutory relief.

9 Relevantly, the following two resolutions were put and purportedly passed by the meeting:

"1 Subject to the orders of the Court, that the company accept applications from suitable applicants for an issue of 4 million shares at 9 cents each with attaching options (on a one for two basis) pursuant to OLR7.1 and if the number of shares the subject of applications exceeds 4 million, such application to be dealt with on a 'first come' basis of priorities.

2 Subject to compliance with the interim orders of the Supreme Court of WA, that Mr Adi Trikarso be removed as Managing Director and Company Secretary forthwith."

10 It is not entirely clear from the draft minutes of the 16 June 2000 meeting what the parties saw or see as the fate of the Montague placement offer. However, Chng read out to the meeting the names of the applicants who had applied for shares and the numbers of shares involved. The draft minutes reveal that he also tabled a number of applications that had been received but rejected. I was told from the Bar table that this may be in dispute. The applications to which the board resolution relates are as follows:

Garry Roberts (Digital Investments Pty Ltd) - 500,000

11 Lam Seng Tiong is the son of Lam Meng Tuk. Roberts is the person nominated by Chng and Fehlberg to join the board. There is some evidence (exhibit KAJ2 to the affidavit of Karen Jones sworn 21 June 2000) to connect the cheque that accompanied the Clarke application to Lam Seng Tiong. I acknowledge that this is the subject of a dispute but that is the present state of the evidence. There is no evidence to connect Cameron with the Chng-Fehlberg faction.

12 To adopt the phrase used by counsel for the respondents, after April 1999 Prima recast itself as a diamond explorer and shareholders were attracted to invest in the company. It now has about 750 shareholders on the register of members. There are approximately 42,000,000 shares on issue. Exact figures are not given in the evidence but I was told that the Trikarso-Revelins faction controls between 11 per cent and 13 per cent of the shares and the Chng-Fehlberg faction controls between 8 and 9 per cent.

13 I wish now to set out an arithmetical exercise which, I think, explains what the applicants say this "board room battle" is about. Using the current percentage holdings as 13 for the Trikarso-Revelins faction and 9 for the Chng-Fehlberg faction, on an issued capital of 42,000,000 the former would hold 5,460,000 shares and the latter 3,780,000. If the issued capital is increased to 46,000,000 and the whole of the 4,000,000 new shares go to interests sympathetic to the cause of the Chng-Fehlberg faction their percentage holding would increase to almost 17 per cent and the Trikarso-Revelins faction would decrease to a little under 12 per cent. If only 3,000,000 of the new shares were to be voted with the Chng-Fehlberg faction, (notionally placing the Cameron holding in a non-aligned position) their percentage holding would increase to a little under 15 per cent and the Trikarso-Revelins faction would similarly decrease to 12 per cent or thereabouts.

14 Counsel for the respondents submitted that there was no evidence from which I could draw the inference that the voting power attaching to any of the shares to be allotted was likely to be used so as to favour the Chng-Fehlberg faction. This is an application for an interlocutory injunction and all that I need be satisfied about is the existence of a serious question to be tried. Given Lam Seng Tiong's status as the son of a friend of Chng who had requisitioned a meeting to dismiss Trikarso and Revelins from the board, I think there is sufficient to draw such an inference in his case. If it be the case that the cheque in payment for Clarke's shares was drawn by Lam Seng Tiong (which is an inference open on the current state of the evidence) then I think a similar result would follow. Roberts was proposed by Chng and Fehlberg to join the board. That is sufficient, again at this preliminary stage, to justify an inference in his case. As I have already said, I would not be prepared to draw a similar inference regarding Cameron because there is no evidence of a tie between him and Chng or Fehlberg.

15 The originating application seeks an injunction to restrain the company, obviously through its directors, from placing or allotting shares or options in Prima. The basis of the application is that the proposed placements would constitute conduct that is unfairly prejudicial to the interests of the plaintiffs. In other words, the plaintiffs call in aid the oppression provisions of s 232 of the Corporations Law.

