FEDERAL COURT OF AUSTRALIA QBiotics Limited, in the matter of QBiotics Limited [2016] FCA 873 File number: NSD 1036 of 2016 Judge: GLEESON J Date of judgment: 26 July 2016 Catchwords: CORPORATIONS – share transfers in contravention of pre-emptive rights provisions in company constitution – substantive contraventions of company's constitution – no substantive injustice caused or likely to be caused – declaration made that certain purported share transfers are not invalid Legislation: Corporations Act 2001 (Cth) ss 1322(4) and (6) Cases cited: Oil Basins Ltd v Bass Strait Oil Company (2012) 297 ALR 261 Re Primelife Corporation Ltd v Aevum Ltd [2005] NSWSC 269; (2005) 53 ACSR 283 Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17 Re NuSep Ltd [2007] FCA 613; (2007) 62 ACSR 301 Re Solco Ltd [2015] FCA 635; (2015) 106 ACSR 591 Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 Weinstock v Beck (2013) 251 CLR 396 Date of hearing: 26 July 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 49 Counsel for the Plaintiff: Mr I Jackman SC Solicitor for the Plaintiff: Thomson Geer ORDERS NSD 1036 of 2016 IN THE MATTER OF IN THE MATTER OF QBIOTICS LIMITED (ACN 110 210 001) QBIOTICS LIMITED (ACN 110 210 001) Plaintiff JUDGE: GLEESON J DATE OF ORDER: 26 JULY 2016 THE COURT DECLARES THAT: 1. The share transfers listed in Schedule A to the amended originating process filed 20 July 2016 are not and have never been invalid by reason of the fact that they were effected in contravention of the company constitution in force at the relevant times. 2. The share register of QBiotics Limited listed in Schedule B to the amended originating process filed 20 July 2016 is valid. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 On 26 July 2016, after a hearing, I made declarations pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) ("Act"), declaring that certain purported share transfers undertaken in contravention of a provision of the constitution of QBiotics Limited ("QBiotics") are not invalid and confirming the validity of QBiotics' share register. 2 These are my reasons for granting that declaratory relief. 3 At the hearing, QBiotics was represented by Mr Jackman SC. No other party sought leave to appear. 4 Mr Jackman SC read the following affidavits and tendered the following exhibits: (1) Affidavit of Dr Victoria Gordon, Chief Executive Officer of QBiotics ("Dr Gordon"), sworn 27 June 2016, and the accompanying exhibit "VG-1"; (2) Affidavit of Daniel Parry, Chief Financial Officer of QBiotics, sworn 16 June 2016, and the accompanying exhibit "DP-1"; (3) Affidavit of Mr Parry sworn 19 July 2016, and the accompanying exhibit "DP-2"; (4) Affidavit of Mr Parry sworn 25 July 2016. Background to application 5 A detailed written outline of submissions was filed on QBiotics' behalf. The submissions recorded the following background to the application, based on QBiotics' evidence: (1) QBiotics is an unlisted public company which operates in the life sciences sector. QBiotics was incorporated on 26 July 2004 under the laws of Queensland. At the time of its incorporation, QBiotics was a wholly-owned subsidiary of EcoBiotics Limited ("EcoBiotics"), which held its sole issued share. Today, EcoBiotics remains QBiotics' largest shareholder, holding 32,917,191 of the 264,039,026 shares on issue. (2) EcoBiotics was co-founded by Dr Gordon and Dr Paul Reddell on 15 March 2000 for the purposes of discovering natural compounds which have the potential to be harnessed in the development of human and veterinary pharmaceuticals. In exploratory activities in the Northern Queensland tropical rainforests, EcoBiotics discovered a naturally occurring compound with significant anticancer potential, which it named "EBC-46". (3) This discovery led Dr Gordon and Dr Reddell to incorporate QBiotics as a vehicle to develop and commercialise the therapeutic use of EBC-46 in the local treatment of solid tumours in humans and companion animals. On 22 December 2006, QBiotics applied for patents in Australia and other jurisdictions in respect of the composition and use of this compound. An Australian patent was granted on 1 December 2011 and similar patents were granted in other jurisdictions subsequently. (4) In the period in which patent approval was pending, QBiotics sought to raise funds with which it could further the development and commercialisation of its products. Thus from 18 May 2010 to 31 December 2015 QBiotics undertook more than 40 capital raisings, generating in excess of $36 million through the issue of 251,539,025 shares. In this same period, QBiotics went from having a single shareholder, EcoBiotics, to having in excess of 1,300 shareholders. (5) To enable shareholders of QBiotics to trade their shareholdings, QBiotics informed its shareholders that it would maintain internal lists of those who wanted to buy and sell shares in QBiotics and would, if requested, introduce prospective sellers to prospective buyers. (6) Over the period 20 July 2010 to 18 February 2016, 203 share transactions were completed between shareholders in QBiotics ("transactions"). A list of the transactions appears at page 289 of exhibit "DP-1". As the transactions were completed, QBiotics updated its share register in accordance with the transactions. (7) In connection with a recent due diligence undertaken on behalf of QBiotics, QBiotics became aware that the transactions contravened cll 3 and 6 of the constitution that was in force at the various times of their completion ("2004 constitution"). 