Legal database - View: Cases: Darvall v North Sydney Brick and Tile Co Ltd (No 2)

Darvall v North Sydney Brick & Tile Co Ltd and Others
16 NSWLR 212
(1987) 6 ACLC 184

(Decision by: Hodgson J.)

Darvall
vNorth Sydney Brick & Tile Co Ltd and Others

Court:

New South Wales Supreme Court, Equity Division

Judge: Hodgson J.

Case References:
North Sydney Brick and Tile Co Ltd v Darvall - (1986) 5 NSWLR 662
Winthrop Investments Ltd v Winns Ltd - (1979) 4 ACLR 1
Mills v Mills - (1938) 60 CLR 150
Howard Smith Ltd v Ampol Petroleum Ltd - [1974] 1 NSWLR 68; [1974] AC 821
Ngurli Ltd v McCann - (1953) 90 CLR 425
Teck Corporation Ltd v Millar - (1972) 33 DLR (3d) 288
Belmont Finance Pty Ltd v Williams - [1980] 1 AllER 393
cf Federal Commissioner of Taxation v Newton - (1957) 96 CLR 577
Burton v Palmer - [1980] 2 NSWLR 878
Lyle & Scott Ltd v Scott's Trustees - [1959] AC 763
North Sydney Brick and Tile Co Ltd v Darvall - (1986) 5 NSWLR 662; (1986) 5 NSWLR 681
Broken Hill Pty Co Ltd v Bell Resources Ltd - (1984) 8 ACLR 609; 2 ACLC 157
Hogg v Crampthorn Ltd - [1967] Ch 254
Refrigerated Express Lines (A/asia) Pty Ltd v Australian Meat and Live-stock Corporation (No 2 ) - (1980) 44 FLR 455; 29 ALR 333
National Roads and Motorists' Association v Parker - (1986) 6 NSWLR 517
Regal (Hastings) Ltd v Gulliver - [1942] 1 AllER 378; [1967] 2 AC 134(n)

Hearing date: 30, 31 March, 1-3, 6-10 April, 1, 2 June, 8 July, 21 September 1987
Judgment date: 22 September 1987

Decision by:
Hodgson J.

The first defendant (which I will call "Norbrik") is a company which, for many years, has carried on the business of brick and tile manufacturing. It had its origin in a partnership formed in the 1880's between three men, a Mr Lanceley, a Mr Magney and a Mr Weynton. Although the company is not a proprietary company, and there are about three million issued shares in it, its shareholders still belong to the families of those three original partners, and transfers of the shares are limited by the articles.

In 1953, Norbrik purchased about 900 acres of land at Baulkham Hills, near Sydney, for the purposes of its business. That land was then of a rural character. By the early 1980's, it had become apparent that this land could be an extremely valuable development property. Norbrik commenced investigation into the development of this property as what is known as a "business park". What this is is described in a brochure produced by Norbrik in 1987 as "the creation of an integrated physical environment meeting the varied requirements of the business and industrial community, at human scale and with values consistent with community goals and compatible with the natural environment".

In 1984, the land appeared in the books of the company at a value of $1.5 million. By 1987, it would seem that the land was worth at least $30 million, perhaps $60 million, and possibly even more.

In June 1986, the plaintiff notified Norbrik and its shareholders of his intention to make offers for all the shares of Norbrik. It appears that this was with a view to his obtaining control of the company on behalf of members of a syndicate with which he was associated.

On 26 August 1986, a board meeting of Norbrik authorised the entry by the third defendant (a wholly owned subsidiary of Norbrik which I will call "Norwest") into a joint venture agreement with the fourth defendant (which I will call "Chase") concerning the development of the land.

By these proceedings, the plaintiff seeks orders setting aside this joint venture agreement on the ground that it involved a breach by the directors of Norbrik (who are the second defendants) of their duty to act honestly and in the best interests of Norbrik, and also an improper exercise by them of their powers as directors of Norbrik; and on the further ground that Chase was aware of the relevant circumstances.

In these proceedings, the plaintiff also alleges that the entry into the joint venture constituted the giving of assistance to Mr Lanceley (a descendant of one of the original partners and also one of the second defendants) for the purpose of or in connection with the acquisition by Mr Lanceley of shares in Norbrik, in contravention of the Companies (New South Wales) Code , s 129. The plaintiff seeks an order under s 130(3) of the Code authorising the plaintiff to give notice in the name of the company avoiding the joint venture agreement.

Outline of facts :

In the early 1980's, Norbrik engaged Gutteridge Haskins & Davey (which I will call "GHD"), who describe themselves as consulting engineers, planners, surveyors and project managers, to do certain work in connection with preparations for the development of the land. The development of the land required its being re-zoned, and in August 1985, GHD wrote to Mr Lanceley, who at all material times has been Norbrik's managing director, enclosing what was called a "Report in Support of Application for the Re-zoning" of the subject land. This report apparently went to the council, and early in September 1985 it appears that at a meeting of the Baulkham Hills Shire Council, the council confirmed its support for the development of the land along the lines proposed, and requested its chief town planner to commence work for a local environment plan which would be necessary to give effect to such a development.

Later in September 1985, at a meeting of the board of Norbrik, it was resolved in principle to develop part of the land into an industrial park. This was conveyed to the shareholders later in September in an interim report for the year 1985-1986, and the shareholders were also advised that a brochure concerning this development was being prepared.

In early October 1985, GHD wrote to Mr Lanceley in relation to establishing a "project management group" for the purposes of the project. Also early in October, a valuation advice was received from the valuers, Fuller Flanders, according to which the land was valued at $60.65 million.

Norbrik's annual report for the year 1985, which was dated 7 November 1985, contained a section concerning the development of the land, which it called the "Norwest Project". Among other things, it was said in this report that"the process of obtaining approval is under way and proceeding well. ... It is a planning exercise to obtain the highest and best use approval for the land". The annual general meeting of Norbrik was held on 29 November 1985, and shareholders were told of the progress of the project. The shareholders were informed by Mr Lanceley that they would be consulted before any particular option for the development of the land was selected.

In December 1985, GHD completed what it called a draft brief for a feasibility study in relation to the Norwest Project. This set out the "broad study tasks required to prepare a feasibility study".

At a meeting of the board of Norwest on 7 February 1986, approval was given to the formation of a joint venture company between GHD and Norbrik to allow such a feasibility study to commence. A meeting took place on 27 February 1986 of the persons interested in relation to the project, comprising, among others, Mr Lanceley, members of GHD, members of Fuller Flanders and others.

In March 1986, the directors sent to shareholders a report for the half year 1985 to 1986, which contained some information containing the Norwest project. In relation to the planning of the project, it was reported that the local environment plan was almost complete. It was further reported that a case had been presented to those responsible for drafting legislation for the introduction of a new system of land title, to be known as community title. It was expected that that law would be available for Norbrik's use later in 1986. In relation to the financial feasibility of the project, it was reported that there were two major studies under way. The report went on:

"The first concerns the viability of the project itself as a development concept. The other is a corporate study and its aim is to determine the best roll [sic] for the company and its shareholders. The two studies will take several months to complete."

It appears that the local environmental plan was completed shortly after that report, because a copy of it was presented at a meeting of the directors of Norbrik on 18 April 1986. At a later meeting of the directors on 23 May 1986, a brochure concerning the development was presented to the board.

That in short is how matters stood at 6 June 1986, when the plaintiff announced that he would be offering to purchase all the shares in Norbrik for a price of $10 per share. This was conveyed in a letter from the plaintiff to the first defendant, which advised that he would be lodging a Pt A statement"in the very near future". It was also indicated by a circular letter from the plaintiff to the shareholders of the first defendant, which also advised them (correctly) that the last sale which had been made of shares in Norbrik was in June 1985 at a price of 87 cents per share.

The directors of Norbrik met on 10 June and considered the plaintiff's announcement. A letter to the shareholders of Norbrik was settled, and such a circular letter was in fact dispatched on the same day. This letter contended that the plaintiff's offer was too low, representing only 44.38 per cent of Norbrik's net asset backing. (This was because the land was now included in the books of Norbrik at a value of $60 million.) The letter went on to advise shareholders to take no action in relation to their shares.

Thereafter, the directors of Norbrik sought assistance from Macquarie Bank Ltd (which I will call "Macquarie"), a merchant bank. On 19 June 1986, Mr Lanceley discussed the matter with a director of Macquarie, Mr Waters, and an employee, Mr Hunt. On 20 June 1986, Macquarie wrote two letters to Mr Lanceley. The first, from Mr Hunt, concerned "a number of matters relating to the proposed take-over offers by" the plaintiff. The letter concerned, inter alia, the preferred methods of maximising shareholder returns. It specified as the most preferred course one which included the sale of half the Norwest project to a land developer for cash. The second letter signed by Mr Hunt specified as Macquarie's initial objective as being "to ensure that the shareholders receive either a better offer than is currently being proposed, or a proposal that will enable current shareholders to retain control of the company, while providing liquidity for those shareholders who wish to dispose of their holding at this time". The letter went on to set out a proposed fee scale for Macquarie's services.

It appears that there were further discussions between Mr Lanceley and Macquarie personnel, in particular a meeting on or soon after 24 June 1986, for which Mr Hunt prepared an agenda which is in evidence. On 30 June 1986, there was a meeting of the directors of Norbrik, at which Mr Waters and Mr Hunt attended. The board considered a proposal for Macquarie to act as the financial adviser in respect of the plaintiff's take-over offer. It was noted at this meeting that contact with shareholders showed that if no other offer was forthcoming, other than the plaintiff's of $10 per share, then they may be tempted to sell. This was as a result of contacting 60 per cent of shareholders. It was agreed at the meeting that a letter would be sent out on behalf of all directors advising shareholders not to accept the plaintiff's offer. Such a letter was in fact sent to shareholders on 2 July 1986, advising that the directors were unanimously of the opinion that the plaintiff's offer was "grossly inadequate". The letter also stated that the board was pursuing a number of courses which should provide shareholders with an early and very significant cash realisation from the Baulkham Hills land. It went on to say that Macquarie had been retained "to assist us in achieving this objective and to advise generally in respect of the offer".

On the same day, Macquarie wrote to Mr Lanceley outlining "the preferred strategy that we have recommended to the Board". Part of this strategy was to the effect that "a joint venture partner be identified which will purchase the land and finance the development of the business park".

On 17 July 1986, the plaintiff registered the Pt A statement in respect of his offer with the Corporate Affairs Commission. The Pt A statement was served on Norbrik, and in a circular to the shareholders of Norbrik, the plaintiff advised that the formal documents had been registered with the Corporate Affairs Commission. Meanwhile, Macquarie had been taking steps with a view to finding a party to join with Norbrik in the development of the subject land, or alternatively to purchase some or all of the subject land. According to a document dated 21 July 1986 and entitled "Current Position", prepared by Mr Hunt, various documents were being prepared and initial contacts had been made presumably with prospective developers or purchasers. This document also adverted to the possibility of legal action against the plaintiff in relation to the plaintiff's take-over offer, and noted among the benefits of such legal action the circumstance that it would delay dispatch of the plaintiff's offer document.

In fact on 25 July 1986, Norbrik commenced proceedings against the plaintiff in the Equity Division of this Court, seeking declarations in substance to the effect that the plaintiff's Pt A statement did not comply with the requirements of the Companies (Acquisition of Shares ) ( New South Wales) Code , and also seeking consequential injunctions. It appears that those proceedings were not authorised in advance by a board meeting of Norbrik, and in fact on 28 July, one of the directors, Mr Solomon, wrote to Mr Lanceley stating he did not approve of the legal proceedings, and requesting that any future action should be approved by the board.

On or about 31 July 1986, Macquarie dispatched to various organisations documents which had been got together with a view to interesting such parties in participating in the development of the subject land. This documentation included a "Selling Memorandum" prepared by Mr Feetham of Macquarie; and also included a letter dated 29 July 1986 from Fuller Flanders to the directors of Norbrik assessing the current value of the land at $60 million (assuming approval would be given for stage development during 1987); and also a document prepared by GHD entitled "Revised Preliminary Financial Assessment" which estimated the net profits of the developing the land at something in excess of $300 million. This documentation was dispatched, inter alia, to Chase. Other parties contacted included, it would seem, Hooker Corporation, Jennings Industries, Leda Holdings, National Mutual, AMP, Lend Lease, and (perhaps subsequently) Stocks& Holdings and Mirvac.

On 1 August 1986, Kearney J gave his decision in the proceedings to which I have referred: see North Sydney Brick and Tile Co Ltd v Darvall (1986) 5 NSWLR 662. This was to the effect that although the Pt A statement would not satisfy the requirements of the Companies (Acquisition of Shares ) ( New South Wales) Code (which I will call "the Acquisition Code"), if such a statement was required, in the circumstances of this case, no such statement was required. The reason for this was that the effect of the restriction on transfer in the articles of association of Norbrik was that prior to making the take-over offer, the plaintiff was already "entitled" to all the shares in Norbrik within the meaning of the Acquisition Code; and indeed so were all the members of the syndicate to which I have referred. It might at first sight seem a surprising conclusion that the holding of 500 shares (the plaintiff's holding prior to the take-over offer) out of about 3 million issued shares, constitutes an entitlement to all the shares in the company, but this arose from the extensions to the concept of entitlement provided by the Acquisition Code. This, in turn, had the perhaps unintended effect that the Code did not apply when a person entitled to all the shares in a company only by reason of this extended concept in the Acquisition Code made an offer to actually acquire the shares which he did not then previously own. In any event, as indicated below, the Court of Appeal upheld Kearney J's decision in this matter: see (1986) 5 NSWLR 687.

On the same day as judgment was handed down, Norbrik put on a motion for an injunction pending the bringing of an appeal from Kearney J's decision to the Court of Appeal. A notice of appeal was subsequently lodged on 5 August 1986. Meanwhile, there was a meeting of directors of Norbrik on 4 August, at which Mr Solomon confirmed his reservations about the bringing of the Supreme Court proceedings.

On 8 August 1986, further proceedings were commenced by Norbrik against the plaintiff, this time by statement of claim. These proceedings again alleged a breach of the Acquisition Code, this time in relation to the plaintiff's obtaining of his original 500 shares. The allegation in substance was that since the acquisition of these 500 shares meant that the plaintiff became entitled to all the shares of the company, the acquisition of those 500 out of the 3 million shares in the company was regulated by the Acquisition Code.