16 During argument on the interim and interlocutory injunction applications it became apparent that there was another basis upon which relief is claimed, certainly at the interlocutory level. It is that there was no valid resolution of the directors approving the placements. This, in turn, is put forward on two bases. First, that the resolutions were passed only by the use by Chng, purportedly in his capacity as chairman of the board, of a casting vote and that Chng is not and never has been appointed chairman of the board and was not therefore entitled to use a casting vote. The second basis is that once the shareholders had requisitioned a meeting, the business of which was or included a board "spill", the board assumed a caretaker role and the proposed placements are beyond the powers that directors can properly exercise in such circumstances.

17 I take the general approach to the grant of interlocutory relief to be in accordance with what I said in Mott v Mount Edon Gold Mines (Aust) Ltd (1994) 12 ACLC 319 at 321-22, and I do not propose to repeat what was there said.

18 I wish to come first to the question of the primary claim, namely whether the proposed placements are being undertaken for an improper purpose. It is said that the placements infringe the rule that directors must not act for an improper purpose and, in any event, it constitutes conduct which is unfairly prejudicial to the interests of the applicants in accordance with s 232 of the Corporations Law. The applicants say that the true purpose behind the proposed placements is to affect, improperly, the outcome of the shareholders' meeting on 12 July 2000 by ensuring that there is a new voting block that will be sympathetic to the Chng-Fehlberg faction.

19 I think it is common ground between the parties that the law as to improper purpose was accurately summarised by Wheeler J in Emlen Pty Ltd v St Barbara Mines Ltd (1997) 15 ACLC 1107 at 1111 - 12 and once again I do not propose to repeat what her Honour has there said. However, I do wish to record the principle that if retention of control in the hands of directors exercising the power is merely a side effect of the exercise, which the directors may find congenial but which did not cause them to act, the placement will not be improper.

20 The affidavit material is voluminous and I do not propose to go into it in detail. It is sufficient to say that there are significant factual disputes which would have an impact on findings necessary to be made and which could not, I think, properly be made on the basis of affidavit evidence.

21 In summary the submissions of the applicants are these. The whole of the material that is available is sufficient from which to draw inferences that the placement is not for purposes necessary for the proper running of the company. Rather, it is for the purpose of influencing the outcome of the meeting on 12 July 2000 by putting voting power into the hands of supporters and friends of Chng and Fehlberg and thus in the hands of people who could be expected to vote with Chng and Fehlberg and, correspondingly, diluting the interests of the applicants. There are 42,000,000 shares on issue and, accordingly, the proposed allotment or placement of 4,000,000 shares, is significant. It would represent about 10 per cent of the issued capital and it would make the new grouping the largest single shareholder block. The inferences which I am asked to draw arise from the following factors, and this is of course a summary only. The respondents have given varying and a variety of reasons for the placement. It has been said from time to time that the company has inadequate funds to meet its commitments over the next 12 months. This, the applicants say, is notwithstanding that the respondents were party to the approval of the budget on 23 May 2000 and have told shareholders in the material which was sent to shareholders for the purposes of the 12 July meeting, that "the company has sufficient funds to enhance assets and explore new opportunities".

22 The applicants say that a further reason that was given at another time, was that the company needed to have cash available if and when a new opportunity were to arise. The applicants point to the fact that the cash-raising will only bring in approximately $360,000, that it is being effected at a time when the shares are trading at an all-time low and that no explanation has been proffered as to why the sum of $360,000 is required.

23 The applicants also say that inferences should be drawn from the extreme lengths to which the respondents have gone to effect the placements before the extraordinary general meeting. They point to the fact that the company presently has, according to the cash flow budget, approximately $700,000 in cash surpluses. There is no prospect of that being spent or exhausted by 12 July 2000 because the largest part of the expenditures, according to the budget, will not occur until September and October 2000.

24 The applicants also point to the fact that the applications for shares have been kept secret from them. The identity of the applicants was not disclosed to the applicants until the meeting of 16 June 2000 and even then copies of the applications and accompanying cheques were not made available until the morning of 21 June 2000. The applicants say that this has put them in a position where they have had no opportunity to consider the identity of those people or to place shares or raise funds themselves.

25 It is also said that Trikarso, as managing director, was not told anything about the negotiations with or the letter from Montague until the meeting of 23 May 2000.