6 On 19 May 2016, a new constitution was adopted by QBiotics as a preparatory measure to seeking a listing on the Australian Stock Exchange ("ASX"). The new constitution does not contain a pre-emptive rights provision. 7 Mr Jackman SC identified information provided to shareholders about the market for selling and buying QBiotics shares in shareholder update publications dated April 2011, July 2011, April 2012 and April 2013. Mr Jackman SC noted that in Dr Gordon's annual report in each of 2013, 2014 and 2015, she made reference to the management of the QBiotics share registry by Link Market Services, and the Investor Centre website which provided information concerning matters that included offers (being offers to sell QBiotics shares). In her 2015 annual report, Dr Gordon stated, under the heading "Investment Activities": The secondary share market for QBiotics has been reasonably active. Over the course of the year (FY 30 June 2015) 1.4 million shares changed hands with the majority of shares priced between AU$0.40 and AU$0.60 per share. 8 Mr Jackman SC pointed to evidence that the average share price for the 203 transactions was 43.6 cents which, he submitted, corresponded fairly closely to the prices of the shares allotted pursuant to the share issues which QBiotics made from time to time. Those prices were typically between 40 and 50 cents, after early allotments for 30 cents per share. 9 Mr Jackman SC also referred to Mr Parry's evidence that there have been eight meetings of shareholders of QBiotics since July 2010, and that QBiotics has acted on the assumption that these meetings were validly convened by enacting the resolutions that were passed at those meetings. Relevant provisions of 2004 constitution 10 Clause 3 of the 2004 constitution provides relevantly: 3.1 A shareholder must not Transfer any of the shareholder's shares without first complying with this constitution and, in particular, Part 6 (Pre-emptive Rights) where applicable. … 3.3 Any purported Transfer of any Share or any interest in any Share in contravention of this constitution is ineffective and has no force, effect or validity. 11 Clause 6.1 of the 2004 constitution provides: 6.1 Except as permitted under this constitution, a shareholder must not Transfer any of the shareholder's shares without first complying with the provisions of this Part 6 (Pre-emptive Rights). 12 Clause 6.2 sets out some exceptions to the application of Part 6 of the 2004 constitution, which are not presently relevant. 13 Clause 6.3 provides: 6.3 A shareholder who wishes to Transfer any of its shares (Seller) must prepare and serve on each of the other Shareholders (each an Offeree), with a copy to the company, a notice in writing (Transfer Notice) that states: 6.3.1 that the Seller desires to Transfer a specified number (which may constitute all or some only of its total holding) of shares (Sale Shares); 6.3.2 the class or classes of shares proposed to be transferred; 6.3.3 the cash price per Sale Share that the Seller wishes to receive for each Sale Share (Specified Price), which must provide only for payment in cash; and 6.3.4 any other conditions that apply to the sale of the Sale Shares. 14 Clause 6.5 provides: 6.5 Each Offeree will be entitled to purchase a number of the Sale Shares calculated in accordance with the following formula: N = A x [B/(C – A)] where N = the number of Sale Shares that the Offeree is entitled to purchase. A = the number of Sale Shares, the subject of the Transfer Notice. B = the number of shares held by that Offeree. C = the total number of shares comprising the company's Share Capital on the date of the Transfer Notice. Notification to shareholders of hearing 15 Mr Parry's 19 July 2016 affidavit proved compliance with orders made by the Court on 5 July 2016, which required QBiotics to notify all current and former shareholders, for whom the company had maintained contact details, of the 26 July 2016 hearing. 