On 13 August 1986, the Court of Appeal dismissed the appeal from Kearney J's decision, and on the same day, Cohen J in this Division made certain interlocutory orders in the second proceedings.

By 14 August 1986, negotiations had started between Macquarie and Chase for the formation of a joint venture between Chase and Norbrik. On that day, Mr Hunt sent a facsimile message to Mr Wavish, of Chase, including a draft for discussion at a meeting to be held on the same day. According to this draft, the proposal was to the effect that there should be no capital contribution by Chase, but Chase was to be responsible for raising development funds and providing development expertise. Under the heading "Quid Pro Quo", it was proposed that Chase would make a bid for Norbrik at $13 per share, being prepared to go up to $15 per share; that the directors would reject such bid on the basis that it was inadequate; and that Chase would feel comfortable that a substantial number of shareholders would not accept. The draft went on to deal with the mechanics of the joint venture involving the establishment of a wholly owned subsidiary of Norbrik, and the establishment of a 50/50 joint venture company between Chase and this subsidiary.

By 20 August 1986, negotiations between Macquarie and Chase had reached the stage of the production of a document entitled "Outlined Terms of Proposed Joint Venture Agreement". It also appears that by this time, the suggestion that Chase should make a take-over bid at $13 per share had been replaced by a proposal that Mr Lanceley should make a take-over bid at $12 per share, with financial assistance from Chase. It appears that this change was at the suggestion of Mr Lanceley. By that date, also one other firm proposal had been obtained by Macquarie, namely an offer by Mirvac to acquire the land from Norbrik at a price of $35 million. It would appear that discussions with some other parties had not been concluded.

A meeting of directors of Norbrik was held on 20 August, and in addition to the board members, there were present, inter alia, Messrs Hunt and Feetham of Macquarie. It was noted that the purpose of the meeting was to consider developments since the previous meeting held on 4 August. According to the minutes of the meeting, it was "pointed out that our weakness was in the fact that re-zoning had not yet been received". The loss of the appeal in the first case was noted, and it was also noted that Norbrik had a further injunction until Monday, 26 August (this being the orders made by Cohen J). The minutes went on to note: "Any decision by board on alternative offer should be finalised at least by then and not to count on further time by further extensions." The minutes went on to deal with "various alternatives", in the following terms:

" Various alternatives :

1. Do nothing -- ie: Accept J Darvall's offer -- considered not in interest of shareholders.

2. Sell Land -- Firm offer from Mirvac for 35 million with Norbrik being retained by North Sydney Brick & Tile Co Ltd. This places an effective value of approximately $13 per share. Not recommended as this cuts off all upsides of value increases. This only offers a solution for shareholders to sell.

3 . Joint venture : There have been serious discussions with many Land Developers and finance institutions including Chase Corporation Ltd.

The Chase proposal seems to offer the best benefits for shareholders.

The proposal of heads of agreement paper was discussed in full.

At this point D B Lanceley left room so as board could consider the above proposals and vote accordingly.

All three alternatives were considered on their merits but all remaining directors: ie D Harrison, D Magney, F Solomon and P L Magney agreed that the joint venture was the preferred.

This motion was moved and seconded."

On 20 August also, the plaintiff sent a circular letter to the shareholders of Norbrik, advising them of the court proceedings, and expressing regret that Norbrik's actions had so far prevented the shareholders from seeing the plaintiff's offer.

On 21 August, Mr Solomon wrote to Mr Lanceley objecting to the commencement of the second set of legal proceedings. Mr Solomon also in this letter objected to the company proceeding with the joint venture with Chase"without the prior approval of the company's shareholders". The letter concluded by expressing doubt as to whether Mr Lanceley as a director"can at the same time be associated with and materially interested in an offer for the company shares or its assets".

On 22 August, Mr Lanceley sent a circular letter to shareholders concerning the company's and the plaintiff's offer. It noted that during the litigation against the plaintiff, it had emerged that through a chain of agreements, the plaintiff was a party to a joint venture agreement with a number of companies, with Industrial Equity Ltd having the majority interest in the syndicate. The letter went on to assert that the bid of $10 for each share placed a value on the company of $29.2 million, which in the unanimous opinion of the directors was grossly inadequate. The document also enclosed the letter from Fuller Flanders valuing the land at $60 million; and the revised preliminary financial assessment complied by GHD.

On the same day, a meeting was held at Macquarie Bank for about three hours in the afternoon, essentially for the purpose of discussing the proposed arrangement with Mr Solomon and with a solicitor he had engaged to advise him, namely Mr Hopkins of Stephen Jaques Stone James. Also present at that meeting were Mr Lanceley, Mr McDonald of Law & Milne (who were preparing the joint venture agreement), and Messrs Hunt, Feetham and Waters of Macquarie. There is some dispute as to what was said at that meeting, it being the plaintiff's contention that Mr Hunt stated that Chase was prepared to finance Mr Lanceley's bid for the shares of Norbrik, provided Norbrik entered into the joint venture agreement. I will return to this matter later.

On 25 August, proceedings No 4623 of 1986 were dismissed by consent, with no order as to costs. The associated agreement involved an undertaking by Norbrik and its directors not to challenge the plaintiff's offer, provided it was in the form of a document identified at the time and provided it was accompanied by a document headed "Disclosure Statement" also identified at the time. Norbrik and its directors also undertook to register 496,250 shares in Norbrik acquired by the plaintiff since 30 May 1986. That was in fact done at a directors' meeting on 27 August. In turn, the plaintiff and other syndicate members undertook that they would not institute any proceedings against any of the directors of Norbrik alleging breaches of fiduciary duty by reason of the institution of those court proceedings or their previous failure to register the shares which I have mentioned.

Also on 25 August, Chase wrote to Mr Hunt of Macquarie confirming verbal advice that they would undertake to secure a bank or finance company to provide funds to Mr Lanceley to bid for up to just under 2.25 million shares in Norbrik at a price not to exceed $13 per share. The terms of that undertaking were set out in the letter, and one particular term was that the facility was to be "no recourse against DL". DL was, of course, Mr Lanceley, and what was being undertaken was the provision of a loan facility which could involve a loan, of up to about $30 million, to Mr Lanceley but on a basis that he was to be under no personal liability. A letter in similar terms was provided by Chase to Mr Lanceley himself on 26 August 1986.

Also, on 25 August 1986, Mr Solomon wrote a letter addressed to the directors of Norbrik, in which he recorded his comments and concerns on a number of matters concerning the future of the company. It seems clear that in producing this letter Mr Solomon was assisted by Mr Hopkins. This letter made a number of points, but particularly to be noted are the following:

First, it expressed an understanding that the joint venture had been put to the board on the basis that it was part of a package with Mr Lanceley's proposed bid, "presumably in view of the fact that Chase will not provide Mr Lanceley with the necessary financial accommodation to enable his bid to proceed unless it secures the benefits of the joint venture". Next, Mr Solomon expressed the view that if the board wished to proceed with the joint venture, it should do so only on the basis that the matter is decided by the shareholders in a general meeting. Thirdly, a number of reasons were given why Mr Solomon considered that the Chase joint venture was not acceptable.

On 26 August 1986, the plaintiff dispatched to the shareholders of Norbrik an offer in the form agreed as indicated earlier, accompanied by the disclosure statement as likewise agreed.

On 26 August also, a further meeting was held of the directors of Norbrik. All the directors attended this meeting, which was also attended by Mr Hunt and Mr Feetham of Macquarie, and Mr Temple of Priestley & Morris, the company's accountants. The Minutes of that meeting are set out in full below:

"Minutes of Board Meeting of North Sydney Brick and Tile Co Ltd held at the Macquarie Bank at their offices at 20 Bond Street, Sydney on 26 August 1986.

Present :

D B Lanceley

P L Magney

D Magney

F Solomon

D R Harrison

J A Hood

Others attending were:

E Temple -- of Priestley & Morris

P Hunt -- of Macquarie Bank

D Feetham -- of Macquarie Bank

The purpose of the meeting was to finalise the joint venture with Chase Corporation Ltd and to determine future strategy.

Joint Venture Agreement with Chase Corporation Ltd : Final draft of joint venture discussed in detail and all directors given time to raise all relevant points. The agreement was agreed to in principal and letter received from Frank Solomon to Board on matters of concern were discussed and it was resolved that all matters of substance were answered and the final draft covered all these matters. Mr Solomon said that he was in agreement with the joint venture.

J Darvall's current offer :

As late as 5.00pm 25/8/86 offer had not been sent to shareholders.

Relevant points discussed included:

(a)
Able to withdraw offer

(b)
Monies may not be paid for up to 55 weeks in full offer period extended to maximum.

(c)
Conditional on 51 per cent being acquired -- thus possibility of locking in other 49 per cent.

Alternative Bid :

D B Lanceley read out his undertaking to the Board making a bid for all shares from shareholders wishing to sell with no limit on minimum number to be acquired. (Copy of letter attached)

Chase Corporation Ltd :

It was pointed out that Chase would not want to be involved in an unprofitable venture plus the added fact that Directors of Chase have substantial personnal shareholdings in that Company [sic].

D B Lanceley left the room so as the remaining four directors could vote on the venture as well as appoint a new Chairman.

It was resolved that D Harrison be elected as Chairman.

The Directors directed the Board of Norwest Ltd to enter a Joint Venture agreement with Chase Corporation Ltd under the terms and conditions as per document marked 'A' and that the agreement be sealed in accordance with the Articles of Association of Norwest Estate Ltd.

This motion was put by D Harrison and seconded by D Magney and the vote was unanimous by the other two directors.

An agreement was entered into by Norbrik/Norwest where Norwest will request Norbrik to sell the land at Baulkham Hills to it -- (Annexure marked 'B,'

A letter was approved by all directors to be sent to all shareholders to refuse Darvall/IEL offer (marked 'C').

The Directors gave DB Lanceley and D Magney the authority to sign the joint venture agreement on their behalf.

The meeting was closed (12.30pm)"

There is some dispute as to the actual discussion at that meeting, but a number of matters seem clear. The letter from Mr Frank Solomon referred to in the minutes was the letter of 25 August to which I have just referred. Although in relation to Mr Lanceley's bid, it is recorded in the minutes "Copy of letter attached", no such letter is attached to the minutes. It is not entirely clear but it does seem probable that the letter referred to, and which Mr Lanceley produced at the meeting, was the letter from Chase to Mr Lanceley to which I have just referred. However, it also seems clear that this letter was not shown by Mr Lanceley to the other directors. Next, the joint venture agreement referred to is an exhibit in this case, and I will say something about its terms later. On the other hand, the agreement referred to whereby Norwest was to request Norbrik to sell the land at Baulkham Hills to it was not tendered in this case, presumably because of stamp duty considerations.

As I have said, the joint venture agreement is in evidence, and it is an agreement between Norwest and Chase. It provided for the formation or acquisition of a company, to which each of Norwest and Chase were to subscribe $50,000 as share capital. This company was to have four directors, nominated in equal numbers by the parties. However, Chase was to be entitled to nominate a chairman of directors who, subject to certain restrictions, was to have a casting vote. As soon as practicable, this company was to enter into a contract to purchase the subject land from Norbrik for $60 million, to be satisfied by the issue by this company to Norbrik of non- interest bearing debentures having an aggregate face value equal to $60 million. These debentures were to be secured by a registered first mortgage over the land and a charge over the assets of the company, and were to be redeemed out of profits made in the development of the land. The parties agreed to use their best endeavours to cause the company to develop the land, and Chase undertook as part of its responsibilities (subject to certain qualifications) to have performed its obligations sufficiently to enable the company to have commenced significant initial development work on the land within six months of the land being re-zoned. The agreement provided for redemption of the debentures by application of specified proportions of the gross revenue during particular periods, with the percentage increasing from time to time up to June 1991 and remaining constant thereafter at 25 per cent. No dividends were to be paid until the debentures had been redeemed in full. Although as I have indicated, the debentures were to be non-interest bearing, there was provision in the joint venture for the issue of further debentures, so structured as in substance to provide for interest on the amount outstanding in favour of Norbrik at the rate of one half of the CPI from time to time. In general terms, Chase undertook responsibility for the due and proper carrying on of the joint venture company's business and the planning and administration of it.

There are in evidence also minutes of a board meeting of Norwest stated to have been held at Macquarie Bank on the same day, namely 26 August 1986. These minutes record that each of the five directors signed a trust deed declaring that they hold in trust one share each on behalf of Norbrik in Norwest. Such trust deeds dated 26 August 1986 are annexed to the minutes and it seems common ground that they do in fact bear the signatures of the directors. The minutes go on to record the signing of the joint venture agreement to which I referred. However, it seems clear on the evidence that that joint venture agreement was signed at the offices of Chase by only Mr Lanceley and Mr D Magney. Finally, these minutes note an agreement entered into by Norbrik agreeing to sell the subject for $60 million as soon as practical after the date of the joint venture. That agreement is not in evidence, again it would appear for stamp duty reasons, and I cannot give any effect to the memorandum recording its existence. It seems clear that there was in fact no separate meeting of the directors of Norwest that day, and that the only meeting on that day was that recorded in the minutes set out earlier in this judgment.

Later the same day, Mr Solomon contacted Mr Lanceley and purported to rescind his approval to the joint venture agreement. This was confirmed by a letter of that day from Mr Solomon addressed to Mr Lanceley. This letter suggested that Mr Solomon had had insufficient time to consider the joint venture agreement prior to the decision being taken at the meeting that day. A further letter to similar effect was sent by Mr Solomon to Mr Lanceley on 27 August 1986, with Mr Solomon asserting that he believed that the agreement was not in the best interests of the company, and asserting that the matter should be decided by the shareholders in general meeting.

On 27 August, a circular letter was sent to the shareholders of Norbrik signed by the four directors, apart from Mr Solomon. This letter gave information to the shareholders concerning entry into the joint venture agreement, and urged shareholders to reject the plaintiff's offer. It contained no reference to Mr Solomon's change of heart, and Mr Solomon later protested about this in a letter which he wrote to Mr Lanceley on 29 August.

On 29 August, Mr Lanceley wrote a circular letter to each shareholder, offering to purchase any or all of the shares in Norbrik at a price of $12 per share. This offer contained no minimum acceptance condition or any other condition.

