[2000] 36 ACSR 462 Reported Decision : [2001] 19 ACLC 1 [2001] Aust Torts Reports 81-588 New South Wales Court of Appeal CITATION : HEYDON v NRMA LTD & ORS; BATEMAN & ORS v NRMA LTD & ORS; MORGAN & ORS v NRMA LTD & ORS [2000] NSWCA 374 revised - 1/02/2001 FILE NUMBER(S) : CA 40587/99; 40644/99; 40647/99 HEARING DATE(S) : 15-26 May 2000 JUDGMENT DATE : 21 December 2000 PARTIES : JOHN DYSON HEYDON v NRMA LTD & ORS; GREGORY THOMAS BATEMAN & ORS (T/A ABBOTT TOUT) v NRMA LTD & ORS; JOHN KERIN MORGAN & ORS (T/A ALLEN ALLEN & HEMSLEY) v NRMA LTD & ORS JUDGMENT OF : Malcolm AJA at 1; McPherson AJA at 360; Ormiston AJA at 455 LOWER COURT JURISDICTION : Supreme Court LOWER COURT Comm D 50257/95 FILE NUMBER(S) : LOWER COURT Giles J JUDICIAL OFFICER : T F Bathurst QC/A J Meagher SC/J T Gleeson (Heydon) COUNSEL : R J Ellicott QC/ G K Burton (Bateman & Ors T/A Abbott Tout) B C Oslington QC/M R Speakman (Morgan & Ors T/A Allen Allen & Hemsley) J L Sher QC/ R C McDougall QC/ N J O'Bryan, P T Nugent (NRMA LTD, NRMA INSURANCE LTD, NRMA HOLDINGS LTD) Corrs Chambers Westgarth (Heydon) SOLICITORS : Ebsworth & Ebsworth (Abbott Tout) Blake Dawson Waldron (Allen Allen & Hemsley) Norton White (NRMA Ltd, NRMA Insurance Ltd, NRMA Holdings Ltd) CATCHWORDS : Negligence - professional negligence - barrister - solicitor - solicitor's duty to client based on contract - demutualisation of NRMA - whether involved expropriation or oppression - alteration of articles of association - "benefit of the company as a whole" - whether decision in Gambotto v WCP Ltd (1995) 183 CLR 432 was reasonably foreseeable - whether lawyers' duty of care extended to possible change of law in High Court appeal - standard of care for leader of profession - duty of care in advice as to law when special leave to appeal has been granted - expert evidence in professional negligence cases - whether prospectus misleading or deceptive - "free shares". D DECISION : See Summary pp5-6 - 288 - THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40587/99; 40644/99; 40647/99 Comm D 50257/95 MALCOLM AJA McPHERSON AJA ORMISTON AJA Thursday 21 December 2000 HEYDON v NRMA LTD & ORS BATEMAN & ORS v NRMA LTD & ORS MORGAN & ORS v NRMA LTD & ORS SUMMARY On 13 May 1999 judgment was given in the Commercial Division of the Supreme Court by Giles J in Action 50257 of 1995 for damages for professional negligence for an amount of $21,193,828 plus interest. The total amount of the judgment as at 4 August 1999, inclusive of interest, was $32,068,910. The appellants were the defendants in the action, namely, Mr J D Heydon QC, then a practising barrister, and two solicitors and the partners of their respective firms. They were Mr J K Morgan of Allen Allen & Hemsley ("AAH") and Mr G A T Bateman of Abbott Tout ("AT"). The respondents, who were the plaintiffs in the action, were NRMA Limited, NRMA Insurance Limited and NRMA Holdings Limited. They have been collectively referred to as "the NRMA" and individually as "Association", "Insurance" and "Holdings" respectively. The NRMA have cross-appealed against each of the appellants raising issues both in relation to the judgments against them and as between each other. AT, Association, Insurance and Holdings also filed notices of contention. The appeals raise an important question regarding the application of the decision of the High Court in Gambotto v WCP Limited (1995) 182 CLR 432 to a proposal to "demutualise" Association. This was proposed to be achieved by way of a change of status from a company limited by guarantee to a company limited by guarantee with a share capital, and by converting the rights of members of Association into an entitlement to shares in Holdings, which would in turn hold all the shares in Association. There are other questions which arise, but the question of the application of Gambotto to the transactions involved in this case was the critical question in the appeals. The appeals and cross-appeals also raise questions concerning the duties and standard of care of solicitors and counsel retained to advise in relation to transactions involving considerations of the Corporations Law , the issue of prospectuses, misleading or deceptive conduct under the Trade Practices Act 1974 (Cth) (" TP Act ") and the Fair Trading Act 1987 (NSW) (" FT Act "), breach of contract, professional negligence and damages. It was common ground at the trial that both AAH and AT were retained by contracts which gave rise to contractual duties of reasonable care, skill and diligence in regard to matters within the scope of their respective retainers. It was also common ground that Mr Heydon owed the solicitors and their clients who retained him a common law duty of reasonable care, skill and diligence in regard to matters which he was called upon to advise. The issues which were debated at the trial and on the appeal concerned the content of the relevant duties and the standard of care required in the particular circumstances. In Gambotto the High Court held that a power to amend the articles of association of a company, so as to confer upon the majority power to expropriate the shares of a minority, may be exercised lawfully only if it is exercisable for a proper purpose and its exercise will not operate oppressively in relation to minority shareholders. Assuming the power to be exercised for a proper purpose, the exercise of the power must be fair in the circumstances. In such a case the onus is on the majority to prove that the amendment was made for a proper purpose and was fair in the circumstances. In general terms, the effect of the decision was that the articles of association of a company could not be altered by special resolution to empower majority shareholders to expropriate the shares of the minority in order to secure a favourable corporate structure. The trial of the action was heard before Giles J over some seventy-five days between 25 May and 16 October 1998. Further reasons for judgment were given and orders made on 4 August 1999. The transcript of evidence runs to more than 5,000 pages and there are many volumes of documentary evidence. Reasons for judgment which fill some 723 pages plus appendices were delivered on 13 May 1999. On 3 June, 23 and 26 July 1999 the learned trial Judge heard submissions about interest on damages, the formal judgment and costs. Further reasons for judgment were given and orders made on 4 August 1999. The hearing of the appeals and cross-appeals extended over 10 sitting days from 15-19 and 22-26 May 2000. The hearing was facilitated by the availability of the transcript of both the trial and the appeal in electronic form, as well as the co-operation of all counsel involved, albeit at some inconvenience to themselves, which was very much appreciated by the members of the Court. Liability based on Gambotto The essence of the NRMA case based on Gambotto was that it should have been advised by Mr Heydon, AAH and AT that Gambotto was on appeal to the High Court and, after special leave to appeal was granted on 10 December 1993, that the appeal had the reasonable prospects of success and there was a real risk that the High Court decision might adversely impact on the proposal. It was contended that this advice should have been given at the latest in March 1994, when the proposal was first put before the Boards or, alternatively, in April 1994 when the Boards first met after the hearing of the appeal in Gambotto . The question was whether there was such a risk and whether there was something that Mr Heydon and the solicitors should have reasonably foreseen in the exercise of reasonable care and skill. Each of Mr Heydon and the solicitors involved were under a duty to exercise the standards of care and skill of persons having special skill in the fields of company and commercial law and, in the case of Mr Heydon, also in the field of trade practices law. The proposal put to the NRMA Boards in March 1994 was to convert Association and Insurance from companies limited by guarantee to companies limited by both guarantee and shares. The shares in Association and Insurance would be issued to Holdings. Members of Association and Insurance would surrender their rights of membership and accept in exchange an allotment of paid up shares in Holdings. No payment would be made for such shares. Those who failed or refused to surrender their membership rights would receive the net proceeds of the sale of the shares to which they would have been entitled, after deduction of expenses. Holdings would be listed as a public company. The conversion of Association and Insurance to companies limited by guarantee and shares was proposed to be by way of special resolution allowing the articles to incorporate a "changeover" cl 117. This would involve the power of a company to alter its articles by special resolution pursuant to s 176(1) of the Corporations Law . This would be binding on the members by force of s 180(1) of the Law . Following the decision of the High Court in Gambotto on 8 March 1995 and taking advice from Mr Heydon, Mr S E K Hulme QC and Minter Ellison, solicitors, on 27 May 1995, the NRMA resolved to defer the meetings of members which had been adjourned from the appointed day on 19 October 1994. The trial Judge found that in breach of his duty to exercise due skill and care, Mr Heydon had failed to warn the NRMA of the risk that if the Gambotto appeal to the High Court succeeded, it would do so on grounds inimical to the validity of resolutions in general meetings having the effect that members of NRMA were deprived of their membership. It was held that Mr Heydon should have obtained transcripts of the special leave application and warned that further consideration should be given to the matter with the benefit of transcript of the argument on the appeal itself. The Court of Appeal has concluded unanimously that Mr Heydon's duty did not extend that far. In any event, none of the appellants was found to have actual knowledge on 10 December 1993, or at any later but possibly material time until well after the end of March 1994, that special leave to appeal had been granted in Gambotto . Malcolm AJA, McPherson AJA and Ormiston AJA have each concluded that the reasoning of the majority of the High Court in Gambotto was not reasonably foreseeable in or after December 1993. The learned trial Judge concluded that the NRMA proposal involved expropriation of the membership rights of those members of Association who rejected the offer of shares in Holdings in exchange for their membership rights. The Court of Appeal has taken the view that it is not the fact of expropriation which constitutes oppression, but the action of amending the articles to facilitate expropriation. When Gambotto was decided by the Court of Appeal it had been held that, if the expropriation was fair, the fact of the expropriation would not make it invalid. McPherson AJA has pointed out that there were other grounds on which an expropriation might be justified including one expressed by McHugh J in Gambotto at 455 if the expropriation: "… will enable a company to pursue a beneficial course of action that would otherwise be denied to it … if it will enable the company to pursue some significant goal … that is external to the company." It was not expected that the High Court would limit the power of altering the articles to facilitate expropriation, particularly the exclusion by the majority in Gambotto of all considerations of benefit to the company that put paid to the NRMA restructuring as it had been planned. Malcolm AJA has held that the transaction proposed by the NRMA did not involve an expropriation of members' rights or oppression. McPherson AJA has held that there was an expropriation. Ormiston AJA has held that the concept of expropriation in Gambotto involves oppression by way of aggrandisement or securing benefits for the majority at the expense of the minority which did not occur in this case. Malcolm AJA, McPherson AJA and Ormiston AJA have each held that Mr Heydon, Mr Morgan and Mr Bateman were not negligent in the advice which they gave or did not give. In the result the appeals have been allowed. The "Free Shares"/Disadvantages Liability The NRMA also claimed damages for negligence against the appellants for their failure to advise on the risks that the description of the shares to be issued to Holdings as "free shares" and the reference to "disadvantages" in the prospectus were each "misleading and deceptive or likely to mislead or deceive" contrary to s 52(1) of the Trade Practices Act 1974 (Cth) "( TP Act "). Mr Heydon was said to have been negligent and AAH and AT were each said to have been in breach of their contractual duty of reasonable care. Claims were also made that each of the appellants contravened s 52 of the TP Act or s 42 of the Fair Trading Act 1987 (NSW) (" FT Act "); or were "involved" in Holdings' contravention of those provisions and liable under s 82 of the TP Act or s 68 of the FT Act ; or liable for contravention of s 985 and s 996 of the Corporations Law . The Court has concluded that the use of the expression "free shares" and "disadvantages" were not misleading or deceptive, there was no negligence and no contravention by the appellants of any of these statutory provisions. Each of the members of the Court has concluded that it should be ordered that: (1) Each of the appeals be allowed with costs. (2) The judgment below be set aside, including the contribution orders as between the appellants; and judgment be entered in favour of the appellants dismissing the action with costs. (3) Each of the cross-appeals be dismissed with costs. (4) Each of the appeals: (a) by AT against the dismissal with costs of their notice of motion dated 6 April 1998; (b) by AAH against the dismissal with costs of their notice of motion dated 28 July 1998; and (c) by AT against the dismissal with costs of their notices dated 20 May 1999; be dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA40587/99;40644/99;40647/99 Comm D 50257/95 MALCOLM AJA McPHERSON AJA ORMISTON AJA Thursday 21 December 2000 HEYDON & ORS v NRMA LTD & ORS MALCOLM AJA: Par No. INTRODUCTION 1 Questions raised by the appeals and Cross-Appeals 2 The NRMA and "Demutualisation" 5 Proceedings against AAH, At and Mr Heydon 11 Approval of the Demutualisation Concept 15 The Demutualisation Proposal Adopted 16 Federal Court Proceedings 19 The Aftermath of Gamgotto 23 gambotto liability 25 THE RESOLUTIONS OR SCHEME ISSUE 25 GAMBOTTO'S CASE 32 MR HEYDON'S BRIEF 34 CONFERENCE WITH MR HEYDON 51 THE REVISED BRIEF TO MR HEYDON 56 OPPRESSION ADVICE DEFERRED 58 MR HEYDON'S OPINION OF 20 DECEMBER 1993 60 MR HEYDON'S BRIEF OF 25 JANUARY 1994 64 CONFERENCE WITH MR HEYDON ON 2 february 1994 67 THE FEBRUARY 1994 BRIEF TO MR HEYDON 69 CONFERENCE WITH MR HEYDON ON 7 MARCH 1994 71 BOARD APPROVAL OF THE PROPOSAL 72 THE PROPOSAL DEFINED 76 BRIEF TO MR HEYDON OF 19 APRIL 1994 77 CONFERENCE WITH MR HEYDON ON 29 APRIL 1994 79 BRIEF TO MR HEYDON OF 15 JULY 1994 80 THE DUE DILIGENCE COMMITTEE 85 MR HEYDON'S OPINION OF 28 JULY 1994 89 BOARD APPROVAL OF THE PROPOSALS 18 AUGUST 1994 91 PUBLICATION OF THE PROSPECTUS 93 OPINION OF THE TRADE PRACTICES COMMISSION 94 FEDERAL COURT PROCEEDINGS 98 MR MORGAN'S MEMORANDUM OF 15 NOVEMBER 1994 99 CHANGE OF SOLICITORS: SUBMISSIONS INVITED AND RECEIVED 103 MINTER ELLISON INSTRUCTED 112 THE IMPACT OF GAMBOTTO 114 MR HEYDON'S OPINION OF 13 MARCH 1995 120 MR HULME BRIEFED TO ADVISE 124 MR HULME'S OPINIONS OF 3 APRIL 1995 127 CONCLUSION OF THE TRIAL JUDGE 129 JOINT BOARD MEETING ON 3 APRIL 1995 131 JOINT BOARD MEETING ON 27 MAY 1995 134 THE NRMA CASE ON GAMBOTTO 137 SCOPE OF DUTY AND STANDARD OF CARE 143 ADMIsSIBILITY AND RELEVANCE OF EXPERT EVIDENCE 149 EVIDence of mr bennett qc 156 conclusions of giles j 161 contentions on behalf of mr heydon 175 no expropriation 177 scope of mr heydon's duty of care 182 correctness of mr heydon's opinion as at 20 december 1993 185 limitation of power of the majority: oppression 188 the australian authorities 201 application of the authorities to this case: no expropriation 216 mr heydon's opinion reasonable and competent 228 mr heydon not negligent 237 gambotto and the liability of AAH and AT 238 AT not liable for failure to advise re gambotto 249 aah not liable for failure to advise re gambotto 250 free shares/disadvantages liability 254 contentions on cross-appeals 254 the prospectus 255 federal court proceedings 293 appeal to the full federal court 295 conclusions of giles j 300 prospectus not misleading or deceptive 302 other claims concerning the prospectus 304 misleading conduct, breach of contract and negligence 305 negligence claim against mr heydon 308 breach of contract claims against aah and at and involvement in misleading or deceptive conduct 314 statutory claims under ft act and failure to take reasonable care 324 statutory claims under corporations law 347 conclusions 358 THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40587/99; 40644/99;40647/99 Comm D 50257/95 MALCOLM AJA McPHERSON AJA ORMISTON AJA Thursday 21 December 2000 HEYDON & ORS v NRMA LTD & ORS JUDGMENT MALCOLM AJA: INTRODUCTION 1 These are appeals and cross-appeals from a judgment of Giles J in which he awarded NRMA Ltd ("Association"), NRMA Insurance Ltd ("Insurance") and NRMA Holdings Ltd ("Holdings") damages of $21,193,828 plus interest against John Dyson Heydon ("Mr Heydon") then a barrister and of Queens Counsel, Allen Allen & Hemsley, solicitors ("AAH") and Abbott Tout, solicitors ("AT"). Each of Mr Heydon, AAH and AT were ordered to contribute equally to the payment of the damages and interest. The total amount of the judgment inclusive of interest as at 4 August 1999 was $32,068,910. Mr Heydon, AAH and AT have each appealed. Association, Insurance and Holdings have cross-appealed against Mr Heydon, AAH and AT. The cross-appeals raise issues both in relation to the judgments against them and as between each other. AT, Association, Insurance and Holdings have also filed Notices of Contention. QUESTIONS RAISED BY THE APPEALS AND CROSS-APPEALS 2 The appeals raise an important question regarding the application of the decision of the High Court in Gambotto v WCP Limited (1995) 182 CLR 432 to a proposal to "demutualise" Association. This was proposed to be achieved by way of a change of status from a company limited by guarantee to a company limited by guarantee with a share capital, and by converting the rights of members of Association into an entitlement to shares in Holdings, which would in turn hold all the shares in Association. There are other questions which arise, but the question of the application of Gambotto to the transactions involved in this case was the critical question in the appeals. The appeals and cross-appeals also raise questions concerning the duties and standard of care of solicitors and counsel retained to advise in relation to transactions involving considerations of the Corporations Law, the issue of prospectuses, misleading or deceptive conduct under the Trade Practices Act 1974 (Cth) ("TP Act") and the Fair Trading Act 1987 (NSW) ("FT Act"), breach of contract, professional negligence and damages. It was common ground at the trial that both AAH and AT were retained by contracts which gave rise to contractual duties of reasonable care, skill and diligence in regard to matters within the scope of their respective retainers. It was also common ground that Mr Heydon owed the solicitors and their clients who retained him a common law duty of reasonable care, skill and diligence in regard to matters which he was called upon to advise. The issues which were debated at the trial and on the appeal concerned the content of the relevant duties and the standard of care required in the particular circumstances. 3 In Gambotto the High Court held that a power to amend the articles of association of a company, so as to confer upon the majority power to expropriate the shares of a minority, may be exercised lawfully only if it is exercisable for a proper purpose and its exercise will not operate oppressively in relation to minority shareholders. Assuming the power to be exercised for a proper purpose, the exercise of the power must be fair in the circumstances. In such a case the onus is on the majority to prove that the amendment was made for a proper purpose and was fair in the circumstances. In general terms, the effect of the decision was that the articles of association of a company could not be altered by special resolution to empower majority shareholders to expropriate the shares of the minority in order to secure a favourable corporate structure. 4 The trial of the action was heard before Giles J over some seventy-five days between 25 May and 16 October 1998. Reasons for judgment were delivered on 13 May 1999 and on 3 June, 23 and 26 July 1999 the learned trial Judge heard submissions about interest on damages, the formal judgment and costs. Further reasons for judgment were given and orders made on 4 August 1999. The transcript of evidence runs to more than 5,000 pages and there are many volumes of documentary evidence. Reasons for judgment which fill some 723 pages plus appendices were delivered on 13 May 1999. On 3 June, 23 and 26 July 1999 the learned trial Judge heard submissions about interest on damages, the formal judgment and costs. Further reasons for judgment were given and orders made on 4 August 1999. The hearing of the appeals and cross-appeals extended over 10 sitting days from 15-19 and 22-26 May 2000. The hearing was facilitated by the availability of the transcript of both the trial and the appeal in electronic form, as well as the co-operation of all counsel involved, albeit at some inconvenience to themselves, which was very much appreciated by the members of the Court. THE NRMA AND "DEMUTUALISATION" 5 Association was originally incorporated as National Roads Association of New South Wales in 1920 as a company limited by guarantee. It was formed to promote the interests of motorists and other road users and to provide services to motorists, including an emergency or breakdown road service and insurance. There were some intermediate changes of name, including a change to the National Roads and Motorists' Association with the adoption of the acronym "NRMA". On 17 November 1992 the name was changed to NRMA Ltd. By 1994 Association had over 1,800,000 members. It wholly owned or was the majority shareholder in eight subsidiary companies and had assets of approximately $457 million under its management. 6 NRMA Insurance Ltd ("Insurance") was incorporated in 1926, also as a company limited by guarantee. Insurance was formed to provide insurance and financial services not restricted to any connection with motoring. Policy holders and recipients of financial services did not have to be members of Insurance. The members of Insurance were Association, any director of Insurance appointed by Association, and, speaking generally, policy holders who were also members of Association. By 1994 Insurance had approximately 1,300,000 members and wholly owned or was the majority shareholder in eight subsidiary companies. It had assets of approximately $4.4 billion under its management. 7 Association, Insurance and their subsidiaries operated as an organisation collectively and generally known to the public as the "NRMA". In his judgment, Giles J so referred to the organisation unless it was necessary to distinguish between the constituents. I shall do the same. The affairs of the NRMA were substantially controlled by Association. The directors of Association appointed the directors of Insurance, and the President of Association was ex officio the chairman of directors of Insurance. The articles of association provided in Article 116 for the management of Association's affairs to be carried on by a Board of Management comprised of the President, the Chief Executive Officer and others elected by the directors being either directors or employees, with a majority of directors. Article 116 also provided that the power of the Board of Management shall be "subject to such direction as to the policy or otherwise as may be made … by the Board of Directors from time to time". The articles of association of Insurance provided for appointment by the directors of Association of the members of the Board of Management as a committee to act "in liaison with" the directors of Insurance, and also provided that the directors of Insurance might delegate their powers to the committee. These bodies with their common membership acted jointly as the Board of Management and Insurance Liaison Committee. Consequently, the affairs of Association and Insurance received substantially common direction, but in circumstances in which Association was able to exercise control. The learned Judge found, and it is not disputed that the NRMA was successful and prosperous. As his Honour said in para 4 of his reasons: "It built up large reserves. Its success and prosperity did not mean the distribution of its profits. As companies limited by guarantee, Association and Insurance were operated for the mutual benefit of members. Profits could, and did, mean that the annual subscription for the provision of road services by Association was kept down, that other services were provided by Association to members at less than cost, and (for a time) that rebates were given to the holders of policies issued by Insurance. But the members were not shareholders, and as the articles stood could not receive dividends; on a winding-up of Insurance any surplus went to Association, and if Association were then wound up any surplus went not to members but to an institution with similar objects or for charitable purposes." 8 From some time in 1992 there was discussion of a proposal that the NRMA be restructured by way of "demutualisation". This involved a change from the operation through companies limited by guarantee for the mutual benefit of members, to operation through a company with shareholders conducted with a view to making profits and distributing them to the shareholders. The proposal as ultimately developed was described in a letter from the President to members, in the prospectus subsequently issued, as a proposal to "unlock the wealth" of the NRMA and "permit members to share in [its] wealth and future financial successes". 9 At the end of 1992 or early in 1993 the NRMA retained Mr Morgan of AAH to advise generally on the proposal. Mr Bateman of AT was retained at the end of October 1993 to advise on structures and certain other aspects of the proposal. Later, AAH obtained advice by way of opinion from Mr Heydon. The advice obtained included advice regarding the proposed new structure and the steps required to be taken to achieve it, as well as advice and assistance in developing a prospectus. These solicitors and Mr Heydon as counsel gave advice and carried out work in connection with the proposal in 1993, 1994 and the early part of 1995. In the result a prospectus was issued on 23 August 1994 and sent to the members of Association and Insurance. It contained notices of meetings of Association and Insurance to be held on 19 October 1994. Mailing of the prospectus commenced on 31 August 1994. On 22 September 1994 two of the directors of Association commenced proceedings for declarations and an injunction claiming that the prospectus was misleading and deceptive. These proceedings were successful and resulted in declarations and an injunction granted by Gummow J in the Federal Court on 13 October 1994: Fraser v NRMA Holdings Ltd (1994) 52 FCR 1. An appeal to the Full Court of the Federal Court was only partially successful, but on 27 January 1995 the prospectus was held to be misleading and deceptive in one of the respects found by Gummow J and in another related respect by the Full Court: NRMA Holdings Ltd v Fraser (1995) 55 FCR 452. In a further judgment on 30 January 1995 the Full Court left open the possibility of the issue of a supplementary prospectus. At that stage the NRMA still wished to proceed and was considering how best to do so. Further work was done on a supplementary prospectus. 10 In May 1995, following the decision of the High Court in Gambotto on 8 March 1995, the proposal which had been developed was abandoned and proceedings were subsequently commenced against AAH, AT and Mr Heydon for damages in actions for breach of contract against the two firms of solicitors and for damages for negligence against Mr Heydon. It was also contended that AAH, AT and Mr Heydon were engaged or involved in the NRMA's misleading conduct in relation to the prospectus issued to NRMA members. The prospectus was withdrawn, with the result that the expenditure alleged to have been wasted on the proposal was sought to be recovered from the appellants, as damages for professional negligence or breach of contract and in consequence of or involvement in misleading or deceptive conduct. PROCEEDINGS AGAINST AAH, AT AND MR HEYDON 11 Association, Insurance and Holdings brought proceedings against the partners at the time of AAH as first defendants, the partners at the time of AT as second defendants and Mr Heydon as third defendant. The claims for damages against each of the present appellants focused on the failure to adequately advise the NRMA on the risks to the proposed demutualisation posed by a successful appeal to the High Court in Gambotto and the risk that the description of the shares to be issued in Holdings as "free shares" could be held to be misleading or deceptive. The damages claimed in relation to Gambotto were said to encompass most of the wasted expenditure. The claim relating to the misleading or deceptive conduct by the references to "free shares" in the prospectus was the basis for a claim in damages for the whole of the wasted expenditure. It was contended by the respondents at the trial that had they been told of the risk posed by Gambotto's case, they would have deferred any decision to proceed until after the decision of the High Court. The expenditure from the time of such postulated or hypothetical deferral would not have been incurred. If they had proceeded and been properly advised regarding the free share questions, they would have avoided the successful challenge to the prospectus in the Federal Court, with the consequence that the whole of the expenditure would not have been wasted. The causes of action pleaded in support of the claims for damages were breach of contract; negligence; contravention of s52 of the TP Act or s42 of the FT Act; involvement in Holdings' contravention of the TP Act or the FT Act; contravention of s995 of the Corporations Law and contravention of s996 of the Corporations Law. 12 While there were issues regarding the scope of the retainers of AAH and, in particular, of AT it was common ground at the trial that the retainers of both firms of solicitors gave rise to concurrent duties of care in negligence as well as in contract: Hawkins v Clayton (1988) 164 CLR 539 at 574-575 per Deane J; and Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. After the conclusion of the trial and while judgment was reserved, the High Court held in Astley v Austrust Ltd [1999] HCA 6; (1999) 73 ALJR 403 that contributory negligence was not a defence to an action for breach of contract, even where there was concurrent liability in contract and tort, although both AAH and AT maintained reliance on contributory negligence, in so far as it was an available defence to the statutory claims. 13 As against Mr Heydon, it was alleged that he breached his duty of care in that he should have advised that there was a real risk that the proposal to effect the demutualisation by special resolutions of the members of Association and Insurance could be rendered unlawful by the decision of the High Court, on a successful appeal in Gambotto. Further, it was alleged that he should have advised against the use of the expression "free shares" in the prospectus, or given consideration to the question whether the expression was or could be misleading or deceptive. The claim against Mr Heydon was in tort so that contributory negligence was available as a defence in his case. 14 As already mentioned, the NRMA also relied on ss52 and 82 of the TP Act. Section 52(1), which is in Part V of the TP Act, provides that a corporation shall not, in trade or commerce, engage in conduct that is "misleading or deceptive or is likely to mislead or deceive". Section 82(1) of the TP Act provides that a person who suffers loss or damage by conduct of another person in contravention of a provision in Part V may recover "the amount of the loss or damage by action against that other person or against any person involved in the contravention". Sections 42 and 68 of the FT Act were in the same terms, except that s42 referred to a "person" rather than a "corporation". At a late stage in the trial the claims under the TP Act against AAH and AT were abandoned and relief confined to the claims for breach of the FT Act. The claims against Mr Heydon under the FT Act were also abandoned. The claims under the FT Act were limited to the "free shares" question. However, claims against AAH, AT and Mr Heydon for damages based on involvement in contravention of s52 of the TP Act and s42 of the FT Act in respect of the misleading and deceptive conduct by NRMA were maintained. Such claims were also maintained under the combination of ss995(2) and 1065(1) of the Corporations Law, which substantially reflect in relevant part the provisions of the TP Act. These claims were ultimately abandoned against Mr Heydon. Finally, there was a claim against AAH, AT and Mr Heydon under s996(1) of the Corporations Law in relation to material statements in the prospectus said to be false or misleading. All of these claims related to the "free shares" issue. APPROVAL OF THE DEMUTUALISATION CONCEPT 15 The demutualisation concept was formally approved for further development in March 1994 by the boards of Association and Insurance with a view to ultimate listing of NRMA shares on the Stock Exchange. The proposal was publicly announced on 17 March 1994. At that time neither the new structure nor the steps to be taken to achieve it were finally determined. It was then envisaged that a new company with share capital would be incorporated and admitted to membership of Association and Insurance. Resolutions would be passed at general meetings of members of Association and of Insurance, having the effect that the members of Association and Insurance other than the new company would cease to be members. Instead they would either become shareholders in the new company or receive a cash payment, if they did not wish to take up shares, and the new company would be listed on the Stock Exchange. In the result, the new company would be a listed holding company which would also be the only member of Association and Insurance. Services previously enjoyed by virtue of membership, such as road services and other services, would be provided to the shareholders in the new company under contracts with the service provider. THE DEMUTUALISATION PROPOSAL ADOPTED 16 Development of the proposal continued after 17 March 1994 although the basic structure did not change. A new company, NRMA Holdings Ltd ("Holdings"), was incorporated and some of the directors of Association became its directors. Holdings became a member of both Association and Insurance. On 18 August 1994 the boards of Association and Insurance formally resolved to proceed with the proposal by putting it to general meetings of their members with their recommendations. 17 It was proposed that general meetings of both Association and Insurance be held on 19 October 1994 to consider special resolutions of the members of both companies. To that end, a booklet, entitled a prospectus, was issued on 23 August 1994. The prospectus was sent to members of Association and Insurance in a clear plastic cover accompanied by a separate two leaf document known as an "onsert". Notices of meetings were contained in the prospectus for general meetings to be held on 19 October 1994. The onsert included proxy voting papers for the general meetings. It was contemplated that special resolutions of not less than 75% of those persons present, in person or by proxy, were required. The prospectus contained an offer of shares in Holdings to those members (and others) who chose to become shareholders. This is what called for the issue of a prospectus. Mailing of the prospectus package began on 31 August 1994. 18 The offer of shares was described in the prospectus as the "Members Free Offer" based on membership. There was also an exceptional group of members of Insurance who were invited to participate in the Members Free Offer. Members could choose to accept what were described as "Free Shares" or a cash alternative. No money was payable for the shares, but acceptance of the proposal would mean that the members of Holdings would cease to be such members and would instead become members of Association if they accepted the offer of shares. Likewise, those who accepted the cash alternative would cease to be members of Association. The shares allocated to members who did not accept the offer or who chose the cash alternative were to be allocated to the NRMA Offer Trust on trust for sale by the Trustees. The proceeds would be paid to such members in proportion to their respective entitlements as set out in the prospectus. FEDERAL COURT PROCEEDINGS 19 The approvals of the proposals by the boards of Association and Insurance, and the resolutions by those boards to proceed with it, were not unanimous. On 22 September 1994, two of the directors opposed to the proposal, Mr Richard Talbot and Miss Dawn Fraser, filed an application in the Federal Court of Australia seeking declaratory and injunctive relief in relation to the prospectus and onsert and the holding of the general meetings. Holdings, Association and Insurance were respondents to the application. 20 In Fraser v NRMA Holdings Ltd (1994) 52 FCR 1 Gummow J ordered that there be heard separately from any other questions the applicants' claims for a declaration that the members of Association and Insurance were not fully, fairly and adequately informed of the proposal, the subject of the resolutions to be put before them or of the offers made in the prospectus. There were also claims for a declaration that the prospectus and the information in it were misleading in certain respects, and for an injunction restraining the relevant respondents from proceeding with the meetings, except for the purpose of adjourning them, and from proceeding in any way with the offers or the implementation of the restructuring and offers proposed in the prospectus. Those claims were heard on 5-7 October 1994. Judgment was given on 13 October 1994 holding that the prospectus was misleading in certain respects and that by distributing the prospectus and onsert Holdings had engaged in misleading or deceptive conduct in contravention of s52 of the TP Act. In particular, it was held by Gummow J at 28 to be likely to mislead or deceive to describe repeatedly in the prospectus, particularly in the passages most likely to be studied by the ordinary reader, that which was offered to members in connection with their consent to the restructuring as "free shares". His Honour reached this conclusion because relinquishment of membership involved the relinquishment of significant rights to the control of the affairs of Association and Insurance, and demutualisation removed the possibility of further enjoyment of other benefits of membership. It was also held by Gummow J that by proceeding with the general meetings Association and Insurance would be parties to and knowingly concerned in the contravention of s52. Injunctions were granted restraining a further distribution of the prospectus and onsert and restraining Association and Insurance from proceeding with any business at the general meetings except as as necessary or appropriate to adjourn them. 21 The general meetings convened for 19 October 1994 were opened, but in accordance with the orders of Gummow J, no substantive business was transacted and the meetings were adjourned. In the meantime, Holdings, Association and Insurance sought leave to appeal from the decision of Gummow J to the Full Court of the Federal Court. Full argument on the merits of the appeal was heard on the application for leave on 6 and 7 December 1994. On 27 January 1995 leave to appeal was granted, but the appeal dismissed although one variation was made to the orders of Gummow J: NRMA Holdings Ltd v Fraser (1995) 55 FCR 452. The Full Court (Black CJ, von Doussa and Cooper JJ) did not uphold all of the respects in which the prospectus had been found to be misleading or deceptive by Gummow J, but held the prospectus to be misleading in another respect. The Full Court considered that, as well as the description of the shares in Holdings to be issued to members as "free shares" was misleading or deceptive, the disclosure of the disadvantages of the proposal was also misleading or deceptive. Consequently, the injunctions remained in force and the general meetings could not transact any substantive business. 22 The judgment of Gummow J had left open the possibility of the issue of a supplementary prospectus to rectify the misleading content and the judgment of the Full Court was such as to enhance the possibility of doing that. At that stage the NRMA wished to proceed with the proposal and was considering the issue of a supplementary prospectus. Some work in connection with the preparation of that was done. In the meantime, on 8 March 1995 the High Court delivered judgment in Gambotto. THE AFTERMATH OF GAMBOTTO 23 The NRMA then took further advice on the implications of this decision for the demutualisation by the steps then contemplated, namely, by way of resolutions in general meetings by which the memberships of the members of Association and Insurance would cease and they would become shareholders in Holdings. In May 1995 the NRMA decided not to proceed with the proposal, whether with a supplementary prospectus or at all. It was in these circumstances that the attempt of the NRMA to demutualise failed. At that stage, however, it had incurred substantial expenditure in obtaining advice and assistance from merchant banks, corporate advisers, underwriters, accountants and lawyers. It had also obtained marketing and public relations services from a number of providers. The printing and postage of the prospectus package alone cost millions of dollars. There were many other costs involved including the costs of the Federal Court proceedings and further merchant banking, legal and other advice and assistance which had been obtained after the decision of the Federal Court. The case for the NRMA at the trial before Giles J was that, inclusive of internal costs, it suffered damages by way of "wasted expenditure" of nearly $30 million. 24 In developing the proposal the NRMA had obtained advice from AAH, AT and Mr Heydon. The advice included advice to do with the development of the proposed new structure, the steps required to achieve it and the preparation of the prospectus and the onsert. The NRMA instituted the proceedings the subject of these appeals alleging that their solicitors and counsel were liable in breach of their professional obligations in respect of the advice which they gave or did not give and, consequently, they were engaged in or were involved in the NRMA's misleading conduct and were liable in damages for the wasted expenditure. GAMBOTTO LIABILITY THE RESOLUTIONS OR SCHEME ISSUE 25 In November-December 1993 there was a difference of opinion between Mr Morgan of AAH and Mr Bateman of AT whether the proposal could be implemented by way of special resolutions at general meetings of Association and Insurance, or a scheme of arrangement approved by the Court would be required. Mr Morgan considered that the former procedure would be appropriate, but Mr Bateman expressed the view that a scheme of arrangement would be necessary. Mr Morgan was of opinion that the changes could be effected by resolution under s167 of the Corporations Law, provided there was no oppression under s260 of the Corporations Law and no unfairness. 26 In a letter to Ms Godwin of the NRMA dated 17 November 1993, Mr Morgan referred to the possibility that: "… a dissident group of members may perhaps be able to bring on action alleging fraud on the minority or oppression if they could demonstrate that in some way they were adversely affected and that the proposal was not able to be justified or in the best interests of the company as a whole." 27 At that stage, within the management of the NRMA there was a suggestion that the entitlement of NRMA members to shares in Holdings would be "in equal shares". The basis later adopted was more sophisticated. In a memorandum dated 19 November 1993, the reasons for the suggested basis of entitlement included: "The greatest risk of failure is that a body of opinion develops which opposes the float and the vote is lost. The second greatest risk of failure is that someone decides to bring an action alleging oppression or fraud on the minority which, regardless of the ultimate outcome of the case, would be sufficient to effectively extinguish any chance of success." 28 It was against this background that Mr Morgan and Mr Bateman met with representatives of management and the NRMA's members to examine a structure involving a holding company and subsidiaries. The learned trial Judge found that "in the climate of attention to entitlements and spoiling oppression must have been in the minds of those present". There was consideration of removing the voting rights of members of Association, while leaving them as members. The record of the meeting noted that objections to that course included the possibility of an oppression action under s260 of the Corporations Law. It was in this particular context that the issue of a scheme or meeting specifically arose. Mr Bateman maintained the need for a scheme. Reference was made to Gambotto which had been decided by the Court of Appeal. In WCP Ltd v Gambotto (1993) 30 NSWLR 385, it was recognised that equity imposed a limitation on the wide powers of alteration of the articles of association of a company under s176 of the Corporations Law. 29 On 9 December 1993 Messrs Morgan and Bateman met with Ms Godwin, an in-house lawyer of the NRMA. Mr Morgan was accompanied by Mr Simpson, a solicitor at AAH working on the legal aspects of the project. This meeting discussed the need for a meeting or scheme to carry out the proposed restructure. There was some dispute about what took place at the meeting, but it was found by the learned trial Judge that Mr Bateman repeated his view that a scheme was necessary. Ms Godwin's response was to say "We understand your view, let's just wait to see what Heydon says". In the result the NRMA instructed Mr Morgan to obtain the opinion of Mr Heydon. The brief, prepared by Mr Morgan, was delivered to Mr Heydon on 13 December 1993. The brief specifically asked Mr Heydon to advise on the appropriate procedure, in the sense that the question was whether it was legally possible to achieve the restructure proposed by special resolutions altering the articles of association. Advice was also sought on whether the effect or terms of the transactions would raise issues of oppression. Mr Heydon's advice was sought by 20 December 1993. At the conference Mr Heydon indicated that he could advise on the procedure by 20 December, but that he would not be able to deal with the oppression issue within that time-frame. His preliminary view was that the proposal could be implemented by special resolutions altering the memorandum and articles of Association and Insurance, to convert them from companies limited by guarantee to companies limited by guarantee and shares. As far as oppression was concerned, the matter was left to be dealt with later. There was some dispute about the precise circumstances, but Mr Heydon was asked to advise at that stage on the assumption that the proposal would be fair and not oppressive. By a letter dated 10 December 1993 to Mr Heydon, Mr Morgan confirmed the conference arranged for 14 December 1993 and, in advance of the formal brief, provided some background information and set out the "main questions". 30 The essence of what was then proposed was that Association and Insurance would each convert from being a company limited by guarantee to a company limited by shares and guarantee. All of the shares in each of Association and Insurance would be issued to a new company. Membership of the members of Association and the associated rights of members would cease and be converted into a right to receive a parcel of shares in the new company. Members of Association who did not wish to take the shares would receive a cash payment. Similarly, membership of Insurance would be converted to a right to receive shares in the new company or cash in lieu. In both cases the members of Association and Insurance were being asked to agree to the extinguishment of their rights as members of Association and/or Insurance in exchange for an entitlement to an issue of shares in the new company. 31 The letter to Mr Heydon, dated 10 December 1993, a copy of which was not sent to or seen by Mr Bateman, indicated that one of the most significant matters was the manner in which the entitlement to shares would be distributed between the members of Association and the members of Insurance, and the extent to which benefits could be provided to policy holders of Insurance who were not members of Association. However, the "immediate question" focused on the need to amend the memorandum and articles of Association and Insurance which would "remove the existing members as members of those companies on the basis that those members are given an allocation of shares in the new holding company". The suggestion that this should be done by scheme of arrangement was referred to, but Mr Morgan said AAH believed that a scheme: "… carries with it significant risks and, in particular, provides a greater opportunity for opponents to the proposal to express their views and to have them heard in the forum of the Court. We also believe that, on the basis of current authority, if the members duly approve the reconstruction of the companies and the shares in the holding company are duly issued in accordance with that reconstruction proposal, that that is of itself sufficient to bind the members. Of course, members may seek to bring action on the basis that there is a fraud upon the minority or that there is an oppression but we believe that, so long as the allocation of entitlements is fair, the likelihood of the success of such action is extremely low… The question we therefore ask you to consider is whether a scheme is necessary to achieve the ends sought. For the purposes of considering this narrow question as to whether or not a members' resolution approving the proposal will effectively bind members, you should assume that the allocation adopted will meet the requirements of fairness as between members." GAMBOTTO'S CASE 32 At that time Gambotto had been decided both at first instance and on appeal to the Court of Appeal. At first instance McLelland J held that an alteration to the articles of a company to enable the majority shareholders, who held approximately 99.7% of the shares in a company to compulsorily acquire from Mr Gambotto and others the approximately 0.3% of the shares not already held by the majority at a fair value was oppressive: Gambotto v WCP Ltd (1992) 8 ACSR 141; 10 ACLC 1046. The company had an issued capital of 16,980,031 shares of 20 cents each, of which 16,929,441 were held by wholly-owned subsidiaries of Industrial Equity Ltd. The remaining 50,590 were held by the minority, including Mr Gambotto and others, who between them held 15,898 shares. The company gave notice of a general meeting to be held for the purpose of considering and, if thought fit, of passing a special resolution for the amendment of the articles of association to insert a new article to any members "entitled for the purposes of the corporations law to 90 per cent or more of the issued shares" to acquire compulsorily, before 30 June 1992, all the then issued shares at a price of $1.80 per share. The notice was accompanied by a valuation of the shares on a nett asset basis of $1.365 per share. There was evidence that if the special resolution was passed, the majority would probably move to acquire the shares of the minority. The resolution was passed on 11 May 1992. Mr Gambotto sought an injunction restraining the implementation on the grounds that it constituted an act of oppression, or a fraud on the minority by the majority. The injunction was granted by McLelland J, who said at ACSR 144; ACLC 1049 that: "The immediate purpose and effect of the amendment was to permit the shares of the minority shareholders to be expropriated by the majority shareholders. In my opinion such an amendment amounts to unjust oppression of those minority shareholders who object." 33 The decision of McLelland J was reversed by the Court of Appeal: WCP Ltd v Gambotto (1993) 30 NSWLR 385. The principal judgment in the Court of Appeal was that of Meagher JA (with whom Cripps JA agreed). After referring to a number of well-known authorities Meagher JA said at 389: "In the present case the evidence demonstrated, and the judge accepted, that there would be enormous taxation advantages for the company if the minority shares were expropriated, and that there would be considerable administrative savings if such an expropriation took place. Nor was it alleged that the compensation provisions were inadequate. Just why the court should interfere and why his Honour in fact did so, I cannot see. As I have pointed out, his Honour's view is consistent with, and only with, some notion that in an expropriation of shares whether beneficial for the company or not is a malum in se and as such always enjoinable. His Honour could not have held that the resolution in question was 'so extravagant that no reasonable person could believe that it was for the benefit of the company' (to quote the test of Latham CJ in Peters' American Delicacy Co Ltd v Heath (at 482)); indeed, he specifically held to the contrary. It can hardly be contended that all powers of expropriation are repugnant to the Corporations Law . The legislation in terms permits expropriations in s701 and s702 (take over schemes), s411 (compromises) and s414 (schemes of arrangement). Nor, in my opinion, could it reasonably be contended that these provisions constitute some sort of code governing the expropriation of shares. If the company's articles had contained an art 20A when it was incorporated, it is difficult to see how anyone could object to it. Moreover, articles of association regularly provide for liens leading to forfeiture, and this involves an expropriation of property. Further, the decisions in cases like Allen v Gold Reefs of West Africa, Ltd and Sidebottom v Kershaw, Leese and Co Ltd both involved expropriations which were sanctioned by the courts of England and those cases have been approved by the courts of Australia. For these reasons I am of the view that the appeal must succeed in so far as it challenges his Honour's view, which I have set out, that the expropriation was invalid." MR HEYDON'S BRIEF 34 The brief to Mr Heydon summarised the judgment of Meagher JA which appeared to be supportive of what was proposed. The learned trial Judge noted that Gambotto's case was not referred to in the context of the "main issue", but in the context of oppressive conduct. 35 A draft of the brief to Mr Heydon had been prepared by Mr Simpson of AAH at the request of Mr Morgan. Mr Simpson dealt with Gambotto, both at first instance and on appeal, in the brief. He had formed the view that the judgment of Meagher JA stood for the proposition that, if the compensation was fair and benefits flowed to the company from the expropriation, then it was possible to expropriate proprietary rights of minority shareholders in a company pursuant to majority shareholder resolution, although what was fair compensation depended on the particular proposal. He thought that this was consistent with the other English and Australian cases to which he had recourse. He concluded that a scheme of arrangement was not necessary and that the proposal could be implemented through members' resolutions, if it could be said that no classes of members of Association and Insurance were being treated unfairly or oppressively. The draft brief was approved by Mr Morgan and provided to Ms Godwin and Mr Bateman for their comments. It was amended to take these into account. The brief was delivered to Mr Heydon on the afternoon of 13 December under cover of a letter confirming the conference for the following morning. 36 The contents of the brief were extensively set out in the judgment of Giles J at paras 348-349. It set out the proposed corporate structure and raised a number of issues not now relevant. Section 6 of the brief was headed "Major Issue - Scheme of Arrangement or General Meeting" and contained the following: "The major issue that needs to be considered and on which Counsel's advice is sought is whether the resolutions which will need to be passed by Association and Insurance to facilitate the flotation is best achieved by: (a) a scheme of arrangement under Section 411 of the Corporations Law; or (b) extraordinary general meetings of the members of Association and Insurance. Historically, meetings of members of Association have a voter turnout of approximately 5% of members (… the total membership of Association is approximately 1.9 million members) and meetings of Insurance have a voter turnout of approximately 1% of members (the total membership of Insurance is approximately 1.6 million members). The obvious advantage of a scheme of arrangement for each of Association and Insurance is that the schemes would be binding on the members of each assuming the schemes were approved by the Court. If it was desired to provide benefits to non-member policyholders a scheme would be advantageous but perhaps not absolutely necessary. A disadvantage of proceeding by the scheme of arrangement route is that in doing so a forum is readily provided for opponents of the proposals to express their opposition and generally put their views on the matter." 37 A reference was then made to the tests formulated and applied by courts in determining whether to sanction a scheme in Re Dorman Long & Co Ltd [1934] Ch 635; In re H Stanke & Sons Pty Ltd [1968] SASR 156; and in re Alabama, New Orleans Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 243 per Bowen LJ. AAH expressed the view in the brief that: "In our view, the relevant resolutions may be passed by members of Association and Insurance in general meeting without recourse to a court approved scheme of arrangement. In either case, however, we need to consider the issue of oppression both at general law and under Section 260 of the Corporations Law." 38 The brief then went on to deal with oppression as well as the possibility of relief under s260 of the Corporations Law. In particular, the brief contained a reference to the decision of the NSW Court of Appeal in Gambotto. After referring to the facts, the brief contained the following comments: "In his judgment, Meagher JA points out that the leading case in the doctrine of majority oppression is the decision of the English Court of Appeal in Allen v Gold Reefs of West Africa, Limited [1900] 1 Ch 656. In that case the court held a new article extending a company lien over partly paid shares to fully paid shares was valid. Lindley MR, when dealing with the majority's power to change the articles (at 671) said: '… it must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded.' Meagher JA points that initially these words of Lindley MR were taken as setting two requirements, namely: (i) that the alteration should be made in good faith; and (ii) that it should intend to benefit the company as a whole. The test propounded by Lindley MR in Allen v Gold Reefs of West Africa, Ltd was discussed in some detail by Latham CJ and Dixon J in Peters' American Delicacy Company Limited v Heath (1939) 61 CLR 457. Their Honours in that case pointed out, amongst other things that: (i) Lindley MR's test, although constantly invoked, was almost meaningless; (ii) in many cases, the proposal was so obviously beneficial to the company that the amendment to the articles in question must necessarily be valid; (iii) in every case the proposed amendment would be ex facie invalid, for example, if it involved expropriating shares without compensation, depriving the minority of voting rights, allowing the majority to acquire the company's property at an undervalue; (iv) the test of Lindley MR was wider than was necessary for the purposes of that case. There would have been less confusion in later cases if Lindley MR's words were taken as merely laying down a negative test rather than a positive test which must be complied with in all cases; and (v) where it was arguable whether a test [ sic proposal] was beneficial for the company, the court would not substitute its views for those of the shareholder. In such cases it will simply decline to interfere." In Gambotto at 389 Meagher JA said that the evidence demonstrated that there would be taxation advantages for the company if minority shares were appropriated and there would be considerable administrative savings if such an appropriation took place. As referred to above, there was no allegation that the compensation provisions were inadequate. In those circumstances the Court of Appeal could see no reason to interfere. 39 One of the aspects of the brief at that time was that consideration was then being given to the offer of shares in Holdings, not only to members of Association but also to certain non-members, including policy holders of Insurance, who did not qualify for membership of Insurance. Obviously with that possibility in mind, having referred to the authorities, the brief then continued: "Turning to the question of the NRMA, the issue is whether if shares are issued to persons who are not members, such issue having been approved by the requisite majorities of Association and Insurance in general meeting, or if the flotation proceeded by way of scheme of arrangement, the minority could challenge the resolution or the scheme on the basis of the principles outlined above. It is, at this stage, possible to divide non-member policyholders into various groups as follows: (a) those policyholders who have been disenfranchised from membership by administrative error (eg omitting from proposal forms accidentally the agreement to be bound by the Memorandum and Articles of Association); (b) policyholders disenfranchised by operation of law (eg trade practices legislation) or by other means not within the control of the policyholder; (c) in other cases, policyholders may have unwittingly ordered their affairs so as to deny themselves membership (eg the fact that only the first-named holder of a policy is qualified for membership). Beyond these groups is a wider group of policyholders who have been offered policies on the basis that no membership is offered. There are also those policyholders who could not in any circumstances be members by reason of merely holding a policy (eg policyholders with NRMA Life Limited). … A further issue is whether or not the members of the Association could complain if the windfall was offered to members of Insurance. In our view, such a complaint would have little prospects of success. In the first place, most members of Insurance would be members of Association or, alternatively, employees or members of other organisations approved by the Association. Secondly, it is Insurance which has provided the economic wealth. Association as a member of Insurance, could, in our view, agree to this as being a matter properly in the best interests of Association as the Association requires the approval of the ordinary members of Insurance to unlock the wealth of Insurance for the benefit of the members of the Association." 40 There was also an issue raised whether or not the members of Association and/or Insurance could complain about any allocation to Association of Insurance's share of the net worth. 41 Under the heading "8. Questions" the following appears: "Counsel is briefed to advise generally in relation to the above matters and specifically on whether Counsel can confirm our view that we believe that it is not necessary for the NRMA Group to proceed by way of scheme of arrangement under Section 411 of the Corporations Law to realise the successful adoption of the relevant resolutions. We also seek Counsel's advice as to whether, if a person brought an oppression action challenging the proposals, steps would be available to NRMA to conclude the oppression action expeditiously. Our view is that the relevant resolutions may be passed by the members of Association and Insurance in general meeting and that, despite the difficulty in dealing with persons who are presently non-members, those difficulties may be overcome in a manner which brings some non-members into the membership fold without exposing the Association and Insurance to successful claims under Section 260 under common law." 42 The learned trial Judge made a number of comments about the brief. The first was that the proposal at that stage involved payment of the par value of the shares to be issued by Holdings. Secondly, the brief sought specific advice about whether it was "necessary" to proceed by way of scheme of arrangement, although earlier the issue had been whether what was proposed would be "best achieved" by a scheme or meeting. As his Honour commented, in para 352: "The specific advice sought was by way of confirmation of AAH's view, and AAH's view as expressed put aside as a separate matter the issue of oppression." 43 Thirdly, the brief sought procedural advice about whether steps would be available to NRMA to conclude any oppression action expeditiously. It was pointed out that this was a procedural rather than a substantive matter concerned with how quickly the matter could be dealt with, rather than the prospects of success in such proceedings. Giles J commented that it was as if an oppression action was seen as likely, if not inevitable, whether the procedure was by way of resolution or scheme of arrangement. Fourthly, the brief also sought advice generally, but it was not clear what that meant. 44 So far as Gambotto was concerned, his Honour commented that: "…, the reference to Gambotto's case was not in connection with the 'major issue', but in connection with oppressive conduct and whatever may have been asked of Mr Heydon in that respect. It was in the part of the brief to do with oppressive conduct, it followed a summary of what, on the cases, was oppressive or unfairly prejudicial conduct, and it was plainly enough cited as a recent illustration of no unfairness in the majority's exercise of its power to change the articles. The brief did not treat Gambotto's case as going to whether the fact of something like expropriation would make an exercise of the power to amend articles invalid - indeed, oppression was seen as a constraint on both proceeding by scheme of arrangement and proceeding by members' resolution (see 'In either case, however, we need to consider the issue of oppression …' ). This is not surprising, given the views held by Mr Morgan and Mr Simpson: in their view, the issue was whether there was fair compensation and no oppression." 45 In para 356 of the judgment, his Honour said: "Sixthly, and following from the last observation, what might be thought surprising is that Mr Bateman's grounds for doubting the members' resolution route were not exposed in the brief, and that Gambotto's case was not cited in the brief in that connection. There seemed to have been a shift from concern over crunching out members' rights (I use the vivid phrase even if it was not used at the time) to concern about fairness of entitlements. The latter was a valid concern, but the former remained. As I have indicated, the advice which Mr Morgan was instructed to obtain on 6 December 1993 amounted to advice as to whether the fact of something like expropriation might make the exercise of the power to amend the articles invalid. He did not identifiably ask for that advice, and it is curious that Mr Bateman did not suggest that the brief clearly extend to it." 46 Finally, Giles J commented that, given the "obscurity in some respects of the brief, and its late delivery, it could not reasonably have been expected that Mr Heydon could advise early on 14 December 1993, without further information or at all". The consequence was that the conference on 14 December 1993 was only exploratory and a revised brief was provided to Mr Heydon on 15 or 16 December 1993. 47 As at December 1993, the decision of the Court of Appeal in Gambotto on 7 May 1993 had been reported in the NSWLR with an editorial note that "An application for special leave to the High Court has been filed". In fact, the application for special leave had been heard and granted by the High Court on 10 December 1993. As will appear, the extent of the appellants' knowledge of the application for special leave, the grant of such leave and the hearing of the appeal on 21 April 1994 was of some relevance in the action and on appeal. 48 It was submitted on behalf of the NRMA that the transaction then contemplated by the NRMA included the expropriation of the membership rights of the minority, in the event that the special resolutions were passed as contemplated. In my opinion, for the reasons I state later in these reasons at paras 173 and following, it was quite inappropriate to describe the proposed transaction, as it was outlined in the brief to Mr Heydon, as one which involved expropriation by the majority of members of Association and/or Insurance of the interests of the minority. All of the members of each of Association and Insurance had the same rights as against each of the two companies. In respect of the former it was an entitlement to services in consideration of the membership fee. In respect of the latter, it was the taking out of insurance cover by a person not otherwise a member of Association, which entitled that person to become a member of Insurance and thereby a member of Association. There was no identifiable majority which was seeking to get rid of or acquire the interests of an identifiable minority. 49 Section s167(1)(d) of the Corporations Law, as it stood at all material times, specifically contemplated that a company limited by guarantee may convert to a company limited both by shares and guarantee. The company limited by guarantee was typically a form of incorporation used by associations formed for charitable, social or similar purposes. It is of the essence of such a company that, instead of limiting the contribution of members to the amount payable for their shares, the members agree to pay an agreed amount in the event of liquidation. It follows that the members of a company limited by guarantee do not necessarily have any interest in the capital of the company. This was dependent on whether the memorandum or articles did or did not require that any surplus be paid or applied to some other body or purpose. In the case of Insurance there was a provision in cl 4 of the memorandum of association that in the event of Insurance being wound up "every member of the company undertakes to contribute to the assets of the company", during the time he or she is a member or within one year afterwards, a sum not exceeding $1.00 for payment of the debts and liabilities of the company contracted before he or she ceases to be a member. Clause 5 of the memorandum of association of Insurance provided that in the event of a winding up or dissolution, any surplus would be paid to Association. There were alternative provisions if Association had ceased to exist. In the case of Association there was a provision in cl 4 of the memorandum of association that, in the event of a winding up or dissolution, each member agreed to contribute "such amount as may be required not exceeding two dollars and ten cents" for the payment of debts and liabilities. I assume that this had been one guinea in former times. Clause 5 of the memorandum provided that: "If upon the winding up or dissolution of the Association there remains after satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed among the members of the Association but shall be given or transferred to some other institution or institutions having objects similar to the objects of this Association such institution or institutions to be determined by the members of the Association at or before the time of dissolution, and in default thereof by the Chief Judge in Equity of the Supreme Court of New South Wales or such other Judge of that Court as may have or acquired jurisdiction in the matter, and if and so far as effect cannot be given to the aforesaid provision then to some charitable object." This provision is analogous to a "cy-pres" scheme provision in the case of a charitable trust. 50 Sections 167(2) and (3) of the Corporations Law at the relevant time set out the procedure for a change of status of a company. It was provided in s167(2) that when a company lodges a written application for the change and lodges the "necessary documents" with the application, the Companies and Securities Commission ("the Commission") shall issue the company with a certificate of registration appropriate to the new status. Upon the issue of such a certificate the company is given the new status specified. Section 167(3) specifically contemplated that the change shall be effected by a special resolution of the company. Section 167(3) relevantly defined "necessary documents" as meaning: "(a) a printed copy of a special resolution of the company: (i) resolving to change the status of the company and specifying the status sought; (ii) making such alterations to the memorandum of the company as are necessary to bring the memorandum into conformity with the requirements of this Law relating to the memorandum of a Division 1 company of the status sought; (iii) if the company has articles otherwise than by virtue of subsection 175(2) - making such alterations and additions (if any) to the articles s are necessary to bring the articles into conformity with the requirements of this Law relating to the articles of a Division 1 company of the status sought; (iv) otherwise - adopting such articles (if any) as are required by this Law to be registered in respect of a Division 1 company of the status sought or are proposed by the company as the registered articles of the company upon the change in its status; and (v) changing the name of the company to a name by which it could be registered as a Division 1 company of the status sought;" It follows that the appropriate procedure expressly contemplated by the Corporations Law itself was to proceed by way of a special resolution to achieve the change of status sought. A special resolution, of course, is one required to be passed by a majority of not less than 75% of the persons present in person or by proxy at a general meeting of the company called for the purpose. CONFERENCE WITH MR HEYDON 51 On 14 December 1993 Mr Morgan and Mr Simpson of AAH, Mr Bateman of AT and Ms Godwin of the NRMA attended a conference with Mr Heydon. As the learned trial Judge noted, the decision of the Court of Appeal in Gambotto had been given on 7 May 1993 and was cited in the brief. The report in the NSWLR contained a footnote on the first page that: "An application for special leave to appeal to the High Court has been filed". In fact, the application for special leave had been heard and granted on 10 December 1993. Mr Morgan's evidence was that Mr Heydon said: " Gambotto must be right. It must be right that you can go by way of members' meetings rather than by scheme of arrangement." 52 The evidence of the participants at the conference differed from one another, but the differences appear to be more of difference in recollection rather than matter of dispute, although Mr Heydon doubted that he expressed a firm view about resolutions as against a scheme, because that was the matter on which his written opinion had been sought. He doubted he was aware of the application for special leave at that time. While he may have become aware, he did not know that the appeal had been heard until after the judgment of the High Court was delivered in March 1995. 53 The learned trial Judge, having reviewed the individual and somewhat conflicting accounts of what was said at the conference on 14 December 1993 found that it was likely that Mr Heydon had expressed a provisional view that it would be appropriate to proceed by way of members' resolution, as he subsequently gave firm advice to that effect. That was the "major issue" in the brief. His Honour did not find that the advice was based on the decision in Gambotto. As his Honour said in para 374: " Gambotto's case was not mentioned in the firm advice which was shortly given, and while there was reference to Gambotto's case in the conference and Mr Heydon probably expressed the view that the decision of the Court of Appeal was correct I consider that was, as Mr Heydon recalled, in connection with oppression as the broad separate matter raised in the brief. In these respects I prefer the evidence, essentially, of Mr Heydon to that of Mr Morgan." 54 So far as knowledge of the appeal to the High Court in Gambotto is concerned, there was a conflict of evidence. The learned Judge concluded in para 384 that: "In my opinion the more likely position is that Mr Morgan did refer to Gambotto's case being on appeal, and those at the conference were thereby made aware of the appeal if they were not independently aware of it. That does not necessarily mean knowledge of the grant of special leave to appeal on 10 December 1993, and the reference may have been to an appeal in a loose sense which could have conveyed either an application for special leave to appeal or the grant of special leave to appeal. After all, the law report disclosed the application for special leave to appeal, and at least four of the lawyers present should have read the law report. I accept the substance of the evidence of Mr Bateman on this matter, broadly supported as it is by the evidence of Ms Godwin, without accepting the precise outlining of timing and response." 55 His Honour accepted the substance of the evidence of Mr Bateman regarding what was said at the conference, which was supported by the evidence of Ms Godwin. In particular, Mr Bateman recalled a reference by Mr Morgan to an appeal to the High Court in Gambotto. Mr Morgan said that he had spoken to Mr Arthur Emmett QC, who had appeared for the successful party in the Court of Appeal, who considered that the appeal to the High Court would not be successful. The learned Judge also concluded that whatever was said by Mr Heydon did not on any account extend to advice that no problem of oppression could arise in the demutualisation proposal. The only relevant comment by Mr Heydon, with reference to Gambotto, was that fairness was the key in considering oppression. Mr Heydon said he would try to provide his opinion on or before 20 December 1993. THE REVISED BRIEF TO MR HEYDON 56 Later on 14 December 1993 Mr Bateman sent to Ms Godwin an extract from Hennessy v National Agricultural and Industrial Development Association (1947) IR 159, which was relevant to the "mass elimination" of the members of Association and Insurance. He thought this should be brought to Mr Heydon's attention via Mr Morgan as relevant to the issue whether to proceed by way of special resolution or scheme of arrangement. Mr Simpson of AAH prepared a revised brief which was sent to Mr Heydon on 15 or 16 December 1993 and incorporated reference to Hennessy. The "major issue" was amended so as to more clearly direct attention to the ability to proceed by way of members' resolutions and put aside any issue of oppression. The question was framed in terms that: "The major issue … is whether the resolutions which will need to be passed by Association and Insurance to facilitate the proposal must, as a matter of law, be achieved by: (a) a scheme of arrangement under s411 of the Corporations Law, or whether, in the absence of a legal requirement that the matters proceed by way of scheme of arrangement, the proposal can be realised by: (b) extraordinary general meetings of the members of Association and Insurance." 57 The questions at the end of the brief were reframed as follows: " 12. Questions (a) Main Issue On an urgent basis we seek Counsel's advice as to whether there is a legal requirement to proceed by way of scheme of arrangement under Section 411 of the Corporations Law or whether it is sufficient if the necessary resolutions are passed by members in general meeting? (b) Other Issues Also, and by way of summary of the above, we seek Counsel's advice on, and/or confirmation of, the following matters: (a) where certain provisions of the Articles of Insurance are expressed as giving the council of Association the relevant right or power, that such right or power is a right or power of Association, not of the councillors in their capacity as councillors; (b) that the existing directors of Insurance (as opposed to all those persons who have never been a director) constitute a separate class; (c) the prospects of success of an action against Association and/or Insurance based on any of the following reasons: (i) expansion of the class of members who are eligible to participate in the flotation; (ii) the establishment of the record date. Would your answer to (c)(i) be different if the expansion of members resulted from correcting past administrative errors rather than for substantive reasons? (d) do the directors of Insurance have power to declare and pay a dividend? (e) Can some of the net worth of Insurance be allocated to Association? On the assumption that some of Insurance's net worth is allocated to members of Association, what is the prospect of a member of Insurance or Association successfully challenging the allocation? (f) if a person brought an oppression action challenging the proposals, what steps (if any) would be available to NRMA to conclude the action expeditiously?" OPPRESSION ADVICE DEFERRED 58 According to Mr Heydon he spoke to Mr Morgan on 16 or 17 December 1993 and told him that he could deal with the "structural and machinery aspects under the Corporations Law and the issue of which articles must be amended" within the time frame, but not "oppression issues or the other questions" before the Christmas vacation. Mr Heydon said that Mr Morgan's reply was that it was not necessary for him to deal with oppression or the other questions and that: "What I need to know is whether it is legally possible to effect the restructuring by members' resolutions or whether a scheme of arrangement is legally necessary". There was then some discussion of the decision in Hennessy. Mr Morgan made a note of the fact that he had a conversation with Mr Heydon on 16 December 1993 but the note was uninformative as to content. He did not recall the conversation but accepted that it was possible it was to the effect stated by Mr Heydon. The learned Judge accepted Mr Heydon's evidence. 59 According to Mr Morgan, at that time he saw Gambotto as contemplating that an expropriation of members' property could be oppressive because of unfairness on the particular facts. He did not consider that Mr Heydon would be giving an opinion at that stage on whether the particular details of any proposal would be oppressive or unfair to members, because they had not yet been developed. His expectation was that Mr Heydon would advise whether there was any objection as a matter of principle to proceeding by way of members' resolutions. MR HEYDON'S OPINION OF 20 DECEMBER 1993 60 Mr Heydon provided a written opinion dated 20 December 1993. He noted the steps set out to achieve the proposed structure and defined his task in terms of the "major issue" on which he was briefed as follows: "I am asked whether the resolution which will need to be passed by Association and Insurance to effectuate the proposal must, as a matter of law, be achieved by a scheme of arrangement under s 411 of the Corporations Law, or whether, in the absence of a legal requirement that the matters proceed by way of scheme of arrangement, the proposals can be realised by extraordinary general meetings of the members of Association and Insurance." 61 Mr Heydon concluded that the proposals could be realised by the latter procedure, setting out and discussing parts of s167 and other provisions of the Corporations Law, in the context of the memoranda and articles of association of Association and Insurance. He identified the necessary changes to the articles of Insurance, and gave his opinion that "all necessary changes could be made by special resolution under ss167, 172 and 176" of the Corporations Law. I have already referred to s167(d). Necessary changes to the memorandum could be effected by special resolution under s172(2). The reference to s176 implies that Mr Heydon regarded that provision as conferring power to make the change from a company limited by guarantee to a company limited by shares. It was submitted on behalf of Mr Heydon on the appeal that s167(3)(c)(iv) was an independent source of power to amend the articles. In my opinion, however, s167 is relevantly concerned with the registration requirements following upon an alteration of the memorandum under s167 and an alteration under s176. Mr Heydon also said that the validity of the alterations was conditional on compliance with other provisions of the Corporations Law, including s260: "….which prohibits oppressive or unfairly prejudicial or unfairly discriminatory conduct. (This issue will be dealt with in a separate opinion.)" He reached the same conclusion with respect to the articles of Association. 62 Mr Heydon also referred to the decision in Hennessy, saying that there were dicta "to the effect that a company limited by guarantee could not reduce its membership (and the projected proposals will have that outcome)". After setting out the relevant passages from the judgment in Hennessy, Mr Heydon concluded: "These observations were made against a framework of legislation containing much less extensive powers to amend the Memorandum of Association than those existing under the Corporations Law. No such limitations are to be found in the language of the Corporations Law. Further, the analogy between a reduction of capital and a reduction of members who have given their guarantees is in my opinion weak; the central point of a company limited by guarantee is that it has no capital, and hence rules against reduction of capital can scarcely apply, particularly in a context where the company is moving to the new status of a company limited by shares and by guarantee. Capital is being introduced, not reduced. In my opinion Hennessy's case is no bar to what is proposed. It follows that in my opinion the proposals can be realised by appropriate special resolutions passed at extraordinary general meetings of the members of Association and Insurance, and that a scheme of arrangement is not legally necessary." 63 In paras 401 and 402 of his judgment, the learned trial Judge noted that: "401 The opinion did not provide advice on the "other issues" in the brief, and made no mention of Gambotto's case. Mr Heydon had been told that it was not necessary for him to deal with the other issues in the brief, and the opinion included that the issue of oppression would be dealt with in a separate opinion. As will appear when I come to Gambotto liability, this perceived division between legal necessity and oppression was important in the failure to advert to risk to the proposal from the appeal in Gambotto's case. The decision of the High Court could be seen as concerned with oppression, but with necessary oppression because of the expropriatory nature of the resolutions, and in truth it affected legal necessity. 402 Mr Morgan gave evidence that he took the opinion of 20 December 1993 to confirm his view that a scheme of arrangement was unnecessary in order to implement the proposal." As is apparent from what Giles J said in para 401, his Honour regarded the effect of the proposed restructure as being of an "expropriatory nature". MR HEYDON'S BRIEF OF 25 JANUARY 1994 64 On 25 January 1994 Mr Morgan delivered to Mr Heydon a brief following on from the revised brief of 15 or 16 December 1993. The brief was prepared by Mr Simpson. Mr Morgan and Mr Simpson had taken Mr Heydon's opinion of 20 December 1993 to confirm that the proposal could be implemented by members' resolutions, if fair and not oppressive. There was, however, concern about challenges to particular aspects of the proposal on the ground of oppression, particularly if shares were offered to non-members and part of the network of Insurance was allocated to Association. This brief repeated the description of the NRMA's then structure and membership adding a reference to the provisions of the memoranda of Association and Insurance in relation to the distribution of assets on a winding up. There was an issue relating to a claim which Association may have had to the assets of Insurance and the allocation of those assets to members of both Association and Insurance. It repeated the description of the proposed structure, but with the addition of "InvestCo" as a company in addition to Holdings, the shares in which would be allotted to members on the payment of a subscription price anticipated to be equal to the "buyer value" of the shares. In this case the shares would be worth considerably more than their par value and that the difference would be a windfall for members of Association and Insurance. There was an observation there could be complaint of legal action over the valuation and allocation of the net worth of Insurance to the members of Association founded on fraud on the minority or oppression either under the general law or under s260 of the Corporations Law. There was a question whether members could mount a challenge on the basis of the principles concerning oppression, if shares in Holdings and InvestCo were offered to non-members with the approval of the requisite majorities of Association and Insurance in general meeting, or if part of the net worth of Insurance was allocated to Association. The brief concluded with the specific questions: "(a) We seek Counsel's advice on the prospects of success of an action commenced by members of Association and/or Insurance based on any of the following reasons: (i) expansion of the class of members who are eligible to participate in the flotation; and (ii) the allocation of some of the net worth of Insurance to Association. (b) If a person brought an oppression action challenging the proposals, what steps (if any) would be available to NRMA to conclude the action expeditiously?" 65 The brief was delivered under cover of a letter confirming a conference for 27 January 1994. The conference on 27 January 1994 was preliminary in nature and Mr Heydon did not express any opinion at it. A further conference was arranged for 2 February 1994. In a letter dated 31 January 1994 confirming the further conference, a copy of which was sent to Mr Bateman, there was a restatement of the questions for Mr Heydon which raised questions concerning entitlements. As to the latter, the covering letter stated: "Broadly, the recommendations for entitlements are summarised in the attached document. In essence, the holding company will allocate shares to members of the Association by reference to years of membership and also by reference to whether or not the member holds a policy with Insurance. Membership of Insurance is not proposed to be a criteria of eligibility for the proposed entitlements. The reasons for this proposed approach is that a number of members of Association may well hold policies with Insurance (eg green slips) which would not qualify them for membership of Insurance. The general proposal is for a $500 minimum allocation up to an allocation of $2,000. At this stage, these are indicative numbers and would require adjustment once final figures are known but, hopefully, will generally reflect the position." 66 A number of specific questions were asked about these matters including the nature of existing entitlements; the allocation of the interest of Association in Insurance as between the members of Insurance and Association; the possibility of Association and Insurance declaring a dividend to members; whether members who were policyholders have any underlying interest in the assets of Association; and whether the policyholder/member of Insurance had an underlying interest in Insurance, questions concerning the application of provisions of the Income Tax Assessment Act 1936 (Cth) s160ZZS, the interests of members of Association and Insurance. However, questions 3 and 4 were as follows: "3. Are there any steps which Senior Counsel believes should be taken to protect against legal attack on the method of allocation, eg an oppression suit? 4. Does Senior Counsel believe that an allocation of entitlements in HoldCo of the type outlined in the attachment could be successfully made the basis of an oppression suit?" Gambotto was referred to in the observations. CONFERENCE WITH MR HEYDON 2 FEBRUARY 1994 67 Mr Morgan, Mr Bateman and Ms Godwin attended at the conference on 2 February 1994. The learned trial Judge concluded in para 443 that: "The conference proceeded in a manner whereby Mr Heydon was not required to answer the particular questions in the letter of 31 January 1994 (or the particular questions in the brief). Mr Heydon's task and advice in relation to entitlements and oppression was general. So far as can be found, the advice was to the effect that giving entitlements to non-members involved risk (and they should have to make an offer to HoldCo); that disparity between members brought risk but rewarding loyalty was relevant to parity; and that an allocation of entitlements of the type outlined in the attachment to the letter (which was itself broadly expressed and with the figures subject to adjustment) was unlikely successfully to be made the basis of an oppression suit. Mr Heydon's advice in this last respect was less than definite, as the imprecise phrase 'looks okay' indicated." 68 The learned Judge continued at para 444: "No one suggested that Gambotto's case was referred to at the conference. In one sense that is curious, since it was cited in the brief and was a recent case to do with oppression, and this conference, unlike the conference on 14 December 1993, was concerned more with oppression in the sense of fairness than with the legality of proceeding by members' resolutions. In another sense it is not curious, since the advice was general and it is probable that, as earlier explained, the fundamental test of fairness was not thought to be in doubt. Again rightly or wrongly, an appeal in Gambotto's case was not seen at this conference as significant, and if, as I have found, an appeal was mentioned on 13 December 1993, the minds of those at the conference did not turn to it." THE FEBRUARY 1994 BRIEF TO MR HEYDON 69 At a meeting on 11 February 1994 Mr Bateman and Mr Morgan had a discussion about whether members who did not either accept shares or renounced their entitlement could be made shareholders in the holding company by force of the special resolutions, or would they be sent cash flowing from the trustee taking up their entitlements. This led to a further brief to Mr Heydon. In February 1994 Mr Heydon's advice was sought on the question whether: "…..HoldCo can, in effect, force an allotment of shares by providing that all members of Association and Insurance who do not respond to the HoldCo offer shall have HoldCo shares allotted to them." 70 The question was asked because it was recognised that some members would neither accept nor reject the offer. Observations in the brief included the following: "We have given consideration as to whether an analogy can be drawn between 'forcing' shares in HoldCo on members and cases where a scheme of arrangement is undertaken whereby shareholders in one company become shareholders in a new company or where shareholders in a company have their shares acquired compulsorily under stipulated procedures. A recent example of the latter was the decision of the New South Wales Court of Appeal in WCP Ltd v Gambotto (1993) 30 NSWLR 385 which, in essence, emphasised that the terms upon which the shares in that case were being acquired compulsorily must be 'fair'. The difficulty in drawing any analogy between these cases and our situation it [sic] that, of course, both a scheme of arrangement and the compulsory acquisition provisions are specifically blessed by statute. The analogy is therefore not a strong one. The reason for raising the issue is that whether or not it is possible to draw together various streams of authority which would enable the conclusion to be reached that the 'package' being offered to members is fair and that there is no valid reason to disallow, in the special circumstances that the NRMA case, a provision which requires non-responding members to be allotted shares [sic]. It is integral to the proposals that each member receives something." After a summary of arguments, the brief asked Mr Heydon "to advise on the question referred to in paragraph 1 above". CONFERENCE WITH MR HEYDON ON 7 MARCH 1994 71 There was a further conference with Mr Heydon on 7 March 1994. Mr Morgan, Mr Simpson and Mr Bateman attended. Giles J concluded, in para 475, of his judgment that: "From the notes of the conference it may be that the discussion ranged more widely, and included using a scheme of arrangement to bind non-responding members, but the context was quite different from that of changing the status of Association and Insurance by turning members of a company limited by guarantee into shareholders in the holding company. If it was implicit in Mr Heydon's advice that non-responding members could not be obliged to become shareholders in HoldCo pursuant to resolutions of Association or Insurance, but that they could be so obliged pursuant to a scheme of arrangement (although it is not easy to come to this conclusion on the state of the evidence), that was not expropriation of shares but the reverse, and Gambotto's case was not relevant. There was no reason to give advice about Gambotto's case or oppression, and it was not given." BOARD APPROVAL OF THE PROPOSAL 72 In early March 1994 it was decided to put the proposal before the boards of Association and Insurance on the one day, 17 March 1994. The report, which was prepared by a Mr Rees and circulated in draft among other executives of the NRMA was dated 8 March 1994. The report recommended that: "The board of the NRMA Group approve further detailed investigation into the implementation of a restructuring of the NRMA into a company limited by both shares and guarantee and listed on the Australian Stock Exchange." Although it is not altogether clear, I consider that it is safe to assume that the reference to the "board of the NRMA Group" was a reference to the Board of Management of Association, which was in effective control of the day-to-day affairs of both Association and Insurance. In the case of the latter this was achieved through the Insurance Liaison Committee of the Board of Management of Association. There were in fact a significant number of individual companies controlled by the Association Board and whose accounts were consolidated for the purpose of financial reporting. 73 The restructuring was to be conducted "in a way that guarantees the unique features and traditions of the NRMA are preserved". The description of the proposal was limited to "key aspects", namely: "2.1.2 Establishment of a listed holding company to control the major existing operating companies (Association, Insurance, and Life) as subsidiaries (Appendix 2). 2.1.3 Offer members shares in the new company so that members can become directly entitled to the wealth of the NRMA. Entitlements to shares would be based on a formula reflecting length of membership (see Appendix 3). 2.1.4 A special provision would be enshrined in the Articles to provide for continued advocacy and mutual type service activities. 2.1.5 The key concept of NRMA membership will continue, by allowing people to join a 'club' for the purposes of receiving the member services currently available. 2.1.6 The restructuring proposed would require changes in the Memorandum and Articles of both the Association and the Insurance company. Thus the restructuring would be implemented only upon approval by 75 per cent of the members voting at a general meeting of members to authorise the restructuring." 74 A copy of the report was circulated to all general managers of the NRMA on 9 March 1994, together with other information concerning the proposals. Shortly afterwards there was an executive conference at which the proposal was presented at management level. In the week prior to and on 17 March 1994 the members of the boards were given "pre-briefings" on the proposal intended to be put before the boards on that day. Recollections of the occasions were varied. However, on 17 March 1994 it was resolved by the Board of Management: "That the Board of Management recommends to the Board of NRMA Limited that approval is given for management to proceed with the further development of the proposal for listing of the NRMA Group on the Australian Stock Exchange (subject to members' approval) and that management is authorised to do all things necessary to progress that process. That the Board of Management recommends to the Board of NRMA Limited that approval be given for the formation of a company to be called 'NRMA Holdings Limited' with the President, Deputy President, Chief Executive Officer, Group Secretary and General Counsel and Greg Bateman of Abbott Tout, Solicitors, being the five (5) subscribers as to $1.00 each. Such approval would be given on the basis that: (a) subject to members' approval, NRMA Holdings Ltd is to be the vehicle whereby the NRMA Group is listed on the Australian Stock Exchange; (b) prior to such listing the subscribers undertake to procure that NRMA Holdings Ltd will not trade without the prior approval of the Board of Directors of NRMA Ltd; (c) each of the subscribers will remain the only shareholders until such listing is to be implemented; and (d) if such listing has not been implemented within 12 months, those subscribers undertake to transfer the issued share capital of NRMA Holdings Ltd to the Association or as the Board of Directors of NRMA Ltd may direct." 75 The board of directors of Insurance resolved in like terms, on the same day, save that it resolved for itself to give approval to management to proceed with the further development of the proposal, conveyed to the board of Association that it agreed that approval should be given to the formation of Holdings, and resolved for itself to give approvals in relation to advisers, the due diligence committee and the press statement. The board of directors of Association accepted the recommendation of the Board of Management and the board of Insurance. The resolutions adopted by the boards of directors resulted in the appointment of a Due Diligence Committee "to plan and carry out the due diligence necessary for the proposal. The proposal was formally announced on 17 March 1994. THE PROPOSAL DEFINED 76 It was shortly after this that Mr Morgan appears to have developed the proposal whereby Association and Insurance would become subsidiaries of Holdings (also called "HoldCo"), on the basis that the members resolve that: (1) each company change status to companies limited by shares and guarantee; (2) the members resolve that in consideration of Holdings making the invitation contained in the prospectus the members agree that the articles be amended so that each member ceases to be a member and that a share or shares in Association and Insurance be transferred to Holdings; (3) in consideration of the issue of that share to Holdings, the value of the share over the subscription monies subscribed by HoldCo be applied to pay up the shares issued by Holdings pursuant to its offer; (4) in consideration of the foregoing, Association and Insurance would agree to issue a share paid up to $1 for $1 to Holdings. The resolutions of Association and Insurance would bind all members if passed by the requisite 75% majority. While the essence of the proposal was that members of Association would have the opportunity to take up shares in Holdings and would cease to be members of Association, it is clear that the proposal was yet to be defined with precision. BRIEF TO MR HEYDON OF 19 APRIL 1994 77 The desirability of the adoption of this or a similar approach was the subject of a brief to Mr Heydon to advise dated 19 April 1994 which contained the following request for advice: "We seek Counsel's advice upon one specific issue relevant to the first structure. That structure provides that the shares to be issued by HoldCo will be paid up from the value of the NRMA Group transferred to HoldCo as a result of HoldCo becoming the only member of Association and Insurance after the existing members have given up their rights of membership. That is, members give up their rights as members in consideration of HoldCo using the consideration that flows from this retirement (the value of the NRMA Group which is owned solely by HoldCo) to pay-up the shares issued by HoldCo to members. In other words, the paid up capital for the HoldCo shares is not subscribed directly by members or provided by way of dividend. The question is whether the shares to be issued by HoldCo may be paid up in this way?" 78 This proposal involved the members giving up their rights of membership, so that as a practical matter, the wealth of the NRMA went to Holdings as the remaining member. The question was whether in consideration of that acquisition, HoldCo could issue fully paid shares to the members. It was stated in the conclusion of the brief: "In the case of the NRMA, the consideration for the relinquishment of membership is the allotment of shares by HoldCo to the (former) members of Association and Insurance the value for which derives from the value of the NRMA Group of which HoldCo is the sole member (prior to the allotment being made). We do not see a difficulty with this consideration being recognised by the law but we seek Senior Counsel's confirmation." CONFERENCE WITH MR HEYDON ON 29 APRIL 1994 79 A conference with Mr Heydon was arranged for 29 April 1994. At the conference, Mr Heydon confirmed the views expressed by Mr Morgan in the brief. This development was also the genesis of the "free shares" topic which was being discussed when preparation for the prospectus reached an advanced stage in July 1994. BRIEF TO MR HEYDON OF 15 JULY 1994 80 On 15 July 1994 Mr Morgan delivered another brief to Mr Heydon, seeking his "written confirmation" on two issues. The covering letter noted that both issues had been discussed in conference previously but stated that "because of their importance we require a written opinion". The brief outlined the proposal and the changeover articles as follows: "2.1 Holdings is incorporated and becomes a member of Association and Insurance. 2.2 A trust to be known as the NRMA Offer Trust will be established with Perpetual Trustees Australia Limited as trustee ("the Trustee"). 2.3 A prospectus will be issued and will include notices of meeting and an explanatory statement for the meetings of members of each of Association and Insurance. 2.4 The members of each of Association and Insurance in general meeting will be asked to vote on a resolution to change the status of each of the Association and Insurance from companies limited by guarantee to companies limited by shares and guarantee. The Articles of each of Association and Insurance will be amended to include standard provisions concerning the payment of dividends to members and the distribution of assets on a winding up to members. 2.5 The Articles of each of Association and Insurance will include a special article (the "Changeover Article") which, in effect, provides that on a specified date, assuming the vote of members of each of Association and Insurance is in favour of the proposals, all members other than Holdings will cease to be members of Association and Insurance and Holdings will issue shares to those members or, if the members elect not to take shares or do not respond, the member will be provided with an interest in the 'NRMA Offer Trust'." 