26 On the other hand, the respondents say that the company was technically insolvent at the time when they entered the scene and that, by and large, it has been their efforts which has led to the restructuring of the company and the focus of its present activities. They point to the fundraising activities of the company which have occurred since they became involved. This one is not out of line with the other raisings that occurred in 1999 and it followed the unsuccessful attempts in the April prospectus. I have already outlined those raisings in the context of the background material.

27 The material put forward by the applicants does raise some issues. Perhaps the most material is the question of secrecy. There was apparently a cheque drawn in support of the application by Lam Seng Teong as early as 20 May 2000. Some of the applications are dated 9 and 13 June 2000. Another one or perhaps two applications are dated 15 June 2000. Quite why those applications were not made known to the other directors may be explained by tactical considerations given the dispute that had arisen but, nonetheless, it is a matter of some concern. The applicants' claim is arguable.

28 However, in my view the material put forward by the respondents raises a very respectable argument in answer to the claim that the proposed placements were for an improper purpose. Were that the only matter that had been raised in support of the claim for interlocutory relief I would have been inclined to say that the applicants' case, though arguable, was not of sufficient strength to justify a finding that there was a serious question to be tried on improper purpose. Accordingly, I would have been inclined to decline interlocutory relief.

29 I want to make that clear because although I propose, on other grounds, to enjoin the placements, I would not want it to be put to the shareholders, either directly or indirectly, that there is a finding against the respondents of even a serious question to be tried on the issue of improper purpose. That is not to say that I said that there is no arguable case but information which is given to the shareholders needs carefully to reflect what I have said.

The Validity of the Resolution - The Chairmanship Issue

30 I turn now to the more technical construction issues that arise in relation to the activities of the board. This board is hopelessly deadlocked. The proper course is for the shareholders to make decisions on who they want to run their company. In my view, there is a serious question to be tried as to whether the resolutions passed on 7 June and 16 June 2000 in relation to the placement of shares are valid. They were passed on the casting vote of a person purporting to act as chairman. The question is whether he was entitled to do so.

31 In Colorado Constructions Pty Ltd v Platus (1966) 2 NSWR 598 Street J said at 600:

"It is an indispensable part of any meeting that a chairman should be appointed and should occupy the chair. In the absence of some person (by whatever title he is described) exercising procedural control over a meeting, the meeting is unable to proceed to business. This may perhaps require some qualification if all present are unanimous. And, in a small meeting, procedural control may pass from person to person according to who for the time being is allowed by the acquiescence of those present to have such control. But there must be some person expressly or by acquiescence permitted by those present to put motions to the meeting so as to enable the wish or decision of the meeting to be ascertained."

32 In Kelly v Wolstenholme (1991) 9 ACLC 785 Young J applied and approved that dicta and went a little further. He described the position of chairman, at 787:

"A chairman is the person who has control of a meeting. ... It does not seem to me that one can merely say at a meeting, 'I am the chairman' unless one also actually behaves at a meeting to show that one exercises procedural control over it."

33 Article 14.8 of the Articles of Association of Prima provides:

"The directors shall elect from their number a chairman of their meetings and may determine the period for which he or she is to hold office. Where a Directors' meeting is held and a chairman has not been elected or the chairman is unwilling to act, the Directors present shall elect one of their number to be the acting chairman of the meeting."

34 In Kelly v Wolstenholme Young J was considering an article which was in almost identical terms to Article 14.8, except that it used the word "may" instead of the word "shall" where it appears in the first and fifth lines and the word "choose" instead of "elect" in the fifth line. His Honour went on to describe the word "choose" as one of wide meaning and that the "choice" envisaged by the article could arise by acquiescence.

35 I think a number of principles can be drawn from these decisions that can be applied in the context of this company. First, it is an indispensable part of the meeting procedures that there be a chairman. Unless there is a chairman, the meeting cannot proceed to business. This is confirmed by Article 14.8, which is couched in mandatory terms. The dichotomy of "shall" and "may" has probably provided more case law in the common law world than any other series of words or phrases. However, in Kelly v Wolstenholme, Young J seemed to regard the word "may" as mandatory and I see no reason to construe "shall" (as used in Article 14.8) in any other way. This principle is subject to a qualification where the participants are unanimous. That is only commonsense because in such a case there would be no dispute. The qualification does not apply in this case. Thirdly, the control of the meeting can rotate among the members present. Again, that does not apply in this case. Fourthly, the position of chairman is not sensitive to the terminology used to describe the person so acting. Fifthly, the essence of chairmanship is actually exercising procedural control over the meeting.