Meanwhile, on 27 August, Chase had written to the Bank of New Zealand requesting the bank to finance Mr Lanceley's offer. This request was acceded to, and on 2 September 1986, the Bank of New Zealand wrote to Mr Lanceley offering credit facilities up to $10 million, on the basis that there be no recourse against Mr Lanceley but that the advance should be guaranteed by Chase.

On 2 September also, the plaintiff circularised the shareholders of Norbrik increasing his offer to $12.25 per share, and on the following day, Mr Lanceley circularised the shareholders, increasing his offer to $12.30 per share.

On 4 September, the directors of Norbrik met (not including Mr Solomon), and approved a circular letter to shareholders recommending that both offers should be rejected.

On 10 September 1986, a meeting took place of the joint venturers pursuant to the joint venture agreement to which I have referred. However, these proceedings had already been commenced the previous day.

On 11 September, the plaintiff wrote to the directors of Norbrik, and contended that the directors should require Mr Lanceley to disclose to the board the arrangements which he had made to finance his offer for the shares of Norbrik. On 15 September, Mr Solomon wrote to the directors asserting that Mr Lanceley should disclose full details of the financing of his offer, and Chase's involvement in that. On 18 September, the board of Norbrik wrote a letter signed by Mr D. Magney to Mr Lanceley requesting Mr Lanceley to provide details of this financing. No reply has been given by Mr Lanceley to that letter.

On 19 September, Mr Lanceley sent a circular letter to shareholders whereby he increased his offer to $12.50 per share.

On 9 October 1986, by a letter addressed to each of Norbrik and Norwest, Mr Solomon resigned as a director of each company.

The evidence in the case of course expanded on what is contained in the above outline, and dealt with such matters as the knowledge and purposes of the various people involved. There was also evidence on two other aspects of the case. First, there was evidence concerning the commercial merits or otherwise, from the point of view of Norbrik, of the joint venture agreement; and evidence concerning other possible options open to Norbrik in relation to the development of the land. Secondly, there was evidence concerning the arrangements pursuant to which the plaintiff made his offer, this being given in support of a submission, made particularly by Chase, that the plaintiff should be denied relief because of lack of clean hands. I will refer to both of these areas in due course.

I have been provided with extensive written submissions both on the facts and on the law by all parties, which I will leave with the papers. I will proceed now to shortly summarise the parties' submissions on the facts, and then I will give my decision on particular issues of fact which appear to arise from these submissions. Then I will deal in turn with the three broad areas of law which arise, namely the question of fiduciary duty, the s 129 question and the defence raised particularly by Chase of lack of clean hands.

Submissions on facts :

The submissions on the facts provided by the parties can be considered in relation to five areas: first, general submissions; secondly, Mr Lanceley,' purposes; thirdly, the inter-dependence of the joint venture and Chase,' financing of Mr Lanceley, and the directors' knowledge of this; fourthly, the purposes of the other directors; and finally, Chase's knowledge.

The plaintiff, for whom Mr Hely QC appeared, made a number of general submissions on evidence relied on to support an inference that the directors had an improper purpose.

They were developed in this way. Prior to the announcement of the plaintiff's offer, Norbrik had been engaged in an exercise of increasing the value of the land, and was considering various means of development including the possibility of developing the land itself with professional assistance. In November 1985 after the annual general meeting, Mr Lanceley informed the shareholders that they would be consulted before selecting any particular option for the development of the land. One of the options was development without an equity partner, this at the time being Mr Lanceley's preferred option. According to Mr Lanceley, up to March 1986, it was too early to discuss the specifics of development with several interested parties. Prior to 6 June 1986, Norbrik had underway a corporate study to determine its best role with respect to development. This study was never completed; and but for the plaintiff's offer, it would have been completed, and its results taken into account. The plaintiff's offer of $10 per share represented a huge increase over the price at which shares had previously changed hands. The directors knew that unless positive steps were taken, a substantial number of shareholders would take this money. Accordingly, Norbrik engaged Macquarie, as the plaintiff puts it, to defend it against the plaintiff's bid. Following this appointment, Norbrik brought legal proceedings against the plaintiff, and this the plaintiff says was for the purpose of delaying the dispatch of the plaintiff's offer so as to enable Norbrik to put its defence in place. The proceedings were brought notwithstanding the opposition of Mr Solomon and failure to consult him. Macquarie's recommended strategy initially was that the joint venture partner should contribute towards the cost of the land and finance the development. Neither of those objectives was achieved by the joint venture. The property was not put up for public tender but was submitted on a confidential basis to selected companies. The negotiations were conducted in a situation of urgency during a period of about three weeks, because of Norbrik's desire to have an agreement in place before the dissolution of the injunction obtained against the plaintiff. The property was put up for offers even though it suffered from a weakness, in that rezoning had not taken place, and it was offered to some of the companies with whom specific discussions had been rejected some four to six months previously. The joint venture agreement was concluded even though responses had not been received from all the companies to whom the selling memorandum was sent.

At the 20 August meeting when the directors discussed the options open to Norbrik, there was no discussion of the option of carrying out the development alone without the participation of an equity partner, which had previously been Mr Lanceley's preferred option. The directors were not prepared to put the joint venture agreement to the shareholders, and the plaintiff submits that this was for fear that in the meantime the plaintiff might obtain control. The directors were not prepared simply to provide information and to recommend against the plaintiff's offer, because some shareholders had accepted the plaintiff's offer and others would follow. The plaintiff submitted that since the attraction of Norbrik to an offerer was the land, the joint venture agreement was seen as a way of making the company less attractive to a bidder. The directors barely troubled to inquire about the suitability to them of having Chase as their joint venture partner on a fifteen year project: Mr Lanceley did not meet any Chase executives until after the joint venture agreement was executed. The directors did not give any consideration to the present value of the rights granted under the debentures, which were more of the order of $30 million or perhaps $40 million than their face value of $60 million. They made no calculation of how this compared with the Mirvac offer of $35 million which could, with little difficulty, have been pushed up to at least $40 million. Prior to the execution of the joint venture agreement, the directors failed to solve the problem of how development finance could be raised while the first mortgage in favour of the debenture holder remained in place. In general, the terms of the joint venture agreement were disadvantageous to Norbrik. Chase had no explicit financial obligations other than the contribution of $50,000 capital and the provision of certain staff. The directors saw the joint venture agreement for the first time at the meeting of 26 August. The meeting was called in haste, and Mr Solomon in particular was misled as to its purpose. The plaintiff submitted that this was because it was desired to announce the joint venture agreement and Mr Lanceley's bid to share holders urgently.

On behalf of Norbrik, Norwest, and the directors other than Mr Solomon, all being parties for whom Mr Staff QC appeared, it was accepted that up to June 1986, Norbrik was endeavouring to increase the value of the land primarily by having it rezoned, but submitted that this does not lead to an inference that what, the directors did after the take-over offer was in any way improper. The directors found themselves in the same position as the directors in Winthrop Investments Ltd v Winns Ltd (1979) 4 ACLR 1; (1979) CLC 40-554, and faced with what they believed to be an inadequate take-over offer, did the best they could to utilise the company's asset in the most efficient way possible. The directors recognised that the option of developing without professional assistance was not practical, an opinion consistent with the opinion of an expert called by Chase, Mr Mackay. It was submitted that no inference can be drawn against the directors by reason of the failure to submit the proposal to shareholders. The directors were concerned that the plaintiff may have made selective offers to individual shareholders, and this, it was submitted, was a legitimate concern. A considerable number of companies, apart from Chase, had been approached. The only offer received apart from the Chase offer was the Mirvac offer. The option of the joint venture was recommended as the best option available at the time by Macquarie. The criticisms of the joint venture agreement made on behalf of the plaintiff were rejected by Mr Mackay, and his evidence is to be preferred to the evidence of Dr Hutcheson, the expert called by the plaintiff. Macquarie was not engaged for the purpose of defeating the plaintiff's offer, but to advise generally on the offer and on ways to maximise returns to shareholders. The legal proceedings were not brought to delay the plaintiff's offer, but to test its validity, although it was recognised that delay may have been a desirable by-product. The suggestion that Norbrik could have got a better deal by first obtaining rezoning was rejected by Mr Mackay. Although the directors of Norbrik had not met Chase executives, Macquarie had advised in favour of the joint venture and independent inquiries as to Chase were made and information obtained. Although it is true that Fuller Flanders had advised that the land should not be disposed of prior to rezoning, the directors cannot be criticised for taking a commercial decision contrary to that advice. Similarly, in relation to the present value of the debentures, the directors saw benefits over and above the receipt of the debentures. Neither the directors nor their advisers considered the matter of raising finance when there was a first mortgage over the land securing the debentures to be a real problem. This was confirmed by Mr Mackay.

On behalf of Chase, for whom Mr Horton QC appeared, it was submitted that the decision to enter the joint venture was a prudent and business-like decision, and that the court would not enter into an examination of whether it would have made the same decision. The timing of making arrangements for development of the land, and the precise mode in which that was to be achieved, were business decisions for the directors which cannot be questioned, provided they were acting honestly and believed that what they did was in the interests of the company. Much expertise was required for the development, and neither Norbrik nor its directors had that expertise, nor could it expect to attract finance without having the necessary expertise. One way of obtaining the expertise and attracting finance was to enter into a joint venture with a financially strong and experienced joint venturer such as Chase. The entry into the joint venture was in no way designed to secure, and could not have secured, the directors in their positions. The effect of entry into the joint venture was to result in the shareholders obtaining bids for their shares over $2 more than the plaintiff's original bid. Prior to the plaintiff's bid there had been no pressing need to hurry the process along, nor any particular detriment from lack of urgency. However, when the take- over offer was made, it was obvious to the directors that unless shareholders were going to be deprived of their shares at an undervalue, something had to be done to indicate that the company really was going ahead with a viable means of exploiting its asset in the quite near future. Taking steps to do so by entering into the joint venture was to do no more than make it plain to the shareholders and, for that matter, to the raider (ie the plaintiff) that the value of the company was significantly more than the raider was offering. The directors were concerned to see that the shareholders had preserved for them an option either to sell the shares at an acceptable price, or to keep the shares in the realisation of the practical steps which were being taken to develop the land; and for that reason, some, at least, of the directors were concerned that there should be an alternative bid, as was in fact made by Mr Lanceley, available when the joint venture was entered into. As a result of the actions of the directors, the shareholders received increased offers for their shares, considerable information about the potential of the company and of the advantages which the directors saw in the joint venture, and had been warned by Mr Lanceley that not even his offer was in his view adequate payment for the shares held by shareholders. The directors did not use their position to favour Mr Lanceley's attempt to acquire shares in the company: on the contrary, they made every effort to prevent Mr Lanceley's offer as well as the plaintiff's from succeeding.

Chase's written submissions also dealt at length with objective consider ations concerning the merits of the joint venture. In general terms, these submissions were based on the evidence of Mr Mackay, and involved criticism of evidence given on behalf of the plaintiff by Dr Hutcheson.

The next area in relation to which submissions were made concerned Mr Lanceley's purposes.

On this matter, it was submitted for the plaintiff that Mr Lanceley was the only director who had been directly involved in planning the development; that he wanted to continue with the development himself, and, through his shareholding, to obtain an interest in the resulting profits. However, he knew that the plaintiff's offer could succeed, and that control of the company could accordingly change. His purpose was therefore to defeat the plaintiff's bid. To do this it was essential that he have the funds to outbid the plaintiff, and it was submitted that this was his primary or an operative purpose. Accordingly his purpose was to see that Norbrik entered into the joint venture, in order that Chase would finance his bid. A secondary purpose was to make Norbrik less attractive to a bidder. The plaintiff submitted that Mr Lanceley was so anxious to achieve his purpose that he used his position in the company to ensure that the other directors supported the joint venture. He failed to inform Mr Solomon of the purpose for which the meeting of 26 August was called, lest he persist in his opposition; secondly, he participated in the discussion of the joint venture agreement at this meeting with the knowledge that the other directors would be influenced by his support of the joint venture agreement; and thirdly, he failed to disclose the existence of his no-recourse finance by Chase. Other actions by Mr Lanceley, it was submitted, support the inference that his true purpose was to obtain this finance. First, he signed the joint venture agreement at Chase's office with the knowledge that Mr Solomon had rescinded his support; secondly, his circular to shareholders concealed the fact that Mr Solomon did not support the joint venture agreement; and thirdly, he topped the plaintiff's counterbid so as to ensure that shareholders sold to him.

For Norbrik, Norwest and the directors, it was submitted that Mr Lanceley's purpose was to give Norbrik the commercial advantages which he considered the joint venture agreement had, namely: it achieved a method for securing a partner for the development of the land; it secured the value of $60 million; it permitted the continuing operation of the brickworks; and it allowed the management rights of the business park. Although Mr Lanceley accepted that he did not wish the plaintiff's bid to succeed, the reason for this was that he believed it was at an undervalue. Mr Lanceley denied the reason was that he or his associates would lose control of the company. His purpose was not to secure funds for his bid: he was aware that some of the board members would not enter into the joint venture agreement unless there was an unconditional bid on the table, and it was for that reason that he made his bid. The other matters relied on by the plaintiff did not justify the inference claimed by the plaintiff. In relation to Mr Lanceley not telling the directors that he was obtaining non-recourse finance from Chase, his explanation should be accepted, namely that he had been advised that he was under no obligation to give such information.

Chase also supported these submissions, noting the additional commercial advantage of the joint venture seen by Mr Lanceley, namely giving Norbrik half the development profits of the land.

The next area on which submissions were made concerned the inter- dependence of Chase's financing Mr Lanceley's offer, and the entry by Norbrik into the joint venture agreement.

The plaintiff submitted that the only rational explanation for Chase's undertaking to provide non-recourse finance to Mr Lanceley was that the finance was dependent upon the execution of the joint venture agreement.

Mr Lanceley did not have the funds to service the debt or repay the capital, and he was not prepared to take the risk of personal liability. There was no benefit to Chase in providing no-recourse finance to Mr Lanceley. The only benefit which flowed to Chase was the execution of the joint venture agreement. There was some dispute concerning the meeting of 22 August, as to whether Mr Hunt said at that meeting that Chase was prepared to finance Mr Lanceley provided Norbrik executed the joint venture agree ment: the plaintiff submitted that I should find that he did indeed say that.

