: JUDGMENT No. 22. 78%... CATCHWORDS TRADE PRACTICES - misleading and deceptive conduct - pre-acquisition statements to shareholders resolving to approve acquisition of assets - injunctive relief against company - mandatory order seeking recommittal of resolution - utility - declaration that directors in breach of s.229(2) of Companies Code - jurisdiction - standing - propriety - motions at trial to dismiss application summarily. PRACTICE AND PROCEDURE - utility of injunctive relief - preliminary points — utility speculative and contingent - no Proper basis to exercise discretion to grant relief - abuse of process - application dismissed - preliminary point on standing - whether should be disposed of at commencement of trial - discretion - declaration as to criminal conduct - discretion. COMPANIES - rule in Foss v Harbottle - distinction between corporate rights and individual rights of shareholders - whether propex to resolve as preliminary question. FEDERAL COURT - jurisdiction - accrued jurisdiction - whether within original jurisdiction - power to grant declaratory relief in accrued jurisdiction - 8.21 Federal Court of Australia Act. Companies (Acquisition of Shares) (Western Australia) Code anise Practices Act 1974 s.52, 8.80 Federal Court of Australia Act 1976 (Cth) Foss v Harbottle [1843] 2 Hare 461 General Steel Industries Inc. v Commissioner for Railways (NSW) 196 12 CER 12 Russian Commercial and Industrial Bank v British Bank for Foreign Trade, Limited [1921] 2 AC 438 Gibson v Union of Sho Distributive and Allied Workers [1968] 2 All ER 252 Eastham v Newcastle United Football Club Limited [1964] 1 Ch.413 chars ington v Simons & Co. Ltd 11970] 2 All ER 257 Shepherd Homes Ltd v Sandham [1970} 3 All ER 402 Fencott v Muller (1983) 152 CLR 570 R v Bevan; Ex parte Elias and Gordon (1942) 66 CLR 452 Burgundy Royale Investments Pty Ltd v Westpac Bankin Corporation 1987) te ALR 173 Edwards v Halliwell [1950] 2 All ER 1064 yo CAS R 86 ra 107g Ryan v South Sydney Juniox Rugby League Club Ltd (1974) Papaioannoy v The Greek Orthodox Community of Melbourné RECEIVED 4 OUUNTI83 ACLR 801 Daniels v Daniels [1978] 1 Ch. 406 2. Prudential Assurance Co. Ltd v Newman Industries Ltd [1982] 1 Ch. Hurley v BGH Nominees Pty Ltd (1982) 6 ACLR 791 Commissioner for Corporate Affairs v Sansom [1981] WAR 32 ORISON PTY LTD v PETER GULLAN CROSS and JON SWIRE-THOMPSON AND OTHERS NO.WAG 42 of 1987 PETER GULLAN CROSS and JON SWIRE-THOMPSON AND OTHERS v DENIS DEVENISH-MEARES AND OTHERS NO. WAG 52 OF 1987 FRENCH J. PERTH 3 JUNE 1988 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION BETWEE N: BETWEEN: wwe eww NO. WAG 42 of 1987 ORISON PTY LTD Applicant and STRATEGIC MINERALS CORPORATION NL First Respondent and PETER GULLAN CROSS and JON SWIRE-THOMPSON Second Respondents and ASHA CAPITAL CORPORATION LIMITED Third Respondent and ASHA ENERGY PTY LTD Fourth Respondent No. WAG 52 of 1987 PETER GULLAN CROSS and JON SWIRE-THOMPSON First Applicants and LEONAS REISGYS Second Applicant and PETER RUTTLEDGE Thiwd Applicant 2. and DENIS DEVENISH-MEARES First Respondent and RICHARD JOHN TANNER Second Respondent and WALTER ARTHUR CHARLES MARTIN Third Respondent MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 3 JUNE 1988 WHERE MADE: PERTH THE COURT ORDERS THAT: l. Application No. WAG 42 of 1987 be dismissed as against the first respondent. The question of the costs of the application is reserved. The second respondents' motion filed 31 May 1987 is dismissed. The costs of the motion are reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION BETWEEN: BETWEEN: ee ee ee NO. WAG 42 of 1987 ORISON PTY LTD Applicant and STRATEGIC MINERALS CORPORATION NL First Respondent and PETER GULLAN CROSS and JON SWIRE-THOMPSON Second Respondents and ASHA CAPITAL CORPORATION LIMITED Third Respondent and ASHA ENERGY PTY LTD Fourth Respondent No. WAG 52 of 1987 PETER GULLAN CROSS. and JON SWIRE-THOMPSON First Applicants and LEONAS REISGYS Second Applicant and PETER RUTTLEDGE Third Applicant 2. and DENIS DEVENISH-MEARES First Respondent and RICHARD JOHN TANNER Second Respondent and WALTER ARTHUR CHARLES MARTIN Third Respondent CORAM: PRENCH J. 3 JUNE 1988 REASONS FOR JUDGMENT ON PRELIMINARY MOTIONS The concurrent trials of the applications numbered WAG 42 and WAG 52 of 1987 commenced in this Court on 1 June 1988. Following certain amendments to the application and statement of claim in WAG 42 of 1987, the first and second respondents in that action have moved, albeit on different grounds, for its summary Gisposal. In dealing with those motions it is necessary first to make some reference to the pleadings and the history of the proceedings. On 31 July 1986, acting pursuant to a resolution of its shareholders passed at an extraordinary general meeting held on 23 July 1986, Strategic Minerals Corporation NL entered into an agreement with Asha Capital Corporation Limited to acquire all of the issued capital of its subsidiary, Asha Mining Finance Ltd. The assets of that company included various mining interests which 3. it is unnecessary to set out here. The consideration for that acquisition was the