Allways Resources Holdings Pty Ltd v Samgris Resources Pty Ltd (No 2) [2017] QSC 112

[2017] QSC 112 SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION BOND J No 11618 of 2014 ALLWAYS RESOURCES HOLDINGS Applicants PTY LTD and ANOTHER and SAMGRIS RESOURCES PTY LTD Respondents and ANOTHER BRISBANE 3.30 PM, FRIDAY, 12 MAY 2017 JUDGMENT -- 1 of 9 -- 2 HIS HONOUR: In my judgment in Allways Resources Holdings Pty Ltd v Samgris Resources Pty Ltd [2017] QSC 74, published on 8 May 2017, I concluded that: (a) the working relationship between the plaintiffs, who are the two minority shareholders of Samgris Resources Pty Ltd (“Samgris”) and its majority 5 shareholder, Asia Pacific Joint Mining Pty Ltd (“APJM”), had irretrievably broken down and that in the absence of any other remedy, it would be just and equitable that Samgris should be wound up; and (b) the plaintiffs were entitled to redress under s 232 of the Corporations Act 2001 (Cth) for the cumulatively commercially unfair effect of a number of 10 considerations, which I had identified in my reasons, but principally for the fact that: (i) Samgris had not been managed so as to accord to the plaintiffs the degree of participation in management to which they were entitled under its constitution and board operation rules; 15 (ii) Samgris had not been managed so as to accord to the plaintiffs the degree of participation in management, which in light of the assumption which underlay the formation of the relationship between its members, was just and equitable, and the mutual trust and cooperation between the groups of its members had completely 20 broken down; and (iii) there was no reason to believe that either of those two considerations would change, and the plaintiffs were subject to restraint on their ability to exit Samgris, which APJM had indicated that it would insist upon. 25 In my judgment, I recognised that the evidence suggested that Samgris was a solvent company and that I should regard it to be an extreme step to wind up a solvent company. Nevertheless, for reasons which I set out, the orders which I made were: (1) Samgris be wound up; 30 (2) Mr W J Harris and Mr A N Connolly be appointed as liquidators of Samgris, jointly and severally; (3) the orders made in 1 and 2 be stayed until 4:00pm on 15 May 2017. The reason for the brief stay was to give the parties one last opportunity to reach a 35 compromise which might avoiding winding up. No compromise has occurred. Dr Huang on behalf of the successful plaintiffs thinks that there is no prospect of a compromise happening before the expiry of the stay. 40 APJM has filed a notice of appeal. The appeal contends that my discretion in relation to the grant of relief on the facts which I found, miscarried in various ways. By the appeal, APJM seeks to have substituted for the order which I made, an order that it buy the plaintiffs’ shares in Samgris at a price to be determined by the court. 45 -- 2 of 9 -- 3 APJM now seeks to stay the orders which I made until a determination of its appeal. It contends that absent a stay – (a) Samgris will be placed into liquidation and wound up; (b) the benefit of a successful appeal will be rendered nugatory; and (c) APJM would suffer irreparable harm. 5 The principles governing the application are not in dispute. In Cook’s Constructions P/L v Stork Food Systems Aust P/L [2008] QCA 322, Keane JA stated at [12], as follows (footnotes omitted, emphasis added): 10 [12] The decision of this Court in Berry v Green suggests that it is not necessary for an applicant for a stay pending appeal to show "special or exceptional circumstances" which warrant the grant of the stay. Nevertheless, it will not be appropriate to grant a stay unless a sufficient basis is shown to outweigh the considerations that judgments of the Trial Division should not be treated as merely provisional, and that a successful party in 15 litigation is entitled to the fruits of its judgment. Generally speaking, courts should not be disposed to delay the enforcement of court orders. The fundamental justification for staying judicial orders pending appeal is to ensure that the orders which might ultimately be made by the courts are fully effective: the power to grant a stay should not be exercised merely because immediate compliance with orders of the court is inconvenient for the party which 20 has been unsuccessful in the litigation. Keane JA stated at [15] that the focus of the court’s attention in an application like the present should be on whether the appeal right might be rendered nugatory and on whether the appellant would be irretrievably prejudiced. 25 A more recent statement can be found in Woodlawn Capital Pty Limited v Motor Vehicles Insurance Limited [2015] NSWCA 227 per Beasley P at [9]. Her Honour cited the judgment of Keane JA and observed (emphasis added): 30 [9] The central determinant as to whether a stay will be granted and if so upon what terms, if any, is the court’s assessment as to what is a fair balance of the rights of the parties, given that an appeal does not of itself operate as a stay and the party who succeeded at trial is entitled to the fruits of its victory. The court’s concern at all times to ensure that its ultimate orders will be effective: Cook's Construction P/L v Stork Food Systems Aust P/L 35 [2008] QCA 322; [2008] 2 Qd R 453 at [15]. See also Appeal and Appellate Courts in Australia 2014, LexisNexis at 8.5-8.14. Other cases (see Elphick v MMI General Insurance Ltd [2002] QCA 347 per Jerrard JA and Raschilla v Westpac Banking Corporation [2010] QCA 255 per Fraser JA) 40 have stated that an applicant for stay, pending appeal, must demonstrate: (a) a good arguable case on appeal; (b) that the applicant will be disadvantaged if a stay is not ordered; (c) that competing disadvantage to the respondent, should the stay be granted, does not outweigh the disadvantage suffered by the applicant, if the stay not 45 be granted. -- 3 of 9 -- 4 For the purposes of this application, the plaintiffs concede that there is an arguable case on appeal. In order to work out where the balance to which Beasley P referred lies, it is appropriate to consider what the evidence reveals about: (a) the disadvantages which will accrue to APJM in the event that the stay is refused; and 5 (b) the competing disadvantage to the minority shareholders if the stay is granted. However, that analysis should be conducted against an understanding of the present position of Samgris and against the background of the terms of the stay which is 10 proposed. I make the following observations as to the present position of Samgris. First, the draft accounts for the year ended 30 June 2016 suggests its assets 15 comprise: (a) cash at bank of the order of $8 million; (b) mining tenements valued at some $8.9 million, of which the most valuable is EPC2221, which is valued at approximately $3 million; (c) negligible current liabilities, 20 and, accordingly, the evidence reveals Samgris as having a strong net asset position and it is evidently still a solvent company. Second, no exploration activities have been or are proposed to be carried out in the near future. The focus of Samgris is on preserving its mining tenements until the 25 current litigation is resolved. That involves a certain amount of expenditure. Otherwise, the expenditure of Samgris relates to: (a) the lease of its business premises; (b) the wages of staff; (c) general office expenditure; and 30 (d) rental payments to the Department of Natural Resources and Mines for its tenements. (Notably, as to the lease, the current lease will expire at the beginning of October 2017 and will have to be renegotiated if it is to extend beyond that time.) 35 Third, as to the mining tenements, APJM’s solicitor deposes as follows: [18] EPC 2221 is due to expire in May 2017. Samgris has arranged a meeting with the Department of Natural Resources and Mines (DNRM) for 23 May 2017 to discuss the 40 renewal of this EPC. In the absence of a board resolution authorising Samgris management to relinquish the tenement, Samgris intends to seek renewal of the EPC. If renewed, the EPC will not be placed in a position of possible forfeiture even if no moneys are spent on the tenement over the next 12 month period. -- 4 of 9 -- 5 [19] EPC 2193 expired in March 2017. At the meeting which is due to occur on 23 May 2017, Samgris management will seek the renewal of this EPC. This is the position as there is no board resolution authorising Samgris management to relinquish the tenement. DNRM has power to grant a renewal even though the EPC formally expired in March 2017. If renewed, 5 the EPC will not be placed in a position of possible forfeiture even if no moneys are spent on the tenement over the next 12 month period. [20] None of the balance of the tenements are due to expire in the next 12 month period except for EPCs 1806 and 2060. Samgris management intends to apply for a renewal of 10 EPCs 1806 and 2060. The minimum expenditure requirements necessary to protect EPC 1806 from the risk of forfeiture have already been incurred. EPC 2060 expires on 13 December 2017. Minimum expenditure requirements of approximately $144,800 for the current EPC period have not to date been met. Samgris could spend this amount on the EPC prior to December 2017 or as part of the renewal application seek that the DNRM transfer to 15 the renewed EPC period the amount of any expenditure which has not been met in the current period of the EPC. As for the other tenements, no money is required to be spent on them in the next 12 month period to protect against the risk that they may be subject to forfeiture for failure to meet minimum expenditure requirements. 20 As to the terms of the stay which is proposed, APJM proposes that: (a) upon the personal undertaking of Mr Wei Mu, who is the CEO of Samgris and APJM, in the terms I will mention; and (b) conditional upon the provision to the court, prior to 4:00pm on 15 May 2017, of an undertaking in the same terms, from APJM and also from each of the 25 three directors of Samgris nominated by APJM, namely, Mr Laixin Li, Mr Hui Xie, and Mr Xin Wang, the first and seconds orders made by me on 8 May 2017 be stayed until the determination of APJM’s appeal. 