So far as the knowledge of the directors was concerned, the plaintiff first submitted that Mr Lanceley was aware of the inter-dependence. His evidence to the contrary was unsatisfactory, and should be rejected.

So far as the other directors were concerned, they were informed at least on 26 August that Mr Lanceley was being financed by Chase. Indeed, in Mr Solomon's letter of 25 August, copies of which were given to all directors, it was asserted that the entry into the joint venture and the provision of finance by Chase was a package. Once the directors were on notice that Chase was financing Mr Lanceley, they were put on inquiry as to the terms on which this was being done.

Although Mr David Magney and Mr Phillip Magney, two of the directors, denied that they knew that Chase was providing finance for Mr Lanceley's bid, their denials should not be accepted. So far as another director, Mr Harrison is concerned, he admits that he knew that Chase was financing Mr Lanceley's bid, but says that he accepted Mr Lanceley's assurance that there was no connection between the two. Having regard to Mr Harrison's knowledge that Mr Lanceley needed finance of up to $30 million, and that Mr Lanceley was not greatly at personal risk in the structure of his finance, the last-mentioned evidence should not be accepted. Finally, Mr Solomon was aware of the inter-dependence, and it should be found that his affirmative vote was only obtained by pressure on him.

On behalf of Norbrik, Norwest and the directors, it was submitted that there was a commercial benefit to Chase in providing non-recourse finance to Mr Lanceley. First, it ensured that an unconditional take-over bid would be available to shareholders, which was a pre-condition on which some of the directors were insisting prior to their accepting the joint venture agreement; and secondly, it ensured that Mr Lanceley remained with the project of which he had full knowledge. Mr Lanceley's stated belief to the effect that Chase was prepared to finance his bid irrespective of whether a joint venture agreement was entered into should be accepted. The evidence of a disclosure by Mr Hunt at the meeting of 22 August of the dependence of the finance for Mr Lanceley upon entry into the joint venture agreement should not be accepted. I should accept Mr David Magney's evidence and Mr Phillip Magney's evidence that they were unaware that Chase was financing Mr Lanceley's bid. I should accept that Mr Harrison accepted Mr Lanceley's statement that there was no connection between the offer and the joint venture. I should accept that Mr Solomon made the assertion which he did in his letter of 25 August only because Mr Hopkins mistakenly believed that Mr Hunt had spoken about the inter-dependence.

For Chase, similar submissions were made. It was also submitted that Mr Lanceley's bid was not made possible by the directors by entering into the joint venture agreement. Events happened the other way around. The joint venture agreement was being considered, and it was intended to be entered into. What the directors wanted was not only the advantages of the joint venture, but also the retention of a bid for the shareholders who wished to sell and, for those, the increase of the bid price to something more approaching a fair one. The directors were aware of an escape clause in the plaintiff's bid, which would have been triggered by the joint venture agreement. It is plain that the entry into the joint venture agreement was only approved because there was available an offer by Mr Lanceley. Even if Mr Lanceley might be said to be accountable to the company in some way for some advantage he got out of the funding arrangement, that does not make the joint venture improper.

Reference was also made to the phrase "quid pro quo", which appeared in the draft paper for discussion dated 14 August 1986. The proposal that Chase bid for shares merely reflects the directors' anxiety to have a bid competing against that of the plaintiff, and one which would still be available to those shareholders who did not wish to remain in the company. It was also submitted for Chase that on the true construction of the finance documents, Chase was entitled to a 2 per cent margin over and above the interest payable by Mr Darvall to the Bank of New Zealand.

On this topic, separate submissions were made on behalf of Mr Solomon, for whom Mr Cohen appeared. In general terms, he supported the earlier submissions of the other defendants to which I have referred. However, in relation to this matter, he submitted that the involvement of Chase in the provision of finance or financial support to Mr Lanceley may have been known to, or should reasonably have been suspected by, the directors at 26 August 1986. However, he did submit that generally there appears to have been a degree of confusion as to the mode, extent and nature of the funding of Mr Lanceley's take-over offer.

The next area on which submissions were made concerned the purposes of the other directors.

It was submitted for the plaintiff that Mr David Magney did not want shareholders to take the plaintiff's cash, and that he was looking for an offer from someone whose plans for the company would include those shareholders who wanted to participate in the profits from development: it was clear from this that his purpose was to defeat the plaintiff. So far as Mr Phillip Magney was concerned, he regarded the plaintiff as an unwelcome corporate raider; he thought control by the plaintiff would not be in the interests of shareholders who wished to participate in the development; he thought the company should continue under its traditional control; and he thought that the execution of the joint venture agreement would enable this to happen by getting rid of the raider. As regards Mr Harrison, he was concerned about the price of the plaintiff's bid and was not satisfied as to the plaintiff's future intentions; these two matters caused him to concur in positive steps being taken to see whether the land could be realised; and he was concerned that some shareholders might sell to the plaintiff, and this was the reason why he was not prepared to see the joint venture agreement submitted to the shareholders.

So far as Mr Solomon was concerned, he was aware from 20 August that Mr Lanceley's funding may be dependent upon the execution of the joint venture agreement. He was concerned about this, he had other reservations about the proposed joint venture agreement, and he wanted it submitted to shareholders. He was pressured into concurring, and was brought to the meeting of 26 August on short and misleading notice.

On behalf of Norbrik, Norwest and the directors, it was submitted that Mr David Magney's purpose was related to the fixing of a value for the land and an opportunity being given to the company to participate in the future development: his denial that his purpose was to frustrate the take-over offer to be made by the plaintiff, or to facilitate Mr Lanceley's offer, should be accepted. Mr Phillip Magney's purposes were similar; and although he expressed the view that it was better that the company remain under its traditional control, he did not state that that was the reason he voted in favour of the joint venture. Mr Harrison said that the joint venture agreement was, in his opinion, the best alternative for the future operations of the company; and on the evidence, it could not be said that his purpose was to frustrate the plaintiff's offer. As regards Mr Solomon, at the time he voted in favour of the joint venture agreement, he was satisfied that it was in the interests of all shareholders. He subsequently apparently changed his mind. Any pressure on Mr Solomon was merely persuasive.

On behalf of Chase, it was submitted generally that the directors supported the joint venture because they saw it as having commercial advantages of the kind referred to earlier in relation to Mr Lanceley.

The final area of submissions concerned the knowledge of Chase. The plaintiff pointed out that no evidence was given by any Chase executive. Chase knew that Mr Lanceley had been closely associated with the plans for the development of the land and that he had knowledge which Chase wished to exploit. It was apparent to Chase that the other directors would be influenced in their decision about the joint venture agreement by Mr Lanceley's view. Chase would only have been prepared to assist Mr Lanceley with no-recourse finance if it obtained the joint venture agreement: no other reasonable explanation has been offered. Chase must have known that no-recourse finance was a substantial benefit to Mr Lanceley. Chase was prepared in effect to pay a premium to Mr Lanceley in order to secure the joint venture agreement from Norbrik. If Chase believed that Mr Lanceley had disclosed his no-recourse finance to the other directors, Chase must have known that the directors were prepared to approve payment of a premium to Mr Lanceley, which should have gone to Norbrik. If Chase believed that Mr Lanceley did not disclose his no-recourse finance, then Chase must have known that the directors approved the joint venture agreement without full knowledge of all the material facts. The response of the defendants to these submissions can be gleaned from my earlier remarks on those submissions.

Some issues of fact :

Some of the issues of fact raised by those submissions can most conveniently be considered when I am determining the ultimate questions in the case, particularly in relation to the breach of fiduciary duty. However, there are some issues of fact which can conveniently be dealt with here.

Before referring to these issues, it is necessary to say something about the witnesses called in these proceedings. The plaintiff himself did not give evidence, although apart from the question of clean hands, there was probably no issue on which the plaintiff would have been able to give useful evidence. As mentioned earlier. Chase did not call any of its own employees or officers to give evidence. They could have given relevant evidence concerning the knowledge of Chase, and concerning the question of inter- dependence of the financing of Mr Lanceley and the entry into the joint venture agreement. The fact that they did not give any such evidence may enable me to draw inferences against Chase, if there is otherwise evidence basing such inferences.

I have already mentioned that some evidence was called on the question of the commercial merits of the joint venture agreement from the point of view of Norbrik. On behalf of the plaintiff, such evidence was given by Dr Hutcheson, a person of considerable practical experience and consider able academic experience and qualifications. However, I considered that he tended to be dogmatic and tended to overstate some of his qualifications in relation to giving evidence on particular topics, particularly concerning papers which he had himself prepared. I do give weight to his opinions, but on the whole, I think they carry less weight than the opinions given by Mr Mackay, who was called on this matter by Chase. Mr Mackay's academic qualifications and experience were less, but his practical experience and qualifications I think were greater, and more relevant to the particular questions in issue in this case. In my view, he was more in touch with present commercial practices concerning projects of the kind involved in this case.

As I have indicated, the evidence of these witnesses concerned the commercial merits of the joint venture agreement for Norbrik and the competing merits of alternatives which may have been open to the company. I think there was force in criticisms made of the joint venture on behalf of the plaintiff: in particular, that there was no significant monetary contribution by Chase in return for acquisition of a right to half the profits of the development, and no express obligation on Chase either to provide or to raise finance. I think also the securing of the debentures by a first mortgage over the land would, to some extent, raise problems for the provision of finance to the project. However, I certainly do not think that I can find that the joint venture agreement was so commercially unfavourable for Norbrik that I should not for that reason find that the directors believed it to be in the best interests of the company. Indeed, having regard to Mr Mackay's evidence, I do not think I can find that the joint venture agreement was unfavourable to Norbrik, in such a way that this could be added to other considerations in order to support an inference that the directors did not act bona fide in what they considered to be the best interests of the company.

The main question of credibility which arises concerns the credibility of the directors of Norbrik, and to a lesser extent, of persons such as Messrs Hunt and Feetham of Macquarie, and the solicitors, Mr Hopkins and Mr McDonald, who were involved in relation to the negotiations.

In order to come to a view on the credibility of these witnesses, it is, I think, necessary to say something about the nature of the finance which was provided by Chase to Mr Lanceley. It has already been noted that this finance was non-recourse so far as Mr Lanceley was concerned. It seems clear that this means that whatever happened in relation to the repayment of the loan, Mr Lanceley was not going to be called on to pay any money, except in so far as that money could be obtained from the shares themselves which were being acquired. That means in turn that Mr Lanceley was getting the chance of making a considerable profit, at no risk to himself. The quantum of the potential profit could be considerable. At the date of the hearing, it appears that Mr Lanceley was entitled to about 900,000 shares in the company. As at 25 August, as appears from the letter from Chase agreeing to provide the finance, it appears that he was entitled to no more than about 400,000 shares. It would appear therefore that with the aid of the finance, Mr Lanceley has acquired about 500,000 shares in Norbrik. For every $2 by which one share in Norbrik should turn out to be worth more than the amount Mr Lanceley has paid for it, namely $12.50, plus whatever interest accrues in the meantime (and that, of course, could be very considerable), Mr Lanceley will gain $1 million. Of course, it is far from certain that Mr Lanceley will be able to make such a profit: his chance of doing so may be 50/50, or perhaps considerably less. However, even a relatively small chance of making $1 million (or $2 million, if the shares should go up by say $4 a share) at absolutely no risk to oneself is very valuable indeed. And this is precisely what Mr Lanceley was receiving from Chase.

Mr Lanceley, the person receiving this very valuable benefit, was the managing director of Norbrik who was negotiating the entry by Norbrik into a joint venture agreement with Chase. He had no other relevant relationship with Chase. It is, true that there were advantages to Chase in providing this assistance to Mr Lanceley, in particular ensuring that as required by some directors, there was an unconditional bid, and securing the continued assistance of Mr Lanceley in the development of the land. There may also have been the prospect of a margin of 2 per cent on the amount of the loan, although I am doubtful if that is the correct construction of the documents: it is not necessary for me to decide this. However, it is perfectly clear to me, as it was to Mr Hunt, that Chase was willing to provide this benefit to Mr Lanceley only in circumstances where Norbrik was entering into the joint venture with Chase.

These circumstances, it seems to me, involve the near certainty of a breach of fiduciary duty by Mr Lanceley. In so far as he was purchasing shares in Norbrik, he could not be doing so on behalf of Norbrik, because this would involve a breach of s 129. In so far as he was doing it for himself, and therefore giving himself the chance of the profit to which I have referred, he was receiving a benefit by reason only of his position in Norbrik and because Norbrik was entering into a joint venture with Chase.

Any benefit arising from those circumstances should, of course, go to Norbrik, rather than to Mr Lanceley. The only circumstances in which Mr Lanceley might be entitled to receive such benefits on his own behalf are where this was authorised by the company's articles, or where it was authorised by the company in general meeting after full disclosure.

I make these remarks, because I think it is necessary to have these things in mind in evaluating Mr Lanceley's assertion that he believed there was no connection between Norbrik's entry into the joint venture and Chase's being willing to assist him in financing his offer for shares on a no-recourse basis; and also Mr Lanceley's assertion that he did not think that he needed to disclose to the other directors the terms on which Chase was assisting him with the financing of his offer. Mr Lanceley asserted that he was told by Mr Hunt that there was no connection between Chase's assistance and the joint venture agreement, and that he believed this. He said he was advised by Mr Hunt and by Mr McDonald that there was no need for him to disclose the details of the financing to the other directors. Mr Hunt, however, said in evidence that it was obvious to him that the two matters were connected, and he denied that the ever told Mr Lanceley that they were not. Both Mr Hunt and Mr McDonald denied telling Mr Lanceley that he need not disclose the details of his financing to the other directors. Mr McDonald, who was the solicitor acting for Norbrik in relation to the joint venture agreement, and drafted the joint venture agreement, said in evidence that he did not know that Chase was assisting in the financing of Mr Lanceley's offer.