issue and allotment to Asha Energy Pty Ltd of 8.9 million ordinary fully paid shares in Strategic issued at a price of 30 cents per share. Orison Pty Ltd, a shareholder of Strategic, has instituted proceedings in this Court against the company and two of its directors, Cross and Swire-Thompson, although it now pleads that Cross resigned as a director in April 1988. The two directors are alleged at all material times also to have been directors of Asha Capital and Asha Energy and to have control of each of those companies. Orison claims that the shareholders' approval of the acquisition was induced by misleading or deceptive statements in material circulated to them prior to the meeting, pursuant to the requirements of para.12(g) of the Companies (Acquisition of Shares) (Western Australia) Code and s.3J(3) of the Official Listing Requirements of the Australian Associated Stock Exchanges. The material so circulated, embodied what was said to amount to misrepresentations by Strategic on matters relevant to the proposed acquisition and this, it was said, constituted misleading and deceptive conduct by Strategic in contravention of s.52 of the Trade Practices Act. It is further alleged that Cross and Swire-Thompson owed a duty to the shareholders to use reasonable care and diligence in the exercise of their powers and the discharge of their duties as directors. They knew, it is said, or 4. ought to have known, that the value of the major investment assets of AMF was substantially less than that represented in the circulated documents and, it is said, they failed to disclose to the shareholders of Strategic what they knew. By reason of these matters it is alleged that Cross and Swire-Thompson breached 8.229(2) of the Companies (Western Australia) Code in failing to exercise a reasonable degree of care and diligence in the exercise of their powers and the discharge of their duties. Although Asha Capital Corporation Limited and Asha Energy Pty Ltd were joined as respondents pursuant to leave granted on 11 June 1987, it emerged from an amendment to their defence, allowed by order of Lee J., on 26 May 1988, that Asha Energy has mortgaged all the Strategic shares alloted to it to the Australian European Finance Corporation Limited and the National Mutual Royal Bank Limited. It appears that a significant number of the shares subject to the mortgage may have been sold. In any event Orison has, pursuant to leave granted at the commencement of the trial of the action on 1 June 1988, amended its application and statement of claim so that no relief is claimed against either Asha Capital o Asha Energy. Upon that amendment Asha Capital and Asha Energy applied pursuant to 0.6¥.9(b) for an order that they cease to be parties and by consent that order was made, although the question of costs was reserved. This left Orison claiming yelief against Strategic and Cross and Swire-Thompson only. It claims against Strategic an injunction in the following terms:- 5. "...to forthwith do all acts necessary for calling and proceed to call an Extraordinary General Meeting of the shareholders of Strategic such meeting to be held at a date time and venue to be fixed by this Honourable Court if not agreed between the parties wherein the business of the meeting be limited to considering and if thought appropriate passing the following resolution: that the acquisition by Strategic Minerals Corporation NL of 100 per centum of the issued capital of Asha Mining Finance Pty Ltd for a consideration of 8,900,000 ordinary fully paid shares in the company, issued at a price of 0.30 per share and consequently for the shareholding of the Third Respondent ("Asha Capital") to increase from 25.4% to 36% of the issued and voting shares of the company be hereby ratified". Orison evidently relies upon s.80 of the Trade Practices Act as the source of power to make the order sought. It will be immediately apparent that the relief claimed would not, even if the proposed resolution were defeated, have any impact on the resolution of 23 July 1986 by which the shareholders approved the proposed acquisition. However, as counsel for Orison explained, the object of the relief is to re-commit to the shareholders of Strategic the decision that they (of their predecessors) made on incorrect information in 1986 and that if necessary an amendment to the form of relief, recasting the proposed resolution to that end, will be sought. As against Cross and Swire-Thompson, Orison claims a declaration that they and each of them "by reason of the matters referred to in paragraph 17 of the Statement of Claim filed herewith were and continue to be in breach of section 229(2) of the Companies (Western Australia) Code". Paragraph 17 makes no 6. allegation of continuing conduct but alleges failure to make relevant disclosures to the shareholders of Strategic "on or prior to the EGM". Following amendments to the defence of Cross_= and Swire-Thompson, raising question of jurisdiction and standing as affected by the rule in Foss v Harbottle, Orison by leave filed a reply on 2 June in which it alleges, inter alia, that at all material