36 The final issue is whether, given the use in the fifth line of Article 14.8 of the word "elect" (rather than "choose") there is any room for the concept of a chairman by acquiescence. I am not sure of the answer to that question. However, for the purposes of deciding this interlocutory application I am prepared to accept (as the Macquarie Dictionary suggests) that the terms "choose" and "elect" are relevantly interchangeable.

37 According to the evidentiary material before the Court, the facts relevant to the issue of chairmanship seem to be these. Johnson was clearly the chairman of the company and acted as such. He resigned on 22 February 2000. No steps have been taken by the directors formally to elect from their number a chairman of their meetings. There was a directors' meeting on 22 February 2000. The minutes say that Chng was appointed chairman. There was a further directors' meeting on 30 March 2000. The minutes describe Chng as "chairman". Trikarso, in his affidavit, puts in issue whether Chng was appointed chairman and whether he acted in that capacity. On 27 March 2000 there was an extraordinary general meeting of shareholders. It seems that Chng assumed the role of chairman and there was no dissent from him so doing, either from the shareholders present or from the applicants in these proceedings. Counsel for the respondent drew my attention to Article 11.3 which concerns proceedings at general meetings. It reads:

"The person elected as the chairman of the directors' meeting under clause 14.8 shall, if willing, preside as chairman at every general meeting. Where a general meeting is held and a chairman has not been elected under clause 14.8 ... the Shareholders present shall elect one of their number to be the acting chairman of the meeting."

38 I think the argument for the respondents is this. Chng was, at the directors' meetings on 22 February 2000 and 30 March 2000 and at the shareholders' meeting on 27 March 2000, either appointed to or permitted to assume the role of chairman. He therefore became the chairman of the company, if not by formal election then by acquiescence. That being so, he was entitled to act as chairman unless and until there was a proper resolution removing him from that office.

39 As there was no formal appointment of Chng as chairman under Article 14.8 he had no automatic entitlement to take the chair at the March shareholders' meeting unless there had been an acquiescence at the February directors' meeting to him becoming chairman of the company generally. That step is, itself, in issue. Accordingly, I am not sure that Chng's capacity at the March shareholders' meeting advances the argument a great deal.

40 The respondents' argument is not without some merit. On the other hand, it is clear from a reading of both Article 11.3 and Article 14.8 that there are two limbs. There is the office of chairman and there is the position of chairman at a particular meeting. There is no evidence before me that there was a formal election of Chng to the office of chairman of the company generally. There is evidence (although disputed) in the minutes of the meeting of 22 February 2000 and 30 March 2000 and the assertions in the affidavits by or on behalf of Chng and Fehlberg that Chng was appointed, and acted, as chairman at the February and March directors' meetings. The minutes of the February meeting were confirmed at the 30 March 2000 meeting. However, as the issues that affect the validity of the meetings apply equally to the 30 March 2000 meeting, the evidentiary effect of the minutes may not be as significant as would appear on the surface. There is evidence, not disputed, that he acted as chairman of the shareholders' meeting in March 2000. It remains to be decided what actually occurred at the February and March directors' meetings. A question will arise whether, if those present acquiesced in Chng acting as chairman at either or both of the February and March directors' meetings and the March shareholders' meeting, that acquiescence constitutes Chng as chairman of the company generally or simply as chairman for those particular meetings.

41 When one comes to the meetings of 23 May 2000 and 7 June 2000 it is abundantly clear that no question of acquiescence could arise. Chng claimed the role of chairman. It was put squarely in issue. The same occurred at the meeting of 16 June 2000. Given those circumstances I think there is a serious question to be tried as to the entitlement of Chng to act as chairman. I think it is arguable that once the position of chairman had been disputed the principle arising from Colorado Constructions and Kelly v Wolstenholme that the person who exercises procedural control is the chairman may not apply. Once the matter is put squarely in issue, and given the importance of it with the casting vote that the chairman of an otherwise deadlocked board could and would exercise, serious questions arise as to whether or not in those circumstances the board is properly constituted for the purposes of a meeting. In my opinion there is a serious question to be tried whether Chng was the chairman of the meeting held on 16 June 2000 and, accordingly, whether he was entitled to exercise a casting vote on the resolution to approve the placement of the shares. It would follow that there is a serious question as to the validity of that resolution.