It is difficult to know what to make of all this. When Mr Lanceley was giving evidence, he impressed as doing so honestly and frankly. On the other hand, I find it extremely difficult to believe that he could have thought that he was being given this no-risk opportunity to make very large sums of money, quite independently of Norbrik entering into the joint venture with Chase. Even if he was told this by Mr Hunt, I just do not see how he could have believed it. Of course, the matter is a complex one, and it is not difficult to become confused and perhaps lose sight of the wood for the trees. In any event, I find that notwithstanding his denial, Mr Lanceley was aware of the connection between Chase assisting him and the entry into the joint venture agreement, at the time when he spoke in favour of entry into the joint venture agreement at the board meeting of 26 August 1986. I am unable to say whether his present denial is dishonest, or the result of some process of reconstruction. I do not think Mr Lanceley is a generally dishonest person. However, in the light of my finding as to his knowledge of the connection between Chase's assistance to him and the joint venture, I must also scrutinise with great care his other assertions concerning his knowledge and intentions at the relevant time.

It is perhaps not absolutely necessary for me to make a finding on the credibility of Mr Hunt, in the light of the foregoing. However, there are some other areas where his evidence is relevant. I think that Mr Hunt had some awareness that the package which was negotiated by Macquarie did involve a very likely breach of fiduciary duty by Mr Lanceley, and possibly also s 129 problems. Although he was probably aware of these matters, Mr Hunt certainly refrained from speaking frankly about them either to Mr Lanceley or to any of the other directors. I think in those circumstances, what he did say from time to time may well have been capable of being misunderstood. However, and here I come to the meeting of 22 August, in the presence of Mr Hopkins, who was perhaps on the lookout for problems of this kind, it would not be surprising if some things that Mr Hunt said were readily perceived by Mr Hopkins as indicating the clear connection between the two matters. Mr McDonald has denied having any knowledge that Chase was assisting Mr Lanceley with his offer. Indeed, he denied that he knew it even at the time of the hearing, although he conceded that he had been told that this was the case, and had no reason to disbelieve it. I am inclined to think that Mr McDonald did not want to know how Mr Lanceley's bid was being financed, and while I do not find that he was a dishonest witness, I do in general terms prefer the evidence of Mr Hopkins to his evidence.

I note that Mr Hopkins in his notes of the meeting of 22 August records it as being stated that there was no relationship between Mr Lanceley's bid and the Chase joint venture deal. Mr Hunt denied ever saying this. I am inclined to think, as stated above, that the lack of frankness of Mr Hunt in relation to problems of which he was conscious may well have given rise to things such as that being stated, which may also have been taken by Mr Lanceley as support for the absence of such a relationship. I say this not as cutting down what I have previously said about Mr Lanceley, but rather to perhaps help explain how Mr Lanceley may have subsequently come to believe it. Certainly however, I have no doubt that at the meeting of 22 August Mr Hunt did say words which conveyed to Mr Hopkins, and would have conveyed to anyone on the lookout for such a connection, that Chase would finance Mr Lanceley's bid provided that Norbrik entered into the joint venture agreement.

So far as the other directors are concerned, I think they were all giving evidence honestly to the best of their ability, subject to one matter. I think that they were conscious of the problems which would be caused to their case by their saying that they voted for the joint venture agreement in order to defeat the plaintiff's bid. I do not think they deliberately gave false evidence having regard to this consideration, although I think that this may have possibly unwittingly coloured their evidence.

I do accept that at the meeting of 26 August, copies of Mr Solomon's letter of the previous day were given to all directors, and that accordingly all of them should have been aware that Chase was financing Mr Lanceley's bid, and that a connection was being asserted between this and entry into the joint venture agreement. However, I am inclined to think that this aspect of the matter was brushed over in discussion of the letter, and that Mr David Magney and Mr Phillip Magney failed to take in that Chase was financing Mr Lanceley and, of course, failed to accord any significance to that fact. I think that Mr Harrison was told by Mr Lanceley that there was no connection between the two; and in circumstances where he did not know that the finance being provided to Mr Lanceley was non-recourse finance, I can believe that he accepted that statement. I think he should have looked into the matter further, but I do not consider he was dishonest in his evidence.

Fiduciary duty :

On behalf of the plaintiff, it was submitted that where the exercise by the

directors of a corporate power is challenged, two questions arise:

(a): Were the directors acting in good faith and in what they considered to be the interests of the company?
(b): Was the power exercised for the purpose for which it was conferred, or for some extraneous purpose? The existence of subjective good faith is insufficient to save the purported exercise of the power, if the power was exercised for a collateral purpose.

Ascertainment of the purpose which activated a board's decision is a question of fact. The relevant question is whether the challenge power would have been exercised "but for" the presence of the impermissible purpose: Mills v Mills (1938) 60 CLR 150 at 186 and Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 294.

If the directors came to the conclusion that the plaintiff's offer was inadequate, or otherwise should not be accepted, that justified no stronger action on their part than the giving of full information to shareholders so that they could make an informed decision as to where their interests lay, and the making of recommendations if the directors thought it appropriate to do so. It is unconstitutional for directors to use their fiduciary powers for the purpose of destroying an existing majority or creating a new majority: Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 79-80; [1974] AC 821 at 837-838. Similarly, it must be equally unconstitutional to use fiduciary powers for the purpose of preventing a person acquiring a majority of shares. If it be the case that the purpose of frustrating action was an endeavour to obtain a higher price for the shareholders, that would not render this purpose proper. That was the purpose of the directors in Howard Smith. Winthrop Investments Ltd v Winns Ltd is not inconsistent with these submissions. That was a case where a take-over threat was the catalyst which caused the directors to take proper steps to acquire new retail outlets, the acquisition of which was necessary to restore or increase the profitability of the company: see also Pine Vale Investments Ltd v McDonnell & East Ltd (1983) 8 ACLR 199 at 209-210; 1 ACLC 1294 at 1304.

It was submitted for the plaintiff that if the Court finds as a fact that, but for a desire to prevent the plaintiff from acquiring a majority of shares on the terms of his offer, the directors would not have entered into the transaction upon the terms which they did, then the transaction is voidable as an abuse of power. Accordingly, the joint venture agreement should be set aside.

For Norbrik, Norwest and the directors, it was submitted that in order to succeed, the plaintiff had to prove that the action of the directors in causing Norwest to enter into the joint venture agreement was an action carried out not bona fide in the interests of the company as a whole, but for an improper or collateral purpose. Further, it had to be shown that such improper or collateral purpose was the substantial purpose of the defendant directors: see Mills v Mills (at 185-189); Ngurli Ltd v McCann (1953) 90 CLR 425 at 445 and Whitehouse v Carlton Hotel Pty Ltd (at 294). If the directors were acting bona fide in the interests of the company as a whole, their action is not vitiated by the fact that they or their associates gained a benefit from such action: see Harlowe's Nominees Pty Ltd v Woodside ( Lakes Entrance) Oil Co NL (1968) 121 CLR 483 at 493.

In considering whether the actions of the directors were bona fide in the interests of the company as a whole, the court does not have to look at the company as a separate entity distinct from its corporators: see Ngurli Ltd v McCann (at 438). This was of considerable importance in the present case, where at least some directors were concerned that prior to the entry into the joint venture agreement, an unconditional take-over bid was assured to give those members who wished to sell their shares an opportunity to do so.

It was not the function of the court to substitute its own opinion for that of the directors as to whether the action sought to be impeached was in the best interests of the company: see Harlowe's Nominees and Howard Smith .

If the decision or action sought to be impeached was taken bona fide in the interest of the company as a whole, it did not matter that it was taken in the context of a take-over offer or even activated by the fact that a take-over offer had been made: see Winthrop Investments Ltd v Winns Ltd (at 4; 32, 259). Indeed, in exceptional cases, the directors can take steps for the purpose of actually frustrating a take-over offer where they believe that the offer is not in the interests of the company as a whole: see Teck Corporation Ltd v Millar (1972) 33 DLR (3d) 288, approved in Howard Smith Ltd v Ampol Petroleum Ltd (at 78-79; 836-837) and Cayne v Global Natural Resources (an unreported decision of Megarry V-C in the Chancery Division of the High Court of Justice handed down on 12 August 1982, noted at 56 ALR 600 ).

On this last matter, it was submitted in reply on behalf of the plaintiff that Teck was not authority for the proposition submitted; and that Cayne states as a proposition a submission rejected by the Privy Council in Howard Smith (at 76; 834) as an acceptable extreme argument, namely:

"... that once it is found that the directors were not motivated by self- interest-- ie by a desire to retain their control of the company or their positions on the board, the matter is concluded in their favour and that the court will not inquire into the validity of their reasons for making the issue."

It was also submitted on behalf of these defendants that the court should not avoid the joint venture agreement even if the plaintiff's case is otherwise made out, in circumstances where other members of the company, not joined as parties, may have acted on the faith of the joint venture agreement in declining to accept the bids of either the plaintiff or Mr Lanceley, bids which are no longer available.

These submissions were generally supported by the fourth defendant, and also by Mr Solomon. In addition, on behalf of Mr Solomon it was submitted that even if a breach of fiduciary duty was found against the other directors, no such breach should be found as against Mr Solomon. It was further submitted on behalf of Mr Solomon that the court could not take any account of any suggested entry into a side agreement for the sale of the subject land to the joint venture, no such agreement having been put into evidence and no such agreement (on the evidence) having been stamped.

These submissions appear to raise three particular legal questions, which I will consider in turn. First there is the question of whether the duty owed by directors is to the company as a corporate entity, or to the present members of the company, or to some other body or persons. Secondly, there is the question of whether the relevant purpose is the dominant purpose of the directors, or whether it may extend to a purpose which is one among a number of dominant purposes, that is, purposes but for which the impugned action would not have been taken. Thirdly, there is the question of the extent to which directors may take steps occasioned by and in some sense, in opposition to a proposed takeover offer.

In my view, the first question should not be given a narrow answer. In my view, it is proper to have regard to the interests of the members of the company, as well as having regard to the interests of the company as a commercial entity. Indeed, it is proper also to have regard to the interests of the creditors of the company. I think it is proper to have regard to the interests of present and future members of the company, on the footing that it would be continued as a going concern: see Gower, Modern Company Law , 4th ed (1979) at 577-578.

One can put this in the context of the present case in the following way. Let it be supposed that the directors believed that the joint venture agreement was the best agreement available to the company for the development of the land at the time, but recognised that the time for negotiating such an agreement had been extremely limited, and also recognised that if the company continued in its previous course of seeking the rezoning of the land and looking for an agreement for the development of the land at a less pressured pace, some better agreement may ultimately be made with some other party. Would it then be appropriate for the directors to take into account the circumstance that many of the shareholders wished to obtain substantial cash for their shares in the short term, had been offered $10 per share which the directors considered to be inadequate, and could in association with the entry into the joint venture agreement be secured an unconditional offer of $12 per share, which more closely approached the true value of the shares? I think that they could take this into account. It may be that if there were two alternatives presently open, one of which was preferable for the company as a corporate entity and the other of which involved such an offer to shareholders, then the directors would be bound to prefer the alternative more favourable to the company. However, where the alternative associated with the offer to shareholders was considered by the directors to be the best available at the time, and where the other alternative was the bare possibility of getting a better arrangement at some later stage, I think the directors could put into the balance the interests of those shareholders who wanted to obtain cash for their shares in the relatively short term. Of course, the evidence in this case does not suggest that the directors actively weighed up the matter in this way, but I think it is relevant to consider the principles applicable to such a weighing process.

The next question is whether the directors' action can be impugned if there was an improper purpose which was one of a number of significantly contributing causes, provided it was causative in the sense that but for its presence, the action would not have been taken. It was put by Mr Staff that the statement in Whitehouse v Carlton Hotel (at 294) conceded that the weight of authority in the High Court was that the action was invalid only if the impermissible purpose or a combination of impermissible purposes could be seen to have been dominant. The tentative view expressed to the contrary on that page was insufficient to overcome the previous preponderant view in the High Court. Accordingly, it was submitted that I was bound to apply this previous preponderant view. However, in none of the earlier cases was it necessary to consider a situation where a number of substantial purposes could be identified, only one of which was improper, and where it could be said that but for the improper purpose, the action would not have been taken. On the whole, I think it is open to me to adopt what Mason, Deane and Dawson JJ in Whitehouse v Carlton Hotel said (at 294) to be as a matter of logic and principle the preferable view, namely:

"... that, regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, 'the power would not have been exercised'."

On the third question, it was stated in Teck (at 317) that:

"... directors are entitled to consider the reputation, experience and policies of anyone seeking to take over the company. If they decide, on reasonable grounds, a takeover will cause substantial damage to the company's interests, they are entitled to use their powers to protect the company."

That suggestion was taken up by Megarry V-C in Cayne (at 7 of the typed judgment) where his Lordship said:

"If company A and company B are in business competition, and company A acquires a large holding of shares in company B with the object of running company B down so as to lessen its competition, I would have thought that the directors of company B might well come to the conclusion that it was contrary to the best interests of company B to allow company A to effect its purpose, and that in fact this would be so. If, then, the directors issue further shares in company B in order to maintain their control of company B for the purpose of defeating company A's plans and continuing company B in competition with company A, I cannot see why that should not be a perfectly proper exercise of fiduciary powers by the directors of company B. The object is not to retain control as such, but to prevent company B from being reduced to impotence and beggary, and the only means available to the directors for achieving this purpose is to retain control. This is quite different from directors seeking to retain control because they think they are better directors than their rivals would be."

Those are propositions put rather to test the outer limits of the powers of directors in the face of take-over offers, than as propositions which have any direct application in the present case. It has not been put on behalf of the defendants that the directors reasonably believed that if the plaintiff's take- over offer had been successful, the plaintiff and his backers would have damaged the interests of the company. In fact, I do not in this case need to express a view on whether those statements in Teck and Cayne are correct. I think the relevant question is really one closely associated with the first of the three questions which I am considering. It is whether directors are justified in the face of a take-over offer in hastening to cause the company to enter into commercial agreements, with a view to presenting to shareholders alternatives which may be more attractive than the take-over offer. In other words, where directors are of the view that many shareholders may accept the take-over offer, and are also of the view that to do so would be disadvantageous to them, may they cause the company to enter into agreements or arrangements with a view to demonstrating to shareholders that it is not in their interests to accept the take-over offer. Consistently with my approach to the first question, I think that they can, at least as long as they believe that the agreements or arrangements do advance the commercial interests of the company.