times Cross and Swire-Thompson not only controlled Asha Capital and Asha Energy but also held interests in shares in Strategic by reason of which they were capable of controlling that company. In No. WAG 52 of 1987, Cwoss and Swire-Thompson and two other divectors of Strategic, Reisgys and Ruttledge, claim damages and injunctive relief against Denis Devenish-Meares, Richard John Tanner and Walter Arthur Charles Martin. As appears from the pleadings, including materials annexed to and forming part of the amended statement of claim, these three persons were in April 1987 candidates for election as diwectors of Strategic. The claim against them relates to documents said to have been sent by them to shareholders of Strategic containing various reflections upon the performance and conduct of the applicants as directors of that company. These documents are said to have been sent through the post, thus attracting to the senders the extended application of the Trade Practices Act. Some 34 separate misrepresentations are said to have been embodied in them. On 14 October 1987 I ordered 7. that action No. WAG 52 be tried at the same time as action No. WAG 42 and in giving reasons for so doing observed that it seemed plain that the substance of the message said to have been sent out by the respondents related to the acquisition of the AMF shares at an alleged undervalue. There were then, as there are now, common questions of fact in the two proceedings. Although the causes of action relate to different acts and omissions, they are ultimately founded upon the acquisition of the AMF shares and representations made in connection therewith. It is important for present purposes to note that one of the misrepresentations attributed to the respondents in 52 of 1987, is the contention that "the applicants and each of them have breached s.229 of the Companies (Western Australia) Code". And it is pleaded in the amended statement of claim that - "..such was not the case". In theix defence to that claim the second and third respondents in effect deny that notices sent by them contained any such representation. The fiwst wespondent, Devenish-Meares, however, admits that in paragraph 6 of a statement sent by him to the shareholders, he expressed the opinion that the conduct of Cross and Swire-Thompson contravened 8.229 of the Companies (Western Austyala) Code, and says that the opinion expressed was not misleading and deceptive. In support of that plea he adopts as particulars "the matters set out in the Statement of Claim in Federal Court matter No. WAG 42 of 1987...". Against that background I turn to consider the two motions. The Strategic Motion Stwategic moves the Court for an order that "the further re~amended application be struck out in its entirety on the grounds that the relief sought is ineffective and academic". The argument advanced for Strategic was to the effect that the relief sought against it was so futile as to amount to an abuse of the process of the Court. The motion although not so expressed, was in substance a motion for dismissal of the application pursuant to 0.20 ¥.2(1)(c) and altesnatively, the implied incidental power of the Court to prevent abuse of its process. Counsel for Strategic submitted that no useful result would flow from the gwant of the relief claimed by Orison against his client. If the relief were granted and a meeting held and the proposed resolution defeated, nothing, he said, would flow from that. On the other hand, counsel for Orison submitted that the relief sought would have both commercial and legal utility. The shareholders would have an opportunity to exercise their right to vote on proper information, a Fight that it was said had previously been effectively denied to them by the misleading and deceptive conduct of the company through its directors. If the 9. company took no action upon a resolution rejecting or rescinding the acquisition resolution, then it would be open to the s:areholders to apply to the Supweme Court under s.320(2)(f) of the Companies (Western Australia) Code for an order that the company repurchase the shares originally issued to Asha Energy and reduce its capital accordingly. A failure of the company to act upon the resolution would, as I understand the submission, form the basis of a contention that its affairs were being conducted in an oppressive manner in the sense that that term is used in sub-s.320(2)(a). Counsel submitted that the utility, ow lack of it, of the relief sought is a matter that goes to discretion to grant or withhold the relief and does not provide a basis for summary disposal of the proceedings. There is, of course, much force in that general proposition and there is no doubt that the Court will only sparingly employ its power to terminate an action summarily. Although it is a much cited passage, it is helpful to vefer to the judgment of Barwick CJ in General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129, where his Honour said:- "Dixon J. (as he then was) sums up a number of authorities in Dey v Victorian Railways Commissioners {(1949) 78 CLR 62] where he says (at