FEDERAL COURT OF AUSTRALIA Altius Mining Limited v Sakura Capital Limited [2012] FCA 13 Citation: Altius Mining Limited v Sakura Capital Limited [2012] FCA 13 Parties: ALTIUS MINING LIMITED (ABN 35 126 540 547) v SAKURA CAPITAL LIMITED, KIT FOO CHYE and JANNIE CHAN SIEW LEE File number: VID 31 of 2012 Judge: MURPHY J Date of judgment: 13 January 2012 Date of hearing: 12 January 2012 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 30 Counsel for the Applicant: Mr D Crennan Solicitor for the Applicant: TressCox Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 31 of 2012 BETWEEN: ALTIUS MINING LIMITED (ABN 35 126 540 547) Applicant AND: SAKURA CAPITAL LIMITED First Respondent KIT FOO CHYE Second Respondent JANNIE CHAN SIEW LEE Third Respondent JUDGE: MURPHY J DATE OF ORDER: 13 JANUARY 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Annual General Meeting of Altius Mining Limited be adjourned from 11 am, 16 January 2012 until 9 am, 6 February 2012 at Level 23 South Tower, 525 Collins Street, Melbourne Victoria. 2. The Applicant urgently amend its proceedings to seek, in the alternative, the cancellation of two million shares held by the First Respondent or by the Second Respondent, and to serve those proceedings on the First and Second Respondent forthwith. 3. The proceedings as amended be treated as urgent and be listed for hearing before 6 February 2012 if the other business of the Court so allows, on an estimate of a half day hearing. 4. Costs Reserved. 5. Liberty to Apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 31 of 2012 BETWEEN: ALTIUS MINING LIMITED (ABN 35 126 540 547) Applicant AND: SAKURA CAPITAL LIMITED First Respondent KIT FOO CHYE Second Respondent JANNIE CHAN SIEW LEE Third Respondent JUDGE: MURPHY J DATE: 13 JANUARY 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 In this proceeding the public company Altius Mining Limited, formerly named Remine Gold Limited, seeks urgent interim injunctions to restrain Sakura Capital Limited and Mr Kit Foo Chye from voting both at the Annual General Meeting of Altius scheduled for Monday, 16 January 2012, and at an Extraordinary General Meeting scheduled for 6 February 2012. 2 The share register of Altius records that each of Sakura and Mr Chye own two million fully paid ordinary shares in the company with full voting rights. Altius disputes that this is correct and contends that only one of either Sakura or Mr Chye owns two million shares. Altius seeks the injunctions in order that if the AGM and the EGM proceed, only one of either Sakura or Mr Chye exercise the voting rights attached to the two million shares owned by one or other of them. 3 The hearing took place after normal sitting hours on 12 January 2012 as it was the only time that the matter could be conveniently heard by the Court prior to the AGM on 16 January 2012. The applicant's lawyers advise the Court that the application was made ex parte as they could not serve the respondents with the proceedings within time. BACKGROUND 4 Mr Alexander King, the Managing Director of Altius, has sworn an affidavit of 12 January 2012 to which there are 21 exhibits. He deposes that in mid-2009 Remine engaged Mr Chye to amongst other things, assist in capital raising. By a service agreement between Remine and Mr Chye dated 10 November 2009 ("Service Agreement") Mr Chye was to be appointed a non-executive director of the company and also provide other services. Relevantly, the Service Agreement provided that Mr Chye's remuneration for his work included an entitlement to two million fully paid ordinary shares in the company. Mr Chye ultimately raised $2 million of capital in an IPO for Remine. 5 Shortly following execution of the Service Agreement Mr Chye was appointed a non executive director. Mr King deposes that Mr Chye then contacted him and requested that the two million shares to which he was entitled be issued to his nominee company, Sakura, rather than in his name. As a result, the two million shares were issued to Sakura on behalf of Mr Chye. 6 Mr King deposes that in January 2010, on Mr Chye's recommendation an associate of his, Ms Sophie Karzis, was appointed as company secretary. 7 Importantly, Mr King swears that in May 2010 Mr Chye contacted him and asserted that he had not received the two million shares that he was due to be issued pursuant to the Service Agreement. He sought that the shares be issued to him as soon as possible. Mr King states that he told Mr Chye to speak to Ms Karzis about this as he was otherwise occupied. 8 It is now apparent from the Altius share register that Mr Chye was issued with a further two million shares in May 2010, presumably in purported performance of the Service Agreement. Mr King deposes that he did not discover this fact until late November 2011, which he did in the context of disputes involving Mr Chye and other shareholders. 9 According to Mr King, in June 2010 Mr Chye resigned as a non-executive director after a dispute with him about whether he was properly supporting Altius' capital raising activities. Ms Karzis resigned shortly thereafter. 