In attempting to characterise the relevant purpose or purposes of the directors, it is I think necessary to take a fairly broad approach. What one must do is to ascertain the relevant purposes of the board, not of individual directors. Of course, if a decision were taken by a majority of one, and if it could be shown that one of the majority was actuated by an improper purpose, it may be that that would be sufficient to impugn the action irrespective of the purposes of the other directors. Here however, the decision was unanimous, although Mr Solomon did later seek to withdraw his approval. Mr Lanceley did not vote on the relevant resolutions, although it might be submitted that his purpose was relevant because he influenced the other directors, and in particular because he helped to put some persuasive pressure at least on Mr Solomon, producing his concurrence. It could be submitted that Mr Phillip Magney in particular admitted an improper purpose, although as pointed out on behalf of the defendants he did not admit that this was his substantial or dominating purpose. On the whole, as I have said, I think I must take a fairly broad approach and look for the substantial purposes of the board as a whole. In doing so, I think it is important to ensure that the relevant purposes be characterised fairly: in one sense, it may be that the substantial purpose of the directors was to defeat the plaintiff's bid, but it may also be that this is not a fair characterisation of the relevant purpose.

In my view, it is clear that the directors would not have engaged Macquarie, or entered into the joint venture agreement, "but for" the making of the plaintiff's offer. In my view, it is clear that they would have proceeded to achieving the rezoning of the land, and pursued wider alternatives. However, I think that the directors did believe that in the circumstances of the existence of the offer, the joint venture agreement was in the best interests of the company and of its present shareholders, independently of any question of the directors retaining their control of the company. In my view, in general, the directors thought that acceptance by shareholders of an offer of $10 would not be in the best interests of shareholders, and thought that in order to demonstrate this fact, it was necessary that urgent positive steps be taken towards the development of the land. I have already expressed the view that the plaintiff has not shown that the joint venture agreement was commercially disadvantageous, but I do consider that it was entered into by the board in haste, and with only limited alternatives being available. It was also entered into, as I have indicated, with a party who was giving something of a quid pro quo in favour of one of the company's directors. I have already indicated that I think Mr Lanceley was in breach of his fiduciary duty. (In this regard, he is not assisted by the provisions of art 77, concerning dealings by directors with the company, because even though he did not vote on the matter, he did not disclose his interest in the matter to the other directors.) In my view, the other directors either knew or should have known (having regard to the contents of Mr Solomon's letter) that Mr Lanceley was receiving finance from the proposed joint venturer, and should have insisted on coming to know the terms on which this was being done. However, while their failures in this regard may have been breaches of their duty of skill and care, I do not think they amount to breaches of fiduciary duty, and I think the question of fiduciary duty has to be judged on the basis of their actual knowledge.

In my view, the substantial purposes of the directors were to provide existing shareholders with alternatives which were more advantageous to them than the plaintiff's offer, to demonstrate to shareholders that it was not in their interests to accept the plaintiff's offer, and to advance the commercial interests of the company in relation to the development of the land. It may have been a substantial purpose of Mr Lanceley to obtain finance for his bid, but I do not think this was a substantial purpose of any of the other directors. I do not think it was a substantial purpose of the directors to maintain themselves in power, and I do not think it was a substantial purpose of the directors to prevent from succeeding or to foreclose any amended take-over offer. In my view, if the directors had not believed that the joint venture agreement was in the commercial interests of the company, they would not have entered into it simply to persuade shareholders not to accept the plaintiff's offer. By the same token, as I have already indicated, if the offer had not been made, I do not think they would have entered into the particular joint venture agreement, but rather would have proceeded less hastily. In one sense, then, it was a substantial purpose of the directors to defeat the plaintiff's bid; but as I foreshadowed, I do not consider that to be a fair characterisation of their purpose. I think a fair characterisation of their purpose would rather be in terms of bringing about a situation where shareholders (some of whom wanted ready cash for their shares) would have alternatives, apart from acceptance of the plaintiff's offer.

It follows that in my view the plaintiff has not made out a case for avoidance of the joint venture agreement on the basis of improper purpose.

Section 129 :

The relevant provisions of the Companies (New South Wales) Code are s 129(1) to s 129(4) and s 130(1) to s 130(5). Those provisions are as follows:

"129.(1) Except as otherwise expressly provided by this Code, a company shall not--

(a)
whether directly or indirectly, give any financial assistance for the purpose of, or in connection with--

(i)
the acquisition by any person, whether before, or at the same time as, the giving of financial assistance, of--

(A)
shares or units of shares in the company; or

(B)
shares or units of shares in a holding company of the company; or

(ii)
the proposed acquisition by any person of--

(A)
shares or units of shares in the company; or

(B)
shares or units of shares in a holding company of the company; or

(b)
whether directly or indirectly, in any way--

(i)
acquire shares or units of shares in the company; or

(ii)
purport to acquire shares or units of shares in a holding company of the company; or

(c)
whether directly or indirectly, in any way, lend money on the security of--

(i)
shares or units of shares in the company; or

(ii)
shares or units of shares in a holding company of the company.

(2) A reference in this section to the giving of financial assistance includes a reference to the giving of financial assistance by means of the making of a loan, the giving of a guarantee, the provision of security, the release of an obligation or the forgiving of a debt or otherwise.

(3) For the purposes of this section, a company shall be taken to have given financial assistance for the purpose of an acquisition or proposed acquisition referred to in paragraph (1)(a) (in this sub-section referred to as the "relevant purpose") if--

(a)
the company gave the financial assistance for purposes that included the relevant purpose; and

(b)
the relevant purpose was a substantial purpose of the giving of the financial assistance.

(4) For the purposes of this section, a company shall be taken to have given financial assistance in connection with an acquisition or proposed acquisition referred to in paragraph (1)(a) if, when the financial assistance was given to a person, the company was aware that the financial assistance would financially assist--

(a)
the acquisition by a person of shares or units of shares in the company; or

(b)
where shares in the company had already been acquired -- the payment by a person of any unpaid amount of the subscription payable for the shares or of any premium payable in respect of the shares, or the payment of any calls on the shares.

130. (1) Except as provided by this section--

(a)
the validity of a contract or transaction is not affected by a contravention of paragraph 129(1)(a);

(b)
the validity of a contract or transaction is not affected by a contravention of paragraph 129(1)(b) unless the contract or transaction effects the acquisition that constitutes the contra vention; and

(c)
the validity of a contract or transaction is not affected by a contravention of paragraph 129(1)(c) unless the contract or transaction effects the loan that constitutes the contravention.

(2) Where a company makes or performs a contract, or engages in a transaction, that would, but for sub-section (1), be invalid by reason that--

(a)
the contract was made or performed, or the transaction was engaged in, in contravention of section 129; or

(b)
the contract or transaction is related to a contract that was made or performed, or to a transaction that was engaged in, in contravention of that section, the first-mentioned contract or transaction is, subject to the following provisions of this section, voidable at the option of the company by notice in writing given to the other party, or by notices in writing given to each of the other parties, to that contract or transaction.

(3) The Court may, on the application of a member of a company, a holder of debentures of a company, a trustee for the holders of debentures of a company or a director of a company, by order, authorize the member, holder of debentures, trustee or director to give a notice or notices under sub-section (2) in the name of the company.

(4) Where--

(a)
a company makes or performs a contract, or engages in a transaction;

(b)
the contract is made or performed, or the transaction is engaged in, in contravention of section 129 or the contract or transaction is related to a contract that was made or performed, or to a transaction that was engaged in, in contravention of that section; and

(c)
the Court is satisfied, on the application of the company or of any other person, that the company or that other person has suffered, or is likely to suffer, loss or damage as a result of--

(i)
the making or performance of the contract or the engaging in of the transaction;

(ii)
the making or performance of a related contract or the engaging in of a related transaction;

(iii)
the contract or transaction being void by reason of section 129 or having become void, or becoming void, under this section; or

(iv)
a related contract or transaction being void by reason of section 129 or having become void, or becoming void, under this section, the Court may make such order or orders as it thinks just and equitable (including, without limiting the generality of the foregoing, all or any of the orders mentioned in sub-section (5)) against any party to the contract or transaction or to the related contract or transaction, or against the company or against any person who aided, abetted, counselled or procured, or was, by act or omission, in any way, directly or indirectly, knowingly concerned in or party to the contravention.

(5) The orders that may be made under sub-section (4) include--

(a)
an order directing a person to refund money or return property to the company or to another person;

(b)
an order directing a person to pay to the company or to another person a specified amount not exceeding the amount of the loss or damage suffered by the company or other person; and

(c)
an order directing a person to indemnify the company or another person against any loss or damage that the company or other person may suffer as a result of the contract or transaction or as a result of the contract or transaction being or having become void."

The plaintiff does not in this case rely on s 130(4) or s 130(5).

For the plaintiff it was submitted that the joint venture was conditional upon the subject land being sold into the joint venture company, with Norbrik receiving debentures equivalent to the assessed value of the property at $60 million. The present value of the debentures is less than their face value. The directors were not prepared to enter into the Chase joint venture, unless Mr Lanceley made an unconditional bid, and Mr Lanceley's capacity to make a bid was dependent upon his obtaining non-recourse finance from Chase. Chase was prepared to provide that finance if it secured the joint venture. The disposition of the property with the purchase price left outstanding secured by debentures having a present value of less than the assessed value of the property thus amounted to the giving of financial assistance to the joint venture company for purposes which included, as a substantial purpose, the proposed acquisition by Mr Lanceley of shares in Norbrik. There is no requirement that the financial assistance be given to the intending purchaser: see Re Myer Retail Investments Pty Ltd (1983) 68 FLR 15 ; 48 ACTR 41; 8 ACLR 102; 1 ACLC 900. Nor is the expression "for the purpose" synonymous with the expression"with the intention". If the purpose, in the sense of a necessary effect, of the financial assistance is even partly to facilitate the purchase of shares, then s 129 is infringed: see Belmont Finance Pty Ltd v Williams [1980] 1 All ER 393, cf Federal Commissioner of Taxation v Newton (1957) 96 CLR 577 at 630.

On behalf of Norbrik, Norwest and the directors, it was submitted that there was no breach of s 129 unless financial assistance was given either "for the purpose of" or "in connection with" the acquisition of shares. For the former, there must at least be a substantial purpose (see Companies (New South Wales) Code , s 129(3)); and for the latter, the company must have been aware at the time it gave financial assistance that it would financially assist the person acquiring the shares ( Companies (New South Wales) Code , s 129(4)). Such awareness must be actual awareness. Neither held good in this case. In cases falling outside the express examples referred to in s 129(2) of the Code, a transaction by a company cannot constitute the giving of financial assistance unless it involves some diminution of the financial resources of the company: see Burton v Palmer [1980] 2 NSWLR 878 at 881-882. There is no allegation on the pleadings that the company has suffered loss. The plaintiff's submissions based on the present value of the debentures to be received in return for the land ignores the other benefits which were to flow to the company as a result of entry into the joint venture agreement.

Chase supported these submissions, and further submitted that the Court ought not as a matter of discretion permit the transaction to be avoided under s 130(3) where Chase has obtained an interest without notice of any impropriety. Further, it was submitted that the company has elected to affirm the transaction by acting in pursuance of it and resisting this action, as well as registering the shares transferred to Mr Lanceley and holding joint venture meetings.

On behalf of Mr Solomon, the above submissions were supported, and it was put that in any event, no finding should be made as against Mr Solomon.

In my view, subject to one matter, a breach of s 129(1)(a) has been shown, though not exactly in the way submitted by the plaintiff.

It is clear that Chase gave financial assistance to Mr Lanceley for the purpose of and in connection with the acquisition of shares in Norbrik. It is also clear, in my view, that Chase only gave that assistance because Norbrik caused Norwest to enter into the joint venture agreement. In the circumstances of this case, in my view, this amounted to Norbrik indirectly giving financial assistance to Mr Lanceley within the meaning of s 129(1)(a). It was Norbrik's action in relation to the joint venture agreement which procured the financial assistance given by Chase to Mr Lanceley.

On the findings I have already made, this was known to Mr Lanceley, but not to the other directors, although they should have realised it. I will come in the moment to the question whether this prevents the financial assistance being"for the purpose of" or "in connection with" the acquisition of the shares. I note that I do not think the evidence shows that financial assistance was given to the joint venture company: accepting the value of the land at $60 million, and accepting the present value of the debentures at something like $30 million or possibly $40 million; the joint venture did give additional benefits to Norbrik which may well account for the difference.

As regards the submission that the transaction could not amount to the giving of financial assistance because it was not shown that the company had diminished its financial resources, this involves, I think, a misreading of what was said in Burton v Palmer . That was a case in which the alleged financial assistance was payment by a company of an indebtedness which the company had to the purchaser of the shares. That was held not to constitute the giving of financial assistance. Hutley JA said (at 881) that the essence of the matter was contained in the question: Has the company diminished its financial resources, including future resources, in connection with the sale and purchase of its shares. However, his Honour went on to say that "the assumption by a company of obligations, even if it is unlikely that they may have to be honoured, diminishes its resources". Subject to one matter which I will come to, it seems to me that an agreement whereby Norbrik is bound to part with its Baulkham Hills land in return for whatever benefits might flow under the joint venture agreement is relevantly a diminution of its financial resources. It would certainly constitute consideration for a further agreement, whereas discharge of an existing obligation such as occurred in Burton v Palmer would not constitute such consideration.

There is however one problem with this approach, which the plaintiff may or may not be able to overcome. This is that to find a relevant diminution of resources so far as Norbrik is concerned, it is, I think, necessary to find that Norbrik was put under some obligation to transfer its land in return for the benefits of the joint venture agreement. Although I might be able to infer from the terms of the joint venture agreement itself, and the circumstance that it was approved by the board of Norbrik, that Norbrik did put itself under such an obligation, I think that I may be precluded from finding that Norbrik was indeed under such an obligation by the terms of the Stamp Duties Act 1920, s 29. It appears from other material that Norbrik may have bound itself by an instrument to transfer this land, and no such instrument was tendered in evidence, presumably because of the provisions of the Stamp Duties Act . As I read s 29 of that Act, however, it not only precludes the admission into evidence of unstamped documents, but also prevents any such instrument as being "admitted to be good, useful, or available in law or equity for any purpose whatsoever". Unless this problem can be overcome, and I think I should give the plaintiff a further opportunity to make submissions on it, I think I may be precluded from finding the giving of financial assistance.