p.9l): "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to 10. dismiss the action as frivolous and vexatious and an abuse of process". Although I can agree with Latham C.J. in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings (at p.84), in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity fow the trial of h&s case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where arguwent is unnecessary to evoke the futility of the Plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cangit, possibly succeed." m, support of a bwoad concept of "utility" which would "grant of relief, counsel cited a number of cases B. declaratory orders. In Russian Commercial and h gwanting declaratory relief. At 452 Lord Sumner years it has been accepted practice in cases in eycial List to hear and determine claims for a ktion of right, when a real and not a fictitious mic question is involved and is in being between ties, in order that they may know what business © take without having to run the risk of acting ing themselves liable in damages, when at last per is brought before the Court. " ll. In Gibson v Union of Shop, Distributive and Allied Workers [1968] 2 All ER 252, the plaintiff had been suspended for two years by the union of which he was a member. He sought declaratory and injunctive relief, but by the time his case came to trial there were only thwee weeks of his suspension left to run. A preliminary point was taken that no useful purpose would be served by trying the action as no practical results would flow from a declaration that the suspension was invalid. Buckley J. held that the mere lapse of time should not deprive the plaintiff of his entitlement to declaratory relief and said at 254:- "I can easily understand why, if a plaintiff starts an action seeking declaratory relief in respect of some question of such a kind that no legal results will flow from the declaration which he seeks, the court will be disinclined to entertain his action and to grant any welief in it; and I can understand that the action would be dismissed as being one which it would serve no useful Purpose to try. If, however, when the action is instituted the plaintiff has or may have a good ground of complaint, not of an academic character but involving substantial legal issues, it seems hard that, when the case comes on for trial, he should be faced with the suggestion that it ought not to be tried because by then the relief which he seeks has become much less important or has ceased to have practical implications, owing to the lapse of time between the date when he issued the writ and the time when, having regard to the business of the court and the necessary preparatory steps, the action comes on for trial." Not surprisingly, counsel for Strategic relied upon the first part of that passage in support of his submission that the Court ought not to proceed further in hearing the action against his client. Reference was also made by counsel for Orison to the judgment of Wilberforce J. in Eastham v Newcastle United Football 12. Club Limited [1964] 1 Ch.413. That was a restraint of trade action brought by a professional footballer who wished to transfer from one club to another. After the action was commenced his club agreed to release him. It was held, nevertheless, that there was jurisdiction to grant a declaration that the retention and transfer rules and regulations relied upon by his club were invalid. These are, of course, all cases of declaratory relief. The question of utility assumes greater weight when what is sought is a mandatory order requiring, as this does, the convening of a meeting of shareholders of a company and attendant expense and inconvenience. A relevant statement of principle governing the grant of mandatory relief was enunciated by Buckley J. in Chawwington v Simons & Co. Ltd [1970] 2 All ER 257 at 261, where his Honouw said:- "Where a mandatory order is sought, the court must consider whether in the circumstances as they exist after the breach a mandatory order, and, if so, what kind of mandatory order, will produce a fair result. In this connection, the court must, in my judgment, take into consideration amongst other relevant circumstances the benefit which the order will confer on the plaintiff and the detriment which it will cause the defendants. A Plaintiff should not, of course, be deprived of relief to which he is justly entitled merely because it will be disadvantageous to the defendant. On the other hand, he should not be permitted to insist on a form of relief which will confer no appreciable benefit on himself and will be materially detrimental to the defendant." Similar considerations were applied by Megarry J. in Shepherd Homes Ltd v Sandham [1970] 3 All ER 402 at 411. 