42 In the circumstances of this case the problem goes beyond the mere validity of the resolution, passed on the casting vote of the person purporting to act as chairman. If neither Chng nor anyone else acted as chairman at the meetings of 23 May 2000, 7 June 2000 and 16 June 2000, it is that arguable, on the view I take of the law, there has been no valid meeting on those occasions. It is a most unfortunate situation and one in which I doubt whether a court could intervene directly by appointing a chairman or directing who could or should act as a director. The proper course is for the matter to go to the shareholders. That is what is happening in this case.

The Validity of the Resolution - The "Caretaker" Issue

43 The second issue involves the caretaker role of directors. Once again, the arguments put by counsel for the respondents, in answer to the proposition that once the shareholders have requisitioned the calling of a general meeting the directors are placed in a caretaker role which would prevent them from doing the things that these directors purport to have done are attractive. However, the question is whether or not there is a serious question to be tried.

44 On that issue there is Full Court authority in the Supreme Court of South Australia that there is a principle of caretaker directors. In Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd & Ors (1989) 7 ACLC 153 the situation was that Paringa, the controlling shareholder of North Flinders, requisitioned a shareholders' meeting to alter the constitution of the board of North Flinders so that it (Paringa) would control the board. North Flinders called the meeting as requested but, in the meantime, made a Part A take-over offer for the shares in Paringa. Paringa commenced proceedings challenging the decision to make the take-over offer on the grounds that it was made for an improper purpose, namely to preserve the control of the North Flinders directors and to defeat Paringa's controlling interest. North Flinders then obtained an order staying the holding of the requisitioned shareholders' meeting called to consider the changes to the board until after the trial of the "improper purpose" action. The Court allowed an appeal by Paringa against the order postponing the shareholders' meeting. It was common ground that the fate of the meeting was a foregone conclusion because of Paringa's controlling interest. King CJ said, at 169:

"The controlling shareholder or majority shareholders are entitled to use their voting power to exercise such control of the company as is permitted to shareholders in general meeting. That power is, of course, exercised by means of a general meeting of shareholders. A reasonable period of time is permitted after the requisition to enable the meeting to be arranged, that is to say, to put in place the mechanism whereby the shareholders can exercise their power. The directors are, of course, free to exercise their powers during that interval, but the reality is that from the time a meeting is requisitioned for the purpose of replacing them, especially where it is requisitioned by a controlling shareholder, they are caretaker directors. If they choose to make use of the interval to circumvent the known wishes of the controlling shareholder who seeks to replace them, they cannot complain, in my view, if circumstances supervene to prevent them from so doing." [emphasis added]

45 In Utilicorp NZ Inc v Power New Zealand Ltd (1997) 8 NZCLC 261,465 a majority shareholder asked the Court to restrain directors from accepting an offer to sell a strategic parcel of shares in a situation where, at a shareholders' meeting to be held on the day following the hearing of the injunction application, those directors were likely to be voted out of office. The injunction was granted. Giles J referred to Paringa Mining and other authorities. His Honour's conclusion, expressed at 261,469, was as follows:

"Having reviewed the cases in the limited time available to me I conclude that the more recent authorities relied upon by the plaintiff indicate that a principle may well be evolving whereby some limits are placed upon the rights of caretaker directors. ... It seems to me that the concept of some restricted power remaining with caretaker directors is a sensible development in today's modern commercial context. I do not suggest that a company cannot continue to be managed or to operate. What it means is that there is a need for compelling caution on the part of directors whose term of office is coming to an end not to make decisions which fall within the category of fundamental or significant."