81 One of the issues for confirmation was put forward under the heading "The First Question", as follows: "The structure provides for the shares to be issued by Holdings to be paid up from the value of the NRMA Group transferred to Holdings as a result of Holdings becoming the only member of Association and Insurance after the existing members have given up their rights of membership. That is, members give up their rights as members in consideration of Holdings using the consideration that flows from this retirement (the value of the NRMA Group which is owned solely by Holdings) to pay up the shares issued by Holdings to members. In other words, the paid up capital for the Holdings shares is not subscribed directly by members or provided by way of dividend. Senior Counsel is briefed to advise that the shares to be issued by Holdings to members may be fully paid up by reason of the consideration or transfer of value from members to Holdings by the members agreeing to give up their membership." 82 Later, the brief expressed the view of AAH that: "In the case of the NRMA, the consideration for the relinquishment of membership is the allotment of shares by Holdings to the (former) members of Association and Insurance the value for which derives from the value of the NRMA Group of which Holdings is the sole member (prior to the allotment being made). We do not see a difficulty with this consideration being recognised by the law." 83 The second issue for confirmation was that under the heading "The Second Question", namely: "As you can see from the above it is intended that members of Association and Insurance will be bound by the proposals through the contract constituted by the Articles of each of Association and Insurance (Section 180 of the Corporations Law). We do not see any difficulty in this, assuming of course that the resolutions are passed by the requisite majority, and seek Senior Counsel's confirmation of this." 84 The first question was the paid-up shares question on which Mr Heydon had previously advised in conference on 29 April 1994. The second question encompassed the question of non-responding members on which Mr Heydon had advised in conference on 7 March 1994, but it was a wider question and extended to the issue whether all members would be bound by the proposals, if the resolutions were passed by the requisite majority, not just non-responding members. Mr Heydon had not previously advised on that wider aspect of the question. As to this, the learned Judge commented in his judgment: "763 The NRMA suggested that the second question had the wider scope, and was a further occasion for attention to Gambotto's case . Its case did not, however, include that the Gambotto advice should have been given at this time - the case in this respect was that the advice should have been given earlier, so as to affect the NRMA's conduct on 17 March 1994 or at the very latest at the first board meeting after the hearing of the appeal in Gambotto's case on 21 April 1994, in that the proposal would then have been put on hold. The point of the NRMA's suggestion was not entirely clear, and this occasion for a written opinion should be seen as part of the overall course of events for the light it sheds on the defendants' conduct. 764 Why did Mr Morgan brief Mr Heydon for the written opinion? Mr Morgan said that he wanted the questions "finally answered by Mr Heydon, particularly the one regarding the method of members' resolution", but that only takes the question one remove: why did Mr Morgan want the questions finally answered by Mr Heydon, and why particularly the second question? It is necessary, I think, to go back in time, to the setting up of the due diligence committee in late March 1994." THE DUE DILIGENCE COMMITTEE 85 The board resolutions of 17 March 1994 included a resolution to establish a Due Diligence Committee to plan and carry out the due diligence necessary for the proposal. The Due Diligence Committee comprised the President, Mr Mackay the Chief Executive Officer, Mr Morgan of AAH, Mr Bateman of AT, a partner of Coopers & Lybrand, a partner of Deloitte Touche Tohmatsu, an Executive Director of BT Corporate Finance Ltd, and such other persons as the President or the Chief Executive Officer might approve from time to time. Mr Rees asked the various advisers to prepare a short list of the major issues for consideration in the due diligence process describing them as those matters which were material and had not yet been resolved. Mr Bateman prepared a list, one item on which was - "3. Procedure to Achieve Listing Residual doubts about the proposed process have to be removed. Major doubt for areas to be satisfied are: (a) each of Association and Insurance ceases to have any members by virtue of the passing of a special resolution at the 12 October meeting of members; (b) no oppression is going to occur; (c) shares to be issued by HoldCo to former members (of each of Association and Insurance) are credited as fully paid (no expenditure by them)." 86 Mr Bateman presented the document to a meeting of the due diligence committee on 30 March 1994. Mr Bateman's evidence was that this item reflected his continued concern that the members' resolutions route was appropriate having regard to two matters. The first was that the resolution should be effective to determine memberships. The second was that no oppression would occur. He considered that the due diligence process should include reaching satisfaction that neither constituted a material issue. 87 At the meeting of the Due Diligence Committee on 11 July 1994, prompted by a review of the Interim Due Diligence Report - Legal, Mr Bateman said he raised what the minutes of the meeting recorded as his statement "that the change in membership status of members of the Association should be noted as a material matter". He said that the due diligence process was to remove doubts about the procedure for achieving listing, and: "In particular, doubtful areas which had to be covered include how each of Association and Insurance ceases to have any members by virtue of the passing of a special resolution, as opposed to a scheme of arrangement. In other words, can the change of status of a member of Association be achieved by a resolution of members adopting a new set of articles, as distinct from a court approved scheme of arrangement. This is not referred to in the interim report on due diligence on legal matters. It is a material matter that has to be addressed. Another matter is how Holdings is able to pay up its shares when it issues them to those former members of Association and Insurance." Mr Morgan then said that those were matters upon which he had briefed Mr Heydon and "we will be getting him to sign-off on them". 88 While Mr Morgan could not recall Mr Bateman saying these things or anything to their effect, the learned Judge said: "The list and the minutes of the meeting support Mr Bateman's evidence, and I accept it." MR HEYDON'S OPINION OF 28 JULY 1994 89 Mr Heydon provided an opinion dated 28 July 1994 and confirmed that the shares to be issued by Holdings to members of Association and Insurance would be issued as fully paid up by reason of consideration in the form of the membership agreeing to give up their membership of those companies. He was also of the opinion that members of Association and Insurance would be bound by the proposals through the contract constituted by the respective articles of each company under s180 of the Corporations Law. In this respect, Mr Heydon said: "The statutory contract created by s 180(1) to which a member is party is an unusual one in that in certain respects, unlike normal contracts, it can be varied without the consent of the member. Section 180(3) indicates certain respects in which the contract may not be varied. Section 180(3)(a) and (c) do not apply, and part of s 180(3)(b) does not apply, because the companies are not companies in which the liability of members is limited by shares. And the changes do not increase the liability of members to pay money, hence the other part of s 180(3)(b) does not apply. the contract constituted by the Articles can thus be varied by amending the Articles. That requires a special resolution (s 176(1)) and it requires the majority to avoid oppression of the minority. Subject to those requirements, the answer is 'yes'." 90 According to Mr Morgan, the answer to the second question confirmed Mr Heydon's previous advice that the proposal could be implemented by the adoption, by special resolutions in extraordinary general meetings of the members of Association and Insurance, of amendments to the articles of those companies. He agreed, however, that he understood that Mr Heydon was not expressing an opinion about oppression. According to Mr Simpson, Mr Heydon's answer confirmed his view that a members' resolution could bind non-voting or dissenting members to the proposal and that a scheme of arrangement was unnecessary, so long as it could not be said there was any "unfairness" to members. BOARD APPROVAL OF THE PROPOSALS 18 AUGUST 1994 91 The board approvals of the proposals on 18 August 1994 included regard to the sign-off letters of AAH and AT. The sign-off letters were part of the due diligence process. In their sign-off letter AAH stated that in giving their opinion AAH had relied on the opinion of AT as to the information to members contained in the prospectus. Also AAH stated that in giving their opinion they had assumed, amongst other things: "that the distribution of entitlements to the NRMA Shares constitutes a fair and equitable distribution." 92 The AT sign-off letter had a reservation "whether the resolution of members will bind all members", reflecting what may have been continuing doubt on Mr Bateman's part the scheme or meeting question, so that he took care to leave the opinion on that to Mr Heydon and AAH. Giles J commented in para 995 that: "If so, Mr Bateman did not reiterate or refer to any continuing doubt." PUBLICATION OF THE PROSPECTUS 93 NRMA began to post out the package containing the prospectus and the onsert at about the beginning of September 1994. It published the text of the prospectus in newspapers and promoted the proposal through the media which included newspaper advertisements published on 4 and 11 September 1994. OPINION OF THE TRADE PRACTICES COMMISSION 94 In a letter dated 14 September 1994 from the Australian Government Solicitor on behalf of the Trade Practices Commission ("TPC") to Holdings, Association and Insurance it was notified that in the opinion of the TPC the advertisements contravened ss52 and 53(g) of the TP Act. There were two matters of concern. The first was that the advertisements suggested that members had to vote in favour of the proposal to get any benefit, whether shares or cash. The second was related to the use of the expression "free shares". Concern was expressed that the advertisement contravened the TP Act: "…..by describing the shares as 'free shares'. The shares which members will receive if they do vote in favour of the proposed changes in sufficient numbers will not be free in the sense that they will not have to be paid for by them in money or money's worth. If members choose to accept the shares, they must forego payment to Association of the cash alternative. For this reason the shares cannot truly be described as 'free'." 95 This was a new perception of the "free shares" problem to be referred to later in these reasons. It had also been asserted that the shares were not "free" because they were in exchange for membership in Association. That was the principal concern of the TPC. The TPC would have left the subsidiary concern untouched, save that there was to be included a statement "You can choose free shares or the cash alternative". 96 Mr Morgan dealt with the "free shares" point in a letter to the TPC dated 14 September 1994 as follows: "It is our view that the shares are free as they will not have to be paid for. In no sense can it be said that the net proceeds of the sale of shares are given up in consideration of the free shares. You must understand the nature of the cash alternative as outlined above." Mr Morgan said advertisements would be placed to allay the TPC concerns. 97 Another matter was raised by Mr Aleco Vrisakis, a solicitor, in a letter to Ms Conway dated 15 September 1994 complaining that the advertisements were designed to convey the message that it was necessary to vote in favour of the proposal in order to get free shares. Mr Vrisakis also said that there had not been sufficient disclosure in the prospectus by way of identification and explanation of the disadvantages to have been considered by the NRMA boards and the reasons for their conclusion that the advantages outweighed the disadvantages. There followed a somewhat acrimonious exchange of correspondence between Ms Conway and Mr Vrisakis between 19 and 22 September 1994. FEDERAL COURT PROCEEDINGS 98 The Federal Court proceedings were commenced on 22 September 1994 and the hearing before Gummow J commenced on 5 October 1994. On 13 October 1994 in Fraser v NRMA Holdings Ltd (1995) 52 FCR 452, Gummow J held that the prospectus contravened s52 of the TP Act and was misleading in five respects, one of which related to the use of the expression "Free Shares". An injunction restrained further distribution of the prospectus and proceeding with any business at the meetings of Association and Insurance other than to adjourn them. The meetings were adjourned on 19 October 1994. As will appear in more detail later in these reasons, in the subsequent appeal to the Full Court, the decision of Gummow J was upheld only in relation to the "Free Shares" issue and on the basis that the treatment of the "disadvantages" question was inadequate: NRMA Holdings Ltd v Fraser (1995) 55 FCR 452. At the trial before Giles J it was submitted on behalf of AAH that the evidence relevant to the alleged misleading content of the prospectus and the onsert which was given in the Federal Court proceedings was much less than the evidence led at the present trial, and that the facts established at the trial relevant to the question of material undisclosed disadvantages in the proposal were much more extensive. MR MORGAN'S MEMORANDUM OF 15 NOVEMBER 1994 99 Shortly before the hearing of the motion for leave to appeal from the decision of Gummow J, Mr Morgan prepared a draft memorandum dated 15 November 1994 giving consideration "to the contents of a future NRMA prospectus or, alternatively, the processes involved if a scheme of arrangement was undertaken". It was not immediately provided to the NRMA. It included the paragraph concerning Gambotto on which the NRMA relied at the trial. The memorandum referred to the difficulty in continuing with the current prospectus. If the appeal was successful, material changes in circumstances would have to be included. If the appeal was not successful, the prospectus would have to be changed to rectify deficiencies. It also referred to what would be involved if a scheme of arrangement were undertaken, noting that this would involve the Court as an "independent supervisor", independent experts' reports and an opportunity for all opponents to state their positions. 100 The draft memorandum contained the following by way of background: "Under the original proposal, we had examined the possible use of a scheme of arrangement rather than proceeding by way of prospectus and notice of meeting. The prospectus and notice of meeting procedure was adopted after Senior Counsel confirmed that it would bind members into the proposals. You should note that one of the principal authorities upon which this view was based is subject to a High Court appeal and, although the case has been argued, no final decision has been made. It is not expected that the High Court's views will change the conclusion but it is a matter that needs to be watched." 101 The draft repeated Mr Morgan's earlier objection to the scheme of arrangement approach. The authority to which Mr Morgan referred was Gambotto. Giles J said in 1112, that: "The statement that the confirmation was based on Gambotto's case , amongst other authorities, was probably not accurate, but involved recognition that Gambotto's case was a material authority. As I have earlier recorded, according to Mr Morgan he became aware that Gambotto's case was on appeal to the High Court in the course of the proceedings before Gummow J." The point made by the NRMA was that, if an appeal in Gambotto needed to be watched in November 1994, it had needed to be watched in late 1993 and early 1994, so that a lawyer acting properly should have found out about the special leave application and the appeal and should have given the "the Gambotto" advice. His Honour found, however, that neither Mr Morgan nor anyone else informed the NRMA that that the reserved decision in Gambotto "could be an impediment to the proposal, or at least it was not conveyed that with any force". 102 Two of the directors gave evidence suggesting that reference had been made to the decision in Gambotto at the NRMA board. Dr Werner said he had heard of Gambotto in the discussions concerning the decision of Gummow J prior to Christmas 1994. He recalled someone saying that the Federal Court proceedings "might not be the only problem you've got", and in explanation some discussion about Gambotto. Mr Lawson recalled hearing something about Gambotto before the decision of the High Court, to the effect that it had "the possibility of impacting on our demutualisation", but he did not recall when. There was no other evidence of recognition of Gambotto as a possible difficulty. Giles J considered it likely that Dr Werner and Mr Lawson became aware of Gambotto in late February or early March 1995 when advice was provided by the solicitors about it, or even after the decision was pronounced on 8 March 1995. CHANGE OF SOLICITORS: SUBMISSIONS INVITED AND RECEIVED 103 Following the decision of the Full Court of the Federal Court on 27 January 1995 and the further judgment on 30 January 1995, when a supplementary prospectus was left open, the NRMA considered what action to take. In December 1994 it had decided to consider changing solicitors if the proposal had to be taken back to members. Accordingly, submissions had been invited from Clayton Utz ("CU"), Minter Ellison Morris Fletcher ("ME"), and Norton Smith ("NS"). The invitations requested an evaluation of the prospectus, the approach to any new prospectus and a strategy to assist NRMA "to move ahead". The submissions had been received in mid-January and ME was ultimately retained. CU referred to Gambotto and the appeal, although not by name, when dealing with the potential for further litigation, both in relation to "the legal steps which are proposed to effect the demutualisation" and also the basis for the allocation of shares. They referred to recent cases dealing with "the question of expropriation of shares" and said: "Having regard to the decisions expressed by the Courts in those cases, we believe that it is possible to provide for cancellation of membership of a company limited by guarantee where, as is proposed in this case, compensation is provided, namely the opportunity to receive shares in the new holding company or the cash alternative. However, the principal case dealing with amendments to Articles of Association has been appealed to the High Court and judgment is still awaited. The cases proceed on the basis that the Court will examine closely whether the compensation to be provided in exchange for extinguishment of existing shareholders' rights is fair. This immediately leads to the second issue, namely the basis of allocation of shares to the respective members." 104 The ME submission also foresaw the need for a new prospectus and suggested a scheme of arrangement, giving reasons for and against. One reason in favour of a scheme was that: "….lengthy challenges to the implementation of the proposal, on such grounds as that the cancellation of memberships is oppressive or in fraud on the minority (grounds of uncertain scope in light of the Gambotto litigation) would effectively be avoided because the proposal would be sanctioned by orders of the court." A new proposal for demutualisation was proposed, but one which still involved proceeding by way of resolution adopted by general meetings. 105 The NS submission was less detailed and seemed to envisaged a new prospectus, but said: "However we must add the warning that we think that there are further basic underlying problems with the prospectus (or is it meeting) approach. In particular there is the question of the rights of members between themselves even forgetting the association/insurance question. As a clear example, any one who has become a member over the last 9 months will receive no benefit at all. What is the 'right' of people who became members earlier to leave out these later one out [sic]. Bearing in mind that everyone has a different although probably highly undefined interest, how can one member vote away the different rights of another? Possibly we are more sensitive to this than might be generally the case because of the delay in receiving a judgment from the High Court in the appeal to that Court from the Court of Appeal Judgment in WCP v Gambotto. The recent judgment of McClelland J [sic] in Melcann v Superjohn is also cause for concern." NS wondered "whether notice of meetings/prospectus route is the best, especially given the opposition." 106 Giles J commented on the submissions as follows: "Apart from being one source of advice about what to do, the submissions were said to be relevant to these proceedings in that they showed other lawyers watching the appeal in Gambotto's case . The watchers' gazes went beyond simple fairness or unfairness. CU focussed on fairness, but hinted at a more fundamental basis of challenge on the ground that membership could not be cancelled while apparently of the view that such a challenge would not succeed. ME referred to uncertainty over cancellation of memberships in the light of the Gambotto litigation, uncertainty which had to go further than the fairness of entitlements since the price for the shares in Gambotto's case was conceded to be fair. NS questioned how one member can "vote away the different rights of another", referring to sensitivity involving the appeal in Gambotto's case . Although not in terms, all saw the decision in the appeal as something to be known in order properly to advise." 107 The NRMA received a letter from Mr Morgan dated 27 January 1995 which was written with the knowledge of the invitation to other solicitors and with a view to the continued engagement of AAH. It contemplated a supplementary prospectus or a new prospectus depending on the outcome of the appeal and referred in passing to the alternative route of a scheme of arrangement. Giles J commented in para 1130 that the letter referred: "… rather in passing to the alternative route of a scheme of arrangement even with knowledge of the High Court appeal in Gambotto's case , Mr Morgan can not have seen it as an impediment to the resolutions in general meetings route." 108 Under cover of a letter to Ms Conway dated 31 January 1995, Mr Morgan enclosed a memorandum concerning a scheme of arrangement "to put in place the same result as was envisaged under the prospectus". The memorandum was but an outline and referred to possible difficulties because of different classes of members. As to this his Honour commented in para 1131: "Maybe reference to Gambotto' case should not have been expected, and in fact no Gambotto concern was expressed." 109 In a further letter to Ms Conway dated 1 February 1995, following the decision of the Full Court of the Federal Court, Mr Morgan said that he did not think that a scheme of arrangement "presents any advantages over the proposal that has now been made by the Federal Court". Mr Morgan did not think a scheme of arrangement was necessary and the alternatives he identified were a new prospectus (as distinct from a supplementary prospectus) and delaying the float. 110 The boards of Association and Insurance met jointly on 2 February 1995. A resolution was adopted expressing continued support for demutualisation; authorising management to continue to "do all work necessary" to put a proposal for restructuring to members; and requesting a report and recommendations for the way forward in the light of the decision of the Full Court. Only Mr Talbot and Ms Singleton opposed the motion. Ms Fraser supported the resolution on the basis that she had achieved her objective of "having a 'no' case put to the members". On 6 February 1994 Mr Talbot filed a notice of motion in the Federal Court proceedings seeking leave to amend to restrain continuance with the proposal on various additional grounds and joining some of the NRMA directors and claiming damages against them. 111 At the same time Mr Bateman was asked for his views about the way forward. In a letter to Ms Conway dated 6 February 1995 he recommended the preparation of a supplementary prospectus as soon as possible. He briefly reviewed the possible difficulties and indicated that a revision of the existing prospectus was a second option. MINTER ELLISON INSTRUCTED 112 The NRMA selected ME to undertake further work on the restructuring, leaving for later decision whether to continue with AAH and AT. Subsequently, however, the board/management liaison committee resolved to obtain legal advice whether AAH and AT had been negligent. In a report dated 21 February 1995 ME recommended that there be a full and genuine reconsideration of the entire demutualisation process and that the board commission a report by an independent expert on the reasons for and against demutualisation, whether it was desirable in the interests of Association and Insurance and their respective members; and whether the proposals in the prospectus were fair and reasonable as regards Association and Insurance and their respectively members. It was recommended that the report should also consider whether there was any obvious alternative that should be preferred. Finally, it was recommended that management should be authorised to preserve the existing options pending the receipt and consideration of the report. 113 If it were decided to proceed, ME considered that the most viable alternative was to continue with the proposals in the existing prospectus, reviving the adjourned meetings either with a supplementary prospectus or with a new prospectus, preferring that course to undertaking a scheme of arrangement. In other words, the view was taken that given that the prospectus was suitably amended or supplemented, it was appropriate to proceed by way of the adoption of special resolutions at general meetings. The advantages and disadvantages of general meetings as against a scheme were summarised. This prompted a comment by Giles J in para 1138 that: "Perhaps curiously in the light of the earlier submission, in relation to a scheme of arrangement the stated disadvantages did not mention Gambotto's case , save so far as that might have been involved in the observation that if the court were to identify small groups of members as separate classes 'those small groups would have a power of veto over the proposal whatever the wishes of the majority of members as a whole'. But as will appear, outside the report the NRMA was told of concern over the appeal in Gambotto's case. " The ME report was presented to a joint meeting of the boards of Association and Insurance on 23 February 1995. On 27 February 1995, Grant Samuel & Associates Pty Ltd ("Grant Samuel") were commissioned to provide the independent expert's report, having been selected by a committee formed for the purpose. THE IMPACT OF GAMBOTTO 114 The learned Judge found that, although the ME report on 21 February 1995 did not refer to Gambotto as posing a risk to the proposal, Professor Austin of ME told Mr Mackay in late February or early March 1995 of the outstanding High Court appeal and alerted him to the fact that if the decision went in favour of Gambotto, "it might present a problem". His Honour commented in para 1144 that: "The concern can not have been regarded as major, or it would have been found in the ME report of 21 February 1995 and ME would not have considered resolutions in general meetings the most viable alternative. But ME was watching Gambotto's case , and awareness that the resolutions in general meetings route might be open to challenge underlay the first declaration proposed by Mr Talbot." 115 The judgment in Gambotto of 8 March 1995 was immediately seen as an obstacle to the proposal. At a meeting of the board management liaison committee on 9 March 1995 Professor Austin reported on Gambotto. The record of the meeting noted that: "This has fundamental implications for our demutualisation proposal relating to the claim of oppression and compulsion. Minter Ellison and Arthur Emmett QC have reviewed the judgement and, although final written confirmation is sought from Emmett, Minter Ellison's feeling is that to proceed with our current proposal would be 'risky and foolhardy'." 116 A recommendation from ME to cease all work on either supplementary prospectus or a new prospectus was accepted. The ME report said: "An integral part of the demutualisation proposal contained in the 1994 prospectus was that all members of the Association and Insurance would cease to be members upon implementation of the proposal, on condition that they were offered shares in Holdings or the cash alternative. The compulsory aspect of the demutualisation proposal was to be achieved by provisions in the new articles of association of the two companies, which were to be adopted by special resolution of the members. … As we have indicated previously, there is a legal issue as to whether an amendment to articles of association of a company which compulsorily extinguishes membership against the wishes of a member is necessarily oppressive and therefore invalid. The decision of the High Court in WCP Limited v Gambotto was delivered on 8 March 1995. In that case the articles of association of WCP were amended to permit the 99.7% shareholder to acquire compulsorily the remaining 0.3% of the company's shares for a price which was acknowledged to be more than fair. Mr Gambotto objected to the compulsory acquisition. The High Court held that the amendment to the articles was invalid." 117 There followed a summary of the joint judgment of Mason CJ, Brennan, Deane and Dawson JJ. The report then said: "Obviously the demutualisation proposal is factually distinguished from Gambotto's case in several respects. The demutualisation proposal would compulsorily extinguish the rights of all members, including those who vote in favour of the new articles. Moreover, there are important differences between shareholding and membership of a company limited by guarantee. It is not clear, even after the Full Court's judgment in the NRMA case , whether the rights of a member of a company limited by guarantee are properly described as 'proprietary rights'. Nevertheless, our provisional opinion is that the basic reasoning of the Gambotto case is applicable to the demutualisation proposal. The majority voting in favour of the proposal would be doing so in order to secure for themselves the benefit of a corporate structure that can derive a new commercial advantage. It could not be said that the continued shareholding of the minority is detrimental to the company. Yesterday afternoon we consulted Mr Arthur Emmett QC who agrees with our provisional view. It will be necessary to obtain written advice from Senior Counsel as soon as practicable. If our provisional view is correct, the implication seems to be that it will be impossible to proceed with the supplementary prospectus, or with a new prospectus to implement the current demutualisation proposal. The alternatives will be either: a scheme of arrangement; or a proposal in which members will have a choice between retaining their existing membership rights or taking shares." 118 The learned Judge commented in para 1149 that: "Accordingly [sic] to the initial report, the concern in relation to the proposal was that compulsory extinguishment of membership might be 'necessarily oppressive', a concise way of expressing of [sic] the observations much earlier in these reasons that McLelland J in Gambotto's case seems to have thought that the fact of expropriation was enough to constitute oppression, but in the view of the Court of Appeal if the expropriation was fair the fact of expropriation would not invalidate the exercise of the power to change the articles. The High Court did not decide that an expropriation of shares was necessarily oppressive, but, to repeat what I said also much earlier in these reasons, held that the fact of expropriation would make the exercise of the power invalid, even if the expropriation was fair (which was equated with not oppressive), unless the majority shareholders could prove a proper purpose." 119 Under cover of a letter dated 10 March 1995 Mr Bateman sent Ms Conway a copy of the judgment for her information saying: "The reasoning of the High Court has implications for any restructuring of NRMA Limited and/or NRMA Insurance Limited. While the Judgment is framed in terms of a majority expropriating the shares of a minority, it can also be viewed, on one interpretation, as also dealing with the expropriation of the rights of a minority regardless of the fact that the majority do not acquire those rights." MR HEYDON'S OPINION OF 13 MARCH 1995 120 In the meantime, Professor Austin sought and obtained an opinion from Mr Heydon dated 13 March 1995. Mr Heydon was asked whether the special resolutions proposed by the NRMA for the adoption of new articles of association to implement the 1994 demutualisation proposal would be valid, if adopted, having regard to the decision of the High Court in Gambotto. Mr Heydon said: "The two questions which the High Court says any majority must demonstrate to be capable only of an affirmative answer are, first, whether the purpose is to secure the company from significant detriment or harm and, secondly, whether the alteration to the articles is 'fair' ie not oppressive. As to the first question, the minority in the present circumstances are not analogous to competitors or foreign shareholders preventing the company from obtaining or retaining an advantage. Gambotto's case (in the view of the majority though not that of McHugh J) excludes the capacity of a company to rely on tax advantages by grouping and administrative benefits as a justification for expropriating minorities. Those advantages are real advantages to the company and to the majority, but they do not appear to be different in character, so far as the present problem is concerned, from the benefits summarised on page 6 of the prospectus. The High Court specifically said that the majority cannot expropriate the minority 'in order to secure for themselves the benefit of a corporate structure that can derive some new commercial advantage'. It also forbade expropriation 'where it would advance the interests of the company as a legal or commercial entity or those of the general body of corporators'. If the first question were not answered affirmatively, the second would not arise. Even if the first question were answered affirmatively, the second would seem to call for a disclosure of 'all relevant information leading up to the alteration' (which incidentally may create a collision with what the Full Federal Court said in Fraser v NRMA Holdings Limited (1995) ATPR 41-374 at 40,144) as well as valuation by an independent expert (which, according to the Full Federal Court in Fraser v NRMA Holdings Limited (1995) ATPR 41-374 at 40,157 'may be impossible'). These are heavy burdens. The High Court left open the question of whether the majority should abstain from voting; an answer that they should would be fatal so far as the present enterprise is concerned. The answer to the question is accordingly that there seems to be at least a significant likelihood that the special resolutions would not be valid having regard to the decision of the High Court in WCP Limited v Gambotto . They would appear to be capable of validation only if some reason for the demutualisation of which I am unaware is capable of being identified and is capable of being characterised as falling within the permissible purposes stated by the High Court in that case." 121 The learned Judge rightly noted that the opinion was not definitive. His Honour said: "It was rather obscure as to fairness or oppression, and while focussing on proper purpose did not clearly address the NRMA's purpose and its propriety. No doubt that was why, from an account in a later letter from ME to Ms Conway, Mr Heydon was then asked to advise whether, having regard to the text of the prospectus, any reason had been identified falling within the permissible purposes stated by the High Court." 122 On 15 March 1995 Mr Heydon advised in conference that he had reviewed the prospectus and had not identified any reason for the demutualisation which would served to distinguish the facts from those in Gambotto. Mr Heydon said: "In particular, purposes relating to unlocking the wealth of the organisations, stabilising their Boards and corporate governance, and improving the 'financial engineering' of the companies would not fall within the permissible purposes stated by the High Court in that case." 123 Mr Heydon's advice was considered by the board management liaison committee on 21 March 1995. Some members expressed reservations about his advice and Mr Easson prepared a paper, the thrust of which was that there could be a demutualisation as proposed consistently with Gambotto. MR HULME BRIEFED TO ADVISE 124 ME were asked to obtain further advice and briefed Mr S E K Hulme QC, who was asked the same question as had initially been asked of Mr Heydon. On 23 March 1995 Mr Hulme orally advised that Gambotto would pose a problem if the NRMA were to proceed with the special resolutions proposed. Mr Hulme was then asked by letter dated 26 March 1995 to consider some further questions, probably as a result of Mr Easson's paper. The first question was whether special resolutions along the lines of the 1994 proposal would be valid if adopted for certain purposes identified as reasons for demutualisation in the paper, including some reasons not expressly stated in the prospectus. These were to the effect that the NRMA had to expand its business and improve its competitive position, by increasing its ownership base, extending its market beyond New South Wales and defeating the medium to long term threat of other organisations. It also had to improve its corporate governance to remove exposure to "populism" and ensure the skills required to manage its business. The objective that surplus capital be made available to members, together with the other reasons, called for a change from a mutual structure to the structure of a listed entity. 125 The second question was whether there were sufficient points of distinction between the circumstances of the NRMA and the circumstances in Gambotto so that a new proposal which would by amendment to the articles extinguish the membership of members of Association and Insurance and in exchange for shares or a cash alternative "would avoid the Gambotto principle". 126 The third question was whether a procedure under which membership of Association and Insurance was not extinguished, but the voting rights of members curtailed so that Holdings would be the sole voting member of Association and Insurance, if implemented by amendment to the articles of association of Association and Insurance without a scheme of arrangement, "would attract the principle in Gambotto". MR HULME'S OPINIONS OF 3 APRIL 1995 127 Mr Hulme provided two opinions dated 3 April 1995. The first dealt with the question on which he had orally advised on 23 March 1995. In the first opinion he said that, if what was to happen constituted the expropriation of a minority, then Gambotto was obviously significant because the attainment of the purposes expressed in the prospectus did not justify an amendment introducing a power not previously there to expropriate the minority. In his view, there would be a compulsory loss of a position seen as being, and being, a valuable one, and that would be an expropriation. He concluded: "15. Accordingly I am of opinion that what is to be done does constitute expropriation; that the decision in Gambotto is likely to stand in its way; that no court lower in the hierarchy is likely to accept an argument distinguishing this case from Gambotto ; and that the chances of the High Court wishing to do so are low. 16. In that last regard it may be noted that the judgment said little as to expropriation occurring via schemes of arrangement, reconstructions etc. But at T 12 the judgment does say that to allow expropriation wherever commercial advantage could be shown … would 'circumvent the protection which the Corporations Law gives to minorities who resist compromises, amalgamations and reconstructions, schemes of arrangement and takeover offers'. It appears then that what has been said is not intended to stand in the way of expropriation seen as proper by a court-approved scheme of arrangement. That I fancy means that the High Court would be more likely to expand Gambotto than restrict it, leaving those still wishing to proceed to do so via the method which gives the acquired person the protection of the courts." 128 Mr Hulme's second opinion addressed the three further questions posed in the letter of 26 March 1995. As to the first question, his opinion was the purposes identified in Mr Easson's paper took the matter no further, and gave him no reason to alter the views previously expressed. As to the second question, Mr Hulme considered the points of distinction between the circumstances of the NRMA and Gambotto identified by Mr Easson, and concluded that the circumstances of the NRMA case were not "sufficiently distinguishable to enable a proposal for amendment of the articles to extinguish the memberships to be drawn in such a manner as to avoid Gambotto". As to the third question, Mr Hulme said that depriving members of the right to vote was expropriation for the purposes of Gambotto, the right to vote being one of the bundle of rights enjoyed by a shareholder, and that there was no difference of principle between taking all the rights and taking some of them and that a right to vote had a value. Mr Hulme concluded his opinion by saying: "11. The central fact, as I see it, is that having taken a stand of the kind it did in Gambotto , the High Court is not lightly going to let parties find ways to circumvent it. As one considers the various alternatives to the original proposal, one finds Gambotto lying in wait. Increasingly I feel forced to the view that the courts will force the matter into the form of scheme of arrangement." CONCLUSION OF THE TRIAL JUDGE 129 In the light of this material, the learned trial Judge concluded, at para 1165: "This was a powerful body of advice that Gambotto's case precluded implementing the demutualisation through special resolutions at meetings of members. In these proceedings the NRMA submitted that in fact it did not do so, but the NRMA could hardly be expected to have acted contrary to the body of advice it was receiving; and it did not blindly succumb to one opinion, but questioned the advice it was receiving and was given confirmatory advice." 130 The advice of ME in a draft report dated 29 March 1995 was that in light of the Gambotto decision and the opinions of counsel, it was no longer possible to proceed by way of supplementary prospectus, even with newly convened meetings. This advice was reinforced by Mr Hulme's written opinions of 3 April 1995. JOINT BOARD MEETING ON 3 APRIL 1995 131 There was a joint board meeting on 3 April 1995. Prior to that meeting the NRMA was provided with a copy of an opinion by Mr Garnsey and Mr Camilleri concerning Gambotto obtained by Mr Talbot. Their advice was that the reconstruction in the form proposed or in any form substantially the same could not be carried out in accordance with law in the light of the decisions of the High Court in Gambotto and the Federal Court in the NRMA case. They also concluded that in the light of the decision of the High Court in Gambotto it was difficult, and probably impossible, to carry out any reconstruction of Association and Insurance involving the conversion of those corporations, from companies limited by guarantee to corporations limited by guarantee and a share capital, so as to achieve "demutualisation". This went further than the advice of ME and Mr Hulme. ME considered that Gambotto did not prevent the implementation of the substance of the proposal by way of a scheme of arrangement, or by other possible methods such as pursuant to an Act of Parliament, or a proposal which would not compulsorily extinguish membership. 132 In the meantime, the Grant Samuel report had become available and was in favour of demutualisation. It concluded that demutualisation was in the best interests of Association and Insurance and their respective members, that the proposal set out in the prospectus was fair and reasonable as regards the two companies and their respective members, and that alternative restructuring proposals that would achieve a better outcome had not been identified. 133 The Grant Samuel report was subsequently distributed to all NRMA members with a covering letter drawing attention to Gambotto as possibly affecting implementation of a demutualisation, but said that the question of methods of implementation was one for the future. Members were invited to consider the Grant Samuel report and let the NRMA have their comments. Advertisements were placed, public consultation meetings were held and market research was undertaken. JOINT BOARD MEETING ON 27 MAY 1995 134 At a joint meeting of the boards of Association and Insurance on 27 May 1995 reports were received to the effect that the membership was negative and a 75% vote of members in favour of demutualisation was unlikely at that stage. A report from ME concluded: "12. In summary, on the basis of legal advice the position is that it is not feasible to · proceed with the meetings convened and adjourned in 1994; or · issue a supplementary prospectus, having regard to the impact of the decision in the Gambotto case and all other relevant circumstances. 13. It therefore seems appropriate for the Boards to resolve that the 1994 meetings and prospectus should be abandoned, while leaving open the question whether similar proposals should be put forward by convening new meetings and issuing a new prospectus, or by proceeding in some other way, in the future." 135 A further ME report entitled "Options For The Way Forward" was noted and discussed which mentioned four options, namely: "(a) do nothing; (b) defer going to members to change structure until after 1995 AGM and elections; (c) ask management to develop for the Boards' consideration a concept document which addresses the concerns coming out of the consultation and the key outcomes of the Independent Expert's Report; (d) implement essentially the 1994 proposal to demutualise by 'mandatory' scheme of arrangement." 136 The board resolved that in the light of the ME report, the adjourned 19 October 1994 meetings and the prospectus not be proceeded with. It was also resolved, however, to reconfirm the decision of the board to propose a re-structuring of the company as set out in the Grant Samuel report. It was further resolved to request management to develop for the board within three months a concept document to address the concerns coming out of the consultation process, indicating that the majority of the board still favoured the restructuring of the NRMA. THE NRMA CASE ON GAMBOTTO 137 The essence of the NRMA case on Gambotto was that it should have been advised by Mr Heydon, AAH and AT that Gambotto was on appeal to the High Court and, after 10 December 1993, that the appeal had reasonable prospects of success and there was a real risk that the High Court's decision might adversely impact upon the proposal. 138 It was contended that had that advice been given, the boards would have voted to stop or slow down the proposal and much, if not all, of the expenditure later incurred would have been avoided. The date by which it was said the advice should have been given and would have been acted on was 17 March 1994, when the proposal was first put before the boards. Alternatively, it was submitted that the advice should have been given by 28 April 1994, the date of the first board meetings after the hearing of the appeal. The duty of care of the appellants was defined by the learned trial Judge as follows: "The defendants were bound to exercise due care, skill and diligence, bringing to their task the competence and skill usual amongst solicitors or barristers (as the case may be) practising their profession and taking proper care in what they did ( Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84; Midland Bank Trust Co Limited v Hett Stubbs & Kemp (1979) 1 Ch 384 at 403). Each of AAH, AT and Mr Heydon professed to be, and was, expert in corporations law, and the care, skill and diligence to be exercised was that appropriate to a member of the relevant profession having such specialist expertise ( Duchess of Argyll v Beuselinck (1972) 2 LLR 172 at 185; Rogers v Whitaker (1992) 175 CLR 479 at 483; Yates Property Corporation (in Liquidation) v Boland (1998) 157 ALR 30 at 50-51; Montague Mining Pty Ltd v Gare (Wilcox J, 23 October 1998, unreported)." 139 His Honour noted, however, that "the duty of care is not a warranty of perfection": Duchess of Argyll v Beuselinck (1972) 2 LLR 172 at 185. This is another way of saying that there is not a duty to give "correct" advice. It was not suggested that Mr Heydon was entitled to the advocate's immunity considered in Giannarelli v Wraith (1988) 165 CLR 543. His Honour also said that the due care, skill and diligence were to be exercised in doing what the solicitors were retained or Mr Heydon was briefed to do. His Honour went on to say: "Because a solicitor's duty lies in tort as well as contract, it may be that in the particular circumstances it may require that the solicitor go beyond the specifically agreed professional task or function if that is necessary to avoid a real and foreseeable risk of economic loss being sustained by the client ( Hawkins v Clayton at 579; Waimond Pty Ltd v Byrne at 652; Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418)." 140 So far as the retainers were concerned, Giles J said in para 1192: "In the present case I have no doubt that the retainer of AAH and AT extended to advice upon the possible risk to the proposal from the appeal to the High Court in Gambotto's case , if the exercise of due care, skill and diligence so required, and that the briefs to Mr Heydon similarly required him to advert to that risk if the exercise of due care, skill and diligence so required." 141 The question raised by that approach is in each case whether the possible risk was something that should have been reasonably foreseen by competent solicitors possessing the qualifications and experience of Messrs Morgan and Bateman and competent counsel of the qualifications and experience of Mr Heydon. As to the scope of the respective retainers, the learned Judge said in para 1193: "As to AAH and AT, they were called upon to advise the NRMA whether the proposal could and should be implemented by scheme or meeting, and a risk in the resolutions in general meetings route was clearly something to which they should have had regard and of which they should have informed the NRMA. As to Mr Heydon, as a minimum he was asked by the revised brief delivered on 15 or 16 December 1993 to advise 'whether there is a legal requirement to proceed by scheme of arrangement … or whether it is sufficient if the necessary resolutions are passed by members in general meeting'. If a risk to the proposal because the resolutions would be 'necessarily oppressive' (to take up Professor Austin's concise expression) should have been seen, reference to the risk should have been part of the advice. In the circumstances, it would not have been sufficient for AAH, AT, or Mr Heydon simply to advise that the proposal could be implemented by the resolutions in general meetings route, if of that view after weighing arguments for and against, without informing the NRMA of a risk forming one of the arguments against. In the language of the brief to Mr Heydon, resolutions in general meetings would not be sufficient, either as the obverse of a legal requirement to proceed by way of scheme of arrangement or as a course for the NRMA to undertake, if there were a risk." 142 His Honour also said in para 1195: "More widely, the question … whether to proceed by the resolutions in general meetings route or the scheme of arrangement route had significant practical implications, given that opposition to the proposal was expected. AAH and AT were well aware of this, and it was made known to Mr Heydon. This emphasised, if it were not already evident, that the risk of a necessarily invalidating impediment to the resolutions in general meetings route should be brought to account." As to the last three words in this passage, I assume that the learned Judge intended to convey that the risk should be taken into account. SCOPE OF DUTY AND STANDARD OF CARE 143 No expert evidence by a solicitor or barrister was called by any party regarding the nature of the advice or the range of possible advice which could have been given by an appropriately qualified solicitor or barrister responding to the retainer or instructions which were given by either party. Although AAH called Mr Bennett for another purpose, in the context of the appeal the appellants sought to rely on his evidence for a wider purpose as establishing what was described before us as "the minimum non-negligent advice". That designation or description was first used by counsel for Mr Heydon at the appeal. The decision not to call evidence was justified by counsel for the NRMA before Giles J on the basis of the comments of Oliver J in Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1979] 1 Ch 384 at 402 where his Lordship said: "I must say that I doubt the value, or even the admissibility, of this sort of evidence, which seems to be becoming customary in cases of this type. The extent of the legal duty in any given situation must, I think, be a question of law for the court. Clearly, if there is some practice in a particular profession, some accepted standard of conduct which is laid down by a profession institute or sanctioned by common usage, evidence of that can and ought to be received. But evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the court; whilst evidence of the witnesses' view of what, as a matter of law, the solicitor's duty was in the particular circumstances of the case is, I should have thought, inadmissible, for that is the very question which it is the court's function to decide." 144 The duty of care of a professional person and the need to warn of risks was most recently considered in the High Court in Rogers v Whitaker (1992) 175 CLR 479. As appears from the joint judgment of Mason CJ, Brennan, Dawson, Toohey and McHugh JJ, in the case of a medical practitioner the law imposes a duty to exercise reasonable care and skill in the provision of professional advice and treatment; see at 483. In that case their Honours also said at 483 that the standard of reasonable care and skill required is that of the ordinary skilled person exercising and professing to have that special skill, which in that case was the skill of an ophthalmic surgeon specialising in corneal and anterior segment surgery. Speaking more generally, their Honours said at 487 that: "In Australia, it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill. But, that standard is not determined solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant profession or trade. Even in the sphere of diagnosis and treatment, the heartland of the skilled medical practitioner, the Bolam principle has not always been applied. Further, and more importantly, particularly in the field of non-disclosure of risk and the provision of advice and information, the Bolam principle has been discarded and, instead, the courts have adopted the principle that, while evidence of acceptable medical practice is a useful guide for the courts, it is for the courts to adjudicate on what is the appropriate standard of care after giving weight to 'the paramount consideration that a person is entitled to make his own decisions about his life'." 145 Their Honours also said in Rogers v Whitaker at 490 that: "The law should recognize that a doctor has a duty to warn a patient of material risk inherent in the proposed treatment; a risk is material if, in the circumstances of the particular case, a reasonable person in the patient's position, if warned of the risk, would be likely to attach significance to it or if the medical practitioner is or should reasonably be aware that the particular patient, if warned of the risk, would be likely to attach significance to it. This duty is subject to the therapeutic privilege." While no therapeutic privilege is relevant in the present context, the application of these principles to a set of circumstances in which lawyers are called upon to advise whether a transaction can be implemented in particular way clearly gives rise to a duty to warn a client of any material risk in the same sense as that used in the medical context in Rogers v Whitaker . 146 In my opinion the approach adopted in Rogers v Whitaker is applicable to the duty of care of legal practitioners and the standard of care. Both barristers and solicitors owe a duty of care to those whom they advise or for whom they act. In the present context, their duty is to exercise reasonable care and skill in the provision of professional advice. The standard of care and skill is that which may be reasonably expected of practitioners. In the case of practitioners professing to have a special skill in a particular area of the law, the standard of care required is that of the ordinary skilled person exercising and professing to have that special skill. Each of Mr Heydon, Mr Morgan and Mr Bateman were persons who were among the leaders of the profession in the fields of company and commercial law and, in the case of Mr Heydon, also in the field of trade practices law. Each was acknowledged as having special skill or competence in the relevant areas. It did not follow from this that they were to be judged by some higher standard in these areas than the ordinary skilled person exercising and professing to have that special skill: see also Duchess of Argyll v Beuselinck (supra) at 183. 147 In this context the content of the duty of care and the liability is the same whether it is founded on contract in the case of a solicitor, or whether it is founded on a duty of care in tort in the case of a barrister. In each case the duty is to apply the relevant degree of skill and exercise reasonable care to carrying out the task. There is no implied undertaking that the advice is correct, but only that the requisite degree of professional skill and care has been exercised in the giving of the advice. Of course, where there is reason for doubt or there are risks which a person possessing the relevant degree of skill and competence should perceive, it follows from the above that there may be a duty to warn of the kind recognised by their Honours in Rogers v Whitaker. Thus, in Hawkins v Clayton (1988) 164 CLR 539 at 583-585, it was held by Deane J that, in the case of a solicitor, the circumstances may give rise to a duty to do more than simply perform the task defined by his instructions, if circumstances arose giving rise to a real and forseeable risk of economic loss by the client, or, in particular circumstances, even a person who was not a client but who may be adversely effected. See also Waimond Pty Ltd & Anor v Byrne (1989) 18 NSWLR 642 in which the judgment of Deane J was followed. In Henderson v Merrett Syndicate Limited [1995] 2 AC 145 the House of Lords declined to follow Hawkins v Clayton insofar as it suggested that in the case of a solicitor liability lay only in contract rather than concurrently in contract and tort. In Astley v Anti trust Ltd [1999] HCA 6; (1999) 73 ALJR 403 the High Court decided to follow the decision in Henderson v Merrett Syndicate Limited in preference to the judgment of Deane J so that in the case of solicitors, the liability remains a concurrent liability in contract and in tort. 148 As already noted, the liability of a barrister to the lay client has always been founded on tort rather than contract. Prior to the decisions in Hawkins v Clayton and Waimond Pty Ltd v Byrne, the duty of a barrister briefed to advise was generally regarded as being to advise on the specific matters or questions raised in the brief from the solicitor. It is a nice question whether there was a duty on the part of counsel to volunteer advice beyond the scope of the brief, although counsel may well and generally would volunteer additional advice which was considered relevant, but not specifically raised in the instructions. In the present case the learned trial Judge referred to Waimond Pty Ltd v Byrne in the context of findings against the appellants of negligently failing to warn of risks with respect to questions which, on the face of it, were not within the scope of the specific questions on which they had been asked to advise. ADMISSIBILITY AND RELEVANCE OF EXPERT EVIDENCE 149 As to the question of the admissibility and relevance of expert evidence regarding the duty of care in the context of proceedings against a lawyer, in Boland v Yates Property Corporation Pty Ltd [1999] HCA 64; (2000) 74 ALJR 209 at [45], Gleeson CJ noted without comment that in proceedings before Branson J in the Federal Court the defendants gave evidence and, in addition, there was further evidence from expert valuers, and from senior counsel experienced in valuation law and practice, noting that: "Her Honour relied upon that evidence, and upon her own opinions and judgment, in reaching her conclusions." 150 Further at [47] the Chief Justice noted that: "Branson J referred to evidence given before her by Mr Simos concerning his opinion on the relevant issues. She also referred to evidence given by two legal experts, Mr McClellan QC and Mr Davison SC. Mr McClellan was called by Yates, and Mr Davison was called on behalf of the defendants. Mr McClellan was not asked to, and did not, express an opinion on whether the approach adopted by Messrs Simos and Webster to the subject of special value was one which could reasonably have been taken by competent senior and junior counsel. Mr Davison, a barrister with extensive experience of valuation law and practice, expressed the opinion that the views which had formed the presentation and conduct of the primary litigation by Mr Simos and Mr Webster were views which could reasonably have been held by competent senior counsel at the time of the proceedings and, in addition, were views with which Mr Davison personally agreed." 151 In Boland paras [48] and following the Chief Justice quoted from and examined in some detail the judgment of Branson J below, in which her Honour approached the matter, as indicated in para [49], having regard principally to the expert evidence, by attaching weight also to her own reading of the authorities, to form the view that no negligence had been established against any counsel or solicitor in connection with the presentation of the claim. In the result, the decision of Branson J was upheld. In relation to the particular aspects of the case which I have mentioned, Gaudron and Gummow JJ agreed with Gleeson CJ. Callinan J made a number of observations of some relevance. His Honour said at [307]: "The nature and scope of the duty of lawyers to exercise reasonable care, particularly when litigation is in prospect or being, must be assessed in the knowledge that litigation always involves some uncertainties…" His Honour also said: "[309] In determining whether, in giving an opinion or advice on the conduct of the case, lawyers have been negligent it will not necessarily be a proper base for criticism that they had recommended or acquiesced in an approach which might have seemed to some to be novel in law or one upon which minds might differ. So to, as counsel for the respondent submitted, regard has to be had to what the law might reasonably be perceived to be at the time that the conduct in question occurred. [310] In the last 20 years it is possible to point to many changes in legal thinking in and as a result of decisions of this Court. ( Burnie Port Authority v General Jones Pty Ltd) (1994) 179 CLR 520; Theophanous v Herald & Weekly Times Ltd (1994) 182 CLR 104; Lange v Australian Broadcasting Corporation (1997) 189 CLR 520. See also the discussion by Brennan J of presumptions as to the state of the law from time to time in Giannarelli v Wraith (1988) 165 CLR 543 at 583-586). There are also a number of decisions of this Court on important matters in which different Justices have taken diametrically opposed views ( Wik Peoples v Queensland) (1996) 187 CLR 1; Gould v Brown (1998) 193 CLR 346; Re Wakim; ex parte McNally (1999) 73 ALJR 839). All of this is to highlight the increased difficulty which lawyers face in making decisions as to the way in which to conduct some complex cases and advise their clients." 152 In the light of these authorities, I consider that expert evidence would have been both relevant and admissible in the present case, but it remains for the Court to determine what is the appropriate standard of care and whether, in the instant case, the relevant advice was given consistently with or in breach of that standard. 153 The judgment of Branson J and the consideration of it by Gleeson CJ (with whom Gaudron and Gummow JJ agreed in Boland), to which I have referred, assumes both the admissibility and relevance of the evidence to the determination to be made by the Court. 154 In the present case there was no witness called for the purpose of giving evidence of any relevant professional standard or practice. In para 1197 of his judgment the learned trial Judge said that he expressed "no view on whether expert evidence could or should have been called" and that it fell "to the court itself to provide that content" (citing authorities). 155 As Kirby P (as he then was) said in Waimond v Byrne (1989) 18 NSWLR 642: "In default of any evidence as to professional standards or common practice in a situation such as the present, it falls to the court itself to provide its definition of the scope of the duty of care owed by reference to general principles." The same may be said of the position of counsel: Negal v Power (1967) SASR 373 at 376; Fox v Everingham (1983) 76 FLR 170 at 178-179; and Amadio Pty Ltd v Henderson (1998) 81 FLR 149 at 217. EVIDENCE OF MR BENNETT QC 156 AAH called Mr David Bennett QC, whose expertise in corporations law and experience in practice as a barrister were not questioned, not to give evidence of practice, but to give evidence of what he would have done and advised, if briefed in December 1993. The purpose of the evidence was relevant to causation on the basis that had Mr Heydon given the Gambotto advice which the NRMA said should have been given, the NRMA would have asked for a second opinion. It was postulated that Mr Bennett would have been briefed to advise on the relevance of Gambotto, and that his opinion would have allayed any fears of risk to the proposal, so that the NRMA would not have stopped or slowed down work on the proposal. In the course of cross-examination other parties enlarged the scope of his evidence to give content to the due care, skill and diligence required of the appellants. 157 Mr Bennett's evidence was based on a brief in fact delivered to him in July 1998, incorporating a copy of the revised brief delivered to Mr Heydon on 15 or 16 December 1993. Mr Bennett was asked to assume that Mr Heydon had advised, "without addressing the question of oppression", that the proposal could be implemented by resolutions in general meetings, referred to Gambotto and the pending appeal to the High Court, and asked Mr Bennett to advise: "(a) as at January 1994 'whether the fact that Gambotto has gone on appeal to the High Court has any relevance to the plan to implement the proposal by way of special resolution at members' meetings and if so, what relevance"; and (b) as at May 1994, after the hearing of the appeal, "if there is anything you wish to add to your opinion or if you wish to change your opinion in any way". 158 Mr Bennett's evidence was that, without perusal of the transcripts of the application for special leave to appeal or the argument on appeal, he would have said that the appeal in Gambotto was likely to fail. If he had perused the transcript of the application for special leave to appeal, he would have said that there was a possibility of the appeal being allowed, although a less than 50 per cent prospect of success. Having perused the transcript of the argument on the appeal, he would have said that there was a reasonable prospect of the appeal succeeding, "possibly slightly in excess of 50 per cent"; and that in both instances he would have said that the possible allowance of the appeal in Gambotto would not affect the proposal. 159 Mr Bennett considered that the proposal and the expropriation in Gambotto were quite different. In the NRMA proposal, all members were treated equally because all lost their memberships and had an entitlement to shares or cash. The members would continue to enjoy the same assets as shareholders. In Gambotto, the interest and wishes of the majority differed from those of the minority, but under the NRMA proposal the interests were all identical. In his evidence at the trial he said that he thought that: "….the parameters of Gambotto at the trial and in the Court of Appeal are sufficiently narrow that it would be unlikely in the extreme that any decision by the High Court, even one allowing the appeal, would be so wide as to apply to this very different sort of proposal". 160 In cross-examination, Mr Bennett said that: "…..in order to advise whether the appeal in Gambotto's case was likely to affect the proposal, he would have required to see the transcripts, and that he would have foreseen a successful appeal more readily after the grant of special leave and would have expected the High Court to decide the appeal by reference to principle rather than on the particular facts." CONCLUSIONS OF GILES J 161 In para 1202 of the judgment, Giles J commented that: "To this extent the NRMA's case was assisted, while remembering that the course which Mr Bennett would have taken and his expectation were not necessarily the general or required course and expectation of a lawyer acting with due care and skill - for example, they may have exceeded what was involved in the exercise of due care, skill and diligence. With a similar qualification, in saying that, for the reasons outlined, he did not think that the High Court was likely to express a principle so wide as to affect the proposal, Mr Bennett's evidence was adverse to the NRMA's case, but did not directly address that case in that it presupposed awareness of the possibility that Gambotto's case might impact on the proposal. Mr Bennett was asked to advise on that possibility. Even if Mr Bennett thought that Gambotto's case would not impact on the proposal, should a lawyer in the position of the defendants have adverted to the possibility?" 162 Taking account of his finding that Mr Heydon was made aware of the appeal, albeit in the loose sense to which reference has been made in para 54 above, Giles J concluded at para 1204 that Mr Heydon should have been aware of the appeal, consistently with the exercise of due care, skill and diligence. As his Honour put it: " Gambotto's case was a relevant case, at the least as a recent appellate discussion of what could constitute oppression, and had been cited prominently in the brief; it was specifically referred to at the conference as the most recent case in the area. The report at hand disclosed that an application for special leave to appeal had been filed, and even if Mr Heydon thought that the Court of Appeal was correct in what it had said it was incumbent on him, in my view, to take note that an application for special leave to appeal had been filed and follow it up to see whether special leave to appeal had been granted. If a grant of special leave to appeal had been granted, that would indicate that members of the High Court considered that there was a point of principle requiring clarification or correction, and that there was at least a prospect that the appeal would be allowed. So the filing of the application for special leave to appeal could not be ignored." 163 Mr Heydon's own experience was that about 50 per cent of appeals to the High Court succeeded and that the decisions were generally at the level of legal principle. The prospect of re-consideration at the level of legal principle was regarded by the learned trial Judge as "what matters". His Honour said that: "Had he noted and followed up the application for special leave to appeal, Mr Heydon would have found that special leave to appeal had been granted on 10 December 1993. Even if he did not then obtain the transcript of the application for special leave to appeal, he should have seen the prospect that the appeal would be allowed to which I have referred (which not to say that the appeal was more likely than not to succeed). What did the exercise of due care, skill and diligence, from someone expert in the relevant field of law, require?" 164 His Honour concluded that as at December 1993 Mr Heydon was an expert in the relevant field of the law and was briefed as such so that the exercise of reasonable care, skill and diligence required "appropriately thoughtful and informed analysis". The effect of the decision of the Court of Appeal was that, if the expropriation was fair, the fact of expropriation would not make the exercise of the power to change the articles invalid. Both McLelland J and the Court of Appeal found unhelpful the test of constraint according to exercise of the power bona fide for the benefit of the company as a whole, and the High Court had said much the same in earlier cases; see for example, Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457. Both McLelland J and the Court of Appeal had held that the outcome did not turn on oppression because of unfairness, because the acquisition of the shares was on fair terms. It was against this background that Giles J took the view, at para 1208, that: "….if the appeal were upheld it was in prospect that it would be upheld pursuant to a principle fashioned by the High Court, other than a test of the exercise of the power bona fide for the benefit of the company as a whole, by which the fact of expropriation, quite apart from fairness, constrained the exercise of the power." 165 In my opinion, it was critical to the finding of negligence by the learned trial Judge that the present case be characterised as one of expropriation of a kind which the High Court struck down in Gambotto. 166 His Honour went on to say in para 1209: "The principle could be as blunt as that upon which McLelland J had apparently acted (and his Honour was a respected and experienced judge in this area), or could leave room for expropriation if a condition or conditions other than fairness were met, but the prospect was of constraint on the exercise of the power to amend the articles greater than as held in the Court of Appeal. At the heart of any such constraint was likely to be (as in fact was evident in the High Court's reasons, although for present purposes that must be put aside) that valuable proprietary rights were at stake, something foreshadowed in the observation of Priestley JA in the Court of Appeal that the divesting of property from an owner without that owner's consent will often attract community opinion that the divestment was oppressive and/or unjust. Whatever was meant by expropriation, and notwithstanding points of distinction such as those seen by Mr Bennett, if under the proposal members arguably lost valuable proprietary rights, a successful appeal in Gambotto's case could mean that the proposal could not be implemented by resolutions in general meetings." 167 Giles J concluded that in his opinion an analysis of that kind should have led Mr Heydon to see in the grant of special leave to appeal in Gambotto a risk in proceeding by the resolutions in general meetings route. His Honour also said: "Perusal of the transcript of the special leave application, which I think should have been done, would have heightened concern about a risk, because the court did not call on the applicant." 168 In my opinion, not very much can be made of the latter point as the applicant was a litigant in person and there was not the interchange with the bench and counsel which might otherwise have occurred. The learned Judge also implied that the grant of special leave should have signalled the need to peruse the transcript of the argument on the appeal, which gave further grounds for analysis. Giles J referred to the fact that Mason CJ spoke of lack of power to amend articles with the effect of expropriating minority shareholders, not of oppression. So did Brennan J. McHugh J spoke of "prima facie oppression to take someone's shares away" and asked why a statutory power should not be read as subject to the exception, if it was not intended to be exercised to take away such a fundamental right as the right to possess a share. In para 1211 of the judgment, Giles J commented on the relevant passage, saying "the transcript is corrupt but the meaning is clear". Dawson J responded to a submission by counsel "One cannot say just because it is an expropriation it is oppressive" with a direct "Why not?". Giles J said: "Going back to December 1993, these attitudes in the High Court could and should have been foreseen by a barrister professing the expertise of Mr Heydon. In my view, the risk of a decision on appeal adverse to an expropriation of shares in the circumstances of Gambotto's case should have been seen." 169 At the same time, his Honour acknowledged in para 1212 that: "There was a difference between the majority expropriating the shares of the minority and a divesting of all memberships in return for shares or cash, but common to both was that proprietary rights were compulsorily taken away by voting power in general meeting. A risk to compulsory divestment of membership should also have been seen, depending on the principle fashioned by the High Court and its basis, and the prospect to which I have referred included that the appeal in Gambotto's case would affect the implementation of the proposal." 170 It is implicit in his Honour's reasons that it was the characterisation of the transactions or in the nature of an expropriation which posed the risk to proceeding by way of amendment to the articles by special resolution. In my view, however, if the characterisation was correct, it was not likely that a scheme with the same effect would have any better prospect of success. 171 His Honour said he did not overlook the evidence of Mr Bennett, but he was far from sure that, in the circumstances in which it was given in chief and by cross-examination, it could properly be taken as evidence of what the exercise of due care, skill and diligence required or did not require. He considered that Mr Bennett's evidence was balanced, if not outweighed, by the attention given by CU, ME and NS to the appeal as something to be known about in order properly to advise the NRMA, and by Professor Austin's express view, prior to the decision of the High Court, that a decision in favour of Mr Gambotto might present a problem because the compulsory extinguishment of membership might be necessarily oppressive. This was qualified by a reference to the benefit of the transcript of the argument, but his Honour considered that these attitudes would not have been unexpected "if the process of analysis I have described were undertaken". The fact that Mr Morgan saw the appeal in Gambotto as "something to be watched" in November 1994 tipped the scale further. His Honour's conclusion was that: "The preponderance of such "expert" evidence as there was in what Mr Bennett, these firms, and Professor Austin thought and did or would have done, in my opinion favours the NRMA's case, and is consistent with the view to which I would have come in the absence of the assistance gained from that evidence." 172 It was submitted at the trial and on the appeal, however, that, taking Mr Bennett's evidence as evidence of what advice could have been given without carelessness, even though others might have seen and advised of a risk, it would not have been negligent for the appellants to conclude that Gambotto would not affect the proposal and so not advise of risk in proceeding by the resolutions in general meetings route. The learned trial Judge rejected this submission, repeating his doubt about this use of the evidence of Mr Bennett. At the same time it was recognised that a different opinion was at the least reasonably open. However, the learned trial Judge pointed out that Mr Bennett was asked to advise of the relevance to the implementation of the proposal of the appeal to the High Court in Gambotto, and his evidence presupposed awareness of the possibility that Gambotto might impact on the proposal. This led his Honour to point out that: "Mr Heydon did not recognise or give thought to the possibility. In my opinion the issue posed was such that, notwithstanding that Mr Bennett saw a reasonably clear answer, there was still a risk which should have been recognised in advice to the NRMA." 173 In my opinion, in the present context a critical question was whether the proposed transactions could be characterised as involving an "expropriation", whether of the kind the subject of the decision in Gambotto, or any other kind. In this context, there is a somewhat remarkable statement by the learned trial Judge in para 1217, after he had reached the conclusions to which I have already referred, namely: "Perhaps curiously, in order to repel a causation argument in connection with free shares/disadvantages negligence to which I will come, the NRMA itself submitted that Gambotto's case as decided by the High Court would not have prevented the demutualisation from proceeding. It said that there were two 'simple and obvious' features taking the proposal out of the reach of Gambotto's case . One was that there was no expropriation by a majority because the majority was not expropriating anything. The other was that everyone was treated equally, and all were given the same option. These features have some similarity to those underlying Mr Bennett's reasons for advising that Gambotto's case would not affect the proposal. They are, however, a product of knowledge after the event, and I am not moved by the NRMA's present stance in this respect to depart from what I have said in the preceding paragraphs." 174 The learned Judge then went on to express his conclusions in paras 1218 and 1219 as follows: "1218 In my opinion, therefore, in responding to the revised brief delivered on 15 or 16 December 1993 Mr Heydon should have adverted to the grant of special leave to appeal to the High Court in Gambotto's case , and should have warned that if the appeal were upheld it might be upheld on grounds inimical to the validity of resolutions in general meetings having the effect that members of the NRMA were deprived of their memberships. Mr Heydon may have thought, and said, the appeal would not succeed, or that if it succeeded it would not succeed on grounds relevant to the proposal, but he did not advert to Gambotto's case in this respect, to an appeal in Gambotto's case , or to risk. At the least, a warning whereby further consideration should be given to the risk when the appeal had been heard, with the benefit of the transcript of the argument, should have been given., If that had been done, as earlier explained the transcript of the argument would have given further grounds for the analysis I have described. 1219 I do not think that, as faintly suggested in the conduct of Mr Heydon's case, failure to advert to the risk can adequately be explained by the reservation for a later occasion of advice on the other issues in the brief, or by the course taken at the conference on 2 February 1994 when those other issues had been raised in the brief of 25 January 1994 and the letter of 31 January 1994. Certainly the other issues and parts of the later brief and letter were to do with oppression, but oppression because of unfairness. The potential in the appeal to the High Court in Gambotto's case was in a sense to do with oppression, but not oppression because of unfairness; rather, oppression because of the expropriatory nature of the proposal. For reasons I have explained, oppression of that kind fell within the advice required of Mr Heydon in December 1993, but if it was not then the subject of advice there were occasions in February and March 1994 when, with appreciation that the issue was not oppression because of unfairness but oppression because of the expropriatory nature of the process, Mr Heydon should have returned to it." CONTENTIONS ON BEHALF OF MR HEYDON 175 It was contended on behalf of Mr Heydon in the appeal that the trial Judge erred in holding that, in responding to the revised brief delivered to him on 15 or 16 December 1993, Mr Heydon was negligent in failing to advert to the grant of special leave to appeal to the High Court in Gambotto and in failing to warn that, if that appeal was upheld, it might be upheld on grounds inimical to the validity of resolutions in general meetings, which had the effect that members of Association were deprived of their memberships. This ground was directed to the conclusion reached by his Honour in para 1218 of the judgment. In Gambotto at 444-445, Mason CJ, Brennan, Deane and Dawson JJ said: "In the context of a special resolution altering the articles and giving rise to a conflict of interests and advantages, whether or not it involves an expropriation of shares, we would reject as inappropriate the 'bona fide for the benefit of the company as a whole' test of Lindley MR in Allen v Gold Reefs of West Africa Ltd . The application of the test in such a context has been criticized on grounds which, in our view, are unanswerable. It seems to us that, in such a case not involving an actual or effective expropriation of shares or of valuable proprietary rights attaching to shares, an alteration of the articles by special resolution regularly passed will be valid unless it is ultra vires, beyond any purpose contemplated by the articles or oppressive as that expression is understood in the law relating to corporations. Somewhat different considerations apply, however, in a case such as the present where what is involved is an alteration of the articles to allow an expropriation by the majority of the shares, or of valuable proprietary rights attaching to the shares, of a minority. In such a case, the immediate purpose of the resolution is to confer upon the majority shareholder or shareholders power to acquire compulsorily the property of the minority shareholder or shareholders. Of itself, the conferral of such a power does not lie within the 'contemplated objects of the power' to amend the articles." 176 Their Honours went on at 445 to distinguish between the inclusion of a power of expropriation in a company's constitution upon incorporation, on the one hand, and an amendment of the articles of association so as to confer upon the majority power to expropriate the shares of a minority. As their Honours said at 445: "Such a power could not be taken or exercised simply for the purpose of aggrandizing the majority. In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs - resulting in detriment to the interests of the existing shareholders generally - and expropriation is a reasonable means of eliminating or mitigating that detriment." NO EXPROPRIATION 177 In my opinion, the present case involved no attempt by a majority to expropriate the shares of a minority. According to the Shorter Oxford Dictionary, the ordinary meaning of "expropriate" is "to deprive of property" and the meaning of "expropriation" is "the action of depriving of property". The latter meaning says nothing in itself about the person acquiring the property or the terms of the acquisition. There is a secondary meaning not found in the Shorter Oxford Dictionary or the Oxford English Dictionary, which is in Garner's Dictionary of Modern English Usage and the American Heritage Dictionary in which the transitive verb "expropriate" is given the meaning "to transfer another's property to oneself". This may well be the sense in which the relevant term was used in Gambotto, although in the opening paragraph of the joint judgment at 437 their Honours described the purpose of the amendment as "to enable the shareholder holding 90 per cent or more of the issued shares to acquire compulsorily shares held by minority shareholders". The term is often used in the sense of compulsory acquisition. In this sense the word may have a connotation of disapproval where the circumstances in which or the terms on which the power is exercised are seen as unfair. A compulsory acquisition is nonetheless an expropriation even where the terms are entirely fair or even generous. The relevant proposal in this case was one to convert Association from a company limited by guarantee into a company limited by shares and guarantee. This required a special resolution to be adopted by not less than 75% of the members of Association voting in person or by proxy, at an extraordinary general meeting called for the purpose. Each of the members of Association had one vote. There is nothing in the evidence which identified any group of members as being in a position to control a majority of votes at a general meeting of members. There were some 1.8 million members. In my view, it cannot be said that, merely because the requisite majority might vote at a general meeting to pass the necessary special resolution, the consequence of the conversion of rights of membership in Association into a right to receive shares in Holdings and become a member of that company, or receive a cash payment in lieu, involved any element of expropriation. The essence of the proposal was the conversion of a right of membership in Association for which a subscription was paid into a right of membership in Holdings by the acceptance of shares to be issued by Holdings, in the event that the proposed change was approved by the requisite majority. 178 The conversion from a company limited by guarantee to a company limited by shares and guarantee is something which was expressly contemplated by the relevant provisions of the Corporations Law and its predecessors. It was not something which was simply contemplated by the articles. The introduction of Holdings as the entity to hold all of the shares in Association and Insurance would give the members of Holdings a financial interest in both companies, through their shares in Holdings. There is nothing to suggest that the proposal was one which was other than one taken for a "proper purpose", as that term was used in Gambotto. There is nothing to suggest that the proposal was inherently unfair, so far as the corporate procedure was concerned. 179 As I have noted, Mason CJ, Brennan, Deane and Dawson JJ said in Gambotto at 446 that the majority shareholders were required to disclose all relevant information leading up to the alteration. In the present case, it was apparent that there was no identified majority of members or a group of members who could be expected to combine together at a general meeting. Assuming that the defects in the prospectus could be rectified, the requirement to disclose all relevant information leading up to the alteration could have been satisfied. It is of the essence of the conversion of a company limited by a guarantee to a company limited by shares and guarantee that it must be open for a qualification of membership by annual subscription to be converted to a membership by virtue of shareholding, provided that the offer or allocation of shares is on a fair and equitable basis. So far as I have been able to ascertain, there was no suggestion that the way in which the number of shares to which a member of Association or, for that matter, a member of Insurance would become entitled, was other than fair. There was no suggestion of oppression. It seems to have been accepted that the formula for the calculation of the number of shares which members would receive, or the cash consideration payable if the offer of shares were rejected, was not susceptible to attack on the grounds of fairness. Their Honours said in Gambotto at 447 that it would be for the majority to prove that an alteration of articles providing for expropriation was valid. In my opinion, that would not apply in the present case because the contemplated transaction could not be characterised as one of expropriation, whether by the majority or otherwise. The transaction was one expressly contemplated by the articles, when read in conjunction with the relevant provisions of the Corporations Law. 180 The effect of Gambotto was that the compulsory acquisition or expropriation by a majority of the shares of a minority, for the purpose of excluding the minority who voted against the proposal from participation in the future conduct of the affairs of the company would be prima facie invalid. This was clearly to be distinguished from a proposal to give all members a greater right of participation by an offer of shares in a company proposed to be listed on the Stock Exchange, converting whatever limited rights they had as members of Association into shares in the holding company of Association, on a basis which would ensure the continuance of their rights to receive services, to which would be added the tangible benefits of the assets controlled by Insurance also being brought within the corporate umbrella of Holdings, by virtue of Insurance being a wholly owned subsidiary. 181 In the various cases which speak about expropriation of shares, the result is that not only does the holder of those shares cease to be a member and shareholder of the subject company, but the only right of that shareholder is to receive a fair price for the shares. The present case is clearly distinguishable because every person forming part of an assumed minority voting against the proposal had the option of becoming a shareholder in Holdings, and so continuing to receive not only the benefits of the services previously received as a member of Association (albeit by payment of an annual fee rather than a membership subscription) but, in addition, the prospect of receiving dividends and the benefit of ownership of a marketable security in the form of shares to be listed on the Stock Exchange in due course. Each member was given the option to accept a cash consideration in lieu of an allocation of shares. It was not suggested that the formula for the allocation of shares or determining the cash consideration in lieu was other than fair. In either case, it would represent a substantial financial gain in the nature of a windfall for those persons who relinquished their membership in Association in exchange either for shares or cash. SCOPE OF MR HEYDON'S DUTY OF CARE 182 Counsel for Mr Heydon submitted that the key issue in Mr Heydon's appeal was the scope of his duty of care in relation to the brief to advise delivered on 15 or 16 December 1993. The relevant question put to Mr Heydon was: "…whether there is a legal requirement to proceed by way of a scheme or arrangement under s411 of the Corporations Law or whether it is sufficient if the necessary resolutions are passed by members in general meeting?" 183 Mr Morgan, at whose direction and under whose supervision the brief was prepared, saw Gambotto as contemplating that an expropriation of members' property could be oppressive because of unfairness on the particular facts. He did not then consider that Mr Heydon would be giving an opinion on whether the proposal would be unfair or oppressive to members. That would not be possible because the details of the proposals had not been developed. The question was whether there was any objection as a matter of principle to proceeding by way of members' resolutions. The alternative was to proceed by way of a scheme of arrangement under s411 of the Corporations Law. While reference was made in the brief to Gambotto, the case was not regarded by AAH as instructing solicitors as relevant to the main question, either in the observations in the brief or during a conference on 13 December 1993. There is no suggestion in the brief that a transaction involving something like expropriation was envisaged, which might invalidate the exercise of the power to amend the articles in the manner contemplated. What was involved was an exercise of the statutory power to convert from a company limited by guarantee to a company limited by shares and guarantee. Mr Heydon was not asked to express an opinion on the likelihood of success or otherwise in the appeal to the High Court in Gambotto. That case was then regarded as related to issues of oppression and not of relevance at that stage. 184 Mr Heydon's opinion identified the necessary changes to the articles of Association and Insurance. The provisions of the Corporations Law which permitted the changes to be made by special resolution were identified. The decision in Hennessy was distinguished on the basis that it was decided against a background of more limited legislation. It was made clear that the question of oppression was not then addressed, but would be dealt with in a later opinion. AAH, as instructing solicitors, had agreed to this. CORRECTNESS OF MR HEYDON'S OPINION AS AT 20 DECEMBER 1993 185 In my opinion, the answer Mr Heydon gave to the question of him correctly stated the law as it was generally understood to be as at 20 December 1993. The procedure which Mr Heydon considered could be adopted was that expressly contemplated in the Corporations Law itself. Members of Association were being asked to give up their membership of Association which gave them a right to vote at general meetings and the election of members of the board, as well as to receive road and other services from Association in consideration of the payment of a subscription. Clearly, these rights were of some value. They were transferable pursuant to article 5 of the Association's articles by which the board of directors might: "… approve, on such terms as they may determine, the transfer of a member's membership to any person entitled to apply …" 186 There was no evidence of the existence of any trade in membership. The value of membership was found by all concerned to be extremely difficult to quantify. While the members were being asked to give up their membership rights, they were being invited to do so on the basis that they could convert their membership of Association into an entitlement to an issue of shares in Holdings for which they would not have to pay. It was proposed that Holdings would become a listed public company and that Association and Insurance would become wholly owned subsidiaries of it. There was an expectation in that the very significant assets and profitability of the operations of Association and Insurance would be reflected in the value of the shares of Holdings, which would become a listed public company. At the same time, former members of Association would be entitled to continue to receive the road and other services which they had previously received, on payment of an annual fee. Those persons who did not wish to continue to be members of the NRMA, or who for other reasons did not wish to become shareholders in Holdings, were given the alternative of receiving a cash payment of an amount representing the value of the shares. The proposal did not include anything of the nature of compulsory acquisition by or on behalf of the majority. It was not part of the objective of what was proposed "to get rid of" any minority. The proposal invoked the machinery provided by the Corporations Law itself to facilitate the conversion of a company limited by guarantee to a company limited by shares and guarantee. It was also proposed that the members of Association would be entitled to interest in a new company referred to as "HoldCo" which in the result was Holdings. 187 If the necessary resolutions were passed by a majority of 75% or more, the effect would be that all of the persons who were members of Association would be entitled to accept the offer of shares in Holdings. They would not be excluded from participating in the conduct of the affairs of NRMA in its new structure. On the contrary, as both members and shareholders of Holdings they would have a much more direct and tangible legal and commercial interest in the affairs of the NRMA through the shareholding in Holdings. If, and only if, they did not want the shares, members were entitled to accept the offer of cash in lieu of shares. LIMITATION OF POWER OF THE MAJORITY: OPPRESSION 188 For more than a century it has been recognised by the courts that some limits must be placed on the power of shareholders within a company who are able to command a majority vote. In a range of circumstances the courts will intervene to invalidate the resulting resolution to restrain what has been traditionally described as "a fraud on the minority": cf Borland v Earle [1902] AC 83 at 93 per Lord Davey. The importance of the doctrine or concept of fraud on the minority has been greatly reduced by the introduction of the statutory remedy against oppression contained in s260 of the Corporations Law, which has its origin in s210 of the Companies Act 1948 (UK), and which provided a remedy to any member of a company who complained that the affairs of the company were being conducted in a manner oppressive to some part of the members, including himself. If satisfied that the facts would justify a winding up order on the just and equitable ground, the court could make an order accordingly but, if this would unduly prejudice the oppressed members, the court was empowered to make such order as it thought fit to regulate the conduct of the company's affairs in future, including an order that certain members or the company itself purchase the shares of any members, or otherwise bring to an end the oppression complained of. 189 At the material time in the present case, Gower's Principles of Modern Company Law (5th ed) 1992 at 596-598 dealt with the topic of resolutions to expropriate members' shares by saying: "Resolutions falling under this head seem to the writer to present a stronger case for requiring members voting for such a resolution to consider whether it is in the best interests of the company. But, once again, it is not clear whether they are required to do so." 190 In the previous edition, Modern Company Law (4th ed) 1979, Professor Gower said, at 620, under the heading "Expropriation of Other Members' Property": "Just as the controllers cannot exercise their voting power so as to deprive the company of its property, so, it is submitted, they are not entitled to use it so as to deprive the other members of their shares in the company. In this case, however, the prohibition is clearly not absolute and will not apply if such expropriation is for fair compensation and required in the interests of the company as a whole." 191 The first of the relevant authorities referred to in the 5th edition of Gower was Brown v British Abrasive Wheel Co [1919] 1 Ch 290. In that case a public company was in urgent need of further capital which the majority, holding 98 per cent of the shares, were willing to supply if they could buy out the minority. Having failed to persuade the minority to sell, it was proposed to pass a special resolution adding to the articles a clause by which any shareholder was bound to transfer their shares upon a request in writing of the holders of nine-tenths of the issued capital. Such a clause could have been validly inserted in the original articles: Phillips v Manufacturers Securities Ltd (1917) 116 LT 290. In particular, in the case of a company limited by guarantee it was proper to incorporate in the original articles a power entitling the council to require a member to resign: Gaiman v National Association for Mental Health [1917] Ch 317. 192 Despite the fact that such a clause could have been validly inserted in the original articles and although the good faith of the majority was not challenged, it was held in Brown by Astbury J that an attempt to add the clause in order to compulsorily acquire the shares of the minority, who had bought shares when there was no such power, could not be for the benefit of the company as a whole, but was solely for the benefit of the majority. An injunction was granted restraining the company from passing the resolution. 193 Considerable doubt was cast on the correctness of the decision in Brown by the judgment of the Court of Appeal in Sidebottom v Kershaw, Leese & Co [1920] 1 Ch 154. In that case a director-controlled private company had a minority shareholder who was interested in a competing business. A special resolution was passed empowering the directors to require any shareholder who competed with the company to transfer his shares, at their fair value, to nominees of the directors. The Court of Appeal, reversing the trial judge, held that the alteration was valid. It was held that the company had the statutory power to amend its articles so as to include any provision which could have been validly included in the original articles, provided that the alteration was made bona fide for the benefit of the company as a whole. As it was beneficial to the company to be able to rid its membership of a competitor, the alteration was valid. Brown v British Abrasive Wheel Co was distinguished as turning on the finding by the judge that the alteration was not made "for the benefit of the company as a whole". Both Lord Sterndale MR at 163 and Eve J at 172 made it clear that the decision in Brown was dependent on the particular findings of fact in that case and the notion that "bona fide" and "for the benefit of the company" were two separate things. Gower (4th ed) commented, at 621, that the members of the Court of Appeal "obviously had doubts whether they would have made the same finding". 194 In Dafen Tinplate Co v Llanelly Steel Co [1920] 2 Ch 124 Peterson J held that a new article conferring on the majority an unrestricted and unlimited power to buy out any shareholder they might think proper, went much further than was necessary for the protection of the company from conduct detrimental to its interests. Peterson J said, at 141, that his finding was one of fact and consistent with the decision in Sidebottom in that the alteration would be valid if for the benefit of the company as a whole. In this respect, he considered that the onus of proof was on those who sought to uphold the resolution and that the test was an objective one rather than a subjective one in terms of what the shareholders honestly believed. Peterson J referred to Brown at 139-140 noting the test applied in that case and that it was considered by the Court of Appeal in Sidebottom. No mention was made of the criticism of Brown. Peterson J merely said that Brown was "considered" by the Court of Appeal which reaffirmed the test applied by Lord Lindley MR in Allen v Gold Reefs of West Africa [1900] 1 Ch 656. While the decision in Brown may have been justified on its facts, the reasoning does not provide guidance in relation to principle. In Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at 509-510 Dixon J referred to Brown and the comments on that case in Sidebottom by Lord Sterndale MR at 167 and Warrington LJ at 172 saying that both made it clear that Astbury J: "… had been wrong in treating bona fides and benefit of the company as separate conceptions, and the justification, if any, for his decision lay in a finding of fact that the majority had acted entirely for their own benefit." Dixon J also pointed out that Peterson J had decided Dafen on the basis that the test of the validity of the alteration was whether it could "properly be said to be for the benefit of the company": see at 141. 