Supreme Court New South Wales Medium Neutral Citation: In the matter of Gladstone Pacific Nickel Limited [2011] NSWSC 1235 Hearing dates: 17 & 18 October 2011 Decision date: 04 November 2011 Jurisdiction: Equity Division - Corporations List Before: Ball J Decision: The originating process be dismissed with costs. Catchwords: CORPORATIONS - derivative action - leave to commence - whether serious question to be tried - whether in best interests of the company CORPORATIONS - directors duties - whether director in a position of conflict - whether director used his position as a director or knowledge gained as a director to obtain an unauthorised benefit - acquisition of refinery by director - did not seek to acquire until after company's bid failed - no prospect of the company acquiring refinery - director was approached with opportunity while not a director - no serious question that director breached his duties Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159; 74 ALR 505 ASIC v Adler [2002] NSWSC 171; (2002) 41 ACSR 72 Boardman v Phipps [1967] 2 AC 46 Chan v Zacharia (1984) 154 CLR 178 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Fitzpatrick v Cheal [2010] NSWSC 717 Furs Limited v Tomkies (1936) 54 CLR 583 Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 403 Queensland Mines Ltd v Hudson (1978) 18 ALR 1 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 Texts Cited: RP Austin and IM Ramsay, Ford's Principles of Corporations Law, LexisNexis Category: Principal judgment Parties: Robash Pty Limited ACN 008 975 773 (Plaintiff) Gladstone Pacific Nickel Pty Ltd (Defendant) Representation: Mr J W J Stevenson SC (Plaintiff) Mr N Kabilafkas (Plaintiff) Mr J C Sheahan SC (Defendant) Mr J A N Hogan-Doran (Defendant) Norton Rose (Plaintiff) Blake Dawson (Defendant) File Number(s): 2011/245544 Judgment Introduction 1In these proceedings the plaintiff, Robash, seeks leave pursuant to ss 236 and 237 of the Corporations Act 2001 (Cth) ( the Act ) to bring proceedings in the name of the defendant, GPNL, against Mr Clive Palmer and three companies owned and controlled by him, Nickel House Pty Ltd, Nickel Processing Pty Limited and Nickel Consolidated Pty Limited (together, the Palmer companies ). 2Robash currently holds approximately 2.27 percent of the issued capital of GPNL. It alleges that Mr Palmer, in breach of his duties as a director of GPNL, acquired from BHP Billiton Ltd ( BHPB ) through the Palmer companies, all of the shares in two BHPB subsidiaries, QNI Metals Pty Ltd and QNI Resources Pty Ltd, in circumstances where GPNL was negotiating to acquire those shares itself. QNI Resources and QNI Metals together own all the shares in Queensland Nickel Pty Ltd, which is the company through which BHPB owned the Yabulu nickel refinery. Factual background 3GPNL is an Australian mining development company. It was registered on 31 March 2003 and listed on the Alternative Investment Market of the London Stock Exchange in March 2005, at which time it raised about 10 million pounds, although it has since been delisted. By late 2007, its prime concern was a project for the development of a nickel exploration, mining and processing operation at Gladstone in Queensland. At about that time, it was seeking to raise finance for the project and for that purpose approached Mr Palmer and China Metallurgical Group Corporation ( MCC ), a Chinese construction company. 4Mr Palmer expressed interest in the project. Initially he acquired approximately 15 percent of the shares in GPNL from existing shareholders. He was appointed to the board of GPNL on 8 December 2007 and, shortly afterwards, companies associated with him entered into a number of agreements with GPNL by which those companies would, among other things, provide capital to GPNL in exchange for up to 50 percent of the shares in GPNL. In addition, on 11 December 2007, GPNL entered into a memorandum of understanding with MCC under which, among other things, the parties agreed to conduct negotiations on an exclusive basis for a period of 280 days for an agreement by which MCC would construct the Gladstone project. MCC also agreed to finance the project or to assist in arranging finance for the project from Chinese banks and, upon execution of the construction contract for the project, to invest equity in GPNL in an amount to be agreed. 5Subsequently, on 8 August 2008, GPNL entered into a scheme implementation agreement ( SIA ) with Resource Development International Limited ( RDI ), another company controlled by Mr Palmer. Under the proposed scheme, GPNL would become a wholly owned subsidiary of RDI. Clause 6.3 of the agreement provided that GPNL must not, without RDI's prior written consent, enter into a GPN Material Transaction. "GPN Material Transaction" was defined in cl 1.1 to include an acquisition, offer to acquire or agreement to acquire any asset or interest in an asset that was not in the ordinary course of business or was for an amount of $2,000,000 or more. The proposed scheme was subject to a number of conditions precedent which were to be satisfied or waived by 31 March 2009. Shortly prior to execution of the SIA, Mr Palmer resigned as a director of GPNL to avoid potential conflicts of interest arising out of that agreement. 6In November 2008, BHPB expressed an interest in selling the Yabulu nickel refinery and that interest became known to Mr Downie, the chief executive officer of GPNL. Precisely how that happened is not clear from the evidence. However, Mr Hill, then a director of GPNL, met with representatives of BHPB in the second half of November 2008 at which time BHPB indicated that it would be interested in receiving a proposal from GPNL to acquire the refinery. The acquisition was attractive to GPNL because the refinery was capable of processing and refining nickel laterite whereas the plant that GPNL proposed to build was not capable of refining nickel in that form. The acquisition was also appealing because nickel prices were increasing at the time. The acquisition was discussed by the board of GPNL in its meeting held on 15 December 2008. It is apparent from the minutes of that meeting that the board recognised that "due to the agreements in place with Mr Palmer that Mr Palmer would need to approve any investments". 7The day after that board meeting, Mr Downie sent an email to Mr Palmer concerning the opportunity. In that email, Mr Downie said: There is significant environmental liability with the old tailings dam at Townsville and due diligence would be essential. The workforce now exceeds 800 and there is significant redundancy provisions that would need to be renegotiated. There is an immediate opportunity to reduce ore supply costs into Yabulu. We have a very experienced team at GPNL to evaluate the opportunity, complete the due diligence, prepare an acquisition strategy and successfully manage the operation to generate an improved margin. The email included a strategy paper prepared by GPNL and from that time on GPNL kept Mr Palmer informed of GPNL's investigations of the proposal. 8BHPB also approached Mr Palmer to see whether he was interested in acquiring the refinery. Again, it is not clear precisely how that happened. However, in December 2008 there was a meeting between representatives of BHPB and Mr Palmer at the offices of Mineralogy, a company owned by Mr Palmer, at which the representatives of BHPB provided Mr Palmer with a document described as "Opportunity Overview". Mr Palmer provided a copy of that document to Mr Downie. The sale of the refinery became known as "Project Sunshine". 9BHPB appointed the Perth office of Gresham to advise it on the sale of the Yabulu refinery. Mr Downie was advised of that fact by Dr Clarke of BHPB on 19 February 2009. Mr Downie sent an email on the same day to Mr Henderson, the chairman of GPNL, reporting on his conversation with Dr Clarke. In that email, Mr Downie said: Gresham's have endeavoured to contact Clive in order to establish what level of interest still exists. BHBP [sic] would not make a direct approach to GPNL as they do not see them as a substantial company with the balance sheet that could make a reliable offer. We need to try to make sure Clive keeps the door open and he requests any new (more detailed information since the mid Dec 08 Project Sunshine document was provided) available in regard to Yabulu and or the process that will be followed during the review period. 