46 I accept that neither of those cases is directly relevant to the facts of this case. Counsel for the respondent submitted that I should find that there is no principle of caretaker directors in Australian law and pointed out that there had been some academic criticism of the decisions: see, for example, "Caretaker Directors?", Ross Grantham, New Zealand Law Journal, December 1997, p 411. I simply cannot do that in the light of authority such as Paringa Mining. Counsel went on to submit that even if there is such a doctrine, it is confined to a situation where there is a controlling shareholder whose rights and interests are being affected by the purported actions of the directors and where the result of the meeting of shareholders would be beyond doubt because it is clear which way the controlling shareholder would vote. Counsel suggested that otherwise corporate governance could fall into disarray where people with small minority shareholdings could seriously and continuously disrupt the administration of the company by requisitioning meetings.

47 The "floodgates" notion aside, the argument is not without merit. However, in Paringa Mining, King CJ did not limit the principle to a situation where there was a controlling shareholder. He said that it would apply "especially where [the meeting] was requisitioned by a controlling shareholder". In a similar vein, at 168 his Honour spoke of depriving the shareholders "and in particular the controlling shareholder" of the right to have the meeting continue. For present purposes I have only to decide whether there is a serious question to be tried. I think I must take account of this dicta.

48 I am not attracted to the "floodgates" argument. To the extent that there is authority it is clear. Obviously, though, as a matter of principle and as a matter of practicality each case would have to be looked at on its merits. The exact nature and extent of the powers of the caretaker board would have to be assessed in the context of the situation in which the company found itself. The argument, it seems to me, in the context of the situation in which Prima finds itself, can be summarised as follows:

"Do the caretaker directors facing a shareholders' meeting at which they may be voted from office have the power take a step which:

(b) is not within the ordinary course of the day to day business of the company; and

(c) is not otherwise necessary for the proper running of the company,

where that step would alter, or could reasonably be expected to result in an alteration to, the balance of voting power so as to affect the outcome of the shareholders' meeting?"

49 It is for this reason that I set out the arithmetic exercise which I did at the conclusion of the background material.

50 There is no evidence before me, and I did not understand either party to suggest, that there was a bigger, single voting block than either what I have described as the Trikarso-Revelins faction or the Chng-Fehlberg faction. Accordingly, the base figures from which a proxy or meeting floor battle were to form and be fought may well come under the same sorts of arguments of principle as militated towards the resolution to which King CJ came in Paringa Mining. If the effect of the change would be significantly to alter the balance between the two biggest, single voting blocks, it may come within the same sorts of principles. To adopt the phrase used by Giles J in Utilicorp, it could also be regarded as "fundamental or significant".

51 For that reason, I think there is a serious question to be tried whether there is a principle of caretaker directors in Australian law in the circumstances where a meeting has been called to replace directors and, if so, its extent. If there is such a doctrine, does it apply only where the rights and interests of a controlling shareholder are affected or does it extend to an alteration to the balance of power between two significant, although not controlling, voting blocks? When I was formulating the question I indicated that there may be a further limitation on the principle namely, that the proposed action is not "otherwise necessary" for the running of the company. What I mean by this will become a little clearer when I turn to the balance of convenience.

52 In my opinion there is a serious question to be tried as to the validity of the board resolutions which effected or approved the proposed placement of shares. This is so on either or both the chairmanship issue and the question whether the proposed placement is beyond the power of a caretaker board. I would not have been inclined to grant interlocutory relief on the basis of the arguments about improper purpose. That is not to say that the argument could not be made out. But on the material that is presently available and in the absence of hearing the witnesses, I do not think that the case is sufficiently strong to warrant a finding that there is a serious question to be tried.

53 Coming then to the balance of convenience, it seems to me that the primary interests that I ought to consider are the interests of the company and the preservation of the status quo. This is, as I have said, a board that is hopelessly deadlocked and that cannot properly run the affairs of the company. The shareholders must decide the future direction of the company. I would not, and could not, do anything to impede the holding of the shareholders' meeting of 12 July 2000. It is clearly in the best interests of all concerned that that go ahead.