13. There is as I have said, much force in the argument that the Court ought not dispose summarily of a proceeding on considerations which are in essence discretionary. Where, however, a court, acting on the assumption that all facts alleged by the applicant are found, can see no proper basis upon which it would exercise its discretion in favour of the applicant to grant the relief sought, it would, in my opinion, be an abuse of process to allow the hearing to proceed. In this case the relief sought has no legally operative effect upon the transaction complained of. In the event that the order were made and the shareholders were to decide retroactively to rescind the resolution of 23 July, such decision could have no legally operative effect upon the acquisition which they or their predecessors had earlier approved. There is no reason to believe that the passage of such a resolution would provide any greater foundation for an application under s.320 of the Companies (Western Australia) Code, than an application based upon the conduct of the directors which is complained of. The benefits to be derived from the relief sought are tenuous, speculative and riddled with contingency. To apply the test laid down by Buckley J. in Charyrington v Simons & Co. Ltd (supra) there is in my opinion no demonstrable basis upon which any appreciable benefit could flow from the grant of the injunction sought and there is the plain prospect of material detriment to the defendant in the imposition of a requirement to call an extraordinary general meeting. Assuming that the Court has the power to make an order of the kind sought, I am of the view that its futility is so patent that to proceed with the 14. application against Strategic would be an abuse of the process of the Court. In so concluding I note that there 1s 1n the amended application a claim for "such further or other relief as to this Honourable Court may seem just and appropriate". However, counsel for Orison indicated that there was no substantial alternative relief which would be sought pursuant to that paragraph, save for any necessary variation to the terms of the injunction to make clear that the object of the proposed extraordinary general meeting would be the wecommittal of the decision of 23 July 1986. The Cross and Swire-Thompson Motion The second respondents, Messrs. Cross and Swire-Thompson, move, also evidently pursuant to 0.20, for dismissal of the Orison application as against them in number 42 of 1987 on the various bases that:- 1. The Court has no jurisdiction or alternatively should not exercise its jurisdiction to hear the applicant's claim against the second respondents. 2. The applicant has no standing to bring proceedings for a declaration that the second respondents were in breach of section 229 of the Companies Code (Western Australia) - this by reason of the rule in Foss v Harbottle. 3. The Court has no power to make tne declaration sought. 15. 4. The Court should not in its discretion embark upon these proceedings given that the relief sought is a declaration that the second respondents are guilty of a criminal offence and that such a declaration would not be binding in subsequent proceedings brought by the Corporate Affairs Commission pursuant to s.229 of the Companies (Western Australia) Code and that in any event' such declaration would not decide or dispose of the matters in issue between the parties. Counsel for the second respondents submitted that Orison's application for declaratory relief against his clients does not involve any federal claim. It can therefore only be entertained if it falls within the Court's accrued jurisdiction and, he submitted, this claim is so far removed from the federal claim against Strategic that it is not part of the one controversy and not within the accrued jurisdiction as defined by the principles enunciated in Fencott v Muller (1983) 152 CLR 570, 607-610. At the threshold it must be pointed out thet the dismissal of the claim against Strategic does not extinguish the accrued jurisdiction to deal with other claims properly forming part of that controversy ~- R v Bevan; Ex parte Elias and Gordon (1942) 66 CLR 452. In Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 76 ALR 173, the Full Court, on 16. a special case referred to it under s.25(6) of the Federal Court of Australia Act 1976 (Cth), held that the Northern Territory and the Northern Territory Development Corporation as an emanation of the Crown in right of the Northern Territory, were not bound by the Trade Practices Act. The question then arose whether the accrued jurisdiction of the Court to entertain cognate common law claims survived the resolution of the preliminary issue against the federal claims. The Court held that the accrued jurisdiction did so survive, saying at 181:- "It is twue that in answering questions (1) and (2) in the negative, we have determined preliminary points of law in the claims under the Act brought against the second and third respondents; and that, in consequence, there will be no further trial of those issues. But it does not follow that the court never lacked jurisdiction to deal with such claims (sic). Nor does it follow that the court now loses its jurisdiction to deal with the attached common law claims: see Moregate Tobacco Co. Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 469, 472, 477; 31 ALR 161 at 164, 166, 170; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (1987) 75 ALR 271; ATPR 40,795, and Dorotea Pty Ltd v Vancleve Pty Ltd (1987) ATPR 40,807. In principle, the position is no different fron what it would have been if the claims under the Act had proceeded to trial and had been dismissed on the merits. In that situation, it could not seriously be suggested that the dismissal of the claims under the Act had the effect of depriving the court of jurisdiction to deal with any = attached non-federal claim. The position may have been different if the claims under the Act had been ""colourable" in the sense that they were made for the improper purpose of "fabricating" jurisdiction: see Lane's Commentary on the Australian Constitution (1986) pp.367-8 and the cases there cited." The view which I have already expressed concerning the nature of the relief sought against Strategic does not involve any 17. reflection on the bona fides of the claim. The position with respect to Strategic arises as a result of a process of amendment which has narrowed the claim to a point where it would serve no practical purpose. Putting to one side for the moment the question of power to award the relief claimed against Cross and Swire-Thompson, I am satisfied that the claim against them 1s part of the one justiciable controversy out of which Orison's claim against Strategic arose and that the Court does have jurisdiction to deal with its claim against the two directors. It was further contended by counsel for Cross and Swire-Thompson that the Court had no power to grant' the declaratory relief sought. This submission was based upon the argument that the Court's authority to awawd declaratory relief derives only from s.21 of the Federal Court of Australia Act. That section, it was said, only allows the Court to grant declaratory relief "in relation to a matter in which it has original jurisdiction". And by that "original jurisdiction", it was argued, the section means the jurisdiction to deal with federal claims only and not claims arising under the accrued jurisdiction. It is quite clear in my opinion, that the accrued jurisdiction comes to this Court as part of the jurisdiction to deal with the matters upon which the Court is authorised by the Parliament to adjudicate. Where that authority relates to original jurisdiction, it extends to the common law claims forming part of the controversy. The jurisdiction to resolve those claims that accrues when a federal claim is brought in the original 18. jurisdiction of the Court, is also part of that original jurisdiction. The Court does not lack power to grant the declaratory relief sought by reason of any distinction to be drawn between accrued and original jurisdiction. The question of standing was much agitated in argument, counsel for Cross and Swire-Thompson submitting that the rule in Foss v Harbottle [1843] 2 Hare 461, 67 ER 189 applies and that Orison's claim could only properly be brought by Strategic. Some colowr was lent to this argument when counsel pointed out that prosecutions for breaches of s.229 can only be brought by the Commissioner for Corporate Affairs and that in the absence of an order under s.320 of the Companies Code, claims for recovery of compensation under s3.229(7) could only be brought by the company whose directors are in default. Counsel for Orison on the other hand argued that the rule did not apply because the wrong done by the two directors was to the shareholders as individuals. He referred to Edwards v Halliwell [1950] 2 All ER 1064, a case in which two members of a union claimed a declaration against two members of the executive and the union itself that an alteration made to _ members' contribution rates was invalid. The Court of Appeal held that the cule in Foss v Harbottle (supra) did not apply because it was implicit in that rule that the matter relied upon as a cause of action should be a cause of action properly belonging to the general body of members as opposed to a cause of action in which a 19. member could assert his own right. As Jenkins LJ, with whom Sir Raymond Evershed MR agreed, said at 1066:- "The rule in Foss v Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company o£ association of persons is prima facie the company of the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favour of what has been, then cadit quaestio. No wrong had been done to the company or association and there is nothing in vrespect of which anyone can sue. If, on the other hand, a simple majority of members of the company of association is against what has been done, then there is no valid reason why the company or association itself should not sue. In my judgment, it is implicit in the rule that the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body of corporators or members of the company or association as opposed to a cause of action which some individual member can assert in his own right." The distinction between the "personal and individual rights" of a shareholder given to him by the articles on the one hand and corporate membership rights on the other, was also discussed by Holland J. in Ryan v South Sydney Junior Rugby League Club Ltd (1974) 3 ACLR 486 at 492-493. It was held