195 Each of the decisions so far considered implied that a resolution amending the articles to include an expropriation provision would be valid only if it were passed bona fide in the interests of the company, both in the opinion of the members and of the Court. In a later decision, not concerned with expropriation of shares, the Court of Appeal corrected the erroneous view expressed by Peterson J in Dafen and decided that it was for the members, and not the court to determine what was beneficial to the company and the court would only interfere only if the members had not acted in good faith: Shuttleworth v Cox Bros and Co [1927] 2 KB 9; and see Greenhalgh v Arderne Cinemas [1951] Ch 286. 196 In 1979 the position in the United Kingdom was that s209 of the Companies Act 1948 (re-enacting and extending s155 of the Companies Act 1929) conferred on a majority of nine-tenths of the shareholders rights of compulsory acquisition of the shares of the minority in certain limited circumstances and subject to certain safeguards. 197 In Re Bugle Press [1961] Ch 270, a decision of the Court of Appeal, the holders of 90 per cent of the shares, who wished to buy out the holders of the remaining 10 per cent formed a company and vested their shares in that company which then made a bid for the remaining shares and purported to acquire them under s209. This was held to be impermissible on the basis that to allow existing shareholders to use the section as a device to get rid of a minority whom they did not happen to like would be contrary to fundamental principles of company law; see per Evershed MR at 287 and Harman LJ at 287-288. Gower's 5th ed at 598 n42 comments that if Greenhalgh v Arderne Cinemas, in which Evershed MR also presided, is rightly decided it is not easy to find any such "fundamental principle" 198 It was also suggested in Gower (5th ed) at 598-599 that, particularly in cases of expropriation of a member's shares, "the members in general meeting are subject to a sort of fiduciary duty", namely, that the members must act bona fide in the interests of the company. This was seen as a limitation on other statements in the cases ( such as North-West Transportation v Beatty [1887] 12 App Cas 589; Burland v Earle [1902] AC 83; and Goodfellow v Nelson Line [1912] 2 Ch 234) that the votes of members of the company are proprietary rights, the same as any other rights attaching to shares, which the holder is generally entitled to exercise in his own interests, even if they are opposed to the interests of the company. A shareholder may bind himself or herself by contract to vote or not to vote in a particular way: Greenwell v Porter [1902] 1 Ch 530; and Puddephatt v Leith [1916] 1 Ch 200. It is for reasons like these that the doctrine of fraud on the minority appears to have been developed as a limitation on the abuse of majority power. 199 Buckley on the Companies Acts (14th Ed) 1981 vol 1 at 49 said that: "…..it appears that the limits upon the power of altering the articles conferred by this section [s10 Companies Act 1948 (UK)] are that it must be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities enabling them to bind minorities, that is to say, it must be exercised bona fide for the benefit of the company as a whole; and the phrase [the company as a whole] does not (in cases such as these) mean the company as a commercial entity, distinct from the corporators: it means the corporators as a general body. It may be more accurate to look at the converse and say that a special resolution of this kind would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders, so as to give the former an advantage of which the latter were deprived. But, apart from this limitation and the further limitation imposed by the opening words of the section, which required the alteration of the articles to be one which could validly have been embodied in the original articles, the right of alteration is unrestricted, and an alteration may be nonetheless for the benefit of the company as a whole, notwithstanding that it is a detriment to one or more members of the company." The authority cited for the final proposition in that passage is Sidebottom v Kershaw, Leese & Co. 200 The requirement that the power must be exercised bona fide for the benefit of the company as a whole was derived from Allen v Gold Reefs of West Africa, Ltd (supra). In that case the Court of Appeal upheld a special resolution of the company altering its articles so that the company's lien for all debts and liabilities of any member of the company would extend, not only to partly paid shares, as was originally provided, but also to fully paid shares. Lord Lindley MR, at 671-672 held that s50 of the Companies Act 1862 (UK) conferred a broad power to amend the articles, subject to the general principles of law and equity applicable to all powers conferred on majorities and enabling them to bind minorities. Consequently, it was an implied condition of the exercise of the power that it be exercised, not only in the manner required by law but also bona fide for the benefit of the company as a whole, and that it must not be exceeded. Romer LJ at 678 agreed with the Master of the Rolls. Although Vaughan-Williams LJ dissented, his Lordship, at 676, was in essential agreement with the principle that an alteration must be made in good faith and without oppression to a shareholder. THE AUSTRALIAN AUTHORITIES 201 In Richard Brady Franks Ltd v Price (1937) 58 CLR 112 it was held by the High Court that where a challenge was made that a power of the directors to pass a resolution of the board had not been exercised bona fide for the benefit of the company as a whole, the onus was on the plaintiff who challenged the action of the directors to establish that they did not act bona fide for the benefit of the company. Latham CJ at 135-136 applied Allen v Gold Reefs of West Africa, Ltd. The same test was applied by Rich J at 138 although he also expressed the view that: "No court 'should consider itself fettered by the form of words, as if it were a phrase in an Act of Parliament which must be accepted and construed as it stands' ( Shuttleworth v Cox Brothers & Co (Maidenhead) [1927] 2 KB at 26)." Dixon J said at 143: "Those impeaching the transaction must sustain the burden of proving that the directors acted in their own interests and were not in fact exercising their powers in supposed furtherance of any purpose or advantage of the company. In considering such a question, it is important to ascertain what are the purposes for which powers are given and to remember that the fiduciary duty of the directors is to the company and the shareholders." 202 In Peters' American Delicacy Company Ltd v Heath (supra), which was decided two years later, the High Court upheld special resolutions altering the articles of a company relating to the capitalisation of profits, such that a distribution of shares would take place in accordance with the amount paid up on the shares, in substitution of a previous articles providing for distribution in accordance with the numbers of shares. At the same meeting, resolutions were passed increasing the capital of the company and for the promotion of a new company, to which the existing company would sell a portion of its assets, on the basis that the sale proceeds would be put in a special reserve account and then distributed to shareholders by way of a bonus dividend, to be satisfied by the issue of fully paid shares in a company. First, Latham CJ held that a company cannot deprive itself of the statutory power to alter its articles of association either by agreement or by a provision contained in the articles: Malleson v National Insurance and Guarantee Corporation [1927] 2 KB at 18,23; and Allen v Gold Reefs of West Africa, Ltd (supra). Secondly, it followed, according to the Chief Justice, at 479 that: "It is not possible, by articles of association, to make an unalterable article. If it is desired to place the rights of particular shareholders beyond the risk of being affected by an alteration of articles it is possible to include provision in the memorandum of association which will have that effect." Thirdly, his Honour went on to say that it followed that the contract between the members of the company and between the company and its members constituted by the articles must be regarded as containing among its terms a provision that articles may be altered in the manner provided by the Act, that is, by a special resolution. An alteration in a particular case may constitute a breach of contract with a shareholder, but such a breach of contract does not invalidate the resolution to alter the articles: Allen's case. Fourthly, it followed that where the rights of members of the company depend upon the articles, it was possible to alter the rights of members or some only of the members by altering the articles. The Chief Justice went on to say at 480: "The fact that an alteration prejudices or diminishes some of the rights of the shareholders is not in itself a ground for attacking the validity of an alteration: see Sidebottom v Kershaw Leese & Co Ltd [supra] (expelling a shareholder); Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [supra] (disqualifying a director); Allen's case [supra] (creating a lien upon shares). Any other view would, in effect, make unalterable and permanent any articles of association which conferred rights upon a class of shareholders, or possibly upon any shareholder, if they or he desired that those rights should continue to exist unchanged. It is plainly not the law that the fact that an alteration of articles alters the rights or prejudices the rights of some shareholders is sufficient to prevent the alteration from being validly made." 203 The fifth proposition was that the power to alter the articles must be exercised bona fide. Latham CJ at 480-481 approved the statement by Lindley MR in Allen's case at 671, and in particular the proposition that the power of alteration must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole and must not be exceeded. Latham CJ at 481 also accepted that it was not for the court to impose upon a company the ideas of the court as to what is for the benefit of the company. That was for the shareholders to determine, subject to the proviso that the decision was not such that no reasonable man could have reached: Shuttleworth v Cox Brothers Co (Maidenhead) Ltd (supra). The Chief Justice also said at 481 that this was not an absolute rule, but it was the prima facie general rule: Carruth v Imperial Chemical Industries Ltd [1937] AC 707. 204 Latham CJ went on to say at 481-482, however, that: "The benefit of the company as a corporation cannot be adopted as a criterion which is capable of solving all the problems in this branch of the law. An alteration which is made bona fide and for the benefit of the company, if otherwise within the power, will be good, but it is not the case that it is necessary that shareholders should always have only the benefit of the company in view. In cases where the question which arises is simply a question as to the relative rights of different classes of shareholders the problem cannot be solved by regarding merely the benefit of the corporation. I refer to Pender v Lushington [1877] 6 Ch D 70 at 75,76 and Mills v Mills (1938) 60 CLR at 164, a case of the exercise of powers of directors in relation to the 'interests of the company'. See North-West Transportation Co Ltd v Beatty [1887] 12 App Cas 589, where it was held that a shareholder may vote as he pleases even when his interests are different from or opposed to those of the company. Shareholders are not trustees for the company or for one another and the relations between them cannot be identified with the relations between partners ( Phillips v Manufacturer's Securities Ltd (1917) 116 LT 290). But though a shareholder may vote in his own interests the power of shareholders to alter articles is limited by the rule that the power must not be exercised fraudulently or for the purpose of oppressing a minority: See Cook v Deeks [1916] 1 AC 554 at 564; Menier v Hooper's Telegraph Works [1874] 9 Ch App 350; Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [supra] ; Carruth v Imperial Chemical Industries Ltd [1936] Ch 587; [1937] AC 707. (7) When the validity of a resolution of shareholders is challenged, the onus of showing that the power has not been properly exercised is on the party complaining. The court will not presume fraud or oppression or other abuse of power." 205 The Chief Justice also said at 482: "The result of applying these principles is that the special resolution altering the articles cannot be declared to be invalid merely upon the ground that the original articles conferred special rights upon the holders of partly paid shares of which the alteration deprived them, or upon the ground that the voting holders of fully paid shares were interested in making the alteration adversely to the holders of partly paid shares. If, however, the resolution was passed fraudulently or oppressively or was so extravagant that no reasonable person could believe that it was for the benefit of the company, it should be held to be invalid." 206 Rich J, at 494-495 said that: "No rights given by articles of association can prevail against a three-fourths majority and it is well understood that all are subject to it. It is true that the power of alteration must be exercised bona fide with a view to the advancement of the company considered as a whole and not with a view to the advancement of the interests of a majority of voters or of a section of the company only ( Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 138 ; Mills v Mills (1938) 60 CLR at 169, 170). But in deciding what is for the interest of the company and what is bona fide, the constitution of the company, the condition and effect of the various articles of association and the extent to which rights are conferred upon different classes of shareholders are relevant and important. This seems to be the effect of Allen v Gold Reefs of West Africa, Ltd [1900] 1 Ch 656; British Murac Syndicate Ltd v Alperton Rubber Co Ltd [1915] 2 Ch 186; Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154 and Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [1927] 2 KB 9. Where the very problem which arises contains as inherent in itself all the elements of a conflict of interests between classes of shareholders these authorities do not mean that the power of alteration is paralysed, they mean only that the purpose of bringing forward the resolution must not be simply the enrichment of the majority at the expense of the minority." 207 Dixon J said at 503: "It is the province of the memorandum of association to fix the constitution and nature of the company, and the power of altering the articles is subject to whatever restrictions it may contain. But no article as such could be made unalterable." His Honour also noted at 503-504 that: "After the abandonment of the distinction between, on the one hand, matters of administration and management admittedly subject to the power of alteration and, on the other, matters going to the constitution of the company and said therefore to be outside the power, the courts sought for a limitation in the more general doctrine that a power must be exercised bona fide for the end for which the power is designed. Primarily a share in a company is a piece of property conferring rights in relation to distributions of income and of capital. In many respects the proprietary rights are defined by the articles of association, and it is easy to see that a power of alteration might be used for the aggrandisement of a majority at the expense of a minority. For example, if there were no check upon the use of the power, it is conceivable that a three-fourths majority might adopt an article by which the shares which they alone held would participate, to the exclusion of other shares, in the surplus assets in winding up or even in distribution of profits by way of dividend." 208 Dixon J acknowledged later on 504 that reliance upon the general doctrine that powers shall be exercised bona fide and for no "bye or sinister purpose" brought its own difficulties. It was pointed out at 504 that: "The power of alteration is not fiduciary. The shareholders are not trustees for one another, and, unlike directors, they occupy no fiduciary position and are under no fiduciary duties. They vote in respect of their shares, which are property, and the right to vote is attached to the share itself as an incident of property to be enjoyed and exercised for the owner's personal advantage." 209 After referring to a number of the authorities, including Cook v Deeks [1916] 1 AC 554, Dixon J said, at 506-507: "A power to alter articles of association is necessarily a power to alter the rights of shareholders inter se , including their mutual rights in respect of profits and surplus assets. It is therefore evident that some difficulty must arise in applying to resolutions for the alteration of articles a statement of principle which assumes the independent existence of rights which should not be impaired or destroyed. Prima facie rights altogether dependent upon articles of association are not enduring and indefeasible but are liable to modification or destruction; that is, if an when it is resolved by a three-fourths majority that the articles should be altered. To attempt to distinguish between alterations which deserve the epithet fraudulent or oppressive or unjust and those deserving no moral censure without explaining the considerations upon which the distinction depends, is to leave the whole question to general notions of fairness and propriety." 210 In Sidebottom at 173, Eve J had referred to the question what is meant by mala fides and said: "Speaking for myself, I do not think the solution of that question is assisted by the use of such phrases as 'the ordinary principles of justice.' 'just and equitable' or 'oppressive'." As to that Dixon J said in Peters at 507: "To base the application of the epithets upon the circumstance that the majority obtain a benefit by the change seems to involve some departure from the principle that the vote attached to a share is an incident of property which may be used as the shareholder's interests may dictate." 211 His Honour went on to say at 507-508: "But, whatever may constitute bad faith, it is evident that, if a resolution is regularly passed with the single aim of advancing the interests of a company considered as a corporate whole, it must fall within the scope of the statutory power to alter the articles and could never be condemned as mala fides. A positive test was therefore available, conformity with which necessarily spelt validity." 212 So far as Allen's case is concerned, Dixon J noted at 508 that, for the decision of that case, it was enough to say that an alteration which was made "bona fide for the benefit of the company as a whole" could not be invalid. It was noted that Lindley MR had gone on to say that if these conditions were complied with he could discover no ground for judicially putting any other restrictions on the power. As to this, Dixon J commented at 508 that: "Lord Lindley's statement was taken in some subsequent cases as formulating the issue on which validity or invalidity depended absolutely, viz, whether 'the power had been exercised bona fide for the benefit of the company as a whole.' " 213 Dixon J then proceeded to review the decisions in Brown v British Abrasive Wheel Co Ltd; Sidebottom v Kershaw, Leese & Co Ltd; Dafen Tinplate Co Ltd v Llanelly Steel Co (1907) Ltd; and Shuttleworth v Cox Brothers Co (Maidenhead) Ltd. At 511 Dixon J explained the need for putting some restraint on the power to alter the articles of a company as follows: "If no restraint were laid upon the power of altering articles of association, it would be possible for a shareholder controlling the necessary voting power so to mould the regulations of a company that its operations would be conducted or its property used so that he would profit either in some other capacity than that of member of the company or, if as member, in a special and peculiar way inconsistent with conceptions of honesty so widely held or professed that departure from them is described, without further analysis, as fraud. For example, it would be possible to adopt articles requiring that the company should supply him with goods below cost or pay him ninety-nine per cent of its profits for some real or imaginary services or submit to his own determination the question whether he was liable to account to the company for secret profits as a director." 214 His Honour went on to say at 511-512: "The chief reason for denying an unlimited effect to widely expressed powers such as that of altering a company's articles is the fear or knowledge that an apparently regular exercise of the power may in truth be but a means of securing some personal or particular gain, whether pecuniary or otherwise, which does not fairly arise out of the subjects dealt with by the power and is outside and even inconsistent with the contemplated objects of the power. It is to exclude the purpose of securing such ulterior special and particular advantages that Lord Lindley used the phrase 'bona fide for the benefit of the company as a whole'. The reference to 'benefit as a whole' is but a very general expression negativing purposes foreign to the company's operations, affairs and organisations. But unfortunately, as appears from the foregoing discussion, the use of the phrase has tended to cause misapprehension. If the challenged alteration relates to an article which does or may affect an individual, as, for instance, a director appointed for life or a shareholder whom it is desired to expropriate, or to an article affecting the mutual rights and liabilities inter se of shareholders or different classes or descriptions of shareholders, the very subject matter involves conflict of interests and advantages. To say that the shareholders forming the majority must consider the advantage of the company as a whole in relation to such a question seems inappropriate, if not meaningless, and at all events starts an impossible inquiry. The 'company as a whole' is a corporate entity consisting of all the shareholders. If the proposal put forward is for a revision of any of the articles regulating the rights inter se of shareholders or classes of shareholders, the primary question must be how conflicting interests are to be adjusted, and the adjustment is left by law to the determination of those whose interests conflict, subject, however, to the condition that the existing provision can be altered only by a three-fourths majority." 215 In the present context it is significant that Dixon J concluded at 513 that: "But, when the very question to be determined is a conflict of interests, unless the subject matter is held outside the power, the purpose of the resolution, as distinguished from the motives of the individuals, often must be to resolve the conflict in favour of one and against the other interest." APPLICATION OF THE AUTHORITIES TO THIS CASE: NO EXPROPRIATION 216 In this case the immediate question was the conversion of Association from a company limited by guarantee to a company limited by shares and guarantee by which members of Association would cease to be such, but would become, if they so elected, shareholders in Holdings. This was the kind of resolution which Dixon J noted at 513 as one in which in voting for or against the resolution shareholders were not bound to disregard their own interests. 217 In my opinion, the comment in the passage in para 213 above is particularly apposite in the present case. Following their review of the relevant authorities referred to by Dixon J in Peters, Mason CJ, Brennan, Deane and Dawson JJ said in Gambotto at 443-444: "In conformity with the views expressed in Peters , the use of the expression 'for the benefit of the company as a whole' is no longer influential in the context of an alteration of the articles designed to effect or authorize the expropriation of a minority's shares. But the expression is still in vogue in the context of the exercise by directors of their powers, particularly the power to issue or allot shares." 218 So far as the latter point is concerned, their Honours referred to Richard Brady Franks Ltd v Price at 135; Mills v Mills at 187-188; Ngurli Ltd v McCann 1953) 90 CLR 425 at 440; Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 at 493; and Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 287. 219 Their Honours continued at 444: "The foregoing analysis of the authorities reveals that the courts have struggled to strike a balance between the interests of the majority and the minority. On the one hand, the courts have recongized that the proprietary rights attaching to shares are subject to modification, even destruction, by a special resolution altering the articles and that the power to vote is exercisable by a shareholder to his or her own advantage. On the other hand, the courts have acknowledged that the power to alter the articles should not be exercised simply for the purpose of securing some personal gain which does not arise out of the contemplated objects of the power. The problem of stating a workable criterion arises, as Dixon J said in Peters at 507, 'in attempting to discover and fasten upon some element the presence of which will always vitiate a resolution for the alteration of articles of association'." 220 It is important to bear in mind that while the view was expressed in the joint judgment in Gambotto at 444-445 that the expression "for the benefit of the company as a whole" was "no longer influential" in the context of an alteration to effect or authorise the expropriation of a minority's shares, the test was still relevant in the context of the exercise of the power of the directors to issue or allot shares. In my opinion it would also be relevant in the context of an alteration of the memorandum and articles of association which might have the effect of compulsory acquisition. For example, a proposal to restructure by offering shareholders in company A shares in company B in exchange for their shares in company A, with a cash alternative for those who did not wish to exchange, would not, without more, suggest an expropriation in the sense in which that term has been widely used in the corporate context. 221 It Gambotto at 445 their Honours formulated the test that an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs, resulting in detriment to the interests of the existing shareholders generally. It was recognised that expropriation is a reasonable means of eliminating or mitigating that detriment. Consequently, the transaction must be one capable of being characterised as an expropriation. In such a case, as their Honours put it at 446: "…….an alteration to the company's articles permitting the expropriation of shares will not be valid simply because it was made for a proper purpose; it must also be fair in the circumstances. Fairness in this context has both procedural and substantive elements. The first element, that the process used to expropriate must be fair, requires the majority shareholders to disclose all relevant information leading up to the alteration ( Re John Labatt Ltd (1959) 20 DLR (2d) 159 at 163) and it presumably requires the shares to be valued by an independent expert. Whether it also requires the majority shareholders to refrain from voting on the proposed amendment is a question that is best left open at this stage." 222 In all of this discussion it is as well to bear in mind the comments of Jacobs J in Crumpton v Morrine Hall Pty Ltd (1965) NSWR 240 at 244 that: "It seems to me that the truth is that the Courts in each generation or in each decade have set a line up to which shareholders have been allowed to go in affecting the rights of other shareholders by alteration of Articles of Association, but beyond which they have not been allowed to go. It seems to me that no amount of legal analysis or analytical reason can conceal the fact that the decision has in the past turned, and must turn ultimately, on a value judgment formed in respect of the conduct of the majority - a judgment formed not by any strict process of reasoning or bare principle of law but upon the view taken of the conduct." 223 It is difficult to find a suggestion in the cases or texts that what cannot be done under the power to amend the articles can be done by a scheme of arrangement. Re International Harvester Co of Australia Pty Ltd (1953) VLR 669 was referred to by counsel for Mr Heydon as authority for the proposition that where the Corporations Law lays down a special procedure for dealing with a particular matter, the court cannot approve of a scheme of arrangement to the same effect. The question was whether a change to the memorandum of Association to allow a proprietary company to take money on deposit could only be implemented under the specific provisions of s6 of the Companies Act 1938 (Vic) or whether it could be achieved under the scheme of arrangement provisions in s153 of the Companies Act. Martin J said at 675: "The authorities make it clear, I think, that s153 is to be construed liberally, and that it is wide enough to include schemes altering the provisions in a memorandum relating to the share capital of a company; and it may be that it extends so far as to cover schemes altering other provisions in a memorandum. But however widely the language of s153 may be construed, it cannot, of course, operate to enable a company to escape from compliance with those provisions of the Act which, either expressly or by implication, lay down a special and exclusive procedure for effecting certain kinds of alterations to the memorandum." 224 Section 6 of the Victorian Act was a widely expressed provision relating to alterations to the memorandum. It was held that the alteration to the memorandum set out in the proposed scheme fell within s6 of the Act with the consequence that the application for the sanctioning of the scheme of arrangement was dismissed. 225 In Gambotto at 444-445 Mason CJ, Brennan, Deane and Dawson JJ said that: "… in such a case not involving an actual or effective expropriation of shares or a valuable proprietary rights attaching to shares, an alteration of the articles by special resolution regularly passed will be valid unless it is ultra vires, beyond any purpose contemplated by the articles or oppressive as that expression is understood in the law relating to corporations. Somewhat different considerations apply, however, in a case such as the present where what is involved is an alteration of the articles to allow an expropriation by the majority of the shares, or of valuable proprietary rights attaching to the shares, of a minority. In such a case, the immediate purpose of the resolution is to confer upon the majority shareholder or shareholders power to acquire compulsorily the property of the minority shareholder or shareholders. Of itself, the conferral of such a power does not lie within the 'contemplated objects of the power' to amend the articles." Peters at 511 was cited as authority for the proposition in the last sentence. It should be noted, however, that Dixon J said in Peters at 511-512 that the relevant consequence followed from applying the test as formulated by Lord Lindley. 226 For the reasons which I have indicated, I do not consider that the present case involves "an actual or effective expropriation of shares or of valuable proprietary rights attaching to shares." In reaching that conclusion, I am prepared to accept that membership of Association and enjoyment of the rights associated with such membership can be equated with a shareholding for the purposes of the application of the relevant authorities. 227 In my view, as the law stood, as at 20 December 1993, and at all material times until 8 March 1995, a number of propositions can be stated in the light of the various authorities and the relevant statute law. First, the Corporations Law conferred a power to amend the articles of Association in terms broad enough to encompass the proposal put to Mr Heydon, including the giving up of the status and rights of membership in Association in exchange for a right to receive shares in Holdings, without payment of any further consideration or to receive a cash payment in lieu. All members of Association were offered that right, including those who voted against the proposal. Upon the assumption that the number and value of the shares to be offered, or the amount of the payment to be made to members who did not accept the offer of shares, was fair and not oppressive there was no prima facie abuse of majority power. There was no suggestion to the contrary in the present case. Any member alleging unfairness or oppression would bear the onus of proof. If there were circumstances suggestive of oppression of the minority (an issue which Mr Heydon reserved for later consideration) that could be used as the basis for a challenge to the amendment of the articles or to the approval of a scheme whichever procedure was adopted. The scheme provisions were not a code governing the proposed alterations to the exclusion to the power to amend the articles. Any provision which could have been included in the articles at the outset, could in principle be introduced by later amendment. It followed that there was nothing to suggest that there was any legal requirement to proceed by way of a scheme of arrangement rather than an amendment to the articles. MR HEYDON'S OPINION REASONABLE AND COMPETENT 228 The learned trial Judge took the view that because the expropriation in Gambotto was on admittedly fair terms, the potentiality in the appeal to the High Court was for a new principle to be fashioned by which an expropriation could survive only if it satisfied some test in addition to fairness: see paras 1208-1210 of the judgment. In my opinion, it was well within the range of opinions which might be reasonably and competently held for senior counsel of the level of expertise of Mr Heydon to conclude that there was no significant risk of the proposals, as they were put before him, being held by the High Court to constitute the equivalent of "an actual or effective expropriation" of the membership or membership rights of the members of Association and, in particular, the membership rights of those persons who were opposed to the demutualisation proposal. It was not suggested that any reasonably competent counsel would have advised that any risk arising from the decision in Gambotto could be lessened or overcome by using a scheme. 229 In my view, the decision of High Court in Gambotto on 8 March 1995 substantially altered the settled law as it was understood to be as at 20 December 1993 in four respects. First, it held that an amendment to the articles of a company to allow the majority to expropriate the minority's shares would be invalid, unless it fell within a very narrow range of permitted purposes and, in particular, a purpose of securing the company from significant detriment or harm. Secondly, the previous law relating to the onus of proof was departed from so that it was now for the majority to prove that its purpose was a "proper purpose" rather than for the minority to prove that the purpose was an improper purpose. Thirdly, there was a sharp distinction to be drawn between a situation where a company included an article permitting expropriation in its articles at the outset, on the one hand, and an amendment to introduce such an article, on the other hand. Fourthly, there was imposed a new and additional requirement of fairness, both substantive and procedural which required, for the first time, full disclosure of all relevant information to shareholders, an independent valuation and raised the possibility of the majority not voting. It was not held that any exercise of the power to amend the articles to effect an expropriation of shares was necessarily oppressive. It was not suggested that it was necessary in every case that the amendment to the articles be adopted by way of a scheme of arrangement approved by the court, instead of seeking an amendment to the articles by resolution in extraordinary general meeting in the manner specifically contemplated by the Corporations Law provisions to which I have referred. 230 Once it is accepted that a reasonably competent senior counsel in the position of Mr Heydon, having concluded that, on the assumption that there was no unfairness or oppression, the proposed alterations could be achieved by resolution in an extraordinary general meeting and given that, in my opinion, the transaction contemplated could not be characterised as one involving expropriation of the membership rights of any minority the question of a duty, if any, to follow up on the special leave application by obtaining a copy of the transcript and later obtaining a copy of the argument on the appeal had no bearing on the matter. In any event, there was no suggestion in the transcript of evidence at the trial that the alleged oppression arose by reason of adopting an amendment to the articles as opposed to proceeding by way of a scheme of arrangement. There was nothing to suggest that the decision of the appeal would deal with issues relating to a corporate restructure of the kind proposed by the NRMA, as distinct from the basis upon which the majority in Gambotto could acquire the shares of the minority. There was no suggestion that the High Court would introduce new constraints on the power to amend the articles in the terms in which it did, as distinct from adapting or reformulating the relevant test to take account of the criticism of the test in Allen's case by Dixon J in Peters. 231 It is against this background that the contentions on behalf of the NRMA that, after his opinion of 20 December 1993, Mr Heydon was negligent in failing to advise in February or March 1994, or possibly as late as April 1994, that there was a risk that Gambotto would be decided in a way which would adversely affect the demutualisation proposal. In my opinion, for the reasons already stated, there was no reason for Mr Heydon to give such advice. The relevant dates were 2 February, 7 March and 29 April. As to the first two of these occasions, the learned trial Judge held that no relevant inquiry was made of Mr Heydon regarding oppression and, in particular, no inquiry regarding the implications of the decision in Gambotto. The learned Judge concluded in para 444 that, at the conference on 2 February 1994, Mr Heydon was called upon to advise on matters referred to in a letter dated 31 January 1994 to Mr Heydon from AAH. Advice was given on the basis that the relevant test for oppression in the context was one of fairness. The advice given was to the effect that an allocation of entitlements of the type outlined in the instructions was unlikely to be made the basis of a success from oppression suit. As Mr Heydon said, it "looks okay". 232 There was no reference to Gambotto at that conference or at the conference on 7 March 1994. There was a discussion on that date about a scheme of arrangement as one of three possible ways of forcing an allotment of shares on a non-responding member. The others were by way of amendment to the articles or the use of a trust. 233 There was also a contention by the respondent that, even as late as 29 April 1994, advice should have been given by Mr Heydon and the solicitors about the potential impact of the decision in Gambotto. There was, in the meantime, more time to consider the implication of what was proposed in terms of oppression, a greater likelihood of discovering the grant of leave in Gambotto, the nature of the arguments on the appeal and the discussion of them in the hearing before the High Court. In the meantime, of course, theBoards of Association and Insurance had approved the proposal on 17 March 1994. As then described in the papers for the Board, "the key aspects" of the proposal were: "2.1.2 Establishment of a listed holding company to control the major existing operating companies (Association, Insurance, and Life) as subsidiaries (Appendix 2). 2.1.3 Offer members shares in the new company so that members can become directly entitled to the wealth of the NRMA. Entitlements to shares would be based on a formula reflecting length of membership (see Appendix 3). 2.1.4 A special provision would be enshrined in the Articles to provide for continued advocacy and mutual type service activities. 2.1.5 The key concept of NRMA membership will continue, by allowing people to join a 'club' for the purposes of receiving the member services currently available. 2.1.6 The restructuring proposed would require changes in the Memorandum and Articles of both the Association and the Insurance company. Thus the restructuring would be implemented only upon approval by 75 per cent of the members voting at a general meeting of members to authorise the restructuring." The accompanying papers did not go into any further detail. This was past the date when the NRMA had committed to the demutualisation proposal and was not an occasion which called for detailed advice about oppression. 234 It is significant that notwithstanding his earlier conclusions, the learned trial Judge gave further consideration to the period after December 1993 in para 1219 and concluded that, as oppression was a matter on which advice had been sought in December, "there were occasions in February and March 1994 … Mr Heydon should have returned to it". With respect, I do not consider that this conclusion was consistent with the earlier findings. 235 The learned Judge found that the evidence of what occurred at the conference on 7 March 1994 was incomplete and there were divergent recollections. Mr Heydon said that he was not asked for and did not give any opinion concerning oppression on this occasion and did not do so. There was no request in the brief for a written opinion. Mr Morgan's evidence was that there was extensive discussion about s180(3) of the Law, the use of a trustee, changing the articles, and the possibility of proceeding by way of a scheme of arrangement. Mr Simpson's recollection was similar, including the absence of any discussion regarding oppression. He had no recollection of any discussion regarding Gambotto. Mr Bateman's evidence was that there was some discussion of the possibility of making shares available in Holdings to persons who were not members of Association or Insurance, but Mr Heydon advised restricting the issue of such shares to members of Association or Insurance. Mr Heydon agreed that a scheme of arrangement was one way of dealing with the issue of shares. He confined the discussion of s180(3) as well as an allotment of shares to a trustee pending instruction. Mr Bateman did not recall any discussion of oppression or Gambotto. 236 In para 475 of his judgment the learned Judge commented that: "If it was implicit in Mr Heydon's advice that non-responding members could not be obliged to become shareholders in HoldCo pursuant to resolutions of Association or Insurance, but that they could be so obliged pursuant to a scheme of arrangement (although it is not easy to come to this conclusion on the state of the evidence), that was not expropriation of shares but the reverse, and Gambotto's case was not relevant. There was no reason to give advice about Gambotto's case or oppression, and it was not given." There was a conflict of evidence whether something was said about "free-shares" at the conference on 7 March 1994. The only person who recollected such a discussion on 7 March 1994 was Mr Simpson. In the end the extent of Mr Simpson's recollection was that Mr Heydon had said the issue of shares was capable of being described as "free", but no more, and that whether that description was misleading or inaccurate would depend on the context. Mr Heydon denied any such discussion, Mr Simpson admitted his recollection was not firm, and no-one else at the conference remembered it. The learned Judge declined to find that there was anything said of any significance on that subject on that occasion. MR HEYDON NOT NEGLIGENT 237 The conclusions expressed in the preceding paragraphs are in themselves sufficient to allow the appeal and set aside the decision of the learned trial Judge. There were a number of other points taken, however, with which I consider I should deal. The content of the duty of care in a particular case is governed by the relationship of proximity giving rise to that duty: Hawkins v Clayton at 579. The assumption of the responsibility and reliance will, in general, determine the content of the duty: Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418. There was no evidence that Mr Heydon assumed a responsibility for making a prediction how the law might change or develop during the prospective life of the proposal. There was no evidence that Mr Heydon's instructing solicitors or the relevant officers of the NRMA relied upon his opinion as involving any prediction. Such evidence as there was suggested to the contrary: see the evidence of Mr Morgan referred to in para 1111 of the judgment and Mr Bateman's at p5198.4 of the transcript. On the basis of the material before him, I do not consider that, at the time he gave his advice, there was any want of due care, skill or diligence on the part of Mr Heydon in failing to foresee as a real or significant risk that the decision in Gambotto would have any adverse consequences for what was proposed by the NRMA as at 20 December 1993. It follows that Mr Heydon's appeal should be allowed. GAMBOTTO AND THE LIABILITY OF AAH AND AT 238 The learned Judge said in relation to the Gambotto liability claim against AAH and AT that the reasoning outlined in relation to Mr Heydon applied "in principle" to AAH and AT. His Honour rejected the submission on their behalf that it was not a breach of their duty of care to fail to be aware of the application for special leave to appeal, or of the appeal, or to fail to perceive that the decision of the High Court in Gambotto might present a risk to the proposal. The learned Judge then said at para 1224: "Mr Morgan and Mr Bateman professed and had expertise in corporations law. They could and should have followed up the application for special leave to appeal, and undertaken the analysis I have described - they were not tyros in the field, or general practitioners entitled to rely on others with greater expertise. What I have said in relation to Mr Heydon applies to them also. But there was more. 1225 Mr Bateman had questioned whether a minority [ sic ] of members could deprive the majority [ sic ] of membership, and Gambotto's case had been specifically raised by Mr Morgan as the answer to his concern. Mr Bateman's answer was that Gambotto's case as decided in the Court of Appeal may not provide a sound basis for proceeding by the resolutions in general meetings route, for reasons only partially involving necessarily oppressive expropriation, but one would have expected Mr Morgan and Mr Bateman to ensure that the application for special leave to appeal was followed up and that regard was had to the pending appeal in the advice which would direct the important choice between scheme or meeting." 239 The learned Judge went on to say in para 1226: "Strangely, the grounds for Mr Bateman's concern were not translated into the brief to Mr Heydon, and while Gambotto's case in the Court of Appeal was prominent in the observations in the brief it was not put forward as relevant to the essential disagreement between Mr Morgan and Mr Bateman, whether the fact of something like expropriation would make the exercise of the power to amend the articles invalid." 240 In my opinion, the lengthy sentence comprising para 1226 is the critical passage in the judgment so far as both AAH and AT are concerned. The question is whether it was right to say that the NRMA demutualisation proposal contemplated "something like expropriation [which] would make the exercise of the power to amend the articles of association of Association invalid." As I have already indicated, I do not consider that the transaction could properly be characterised as one involving an "expropriation" of the membership or rights associated with membership of the members of Association in the sense in which the term "expropriation" was used in Gambotto, or in any equivalent or similar sense. 241 In para 1227 the learned Judge said that the solicitors did not adequately address either the grounds for Mr Bateman's concern or the question whether the appeal in Gambotto might affect the basis upon which it was thought appropriate to proceed by way of resolutions in general meetings. 242 His Honour also said in paras 1227-1228 that neither Mr Morgan nor Mr Bateman gave thought to an analysis of the kind which the learned Judge had described in dealing with Mr Heydon's position, "but their positions and expertise were such that they should have". His Honour concluded in para 1228 that, had they done so, it would have been "obvious" to them that Mr Heydon had not given sufficient attention to the risk from the appeal to the High Court in Gambotto to implementation of the proposal by resolutions in general meetings. As his Honour put it in para 1228: "The opinion of 20 December 1993 did not refer to Gambotto's case at all. It was primarily concerned with the source of power in s 167 of the Law and the memoranda and articles of Association and Insurance, and did not consider possible constraint on the exercise of the power because of something like expropriation. For reasons I have given, reservation of oppression for a later opinion should not have been seen as the explanation for the deficiency, but in any event neither AAH nor AT took steps to ensure that, when oppression was dealt with (to the extent to which it was), the present relevance of Gambotto's case , and the possible significance of the appeal to the High Court, were addressed and the subject of advice. So AAH and AT left the NRMA without that advice, and because they did not themselves address risk to the proposal from the appeal to the High Court in Gambotto's case , or ensure that Mr Heydon addressed it, they also did not exercise due care, skill and diligence." It follows from what I have said in relation to Mr Heydon that, with all due respect to his Honour, I am unable to agree. 243 It should be noted that the conclusion reached by the learned Judge treated both AAH and AT as if they were in the same position, subject to the same duty and that the scope of the relevant duty was the same. It was submitted at the trial on behalf of AT and on the appeal that the position of AT was different. 244 As has been seen, AAH were retained to act and advise generally in relation to the demutualisation proposal. 245 So far as AT were concerned the primary submission made on their behalf on the appeal was that in contrast to the AAH general retainer on the demutualisation project, AT's retainer was limited to specific issues. At the meetings on 3 and 6 December 1993 Mr Bateman had expressed reservations regarding the proposal to proceed by way of extraordinary general meetings and expressed the view that a scheme of arrangement was necessary. He had been told by Ms Conway and Mr Rees on 6 December 1993 that Mr Morgan would deal with the matter. Mr Bateman maintained his reservations and mentioned them at meetings of the Due Diligence Committee on 30 March 1994 and 1 July 1994. It was Mr Morgan's responsibility to obtain a final opinion from Mr Heydon on the relevant subject. Mr Bateman did not see the opinion of Mr Heydon dated 28 July 1994 until mid-August 1994. It was submitted that in the circumstances Mr Bateman had deferred to and relied on the opinions of those retained and briefed on the matter when his view had not been preferred by the NRMA. His sign-off letter was qualified in para 5.2 to exclude an opinion on the subject "whether the resolution of members will bind all members". 246 The learned trial Judge held that this was no answer to his conclusion that AT, in common with AAH, did not exercise due care skill and diligence. The reasons for this were expressed in para 1231 and 1232 as follows: "Having expressed his reservations, which he attributed to a feeling that the resolutions in general meeting route was not right rather than to risk from Gambotto's case or any other reasoned regard to statute or general law, Mr Bateman's obligation was to see that the NRMA received proper advice. His reservations had been answered by reference to Gambotto's case , and when Gambotto's case was on appeal it followed that the answer might shortly lose its basis. For that reason alone, one would have expected Mr Bateman to speak out more than he had done, but as well the reasons I have given meant that the proper advice included regard to the appeal in Gambotto's case . 1232 As I have said, it would have been obvious to Mr Bateman that Mr Heydon had not given due attention to the risk from the appeal to implementation of the proposal by resolutions in general meeting. His own continued reservations raised on 30 March 1994 and 11 July 1994 show that he did not think the NRMA had been properly advised. He did not himself give attention to the risk, or pursue attention to it by Mr Heydon or Mr Morgan, and the opinion of 28 July 1994 was as silent as the opinion of 20 December 1993 on the matters which had excited Mr Bateman's reservations and on Gambotto's case . Mr Bateman could not adopt a passive role, and in doing so, and failing himself to have regard to the pending appeal in the choice between scheme and meeting, he did not discharge his duty of care." 247 It was significant that his Honour held in the following para 1233 that the retainer of AT extended to: "… advice upon whether the proposal could and should be implemented by scheme or meeting, which included regard to and advice on risk in the resolutions in general meetings route." 248 For the reasons which I have already indicated, I do not consider that that was the critical question. The critical question was whether what was proposed was in substance or effect an expropriation which was liable to be struck down if the proposal was the subject of a special resolution at an extraordinary general meeting. In my view, if that were the case, putting the proposal in the form of a scheme of arrangement would be unlikely to be approved by the Court in any event. While Mr Bateman clearly recognised that, the proposed resolutions would have the effect that dissenting members would lose their membership rights in Association, he was also entitled to conclude that they still had the option of accepting the shares in Association and paying the annual fee for services in lieu of being entitled to the services in consideration of the payment of an annual subscription. Both before and after the implementation of the transaction they would retain their right to vote in an election for the Board of Management. In these circumstances, once the advice of Mr Heydon was provided, there was no duty or obligation on AT to pursue the matter further. For these reasons, I do not consider that any breach of the duty of care arising out of contract or in tort was proved as against Mr Bateman, with the consequence that the appeal by AT should be allowed. It was reasonable for Mr Bateman and AT to act upon the opinion of Mr Heydon and to rely upon the unanimous opinion of the Court of Appeal in Gambotto. In my view, any risk posed by the appeal in Gambotto was outside what a competent practitioner at the time would regard as being within the traditional issues associated with expropriation or oppression. It is for this reason that I also consider that AAH was entitled to rely on Mr Heydon's advice in discharging any duty of care which they owed pursuant to their general retainer or in tort concerning the implications of Gambotto and the appeal in that case to the High Court. AT NOT LIABLE FOR FAILURE TO ADVISE RE GAMBOTTO 249 I have referred earlier to the finding that the advice which Mr Morgan was instructed to obtain on 6 December 1993 amounted to advice whether "the fact of something like expropriation" might make the exercise of the power to amend the articles invalid. Mr Morgan did not ask for that advice and his Honour found it curious that Mr Bateman did not suggest that "the brief clearly extend to it". Mr Bateman did not comment on the draft brief he received because of his limited retainer. He had been told by representatives of the NRMA that it was not his concern. Mr Bateman was not sent a copy of the revised brief to Mr Heydon which was prepared following the conference on 14 December 1993. The revised brief followed the provision by Mr Bateman to Ms Godwin of the reference to Hennessy. In my opinion, Mr Bateman had discharged whatever duty he may have had by what he had said and done by and on the afternoon of 14 December 1993. Mr Bateman gave undisputed evidence that he did not see the copy of Mr Heydon's written opinion dated 20 December 1993 until sometime in 1994 before 18 August and did not see Mr Heydon's opinion on the same matter dated 28 July 1994 until he saw it as an annexure to the Legal Due Diligence Report on or after 10 August 1994. When he was told about Mr Heydon's opinion on 31 December 1993 he deferred to the opinion of eminent counsel despite his own doubts. It was not disputed that the NRMA and Mr Morgan expressly accepted the reservation in Mr Bateman's sign-off letter dated 17 August 1994, para 5.2, which excluded AT from offering any view on the question which, in the view of the learned trial Judge made tracking the Gambotto appeal appropriate. It is for these reasons that I would allow the appeal by AT. AAH NOT LIABLE FOR FAILURE TO ADVISE RE GAMBOTTO 250 As to AAH, the submissions on their behalf put in the forefront that, having held that AAH knew or should have known of the pending special leave application or the grant of special leave in Gambotto, his Honour found that the exercise of reasonable care required AAH to give advice on the possible effect of a successful appeal to the High Court in Gambotto on the demutualisation proposal. The finding was that if such advice had been given, the NRMA would have put its demutualisation proposal on hold pending the outcome of the appeal. The advice given by AAH to the NRMA and the observations in the brief to Mr Heydon in December 1993 were consistent with the law as expressed in the unanimous decision of the Court of Appeal in Gambotto. 251 It was submitted on behalf of AAH that if they had given advice on the question whether the High Court was likely to alter the law as stated by the Court of Appeal and, if the advice given had been to the effect that it was unlikely in the extreme that a decision of the High Court upholding the appeal would be so wide as to apply to the NRMA's proposal, such advice would not have been negligent and would have been within a range of opinions given by reasonably competent solicitors in the position of AAH exercising reasonable care. While it is conceivable or possible that advice warning of a greater risk may have been within the range of non-negligent opinions it did not follow that advice warning of a lesser risk was negligent. In my view, it was rightly submitted on behalf of AAH that the learned trial Judge was in error in deciding the reliance issue on the basis that AAH should have warned of a risk which was far greater than the magnitude of risk required to be identified in non-negligent advice. No detailed evidence was called by the NRMA to prove the content of the advice which would have been given by a reasonable practitioner exercising reasonable care at the time and none of the relevant witnesses on behalf of AAH or AT were asked what advice they would have given. Mr Heydon was asked (T5593.23-.55) what advice he would have given. He said it would take him a couple of days to put himself back into the position he was in at the time in order to answer the question. There was no suggestion on behalf of the NRMA that Mr Heydon be given the opportunity to enable the question to be answered. Mr Heydon's advice was that, assuming no intention to achieve an improper purpose, one could deal with minorities so long as they received appropriate compensation for whatever was being done. On this basis, the decision of the Court of Appeal in Gambotto was a decision which strongly supported the validity of the proposal by the NRMA. It was a decision which accorded with generally accepted principles and a view which a competent legal practitioner practising in the relevant field could properly regard as correct. 252 In general, AAH adopted the submissions on behalf of both Mr Heydon and AT. It was also submitted that if a view could be formed without negligence at the outcome of the High Court appeal in Gambotto would not affect the NRMA's proposal, there was no duty to give any advice to the NRMA. 253 The learned Judge held in paras 1215 and 1216, notwithstanding that Mr Bennett saw a reasonably clear answer, there was still a risk which should have been recognised in advice to the NRMA. But that risk was one which, as assessed by Mr Bennett, was one in which, in para 1270, the learned Judge interpreted as advice which would have conveyed to the directors that Gambotto would not affect the proposal. In my view, an opinion consistent with that advice could be formed without negligence, so that the duty of care owed by AAH to the NRMA was not breached by failure to warn of a risk. That is a view which could be formed in the exercise of reasonable professional judgment without negligence. That was the position in this case. In such a case the solicitors are not in breach of their contractual duty of care if the reliance on the opinion of a barrister was proper and reasonable and no occasion arose for the advice to be rejected: Boland v Yates at [142] per Kirby J. Given the advice received from Mr Heydon in his opinions dated 20 December 1993 and 28 July 1994 confirming the appropriateness of proceeding by members' resolutions, I do not consider that AAH were negligent in the manner alleged by the respondents. For these reasons, I would allow the appeal by AAH. FREE SHARES/DISADVANTAGES LIABILITY CONTENTIONS ON CROSS-APPEALS 254 As noted in para 14 above, the contentions pressed by the respondents by way of cross-appeal before us were claims against: (a) AAH and AT for damages for breach of contract for negligence and against Mr Heydon for damages for negligence in relation to the preparation of the prospectus for failing to advise the NRMA on the risk that the use of the expression "Free Shares" and the failure to specify disadvantages may be held to be misleading or deceptive under s52 of the TP Act and s42 of the FT Act ; (b) AAH, AT and Mr Heydon for damages based upon their respective involvement in contravention of ss52 and 82(1) of the TP Act and ss42 and 68 of the FT Act in respect of the misleading conduct found against the NRMA in relation to the prospectus; (c) AAH and AT under ss995(2) and 1065(1) of the Corporations Law based upon the involvement by those appellants in contravention of the Law , which, in relevant part substantially reflects ss52 and 82(1) of the TP Act and ss42 and 68 of the FT Act . (d) AAH, AT and Mr Heydon under s996(1) of the Corporations Law in relation to material statements in the prospectus which were said to be false or misleading. THE PROSPECTUS 255 The first part of the prospectus package mailed out in August 1994 was the "onsert". The content of the onsert differed depending upon whether the member could vote at all, whether the member could vote as a member only of Association, whether the member could vote as a member of both Association and Insurance, or whether the member could vote only as a member of Insurance and, in the latter case, according to whether one vote or more votes could be exercised. A large majority of members were what was called situation 3 members, voting as a member of Association and also as a member of Insurance. The next largest group comprised situation 2 members, voting as a member only of Association. The remaining members were relatively insignificant. The learned trial Judge took the view that the onsert took on a more significant role in the proceedings at the trial than in the Federal Court proceedings. 256 The first page of the onsert was intended to contain the name and address of the member next to the postage details and came to be called "the carrier". It was beneath a clear plastic cover. The second page contained instructions to the member. The third page contained the proxy voting paper for the general meeting of Association and the Acceptance of Free Shares form. The fourth page contained the proxy voting paper for the general meeting of Insurance. The material features of the onsert were: (a) the words "How to vote" and "How many shares you will be given!" appeared on the first page in substitution of a previous draft which said "How many FREE shares you will get!"; (b) the reference to the onsert including an Acceptance of Free Shares in the bottom left hand corner of the first page; (c) an asterisk against "Free Shares" in the first line of the instructions on the second page, and the marginal note to which it referred stating that "The Free Shares (or cash alternative) are in exchange for membership under the Articles of each of NRMA Ltd and NRMA Insurance Ltd …"; and (d) the Acceptance of Free Shares form on the third page in proximity to the proxy voting paper for the general meeting of Association. 257 The onsert for the other situations where the member could vote had the same features. The onsert for the situation where the member could not vote did not have "How to vote!" or the proxy voting papers, or that part of the instructions to do with voting, but did have "How many shares you will be given!" and, with appropriate alterations, the references to "Free Shares" and the Acceptance of Free Shares form. 258 Page 1 of the Prospectus was headed "Your Prospectus" followed by the statement: "This prospectus provides information on the NRMA which will help you to decide whether you want NRMA shares. This prospectus explains the proposal and its implications." 259 It was then said that the document was divided into nine sections as follows: "1. Information for Members 2. Details in the Members Free Offer and the Sale Offer 3. Guide for Investors 4. The NRMA and its Businesses 5. Financial Information 6. Independent Accountant's Report 7. Actuarial Reports 8. Additional Information 9. Definitions and Technical Terms" 260 Alongside a marginal note "IMPORTANT TO NOTE" it was said that: "The Members Free Offer will only go ahead if 75% of members who vote (in person or by proxy) at the meetings to be held on Wednesday 19 October 1994 are in favour." 261 This was followed by instructions to be followed if the recipient wished to vote as follows: "If you wish to vote, use the Proxy Voting Paper which came on the outside of this prospectus. Also complete the Acceptance of Free Shares part of the form. Post this form back to us in the postage paid envelope so that we receive it preferably by no later than 12 October 1994. There are legal time limits which are explained at the end of Section 1, but 12 October 1994 will meet all the deadlines." 262 The following then appeared alongside a marginal note, "THE BOARD RECOMMENDS": "The Boards of the Association and NRMA Insurance recommend that: - members of each of the Association and NRMA Insurance vote in favour of the proposal; - members of the Association choose the Free Shares." 263 Against a further marginal note, "KEEP YOUR PROSPECTUS", it was pointed out that "members may be able to buy extra NRMA shares during the Sale Offer". These would be the NRMA Shares of members choosing the last alternative, as well as of members from whom a valid "Acceptance of Free Shares" form was not received. 264 The prospectus made frequent use of the expression "Free Shares" which was defined in Section 9 as meaning "the NRMA" shares offered to members under the "Members Free Offer". The term "NRMA shares" was defined to mean "some or all (depending on the context) of the fully paid ordinary shares of $1 par value each in NRMA Holdings offered under this prospectus". The term "Members Free Offer" was defined as "the offer of Free Shares to members as described in Section 2". The prospectus both contained an offer of shares in Holdings as well as notices of the general meetings of Association and Insurance together with information to inform members so that they could vote on the resolution to be put forward at the meetings. 265 It was stated on the inside of the cover of the prospectus that it was issued by both Holdings and Perpetual Trustee Company Ltd ("Perpetual"). This was because there was a second stage offer of shares in Holdings by Perpetual. The first stage offer was by Holdings to former members of Association and Insurance, being "the Members Free Offer". Those shares not taken up under the Members Free Offer would become subject of the NRMA Offer Trust of which Perpetual was trustee. These shares would in turn be offered to institutions, members and policy holders and then to the public under the "Sale Offer". The Sale Offer was an additional stage offer. In the definitions, the offer to members and policy holders as part of the Sale Offer was described as the "Members Extra Shares Offer", distinct from the Members Free Offer and defined as: "The invitation made pursuant to this prospectus to members and non-member policyholders to apply to buy NRMA shares as described in Section 2." 266 The shares under the Sale Offer were not described as "Free Shares". The prospectus explained that it provided information on the NRMA to help those to whom it was addressed to decide whether they wanted NRMA shares and sought to explain the proposal and its implications. The members were urged to vote and were told that the boards of Association and Insurance recommended that members of each vote in favour of the proposal and that members of Association "choose the Free Shares". It was said that the prospectus should be kept because: "[A]s well as the proposal to issue the Free Shares, members may be able to buy extra NRMA shares during the Sale Offer." 267 The prospectus contained a table of contents referring to nine separate sections which followed, but which were preceded by a "President's Letter" on a Holdings Letterhead. Among other things, the letter said: "In short, the proposal is to unlock the wealth of the organisation by giving members Free Shares. The Proxy Voting Paper that came on the outside of this prospectus will have told you the number of Free Shares you will receive and an estimate of their value. The proposal and its implications for you are detailed in Section 1 of this prospectus. If the proposal is adopted, members' financial ownership of the NRMA will be formalised. The Boards of the Association and NRMA Insurance have each considered the options and have concluded that the share issue is in the best interests of members and policyholders. The restructure will not affect the way we operate. The NRMA will continue to provide efficient Road Service and competitive insurance. There will be no change in the road patrols. The restructure will however give us greater flexibility in developing businesses for the benefit of all members and policyholders. The Boards therefore strongly recommend that you vote in favour of the proposal and accept the Free Shares. …… The decision is yours. On Wednesday 19 October, there will be two general meetings at which you will make the decision. You can vote and accept your Free Shares by post using the Proxy Voting Paper and Acceptance of Free Shares form that came on the outside of this prospectus. Only if 75% of members who vote are in favour can the shares be issued." 268 The letter then concluded by urging members to vote and complete and sign the "In Favour" sections of the Proxy Voting Paper and Acceptance of Free Shares form. 269 Section 1 of the prospectus dealt in more detail with the "Free Shares", recommended a vote in favour of the proposal and made reference to consideration of the advantages and disadvantages of the proposal, including the references to giving up membership. In Section 1 it was stated that: "Under the NRMA's current structure the wealth that is the product of this success is locked away, inaccessible to members of each of the Association and NRMA Insurance. The challenge for the NRMA was to find a way of unlocking that wealth while ensuring that it continues to provide excellent service. The NRMA is proposing to change its legal structure to enable its financial success to be shared with its members. At the same time, the new structure will allow the NRMA to remain a unique institution which continues to provide quality service. The primary benefit of the proposal is that members of the Association will receive Free Shares allowing them to share in the future financial success of the NRMA." 270 In the description of the proposal which followed members were told they had the opportunity to become shareholders of Holdings, described as "a new company which will own the NRMA businesses". It was then said: "If you were a member of the Association on 16 March 1994, you are being offered Free Shares in NRMA Holdings Ltd. You may choose to take the free shares or to take the cash alternative. If you choose to take your free shares, you will become a shareholder of NRMA Holdings Ltd." 271 There was then a diagram representing the proposed new structure. Holdings was shown as wholly owning Association and Insurance. It was said that road and other services would continue as they had in the past. It was also said that as "an NRMA shareholder" the member would have valuable shares reflecting the market value of the NRMA's businesses and the rights to receive dividends, elect directors, and vote at annual general meetings. Against a marginal heading "Free Shares in the NRMA" the following was stated: "NRMA shares are now being offered free to all members of the Association as at 16 March 1994. You may choose to take the Free Shares or the cash alternative. If we do not receive a valid Acceptance of Free Shares form from you, you will get the cash alternative. Make your choice by filling out the Acceptance of Free Shares form which came on the outside of the prospectus and return it in the postage paid envelope. Any NRMA shares which members have not accepted will then be offered for sale. Members and non-member policyholders will be the first to be given the opportunity to buy NRMA shares, except for some NRMA shares set aside to enable a fair price to be established." 272 The cash alternative and the need for a 75% vote in favour were repeated. There was then a description of the basis on which the Free Shares being offered to members of Association had been allocated. All members of Association as at 16 March 1994 were offered shares. An additional allocation was offered if the membership of Association was "linked to an NRMA insurance policy" as at 16 March 1994, and "the longer the membership (using five year intervals) the greater the entitlement" with a maximum of 25 years. The entitlements ranged from 250 Free Shares for a recent member with no policy to 1000 Free Shares for a long standing member with one or more policies. In addition, relatively small numbers of non-members were being offered Free Shares, namely, members admitted on and after 17 March 1994, employees of the NRMA, some spouses and deceased members, and a miscellaneous group of members of Insurance who were not members of Association. 273 There was then information provided against a marginal note "How the Sharemarket Works", together with further details relating to additional costs of being a listed company and the commitment to keeping members' loyalty, maintaining services and the objectives of Association. It was asserted that: "Only the legal framework of the NRMA will change, not its culture." 274 In particular, it was said that NRMA Holdings' Constitution will require that "these objectives of the Association continue for the benefit of Service Members and all road users". 275 There was then a description of other options with had been considered. This was followed by the heading "The Next Steps" a marginal note referring to members' general meetings which said: "On Wednesday 19 October 1994 there will be two general meetings at Sydney Convention and Exhibition Centre, Darling Harbour. Details of the meeting times and the resolutions to be considered are at the end of this Section. One meeting will be for the Association and the other for NRMA Insurance. These meetings will decide the future structure of the NRMA and members can participate either by attending the meetings in person or by filling in the Proxy Voting Paper which came on the outside of the prospectus. Having carefully considered the implications of the proposal, the Boards believe that this proposal is in the best interests of members and the NRMA." 276 It was then stated that the boards urged members to vote in favour of the resolutions. 277 This was followed by the legal steps involved in the change as follows: "Members' approval will mean members of the Association and members of NRMA Insurance will no longer be members of those companies. The Association presently controls NRMA Insurance by appointing its Board. For an NRMA Insurance policyholder to be eligible to have become a member of NRMA Insurance, the policyholder must have been a member of the Association. Members of the Association are, therefore, being offered an automatic entitlement to Free Shares, with an additional allocation if the membership was linked to an NRMA Insurance policy (other than Life or Travel). For these reasons the Boards consider that members of NRMA Insurance have interests similar to those of the members of the Association. The legal elements of the approval by members of the Association and members of NRMA Insurance are: · changing the legal status of the Association and NRMA Insurance from companies limited by guarantee to companies limited by shares and guarantee; · adopting new Articles for each company, the central element of which means that members (other than NRMA Holdings) agree to give up their membership of the Association and NRMA Insurance on condition that Free Shares are offered by NRMA Holdings. This leaves NRMA Holdings as the only member of the Association, and NRMA Holdings and the Association as the only members of NRMA Insurance, and hence each is under the control of NRMA Holdings. By a resolution of the Boards, NRMA Holdings was admitted as a member of the Association on 4 August 1994 and as a member of NRMA Insurance on 16 August 1994. The special resolutions (if passed) constitute an agreement which binds all members of the Association and of NRMA Insurance, even if the voted against the proposal or did not vote at all; · approving, first, the allocations of entitlements to Free Shares as described earlier (people who are being allocated entitlements to Free Shares are referred to as 'those entitled' in this paragraph), second, the allotment by NRMA Holdings of the Free Shares to those entitled who elect to take up the Free Shares and, third, the allotment to the NRMA Offer Trust of shares not so taken up. The Trust will sell the shares and distribute the net proceeds of sale to both those entitled who choose the cash alternative and those entitled from whom we do not receive a valid Acceptance of Free Shares form; · in the case of the Association, approving changes to the Memorandum and Articles of NRMA Insurance so that the Association ceases to control NRMA Insurance with the result that NRMA Holdings controls NRMA Insurance; and · approving the overall changes in the structure of the NRMA so that each of the Association and NRMA Insurance is owned and controlled by NRMA Holdings." 278 There was then a description of the beneficial taxation treatment to be extended to the acceptance of Free Shares or the cash alternative and answers to members' questions. 279 For present purposes it is enough to note that the prospectus indicated that there were sixteen directors of Association of whom thirteen were in favour of the proposal and the other three against. There were eleven directors of Insurance, eight of whom were common to the board of Association. Only one director of Insurance was against the proposal, that being one of the three Association directors who were against it. Overall, therefore, there were sixteen directors who were recommending the proposal to members. 280 It was stated in the prospectus that if the proposal was approved by not less than 75 percent of the members of each of Association and Insurance, members who choose the Free Shares would get those shares and a statement would be sent by early December confirming how many NRMA shares they owned. The board recommendation was repeated followed by the formal notices of the meetings to be held on 19 October 1994. The notice of meeting for Association contained a note as follows: "The information for Members is important and should be read carefully. The purpose of the resolution is to make legal changes which would result in NRMA Holdings Ltd issuing shares to members of NRMA Ltd (and certain members of NRMA Insurance Ltd). Within three days of the issue of the prospectus NRMA Holdings Ltd will apply for listing on the Stock Exchange. As part of the legal changes all members of NRMA Ltd (other than NRMA Holdings Ltd) will no longer be members of NRMA Ltd and Road Service will be provided under the Service Membership contract on much the same terms as presently apply. This will be on condition that Free Shares in NRMA Holdings Ltd are offered by it. It is the new company which will control the NRMA . Further information on this is set out in the Information for Members. Copies of the proposed Memorandum and Articles of Association of NRMA Holdings Ltd and of NRMA Ltd are available on request from the Secretary at 151 Clarence Street, Sydney." [Underlining added] 281 The notice of meeting for Insurance was similar in form and content including the note. In place of the passages underlined in the case of Association the note in the case of Insurance was: "As part of the legal changes all members of the NRMA Insurance Ltd (Other than NRMA Ltd and NRMA Holdings Ltd) will no longer be members of NRMA Insurance Ltd. This will be on condition that Free Shares in NRMA Holdings are offered by it. It is the new company which will control the NRMA." 282 Section 2 of the prospectus was entitled "Details of the Members Free Offer and the Sale Offer". Section 2 did not make express reference to members giving up membership. The definitions of Free Shares and the Members Free Offer took the reader to a description of the mechanics of the first stage offer but did not direct the reader's attention to the information in Section 1 or to the emphasised parts so far as they might shed light on the references to "Free Shares". 283 There were many references to "Free Shares" and "entitlement to Free Shares" in Section 2 and more instructions about completing the Acceptance of Free Shares form in order to "choose the Free Shares". There were more details about the NRMA Offer Trust and the Sale Offer as well as the Members Extra Shares Offer. So far as "The Members Free Offer" was concerned the prospectus said: "Entitlement to participate in the Members Free Offer is based on membership of the Association. Section 1 also identifies an exceptional group of NRMA Insurance members who participate in the Members Free Offer. In this Section, including the diagram at the beginning of this Section, when we talk of 'members', it includes that group." 284 Reference was then made to the fact that the entitlement to Free Shares was shown on the Acceptance of Free Shares form on the outside of the prospectus. Attention was then drawn to the Members Extra Shares Offer. 285 Section 3 of the prospectus was headed "Guide for Investors". It sought to explain the position of and benefits of being a shareholder and outlined taxation considerations. In particular, para 2 of Section 3 contained the following caution: "You should understand that the prices of shares can fall as well as rise. You are urged to seek professional advice from a stockbroker, financial adviser, accountant or other suitably qualified adviser before making an investment decision." 286 Section 4 was headed "The NRMA and its Businesses" and described the NRMA's history, present motoring and insurance services as well as its intentions and prospects for growth. This concluded with some details concerning the NRMA's staff and senior management. 287 These sections were followed by application forms for shares in Holdings. These forms were in addition to the Acceptance of Shares form which was part of the onsert and which contained the entitlement of the addressee. The additional form appears to have been intended as an application for shares in the event of a Sale Offer which could be made to both members and non-members. Detailed instructions were given how to complete the form and lodge the applications. 288 Section 5 of the prospectus dealt with "Financial Information". The forecast consolidated after-tax profit of the NRMA Group as defined for 1994/95 was $215 million, significant components of which were an underwriting loss of $129 million and unrealised investment gains of $102 million. 289 Section 6 of the prospectus contained a report from Coopers & Lybrand ("C & L") incorporating "a pro forma balance sheet of Holdings to give effect to the proposed restructuring" on a particular basis. 290 Section 7 of the prospectus was entitled "Actuarial Reports". Section 8 was entitled "Additional Information" and concluded with the signatures to the prospectus of each director of Holdings and (by its common seal) Perpetual. This Section contained the statement: "Neither NRMA Ltd nor NRMA Insurance Ltd has authorised or caused the issue of this prospectus but both companies have approved the inclusion in this prospectus of the material in Section 1 and the Proxy Voting Papers which came on the outside of this prospectus." 291 Section 9 contained definitions and technical terms. 292 Inside the back cover of the prospectus was a "Directory", which amongst other things described AAH as "Solicitors to the Offer" and AT as "Solicitors to the NRMA". FEDERAL COURT PROCEEDINGS 293 In Fraser v NRMA Holdings Ltd (1995) 52 FCR 452 it was contended that by distribution of the onsert and the prospectus the respondents engaged in conduct that was misleading or deceptive both for the purposes of s52 of the TP Act and s995(2) of the Corporations Law. The latter provision proscribed engaging in conduct that was misleading or deceptive or likely to mislead or deceive in or in connection with the allotment or issue of securities, any prospectus issued in relation to securities, or the doing of acts preparatory to or related to the allotment or issue of securities. In this case, as Gummow J said in Fraser v NRMA Holdings Ltd, supra, at 18, a finding of contravention of s52 of the TP Act would have been accompanied by a finding of a contravention of s995 of the Law. Gummow J concluded that the distribution of the onsert and the prospectus constituted engaging in misleading conduct in a number of respects, but it was only in one of these that his decision was upheld by the Full Court namely, the reference to "Free Shares": NRMA Holdings Ltd v Fraser (1995) 55 FCR 452. Gummow J held at first instance at 28 that the repeated description in the prospectus of the shares being offered as "Free Shares" was misleading, because the relinquishment of membership involved the relinquishment of significant rights to the control of the affairs of Association and Insurance and demutualisation removed the possibility for further enjoyment of other benefits of membership. As his Honour put it at 27-28: "No doubt one adjectival use of 'free' is to describe that which is provided without, or not subject to, a change or payment. Counsel for Holdings submits that that is what is meant in the prospectus with the use of the phrase 'free shares'. He pointed, in particular to the use, on p 21, the first page of section 2, of the heading: Details of the Members Free Offer and the Sale Offer. But, as I have indicated, the particular phrase is 'free shares' and this is used in the prospectus on many occasions. In particular, as counsel for the applicants pointed out, the first two sections of the prospectus are replete with use of 'free shares' which is not in any apposition to the 'sale offer'. Rather, the phrase is used to identify and attract the reader by suggesting there are available for acquisition dividend yielding shares at no outgoing to the member. This accords with another adjectival use of 'free', to identify that which is given without consideration and as a gift. It is true that in several places in Exs A, B and C, including the passage identified by the asterisk on the leaflet headed 'Important Information Inside' and on p 12 of the prospectus, it is said that the 'free shares' are in exchange for membership or that membership is to be given up on condition of the offer of the 'free shares'. Nevertheless, the effect of the persistent reiteration of the phrase 'free shares' is to engender in the reader the notion that the shares may be acquired without any significant loss or outgoing to the offeree who accepts them. Counsel for the respondents pointed to the provisions in the memoranda of Insurance and the Association which would deny the members a distribution of assets on a winding-up. That, as I understood the submissions, was used to support the submission that, in truth, there could be no significant consideration moving from the members, so that the shares were 'free'. I have referred earlier to what might be called the ultimate control of Insurance by the members, notwithstanding the manner in which the board is appointed. The board of the Association is in a different position, it being responsible for its election to the members. Furthermore, Art 26 of the present articles of the Association obliges the board on the written requisition of 200 or more members forthwith to convene a meeting of members to be held as soon as practicable and, in any case, not later than two months after the date of the requisition. The relinquishment of membership thus, in a legal sense, involves the relinquishment of significant rights to the control of the affairs of the two corporations. Further, 'demutualisation' removes the possibility of further enjoyment of the advantages described earlier in these reasons. A basic question for members to decide, as pointed out earlier in these reasons, is whether they will be better off remaining as members or becoming shareholders or recipients of the proposed cash distribution in lieu of shares. It is a matter of weighing the respective advantages and disadvantages of each course of action. In that setting, in my view it is likely to mislead or deceive to describe repeatedly in the prospectus, particularly in the passages moot [ sic ; most] likely to be studied by the ordinary reader, that which is offered to members in connection with their consent to the reorganisation as 'free shares'." 294 Gummow J concluded that there should be an injunction under s80 of the TP Act restraining the further distribution by the respondents of the onsert and the prospectus. A declaration and orders were made accordingly. The injunction restraining further distribution of the prospectus and onsert was expressed in absolute terms and also restrained Association and Insurance from proceeding with any business at the general meeting of members the subject of the notice, otherwise than the taking of such steps as were necessary or appropriate to adjourn those meetings without the leave of the Court. APPEAL TO THE FULL FEDERAL COURT 295 The NRMA appealed to the Full Court of the Federal Court against the decision of Gummow J. As to the use of the expression "Free Shares", in NRMA Holdings Ltd v Fraser, supra, at 482-484, after referring to the conclusion of Gummow J, the Full Court (Black CJ, Von Dousa and Cooper JJ) said: "His Honour noted that the proposal, by requiring the relinquishment of the rights of the members of Association to control Association, and through their power to appoint the Council of Association to control the appointment of the board of Insurance, involved 'the relinquishment of significant rights to the control of the affairs of the two corporations'. Further, his Honour held that 'demutualisation' would remove the possibility of further enjoyment of advantages of subsidised road services and other members' services of Association, and of insurance rebates given to policyholders on certain classes of policy available through Insurance. His Honour held that the relinquishment of these substantial rights was incompatible with the notion that the shares might be acquired without significant loss or outgoing. In this connection, the respondents contended before this Court that his Honour erred as a matter of fact in his conclusion that the road services were subsidised. We think his Honour's finding in that regard was justified by the financial information on p 52 of the prospectus at pp 53 and 70 recorded that the rebates on insurance which had been provided in the past were not expected to continue past 31 July 1995. His Honour did not overlook those statements. He referred expressly to them when considering a statement in the prospectus that the option of continuing insurance rebates had been examined and rejected for several reasons, one of which was that 'rebates only benefit policyholders - and not the some 30% of members who do not hold insurance policies'. As this reason disclosed, the benefit of rebates had arisen in the past from being a policyholder rather than a member of Insurance, but rebates had been one of the traditional benefits of the mutual character of the organisations which would certainly disappear if the 'demutualisation' proceeded. The respondents also contended that his Honour's criticism that the shares were not 'free' because valuable rights were being given up was unjustified because, it was submitted, it must have been crystal clear to even the least sophisticated reader of the prospectus that membership of the Association and Insurance was being given up in exchange for shares in Holdings or for the cash alternative. We agree that statements to that effect are made in the margin on the back of the first sheet of the onsert, in the notices of meeting, and on p 12 of the prospectus, but to the reader who was previously unfamiliar with the nature of a mutual organisation and the process of 'demutualisation' those statements, simple as they were, were liable in our view to be overwhelmed in their impact by the far more prominent and persistent reference to 'Free Shares'. This impact was enhanced by the packaging of the prospectus. Before opening the package the addressee would have been likely to be attracted by the messages 'Share the Future', 'How to Vote!', and especially, 'How many shares you will be given!' notwithstanding the additional words 'There is MORE information on the back of this page'. But in any event, these statements that membership will be relinquished do not answer the conclusion reached by the trial judge which was, in effect, that the description of the shares as 'free' was likely to mislead or deceive members into thinking that the rights that were to be given up by them were not rights which could be regarded by members as being of importance to them in making a properly informed judgment on the proposal. Although it is no doubt true that in some contexts, such as in the expression 'buy one, get one free', the word 'free' may be understood as meaning 'without additional or marginal outlay over what is obviously being paid', this is not invariably so. 'Free' can easily be misleading or deceptive, depending on the context: Federal Trade Commission v Standard Education Society 302 US 112, 116-117 (1937); Book of the Month Club v Federal Trade Commission 202 F 2d 486, 488 (2nd Cir 1953). We agree with the trial judge that in the present context of a document that strongly argued in favour of voting for the proposed changes, the persistent use of the expression 'Free Shares' was in fact likely to engender the notion that the shares might be acquired without significant loss or outgoing and it was in this respect misleading or deceptive, or likely to mislead or deceive, to use that phrase. This conclusion involved a finding that the rights to be given up were rights which would be material to members of the Association and Insurance in making a properly informed judgment on the proposal. The respondents argued that this has not been established by the evidence. In particular it was argued that membership of Insurance had no value; it was transitory, lasting only as long as the annual policies held by the member, there was no right of renewal; in the case of policies held by two or more people it was a matter of chance which policyholder was entered as a member; no consideration was paid for membership; membership was not transferable; and, most importantly, the true beneficiary of the wealth of Insurance was the Association. It was submitted that such powers of control of Insurance as existed in members of Insurance had no practical significance in the circumstances. In particular, the members had no power to confer on themselves any direct financial benefit by way of dividends or capital rights in the event of a winding up. There is force in these contentions in relation to membership of Insurance. But membership of the Association carried with it rights to participate in the control of Association, and through the appointment of the Council of Association, in the affairs of Insurance. The evidence did not attempt to place any monetary value on these rights, and it may be impossible to do so. But it does not follow that the rights would not be material to members of Association in making a properly informed decision: cf Re NFU Development Trust Ltd (1972) 1 WLR 1548 at 1554; (1973) 1 All ER 135 at 139. The rights of control if exercised by a sufficient body of members could be used to require that the benefits which have been enjoyed in the past by members arising from the mutual character of the NRMA organisation be continued in the future. The materiality and importance of the rights of control therefore depended in turn on the materiality and importance to members of the continuation of these benefits. It was in this context that the trial judge said that a basic question for members to decide was whether they would be better off remaining as members or becoming shareholders or recipients of the proposed cash distribution in lieu of shares, a question that involved weighing the respective advantages and disadvantages of each course of action." 296 In their joint judgment the Full Court also said at 485-487 that the treatment of the disadvantages question was inadequate. Their Honours said: "Before this Court counsel for the applicants submitted that there was a likelihood of change in the future conduct of the undertaking of the NRMA organisation for reasons of the following kinds which the prospectus failed to bring sufficiently to the members' notice: (i) whilst the present Boards intended 'business as usual' the proposed restructure involved a change in status and membership; (ii) shareholders in a listed company would have different rights and expectations as shareholders, particularly in relation to profit; (iii) the duties and obligations of directors or corporations limited by shares are, so it was submitted in relation to shareholders (who in time could become increasingly large and institutional) to look to profit and value of shares and to pay dividends out of profits available for that purpose, in contrast with the duties of directors of a mutual association; (iv) Holdings after reconstruction would have the capacity to change the operation by selling its assets or undertaking; (v) and in the long term the restructure opened prospects for a takeover, or for effective control of Holdings to pass to a small minority of large shareholders with strategic holdings. To these matters could be added the consideration that, with time, the composition of the Boards would in any event change and future boards would not be bound by statements of intentions by the present board made in the prospectus. Counsel for the respondents contended that there are good commercial reasons why it is unlikely that Holdings would in the future abandon the 'culture' which has been instrumental to the success of the NRMA organisation in the past, and that the prospect of control of Holdings being seized by a minority of large shareholders or otherwise taken over or disposed of is fanciful for several reasons. Whether these contentions adequately answer the applicants' submission is largely a matter of opinion about which the members must make a judgment when deciding upon the proposal and weighing the respective advantages of continued membership of mutual associations against a shareholding in Holdings or the cash alternative. Unless the information available to the members brings to their attention matters of the kind identified by the applicants' submissions (along with any other disadvantages perceived by those members of the Boards whose decisions recommended the proposal), and the reasons why it is asserted that the disadvantages are outweighed by the advantages, the members are not fully and fairly informed why they will be 'better off' by voting to receive shares or the cash alternative in exchange for their membership of the Association and Insurance. The prospectus as a whole, but particularly in the President's letter and the Information to Members, strongly encourages a favourable response to the proposed restructure and conveys the recommendation of the majority of each board that under it the members will be 'better off'. We agree with the trial judge that the prospectus does not explain or quantify why this will be the case beyond the statement that the wealth of the NRMA organisation will be unlocked by giving each member the share entitlement identified on that member's onsert. On p 6 of the prospectus, when repeating the recommendation of the Boards which was stated on p 1, it is said 'The NRMA Boards have carefully considered the advantages and disadvantages of the proposal and have concluded that this proposal is in the best interests of members and the NRMA'. Here is a statement that there are disadvantages to be considered, yet nowhere in the prospectus are the disadvantages identified, explained or compared with the perceived advantages. On p 11 the prospectus says the NRMA has considered the advantages and disadvantages of a range of other options and concluded that the share issue and listing on the Stock Exchange is in the best interests of members of the NRMA. Five other options are discussed. This discussion fails to identify what the disadvantages of the recommended proposal might be. The first of the other options discussed was 'Doing nothing'. The prospectus reads: '1. Doing nothing: The NRMA could continue to operate under its present structure, but the Boards believe that, by becoming shareholders, members will be better off. No organisation can rest on its laurels and assume that the way things have always been done will work in the future. The NRMA has made many changes to its operations in the past and has always looked for better ways to do business. That has made it a market leader. This is another change which the Boards believe will significantly benefit members and make the NRMA stronger in the future. To do nothing means the wealth of the organisation remains locked up and inaccessible to members.' This discussion fails to state, at least in any meaningful way, the disadvantages about the proposed restructure which the Boards had recommended, and fails to refer to the matters identified in the applicants' submissions. At p 15, where the prospectus for the first time discloses that three of the 16 directors of the Association and one of the 11 directors of Insurance are against the proposal, there is no statement of the dissenting directors' reasons which could serve to redress the failure of the prospectus otherwise to inform the members about the disadvantages of the proposal. The prospectus asserts that under the proposed restructure members will be 'better off' and strongly recommends a 'yes' vote. In these circumstances the failure to identify and inform members about disadvantages of which the directors making the recommendation were aware was to leave the members in a half light which had the potential to lead them to think that the unidentified disadvantages, whatever they might be, must be ones that they would not treat as significant in relation to the rights being given up and the new rights to be acquired in a public listed company. This is more particularly so when it is remembered that, contrary to the notion engendered by the persistent use of the phrase 'Free Shares', the shares might be acquired without significant loss or outgoings, the rights that would be surrendered were significant ones which were material to the members of Association in making a properly informed judgment." 297 Thus, the Full Court concluded that the prospectus was misleading as a result of the combination of two aspects of the material. The first was the use of the expression "Free Shares" which failed to make it clear that valuable rights were being given up. The second was that there was a failure to identify and inform members about the "disadvantages" of which the directors making the recommendation were aware. The conclusion of the Full Court was consistent with the primary point taken by the TPC, namely, that members had to vote to give up their membership in Association in order to obtain the benefit of the free shares in Holdings. 298 What follows from the conclusion of the Full Court is that it was the combination of the use of the expression "Free Shares" and the inadequate information about the "disadvantages" which made the issue of the prospectus misleading. This aspect of the case clearly caused the learned trial Judge considerable difficulty, in that apart from a reference to the surrender of "significant rights" which were "material to the members of Association in making a properly informed judgment", there was no elaboration by the Full Court of the disadvantages or comparison of the rights and privileges of members on a before and after basis of the kind which would be necessary. 299 As has already been seen, the prospectus clearly indicated that membership of Association which entitled members to various services and benefits on payment of an annual subscription would be replaced by a shareholding in Holdings and an entitlement to services and benefits on payment of an annual fee. It is not clear to me how the change is said to involve a disadvantage. Other instances of disadvantages were mentioned by Giles J which may be found in the "Members Questions" part of the prospecus. These included the possibility that once there were shareholders instead of members, the NRMA would pursue profits at the expense of service standards; a change of emphasis to give priority to profits rather than standards of service; a loss of members' ability to control Association and Insurance by the formation of Holdings; and how shareholders could ensure that directors would be bound by the stated intentions of the present board. There was nothing to say that the members of Association and Insurance were in a better position to control the affairs of those two companies than the shareholders of Holdings. CONCLUSIONS OF GILES J 300 The conclusion reached by the learned trial Judge in para 1288 of his judgment was that the Full Court had, in effect, decided that the conduct in issuing the prospectus was misleading, not because there were in fact proved disadvantages which were not mentioned in the prospectus, but that there were possible disadvantages that were not mentioned. This led Giles J to comment with respect to the members of the Full Court that "Assumption of disadvantages is not enough" without any assessment of their significance. At the same time the Full Court acknowledged that it could or might be possible to put matters right by the issue of a supplementary prospectus. The difficulty for the NRMA, however, was to identify what was missing so as to formulate appropriate amendments or supplementary information to include in a further prospectus. In these circumstances Giles J concluded that absent identification of the various unstated respects in which the prospectus was said to be misleading, it was not possible to identify with any reasonable degree of precision what it was about the prospectus that was in fact misleading or deceptive. 