54 The status quo, it seems to me, is the status quo as it existed at 23 May 2000. The proposed placements, if not for an improper purpose, may have a side effect or a windfall effect in favour of the respondents by shoring up their position for the purposes of the extraordinary general meeting. But if that, it seems to me, was not the purpose and formed no part of the purpose for which the respondents contend, they cannot be heard to say that they will be deprived at the shareholders' meeting of the benefit of an accretion to their voting block. If that is a prejudice that they suffer then it is not prejudice of a type to which I should give significant weight. That is not to say that I do not take it into account at all. However, it has to be discounted because it is only, on the respondents' case, a side effect of the placement, the purpose of which was to increase the working capital of the company.

55 There is, I think, insufficient evidence upon which I could form the view that the proper running of the company will be prejudiced seriously if the placements do not go ahead. I accept the argument that this company needs working capital and perhaps that it should take an accretion to its capital when it is on offer. But if the additional working capital is not available from these four applications then I have the affidavit evidence of Michael Quinert that Peregrine Corporation Limited, a company associated with Revelins, will underwrite a pro rata rights issue of the same number of shares at the same price. There is argument between the parties as to whether that rights issue would require a prospectus. I do not think I need to make a determination on that issue because it would affect only questions of timing and cost. The money, it seems to me, is available to the company one way or the other.

56 The other matter is the question of the invitation to treat made by Kimberley Diamond Corporation by letter of 16 June 2000 to entertain what are in effect joint venture proposals. They relate to a diamond tenement which adjoins ground which is presently the subject of this company's diamond exploration project. In that regard I accept what was said to me by counsel for the applicants, namely that it is a proposal of a very general kind. There is insufficient in it to indicate that even if it were to go forward and be accepted, money would be required prior to 12 July 2000, or even soon after 12 July 2000, or that the mere fact that the placements have not been effected would necessarily impede ongoing negotiations to put such a deal in place.

57 There is no evidence that, either for working capital generally or for the Kimberley Diamond Corporation joint venture or otherwise, the raising of $360,000 immediately is necessary for the proper running of the company.

58 On the other hand, if the placements go ahead and it is later found that they were effected under an invalid resolution, then the shareholders' meeting would be proceeding on an entirely inappropriate basis. As I have said, it seems to me that I ought to have a very clear eye to the interests of the company through its shareholders. For those reasons it seems to me that the balance of convenience favours the grant of interlocutory relief, the effect of which would be to maintain the status quo, and by that I mean the status quo as it was at the time when these meetings were requisitioned.

59 I do, however, think there is one area in which the status quo perhaps ought not to follow. This is an application for interlocutory relief and I have been concerned at some of the actions of some of the parties since the dispute erupted. The concerns are not such that I would regard the applicants as coming without clean hands so as to disentitle them to equitable relief. Nonetheless, the action of Trikarso in changing the locks on the office doors and, although he denies actually changing the postal address, taking some steps which have caused confusion as to the proper postal address are, at least, curious.

60 The future of Prima is now squarely in the hands of the shareholders that the two factions should go forward to the meeting on an equal basis. For that reason I think that the powers of managing director should not be exercised pending the holding of the meeting. I will extend the injunction only if the order reflects the terms of the written undertaking that Trikarso gave on 15 June 2000 or alternatively he accepts a continuation of the undertaking in the same terms.

A Possible Problem With the Shareholders' Meeting

61 There is one other matter. If what I have identified as a serious question to be tried on the chairmanship issue translates itself into a finding of invalidity of the board resolutions of 16 June 2000, it may apply likewise to the resolution on 7 June 2000 to convene the shareholders' meeting. If so, it may have an impact on the validity of the shareholders' meeting. This is not necessarily so, particularly when regard is had to Article 10.1 of the Articles of Association of Prima and to Division 2 of Part 2G.2 of the Corporations Law. It may also be that the case comes within the exception mentioned by Street J in Colorado Constructions, namely that the indispensable requirement for a meeting to have a chairman does not apply where "all present are unanimous". Does this mean all present and for all purposes or can it apply on a resolution by resolution basis?

62 There is, of course, power under s 249G and s 1319 of the Corporations Law for the Court to order a meeting and to give directions as to the conduct of the meeting. For the avoidance of doubt and out of an abundance of caution, thought should be given to this question. I simply raise that issue and it is for the parties to decide.

63 I will extend until further order the injunction which I made on 15 June 2000 restraining the implementation of a resolution of the directors approving the placement of shares.