Leaving aside that matter for the moment, I proceed to the question whether the financial assistance was given "for the purpose of" or "in connection with" the acquisition by Mr Lanceley of the shares.

It may be that Mr Lanceley's support of the action taken by Norbrik was for the purpose of obtaining the financial assistance. However, I do not think that the actions of the other directors, or of Norbrik, can be so characterised, and accordingly, I do not think it can be said that the assistance was given by Norbrik for the purpose of the acquisition of shares. I note that under s 129(3), the purpose does not have to be the sole purpose: it is sufficient that it be one of a number of purposes, provided that it was a "substantial" purpose, but I do not think this makes any difference.

As regards whether the assistance was "in connection with" the acquisition, it was submitted for the defendants that s 129(4) is an exhaustive definition of what comprises financial assistance in connection with an acquisition. I do not think this is correct. Neither s 129(3) nor s 129(4) use the expression "if and only if". In my view, it is clear that s 129(3) is not exhaustive, because it makes no mention of the situation where the giving of financial assistance is the sole purpose of the company. Similarly, I think that in ordinary language, one would think that there would be cases where financial assistance is given in connection with an acquisition of shares, notwithstanding that the company is not aware that this financial assistance would financially assist that acquisition of shares.

In this case, I consider that Mr Lanceley was aware that the entry into the joint venture agreement would financially assist him in the acquisition of shares. Since he was the managing director of the company, and the person negotiating on behalf of the company, I think that his awareness of this (as distinct from his purpose) can be attributed to the company, notwithstanding that the other directors were not aware. Even if this is incorrect, I think that the giving of financial assistance was "in connection with" the acquisition, in the ordinary sense of that phrase. The facts I have found, in my view, indicate a strong and close connection between the company's authorisation of the joint venture agreement and the provision of financial assistance by Chase to Mr Lanceley to enable him to acquire shares.

The consequences of a breach of s 129 are set out in s 130: s 130(2) makes a contract or transaction in contravention of s 129, or related to a contract or transaction in contravention of s 129, voidable at the option of the company. In this case, subject to the stamp duty problem to which I referred, in my view, the joint venture agreement is voidable at the option of Norbrik. I do not think Chase can relevantly be regarded as a bona fide purchaser for value, as I think Chase was aware of the circumstances giving rise to the breach of s 129. A right to avoid a contract under s 130(2) could be lost by election, but election would require either knowledge of the right to avoid the transaction, or alternatively action in reliance on the contract in question adverse to the other party, with knowledge of the relevant facts. There may also be a question under s 130(2) as to whether actions taken by the directors who caused the company to enter into the contract in question could amount to an election pursuant to which the right was lost. I do not think the evidence before me is sufficient to justify a finding that Norbrik has lost any right which it might have under s 130(2) to avoid the joint venture agreement.

However, it is not Norbrik who seeks to avoid the agreement, but the plaintiff. The plaintiff must rely on s 130(3), whereby the court may, on the application of a member of a company, authorise the member to give a notice under s 130(2) in the name of the company. In my view, where a person seeks the authorisation of the court to do something on behalf of the company, the onus lies on that person to show that it is appropriate for the court to give this authorisation. For example, in my view, such a case would be made out if it was shown that it would be for the benefit of the company if such a notice was given, but that the company would not act because it was in the control of persons who caused the company to enter into the impugned transaction.

In this case, the latter is the case, but in my view, the plaintiff has not shown that the company is damaged by the transaction. Furthermore, there is the consideration mentioned earlier that the avoidance of the joint venture agreement would affect members of the company who are not parties to these proceedings. In all the circumstances, as the evidence stands, I do not think the plaintiff has discharged the onus of showing that it is appropriate for the Court to authorise him to do what the company is, in any event, entitled to do.

On the other hand, there are some troubling aspects of the matter. It is clear that the joint venture agreement was entered into in haste, without being previously submitted to shareholders as had previously been contemplated, and with a party who was giving what might be considered a "quid pro quo" to Norbrik's managing director. Furthermore, although the matter was raised by me during the course of the hearing, no offer has been made by Mr Lanceley which will ensure that any profits which he makes will be for the benefit of Norbrik rather than for his own personal benefit. In those circumstances, I am tentatively of the view that if the plaintiff seeks this (and subject to resolution of the stamp duty problem to which I have referred) I would require Norbrik to call a meeting of its members at which it could be put to those members whether the company should or should not avoid the joint venture agreement. If the company in general meeting resolved to avoid the agreement, then I think that resolution should be given effect to. On the other hand, if the company did not so resolve, I would further consider the matter having regard to what happened at the meeting, including any disclosure by Mr Lanceley of his interests and potential benefits from his acquisition of shares, any undertaking which he may give to the company as regards any profits he might make, and the terms of any resolution which is passed at that meeting.

One other matter that may be considered at the meeting and which may be relevant to an ultimate resolution of the matter is the liability of the company to pay Macquarie's fees in relation to the transaction. I have made certain findings that may be considered unfavourable to Macquarie, but of course Macquarie was not a party to these proceedings and is not in any way bound by any findings I have made. However, it does seem to me on the material presented in these proceedings that Macquarie should have realised that the transaction it was negotiating on behalf of Norbrik involved a breach of fiduciary duty by Mr Lanceley, and also a possible breach of s 129.

Clean hands :

Finally, I should deal with the submission of the fourth defendant that no relief whatsoever should be given to the plaintiff, because the plaintiff has come to Equity with unclean hands. At the heart of this submission is a submission that the plaintiff is involved in a clever scheme designed to avoid the restrictions on transfer of shares provided by the articles of association of Norbrik. The relevant article is art 24, inserted by special resolution dated 3 March 1972. The most relevant parts are pars (a) and (b) which are in the following terms:

"(a) A share may be transferred by a member or other person entitled to transfer to any member selected by the transferor but save as aforesaid and save as hereinafter provided no share shall be transferred to a person who is not a member so long as any member is willing to purchase the same at the fair value.

(b) Except where the transfer is made pursuant to Articles 24.F and 24.G hereof the person proposing to transfer any share (hereinafter called the proposing transferor) shall give notice in writing (hereinafter call the transfer notice) to the Company that he desires to transfer the same. Such transfer notice shall specify the sum he fixes as the fair value and shall constitute the Company his agent for the sale of the share to any member of the Company at the price so fixed or at the option of the purchaser at a fair value to be fixed by the Auditor in accordance with these Articles. The transfer notice may include several shares and in such case shall operate as if it were a separate notice in respect of each. The transfer notice shall not be revocable except with the sanction of the Directors."

The agreements pursuant to which the plaintiff made his offer are in evidence, and it is submitted by Chase that an examination of those agreements shows that the plaintiff is in substance a bare trustee, required to invest in a particular asset and by the terms of his trust, obliged, when called on, to convert as directed the asset and account for the proceeds of the conversion. It was submitted that the purpose of art 24 is plain: to prevent sales of shares to strangers so long as other members of Norbrik are willing to buy them at the price prescribed by the article: Lyle & Scott Ltd v Scott's Trustees [1959] AC 763 at 777 and North Sydney Brick and Tile Co Ltd v Darvall (1986) 5 NSWLR 662 at 674-675; affirmed (1986) 5 NSWLR 681 at 688-689. It was submitted that the plaintiff either obtained the shares clandestinely from members who believed they were complying with art 24, when he knew that those members were in substance entering into transfers to non-members; or alternatively as a bare trustee the plaintiff desired to transfer the shares to or to the use of non-members in breach of art 24. In either event, the plaintiff is in the position of a person with no untainted right to the shares, the legal title of which he has acquired by the subterfuge of the agreements. Had he fulfilled his obligations under art 24, he would not have acquired any title or interest in those shares. His conduct in acquiring them was and is unconscionable, and he asks the court to further such conduct.

For the plaintiff, it was submitted that he acquired 500 shares in the company well before the institution of these proceedings, and that in any event, his acquisition of the remainder of the shares which he holds involved no breach of art 24.

I have carefully considered the case of Lyle & Scott Ltd v Scott's Trustees which dealt with a similar article, and in which it was held that the shareholders in question had entered into an agreement for the sale of their shares, and had received and retained the price, and that accordingly, they were bound to do everything necessary to perfect the title of the purchaser; and that in those circumstances they were desirous of transferring the shares to the purchaser. In this case, the agreements make it clear that there is to be no transfer of the shares out of the hands of the plaintiff into the hands of any of the beneficiaries of the trust created by those agreements, if it be correctly regarded as a trust.

I note that art 6 of the articles of association contains the usual provision that the company is entitled to treat the registered holder of any share as the absolute owner thereof, and accordingly not bound to recognise, save as otherwise provided, any equitable or other claim to or interest in the share on the part of any other person. Having regard to that provision, I do not see any way in which the action of the plaintiff in these proceedings can be regarded as a breach of art 24. Although his actions certainly are contrary to the spirit of that article, I do not think this is enough. I do not think it is enough to justify the refusal of relief on the basis of lack of clean hands.

For the foregoing reasons, I think the case should be re-listed for further submissions concerning the question of my giving some force or effect to the agreement relating to Norbrik's land, and for further submissions relating to the possible directing of a meeting of Norbrik concerning Norbrik's rights under s 130(2).

22 September 1987

In reasons for judgment which I delivered on 8 July this year, see at 215), I found, subject to one matter to which I will come, that by causing Norwest to enter into the joint venture agreement with Chase, Norbrik had indirectly given financial assistance in connection with the acquisition by Mr Lanceley of shares in Norbrik, thereby breaching the Companies (New South Wales) Code , s 129(1)(a). The qualification arose from the circumstance that the relevant diminution of Norbrik's resources arose from an agreement which was not tendered in evidence and which I thought I might be precluded, by the Stamp Duties Act 1920, s 29, from having regard to. However, the plaintiff has now sought to re-open his case by tendering the agreement, which is now stamped with $10 stamp duty, and I have granted that leave. Accordingly, that particular problem has now been overcome.

In my judgment, I expressed the view that Norbrik could avoid the joint venture agreement, but that as the evidence then stood, the plaintiff had not discharged the onus of showing that it was appropriate for the court to authorise him to avoid the agreement in the name of the company under s 130(3) of the Code. In expressing that view, I find that I did not pay sufficient regard to the distinct identities of Norbrik and Norwest.

The joint venture agreement is between Chase and Norwest. Consistently with my findings, Norwest would appear also to be in breach of s 129(1)(a), in that it indirectly gave financial assistance in connection with the acquisition by Mr Lanceley of shares in its holding company Norbrik, so that, on this view, it would appear that Norwest could avoid the joint venture agreement under s 130(2). However, the plaintiff is not a shareholder of Norwest.

I think what I should have found is that Norbrik can avoid, under s 130(2), not the joint venture agreement itself but the so-called side agreement which is now received in evidence, plus any transaction or contract between Chase and Norbrik, whereby Norbrik was bound to ensure that the subject land was provided to the joint venture and whereby Norbrik was bound to cause Norwest to comply with the terms of the joint venture agreement. I think that is a more precise way of expressing the matter, but I do not think it makes any substantial difference to my approach to the case.

Having expressed the view concerning Norbrik's right, in substance, to avoid the joint venture agreement and having expressed the view that, as the evidence stood, I did not think the plaintiff had discharged the onus of showing that it was appropriate to the Court to authorise the plaintiff to exercise this right of the company, I went on to make the following remarks (at 249C):

"On the other hand, there are some troubling aspects of the matter. It is clear that the joint venture agreement was entered into in haste, without being previously submitted to shareholders as had previously been contemplated, and with a party who was giving what might be considered a 'quid pro quo' to Norbrik's managing director. Further more, although the matter was raised by me during the course of the hearing, no offer has been made by Mr Lanceley which will ensure that any profits which he makes will be for the benefit of Norbrik rather than for his own personal benefit. In those circumstances, I am tentatively of the view that if the plaintiff seeks this (and subject to resolution of the stamp duty problem to which I have referred) I would require Norbrik to call a meeting of its members at which it could be put to those members whether the company should or should not avoid the joint venture agreement. If the company in general meeting resolved to avoid the agreement, then I think that resolution should be given effect to. On the other hand, if the company did not so resolve, I would further consider the matter having regard to what happened at the meeting, including any disclosure by Mr Lanceley of his interests and potential benefits from his acquisition of shares, any undertaking which he may give to the company as regards any profits he might make, and the terms of any resolution which is passed at that meeting."

Later, I concluded the reasons for judgment with this final paragraph (at 251C):

"For the foregoing reasons, I think the case should be re-listed for further submissions concerning the question of my giving some force or effect to the agreement relating to Norbrik's land, and for further submissions relating to the possible directing of a meeting of Norbrik concerning Norbrik's rights under s 130(2)."

I was provided with written submissions concerning the matter raised in that last paragraph, and I received oral submissions on the matter yesterday and again this morning.

Mr Heydon for the plaintiff submitted that the course I foreshadowed in the judgment was an appropriate one and that it was empowered under the Companies (New South Wales) Code , s 574. He further submitted that the plaintiff had standing to seek such an order, and in support of that submission he referred me to a number of authorities, namely: Broken Hill Pty Co Ltd v Bell Resources Ltd (1984) 8 ACLR 609; 2 ACLC 157; Eastern Petroleum Australia Ltd v Horseshoe Lights Gold Pty Ltd (1985) 9 ACLR 980 at 985; 3 ACLC 594 at 598-599; Australian Conservation Foundation Inc v The Commonwealth (1980) 146 CLR 493 and Onus v Alcoa of Australia Ltd (1981) 149 CLR 27 .

In answer to a foreshadowed submission that s 130 comprised a complete Code, he referred me to s 130(15). He submitted that it was appropriate, if a meeting was ordered, to impose a condition that shares acquired by Mr Lanceley, with the aid of the finance provided by Chase, should not be voted at such a meeting, and in support of that submission he referred me to Hogg v Crampthorn Ltd [1967] Ch 254.

Mr Staff QC, now appearing for the same defendants as previously except Mr Lanceley, relied on written submissions which had been provided on behalf of those defendants. He also submitted that the power to make a decision on behalf of the company, as to whether to exercise the company's rights under s 130(2), was given to the directors and that, since I had found that the directors other than Mr Lanceley had been guilty of no breach of fiduciary duty, there was no reason to think that those directors would not properly exercise that power.