16 The notification, sent to shareholders on 8 July 2016, was in the following terms: Proposed application in the Federal Court of Australia to validate 203 share transfers The purpose of this letter is to notify you of a court application that QBiotics will be pursuing at 10:15am on Tuesday, 26 July 2016 in the Federal Court of Australia in Sydney. Background It has recently come to our attention that the secondary market that has been operating with respect to the shares of QBiotics does not comply with the provisions of QBiotics' former constitution. Specifically, clause 6 of the former constitution required any shareholders who wished to sell their shares to third parties to first offer those shares for sale to existing shareholders. The former constitution further provided in clause 3 that if shares were transferred in contravention of the constitution, including clause 6, the transfers were void and were incapable of conveying an interest in those shares in the purchaser. QBiotics is aware of 203 share transfers which have taken place in contravention of clause 6 of the former constitution. In the case of each transaction, the seller of the shares failed to offer the existing shareholders the opportunity to purchase the shares the seller proposed to sell. Accordingly, these 203 contraventions of the company constitution notionally affect all shareholders. The further consequence of these contraventions is that the accuracy of the current share register is uncertain, as it wrongly assumes the effectiveness of these 203 transactions. What QBiotics proposes to do These issues are capable of being rectified by a Court order which retrospectively declares these transfers to be valid and which confirms the accuracy of the share register. In order to seek this relief, QBiotics has filed an Originating Process in the Federal Court of Australia. The Originating Process relies upon section 1322(4)(a) of the Corporations Act 2001 (Cth) and seeks declarations that: 1. the 203 share transfers were valid despite the fact that they contravened the former constitution; and 2. the current share register of QBiotics is accurate. Timing and other important details The hearing of this application will take place at 10:15am on Tuesday, 26 July 2016 in the Federal Court of Australia in Sydney. If you wish to oppose the relief that QBiotics proposes to seek in this hearing. you must attend the hearing at this time and on this day. If you do not appear, the matter will be heard and dealt with in your absence. The Federal Court of Australia in Sydney is located at: Level 17, Law Courts Building Queens Square Sydney NSW 2000 If you wish to obtain copies of the Originating Process, the evidence upon which QBiotics intends to rely, and/or QBiotics' outline of written submissions, please contact QBiotics' solicitor, Harold Werksman, of Thomson Geer: Harold Werksman Thomson Geer Level 25 1 O'Connell Street Sydney NSW 2000 Email: hwerksman@tglaw.com.au Please note that the outline of written submissions will only be available from 19 July 2016. If you have any other questions in relation to this matter, please contact Nicholas Riordan, of Thomson Geer, on (02) 82485840 or nriordan@tqlaw com au. We look forward to resolving this issue swiftly so that the business of QBiotics can continue to flourish. 17 Mr Parry received over 50 enquiries from shareholders regarding matters referred to in the notification. QBiotics' solicitors received approximately 20 similar enquiries. In those enquiries, no shareholder advised Mr Parry or QBiotics' solicitors of an intention to appear at the hearing or to challenge the relief sought by QBiotics. Deeds of release between QBiotics and shareholders 18 In connection with the application, QBiotics requested its shareholders to sign deeds of release so as to mitigate QBiotic's exposure to any potential liability which may arise from the apparent contraventions of the 2004 constitution. 19 As at the date of the hearing, 262 shareholders of QBiotics have executed deeds of release, including its largest shareholder, EcoBiotics. Collectively, these shareholders hold approximately 50.72% of the total issued share capital of QBiotics. 20 At all times between 26 July 2010 and November 2015 (during which period 180 of the 203 transactions occurred), EcoBiotics was the dominant shareholder in QBiotics, with a shareholding that was never less than 65% of the issued shares in QBiotics. Having regard to EcoBiotics' shareholding relative to the holdings of the other shareholders during the period in which the majority of the transactions occurred, but for its release, EcoBiotics would have been QBiotics' most significant potential claimant. 21 Mr Parry's evidence was that, to date, 11 of the top 20 shareholders have signed deeds of release. In relation to the remaining nine shareholders, Mr Parry said: I have not been made aware by any of these shareholders of any unwillingness to sign the deeds of release … If there was more time before the final hearing in these proceedings, I believe it more likely than not that all of these shareholders would sign the deeds of release. Section 1322(4) of Corporations Act 22 Section 1322(4) provides relevantly: (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; ... and may make such consequential or ancillary orders as the Court thinks fit. 23 Section 1322(4) is subject to s 1322(6) which provides relevantly: (6) The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and ... (c) in every case—that no substantial injustice has been or is likely to be caused to any person. 