10BHPB set up an electronic data room relating to the refinery and GPNL was given access to that data room at the end of February. Two employees of Mineralogy signed confidentiality deeds permitting them to have access to the due diligence material. In all, GPNL spent approximately $900,000 on due diligence. 11On 27 February 2009, Gresham wrote to Mr Henderson setting out the bid process. Participants were required to lodge bids by 23 March 2009. The letter stated: Offers received will be reviewed on the basis that they: represent the Bidder's best price for the Sale Companies; have been made on the basis of a thorough review of the due diligence materials provided in the ODR and on the basis that the Bidder has had sufficient access to the Q&A system to address any key valuation drivers; should not require any material adjustment from any further review; have been lodged with the full knowledge and support of the Bidder's board of directors or other key decision makers; and are subject to the minimum conditions precedent necessary to complete the transaction. The offer consideration was stated to be "cash - ideally US$". The letter also stated that the offer must contain information in relation to the bidder's financial capacity including information relating to the source of consideration and information "relating to the Bidder's financial strength, credentials and capabilities which would assist the Vendor in assessing the Bidder's Offer (the financial capacity of the Bidder, both to acquire the Sale Companies and to operate the business post completion, will be a key assessment criteria [sic] for the Vendor)." 12Following receipt of that letter, Mr Becker, the general manager of GPNL, commented to Mr Downie in an email dated 6 March 2009 that: It looks as though BHP Billiton will take us seriously after all for 2 main reasons - Clive's "profile" and our teams experience and knowledge of the business. 13The evidence suggests that representatives of GPNL met with representatives of MCC on 24 March 2009. One of the purposes of the meeting was to discuss the Gladstone refinery. However, the GPNL representatives also put a proposal that MCC join in the bid for the Yabulu refinery and that it take a 37.5 percent equity in the project for US$150 million. The proposal put by GPNL also suggested additional incentives if MCC supplied US$100 million in working capital. 14GPNL made its first offer to BHPB by letter dated 27 March 2009. The offer was described as a "non-binding" one. It identified an indicative price of US$150 to US$200 million. The offer was expressed to be conditional on, among other things: GPNL successfully procuring the required funding package to fund the proposed final Purchase Price and ongoing working capital commitments; ... The letter went on to describe GPNL's relationship with Mr Palmer and "associated Chinese interests" and said: It is GPNL's intention to build a "funding consortium" with various Chinese and other investment groups, and it is through this network that the Company is confident of being able to structure and raise the required monies to fund the proposed consideration and ongoing working capital requirements associated with the Proposed Acquisition. GPNL asked Mr Palmer to provide a letter of support for the bid. However, Mr Palmer was not prepared to do so. According to Mr Dominic Martino, a director of GPNL, he had a conversation with Mr Palmer at about that time in which Mr Palmer said words to the following effect: I might want to buy Yabulu myself - but I'm a buyer at a very different price to what Gladstone is looking at. ... If you guys want to make the offer and get it, I wouldn't stand in the way. If you put an offer that's ok and I'll provide some help but I'm not going to be the sole finance provider - I only own part of the company. I have decided not to sign a letter of support. Mr Martino cannot recall whether he passed on what Mr Palmer had said to him to the board of GPNL or not. However, Mr Hill, who was a board member at the time, says that he was not aware of Mr Palmer's interest being raised at any board meeting and that he did not become aware of Mr Palmer's interest until early June 2009. 15It appears that Mr Downie spoke to Gresham following lodgement of the bid. He reported on that conversation to Mr Hill and Mr Hartwig, who assisted Mr Henderson, in an email sent on 29 March 2009. In that email, Mr Downie said: As you know it is difficult to get a clear picture of Clive's position particularly with the second share allocation (28 million shares for a fully funded GPN project) hanging over our/his head. Maybe we need a subsidiary to be involved in the Sunshine deal. Either way we need to have visible support from Clive. The email went on to say: BHPB have a small window with the GFC negativeness still in peoples mind, to close the Yabulu plant and not continue the loses [sic]. If GPN waste another 6 months (on posturing and fund raising) and cannot close then it is better to shut the plant down immediately. This decision will be weighing heavily on BHPB mind as shutting down adds absolute certainty for only US$100 million additional costs whereas running it at a loss with uncertain financial close and then still being subject to environmental liability if the new owner is not successful is a major disincentive to accepting the GPNL bid. 16The conditions precedent to the SIA were not satisfied by 30 March 2009 and that agreement terminated at that time. 17On 8 April 2009, Mr Ashforth, the managing director of Gresham, sent an email to Mr Henderson in which he said: As I said to you last week, despite the additional hurdles a company of GPNL's size faces in relation to financing and completion, BHP Billiton is prepared to allow GPNL to remain in the process. It is important that you appreciate, however, that BHP Billiton's decision to allow GPNL to remain in the process was heavily influenced by the fact that Clive Palmer is your major shareholder. BHP Billiton is assuming that he will support GPNL's efforts to close a deal. ... Whilst we do not expect any binding commitments at this stage, comfort that Clive Palmer is a keen supporter of this endeavour is very important if GPNL wishes to remain in this process. 18On 15 April 2009, Gresham sent an email to Mr Henderson saying that BHPB thought that it was critical that there be a face to face meeting the following week at which Mr Henderson and Mr Palmer attended and at which GPNL addressed the following issues: who are the expected participants in your consortium and the actual entities expected to participate; a summary of discussions held to-date with the potential investors; the expected equity/debt contribution of each of the potential investors; the key conditions of their participation & timing to a firm commitment; and evidence of their financial capacity The email continued: The key issue is for Gladstone to demonstrate it has a credible and realistic funding plan, with an achievable timetable. 19On 21 April 2009, Mr Palmer rejoined the GPNL board. It is not entirely clear how that came about. However, it became possible as a result of the termination of the SIA. By about that time, companies controlled by Mr Palmer held 48.7 percent of the shares in GPNL. In addition, it can be inferred from earlier comments of BHPB and Gresham that it was thought to be important for GPNL's bid. On the same day, Mr Palmer wrote to BHPB on Mineralogy letterhead a letter which said: I write to provide confirmation of my support of the GPNL Offer, including potentially considering providing financial support to the GPNL Offer through my associated investment companies as well as facilitating and arranging introductions to my extensive network within the Chinese Resource Investment community. 20BHPB replied to Mr Palmer's letter on 22 April 2009. In that reply, it said that Mr Palmer's continued support was "a critical consideration for BHP Billiton". The letter went on to set out a proposed timetable by which GPNL was required to provide the information sought by BHPB in relation to GPNL's 27 March 2009 offer on or before 20 May 2009. In particular, BHPB required by that time confirmation of the source of required funding. BHPB's position was confirmed in a letter dated 22 April 2009 from Gresham to Mr Henderson. 