Mr Meagher QC, who now appears for Mr Lanceley, submitted that a decision concerning the exercise of the company's rights under s 130(2) was no business of the general meeting, the conduct of Norbrik's business was vested in the directors, pursuant to the articles of association of that company, and that the only role of the general meeting in the conduct of business lay in the power to remove directors.

Next, he submitted that the civil consequences of a breach of s 129 are fully set out in s 130. This, he submitted, was a detailed code dealing with all consequences of breaches of s 129.

In support of the submission that the provision of such a detailed code would exclude the application of a provision such as s 574, Mr Meagher referred me to Refrigerated Express Lines (A/asia) Pty Ltd v Australian Meat and Live-stock Corporation (No 2 ) (1980) 44 FLR 455 at 468-469; 29 ALR 333 at 347. He pointed out that s 130(1)(a) of the Code provided that agreements of the type being dealt with here were valid except as provided in s 130, so that the only possible attack which could be made on the agreement, with the court being involved, was under s 130(3) and s 130(4).

Next, Mr Meagher made a submission that, in dealing with this matter, I should disregard entirely the view which I expressed in the judgment, to the effect that Mr Lanceley had breached his fiduciary duty in relation to his acceptance of non-recourse finance from Chase. Mr Meagher submitted that this did not arise on the issues in the case. He submitted there had been no allegation by the plaintiff that Mr Lanceley had been guilty of that breach of fiduciary duty, and that the matter had not been put to Mr Lanceley in cross-examination.

Mr Hughes QC, appearing for Chase, submitted that there was no power under s 130(2) or s 130(3) to sound out the view of a general meeting on the matters dealt with in s 130. He submitted that to take such a course would be to proceed on a total misconception of the function of the general meeting of the company. Mr Hughes referred me to various authorities containing warnings against the courts interfering with the management of companies which is vested in the board of directors. In that regard he referred me to the cases of Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68; [1974] AC 821 and Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 which are referred to in my main judgment in the case.

He submitted that, in a context where the directors had not been shown to have acted mala fide, it would be wrong for the court to interfere in the management of the company and the distribution of functions within the company. He referred me to the decision of McLelland J in National Roads and Motorists' Association v Parker (1986) 6 NSWLR 517, and in particular at 521 where his Honour expressed the view that it was no part of the function of the members of a company in general meeting by resolution, that is, as a formal act of the company, to express an opinion as to how powers vested by the constitution of the company in some other body or person ought to be exercised by that body or person.

He submitted that it would be an extraordinary indulgence to the plaintiff to take the proposed course. It has always been open to the plaintiff to requisition a meeting for the removal of directors, and the plaintiff has never taken that course. If such a course had been taken, the plaintiff could have come to the court at the hearing, armed with whatever material had been obtained at such a meeting requisitioned by him. It was now too late for the court to assist the plaintiff in this way.

These submissions can perhaps usefully be divided into two matters: first, the matter concerning the finding or expression of opinion that I made in relation to Mr Lanceley; and secondly, the issue concerning whether the court has power to take the course which I foreshadowed, and whether it is appropriate in the circumstances that it does so.

In relation to the finding against Mr Lanceley, a number of matters should perhaps be noted. There were within the issues in the case, and indeed questions were put to Mr Lanceley concerning a number of matters relevant to the view which I expressed: those matters include the connection between Chase's entry into the joint venture agreement and Chase's provision of finance to Mr Lanceley, Mr Lanceley's perception or lack of perception of that connection, the advantages to Mr Lanceley of that finance, and the disclosure or non-disclosure of the finance and its non- recourse nature to his fellow directors.

Questions on that matter concerned not only whether there was in fact disclosure but whether or not, if there was non-disclosure, that was dishonest. Questions in relation to these matters appear at 206 to 208, 228 to 230, 255 and 267 to 271 of the transcript.

Furthermore, early in the hearing, on about 3 April, I made specific reference in open court to the case of Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378; [1967] 2 AC 134(n) and raised with counsel questions that might bear on the case in accordance with that decision. My recollection is that I put to counsel that, on one view, Mr Lanceley would hold shares that he obtained pursuant to the finance on trust for the company, although that would lead itself to a s 129 problem and that, in turn, led to the possibility that Mr Lanceley would be subject to an account of profits to the company. That matter was again raised by me late in the hearing. I believe during addresses, and at that stage it was put as I recall, on behalf of Mr Lanceley, that the Court could not make any orders in relation to that matter, because that was not something that was sought by the plaintiff; indeed, it could not be sought by the plaintiff, but only on behalf of the company.

In my view, it was clearly open on the issues, and having regard to the cross-examination, for me to find that Chase's finance of Mr Lanceley's bid was closely interconnected with, and indeed dependent upon, Chase's and Norbrik's entry into the joint venture agreement. It was open to me to find that, despite his denials, Mr Lanceley knew this. It was open to me to find that this was a substantial personal financial advantage to Mr Lanceley, and it was also open to me to find that it was obtained by him because he was managing director of Norbrik, negotiating the joint venture with Chase. It was open to me to find that it was not disclosed to the other directors that Mr Lanceley had non-recourse finance from Chase; and also that, in the circumstances, it was wrong for Mr Lanceley not to disclose this (at least, that is, the matter of non-recourse finance from Chase), to the other directors.

In my reasons I went beyond these specific findings, and expressed the view that they involved a breach of fiduciary duty by Mr Lanceley, meaning thereby of course a breach of fiduciary duty in the Regal (Hastings) Ltd v Gulliver sense, which does not necessarily involve morally reprehensible conduct. I considered it appropriate to express this view, although it was not as such an issue in the case, because it seemed to me to follow inevitably from the more particular findings; and it seemed to me that to characterise the conduct of Mr Lanceley was relevant in order to assess the evidence of Mr Lanceley, Mr Hunt, Mr McDonald and Mr Hopkins. It seemed to me also relevant to the question of whether I should give relief under s 130(3) or take some course such as that which I foreshadowed.

It is to be recalled that, in relation to the conflicting evidence, Mr Lanceley gave evidence that he had been told by Mr Hunt that there was no connection between the joint venture agreement and the provision to him of non-recourse finance; and this was denied by Mr Hunt. Mr Lanceley also gave evidence that he had been advised by Mr Hunt and/or Mr McDonald that he had no obligation to disclose the source of finance to the other directors; and this was denied both by Mr Hunt and Mr McDonald.

In the light of the foregoing matters and taking into account the submissions made by Mr Meagher, I do not see any reason to take back the comments made in my initial reasons for judgment. I note, incidentally, that the submissions of Mr Meagher did not extend to providing any detailed submissions as to why there may not be a breach of fiduciary duty, although of course I accept that Mr Meagher would be under no obligation to make such submissions at this time.

He did refer me, incidentally, to the case of Queensland Mines Ltd v Hudson (1977) 52 ALJR 399; 18 ALR 1 . However, I think it is appropriate that I make it clear that the views I expressed on this matter were expressed in a case where that breach of fiduciary duty was not expressly an issue, and in which Norbrik and Mr Lanceley had common representation. Of course, if there were later proceedings between Mr Lanceley and Norbrik on this matter a court could well, having heard evidence in those proceedings, come to a different view from mine.

The real question which I have to decide is whether it is now appropriate simply to dismiss the plaintiff's claim or to take some course such as that which I foreshadowed. My decision at the stage of my original judgment, not to authorise the plaintiff to give notice, was made because I believed it could be in the company's best interests to maintain the joint venture agreement, at least if the company received the benefit of any profit which might be made by Mr Lanceley from his shares, and also because avoidance of the joint venture agreement could affect members of the company who were not parties to these proceedings.

I think there is great force in the submissions that have been made to the effect that the Court should not usurp the function of the board of directors. However, there are, I think, considerations which are in favour of the tentative view which I expressed in my judgment.

One matter which was not discussed yesterday, but which I raised with counsel this morning, is the question of finality. I raised with counsel the possibility that, to achieve an election under s 130(2) by which Norbrik would be bound, it was arguably not enough to have a decision by substantially the same board of directors who authorised the entry into the agreement in the first place. I raised the possibility that, if the board which authorised an agreement in contravention of s 129 can elect not to exercise the right given to the company by s 130(2) in such a way as to bind the company, that would jeopardise the protection given to the company by s 130.

Mr Bathurst, for Norbrik and some of the directors, submitted that a decision now made by the board as presently constituted, in the light of the events which have happened, would certainly amount to an election binding the company. He submitted that the board had a duty to consider the company's right under s 130(2) and take a decision which it bona fide believed to be in the best interests of the company, whereas, if the matter was put to shareholders in general meeting, they would have no such duty.

Mr Meagher, junior counsel for Mr Lanceley, submitted that these considerations were seeking to deal with hypothetical situations which have not arisen, that to act on them would amount to a pre-judging of events which may or may not happen; I should not be concerned to achieve finality in relation to the company's right.

Mr Rares, for Chase, took the matter further, submitting that since in this case there had not been any issue between Norbrik and Chase concerning Norbrik's right to terminate the agreement, I could not in this case come to any final and binding decision on the matter and that, even if the directors were to resolve to terminate the joint venture agreement or its associated agreements, and even if, after some adjournment, I was to be given evidence of that fact, I could not in these proceedings find that the agreement was thereby terminated, because that had never been an issue between the company and Chase.

He also submitted, as substantially did Mr Bathurst, that to take away in effect the right of the directors to make a decision in this matter would be an unwarranted slur on them.

Taking all these matters into consideration, I still remain of the view which I tentatively expressed in the judgment. It seems to me that simply to dismiss the plaintiff's claim would be to some extent condoning a situation where Norbrik was bound by an agreement with a party who had obtained it partly by providing a personal advantage to the managing director of Norbrik. The board's position in relation to the matter is subject to a number of problems, it seems to me. Accepting that I have made no finding against the members of the board, apart from Mr Lanceley, of any breach of fiduciary duty, I have made a finding in relation to this matter that there were circumstances putting them on inquiry in relation to the financing of Mr Lanceley's bid, and that they failed to make that inquiry. I did not, of course, go on to express any view as to the legal consequences of this.

It seems to me also that the board's approach to this agreement would inevitably be coloured by a commitment to the agreement which they had made and also by its association with this litigation and the dispute existing between the board and Mr Darvall.

In saying this, I am not saying that the board would not approach the question properly. However, I am saying that, from the point of view of members of the company, it seems to me that there are problems in simply dismissing these proceedings and taking no further action. If I had been satisfied that the plaintiff was a person who could properly be regarded as representing the shareholders of the company, I would I think have authorised the plaintiff to give the notice under s 130(3). I think the appropriate way to determine finally whether the plaintiff is an appropriate person to authorise to give that notice is to have a general meeting of the type which I foreshadowed. I think this also does have the advantage that, if the matter is resolved by the company in general meeting and assuming that the directors take no action themselves to avoid the agreement, then that would substantially achieve finality in putting an end to any question arising under s 129 or s 130.

For those reasons, in my view, there should be a general meeting held within, say, two months of these orders coming into effect or, alternatively, there should be put at the next annual general meeting a resolution requesting the court to authorise the plaintiff to give notice under s 130(3). I do not think that that resolution should be put as a special resolution, as submitted by the plaintiff. The question which is being considered is not a question under 129(10) but it is a question bearing on whether the court should authorise the plaintiff to give a notice under s 130(3).

In making those orders, I would order that the shares acquired by Mr Lanceley with the aid of the finance from Chase would not be voted on that resolution. If the general meeting rejected that resolution, then I would, I believe, simply dismiss the proceedings. If the company in general meeting passed that resolution, I believe I would then authorise the plaintiff to give the notice. I would then, in order to achieve finality, give the plaintiff perhaps fourteen days to give the notice and, assuming the notice had then been given, I would declare the effect of the notice. Of course there would be an opportunity at that stage to lead further evidence. I would do that with a view as far as possible to achieving finality.

One other aspect that I have taken into consideration, in support of my view, is that the board through its managing director had undertaken at the previous annual general meeting to consult the members in general meeting before committing the company to a particular course on the development of the land. That, of course, does not prevent the board from so committing the company in the course of managing the business of the company, but it is a factor that I take into account in deciding that it is appropriate to have the matter considered by a general meeting.

Finally, I should say something on the question of the power of the court to take this course. It seems to me that it does fall within the provisions of s 574. It seems to me also, however, that in the circumstances of this case the court would have power to order such a meeting under its inherent jurisdiction and also, I think, under the Supreme Court Act 1970, s 23.

As I have indicated, shortly the situation as I see it is that the company is entitled to avoid the agreement; the plaintiff has shown a situation of concern as to whether the company should avoid the agreement and as to whether this matter should be simply left to the board and so, while the plaintiff had not made out a complete case for then and there being authorised to give the notice himself, it seems to me that the plaintiff had made out a case sufficient to justify the ascertaining of the views of the company in general meeting and then, depending on those views, finally making a decision whether or not to give the authority which the plaintiff sought.

So far as costs are concerned, I would propose at this stage to reserve costs. It seems to me that, if the general meeting does not pass the resolution which I have proposed, I would as I have indicated dismiss the proceedings and, in those circumstances, I foreshadow that probably the ordinary result as to costs would follow.

If the company in general meeting were to make the request, then the plaintiff would have been at least partially successful and probably some other consequence as to costs would follow.

It has been put by the defendants that, if I were to take the course which I first foreshadowed, the orders should be stayed pending an application for leave to appeal and, if leave is granted, the stay should be continued until the determination of any appeal. I think that is an appropriate course in this case. I would, therefore, propose to stay the orders for fourteen days, provided that if an application for leave to appeal is made within that time, the stay will be extended to the determination of that application and, if that application is granted, the stay should be extended to the determination of any appeal consequent upon that leave.

It has been put on behalf of the plaintiff that the plaintiff's undertaking as to damages should not continue, so that in effect the existing injunction should continue without the plaintiff's undertaking as to damages. My view is that the undertaking as to damages should continue. I have not finally disposed of the case. On one view of it, the course that I have taken is something of an indulgence to the plaintiff, that is, to some extent giving the plaintiff an opportunity to complete his case, although from another point of view, the course that I have taken is taken in the interests of the shareholders in the company generally. However, as I have said, because I have not finally resolved the matter in favour of the plaintiff and because, to some extent, the course I have taken is granting an indulgence to the plaintiff, I think the undertaking as to damages should continue.

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