24 Mr Jackman SC did not seek to rely on s 1322(6)(a)(i), accepting that the transactions are substantive, and not merely procedural, in nature. 25 In Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396, French CJ stated at [39]: In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form. 26 In Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17, McKerracher J stated relevantly: [38] … [Section] 1322 is remedial in nature and is to be given a liberal interpretation: Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 at [29]; Re Insurance Australia Group Ltd [2003] FCA 581; (2003) 128 FCR 581 at 586; NRMA Ltd v Gould (1995) 18 ACSR 290 at 292; Elderslie Finance Corp Ltd v Australian Securities Commission (1993) 11 ACSR 157 at 160. … [40] The application of s 1322(4)(a) [of the Act] has not been confined to procedural or quasi procedural cases. It may be used to cure substantive as well as procedural contraventions of the [Act]: Jordan v Avram at 279. [41] For example, s 1322(4)(a) has been applied to validate: (a) the issue or transfer of shares in a company to a company it controls that were void under s 259C [of the Act]: Re Westpac Banking Corporation; Re Commonwealth Bank of Australia; Re MLC Ltd [2006] FCA 1357; (2006) 60 ACSR 187; (b) the appointment of directors appointed in contravention of the companies' constitutions: NRMA Ltd v Gould; Jordan v Avram; (c) takeover offers that lapsed by operation of the CA where the bidder attempted to extend the offer period with non-conforming notices of extension: Primelife Corporation Ltd v Aevum Ltd; Re Centennial Coal Co Ltd [2006] NSWSC 62; (2006) 226 ALR 341; (d) the issue of options that were void for non-compliance with s 723(3): Re Golden Gate Petroleum Ltd [2004] FCA 1119; (2004) 50 ACSR 659; (e) offers of sale and sale of securities made in contravention of s 707(3) where there was non-compliance with s 708A(5)(e): Re Charter Hall Ltd; Diversified, in the matter of Diversified United Investment Limited [2008] FCA 720; Re Chameleon Mining NL [2009] NSWSC 660; Re RCR Tomlinson [2009] FCA 1130. [42] The validation of a contravention may operate retrospectively: Re Wood Parsons Pty Ltd (in liq) [2002] NSWSC 1058; (2002) 43 ACSR 257 at [52], [61]; Re Charter Hall Ltd; Re Diversified United Investment Limited; Re Chameleon Mining NL. [43] Notwithstanding the liberal approach to the interpretation of s 1322 [of the Act], the broad policy underlying s 1322 [of the Act] does not authorise the Court lightly to set aside the requirements of the [Act] where they have not been observed. Each case is to be considered on its merits to ensure that the indulgence sought is appropriate and does not undermine the requirements of the [Act]: Re Wave Capital Ltd (at [29]) per French J (as he then was). However, interested persons should be relieved of unnecessary liability or inconvenience or the consequences of invalid transactions where: (a) non-compliance with the [Act] is the product of honest and reasonable error or inadvertence; (b) to do so is without prejudice to third parties; and (c) to do so is without prejudice to the public interest in compliance with the [Act]. 27 At [47], McKerracher J noted that the concept of "acting honestly" can embrace active but incorrect consideration of a legal issue, as well as failure to consider the issue at all, citing Re Primelife Corporation Ltd v Aevum Ltd [2005] NSWSC 269; (2005) 53 ACSR 283 at [8]. 28 In Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418, French J (as he then was) stated at [29]: [Section 1322] may be taken to reflect a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the Court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law. That broad policy does not authorise the Court lightly to set aside the requirements of the Act where they have not been observed. Each application for the exercise of the Court's relieving power will require consideration of all the circumstances of the case to ensure that the indulgence sought is appropriate and does not undermine the requirements of the Act. Like the discretion to validate invalid share issues under s 254E, the power conferred by s 1322 must be exercised having regard to the requirements of the purposes of the Corporations Act and any other relevant statutes whose application may be in issue. It must also be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with statute law and company constitutions. Evidence of a blatant disregard of the provisions of the Act or the constitution of the company may lead to refusal of relief: Re Onslow Salt Pty Ltd (2003) 198 ALR 344 and cases there cited. The provision is, however, remedial in character and should be given a liberal construction: Re Insurance Australia Group Ltd (2003) 45 ACSR 702 at 707, [27] per Lindgren J citing Re Australian Koyo Ltd (1984) 8 ACLR 928 at 930 and Elderslie Finance Corporation Ltd v Australian Securities Commission (1999) 11 ACSR 157 at 160. 