30 The terms of the undertaking proposed were: (a) not to cause Samgris to carry out any exploration activities or incur any expenses in relation to exploration other than to make rental payments in respect of the Exploration Permits for Coal (EPCs) held by Samgris (the Tenements) to the Department of Natural Resources and Mines (DNRM), or 35 other payments necessary to maintain the Tenements in good standing, or payments necessary for the renewal of the Tenements; (b) not to cause Samgris to incur expenditure other than in the ordinary course of business; (c) for the avoidance of doubt, not to cause Samgris to do any of the following 40 except by super majority resolution of the board of directors of Samgris or order of the Court: i. cause Samgris to take any steps to progress the field exploration work on EPC 2221; ii. cause the contract with the Xi’An Institute of Geological and Mineral 45 Exploration in connection with a revaluation of the Tenements to be performed, or make any other payments in connection with a revaluation of the Tenements; -- 5 of 9 -- 6 iii. cause Samgris to make any payment to directors of directors’ fees; iv. cause Samgris to sell any assets; v. cause Samgris to enter into a new premises lease which exceeds a term of 12 months; vi. cause Samgris to encumber any asset except as may be necessary to 5 provide security in the event that Samgris enters into a new lease; vii. cause Samgris to voluntarily relinquish any Tenement. (d) to cause Samgris to take all reasonable steps to preserve the Tenements subject to any contrary super majority resolution of the board of directors of Samgris or order of the Court; 10 (e) to cause Samgris to send to Dr Huang and Mr Howard by email, on a weekly basis, a summary of the cash assets position of Samgris; (f) to cause Samgris to send to Dr Huang and Mr Howard by email, on a daily basis, bank statements of the bank accounts of Samgris showing bank balances and transactions effected on the accounts. 15 APJM contended that such undertakings would address any concerns which the successful plaintiffs might have, concerning the risk of the assets of Samgris being adversely affected or materially depleted, if a stay was granted. 20 For their part, the plaintiffs suggested that the better course would be to refuse the stay and allow the company to be wound up and liquidators to be appointed. That submission had two limbs. 25 First, in the event that the appeal was successful, the Court of Appeal would have power to bring about a full restitution of the position by: (a) ordering determination of the liquidation, pursuant to section 482 of the Corporations Act 2001 (Cth); and (b) in the event that any pecuniary adjustment was required, because, for 30 example, the liquidators had spent company moneys, the court could make an order requiring the plaintiff to reimburse Samgris (or, I observe parenthetically, by imposing conditions concerning the terms of the buy-out order). 35 Second, the potential of irretrievable harm being caused to APJM in the interim (for example, by the asset realisation which liquidators would normally perform in the discharge of their duties) could be addressed by placing restrictions on the powers of the liquidators until the determination of the appeal. In this regard, it was submitted the court could make an order in relation to the liquidators in terms of paragraphs (a) 40 through to (d) inclusive of the undertaking offered by Mr Mu (although (c) and (d) would be amended to remove the reference to the supermajority resolution). -- 6 of 9 -- 7 Against that background, I make the following observations about the relevant advantages and disadvantages which were the subject of a submission by the parties before me. First, APJM drew attention to the irretrievable damage which would flow from the 5 liquidators embarking upon the realisation of assets. I observe that this concern would be defused by the plaintiffs’ proposal that restrictions be placed on the powers of the liquidators. Second, APJM pointed out that the conduct, even of the liquidation restricted as 10 proposed, would involve the liquidators incurring costs (and diminishing Samgris’ assets) which would not be incurred in the event of a stay. I agree that that must be so, at least because of the liquidator’s fees, but it seems to me that the Court of Appeal could form an order which would respond to this. In the event that the appeal succeeded and the court otherwise thought it appropriate, it could, for example, 15 condition the buyout order by setting off such moneys against the amount which APJM would be required to pay for the plaintiffs’ shares. Third, APJM has suggested that the fact that refusal of a stay would mean that the actual decision-maker, in respect of what was necessary to be done to maintain the 20 tenements, would be the liquidators and not the, ex hypothesi, experienced personnel of Samgris. I agree that, logically, that is so, but I do not see that it necessarily follows that the quality of the decision which would be made by liquidators, as opposed to Samgris personnel, would be such as would inevitably amount to irretrievable prejudice. 25 Fourth, APJM suggested that refusing a stay would create a risk of irretrievable or irreparable harm in relation to at least three areas, namely: (a) the ability of Samgris to obtain, later this month, a renewal from the Department of Natural Resources and Mines, of EPC 2221, referred to in the 30 affidavit of Mr Kimmins quoted above, being the particular EPC, which was the most promising, which was valued at approximately $3 million in the draft accounts of Samgris; (b) Samgris’ ability to retain its employees; and (c) ongoing harm to business relationships and Samgris’ reputation. 