301 The learned trial Judge concluded that it followed from the above that the appellants could not be found negligent in failing to advise of the risk that the prospectus would be found misleading and contravene s52 of the TP Act or s42 of the FT Act. Giles J considered that the Full Court regarded the issues related to "Free Shares" and "disadvantages" as issues which merged with one another rather than independent issues. Senior counsel for the NRMA submitted in support of the cross-appeal that the use of "Free Shares" in the prospectus was a distinct matter, noting that in Fraser v NRMA at 483 the Full Court agreed with Gummow J that references to "Free Shares" was "likely to engender the notion that the shares might be acquired without significant loss or outgoing". Consequently, it followed that this could be considered misleading or deceptive quite apart from the disadvantages issue. At the same time the Full Court accepted that it may be impossible to assign any monetary value to the rights given up by the members of Association and that was a sufficient reason for describing the shares in an asset rich company, which Holdings would be, as "Free" to the members because there was no obligation to pay for them. This distinguished them from any extra shares for which members would have to pay the issue price. PROSPECTUS NOT MISLEADING OR DECEPTIVE 302 In my opinion it was made perfectly clear in the prospectus what it was that members of Association would give up and what they would get under the new structure. While there was a loss of the rights associated with membership, they were to be exchanged for the rights associated with a shareholding and continuance of the entitlement to services in payment of an annual fee. I have great difficulty in applying the concept of an "outgoing" to what was being given up, and while there was a loss of some rights, it was very difficult to quantify or regard the "loss" as "significant" in a context where there was a right to receive shares or cash in lieu and continue to receive servcies on payment of an annual fee. 303 In my view the learned trial Judge was correct in concluding that the information in the prospectus referring to members of Association giving up their rights, as such, was not "overwhelmed" by the fact that the description of the shares the subject of the offer by Holdings as "Free Shares" was repeated in the prospectus 95 times. It follows that I consider that the learned trial Judge correctly concluded that the prospectus and the "onsert" were not misleading or deceptive in any relevant sense alleged by the respondents or as found by the Full Court of the Federal Court. It follows from my conclusion that the prospectus was not misleading or deceptive that the claims for damages for breaches of the relevant statutes and negligence necessarily fail. OTHER CLAIMS CONCERNING THE PROSPECTUS 304 In case my conclusion is found to be wrong, I now turn to the issues raised by the appeals and cross-appeals concerning the NRMA's claims for damages for negligence, breach of contract and under various statutes arising out of the advice given or not given in connection with the issue of the prospectus. As noted earlier, some of these claims were under the TP Act, some under the FT Act and some under the Corporations Law, as well as in terms of breach of contract and professional negligence. During the course of the appeal it became clear that all of the claims made under the TP Act were abandoned. The respondents, however, maintained their claims against AAH, AT and Mr Heydon under the FT Act and under the common law. In respect of this part of the case I have had the benefit of reading the draft reasons prepared by McPherson AJA which I have found of very considerable assistance in preparing my own reasons. MISLEADING CONDUCT, BREACH OF CONTRACT AND NEGLIGENCE 305 Section 42 of the FT Act is in the same terms as s52 of the TP Act in prohibiting the engaging in conduct that is misleading or deceptive or likely to mislead or deceive. Unlike the TP Act, the FT Act is not limited in its application to corporations. The prohibition in s42 of the FT Act is directed to a "person" rather than a corporation. The respondents' case at trial was that the prospectus and accompanying materials, including the onsert, were "misleading" as that term is used in both the TP Act and the FT Act. The NRMA case as pleaded against AAH, AT and Mr Heydon was that "by breaching their duties" in the way pleaded, or by failing to correct the prospectus so that it did not contain misleading statements, each of the appellants engaged in misleading conduct which caused loss and damage to the respondents. 306 Allegations were made that Mr Heydon was negligent and AAH and AT were in breach of their contractual obligation of reasonable care, in advising or failing to advise the NRMA of, in effect, the possible consequences or risks of the use in the prospectus of the description "Free Shares" in association with the absence of any exposition of disadvantages. In other words, the cause of action against each of the appellants of contravention of s42 of the FT Act was in turn the basis of a claim for damages for negligence against Mr Heydon and for damages for breach of the contractual duty of reasonable care against AAH and AT, in that the advice was given by each of them without the exercise of reasonable care and skill. I will approach this aspect of the case on the basis that the relevant statements in the prospectus were, contrary to my view, in fact misleading or deceptive. 307 A claim in damages for misleading or deceptive conduct is dependent on the effect or probable effect on the person to whom the conduct is directed, as distinct from any want of care or state of mind of the person engaging in the conduct: Yorke v Lucas (1985) 158 CLR 661. Where a legal adviser gives an opinion there is not ordinarily any representation or warranty that the opinion is correct, only that a reasonable degree of professional care and skill has been brought to bear on the formation and expression of the opinion: see the formulation of the duty in the joint judgment in Rogers v Whitaker, supra, at 483 per Mason CJ, Brennan, Dawson, Toohey and McHugh JJ. Where negligence and misleading or deceptive conduct are both pleaded based upon the same material facts, it is not uncommon for the result to be that they will succeed or fail together: Boland v Yates Property Corporation Pty Ltd, supra, at 229 per Gaudron J. The liability under s52 of the TP Act when read with ss80 and 82 is not based on fault in the context of passing off: Parkdale Custom Built Furniture Pty Ltd v Puxu (1982) 149 CLR 191 at 197 per Gibbs CJ. The position is different in the context of a person called upon to give a professional opinion. NEGLIGENCE CLAIM AGAINST MR HEYDON 308 In his opinion dated 28 July 1994 Mr Heydon advised Perpetual that the giving up of membership rights in Association and Insurance would constitute sufficient consideration for the issue of shares in Holdings. Shares not accepted would be offered first to existing members and those not accepted by them would be offered to institutional and other investors when the shares were listed on the Stock Exchange. Hence the need for a prospectus and the appointment of Perpetual as trustee for the sale of such shares and receipt and distribution of the proceeds, with the result that Perpetual became a party to the issue of the prospectus. 309 As far as Mr Heydon was concerned he was never asked to advise the NRMA whether the use of the expression "Free Shares" in the prospectus was misleading or deceptive under s52 of the TP Act. In July 1994 he was briefed by the solicitors for Perpetual (then being proposed as the trustee for the Sale Offer) to advise on the protection available to Perpetual under s1011(b) of the Corporations Law. For this purpose he was briefed with the draft prospectus. In that context his attention was not focused on the expression "Free Shares". He said that he did not then become aware of the reference to "Free Shares" in the prospectus in the sense that it did not impinge on his consciousness. This evidence was accepted by the learned trial Judge. If and to the extent that this conclusion was challenged in the appeal, no sufficient reason has been advanced to reverse it. That matter was not one which was relevant to consider in the context of the Perpetual brief to advise. It is one thing for counsel to notice some incidental point outside the scope of his brief and draw attention to it. It is quite another thing to impose upon counsel a duty of care to advise on some matter which is beyond the scope of the brief or retainer. To the extent that Waimond Pty Ltd v Byrne (1989) 18 NSWLR 643 at 652 suggested to the contrary, the suggestion must be rejected in the light of the decision in Astley v Austrust Ltd (1999) 197 CLR 1. In any event, the opinion was not given to the NRMA and, in particular, not given to Holdings, the incorporation of which Mr Heydon may or may not have been aware of at the time. There was no evidence on the point. 310 It was contended in support of the cross-appeal that Mr Heydon was negligent in failing late in July 1994 to warn the NRMA of the potential for contravention of s52 of the TP Act or s42 of the FT Act, in relation to the use of the expression "Free Shares" in the prospectus. By letter dated 28 July 1994 AT requested him to advise about the "onsert" that was to be distributed with the prospectus. His advice was sought whether the "How to vote" instruction with the statement "How many FREE shares you will get" could amount to "an unfair inducement" to the members to vote in favour of the proposal and, consequently, having "legal ramifications". The point raised was the subject of a letter from AT to Ms Conway at the NRMA dated 15 August 1994. 311 In his opinion dated 2 August 1994 Mr Heydon said that the wording should be changed for two reasons. It was the second of these which is presently relevant. This "concerned the ambiguity or worse" of the word "FREE". As Mr Heydon put it, there was: "… an important sense in which the shares are not 'free': they are not free because the members are giving up rights and Holdings is gaining greater power in the Association and NRMA Insurance." This opinion was discussed by the NRMA prospectus working committee. The membership of the committee included Ms Conway and other NRMA executives. It was understood by the committee that Mr Heydon's opinion had other implications on which he had not been asked to advise. If it was not appropriate to refer to "Free Shares" in the onsert, similar changes may also have been thought necessary in the prospectus itself. There was strong opposition from the NRMA to any changes then being made. It was then too late because of the stage which had been reached in the preparation and printing of the prospectus for the meetings schedules for 19 October 1994. It was also believed that the success of the proposal was dependent on the offer of Free Shares in Holdings to induce the membership to vote in favour of it. Hence, Ms Conway as General Counsel and other NRMA executives considered that the reference to "Free Shares" should be retained. 312 Mr Heydon's opinion was not given in the context of s52 of the TP Act or the FT Act, but in the context that under the general law, the issue of shares literally "free" (ie, for no consideration) would be to issue them at a discount which would be unlawful. Mr Bateman had a discussion with Mr Heydon with the result that Mr Heydon gave a further opinion dated 3 August 1994 which recommended two amendments to the onsert. The first was to substitute "How many shares you will be given" for "How many FREE shares you will get". The other involved inserting an asterisk after the reference to "Free Shares" where that first appeared on the inside page of the onsert together with a linked explanation of the asterisk: "*The Free Shares (or cash alternative) are in exchange for membership under the Articles of each of NRMA Ltd and NRMA Insurance Ltd." Mr Heydon's recommendations were implemented. 313 In my opinion the learned trial Judge correctly held that Mr Heydon was not liable in negligence for any use in the prospectus of the expression "Free Shares", or for in any way being involved in any alleged contravention of the TP Act or the FT Act. Mr Heydon was never instructed to settle the prospectus or advise generally on its contents, including the issue of "disadvantages". The only occasion on which he saw a draft of the prospectus was when he was briefed to advise Perpetual. His instructions to advise on the onsert did not give rise to any duty to advise on the prospectus proper, which he had not seen. There was nothing in the onsert as amended, or his advice in respect of it, that cast upon him a duty to advise more generally with respect to the prospectus, or which cast upon him a duty to ask to be given a copy of the prospectus. For these reasons Giles J was correct in finding that Mr Heydon was not liable to the NRMA for any loss suffered by reason of the use of the expression "Free Shares" in the prospectus. BREACH OF CONTRACT CLAIMS AGAINST AAH AND AT AND INVOLVEMENT IN MISLEADING OR DECEPTIVE CONDUCT 314 I turn to the respondents' cross-appeals against the dismissal of the claims by the NRMA against AAH and AT in relation to their alleged breach of the implied terms of their contracts with the NRMA to advise with reasonable care and skill with respect to the prospectus. 315 The prospectus was drafted by Mr Bateman and a prospectus working committee, the membership of which included NRMA in-house lawyers. In the context of the claim against AAH and AT under the FT Act reliance was placed on the sign-off letters and the due diligence report as misleading conduct in the context of the FT Act. The letters were said to be misleading in that they said nothing about the opinions given by Mr Heydon by his letters dated 2 and 3 August 1994 regarding the onsert and the prospectus. This was said to constitute conduct which was misleading or likely to mislead or to involve AAH and AT in such conduct by the NRMA. These contentions were rejected by the learned trial Judge. In my opinion the cross-appeals on this point should fail. I am of the same opinion as his Honour. Mr Heydon's advice in the two letters mentioned was concerned with the question whether the issue of shares on the basis proposed involved an impermissible issue of shares at a discount, not whether there was misleading or deceptive conduct. 316 As a matter of fact neither AAH nor AT appear to have expressly advised the NRMA to describe the shares the subject of the proposed offer as "Free". The case against both of the firms and, in particular, Mr Morgan and Mr Bateman was that they were each in breach of their contractual obligations to use reasonable skill and care in advising the NRMA. The specific allegation was that they each should have advised the NRMA against using the expression "Free Shares" in the prospectus or at least warned them of the risks of a breach of s52 of the TP Act or s42 of the FT Act by the use of that expression. In my opinion, it has not been demonstrated that either of AAH or AT, as represented by Mr Morgan and Mr Bateman, ought reasonably to have forseen that there was a real risk that the use of the expression "Free Shares" could be found to be misleading or deceptive as it was in fact found to be by the Full Court of the Federal Court. It was not shown that either Mr Morgan or Mr Bateman failed to exercise reasonable care in relation to this aspect. 317 In my opinion, the conclusion by AAH and AT that the use of "Free Shares" in the prospectus was not misleading was one which was reasonably open to be reached by a person exercising the degree of care and skill to be expected of both AAH and AT and, in particular, Mr Morgan and Mr Bateman. Further, in the circumstances, no obligation arose on the part of either of them to report Mr Heydon's advice to the Due Diligence Committee or to the NRMA Boards, because the advice was not given with respect to liability under the FT Act, or for that matter, the TP Act. In any event, Mr Mackay, the NRMA Chairman of the Committee and President of the NRMA, and Ms Conway, the NRMA General Counsel, were aware of the relevant opinions of Mr Heydon. 318 Some reliance was placed by the NRMA on s1006(2) of the Corporations Law which is another source of liability for a person as a consequence of being involved in issuing a prospectus containing a false or misleading statement. Section 1011(2) of the Law relevantly provides that a person is relieved from liability under s1006(2) if the person "took reasonable precautions and exercised due diligence to ensure" that statements in the prospectus were true and not misleading. A Due Diligence Committee was established by the NRMA in March 1994 in order to obtain the protection available under s1011. 319 The Due Diligence Committee met on a regular basis from 22 April 1994. There were 14 members, including seven NRMA directors or officers, including the Chairman of the Boards, Mr Mackay, the Chief Executive Officer of the NRMA, Mr Willing, the General Manager, Mr Rees, and the General Counsel, Ms Conway. The other seven were various professional advisers, including Mr Morgan and Mr Bateman. 320 Both AAH and AT provided "sign off letters" in relation to the prospectus in the context of s1011(2) of the Law. The AAH letter signed by Mr Morgan said that AAH had participated in the presentations and enquiries whereby matters material for disclosure were sought to be identified and brought to the Committee with a view to the Committee ensuring that there was no material statement in the prospectus that was false or misleading; there was no material omission from it; and the issue of the prospectus did not involve any misleading or deceptive conduct. The letter also confirmed that nothing had come to the attention of AAH in the course of or as a result of performance of their role that caused them to believe that any such statement, omission or misconduct existed. 321 There were two "sign off" letters from AT dated 15 and 18 August 1994 to similar effect. All of the members of the Due Diligence Committee signed the report on or about 18 August 1994. The report was put before the NRMA boards on the same day when it was resolved to issue the prospectus. While some signed later there was no suggestion that this was material. 322 The substance of the NRMA's case was that: (a) the opinion given that the prospectus contained no material statements which were false and misleading and that there were no material omissions was incorrect; (b) both firms should have known and should have advised the NRMA that the opinion expressed by the other was incorrect but failed to do so. 323 In my opinion, so far as this part of the case depends upon the contention that if they had exercised reasonable care and skill, both AAH and AT should have known that the prospectus contained false or misleading statements, it fails for the reasons already expressed. The case against them was simply putting the negligence case in a different way. I have already concluded that the opinions expressed were opinions which were open to be formed by the exercise of reasonable care by persons practising in the relevant area of the law and professing to have specialist skills in that area. There was no warranty that the advice was correct, only a contractual obligation to exercise reasonable care and skill in giving the advice. STATUTORY CLAIMS UNDER FT ACT AND FAILURE TO TAKE REASONABLE CARE 324 Further to the liability in breach of contract against AAH and AT and in negligence against Mr Heydon, the NRMA also claimed damages in respect of the losses suffered as a result of the issue of the prospectus by reason of the fact that it had been found to be misleading or deceptive. As the claims were originally pleaded, they were made both under the TP Act and the FT Act, as well as under the Corporations Law. In the end, all of the claims under the TP Act were abandoned, but the claims under the FT Act were maintained by way of cross-appeal together with the claims under the Corporations Law. 325 Like s52 of the TP Act, s42 of the FT Act relevantly prohibited engaging in conduct that is misleading or deceptive, or likely to mislead or deceive, save that the prohibition is directed to a "person" as distinct from a corporation. It follows that s52 of the TP Act did not apply to AAH, AT or Mr Heydon as none of them was a corporation. 326 The NRMA originally pleaded that the prospectus and the onsert were misleading. The case pleaded was that each of AAH, AT and Mr Heydon by "breaching their duties" as alleged in paras 38, 43 and 44D respectively of the points of claim or by failing to correct the prospectus so that it contained no misleading representations, each of the appellants engaged in misleading conduct which resulted in loss and damage to the NRMA. 327 The "duties" referred to in paras 38, 43 and 44D of the points of claim are in each case the duty to use reasonable care in advising with respect to the prospectus which was the foundation of the case in negligence based on contract in the case of AAH and AT and in tort in the case of Mr Heydon. What was alleged in each case was the failure to use reasonable care in advising or failing to advise of the risks involved with the use of the expression "Free Shares" in the prospectus and in relation to the matter of "disadvantages". 328 The significance of the way in which the case was pleaded under the TP Act and the FT Act is that the contravention of s52 of the former and s42 of the latter was based only on the allegation that the relevant advice was given or not given negligently or without exercising reasonable skill and care. I have already concluded both that the prospectus was not misleading or deceptive or, alternatively, if it was, there was no negligence or breach of any contractual duty to advise with reasonable care and skill. It follows that the claims under s42 of the FT Act must necessarily fail, with the consequence that the cross-appeals based upon the FT Act must be dismissed. However, given that Gummow J and the Full Court of the Federal Court considered that the use of the expression "Free Shares" and the failure to elaborate on "disadvantages" had the result that the prospectus was misleading or deceptive, it is appropriate that I should say why, even if it turns out that I am wrong in reaching those conclusions in relation to negligence, the cross-appeals based upon the FT Act should fail in any event. 329 The essence of the NRMA case was that by advising that the prospectus was not misleading or deceptive and failing to advise of the possibility or likelihood that the prospectus could be found to be misleading or deceptive, AAH, AT and Mr Heydon each engaged in misleading or deceptive conduct contrary to s42 of the FT Act. This case is a case about opinions given and opinions which the legal advisers did not but should have given. While at common law a statement which is a representation of law or opinion rather than fact may not be actionable, the making of such a statement may constitute misleading or deceptive conduct under both s52 of the TP Act and s42 of the FT Act: SWF Hoists & Industrial Equipment Pty Ltd v SGIC [1990] ATPR 51 [at 599]. At common law it is the state of mind of the maker of the statement which is critical to the issue of liability. Under s52 of the TP Act and s42 of the FT Act, what is critical is the effect or likely effect of the making of the statement on the person to whom the statement is made: Yorke v Lucas (1985) 158 CLR 661 at 666 per Mason ACJ, Wilson, Deane and Dawson JJ. At the same time, however, a false statement may not necessarily be misleading if it does no more than repeat information in circumstances where it is merely passed on from another source for what it is worth, without the expression of any belief in its truth or falsity: Yorke v Lucas, supra, ibid. Likewise, a statement made under such circumstances where, although it is in substance an opinion but is not proffered or represented as necessarily being correct: Inn Leisure Industries Pty Ltd v DF Meloy Pty Ltd (1991) 28 FCR 151 at 164-167 per French J. 330 The giving of legal advice may imply a representation by the adviser that the advice is based upon the knowledge, experience or expertise of the adviser, or to which the adviser has had access. Much will depend on the context and the circumstances. As I have already observed, the duty of the legal adviser is to bring to the task the exercise of reasonable care and skill, so that, in the particular circumstances of a case such as this, a decision on the issue of negligence will determine the outcome of the claim under s52 of the TP Act or s42 of the FT Act: Boland v Yates Property Corporation Pty Ltd, supra, per Gaudron J at 229, [104]. As has been seen, the misleading conduct relied upon in that case was based upon negligence by solicitors in the preparation of a case for trial. 331 In Parkdale Custom Built Furniture Pty Ltd v Puxu Ltd (1982) 149 CLR 191 at 197 Gibbs CJ said that there was nothing in s52 of the TP Act which would confine misleading or deceptive conduct to conduct engaged in as a result of a failure to take reasonable care. The Chief Justice said that liability imposed by s52 in conjunction with ss80 and 82 of the TP Act was "quite unrelated to fault". That case, however, was one of passing off and did not involve conduct by way of giving or failing to give legal advice. In the circumstances in which legal advice in this case was being given, there was only an implied representation that the advice was given with the exercise of reasonable professional skill and care. 332 There was an attempt by the NRMA to rely on the sign-off letters and the Due Diligence Report as misleading conduct under s42 of the FT Act. In this respect the NRMA relied upon the failure to disclose Mr Heydon's opinions of 2 and 3 August 1994 concerning the onsert. In my view, the trial Judge was right to reject that contention. As previously noted, both the Chairman and the General Counsel of the NRMA were aware of those opinions in any event. For these reasons, the cross-appeal on this part of the case fails. Neither AAH nor AT engaged in any misleading or deceptive conduct contrary to s42 of the FT Act in relation to the sign-off letters or the Due Diligence Committee Report. 333 In my opinion, the various conclusions which I have reached concerning the claims based on the FT Act lead to a final conclusion that whether by advising or not advising as they did in relation to the prospectus, none of AAH, AT or Mr Heydon contravened the provisions of s42 of the FT Act by engaging in misleading or deceptive conduct in any of the ways contended for by the respondents on the cross-appeal. 334 It was further contended, however, that AAH and AT were "involved" in contravention of s52 of the TP Act and s42 of the FT Act and were liable to the NRMA for the loss and damage suffered "by" that conduct under s82 of the TP Act and s68 of the FT Act. The purpose of that provision was to make individuals who were involved in the relevant conduct liable as accessories. Section 75B of the TP Act relevantly provides that a reference to a person "involved in a contravention" is to be read as a reference to a person who has "… (a) counselled or procured the contravention" or who "(c) has been in any way, directly or indirectly knowingly concerned in or party to the contravention …". The equivalent of s75B(1) in the FT Act is s61. In this case also the claims under the TP Act were abandoned, but the claims under the FT Act were pursued by way of cross-appeal. In Yorke v Lucas (1985) 158 CLR 661 it was held that for liability to be attracted the person concerned must be an intentional participant and possessed of knowledge of the matters or things constituting the contravention, even if he did not know that they did constitute a contravention. It is enough to know the essential facts. 335 As previously noted, the learned trial Judge concluded that neither the reference to "Free Shares" in the prospectus nor the content of the prospectus regarding "disadvantages" constituted misleading or deceptive conduct by the NRMA. I have come to the same conclusion. On that basis there was no contravention of the TP Act or the FT Act in which others were "involved". It is only if that conclusion is wrong and there was a contravention by the NRMA of s52 of the TP Act or s42 of the FT Act that the issue of AT and AAH being involved in a contravention of the TP Act or the FT Act by the NRMA arises. Whether one expresses the finding against AAH and AT in terms of counselling or in the sense of procuring the contravention or being directly or indirectly knowingly concerned in or a party to the contravention under s61 of the FT Act, it would be open to find that each of them was liable under s75B of the TP Act or s68 of the FT Act. 336 Although AAH and AT did not intend to mislead and the advice given by AAH was that the prospectus could be issued in the form in which it was, it was at least strongly argued that the respondents were "involved" in the contravention of the TP Act or the FT Act. Assuming it was wrong and the publishing of the prospectus was misleading and had the effect that the NRMA contravened s52 of the TP Act, the knowledge that AAH and AT had of what was in the prospectus and that it was to be published would be sufficient to attract liability under s75B. The same result would flow from ss42 and 61 of the FT Act under which it was alleged that AAH and AT were liable. In that context it would not be relevant that the advice given by AAH and AT was given with reasonable care and skill. 337 Assuming that a basis for liability of AAH and AT may be found in ss42 and 61 of the FT Act, in the way in which I have described, there remains a question whether the conduct of AAH and AT would attract liability pursuant to the combination of ss42 and 68(1) of the FT Act, being the equivalent of ss52 and 82(1) of the TP Act. Section 82(1) of the TP Act provides that: "A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or Part V may recover the amount of the loss or damage by action against that other person or against any person involved in that contravention." 338 Section 68(1) of the FT Act is to the same effect. It is the person who suffers loss or damage by the conduct of another in contravention of a relevant provision who may recover the amount of such loss or damage against a person involved in the contravention. The purpose of this provision is to give the person who suffers the damage a remedy not only against the principal contravener, but also against other persons involved in the contravention. Thus, the plaintiff in such proceedings is envisaged to be a third party. In this case all of the persons who were directly responsible for issuing the prospectus would be the persons who were the primary contraveners of s42 of the FT Act. None of them is given a remedy under s68(1) of that Act. 339 In Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 it was held that in such a case it was not necessary that the primary contravener be first proceeded against, but that there is a separate statutory cause of action against any other person involved in the contravention. It is essential, however, that there is a primary contravener against whom the third party has a cause of action under the statute. In other words, there are at least three parties involved. The first is the person who suffers loss and damage by reason of the contravention of s68(1) of the FT Act by the second person, namely the primary contravener. The third person is a person who was involved in the contravention. It is not necessary in order to recover from the third person that the primary contravener be sued or, if sued, that the action proceed to judgment: Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd, supra. 340 In the present case it is necessary to identify the primary contravener with some precision. This prospectus appears to have been issued by Holdings, Association and Insurance because each of them was involved in the proposal whereby members of Association and policy holders of Insurance would become members of Holdings if they accepted the offer of shares contained in the prospectus or, alternatively, were entitled to receive a payment if they opted for the cash alternative. To the extent that the prospectus was misleading and deceptive, those who issued the prospectus would be held to have contravened s68(1) of the FT Act. It follows that Association, Insurance and Holdings were the primary contraveners. None of them could claim against another or others of them so as to give rise to a claim against any of the appellants on the cross-appeal. 341 The position of each of the respondents needs to be examined. Both Association and Insurance were in existence at all material times. Holdings was not incorporated until 15 July 1994. It was only from that date at the earliest that it could have become a party to any contract of retainer of AAH or AT and owed a duty of care in tort by Mr Heydon. That duty was owed to Association and, probably, Insurance from Mr Heydon's retainer in December 1993 and between that time and March or April 1994. It was not until 15 July 1994 that the NRMA directors resolved that all fees in respect of the demutualisation would be met by Holdings "upon a successful listing" of the company. On 23 August 1994, when the prospectus was issued, Holdings "ratified" the retainer of AAH and AT in relation to the preparation of the prospectus. Nothing was expressly said about Mr Heydon but I am prepared to deal with the matter on the basis that ratification of his retainer was at least implicit. 342 It was the issue of the prospectus containing misleading or deceptive material in contravention of s42 of the FT Act which constituted the misleading or deceptive conduct. This is apparent from paras 27-28 of the points of claim of the respondents which allege that by issuing and publishing the prospectus on 23 August 1994, the three NRMA companies "engaged in conduct which was misleading or deceptive" in contravention of the TP Act (and the FT Act). In other words, the NRMA companies by their own admission were the primary contraveners. They were not the third party who suffered loss and damage by reason of the contravention and who could recover from a person "involved" in the contravention. 343 The pleadings of the NRMA companies appear to have recognised this difficulty and sought to overcome it by making separate claims. Paragraphs 47 to 51A of the points of claim allege that all of the NRMA companies suffered loss and damage by reason of conduct in the form of negligent advice by each of AAH, AT and Mr Heydon that was misleading. It is then alleged in paras 52-53A that Association and Insurance suffered loss or damage by the conduct of Holdings (ie, the conduct that all three NRMA companies were involved in as stated in paras 27-28 of the points of claim). That was in contravention of s52 of the TP Act and s42 of the FT Act. Association and Insurance then claimed the amount of that loss pursuant to s82 of the TP Act and s68 of the FT Act respectively against AAH, AT and Mr Heydon because each of them "was a person involved in the contravention" within the meaning of s75B of the TP Act and s61 of the FT Act. 344 In my opinion, because of their own admissions that each of them jointly engaged in misleading conduct by the issue and publication of the prospectus, no one or two of the NRMA companies could make an artificial claim against the other or others of them under s42 of the FT Act so as to make the other or others of them (in the present case Holdings) the party who was the primary contravener who caused the loss so as to found a claim against AAH, AT and Mr Heydon under s68(1) of the FT Act as persons involved in the contravention. 345 By their own admission on the pleadings and on the evidence, each of Association, Insurance and Holdings contravened s42 of the FT Act by the issue and publication of the prospectus. None of them was relevantly "another person" for the purposes of s68(1) of the FT Act. In the circumstances, they do not have a statutory cause of action to recover from AAH, AT or Mr Heydon in this way. In my opinion, they stand or fall on their claims for damages for breach of the contractual duty of care in the case of AAH and AT and damages for negligence in the case of Mr Heydon. 346 As in the case of s82 of the TP Act, s68 of the FT Act contemplates a situation where the plaintiff has suffered loss "by" the conduct of another person. In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525, it was noted that while the word "by" was thought to be a somewhat curious expression in the context, it was held to convey the concept of causation in the practical or "common-sense" approach discussed in March v S & MH Stramare Pty Ltd (1991) 171 CLR 506 at 515 per Mason CJ; 522 per Deane J; Toohey J at 524 agreed with Mason CJ and Gaudron J at 525 agreed with Mason CJ and Deane J. In that context, any loss suffered by Association and Insurance could not be said to have been caused by Holdings alone. There was nothing to displace the primary implication that the three of them were jointly responsible for the prospectus. On the facts, there was much more to be said for the view that it was the conduct of Association and Insurance in the development of the proposal that caused Holdings to suffer loss and damage. In this respect, I agree with the suggestion by McPherson AJA that it is quite possible that the reason why Holdings was selected by the respondents as plaintiffs to fill the role of "another person" under s82 was that Association and Insurance had in fact paid out of their own funds the expenses incurred in connection with the demutualisation proposal. Each of them was a separate legal entity with their own assets and liabilities. Having been incorporated only on 18 July 1994, it is conceivable that Holdings would not have had assets and was not in a position to claim it had suffered loss or damage in terms of 68(1) of the FT Act. As already noted, the "fees" associated with the demutualisation proposal would only be met by Holdings if it was successfully listed. In these circumstances, the claim that Association and Insurance suffered loss by reason of the "conduct of Holdings" was entirely artificial. In my opinion, none of Holdings, Association or Insurance collectively or individually can succeed against AAH, AT or Mr Heydon under s82 of the TP Act or s68 of the FT Act in circumstances where each of them was a primary contravener under the relevant statutory provisions. STATUTORY CLAIMS UNDER CORPORATIONS LAW 347 The NRMA companies also claimed damages for breaches of ss995 and 996 when read with s1005(1) of the Corporations Law. Section 995(2) provides that: "A person shall not in or in connection with: (a) any dealing in authorised securities; (b) without limiting the generality of paragraph (a): … (ii) any prospectus issued … in relation to securities; engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 348 The term "securities" is defined by s9 of the Law to have the meaning ascribed to it by s92, which includes shares in a body corporate. Section 1005(1) of the Corporations Law confers a right of action for damages similar to that provided for under s82 of the TP Act as follows: "Subject to the following section of the division, a person who suffers loss or damage by conduct of another person that was engaged in in contravention of a provision of this Part or Part 7.12 may recover the amount of the loss or damage by action against that other person or against any other person involved in that contravention." 349 The relevant Part is Part 7.11, which includes both ss995(2) and 996(1). In order to make out a claim under s1005(1) for a contravention of s995(2), the respondents would first have to prove that AAH and AT were persons who engaged in conduct that was misleading or likely to mislead in connection with a prospectus; or that they or one of them was a person who was involved in such contravening conduct. As already noted, I have concluded that the use of the expression "Free Shares" and the way in which "disadvantages" was dealt with in the prospectus was not misleading or likely to mislead. In my opinion, it is clear that it did not mislead the NRMA companies or any one of them. For reasons already explained, there was no warranty by AAH or AT that the prospectus was beyond challenge. In my opinion, Mr Heydon engaged in no relevant conduct. He was not asked to advise about the prospectus in the context of the TP Act or the FT Act. He was not asked or instructed to give any opinion about the use of the expression "Free Shares" or the "disadvantages" issue. In particular, he was not asked whether there were any risks involved in the use of the expression "Free Shares" in the prospectus or the treatment of the "disadvantages". 350 For these reasons the cross-appeals against AAH, AT and Mr Heydon, insofar as they were based on ss995 and 1005(1) of the Corporations Law, should be dismissed. 351 Section 996(1) provides that: "A person must not authorise or cause the issue of a prospectus in relation to securities of a corporation: (a) in which there is a material statement that is false or misleading; or (b) from which there is a material omission." 352 In such circumstances a right of action is conferred on a person who suffers loss or damage by reason of conduct engaged in in contravention of s996(1) to recover the amount of the loss or damage by an action against "that other person or against any other person involved in that contravention". The acts which constitute a contravention of ss996(1) are the authorising or causing the issue of a prospectus in which there is a material statement that is false or misleading. Neither in the Corporations Law nor in any of the preceding legislation which goes back to the Directors Liability Act 1890 (UK) is there contained a definition of the term "authorise" in this context. Normally, the authority to issue the prospectus would be recorded in a resolution of the directors to that effect. The liability of directors would seem to depend upon the extent to which they became responsible for the prospectus by voting in favour of the relevant resolution. The question is one of causation and it would be relevant to determine such things as whether the directors had seen and discussed the draft, whether their names appeared on it and whether they had voted in favour of any resolution to authorise its issue: Urquhart v Stacy [1928] NI 163 at 171; and, on appeal, Clark v Urquhart [1930] AC 28 at 55. In Howell v Dering [1915] 1 KB 54 the jury in a criminal trial had brought in a verdict of not guilty in proceedings against the brokers to an issue of shares on the basis that they had not, in the relevant sense, "authorised" the issue of shares. I am most grateful to McPherson AJA for the reference to Howell v Dering [1914] The Times 30 April 1914, in which Bailache J said of the brokers whose name was on the prospectus, that they would be liable as having authorised it only if they had the "means of checking the statements with a real interest in the company …". In this case the learned trial Judge concluded that AAH and AT had not authorised the issue of the prospectus within the meaning of s996(1) because they had not taken any part in the process of deciding whether or not the prospectus should in fact issue. They were advisers only who had no power or authority to authorise the issue of the prospectus. In my opinion, this conclusion was clearly correct. It is not possible to say that persons who were merely advisers and who, at the most, may have recommended a particular course of action could be said to have authorised it. It was the board of directors which was vested with the necessary power and authority. AAH and AT would only be liable if they themselves had "engaged in" a contravention of s996(1). In my opinion, the giving of advice or even the making of a recommendation, if indeed the facts went that far, which I think they did not, would constitute being "engaged in" a contravention of s996(1). This applies to each of AAH, AT and Mr Heydon against whom the relevant allegation was made in paras 38, 59 and 60 respectively of the points of claim. It follows that no liability on the part of any of them was incurred under s1005(1) so as to found a claim for damages against them. 353 It follows from the conclusions which I have already reached that none of the claims for damages, based upon the failure of AAH, AT and Mr Heydon to warn the NRMA companies that they were exposed to a risk that an adverse decision from the High Court in Gambotto would prevent them from proceeding with the demutualisation proposal by way of altering the articles, can succeed. Likewise, none of such claims as a result of not having been warned of the risk that the use of the expression "Free Shares" in the prospectus might attract an injunction in the Federal Court which would prevent distribution of the prospectus, can succeed. 354 The claims for damages were based upon expenditure which was said to have been wasted in the development of the proposal. As has already been seen, in order to establish the claim for damages, it was necessary for the NRMA to prove that, if they had been given the appropriate advice at the relevant time, the boards would not have proceeded with the demutualisation proposal as it had then been formulated. Giles J concluded that, if warned in time of the Gambotto risk, the directors would have voted to defer proceeding with the proposal and so to limit further expenditure on it until some date in the future. This action would have been taken by the directors at their meeting on 17 March 1994, or no later than the meeting on 28 April 1994. At that stage there would have been a deferral and cessation of expenditure until the matter was clarified. It was further contended that after the decision in Gambotto was delivered in March 1995 they would have abandoned the proposal, as in fact occurred when the decision was delivered. As his Honour found, they would not have decided to try to achieve demutualisation by way of a scheme of arrangement. As noted above, causation was sought to be established by calling the directors, apart from one who was unfit to attend, and the three others who I have mentioned, who it was clear would have voted against the proposal in any event. It was on the basis of the directors who gave evidence that the learned trial Judge concluded that a majority would have voted to defer proceeding with the proposal and only to incur limited expenditure until judgment was delivered by the High Court. A similar course was adopted in Daniels v Anderson (1995) 37 NSWLR 438 at 531-538. 355 This evidence was the subject of substantial criticism at the trial and on appeal, and it is difficult to see how the relevant facts have been proved otherwise in order to make out a case that the decision of the High Court in Gambotto was fatal to the demutualisation proposal. Each of the directors who was called was asked to assume that either AAH or AT, or both, had advised that there was "a real risk that the Project as then … formulated would be rendered unlawful by an adverse decision" of the High Court in Gambotto. This advice was what was referred to on appeal as the "minimum non-negligent advice". In my opinion, it is the use of the description "real risk" which causes a difficulty. Evidence of each of the directors represented a subjective judgment on the part of each of them who gave evidence. While I accept that the evidence was relevant and admissible, it requires something of a major step, if not a leap, to say that the evidence which they gave at the trial was necessarily how they would have reacted in the course of a board discussion. Another difficulty is that it involves a judgment being made, that there was as a matter of fact, or ought to have been as a matter of advice to the board by a reasonably competent adviser specialising in corporate affairs, such a "real risk" that the High Court would decide Gambotto in the way in which it was in fact decided. In my view, opinions reasonably held could substantially differ on that point and encompass a range of opinions from there being no risk that the case would be decided in the way in which it was, or at least that the risk was "remote" or "slight". While the judgments in the Peter's American Delicacy case gave cause to anticipate some reformulation of the relevant test, the hypothetical question put to the directors was the wrong question. 356 As I have already indicated, the omission by AAH, AT and Mr Heydon to advise the NRMA in March or April 1994 about the dangers, if any, of proceeding with the proposal was not the cause of the wasted expenditure. It follows from what I have already said that the claim for damages based upon the various causes of action in relation to the use of the expression "Free Shares" and the "disadvantages" also failed for want of proof of causation. In the first place, the respondents had been restrained by injunction from distributing the prospectus on 13 October 1994. While the decision to restrain the issue of the prospectus was upheld on the Free Shares issue ground on which the injunction was first granted, the other grounds upon which Gummow J had stated were overturned on appeal. It follows that it would have been necessary for the respondents to appeal against the decision of Gummow J for reasons quite unrelated to any conduct of the respondents. 357 The judgment of the Full Federal Court was pronounced on 27 January 1995. By that time there were other reasons why the proposal could not or should not proceed, which were not caused by anything which the appellants actually did or failed to do. During the course of January 1995 it appeared that the financial position of the NRMA had changed for the worse, so that the demutualisation proposal was significantly less attractive for the members than had previously been the case. The surveys of the opinions of members showed that there had been a significant decline in support for the demutualisation proposal. One would be entitled to infer that the pending litigation in the Federal Court contributed to this. However, if there was a change to the proposal to issue "Free Shares" by requiring some payment on the part of members for the shares, it is reasonable to conclude that this would have accelerated the reduction in support. In all of the circumstances, I am of the opinion that the learned trial Judge was right to conclude that the respondents had not succeeded in proving that if the proposal for demutualisation had been put before the members of the NRMA at the material time, they would have been approved by a vote of 75 percent or more of the relevant members. The decision of the High Court in Gambotto was delivered on 8 March 1995 and, on the respondents' case, put an end to the proposal to proceed by way of special resolution. At that stage, so the respondents contended, demutualisation could be achieved only by the adoption of a scheme of arrangement. CONCLUSIONS 358 It follows from the various conclusions which I have reached that I would allow the appeals with costs; set aside the judgment below in favour of the respondents (including the contribution order as between the appellants) and direct that judgment be entered in favour of the appellants in the action with costs; and dismiss the cross-appeals with costs. The appeals against the apportionment assessing contribution by each of the three groups of appellants at one third of the judgment should be dismissed with no order for costs. 359 There were also appeals (a) by AT against the dismissal with costs of their notice of motion dated 6 April 1998; (b) by AAH against the dismissal with costs of their notice of motion dated 28 July 1998; and (c) by the respondent AT against the dismissal with costs of their notices of motion dated 20 May 1999. Each of these appeals, which have now become unnecessary, should also be dismissed with costs. 360 McPHERSON AJA: These are appeals from a judgment given in the Commercial Division of the Supreme Court (Giles J) on 13 May 1999 for an amount of $21,193,828 together with interest in action 50257 of 1995 claiming damages for professional negligence. The respondents to the appeal, who are the plaintiffs in the action, are NRMA Limited, NRMA Insurance Limited, and NRMA Holdings Limited. The appellants are the defendants Mr J D Heydon QC, who was then a practising barrister, and two solicitors and their partners, Mr J K Morgan and the firm of Allen Allen & Hemsley (AAH); and Mr G A T Bateman and the firm of Abbot Tout (AT). There are cross-appeals by the three NRMA companies against the dismissal of some of their other claims for damages based either on common law negligence or on statutory causes of action under the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (NSW) and the Corporations Law. On the hearing of the appeal, Mr Bathurst QC appeared, with Mr Meagher SC and Mr Gleeson of counsel for Mr Heydon; Mr Ellicott QC and Mr Barton for Abbot Tout (AT); and Mr Oslingon QC and Mr Speakman for Allen Allen & Hemsley (AAH). Mr Sher QC, with Mr McDougall SC, Mr N J O'Bryan and Mr Nugent, appeared for the three plaintiff companies. They are collectively designated NRMA, although their rights of action, losses, and claims are not necessarily identical. 361 The reasons for judgment of the learned judge at first instance are over 700 pages in length, resulting from an action that occupied some six months of court sitting time, and generated over 5000 pages of transcript of evidence together with many volumes of documentary evidence. Because, whatever the result, an appeal was always predictable, his Honour's reasons are comprehensive. This has the advantage of relieving this Court of much of the burden of restating in detail all of the facts, evidence, issues and submissions that took up much of the trial, enabling attention to be focussed on the principal questions of liability now calling for decision. There are three. They have been called: (1) the Gambotto question; (2) the Free Shares question; and (3) the statutory claims. 362 Before considering them, it will avoid repetition later in these reasons if some general observations are made now about the duties and standards of care imposed by law on practising barristers and solicitors, and the kind of conduct that may constitute a breach of them. Both branches of the profession owe a duty of care to their clients, in this instance to NRMA, that may be summed up by saying that they are bound to have and to exercise a degree of skill and care that is to be expected of persons professing and practicing in their area of expertise. See Rogers v Whitaker (1992) 175 CLR 479, 483. In terms of reputation and prominence, the defendants were and are among the leaders of the profession in the field of company law, and especially, in Mr Heydon's case, trade practices law. This, it was submitted by Mr Sher QC, had the consequence that they were to be judged by more exacting standards than others of lesser ability in the same field of expertise; but that is plainly neither good law nor sound policy. It would penalise those who were better at doing the same work, and reward increasing proficiency with progressively heavier liabilities. There is only one standard, which is the standard appropriate to a member of the profession with the relevant specialist skills: Duchess of Argyll v Beuselinck [1972] 2 LL R 179, 183; Rogers v Whitaker (1992) 175 CLR 479, 483. 363 There is occasion here to bear in mind that the liability in question is limited to negligent acts or omissions, and that is so whether it arises out of contract, as it does for a solicitor, or is based in tort, as it is for a barrister in New South Wales. In a contract for legal services, the implied undertaking is no more nor less than to have and to use the requisite degree of skill and care. The same duty is imposed by the law of tort. In giving advice, a lawyer does not warrant or guarantee the soundness of his or her opinion but only that the requisite degree of skill and care has been used in arriving at it: Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209, 272, col 1 E-G. In the present proceedings, where the professional negligence is alleged to consist, at least in part, in failing to warn of a risk that legal advice given to a client might turn out to be mistaken, a lawyer is not normally required to warn experienced business clients of the possibility that his opinion, though firmly held, may not in fact prevail. See Ormidale Holdings Pty Ltd v Ray (1982) 36 BCLR 378, 387, quoted with approval by McClelland CJ in Eq in Trust Co. of Australia v Perpetual Trustees WA Ltd (1997) 42 NSWLR 237, 247. 364 Finally, reference must be made to the limits of the duty to advise. At one time a solicitor's duty was considered to be limited by the terms of the retainer from the client, there being no affirmative legal obligation to give advice going "beyond the specifically agreed task or function". Then, in Hawkins v Clayton (1988) 164 CLR 539, 585, it was held that there was no justification for imposing a contractual duty of care that was co-extensive with the parallel duty independently imposed in the law of negligence. It followed that an obligation might arise requiring a solicitor to take positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client, or even by others who were not the clients who had retained the solicitor. The result was that in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642, 652, a majority of this Court held that an affirmative duty to advise might exist in relation to matters that were not directly within the ambit of the retainer from the client. The decision on this point in Waimond Pty Ltd v Byrne has since been followed on several occasions. More recently, however, in Henderson v Merrett Syndicates Limited [1995] 2 AC 145, 193-194, the House of Lords rejected the reasoning of Deane J in Hawkins v Clayton, holding instead that there was "no sound basis for a rule which automatically restricts a claimant to either a tortious or a contractual remedy", and that it was "the contract that defines the relationship of the parties", so that ordinarily "the parties must be taken to have agreed that the tortious remedy is to be limited or excluded". In Astley v Austrust Ltd (1999) 51 ALJR 403, the High Court decided to follow the reasoning in Henderson v Merrett Syndicates Limited, in preference to that of Deane J in Hawkins v Clayton. The result, in my respectful opinion, is that what was said by Deane J in Hawkins v Clayton has ceased to be good law in Australia. Because it formed the or a pivotal point in the reasoning in Waimond Pty Ltd v Byrne, it is no longer possible to say that there is a "penumbral" duty in tort requiring a solicitor to advise on matters going beyond the limits of his or her retainer. On that aspect, the decision in Waimond Pty Ltd v Bryne is inconsistent with the reasoning in Astley v Austrust Ltd, and should, in my opinion, no longer be followed. It had the effect of enlarging or extending the range of matters on which a solicitor, and possibly also a barrister, might be required by the law of tort to advise a client or other persons. 365 Not being in a contractual relationship with the client, the liability of a barrister for giving negligent advice has always been a product of the law of tort, and in that form it survives the decision in Astley v Austrust Ltd. However, the task of a barrister in giving opinions, was, before Hawkins v Clayton and Waimond Pty Ltd v Byrne, widely regarded as being to answer the specific questions on which he or she was briefed for advice. Counsel was not expected to go beyond matters on which the opinion was sought, although he or she might, and generally would, do so on noticing something material that might have been overlooked by those instructing. If, the principle referred to in Waimond Pty Ltd v Byrne is no longer good law, then, as I see it, it now no longer applies to barristers any more than to solicitors so as to impose a legal duty of advising on matters on which advice has not been sought. The decision in Astley v Austrust Ltd was delivered after the trial of this action had ended. In the reasons for judgment, the learned judge relied to some extent on the decision in Waimond Pty Ltd v Byrne in making some findings against the defendants of negligently failing to warn the NRMA plaintiffs of risks with respect to questions on which they were not retained or instructed to advise. Not for the first time, therefore, the liabilities of parties to this action have been affected by a decision that altered the law. 1. The Gambotto question 366 NRMA Limited, which will be referred to here as Association, was founded early in the 20th century as a club with about 50 members. It was incorporated in New South Wales in 1920 as a company limited by guarantee having as its main object the promotion of the interests of motorists and road users in good roads, safety, and other matters of similar concern. NRMA Insurance Limited ("Insurance") was incorporated in 1926 also as a company limited by guarantee. Its principal object was to provide insurance for members of Association and others. The members of Insurance consisted essentially of the incorporated Association, of directors appointed by it, and of those policy holders who, when policies were issued to them, were members of Association. Not all Association members held policies from Insurance, and there were consequently more members of Association than of Insurance. 367 The directors of Insurance were appointed by the board of directors (originally the Council) of Association, which in substance controlled the affairs of Insurance and its various subsidiaries. By early 1994 membership and property of the NRMA group had grown to the extent that Association had some 1.8 or 1.9 million members and assets under its management or control valued at more than $6 billion having a net worth of more than $2 billion. Taken together, companies in the NRMA group were among the largest insurers in the country. The assets were, however, not available or accessible to members of Association; it was doubtful whether dividends could be declared; and the memorandums of association of each company contained restrictions on the distribution of assets in the event of winding up. In the case of Insurance, any surplus on winding up was to be paid to Association; and in Association it was to be transferred to some other institution having similar objects or, in default, for some charitable purpose (cl 5). 368 To the board and the management of Association, this state of affairs seemed unsatisfactory. The NRMA companies were "over-capitalised", and, beginning at some time in 1992, serious consideration was given to "demutualising" them. To achieve this, a new corporate structure was needed which, it was said, would "unlock the wealth" of the NRMA Group and enable it to operate nationally in insurance and possibly other forms of competitive enterprise. Time was spent investigating and debating the merits and demerits of various different structures that might be adopted for this purpose; and by about March or April 1994, if not before, the lawyers, planners and advisers believed they had resolved most of the problems and settled on a suitable structure and a procedure for bringing it about. A decision to proceed with the proposal was adopted at a meeting of the joint boards on 17 March 1994, and committees were appointed to implement it. Briefly stated, the proposal as developed envisaged the following steps: (1) converting Association and Insurance to companies limited by both guarantee and shares; (2) issuing to a new company to be incorporated as NRMA Holdings Limited shares in Association and Insurance; (3) the surrender by existing members of their rights in Association and Insurance in exchange for paid up shares in Holdings; (4) for those who failed or refused to surrender their rights and accept in exchange an allotment of shares in Holdings, selling the shares allotted to them and paying them the proceeds in cash less the expenses of sale; and (5) listing Holdings as a public company. The result that was expected to ensue from carrying out these steps was that, apart from Holdings itself, all existing members would cease to be members of Association and Insurance and become shareholders in Holdings. As a result, Holdings would be the only shareholder in Association, and, with Association, one of only two shareholders in Insurance, giving it complete control of Association, Insurance and its subsidiaries. To achieve this, alterations in the memorandum and articles of both Association and Insurance would be needed. 369 Steps 3 and 4 were indispensable features of the proposal for restructuring the NRMA companies in this way. In a company having as many members as Association or Insurance, it was more or less inevitable that some members would not be prepared to surrender their existing memberships in return for shares in Holdings Limited. Means had therefore to be found of excluding those who were unwilling or who failed to take up those shares. To become a shareholder in a company, a person must either be a signatory to the memorandum or agree to become and be registered as a shareholder. Since there was no way of compelling everyone to agree to become a shareholder of Holdings, step 4 in the process contemplated that all existing members of Association or Insurance, including those who rejected the offer of shares in Holdings or failed to apply for them, would be excluded from membership of those companies leaving Holdings effectively as the only shareholder. It was intended to accomplish this step by altering the articles of association of each company. 370 The terms of the proposed new article designed to exclude existing members ("the changeover article") appeared in draft articles prepared by Mr Bateman of AT, which he forwarded under cover of a letter dated 18 August 1994 to Ms Helen Conway, who was the General Manager, Group Secretary and General Counsel for NRMA. Under the heading Cessation of Membership, cl 117 of the proposed articles designed for Association, provided: "If the conditions attaching to the offer by NRMA Holdings of Shares to Participating Members as set out in the prospectus are satisfied then: (a) the members of the Company, other than NRMA Holdings, shall cease to be members on the changeover Date ……. on condition that upon NRMA Holdings becoming the sole member of the Company: (c) NRMA Holdings first applies the Transfer Value to pay up the par value of the shares and then applies the balance to a Share Premium Account; and (d) NRMA Holdings allots and issues those Shares accepted by Participating Members in accordance with the terms of the offer and allots and issues the balance of those Shares to the NRMA Offer Trust". By cl 115, "Shares" meant ordinary shares of $1.00 each offered to Participating Members by Holdings under the prospectus being issued, and Participating Member meant a member entitled to be offered shares under the proposal. The draft changeover article in the case of Insurance (also cl 117) differed slightly in form, but not in substance or effect, from that for Association. 371 It is not necessary to examine in detail the procedure for compensating those who failed or refused to apply for the Holdings shares offered to them. Suffice to say they were to be paid the cash equivalent of the market value of the shares allocated to them. What was vital to success of the proposal was that, except for Holdings, all members, including dissentients in Association and Insurance, would whether they wished it or not, be excluded from those companies by altering the existing articles of both companies to incorporate the "changeover" clause 117. Altering the articles of association of a company is authorised by s 176(1) of the Corporations Law, which provides that a company may by special resolution alter or add to its articles. Once altered in that way, the changeover article in each case would bind the members of Association and Insurance by force of s 180(1) of the Law, which confers on the company's "constitution" (meaning the memorandum and articles) the effect of a contract under seal, both: (a) between the company and each member, and also (c) between a member and each other member. References to sections of the Corporations Law are to section numbers as they were at the time of the events giving rise to the claims. There have been some changes in numbering since that time. 372 In referring to members who failed to take up shares in Holdings it is convenient to speak of them all as "dissentients" even though some of them would fail to accept through inaction rather than active opposition to the proposal. Whether any dissentients could successfully challenge the alterations in articles extinguishing their memberships in the two companies was a matter discussed at meetings held early in December 1993. Mr Morgan of AAH remained confident throughout that the proposal could be brought about by altering the articles by special resolutions passed in general meeting. It was something about which Mr Bateman of AT had some concerns which disposed him to favour a court supervised scheme of arrangement. Mr Morgan opposed proceeding by scheme of arrangement because he and the NRMA management believed it would afford dissentients a ready-made platform for publicly expressing their opposition to the proposal. Specifically Mr Bateman's concerns, as he explained them in evidence at the trial, were that, there being so many members, but with low levels of attendance at meetings of the companies, they might end up with the result that a minority who voted would in effect remove from membership a majority who did not attend. His other main concern was that they were dealing with membership rights as distinct from shareholdings, which he thought might make a difference. It was decided to consult senior counsel, and Ms Conway gave instructions for Mr Heydon QC to be briefed. 373 A draft brief was prepared by Mr Morgan and first sent to Mr Bateman for comment. A preliminary conference was arranged with Mr Heydon and held at his chambers on 14 December 1993. It was attended by Mr Bateman (AT), Mr Morgan (AAH), Mr Simpson, who was another solicitor from AAH, and Ms Prue Godwin, an inhouse lawyer from NRMA. Various matters were discussed including the question of whether a scheme was needed. The brief was then revised in the light of the discussion, and on 15 December returned to Mr Heydon to give a written opinion. At the time he was engaged in a lengthy court matter, after which he intended to leave on vacation; but he promised to provide a written opinion by 20 December, deferring for later consideration some specific questions. One was the matter of "oppression" of members. 374 Under the heading Major Issue: Scheme of Arrangement or General Meeting , Section 10 of the revised brief to Mr Heydon was as follows: "The major issue that needs to be considered and on which Counsel's advice is sought is whether the resolutions which will need to be passed by Association and Insurance to facilitate the proposal must, as a matter of law, be achieved by: (a) a scheme of arrangement under section 411 of the corporations law; or, whether, in the absence of a legal requirement that the matters proceed by way of scheme of arrangement, the proposals can be realised by: (b) extraordinary general meetings of the members of Association and Insurance". The proposal was for members at those general meetings to pass special resolutions altering the articles of association adopting what became cl 117 excluding everyone except Holdings, or Holdings and Association, from membership of the two companies. The instructions went on to explain that historically the voter turnout at Association meetings was about only 5% of the total membership of about 1.8 or 1.9 million members, and at Insurance meetings it was about 1% of a total of 1.6 million. This reflected the concerns that Mr Bateman had voiced, which he explained in his evidence at the trial in the terms mentioned, which he explained in his evidence at the trial in the terms mentioned, which were accepted by the trial judge. 375 In response to the revised brief dated 15 December 1993, Mr Heydon QC in his written opinion of 20 December first summarised the question asked in section 10 of the revised brief, and then answered it by saying that in law the proposal "can be realised by extraordinary general meetings of the members of Association and Insurance" without a scheme of arrangement. Elsewhere in the opinion he confirmed that "all necessary changes can be made by special resolutions under ss 167, 172, and 176". Of these provisions, s 167(1)(d) of the Corporations Law enables a company limited by guarantee to convert to a company limited by both shares and guarantee. Necessary consequential changes like the elimination of cl 5 of the memorandum of each company could be effected by special resolution under s 172(2). In that context, he referred to oppression under s 260, which was an issue which he said would be dealt with in a later opinion. A special resolution would also be needed to insert in the memorandum of both Association and Insurance a clause stating the amount of share capital and its division into fixed amounts, as well as a statement that the liability of members was limited. Not much of this is material to the point in issue; but, he also said that various provisions of the articles of Association and Insurance would have to be altered. Examples of articles that Mr Heydon identified as having to be changed included: "article 3 (members - the present clause does not contemplate [Holdings] as a member, or the sole member; article 11 ….". and so on. Mr Heydon's opinion that the restructuring could be carried out by a special resolution of the members without a scheme of arrangement was reported by Mr Morgan on 31 December 1993 to the planning committee, which included NRMA executives and in-house legal staff, including Ms Conway, at a meeting that was attended by Mr Bateman. Matters proceeded from there. 376 Mr Heydon had perhaps not, in so many words, advised that, in altering the articles, it would be necessary to invoke the power conferred by s 176 of the Corporations Law of altering or adding to articles; but the reference in his written opinion to making "all necessary changes" by special resolution "under s 167, 172 and 176" leaves no doubt that he had s 176 in mind as the relevant source of power to alter the articles by incorporating the proposed "changeover" article. The submission on appeal that it was or would have been possible, independently of s 176, to use s 167(3)(a)(iv) of the Law to adopt the changeover article, was later abandoned; or, if it was not, it is in my view untenable. Section 167 does not confer an independent power to alter articles, but is simply a clerical or registration requirement to be complied with consequentially upon altering the memorandum under s 167 and the articles under s 176. In any event, if there was any doubt that it was s 176 that was being relied on to incorporate the changeover clause in the articles, Mr Heydon's earlier thinking on that matter is revealed in a later opinion given on 28 July 1994. Having on that occasion been briefed to advise on whether the members of Association and Insurance would be contractually bound by the articles as altered, he said: "The contract constituted by the articles can thus be varied by amending the articles. That requires a special resolution (s 176(1)) and it requires the majority to avoid oppression of the minority. Subject to those requirements, the answer is 'yes'." 377 Mr Heydon's view that the proposal, including altering the articles to eliminate all members (other than Holdings) in Association and Insurance, was capable of being achieved by special resolution passed in general meeting, was, as it later turned out, confounded by the decision on 8 March 1995 of the High Court in Gambotto v WCP Ltd (1995) 182 CLR 432. It was a case in which the articles of the company WCP Ltd were altered by special resolution at general meeting to insert a new art 20A authorising a member holding 90 per cent or more of the issued share capital to acquire the shares of all other members at a price which, it was not disputed, represented the fair value of those shares. The majority holder (Industrial Equity Ltd) of 99.69 per cent of the shares in the company refrained from voting on the special resolution, which was passed by the votes of three minority members holding 7,900 shares at a meeting not in fact attended by Mr Gambotto or the remaining shareholders, who held 15,898 of the 50,590 other shares in the company. On appeal, the High Court held that the special resolution adopting art 20A was invalid. In doing so, the Court reversed the decision of the New South Wales Court of Appeal (Priestley, Meagher and Cripps JJA) in WCP Ltd v Gambotto (1993) 30 NSWLR 385, and restored the decision at first instance of McClelland J in Gambotto v WCP Ltd (1992) 8 ACSR 141. 378 In reaching their decision, the majority of the High Court Justices (Mason CJ, Brennan, Deane, and Dawson JJ) rejected, at least for the purpose of their decision, the test laid down by Lord Lindley MR in Allen v Gold Reefs of West Africa [1900] 1 Ch 656, 671, that, in altering articles of association, shareholders were bound to act "bona fide for the benefit of the company as a whole". In its place, their Honours recognised two broadly distinct categories of cases in which the validity of such alterations of articles might be called in question. One was "in the context of a special resolution altering the articles and giving rise to a conflict of interests or advantages …" (182 CLR 432, 444). In this, their Honours were referring to cases of the kind exemplified by Peters American Delicacy Co Ltd v Heath (1939) 61 CLR 457, where the relevant alteration aimed to confer on holders of fully paid, but not partly paid, shares a preference in the distribution of dividends. The proposed alteration there was described by Latham CJ as affecting the "relative rights of different classes of shareholders" (61 CLR 457, 482), and by Dixon J (61 CLR 457, 512) as "a revision of … articles regulating the rights inter se of shareholders or classes of shareholders". With respect to alterations like that, their Honours in Gambotto (182 CLR 432, 443) indorsed Sir Owen Dixon's stricture on Lord Lindley's test as "inappropriate if not meaningless", and accepted that, as a general rule, a shareholder voting on an amendment to articles of that kind was entitled to exercise to personal advantage the voting rights attaching to his shares "as an incident of property" (182 CLR 432, 443). 379 In Gambotto "somewhat different considerations" were held to apply where the proposed amendment involved an alteration of articles to allow "expropriation by a majority of the shares or valuable proprietary rights attaching to the shares of a minority" (182 CLR 432, 444-445). Such a power, their Honours said, "could not be taken or exercised simply for the purpose of aggrandising the majority" (182 CLR 445). Expropriation would not be valid unless the majority proved (182 CLR 432, 447) it was "made for a proper purpose and is fair in all the circumstances". It might on occasions be justified if "the substantial purpose" of altering the articles was to "secure the company from significant detriment or harm", as, for example (182 CLR. 432, 445), where a shareholder was competing with the company, as in Sidebottom v Kershaw Leese & Co [1920] 1 Ch 154; but not if the change was merely to enable a majority to secure for themselves "a corporate structure that can derive some new commercial advantage by virtue of the expropriation" (182 CLR 432, 446). This was the first limitation which the decision in Gambotto imposed on the power of altering the articles of association by special resolution passed by members in general meeting. 380 It was at this juncture that McHugh J parted company with the majority reasoning in Gambotto v WCP Ltd. His Honour was not prepared to accept that a distinction should be drawn between an expropriation which would enable a company to pursue a beneficial course of action ("that is necessary to protect or promote the company's interests") which would otherwise be denied to it, and one which avoided detriment to the existing interests of the company (182 CLR 432, 455). He considered that in either instance an expropriation of minority interests might be justified "If it will enable the company to pursue some significant goal … that is external to the company". In that respect, the approach adopted by McHugh J remained closer than that of the majority to the test of bona fide for the benefit of the company as a whole. However, as well as requiring that an expropriatory change in articles be justified in that way (the first limitation), their Honours were all agreed that it must not be "oppressive" or "unfair", meaning that, at the very least, the minority must be fully informed and that the expropriation must be on terms of full compensation for the shares or rights taken away. This is the second limitation imposed by Gambotto on the power to alter articles of association. As to that limitation, McHugh J considered that the evidence in Gambotto failed to show there had been full disclosure to the minority shareholders. Although, therefore, their Honours differed in their reasons, they concurred in holding that art 20A was invalid and that the appeal should be allowed. 381 It would not have been possible for the NRMA proposal to escape the reach of the majority reasoning in Gambotto on the simple ground that Association and Insurance were companies limited by guarantee and not, as in Gambotto, limited by shares. The general principles of company law apply as much to one as to the other. See, for an example, Re Ingelburn Horse & Pony Club Ltd [1973] 1 NSWLR 641. Nor is it, in my opinion, sufficient to say that Gambotto involved expropriation by the majority of a minority whereas here the rights of all members of Association and Insurance were to be extinguished and replaced by something of equal or greater value. Although at various points the majority in Gambotto speak of an "aggrandisement" of a "majority", the reasoning is in terms applicable to an expropriatory amendment as such, whether or not the specific target is a minority of members. In the aftermath of Gambotto, the same conclusion was reached by Mr S E K Hulme QC in an opinion dated 3 April 1995, and also by Professor Austin, as Austin J then was, in advice that he gave to NRMA at about that time. In any event, once special resolutions were passed altering the articles, those opposed to the change would ipso facto constitute a minority, whose rights in the companies would be expropriated equally with those of everyone else. One day they would, and the next day they would not, be members. In that way, as it seems to me, their rights as members would have been "expropriated" in terms of the ratio in Gambotto. 382 There might perhaps be more cogency in the argument that the rights of members were, for the most part, inconsequential in nature, consisting of little more than access to free road services and to insurance policies, and the power to vote and elect directors. In Fraser v NRMA Holdings Limited (1995) 55 FCR 452, 484, the Federal Court acknowledged that it might not be possible to place a money value on those rights; but, like Mr Heydon in an opinion he gave on 14 June 1994, they recognised the members as having rights enforceable at law. See also the reference in Fraser v NRMA Holdings Limited (1995) 55 FCR 452, 484, to the earlier decision of McClelland J in National Roads and Motorists Association v Parker (1986) 6 NSWLR 517, 521. A more efficacious means of avoiding Gambotto might have been for the directors of Association to exercise the power conferred on them by art 6 of the articles to expel members "at any time" and "without giving any reason for doing so". Exercising that power to exclude dissentients would not have been open to challenge by the members expelled: Wayde v New South Wales Rugby League Club (1995) 180 CLR 459; and cf Fraser v NRMA Holdings Limited (1995) 55 FCR 452, 473. Taken with the fact that membership in both companies was renewable annually, it serves to show how fragile those rights really were. 383 It is a peculiarity of Gambotto, which was adverted to by Mr Hulme QC in one of his two opinions in March or April 1995, that it applies only when articles are altered to incorporate a power of expropriation, and not at the time when the power is exercised and the expropriation in fact takes place. This follows from the fact that the majority of their Honours acknowledged that expropriating a minority was valid "if the relevant provisions of the company's constitution so provide". See Gambotto v WCP Ltd (1995) 182 CLR 432, 455. There is established authority that an existing provision in the original articles of the company may be used to expropriate minority shareholders. See Phillips v Manufacturers Securities Limited (1917) 116 LT 292, which was referred to with approval in Peters American Delicacy Co Ltd v Heath and is mentioned in a footnote in Gambotto. The difficulty for the defendants is, however, that even if art 6 would have enabled NRMA validly to "expropriate" members by expelling them, it was not something that any of the defendants recommended to NRMA either before or after the decision of the High Court. At no time was it foreseen or suggested as a means of removing the NRMA proposal from the ambit of the majority reasoning in Gambotto. 384 The decision of the High Court was delivered on 8 March 1995. After taking advice from Mr Heydon and Mr S E K Hulme QC, as well as Minter Ellison, solicitors, the boards of the NRMA companies on 27 May 1995 resolved to defer the meetings of members, which had by then been adjourned from the appointed date of 19 October 1994, at which it was proposed to alter the articles of association. In holding the defendants liable for losses alleged to have been sustained by NRMA, the trial judge found that, in breach of his duty to exercise due skill and care, Mr Heydon had failed to warn NRMA against the risk that, if the appeal to the High Court in Gambotto succeeded, it might, as his Honour expressed it, do so - "on grounds inimical to the validity of resolutions in general meetings having the effect that members of NRMA were deprived of their memberships." His Honour considered that the risk of this happening should have been adverted to, and a warning issued in respect of it, when Mr Heydon's opinion was given in December 1993; but "if it was not then the subject of advice there were occasions in February and March 1994 … when Mr Heydon should have returned to it". Those occasions were further conferences with the solicitors, at which it was assumed without revisiting the correctness of the opinion in December 1993 that the proposal could be validly achieved by resolutions at general meetings altering the articles of association in a way that would "expropriate" the dissentient members. However, to have been in a position to give an appropriate warning at any time during the period from December to March or April, the defendants would have needed to know that there was a pending High Court appeal in Gambotto that might have a fatal impact on the proposal to restructure NRMA in that way. The judgment of the Court of Appeal in Gambotto had been given on 10 May 1993. It supported the defendants' opinion that the restructuring could be carried out by altering the articles in general meeting in the manner proposed. The decision was referred to and discussed at some length in the AAH brief to confer, and it was mentioned at the preliminary conference with Mr Heydon held on 14 December 1993. 385 In giving his written opinion on 20 December 1993 that the proposal could be carried out in reliance on s 176, Mr Heydon said he had that decision of the Court of Appeal in mind. As editor of the New South Wales Reports, he had previously read the Court of Appeal decision in Gambotto on at least three occasions, and he read it again before the conference on 14 December. He regarded it as correct, and he may have said as much during the conference. The decision was, however, by then the subject of an application for special leave to appeal to the High Court, and the fact that the application had been filed was mentioned in an editorial note inserted by the assistant editor that appeared at the foot of the first page of the published report of the case in volume 30 NSWLR 385. Special leave had, as it happens, already been granted by the High Court on 10 December 1993, which was four days before the conference was held. The fact that an application for special leave had been filed, but not that it had been granted, was as his Honour found, mentioned at the conference and so was known to those who were present at it, which included all three individual defendants. 386 His Honour considered that the fact that the decision in Gambotto was "on appeal" meant that it was "incumbent" on Mr Heydon "to take note that the application for special leave had been filed and follow it up to see whether special leave had been granted". Had he done so, his Honour reasoned, Mr Heydon would have found that leave had been granted on 10 December 1993. On discovering that to be so, he should have obtained and read a transcript of the hearing of the special leave application. Even without doing so, his experience of the High Court should have told him that, following a grant of special leave, about 50% of appeals succeeded. It should therefore have signalled to Mr Heydon the need then to obtain and read a transcript of the subsequent argument on appeal, which in fact took place on 21 April 1994. Had he read that transcript, it "would have given further grounds for analysis". The transcript of the appeal hearing recorded interlocutory remarks by the learned High Court Justices that were unfavourable to the respondent company (for whom Mr Arthur Emmett QC was appearing) and encouraging to the appellant Mr Gambotto, who was appearing in person. As to that, Giles J said: "Going back to December 1993 these attitudes in the High Court could and should have been foreseen by a barrister professing the expertise of Mr Heydon." In responding to the revised brief delivered on 15 December 1993, Mr Heydon should, his Honour found, have adverted to the grant of special leave to appeal and should have given the necessary warning, which in his view should have been: "… a warning whereby further consideration should be given to the risk when the appeal had been heard, with the benefit of the transcript of the argument, should have been given. If that had been done, as earlier explained, the transcript of the argument would have given further grounds for the analysis I have described." 387 It will be necessary to return to the analysis described by his Honour. Before doing so, I should say now that I do not agree that Mr Heydon was, as his Honour found, negligent in failing in December 1993, or in February and March 1994, to take the steps identified by his Honour. In the first place, there was no evidence at the trial that in 1993 or 1994 it was the practice of the profession in general, or of senior counsel in particular, preparatory to giving an opinion on a matter of law, to follow up special leave applications in the High Court, or to obtain copies of the transcript of argument on the appeal hearing. It is not self-evident that at that time such transcripts were readily available to persons who were not directly involved in the appeal itself. Mr Sher QC suggested that a copy of the transcript could easily have been obtained from Mr Emmett QC. Having appeared for the respondent on the special leave application and the High Court appeal in Gambotto, he knew more about it than anyone. As it is, there is evidence from Mr Morgan that Mr Emmett had told him that in his opinion the appeal would be likely to fail. In any event, judicial utterances in the course of an appeal hearing do not have the status of considered opinions. They do not amount to authority for propositions of law, but are put to counsel for the purpose of testing submissions being advanced in argument. In any event before any significance could be attached to what was said in argument in the Gambotto appeal, it would, of course, have been necessary first to know there was an appeal hearing, as well as what was said in the course of it. 388 It is hardly necessary to say that in December 1993 or in February or March 1994, neither Mr Heydon nor the other defendants could have known what would be said at an appeal hearing that took place on 21 April 1994. They did not in fact know that special leave had been granted or even that there would be an appeal hearing at all. His Honour nevertheless considered it "incumbent" on Mr Heydon to follow up the notation in the New South Wales Report to see if special leave had been granted in Gambotto, and then to wait for and obtain the transcript of argument on the appeal. If, before advising on questions of law, it is the duty of counsel to obtain and read transcripts of argument in appeals pending in the High Court, then the duty is one that can be fully discharged on each occasion only by identifying all potentially relevant applications for leave to appeal to the High Court from courts anywhere in Australia, and then obtaining and examining copies of transcripts of the appeal hearings after they have been heard. Pursuing that course would very often impose quite considerable delays in giving advice, frequently with paralysing effects on business and commercial activity that depended on it. 389 Mr Heydon was asked to provide his opinion on 20 December 1993, not on some future occasion when or after the appeal in Gambotto had been heard. It would have been pointless to give an opinion in December 1993 that was so qualified by warnings about the need to wait until some unpredictable future occasion that no one could usefully act on it. Perhaps if Mr Heydon had known that there was an appeal; that it would certainly be going ahead; that it would be heard on 21 April 1994; and that the transcript might impart information about the "attitudes" of the High Court in deciding the Gambotto appeal that would be fatal to the NRMA proposal, he might have recommended to those instructing him to wait for his opinion until after the appeal had been argued and the transcript had been obtained and studied. In December 1993 there would have been no means of knowing that anything useful would ever come of it. The appeal might be abandoned (which it would also be necessary to find out), or the argument might disclose nothing to indicate the attitudes the High Court might ultimately adopt in giving their decision. On that footing, the only safe course in December 1993 would have been to recommend that everyone wait until the date (which was not predictable) on which the decision was finally given before advising on whether it had the effect of defeating the NRMA proposal as then formulated. So much is in effect alleged in para 44D(m) of the plaintiffs' Points of Claim in the action as one of the particulars of negligence against Mr Heydon: he should not have given the opinion sought but instead advised the client not to insist on it until some occasion in the future. In my respectful opinion, it was not negligence on his part not to have acted in that way. 390 If during the pendency of appeals in other proceedings in the High Court, which may (or may not) raise matters of potential relevance, there is a duty on those who are then advising clients to follow up applications for special leave, then, as Mr Bathurst QC submitted, the duty to search and warn of possible "shifts" in legal principles must also extend to prospective legislative changes in the law. Professional legal advisers ought therefore on all occasions to inquire about and acquaint themselves with bills pending, or about to be introduced, in State or Federal Parliament that might affect issues on which they are being consulted or briefed to advise. That is not the attitude that courts themselves have traditionally adopted on being informed of pending legislation which, if passed, may affect the outcome of proceedings before them. In Ramsay v Aberfoyle Manufacturing Co. (Australia) Pty Ltd (1935) 54 CLR 230, 253, Starke J said that "Courts of law … can only act upon the law as it is, and have no right to, and cannot, speculate upon alterations in the law that may be made in the future". See also R v Whiteway, ex p Stephenson [1961] VR 168, 171; and cf. Clifford Sabey (Contractors) Ltd v Long [1959] 2 QB 290. The weight of authority is to the effect that, except with the consent of the parties, it is not a proper ground for an adjournment that legislation is pending that will or may alter the law applicable to current proceedings. That being so, it is difficult to see why at first instance or at the level of an intermediate court a different course should be dictated by the fact that there are pending High Court appeals which, when decided, might have an impact on other matters not before it. The law is constantly being changed, and business activity would soon come to a halt if legal advice had to be deferred until all change had ceased. In Re Yates Settlement Trusts [1954] 1 All ER 619, it was said to be a matter for the discretion of the primary judge to decide whether or not an application should be adjourned to await the decision of the House of Lords in a pending appeal in a similar matter; but Denning LJ said that, once the law had been stated by the Court of Appeal, "the judge should have applied the law as there laid down without any misgivings as to what the House of Lords may say hereafter" (at 622). 391 Claims for professional negligence are influenced, perhaps more than other forms of liability, by local factors, practices and standards; but it is interesting to note that in the United States it has been held that it is only when a lawyer in fact knows that a question bearing on his client's interest has been "certified" that the client must be advised that a change in the law may be on the way : see State v Harlan (1988) 329 So 2d 1183, 1185 (Fla 2d DCA), considered in Crosby v Jane (1988) 705 So 1356 (Fla SC). Certification is evidently the American analogue of obtaining leave to appeal to a higher court. None of the defendants in this action was found to have had actual knowledge on 10 December 1993, or at any later but possibly material time until well after the end of March 1994, that special leave to appeal had in fact been granted (as distinct from applied for) in Gambotto. In the law of negligence there is no justification for imputing constructive notice to the defendants of the contents of a transcript of a hearing that none of them has ever read and of the existence of which they were not in fact aware at the time. For the plaintiffs, it was accepted that the latest possible time at which a reading of the transcript might have made a difference to the NRMA directors was 17 March 1994 when the proposal was approved, or possibly 28 April 1994, which was only seven days after the appeal hearing of which the defendants were then still not aware. By the time of the next scheduled board meeting in May 1994 the plaintiffs were apparently committed to the expenditure of the bulk of the outlays that were incurred in proceeding with the proposal and which formed the major item in their claim for damages. It would then have been too late to avoid the expenditure which the plaintiffs claimed to recover as damages. 392 Taken by themselves, these considerations do not necessarily justify setting aside the finding of negligence. The learned trial judge, it may be recalled, also found that the judicial attitudes that were revealed in the course of the appeal hearing in the High Court on 21 April 1994 could and should have been foreseen by Mr Heydon in December 1993, and that "the risk of a decision on appeal adverse to an expropriation of shares in the circumstances of Gambotto's case should have been seen". His Honour's conclusion to that effect is capable of being understood as wholly or partly independent of his finding that Mr Heydon should have obtained and perused a copy of the transcript of the appeal hearing. If that is so, the question arises whether, apart from anything that could have been gleaned from that transcript, the reasoning of the majority of the High Court in Gambotto was reasonably foreseeable in or after December 1993. In order to decide that question, the first step is to recall what the relevant principles of company law at that time were, or were considered to be, by a reasonably skilled and careful practitioner professing expertise in that branch of law. 393 In summing up the position as he saw it, his Honour said the effect of the decision in Gambotto at first instance was that "the fact of expropriation was enough to constitute oppression". More precisely, what McClelland J had said at first instance (8 ACSR 141, 144) was: "The immediate purpose and effect of the amendment was to permit the shares of the minority shareholders to be expropriated by the majority shareholders. In my opinion such an amendment amounts to unjust oppression of those minority shareholders who object." Repeating what was actually said there is not mere pedantry. It is essential to bear in mind that it is not the fact of expropriation that constitutes oppression. It is the action of amending the articles that was singled out by the High Court in Gambotto as impermissible. By contrast, the effect of the decision of the Court of Appeal (30 NSWLR 385) was, his Honour said, that "if the expropriation was fair, the fact of expropriation would not make it invalid". Giles J noted that McClelland J and the Court of Appeal had both decided that "bona fide for the benefit of the company as a whole" was an "unhelpful" test to apply as a measure of the power of altering articles. So, his Honour reasoned, if the appeal were to be upheld it was "in prospect" that it would be upheld pursuant to a principle fashioned by the High Court other than that of exercising power to alter articles in a way that was bona fide for the benefit of the company as a whole. It could, he surmised, turn out to be a principle as "blunt" as that on which McClelland J had acted, or it might leave room for expropriation if a condition or conditions other than fairness were met; "but the prospect was of a constraint on the exercise of the power to amend the articles greater than as held by the Court of Appeal" in Gambotto . This, his Honour considered, should have led Mr Heydon to see in a grant of special leave to appeal in Gambotto's case a risk in proceeding by the route of resolutions altering the articles of association. For that reason he should have warned against it. 394 Consistently with existing authority, however, there were "in prospect" in December 1993 at least five principles, and possibly more, that might have been adopted on appeal by the High Court for determining whether articles were being validly altered in circumstances like those disclosed in Gambotto. Stated in their most elementary form, the first was the existing principle of bona fide for the benefit of the company as a whole. The second was the "blunt" principle that expropriatory amendments to articles were always invalid. The third was that, given proper disclosure, such amendments were valid if they were fair in terms of the compensation to be paid. The fourth was that, if expropriatory in purpose or effect, they would be valid on proof by the proponents that the company would otherwise sustain significant detriment. The fifth was similar, but included considerations of benefit as well as detriment; that is, as McHugh J expressed it in Gambotto v WCP Ltd (1995) 182 CLR 432, 455, if the expropriation: ".. will enable a company to pursue a beneficial course of action that would otherwise be denied to it … if it will enable the company to pursue some significant goal … that is external to the company." 395 By the time Mr Heydon came to advise on the proposal in 1993, it was fairly predictable that, in determining the validity of alterations to articles, Lord Lindley's test of bona fide benefit was unlikely to survive much longer in Australia. It had been broadly accepted in Peters American Delicacy Co Ltd v Heath, but put aside there as "inappropriate" in circumstances where the alteration was one that involved adjusting the rights of shareholders inter se. That was not something which was relevant to the NRMA proposal. The test had, however, also been passed over by Jacobs J in Crumpton v Morrine Hall Pty Ltd [1965] NSWR 265, and, although mentioned, it was not applied by either McClelland J or the Court of Appeal in arriving at their decisions in Gambotto. As to the other four prospective principles, no other judge had so far adopted the "blunt" approach of McClelland J that expropriatory alternations of articles are never permissible, and there was no specific authority in Australia for adopting that approach. The High Court in Gambotto did not do so. It adopted the fourth, or in the case of McHugh J the fifth, of the five prospective principles. In favour of the third, the approach of the Court of Appeal in Gambotto had the merit of sticking more closely than others to the wording of the statutory provision. Section 180(1)(c) of the Corporations Law creates a contract between members of a company in the terms of the articles of association. The effect of s 176(1) is, however, to make it a contract on variable terms: Shuttleworth v Cox Brothers & Company (Maidenhead) Ltd [1927] 2 KB 9, 26. If limits on the power to alter or vary those terms are to be discovered or implied at their source, there is nothing in s 176(1) to say what those limits are. This is reflected in the statement of Meagher JA (30 NSWLR 385, 389) in the Court of Appeal in Gambotto that articles are "infinitely variable" and that it could "hardly be contended that all powers of expropriation are repugnant to the Corporations Law". It would not have been illegitimate to suppose that in future the whole range of alterations to articles, expropriatory or otherwise, might be adequately accommodated under the wide statutory power in s 260 (as it was then) of the Corporations Law that is available to remedy oppression of members. This would have been a sixth prospective principle that might have been adopted by the High Court in disposing of that appeal. 