29 In Oil Basins Ltd v Bass Strait Oil Company [2012] FCA 1122; (2012) 297 ALR 261, Gordon J stated at [71]: The reference to "no substantial injustice" in s 1322(6)(c) has been held to refer to a real and not insubstantial or theoretical prejudice. Whether there is real injustice requires a weighing of any prejudice if the order is made against the prejudice which would be suffered by other members and creditors of the company if an order was not made: Gangemi v Osborne [2009] VSCA 297 at [62] citing Re Compaction Systems Pty Ltd & the Companies Act [1976] 2 NSWLR 477 at 493. 30 Mr Jackman SC referred to Re Solco Ltd [2015] FCA 635; (2015) 106 ACSR 591, in which the Court granted relief under s 1322(4) to cure a failure to observe time limits for admission to quotation on the ASX in respect of shares issued following the publication of a prospectus. In that case, the Court was persuaded, on the evidence, that the making of the orders sought would not cause, or be likely to cause any substantial injustice to any person, but rather would fulfil the expectations and commercial interests of all persons concerned. 31 Finally, Mr Jackman SC noted that any rights of action arising out of the transactions will not be affected by the making of the orders sought: cf. Re NuSep Ltd [2007] FCA 613; (2007) 62 ACSR 301 at [38], although he also observed that any damages are likely to be very low or negligible. Consideration 32 In order for QBiotics to obtain relief under s 1322(4)(a) of the Act, it is necessary for it to establish: (1) that it is an "interested person" for the purposes of standing (s 1322(4)); (2) that the transactions constitute an "act, matter or thing purporting to have been done ... in relation to a corporation" (s 1322(4)(a)); (3) that the transactions are "invalid' (s 1322(4)(a)); (4) that the invalidity arises "by reason of" a "contravention of a provision of ... the constitution" of QBiotics (s 1322(4)(a)); (5) that at least one of the following matters can be demonstrated: (a) "the persons concerned in or party to the contravention acted honestly" (s 1322(6)(a)(ii)); or (b) "it is just and equitable that the order be made" (s 1322(6)(a)(iii)); and (6) that "no substantial injustice has been or is likely to be caused to any person" if the Court were to make the order sought (s 1322(6)(c)). Standing 33 As the shares the subject of the transactions are shares in QBiotics, QBiotics has been affected by the contraventions for the reason that it has assumed the validity of the transactions when continually updating its share register. If the status quo were to persist, QBiotics would be left in a position where its share register is inaccurate. Accordingly, QBiotics is an "interested person" for the purposes of s 1322(4). Act, matter or thing 34 The transactions constitute acts, matters or things purporting to have been done in relation to a corporation for the purposes of s 1322(4)(a). Invalidity 35 The pre-emptive rights provision set out in cl 6 of the 2004 constitution required shareholders wishing to sell their shares to third parties to notify all shareholders and QBiotics of their intention to do so. A shareholder who failed to give notice and proceeded to sell their shares to a third party contravened the terms of cl 6 of the 2004 constitution. 36 I accept the evidence of Dr Gordon and Mr Parry, that: (1) at all relevant times, Dr Gordon and Mr Parry inadvertently failed to consider the effect of the pre-emptive rights provisions in the 2004 constitution on the trading activities undertaken with respect to QBiotics' shares; (2) no formal procedure was ever put in place to enable QBiotics to observe these pre-emptive rights provisions; (3) no request was ever made of the Board by a shareholder for the contact details of the other shareholders and it would not otherwise be possible for a shareholder to communicate with all the other shareholders without obtaining their contact details from the Board of QBiotics. 37 Accordingly, I accept that the sellers of the shares the subject of the transactions did not notify the other shareholders of their intention to sell their shares consistently with their obligations under cl 6.3 of the 2004 Constitution. Consequently, the transactions were "invalid'' for the purposes of s 1322(4)(a) of the Act, by reason of the combined operation of cll 3.1, 3.3 and 6.1 of the 2004 constitution. Section 1322(6)(a) conditions 38 I accept the evidence of Dr Gordon and Mr Parry that the contraventions occurred due to inadvertence on the part of the Board of QBiotics. 