that the rule in Foss v Harbottle had no application to a case where a member of an incorporated club sought to enforce his rights under the articles as a member to have an election of directors carried out in accordance with those articles. And that case was followed in Papaioannoy v The Greek Orthodox Community of Melbourne (1978) 3 ACLR 801, where King J. held individual members of a company 20. limited by guarantee could apply for injunctive relief in respect of irregularities in the conduct of an election at a general meeting of the company. His Honour held that the election procedures specified in article 15 of the company's Articles amounted to personal and individual rights of a contractual nature entitling individual members to sue in their own names in the event of breach. In the alternative, counsel for Orison submitted that the case fell within one of the established exceptions to the rule, namely that the conduct complained of was in effect a fraud on members in the minority by persons in control of the company. He referred to Daniels v Daniels [1978] 1 Ch. 406, where it was held by Templeman J. that the exception to the rule should include cases where, although no fraud is alleged, there is a breach of duty by directors and majority shareholders to the detriment of the company. Whether or not the question of standing and _ the application of the rule in Foss v Harbottle should be determined as a preliminary question was also debated. In Prudential Assurance Co. Ltd v Newman Industries Ltd [1982] 1 Ch. 204 at 221, the Court of Appeal was strongly of the view that the question of standing should have been determined by the trial judge as a preliminary issue as requested by the defendants in that case. However that view must be seen against the background of the facts in that case, which involved a lengthy and complex trial, the need 21. for which might have been avoided by preliminary disposition of the question of standing. The Full Court of South Australia in Hurley v BGH Nominees Pty Ltd (1982) 6 ACLR 791, took the view that the procedure for the determination of the issue of locus standi ought to be determined in each individual case according to what appears to be just and convenient in the circumstances (at p.795 pee King CJ3., Mitchell J. agreeing). In the present case the concurrent proceedings in WAG 52 of 1987 diwectly raise the issue of whether Cross. and Swire-Thompson have been guilty of a breach of 8.229. That issue arises in the context of their allegation that a statement of theiy guilt by the respondents was misleading and deceptive and that "such was not the case". The cousse of the evidence in the twial of the two actions is unlikely, in my opinion, to be greatly affected if I allow the question of standing to be resolved after I have heard all the evidence. If, for example, the evidence discloses no breach of 3.229 then the question of standing would become academic. In these circumstances and given that there is only a limited time in which to consider the merits of these submissions before the resumption of the trial, the better course in my opinion, is to leave the question of standing to be dealt with in the ultimate judgment in both these actions. Additional considerations were pressed upon me by counsel for Cross and Swire-Thompson which go to the discretion to grant the welief sought and to exercise the accrued jurisdiction. 22. In particular he referred to the undesirability of declarations in civil proceedings as to the commission of a criminal offence and referred in that regard to Inglis v Moore (1979) 24 ALR 411, 415 (St. John J.), 421 (Brennan and Davies JJ), and Commissioner for Corporate Affairs v Sansom [1981] WAR 32, 36 (Burt CJ). These and the other discretionary considerations advanced are not sufficient in the circumstances of this case to persuade me that Orison's action against Cross and Swire-Thompson should be summarily dismissed. That is not to say that at the end of the day discretionary considerations may not be brought to bear on the question whether the Court will ultimately accept the exercise of the accrued jurisdiction and grant the relief sought if Orison is successful on the facts. I certify that this and the preceding twenty one (21) pages are a true copy of the Reasons for Judgment of his Honour Justice French. Associate: Devens Ute Date: 3 Suns \983 23. In No. WAG 42 of 1987 Counsel for the Applicants: Mr M.L. Bennett with Mr G.R. Donaldson Solicitors for the Applicants: Messrs. Keall Brinsden Counsel for the First Respondent: Mr M.W. Odes Solicitors for the First Respondent: Messrs. Parker & Parker Counsel for the Second Respondents: Mr T.E. O'Connor Q.C. with Mr R.J. Ainslie Solicitors for the Second Respondents: Messrs. Mallesons Stephen Jaques In No. WAG 52 of 1987 Counsel for the Applicants: Mr T.E. O'Connor Q.C. with Mr R.J. Ainslie Solicitors for the Applicants: Messrs. Mallesons Stephen Jaques Counsel for the Respondents: Mz M.L. Bennett with Myr G.R. Donaldson Solicitors for the Respondents: Messrs. Keall Brinsden Date of Hearing: 2 June 1988 Date of Judgment: 3 June 1988