396 What was unexpected about Gambotto v WCP Ltd (1995) 182 CLR 432 was that, in implying restrictions on the authority conferred by s 176(1), the majority in the High Court would go so far in limiting the power of altering the articles facilitating "expropriation" (even if accompanied by full disclosure and fair compensation) to the point of countenancing it only on proof that its purpose was to avoid detriment to, but not to secure a benefit for, the company. When it comes to ascertaining the business purposes of companies, avoidance of loss has, in the past, been equated with the acquisition of gain: Re Padstow Total Loss & Collision Assurance Association (1882) 20 Ch D 137, 149; and McHugh J was, with respect, surely correct in doubting whether in this context, any more than in others, it is possible to rationally differentiate between detriment and benefit to the company. It is not readily apparent why Sidebottom v Kershaw Leese & Co [1920] 1 Ch 154 (director competing with the company business) should be classified as a case of preventing loss rather than promoting gain; but it nevertheless earned the approval of the majority in Gambotto (182 CLR 432, 435) as an example of a form of expropriation that was permissible. 397 As regards decided authorities directly involving or contemplating expropriation, there was not much to go on. In England, there were two decisions at first instance in which expropriatory alterations of articles had been invalidated. Both antedated the remedy provided by s 260. They were Brown v British Abrasive Wheel Co [1919] 1 Ch 200 and Dafen Tinplate Ltd v Llanelly Steel Co [1920] 2 Ch 124, 141, where the term "expropriation" seems first to have been used in this context. Both had, to use the expression in Gower's Modern Company Law (4th ed), at 622, been "somewhat blown upon" by subsequent decisions of the English Court of Appeal, and it is not altogether easy to see how they could have survived the later decision of that Court in Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286, which was referred to with apparent approval in Ngurli Ltd v McCann (1953) 90 CLR 425, 438. In Australia, there was Crumpton v Morrine Hall Pty Ltd [1965] NSWR 265 and the decision at first instance in Gambotto in 1992. They were the only illustrations of the "blunt" embargo on expropriation, although without elucidating the reason how or why it was imposed. What is perhaps more significant is that, before the High Court decision in Gambotto in 1995, efforts to challenge "expropriatory" alterations in articles had consistently ended in failure at the appellate level in both England and Australia. Against this must be placed the strictures of Harmer LJ in Re Bugle Press Ltd [1961] 1 Ch 270, 287-288, on evading what his Lordship described as the "fundamental rule of company law which forbids the majority of shareholders to expropriate the minority". The decision itself was concerned not with alterations in the articles, but with the takeover provisions in s 209 of the Companies Act 1948 (UK), and Lord Evershed MR was careful to confine himself to saying that prima facie the Court should not allow s 209 to be used "for the purpose of enabling majority shareholders to expropriate and evict the minority". He did not say that articles of association could not be altered for that purpose, and, to have done so, would have conflicted with his own decision in Greenhalgh v Arderne Cinemas Ltd. If the prohibition was absolute, there was no reason why it should not have applied to a scheme of arrangement as well as to takeover offers, and, after Gambotto, there were conflicting decisions about whether or not it did so. 398 In Gambotto, the majority of the High Court attached considerable weight to the statements in Re Bugle Press Ltd. It may, with respect, be doubted whether there has ever been a "fundamental rule" of company law to the effect of that suggested by Harman LJ. Company Law and the Companies Acts around which it has grown up during the last 150 years have evolved in a piecemeal, patchwork and largely haphazard fashion. It is not easy in either of those sources to identify any "fundamental rule" of that kind. In Gambotto their Honours considered that, if expropriation was permitted it would "open the way to circumventing the protection which the Corporations Law gives to minorities who resist compromises, amalgamations and reconstructions, schemes of arrangements and takeover offers". However, the provisions of UK s 209 (now greatly expanded in Part 6 of the Corporations Law) were originally designed as much for the protection of major as of minor shareholders, who, when they are few in number, are better placed to exert pressure to extract higher prices for their shares than others in the same company by simply hanging on and refusing to sell until the last moment. This is reflected in the Report of the Company Law Amendment Committee 1925-26 (the Greene Committee) Cmd 2657 HMSO, §84, where it was said that: "It has been represented to us that holders of a small number of shares in a company which is being taken over (either from a desire to extract better terms than their fellow shareholders are content to accept, or from lack of real interest in the matter) frequently fail to come into an arrangement which commends itself to the vast majority of their fellow shareholders, with the result that the transaction fails to materialise …In our opinion this position - which is in effect an oppression of the majority by a minority - should be met." 399 Provisions like those in s 701(2) (which took up the Greene Committee recommendation in §85III) now enable a takeover offerer to "mop up" obstinate dissentients by compulsorily acquiring remnant shareholdings of 10% or less without having to alter the articles, provided that all shareholders are offered uniform treatment. Reciprocal protection for small minorities is conferred by s 703. There was nothing in Part 6 of the Corporations Law to prevent the articles of the NRMA companies from being altered in order to ensure that Holdings became the only shareholder. Part 6 applies only to the acquisition of shares in a company limited by shares, and not to members' rights in a company limited by guarantee, so that it cannot be said to embody a fundamental principle extending to companies of every kind. Subject to that limitation, ss 414(3) and 414(9) perform a similar function in relation to schemes of arrangement. Finding out that these considerations were going to influence the High Court could only have been achieved by reading the reasons for judgment itself after it had been given, and not be perusing the transcript of the appeal hearing in Gambotto v WCP Ltd (1995) 182 CLR 432. 400 Even if approached as a matter of prospective rather than existing legal principle at the time when Mr Heydon advised in December 1993, there was in my opinion nothing in the existing authorities that should have led a competent and skilled specialist practitioner in this field of law to foresee or warn against the possibility that the High Court would formulate a new principle, which would impose a general embargo on expropriating members' rights through alterations in articles that would be circumscribed by proof only of detriment (and not benefit) to the company. Looking back to that time, Mr D M J Bennett QC in his evidence at the trial of this action thought it would have been "unlikely in the extreme" that the High Court would adopt a principle so wide as to stultify the NRMA proposal. Judging by the number of opinions, journal articles and comments it generated, the decision of the High Court in Gambotto came as a surprise to most if not all of those in the profession who specialise in company law. Mr D M J Bennett QC said that, if it had not been a decision of the High Court, he would have said it was wrong. Mr Hulme QC's opinion, given shortly after the decision was delivered in March 1994, exposed various difficulties of which some have already been mentioned here. He was, as the trial judge noticed, plainly not "enamoured" with the majority reasoning of their Honours in that case. 401 On behalf of NRMA on appeal, Mr Sher QC referred to two journal articles published before the decision in Gambotto as demonstrating that some other lawyers were able to predict that changes might result from the decision in that case, and that they in fact did so before it was given in March 1995. Those he referred to were in 12 Companies & Securities Journal 240 (Mr D Grave, of Freehills) and 22 Federal Law Review 206 (Mr S Friedman, of the ANU). Neither author foresaw anything resembling the majority reasoning in Gambotto. On the contrary, Mr Friedman suggested it would be "hard to articulate a test that could be applied in any consistent way" to restrain amendments to articles of association; and that the solution might lie in s 260 of the Corporations Law, which, however, "does little to advance the cause of certainty in the regulation of corporate affairs" (22 Fed L Rev 205, 206, 207). If the provisions of s 260 had been adopted as the controlling factor in Gambotto, the NRMA proposal would almost certainly not have been affected by that decision. The proposed compensation for the rights in Association and Insurance being expropriated was fair. The contrary was not suggested by the plaintiffs. In the end, it was the outright exclusion by the majority reasoning in Gambotto of all considerations of benefit to the company that put paid to the NRMA restructuring as it had been planned. If the views of McHugh J had prevailed, it would have been fairly, if not strongly, arguable that the proposal was one that enabled NRMA "to pursue some significant goal that was external to the company", like that of undertaking an insurance operations on a national scale. On the other hand if, as was held by the majority in Gambotto, the articles could be altered only in order to avoid detriment to the company, the proposal was doomed to failure. 402 What has been said so far has been predicated on the assumption that Mr Heydon was called on to foresee or predict the majority reasoning in Gambotto, or at least to warn that it was a possible outcome of the decision on appeal. I should not be taken to be accepting that he was under a legal duty to do so. No doubt an element of prediction is often involved in advising as a barrister; but, when a client asks for an opinion on the law, what is ordinarily meant is the law as it is, and not as it might possibly become some 15 months later. In the course of cross-examination, Mr Heydon made a number of concessions about what he might or would have done in some circumstances if he had been asked about it; but they were premised on the hypothesis of his knowing in 1994 that special leave to appeal in Gambotto had in fact been granted, and that he would have recognised it as raising a problem. If at the conferences on or after 2 February 1994 he had become aware of any serious obstacle to using members' resolutions rather than a scheme of arrangement to achieve the reconstruction, it would have been a natural response to draw the solicitors' attention to it. It would certainly have been astonishing if he had deliberately chosen to conceal any concern he might have felt; but there was nothing of which he was then in fact aware to lead him to alter his original opinion. His Honour's conclusion that on those occasions Mr Heydon "should have returned to" the question to be answered by him in December 1993 may have rested partly on Waimond Pty Ltd v Byrne; but, to my mind, it goes beyond what is commonly understood to be the limits of the legal duty of a member of the Bar who has already advised on a particular matter. Giving an opinion in a matter does not entail an obligation to the client to keep it under constant supervision from then on, irrespective whether instructed to do so or not. So far as Holdings was concerned, it was not even incorporated until 18 July 1994, and could not have been owed a duty in tort at any time before that date. Even if I am mistaken about this, the fact remains that nothing happened in February or March 1994 to alert Mr Heydon to the possibility that his earlier opinion might at some time in the future prove to be so ill-founded as to require him to correct it by warning that it might turn out to be mistaken. 403 In my respectful opinion Mr Heydon QC was not negligent or in breach of his duty of care in the advice he gave in December 1993 or that he failed to give in 1994, and the findings against him that he was negligent should be set aside. For the same or similar reasons, I consider that the findings of negligence against AAH and AT should also be set aside. I do not think that, at the time in question, it was reasonably foreseeable that the majority reasoning in the High Court decision in Gambotto would circumscribe the power of altering articles so narrowly as to require them to warn NRMA that there was a risk that the proposal for reconstruction would be inhibited or precluded in the form that was in contemplation. Nor do I consider that a duty rested on them to follow up the special leave application by obtaining a copy of the transcript of argument on appeal, or to advise NRMA to await the outcome of the appeal in Gambotto before proceeding with the proposal. 404 In reaching this conclusion, separate attention must also be given to the scope of the retainers from NRMA to each of AAH and AT. There was no doubt that AAH was retained to advise, and that Mr Morgan did advise, that the proposal was capable in law of proceeding by altering the articles of association rather than by scheme of arrangement. In early December 1993, AT was also retained to advise on a series of matters that included the proposed structure, which was broad enough to cover the means by which it might be achieved. Paragraph 9(a)(xix) of AT's Defence admits that that defendant was retained "to contribute … advice … in relation to the structure of the Proposal … [and] the manner in which shares would be offered to members …". In favour of Mr Bateman, he initially expressed doubts about whether a scheme of arrangement might not have been preferable to the procedure of altering the articles by special resolution in general meeting. For reasons which have been mentioned, he voiced these doubts at meetings on 3, 6, and 9 December 1993, which were attended by Mr Morgan and NRMA inhouse lawyers including Ms Godwin, and he continued to do so in memoranda or letters written in late March and July 1994 and possibly also in his firm's "sign-off" letter dated 17 August 1994. The question is, however, whether what was said on those occasions was or should have been sufficient to enable AT to escape liability, if any, for the loss and damage arising from the decision in Gambotto. 405 It is, I think, clear that, what was said on those occasions, was not sufficient to discharge AT from their retainer to advise on the proposed new structure for the NRMA companies. Mr Bateman evidently did not think so, for he continued to raise questions about the wisdom of that course in and after December 1993. The issue, if any, is whether he sufficiently warned NRMA of the risks later said to be implicit in proceeding by members' resolutions rather than by scheme of arrangement. The problem I have in answering that question is that, as I have already held, I do not consider that the majority reasoning in Gambotto was reasonably foreseeable. This makes it difficult to imagine how anyone could have been expected to warn against the risk that it would eventuate. But, in the end, I do not think that what Mr Bateman did would have been enough to satisfy AT's duty to warn of that risk if it had been foreseeable. He never articulated his concerns in a way that exposed the legal objections to it. His reaction was, as he said in evidence, more in the nature of a lawyer's instinct - a "gut feeling" as he described it - against the proposed method of proceeding than a reasoned objection or a warning that expropriation of members' rights was not countenanced by the principles of company law as they were at the time or, more accurately, as they might become in the future. As it turned out, his instinct was correct; but, not surprisingly, he did not express it in a form that adequately identified the risk or obstacle that was later to emerge from the majority reasoning in Gambotto in March 1995. If there is a liability on the part of the defendants for failing to advise NRMA about the potential dangers of Gambotto, Mr Bateman did not foresee or warn NRMA of its existence. However, as I have already said, the majority reasoning in the High Court was not reasonably foreseeable in December 1993, or March 1994, and, in short, there was no "Gambotto" liability on the part of any of the defendants. 2. The Free Shares Issue 406 Before considering other possible forms of liability, I will deal first with what has been called the "Free Shares" issue. The restructuring proposal contemplated that all members of Association and Insurance would be offered, free of charge, a number of paid up shares each of $1 in Holdings based on entitlements calculated according to the duration of their membership. Because a company may not issue paid up shares except in return for money or moneys worth, the consideration for the issue of shares by Holdings was to be the surrender or extinguishment of existing membership rights in Association and Insurance. On the authority of Re Wragg Ltd [1897] 1 Ch 796 and other such decisions, Mr Heydon in his opinion of 28 July 1994 advised that those to whom the shares would issue would be providing a sufficient consideration for the purposes of that requirement of company law. The plan was to offer paid up shares in Holdings to all members of Association and Insurance, while recognising that not all would in fact accept them. Some might reject the offer of shares; others would simply fail to accept it. Shares not taken up in this way would be offered first to existing members who applied to purchase them, and then to institutional and other investors when the shares were publicly listed. The proceeds less expenses of sales of those shares would in due course be paid to the members who had failed to accept them. Because the process of disposing them in this way would involve offering shares to the public, a prospectus had to be issued. Perpetual Trustee Company Ltd was appointed as trustee for the sale and the receipt and distribution of the proceeds of the shares. In that way, Perpetual would be a party to the issuing of the prospectus. 407 The drafting of the prospectus was carried out by or with the professional assistance of Mr Bateman by a prospectus working committee which included NRMA inhouse lawyers. After considerable discussion by the legal advisers, advertising agents and others involved in working on it, the prospectus emerged in the form of a printed brochure or booklet 100 pages in length, for despatch to members in time for the meetings, which were scheduled for 19 October 1994. The booklet contained a letter from the NRMA President Mr Donald Mackay, information about the proposed restructuring, details of the share offer being made, a brief history of the NRMA, the directors' recommendations, accounts and financial information, and so on. The booklet was attractively presented, and interspersed with coloured photographs of NRMA staff cheerfully going about their duties. It also included notices of the meetings of members to be held on 19 October 1994 at which the articles were to be altered by special resolution. Accompanying the prospectus was a two page document printed on four sides known as the "onsert" which bore on the outside the legend "Important information inside". It incorporated proxy and voting papers for use at the meetings and a form of Acceptance of Free Shares, together with instructions on how to fill them in. The Acceptance form had "boxes" or spaces to be completed by inserting an X according to whether the offeree elected to accept shares, or preferred the cash alternative in respect of a stated number of shares of which an estimated value was given. The prospectus, with the onsert on top, was distributed in clear plastic sleeves in relays beginning on 31 August 1994, although in a formal sense the prospectus "issued" on 23 August 1994 (Points of Claim, para 27). 408 Two of the 16 NRMA directors opposed the restructuring proposal. They were Miss Dawn Fraser and Mr Richard Talbot. On 22 September 1994, they applied to the Federal Court for declaratory relief and an injunction under s 80 of the Trade Practices Act 1974 to restrain distribution of the prospectus material, on the ground among others that, in contravention of s 52 of the Act, it involved deceptive and misleading conduct. The application came before Gummow J, who delivered judgment on 13 October 1994. His Honour found that the prospectus contravened s 52 in five respects, and he enjoined the companies from proceeding with the meetings except by leave of the court. See Fraser v NRMA Holdings Ltd (1994) 52 FCR I. It is not necessary now to canvass the matters in respect of which a contravention of s 52 was found to exist at first instance, because, following that decision, there was an appeal to the Full Court (Black CJ, von Doussa and Cooper JJ), which, as to four of those matters, succeeded. See Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, to which reference has already been made. The only one that survived the appeal was the Free Shares issue; but the Full Court also found the material distributed was misleading in another or a closely related respect, which is conveniently referred to as the "disadvantages" question. 409 The "disadvantages" question arose in this way. The prospectus contained a statement to the effect that the NRMA board of directors had "carefully considered the advantages and disadvantages" of the restructuring proposal and had concluded it was in the best interests of members and the NRMA. They went on to recommend that members should vote "yes" to the proposal because they would be "better off". The Full Court held that this involved a statement to the members that there were disadvantages to be considered in the restructuring, but found that "nowhere in the prospectus are the disadvantages identified, explained or compared with the perceived advantages" (55 FCR 452, 486). The reasoning of the Full Court was (at 487) that: "failure to identify and inform members about disadvantages of which the directors making the recommendation were aware was to leave the members in a half light which had the potential to lead them to think the unidentified disadvantages, whatever they might be, must be ones that they would not treat as significant in relation to the rights being given up and the new rights to be acquired in a public listed company. This is more particularly so when it is remembered that, contrary to the notion engendered by the persistent use of the phrase "Free Shares" the shares might be acquired without significant loss or outgoing, the rights that would be surrendered were significant ones which were material to the members of the Association in making a properly informed judgment." Having regard to the way in which the conclusion is stated in this passage, it seems clear that the Full Court regarded the Free Shares and "disadvantages" factors as contributing jointly to their conclusion that the prospectus was misleading; or, in other words, that neither of those factors, considered in isolation from the other, was by itself sufficient to make the conduct misleading. That was the view of the reasons adopted by the learned trial judge in this action, although on appeal its correctness was disputed by the plaintiff cross-appellants NRMA. 410 In his reasons for judgment dismissing the plaintiffs' claims based on the Free Shares issue, his Honour confessed to having difficulties with the reasons of the Full Court. One of those difficulties was that the reasons did not specify what the "disadvantages" were that ought to have been disclosed by the directors to the members. Another was that the prospectus did in fact, both directly and indirectly, identify and deal with disadvantages of the proposal; as for example, by describing what would be done to preserve the NRMA's existing consumer and service activities. In other instances, disadvantages were recognised and dealt with at some length in a section of the prospectus headed "Members Questions". Examples in this category, among those mentioned by his Honour, were whether, once there were shareholders instead of members, NRMA would pursue profit at the expense of service; whether the NRMA "culture" would change; whether the members would lose control of the companies; whether there was anything to ensure that the present board of directors would be bound by their current statements of intention, and so on. If the Full Court considered that there were further or other disadvantages known to directors that were not revealed in the prospectus material, the Full Court did not say what they were. 411 The result was, as his Honour saw it, that the Full Court had decided that conduct was misleading, not because there were, but because there might have been, possible disadvantages in the restructuring proposal that were not sufficiently identified and elaborated in the prospectus. However, without knowing what those disadvantages might be, his Honour thought it was not possible to assess their significance in order to reach a conclusion that they had a tendency to mislead those who would be reading the prospectus. "Assumption of the disadvantages", said his Honour, "is not enough", an assessment of their significance was also required. The point was not simply abstract or theoretical, because the Federal Court orders specifically contemplated the possibility of a supplementary prospectus being issued that would or might succeed in correcting deficiencies in the original document. It was impossible for NRMA to take advantage of that opportunity unless the "disadvantages" referred to by the Court were identified or identifiable. That, in turn, meant that the Full Court's reasons for deciding that the prospectus material was misleading were themselves not reasonably foreseeable; and, if it was not possible to say precisely what it was that was misleading about the prospectus material, it would not have been negligent for the defendants not to recognise the risk, or to fail to warn NRMA that there was a risk that distribution of the prospectus might be enjoined. 412 I respectfully share his Honour's difficulties with the reasons for judgment of the Full Court and agree with his conclusions that the defendants cannot be found to have been negligent in failing to advise of the risk of an injunction issuing unless it was possible to say in advance what was wrong with the prospectus material and how it might contravene s 52. If the reasons of the Full Court did not identify these deficiencies, it would have been difficult for the defendants to explain them to their clients. As regards the "disadvantages" issue considered in conjunction with Free Shares, I agree with his Honour's conclusion that no failure in the exercise of due care, skill and diligence has been established on the part of the defendants. His Honour correctly in my opinion considered that, in the reasons of the Full Court, the two issues of "disadvantages" and Free Shares merged, and were not treated as being independent of one another. On their cross-appeal, however, the NRMA submitted that the use in the prospectus of "Free Shares" to describe the shares in Holdings being offered to members of Association and Insurance was a distinct matter; that in Fraser v NRMA (1995) 55 FCR 452, 483, the Full Court had agreed with Gummow J that the persistent use of the expression "Free Shares" was "likely to engender the notion that the shares might be acquired without significant loss or outgoing"; and that at least in this respect it was, considered in isolation from the "disadvantages", a misleading or deceptive statement. 413 There is, of course, no doubt that the restructuring proposal contemplated that members of Association and Insurance would be surrendering rights, even if, in return, they were to receive something in monetary terms more valuable in the form of Free Shares in Holdings. Having regard to the nature of the rights they were giving up, it might be open to debate whether or not it was correct to describe them, as the Full Court did, as an "outgoing", or as one that was "significant"; but a "loss" of some rights, evanescent though they might be, was demonstrably involved in carrying out the restructuring proposal. Whether it was misleading to describe what members would be entitled to receive in return as "Free" shares in Holdings is, I am persuaded, a matter of individual opinion or impression which depends very much on the meaning or common understanding of the word "free" as used in everyday language. It is not something that legal expertise does or can do much to elucidate. 414 The rights of members in Association and Insurance may stand on a somewhat different plane. It admittedly might require some knowledge of the law to understand what they were. But, once understood and identified, it would not, in my opinion, have been negligent for someone to form the opinion and advise that the Holdings shares were being provided "Free" to the members. The fact, as the Full Court accepted, that no monetary value could be assigned to the rights being given up by members was reason enough to describe paid up $1.00 shares in an assets-rich company like Holdings as "free", in the sense that there was no obligation to pay for them. If they were free in that sense, it would not be misleading to describe them as such on one occasion; or even, as happened in the NRMA prospectus, as often as 95 times. It was necessary to distinguish them in some way from what were called "Extra Shares" for which a member would have to pay. "Free" Shares was not the only epithet that could have been chosen for that purpose; but, once it was used, repetition of that description was unavoidable because those shares were referred to in the prospectus on so many occasions. Constant repetition of the expression "Free Shares" would, in my opinion, be misleading only if the result was to give a false or deceptive impression of what was being proposed. 415 To my mind, the question whether the shares in Holdings were fairly capable of being described as "free" depends to some extent on the time at which that description is applied to them. When the time came for the offer of shares in Holdings to be accepted, the rights of members of Association and Insurance would already have been extinguished by the adoption of the changeover art 117, and the shares being offered to members would then have been free in every sense of that word. The process of extinguishing the rights of members would already have been carried out before the offer of shares came into existence. Under art 117 extinguishing those rights was the act that generated the promise to offer the shares as free. If I promise someone free shares if he runs from Melbourne to Sydney, the shares are not the less "free" because, by the time the offer is accepted, the offeree has, as he knows, sacrificed or expended time, energy and perhaps even money in running to Sydney. In substance, therefore, using the word "free" to describe the Holdings shares that were going to be offered would be and was misleading if the prospectus material failed to make it sufficiently plain that members' rights in Association and Insurance were being extinguished in return for the offer of shares in Holdings that would come into existence when those rights were extinguished. In other words, the question as it seems to me is whether there was a lack of balance in the prominence given to the other side of the proposal, meaning by that the rights being surrendered by members to elicit that offer. 416 As to that, the prospectus material was certainly much less repetitious in its references to what was being given up than it was in using the description Free Shares; but what it said was straightforward and clear. The section of the prospectus entitled Legal Steps Involved in Change explained that: • Members approval will mean that members of the Association and members of NRMA Insurance will no longer be members of those companies. • Adopting new Articles for each company … means that members (other than NRMA Holdings) agree to give up their membership of the Association and NRMA Insurance on condition that Free Shares are offered by NRMA Holdings. This leaves NRMA Holdings as the only member of Association … … • The special resolutions if passed constitute an agreement which binds all members of the Association and of NRMA Insurance, even if they voted against the proposal or did not vote at all. The two notices of meeting also contained statements to the effect that "all members of NRMA … will no longer be members of NRMA .. This will be on condition that Free Shares in NRMA Holdings Ltd are offered by it". There was a chart showing the Proposed New Structure as it was going to be. What was perhaps more important, the second page of the onsert, after first referring to Free Shares* with an asterisk, explained lower down at the left of the page what the asterisked statement meant. *The Free Shares (or cash alternative) are in exchange for membership under the Articles of each of NRMA Ltd and NRMA Insurance Ltd." That statement gained additional prominence by being printed on a yellow background. The onsert was the first document in the prospectus material that recipient members would see and the one they would be most likely to read. Whether overall there was a lack of balance between these statements and the repeated emphasis on Free Shares was a matter on which a range of individual opinions might legitimately be held (and in fact were held) by different persons who examined the prospectus with a critical eye. They included two experienced officers of the Australian Securities Commission, one an experienced lawyer (Ms Parker) and both of them skilled in reading prospectus material; as well as the Trade Practices Commission, whose concerns about possible breaches of s 52 were not directed to the Free Shares issue in the sense now being considered. None of them suggested that the references to members' rights were understated. Except in the most obvious cases, matters of balance always involve considerations of degree and consequently of opinion; and if the question was one of balance, then it is difficult to see how the defendants could properly be described as negligent if their opinions were formed honestly and reasonably, and with due attention to the possible implications in terms of the risk involved to the client they were advising. 417 Like his Honour, I do not consider that the passages in the prospectus material about extinguishing members' rights were "overwhelmed" by repetition of the description Free Shares. I also respectfully agree with his finding that there was no failure in the exercise of due care, skill and diligence on the part of AAH and AT in reaching the conclusion that the prospectus material did not suffer from a problem that was in fact identified by Mr Heydon. The problem he identified can best be considered in conjunction with the findings on the claim against him, which was also dismissed at the trial of the action. His defence to liability on the Free Shares claim was, for several reasons, even more compelling than that of the defendants AAH and AT. He was never asked to advise whether the use of the expression in the prospectus was misleading under s 52 of the Trade Practices Act. In July 1994 he was briefed by Mallesons Stephen Jacques to advise the proposed trustee Perpetual Trustee Company Limited on the protection available to it under s 1011(b) of the Corporations Law; which is, of course, a different matter altogether. To do so, he was provided with a copy of the draft prospectus, with its many references to Free Shares; but his attention was not focused on that expression, and he said it did not impinge on his consciousness. His Honour accepted Mr Heydon's evidence that he did not become aware of the reference to Free Shares in the document. It is not altogether clear to me whether on appeal we were being asked to reverse that finding. If we are, I am not prepared to so. It was not the question on which Mr Heydon was briefed to advise. Focusing on the point at issue is the only way anyone can hope to survive in the practice of the law. Counsel is not expected (or paid) to consider and advise on any matter that might take his or her fancy, but to give an opinion on specific and identified questions. Which is not to say that, if something is noticed that is of potential concern to his client, a barrister is not at liberty to mention it. In giving evidence on the Gambotto issue, Mr Heydon agreed that he would ordinarily do so. It is, however, another matter to say that professional legal advisers are under a legally enforceable duty of care to give such advice when it goes beyond limits of their retainer. In so far as that may have been held to be so in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 643, 652, it is, for reasons I have previously stated, no longer good law. Although liable in tort, Mr Heydon's duty of care as a barrister was limited to the question on which he was briefed to advise, which was not the potential to mislead of anything contained in the prospectus. His duty was restricted to the client on whose instructions the brief was delivered, which on the occasion in July 1994 was not the NRMA plaintiffs but Perpetual Trustee Company Limited. Indeed, it is not even clear from the evidence that at the time he advised the trustee company he was aware that Holdings had been incorporated. 418 An attempt was also made to fix Mr Heydon with liability for failing on a later occasion to warn the plaintiffs of the potential for contravening s 52 of the Trade Practices Act arising from use of the expression Free Shares in the prospectus. In this instance, his advice was sought on behalf of NRMA by a letter of instruction dated 28 July 1994 from AT in relation to the onsert that was to accompany the prospectus. It is true that the letter of instruction referred to "the Trade Practices Act, including its comprehensive provision in section 52"; but it did so in discussing "the legal implications arising from the placing of the Acceptance of Free Shares form on the Proxy Voting Papers". The specific question on which advice was sought was whether the juxtaposition in the onsert of the "How to vote" instruction with the statement "How many FREE Shares you will get" might amount to "an unfair inducement" to members, having "legal ramifications", to vote in favour of the proposal. The precise point being raised by AT is identified in paras 3 to 4.3 of AT's letter to Ms Conway dated 15 August 1994. In responding to that question, Mr Heydon in an opinion dated 2 August 1994 said he considered the words should be changed for two reasons, of which the second "concerned the ambiguity or worse" of the word FREE. There was, he explained: "… an important sense in which the shares are not 'free' : they are not free because the members are giving up rights and Holdings is gaining greater power in the Association and NRMA Insurance." His opinion, when received, caused some consternation among members of the NRMA prospectus working committee where it was appreciated that it also had potential implications for the prospectus on which he had not been asked to advise. If references to Free Shares ought to be omitted from the onsert, similar and far-reaching changes might also need to be effected in the prospectus. There was strong opposition to undertaking such changes. It was then too late to rewrite the prospectus because of the stage that printing or typesetting had reached in readiness for the meetings on 19 October; and also because the success of the proposal was, with some justification, believed to depend on offering members Free Shares in Holdings to induce them to vote in favour of the proposal. That was considered by Ms Conway and others to be in insuperable obstacle to omitting reference to Free Shares altogether. 419 Mr Heydon's opinion about the words Free Shares occasioned considerable debate and attracted some strong language from some members of the committee. Ms Conway's initial reaction was that Heydon had not been briefed to advise on s52 of the Trade Practices Act. In fact, his view of the use of Free Shares had not been given with s 52 of that Act in mind, but, as the opinion itself explained, because "under the general law to issue the shares free would be to issue them at a discount, which is unlawful". By that he meant unlawful according to company law principles relating to the issue of shares as a discount. It was, Mr Heydon advised, "technically quite wrong" to call the shares FREE, even though it was true that no money needed to be paid for them, "so that in that sense it is true to call them free". After some discussion with Mr Bateman, Mr Heydon gave a revised opinion dated 3 August 1994, which recommended two alterations in the onsert. One of them led to replacing the legend "How many FREE Shares you will get" on the front page with the formula "How many shares you will be given". The other involved inserting the asterisk after the reference to Free Shares, where those words first appeared in the first line of the inside page of the onsert, and inserting on the yellow background at the foot of the left hand margin of the second page, the asterisked explanation, to which reference has already been made: * The Free Shares (or cash alternative) are in exchange for membership under the Articles of each of NRMA Ltd and NRMA Insurance Ltd …. Altering the onsert was easily achieved. The prospectus material, was in the course of being distributed when it was halted by the injunction issued by the Federal Court on 13 October 1994. 420 Mr Heydon cannot be made liable for any misleading use in the prospectus of the words Free Shares. He was never asked to settle the prospectus, or to advise on the possible impact of s 52 on those words in it, much less to comment on the way in which the issue of "disadvantages" was dealt with in the prospectus. The only version of that document he saw was the draft submitted to him for a different purpose on behalf of Perpetual Trustee Company Ltd. The changes he recommended in the onsert did not impose on him a duty to advise NRMA that a corresponding or any other form of change should be carried into the prospectus, with which he was not briefed. His Honour was therefore correct in finding that Mr Heydon was not liable to the plaintiffs for any loss sustained by NRMA as a consequence of the use of the expression Free Shares in the prospectus. From the standpoint of those who received and read it, the alterations and additions that he recommended to the onsert served only to improve it, and were not a source of any loss suffered by NRMA. So far as it involves a claim against Mr Heydon, the cross-appeal must be dismissed. 421 This leaves for consideration the cross-appeals against the judgment dismissing the NRMA claims against AAH and AT for damages arising out of the Free Shares issue. Their liability rested not in tort, but under contracts which implied an undertaking to use due skill and care in advising the plaintiffs or, what is the same thing, not to be negligent in doing so. In fact, they never advised NRMA to use the description Free Shares in the prospectus material. The specific complaint against them is that they failed to advise NRMA not to use that description, and that their failure to do so was negligent because it ignored the risk posed by s 52 of the Trade Practices Act. Expressed in a more positive form, it was alleged that they should have warned Association that the use of the Free Shares description in the prospectus material involved misleading conduct, but they negligently failed to do so. As a consequence, it was said, they were liable for the losses incurred by NRMA, which included the costs incurred in Federal Court proceedings ending in Fraser v NRMA Limited (1995) 55 FCR 452, and, indeed, the whole of the expenditure on the restructuring proposal. If it had not been for the Federal Court injunction, the meetings planned for October 1994 would, or so it was said, have been held and the restructuring completed before the High Court decision in Gambotto was delivered in March 1995. 422 It is necessary once again to bear in mind that, although the obligation of the defendant solicitors AAH and AT was contractual in nature, it was simply a promise not to be negligent, and not a promise or warranty that their advice would be correct. They did not warrant that there would be no s 52 proceedings against NRMA in the Federal Court, or that, if there were, those proceedings would fail. If they had advised that, in their opinions, it was safe to use the description Free Shares, it would still not have amounted to a warranty that any s 52 proceedings would fail. If, for the reasons discussed, the Federal Court decision was unpredictable or not reasonably foreseeable, they were not at fault or in breach of their implied undertaking to use skill and care. Equally, however, if the Federal Court decision was correct, it did not follow as a matter of course that they must have been negligent in failing to warn against the use of the Free Shares description. Whether or not that description could fairly be applied to the Holdings shares without being misleading was a matter of opinion which was never guaranteed to be correct but warranted only as having been formed with the requisite degree of skill and care. 423 Apart from their general knowledge of s 52 of the Trade Practices Act, which as skilled practitioners of the law Mr Morgan and Mr Bateman were expected to have and to use, the factor which it was submitted ought to have alerted them to the risks of using the Free Shares description was Mr Heydon's statement in his opinion of 2 August 1994 that those words in the draft onsert were "ambiguous or worse", because, as he said, there was a sense in which the Holdings shares were not "free" in that the members were giving up their rights in Association and Insurance. That should, it was submitted, have led them to warn NRMA that there was a risk of successful s 52 proceedings if that description was used in the prospectus material. Of course, there would have been no need to warn of that risk if, through it own officers, NRMA was aware that the risk in fact existed. Ms Conway, who was both the General Manager, General Secretary and General Counsel, as well the other NRMA inhouse legal staff on the prospectus working committee were, however, conscious of the risk. Both she and they knew about Mr Heydon's opinions of 2 and 3 August 1994 concerning the reference to free shares in the onsert. That opinion had been given in a different context, but its possible implications in relation to s 52 and the prospectus were fully recognised by Ms Conway. The NRMA President, Mr Donald Mackay, who was himself a senior solicitor and partner of a leading Sydney firm, was also aware of Mr Heydon's opinion on the matter. Mr Mackay was chairman of the Due Diligence Committee to whom, if it had raised concerns in his mind, it would have been his duty to pass on information about Mr Heydon's opinions. 424 The action taken to meet Mr Heydon's concerns has already been described. The onsert was revised. The prospectus was not rewritten to omit reference to free shares, because everyone believed that, for marketing reasons, it was necessary in order to persuade members to accept shares in Holdings that they be described as free and because they considered the description was not in fact misleading. Since the question was primarily one of opinion or impression, and not of law but of everyday language, legal advice would have had little impact on the decision to use the expression Free Shares. The defendants AAH and AT were not negligent in failing to warn of the risk. NRMA knew that the expression was being used but it chose to publish the prospectus. The members of the NRMA boards included several persons who were experienced lawyers and one (Dame Leonie Kramer) who is expert in English language and literature. They all saw the prospectus on or before 18 August 1994, and on that day they approved its issue. None of them suggested that references to Free Shares might mislead members of Association or Insurance, and most, if not all of them, gave evidence that they considered it was not misleading. 425 Before leaving this aspect of the defendant solicitors' liability, it is necessary to refer in more detail to the Due Diligence Committee and the part played by AAH and AT in advising it and the NRMA boards of directors. The title or designation of the Committee was derived from s1011(1) of the Corporations Law. The function of that provision is to relieve a person from liability attaching pursuant to s1006(2) of the Law from the consequences of issuing a prospectus containing a false or misleading statement. One of the conditions precedent to such relief is that the individual in question "took reasonable precautions and exercised due diligence to ensure" that statements in the prospectus were true and not misleading. In resolving on 18 March 1994 to proceed with development of the proposal, the NRMA directors also made provision for the establishment of a Due Diligence Committee to ensure that the necessary steps were taken to secure the benefit of s 1011. 426 The Due Diligence Committee first met on 22 April 1994. It consisted of 14 individuals of whom seven were NRMA directors or officers, including the chairman Mr Mackay and Mr Willing, who was the NRMA Chief Executive Officer, Mr Rees, who was the General Manager, and others. The other seven were representatives of accounting, stockbroking or merchant banking firms, together with Mr Morgan of AAH and Mr Bateman of AT. In his "sign-off" letter to the directors dated 18 August 1994, Mr Morgan, speaking on behalf of his defendant firm AAH, said in para 2(c) that "we have participated in the presentations and enquiries whereby matters material for disclosure" were sought to be identified and brought to the attention of the Committee with a view to that Committee ensuring that: (i) there was no material statement in the prospectus that was false or misleading; (ii) there was no material omission from it; and (iii) the issue of the prospectus did not involve misleading or deceptive conduct. Paragraph 3 of the letter contained written confirmation that: "… nothing has come to our attention in the course of or as a result of performance of our role that causes us to believe -:" that any such statement omission or misconduct existed. All members of the Due Diligence Committee were required to sign the Committee Report dated 18 August 1994, which on the same day went before the meetings of boards of directors at which it was resolved to issue the prospectus. In fact, the Due Diligence reports do not seem to have been signed as contemplated, although it is not suggested that anything turns on this omission. 427 Among the particulars of the allegations of negligent breach of retainer and failure to exercise reasonable skill, care and diligence, para 38(g) relies against AAH on those parts of their letter dated 18 August 1994 relating to statements (i), (ii) and (iii) in the prospectus. Paragraphs 38(h) and (i) make somewhat similar allegations against AT in respect of their letter dated 15 August (the "sign-off" letter) and their further letter dated 17 August 1994. Taken together, the three sets of particulars may be broadly summarised as alleging that AAH and AT had given their opinions that there were no material statements in the prospectus that were false or misleading and no material omissions from it; that the opinion of each of them was wrong; that each of the defendants should have known and advised the plaintiffs that the opinion of the other defendant firm was wrong; and that each of them had failed to do so. 428 For my part, I find it difficult to see that anything is added to the plaintiffs' case on negligence by their allegations relating to the due diligence functions or the "sign-off" letters from the two defendants. The letters may be regarded as increasing the atmosphere of formality associated with the defendants' functions as legal advisers, and they specifically identify the persons whom they were advising and to whom they owed a duty of care. But the character of liability is not altered. It remains a liability for negligence, of which their "due diligence" function and the "sign-off" letters are a part of the conduct to be considered. The statement in the AAH letter and the Due Diligence Report that "nothing has come to our attention … that causes us to believe that" there was anything misleading in the prospectus or in the conduct of issuing it does not amount to a warranty that the advice being given is correct, and it is not relied on as such. The formula adopted may perhaps be in common use on occasions like this; but it seems to me to be almost meaningless. If something had come to the defendants' attention that caused them to believe that the prospectus was misleading, it would almost certainly have amounted to fraud at common law to state the belief in the way they did; but that is because, according to Lord Justice Bowen's well-known aphorism, the state of a man's mind is as much a fact as the state of his digestion; and to misrepresent it is fraudulent. Perhaps the formula was intended to convey the idea that nothing had come to the attention of the defendants that should have caused them to believe there was nothing misleading in the prospectus; but that is not what it says and, even if it had said that, it is not clear to me that it would have made a difference to the defendants' liability in negligence. If it has any legal significance at all, it is only in relation to the defendants' alleged liability on the statute-based claims. 3. Statute-based Claims 429 In addition to the liability in negligence alleged against the defendants, the plaintiffs also maintained statutory claims for damages in respect of losses resulting from issuing the prospectus material. The statutory claims fall into two groups, namely those based on provisions of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW); and those based on provisions of the Corporations Law. All of the claims based on the Commonwealth Act have now been abandoned; but on appeal the Fair Trading Act continued to be relied on to support claims against all three sets of defendants Since the relevant provisions of the Commonwealth and State Acts are identical, or very nearly so, and the former, which are more familiar, are the subject of authority, I find it convenient to begin by considering the claims as they were originally framed under that Act (TPA) and ignoring the question of whether the conduct took place in trade or commerce. Section 52 of the TPA provides, so far as material, that a corporation shall not engage in conduct that is misleading or deceptive, or likely to mislead or deceive. None of the defendants is a corporation within the meaning of s 52, which may be one reason why those claims were not pressed. Section 42 of the Fair Trading Act (FTA) is in the same terms as s 52 save that "person" is substituted for corporation. Paragraph 45 of the plaintiffs' amended Points of Claim alleges that the prospectus and the prospectus materials (which include the onsert) were "misleading" in the sense in which that term is used in both Acts. In paras 46, 48 and 49A of the Points of Claim the allegation is then made successively against AAH, AT and Mr Heydon that, "by breaching their duties" as alleged in paras 38, 43, and 44D respectively, or by failing to correct the prospectus so as to ensure that it contained no misleading representations, each of those defendants engaged in misleading conduct, which in paras 47, 49 and 49B is alleged to have resulted in loss and damage to the plaintiffs. 430 Reference to paras 38, 43 and 44D of the Points of Claim shows that, in each instance, what is alleged is negligence or failure to use reasonable care in advising, or in failing to advise, on what may be broadly described as the risks associated with the use in the prospectus of the expression "Free Shares" in association with "disadvantages". It may be not unimportant to emphasise here that each of those allegations of contravention of TPA s 52 and FTA s 42 is confined to doing the acts alleged either negligently or without exercising reasonable skill and care. Having already concluded that there was no negligence on the part of the defendants in the advice (if any) which they gave or failed to give in that respect, it seems to me to follow that the allegations based on those aspects of the statutory causes of action must necessarily also fail. In case, however, I have misconstrued the pleadings, I ought to state briefly why I consider that the subject allegations are not sustainable on any broader basis than that of negligence in advising or failing to advise. 431 A statement or representation which at common law might not perhaps give rise to liability because it is not one of fact, but of law or of opinion only, may nevertheless amount to "misleading conduct" for the purpose of s 52. See SWF Hoists & Industrial Equipment Pty Ltd v SGIC [1990] ATPR 51, at 599. That is because the effect of a representation falls to be judged under s 52 not, as at common law, by the state of mind or intention of the maker of the statement, but according to its effect or likely effect or impact on the person to whom it is directed. See Yorke v Lucas (1985) 158 CLR 661, 666. However, in assessing its impact, a statement that is false is not necessarily misleading if, for example, it does no more than impart information apparently being passed on, for what it is worth, from another source without any concomitant belief in its truth or falsity: Yorke v Lucas (1985) 158 CLR 661, 666; or if it is recognisable as an opinion that is not proffered or represented as necessarily being correct. In Inn Leisure Industries Pty Ltd v D F Meloy Pty Ltd (No 1) (1991) 28 FCR 151, 164-167, 167, French J said that: "Expert advice as to the law may convey the representation that it is based upon an underlying body of knowledge, experience or expertise possessed by the person proffering it or to which that person has access. The situations in which advice, expert or otherwise, as to the law may be misleading or deceptive for the purposes of s 52 will depend upon the context and circumstances in which it is proffered and the representations implied or expressed that accompany it." 432 If the advice is recognisable as expert opinion on the law, it carries the implication, but ordinarily no more, that, in arriving at it, reasonable skill and care has been used. Speaking of the practice of joining claims for negligence with claims under s 52, Gaudron J in Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209, 229 col 2D, said it was not uncommon: "… for such matters to be determined on the basis that the outcome of the negligence claim will determine the outcome of the s 52 claim. That seems to have been the premise upon which the present litigation was conducted. The premise is correct in this case, but only in the sense that, given the facts, if the conduct of the appellant was not negligent then it was neither misleading nor deceptive, and conversely, if that conduct was negligent, it was also misleading and deceptive." That case was one in which a claim against legal advisers for misleading conduct in the preparation of litigation failed because negligence was not established against them. It is true that in Parkdale Custom Built Furniture Pty Ltd v Puxu Ltd (1982) 149 CLR 191, 197, Gibbs CJ said that there was nothing in s 52 that would confine it to conduct engaged in as a result of a failure to take reasonable care, and that the liability imposed by s 52 in conjunction with ss 80 and 82 was "quite unrelated to fault"; but his Honour was speaking there of misleading conduct in the form of passing off, and not of conduct consisting of or constituted by giving a professional opinion. Here the persons to whom the opinion was conveyed or directed were the NRMA directors and inhouse lawyers, who were not simply inexperienced members of the public but for the most part experienced business men and women. As such they were entitled to assume that the advice had been arrived at with, or in the exercise of, reasonable skill and care, but not that it was warranted as correct or that it was necessarily proof against adverse decisions in the courts. 433 Again, in my opinion, it adds nothing to this assessment to refer in this context to the sign-off letters and the Due Diligence Report. The plaintiffs sought to rely on them as misleading conduct within the meaning of s 52 of the TPA or s 42 of the FTA. Specifically, it was said that the failure to disclose in those letters or report the receipt of Mr Heydon's opinions of 2 and 3 August 1994, or their silence about the existence of those opinions, amounted to conduct that was misleading or likely to mislead. The trial judge found that it did not constitute conduct of that character. In my opinion, he was correct. Mr Heydon's opinions were, as has been said before, given in relation to the question of whether there was an impermissible share issue at a discount and not in relation to whether Free Shares was a misleading description. The defendants were justified in arriving at a conclusion that the use of that description in the prospectus was not misleading, and they did so without negligence. Having honestly and carefully arrived at that conclusion they were not obliged to inform the Due Diligence Committee or the plaintiffs' boards that Mr Heydon had given advice that was not directed to liability under TPA s 52 or FTA s 42. As it is, Ms Conway and Mr Mackay, the Chairman of the committee and the President of NRMA, were aware of Mr Heydon's opinions. The plaintiffs were not in fact misled by what was done or not done by AAH and AT. 434 It follows in my opinion that the defendants did not, in the advice they gave or failed to give to the NRMA companies on the subject of the prospectus, contravene the provisions of s 52 of the TPA or s 42 of the FTA against engaging in misleading conduct. The plaintiffs nevertheless originally alleged that, even if the defendants did not themselves contravene the provisions of TPA s 52 or FTA s 42, they were "involved" in such a contravention by another, and so were, under TPA s 82 or FTA s 68, liable to the plaintiffs (or some of them) for the loss and damage suffered "by" that conduct. In this instance, the provision of the Commonwealth Act introducing what has been called "accessorial" liability is TPA s 75B, and its State legislative analogue is FTA s 68. Section 75B(1) provides, so far as material, that a reference to a person "involved in a contravention" is to be read as a reference to a person who has: "(a) … counselled or procured the contravention; (b) .. (c) has been in any way, directly or indirectly knowingly concerned in, or party to, the contravention …" A provision to the same effect appears in the State Act as FTA s 61. Here too the claims against the defendants based on s 75B of the TPA were abandoned at the trial; but, once again, I find it convenient to consider them in terms of that legislation rather than in terms of the FTA. 435 The effect of the s 75B of the TPA is in certain respects to extend remedial provisions of that Act, such as s 82, to persons who, though not themselves corporations but individuals, assist a corporation in contravening a provision of the Act and in that way participate in the contravention. The effect of TPA s 75B was considered by the High Court in Yorke v Lucas (1985) 158 CLR 661, where it was held that, for para (a) or para (c) of s 75B to apply, the individual in question must be an intentional participant, or one with knowledge of the essential matters or elements which constitute the contravention, regardless of whether or not he knows that those matters amount to a contravention. In that case, a corporation Treasureway Stores Pty Ltd sold its business to the plaintiff Miles Yorke, who was induced to enter into the contract by a representation, which was false, about the average weekly turnover of the business. The representation, which amounted to "misleading conduct" within the meaning of TPA s 52, had been made to Yorke by the defendant Lucas who, or his company Ross Lucas Pty Ltd, was a licensed land and business agent. Lucas, who did not know of the falsity of the representation when he made it, was held not to be liable for damages under s 82 because he had not intentionally participated, and did not know of the essential facts constituting the contravention. The result would have been different if Lucas had been aware when he made the representation to Yorke that it was false. 436 Turning to the present case, I have, essentially for the reasons given by the learned trial judge, already held that the use in the prospectus material of the expression "Free Shares" or "disadvantages" did not amount to misleading conduct on the part of the NRMA companies. If that conclusion is wrong, then I find it difficult to see how the defendants AT and AAH could avoid being "involved" in a contravention of the Act. To state the matter in a more positive and direct form, it seems to me that, knowing as they would then have done that those expressions were used in a prospectus which would, and did in fact, issue to a vast number of people some of whom were not well educated or versed in the ways of business, they would be found to have intentionally counselled a contravention of s 52; or, alternatively, being aware of the essential facts which on this assumption made it misleading, to have been knowingly concerned in or party to that contravention. Advice that the prospectus might properly be issued in the form in which it was formulated, or their failure to advise that it should not be issued in that form, would, on that assumption, have "involved" them in a contravention by virtue of either s 75B(a) or s 75B(c) of the TPA. It is true that they did not intend to mislead, and that they did not believe that the prospectus or those expressions in it would mislead anyone; but if they knew what was in the prospectus and that it was going to be published, they satisfied the provisions of s 75B. Consistently with the authorities referred to, it would not have mattered that they believed that no contravention of s 52 would take place if the prospectus was published. The same conclusion follows in respect of s 61 and s 42 of the FTA under which the defendants are alleged to be liable. If it be relevant, the recipients of the prospectus would not have been aware that the advice giving rise to the defendants' involvement in that way might, although wrong, have been given by the defendants with reasonable care and without negligence. In all this, I am assuming for present purposes that the prospectus was misleading and that publishing it constituted, on the part of NRMA, engaging in misleading conduct. 437 Even so, in my opinion, it does not follow that the defendants are liable in damage under TPA s 82 or the corresponding provisions of the FTA. Section 82 is in the following form: "82(1). A person who suffers loss or damages by conduct of another person that was done in contravention of a provision of Part IV or Part V may recover the amount of the loss or damage by action against that other person or against any person involved in that contravention." Section 42, which prohibits misleading conduct, is a provision of Part V of the TPA. Section 68(1) of the FTA is essentially in the same terms as s 82(1) of the TPA Act. It is, however, clear that, for s 82(1) to be available, there must be at least two persons: one who suffers loss or damage by conduct done in contravention of Part V, and the other ("another person") who does that conduct. When (but only when) that is established, the amount of that loss or damage can be recovered against that "other person", or else against a person involved in the contravention. It is, for this purpose, not necessary in order to recover the loss or damage sustained that the other person be sued, whether to judgment or not. See Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd. (1994) 123 ALR 681, 683; but there must always be "another person", whose contravening conduct has caused loss to the person claiming it, before it can be recovered from a person involved in the contravention. 438 In order to understand the point at issue, it is necessary to investigate the subtleties of the plaintiffs' pleading of its claim. The action, in which judgment has been given in favour of the plaintiffs for an undifferentiated amount of some $21 million with costs, was brought by the three NRMA companies without regard to the particular losses which any of them may have sustained individually. There is to my mind some difficulty in seeing how such a loss can have been sustained, especially when regard is had to the fact that Holdings was not incorporated until 15 July 1994, and so was not a contracting party to the original retainers of AAH or AT, or to the tort alleged to have been committed by Mr Heydon at some time (as it is alleged) in or between December 1993 and March or April 1994. The difficulty is not completely resolved by the allegation in para 15(e) of the Points of Claim that on 18 July 1994, the NRMA directors resolved that all fees associated with the implementation of the proposal would be met by Holdings "upon a successful listing of Holdings". When, however, it came to issuing the prospectus on 23 August 1994, Holdings is said to have "ratified" the retainers of AAH and AT with respect to their preparation or settling of the prospectus; and this is borne out by the Due Diligence Planning Memorandum para 3 (exhibit B to the Due Diligence Committee Report of 18 August 1994). As regards the statutory claims, there is, superficially at least, not necessarily any difficulty of the kind suggested. It is the prospectus which in para 45 of the Points of Claim is alleged to have contravened TPA s 52 and FTA s 42 by being misleading or deceptive. More precisely, it is the issue and publication of the prospectus that constitutes the contravening conduct. So much is acknowledged in the Points of Claim itself, which alleges in para 27 that the plaintiffs issued and published the prospectus on 23 August 1993, and in para 28 that, in publishing it, the plaintiffs "engaged in conduct which was misleading or deceptive" in contravention of the Trade Practices Act 1974. 439 So far, one would not have been disposed to think that the plaintiffs' statutory claim was capable of being brought within the terms of s 82. What is alleged in paras 27 and 28 was that all three plaintiffs had engaged in conduct that contravenes s 52. Plainly, however, they could not recover from themselves the loss suffered by or as a result of that conduct. Viewed as the contravening party or parties, they were and are not "another person" or persons whose conduct contravened s 52, and they are not themselves that "other person" against whom an action for recovery can be brought under s 82. Apparently perceiving this difficulty, the plaintiffs then, for the first time in their pleading in the action, proceeded to split up their claims. Having begun in paras 47, 48 and 49B and in paras 50, 51 and 51A, of the Points of Claim by alleging that all the plaintiffs suffered loss and damage as a result of conduct (consisting of negligent advice) by each of the defendants that was misleading, the pleading then switches in para 52 to alleging that: "In the premises Association and Insurance have suffered loss or damage by conduct of Holdings (namely, the conduct alleged in paragraphs 27 and 28 above) that was done in contravention of s 52 TPA and s 42 FTA … Association and Insurance claim the amount of that loss pursuant to s 82 TPA and s 68 FTA respectively against AAH because it was a person involved in the contravention within the meaning of s 75B TPA and s 61 FTA respectively …" The allegation is then repeated seriatim against each of AT and Mr Heydon in paras 53 and 53A of the Points of Claim. Mr Heydon, it may be noted, was not a party to the Due Diligence report or to the sign-off letters provided by AAH and AT. 440 I do not consider that it is open to the plaintiffs to conjure up a cause of action out of s 82 in this way. Paragraphs 27 and 28, which are those referred to in paras 52, 53 and 53A, allege that the plaintiffs issued and published the prospectus and, in doing so, they engaged in misleading conduct. Having made the allegation that, in that way, they all engaged in misleading conduct, the plaintiffs then affect to sever their conduct by alleging that the misleading conduct of only one of them (Holdings) caused loss to the other two plaintiffs Association and Insurance. They do so for the purpose of enabling them to claim that loss against the defendants as "any person" (or persons) "involved in the contravention" done by Holdings alone. In my view, that mode of proceeding is, in the circumstances disclosed here, not permissible. Association and Insurance are no less than Holdings the person or persons whose conduct contravened (and is alleged to have contravened) s 52, and so are not "another person" or for the purpose of s82. What they are seeking to do is obtain from the defendants damages by way of an indemnity for losses caused by what is in fact their own joint contravening conduct under s52. Liability imposed by provisions like s82, although statutory in origin, has in the past been described tortious in character: see Geipel v Smith [1917] 2 Ch 108; and Urquhart v Stracey [1928] NI 163. In Australia, it is now treated as sui generis; but whatever its true character, it would be surprising if s 82 was intended by a sidewind to confer a right of action by one joint wrongdoer against another. The damage which the plaintiffs claim to have sustained is in my opinion not of a kind contemplated as recoverable under s 82 : cf Gorris v Scott (1874) L R 9 Exch 125. 441 In addition, s 82 requires proof that a person has suffered loss or damage "by" the conduct of another person. In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525, the word "by" in this context, although said to be a curious word to use, was nevertheless held to express the notion of causation "in the practical or common-sense concept" discussed in March v S & M H Stramare Pty Ltd (1991) 171 CLR 506. Viewed in that way, any loss suffered by Association and Insurance was no more caused by Holdings than by all the plaintiffs together. Indeed, on one view, it was Holdings that suffered loss and damage "by" conduct of Association and Insurance. They were the persons who put into effect the whole proposal for demutualising NRMA by incorporating Holdings and issuing the prospectus offering shares in it to the existing members of those two companies. It is a reasonable hypothesis that the reason why Holdings was selected by the plaintiffs to fill the role of "another person" under s 82 was that it was the other two companies that in fact paid out of their own funds the expenses incurred in setting up the proposal. Association and Insurance are, of course, separate legal entities with distinct and separate assets and liabilities of their own: see Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, 468. Having been incorporated only on 18 July 1994, Holdings would presumably not have had assets out of which it could pay those expenses, and consequently was not in a position to claim it had suffered loss or damage in terms of s 82. According to para 15(e) of the Points of Claim, it was only if Holdings was successfully listed that "fees" associated with the proposal would be met by Holdings. In my opinion, it is in these circumstances not possible to say that Association and Insurance suffered the loss or damage they claim to have sustained "by conduct of Holdings", in which the defendants were "involved" within the meaning of s 75B. What has been said here in relation to s 82 of the TPA applies, of course, with equal force to s 68 FTA. In my opinion, neither the plaintiffs together, nor the plaintiffs Association or Insurance severally can sustain their claims against the defendants under those statutory provisions in reliance on conduct alleged to have produced the loss which they claim but which they themselves caused or substantially contributed to. 442 The plaintiffs also base their claim for damages on contraventions of ss 995 and 996 read with s 1005(1) of the Corporations Law. Section 995(2) provides: "(2) A person shall not in or in connection with: (a) any dealing in authorised securities; (b) without limiting the generality of paragraph (a): (ii) any prospectus issued … in relation to securities engage in conduct that is misleading or deceptive or is likely to mislead or deceive". By s 9 "securities" has the meaning ascribed to it by s 92, which includes shares in a body corporate such as Holdings. Like s 82 of the Trade Practices Act , s 1005(1) of the Corporations Law confers a right of action for damages in the following terms: "(1) Subject to the following section of this Division, a person who suffers loss or damage by conduct of another person that was engaged in in contravention of a provision of this Part or Part 7.12 may recover the amount of the loss or damage by action against that other person or against any other person involved in that contravention Both ss 995(2) and 996(1) are provisions of "this Part", that is, of Part 7.11. 443 For the plaintiffs to succeed in their claim for damages under s 1005(1) for a contravention of s 995(2), they must first establish that the defendants AAH and AT is a person or persons who engaged in conduct that was misleading or likely to mislead in connection with a prospectus; or that they or one of them is a person who was involved in such contravening conduct. In my view, for the reasons already given in relation to s 52 of the Trade Practices Act, the use of the expression "Free Shares" and "disadvantages" in the prospectus was not misleading or likely to mislead. Even if it might have been misleading to others, such as members of Association and Insurance, it was not misleading to the plaintiffs. They knew the circumstances in which the advice was given, which were that it was an opinion which might turn out to be incorrect. If given with due skill and care (as I consider it to have been), it was not misleading and did not mislead the plaintiffs into supposing that there was no risk of an adverse decision in proceedings in court, or that AAH and AT were guaranteeing that there would be no such proceedings or adverse decision. So far as Mr Heydon is concerned, there was no "conduct" at all. He gave no opinion about the impact on the prospectus of the TPA or FTA, and so was under no duty to advise whether or not those expressions could be used in the prospectus without risk to the plaintiffs. 444 Section 996(1) approaches the question from a slightly different angle. It provides: "996(1). A person must not authorise or cause the issue of a prospectus in relation to securities of a corporation: (a) in which there is a material statement that is false or misleading; or (b) from which there is a material omission." Once again, s 1005(1) of the Corporations Law confers a remedy in damages on a person who suffers loss "by" conduct of "another person" that contravenes a provision like s 996(1) in Part 7.11. 445 A contravention of s 996(1) of the Corporations Law takes place if a person authorises or causes the issue of a prospectus in which there is a material statement that is false or misleading. Neither in the Corporations Law, nor in the original Directors Liability Act 1890 (UK), to which many of these provisions can be traced, is there any definition of the term "authorise" in relation to the issue of a prospectus. It would, however, ordinarily include the action of directors in resolving to issue a prospectus even if they are no more than nominee directors. See Urquhart v Stracey [1928] NI 163, 171, where it was said that the question was one of fact depending on "how far they were or became responsible for the prospectus". Factors to be considered in deciding that question include the extent of the directors' knowledge; whether they had seen and discussed the draft; and whether their names appeared on it: ibid, at 171; on appeal, see Clark v Urquhart [1930] AC 28, 55. In Howell v Dering (1914) The Times April 30, Bailache J said that brokers, whose name was on the prospectus, would be liable as having authorised it if they had "means of checking the statements and a real interest in the company, such as an issuing house". The jury in that case found that the brokers Norman Pain, Noakes & Co, had not in that sense "authorised" the issue. See Howell v Dering [1915] 1 KB 54, 55, where the verdict and the later decision on the costs of the trial are reported. 446 Apart from that incompletely reported decision, there seems to be little or no guidance on the meaning of "authorise" in s996(1). In his reasons for judgment in this action, his Honour considered that, as solicitors, AAH and AT had not authorised the issue of the prospectus because they did not take part in the process of deciding whether or not the prospectus should issue. They were simply persons whose advice was taken into account by the decision-makers, who, of course, were the directors of the plaintiff NRMA companies. With respect, I agree with that analysis, which is enough to dispose of this claim. In this instance, and unlike the comparable claims under the Trade Practices Act or Fair Trading Act, the plaintiffs' claims against the defendants are not founded on any "accessorial" liability attaching to them by virtue of s 1006(2) as persons "involved in" a contravention, but solely by virtue of their having themselves "engaged in" a contravention of s 996(1). See Points of Claim, paras. 38 (AAH), 59 (AT) and 60 (Heydon). It follows, in my opinion, that, because none of those defendants authorised the issuing of the prospectus or caused it to issue in contravention of s 996(1), no liability on their part arises under s 1005(1) for which the plaintiffs can claim damages against them. 4. Causation and Damages 447 The plaintiffs claim to have sustained damages as a result of not having been warned that they were exposed to a risk that an adverse decision from the High Court in Gambotto would prevent them from proceeding with the formulated proposal for demutualisation by altering the articles; and also as a result of not having been warned of the risk that the use of the expression Free Shares in the prospectus might attract an injunction in the Federal Court restraining distribution of the prospectus. The damages were alleged to be the expenditure wasted on the proposal. To establish the right to damages it was incumbent on NRMA to prove that, if given the appropriate advice, the boards of directors would not have proceeded with the proposal as formulated. The trial judge accepted that, if warned in time of the Gambotto risk, the directors at their meeting on 17 March 1994, or at latest on 28 April 1994, would have voted to defer proceeding with the proposal and to limit further expenditure on it until some date in the future; and that they would have abandoned the proposal, as indeed they did, after the decision in Gambotto was delivered in March 1995. They would, his Honour found, not have decided to try to achieve demutualisation by resorting to a scheme of arrangement. 448 The plaintiffs set out to prove the causation element in their claim by calling each of the directors of Association to give evidence at the trial, except one who was too unfit to attend, and three (Miss Fraser, Ms Singleton and Mr Talbot) who, it was safe to assume, would have voted against the proposal in any event. Although there was some difference among them about what they would have decided, the learned trial judge concluded that a majority would have voted to defer proceeding with the proposal and to incur only limited expenditure until after the High Court decision was delivered. Such evidence admittedly lacks what were called the "dynamics" of a meeting; but there is authority for this course in the form of Daniels v Anderson (1995) 37 NSWLR 438, 531-538, which was a rather similar case. Proving what would have been done had something taken place that in fact did not happen is a difficult task; but there is really no practicable alternative to the course that was followed here. 449 Despite the defendants' strictures on the directors' evidence at the trial, I would not have been disposed to interfere with the finding of the trial judge on this issue of fact. It seems to me that, if the directors had known that a pending decision of the High Court was likely to prove fatal to the proposal, it would have been recklessness on their part to have proceeded in the face of it, especially having regard to the large amounts of money that were going to be expended. Of course, the attitude of the directors to the proposal in March or April 1994 would necessarily have depended on the way in which the risk was characterised by those who advised them about its existence. In their evidence at the trial, the directors were asked to assume that either AAH or AT, or both, had advised that there was "a real risk that the Project as then … formulated could be rendered unlawful by an adverse decision" of the High Court in the Gambotto case. 450 This was referred to on appeal as the "minimum non-negligent advice". The difficulty I have with it is that it incorporates the expression "real risk". Precisely what is to be considered as a "real risk" must always to some extent involve a subjective assessment on the part of the person who is being asked to offer his or her likely reaction to the advice. The difficulty with the form of the question that was asked is that, consistently with the conclusion to which I have come on the issue of the Gambotto liability, I do not consider that, in the context of company law principles, as they were then understood to be in 1993 or early 1994, there was ever a "real risk" that the majority of the High Court would decide Gambotto in the way in which their Honours did. That being so, it seems to me that the question that was put to the directors for the purpose of their giving their evidence on the matter was not the appropriate one to have asked, and that their answers to it are not relevant to the matter sought to be proved. Whether the risk could have been adequately expressed by using some other epithet, like "remote" or "slight" in place of "real", does not arise for consideration because it was not the criterion by which the directors were asked in evidence to assess their likely response to the hypothesis suggested to them. 451 It follows in my opinion that, on the evidence as it was adduced, the plaintiffs failed to prove that the defendants' omission to give NRMA the requisite advice in March or April 1994 about the dangers, if any, of proceeding with the proposal was not the or a cause of the wasted expenditure, and that their claim to recover damages fails on that account. As regards the losses sustained because of the Free Shares issue, I have already concluded that the plaintiffs' claim based on negligence and statutory causes of action does not succeed. Their claims for damages under these heads were also rejected at first instance for reasons of causation, in which three factors were found to operate against them. The first was the injunction restraining the plaintiffs from distributing the prospectus, which was granted by the Federal Court on 13 October 1994. It is true that the decision on at least one of the grounds (the Free Shares issue) on which the injunction was first granted survived the appeal to the Full Court, or that it did so at least in part; but the other four grounds did not, so that an appeal would in any event have been necessary for reasons for which the defendants are in no way responsible. 452 The judgment in the Federal Court was not delivered until 27 January 1995, by which time there had been further developments adverse to the proposal that were not connected with anything the defendants had done or failed to do. One was that, by mid-January or late January 1995, it was evident that NRMA had suffered a financial decline, which made the proposal a much less attractive proposition to members of Association and Insurance than it had previously been. Another was that polling carried out among the members showed a marked falling-off in support for the proposal. There are reasons for supposing that the litigation in the Federal Court had played a part in this phenomenon; but if the emphasis on Free Shares in the prospectus had been abandoned, it could only have hastened the erosion of support for the restructuring. All matters considered, his Honour's conclusion that the proposal, delayed as it was and would have been by the Federal Court proceedings, would not have gained the necessary 75% approval at the adjourned meetings was, with respect, surely correct; or, perhaps more accurately, as his Honour was careful to express it, the plaintiffs had not succeeded in establishing that approval would have been achieved. The decision in Gambotto, for which the defendants were not responsible, followed shortly afterwards on 8 March 1995 and put an end to the proposal in the shape in which it was then formulated. If demutualisation was then to proceed, it could be achieved, if at all, only by a scheme of arrangement. 453 For these reasons, I would: (a) allow the appeals with costs; set aside the judgment below in favour of the plaintiffs; and give judgment for the defendants in the action with costs; (b) dismiss the cross-appeals with costs. 454 The order assessing contribution by each of the three defendants at one third of the judgment amount falls with the judgment itself. I would dismiss the appeals against that apportionment without any order as to costs. There were also appeals: (a) by the second defendants against dismissal with costs of their notice of motion filed on 6 April 1998; (b) by the first defendant against dismissal with costs of their notice of motion filed on 28 July 1998; and (c) by the second defendants against dismissal with costs of their notices of motion filed on 20 May 1999. Each of those appeals, which have now become unnecessary, should also be dismissed with costs. ORMISTON, A.J.A.: TABLE OF CONTENTS Introduction 455 This case, as constituted by three appeals and one cross-appeal, has one common but perhaps unusual characteristic in that, although the appellants were sued in professional negligence (or for related causes of action), the case made in this Court is not that they gave wrong advice Although the respondents and cross-appellants in no way conceded that the particular opinions and advices were correct., but that they failed to warn their clients, the respondents and cross-appellants, that they may have been wrong or, at the least, that their clients were at risk if their opinions and advices turned out to be wrong so that the clients should have taken precautions accordingly. In other words it was conceded that the appellants might genuinely have formed opinions both as to the means whereby the NRMA companies could be "demutualised" and as to what the expression "free shares" properly denoted or connoted, but that they should have been sufficiently alive to the risks, at varying times and in varying ways, that their opinions and advices might turn out to be erroneous, so that it was their failure to give adequate and sufficient advice to the respondents as to the risks of proceeding with the plans for demutualisation and issuing the prospectus which constituted the claimed negligence. 456 What will be seen, although there are many grounds both of the appeals and the cross-appeal in this suit, is that they essentially raise two subjects for resolution, albeit that the ingenuity of the parties' legal advisers has resulted in the putting forward of many manifestations of their complaints, set out in several hundreds of pages of submissions, as to the findings of the learned trial judge. The first subject raises the extent to which the appellant barrister and solicitors (who are also the cross-respondents) were obliged in late 1993 and early 1994 to give advice as to the likelihood (or otherwise) that the High Court's then undelivered judgment in Gambotto v. WCP Limited (1995) 182 CLR 432. Judgment was not in fact delivered until 8 March 1995, but leave to appeal from this Court's judgment ((1993) 30 NSWLR 385) was granted in December 1993 and argument heard on 21 April 1994. , and the principle therein stated making unlawful (for all practical purposes) the expropriation of membership rights, would render impracticable the proposal at that time put forward by NRMA Limited ("Association") and NRMA Insurance Limited ("Insurance") to "demutualise" those two companies limited by guarantee, essentially by setting up a holding company for both companies, being the third respondent NRMA Holdings Limited ("NRMA" or "Holdings") When it is unnecessary to distinguish between the three companies I shall refer to them all as either "the NRMA companies" or "NRMA"., by taking away the membership rights in the two guarantee companies and by allotting in their place shares in Holdings to the members of those companies. (The three companies are the respondents and cross-appellants. For convenience' sake I shall refer, after this paragraph, to the parties as the "appellants" and the "respondents" regardless of the issue under consideration. ) The second subject raised by the cross-appeal is the extent to which the cross-respondents were negligent in failing to warn the cross-appellants that the use of the expression "free shares" in the prospectus ultimately issued on 23 August 1994 was inaccurate or, "misleading or deceptive", for the purposes of the well-known statutory provisions, and whether in fact the cross-respondents were liable to the cross-appellants under various provisions of the Fair Trading Act 1987 and the Corporations Law which were relied upon by the cross-appellants. 457 It may be noted that the respondents did not shrink from asserting that the highest standard was to be expected from the appellants inasmuch as one was a leading "silk" and the others were two of the largest and best-known firms of solicitors Allen, Allen & Hemsley ("AAH") and Abbott Tout ("AT"). in Sydney. Such an approach was seen to be almost an essential element of their case as, to the extent that it then appeared relevant The relevance fairly to be anticipated to the proposed plan for demutualisation of the outcome of the appeal in Gambotto was critical to the respondents' successful case at trial., the respondents sought to make good the proposition that the outcome of the Gambotto appeal was sufficiently capable of being forecast, or the risk of some such outcome was sufficiently clear, that the appellants' passing reliance on the judgments of two very experienced members of the Court of Appeal of this State Priestley, J.A. and Meagher, J.A. Cripps, J.A. merely concurred in the judgment of Meagher, J.A. could not safely be maintained in the circumstances. Thus they contended that the appellants should have had sufficient prescience to understand and warn of the possible outcome of the appeal to the High Court and of the judgments in Gambotto, which must now be taken as expressing the law in this country as to the power to alter articles of association, but which has provoked one book devoted to the case itself Gambotto v. WCP Ltd.: Its Implications for Corporate Regulation: ed. Prof. I.M. Ramsay: (1996) Melbourne: Centre for Corporate Law and Securities Regulation. and some 47 or so articles in legal journals Omitting for present purposes several newspaper articles. making observations in various ways about the significance and applicability of the High Court's restatement of principles relating to the "expropriation" of membership rights. Though the principle seems wide enough to cover any taking away of "membership" rights, most of the cases, including Gambotto, relate to shares or other shareholders' rights. Unless the context suggests the contrary, "shareholders" and "members" (and their rights) are used interchangeably in this judgment. As to the second issue it should be noted that, although the Federal Court both at first instance and on appeal formed the view that the expression "free shares" in the context was misleading or deceptive, there was no previous relevant authority as to the meaning of the word "free" in such a context or even in any wider context of misleading or deceptive conduct insofar as the relevant statutory provisions have been interpreted over the years. Again it was conceded that at the time the appellants could genuinely have reached the opposite conclusion but the respondents' case again depends on the failure to advise of the possibility of a different outcome if proceedings were brought. 458 The facts relating to the appeal and cross-appeal are set out in the judgments of Malcolm, A.J.A. and McPherson, A.J.A. which I am grateful to adopt. I am also grateful to the learned trial judge for setting out in extensive detail the narrative of the events, discussions and communications between the parties from the gestation of this particular plan for demutualisation until it was abandoned in mid-1995. If I seem to differ from the trial judge in my appreciation of any of those facts, is it not because I do not accept his appreciation of the witnesses' credibility but rather because, in certain respects on some issues, I would draw different inferences, consistent with the powers of appellate courts which are well recognised. There were many findings of fact challenged, far too many in my opinion, but essentially it is only on ultimate facts I should be seen to be in part differing from the trial judge. PART I: THE "GAMBOTTO" ISSUE 459 A significant number of findings were challenged by the appellants. Not only did they dispute the ultimate findings of negligence against the barrister and the solicitors, but they also contended that the standard set by the learned trial judge was too high as a matter of both law or fact and further asserted that no practitioner of the relevant competence and experience could fairly have been required to anticipate that the judgment of the High Court in Gambotto would be expressed in terms which made the continued pursuit of the demutualisation plan for the NRMA companies impracticable. Not only that but they finally asserted that the principles stated by the High Court in Gambotto did not of themselves require that scheme to be abandoned, whatever pessimistic views were in fact taken of the prospects in early 1995. A. Obligation to advise on the basis of principle 460 Before dealing in detail with both the duty and standard of care of the barrister and the two firms of solicitors, it is first preferable to deal with the legal basis for the respondents' contentions at trial that the appellants should have been aware of the likelihood that the High Court would state principles affecting the adoption of the proposed demutualisation scheme. I would say only one thing at this stage about the standard of care seemingly imposed by the learned judge and put forward here by the respondents. One may have hoped, and one may still hope, that when barristers and solicitors are asked to advise on the general law, whether common law or equity, they will advise on principle, not on perceptions of what the last case has decided or what the next or some other future case may decide. It is sometimes easy to be diverted by a morass of decided cases but that morass is only useful if it authoritatively lays down principles which might fairly be applied to the facts in question. To seek to concentrate on particular cases, decided or to be decided, upon the basis that their particular outcomes may provide some precedent for a proposal about which a question is raised for opinion, is to risk diversion from resolving that question by reference to principle. If advice is given upon the basis of principle then, in the long run, it ought not to be hard to show, in any court where the matter is being tested, that that principle or those principles ought to have provided the necessary solution. In general, advisers should be at risk of suit only if they ignore or depart too far from accepted principle. Occasionally, regrettably, the notoriety of the courts' dissatisfaction with a particular principle makes it necessary to speculate that that which presently rests on principle may this year or the next no longer so rest, for some reason or other, but that risk merely suggests that courts, and in particular courts of appeal, should be cautious about reformulating principle where parties have ordered or are likely to order their affairs upon the assumption that particular principles will continue to apply. 461 It is appropriate then to turn to what might be seen to have been the relevant principles which ought to have actuated both Mr Heydon and the two firms of solicitors in giving their advice to the respondents. The respondents made an assumption, seemingly accepted by the learned trial judge, that the appellants, on becoming aware that leave to appeal had been granted in Gambotto, would fairly have anticipated that the High Court would deliver a judgment which might make the proposed scheme put forward by AAH, for reorganisation of the companies by passing special resolutions amending the articles, one so attended with risk that the appellants ought to have advised the Board not to go ahead, at least for the time being, or, perhaps, to proceed by way of scheme of arrangement. The proposition was and is convoluted because it sought to impute knowledge of future events, in this case the principles to be laid down by the High Court in Gambotto, to counsel and solicitors at a time not long after this Court had rejected Mr Gambotto's case and very shortly after he had successfully sought in person to obtain leave to appeal. Although it was possible, but no more than possible, to have discovered the latter fact and even what had been said by the members of the High Court sitting on the application, it should be observed that comments made on such applications in those circumstances, without even the benefit of presentation of the appellants' case by counsel, must be a very unsure foundation for forecasting what principles the High Court will lay down, after full argument, Of course there was not full argument as it turned out, as Mr Gambotto again represented himself. Perhaps there lay the germ of the difficulty, for could that have been forecast? It is rash to assume that the appellant was thereby necessarily disadvantaged. a year or so later on a subject as complex as that of minority shareholders' rights. At one stage the proposition was advanced that the very uncertainty of the outcome should have led the legal advisers to tell their clients to put the scheme on hold, at the very least. One may respond by suggesting what fools they would have looked some sixteen months later if the High Court had delivered a judgment either rejecting the appeal or, perhaps more likely, restricting this reasoning to what was sufficient to deal with the factual circumstances there raised, deciding the case, say, on the ground that the acquisition of the shares was for the personal benefit solely of the majority shareholders, as arguably is still the true ratio of the case. Hypothetically, there may have been no mention of "expropriation"; no change of onus of proof laid down; and a decision given clearly confined to the amendment of articles of companies with conventional shareholdings. Why, the Board would have asked, have we been told to delay a four billion dollar scheme to await a judgment which has told us nothing, or nothing usefully relevant, about a scheme for the demutualisation of two guarantee companies in neither of which do the members hold a single share? As has been said on other occasions: "We paid you for your opinions, not for your doubts." B. The law relevant to the advice sought by NRMA in late 1993 and early 1994 (1) Principles applicable to amendment of articles in 1993-1994 462 But to return to the question as to what might have been anticipated at the end of 1993 or in early 1994, what could a Queen's Counsel and two leading firms of solicitors reasonably have forecast at the time? An analysis of existing authority and of accepted text writers would not obviously have pointed to the reformulation of principles adopted by the High Court, at least as interpreted by the learned trial judge, even making allowance for that Court's known proclivity at the time for reconsidering principle. Even as to Lord Lindley's frequently queried test requiring exercise of members' voting rights "bona fide for the benefit of the company as a whole" See Allen v. Gold Reefs of West Africa Ltd. [1900] 1 Ch. 656 at 671., the writer who took the most radical view about expropriation, Professor L.C.B. Gower, in the second to fourth editions of his Principles of Modern Company Law, had described the judgments analysing that test by the High Court in Peters' American Delicacy Co. Ltd. v. Heath (1939) 61 CLR 457. "admirable", "especially" the judgment of Latham, C.J. See, e.g. the 3rd edition at p.571 and the 4th edition at p.624. The reference to Peters was omitted from the 5th edition (1992) but so was the passage to which the reference had been a footnote. In all the discussion of shareholders' duties was reduced, from 26 to 16 pages. Interestingly, the author was somewhat more cautious about expropriation of shares in his 5th ed., see at pp.596-598; and see below at paras [539]-[541]. Hardly a basis for forecasting that the High Court would throw out "both the baby and the bath water", in seemingly rejecting Lord Lindley's test in Allen v. Gold Reefs, so carefully analysed in Peters by both Latham, C.J. and Dixon, J.! 463 Of course, what fairly might have been forecast at that time would have depended upon the extent of any understanding as to the issues likely to be raised in the High Court in Gambotto. For the present I will ignore the contention that not only should Mr Heydon and the solicitors have known of the application for special leave, but that they should also have discovered its outcome, the arguments put by Mr Gambotto in support of the application and the comments of members of the High Court who heard the application. I shall return to those matters at a later stage. See paras [558]ff. For the moment, one may also assume that not only had Mr Heydon's attention been drawn to the case by AAH, in a brief perused by a senior partner of AT, albeit it was referred to in the context of "oppression" generally, but that they each also had a general appreciation of the issues there raised, for the case on appeal had by then been reported with a footnote referring to the application for special leave. In broad terms the case might have been seen as raising a not altogether unfamiliar dispute, namely as to the consequences of an alteration of articles procured by a clear majority of shareholders which had the effect of buying out the minority shareholders so as to leave them no longer members of the company. It would also have appeared that the plaintiff had originally succeeded Gambotto v. WCP Ltd. (1992) 8 ACSR 141 (McLelland, J.). solely on the ground that the "immediate purpose and effect of the amendment" was to enable the minority shares to be "expropriated by the majority shareholders", as the trial judge's decision was there described by Meagher, J.A. 30 NSWLR at 387. It would also have seemed that the members of the Court of Appeal, especially Priestley and Meagher, JJ.A., were not prepared to accede to an argument that an act of "expropriation", insofar as the facts therein contained satisfied that description, was necessarily to be characterised as a "malum in se" Per Meagher, J.A. at 389. and for that reason automatically (or, at least, prima facie) enjoinable. The judgments in the Court of Appeal also contained criticism of the concept that the majority should act "bona fide for the benefit of the company as a whole", although the Court appeared Per Meagher, J.A. at 388-389, with whom the other members of the Court agreed. to accept the analyses of Latham, C.J. and Dixon, J. in Peters. 