10 In mid-2011 Altius raised further capital in an IPO. Mr King deposes that the principal investor, Mr Xiaojing Wang, was introduced to the investment by Mr Chye. He invested $9.5 million for approximately 47.5 million shares and subject to approval by the Board of Directors was to have two seats on the Board. Subsequently, Mr Wang came into dispute with the Board when, amongst other things, the offer of two seats on the Board was reduced to one seat. 11 The 2011 AGM was scheduled for 28 November. The following resolutions were listed on the agenda for that meeting: (a) Adoption of the remuneration report (Resolution 1) (b) Re-election of Joe Fekete, director (Resolution 2) (c) Election of Dr Jannie Chan Siew Lee (Resolution 3) (d) Election of Robert McLennan (Resolution 4) (e) Issue of options to Dr Jannie Chan Siew Lee (Resolution 5) (f) Issue of options to Alexander King (Resolution 6) (g) Issue of options to Joe Fekete (Resolution 7) (h) Issue of options to Robert McLennan (Resolution 8) (i) Approval of Altius director and employee benefits plan (Resolution 9) 12 Mr King deposes that prior to the AGM he was informed by other shareholders that Mr Chye was seeking to persuade them to vote against the resolutions. He states that at the AGM the Chair of Altius decided to adjourn the meeting to 16 January 2012 so as to investigate what was described as "misinformation" given to shareholders. For his part, Mr Wang asserts in a letter dated 22 December 2011 that there was no misinformation and that the meeting was adjourned because the shareholders were against the resolutions. 13 Shortly after the AGM was adjourned Mr King deposes that he became aware that Sakura and Mr Chye had four million shares between them, rather than just 2 million shares issued either to Sakura on behalf of Mr Chye, or directly to Mr Chye. He deposes that he then commenced to investigate the beneficial ownership of the shares held by Sakura. In late November 2011 he sent a Beneficial Tracing Notice pursuant to s 672A of the Corporations Act 2011 (Cth) to Sakura. 14 Correspondence ensued between Altius and its lawyer TressCox, and Sakura and its lawyer Robert James Lawyers. Robert James Lawyers advised by letter on 5 December 2011 that they acted for Sakura on instructions from Mr Chye. They further advised on 9 December 2011 that Sakura was the legal and beneficial owner of two million shares issued to it on about 1 December 2009 upon completion of a $2 million capital raising, and stated that Mr Chye was acting on behalf of Sakura when he directed Altius to issue the shares to Sakura. 15 On 16 December 2011 TressCox wrote to Robert James Lawyers seeking further information in response to the Beneficial Tracing Notice. On 22 December 2011 TressCox advised Robert James Lawyers that Altius contended that the shares issued to Sakura were issued through an administrative error. Altius threatened that unless Sakura either substantiated the basis upon which the shares were issued to it or relinquished the shares, it would seek court orders to prevent Sakura from exercising the voting rights attached to the shares and also to cancel the shares. 16 On 9 January 2012 Altius received a notice calling for an Extraordinary General Meeting which is scheduled for 6 February 2012. This notice calls for the removal of all directors of the current Board and the appointment of new directors in their stead. CONSIDERATION 17 On the evidence before the Court there is a real question as to whether both Sakura and Mr Chye should have each been issued with two million shares. There is though a question as to whether the dispute about these shares is sufficiently material to voting at the reconvened AGM or at the EGM that injunctive relief is appropriate. 18 Counsel for the applicant informed the Court that Altius has approximately 259 million shares and that its register records only about 400 shareholders. The shares are trading at approximately 9 cents at present. On its face, a dispute regarding the ownership of two million out of 259 million shares, is unlikely to be sufficiently material to the outcome of voting at the meeting to justify disturbing the conduct of the reconvened AGM. 19 I was however informed by counsel for the applicant, and it is apparent from a tabulation by Computershare of the proxy voting results for the reconvened AGM as at 11 January 2012 for Resolutions 1-9, that at least insofar as Resolutions 2, 3 and 4 are concerned the proxy voting is presently sufficiently close that the disputed two million shares might be material to the outcome of the vote. This materiality could also increase as proxy votes will continue to be lodged until 48 hours prior to the meeting. Counsel for the applicant also informed the Court that he was instructed that shareholders representing approximately 20 million votes are likely to attend the AGM to vote in person, which could also operate to increase the materiality of the disputed shares. 20 Resolutions 2, 3 and 4 relate to the composition of the Board. The Court was informed by counsel that two of the directors seeking re-election are important executive officers. The applicant contends that if, as a result of the disputed two million shares held by either Sakura or Mr Chye these officers are not re-elected, it may be difficult to later unravel or compensate for the damage to the company if it ultimately establishes that these shares were issued as a result of an administrative error and should be cancelled. There is some force in this submission. 21 The applicant urges the Court to injunct Mr Chye or Sakura to restrain one or other of them from exercising their voting rights over the two million shares held by that shareholder. In the alternative, and in response to questioning by the Court, the applicant seeks that the AGM be adjourned for a short period to enable the question of ownership to be urgently resolved by the Court. 