35 The evidence does not justify the conclusion that harm would necessarily follow in these areas in the event the stay was refused. Rather, APJM was essentially asking me to infer the existence of the risk of such harm. 40 I do not think the evidence justified that inference in relation to the second and third points mentioned. But I would be prepared to infer that there is a real risk that the Department of Natural Resources and Mines would tend to regard less favourably an application for renewal of EPC 2221 by the liquidators, than it would an application for renewal by the company itself, notwithstanding that the company would be the 45 subject of the stayed order that it be wound up. It is true that the evidence does not permit me to quantify that risk, but it is a risk which is not capable of being -- 7 of 9 -- 8 ameliorated by any restrictions which I might impose on the liquidators in the event I refuse the stay. For their part, the plaintiffs submitted that there was a strong public interest in the control of Samgris being placed in the hands of an external controller. They 5 submitted that I had made findings which were not being challenged in the proposed appeal, quite adverse to the conduct of the APJM-nominated Samgris directors. It is true that my findings were critical of the manner by which the affairs of Samgris had been conducted by those directors. But the risk to the public interest strikes me as slender, particularly in view of the fact that if I acceded to the stay application, the 10 directors would be the subject of the undertakings proposed and the risk would only exist until the determination of the appeal. I agree with the submission of APJM that public interest has a marginal role in relation to the disposition of this application. It is true that if I accede to the application for stay, the plaintiffs, who are entitled to 15 the benefit of their success and the findings they have persuaded me to make, would have to continue to accept the position of the company continuing in the hands of the majority shareholder, until the determination of the appeal. They would have to continue to be concerned as to what was happening in relation to Samgris and its assets, but: 20 (a) they have done so for some little time already; and (b) although they have won at trial, the position is changed. That continuity would be the subject of the undertakings offered and the plaintiffs have not adduced any evidence which suggests that there is any risk which is not adequately dealt with by the undertakings that the assets of Samgris might be 25 adversely affected or materially depleted. It seems to me that the fair balance of the rights of the parties, given that an appeal does not of itself operate as a stay and the party who succeeded at trial is entitled to the fruits of its victory, is to grant the stay. 30 I order that: (a) on the personal undertaking of Mr Wei Mu (who is the CEO of Samgris and APJM) in the terms of annexure “A” to this order; and (b) conditional upon provision to the court, prior to 4:00 pm on 15 May 2017 of 35 an undertaking in the terms of annexure “A” to this order, from APJM and also from each of the three directors nominated by APJM, namely, Mr Laixin Li, Mr Hui Xie and Mr Xin Wang, the first and second orders made by me on 8 May 2017 be stayed until the determination of APJM’s appeal from my judgment in Allways Resources Holdings 40 Pty Ltd v Samgris Resources Pty Ltd [2017] QSC 74. Costs of the application for stay are reserved. 45 -- 8 of 9 -- 9 Annexure “A” is as follows: [insert name of undertaking party] Undertakes to the following effect: 5 [1] not to cause Samgris to carry out any exploration activities or incur any expenses in relation to exploration other than to make rental payments in respect of the Exploration Permits for Coal (EPCs) held by Samgris (the Tenements) to the Department of Natural Resources and Mines (DNRM), or other payments necessary 10 to maintain the Tenements in good standing, or payments necessary for the renewal of the Tenements; [2] not to cause Samgris to incur expenditure other than in the ordinary course of business; 15 [3] for the avoidance of doubt, not to cause Samgris to do any of the following except by super majority resolution of the board of directors of Samgris or order of the Court: (a) cause Samgris to take any steps to progress the field exploration work on 20 EPC 2221; (b) cause the contract with the Xi’An Institute of Geological and Mineral Exploration in connection with a revaluation of the Tenements to be performed, or make any other payments in connection with a revaluation of the Tenements; 25 (c) cause Samgris to make any payment to directors of directors’ fees; (d) cause Samgris to sell any assets; (e) cause Samgris to enter into a new premises lease which exceeds a term of 12 months; (f) cause Samgris to encumber any asset except as may be necessary to 30 provide security in the event that Samgris enters into a new lease; (g) cause Samgris to voluntarily relinquish any Tenement. [4] to cause Samgris to take all reasonable steps to preserve the Tenements subject to any contrary super majority resolution of the board of directors of Samgris or order 35 of the Court; [5] to cause Samgris to send to Dr Huang and Mr Howard by email, on a weekly basis, a summary of the cash assets position of Samgris, 40 [6] to cause Samgris to send to Dr Huang and Mr Howard by email, on a daily basis, bank statements of the bank accounts of Samgris showing bank balances and transactions effected on the accounts. For the avoidance of doubt, it will be sufficient compliance with the condition in (b) 45 if the undertakings take the form of undertakings expressed in English and Chinese executed by the party giving the undertaking accompanied by the affidavit of a translator confirming the Chinese version accurately reflects the English undertaking. __________________ 50 -- 9 of 9 --