464 Even if one were to assume that both counsel and solicitors were aware of the fact that leave had been granted in Gambotto, then, if I may say so with respect, the precise lines upon which any future High Court judgment would proceed were by no means obvious. Having regard to known criticisms of Lord Lindley's test, the High Court might have seen it as an opportunity either to restate that principle or, having regard to its careful explanation by two judges in Peters, to formulate a test appropriate to circumstances where there is essentially a contest between two groups of shareholders with conflicting rights or interests and where otherwise the company's own interests cannot be seen to be relevant. That Court may also have seen it as an opportunity to examine the basis on which courts may intervene where a majority exercises its apparent statutory right to effect alterations to the articles. It may have seen any such reformulation of principle as relevant to the characterisation of the particular facts in Gambotto so as to lead, upon the analysis of those facts, to a principled but limited conclusion. In other words it may have chosen to work out some solution which was neither as simple as that of the trial judge, nor, on the other hand, as simple as that espoused by the Court of Appeal. Moreover, an informed practitioner may well have hoped that the High Court would have tempered any proposed restatement of principle after having regard to the fact that, whatever difficulties there had been in the relation to the terminology used, the commercial world and those advising them had acted for almost a century upon certain assumptions in dealing with cases of this kind where statutory powers to amend articles had come to be exercised. 465 In order further to understand what expert practitioners in the field could reasonably have been expected to advise, it is necessary to examine somewhat further those principles which at the time may have seemed to be settled and those which seemed capable of reformulation. For that purpose some, regrettably an extensive, examination of the history of company legislation and of the courts' interpretation of that legislation over the years is desirable, as well as of those equitable principles which had remained part of company law during the same period. (a) Background to Companies Acts and Corporations Law 466 When the joint stock companies legislation was finally passed in 1856 Joint Stock Companies Act 1856 (U.K.), which was soon replaced by the Companies Act 1862 (U.K.). The best brief exposition of these historical matters is contained in chapter 3 of Gower's Principles of Modern Company Law. The relevant edition is the 5th, but the treatment in the 6th ed. is almost identical. there was a radical change to the structure and operation of companies, apart altogether from the introduction of limited liability in an unqualified form. Leaving aside chartered companies and companies formed pursuant to specific legislation or legislation such as the Companies Clauses Consolidation Act 1845 (Eng.), joint stock companies previously had been essentially elaborate partnerships with special rules designed by those promoting and thereafter managing such institutions. The new legislation required companies taking advantage of the statutory scheme to have both a formal, and largely immutable, memorandum of association, setting out the minimum, basic elements of the company's constitution, and articles of association which were given statutory effect but which were capable thereafter of being amended by the company in general meeting. See, e.g., s.50 of the 1862 Act. Significantly one member could not hold out against such amendments and the minority was only protected by the requirement that amendment required 75 per cent of members present and voting to vote in its favour. See s.51 of the same Act. So far as articles of association are concerned that remained the position at least until 1998. It is not necessary to consider the present power to amend a corporation's constitution and "replaceable rules": see below at fnn.75 and 77. 467 The consequence of these changes, in essence, was that companies were no longer so much like partnerships as akin to incorporated associations, inasmuch as members subjected themselves to majority rule, not merely in relation to the amendment of articles, a relatively rare occurrence, but also in relation to the management of the company through appointments to the board of directors. At the same time, joint stock company legislation always included an apparently innocent provision whereby the articles of association were deemed to be a contract between the members and the company. See, e.g., s.16 of the 1862 Act. Thus it would seem that not only did Parliament permit the articles to be amended by majority, but in addition those members were to be treated as having agreed to that method of running the company's affairs and to the alteration or potential alteration of their "contractual" rights as shareholders. For the present it is unnecessary to examine why these changes took place. Suffice it to say, the consequence was that the statutory contract between the shareholders was thereafter accepted as capable of being altered from time to time by the vote of a majority of three-quarters or more of those shareholders: see Peters generally and esp. propositions (1), (2) and (3) of Latham, C.J. At 479-480. Leaving aside the effect of later statutory amendments (see below, fnn.75, 77) those propositions may no longer be entirely correct, inasmuch as Gambotto suggests but does not directly say so, but at the relevant time there was no reason to believe that the High Court's earlier analysis was wrong, certainly in these respects., concurred in by McTiernan, J. As Rich, J. said At 494-495.: "No rights given by articles of association can prevail against a three-fourths majority and it is well understood that all are subject to it." 468 Moreover, it seemed well understood both before Peters and thereafter, by reason of the explicit discussion of the matter, that the power of alteration was required to be exercised "bona fide with a view to the advancement of the company considered as a whole and not with a view to the advancement of the interests of a majority of voters or a section of the company only": per Rich, J. At 495. See also Latham, C.J.'s fourth proposition at 480-481 and the detailed discussion by Dixon, J. at 502 ff. 469 The history and basis for the Court's power to intervene when articles are amended might also have been seen to have been expounded in Dixon, J.'s judgment in Peters. Ibid. The source of the entire expression "bona fide for the benefit of the company as a whole" was traced But see below at para [473]. in this context, as it seemed, to the judgment of Lindley, M.R. in Allen v. Gold Reefs. At 671. See Peters esp. at 507-511. Dixon, J.'s careful comments about that expression, together with those of the other members of the Court, were for many years seen as providing an explanation for, if not justification of, the continued use of that generalisation in this area of the law. Notwithstanding what was said in Gambotto, it would seem, with the greatest of respect, that the expression was a useful talisman, albeit that it was not a comprehensive description of the circumstances in which the Court would exercise its discretion to refuse to restrain, or to give effect to, particular amendments to companies' articles of association. It may be accepted that the test was of relatively little use where the dispute involved solely the interests of two groups of shareholders, but it would seem, even after Gambotto, that there remain circumstances in which a company's overall benefit, or that of its corporators – it matters not which description is used – will justify particular amendments even though they seemingly involve an expropriation of shareholders and their rights. 470 But this, in a sense, is an attempt to look backwards with the benefit of hindsight from the judgments actually delivered in Gambotto. The relevant issue at the time might be said to be what changes in the law the High Court would effect after granting leave to appeal in Gambotto itself. That is where the art of speculation must have become more difficult. Even if one could be modestly confident that the "company as a whole" test would be reconsidered, how would the High Court define the relevant test for the future? Would it go back to "fraud", in a sense of equitable fraud or "fraud on the minority", if that expression properly connotes something different? Would it look to some test of "unconscionability"? Or would it see it necessary only to work out a principled solution to the particular facts raised by Gambotto? (b) The principle in Allen v. Gold Reefs 471 Thus the granting of leave in Gambotto may have presaged a restatement of principle which would govern all cases in which a minority complained about the majority's exercise of its power to amend articles, if only to overcome the apparent and oft-repeated difficulties arising from the concept of the "company as a whole". The limitation on the majority's power to bind a minority when amending a company's articles, so as to require it to be exercised "bona fide for the benefit of the company as a whole", seems first to have been imposed by Sir Nathaniel Lindley, M.R. in Allen v. Gold Reefs. At 671. But see below as to its provenance, paras [473]-[474]. The need for some such test had become more urgent since the decision in Andrews v. Gas Meter Co. [1897] 1 Ch. 361. in which the Court of Appeal, including Lindley, L.J., had overruled a longstanding decision in Hutton v. Scarborough Cliff Hotel Co. (1865) 2 Dr. & Sm. 521; 62 E.R. 717. which had held that the new statutory provisions for a memorandum and articles impliedly prevented the passing of resolutions altering the relationship between the shareholders (inasmuch as equality of rights was there said to be seemingly implicit in the memorandum). In doing so his Lordship said At 371 of Andrews. that Hutton was not one of those decisions which it would be "mischievous to overrule" in that it could not be said that the Court was "disturbing titles or embarrassing trade or commerce". Although it was said that thereby the Court was removing a "fetter" which ought not to have been imposed, it was not at the time of Andrews thought necessary to lay down any need or further restrictions by way of principle. 472 However, three years later Lindley, M.R., speaking for at least a majority of the Court of Appeal, thought it desirable in Allen v. Gold Reefs to state At 671. the relevant principle in the following terms: "Wide, however, as the language of s.50 Of the Companies Act 1862, giving general power to amend the articles of association. is, the power conferred by it must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole , and it must not be exceeded." (Emphasis added.) His Lordship added that "these conditions are always implied, and are seldom, if ever, expressed". At 671. See also at 672. Romer, L.J. agreed with the reasons of Lindley, M.R. (at 678), his Lordship also accepting a test based on "want of good faith" (at 681) and the need "only … to look to the interests of the company" (at 682). Vaughan Williams, L.J., the dissenting judge, also accepted a test based on "good faith" (at 676, 677), though not expressed in identical terms. Of course, tests relating to the "benefit of the company" had been accepted for many years (and are still accepted See Gambotto at 444 ("still in vogue"). ) when the courts had dealt with the exercise of powers by directors and in considering in what circumstances a "fraud on the minority" would be enjoined. It had been accepted that directors (as contrasted with shareholders) exercised powers akin to fiduciary powers, some attributing the origin of that characterisation to Lord Hardwicke, L.C. in The Charitable Corporation v. Sir Robert Sutton (1742) 2 Atk. 400; 26 ER 642, although at that time "directors" were more akin to public agents (in the case of chartered corporations) or to commercial trustees or managing partners (in the case of deed of settlement companies): cf. per Kay, J. in In re Faure Electric Accumulator Company (1889) 40 Ch.D. 141 at 150-152. . For practical purposes, in relation to companies, the law had laid down a test having both positive and negative aspects, namely that directors were obliged to exercise their powers in the "interests of the company", but they could justify their acts by reference to what was necessary for that purpose. For example, Bowen, L.J. had articulated a test in these terms in Hutton v. West Cork Railway Co. (1883) 23 Ch.D. 654 at 672. : "The test …is not whether it is bona fide , but whether, as well as being done bona fide , it is done within the ordinary scope of the company's business, and whether it is reasonably incidental to the carrying on of the company's business for the company's benefit." See also the use of the expression "the interest of the company" in, e.g., Hirsche v. Sims [1894] AC 654 at 660 per the Earl of Selborne and the use of the expression "honestly for the benefit of the company" by Lindley, M.R. in Lagunas Nitrate Co. v. Lagunas Syndicate [1899] 2 Ch. 392 at 435. . 473 It has been said by a number of writers For example by Professor Gower: see 5th ed. at 591; by Prof. Finn (as he then was) in his: Fiduciary Obligations (1977) at 66; and in Farrar's Company Law (3rd ed.) p.383. that the origin of the expression "bona fide for the benefit of the company as a whole" was Lord Lindley's statement in Allen v. Gold Reefs, and the same is either explicit or implicit in many of the judgments which have discussed the proposition at any length. Gambotto at 438, per Mason, C.J., Brennan, Deane, Dawson, JJ. referring to McLelland, J. in Gambotto (1992) 8 ACSR 141 at 143; see also per Kirby, P. in Darvall v. North Sydney Brick & Tile Co. Ltd. (1989) 16 NSWLR 260 at 281; per Perry, J. in Re Southern Ltd. (1989) 15 ACLR 770 at 784. It is certainly a concept, or the expression of a concept, favoured by him and reiterated in various but not dissimilar ways on a number of occasions in the years following the decision in Allen See, e.g. in British Equitable Assurance Co. Ltd. v. Baily [1906] AC 35 at 42-43; Lindley on Companies 6th ed. p.461.. It seems, however, that the concept, or at least the expression, of "the company as a whole" went back for another 20 years, at least to the time of the decision in Pender v. Lushington (1877) 6 Ch.D. 70.. That has always been a difficult and controversial case, but the following passage in the judgment of Sir George Jessel, M.R. is particularly obscure. After stating that the Court would not restrain the exercise of certain votes merely because the holder of the votes had a motive for voting them which the Court might not approve, his Lordship said (at 75-76): "I am confirmed in that view by the case of Menier v. Hooper's Telegraph Works (1874) L.R. 9 Ch. 350, 354 , where Lord Justice Mellish observes: 'I am of opinion that, although it may be quite true that the shareholders of a company may vote as they please, and for the purpose of their own interests, yet that the majority of shareholders cannot sell the assets of the company and keep the consideration.' In other words, he admits that a man may be actuated in giving his vote by interests entirely adverse to the interests of the company as a whole . He may think it more for his particular interest that a certain course may be taken which may be in the opinion of others very adverse to the interests of the company as a whole , but he cannot be restrained from giving his vote in what way he pleases because he is influenced by that motive. There is, if I may say so, no obligation on the shareholder of a company to give his vote merely with a view to what other persons may consider the interests of the company at large ." (Emphases added.) Although his Lordship may appear to be denying that the concept can ever be relevant, I think the point that he was making is that a court will not restrain the act of directors merely because of their underlying motives, although he seems likewise to make clear that the court might act in certain circumstances if the effect of the vote is contrary to the interests of certain shareholders. 474 The present exercise is intended to show only that the concept later so forcefully and repeatedly stated by Lord Lindley was not an aberration of his own, nor was it obvious in 1993-1994 that it had become necessary or appropriate to sweep it away entirely. If the High Court were to examine it, then it might have been thought desirable to look at the theoretical basis for equity's intervention, or refusal to intervene, where those involved in companies acted in what they genuinely believed to be the company's interests, as well as where they acted oppressively or otherwise inequitably. The risk, however, in seeking out the forebears of Lord Lindley's proposition is that they almost entirely derived from a use connected with the exercise of directors' duties, not the exercise of shareholders' votes. As a means of confirming the proper exercise of directors' powers, a test related to the interests of the company was no doubt valuable, at least in the sense that, if the test could be satisfied, then there would ordinarily be little reason to set aside an act of the directors. That, however, was because directors were characterised as fiduciaries for, and as owing their duty to, the company itself. So over the years there had been little doubt that the test conformed with the "general doctrine" as to the exercise of powers expressed by Lord Northington in Aleyn v. Belchier (1758) 1 Eden 132 at 138; 28 ER 634 at 637, cited in particular by Dixon, J. in Mills v. Mills (1938) 60 CLR 150 at 188.. This much was to be conceded by the majority in Gambotto, at least to the extent of allowing that the expression was "still in vogue" in relation to the exercise of directors' powers, citing leading cases such as Mills, Ngurli Ltd. v. McCann (1953) 90 CLR 425 at 440 and Whitehouse v. Carlton Hotel Pty. Ltd. (1987) 162 CLR 285. without seeming to criticise its use in that context. However, since directors clearly owe duties to the company, there is relatively little difficulty in the ordinary case in giving effect to a test expressed in terms of the interests or benefit of the company. 475 On the other hand, difficulties had arisen on numerous occasions in applying Lord Lindley's test to the exercise by shareholders of their right to vote at general meeting. In this respect tracing the appropriate duty back to a relevant equitable principle may have been a good deal harder, or so it could have appeared. 476 What here had to be considered by those advising the respondents, however, were the restraints, if any, properly to be placed on members of companies in exercising their rights as such, especially their voting rights. The exercise in practical terms here would have involved enquiring first into restraints properly to be placed on shareholders and then adapting those conclusions to members of guarantee companies. It was one thing to say (as have a number of judges) that the "company as a whole" test was unsatisfactory, at least in some respects, but it was quite another matter to forecast what new test might be substituted. It was possible, but highly unlikely, that the duties of shareholders would be subsumed under the fiduciary rule imposed on directors. That, however, would have preserved the almost identical test based on the "interests of the company". As it turned out the High Court in Gambotto refused to move in that direction, McHugh, J. explicitly confirming that "majority shareholders owe no fiduciary duty to minority shareholders" At 451. and the majority said nothing which could be taken as affecting in general that accepted rule. 477 Could any other approach have been thought likely at the relevant time? The constant difficulty over the years in analysing the "duties" of controlling shareholders has been to find the right cornerstone on which to base a comprehensive principle, one which would sufficiently recognise the basic right of the shareholder but at the same time one which would place a fair limit on unacceptable conduct. Here I am not sure, with great respect, that the passage of McHugh, J. which followed that referred to in the last paragraph sufficiently recognises that distinction. In 1993 it was at least conventional to describe a breach of the duty in terms of a "fraud on the power": ibid. The basis of that rule has always been seen to be equity's control on the exercise of powers of appointment, but, despite that concept's generality, it has been confined to frauds on special powers, that is, powers which are by their terms limited. The closer analogy, when talking of shareholders' voting and other rights under articles of association is the general power, but in this area the limits on the donee are negligible. See generally Ford, Austin & Ramsay: Principles of Corporations Law. (Current loose-leaf edition) paras.11.030-11.060. For the law stated at relevant time, 6th ed. (1992) para.[1703]. As argued before this Court, emphasis was heavily placed on the likelihood that "expropriation" should have been seen as a proper basis in itself to restrain the majority. That, in terms of equity, might have sent one to examine those rules which have as their criterion the excessive or unjust use of a common law power, such as those which proscribe the contractual enforcement of penalties and forfeitures, characterised in Parkinson's Principles of Equity (1996) as the "harsh or oppressive exercise of rights" In para.[209] of that work.; and see also Stern v. McArthur (1988) 165 CLR 489. and Rossiter: Penalties and Forfeiture (1992). Another potential analogy, capable of being adapted by the High Court, was equity's interference in the exercise of mortgagee's rights, such as by means of the equity of redemption and through equity's power to intervene in cases of abuse of a mortgagee's power of sale: see, e.g., Kennedy v. Trafford [1897] AC 180 at 185.. 478 The latter analogy had been referred to At 504. See his discussion at 502-513, esp. at 502-505. by Dixon, J. in his well-known analysis of the issue in Peters. His Honour seemed prepared to treat the issue as dependent upon equity's willingness to intervene as and when necessary where an act of the majority "conflicts with ordinary notions of fair dealing and honesty" At 505. without seeking to restrict any such definition too narrowly, but attempting over the next ten pages of his judgment to make sense of Lord Lindley's dictum. A not dissimilar analysis, in many respects based on Peters, appeared in the edition (6th, 1992) of Ford's Principles of Corporation Law in use at the relevant time. See at para.[1703]. Another view of the origin of Lord Lindley's test appears in an article by Dr B.H. McPherson (as he then was) in "Oppression of Minority Shareholders" (Part I) in (1963) 36 Aust.L.J. 404 at p.409 where it is suggested that it might derive from the test applying to creditors in bankruptcy, that they must vote "bona fide for the benefit of all the creditors": see Ex parte Cocks (1882) 21 Ch.D. 397 at 404. 479 The matters so far discussed have been discussed not for the purpose of showing that the judgment of the High Court in Gambotto when ultimately delivered was wrong, for that decision presently lays down the law in relation to the exercise by a majority of shareholders of their voting rights in order to "expropriate" the shares or other rights of the minority. This discussion is intended merely to show what issues, especially of principle, the High Court may have been thought likely to have chosen to elucidate in the course of its judgment. It is sufficient to say that I am of opinion that it was by no means obvious what line the High Court would take, or that that line of reasoning would have any necessary relevance to the contemplated plan for demutualising the NRMA companies. Of course, what the respondents contended, and essentially what the learned judge accepted, was that the appellants ought to have anticipated that the High Court might hold that any form of "expropriation" of the minority shareholders' interests by vote of the majority shareholders would of itself be beyond power and thus bad. This, so it was contended, would be the natural consequence of doing away with the "benefit of the company as a whole" test. 480 For the present I shall assume that that was in substance what the High Court held, although it will be necessary to return to the issue of what was the precise ratio of the judgments in Gambotto. See below at paras [573]-[600] and [601]-[603]. It was argued both before the trial judge and this Court that expropriation was so obviously heinous that any vote of majority shareholders effectuating it would be seen to be an act beyond the scope of the power vested in the shareholders to exercise the votes attached to their shares and thus oppressive by definition. 481 It would appear that at the heart of the argument in Gambotto was a proposition that the taking away of shares and rights attaching to shares compulsorily, whatever be the consideration payable in return, was necessarily bad and incapable of being justified. So it was held, except for acquisitions in the most limited of circumstances. In other words, howsoever wide and unfettered is the power of the majority shareholders to vote in favour of resolutions at general or other meetings, it could not ordinarily extend to resolutions which had an expropriatory effect or which might lead to an expropriation of members' rights. (c) Expropriation – Known meaning and use of term 482 A resolution of that kind and related conduct might well amount, and have amounted in the past, to oppression whether defined by reference to equitable or statutory rules, but the matter here said to have been capable of anticipation was a rule similar to that set out in the previous paragraph based upon expropriation as such. The question was whether, as a matter of principle, an effectively "blanket" prohibition on such expropriations could fairly have been expected. The case law has been examined extensively elsewhere, particularly in the judgments of Malcolm, A.J.A. and McPherson, A.J.A., but the concept of "expropriation" as providing a basis for a separate rule was by no means obvious. Very few authorities, certainly those of appellate courts, had by that time expressed themselves as favouring a principle dependent on the use of that term. Moreover, remarkably few textbooks had espoused some such principle with the clear exception of Professors Gower Who expounded the same principle in the course of his Master of Laws lectures at London University, at least in 1959-1960. in each edition of his Principles of Modern Company Law, and Professor Pennington. See below, as to Gower's views, at paras[534]ff, and as to Pennington's, at para.[542]. See also the views of J.P.Hambrook, below at paras.[551]-[553]. 483 "Expropriation" is not a word, so far as I have been able to discover, of general use in the common law, at least as developed in England and Australia. It did not appear at the relevant time in Stroud's Judicial Dictionary, in Words and Phrases Legally Defined (except insofar as there is a reference to Roman Dutch law in South Africa) or in Australian Legal Words and Phrases. In Halsbury's Laws of England the only reference appears under the title on "Foreign Relations", where it is stated that it "is generally used to mean a taking which conforms with the requirements of international law" Vol. 18 at para.1728 fn.2.; but there is no reference to the word in the index to the first three editions. An almost identical definition is given under the title "Foreign Relations" in Halsbury's Laws of Australia. Para.215-740. 484 On the other hand, in the United States the concept of expropriation was better understood, at least in the context of the principles of "eminent domain", which is seen as the constitutional basis for governmental power to acquire property. That was noted in this country by the High Court as long ago as 1915 in New South Wales v. The Commonwealth (1915) 20 CLR 54 esp. at 77-78.. The American meaning can be seen from Garner's Dictionary of Modern Legal Usage (2nd ed.) Under the entry "appropriate, v.t.; expropriate" at 70-71., where the author says that the word means: "(1) to exercise eminent domain over; to take, by legal action, private land for public use; or (2) to transfer title to another's property to oneself". The definition is consistent with the meaning given to the word "expropriation" in Merriam-Webster's Collegiate Dictionary: "specifically: the action of the State in taking or modifying the property rights of an individual in the exercise of its sovereignty". Garner continues by pointing out that the word "expropriate" is to be distinguished from "appropriate" because a private or semi-public entity does the latter, whereas a public governmental entity does the former, adding that the distinction is "carefully observed by the courts". 485 Of course, in the United Kingdom and Australia statutes permitting compulsory acquisition by government or semi-government bodies had not infrequently been passed especially during the nineteenth and early twentieth century It seems that such Acts go back at least to the "Bill for the Conduyttes at Gloucester" 1541 (33 Hen. 8 c.35). . Such Acts ordinarily authorised the acquisition of land or the like by government, local authorities and certain corporations, but, to the extent that private corporations were so authorised, land might be acquired primarily for roads, canals, railways and similar quasi-public purposes. See Halsbury's Laws of England, 1st ed., vol. 6, tit. "Compulsory Purchase" contributed by Lord Alverstone, C.J. Common though such legislation was both in the United Kingdom and Australia, none of it truly prepared the public for the wholesale acquisition of land and chattels effectuated by governments for the purposes of the First World War. It seems that it was at this time the word "expropriation" became more fashionable, at least more common, perhaps because the element of compensation was viewed as secondary to the war effort. Thus, the first discussion in any detail of the concept in the High Court appeared during that War in the 1915 case where the validity of New South Wales legislation for the compulsory acquisition of wheat was challenged: see N.S.W. v. The Commonwealth. 486 More relevantly for present purposes it was immediately after the end of that War that the cases of Brown v. British Abrasive Wheel Co. Ltd. [1919] 1 Ch. 290. and Dafen Tinplate Co. v. Llanelly Steel Co. (1907) Ltd. [1920] 2 Ch. 124. were decided and in which, for the first time to my knowledge, the word "expropriation" was used to describe the acts of majority shareholders. If not intended as a dyslogistic description (cf. Dixon, J. in Peters At 506.), it had at the very least a connotation of disapproval. It is a connotation which it seems to have retained in the present context, whenever it has been put forward as a reason for holding to be invalid resolutions to that effect. It may be doubted, however, whether it is a very useful word of description where one has to characterise the acts of majority shareholders. As I have said, the word seems to have acquired a connotation of disapproval at about the time of the First World War, largely because the wholesale acquisitions then effected by government in both the U.K. and Australia, though clearly intended for the benefit of the nation as a whole, were viewed by those affected as providing minimal compensation and thus seemingly unfair. However, one accepted usage of the word arguably has no such connotation, namely, where adequate compensation is provided: cf. meaning (1) of "expropriate" in the Oxford English Dictionary, 2nd ed. Thus, one may conceive of expropriatory acts where more than adequate compensation is payable. On the other hand, one might understand that some would take the view that any form of compulsory acquisition is "unfair", at least to those directly affected, whatever may be the wider good. As will be discussed later, one might conclude from the High Court's decision in Gambotto that this latter view now ought to prevail. 487 The point of this seemingly esoteric discussion of the meaning of the word "expropriation" is only this. It would seem that in all the cases in which the word has been used in company law, including subsequently Gambotto, the assumption behind the use of the term, with its implicit connotation to which I have referred, was that the act of the expropriating shareholders was necessarily unfair or oppressive or fraudulent in the equitable sense of that term. Those who had been critical of the few cases which had depended upon a characterisation of particular acts as expropriation, said, of course, that that assumption was not correct. This was primarily, I would concede, upon the basis that the constitution of the company permitted such acts inasmuch as no true fiduciary duty was imposed on shareholders, but also because in most cases the compensation payable was thought to be fair, if not more than fair. If the compensation were less than fair, then that might have enabled the minority to claim that the majority were not acting bona fide in the sense described in Allen v. Gold Reefs and Peters. It may be, however, that those few cases where the minority had succeeded were decided primarily without regard to the compensation offered in return but upon some premise that future exclusion from participation in the company's activities or in the financial benefits which would continue to flow from their former shares was of itself oppressive. If the High Court were to favour the minority's position, it was by no means clear what new approach they would adopt, especially in the light of the earlier decision in Peters and the principles therein seemingly so carefully worked out. Notwithstanding what had been earlier decided in relation to expropriation, one may have then thought it more likely that a solution would have been found having regard to the commercial context of this kind of dispute, rather than by reference to some implicit right to retain membership of the corporation, a right which had not been found necessary to preserve inviolate under other specific provisions of the Corporations Law and its predecessors. In the end, as will be later seen, by its decision in Gambotto, although seemingly based on the assumption that such acquisitions were oppressive, the High Court left open the possibility that the majority may justify them, if the compensation is clearly sufficient and if the power is exercised "for a proper purpose". This may occur where, for example, "it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs" At 445.. 488 It is next necessary to turn to the degree of risk that expropriation might be held prima facie oppressive which might reasonably have been foreseen at the end of 1993 and the beginning of 1994. For the present I shall not deal with the extent to which the appellants ought to have known of the grant of special leave in Gambotto and of what was said in the course of argument both on that application and on the hearing of the appeal itself in April 1994. At this stage I would merely observe that it was then and remains exceptionally difficult for a competent, but not a very narrowly specialised, legal practitioner to keep up with all the changes in statute law and all the changes or supposed changes of principle in relation to any particular subject in the law. By that time each of the two specialist company law reports in Australia produced a thick volume of new decisions every year and, omitting from present consideration all the manifold changes to company statutory law over the preceding thirty years, the Corporations Law itself has been subject to alteration and amendments, some of many hundreds of pages, every year since it came into force. To be precise, 24 amending acts had been passed to the end of 1999, eight of which had been passed by the end of 1993, including the detailed and complex Corporate Law Reform Act 1992. For the present I shall assume that the appellants had the ability and energy to keep up to date with at least the fundamental principles of company law. (2) Development of the relevant law as stated in cases and textbooks up to April 1994 (a) Authorities on expropriatory amendments to articles - General 489 The question here, however, is what fairly could have been the understanding of experienced practitioners as to the principles applicable to the exercise by shareholders of their voting rights, especially for the purpose of altering the articles of association, and to what extent the "expropriation" of shares or other membership rights could not be effectuated by such alterations. For this purpose there are a number of strands which may be discerned in the authorities and the textbooks. They are, in descending order of generality: the power of the shareholders in general meeting to amend the articles by special resolution; the right of shareholders to vote as they see fit in relation to the affairs of the company; the extent of the qualification on that right that it be exercised bona fide for the benefit of the company as a whole; the onus of proof when the validity of resolutions is challenged; and whether (or to what extent) the expropriation of shares or other members' rights should be seen as an exercise of that right in bad faith and therefore of itself invalid. Much of the detailed history, especially of the authorities, may be seen elsewhere, particularly in the judgments of Malcolm, A.J.A. and McPherson, A.J.A., but I desire to express my own views as to how the relevant principles might fairly have been understood in late 1993 and early 1994. I have confined myself to authorities decided and textbooks published in England and Australia during the relevant period, as I have insufficient knowledge of the applicable legislation in Canada, New Zealand or elsewhere. Nor was it suggested that there were any authorities of direct application from those countries, except to the extent raised in Gambotto itself. I apologise that my analysis is so long, but it is important to understand what was and had been the general understanding of the relevant legal principles for so many years and how little basis, proportionally, there was for forecasting a change in principle along the lines ultimately espoused by the High Court in Gambotto. [My reasons and conclusions otherwise resume at para.[558].] 490 There can be little doubt that over the period up to the relevant date it was fundamental to the structure and operation of companies incorporated pursuant to the various Companies Acts and the Corporations Law that the articles of association might be amended at any time by special resolution, whether one looked to the provisions of s.50 of the 1862 Act or of s.176 of the Law. Since repealed in 1998 by the first CLERP Act, the Company Law Review Act 1998 (Cth), at which time the structure of corporations was fundamentally altered by prohibiting the use of "articles of associations" and substituting for them the aptly named "replaceable rules": see fn.77. A special resolution consistently required a vote in favour by not less than three-quarters of those members who voted in person or by proxy, their votes ordinarily by the articles being calculable by reference to the number of shares held. Originally that power was in form virtually untrammelled, Though Hutton v. Scarborough had seemed for a time to place an artificial constraint on the power: see para.[471] above. except to the extent that the provisions of the memorandum might control that power, but over the years certain qualifications were introduced into successive Companies Acts limiting the power of the shareholders in general meeting to deal with the rights of classes of shareholders: see s.61 of the Companies Act 1929 (U.K.) and of the Victorian Companies Act 1938, with which may be compared the somewhat more complex provisions of ss.196-200 of the Corporations Law at the relevant time. The demise of the memorandum and articles and the substitution of "replaceable rules" and/or a "constitution" effected by ss.134-141 substituted in 1998 and their relationship to formerly prevailing principles are fortunately irrelevant to this judgment, except to point out yet again the difficulties facing conscientious practitioners in attempting to keep up with the law on this subject. Five of those sections appear to have been amended yet again last year. 491 Secondly, there had always been a well accepted principle that shareholders were not prevented from voting at general meetings as they saw fit or from freely using their voting power, merely by reason of their having a particular interest in the subject matter of the vote: see Northwest Transportation Co. Ltd. v. Beatty (1887) 12 App.Cas. 589. ; Burland v. Earle [1902] AC 83. and Dominion Cotton Mills Co. v. Amyot [1912] AC 546., as cited by Griffiths, C.J., Barton, J. and Isaacs, J. in Miles v. Sydney Meat Preserving Co. Ltd. (1912) 16 CLR 50 at 63-64, 71-74 and 91-92.. 492 It was, of course, the generality of this principle which was qualified by Lindley, M.R.'s judgment in Allen v. Gold Reefs, as was subsequently explained in Peters, especially by Latham, C.J. and Dixon, J. Now, although those judgments placed far heavier emphasis on the duty of the majority than might have been deduced from those earlier decisions of the Privy Council, Dixon, J. noting At 503. that "it has never been conceded that the power [to alter the articles] is unrestrained", even the most radical writer on this subject, Professor Gower, had consistently insisted that the statement that members should vote bona fide for the benefit of the company was "highly misleading, and that the decisions do not support any rule as a general principle" 3rd ed. at 562; 4th ed. at 614-615. Cf. 5th ed. at 591-592, where "universal" is substituted for "general".. He had likewise conceded Ibid. that it had been "repeatedly laid down" that votes were proprietary rights which holders might ordinarily exercise in their own selfish interests even if opposed to those of the company. 493 Thus, when one has regard to what the High Court said in Peters, there can be little doubt that the shareholders' voting rights were accepted as clearly qualified rights. That this was so may be seen from a later decision of the High Court consisting of three of the most eminent equity lawyers to have sat on that Court, Williams, A.C.J., Fullagar, J. and Kitto, J., when they said in Ngurli Ltd. v. McCann (1953) 90 CLR 425 at 438-439. that, accepting that shareholders might vote as individuals in general meetings and "can usually exercise their votes for their own benefit", there was nevertheless a limit to that right which required the voting powers of shareholders to be "used bona fide for the benefit of the company as a whole". 494 Thus in late 1993 and early 1994 it would properly have been seen that there was little dispute as to the existence of a qualified duty superimposed on the right of members to vote as they pleased at general meetings. Any question must have been as to the extent of that duty. Lord Lindley's famous dictum, at least as explained by Dixon, J. in Peters, in terms which seemed not inconsistent with the views of the other judges who decided that case, has been accepted as providing a succinct, if not comprehensive, statement of the duty and had been used as a basis of the Court's reasoning in Ngurli. Its weaknesses were known, indeed examined in detail by Dixon, J., and it had been also examined by Evershed, M.R. in Greenhalgh v. Arderne Cinemas Ltd. [1951] Ch. 286 at 291; [1950] 2 All ER 1120 at 1126 (a fuller version of the case)., in a passage likewise approved by the Court in Ngurli At 438.. (b) Analysis of relevant authorities – U.K . 495 So far as the later authorities The authorities relating to the genesis of the "rule" in Allen v. Gold Reefs have already been discussed above in paras.[471]-[473]. were concerned the only real difficulty which had occurred in applying the principle had arisen in the "expropriation" cases, to which I have already briefly adverted. By the time Peters and Ngurli had been decided those cases seemed to have been properly explained and their limits understood, especially if one has regard to the judgment of Dixon, J. in Peters. In broad terms it might be said that on each occasion a single judge of the Chancery Division had appeared to express broad views as to the impermissibility of shareholders voting in favour of expropriatory alterations to articles, the Court of Appeal in England had qualified and disapproved those parts of the judgments which had attempted to express those more broadly stated principles: see Sidebottom v. Kershaw, Leese & Co. Ltd. [1920] 1 Ch. 154. and Shuttleworth v. Cox Bros & Co. (Maidenhead) Ltd. [1927] 2 KB 9. and cf. Peters per Dixon, J. At 509-511. It was, however, in the two earlier judgments which were both explicitly and implicitly disapproved by the Court of Appeal, that an argument based on "expropriation" was first raised and had in fact succeeded: see Brown [1919] 1 Ch. esp. at 292 and at 295-296. and Dafen [1920] 2 Ch. esp. at 138 and 141.. 496 I have already discussed the meaning and connotations of the word "expropriation" and doubtless in the latter two cases, heard immediately after the end of the First World War, the connotation of its use was that there had been a compulsory acquisition in bad faith, if not fraudulently, by the majority shareholders which should be restrained in accordance with Lord Lindley's dictum. There had been one earlier case raising questions of compulsory acquisition, although in somewhat different circumstances, where, although the word "expropriation" was not used, the plaintiffs unsuccessfully complained about the use of an article by the majority compulsorily to acquire their shares at a considerable undervalue: Phillips v. Manufacturers' Securities Ltd. (1917) 116 LT 290: and see Gaiman v. National Association for Mental Health [1971] Ch. 317. The article there had been included in the articles from the moment of incorporation of the company, which was in fact a trade association with a considerable number of members but each also held a small number of shares. Both the trial judge Petersen, J., who happened to be the same judge who later decided Dafen. and the Court of Appeal held that there had been no improper acquisition of the shares of the plaintiff, who was a competitor and who, so it was said, had sought to undermine the interests of the association. Allen v. Gold Reefs had been relied upon but the Court of Appeal found no difficulty in saying that it had not been shown that the acquisition had been in bad faith, Lord Cozens-Hardy, M.R. observing that the relationship between partners and their respective duties was not applicable to shareholders in a company. At 296-297. As each member had an equal interest in the Association, it had been argued by analogy that partnership rules should apply. 497 As may be seen from a reading of the judgments in both Sidebottom and Shuttleworth the Court of Appeal firmly deprecated any idea that compulsory acquisition was prima facie invalid or, in itself, to be treated as evidence of bad faith, for, as they reiterated, the question of bad faith and the application of Lord Lindley's dictum must depend upon the facts in each case. They did not say that expropriation or compulsory acquisition of any kind could not be relied upon to establish want of good faith; rather, they said that in a commercial context each case must depend upon its own circumstances and the price paid, or not paid, was likewise not conclusive, as may be seen from Phillips. 498 These matters might be said to have received general acceptance, as will be seen from the textbooks referred to below, but there were two later decisions of the Court of Appeal each said to be of significance in the present context. The first was Greenhalgh v. Arderne, a decision of the Court of Appeal in 1950, a case which did not directly involve compulsory acquisition but in which an article was amended to enable majority shareholders to sell in circumstances effectively denied to the minority. Evershed, M.R. expressed his views on the test relating to majority shareholders in largely conventional terms, citing Sidebottom and Shuttleworth but also allowing that circumstances as in Dafen might justify the intervention of the Court. His Lordship emphasised that Lord Lindley's test was but a single test as to what in the shareholders' "honest opinion, is for the benefit of the company as a whole" and made clear, as had the High Court in Peters, that "company" meant "the corporators as a general body" At 291.. He continued: "That is to say, the case may be taken of an individual hypothetical member and it may be asked whether what is proposed is, in the honest opinion of those who voted in its favour, for that person's benefit. I think that the matter can, in practice, be more accurately and precisely stated by looking at the converse and by saying that a special resolution of this kind would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders, so as to give to the former an advantage of which the latter were deprived … It is therefore not necessary to require that persons voting for a special resolution should, so to speak, dissociate themselves altogether from the prospect of personal benefit and consider whether the proposal is for the benefit of the company as a going concern." Ibid. The last sentence is adapted from the version of the judgment at [1950] 2 All ER 1120 at 1126. In short, it would appear that his Lordship continued to accept that the test laid down by Lord Lindley provided an appropriate basis for considering the validity of the acts of majority shareholders but that each case, as his reasons thereafter demonstrated, depended on their particular facts. There was a final reference to Dafen , about which his Lordship made a brief comment At 292. , to the effect that it was "very far removed from the type of case in which what is proposed, as in the Dafen case , is to give a majority the right to expropriate a minority shareholder, whether he wanted to sell or not, merely on the ground that the majority shareholders wanted the minority man's shares." (Emphasis added.) 499 In England there was thereafter only one reported case in an appellate court that might be said to deal with similar issues: In re Bugle Press Ltd. [1961] Ch. 270.. I say "might appear" because none of the authorities to which I have so far referred were even cited by counsel in that case. Nevertheless, it has been later perceived, on a few occasions but especially by the High Court in Gambotto, to be part of the chain of authority dealing with the expropriation of minority shareholders. Probably why it was argued on different lines was that it arose out of a takeover scheme pursuant to s.209 of the Companies Act 1948 (U.K.) whereby a minority shareholder sought to restrain the exercise of the statutory power of compulsory acquisition under that section. In fact the trial judge, Buckley, J., resolved the issue entirely by reference to the failure to prove that the offer price was sufficient and fair. In the Court of Appeal, however, their Lordships saw the primary objection as resting on the use by the majority shareholders of another company as a vehicle to buy out the minority shareholders by use of the statutory provision. So Lord Evershed, M.R. said At 285. that the majority's argument would enable a majority of shareholders "always to get rid of a minority shareholder whom they did not happen to like". That, his Lordship said Ibid., "as a matter of principle, would appear to be contrary to a fundamental principle of our law that prima facie, if a man has a legal right which is an absolute right, then he can do with it or not do with it what he will". Observations of that kind make very clear that Allen v. Gold Reefs and the later judgments relating to amendment of articles, including his Lordship's own in Greenhalgh, were not cited, for if they had been, the reference to legal rights might at least have made passing reference to the established, if qualified, right of shareholders to do with their voting rights what they will. Nevertheless his Lordship said At 287. that the offeror should be restrained because the section had been used quite wrongly for "enabling minority shareholders to expropriate or evict the minority". Prima facie, his Lordship said the Court ought not to allow the section to be invoked in that way "unless at any rate it were shown that there was some good reason in the interests of the company for so doing, for example, that the minority shareholder was in some way acting in a manner destructive or highly damaging to the interests of the company from some motives entirely of his own" Ibid.. Harman, L.J. was even more forthright in his reasoning, saying At 287-288. that the appellant's acts were "a bare faced attempt to evade that fundamental rule of company law Where his Lordship drew that principle from is not apparent from either the arguments, the authorities or the textbooks, herein discussed, unless he was referring to Gower in his 1st or 2nd editions. which forbids the majority of shareholders, unless the articles so provide, to expropriate a minority." It was a "hollow sham" Ibid. such as to require the company to show that there was good reason why the takeover bid should succeed. 500 It is difficult, however, to know whether their Lordships saw the greater sin in the majority's seeking to employ another company to achieve their ends under the takeover provisions or in the act of expropriation itself. The absence of reference to Allen v. Gold Reefs, Dafen and Greenhalgh left it uncertain, certainly for later courts, to know whether the "company as a whole" test was even considered, the more likely inference being that no provision either under the Companies Act or the articles was directly relied upon by counsel for the majority other than the takeover provisions which were held to have been abused. Later judgments made passing reference to Bugle Press in the context of Lord Lindley's dictum but virtually no textwriters, other than Gower, See e.g. 5th ed. at 598, but cf. fn.41. saw the case as standing for anything more than a blatant example of a majority misusing the corporate form for the purpose of obtaining specific statutory relief to which it might not otherwise be entitled. One should add, that, if it were to have been seen to stand for a wider principle of present relevance, then it also provided a basis for placing the onus on the majority to show that there was "some good reason in the interests of the company" to support the taking of the minority's shares. See at 287 and 288. 501 Thereafter there seem to have been fewer cases of this kind, probably as a result of the introduction of s.210 into the Companies Act 1948 (UK) which provided a broad-based remedy for "oppression". However, in Rights and Issues Investment Trust v. Stylo Shoes Ltd. [1965] Ch. 250. Evershed, M.R.'s dictum in Greenhalgh was applied but so as to deny the plaintiff relief. On the other hand in Clemens v. Clemens Bros. Ltd. [1976] 2 All ER 268., at the time subject to much criticism, Foster, J. found in favour of the minority whose shareholding had been reduced below 25 percent, but his Lordship did so merely by applying accepted principles from, in particular, Allen v. Gold Reefs and Greenhalgh. In neither case was Bugle Press cited, the failure to do in the first case being noteworthy inasmuch as counsel on both sides in Bugle Press appeared for the unsuccessful plaintiff. 502 I have concentrated so far in some detail on the English decisions, as Bugle Press was later seen by the High Court as providing the basis in principle for the stringent test it applied in Gambotto. However, apart from two or three decisions at first instance Bugle Press had not by 1993 appeared to the courts (or most text-writers – see below) to have stood for any proposition other than one dependent upon the misuse of the statutory procedure for takeovers. So far as the power to alter articles of association was concerned appellate courts in this country seemed, to my knowledge, to have accepted, up to 1993, the principle laid down in Allen v. Gold Reefs as explained by the members of the High Court in Peters. (c) Analysis of relevant authorities - Australian 503 So far as the Australian authorities were concerned, they had likewise been consistent in holding that the power to amend the articles of association was qualified to the extent that it should not be exercised "fraudulently or for the purpose of oppressing a minority" (Peters); in substance, the test there laid down by Lord Lindley in Allen v. Gold Reefs was endorsed, subject only to certain doubts as to how it ought to be applied where a dispute concerned only the rights of different groups of shareholders. Peters at 481-482 and 512. 504 Before Peters Lord Lindley's dictum had been referred to on at least three occasions in the High Court: Miles v. Sydney Meat Preserving Co. Ltd. (1913) 16 CLR 50 at 58 (arguendo), with the principle restated by Isaacs, J. at 91 ("bona fide pursuing the true purpose of its corporate life").; Australian Metropolitan Life Assurance Co. Ltd. v. Ure (1923) 33 CLR 199 at 217. ; Richard Brady Franks Ltd. v. Price (1937) 58 CLR 112 at 135-136.. So far as Peters is concerned, some significant points should be emphasised for present purposes, as the exposition of principle in that case might be expected still to be well known to competent practitioners in late 1993 and early 1994. 505 Both the virtues and limits of Lord Lindley's dictum were recognised in Peters. Latham, C.J., in whose judgment McTiernan, J. concurred, both accepted the test but also recognised its limitations. See propositions 4 and 6 at 480-481, 481-482. His conclusion was that a resolution might be impeached if "passed fraudulently or oppressively or was so extravagant that no reasonable person could believe that it was for the benefit of the company" At 482.. Rich, J.'s judgment swiftly came to a similar conclusion At 495.. Dixon, J., in his celebrated judgment, examined authority and subjected principle to close analysis likewise to reach similar conclusions. 506 If there be any difference of approach or emphasis, it was in the insistence by Dixon, J. that equity would act to prevent abuse of the members' accepted power to vote to amend the articles if exercised in bad faith, for "it has never been conceded that the power is unrestrained" At 503.. Having noted the conceptual difficulties of formulating principles relating to rights which are, of their nature, capable of alteration by amendment to the articles, and eschewing any vague test leaving the issue "to general notions of fairness and propriety", his Honour expressed the view At 507-508. that, "whatever might amount to bad faith, it is evident that, if a resolution is regularly passed with the single aim of advancing the interests of a company considered as a corporate whole, it must fall within the scope of the statutory power to alter the articles and could never be condemned as mala fides". Warning that Lord Lindley's statement should not be seen "as formulating the issue on which validity or invalidity depended absolutely" At 508., he examined At 509-511. the more recent English authorities in some detail but accepted that the Court of Appeal In Sidebottom and Shuttleworth. had corrected the excessive enthusiasm of the Chancery judges in Brown and Dafen. His Honour concluded that examination by saying At 511. that he believed Lord Lindley "meant no more" in devising his formula than he did later when in British Equitable Assurance Co. Ltd. v. Baily [1906] AC 35 at 42. his Lordship said that the power to alter the articles, "like other powers, must be exercised bona fide, and having regard to the purposes for which they are created, and to the rights of persons affected by them". Dixon, J. had little difficulty in concluding At 512. that the "benefit as a whole" test was merely "a very general expression negativing purposes foreign to the company's operations, affairs and organisations": so he said Ibid.: "If the challenged alteration relates to an article which does or may affect an individual, as, for instance, a director appointed for life or a shareholder who it is desired to expropriate, or to an article affecting the mutual rights and liabilities inter se of shareholders or different classes or descriptions of shareholders, the very subject matter involves a conflict of interests and advantages. To say that the shareholders forming the majority must consider the advantage of the company as a whole in relation to such a question seems inappropriate, if not meaningless, and at all events starts an impossible enquiry." If a proposal raises the respective rights of classes of shareholders or individuals "the primary question must be how conflicting interests are to be adjusted" At 512. . As to that his Honour concluded At 513. that: "[W]hen the very question to be determined is a conflict of interests, unless the subject matter is held outside the power, the purpose of the resolution, as distinguished from the motives of the individuals, often must be to resolve the conflict in favour of one and against the other interest." 507 Nevertheless, by moving away from the application of the "benefit of the company as a whole" test in dealing with such conflict of interests, Dixon, J. was not denying his already stated requirement that the power invested in shareholders should not be exercised for an improper purpose: so in dealing with the facts of the appeal he concluded At 513. that "the resolution involved no oppression, no appropriation of an unjust or reprehensible nature and did not imply any purpose outside the scope of the power." (Emphasis added.) 508 Because of the care and detail with which the many relevant issues could be seen to have been covered in Peters, it is also necessary to see what the members of that court said about the other issues later raised in Gambotto. As to the onus of proof and whether it rests on minority or majority shareholders, it might be thought that what was concluded At 447. in Gambotto was inconsistent with what had been stated in Peters and about which no significant doubts had been expressed, at least at appellate level. 509 Latham, C.J. (McTiernan, J. concurring) explicitly held At 482. in his seventh proposition: "When the validity of the resolution of shareholders is challenged, the onus of showing that the power has not been properly exercised is on the party complaining. The court will not presume fraud or oppression or other abuse of power. … It cannot be the law that a resolution of shareholders is to be presumed to be invalid until the defendants in an action positively establish that it is valid." 510 Dixon, J. did not directly refer to onus but he described the approach to be adopted in considering challenged transactions, as summarised above. The essence of his analysis was that the circumstances must be examined in each case to determine whether equitable principles would deny validity to a purported alteration. He would concede that some particular act might be so "inconsistent with conceptions of honesty … widely held or professed" that departure from those conceptions might be described as fraud "without further analysis" At 511.. Otherwise, despite the lack of explicit discussion of onus, it is clear that he favoured the view that ordinarily it is for the plaintiff to establish that there is a "vitiating element present" At 515.. That can but be seen from his disapproval of the approach of the trial judge, who had wrongly enquired whether there was "any sufficient ground for the positive conclusion … of validity" Ibid.. 511 The second subsidiary matter, essential to the decision in Gambotto, was the extent, if any, to which expropriation was seen by the Court in Peters to be invalid on its face. Here Latham, C.J. did not deal with that directly except to support the proposition that an alteration prejudicing shareholders' rights is not in itself a ground for attacking its validity, and citing in particular Shuttleworth and Sidebottom, describing At 480. the latter case as one relating to "expelling a shareholder". Otherwise his numbered propositions would again assume no prima facie rule. 512 Dixon, J.'s analysis contained a number of references to "expropriation", albeit that on some occasions it was described as a "defeasance of rights of a valuable or important nature" At 507. or an "appropriation of an unjust or reprehensible nature" At 513.. But his whole analysis, as summarised above, suggests that he would not support any prima facie rule, leaving it to the particular circumstances and having regard to the competing principles, if so they may be described, that shareholders have the power to exercise their votes as they wish but that that power ought not to be exercised in a manner which could be described in equity as fraudulent, oppressive or reprehensible. 513 Peters was such a landmark decision, despite the matters left unresolved, that there were very few appellate decisions on the matters here in question over the 55 years up to 1993. The "company as a whole" principle remained in current use and was applied without criticism in a number of High Court decisions, though all but one raised only the duties of directors. See Richard Brady Franks at 135; Mills at 187-188; Ngurli at 440 (the only case also raising shareholders' duties); Harlowe's Nominees Pty. Ltd. v. Woodside (Lakes Entrance) Oil Co. N.L. (1968) 121 CLR 483 at 493; Whitehouse v. Carlton. The use of the principle in those cases was acknowledged in Gambotto at 444, at least to the extent of saying that the test was "still in vogue" in relation to the exercise of directors' powers. Otherwise, in relation to shareholders' powers, there were barely two other decisions at appellate level examining the principle in Allen v. Gold Reefs or even explicitly relying on it. Shears v. Phosphate Co-operative Co. of Aust. Ltd. (1988) 14 ACLR 747 (F.C. of S.C. of Victoria). was one example. There was no further exposition of principle in that case and the same can be said of Residues Treatment and Trading Co. Ltd. v. Southern Resources Ltd. (No. 4) (1988) 14 ACLR 569. (F.C. of S.C. of South Australia).. Earlier, in the context of a dispute concerning majority shareholders' ratification of impugned acts of directors, this Court in Winthrop Investments Ltd. v. Winns Ltd. [1975] 2 NSWLR 666. examined many of the relevant authorities in detail, including Peters and Ngurli, and it was not suggested that those cases did not state applicable principles. There was only one passing reference to Allen v. Gold Reefs, albeit that Mahoney, J.A. described the observations of Lindley, M.R. as "the classic passage". At 701. There was a further reference to Lord Lindley's dictum, but again in the context of directors' duties, in the judgment of Kirby, P. in Darvall v. North Sydney Brick & Tile Co. Ltd. (1989) 15 ACLR 230 at 281, where his Honour, although appearing to accept what was said in Ngurli and Whitehouse, described the dictum as tending "by overuse without fresh reflection, to become a 'cant expression'". This was a reference to an earlier comment by Rich, J. in Richard Brady Franks at 138: see below at para.[516]. 514 There remains one other case, One further decision of the High Court, namely, O'Donnell v. Thor Industries Pty. Ltd. (1977) 51 ALJR 569, has occasionally been discussed in the present context: see Australian Corporation Law (Service 32:11/93) para.2.4.0095 fn.40. The case involved employee shares which by the memorandum the governing director could, on the employee's ceasing work for the company, direct to be transferred to another employee. The memorandum said nothing about consideration but the employee contended that he had an implied right to be paid for them. The majority (Barwick, C.J., Stephen, Mason and Aickin, JJ.) resolved the matter against the employee on the basis of the construction of the memorandum and of any implied contract thereunder, saying that no term should be implied that he was entitled to payment. There was no contention that there had been a fraud on the minority but the dissenting judge, Jacobs, J., held (at 573) that an incident of his ownership of the shares was "that his property should not be expropriated but that he should be paid its fair value". As argued, the case did not raise presently relevant issues. which went on appeal to this Court and then to the High Court, which may have been seen to be relevant, namely, Wayde v. New South Wales Rugby League Ltd. (1985) 1 NSWLR 86 and (1985) 180 CLR 459. The names of the parties were reversed in the Court of Appeal where the League was the appellant and ultimately the successful party.. The claim did not involve directly the amendment of articles but was an oppression application pursuant to s.320 of the Companies (New South Wales) Code specifically relying on the ground that the acts of the League were oppressive or "contrary to the interests of the members as a whole". See subs.(2) which was almost identical to s.260 of the Corporations Law which was in operation during the presently relevant period, which has yet again been recast in 1999 in the form of ss.232-235 of the Law, but which still retains the expression set out above (which indeed is now made the first basis for the making of an order. See para.(d) of s.232). Despite the persistent legislative reference to the interests of the members (or corporators) "as a whole", there seems to have been no reference to that provision in the reasons of the High Court in Gambotto. The claim was brought by two members of the company, which also happened to be a company limited by guarantee, who were also directors, as members of the General Committee, but they held those positions in their capacity as representatives of the Western Suburbs Rugby League Club whose expulsion from the Winfield Cup competition formed the basis of their complaints. Although the matter might have been resolved solely by reference to concepts of oppression and by treating the relevant ground as having its own interpretation, all members of the High Court discussed the phrase "interests of the company as a whole" in the context of the general law test. It was not a case which involved strictly the exercise of majority votes at general meeting but it could fairly be said that such distinction was artificial in the light of the fact that the only members were also the directors of the League and might be thought to vote accordingly. Nor strictly was the expulsion of the Western Suburbs club an act of expropriation of shares, but for practical purposes the vote denying it the right to remain in the competition meant that it was expelled as a club and so lost its right to appoint members of both the company and the General Committee. At all events, although it is not explicitly stated in any of the judgments of either court, the likely effect was that expulsion from the competition was that the plaintiffs as representatives of the Western Suburbs club would thereby lose their right to membership. 515 What both this Court and the High Court held in Wayde, however, was that not only was the power to expel clearly understood by those who originally joined the association and thereafter the company, but also that the board was entitled to decide in the interests of the League who should be members of the competition. So it was held that the members of the General Committee had not acted in bad faith in excluding the Western Suburbs club. The majority of the High Court (Mason, A.C.J. and Wilson, Deane and Dawson, JJ.) rejected an argument based on Dixon, J.'s analysis At 512. of the "benefit of the company as a whole" in Peters, not because they saw the analysis as inappropriate, but because, as they stated Wayde at 467. the League was "expressly constituted to promote the best interests of the sport" and likewise to decide who should participate in the League. As their Honours observed At 467-468., the appellants faced "a difficult task in seeking to prove that the decisions in question were unfairly prejudicial to Wests and therefore not in the overall interests of the members as a whole". This was despite the holding of the trial judge that the Club's exclusion (and probable destruction) was without compensation and thus overall not in the interests of all members of the League. 516 Brennan, J. reached a similar conclusion in Wayde but also looked at the expression "the interests of the members as a whole" in the oppression provision, seemingly treating it as an analogue of the general law duty. See also (1985) 1 NSWLR at 96, per Street, C.J., Kirby, P. and Hope, J.A. His Honour applied proposition (5) At 481. of Latham, C.J.'s judgment in Peters, saying At 469-470. effectively that the Court may only infer bad faith "if the decision is such that no reasonable board of directors could think the decision to be substantially for a purpose for which the power was conferred". He continued by pointing to the difficulties where the dispute involved a conflict of interests between one or more members and the League's general objects. Curiously, so it would seem with great respect, he saw that as posing a difficulty so far as the application of any test involving "the interest of the members as a whole", for it might be thought that the League's general objects might be seen as equivalent to those of the members or company as a whole. He then sowed the germ of disapproval of the expression by saying that Rich, J. in Richard Brady Franks had said At 138. that the phrase "tends to become a cant expression". He failed to mention, however, the rest of the sentence in the judgment of Rich, J. which concluded in pointed language "but is not yet a shibboleth". Rich, J. had proceeded to apply the test in that case and a little over a year later seemed to have no real difficulty in doing so again in Peters. See at 495. Brennan, J. thus suggested support for criticism of the test which, with great respect, those familiar with the two earlier cases would have known did not fully reflect Rich, J.'s position. At all events the ease with which the High Court in Wayde had justified the effective expulsion of a member or members was not discussed in Gambotto. To be fair, the nature of the corporation, especially as a company limited by guarantee, may have been seen to be a significant distinguishing factor. Also the article there employed had been one of the original articles of association: cf. Gambotto at 445. 517 It is not practical to discuss all the judgments of judges sitting alone who applied either Allen v. Gold Reefs or the "company as a whole" test in Australia over the 44 years since Peters for 95 per cent of them related to the exercise of directors' duties, not shareholders' powers. I shall only refer to the few which were subsequently discussed in a broader context or which contained a relevant reference to Bugle Press. Crumpton v. Morrine Hall Pty. Ltd. (1965) 82 WN(NSW) (Part I) 456; [1965] NSWR 240. was not infrequently cited for its criticism of the "company as a whole" test, particularly in Gambotto by the trial judge McLelland, J. (1992) 8 ACSR 141 at 143-144. and in the High Court At 438, 442., but Jacobs, J. is said, correctly, in the headnotes to have followed Peters. He specifically cited the judgment of Dixon, J. All that he added, which has been emphasised from time to time but which might seem self-evident, is "that the courts in each generation or in each decade have set a line up to which shareholders have been allowed to go in affecting the rights of other shareholders by alterations of articles of association, and beyond which they have not been allowed to go". More importantly for present purposes he said that no amount of legal or analytical reasoning could conceal the fact that decisions in the past turned "and must turn ultimately, on a value judgment formed in respect of the conduct of the majority – a judgment formed not by any strict process of reasoning or bare principle of law but upon the view taken of the conduct". At 460; 244. The particular case, as did Fischer v. Easthaven Ltd. (1963) 80 WN(NSW) 1155., concerned the rights of holders of shares in what were then known as "home unit" companies. In each case the majority was restrained from taking away the rights of the holders of certain units relating to the occupation of those units but, although Else-Mitchell, J. in Fischer refused to act on the fraud on the minority principle and relied on other factors, Jacobs, J. in Crumpton, in applying Peters, found that the majority had exceeded their powers. The only other judgment of a judge sitting alone to which I wish to refer is one in which it appears that Bugle Press was referred to and followed, namely, Palazzo Corporation Pty. Ltd. v. Hooper Bailie Industries Ltd. (1988) 14 ACLR 684.. Needham, J., in granting an interlocutory injunction, made a passing reference to Bugle Press (at 688) and chose to follow the principle stated in Gower (4th ed.) for the purpose of granting the interim relief, but the case contains no new or different analysis of principle, except insofar as it ignored the later criticisms of Brown and Dafen. 518 For the rest, although Bugle Press was cited on a few occasions, it was usually in the context of the misuse of certain statutory provisions especially those relating to takeovers, and not otherwise in relation to expropriation. Likewise, no other of the more recent cases at first instance took the discussion of Allen v. Gold Reefs any further than could be discovered in Peters. In particular, expropriation of shares, although sometimes seen as pointing to unfairness and oppression, was not yet the subject of any further dicta which would hold that it automatically placed the burden on the majority to show that the act was for "the benefit of the company as a whole" or otherwise falling outside the range of prohibited behaviour. Cf. the brief references in Williams v. United Dairies Ltd. (1986) 10 ACLR 406 at 409; Kingston v. Keprose Pty. Ltd. (No. 2) (1987) 12 ACLR 599 at 604; Re Ampol Ltd. (1989) 14 ACLR 772 at 779 and Elkington v. Shell Australia Ltd. (1993) 11 ACSR 583 at 591. 519 As to decided authority it is finally necessary to look at what had been said at the earlier stages of the case which in so many senses has provoked this dispute, namely Gambotto. At the relevant times the appellants were aware of the course of that action up to the decision in this Court in May 1993, for there is no dispute that the Court of Appeal decision was specifically referred to by the solicitors in the course of obtaining advice from the appellant Heydon, whatever be their precise knowledge of the application for leave to appeal. 520 At first instance, in Gambotto v. WCP (1992) McLelland, J., had held in favour of the plaintiff who had complained of articles amended to enable his shares to be bought out by the 99.7 per cent majority on the ground that the controller of those shares, Industrial Equity Ltd., wished the company to become a wholly-owned subsidiary, in part to enable claims for deductions for income tax purposes and in part so that the company would be relieved of the need to prepare group accounts for itself and to maintain a separate share registry, each of which would result in substantial savings. In return, shareholders were to receive $1.80 per share as valued by a firm of chartered accountants, apparently above the market price. McLelland, J. accepted At 143-144. an argument that the amendment was beyond the scope and purpose of the power of alteration conferred by s.176 of the Law inasmuch as the "exercise of that power is constrained by principles of equity", citing Peters and Crumpton. Having said that there was no reason to think that the advantages alleged would not flow to the company and that those minority shareholders who participated in the poll must have found the price attractive to them, his Honour immediately stated: At 144. "The immediate purpose and effect of the amendment was to permit the shares of the minority shareholders to be expropriated by the majority shareholders. In my opinion such an amendment amounts to unjust oppression of those minority shareholders who object." He then briefly referred At 145. to Brown, Sidebottom and Dafen as the "three reported English decisions in which the validity of an alteration of articles … to effect or permit expropriation … has been considered". He said Ibid. that the benefit of the company as a whole test had been applied in each, with two denying validity and one upholding it, but his Honour said that for the reasons he had stated that was "an inadequate criterion in a case of this kind", which inadequacy was illustrated by the judgments in the three cases. He did not suggest any new criterion but, having observed that, if expropriation were permitted, it would be unnecessary to have ss.414 and 701 of the Law, he held Ibid. without further discussion that the amendment was invalid and ineffective. 521 McLelland, J. did not refer to Shuttleworth or Greenhalgh, or to any of Latham, C.J.'s propositions in Peters, especially as to the onus of proof. Although it was contended that his Honour had not held every expropriation to be bad, it is difficult to see, having regard to the unqualified way in which he expressed his brief reasons, that he considered anything other than that the expropriatory nature of the resolution was inequitable and thus bad. Whatever may be said of his conclusion in the light of the subsequent High Court judgments, it would appear, with respect, that his reasoning was manifestly deficient and would have been seen to be so by competent practitioners at the time. He did not say that the judgment in Sidebottom was wrong, but, if that could be inferred, then he did not state why it was wrong, nor why one should not prefer the judgments of the Court of Appeal over those of two judges at first instance, even if one was to assume that he was unaware of the later comments of the Court of Appeal in Shuttleworth. Moreover, he did not say why the carefully worked out propositions of the Chief Justice in Peters (with which McTiernan, J. had concurred and with which the other members of the Court had expressed no substantial difference) might not be applied to the facts at hand. Nor was there any discussion of the price offered, or as to why (as the High Court later suggested) the price, perhaps, might be seen to be below a proper value in the circumstances, so that one must infer, for this purpose, that even if the price were many times the real value, he would still have held it an expropriation and thus invalid. The judgment appears to have been a reserved judgment and so, with respect, the normal inferences to be drawn in favour of the trial judge on giving an ex tempore judgment might not fairly be drawn. 522 In those circumstances it is not surprising that the deficiencies of the primary judgment provoked the forthright condemnation of it in this Court: WCP v. Gambotto (1993). Nevertheless, it would seem likely, with respect, that, although there was more detailed examination of authority in the Court of Appeal, the judgment of Meagher, J.A. expressed the contrary view in too unqualified terms. The decision, however, might reasonably have been seen as the reserved judgments of very experienced members of an appeal court on what is here alleged to be the issue in question. 523 The weaknesses of the judgment below can most easily be seen in the judgment of Priestley, J.A. who agreed with Meagher, J.A.'s analysis of both facts and authorities. Having stated that shares were property, the divesting of which may often be oppressive or unjust, nevertheless he considered 30 NSWLR at 386. that the case was not one where the expropriation should be so characterised. He made three short points. First, oppression or injustice is frequently not the applicable conclusion where the divesting "is accompanied by just compensation (as is undisputably the case here)". Ibid. Secondly, persons acquiring shares in the company either knew or should have known that, by reason of their membership of the company, they thereby agreed to be bound by duly passed resolutions, so that any divestment pursuant to such a resolution would in a real sense not be "a divestment against the shareholder's will". Ibid. Thirdly, his Honour conceded that of course there were abuses of those rules from time to time by the majority but "these abuses may be checked by the courts", and that he could see "no sign of any such abuse in the present case". At 386-387. In short, the plaintiff's interest in the shares under dispute did not seem "to call for the kind of inalienability against their holder's will" involved in his claim. At 387. 524 Meagher, J.A. was in the first place concerned At 387. at the brevity of the trial judge's reasoning, thinking that the meaning of his conclusions was "a matter for some conjecture, but at first blush they seem to suggest that any article which permits expropriation … under any circumstances … will always constitute an oppression of the minority …". As to general principle and the meaning and effect of Lord Lindley's test, his Honour was not at great odds with the trial judge, for he would concede that the right to amend a company's articles had a limitation imposed by equity in that any alteration must not effect oppression of the minority. At 387-388. Then the language of Allen v. Gold Reefs was also heavily criticised At 388. as having "beguiled and confused the courts" ever since they were uttered. Astbury, J. in Brown had been wrong in imposing a dual test, according to his Honour Ibid., who referred for this purpose to Sidebottom and Shuttleworth, but even then "the test is not obviously appropriate". Meagher, J.A. analysed what had been said by Latham, C.J. and Dixon, J. in Peters setting out At 388-389. five propositions drawn from those judgments but essentially critical of Lord Lindley's test, for example, saying, that it was "almost meaningless" (proposition 1). However, he continued by saying that proposals are often so obviously beneficial to the company in question that amendments to achieve that end "must necessarily be valid" citing Allen (proposition 2). On the contrary, an amendment would be "ex facie invalid" "if it involved expropriating shares without compensation, depriving the minority of voting rights, allowing the majority to acquire the company's property at an under value" (proposition 3). He preferred the view that Lord Lindley's words should be taken merely as laying down a negative test rather than a positive test to be complied with in every case (proposition 4). Finally, in proposition 5 he said that where it was arguable whether the test was beneficial for the company, the Court would not substitute its views for those of the shareholders and would there decline to interfere. 525 In Meagher, J.A.'s opinion At 389., the facts of the case in hand showed that there were "enormous taxation advantages for the company" and "considerable administrative savings". He continued: "Nor was it alleged that the compensation provisions were inadequate. Just why the Court should interfere and why his Honour in fact did so, I cannot see." As suggested above, his Honour then concluded Ibid. that the trial judge's view was "consistent with, and only with, some notion that … an expropriation of shares whether beneficial for the company or not is a malum in se and as such always enjoinable". Meagher, J.A. asserted that the trial judge had rejected any test requiring it to be shown that the resolution was so extravagant that no reasonable person could believe that it was for the company's benefit, saying that the judge had specifically held to the contrary, but, with respect, I am not sure that one can draw that conclusion except by inferring that from the trial judge's failure to accept any such test. Moreover, he said it could hardly be contended that all powers of expropriation were "repugnant to the Corporations Law" referring to ss.701-702, 411 and 414, nor that they might form some kind of code governing expropriation. Means permitting sale of shares were regularly included in articles of association, which he said amounted to an expropriation of property, but had not been held bad. Allen v. Gold Reefs and Sidebottom were both examples of expropriations sanctioned by the courts of a kind which had been approved in Australia. Thus the appeal should succeed. 526 In my opinion, although the judgments were expressed in forceful language and failed to discuss some authority, the reasoning and conclusion were, with respect, expressed in terms which would not seem beyond the range of existing authority, except to the extent that the criticism of Lord Lindley's test went beyond what had been earlier said in Peters, Greenhalgh and Ngurli. Although the facts might, on further analysis if that had been thought appropriate at the trial, have shown both that the purpose was oppressive and that the proposed price was unfairly low, the decision would have seemed to most practitioners to have involved a conventional application of existing authority, the onus then being on the plaintiff to make out his case. I shall later deal with the extent to which Bugle Press and the opinions of Gower and others might have suggested the contrary and whether the appellants might reasonably have anticipated the reversal of the onus of proof later adopted by the High Court in Gambotto itself. For the present it is sufficient to say that no appellate decision, even Bugle Press, had held the test in Allen v. Gold Reefs was wrong and those few decisions which had expressed some dissatisfaction with the test had never said it was entirely inappropriate. Bugle Press, decided without discussion of the general principle, alone suggested all "expropriations" were invalid, but it had been largely ignored. I shall return to these matters at paras.[558]ff. (d) Analysis of relevant textbooks – U.K. 527 It is next necessary to see whether any of the accepted text-writers, either in the United Kingdom or Australia, had expressed views which were ultimately reflected in the decision of the High Court in Gambotto, whether as to the "benefit of the company as a whole" test, expropriation of minority shareholders, the onus of proof in such cases or the effect of Re Bugle Press. It will be seen that the only text-writers as espousing the application of principle so as to effect a total (or almost total) prohibition on expropriation were Professor Gower (who later relied on Bugle Press), Professor Pennington (who did not), and J.P. Hambrook in Australian Corporation Law, and even those learned authors conceded, as will be seen below, that considerable authority pointed to the opposite conclusion. This exercise may seem tedious and unnecessary but the absence of compelling authority that Lord Lindley's test should be abandoned entirely or that expropriation was prima facie unlawful must lead one to enquire if there were other sources of legal learning which might reasonably have pointed to a risk that the proposed demutualisation scheme might be struck down. It may be accepted that the appellants were sufficiently eminent in their field to make it appropriate that they should be aware, at least to some extent, of what text-book writers had said and were saying. If one were to confine one's enquiries to the three learned authors referred to above that might produce an imbalance. So I have thought it appropriate to examine as wide a field of comparable writers as practicable so as to produce, as best I can, an overall picture of what had been written on the subject up to the beginning of 1994. It is a field of law where text-writers have had considerable practical influence over the years, although I do not suggest that texts beyond England or Australia should reasonably have been known or consulted or that every journal article should likewise have been known. 528 The three recognised textbook writers in the United Kingdom for many years from the late nineteenth century into the first half of the twentieth century were Lindley, Buckley (later Lord Wrenbury) and Palmer, including especially the latter's work on Company Precedents in three volumes. Each of these works was also seen as authoritative in a general sense in Australia, where companies legislation had followed a very similar, although not identical, path until the passing of the Uniform Companies Acts in 1961. 529 I take first, as the author is said to have made applicable the phrase "the benefit of the company as a whole", Lord Lindley's work first published in 1860 under the title "A Treatise on the Law of Partnership Including its Application to Companies". The author's attitude to company law may be thought to derive in no small measure from his viewing it as but a part of the law of partnership. Thus the subject of amending the articles of association is barely touched on in the early editions of the work and only in the context of cases such as Hutton v. Scarborough See 4th ed. at p.559. and Foss v. Harbottle (1843) 2 Hare 461: 67 ER 187: see e.g. Lindley, 3rd ed. at 622ff, 629, 845ff, 964ff and 1058ff.. By 1889, however, Lindley had decided that the work should be divided and published separately, the 5th ed. on Companies being called "A Treatise on the Law of Companies Considered as a Branch of the Law of Partnership". In this edition the author discussed At 314-324. in some detail "the powers of majorities" but imposing a duty upon majorities to act "with perfect good faith" At 318., the principle seemingly being taken from a judgment of Lord Eldon in a case about a company formed as a partnership, namely Const v. Harris (1824) Turn. & Russ. 496; 37 ER 1191.. The phrase later used in Allen v. Gold Reefs does not appear in this discussion but, interestingly, it does appear, effectively for the first time, as laying down the relevant limits of directors' duties and powers. The author stated At 364. that the powers of directors "are reposed in them in order that such powers may be bona fide exercised for the benefit of the company as a whole; and any exercise of such powers for other purposes is a breach of trust, and will be treated accordingly". The cases cited in the footnote do not, however, appear to provide direct authority for the use of that particular phrase. Not surprisingly, in the next edition, the 6th edition published in 1902, the phrase does appear specifically in the context of the majority's power to amend the articles of association. At 461. Again the other cases cited do not provide direct authority for use of the phrase although those cited in relation to building societies hint at some such restriction. It is to be noted that the 6th ed. was edited by Lord Lindley's son, Walter B. Lindley, but the author was consulted by his son. Unfortunately, since it was the most comprehensive textbook on company law then in use, no further edition of that work was thereafter published either during Lord Lindley's lifetime or after his death in 1921. 530 Perhaps the reason for this lay in the popularity of the other two major works then in use on the law of companies. The first edition of Sir Francis Palmer's Company Precedents was published as early as 1877 and it reached its 11th edition by 1912. Although professing to be only a work on precedents, the work contained an exceptional amount of comment on the substantive law such that Gower could say At 17 of the 3rd ed. of his work (1969). that "the unifying influence formerly exercised by this famous book is probably unparalleled elsewhere in English law." Strangely, after Volume 1 reached its 17th edition in 1956, it was never re-edited although new impressions were published as late as 1980. Apart from a reference to Hutton v. Scarborough and related cases, there had not been any reference to the "benefit of the company as a whole" in the editions up to the decision in Allen v. Gold Reefs. The relevant dictum of Lindley, M.R. was thereafter cited in full, See 8th ed. (1902) at 545; 12th ed. at 613 and 17th ed. at 397. but in all editions thereafter, including the last 1956 edition, together with the following comment originally made by Palmer himself about the argument which sought to restrict retrospective alterations (ibid.): "The argument if successful would have created the utmost confusion, and would to a great extent have deprived the members of that absolute control over the articles with which the section was intended to invest them." (Emphasis added.) Of course, at all times the author and the work's later editors made clear that there were restrictions on the power of alteration based on fraud and oppression. Palmer's other work, on Company Law, based on lectures he had given and first published as late as 1898, never quite achieved the reputation of his work on precedents, although it has survived to the present day as a vastly altered loose leaf work in eight volumes. The 25th ed. was first published in 1992 and is updated. On the present subject the author made precisely the same reference to Allen v. Gold Reefs and introduced it in precisely the same terms as in his work on precedents. See, e.g., 6th ed. (1909) at 46-47 and 12th ed. (1924) at 48-49. In the last hard cover edition (the 24th, 1987) the passage is cited at para.14-20, although not the comment about the "utmost confusion". In fact, in the same chapter the then editor, Professor Schmitthoff, commented that care should be taken with the decisions there cited including Allen v. Gold Reefs and Sidebottom, not on the basis of any change in the equitable principle, but because alterations of that kind might constitute unfairly prejudicial treatment capable of being remedied under the oppression section. Indeed in a footnote the editor comments Para.14-20, fn.69. And also in para.2.1121 fn.1 of the present edition. that the alteration in Allen v. Gold Reefs did not amount to what is now unfairly prejudicial treatment because it "affected equally all members of the company". There was a general discussion of the principle of majority rule and of remedies against unfairly prejudicial treatment in Chapters 65 and 66, but Allen v. Gold Reefs is not discussed in those chapters, nor is Bugle Press discussed in a presently relevant context. The treatment of these matters is not dissimilar in the present version of the loose-leaf edition; in fact, Peters, but not Gambotto, is cited in para.2.1122. The particular paras.2.1121-2.1122 dealing with "benefit of the company" are updated to December 1998, the more general paras.2.1119-2.1120 only to May 1994 (ed. Prof. Davies). 531 The last of these works of authority, namely Buckley's Companies Acts, was likewise first published when the author was a barrister, in 1872, as an annotation to the provisions of the Companies Acts then in force. In earlier editions the annotations to s.50 of the 1862 Companies Act were largely confined to a discussion of cases such as Hutton v. Scarborough, but in the 8th edition (1902) the author included a detailed discussion of Allen v. Gold Reefs. There was, however, in that and the many subsequent editions no comment which would suggest the principle was wrongly stated, apart from a qualification taken from Greenhalgh, See above at para.[498]. and no relevant reference was made to Bugle Press. Moreover, in the last hard-back edition of the work (14th ed., 1981), the editors, after accepting that there is a limitation on the extent of the majority's power, summarised the effect of what they considered to be the relevant authorities, from Allen v. Gold Reefs to Greenhalgh They said that five of the authorities had been taken to the Court of Appeal, implying that no other cases were relevant., concluding that a special resolution "would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders, so as to give the former an advantage of which the latter were deprived." At 49, adapted from Greenhalgh at 295, which has already been discussed. 532 Of the other English works published up to the first half of the twentieth century perhaps the best known is Gore-Browne's Handbook on Joint Stock Companies first published in 1866, a text which has had a variable reputation over the years. Nevertheless it passed through 44 editions. The earlier discussion on the present subject was relatively conventional See, e.g. 35th ed. (1924) at 45-51., but a helpful analysis of the expression appears At 57-62. in what was the last single volume edition, the 42nd (1972), which likewise appears to favour the Court of Appeal view against any broader statements in Brown or Dafen. Another relatively detailed work, Stiebel's Company Law and Precedents first published in 1913, contained a briefer discussion relating to the present issues in the 3rd ed. (1929) At 92-93 and 254-255., where Allen v. Gold Reefs is discussed. Specifically, an alteration of articles to force a compulsory sale of shares is dealt with, where, shortly after Shuttleworth was decided, it was said At 220-221, esp. at fn.(c). that "neither Brown … nor Dafen would appear to be law". 533 Although there had been many other English works dealing with companies first published before the Second World War they were either handbooks relating to day-to-day practice or had gone out of currency and thus were unlikely to have been consulted by practitioners in the early 1990's. One must, however, mention Halsbury's Laws of England which, although the first edition contained almost no relevant discussion, the title "Companies" in the 4th ed. (1988) edited by Sir Raymond Walton, had expanded to two full volumes. The discussion of alteration of articles was still relatively brief, containing in para.454 a summary of the "benefit of the company as a whole" principle, as interpreted in Greenhalgh and noting Brown and Dafen only by way of comparison with the Court of Appeal decisions. It was specifically noted that Shuttleworth disapproved dicta in Dafen: see fn.4. 534 Finally, it is necessary to turn to the textbooks published in England in the last 50 years, most notable of which were written by Gower and Pennington. In all the five editions published during his lifetime (the last of which in 1992 is the presently relevant edition) Professor Gower treated the extent of the majority's power to alter articles in greater detail than did any other author. His views changed over the years but they reflected dissatisfaction with two lines of authority, each of which have had a contrasting significance so far as the majority's power to amend articles was concerned. In the first place he was very critical of the "bona fide for the benefit of the company as a whole" test, recognising that it had been used authoritatively by the courts on a number of occasions but saying that for most practical purposes it was meaningless or, at the least, "highly misleading". 5th ed. at 591. But the reason for the criticism was that it gave a wrong impression as to the Court's power to interfere where for many years it had been accepted that members were under no fiduciary duty and might exercise their voting rights as they wished, subject to limited exceptions. See 1st ed. at 481-482 and 5th ed. at 591-593. On the other hand, Gower was equally firm in his contentions that the courts could properly use their equitable powers to intervene where the majority sought to expropriate the shares or other rights of members. Over the various editions of his work Gower's views amounted to the strongest and most principled exposition of the reasons why expropriation by the majority should be restrained, although on this issue there seems to have been greater caution in his 5th edition than in the 1st to 4th editions. See below paras.[539]-[540]. I confess to some bias in favour of Professor Gower's exposition of company law, but in this area it was generally thought that he advanced views, now largely accepted in Gambotto in this country, which were otherwise inconsistent with authority. Gower's analysis should be examined carefully because it may have seemed to provide an intellectual basis for a general prohibition of that kind of expropriation, though expressed with some hesitation and doubt. 535 In the first edition of Gower's Principles of Modern Company Law (1954) the expropriation of other members' property was seemingly dealt with in the greatest detail, At 499-509. but in broad terms largely consistent with his discussion in later editions. Although Gower would have preferred the approach taken in Brown and Dafen, he recognised that the Court of Appeal had placed significant qualifications on the authority of those two cases. Nevertheless he said that the cases "may, perhaps, be reconciled" on the basis of four rules. See at 507-508. It is unnecessary to look at those in detail but at the time he asserted At 507. that, although "a resolution cannot be passed conferring on the majority an unfettered right to acquire the shares of the minority", the power of compulsory acquisition can nevertheless be exercised but only "in circumstances which are ex facie beneficial to the company" and at a fair valuation. 536 In his second edition (1957) Gower shortened his discussion somewhat in a chapter headed "Controlling Shareholders' Duties". Although the direct discussion of expropriation seems to be dealt with briefly at 513-515 much of the former material appeared under a discussion of "Malicious or discriminatory abuse of power?" at 515-523. His conclusions were somewhat more cautious They were introduced by the words "it is submitted" and he now said that Brown and Dafen were authority for his "somewhat doubtful proposition": at 513. Likewise he conceded that those authorities had been "somewhat blown upon" by the Court of Appeal, though he believed them to be good law: at 514-515. and his conclusions were more cautiously expressed and conventional. At 525. They were now expressed as conclusions to his whole discussion of members' duties. It is sufficient to say that his conclusions now included Ibid. the proposition (1) that they were "not bound to disregard their own selfish interests", but that certain resolutions would be restrained (proposition (2)), giving three examples, the last of which was: "to enable some members … to acquire compulsorily the shares … of others, unless the power of acquisition is only exercisable in circumstances which are, prima facie, beneficial to the company or class as a whole". The circumstances in which the courts might interfere were summarised in proposition (3), which included a requirement that it be shown that the predominant motive was to injure the minority. It is interesting to note that in this edition the three apparently approving references to Peters were included. 537 In the 3rd edition of Gower In which two co-editors joined, including Professor Lord Wedderburn., published in 1969, the layout and discussion were largely unchanged. It is only necessary to note that the decision in Bugle Press had by then been decided and was described by the author as "powerful support for this view", referring to his views on expropriation. At 570. But he also critically referred to their Lordships' reliance on "fundamental principle" (see at para.[499] above), noting that it was "not easy to find any such fundamental principle" if Greenhalgh v. Arderne were rightly decided. Gower in this edition also seemed confident enough to suggest that there was a reversed onus of proof by saying that where expropriation could be shown the controlling majority could only uphold their actions "if it can be shown positively that the action was bona fide in the interests of the company as a whole", a curious reliance on a principle which he otherwise condemned. See at 570 and also proposition (2)(c) at 579-580. 