21Subsequently, it appears that Mr Palmer suggested that GPNL attempt to agree to a firm price with BHPB and then negotiate an option for 60 days whilst GPNL tried to raise funds. In the meantime, Mr Downie circulated a slide presentation relating to the project to members of the GPNL board, including Mr Palmer, and a meeting was arranged with Gresham and BHPB. 22The meeting was held on 30 April 2009. The evening before the meeting, Mr Downie and Mr Palmer met. At that meeting, Mr Downie says that Mr Palmer indicated that he was keen to take over some of the negotiations with BHPB and said that he would like to speed up the process and set some timing goals. 23The meeting was attended by representatives of Gresham and BHPB and Messrs Palmer, Henderson, Downie, Martino and others from GPNL. During the course of the meeting, Dr Clarke asked to meet with Mr Palmer separately. That meeting lasted for about an hour. After the meeting, Mr Palmer reported back to Mr Downie and said words to the following effect: I certainly have their attention. They have nobody else that they are negotiating with. They are on the run. I think we can do a deal. 24Mr Palmer also reported back to the Board of GPNL on the results of that meeting at the Board meeting on 5 May 2009. The minutes of that meeting record: Mr Palmers [sic] meeting with BHPB in which the following was: Agreed that the Share Purchase Agreement ("SPA") would be accelerated so that it was concluded prior to the proposed 26 th May 2009. Agreed that Mr Palmer would provide feedback to the vendor on the progress of discussions with MCC by Friday 29 th May 2009. Raised by BHP Billiton as a major concern in that they did not wish to announce an acquisition until the financing condition had been satisfied and that the agreement was unconditional except for government and shareholder approvals. Agreed that Mr Palmer would have until the 10 th June 2009 to obtain certainty in relation to funding of the Project Sunshine acquisition. 25During the first half of May 2009, BHPB and GPNL negotiated the terms of a share purchase agreement. 26Some time in early May, Mr Palmer went to China. Although the principal reason for his trip was to negotiate a new coal contract for one of his other companies, it also appears that he agreed to meet with MCC to progress discussions in relation to the proposal that MCC provide funding to acquire the Yabulu refinery. It appears that Gresham were told of that fact at a meeting between them and Messrs Henderson and Hartwig in Perth on 11 May 2009 and a conference call was arranged for 14 May 2009 to bring Gresham up to date on Mr Palmer's progress. 27Either on 12 May 2009 or early on 13 May 2009, Mr Palmer telephoned Mr Downie and asked him for information concerning GPNL, which Mr Downie provided later on the morning of 13 May. Later that day, at approximately 4.00 pm, Mr Hill, another director of GPNL, sent an email to Mr Downie in which he said: Any progress from clive? Last I heard mcc were not interested and bhp/greshams were being too obstructive Shortly after receiving that email, Mr Downie received an email from Ms Barbara Grieve, who was chief executive officer of Australia-China Business Development and a consultant employed by GPNL, in which she said: Just received Charles email and reply following my email to him today. His advice is as follows: 1 From the latest information within MCC, there are a number of negative factors impacting on MCC decision making for Yabulu project acquisition. 2 Recent negative events at RAMU will also impact the MCC decision making for acquisition of Yabulu Project. So sorry to convey this!!!!!!!!!!!!!!! 28It is not clear who "Charles" is, but the effect of the email was clear. There was no real prospect of obtaining funding from MCC. 29Mr Downie replied to Mr Hill's email after he received the email from Ms Greive. In that email he said: Yes we complain a lot (Clive Gresham etc!!!!) I think you are right MCC are not interested however I have not heard that direct from Clive (unfortunately coal is a big distraction) 30It is not clear what happened during the proposed conference call with Gresham on 14 May 2009. Mr Downie wrote an email to Mr Henderson on that day in which he said: Meeting to discuss progress with Gresham It seems to me to be difficult to have the meeting on the basis We do not have SPA draft We do not have all the information in the ODR (that has been promised) to finalise the DD We do not have any reliable funding source Obviously we need wriggle room in the SPA 31After sending that email, Mr Downie also sent an email to Mr Henderson and Mr Hartwig saying: There is now total reliance on Clive's response (and we are not sure what his position is). Clive may communicate that to Gresham directly if they get thru to him and at that point it will be all over. Alternatively given we were unable to give them much the meeting with BHPB may today stop the sale process. Mr Downie went on to describe the results of the due diligence process. One point he mentioned was that the clean-up component of the closure cost was significant and up to $400 million. It is clear from this email that Mr Downie had abandoned any hope of obtaining funding from MCC. Mr Martino in his affidavit evidence says that he was always doubtful that MCC would provide funding. It was primarily a construction company which was interested in providing funding for projects where it had been awarded the construction contract. 32It seems that later on 14 May 2009, following the news concerning MCC, GPNL engaged Mr Peter Freeman of Cutfield Freeman & Co to provide advice on its bid for the refinery. Mr Freeman, who had extensive knowledge of the nickel industry, began working on the terms of an offer to BHPB which would buy GPNL additional time to come up with financing. 33On 20 May 2009, Mr Downie sent an email to Mr Palmer in which he said: Any chance of calling Jamie [Mr Henderson] to provide update. Gresham/BHPB are pushing hard for some feedback and will eliminate GPNL in next two days We have a solution (plan B) to present to BHBP that does not require Chinese investment and buys considerable time to raise money Need your guidance and approval to proceed with negotiating with BHPB on Plan B It is not clear what update Mr Downie was seeking. He already knew that there was no real prospect that MCC would provide financing. It is possible that he was seeking an update on Mr Palmer's own position regarding financing. 34On 20 May 2009 at 7.50 pm, Mr Ashforth wrote to Mr Henderson stating that BHPB must have a written proposal by no later than "COB on Friday 22 May 2009 outlining exactly what your plans are". The email went on to say: As I said yesterday, BHP Billiton has very little appetite for an alternative financing plan but if you have a sufficiently well defined and certain plan then we are prepared to listen. 35Mr Downie managed to get hold of Mr Palmer later on 20 May 2009, but it appears that all Mr Palmer did was ask Mr Downie to arrange a meeting with BHPB after he got back to Australia on 25 May 2009. 36GPNL's "Plan B" offer was sent to BHBP on 21 May 2009. That offer proposed a purchase price of US$150 million of which US$5 million was payable on completion and US$145 million was to be provided by vendor finance. In addition, there was to be an operating contingency of US$80 million "To be sourced from Offtake Parties/Trading Houses secured by working capital." The offer was expressed to be conditional on, among other things, GPNL successfully procuring the operating contingency. It appears that Mr Palmer was not consulted about the terms of the offer before it was sent. 37On 26 May 2009, Gresham replied to the offer by saying that it was unacceptable to BHPB for a number of reasons including: The key commercial terms are unacceptable and materially different from your initial proposal; The new offer is highly conditional and uncertain; and The source of funding remains unspecified and uncertain. The letter said that, in those circumstances, BHPB "has decided to immediately terminate discussions with GPNL in relation to the potential divestment of the Yabulu Refinery." 