22 The principles regarding the grant of interlocutory relief are well-established: (a) The first question is whether the applicant has made out a prima facie or arguable case, in the sense that if the evidence remains as it is, there is a probability that the trial of the action will entitle the plaintiff to the relief sought. This means that the applicant must show a sufficient likelihood of success to justify interlocutory orders pending trial, not that it is more probable than not that it will succeed trial. The strength that the probability needs to be depends upon the nature of the rights that the applicant asserts and the practical consequences likely to flow from the order it seeks. (b) The second question is whether the inconvenience or injury which the applicant would be likely to suffer if an injunction were refused outweighs or is outweighed by the inconvenience or injury which the respondent would suffer if an injunction was granted. 23 In this case the relief is sought on an ex parte basis and the respondents do not have the opportunity of presenting their views regarding the questions as to the existence of an arguable case and the balance of convenience. This requires the Court to be even more careful as to the application of these principles. 24 Although I have concerns relating to the ex parte nature of the application, in my view the applicant has made out an arguable case. Mr King has sworn that the shares issued to Sakura in December 2009 were issued to it on behalf of Mr Chye for his work in capital raising in performance of the Service Agreement. The Service Agreement also records this entitlement. He has also sworn that when Mr Chye contacted him in May 2010 he was seeking only that he be issued with the shares he was due for his work performing the capital raising. Mr Chye was not asserting an entitlement to shares on any other basis. On the applicant's case, the shares issued to Mr Chye in May 2010 can only have been issued to him on the erroneous assumption that these shares had not previously been issued to Sakura on his behalf. 25 Despite correspondence between the parties and their lawyers commencing in early December 2011, Mr Chye, in instructing the lawyers for Sakura or in his personal capacity, has not refuted the applicant's claim that he has effectively been issued with four million instead of two million shares pursuant to the Service Agreement. If he contends that he is legally entitled to the further two million shares issued in May 2010 a simple explanation of that entitlement was and is appropriate. 26 The second question as to the balance of convenience is more difficult in circumstances where the respondents are not before the Court. The applicant submits that the respondents should be injuncted from exercising the voting rights attached to their shares. The applicant advised the Court that the three officers seeking re-election were prepared to undertake to immediately resign should the resolutions be defeated by more than two million votes. I do not accept that such a measure is adequate to protect the respondents' interests and remain concerned about the possible consequences of the other resolutions on the AGM agenda. These relate to important matters such as the granting of options to directors and as to remuneration arrangements generally. If the injunctions sought were granted and the resolutions passed, it might be difficult to unravel or compensate for that damage if it later eventuates that Sakura and Mr Chye were entitled to the voting rights for four million shares. 27 In all circumstances, it is unsatisfactory that important resolutions as to the composition of the Board, the granting of options, and as to remuneration generally, are determined where there is conflict between significant shareholders and where disputed shares might affect the outcome of the vote. 28 I consider that the balance of convenience favours an adjournment of the AGM to the same date as that of the pending EGM. The two meetings are largely concerned with the composition of the Board and can be conducted at the same time. The adjournment would be for only 21 days which appears unlikely to cause difficulty for the respondents. Further, a grant of liberty to apply will enable them to urgently alert the Court should there be such difficulties. This form of intervention by the Court moderates the potential consequences on the respondents. 29 Unless the dispute is more factually complex than it appears, it ought be possible for the Court to conduct a short hearing prior to 6 February. In the hearing the Court can determine whether or not to cancel either the shares issued to Sakura or to Mr Chye, and once it has done so the AGM and the EGM can proceed unaffected by any dispute as to the voting rights of the shareholders. 30 I order as follows: (a) The Annual General Meeting of Altius Mining Limited be adjourned from 11 am, 16 January 2012 until 9 am, 6 February 2012 at Level 23 South Tower, 525 Collins Street, Melbourne Victoria. (b) The Applicant urgently amend its proceedings to seek, in the alternative, the cancellation of two million shares held by the First Respondent or by the Second Respondent, and to serve those proceedings on the First and Second Respondent forthwith. (c) The proceedings as amended be treated as urgent and be listed for hearing before 6 February 2012, if the other business of the Court so allows, on an estimate of a half day hearing. (d) Costs reserved. (e) Liberty to the parties to apply on 1 days notice. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy. Associate: Dated: 13 January 2012