39 The 2004 constitution was adopted on incorporation. At that time, it was envisaged that QBiotics would be wholly owned by EcoBiotics. Consistent with the pre-eminent position of EcoBiotics at the time, Dr Gordon and Dr Reddell included rights of pre-emption in the 2004 Constitution to protect EcoBiotics' shareholding. It was not foreseen by Dr Gordon at the time that QBiotics would, in 2010 (some six years later) begin raising capital from outside investors, a process which would result in QBiotics becoming widely held. 40 Amidst fundraising and product development activity, the existence of the pre-emptive rights provisions was overlooked by the Board of QBiotics. No procedure was ever implemented to enable the notification of shareholders when a seller proposed to offer their shares for sale. However, QBiotics was transparent in its shareholder communications as to the fact that its shareholders were buying and selling their shares. This transparent conduct is not consistent with QBiotics adopting an intentional strategy to assist its shareholders in depriving fellow shareholders of their rights; rather, it suggests that the Board failed to consider the issue at all. By this conduct, the Board of QBiotics was probably concerned in the contraventions, and acted honestly in permitting and facilitating the contraventions. On this basis, s 1322(6)(a)(ii) is satisfied. Alternatively, s 1322(6)(a)(iii) is satisfied. It was just and equitable that the declarations be made to fulfil the expectations of the parties to the transactions and the expectation of QBiotics as to the accuracy of its share register. No substantial injustice 41 I accept Mr Jackman SC's submission that, on the evidence, all relevant parties seem to have conducted themselves on the basis that there was no restriction in the constitution on the transfers purportedly effected by the transactions. By validating the transfers and the register, the Court would be fulfilling the expectations of the parties rather than defeating them. 42 The benefits that would accrue to QBiotics and the transferees who were party to the transactions from the relief sought are clear. 43 For QBiotics, it is necessary for it to have certainty as to the makeup of its membership before it undertakes any further capital raisings and, ultimately, pursues an initial public offering. This is important to ensure that potential investors are not misled as to the makeup of QBiotics' membership. Furthermore, it is also important that corporate acts undertaken by QBiotics which relied upon the efficacy of its share register, including notices of shareholder meetings, be accepted as valid. 44 For the transferees, the relief sought would ensure the validity of the rights attached to the shares they purported to acquire under the terms of the transactions. 45 The only other class of persons who might be affected by the orders sought by QBiotics are its current and former shareholders who were not given the opportunity to exercise their rights of pre-emption under cl 6 of the 2004 constitution. Dr Gordon's evidence is that she has never received a complaint from a shareholder about any potential contraventions of the pre-emptive rights provision. This is so notwithstanding the transparent position QBiotics has adopted in its shareholder communications since 2010 with respect to the existence and operation of this market. 46 The principled approach to identifying substantial injustice for the purposes of s 1322(6)(c) of the Act is to weigh the prejudice that would be suffered if the order is made against the prejudice that would be suffered if an order was not made. In this regard, it is relevant to consider the quantum of any potential claims that shareholders may have against the seller of the shares or QBiotics. The formula set out in cl 6.5 of the 2004 constitution is significant in this context. 47 Under that formula, a plaintiff shareholder could only ever have been entitled to purchase from the transferor shareholder the proportion of the shares proposed to be sold that is equal to the proportion of the shares held by the plaintiff shareholder vis-à-vis the total number of shares on issue in QBiotics at the time of the proposed sale. Accordingly, a plaintiff shareholder could never have been entitled to purchase the entire number of shares that the transferor shareholder proposed to sell, and in fact, given the nature of the spread in the shareholding in QBiotics, the vast majority of potential plaintiffs' entitlements would have been very modest. 48 Accordingly, it is difficult to contemplate any real, as opposed to theoretical, prejudice that a person may suffer if the Court were to make the orders sought by QBiotics. Furthermore, any perceived prejudice would need to be weighed against the real prejudice that would be suffered if the orders were not made by: (1) QBiotics, as it would be left in a position of uncertainty as to: (a) the makeup of its membership; and (b) the validity of resolutions that its shareholders had purported to have passed on the assumption that the meetings of shareholders were validly convened; and (2) the transferees under the transactions, who, despite having paid a fair market price for the shares, did not receive good title to the shares and the interests attached to them. 49 Consequently, I was satisfied that it was appropriate to make the declarations sought pursuant to s 1322(4)(a). I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 4 August 2016