38Mr Downie met with Mr Palmer on 26 May 2009. There is a dispute about precisely what was agreed at that meeting. However, following that meeting, GPNL put a further offer to BHPB. That offer was similar in terms to the previous offer except that GPNL offered to announce an underwritten rights issue for US$30 million on acceptance of the offer. It stated that that underwriting would be provided by Mr Palmer. 39On 28 May 2009, BHPB terminated GPNL's access to the electronic data room. On the same day, Mr Mills, of Gresham, sent an email to Mr Henderson "strictly on an adviser to adviser basis with no commitments from our client" commenting on GPNL's third offer. In that email Mr Mills said: Committed funding is the critical issue While the underwritten US$30m is an improvement it is not sufficient [GPNL] needs to have committed working capital funds in place of the order of US$100m from named parties if it wishes to re-enter the process ... June 10 remains a critical time frame for the organisation 40On 29 May 2009, Mr Palmer met with Mr Wilson of BHPB. Following that meeting, on 1 June 2009, Mr Wilson sent Mr Palmer an email in which he said: For the sake of clarity, one of the issues that we raised during our discussion on Friday last week, It [sic] is BHPB distinct preference to receive an offer from one of your wholly owned entity's as opposed to an entity that is partly owned by yourself. Mr Palmer forwarded a copy of that email to Mr Henderson and Mr Downie with a note saying: see below seems bhp is more interested in a full offer from one of my wholly owned companies rather than gladstone pacific 41Just before sending that email, Mr Palmer also circulated to Mr Henderson and Mr Martino a draft note he proposed sending to BHPB setting out the terms of a proposed offer to be made by 3 of his wholly owned subsidiaries. The offer was similar in a number of respects to the third offer that had been made by GPNL. In particular, Mr Palmer proposed that he would arrange for companies associated with him to subscribe $35 million to the company to assist with working capital plus a US$5 million payment on settlement together with an amount of US$145 million in royalties payable over a maximum of 7 years with a one year holiday making six payments of approximately US$24 million per year. 42It appears that on the same day Mr Downie spoke to Mr Tim Reid, a partner at Clayton Utz, concerning GPNL's position in advance of a board meeting to be held the following day. Mr Downie reported to Mr Henderson on that conversation in an email he sent early on 2 June 2009. Mr Downie said: Tim is relaxed, he said we need to be sure the GPNL [sic] cannot reasonably proceed with the bid before turning it over to Clive Clive does not have to resign as long as he does not participate in GPNL discussion or decisions around the management contract with Clive's company 43On the morning of 2 June 2009, Mr Downie also sent an email to Mr Palmer in which he said: It seems to be a good sign that Jimmy is still talking I am sure that would be BHPB preference to have you accountable for 100% of Yabulu. 44There was a Board meeting of GPNL later that day. Mr Palmer did not attend that meeting. At that meeting, the Board resolved: the chairman is to obtain written confirmation from BHP Billiton as to whether they were willing to deal directly with GPNL and If BHP Billiton were no longer willing to deal with GPNL that GPNL should pursue a management agreement with Mr Palmer for the ongoing management of Project Sunshine. 45However, later that day, Mr Wilson of BHPB wrote to GPNL in response to its third offer. In that response, Mr Wilson said: I am therefore writing to reconfirm BHP Billiton's decision (as set out in the letter from our advisers to you dated 26 th May 2009) that BHP Billiton has exercised its right ... to terminate discussions with GPNL in relation to the potential divestment of the Yabulu Refinery. 46On 3 June 2009, Mr Downie sent Mr Palmer a document setting out some issues that needed to be negotiated with BHPB. It seems clear that a number if not all of those issues had emerged out of the due diligence that GPNL had conducted. 47Despite BHPB's letter dated 2 June 2009, GPNL continued to do some further work on acquiring the refinery and, for that purpose, continued to obtain advice from Mr Freeman and explore options for financing until about 9 June 2009. 48In the meantime, Mr Palmer continued to pursue a separate deal with BHPB and, some time in June 2009, he resigned as a director of GPNL, although there is a dispute about precisely when that occurred. 49On or about 11 June 2009, Mr Downie sought formal advice from Clayton Utz on GPNL's position. That advice was initially given in a letter dated 12 June 2009, which was amended on 16 June 2009. There was a meeting of GPNL's board on the same day. The minutes of that meeting record, in accordance with advice given by Clayton Utz: 3. Conflicts of interest It was noted that Mr Palmer had a material personal interest in relation to the Project Sunshine and that in accordance with section 195 of the Corporations Act that he should not be present or vote in relation to the agenda. The minutes also record, again in accordance with advice given by Clayton Utz, that the following resolutions were passed: GPNL will no longer pursue the Yabulu Refinery opportunity Mr Henderson and Mr Martino would negotiate a management agreement and compensation with Mr Palmer for GPNL involvement in the Yabulu project. The compensation would seek take [sic] into account: The costs incurred by GPNL, ... The IP provided to CP [Mr Palmer] for the bid and that both retainer and profit share would also be sought from Mr Palmer so that GPNL shareholders were recovering something after the failed GPNL bid. 50Mr Martino met with Mr Palmer after the board meeting and told him that: The Board has resolved that GPNL would no longer pursue the Yabulu project. They have given you the all clear to deal on your own behalf with BHP. Mr Martino also raised the question of a management contract and the costs incurred by GPNL. Mr Palmer replied that he would only pay GPNL's external costs. He was non-committal about a management contract. 51Companies controlled by Mr Palmer entered into an agreement to acquire the Yabulu refinery on 3 July 2009. GPNL was largely unsuccessful in negotiating any agreement with Mr Palmer. Although Mr Palmer did agree to reimburse GPNL for external consultant costs it had incurred, it appears that those costs have not been paid. 52GPNL has still not proceeded with the Gladstone project. It has expended approximately $27.6 million on engineering and environmental approvals for the project and has also expended funds investigating the financial feasibility of the project and on a substantial drilling program in connection with the project. In order to progress the project, it needs to raise further capital. It currently has approximately $6.5 million in cash and annual expenses of approximately $1.6 million. It has two employees - Mr Brewster, the current CEO and Ms Williams, the company secretary. Mr Palmer, through companies he controls, currently owns approximately 56 percent of the shares in GPNL. 53There is evidence to suggest that the Yabulu refinery has been a very profitable investment for Mr Palmer. Sections 236 and 237 54Section 236 of the Act permits a person to bring proceedings on behalf of a company if the person is a member of the company and the proceedings are brought with the leave of the court granted under s 237. Section 237(2) provides that the court must grant leave if it is satisfied: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings-there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied. Section 237(3) creates a rebuttable presumption that leave is not in the best interests of the company where the directors decide that that is the case and all of the directors who participated in that decision acted in good faith for a proper purpose, did not have a material personal interest in the decision, informed themselves about the subject matter of the decision to the extent they reasonably believed was appropriate and rationally believed that the decision was in the best interests of the company. A belief is a rational one unless the belief is one that no reasonable person in the position of the directors would hold: s 237(3). The presumption is only available where the proposed claim is against a third party. A third party does not include a related party: s 237(4). Consequently, the presumption has no application in this case. 55There is no dispute in this case that Robash has satisfied the requirements of s 237(2)(a) and (e). The dispute concerned the other three requirements and, in particular, the requirement that there be a serious question to be tried and the requirement that it be in the best interests of the company that the applicant be granted the leave sought. 