538 Ten years later, in the 4th edition (1979), the discussion of shareholders' duties took a substantially similar form. Expropriation of members' property were dealt with in almost identical terms including the references to Bugle Press. At 620-623 and 639. In his conclusions Gower added a paragraph suggesting that the three illustrations, including expropriation, of the courts' power to intervene, may be seen as part of a "wider principle" whereby resolutions might be set aside "if it can be shown that the predominant motive of those voting for it was not to accomplish a proper corporate purpose". Proposition (5) at 639. However, it may be seen that Gower's views after the publication of a 4th edition were, arguably with the exception of the 1st edition, had remained largely unchanged for over 20 years. They were influential, but not in terms of the decided case law, and those familiar with them might be thought to have understood the qualifications having regard to accepted principles, especially in this country after Peters had been decided. 539 In the 5th edition (1992), again edited solely by Professor Gower The 4th edition had two additional editors, Dr Cronin and Professor Eaason in addition to Professor Lord Wedderburn, but in the 5th edition there were only presently irrelevant contributions from others., current at the relevant period, the discussion of expropriation was much shorter than in preceding editions and contained some significant modifications of present significance. The section dealing with expropriation of members' shares abandoned the former confident opening in terms of a submission and now commenced At 596-597.: "Resolutions falling under this head seem to the writer to present a stronger case for requiring members voting for such a resolution to consider whether it is in the best interests of the company. But, once again, it is not clear whether they are required to do so." (Emphasis added.) Thereafter the cases, including Bugle Press, were discussed in substantially similar terms but when the author turned to general principle he maintained the existence of some quasi-fiduciary principle first adopted in the 4th edition, but expressed in the 5th in these terms At 598.: "It therefore appears that in relation to certain types of resolution (particularly those [involving expropriation of shares]) the members in general meeting are subject to a sort of fiduciary duty which is expressed in similar terms to that applying to directors, namely that the members must act 'bona fide in the interests of the company'". Significantly the former passage relating to onus of proof was omitted. See at 598-599 and proposition (5) discussed below. 540 Moreover, at least so far as "expropriation" was concerned, the rest of the general discussion became more cautious, but Gower was now more critical of the "company as a whole" test except in the case of directors as fiduciaries. As may be seen in the passages cited in preceding paragraph and below, the author did not have the confidence to abandon the expression entirely, no doubt because he was aware that it had been frequently used, but he was highly critical of it in practice. In reaching some broad conclusions See at 604-605. Gower criticised the expressions "fraud on the minority" and "the company as a whole", but he still maintained that there was a general principle (proposition (3)) that "a resolution of a general … meeting is invalid if it can be shown that it is unfairly prejudicial to the whole or some part of the members …", but in proposition (5) he now stated: At 604-605. It is interesting to note that not only did every proposition differ substantially from those in the 3rd and 4th editions, but they were introduced now as only what the author "suggested". "The onus of proof that the resolution is unfairly prejudicial is on the plaintiff but the weight of the burden varies according to the circumstances. It is light in the case of class meetings where the resolution has been passed by the votes of members who were also members of another class or, indeed, in the case of any resolution which would not have been passed but for the votes of members shown to have personal interests conflicting with that of the company. In other cases the burden is heavy if the resolution has been passed by a clear majority." Gower concluded At p.605. that the courts were moving towards his propositions, which could be reached "without doing violence to any authoritative decision". 541 If this discussion of Professor Gower's views has seemed unduly long, it is only because he had held, and was known to have held, the strongest views in favour of an (almost) automatic condemnation of expropriatory resolutions and it is important to note that at the relevant period his views on expropriation were more cautious, after many years of experience, than they were in his relative youth. The only relevant subject upon which he appeared more firmly committed was the unsatisfactory nature of the test relating to the "benefit of the company as a whole", for which he had largely relied on Lord Evershed's not entirely satisfactory discussion in Greenhalgh. 542 One other relatively recent textbook, Pennington's Principles of Company Law, first published in 1959 The 6th edition (1990) was current at the relevant time., also has seen the courts as having shown "hostility" to amendments effecting expropriation of shares. See 6th ed. at 81. The author likewise has commented on difficulties in the application of Lord Lindley's test, although not in such critical terms as to make its application to expropriation impracticable. Again he has placed particular weight on the cases of Brown and Dafen, but Bugle Press was not mentioned in this context or in the book at all. He examined the earlier cases in some detail, although he almost ignored the criticism of them by the Court of Appeal in Sidebottom and Shuttleworth, concluding 6th ed. at 80.: "It is impossible for a bare power of expropriation ever to be for the benefit of a hypothetical member, for he must, as the personification of any member of the company, always be subject to the risk of losing his investment without any corresponding gain." Pennington concluded with four propositions, but, although none of them condemned expropriation in blanket terms, his second proposition stated 6th ed. at 82.: "The fact that some members suffer a detriment in consequence of the alteration does not inevitably make it void, but if the alteration literally discriminates between members of the same class by giving a privilege to some, or imposing a detriment on others, it is void." Propositions (3) and (4) Ibid. required that an alteration be made in good faith although he conceded that disadvantage to one member is not in itself proof of bad faith. However, contrary to Lord Evershed's view that there is but a single test, he concluded 6th ed. at 83. that, in addition to good faith, "the alteration must be for the benefit of any individual hypothetical member, which means that, in the long term, any member must be equally likely to benefit from it or be burdened by it as any other member". (Emphasis added.) 543 There is one more recent English textbook, although the author, Dr John H. Farrar, comes from New Zealand and has held professorial posts in both that country and Australia. His work "Company Law" was first published in 1985 and the relevant third edition was published in 1991. The third edition was written by Dr Farrar and by N.E. Furey and B.M. Hannigan. The subject was dealt with in two places, first, in relation to the legal obligations of controlling shareholders in public companies, where Allen v. Gold Reefs, Peters and Wayde were discussed 3rd ed. at 584-589. in this context and notably Clemens was discussed 3rd ed. at 585-586. in very critical terms. The power of a company in general meeting to alter its articles was discussed earlier. 3rd ed. at 127-134. The basis for this discussion was the seven propositions of Latham, C.J. in Peters which were set out and expanded, although not entirely uncritically, in some detail. Because of more recent authority, surprisingly including Clemens, the author was more willing 3rd ed. at 131-133. to contemplate the possibility of the shareholders' duties being described as quasi-fiduciary, but, on the matters presently in issue, Farrar carefully noted the disapproval of Brown and Dafen in Sidebottom and Shuttleworth and expressed this conclusion: 3rd ed. at 130. "It seems from these cases that an alteration of the articles which provides for expropriation will not generally be regarded as for the good of the company. However, the courts will be prepared to regard it as for the good of the company if there are some valid commercial reasons for the provision and the alteration provides for fair compensation." He certainly did not appear to favour any prima facie rule and Bugle Press was not discussed in this context. (e) Analysis of relevant textbooks - Australian 544 The Australian textbooks available at the relevant time were, with one exception, not as clearly condemnatory of expropriation as Gower or Pennington, or so it seems. None of the earlier detailed annotations to companies legislation, Spender & Wallace on Company Law and Practice (1937), based on the N.S.W. Companies Act 1936, O'Dowd & Menzies on Victorian Company Law and Practice (1940) and Wallace & Young on Australian Company Law and Practice (1965, with 1970 supplement), could be said to have been current at the relevant time, the latter work consisting of detailed and valuable annotations to the uniform Companies Acts of 1961. It is sufficient to say that none had suggested that expropriation was in itself a ground for invalidating a resolution of shareholders. Bugle Press was cited by Wallace & Young It is referred to on p.563 of the text but not in the table of cases. (and in its supplement) but only in relation to takeovers. Although Wallace & Young were aware of Gower and referred to it on occasions, their discussion of Allen v. Gold Reefs did no more than briefly summarise the leading cases and refer the reader to Dixon, J.'s judgment in Peters. Peters at 502-513. See the authors' annotation of s.31 at 124-126. Sidebottom and Shuttleworth were preferred and Dafen was noted as "disapproved". At 125. 545 Although originally (1974) only a students' text, Professor Ford's Principles of Company Law (now "of Corporations Law") has expanded over the years to become the leading textbook on corporations law in Australia and has since 1995 also taken the form of a two-volume loose-leaf service under similar but not always identical editorial control to that of the continuing one-volume student text. At the relevant time the 6th edition (1992) was still current, edited by Ford & Austin and entitled "Ford's Principles of Corporations Law". 546 In that edition, as in earlier editions, although the alteration of articles was discussed in para.[212], the reader was referred to Chapter 17 on "Members Remedies" for the author's detailed discussion of the limitations on the voting power of the majority. See paras.[1703]-[1708]. Of course, in the 8th and 9th editions and in the loose-leaf edition these matters have been substantially rewritten since Gambotto, especially as to expropriation: see now esp. para.[11,070]. General law and statutory remedies were clearly distinguished. It was then said that the majority are not under any fiduciary obligation with respect to voting on alterations, referring to the judgment of Dixon, J. in Peters Para.[1703] at pp.590-591. and concluding At 591. that: "The essential notion is action beyond the scope of the power. The terms of the power imply an obligation not to use it for an ulterior purpose." 547 In dealing with abuse of power Ford first noted that "the onus of showing an abuse of power rests on the person alleging it", relying on Winthrop Investments. Para.[1703] at 592. There followed a relatively detailed discussion of the authorities, especially the appellate decisions in Sidebottom, Shuttleworth, Peters and Greenhalgh. As to expropriation the author cautiously used these terms: At 593. "Alteration of articles to permit a majority to expropriate the shares of a minority would normally be an abuse of the power of alteration … But not every alteration to introduce expropriation is invalid." The first sentence had been altered from what appeared in the 4th ed. (1986) where it commenced (at p.468): "At first sight the clearest misuse of majority power occurs when the majority seek to expropriate the shares of the minority." For the first proposition Brown and Palazzo were relied on but thereafter there was detailed consideration of the qualifications discussed in Sidebottom, Shuttleworth and Crumpton. Moreover, in a section headed "Testing the validity of resolutions" At 594-596., there was further analysis of Allen v. Gold Reefs, Peters and the other authorities, particularly as to the meaning of the expression "bona fide for the benefit of the company as a whole". After referring to Dixon, J.'s belief that the test should be regarded as a single negative test rather than a positive test, Ford, while appearing to believe that that simple solution had been disregarded, discussed the proposition in Shuttleworth that the single test is directed to requiring the shareholders honestly to have regard to the benefit of the company. At 594. So, as to whether an alteration can be said to be for the benefit of a company, he concluded Ibid. that: "It became settled … that the court was not to substitute its opinion on that question for that of the members [and] would only interfere … if the decision of the members 'though honest, is such that no reasonable people could have come to it upon proper materials'". Adapting Scrutton, L.J. in Shuttleworth at 24. That test, so Ford said, At 594-595. was adopted by Latham, C.J. in Peters as "stating the prima facie general rule", but he noted that s.260 gave another means whereby the courts could intervene. Thereafter it would seem Ford preferred the test laid down in Peters, especially that of Dixon, J. at 513, At 513. See above at para.[507]. requiring that there be no oppression, no appropriation of an unjust or reprehensible nature and that the resolution not be for a purpose outside the scope of the power. At 595-596. 548 Two other shorter, but well-known, works were available to the profession at the relevant time although one was 15 years old and the other over 20. The first, by F.H. Callaway (as he then was) was published in 1978 entitled "Winding Up on the Just and Equitable Ground". It was a specialist work, but it was introduced by a most succinct and useful summary of the general law relating to breaches of duty by controlling shareholders and directors. At 26-32. After stating, in relation to directors' duties, that an act cannot be impugned "unless a reasonable person in the position of the directors could not have believed that the exercise of power impugned would be for the company's benefit", he said: "Members are in an even stronger position". At 29. After citing the relevant passages from Dixon, J.'s judgment in Peters as reflecting some qualification on shareholders' powers, he concluded: At 30. "In practice, alterations of articles have seldom been found to constitute a fraud on the minority even when they have been directed to the expropriation of undesirable members". 549 The other work, which, although published in 1970, was not infrequently cited, is "Company Directors and Controllers" by Allen B. Afterman. Although primarily directed to directors' duties, there is a useful Chapter III on "Controlling Shareholders' Duties under the Common Law". After a brief reference to the "benefit of the company as a whole" test, the absence of fiduciary duty At 136. and the rule in Foss v. Harbottle, (1843) 2 Hare 461; 67 ER 189. the shareholders' duties were examined in some detail. At 145-157. Turning to the subject of "expropriation of the minority shares by alteration of the articles", Afterman's discussion At 151-154. was largely an analysis of the cases and of Gower's argument against expropriation, especially the contention that good faith is here irrelevant. In a footnote At 152. he noted Gower's concession that Brown and Dafen had been "somewhat blown upon" by the Court of Appeal; nor was he impressed by the argument that the formal statutory power permitting takeovers impliedly recognised the general law rule. As he concluded: At 153. "Although this argument is appealing, the conclusion does not appear to be supported by the cases." The authorities supported only the proposition that it is "within the power of the controllers to compel the minority to sell their shares and quit the company", although this was again qualified by the requirement of good faith. Nevertheless, with some prescience, he suggested that, because of the difficulties of proof, "it is expected that the courts will be more receptive to the complaint of the minority shareholders in expropriation cases than in others because the effect of the majority's actions is to extinguish their relationship with the company" (emphasis added). At 153. However, nowhere did he suggest that there was support in the authorities for any blanket proposition condemning expropriation. Again, Bugle Press was not discussed. One may also note Lipton & Herzberg: Understanding Company Law, 5th ed. 1993, a textbook primarily for accountancy and commerce students. Lord Lindley's test is discussed at pp.100-106, with perhaps undue emphasis on Brown, Dafen and Shears, but concluding with one-and-a-half pages of Dixon, J.'s judgment in Peters. 550 Finally it is necessary to look at the loose-leaf services published by CCH and Butterworths. As luck would have it, I have had access to versions of each of those services updated only to the first half of 1994 when the subscriptions were terminated. In the Australian Corporations and Securities Law Reporter (ed. Baxt; a loose-leaf service first published under that name in December 1990) the discussion of the relevant subjects was in conventional terms, making reference to amendment of articles to effect expropriation only in the context of a brief mention of the decision of the Court of Appeal in Gambotto. See para.37-700, as at February 1994. Both the Allen v. Gold Reefs test and some of its criticism were briefly described together with some quotations from Latham, C.J. and Dixon, J. in Peters. Thus fraud or oppression was seen to be the primary qualification on shareholders' powers. There was also a brief reference to Palazzo but only in the context that the plaintiff should not have stood by. Neither Brown nor Dafen were discussed and Bugle Press was referred to only in the context of the statutory provisions for arrangements and takeovers. So far as I can ascertain the CCH monthly update Bulletin did not contain any reference to the grant of special leave in Gambotto or to the subsequent argument. 551 Neither was there any reference to those matters in the more comprehensive fortnightly Butterworths Corporation Law Bulletin which formed and forms part of their service, Australian Corporation Law (first published under that name in 1991). On the other hand, the discussion of the present question by J.P. Hambrook, in Chapter 2.4 of that loose-leaf work under the heading "Memorandum and Articles: The Corporate Constitution", was rather more extensive. The examination of the manner in which articles might be altered extended at the time (June 1994) from para.2.4.0080 to para.2.4.0115, where the principles were summarised. In the first place In para.2.4.0085. the author asserted that relevant propriety is determined by asking whether there has been a fraud on the power. Detailed discussion followed, largely in terms of approval, of the judgments of Latham, C.J. and Dixon, J. in Peters. The author suggested, however, contrary to Dixon, J. At 507., that decisions reached by a majority may be vulnerable "if they are not consonant with general notions of fairness and propriety", although he conceded that the commercial judgement of the majority is not likely to be set aside. At p.24,125 (Service 37: 6/94). 552 In turning to unreasonable or unfair articles the author stated that "arguably, the most severe form of discriminatory article is one which effectively allows majority interests to expel minority members". Para.2.4.0090 (Service 0). In para.2.4.0095 cases such as Brown and Dafen were analysed in detail but by no means uncritically, for the author stated Para.2.4.0095 at p.24,128 (Service 0). that other cases, especially Peters, "have held that the burden of proving that a non-discriminatory article is contrary to the best interests of the company is on the complainant", though "a particular improper exercise of it may be successfully challenged". There was a brief footnote reference here to Gower Fn.60 (Service 32: 11/93). It should be noted that the reference is to the 4th ed., not the more cautious 5th ed., which, it was said, stood for the proposition that expropriation cannot occur "merely to allow the majority to remove minority interests which the majority did not like. The following paragraph 2.4.0100 again discussed Dafen and Brown, as well as Palazzo and Bugle Press In fn.20., but without reference to the Court of Appeal's disapproval of the earlier cases in Sidebottom and Shuttleworth, nor to the discussion of both those and the earlier cases in Peters, so that it is not surprising that the author concluded that, "[i]f an article discriminates between members, the burden is on those supporting the article to justify the discrimination as being fair and reasonable" and, further, that, "[i]n expropriation cases, it is arguable that the company should have to establish the commercial necessity for the exclusion of the relevant minority interests". Para.2.4.0100 (Service 32 11/93). It is surprising that, although Bugle Press was cited, the then recently decided WCP v. Gambotto in this Court, although earlier referred to, was not discussed in that context. 553 One should note, however, that the author in the following para.2.4.0105 drew a contrast as to non-discriminatory changes It seems that this refers to an amendment applicable equally to all members.: "Members will usually find it difficult to upset an alteration to articles if the relevant provision applies equally to all members, and is consistent with the commercial interests of the company", here citing Allen v. Gold Reefs, Greenhalgh, Peters and Shuttleworth. The author's summary of guiding principles In para.2.4.0115 (Service 37: 6/94). was broadly consistent, stating that an alteration to articles may be set aside by a member if (i) it is manifestly contrary to the best interests of the company or its members; (ii) it overtly discriminates between members in a way which is not affirmatively shown to be fair and reasonable; or (iii) it confers a power on a particular member or group of members which could be exercised in an arbitrary, discriminatory or unfair way with no obvious benefit to the company. 554 In addition there have been a considerable number of articles in learned journals on the powers and duties of shareholders, but at the relevant time there had not been nearly as many as have been subsequently published. See para.[457]. I shall mention only four, partly because it would be ridiculous to suggest that practitioners should keep up to date not only with statutes, case law and major text-books, but also with all journal articles expressing opinions on legal subjects. Moreover, very few become sufficiently well known for it to be said that one might expect competent practitioners to have read any specific article. The first is perhaps an exception to that statement, inasmuch as Wedderburn's article on "Shareholder's Rights and the Rule in Foss v. Harbottle" [1957] Cambridge L.J. 194 and [1958] Cambridge L.J. 93., which has been cited in a number of court decisions See e.g., per J.D. Phillips, J. in Shears v. Chisholm [1994] 2 VR 535 at 632, per Mahoney, J.A. in Winthrop at 691 and per Gummow, J. in Scarel Pty. Ltd. v. City Loan and Credit Pty. Ltd. (1998) 17 FCR 344 at 348. and is seen (and known) to have been influential in the formation of the opinions on that subject in later editions of Gower, of which he became joint editor for the third and fourth editions. Unfortunately for present purposes, the article concentrated on the rule in Foss v. Harbottle and, surprisingly, nothing of real significance on the present issues can be found therein. 555 Next, came the article by Dr McPherson (as he then was) on "Oppression of Minority Shareholders" in 36 Australian Law Journal, cited above. See para.[478] fn.59. Part I deals carefully, if I may say so, with the relevant authorities and in general with the concept of the "benefit of the company as a whole", which was viewed critically and confined, so far as possible, to cases of amendment to articles, though conceding that such a view may be inconsistent with authority, especially with Peters. See at 408-409. Bugle Press was cited only in a footnote and there was no undue emphasis on the judgments in Brown and Dafen, Shuttleworth being accurately referred to on several occasions. See especially at p.410 fn.67 where Brown and Dafen are properly stated to "have been discredited by later decisions, including Sidebottom and Shuttleworth. Consequently, expropriation was not treated as a prima facie basis for relief. See esp. at 410-411. 556 The third article, useful for its comprehensive discussion of authority, although I would not agree with all that was said, especially in relation to later cases such as Clemens, is by F.G. Rixon: "Competing Interests and Conflicting Principles: An Examination of the Power of Alteration of Articles of Association". (1986) 49 Modern L.Rev. 446. After careful examination of Brown, Dafen, Shuttleworth, Peters and Greenhalgh the writer submitted At 461. "that the better view is that a power of compulsory transfer of members' shares introduced into altered articles need no more be circumscribed than such a power contained in original articles, though one may reasonably surmise that the fact that the power is unfettered is a circumstance which the court will weigh in determining whether the shareholders who voted in favour of the alteration acted in good faith". Finally, Peters was preferred to Greenhalgh and Bugle Press was one of the few authorities not discussed. 557 It should also be noted that the decision of the Court of Appeal in this State in Gambotto was the subject of a critical case note in the section "Takeovers and Public Securities" in the September 1993 issue of the Companies & Securities Law Journal. (1993) 11 C. & S.L. Jo. 323. The author, K. Yeung, criticised the decision and the "company as a whole" test, saying that the Court failed to address expressly why the majority was seeking to expropriate the plaintiff's shares. I am not entirely sure what the author there means, as the purpose all along was to obtain the relevant taxation benefits and savings of administrative expenses which were not available because of the continued existence of 0.3 per cent of shareholders, but it may have been a reference to the failure to consider the majority's motive, although that would go beyond accepted principles. Nevertheless, the writer stated At 325. that the trial judge leant too heavily in favour of minority holders inasmuch as he had suggested that expropriation was "necessarily oppressive". 3(a) Extent to which appellants should have been aware of matters raised on appeal in Gambotto 558 Before expressing conclusions as to the extent of knowledge that each of the appellants should have had at the time they gave their advice or opinions, it is necessary to deal with a matter primarily of fact Including, importantly, inferences to be drawn as to whether in the circumstances the appellants were in breach of duty in failing to make further enquiries., although it was argued that it had the consequence of extending the appellants' relevant knowledge of the manner in which the appeal in Gambotto might be resolved. As I have earlier said, there is no doubt that the appellants all knew that the Court of Appeal had decided Gambotto in favour of the company. Why they should necessarily see it as relevant to the present case is a matter which will have to be addressed later, but at least one of the parties, Mr Bateman of AAH, thought it appropriate to mention the case in the course of the discussions leading to the briefing of and obtaining advice from Mr Heydon in December 1993. As I would gather, the case was seen primarily relevant to a potential argument that the majority on the Board and their adherents would be accused of oppression in seeking to do away with all membership rights in Association and Insurance and at the same time giving greater shareholdings to certain kinds of members. Although a strong argument was put to the contrary, I did not understand the solicitors' prime concern at the time to be whether the amendments to the articles satisfied the test in Allen v. Gold Reefs, Peters or whichever cases should be seen to lay down proper and binding principles on the power of the majority to amend the articles of association. 559 Nevertheless, WCP v. Gambotto was drawn to the attention of all the appellants and the question is whether they should have been aware of the next stage in that proceeding and of what was the likely result. The learned trial judge held that they were all aware that it was "on appeal" See para.[384] of his judgment., but it does not appear that any of them was truly aware that leave to appeal had been granted. The assumption behind many of the respondents' arguments and, with respect, behind certain of the findings of the learned trial judge, was that this notorious case should have been the subject of common knowledge so far as the appellants were concerned. However, it is one thing to know of a reported case and even that it is subject to an application for leave to appeal, but quite another for its current progress to be known generally within the profession and in particular within that part of the profession which specialised in company law. 560 Perhaps the case was notorious at the Sydney Bar or among the firms of solicitors with the degree of specialisation in company law which the appellants solicitors had, but there was no evidence to that effect. Apart from the note in the Company & Securities Law Journal, the case had been merely noted in the two well-known services published by CCH and Butterworths; indeed, in the latter, which frequently contained more extensive notes of what were perceived to be more important cases, there had been a mere half page note. In the following year, 1994, but after the relevant period, there were three articles, but in academic journals, in which the case had been the subject of some analysis. However, I would not consider that the Company & Securities Law Journal was necessarily essential reading, nor that one should expect busy practitioners to retain in their minds that some case or other had been the subject of a critical note. I have already commented on the vast array of material published each year relating to corporations law and perusing the fortnightly bulletins of the Butterworths and CCH services at the time merely reminds one how obvious that was. 561 Further it was argued, and, so it seems, was partly accepted by the trial judge, that at the time a mere query would have indicated the fate of the application for leave to appeal and the significance of the grant of that leave. So far as the appellant Heydon was concerned, it seems that the only time he was directly asked for advice which might involve the need to have some knowledge of Gambotto, or what Gambotto might eventually decide, was when his urgent advice was sought in December 1993. The special leave application was heard on Friday 10 December and Mr Heydon was first approached on that day. A brief was sent on 13 December and a short conference held the following day, after which he indicated his ability to advise on a limited basis before he went on vacation on 20 December. (A revised brief had been sent on 15 or 16 December.) It seems to have been assumed that he or the solicitors could have discovered the fate of the application and the precise issues it seemed to raise in that brief and hectic period. Counsel was even expected to have made enquiries "down the passage" of counsel who in fact had appeared on the application who, as it turned out, were the same as had appeared before the Court of Appeal. Why that should be common knowledge was never explained, but even if it were, I would not consider it either necessary or appropriate that counsel should be under some implied obligation to seek out and waste the time of fellow counsel, especially at that time of year, to ascertain why that counsel had "lost" the application and what the grant of leave presaged for the future. Even if counsel knew each other well, I would venture to doubt (as it was not thought appropriate to admit expert evidence on these matters, so that this Court is left to its own devices) that with court, conference and other professional commitments, senior counsel of the standing of those in question would necessarily have had any free time which coincided with that of any other. After the event, and with the hindsight of being able to read the transcript, the critical issue on the future appeal might be said to have been sufficiently clear that it could have been communicated briefly. But that is to assume that the inquiry would have been worthwhile. Why counsel, and for that matter the solicitors, should have had sufficient omniscience to believe that an account of the oral, Socratic dialogue between court and counsel at the leave hearing would in all likelihood have given an indication of the High Court's ultimate reasoning in Gambotto is beyond my comprehension, especially having regard to the complex issues which were capable of being raised and which I have sought to analyse above. 562 Then it was said, and seemingly accepted by the learned judge, that the appellants could have obtained the transcripts of the leave application. There was no evidence that that transcript was available at the time Mr Heydon's advice was sought and given, nor indeed as to when transcripts of leave applications were ordinarily available for purchase at the relevant time. No evidence was given as to whether they were the subject of revision or how they were distributed, although one may accept that in due course they could have been purchased. At that time they were not available on the Internet The number of users of Internet in late 1993 was, in comparative terms, minute. I cannot recall if transcripts were available on the Scale database, but I do not believe that that was commonly used by the profession at that time. and even now there is some delay between hearing and availability, certainly at busy times of the year such as the days immediately approaching the Christmas vacation. Even while writing this judgment I have found the delay between the hearing and the availability on-line of a transcript can still be as long as 10 days on occasions (8 to 18 September 2000). 563 However, even if they were available at the time, and even if one can now assume they are available within a relatively short time, I am firmly of the view that there was and is no obligation for counsel or solicitors to obtain and peruse transcripts of special leave applications to the High Court, unless there are very exceptional circumstances or where some specific issue is directly raised with them. For the present it is not necessary to consider whether it is necessary or desirable to take into account reasons given when leave applications are refused. Nor would I canvass the authorities as to the significance of observations made by the Court on those occasions. No doubt High Court judges are cautious, as are other judges, about expressing themselves too firmly on matters which have not been fully argued before them, so that the well-known methods of advocacy before superior courts, especially courts of appeal and most especially the High Court, make it very dangerous to assume that what is said by a judge to counsel necessarily reflects a final view. Indeed, it would be remarkable if it were, having regard to the Court's obligations to afford a fair hearing to each party. It has always been well known that courts will test the submissions of each party by putting to them contrary views, even expressed in forthright language. To require counsel and solicitors to engage in some form of mind-reading or "psephology" by having regard to the comments so expressed by members of the High Court, or indeed any court, is to take professional duties beyond reason. 564 To that extent, the learned judge's finding and the respondents' submission that the appellants were negligent in failing to make enquiries of that kind should be firmly rejected. That is not to say that they each might have had some inkling of what a grant of special leave might presage. Here one may assume that the difference between the trial judge and the Court of Appeal as to amendments of an expropriatory kind might have been the subject of any ultimate decision in Gambotto. But, as will be seen later, to say that counsel's and the solicitors' advice should have been tempered, or indeed withheld, because some new statement of principle might be made by the High Court a year or so later seems unreasonable. 565 It also follows that the appellants when advising the respondents in relation to the demutualisation of the NRMA companies ought not to have had attributed to them any greater and, in particular, any different understanding of the law and the principles which they should have taken into account because of the events surrounding, or any knowledge to be potentially gained from the hearing of, the special leave application in Gambotto. 566 Further, insofar as it may be relevant, and again the learned trial judge seemed to think that it was at least partly so, I would not consider that any knowledge gained from the transcripts of the hearing of the appeal in April 1994 or from counsel involved in that hearing would be of any real relevance in the circumstances of this case, nor, more importantly, would I require the appellants to have made enquiries to ascertain what had occurred and had been said. The considerations referred to above apply to what was and is ordinarily said during argument on an appeal. Whatever those present might attempt to guess from the questions and comments coming from members of the High Court on such a hearing, that must always be tempered by the firm understanding that, despite any vigorous questioning of counsel, the High Court, like any other court, is bound to give a fair hearing to all parties before giving its judgment. (b) Summary of the appellants' knowledge and understanding of the law at the relevant time 567 The examination of the authorities and text writers set out above may have seemed tedious and often repetitive, but, to determine what knowledge fairly may have been attributed to competent practitioners in late 1993 and early 1994, it has been important to understand what material was then available and what it suggested as being the principles applicable to the resolution of the kind of matters upon which the appellants were required to advise at the time. What that examination has demonstrated, so I believe, is the range of both primary and secondary materials available and the relative unanimity of those authorities and writers on the questions relating to amending articles which were said to be critical to the advice then sought. 568 One may summarise the essential matters so demonstrated by the case law as follows. Although the Allen v. Gold Reefs test had been seen to have its deficiencies, especially in cases where the dispute was not said to raise the company's own governance and well-being Cf. Peters per Dixon, J. esp. at 511-513 and as summarised in paras.[505]-[507]; Greenhalgh v. Arderne as in para.[493]., it was still the accepted basic principle. See Peters, Ngurli and Greenhalgh v. Arderne. That had a number of consequences. Although shareholders might exercise their voting power as they wished inasmuch as they were under no fiduciary obligations, nevertheless that power was subject to the equitable rule that it should not be used for any improper, unfair or oppressive purpose. Although the latter qualification was known to be vague Cf. per Dixon, J. in Peters at 507., it had been applied with reasonable success in a large variety of circumstances over many years. The forced acquisition by a majority of the minority shares was one circumstance which might attract the Court's attention as having the disqualifying characteristics and purpose described above. Amendments effecting such an acquisition had on only four occasions (all by judges sitting alone) been set aside or restrained without further examination of the facts, but the prima facie opinion in two of these cases, Brown and Dafen, had been almost immediately disapproved by the Court of Appeal in England, which disapproval had clearly been accepted as correct by the members of the High Court in Peters. See per Latham, C.J. at 480 and per Dixon, J. at 509-510. Rich, J. also seems impliedly to have disapproved of Brown and Dafen, not only because of the conclusions he reached in that case, but by reason of the fact that he cited both Sidebottom and Shuttleworth with approval and made no mention of Brown and Dafen: at 495. Clemens had not been so characterised by the English Court of Appeal but no appeal on this issue appears to have been heard in England after Clemens was decided and most writers seemed to treat Clemens as having incorrectly stated principle, whatever might be the correctness of the specific outcome. Palazzo, the only Australian case accepting the more stringent approach as to expropriation, had relied on Bugle Press, but that case was an application for approval of a takeover, not a case argued on the basis of Allen v. Gold Reefs. Though a decision of the Court of Appeal (England), it had not been cited subsequently as standing for any prima facie rule of invalidity when amendments to articles had been challenged, other than in Palazzo itself. Indeed, even if it was merely implicit in the English Court of Appeal cases such as Sidebottom and Shuttleworth that the onus of proof of unfairness rests on the plaintiff in such cases, that had clearly been laid down Per Latham, C.J. at 482. Cf. per Rich, J. at 494-495 and per Dixon, J. at 514-515 where the trial judge's finding of assumed invalidity was overturned in part because the judge had wrongly sought "sufficient ground for [a] positive conclusion" of validity. by the members of the High Court, either explicitly or implicitly, in Peters and so was the binding rule in this country. 569 So far as the text writers were concerned all but three had accepted in general the rules stated above. Gower and Pennington in England and Hambrook in Butterworths' Australian Corporation Law can be said to be the only text writers who favoured a stricter view. All the others, whether in England or Australia, accepted the equitable rule substantially set out above and none of them excepted "expropriation" in a way which would have led to the reversal of the onus of proof. Gower and Pennington were known to be academic books, not necessarily consulted by practitioners, and none of the standard textbooks laid down any such restrictive rules. By the time of his last edition before his death (the 5th in 1992), Gower had become much more cautious, though Pennington's less comprehensive discussion had not changed. 570 Hambrook's chapter in Australian Corporation Law may be said to have taken almost as radical line as Gower but its persuasive force could fairly be seen as affected by his reliance on Gower's more forthright views in his 4th edition, which, by the time of the relevant service, had been replaced by the more cautious 5th edition, and by Hambrook's over-reliance on Brown and Dafen. For present purposes, moreover, it should be remembered that the learned author appeared to treat See at the beginning of para.2.4.0095 (at p.24,127). expropriation as consisting in the compulsory expulsion of minority members by the majority, where the impugned article would entitle the directors or a general meeting to compel one or more members "to sell or transfer [their] shares to the other members or to outsiders", and that, on the other hand, he considered that it would be difficult to upset an amendment where the relevant alteration applied equally to all members. See para.2.4.0105. 571 In short, very little authority pointed to a blanket rule about expropriation and High Court authority, supported almost without exception The one exception, to my knowledge, was the then largely ignored Bugle Press, decided in a different context. elsewhere in appellate courts, had held that the onus rested on those complaining of any unfairness, impropriety or oppression when alleging that the majority's powers had been exceeded. Likewise the standard textbooks, and many others, had been consistent in supporting a conventional view of the rule in Allen v. Gold Reefs, certainly as qualified by Peters, and even those who favoured a more stringent rule were prepared to accept that authority largely pointed against their contentions. It may be doubted how well the new chapter in Australian Corporation Law was known (it was radically different from that in the preceding Butterworths' service on Australian Company Law & Practice (3rd ed.)), but, even to those who confess to having a bias in favour of Professor Gower's work, it would be hard to say that his views represented mainstream authority and the cautious 5th edition could well have been seen by practitioners as recognising the difference between established authority and his preferred principle. Assuming that the appellants were each familiar with the work, they might have accepted that the High Court could well travel some way down the track towards a rule such as Professor Gower and the others preferred, but what the High Court had said in detailed and considered judgments in Peters would have to have been overcome for there to be a radical alteration, or so it might reasonably have been perceived at the time. C. Were the appellants in breach of duty in failing to anticipate Gambotto ? 572 The answer to the question how far the appellants should have foreseen and have anticipated that the High Court in Gambotto would restate principles in a radical way relating to amendments of articles must be seen as critical to a resolution of this appeal. Of course, it will provide only part of the answer for there must also be in issue whether legal practitioners are negligent in failing to forecast or at least advise as to possible changes in principle in cases such as the present. In other words, are lawyers in breach of their duty if they fail to go beyond giving advice based on accepted principle or at least on a fair appreciation of any principle which is generally known to require restatement by the High Court, either because of conflicting and unresolved dicta by members of that Court or because of explicit statements that the Court proposes to reconsider some line of authority? See further at paras.[647]-[655]. (1) Did the High Court in Gambotto depart from currently understood principle? 573 Regrettably, for the purposes of this case, it is necessary to examine the extent to which the High Court departed from currently understood principle, if at all, in deciding Gambotto. This is not an exercise willingly undertaken to demonstrate merely that the High Court was or may have been in error. That exercise has been undertaken by a considerable number of writers in the articles to which I referred, albeit indirectly, in paragraph 3 above and by some contributors to Professor Ramsay's book. A list of these articles can most easily be obtained from the Casebase database published by Butterworths, in its annotations on Gambotto. Not all the articles directly criticise that decision, indeed some come to its defence, but it cannot be denied that an exceptional number of them, mainly in academic journals, have been provoked by the decision. What follows, therefore, should be understood as necessary only for the purpose of the resolution of this case. What the High Court said and held in Gambotto (at least as expressed in the joint judgment) must now be accepted as stating the relevant principles applicable to the amendment of articles of association, and arguably of any other documents now constituting the constitution or replaceable rules of a corporation, where that amendment is effectuated by vote of a majority of members. It should be noted that in Gambotto itself there was not even a contrary vote by the minority or any part of the minority shareholders, but that was said not to be essential to the decision inasmuch as it was clear that the majority as controlled by IEL would have exercised the votes to which its 99.7 per cent (approximately) of the issued capital entitled it. 574 Moreover, an analysis of what was held and said in Gambotto is essential in order to determine the extent to which the principles there stated became applicable to the demutualisation scheme of the NRMA companies and in particular in relation to the proposed amendments to the articles. In particular it is relevant to the question whether what was proposed by the demutualisation amounted to an "expropriation", as described by the High Court, or whether the circumstances of the respondents' scheme took it outside the ratio of Gambotto. In other words, is it enough to condemn as illegal a proposed amending resolution that it will (or may in the future) result in the extinction in any way of members' rights as shareholders or members or must the proposed resolution extend so far in substance or effect to the majority's compulsorily acquiring or destroying the minority's shares or other membership rights so as also to achieve the end that the majority become the sole shareholders or members of the company or gain some new voting or other advantage over the minority? 575 The High Court's decision in Gambotto may be seen to be a case in which the "expropriation" was effected in a relatively conventional way, the amending article entitling any member having 90 per cent or more of the capital to acquire compulsorily by written notice the minority's shares at a price fixed by valuation. Although that may confine the strict ratio of the case, the members of the High Court did not appear expressly so to confine it. However, they likewise did not seek to give a precise definition of "expropriation", but the question remains whether, from other language used in the judgments, any of the judges intended the term to be confined in its operation. 576 The joint judgment would imply, so it seems, that there is some limitation of that kind, for they described At 430. the "fundamental issue in [the] case" as "the taking of a power by majority shareholders by amendment to the articles to acquire compulsorily the shares of minority shareholders". Moreover one may assume from the disapproving notion that all McHugh, J. reached a somewhat different conclusion but his characterisation of "expropriation" seems similar. For example, he describes (at 453) alterations "enabling a shareholder to acquire the shares of existing shareholders", although he concedes that such an alteration may not be oppressive. members of the Court placed on "expropriation", for example by the use of expressions such as "their own aggrandizement" And "aggrandizing": see at 443 and 445. The word is taken in fact from Dixon, J.'s judgment in Peters at 504., that it was the forced transfer of shares Or, so it would seem, acquisition or deprivation of rights attached to the minority's shares giving similar advantages to the majority. into the majority's hands for its own benefit which was seen by the Court as unfair and oppressive. Consistently, the joint judgment, in particular, refers At 444. to the concept of the majority's "securing some personal gain". Thus, in describing the tests for determining validity, a contrast was made At 444-445. between ordinary amendments and those which "allow an expropriation by the majority of the shares, or of valuable proprietary rights attaching to the shares, of a minority", such that the majority have conferred on them "power to acquire compulsorily the property of the minority". There follow two observations implicitly condemning "the purpose of aggrandizing the majority". At 445. 577 Thus I would conclude that, although the word "expropriation" is ordinarily wide enough to comprehend not merely compulsory acquisition but also compulsory destruction of rights, the High Court in Gambotto was concerned primarily with amendments to articles which have the effect of destroying the minority's shareholding or other membership rights or of placing those rights in the hands of the majority shareholders, even if the amendments are not necessarily intended principally to give the majority the financial advantages attaching to those shares but are more directed to excluding the minority from continuing to exercise membership or other related rights in the corporation. In other words where transfer or destruction of the minority's rights is not in issue, I would not see the ratio of the case, insofar as it relates to expropriation, as extending to amendments which extinguish all a company's shares or all membership rights but which provide in their place rights or options available to all members equally, whether or not they choose to exercise them. I assume for present purposes that the choice given is a realistic one and one which is not, by reason of some legal factor or economic circumstance, effectively available to only one group of existing members. If that be correct, such a conclusion would, for reasons discussed later, mean that the effect of Gambotto on the NRMA demutualisation plan was far more limited than has been largely assumed. 578 As a number of other views have been expressed to the contrary, inasmuch as it has been asserted that the scheme here in issue did involve "expropriation", it is still necessary for present purposes to look at what Gambotto otherwise decided. The joint judgment in the High Court commenced At 439ff. with an analysis of authority which is, with respect, largely conventional inasmuch as it would seem, on first reading, to accept that both Brown and Dafen were disapproved later in the Court of Appeal. Nevertheless Greenhalgh was ignored, except for a footnote reference At 441., and far more significance was placed At 441-442. on Bugle Press than had been previously given to it, except by Needham, J. in Palazzo and by Professor Gower. Inasmuch as the joint judgment later placed considerable emphasis on the proprietary nature of shares See esp. at 446, 447., it is not, with great respect, entirely clear why their Honours then concluded, from what Lord Evershed said in Bugle Press about "fundamental legal principle", that, "if a person has a legal right which is an absolute right, then that person can deal with the right as he or she pleases". At 441, citing Bugle Press at 285. This has always seemed, with respect, a two-edged sword. If Lord Evershed had been thinking of the present issue, that of the majority's power to pass resolutions, and I doubt that he was, then that "absolute right" was at the time accepted as including the right to vote as the holder saw fit, subject only to Lord Lindley's qualification: cf. his judgment in Greenhalgh at 291-292. On its face the assertion would also apply to a shareholder's rights not merely to dividend and distribution on winding up but also to those other rights given under the articles, in particular the right to vote for or against resolutions at company meetings. It seems to have been suggested See Gambotto at 447. It is not clear whether some such submission formed part of the respondent's argument: cf. at 435-436. that a share was no more than a "capitalised dividend stream", but I am not clear where that expression had first been used in the present context. At the time Gambotto was decided and at all relevant times there could have been no doubt that a share was personal property, though transferable or transmissible in accordance with the articles, as had by then been explicitly stated in s.1085 of the Law. A more detailed analysis of the nature of a share can be gained from the judgments in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143, at 152 per Dixon, J. and at 156-158 per Williams, J. It was characterised as a statutory chose in action, but subject to the contractual terms implied from the memorandum and articles, and it is this latter characteristic which all judgments, including those in Gambotto, concede meant that particular rights attached to shares were not immutable. 579 I have already discussed why voting rights were seen to be so important in the scheme of the original Companies Acts. See paras.[466]-[467] above. The commercial and pragmatic regime then introduced and never subsequently altered, except to a limited degree by amendments and by judicial decision, was that a minority of shareholders could not stand in the way of valid and proper resolutions passed by the relevant statutory majority. This contrast with partnership law gave a commercial flexibility to business transacted through corporations which was at once understood as permitting effective control by a 75 per cent or more majority. Articles could be amended by statutory majority but, if day to day business were constantly frustrated by a minority, there was also power by special resolution to put the whole company into liquidation. The checks and balances relating to share rights were and are therefore of utmost importance in the day to day administration of corporations. The joint judgment in Gambotto, Especially at pp.446, 447. gave added weight to the proprietary nature of shares and to the limitations placed on the power to amend those provisions which made up the bundle of rights constituting each share. In the case of shares in public companies the comments were no doubt apposite, but, in the case of shares in proprietary companies (the vast majority of companies), the right to transfer had to be restricted See para.(a) of s.116 of the Law, applicable at the relevant time and at the time judgment was delivered in Gambotto, but repealed as from 17 December 1995: see First Corporate Law Simplification Act 1995, Schedule 4 s.8. and was almost invariably made subject to the directors' discretion. Sections 1091A and 1094 of the Law have placed some restrictions on the exercise of the directors' powers, but even under the 1998 amendments the directors' power to refuse has been included as one of the "replaceable rules": see s.1091E. With respect, this limitation has always been relatively well known to those engaged in business, and has been viewed as a significant bar to the freedom of transfer of shares. 580 The changes in the nature and alterability of share rights introduced by Gambotto have not yet been fully worked out, but it cannot be said that the precise change of emphasis could have been easily predicted, certainly upon the basis of the authorities discussed above. A critical consequence, so far as the joint judgment was concerned, was that it seems to have laid down a change in the onus of proof from that which had been previously accepted by the High Court in Peters, but the reasons for that change was otherwise not the subject of explanation in Gambotto. See at 447. Save that in the joint judgment it was said that its "approach" would ensure that "the relevant" principle would not apply to "unduly favour the majority" and would "alleviate the sting of practical difficulties" for the minority, "such as poor access to information". 581 Next, however, it is necessary to look at what the other principal changes were to the Court's approach to amendments involving compulsory acquisition or destruction of membership rights. 582 In considering the principal issue of expropriation, the joint judgment turned from the English authorities to Peters. What was said at the end of their Honours' analysis of Latham, C.J.'s and Dixon, J.'s judgments set the scene, so it appears, for their later statements of principle. On the authorities they concluded: At 443-444. "In conformity with the views expressed in Peters , the use of the expression 'for the benefit of the company as a whole' is no longer influential in the context of an alteration of the articles designed to effect or authorise the expropriation of a minority's shares." (Emphasis added.) 583 Their Honours' use of the present tense and their expressed belief of conformity with Peters suggest that they considered that they were stating existing law, although the rest of the judgment is expressed in terms which suggest that this was merely a starting point for their "striking a balance" At 444. and formulating "the test for determining whether an expropriation is valid". See at 444 ff. 584 With the greatest of respect, the seeds of difficulty were laid in this statement of existing law. Doubtless, all judges in Peters, to a greater or lesser extent, expressed dissatisfaction with Lord Lindley's test in Allen v. Gold Reefs, but they did not do so on the basis that it was a totally inappropriate test; rather they did so because, where the only issues in question were the competing rights and interests of members or groups of members, a consideration of the advantage of "the company as a whole" became "inappropriate, if not meaningless". Peters per Dixon, J. at 512, cited in Gambotto at 443. That did not mean, with respect, that if an amendment might be seen to be for the benefit of the company as a whole, that factor should not have either some significance or conclusive significance, for example in the very kinds of case excepted by the High Court later in the joint judgment in Gambotto At 445-446., where minority shareholders are involved in running a directly competing business or where the continued membership of particular minority shareholders would prevent the company from carrying on a specific existing business. 585 Moreover, even if the joint judgment in Gambotto correctly perceived that Dixon, J. held that the existence of competing or conflicting interests excluded consideration of the company's benefit (which I would doubt), the other members of the High Court in Peters had expressed themselves more cautiously and in terms which, so it would seem, might have required the Court in Gambotto to justify departure from those principles. Thus, Latham, C.J. (with whom McTiernan, J. concurred) had expressed the view Peters at 481, cited in Gambotto at 442. that, where the question related to the relative rights of different classes of shareholders, "the problem cannot be solved by regarding merely the benefit of the corporation" (emphasis added). Rich, J., whose judgment was not discussed in Gambotto at all, in a relatively brief discussion of principle, had also pointed out At 495. that where the elements of a conflict of interest between classes of shareholders were raised, that meant "only that the purpose of bringing forward the resolution must not be simply the enrichment of the majority at the expense of the minority". Moreover, the authorities earlier examined in detail, including the text books, could not, with respect, support such a conclusion as to existing authority in 1994 or 1995, for, critical though a number of judges and writers had been of Lord Lindley's test, none had said that it could never be applied as a negative test to invalidate an impugned resolution, whether or not only conflicting interests were at issue. 586 I would therefore conclude that legal practitioners at the relevant time could not fairly have anticipated that the High Court would fifteen months later express the view stated in the joint judgment at 443-444 As set out in para.[582] above. as a proper exposition of existing principles, whether they had looked only to Peters or further afield. I should add that McHugh, J. in his judgment took a more cautious and conventional view At 451-452. of existing authority as to the relevant test, concluding At 452. only that it was "not always a satisfactory test". Where the alteration involved expropriation, however, he held At 453. that a company might alter its articles "only when the acquisition is necessary to protect or promote the interests of the company and when the alteration will not be oppressive". 587 The next part of the joint judgment laid down the test for determining whether an expropriation is valid or not. Here their Honours divided amending resolutions effectively into three classes (or, more precisely, two classes and two sub-classes of the second class), thereafter to be dealt with in differing ways. The first division appears from the statement At 444. that, where articles are altered in a manner "giving rise to a conflict of interests and advantages", then "whether or not it involves an expropriation of shares, we would reject as inappropriate the 'bona fide for the benefit of the company as a whole' test …" (emphasis added). They stated At 444. that the grounds upon which the test had been criticised in that context were "unanswerable". That, with great respect, would seem on the existing authorities to be an overstatement, inasmuch as the test had been applied on several occasions, at least as the basis for providing a positive test which, where satisfied, had led to the alteration being upheld. Moreover, I would have some doubts, although, with great respect, these would apply to both Peters and Gambotto, as to the precise meaning of the expression "a conflict of interests and advantages", for it is hard to imagine any disputed alteration to articles which does not involve such a conflict. The issue is hardly likely to arise if there is no conflict, but, if what is really meant is that the conflicts of interests should be apparent by reference either to existing rights under the company's constitution or to proposed new rights or burdens to be imposed on a specified group of members, then that might have significant consequences for resolving the present case. The proposed amendments now under consideration were to apply generally to all members of both Association and Insurance and whether or not they later exercised their rights to acquire shares in Holdings was a matter of personal choice. The only conflict of interests here created was between those who supported and those who opposed the amendments, but surely that conflict is not of the kind to which their Honours were intending to refer in Gambotto. For the present I am ignoring the possible conflicts which might have resulted from a greater allocation of shares by reason of duration of membership or the number of policies in Insurance. Cf. paras.[558], [635] and esp. [658], [660] and [666]. As to this first category of amendments, it is important to note that, if such an amendment does not give rise to "a conflict of interests and advantages", then implicitly Lord Lindley's rule in Allen v. Gold Reefs still has application to this category. 588 At all events, a further distinction was immediately drawn in the joint judgment as to amendments involving conflicts of interests or advantages, by dividing the second class into two sub-classes and imposing the relevant onus of proof in a way which depends on the sub-class into which this kind of amendment falls. So their Honours held At 444. that, in the case (the first sub-class) of an alteration "not involving an actual or effective expropriation of shares or valuable proprietary rights attaching to shares", a properly passed amendment "will be valid unless it is ultra vires, beyond any purpose contemplated by the articles or oppressive …". On the contrary, different considerations apply where a proposed amendment to articles is "to allow an expropriation by the majority of the shares, or of valuable proprietary rights attaching to the shares, of a minority". At 444-445. In such a case (the second sub-class) the conferral of a "power to acquire compulsorily the property of the minority shareholder or shareholders" does not, of itself, lie within the contemplated objects of the statutory power to amend articles. At 445. The invalidity on its face of an exercise of such a power was immediately qualified by saying that, notwithstanding that it is intended to do so for the "purpose of aggrandizing the majority", a resolution of that kind may be valid "if and only to the extent that the relevant provisions of the company's constitution so provide", but that qualification was clearly intended to deal with the inclusion of the power from the outset. At 445. Presumably their Honours had in mind cases such as Phillips, to which they had referred earlier at 442 fn.31. It could not, ex hypothesi, apply to a resolution to amend the articles. Where, however, that power is sought to be inserted by way of alteration, "such a power could not be taken or exercised simply for the purpose of aggrandizing the majority" (emphasis added). At 445. On the other hand the power can be taken if it is "exercisable for a proper purpose" and its exercise will not operate "oppressively" in relation to the minority members. At 445. Justification in this way may occur "where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs – resulting in detriment to the interests of existing shareholders generally – and expropriation is a reasonable means of eliminating or mitigating that detriment". At 445. Some examples were given, to which reference has already been made. The joint judgment then made clear that it rejected the idea that in these circumstances the right of membership is subject to alterations of the articles where that involves expropriation, so that on this matter their Honours concluded: At 446. "To allow expropriation where it would advance the interests of the company as a legal and commercial entity or those of the general body of corporators would, in our view, be tantamount to permitting expropriation by the majority for the purpose of some personal gain and thus be made for an improper purpose." (Emphasis added.) It is to be noted that Brown was cited in support of this proposition notwithstanding its subsequent disapproval in Sidebottom , Shuttleworth and Peters . If this be seen as the rationale for the stringent views of the joint judgment in Gambotto , then it is apparent that it is the majority's wrongful "gain" which is fundamental to the Court's disapproval of "expropriation". 589 There followed a further qualification of the circumstances where an amendment will be allowed for a proper purpose, for the joint judgment laid down that, if that test be satisfied, it must also be fair in the circumstances, fairness having both procedural and substantive elements which were set out thereafter See at 446-447. and which will be discussed in the following paragraphs. As to onus of proof, as noted previously, their Honours then made clear that they were rejecting the respondents' submissions on that issue, which were based on Peters, that an alteration permitting expropriation was prima facie valid. They said At 447., although not directly explaining why they differed from Peters, that in the case of expropriation "we consider that the onus lies on those supporting expropriation to show that the power is validly exercised". The only justifications given were that shares are "a form of investment that confers proprietary rights on the investor" But note again the contrast between shares ("investments") in public companies and those in proprietary companies: see para.[579]. and that any other view might unduly favour the majority because of difficulties of proof and the like. Ibid. See also para.[580] fn.323. 590 It will have been noted that the test as to expropriation laid down by the joint judgment contained a second limb to the effect that the limited circumstances in which the minority's shares may be expropriated must be not merely for the purpose of avoiding some significant detriment to the company, but also that the alteration must be shown to be "not oppressive to the minority". At 445. The word "oppressive" seems at first merely to reflect statements of principle in leading authorities such as Allen v. Gold Reefs and Peters, inasmuch as that word is almost a "term of art" in company law. As the joint judgment continued, however, it is apparent that their Honours were adding some refinement to that term when they asserted At 446. that "it must also be fair in the circumstances". Not only did they make the requirement a positive condition to be satisfied, but they proceeded to expand the "procedural and substantive elements" in terms which largely had the concurrence of McHugh, J. See at 456-459., although his Honour said much more in his discussion of "oppression" and "fairness". The joint judgment, for its part, would require fairness to be demonstrated by the majority shareholders' disclosing "all relevant information leading up to the alteration" and "presumably" requires the shares to be valued by an independent expert. At 446. The substantive element was said At 447. to be concerned with the price which could not be "less than market value", though it would be "unusual" for the court not to be satisfied if the price was "substantially above market value". At 447. Both the joint judgment and McHugh, J. emphasised that the value cannot be fixed merely by the current market value, for one must look at a variety of factors including assets, market value, dividends and the nature of the corporation and its prospects. At 447 and 457-458. 591 Whilst one must accept that the judgment lays down the new standards imposed on majority shareholders who wish to acquire compulsorily the shares of a minority, the source for each of these propositions as to the content of oppression must again throw the gravest of doubts on the extent to which any practising lawyers could have foreseen the outcome of Gambotto, in terms of principle, even if one were to confine one's enquiry to this second limb of the onus cast on the majority. As to the first, "procedural", requirement that the majority must disclose all relevant information, the only authority cited was that of a single judge in British Columbia in the brief judgment in Re John Labatt Ltd. (1959) 20 DLR (2d) 159, esp. at 163; referred to in Gambotto at 446 and 459. . That proceeding had related to a takeover under the Canadian Companies Act 1952 but it was decided on a technicality in the notice to dissenting shareholders, the learned judge making also a few off-the-cuff comments as to other possible grounds for holding the proposed acquisition invalid. At 163. I would not purport to express expert views on Canadian company law, but in the relevant 6th edition (1993) of one work of authority, Fraser and Stewart: Company Law of Canada, there is no reference to Labatt, or indeed any similar case, in their discussion of "Rights of Majority and Minority Shareholders" at pp.525-528, or of "Class votes" at pp.553-556, where the opinions expressed are largely conventional and based on Allen v. Gold Reefs. No case is listed in the current Canadian Case Citator as having cited Labatt. 592 It is not clear why the High Court did not refer to any of the considerable number of cases in England and Australia relating to the obligation to make disclosure in relation to shareholder meetings and the like such as Baillie v. Oriental Telephone & Electric Co. Ltd. [1915] 1 Ch. 503. This case, together with many others (not including Labatt), are also referred to in Fraser and Stewart at pp.492-496. and Bulfin v. Bebarfield's Ltd. (1938) 38 SR(NSW) 423. The cases are succinctly described in the essay by Professor Redmond on "Disclosure Obligations in Corporate Squeeze Outs" forming Chapter 3 of Ramsay's essays on Gambotto v. WCP Ltd. referred to earlier (fn.8): see esp. at pp.60-65 of that book.. I am not entirely sure why, and if so how, such a requirement must be satisfied in every case of an expropriation for, with the very greatest of respect, the circumstances may not on every occasion necessarily involve the giving of notices or the provision of information to persons who are asked to vote in favour of a proposed amendment. Doubtless, as has always been the case, if the majority has been able to achieve the passing of the necessary resolution only by persuading some "uncommitted" shareholders to vote in its favour, the satisfying of some such requirement would be relevant. Where, however, the majority already have sufficient votes to pass a special resolution, and there can be no doubt that the majority are fully aware of what they are seeking, then I would have some doubt that the form of notices or information sent to the dissenting minority, who will by definition intend to vote against the proposal, can be of relevance. Conceivably, however, the test is directed towards what occurs after the resolution has been passed, so that the minority must be given an informed choice as to accepting the price offered. This construction of their Honours' judgments is unlikely. McHugh, J. (at 459) explicitly refers to "the fairness of the proposed alteration" and the joint judgment (at 446) refers to "information leading up to the alteration". 593 In the case of a public company where the directors have the kind of "control" which is relevant in takeover disputes but does not give them, without additional votes, a sufficient majority to pass a resolution, then it will ordinarily be relevant to consider the information given to institutional and other shareholders who have to be persuaded to make up the majority. Whether or not that arises in the majority of relevant cases of compulsory acquisition or not, especially of shares in private companies, I presently have reservations, with respect, as to how this test of fairness can always be satisfied. For the purposes of the present case, there is a curious caveat at this point. The joint judgment (at 446) states that "[w]hether it also requires the majority shareholders to refrain from voting on the proposed amendment is a question that is best left open at this stage". With respect, that suggests that a "majority" must be made up of a group with a particular interest (usually based on control of a specified number of shares), not of all persons who vote in favour of a resolution. If it were the latter, the "majority" could never satisfy the test of fairness, for, if they all refrained, the resolution would never be passed: cadit quaestio! The comment suggests that the present circumstances were never contemplated. 594 Fairness as to price, however, is another matter. The sum to be offered to the dissenting members is clearly relevant in every case and, if it is not sufficient, there must on any basis be a strong argument that there has been oppression. What was here laid down, however, as the method for ascertaining a fair price ranges well beyond the current market price, but the dicta in both the joint judgment and that of McHugh, J., suggesting that market price is not the sole determinant of what is fair, rested on one Delaware decision (Weinberger v. U.O.P. Inc. (1983) 457 A. 2d 701.) and one decision from Nova Scotia (Nova Scotia Trust Co. v. Rudderham [1969] 1 NSR (2d) 379. Again this case is not cited in Fraser and Stewart, though there is a detailed discussion of fairness at pp.574-581, in which they suggest that the Canadian Supreme Court (and provincial appellate courts) had taken a cautious approach: see, e.g., LoCicero v. BACM Industries (1985) 31 Man. R. 2d 208; restored [1988] 1 SCR 399.). McHugh, J. does not refer to the Nova Scotia decision but does refer to some New Zealand, English and Australian decisions, but only in passing at 457-458. To say, however, that practitioners should have been able to foresee that the Court would pick on one judgment given under Delaware legislation as providing the touchstone for the fixing of a fair price would be to ascribe a far-sightedness beyond reason. The relevant differences between United States law and Australian law may be seen in the essay by Professor De Mott "Proprietary Norms in Corporate Law: an Essay on Reading Gambotto in the United States", which forms Chapter 7 of Ramsay's work. See above at fn.8. Esp. see De Mott's discussion at pp.92-97. The history of corporations law in the United States is very different from that in England and Australia, especially when one is considering basic principle and the rules which surround the customary structure of corporations formed in the many jurisdictions in that country. It is only in more recent years, when attempts have been made to adapt practices from the Securities and Exchange Commission relating to takeovers and the like, that various United States cases on those subjects have come to be cited at all in this country. No doubt that will increase, as a number of concepts have been added to the Law in recent years which found their origins in that country, but, with respect, care needs otherwise to be taken as to the use of authorities on general principle. 595 The background to the re-statement of principle by the Supreme Court of Delaware in Weinberger is, arguably, instructive to those seeking to forecast which aspects of American corporations law are likely to be adopted in this country. I speak with the greatest diffidence, for those who once practised in company law knew only of differences which made that law (or, more precisely, those laws) hard to translate into the law of any country based on the joint stock legislation of 1856. Weinberger has undoubtedly been an influential case in the United States in the 17 years since it has been decided, partly because it has been applied many times in that State which for historical reasons is a State where vast numbers of companies have been incorporated and partly because it has been applied by a number of other State courts but by no means all of them. Several State courts, however, have refused to apply it but that is partly because their legislative schemes have been different, especially their provisions relating to valuation: see e.g. Leader v. Hycor Inc. (1985) 479 N.E. 2d 173 (Massachusetts); Armstrong v. Marathon Oil Co. (1987) 513 N.E. 2d 776, (Ohio) (see especially the historical and comparative discussion by Holmes, J. at 781-788); Brandt v. The Travelers Corporation (1995) 665 A. 2d 616 (Connecticut). In both Weinberger and the other cases referred to calculation of a fair price has been carried out pursuant to what are called "appraisal" statutes, for, as is pointed out in Fletcher's Cyclopedia of the Law of Private Corporations para 5906.1, as adopted by Wilner, J. for the Court of Special Appeals of Maryland: "The dissenter's appraisal remedy is entirely the product of statute" (emphasis added). See Schloss Associates v. Chesapeake and Ohio Railway (1988) 536 A. 2d 147 at 152-153, where that court substantially adopted the principles in Weinberger. 596 Moreover, a close reading of Weinberger will show that the court's conclusions as to the meaning of the expression "fair value" were based on the relevant provisions of the Delaware Appraisal Statute 8 Del.C. §.262(h). That requires the Court of Chancery in that State to "appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger" and to "take into account all relevant factors". In Weinberger it was said that the statute had been amended so as to incorporate a reference to "fair value" in 1976 and more emphatically in 1981 when the "all relevant factors" provision first was introduced (at 713-714). Looking at other cases and commentaries it will be seen that the language of statutes in the various jurisdictions in the United States differs, so it would seem significantly, by their use of varying expressions such as "the value" and "the fair market value", to take but two examples: see especially per Cuff, J.A.D. of the Appellate Division of the Superior Court of New Jersey when that court substantially adopted the Weinberger test because its legislation was similar, though not identical, to that of Delaware: Lawson Mardon Wheaton v. Smith (1998) 716 A. 2d 550 at 556-558. Revd. (1999) 734 A. 2d. 738 (Supreme Court of New Jersey), but the general analysis of the Appellate Division was accepted (734 A. 2d. 745-749) as it also was in the Supreme Court's related judgment in Balsamides v. Protameen Chemicals (1999) 734 A. 2d. 721 at 732-735, both judgments being delivered by Garibaldi, J. on the same day.. 597 The reason for these differences, and their historical background, however, may best be seen from a most helpful survey contained in the American Law Institute's "Principles of Corporate Governance: Analysis and Recommendations", published in 1994. Although the work contains recommendations for the general improvement of corporate law in the United States, it most usefully sets out what the reporter sees to be the past and present state of the law, a proper understanding of which can best be gained from the following passages in Chapter 4 ("The Appraisal Remedy") of Part VII: Vol. 2, at 291. The reporter was Prof. John C. Coffee, Junior. "Corporate law generally entrusts the majority with broad authority to alter the corporation's governance rules, revise its capital structure, dispose of its assets, or enlarge its scope of operations. Subject to relatively few limitations, the majority may rearrange shareholder rights and risks, may undertake new ventures never contemplated at the time of corporate formation, and may even expel the minority through 'squeeze out' mergers and similar techniques. Although the corporate law of the 19th and early 20th centuries considered some rights to be 'vested' and hence beyond modification by a later majority, today the doctrine of vested rights has been rejected in almost all jurisdictions. In the wake of its demise, American corporate law consists of a largely unqualified system of majoritarian control. The justifications for this system are both that it promotes economic efficiency ... and that alternative protections – such as class voting and the appraisal remedy – are sufficient to protect minority rights." The reporter, having described the risks caused by this because the majority might misuse its powers to eliminate the minority's interests and thereby force the market price down to an unfairly discounted price before a merger, and having noted that charter amendments "pose different, subtler problems", then states: At 392. "To balance the overall need for flexibility, which a system of majority rule promotes, with the minority's need to be able to rely on basic expectations about its rights, every American State has recognised some version of the appraisal remedy. Essentially, this gives objecting shareholders the ability to exit the corporation at a judicially determined fair value under specified circumstances." He states that, although such rights of appraisal apply in every State in the case of merger and consolidation, only 25 jurisdictions (at the time) extended the remedy to cover certain amendments to the corporate charter. The reporter's notes at pp.296-299 informatively describe the differences between jurisdictions. In particular he notes (at 297) that legislatures changed the requirement for unanimity towards the end of the 19th century, at first requiring a "super majority" to approve mergers and the like, but "Later, many States relaxed this super majority requirement so that a bare majority could authorise a fundamental change." Although I would gather from the rest of the work that there are some alternative remedies, these factors suggest that corporations law in the United States has come to the issue of fair value from a quite different background, for it seems that in most cases appraisal is essentially the only remedy for the minority shareholder. Moreover "minority" in many states connotes merely those who cannot obtain a simple vote in their favour inasmuch as in those states (and many others) it would seem that there are now few requirements for special majorities to achieve fundamental changes of the kind here under discussion. 598 It is not therefore surprising that in Weinberger the test of what is a fair value having regard to all relevant factors contained some elements which would seem far removed, at least to Australian eyes, from any familiar valuation process. For example the Court said that relevant factors included "the elements of rescissory damages, if the Chancellor considers them susceptible of proof and a remedy appropriate to all issues of fairness before him". At 714. This seems to be a reference to the courts' power to include "any damages, resulting from the taking, which the stockholders sustain as a class". At 713. So the Court concluded that the remedy might be adapted in cases of fraud and the like so that the Chancellor would have powers "to fashion any form of equitable and monetary relief as may be appropriate, including rescissory damages" (at 714). One would doubt that the Court in Gambotto intended such "relief" to be comprehended within the concept of "fair value" which they sought to adopt from Weinberger, but, if the Court did, then that must go far beyond what any competent counsel or solicitor could have forecast in late 1993 or early 1994. 599 I repeat, I am not saying that the decision ultimately reached by the High Court as to value should be treated as anything other than correct. It should be seen as a rule from another jurisdiction which was thought to be sufficiently appropriate to be adopted as part of Australian law. The issue, however, in the present case is the alleged obligation on the appellants to foresee the way in which Gambotto might to be decided. Of course, as argued, the respondents' case was that the NRMA proposal fell, as it were, at the first hurdle, so that fairness of the price was never in issue. Nevertheless, it is significant that the price here offered to members was more than generous, on any conceivable measure, yet that must be treated as presently irrelevant, according to the argument. The test adopted in the joint judgment was one which required not merely a proper purpose but fairness tested according to "procedural and substantive elements" At 446.. One might argue that it was the whole of the test which the appellants were obliged to foresee, if they were to advise their clients adequately, but was it foreseeable? If all that is argued is that some restatement of principle was foreseeable, and thus ought to have been made the subject of a warning, what should have been the warning? This also bears on how appropriate was the question put in evidence to the directors as to their likely reaction to such a warning. 600 It is sufficient to say that in my opinion, and with great respect, there was a radical reordering in this judgment of the principles and practice relating to the power of members to amend articles, which could not have been fairly anticipated by those advising NRMA at the relevant time. It is one thing to say that the High Court may have been expected to place more stringent restrictions on expropriatory alterations to the memorandum and articles, but the terms of the joint judgment in Gambotto went far beyond anything which could fairly have been forecast by considering existing authority and the relevant text writers. The consequence, no doubt unintended, has been one of the most complex and expensive proceedings in the history of Australian company law. (2) Conclusions as to the appellants' ability to anticipate principles in Gambotto 601 The analysis of Gambotto made above ought to demonstrate that it was by no means obvious how the High Court would resolve the questions of principle raised by that appeal. Of course, it was never suggested in argument that the present appellants were under an obligation precisely to anticipate what would be said; rather it was said that they should have been aware that the High Court might well come down with some such proposition as would make expropriation of shares either illegal, or so fraught with risk on that score as to require the clients to be warned that their existing proposal for demutualisation could not be pursued, especially if it was to be effectuated by amendment to the articles. It was said that once leave was granted in Gambotto there was more than a 50 per cent chance that the appellant would succeed and that such a forecast would have been supported by a reading of the transcript both on the application for leave and on the hearing of the appeal. I have already commented on the usefulness of such enquiries, See paras.[558]-[566]. but the fact that Mr Gambotto might have been thought more likely than not to succeed does not lead to the conclusion that he would have succeeded necessarily upon the basis that all expropriations were invalid or that the onus would be held to fall on the majority to justify such an acquisition as coming within a very small group of exceptions. I shall turn shortly to whether the NRMA proposal could properly have been seen at the time as an expropriation of the kind described in the authorities or which would later be so described in the judgment in Gambotto. For the present, it is sufficient to assert that, although one might anticipate that the High Court would expound or redefine the principles relating to an acquisition of the kind which Mr Gambotto suffered, the working out of those principles and their ultimate form were much harder to predict. For example, if the approach taken by McHugh, J. had appealed to the rest of the Court, there would have been a far greater scope for certain expropriations, subject only to his stringent requirements as to fair dealing and fair price. Nevertheless, the latter might well have been satisfied in relation to the proposed demutualisation even if some matters of detail might have to have been worked out slightly differently. The Federal Court saw a lack of candour in the respondent's description of "free shares" but that, upon almost any basis, was capable of being avoided or repaired as it turned out in the circumstances. As to price, it is hard to conceive that anybody could fairly have suggested that what the members, who were not even shareholders, received was other than an enormously valuable windfall, far outstripping the value of any right which they could dispose of on the open market (effectively an impossibility) or by some private transfer, subject to the directors' approval as noted above. 602 It could not have been a surprise, I would concede, that the High Court would take a critical view of the exercise of the majority's power to acquire the shares of a minority whenever that acquisition could be characterised as unfair or oppressive or the like. That may have led to success for Mr Gambotto but it did not follow that the High Court would decide to reverse the onus of proof in such cases inasmuch as that would have been contrary to existing authority. It is one thing to suggest that prima facie, where no consequential benefit of any substance to persons other than the majority can be seen to arise from some such acquisition, it would be held that courts should restrain acquisitions unless good reason is shown to the contrary. Moreover, it would not have been surprising if the exception raised to Lord Lindley's principle by all judges in Peters had not been worked out in terms of either principles or guidelines for the future. That invitation was open on the existing authorities and it would have satisfied everyone that a significant lacuna in company law would be filled. But it did not follow that a blanket rule in relation to "expropriations" would be laid down in the terms in which it was and with apparently such a limited number of exceptions. One thing that experience might have shown, whether in this country or overseas, is that the variety of circumstances which can arise in the organisation and reorganisation of companies is manifold and that perceptions of what is right and wrong and fair and unfair have changed greatly from generation to generation; as Jacobs, J. said in Crumpton. At 460. 603 Moreover, it could not be said to have been obvious that the test as to the validity of resolutions amending articles would be divided by the High Court between those which involved the expropriation of shares or share rights and those which did not. The joint judgment At 444-445. drew such a distinction, and also a distinction between alterations "giving rise to a conflict of interests and advantages" and those which did not, in a way which preserved the Allen v. Gold Reefs test for cases not involving expropriation or conflicts of the described kind, unless it be shown that the resolution was ultra vires, beyond purpose or oppressive. The judgment here made no reference to equitable fraud though excess of power and oppression each reflect elements of the equitable rule. It might be thought strange that the joint judgment did not also include in the class of case where the onus was reversed those two categories of resolution, distinctly described by Professor Gower, about which there had been no real dispute that they were prima facie invalid, namely, resolutions which permitted the expropriation of company property and those which relieve directors against liability for breach of duty. See Gower 5th ed. at pp.594-596 and the cases there cited. In the end, it must have been considered (as their Honours' reasoning suggests) that the right of shareholders to their shares was proprietorial and for that reason deserving of special protection. Doubtless Gambotto was going to be decided by considering the significance of the alleged expropriation, but how it was to be decided and what new tests, if any, were to be substituted could not easily be predicted, nor, more importantly, could their relevance to the proposed demutualisation of Association and Insurance. (3) Whether the ratio in Gambotto was intended to cover the extinguishment of membership rights in guarantee companies 604 Consequently, it is critical to the respondents' case that what was fairly to be anticipated as a reasonable possibility was that the High Court would lay down principles relevant to the extinguishment of membership rights in the manner here proposed. Before considering the ability of the appellants to anticipate some such decision realistically, there is the preliminary issue whether the High Court, or at least those members of it who participated in the joint judgment, can properly be taken as laying down a principle which comprehends the taking away of the membership rights of all members of a guarantee company for the purpose of a reconstruction. The language of the joint judgment At 444-445. See also at 439. is in fact confined to "shares or of valuable proprietary rights attaching to shares". To draw such a distinction may be thought to be over-technical if one sees the ratio of the joint judgment as applicable to the expropriation of any rights in a company. The use of the word "valuable" may suggest that the judgment was concerned with something of real value, value of a kind which can easily be measured in money or money's worth. That view is supported, it may be thought, by the emphasis that the joint judgment places on the condition permitting certain expropriations which would include the offering of a fair price for the shares At 447.. I am not suggesting that, in the case of guarantee companies, membership rights do not have some value, but when what is in issue is a right which gives rights neither to dividend nor to distribution on winding up but only those amorphous rights, held only on an annual basis, Inasmuch as an annual subscription had to be paid to continue those rights. Thus the right obtained by paying any membership joining fee could not be considered strictly analogous to the share right obtained on payment of allotment moneys or of the price upon transfer. to participate in the affairs of the company and to use its facilities, then the value to be placed on those rights in the case of each member must of necessity be relatively modest. 605 Nevertheless, for present purposes, one may assume that those who participated in the joint judgment The language of McHugh, J.'s judgment is similarly expressed. did not intend their observations to be confined to shares or share rights but intended them to extend to the taking away by majority resolution of similar rights such as membership rights, even if they did not flow from the holding of shares as such. Of course, debenture holders' rights could not be so comprehended for those contractual rights, capable of being (and most frequently) held by non-members, could not ordinarily be the subject of any such resolution. The extent of the principle must, however, be judged by the nature of the events which would bring it into operation. The joint judgment described At 439. the issue in terms which suggested that the principle was founded in equitable fraud or oppression, inasmuch as it stated that the "fundamental issue" in the case was whether and how the "taking of a power by majority shareholders … to acquire compulsorily the shares of the minority" could be effected by amendment to the articles. This seems consistent with their Honours' citing with approval the passage of Dixon, J. in Peters (at 513) in which he denied relief because the resolution involved "no oppression, no appropriation of an unjust or reprehensible nature and did not imply any purpose outside the scope of the power". Cited in Gambotto at 443. 606 The use of the term "compulsory acquisition" both here and later in the judgment again suggests that the kind of "expropriation" with which the High Court was primarily concerned was that which involved not only the taking away of the minority's rights in shares but also the acquisition of those very rights by the majority. One ought not to read the joint judgment too narrowly, and I would not suggest that it should, so that one may see as condemned by it all forms of taking away from a minority of shares or membership rights which leads to an outcome which directly or indirectly benefits the majority, whether or not the members of the majority obtain those rights for themselves or gain not dissimilar benefits by the extinguishment of the minority's rights. But the characteristic which is fundamental to the reasoning in the joint judgment, in my respectful opinion, is that the majority does wrongly obtain directly or indirectly a true benefit or advantage by the amendment which should be characterised as inequitable, oppressive, unjust or reprehensible, whatever word one wishes to use to condemn the object sought to be effectuated by the majority. From various observations in the joint judgment one may detect, at the least, that their Honours were placing emphasis on conduct which they assumed would be characterised as either fraudulent in the equitable sense or oppressive. For example, they cite At 440. a passage from the judgment of Astbury, J. in Brown At 296. where his Lordship characterised the alteration as "merely for the benefit of the majority". Likewise, again with apparent approval, they cite At 441. Peterson, J. in Dafen At 141. where his Lordship asked, rhetorically, how it could be said to benefit the company that any shareholder "should be forced to transfer his shares to the majority or to anyone else", where that shareholder had not acted to the company's detriment. 607 One should be cautious about what the members of the Court in the joint judgment in Gambotto said about Peters in the light of their ultimate conclusions. Nevertheless, they did note At 443. Dixon, J.'s reasoning based on the use by the majority of the power of alteration "for their own aggrandisement at the expense of the minority shareholders", a concept which was repeated later in the joint judgment. At 445. Then, immediately before stating their own test, they referred to the fact that the courts have acknowledged that the power of alteration "should not be exercised simply for the purpose of securing some personal gain". At 444. Their Honours then, in formulating a test, have distinguished between cases not involving expropriation and those alterations which do allow an expropriation by the majority of shares or of valuable proprietary rights attaching to shares, by characterising At 445. the latter as having the "immediate purpose … to confer upon the majority shareholder or shareholders power to acquire compulsorily the property of the minority shareholder or shareholders" (emphasis added). 608 To my way of thinking it is the taking to themselves by the majority of the minority's property rights in shares (or the gaining of similar rights) which is essential to the ratio of the joint judgment and to the test it laid down. Thus immediately their Honours referred again to the impugned purpose as one "of aggrandizing the majority", not once but twice. At 445. On the second occasion they described At 445. the power to amend articles to expropriate minority shares as follows: "Such a power could not be taken or exercised simply for the purpose of aggrandising the majority" (emphasis added). Importantly, that is the premise upon which their Honours immediately stated the new test At least according to the headnote: see p.432., namely that a power to expropriate can only be taken if "(a) it is exercisable for a proper purpose and (b) its exercise will not operate oppressively in relation to minority shareholders". Thus the essential reason for imposing such a strict test is, and could only be, the assumption that the majority are acting fraudulently or oppressively for their own commercial benefit. 609 Even when working out the test requiring the use only of reasonable means to eliminate or mitigate a detriment to the company, the joint judgment reiterated: At 446. "But that is not to say that the majority can expropriate the minority merely in order to secure for themselves the benefit of a corporate structure that can derive some new commercial advantage by virtue of the expropriation" (emphasis added). Moreover, they justified the need to impose a requirement for "exceptional circumstances" by saying At 446. that to allow expropriation merely to advance the company as an entity "would … be tantamount to permitting expropriation by the majority for the purpose of some personal gain and thus be made for an improper purpose" (emphases added). Likewise, it would seem that the reversal of the onus of proof from that which was accepted in Peters was largely predicated upon the assumption that the majority had obtained a benefit which would induce them not to disclose the kind of information which the minority might otherwise have relied on to prove oppression. Although it is not necessary to analyse the judgment of McHugh, J. in the same way, since he posed a somewhat different test, nevertheless it would seem that his reasoning is based on a similar assumption that the majority would ordinarily be acting oppressively in obtaining some benefit for themselves at the expense of the minority; but he was more willing to allow for a proper use of the majority's power. 