56The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. For that reason, cross-examination going to the merits of the case will only be permitted with leave of the court and then only to a limited extent. Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result. As the Full Federal Court explained in Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163; 74 ALR 505 at 509-10: However, applying the "serious question" test, it is clear that the inquiry whether there is a serious question to be tried must be answered with reference to the circumstances of the case. There may be cases in which the facts are so clearly and comprehensively established at the time of the application for the interim order that the court would conclude that the applicant had no arguable case. At the opposite extreme there may be cases in which the applicant has had little opportunity to ascertain the facts and to adduce evidence but there is some material to suggest an entitlement to relief. Upon further investigation that material may turn out to be capable of ready refutation or explanation but, in the meantime, it may be appropriate for the court to intervene. Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief. 57The requirement that the court be satisfied that it is in the best interests of the company that the applicant be granted leave raises two questions. One is whether it is in the best interests of the company that the action be brought. The other is whether it is in the best interests of the company that it be brought by the applicant. The court must consider the interests of the company as a whole. As Brereton J said in Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [44]: The phrase "best interests" directs attention to the company's separate and independent welfare. Charlton v Baber (2003) 47 ACSR 31, [52]; Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442, [46]. This imports the familiar concept of the interests of the company as a whole. ... Whether the "best interests" of the company as a whole reflect those of the shareholders taken together in light of the corporate objects, or those of the creditors which will prevail in the context of insolvency, will be influenced by the status of the company. Walker v Wimborne (1976) 137 CLR 1; 3 ACLR 529; Spies v R (2000) 201 CLR 603 ; 173 ALR 529 ; 35 ACSR 500; Charlton v Baber (2004) 47 ACSR 31, [53]. In considering what is in the best interests of the company, it is necessary to consider the prospects of success of the action, the likely costs and likely recovery if the action is successful and likely consequences if it is not. One relevant matter in considering these issues is the nature of any indemnity the applicant has offered to the company if the action is brought and the likelihood that the company will recover under that indemnity. It is also necessary to consider the resources the company will be required to devote to the action and the resources it has available, together with the effect that the action may have on other aspects of its business. Finally, it is necessary to consider whether some other remedy is available to the applicant so as to make the proposed action unnecessary from its point of view: see Swansson [2002] NSWSC 583; (2002) 42 ACSR 313 at [56]ff. 58The requirement that the applicant be acting in good faith has at least two elements. One is that the applicant must honestly believe that the company has a good claim with reasonable prospects of success. The other is that the claim must not be brought for some collateral purpose as would amount to an abuse of process: Swansson [2002] NSWSC 583; (2002) 42 ACSR 313 at [36]. See also Maher [2005] NSWSC 859 at [29]; Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91 at [110]-[111]; Fitzpatrick v Cheal [2010] NSWSC 717 at [40]. In my opinion, the applicant must also honestly believe that it is in the best interests of the company that the action be brought. Is there a serious question to be tried? 59Robash puts GPNL's claims in various ways and, to some extent, its position shifted during the course of argument. The claims are largely identified in a proposed statement of claim prepared by Robash. That statement of claim alleges that Mr Palmer: (a) negotiated with BHPB to buy QNI in his own interest instead of negotiating the sale to GPNL (para 23); (b) failed to inform GPNL of the progress of his negotiations with MCC and consequently hindered GPNL's ability to negotiate with BHPB (para 24); (c) entered into an agreement to acquire the shares in QNI in circumstances where he had been negotiating to acquire those shares for GPNL (para 27). 60The statement of claim alleges that, in engaging in that (and other) conduct, Mr Palmer: (a) breached his common law duties not to obtain an unauthorised benefit from his position as a director of GPNL and not to put himself in a position of conflict (para 30-1); (b) did not exercise his powers or discharge his duties as a director of GPNL in a way that a reasonable person in his position would in breach of s 180 of the Act (para 32); (c) did not act in good faith in the best interests of GPNL or for a proper purpose in breach of s 181 of the Act (para 33); (d) improperly used his position as a director of GPNL to gain advantage for himself or the Palmer companies or to cause detriment to GPNL in breach of s 182 of the Act (para 34). 61During the course of submissions, Mr Stevenson SC, who appeared for Robash, also submitted that there was a serious question to be tried that Mr Palmer improperly used information that he obtained as a director of GPNL to gain an advantage for himself or the Palmer companies or to cause detriment to GPNL in breach of s 183 of the Act. Robash provided details of the information on which it relied in supplementary written submissions. It was not, however, contended that Mr Palmer breached a duty of confidence that he owed to GPNL by using the information in formulating his own bid for the Yabulu refinery. 62In support of the allegation that Mr Palmer breached his duties at common law, Mr Stevenson SC relied on the decisions of the House of Lords in Boardman v Phipps [1967] 2 AC 46 and Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n, among others. In the latter case, the directors of the appellant incorporated a subsidiary to lease two cinemas in connection with the appellant's business. They became directors of the subsidiary as well. Initially, it was proposed that the capital of the subsidiary be 2,000 pounds and that the directors would give guarantees in respect of the lease payments payable by the subsidiary. Shortly afterwards, an offer was made to acquire all of the shares in the appellant for 92,500 pounds with 15,000 pounds of that amount being apportioned to the subsidiary. One of the directors refused to give the guarantee. As a result, it was decided that the subsidiary would raise further capital by issuing additional shares to the directors. The sale of the shares fell through but a short time later the shareholders in both companies received another offer for their shares, which resulted in the directors making a substantial profit. The House of Lords held that the directors were liable to account for that profit to the appellant. It did not matter that the directors were acting in good faith or that the appellant itself was not in a position to take up the shares. As Lord Russell explained (at 144-5): The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. 63In Boardman v Phipps [1967] 2 AC 46, a solicitor acted for the trustees of a testamentary trust which owned a substantial minority interest in a private company. The solicitor, on behalf of the trust, received an offer to acquire those shares and, following further investigations, he recommended that the trust seek to acquire a controlling interest in the company. The trustees rejected that suggestion. He and one of the beneficiaries of the trust then decided to make a takeover offer for the shares themselves. In the course of negotiating to acquire the additional shares, the solicitor and beneficiary used the substantial minority interest of the trust to obtain detailed knowledge of the assets of the company and their value. The solicitor also used considerable expertise of his own. As a result of acquiring the shares, the solicitor and beneficiary made a substantial profit, as did the trust on the shares that it held. A majority of the House of Lords held that the solicitor and beneficiary were liable to account for the profit they made to the trust. It did not matter that they were acting in good faith or that the trust itself was unwilling to acquire the shares itself. However, the majority held that the solicitor and beneficiary were entitled to be given credit on a generous scale for their work and skill in acquiring the shares. In reaching that conclusion, Lord Hodson stated the relevant legal principle in these terms (at 105): The proposition of law involved in this case is that no person standing in a fiduciary position, when a demand is made upon him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of his fiduciary position and by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made profits with the knowledge and assent of the other person. 64Boardman v Phipps was distinguished in Queensland Mines Ltd v Hudson (1978) 18 ALR 1. In that case, Mr Hudson and Mr Korman formed Queensland Mines initially to prospect for uranium. That proposal was ultimately abandoned. However, they were also interested in applying for licences to explore for iron ore in Tasmania. Their intention was to form a new company to do so, but in the meantime they used Queensland Mines for that purpose and it paid expenses incurred in connection with the application for the licences. Two licences were applied for by Mr Hudson in his own name. It was accepted that Mr Hudson had used the good name of Queensland Mines to do so. In February 1961, after Mr Hudson had applied for the licences, Mr Korman's companies got into severe financial difficulties. Mr Korman told Mr Hudson the position on 19 February 1961 and on 23 February 1961 the licences were issued to Mr Hudson. On 8 March 1961, Mr Korman told Mr Hudson that there was no possibility of him proceedings with the licences. Mr Hudson, as was widely reported in the press at the time, formed a new company, which he announced would bear the expenses of the licences until a public company could be formed. Some time later, on 13 February 1962, the board of Queensland Mines passed a resolution in these terms: It was agreed that in view of all the explanations and the large amount of cash that would be required to finance the project, nothing could be gained by pursuing the matter any further. By June 1963, Mr Hudson had proved the existence of valuable deposits and had been successful in interesting an American company in the project, as a result of which he made substantial profits. 65The Privy Council concluded that Mr Hudson was not liable to account for those profits to the company. The view it took was that the company had decided, at least by February 1962, not to pursue the licences itself, and that that decision was a fully informed one: The board of the company knew the facts, decided to renounce the company's interest, whatever it was, in the Tasmanian iron ore venture, and assented to Mr Hudson doing what he could with the licences at his own risk and for his own benefit. The position after 13 February can be put in either of two ways. It can be said that from that date the venture based on the licences was "outside the scope of the trust and outside the scope of the agency" created by the relationship of director and company - a relationship which continued to exist between Mr Hudson and Queensland Mines. Or it can be said that on that date Queensland Mines gave their fully informed consent to pursue the matter no further and to leave Mr Hudson to do what he wished or could with the licences. (at 18 ALR 9-10) 66There is a question about the precise principle for which Queensland Mines stands. Normally, in the absence of a provision in the articles permitting the board to authorise or ratify conduct which would otherwise amount to a breach of fiduciary duty, conduct of that type can only be authorised or ratified by the company in general meeting: Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n at 150 (Lord Russell), 157 (Lord Wright); Furs Limited v Tomkies (1936) 54 CLR 583 at 592 per Rich, Dixon and Evatt JJ; Woolworths Ltd v Kelly (1991) 22 NS W LR 189 at 228 per Mahoney JA. It is sometimes suggested that Queensland Mines stands for an exception to that principle which permits authorisation or ratification by a board even in the absence of an appropriate provision in the company's constitution where the board can be regarded as representative of all shareholders - as in the case of a company which is essentially a joint venture and each member of the joint venture has a right to appoint one or more board representatives: see RP Austin and IM Ramsay, Ford's Principles of Corporations Law, LexisNexis, at [9.340]; Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 403 per Brereton J at [21]. That may explain the second ground advanced by the Privy Council for its conclusion, but it does not explain the first. That ground turned on the view that there was no breach by Mr Hudson because the company had abandoned any interest in the licences and, in doing so, had put the venture outside the scope of the fiduciary duties owed by Mr Hudson. 67Boardman v Phipps and Regal (Hastings) Ltd have been approved by the High Court on a number of occasions: see, for example, Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 393-4 per Gibbs J; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 67-8 per Gibbs CJ; at 103 per Mason J; Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544. In Hospital Products , Mason J summarised the relevant principles in these terms (at 107): The principle, accepted by the courts below, is that the fiduciary cannot be permitted to retain a profit or benefit which he has obtained by reason of his breach of fiduciary duty. A fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict, or possible conflict of interest and duty, or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position. [footnote omitted] See also Chan v Zacharia (1984) 154 CLR 178 at 199 per Deane J. 68However, the High Court's approval of Boardman v Phipps and Regal (Hastings) Limited has not been unqualified. In Warman , for example, the question was whether the plaintiff was entitled to an account of profits in circumstances where it was clear that the fiduciary had breached his duties. In that case, Warman, which manufactured and distributed slurry pumps, had a distribution agreement with an Italian company known as Bonfiglioli. Bonfiglioli was looking to enter into a joint arrangement, preferably with Warman, for the local assembly of its products in Australia. The management of Warman indicated that it was not interested in such an arrangement. The general manager of the Queensland branch of Warman, Mr Dwyer, then wrote to Bonfiglioli indicating that he was considering leaving Warman to set up his own business "which would include and feature Bonfiglioli". Subsequently, Warman asked Mr Dwyer if he was interested in acquiring Warman's agency business. Mr Dwyer declined and instead carried on secret negotiations with Bonfiglioli to establish a joint venture with it. The joint venture was established and was profitable. Warman sought an account of those profits. The High Court held that Warman was entitled to an account of profits for the first two years. In reaching that conclusion the court said (at 559): Although an account of profits, like other equitable remedies, is said to be discretionary, it is granted or withheld according to settled principles. It will be defeated by equitable defences such as estoppel, laches, acquiescence and delay. And, notwithstanding what was decided in Regal (Hastings) Ltd v Gulliver and Phipps v Boardman , it may be that: "the liability to account for a personal benefit or gain obtained or received by use or by reason of fiduciary position, opportunity or knowledge will not arise in circumstances where it would be unconscientious to assert it or in which, for example, there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interests of the person to whom the fiduciary duty is owed that the fiduciary obtain for himself rights or benefits." [ Chan v Zacharia (1984) 154 CLR at 204-5 per Deane J; 53 ALR at 438.] The conduct of the plaintiff may be such as to make it inequitable to order an account. Thus a plaintiff may not stand by and permit the defendant to make profits and then claim entitlement to those profits. [ Re Jarvis (decd) [1958] 1 WLR at 820-1 citing Clegg v Edmonson (1857) 8 De G M & G 787; (44 ER 593); Aquaculture Corp (No 3) (1986) 1 NZIPR 677 at 690; see also Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at 33] And later (at 561): In the case of a business it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal's goodwill over an indefinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits, depending upon the particular circumstances. That may well be the case when it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary, the capital which he has introduced and the risks he has taken, so long as they are not risks to which the principal's property has been exposed. Then it may be said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff's property but the product of the fiduciary's skill, efforts, property and resources. This is not to say that the liability of a fiduciary to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff. 69Although, as I have said, the proposed statement of claim pleads that Mr Palmer breached his duties under ss 180, 181 and 182 of the Act, as well as the duties he owed at common law, the statutory and common law claims rely on substantially the same facts and it is not suggested that they raise substantially different issues. The critical question in both cases is whether there is a serious question to be tried that Mr Palmer acquired the refinery in circumstances where he had an actual or possible conflict of interest and duty or in circumstances where he used his position as a director of GPNL, or information he acquired as a director of GPNL, for his own benefit. If he did, there is a question whether he obtained GPNL's fully informed consent to his conduct. 70In considering the question whether Mr Palmer was in a position of conflict or possible conflict, it is important to identify the conduct he engaged in as a director of GPNL and to ask whether, in engaging in that conduct, he was in a position of conflict or possible conflict. It seems clear that Mr Palmer's conduct fell into three categories. First, he was one of the persons who negotiated or reported to BHPB concerning GPNL's bid. The most obvious example is his negotiations with BHPB on 30 April 2009. However, he had one or more other meetings with BHPB, including the meeting on 29 May 2009. It is arguable from the minutes of the board meeting on 5 May 2009 that the purpose of that meeting was for Mr Palmer "to provide feedback to the vendor on the progress of discussions with MCC" as a representative of GPNL. 71In its written submissions, Robash asserted that Mr Palmer owed GPNL fiduciary duties as a negotiator as well as a director. But it is difficult to see how that assertion adds anything to the allegation that, as a director of GPNL, Mr Palmer involved himself in negotiations with BHPB and, in conducting those negotiations, he was required to comply with the fiduciary duties he owed. Robash also asserts that Mr Palmer was reappointed a director of GPNL for the express purpose of negotiating and advising on GPNL's acquisition of the Yabulu refinery. But again, that seems to me to be an overstatement. The only reasonable inference available from the evidence is that Mr Palmer was reappointed a director of GPNL because he no longer had a conflict arising from the SIA, he was a major shareholder in GPNL and it was thought that his presence on the board would assist the bid because of the significance that BHPB attached to his involvement. The negotiations continued to be handled principally by Mr Downie and Mr Henderson both directly with BHPB and through Gresham. 72The second category of conduct engaged in by Mr Palmer is that he had some discussions with MCC when he was in China in May 2009 in relation to the question whether MCC would provide funding for the acquisition. Again, it would be an overstatement to say that Mr Palmer was responsible for the negotiations with MCC. Rather, it appears that what occurred was that Mr Palmer was going to China on other business and he agreed to meet with MCC while he was there. 73Third, Mr Palmer participated in the board meeting on 5 May 2009 at which GPNL's bid for the refinery was discussed. 74In my opinion, the evidence falls short of establishing that there is a serious question that Mr Palmer was in a position of conflict or possible conflict at the time he engaged in the conduct I have referred to. The only evidence that Mr Palmer had any interest in acquiring the refinery himself prior to 29 May 2009 is the conversation he had with Mr Martino in late March 2009 in which he told Mr Martino that he might be interested in acquiring the refinery himself but that he would not stand in GPNL's way if it wanted to make a bid and that he would provide some assistance to GPNL in making that bid. There is no evidence that Mr Palmer did anything as a director of GPNL prior to 29 May 2009 that was inconsistent with or undermined GPNL's bid. Nor is there any evidence that Mr Palmer took any steps at all to acquire the refinery himself prior to 29 May 2009. Mr Palmer met separately with representatives of BHPB on 30 April 2009, shortly after he had rejoined GPNL's board. But there is no suggestion that he did anything other than promote GPNL's bid for the refinery at that meeting. Mr Palmer provided some support for GPNL's bid. In particular, he provided a letter of support, albeit in very qualified terms and he later agreed to underwrite a share issue by GPNL in the event that its bid was successful, although there is a question concerning the extent of that agreement. GPNL may have hoped that he might have agreed to do more. However, Mr Palmer was under no obligation to provide any form of financial support to GPNL in connection with its bid. Mr Palmer was in China on his own business. He made time to meet with representatives of MCC to see whether it would agree to finance the acquisition. MCC's response was negative. However, there is no suggestion that that was because of something that Mr Palmer said or did. In the proposed statement of claim, it is alleged that Mr Palmer breached his duties by not reporting back to GPNL on the results of his conversation with MCC. However, GPNL had a report from Ms Grieve, and there is no evidence to suggest that Mr Palmer could have provided any other information that would have assisted GPNL. 75The only reasonable inference that can be drawn from these facts is that Mr Palmer had decided that he would not seek to acquire the Yabulu refinery for himself unless and until GPNL's bid failed. That conclusion is consistent with what Mr Palmer said to Mr Martino in late March 2009. If that was Mr Palmer's position, I do not think that there is a serious question that he was in a position of actual or possible conflict. To be in that position, Mr Palmer would need to have sought to acquire the refinery in competition with GPNL or there must have been a reasonable possibility that he would do so. Prior to 29 May 2009, the evidence does not support either of those two contentions. As I understand Robash's submissions, it does not assert otherwise. 