610 In my opinion, therefore, the kind of "expropriation", to which the members of the High Court who delivered the joint judgment in Gambotto were referring, comprehends only the acquisition or extinguishment of shares or membership rights which has for its purpose the "aggrandisement" of the majority or the acquisition of some similar financial or commercial benefit by those members who have been able to secure the passing of a resolution to that effect. Of course in cases such as the present those who form the majority would have gained substantial benefits, but they would not come from, or be derived at the expense of, the minority. The expressions emphasised in the passages cited in the last few paragraphs point almost certainly to such a conclusion. What else could justify such a stringent view of alterations of this kind unless it be that they are characterised by equitable fraud or oppression or conduct otherwise properly to be condemned? The principle should therefore not be taken as applying to that kind of extinguishment of shares or membership rights which is suffered equally by all shareholders or members, or of a kind which they may accept or reject at their will, even though a minority has voted or would have voted against the resolution. Moreover, I have reached this conclusion notwithstanding the views of the learned trial judge and the opinions of a number of eminent lawyers sought by NRMA at the time the judgment in Gambotto was handed down, referred to in his judgment. (4) Whether appellants might reasonably have foreseen a new test for amendments not resulting in aggrandisement of the majority 611 If, as I have concluded, the test laid down by the High Court in Gambotto does require (or, at the least, assumes) the aggrandisement of the majority or requires an extinction of a minority's membership rights in circumstances where the majority are guilty of equitable fraud, oppression or other behaviour of an unjust or reprehensible nature, then the appellants could not have been guilty of any negligence in failing to anticipate reasonably the laying down of a principle which would not in any event have denied the rights of Association and Insurance to amend the articles so as to effectuate the demutualisation scheme. It has never been suggested, to my knowledge, that the appellants were obliged to warn upon the basis that the High Court might impose a new test more strict than that which was in fact imposed. Conceivably, some such argument could have been advanced if it were thought that the High Court imposed a new test of far less stringency but in relation to the present issue any such argument would entirely lack reality. In any event what is said in this and the following paragraphs would deny liability on that basis. This conclusion still follows even though it was arguable that the proposed scheme involved an expropriation of membership rights inasmuch as one can conceive of such cases which do not involve direct transfer to the majority, but which involve an extinction of the rights of members in a manner resulting in tangible benefit to the majority. If that could be proved I would concede that the ratio of the decision in Gambotto would be wide enough to bring it within the newly stated principles. My conclusion, however, is reached upon the basis that the High Court never intended to deal with cases which could not be characterised as involving fraud or oppression or any other kind of behaviour which courts of equity both traditionally and presently restrain because such behaviour unfairly results in identifiable benefits to those responsible. 612 However, I propose to deal also, on an alternative basis, with a further reason for denying the respondents a remedy in this respect, namely, that, whatever be the true ratio of Gambotto, the appellants could not reasonably have anticipated a decision which imposed restrictions on all expropriations (subject to the stated limited exceptions), whether or not there was oppression or equitable wrong dealing. 613 For this purpose it is necessary only to return to those authorities which would have suggested (and some of which were used to establish) that the courts ought to take a more stringent view of amendments to articles seeking to expropriate membership rights. In short that will show, in my opinion, that the basis upon which expropriatory articles had been condemned as such in the past, on the few occasions when that had arisen, was that the expropriation so effected had the effect or was intended to have the effect of "aggrandizing" the majority, in other words, that the majority by their exercise of control were inequitably or oppressively obtaining benefits from or otherwise at the expense of a minority. Essentially, therefore, it was the obtaining of benefit at the expense of the minority which invoked the Court's equitable powers to restrain the expropriations in question. 614 First of all it must be remembered that, although it was not one of the cases in which expropriation was so condemned, in Allen v. Gold Reefs the majority's general power to pass resolutions at their will was distinctively qualified by Lindley, M.R. and the other members of the Court of Appeal. The foundation for that qualification was, as it remains, the rules of equity and the acceptance of a principle that the power given to the majority "must, like all other powers, be exercised subject to [the] general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities". Allen v. Gold Reefs at 671. Whatever be the defects in Lindley, M.R.'s immediately following statement of principle relating to the benefit of the company as a whole, it was founded on the broad equitable rule which all courts applied thereafter. 615 Thereafter it would have been seen that, whenever questions of expropriation arose in the courts, the condemnation of resolutions effecting that was based on that equitable principle. In Brown Astbury, J. said that At 295-296. he found it "very difficult to follow how it can be just and equitable that a majority, on failing to purchase the shares of a minority by agreement, can take power to do so compulsorily". That was cited in the joint judgment in Gambotto At 440. as part of a passage which included his Lordship's description At 296. of the proposed alteration as being "merely for the benefit of the majority". Further, his Lordship distinguished the earlier decision of Borland's Trustee v. Steel Bros. [1901] 1 Ch.279. in part by saying At 296. that "no case of any oppression of the minority by the majority was set up". 616 Then in the next case relied upon by the joint judgment in Gambotto, namely Dafen, the equitable principle likewise was fundamental to the condemnation by Peterson, J. of the article there in question. So his Lordship characterised At 138. the resolution as authorising "the majority at their will and without any reason, other than the desire to get into their hands the whole of the shares of the company, to expropriate the shares of the minority". The passage cited Gambotto at 441, from Dafen at 141-142, part of which also appears in para.[606] above. in the joint judgment asserted that the expropriation had "no reason except the will of the majority" to force minority shareholders to transfer their shares to the majority. It is to be noted that, whatever view one may take of the merits of the decision, his Lordship was attempting to apply equitable principles as expounded in Allen v. Gold Reefs and Sidebottom. At 140. But what was significant about the decision for present purposes, since it is one much relied upon, was that his Lordship proceeded, in discussing the facts, to refer to what he described as a relevant power of expropriation and, in particular, to the form of an article which could not be so attacked. So his Lordship said: At 143. "If the articles are to be altered so as to confer a power of expropriation, the power ought in my view to apply to all the shares, unless perhaps it could be established that it is for the benefit of the company that certain shares should be exempt. Prima facie all the shares of the classes affected should be on the same footing; some should not be placed in a position of inferiority or superiority. The majority cannot alter the articles in such a way as to place one or more of the minority in a position of inferiority, as for instance, by attributing to his or their shares a smaller proportional share of the available profits than that which the others receive, nor can it in my view confer on one or more of its own members benefits or privileges in which the other shareholders of the same class do not participate." This is a passage which I believe has been largely overlooked, but it clearly points to the reason why alterations effecting "expropriation" might be condemned while others should not. It would seem that it is the giving of the majority preference or priority over the minority which is the consequence of an expropriation ordinarily to be condemned, because it is an inequitable or oppressive use of the majority's rights against the minority so as to give the majority a benefit which the minority cannot share. That is the very thing which cannot be said of the proposed scheme in the present case, whatever form it took. All members were thereafter to be treated equally and it was their choice whether they took new shares or a money equivalent, and none, including the majority, were to remain members of Association or Insurance. 617 Before turning to the later cases in which expropriation is dealt with specifically, it should be noted, because of the fact that it was seen as the principal precedent in this country relating to the amendment of articles, that in Peters there was no reference to any special rule relating to expropriation except inasmuch as Dixon, J. referred to both Brown and Dafen in the course of his extensive discussion of authority but in terms which indicated that he accepted the criticisms of them in Sidebottom and Shuttleworth. At 509-511. For example, his Honour referred to the fact that the view taken by Peterson, J. was "corrected by the Court of Appeal in Shuttleworth": at 510. Of course, that did not mean that the members of the High Court in Peters would have concluded that an amendment effecting an expropriation would necessarily be held good: far from it, they clearly accepted that any fraudulent or oppressive resolution might be held invalid, but that the general equitable principle should apply, rather than a principle confined solely to expropriation. Latham, C.J. did not refer to expropriation as such but there is no doubt that he recognised the equitable rule in his propositions and in his conclusion At 482. that, if the resolution be passed "fraudulently or oppressively or was so extravagant that no reasonable person could believe that it was for the benefit of the company", then it would be invalid. Dixon, J. likewise saw the equitable principle as providing an answer, while at the same time seeing that for many purposes it was not satisfactory either to pose a test based only on the benefit of the company as a whole. Thus, in the latter respect, he saw At 512. it difficult to resolve a challenge to an alteration which related to an article which affected "a shareholder whom it is desired to expropriate", saying that it was hard in those circumstances to balance the "conflict of interests and advantages", while at the same time attempting to apply the "company as a whole" test. Nevertheless, it is clear from his discussion At 511-513, see esp. at 511. of general principle and of equitable principle that the apparently regular exercise of a power might be seen as a means of securing personal or particular gain which did not "fairly arise out of the subjects dealt with by the power". So it was in the circumstances of that case that he was able to resolve it by saying, in words cited above In para.[605]. that the particular resolution contained no vitiating element because it involved "no oppression" and "no appropriation of an unjust or reprehensible nature", the qualification again sending one back to generally understood equitable principles affecting the conduct of the majority. 618 Moreover, as I have said earlier, nothing could be found in the leading English authority of Greenhalgh v. Arderne which would support a special rule in relation to expropriation. The English authority, however, primarily relied upon in the joint judgment in Gambotto At 441-442 and 445. was Bugle Press which has already been analysed in detail. See paras.[499]-[500]. It is significant that the joint judgment placed much weight At 441. on the "absolute right" of a shareholder to "deal with the right as he or she pleases", a proposition which was clearly not applicable in the case of a guarantee companies such as Association, where the membership rights were only transferable with the consent of the Board of Directors, and Insurance, where those rights were not transferable, at least under its articles. Secondly, it would seem that the Court of Appeal was primarily concerned with the improper use of the majority's rights to deal with the minority. Thus Lord Evershed, M.R. saw At 285. the vice of the proposed expropriation as being a "device" of the "majority of the shareholders always to get rid of a minority shareholder whom they did not happen to like" or, as he later put it, for the "purpose of enabling majority shareholders to expropriate or evict the minority". Likewise, Harman, L.J. referred At 288. to the rule which forbade "the majority of shareholders, unless the articles so provide, to expropriate a minority". There was very little analysis of principle or authority, more especially as the case related to a takeover scheme, but both their Lordships concentrated on the unfairness of the majority's actions against the minority which gave them an advantage or benefit to which they were not entitled. It was that aspect which was seen to be important in the joint judgment in Gambotto, for the relevant passages were cited as authority for the proposition that the power "could not be taken or exercised simply for the purpose of aggrandizing the majority". At 445. Though the case was cited as authority for this proposition, the expression was not used in Bugle Press. It was used by Dixon, J. in Peters, but it is a concept, which, as has been already emphasised, connotes the majority's obtaining a benefit at the expense of the minority. 619 There are only three more recent cases to which reference need be made. In Clemens Foster, J. held that an amending article which increased the majority shareholders' voting rights effectively deprived the minority of its power to prevent special resolutions from being passed, so that it was held to be in effect an oppressive expropriation of those rights. It seems, however, that the decision was founded upon the obvious oppression involved in the passing of the particular resolution. In Australia, reliance was placed on Bugle Press in Palazzo Corporation for the purpose of deciding to grant an interlocutory injunction to restrain an expropriatory resolution but there was but brief reference to that decision and to Gower's analysis. Its significance lies only in the fact that reliance was placed on those two sources in 1988. Finally, one should mention Wayde, Analysed at paras.[514]-[515] above., in which the High Court refused to invalidate an amending resolution which had the effect of taking membership away from a club which was a member of a guarantee company. Doubtless there were special considerations which made it unlikely that it would be referred to in Gambotto, certainly if the High Court viewed the foundation for the latter decision as equitable fraud or oppression. Nevertheless, it involved a company limited by guarantee and membership rights, as opposed to shareholding rights. For the purpose of the present case it might be thought to have a greater significance inasmuch as the Court there took a very broad view of what might be effectuated in that particular company's interests, notwithstanding that the unsuccessful plaintiff effectively lost all its membership rights by vote of the majority. Alternatively the court may have seen the resolution as coming outside their general rule because the relevant article existed from the outset. 620 As to the views of the textbook writers, there was similarly little indication, except in the three works to which reference has already been made and which will be shortly summarised below, that the relevant principle might extend to all "expropriations". In the first place, most standard textbooks accepted with little criticism Lord Lindley's principle first stated in Allen v. Gold Reefs. More importantly, those who did see expropriation as providing a basis for attack on a resolution to amend articles, rarely saw it as extending beyond those cases where the majority had unfairly taken for themselves the rights of the minority. This was, as I would understand their views, because they perceived the principle as deriving from equitable principle which would restrain fraud on the minority or other acts which could be characterised as oppressive. 621 So far as the standard English textbooks were concerned, there was no indication of any general principle which would condemn expropriation as such. Allen v. Gold Reefs was seen as qualifying, by application of equitable rule, the power of the majority, inasmuch as the principle was said 24th ed. para.14-20 and 25th ed. para.2.1121. in Palmer's Company Law to rest on "unfairly prejudicial treatment". Likewise Buckley had seen the general principle to be dependent on showing that a resolution would "discriminate between the majority shareholders and the minority shareholders, so as to give the former an advantage of which the latter were deprived". 14th ed. at 49. 622 The strongest and perhaps most influential proponent of the concept that expropriation should be treated as a clear example of an excess of power by the majority, has been Professor Gower, as described earlier. In paras.[534]-[541]. For the present it is sufficient to say that it would seem at all times that he viewed expropriation as an example of fraud on the minority, to be condemned because it was an inequitable use of power by the majority. But it was harm to the minority members of a company which gave rise to the principles which he espoused. So in the first edition it appeared that what he condemned primarily was the passing of a resolution giving the majority "an unfettered right to acquire the shares of the minority". At 507. In the 2nd to 5th editions the subject always appeared under headings such as "Minority Protection" and "Meaning of Fraud on the Minority". So in the third edition the relevant category is described At 580. The discussion in the 4th ed. was not greatly different. in the author's conclusion as a resolution attempting "to enable some members … to acquire compulsorily the shares … of others …". There was a significant change of emphasis in the 5th edition which was current at the relevant time for the purpose of these proceedings. Gower's greater caution in this edition concluded As summarised in paras.[539]-[540]. with the formulation of general principles dependent on showing that a resolution was "unfairly prejudicial to the whole or some part of the members or of the class". At 604. 623 Professor Pennington's work and in particular his conclusions seemed to be based on "the element of oppression accompanying an expropriation" 5th ed. at 81., so that he chose 5th ed. at 82. as the relevant factor as being the fact that an alteration "literally discriminates between members of the same class by giving a privilege to some, or imposing a detriment to others". As the obverse of that proposition, he required 5th ed. at 82. that a valid resolution should have the consequence that "in the long term any member must be equally likely to benefit from it or be burdened by it as any other member". 624 Finally, the only other textbook which at the time suggested that expropriatory resolutions were prima facie bad was Australian Corporation Law in the chapter by J.P. Hambrook on the memorandum and articles. The author's view in favour of holding expropriatory resolutions prima facie bad was because they ordinarily discriminate between members, in which case the author argued that the burden should be on the majority to establish the commercial necessity for excluding the minority. At para.2.4.0100. So he concluded that an alteration would be set aside if it "overtly discriminates between members in a way which is not affirmatively shown to be fair and reasonable". At para.2.4.0115. Importantly, the learned author distinguished that kind of alteration from the kind where the amended provision "applies equally to all members and is consistent with the commercial interests of the company". Where it is not discriminatory on its face he thought At para.2.4.0105. "it will usually be valid", unless it is shown to be unreasonable. One may easily infer, therefore, that Hambrook, as with the other writers, predicated their condemnation of expropriatory resolutions upon the premise that the majority were thereby unfairly dealing with or oppressing the minority shareholders to the extent that it could be characterised as inequitable. No wider or more general principle, such as is here espoused by the respondents, could have been read into the statements of principle supported by those authors. (5) Relationship of alteration of principle to proposed NRMA scheme 625 The significance of what has been discussed in the last section In paras.[611]-[624]. is that it was highly unlikely that competent counsel and solicitors could have forecast a change of principle so wide as to comprehend and affect the resolutions proposed by NRMA to effect its demutualisation scheme. Inasmuch as expropriation was seen as a course to be condemned, that was because it was perceived as inequitable or oppressive, thus justifying the intervention of courts of equity to restrain the majority. Of course, if that was all that the joint judgment in Gambotto insisted upon as the basis for its newly stated principle, then one could cavil only at the mode of its reformulation rather than the underlying principle supporting it. Significantly, the narrower one reads the ratio of the joint judgment, the less applicable it is (and could be forecast to be) to the NRMA's proposed scheme. The wider the principle should be read, however, and in particular if it be read as striking down "expropriations" which are not obviously inequitable or oppressive, the less easy it could have been to forecast as a real possibility that the High Court would devise a principle not dependent upon, or at least premised upon, equitable fraud, oppression or the like. 626 Those who most clearly maintained that expropriatory resolutions should be restrained, such as Peterson, J., Evershed, M.R. But only in Bugle Press. Harman, L.J. and Professor Gower, could have reached those conclusions, as I have endeavoured to show, primarily because as a general rule they saw such resolutions as inequitable, unfair or oppressive to the minority. If they be thought to have tilted at windmills, it was not because they saw all forms of expropriation In this sense of the compulsory taking away from the minority of any (or all) rights pertaining to shares or membership. as fundamentally wicked, regardless of the method adopted and the purposes to be achieved, but because they saw the expropriatory acts of a majority in obtaining benefits at the expense of the minority as amounting to equitable fraud and thus essentially oppressive, to be restrained by the application of equitable principles, unless there were exceptional circumstances. I have already suggested that the High Court, and in particular those responsible for the joint judgment, condemned expropriation for that very same reason. If they did not, as a number of lawyers asked to advise immediately after Gambotto and the trial judge seemed to believe, then a blanket rule forbidding expropriation, whether or not qualified in the limited way appearing in the joint judgment, was even less conceivable at the time the relevant advice was given, so that an omission to foresee such a broad prohibition could in no way be said to be negligent. In truth, that kind of all-condemning view could, at the time, be said to have no foundation whatever in principle. Only when elements of equitable fraud, unfairness, oppression or excess of power on the part of the majority are added to the stated or unstated premise for the proposition can one say that competent Queen's counsel or competent and experienced company solicitors should reasonably have had in contemplation a restatement to that effect of principles relating to the expropriation of membership rights. 627 It is therefore necessary to reconsider the nature of the proposed scheme to see whether, in its formulation at any relevant time, it could fairly be said to raise red warning flags such as would suggest that the scheme was at risk of attack by the "minority" members. For this purpose it is sufficient to mention only some of the salient points, as the constitutions of Association and Insurance and the proposals under consideration at the various times have already been outlined in sufficient detail, especially in the judgments of the other members of the Court. 628 The first significant matter to note is that the whole of the dispute is concerned with two companies limited by guarantee. At the relevant time neither company had a capital structure of a conventional kind, nor, more importantly, did either have shares or shareholders. No member of either company had a financial stake in it and the only commercial interest the 1.8 million members had in Association was that derived from the membership and annual fees required to maintain their rights as members and their liabilities under the guarantee clause of $2.10 per member. It was possible, with the consent of the Board, to transfer membership, though no evidence of that occurring was given. Moreover, the Board could, at its discretion remove any member from membership. On a winding up, pursuant to a clause of the memorandum which was originally inviolable, any surplus of assets was, in broad terms, to be paid to an organisation having similar objects. In the case of Insurance there were some 1.4 million members each liable to the extent of one dollar per member, on winding up, and, except for Association itself and a very small group of other persons who need not presently be described, the qualification for membership of Insurance was membership of Association and holding of a policy of insurance issued by Insurance. It likewise had a clause in its memorandum of association, originally incapable of amendment, which required that any surplus on liquidation should be paid either to Association or, if that company did not then exist, again in broad terms, to any body having similar objects. Neither company contained any power to distribute profits amongst members. 629 In truth, Association was an old-fashioned guarantee company using that mechanism to incorporate a large association but giving it the benefit of limited liability. Insurance was little different except that it had no life of its own as an association, it being formed primarily to provide a corporate vehicle for the issue of insurance policies to members of the Association and to others. As I would understand it, it was not a mutual insurance company. See Re NRMA Ltd. (2000) 33 ACSR 595 at paras.145-154 per Santow, J. 630 At the time when the various plans for demutualisation were formulated, the legal consequences of being a guarantee company were somewhat different from when Association and Insurance were formed. In particular, the memorandum was by then capable of being amended in the way then laid down by the Corporations Law, but otherwise essentially the two companies both remained incorporated associations. Much has been said about the value of the rights of each member inasmuch as they were said to be the subject of expropriation. Undoubtedly those rights were to be taken away, whatever form the scheme finally took, but they were to be taken away by reason of a reconstruction, albeit effected by the passing of amending resolutions and the formation of a new company. In substitution for the lost rights to vote and otherwise participate in the affairs of Association and Insurance, respectively, each of the members (if they so wished) was to be given shares including membership rights of a not dissimilar kind in the new company, NRMA, a holding company which itself was to hold all rights in what were to become its subsidiaries, Association and Insurance. Moreover, as the members lost their rights and also, it should be noted, their potential liability to pay on winding up, they were to receive shares in NRMA which, it was never disputed, would be then valuable and freely transferable on the stock exchange. If they did not choose to have those shares allotted to them, the members who did not wish to take advantage of their right to become members and shareholders of NRMA would receive in return a more than generous payment at a value equivalent to that of the new shares. Without some such scheme, however, each membership right as such was of minimal value, certainly of no real commercial value if one was to look beyond the current year. Each year the payment of subscription would, of course, give the customary non-corporate membership rights for that year and in the case of Insurance the annual premium would give the cover so acquired for that year. The latter rights are not truly relevant for present purposes since they were contractual rights which would disappear, not by virtue of any customary termination of membership in either company (such as by transfer), but by reason of a failure to pay the following year's subscription or premium. Of course, it was a particular characteristic of each company that the failure to pay such subscription or premium, as the case may be, would result automatically in termination of the membership of the relevant company. The rights in each company, therefore, were a far cry from those rights acquired by shareholders who invest in companies upon the basis that they acquire a valuable right of a permanent and transferable kind by virtue of that membership. 631 Moreover, one should be cautious about characterising as having value (of a relevant kind) certain aspects of membership of the two companies, especially Association, the value of which is not ordinarily to be calculated in money terms. It should not be forgotten that Association was, as its name and principal activities suggested, an association of about 1.8 million persons with interests sufficiently similar to justify coming together for one or more of the purposes of Association. Insurance likewise had many members, something in the order of 1.4 million, although their purposes may be described as somewhat more mercenary inasmuch as, by virtue of their membership of Association, they obtained certain benefits in taking out insurance policies with Insurance. Association, certainly, was a true society of persons who wished to obtain the indefinable benefits of joining a body whose interests were primarily to promote those of car owners and to provide them relevant services, such as emergency service, inspections and touring information, on a non-profit basis, albeit that by reason of their success considerable reserves had been built up over the years. Perhaps those benefits were not the same as those obtained from an ordinary club or scientific society but there were opportunities to meet together for purposes of joint concern and those with a liking for them could participate in the policy-making activities of the Association which had and has a considerable public profile. 632 What must be remembered, however, is that participation in those activities cannot be equated with the proprietary rights to which the High Court was referring in Gambotto. Nor, furthermore, should any feeling of unhappiness that the Association would not be administered as in the past be seen as equivalent to the expropriation of rights. One may have great sympathy for those who would regret the closing down, or substantial reorganisation on a commercial basis, of an association which had been generally concerned only with the good of motorists and in particular its members over a long period of time, but opposition to any such changes cannot be equated with the position of a minority in a conventional company limited by shares. In particular, bringing to an end members' opportunities to participate in Association's affairs would have been far different from the compulsory acquisition of shareholders' rights. I do not doubt that intellectual satisfaction and social pleasure would have been obtained from those activities but those were and are not intended to be protected by principles of company law derived from equitable fraud or wrongful exercise of power, which at least formerly underlay the rule in Allen v. Gold Reefs, as expounded in Peters. 633 Nevertheless, notwithstanding the doubts I have as to the real value of the relevant membership rights, I shall assume that they have sufficient value to form the basis for intervention by the courts. Not dissimilar rights were seen to be capable of being protected in specific ways in Gaiman and Re Ingleburn Horse and Pony Club Ltd. [1973] 1 NSWLR 641. Some of those called on to give opinions in the wake of Gambotto appear to have placed considerable weight on this fact. But is it the whole answer? I doubt it, for surely a court of equity will intervene to prevent the exercise of an admitted right only where that exercise can be characterised as fraudulent (in the widest sense) or oppressive, or in excess of power. In cases alleging statutory oppression, such as Ingleburn, the courts have a broader function dependant on proof of sufficient unfairness to justify the making of an order. The equitable rule was always more precise and more narrowly focussed. Fundamentally it requires proof that a majority is inequitably taking advantage of its rights to gain some benefit at the expense of a minority. If some of those who gave advice after Gambotto saw that the new principle was based solely on the taking away of some rights from the minority, then, with due respect to those carefully stated views, I believe that they were under a misconception as to what the High Court intended. They have perhaps been swept up in the wholesale revision of Lord Lindley's rule and have fixed upon the use of the word "expropriation", so it has become in their mind a new touchstone against which to set particular circumstances about which complaint is made, rather than as seeing it as a primary exemplification in company law of what remains as a principle condemning equitable fraud or excess of power. Thus, in my opinion the question in each case is whether the majority have inequitably sought to amend the articles so as to effect the compulsory acquisition of membership rights of the minority or, at the least, to gain some benefit for themselves at the expense of the minority. 634 Those who would expand the word "expropriation" to cover any involuntary taking away of rights of the minority, such as was here proposed, would, to my way of thinking, ignore the need to establish fraud or other equitable wrongdoing, of a kind sufficient to justify the intervention of equity. For this purpose there must ordinarily be shown benefit to the wrongdoer of a kind that would require that wrongdoer to account in equity or at least to be restrained by a court of equity. More often than not expropriation will consist of the very acts which would justify the intervention of equity, but the mere deprivation of rights will not justify that intervention unless the parties responsible are shown to have had the object of wrongfully benefiting themselves. As was said in the joint judgment in Gambotto, when introducing the discussion of the new tests, "the power to alter the articles should not be exercised simply for the purpose of securing some personal gain which does not arise out of the contemplated objects of the power". At 444. (Emphasis added.) 635 If I am wrong in reaching this conclusion, then for present purposes it is of no consequence for the question is whether it was reasonably foreseeable that such a change of principle would be made, to the extent of requiring a warning to be given to the respondents. The answer here must certainly be in the negative, for the purpose of the rule, as reasonably understood up to the time of Gambotto, was to restrain a majority acting inequitably for its own benefit, as I have tried to demonstrate. That is why it is important to keep in mind the nature of the scheme here proposed. Each member of each company was, in this respect, to be treated equally in the sense that they were each to have the option of having shares allotted to them or of receiving the value in place of shares. In so far as there were to be differences as to new holdings of shares, it was to have nothing to do with the fact that those receiving more shares did so because they formed the majority or part of it; in any event, that was the very issue upon which Mr Heydon reserved his opinion at the outset (and for which he was never pressed to give an answer) and there has never been any challenge made based on the fact that greater benefits were to be received by those members of longer standing. By offering shares to all members, who at the same time would lose existing rights, there could here have been no obtaining by the majority of benefits at the expense of the minority. The majority, of course, would obtain the benefit of valuable new shares, or cash in lieu, but that was exactly the same as all minority members were to have received. 636 Some of those who were asked to comment on Gambotto pointed to the fact that the minority, along with others, would lose rights which they perceived as being valuable and that that was sufficient to constitute an expropriation. I would not deny that, merely because all other members lost their rights, then the relevant principle might not apply. I would concede that the taking of all shares, including those of the minority may amount to expropriation for the purposes of the principle, but it will only be condemned if the direct or indirect purpose is the aggrandisement of the majority. If the majority gained no more from the scheme, other than satisfaction from determining a company's future in a particular way, then the principle would not have prohibited the proposed transaction. 637 Consequently, although it may be conceded that all members of each company were to lose membership rights of some value, which may have been described by some as amounting to "expropriation" according to certain dictionary meanings, the majority were not to receive any benefits or advantages over and above those to be received by each member of each company of similar standing, whether the member formed part of the majority or the minority or simply did not vote. As the majority was to gain nothing additional from the proposal other than satisfaction from a changed corporate structure, it could not and should not be treated as infringing the principle laid down in Gambotto. If the proposal were to be so characterised, then a change in principle to that extent was equally certainly not one which any reasonable legal practitioner could have foreseen at the relevant time. 638 At this stage one may note the curious problem in the present case of defining who constituted the majority and who the minority. It is easy to provide the instant reply that the majority must be constituted by those who would have voted in favour of the resolution and the minority by those who would have voted against, but ordinarily that is not the way in which the two groups come into conflict in disputes such as the present. It is possible to conceive of circumstances in which the majority are known only for the first time after the passing of the relevant resolution, but ordinarily the class whose benefits are to be created or preserved will be known before they vote in favour. There was no group, as in the case of a conventional company limited by shares, who were known, or could have been known, to have majority control by virtue of their voting power; nor was there any group in either company which was known to be likely to benefit in a particular way by reason of the passing of the resolutions, except to the extent that the majority may have gained satisfaction from the new structure of the NRMA Group. There could have been no independent group whose vote might have been looked to as providing some form of touchstone as to the desirability of the resolution, as those members who voted but did not form part of a majority whose object was to gain some benefit would, ex hypothesi, form part of the minority. If the majority refrained from voting, as the joint judgment in Gambotto suggested may well be a proper view At 446., there could have been no resolution passed and the minority, so called, would have prevailed. Furthermore it cannot be said that a majority may have been created because those who would have voted in favour of the resolution were more likely to accept the shares than those who voted against. The proposal was to give all members the right to accept an allotment of shares in NRMA, or to receive cash in lieu, nor was there any commercial or practical reason which would have made it harder for the minority to take up the offer in the scheme. 639 Consequently, if they were properly to be so characterised, the majority in each company could only have been those who voted in favour and the minority those who would have voted against, possibly also including those who refrained from voting. Of course, for the purpose of passing each special resolution, there had to be a statutory majority, but was the division here into those voting for and against the kind of majority and minority to which the principle in Gambotto is directed? To the extent that Lord Lindley's general equitable rule in Allen v. Gold Reefs was in issue then of course it was, but the relevant rules were refined and re-stated primarily to deal with cases of alleged expropriation. In so doing, as noted above, the joint judgment created both two classes of case and two sub-classes of one of those classes. Cases of expropriation were expressly dealt with as forming one such sub-class, but it is important to note the original class which led to the partial disapproval of the test in Allen v. Gold Reefs. Their Honours rejected the latter test as inappropriate only "in the context of a special resolution altering the articles and giving rise to a conflict of interests and advantages". At 444. The language there used might suggest that a relevant "conflict of interests and advantages" could be created or caused by a particular special resolution, but a careful consideration of the whole of the reasoning will show that that is not so. 640 The expression was taken from the judgment of Dixon, J. in Peters At 512., as was explicitly noted in Gambotto. At 443. As was there described in the joint judgment, an amendment, to which Lord Lindley's principle was "inappropriate", was one which "proposed to adjust the rights of conflicting interests", being existing rights or interests, not rights or interests created by the passing of the amending resolution. The passage referred to in Dixon, J.'s judgment has been set out above. In para.[506]. The passage is cited from Peters at 512. There his Honour referred to alterations affecting individuals and those "affecting the mutual rights and liabilities inter se of shareholders or different classes or descriptions of shareholders"; in each case, as he said, "the very subject matter involves a conflict of interests and advantages". It was in those circumstances that he considered that Lord Lindley's rule appeared "inappropriate, if not meaningless" and it was to this issue that the High Court returned in Gambotto. 641 In that case, of course, there was a conventional majority and a minority whose interests were to be bought out as such, so that a relevant conflict of interests and advantages clearly was raised. But in the present case the proposed scheme was not designed to resolve a conflict of that kind, for there were no such groups and no potential groups, except of an irrelevant kind. The majority would not have been seeking to support or benefit a group of members of a specified class or description, nor did the resolution adversely affect a group of members of a specific class or description. The proposal was general in operation affecting all members in a like manner. The only "conflict" created was that which would have resulted from the fact that some voted in favour and some against, but in my opinion that was not the problem which Dixon, J. perceived or which the joint judgment in Gambotto sought to solve. Indeed, upon reflection, the proposed scheme raised circumstances in which the "company as a whole" test could best be applied, for the issue in question was what was the best way in which each company could continue to run its affairs and whether the proposed scheme was for the benefit of each company as a whole. No member would have come to the meeting, or to the courts, seeking to maintain any special interest or right, different from that of any other member, at least not in the present context or in the way in which the present dispute has evolved. Here the members could have voted having regard only to what they perceived to be the long term interests of each company, unencumbered by any financial interest peculiar to them or any class of them. If there were to be differences, as clearly there would have been, they would have been based on general considerations, not on considerations based on identifiable rights or interests. However rare it may be, the Allen v. Gold Reefs principle here would have posed a relevant test. If the members were to fall into separate classes because of their attitude to the resolution that would have been merely because of differing attitudes as to what was best for each company or as to how they wished each company to be run. That, in my opinion, was not what the judgment in Gambotto was intended to resolve, as the reasoning in the joint judgment made clear. 642 I would concede that sometimes "rights", "interests" or "advantages" of the relevant kind are more clearly defined and sometimes less so, but at the end of the day it is usually easy to see whether a conflict of interests will result from a resolution, for the relevant principles will apply if one group is favoured by the outcome or another group is discriminated against. In the latter case the relevant inequity can be invoked if the resolution takes away or denies rights to some only of the members, for the balance of the membership, being or including the majority, will by definition benefit. Where the relevant harm or loss of rights will be suffered by all members equally, a relevant inequity will arise, capable of being restrained, if, but only if, benefit flows correspondingly to some only of the other members, ordinarily the majority. 643 The matters just raised both as to the existence or otherwise of conflicting rights and interests and as to whether it is relevant that all members lose and gain in equal measure have been seen by some since Gambotto as not being of any continuing relevance. In particular, I refer to the opinions of Mr S.E.K. Hulme, Q.C. given on 3 April 1995 to NRMA and written in his customary lucid style. He said that "equality of treatment seems … to miss the wood for the trees", because the proposed scheme did not amount to a "discrimination case". He was of opinion that it was sufficient under the circumstances of the proposed scheme to show that all shareholders had their membership rights taken away by compulsory acquisition. So he said that the majority of which a member complains is not confined to a majority which acquires the relevant rights "but [is] the majority which altered the rules so as to expose him to the acquisition". He would therefore conclude that expropriation in itself is sufficient to invoke the stringent principle in Gambotto whatever be the surrounding circumstances, even though all are treated in an identical manner. 644 With respect, that appears to ignore the way in which the joint judgment approached the issue of expropriation in Gambotto which, it must be recalled, arose where clearly a conventional majority sought to gain at the expense of a few shareholders who were to be deprived entirely of their membership, albeit for some consideration. The logic of the joint judgment, as I would understand it, depends upon the basic equitable rule and the assumptions which underlie it. That rule may now be changed, and in particular the onus of proof altered in certain circumstances, but there is nothing in the judgment which would suggest that the starting point, at least, was the partly flawed attempt by the Court of Appeal in Allen v. Gold Reefs to qualify members' rights to vote as they wish at general meetings. That those rights are partly intended to be preserved can be seen in a number of passages in the judgment. In the first place, the joint judgment acknowledged that, if a power of expropriation is included in the company's constitution, that is "one thing", At 445. for their Honours would recognise the right of the majority to exercise that power: see their earlier reference At 442. to the subject and to Phillips v. Manufacturers Securities. Secondly, the judgment recognised At 444., as have courts in the past, that "the proprietary rights attaching to shares are subject to modification, even destruction, by a special resolution altering the articles and that the power to vote is exercisable by a shareholder to his or her own advantage". They then proceeded to attempt to devise a workable criterion which, in the first place, involved dividing off those cases which did not give rise to a conflict of interests and advantages. Thirdly, not only did they put aside that class of case but they also posed At 444. a separate test in cases "not involving an actual or effective expropriation of shares or a valuable proprietary right attaching to shares". In that particular sub-class of case there seems to be no onus resting on the majority, as in the case of expropriation, for alterations "regularly passed will be valid" unless the minority can establish want of power, excess of purpose, equitable fraud or oppression. 645 In each case, therefore, except that of expropriation, the right of the majority given under the relevant companies legislation and the constitution of the company may be exercised unless want of power, fraud in the equitable sense or the like can be established. That is the relevant "discrimination" which must always be invoked so as to defeat the members' rights to vote at general meetings as they choose and it is only now that in the case of expropriation the onus is placed on the majority. It is placed on the majority, however, as I have endeavoured to explain, because their Honours in the joint judgment perceived that to be prima facie inequitable or oppressive, thus requiring justification. They did not, however, hold expropriation to be bad in itself; indeed, they allowed the possibility that it might, in very limited circumstances, be justified. The essence of the rule, therefore, is still the old equitable principle that the exercise of a legal right may be restrained by a court of equity in certain circumstances, those circumstances ordinarily importing excess of power, equitable fraud, oppression or other unjust or reprehensible behaviour. 646 If I be wrong in the conclusions which I have just stated, then that would again point to the inability of any competent legal adviser reasonably to foresee at the relevant time that such a drastic change to the exercise of the powers of members to vote in general meetings would result from any appeal in Gambotto. It is one thing to suggest a special rule or branch of a rule relating to expropriation; it is quite another to suggest that fraud or oppression as the basis for equity's intervention to restrain the exercise of such voting powers should disappear. It would be another reason for saying that the appellants could not fairly have anticipated and so warned about changes in principle of that kind. However one approaches the matter, the appellants could not reasonably have forecast a change in principle which would have struck down the proposed demutualisation scheme, so long as the burdens to be suffered, and the benefits to be gained, remained equal. D. Conclusions on " Gambotto " liability (1) Whether the appellants failed to discharge their duty of care to the respondents 647 Before turning to the final issue whether the learned trial judge erred in his conclusions that the appellants failed to exercise due care in advising the respondents, it is necessary to consider again the extent of that duty. Some preliminary observations have already been made about the nature of the duty to advise imposed on lawyers of the standing of the appellants in this case. In paras.[460]-[461]. Likewise I have already analysed in some detail the extent to which each of the appellants should have been aware when they gave their opinions or advice of the forthcoming appeal in Gambotto and the issues likely to be raised by it. In paras.[558]-[566]. Each of the appellants' ability reasonably to anticipate the principles the High Court would lay down ultimately in Gambotto, as to the rule in Allen v. Gold Reefs and as to the extent to which it was likely that that court would hold all expropriations of "minority" interests invalid, has likewise already been discussed. My conclusions appear in paras.[601]-[603]. More specifically, the extent to which the appellants might reasonably have foreseen a new test laid down by the High Court as to the validity of amendments to articles of this kind, where all membership rights are extinguished equally and there is no direct or indirect benefit to a class of member who should be characterised as the "majority", have also been discussed. See paras.[611]-[624]. Finally, an attempt has been made In paras.[625]-[646]. to look at the relationship between any principle fairly to be anticipated and the scheme in fact proposed by the respondents. 648 It will be abundantly clear from what I have there said that I do not consider that any of the appellants failed in their duty to the respondents when advising them in late 1993 and early 1994 as to the manner in which they might carry out the proposed reorganisation of Association and Insurance. It is therefore necessary to add relatively little on this issue. 649 So far as the obligation resting on counsel and firms of solicitors who in each case profess experience in the field, I am content to adopt what has been said in their judgments by Malcolm, A.J.A. and McPherson, A.J.A., subject only to what appears below. It is only the content of the duty which is here in issue. The exercise of due care, skill and diligence does not require, even the case of practitioners of the expertise and experience of the appellants, that they should invariably give the right advice as to every question raised for their opinion, as indeed the learned trial judge recognised in his conclusions in relation to the "free shares" claim. The factor, however, which was fundamental to the trial judge's findings and which candidly counsel for the respondents fixed upon to justify those findings, was the alleged obligation to advise "upon the possible risk to the proposal from the appeal to the High Court in Gambotto's case, if the exercise of due care, skill and diligence so required". As it was argued by counsel for the respondents on this appeal, "if it was open to conclude that the High Court could decide the case in a way which would be … inimical to the procedure being adopted by the NRMA which [the appellants] were recommending, then there is negligence … if they failed to advert to that risk". That was the essence of their argument. 650 Counsel was prepared to accept that the relevant risk must be a real risk but nevertheless persisted in saying that even a small risk might attract the obligation, if it could have led to disastrous consequences. For this purpose it seems that counsel called in aid the High Court decision in Rogers v. Whitaker (1992) 175 CLR 479.. Let me say at once that one should be cautious about adapting to another sphere of professional negligence the test laid down in that case relating to a doctor's obligation to warn of risks of a medical procedure. Both the circumstances and the nature of the advice are very different from a case where a commercial organisation, albeit having some of the characteristics of a voluntary association, seeks advice as to the manner in which it wishes to pursue a specified objective. 651 It is not necessary to express a final view as to the precise correlation between the two tests. It is sufficient to say that in the course of giving legal advice as to particular proposals put forward by clients, a barrister or solicitor will have to exercise some judgment as to the manner in which he or she deals with every aspect which could possibly arise for consideration. Those in the position of the respondents, with their own legal staff behind them, would be well aware that most legal advice requires judgment not merely as to the relevant principles, which may or may not have attained a degree of certainty for practical purposes, but also as to the factual basis to which to apply those principles, a task which again requires, frequently, a capacity to interpret a collection of circumstances of varying certainty. If lawyers always stopped to wait and divert themselves and their clients into the whys and wherefores of particular principles of law or of the ways in which particular statutory provisions have been interpreted, and then had to qualify their understanding of the facts by speculating upon a series of inferences which might be drawn by others, then very little advice of any use would be given to clients. One may regret the complexity of the modern law: one may yearn for its apparent former simplicity: but in the end advice must be given based upon a fair appreciation of principle and statute and a reasonable understanding of the facts put in front of the legal adviser. 652 The present diffuse and far too long examination of the principles relevant to this issue alone shows how a lawyer could spend many hours examining the basis for particular principles and the possibilities that they may be varied or overturned on appeal on some occasion in the future. It is beyond reason, however, to expect that counsel or solicitors will go through that exercise in relation to every point raised for opinion. The present case is a good example, for this enormous piece of litigation has concentrated essentially on two issues, one of which is whether the proposed scheme amounted to an expropriation of shares of a kind which the courts would restrain. So far as counsel was concerned, when asked to advise, that issue could have been perceived, only very darkly, as a possible aspect of advice sought on the practical means of achieving a particular result, in relation to which at least a dozen other points had been raised for opinion, all, so it was originally hoped, to be answered in the five days before the Christmas vacation. So far as the appellant solicitors were concerned this aspect of the scheme was merely one of thousands which had to be resolved in advising NRMA, devising the scheme and preparing the necessary documentation which would put it into effect. There is a point beyond which lawyers cannot be expected to go unless they are specifically asked to examine the possibilities of change as such, and the present case falls far short of one where potential risks as to changes of principle should fairly have been seen to be critical to the advice sought. Otherwise, as I have suggested, the wheels of commerce and other daily transactions would grind to a halt by lawyers' earning fat fees working through all the permutations and combinations of potential risks to their clients in seeking to carry out any proposed transaction or scheme. 653 As I stated at the outset of this judgment, the duty of the lawyer, whether Queen's Counsel or senior firm of solicitors, is to advise their clients on the basis of principle, in which I would include for present purposes a proper understanding of statute law and its accepted interpretation. Occasionally, principle is uncertain or the meaning of a statutory provision equivocal, so that lawyers must endeavour to give their advice as best they can by seeking to resolve those differences, not merely if they are asked, but if they fairly see it to be necessary to give the required advice. But for that purpose they must, in my opinion, act primarily on accepted principle, not upon speculation as to what might become principle this year, next year or the year after. Sometimes principle does not give a conclusive answer because at the highest level there are statements contained in conflicting dicta and issues deliberately left unresolved for future argument. For example, over the last ten years there has been uncertainty as to the actionability of torts in the different States of the Commonwealth which was resolved only this year in John Pfeiffer Pty. Ltd. v. Rogerson [2000] HCA 36; 74 ALJR 1109.. Even more occasionally appellate courts of last resort make generally known their desire to resolve or even reconsider some question of principle, in a way which is generally known throughout the profession, for example, when the High Court considered the validity of the cross-vesting legislation, ultimately resolved in re Wakim; ex parte McNally (1999) 198 CLR 511.. 654 Of course the respondents have contended that Lord Lindley's principle as stated in Allen v. Gold Reefs was known to be subject to reconsideration in the Gambotto appeal, but was that truly notorious (at the time) and was the Court going to reconsider more than the principle as it related to the expropriation of shares? I have already pointed out how difficult it was, and would have been, to ascertain precisely what was in issue and how even more difficult it was to forecast any specific conclusion, as to which the appellants should have perceived a real risk of a kind requiring warning to the respondents. It has been noted how little publicity the case received when leave was granted and how it was not even shown that this was well known to those practising company law in Sydney. But a "rule" requiring enquiries as to special leave applications, or the application of the rule in question, could not be confined to a case about which some practitioners may have had knowledge for, if correct, it must apply generally to cases in which the High Court has granted special leave to appeal. Some practitioners may follow the lists of grants of special leave, some may try to find out a little more, and some may even go to the trouble of looking at transcripts, especially as they are now available on the Internet. But even so, as I have observed, the comments of judges in the course of argument are notoriously unreliable pointers to particular outcomes. With the best will in the world, and even the keenest nose for these matters, any forecast can merely be speculative. Can further enquiries as to future decisions be fairly required, other than in the most exceptional of circumstances? The answer must be, No. 655 There are, no doubt, other circumstances and other cases where warnings as to risk may be appropriate but the present was not one where it could realistically have been required. (2) Whether the learned judge was correct in holding the appellants liable 656 Just as counsel for the respondents did not rely upon any error as such in the appellants' advice, so the learned judge held the appellants liable only because they failed, in advising the respondents, to advert to the risk of the High Court's holding all (or almost all) expropriations to be invalid. For the reasons I have endeavoured to explain that conclusion was, with respect, erroneous. The basis for knowing the risk was tenuous, the likelihood of its coming to pass in a relevant way obscure and its application to the proposed scheme likewise fraught with uncertainty. That conclusion is sufficient to show that the judgment against each of the appellants should be set aside. 657 The connection between the potential outcome in the Gambotto appeal and the issue which had to be answered by the appellants depended in any event on a series of assumptions which the learned judge was prepared to make for this purpose. In considering the liability of Mr Heydon in relation to the specific advice he had to give as to whether the proposal should proceed by way of scheme of arrangement or by way of resolutions amending the articles of association, it was said by the judge At para.[1198]. that the proposal would have been subject to the risk that those resolutions "would be necessarily oppressive", to the extent that advice as to that risk should have been given. It is unnecessary to repeat what has been said already as to the element of oppression (or, preferably, inequity) which was said to have been the consequence of the passing of the proposed resolutions. Some perhaps may see any form of expropriation, that is any form of taking away or denying of membership rights, as oppressive or inequitable, but that assumes that resolutions having the identical effect on all existing members (of each company) should be so characterised. One may accept that the taking away of rights equally may form part of an oppressive or inequitable scheme if the end result is to give a benefit to the majority or some only of the members, for then they would gain a benefit which might be described as inequitable or oppressive, but, as stated earlier, the benefits were here equally available. It was a matter of simple choice whether or not they would be accepted and, even if not accepted, benefits of effectively equal value would be provided in their place. Moreover, no group of members was advantaged by that offer, on the exercise of their choice. I may be wrong in my understanding of what the High Court intended in Gambotto, but was it sufficiently clear in late 1993 and early 1994 that there was a real likelihood that a rule of such generality would be devised by the High Court? For reasons given above, no such outcome could reasonably have been anticipated. 658 As to Gambotto, much was said by the learned trial judge in his judgment as to the appellants' knowledge of the Gambotto litigation, especially of Mr Heydon's awareness of the appeal "even if only in a loose sense", so that he should have been aware of the appeal "consistently with the exercise of due care, skill and diligence". See the judgment at para.[1204]. His Honour said that the Court of Appeal decision in Gambotto was relevant as to "what could constitute oppression" and that it had been cited prominently in the brief as being "the most recent case in the area". But that was to misunderstand the nature of the reference to it. Much of the brief for opinion was taken up with questions of oppression but not of the kind here under discussion. It should be remembered that at that stage the proposal was in the earlier stages of planning and that, although a holding company would be set up in which the members of both Association and Insurance would be allotted shares, there was a good deal of uncertainty as to the manner in which the shares would be allocated. There was also uncertainty as to whether particular existing members, who might not be entitled to any shares or a lesser number of shares, could complain that they were being dealt with unfairly, so as to entitle them to bring an oppression action. So in Part 11 of AAH's brief to advise delivered to Mr Heydon examples of those who might be oppressed and constitute a relevant minority were given as: "(a) A member of Insurance objecting to Association members participating in the net worth of insurance; (b) A member of Association or Insurance objecting to the broadening of the class of members who participate in the scheme; and (c) A person objecting to disenfranchisement as a result of the timing of the record date." The latter paragraph was not referring to general loss of membership rights but rather to a want of entitlement to shares for those who joined after a specified date, being the date when the scheme was to be announced. As referred to in Part 8 of the Brief. It was at this point in the brief that there had been detailed discussion both of the oppression section, s.260, and of the equitable rule laid down by Lord Lindley, which, it was pointed out, had been criticised both in Peters and in the Court of Appeal in Gambotto . 659 Nevertheless, those cases were raised for consideration because of what was seen to be a risk that particular groups of members might be "disenfranchised" or that there might be a "windfall" to members of Insurance if they were given some special priority. But the question was never raised as to whether the relevant equitable rule would apply if all members equally lost their membership rights but equally gained new shareholding rights, as was proposed. It is not surprising therefore that Mr Heydon, with the concurrence of the solicitors, saw the question of oppression and the like as something which ought to be deferred because the particular rights to be offered under the scheme had not then been fully worked out and it would only be when they were that anyone could satisfactorily address that issue. Having regard to how it was raised in the brief, it is not difficult to see why Gambotto would have been seen to be peripheral to the general issue upon which Mr Heydon was asked to advise urgently. 660 The learned judge thought, moreover, that it was "incumbent" on Mr Heydon (and, by implication, the other appellants) to take note of the special leave application and follow it up. If he had, so it was said At para.[1206]., counsel would have discovered the grant of leave and "seen the prospect that the appeal would be allowed". But, with respect, so what? I have already described the many alternative lines of argument which could have been adopted in the High Court. Even if counsel should have seen that it was more likely than not that the appeal would succeed, it did not follow, even if that was likely to involve some condemnation of "expropriation", that any new principle would have a bearing on the issues he was considering. The judge said At para.[1204]. that Gambotto (in this Court) was "the most recent case in the area", but what was the area and what import might it have? His Honour said At para.[1204]. it discussed "what could constitute oppression" but, however useful that might be for resolving the deferred, more specific issues raised in counsel's brief, it would have been seen to be of marginal relevance in deciding how the NRMA proposal could be put into effect, more especially because all members effectively gained and lost in equal degree, subject only to the then unresolved question as to how the new shares might be allocated generally among the members. Although the "majority" might bask in self-satisfaction that their demutualisation scheme was in place, it was not intended that they should gain anything at the expense of the "minority", i.e. those who voted against or who refrained from voting. 661 It was said At para.[1208]. by the learned judge that the clear issue before the High Court in Gambotto would be whether expropriation was sufficient to constitute oppression, but "the outcome did not turn on oppression because of unfairness, because the acquisition of the shares was on fair terms". But that was, with respect, to misunderstand the nature of that dispute. Of course the acquisition in that case was said to be unfair, not, as was accepted by all judges other than McHugh, J., that the price was unreasonably low, but simply because the majority was to obtain the benefit of the anticipated financial and accounting advantages, as well as the shares acquired from the minority who were to be deprived of the benefits of the new corporate structure. If for the moment one could ignore the price offered and the nature of the majority shareholders' rights to vote, then, perhaps, it is not so difficult to see why the Gambotto transaction might have been characterised as oppressive, as some of the observations of members of the High Court in argument, quoted by the learned judge At para.[1211]., might seem to suggest. But one could not, as the judge maintained, At para.[1219]. separate the issue of oppression from unfairness, for ultimately the High Court picked on the deprivation of proprietary rights and the "aggrandisement" of the majority as being the critical reasons for their conclusion. For this purpose "oppression" means essentially unfairness. To my way of thinking there was no such unfairness in the plans outlined to counsel by the solicitors; indeed, it might seem the very opposite, for much of the advice sought was directed to how unfairness in a number of aspects might be avoided. I have already expressed my conclusion that it is very hard to infer unfairness, oppression, inequity or the like where all shareholders or members are treated in the same way, both in the taking away of existing rights and the giving of new rights in substitution, unless indirectly a majority gains a benefit of a recognised but inequitable kind from the whole transaction. No such view could have been taken of the proposed NRMA plans. 662 It would follow, with respect, that there was a fundamental weakness in the judge's conclusions as to the need to seek out information about the special leave application and the argument in Gambotto so as to found a warning against the proposed plan that there was some risk to its viability if the High Court were to uphold the appeal. On proper analysis the ultimate decision was irrelevant to the matters upon which both Mr Heydon and the solicitors were asked to advise. At the very least, it could not at that time have been relevant to the kind of plan under consideration, nor could it reasonably have been seen to be relevant. 663 I would nevertheless reiterate that it may be one thing to ask counsel, or other legal advisers, to advise upon the possibility and future consequences of the outcome of specific litigation in the High Court; it is quite another to suggest that whenever some proposition of law is at risk at being overturned or modified in the future by the High Court, counsel should investigate whether any such litigation is in the pipeline, what has been said by judges in the course of argument and what is the possible outcome of that litigation which might bear on some issue then under consideration. Life is too short; there is too much material available of tenuous relevance to every problem to justify enquiries of the kind here suggested. Over the last decade the problems of research had been exacerbated by the use of the CDRom and the Internet and one doubts that they have been significantly alleviated. Thousands of unimportant cases become deposited on hundreds of CDRoms and sites, which are of marginal relevance and even less real use to practitioners. On top of that, counsel and all legal practitioners must keep up to date with some five to six volumes of Commonwealth statutes and three to five volumes of State statutes published each year. There is a limit to what fairly may be expected. For the present it should be drawn well short of any obligation to investigate special leave transcripts and transcripts of arguments which would ordinarily only reveal the Socratic questioning of High Court judges. 664 In the present case the learned judge said that he had eschewed hindsight but he forgot, if I may suggest with respect, that the contents of the two High Court transcripts Referred to at paras.[1210] and [1211] of his judgment. would only become known if counsel (and the other appellants) had had the time and prescience to read them. It would only be by chance that he would come to know of the contents in advance and it surely cannot be the duty of practitioners to read such transcripts on the off-chance that comments arguendo might sufficiently reveal the likely outcome. 665 In my opinion, therefore, the learned judge was in error in concluding At para.[1218]. that Mr Heydon "should have adverted to the grant of special leave … and should have warned that if the appeal were upheld it might be upheld on grounds inimical to the validity of resolutions" depriving NRMA members of their membership rights. Likewise, I consider his Honour to be in error in saying In para.[1219]. that Mr Heydon should have returned to the subject in the course of conferences and the like in February and March 1994 because he should then have gained an "appreciation that the issue was not oppression because of unfairness but oppression because of the expropriatory nature of the process". In my opinion it ought not to have been seen otherwise than that there was a mere possibility that, as the High Court ultimately held, expropriations should be condemned and restrained inasmuch as they involved the inequitable aggrandisement of the majority, the very archetype of unfairness. The distinction the judge draws is in my view untenable; certainly it could not be seen to have been tenable at the relevant time. I have great sympathy for the learned trial judge who had to struggle with a huge array of factual and legal questions, but who has now been held to have erred on a limited number of critical issues. 666 Essentially the learned judge's reasons for holding Mr Heydon to be liable were relied upon by him for holding AAH and AT liable. The solicitors' responsibility may be seen to be more general and continuous up to the time when the scheme was approved in April 1994. There seems, especially on the part of Mr Bateman, to have been a great concern with Gambotto but, as with Mr Morgan, their concerns were not directed to the present issue but to the possibility of unfairness between groups within the two companies. The reasons for rejecting the claim against Mr Heydon and as to why I do not consider any warning as to the outcome of the appeal in Gambotto was required have already been stated. 667 For the reasons appearing above, Insofar as I have failed to deal with certain of the matters raised in argument, I would adopt the reasoning of the other members of the Court, to the extent that it is not inconsistent with this judgment. I consider the learned judge erred in holding each of the appellants liable in negligence and breach of contract to the respondents in relation to their claims based on the possible application of the High Court's decision in Gambotto. The appeal should therefore be allowed and the judgments based on these claims should be set aside. PART II: THE "FREE SHARES" ISSUE 668 A series of claims were made at the trial, but which were rejected by the learned trial judge, whereby the respondents alleged that the appellants and each of them were liable to the respondents in varying ways because the respondents were advised to or allowed to describe as "free shares" in the prospectus the shares to be allotted in Holdings to the members of Association and Insurance under the demutualisation scheme. It was said that those words were misleading or deceptive for the purposes of the Trade Practices Act 1974, the Fair Trading Act 1987 and the Corporations Law and that they should have been advised, or at least warned, accordingly. The failure to warn the respondents of the risk that the expression might be considered misleading or deceptive was itself said to be an act of negligence on the part of the three appellants, albeit in somewhat different ways, varying according to the particular role each played in advising the respondents. It was also said that the appellants' own behaviour contravened those statutes in different ways although, for the purposes of the cross-appeal, no claim is made now under the Trade Practices Act. However, the respondents maintain that the learned judge erred in dismissing their claims based on what has generally been described as the "free shares" issue. For present purposes the facts and circumstances leading to these claims are more than adequately set out in the judgment of the learned trial judge and are sufficiently summarised in the judgment of McPherson, A.J.A. 669 In general terms and subject to what appears below, I agree with the reasons of McPherson, A.J.A. for concluding that none of the grounds asserted by the respondents have been made out and that the cross-appeal should be dismissed. I also agree with the reasoning on these issues of Malcolm, A.J.A. to the extent that it is not inconsistent with that of McPherson, A.J.A. and this judgment. In essence, I would agree that it has not been shown that the learned trial judge erred in the manner in which he dealt with the claims based on these issues and the related circumstances. 670 The only matter about which I would disagree with both the learned judge and McPherson, A.J.A. And with Malcolm, A.J.A. is the extent to which I would consider that the Federal Court erred in its findings as to the misleading or deceptive nature of the prospectus when urgent interlocutory relief was sought against the respondents by certain dissident directors of Association, which have been raised in the course of the present trial and on this appeal: see Fraser v. NRMA (1994) 52 FCR 1. (Gummow, J.) and NRMA v. Fraser (1995) 55 FCR 452. (Full Federal Court), as discussed later in this judgment. To some, including the trial judge and McPherson, A.J.A., it might appear that the Federal Court took a narrow or restrictive view of the expression "free shares" as appearing in the prospectus. I do not think it is necessary to reach any conclusion for the purpose of the present appeal as to the correctness of the conclusions reached in that Court. The legislation serves a particular purpose and that purpose may be considered best served by taking a more stringent, rather than a less stringent, approach to conduct of which complaint is made. It is sufficient for my purposes, as will appear below, that the matter was by no means obvious, that the decision may have depended upon the limited amount of evidence before that Court and that opinions may well vary as to the use of common everyday English words. Its subtlety and adaptability is one of the beauties of the English language, but it is not a language ideally suited for precise legal analysis, unless one takes a broad view of words in fact used. As I have said and as later appears, it is not necessary to reach any further conclusions as to those judgments; it is sufficient to say that lawyers could fairly take different views as to the meaning of the words in this context and that there was no obligation in the present circumstances to warn the respondents of the likelihood that a different view might be taken if the matter went to court. It seems for practical purposes that those who dealt with the matter within their organisation were sufficiently aware of the risks. A. Whether appellants' advice as to use of "free shares" in prospectus amounted to negligence 671 The events giving rise to the "free shares" issue took place some months later. By then the respondents were committed to a scheme to be effectuated by the passing of appropriate resolutions for the amendment of the memorandum and the articles of both Association and Insurance together with, of course, the incorporation of Holdings as the corporation in which the former members would hold shares and which would be the holding company of the former guarantee companies which would become its wholly owned subsidiaries. It is not obvious why a proceeding by way a scheme of arrangement could not then have been substituted, but as time had gone by the essential elements in the scheme were drafted in detail, as was a long and comprehensive prospectus. 672 At the end of the day, one of the principal selling points of the respondents' proposals was that members would obtain shares on a carefully worked out basis at what seemed likely to be well in excess of their par value and for which they would have to make no outlay in cash. What they were obviously losing were their rights as members of Association and, in the case of about two-thirds of the members, as members of Insurance. As those companies had previously been guarantee companies, the members clearly had no interest by way of shares in those companies so that the rights they were losing were the rights which flowed from their membership in Association or Insurance which naturally depended upon the payment each year of their subscriptions but which brought with them, in terms which must be analysed further, rights to obtain road service and other advisory assistance and rights to vote and otherwise participate in the affairs of each of the companies. In the case of Insurance their existing rights had also depended on the continued payment of premiums each year. 673 There was, as might be expected, and to which reference has been made briefly, a degree of resistance to the scheme overall so that, for example, at least two of the directors of Association were firmly opposed to the proposal from the outset even if they had not voted against it on every occasion it had been discussed. There had been quite vociferous opposition, which promised to continue, from those who disliked the concepts of changing what were effectively voluntary associations into commercial entities. They therefore were prepared to look gift horses in the mouth, as it were, by asserting that what were once mutual bodies would thereafter be run for profit and that that profit in certain ways would derogate from the kind of service and benefits that they received in the past and might have expected in the future. Over the last ten years or so, "demutualisation" seems to have become a vogue form of restructuring certain types of mutual organisations but it has almost invariably been accompanied by dissent. One may have some sympathy with those affected by such plans, especially where they have seen no reason to be dissatisfied with the organisation of which they are members and more especially where the paying of dividends might be seen to be likely to have direct effects on financial entitlements already enjoyed, as in the case of mutual life insurance companies. That is not to say, however, that they should necessarily be allowed to stand in the way if a majority of their fellow members of 75 per cent or more would prefer to adopt a different way of organising their mutual affairs where the law permits that to take place. 674 In the present case, though the members had rights and obligations as members of guarantee companies to the extent, for example, that they were under a minimal liability if either company were wound up, both Association and Insurance had by dint of their operations amassed considerable sums by way of reserves and the like which were of real value, though difficult to turn to account. The consolidated balance sheet produced for the purpose of the prospectus showed a members' equity in the group in excess of $2-billion and the assets under the control of the two companies were, in broad terms, as to Association, $457-million worth of assets, and, as to Insurance, $4.401-billion worth of assets. As with almost all companies of this kind dividends could not be declared and upon winding up the assets of each of the companies had to be applied, effectively, to bodies having similar purposes. It was not suggested that the objects of the association were thereby charitable or that they could not be applied thereafter during the company's lifetime in other ways, so far as by law that could be achieved. Nevertheless, as has already been seen, an ingenious scheme was worked out providing paid-up shares in Holdings to members of both guarantee companies who agreed to take them and paying to those members who did not wish to take up shares a "cash alternative", which was to be funded by the sale on the open market, pursuant to the terms in the prospectus, of the very shares which had been turned down. In return all would lose their existing membership rights. 675 Thus the boards' proposal had this attraction to members that either they were to be provided with shares treated as fully paid up to their stated par value of $1.00 each or, for those unwilling to become members, they were to be paid a sum equivalent but not identical to the true value of the shares to which they would have been entitled, seemingly about $2 per share, but depending on the market's reception of what was called the "sale offer". In particular the boards were anxious that existing members should be told that they were the object of a "free offer" and that they could obtain "free shares", in fact defined towards the end of the prospectus as "the NRMA shares offered to members under the Members' Free Offer". 676 So it came to pass that the prospectus, together with the brochure sent with it called "the onsert", Of which there were several forms, according to the recipient's interest. sent to members of Association and Insurance was replete with references to the "free" shares and the option which members were given to accept either the shares or take the cash alternative. Some of those responsible at NRMA and their legal advisers had been concerned at first about describing these shares as free, not so much because of that description but because in effect the shares might be seen to have been improperly issued at a discount to par value: see s.203 of the Corporations Law as it then was. Nevertheless there was also a residual concern lest the membership rights proposed to be taken away should thereby be considered as having no value. Although the appellant solicitors, especially AAH, were firmly of the view that there was no misleading of members by describing the shares as free, certainly in the context of the elaborate discussion contained in the prospectus, nevertheless advice was sought from Mr Heydon as to the form of the onsert which contained forms for the "acceptance of free shares" and otherwise referred to free shares, but in a brief two sheet document which at the time contained no explanation of the circumstances whereby those shares would be issued to members. Conceivably a member receiving both documents might look only at the onsert and decide to accept the free shares or to send a proxy in favour of the scheme (which was likewise contained in the onsert) without being fully aware of the circumstances under which the shares would be issued and allotted. 677 These in broad terms were the circumstances (elsewhere described in considerable detail) under which counsel's advice was sought as to that specific document. No advice was sought from him then or later as to the prospectus, although he had been asked to advise the trustee, Perpetual Trustee Company Limited which had also issued the prospectus, but essentially from the viewpoint of the trustee which was to administer the scheme for selling those shares which were not accepted by members. 678 The two firms of solicitors had ongoing responsibilities of varying kinds, with each obliged to "sign off" aspects of the report of the Due Diligence Committee of which Mr Morgan and Mr Bateman were both members. Both firms are criticised by the respondents (in the course of the cross-appeal) for failing to give advice both to the due diligence committee and to the respondents as to the risks entailed in describing the shares as "free shares" in the prospectus and otherwise. Mr Heydon is not criticised for his opinion, for in truth it was critical of the expression when used in one version of the onsert and contained his conclusion that in that document it was "ambiguous or worse". That document was changed to its final form which was sent with the prospectus, though Mr Heydon had been asked to give a further opinion in respect of the new version about which he was, for obvious reasons, much less critical. The claim made against him, however, in the course of the cross-appeal is that he failed to draw attention to the prospectus which he had earlier seen for the purpose of advising another client, the Perpetual Trustee Company Ltd, and thus was said to be guilty of negligence under the "Waimond" principle described and correctly criticized in the judgment of McPherson, A.J.A. 679 At the time there was no authority, or at least no useful authority, as to what was a proper and thus not a "misleading or deceptive" use of the word "free" in advertising or other commercial contexts. The respondents do not now say that any of the appellants were negligent in forming the opinions they did at the time, although the respondents say the solicitors at least were wrong. The criticism is largely confined Although it also forms an element in the statutory claims. to a claim that they acted negligently in failing to advise the Due Diligence Committee and their clients of the risks of using that word or, in particular, having regard to Mr Heydon's advice, by not drawing that opinion directly to the attention of the Committee and the clients. It seems that certain members of the clients' executive staff were aware of his opinion but not any member of the board or the other members of the Due Diligence Committee. 680 The problem however was exacerbated because two of the dissenting directors immediately took the matter to the Federal Court and obtained favourable decisions, including declarations and an injunction restraining the scheme from going ahead, first of all from Gummow, J. on 13 October 1994 and then, with some variations, from the Full Court of the Federal Court in a judgment handed down on 27 January 1995. See Fraser v. NRMA and NRMA v. Fraser. 681 The outcome of that case and the opinions of the four judges involved might at first seem to show that the solicitor appellants were misguided in their advice to the respondents and that, even though the barrister appellant had clearly pointed out difficulties with the onsert, all appellants might have approached the matter on a too simplistic level. Again, however, such a conclusion would be formed with the benefit essentially of hindsight. The matter was by no means as clear as was stated in those forcefully expressed judgments. The absence of authority, in relation to the relevant provisions of the legislation invoked for this purpose, as to what the word "free" meant or could it be taken as connoting in the context of commercial offers, advertisements and the like, might be thought to have made it difficult to say beforehand how it would be interpreted. Indeed, there was no discussion of authority as to the meaning of the word in the judgment of Gummow, J. and in the Full Court there was but brief reference to two American decisions on different legislation, including the Supreme Court decision in Federal Trade Commission v. Standard Education Society 302 US 112 (1937).. From this they concluded: "'free' can easily be misleading or deceptive, depending on the context …" 55 FCR at 483.. Perhaps broad generalisations such as that were a reasonable basis for the trial judge in the present case to express doubts as to the outcome in the Federal Court, but it is not necessary for me to express any such conclusion. I should point out that the trial judge rightly noted that the evidence before him was far more extensive than that which had been put before the judge in Fraser on an application for urgent interlocutory relief. 682 The Full Court in Fraser observed that in some contexts, such as in the expression "buy one, get one free", the word "free" might be understood as meaning "without additional or marginal outlay over what is obviously being paid", and I might add, with respect, that it is part of everyday experience to receive brochures and see advertisements in similar terms, where the purpose is to sell books, computer programs, air tickets or what you will. Even to the relatively unsophisticated an offer of that kind would be understood as an offer to provide some item free of cost if one is prepared to outlay a sum sufficient to buy something else. In the Federal Court Gummow, J. pointed to several meanings, not specifically attributed to dictionaries, but seemingly adapted from meanings 25 and 26 in the Macquarie Dictionary. In the first place he referred to the meaning "that which is provided without, or not subject to, a charge or payment", which seems to have been the meaning espoused by the respondent companies in that case 52 FCR at 27.. His Honour, however, seemed to prefer At 28. the slightly wider meaning, namely, "that which is given without consideration and as a gift". He therefore concluded, in the context of the phrase "free shares", which he saw as significant because of its frequent use in the context of a prospectus, that the "notion" was engendered that the shares "may be acquired without any significant loss or outgoing to the offeree who accepts them". With great respect, I am not entirely clear how his Honour came to chose that particular collocation of words The words "loss or outgoing" do not necessarily connote that either or both is incurred by way of "consideration", the absence of which seems an essential element of the second of the two definitions earlier chosen. Probably, however, all that was meant was that the prospectus failed to emphasise that the members were giving up something of value in return., but it was by reference to that meaning that he found the use of the expression misleading or deceptive, largely because the prospectus failed sufficiently clearly or sufficiently often to emphasise the rights and benefits which the offerees were giving up as members of the two existing companies. 683 On appeal the Full Court was prepared to accept the definition of Gummow, J. without any further discussion of its meaning other than that to which I have already adverted. 55 FCR at 483. Perhaps the respondent companies were prepared to accept that definition but argued, as they did unsuccessfully, that there was no significant loss or outgoing which had not been sufficiently identified in the prospectus. 684 I have referred to this discussion, not to show that the learned judges of the Federal Court were wrong, but only to show that they took a particular view of the meaning and connotation of the words in the context of the prospectus. The question raised on the cross-appeal is not so much whether the solicitor appellants should have foreseen the possibility of some such conclusion and reasoning, because they had, as was confirmed by their briefing Mr Heydon as to the onsert, but whether they should have advised that there was a danger that some conclusion opposite to their own would be reached if the matter were taken to court. In particular it was argued that the matter was of some difficulty and that it required an expert in trade practices law, indeed an expert on Part V of the Trade Practices Act and the Fair Trading Act, to confirm their own view before they advised going to press with the onsert using the expression "free shares" in the way that they did. It was said that the same, or almost the same, difficulty should have arisen before advising that the prospectus might be issued. It was thereby suggested that any understanding of the law, including all relevant authority, would make clear the risk which the companies faced and which should have been drawn to the respondents' attention before the issue of the prospectus. 685 To my way of thinking, however, the latter approach misapprehends what might fairly be expected in these circumstances. There is of course much authority as to the meaning of the expression "misleading or deceptive", although largely from single instances occurring in particular circumstances over now many years, but it is essentially an expression of simple import. A qualified lawyer of experience should be able to give advice about the operation of s.52 and the related statutory provisions here relied upon, at least where the expression likely to be challenged is relatively simple. I am not suggesting that an understanding of the operation of guarantee companies and the rights and obligations of members thereof could in any way be said to be a matter of general knowledge, even amongst experienced company lawyers. That, however, was not the point made here, for it was contended that it was necessary to have an expert on the meaning of s.52 to advise as to the possible construction of the expression "free shares" in the prospectus, perhaps because they had already sought the advice of the appellant Mr Heydon as to the "onsert", who was of course an acknowledged expert on the whole of the Trade Practices Act and on the Fair Trading Act. 686 Here it was said that the difficulty was in the connotation properly to be placed on the words "free shares", but I see no reason why competent lawyers should not advise on their meaning, at least if they understood what the nature of the proposed scheme was. In that latter respect I understood no criticism to be made, at least for this purpose. 687 In essence the word "free", as here used, is a word of straightforward meaning. It conveys, of course, a secondary meaning of a word with far greater import. Most of its primary meanings connote an absence of restriction, whether of an intellectual, moral, legal, physical or any other practical kind. In the Oxford English Dictionary the present use appears only as the thirty-second meaning of the adjective and its relationship to the other, more significant, meanings is explained by the authors stating that it is "in full, free of cost, charge, or the like". Consequently the definition then stated is relatively simple: "given or provided without payment, costless, gratuitous". 688 The relevant standard being, for those purposes, what reasonable practitioners would do in the circumstances of the present case, it is not hard to see why those firms of solicitors might not have concluded that for all practical purposes the shares were free of cost or free of charge inasmuch as no payment was being sought from the members to whom they were offered. Nothing had to be done by the members except choose whether they would take the shares or take the cash alternative. As I read the prospectus and the proposed changes to the memoranda and articles, acceptors of the shares were not even required explicitly to give up their rights as members of either or both of the existing guarantee companies. Allotment of the shares did not even depend on whether the acceptor voted in favour of each necessary resolution. As was stated in the onsert in the box immediately above the place for accepting these shares: "If at least 75 per cent of the votes cast are YES votes, free shares will be issued." The proposed amended articles of Association likewise made that clear: see article 117. Membership rights in the guarantee companies would be lost regardless of a member's vote, if the necessary majorities voted in favour. In fact it was only in the note added at Mr Heydon's suggestion on the opposite page that one sees anything about the existence of consideration, inasmuch as the starred footnote ultimately stated that the free shares "are in exchange for membership under the Articles of each of" Association and Insurance. That conclusion, however, flowed not from any element in the scheme which required any member of Association or Insurance to agree directly to give up their rights, but from an assumption that the proposed special resolutions, when passed, would effect the necessary amendments to those companies' articles which would "constitute an agreement which binds all members …, even if they voted against the proposal or did not vote at all". See the description on p.12 of the Prospectus of the "legal steps involved in change": cf. s.180 of the Corporations Law at the time. 689 These subtleties may, however, explain the approach of the two companies, or at least that of their solicitors. They were each anxious to make clear that the shares were not being issued at a consideration below par value. They sought to maintain that the value, as calculated on a hard-headed economic basis, was in excess of the paid-up value. For good reason they did not pursue nor wish to contemplate any suggestion that what was being given up was of no value, or any suggestion that the loss of rights would be a fait accompli and that the shares would be issued without the giving of consideration on the part of the individual member. They considered the shares to be free simply because members were not being asked to make any payment, but they were also fully alive to the other aspect of the transaction upon which the Federal Court placed such heavy reliance. Their failure consisted, not so much in their lack of understanding of what was being given up, but in failing, as that Court held, to ensure that the prospectus made that clear to the average member of the guarantee companies. The difficulty for the solicitors was that they were fully aware of the nature of the scheme which would bring the existing membership structure of the guarantee companies to an end and the substitution of the rights in the holding company. That had its legal complications, complications it may be thought of a kind which would not ordinarily attract the interest of the average member and so it was described in a largely appropriate but shorthand way on two occasions in the prospectus, with other references appearing in diagrams and charts which hinted at but did not explain the precise changes to be made to the articles. If the solicitors were foolish in advising the company, it was in failing to insist that the words "free shares" not be repeated so many times without appropriate qualification, and in that the Federal Court saw the germ of the problem. To the appellant solicitors, however, that was merely the repetition of a defined term which happened to emphasise what seemed obviously the case, namely that the members did not have to pay for the shares upon allotment. It was the balance, or the lack of balance, between the repetition of the expression and the extent of the relatively brief explanation of the structural changes affecting the members and their rights which the lawyers got wrong, as was later held. But the question here is not whether they were right, nor whether they might genuinely have reached their conclusions, but whether they should have said something different to the clients and whether they should have warned them what they had done might turn out to be inappropriate and capable of being restrained. 690 In this I do not see that the respondents have made out their case on the cross-appeal that the learned judge was wrong in his conclusion on this issue, although I may differ from him on some matters of emphasis. Essentially the decision to be made was one of balance and it turned out that the solicitors' opinion was held to be wrong. As has been so frequently emphasised, that does not mean that they were negligent. I can see good reasons for the appellant solicitors taking the simplistic approach that they did, albeit in the end the Federal Court held the prospectus to be misleading or deceptive. It was and is not necessary to say that the Federal Court itself came to an erroneous decision on this subject: to that extent I may appear to differ from the learned judge and from Malcolm, A.J.A. and McPherson, A.J.A. 691 It is merely necessary to add that the solicitors could have formed a different opinion genuinely and that the formation of that opinion did not require, as the respondents assert, that any doubts should have been expressed further to the Due Diligence Committee or to the boards or other representatives of the companies. The issues were well enough known but the emphasis turned out to be wrong. I see no negligence in their failure to advise that a different view might be taken. As already stated that is the general concomitant of giving advice on difficult legal matters. If the respondents were looking for fail-safe, no-risk advice, they should have made that clear to their legal advisers. B. Other claims relating to use of expression "free shares " 692 As to the respondents' claims on the cross-appeal that the appellants should be liable under various provisions of the Trade Practices Act, the Fair Trading Act and the Corporations Law for their acts in relation otherwise to the use of the expression "free shares" in the prospectus, it is sufficient for me to say that I agree with the reasoning and conclusions of McPherson, A.J.A. PART III: OTHER ISSUES AND CLAIMS 693 Consequently the cross-appeal should be dismissed. There remain only the various claims for contribution and the series of applications for leave to appeal brought by various parties, especially certain directors, which might have been pursued if the appellants had remained liable under the original judgment or if the cross-appeal had succeeded. As in my opinion the appellants should not be held liable for any aspect of their activities in relation to the respondents' proposals for demutualisation in the years 1993/1994, there seems no purpose in pursuing them, as would appear from the judgment of McPherson, A.J.A. The contribution orders would therefore fall with the judgment itself and I agree in the orders which he proposes. ************* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.