76Mr Palmer met with BHPB on 29 May 2009. Mr Sheahan SC, who appeared for GPNL, submitted, on the basis of Mr Wilson's email dated 1 June 2009, that it was BHPB who raised the possibility of Mr Palmer acquiring the refinery at the meeting on 29 May 2009 and Mr Palmer said nothing about it at that stage. However, given the attitude Mr Palmer had expressed previously to Mr Martino, it is at least arguable that Mr Palmer raised the question of a bid by him for the refinery at that time. Nevertheless, it is clear that by 29 May 2009, there was no real prospect that GPNL would be able to acquire the refinery. BHPB gave notice (through Gresham) on 26 May 2009 terminating discussions with GPNL. It did so in circumstances where GPNL had failed to make an offer that satisfied a condition that BHPB had been saying for some time was essential in accordance with a timetable that BHPB had said was critical - that is, an offer that contained clear evidence that GPNL would be able to fund the acquisition and, perhaps even more importantly, fund the ongoing costs of the refinery. BHPB terminated GPNL's access to the data room on 28 May 2009. GPNL made one further offer on 26 May 2009 and Gresham's response to that offer might be regarded as equivocal. However, BHPB's response on 2 June 2009 was not; and the only reasonable inference available from the evidence is that BHPB told Mr Palmer at their meeting on 29 May 2009 that BHPB was no longer interested in dealing with GPNL. In addition, there is no evidence that GPNL had any realistic chance of raising financing for the acquisition in the near future. For example, there is no evidence that GPNL was in serious discussions with any potential lender or investor, let alone one who might provide funds in a timeframe that might have been acceptable to BHPB. Although GPNL did not abandon all hope of acquiring the refinery until about 9 June 2009, there is no evidence that that hope had any realistic foundation. Having regard to those circumstances, I do not think that there is a serious question that Mr Palmer was in a position of conflict by discussing his own acquisition of the refinery with BHPB on 29 May 2009. 77Robash takes issue with the conclusions of the previous paragraph. It submits that it was not for Mr Palmer to determine whether GPNL's bid had come to an end by 29 May 2009. That was a question for GPNL; and it is clear from the evidence that GPNL had not given up on its bid until at the earliest by 9 June 2009 and not formally until the board meeting on 16 June 2009. Moreover, Robash submits that, at least until 2 June 2009, it could not be said that its bid was doomed to failure. Gresham's email dated 28 May 2009 appeared to leave the door open; and Mr Downie's email dated 2 June 2009 to Mr Palmer in which he said that "It seems to be a good sign that Jimmy is still talking" suggests that the position was not hopeless; and, in any event, if the position became hopeless that was only because, as soon as Mr Palmer indicated an interest in dealing with BHPB himself, BHPB lost all interest in dealing with GPNL. 78The first limb of Robash's submission on this point is undoubtedly correct. It was not for Mr Palmer to determine when Robash's bid came to an end. However, I do not accept the second limb of the argument. The question whether there was an actual or real possibility of a conflict is a question that must be answered objectively. As Santow J (as he then was) said in ASIC v Adler [2002] NSWSC 171; (2002) 41 ACSR 72 at [735], citing Boardman v Phipps [1967] 2 AC 46 at 124 per Lord Upjohn and Queensland Mines Ltd v Hudson (1978) 18 ALR 1: ... in order to assess whether or not there is a real sensible possibility of conflict one must adopt the position of the reasonable person looking at the relevant facts and circumstances of the particular case ... 79In this case, BHPB made its position clear on 26 May 2009. There was nothing that GPNL could do to address BHPB's concerns in anything like the timetable set by BHPB. Mr Downie recognised that fact when he commented that it was a good sign that Mr Wilson was still talking. Contrary to Robash's submissions, it is clear from the next sentence of that email that the point Mr Downie was making was that it was a good thing that BHPB was still talking to Mr Palmer . Mr Downie's decision to seek legal advice from Clayton Utz also supports the view that he recognised that GPNL's position was hopeless. The conflicts rule ceases to fulfil its function - to preclude the fiduciary from being swayed by considerations of personal interest in discharging his or her duties (see Chan v Zacharia (1984) 154 CLR 178 at 199 per Deane J) - when the transaction giving rise to the conflict has no real prospect of proceeding. 80As to the question whether Mr Palmer took advantage of knowledge or an opportunity or information he gained as a fiduciary, in my opinion, it cannot seriously be argued that Mr Palmer took advantage of an opportunity he learned of as a fiduciary. It is clear that BHPB approached Mr Palmer in late 2008, at a time when Mr Palmer was not a director of GPNL, to see whether he was interested in acquiring the refinery. BHPB met with Mr Palmer independently of GPNL to encourage that interest and gave him the document described as "Opportunity Overview". This is not a case where Mr Palmer learned of the sale or was able to deal with BHPB in relation to it because of his directorship of GPNL. In fact, the reverse is the case. The evidence clearly suggests that BHPB wanted to deal with Mr Palmer and was only prepared to deal with GPNL because Mr Palmer was its major shareholder. Robash submits that the opportunity to acquire the refinery came to Mr Palmer as a result of his meeting with BHPB on 29 May 2009 and that he attended that meeting in his capacity as a director of GPNL. I do not accept that submission. The opportunity had been available to Mr Palmer since November or December 2008. He only took that opportunity when he realised that it was one no longer available to GPNL. 81The question whether Mr Palmer used information he gained as a director of GPNL in making his bid for the refinery is not as clear. As I have said, Robash, in written submissions, provided a lengthy list of information that Mr Palmer is said to have learned as a director of GPNL which was relevant to his own bid. Broadly speaking, that information falls into the following categories: * Information learned by GPNL as a result of due diligence. Robash placed particular significance on the fact that GPNL learned that BHPB estimated the costs of closure at $400 million and the fact that due diligence did not reveal any particular reasons not to proceed with the acquisition; * Information concerning BHPB's attitude to the bid. Robash placed particular emphasis on the information that Mr Palmer is said to have learned at the meeting with BHPB on 30 April 2009, including the fact that there was no other bidder and that BHPB was keen to sell; * Information concerning GPNL's internal analysis of the bid; * Information concerning the terms of GPNL's offers; * Information provided to MCC; * GPNL's analysis of the proposed share purchase agreement. 82In my opinion, there are four difficulties with the allegation that Mr Palmer used information he obtained as a director of GPNL for his own bid in breach of both his common law obligations and his obligations under s 183 of the Act. 83First, much of the information obtained by Mr Palmer was obtained by him other than as a director of GPNL. At the time that Mr Palmer rejoined the board of GPNL, it appears that he no longer had a contractual right to prevent GPNL from bidding for the refinery. However, his agreement to the bid continued to be important because GPNL wanted his financial support for the bid. GPNL willingly provided Mr Palmer with information concerning the bid before he joined the board. Two employees of Mineralogy signed confidentiality undertakings in connection with the due diligence process before Mr Palmer was reappointed to the board. That could only have been because GPNL expected to share due diligence information with them. There is no reason to suppose that GPNL's attitude would have been any different if Mr Palmer had not joined the board; and it seems artificial to say that Mr Palmer received information as a director when that information would have been made available to him in any event. 84Robash submits that it could not have been intended that, even if Mr Palmer received the information in some other capacity, he was free to use it for any purpose he thought fit. That may well be the case. However, Mr Stevenson SC specifically disavowed any claim that Mr Palmer owed a duty of confidence in respect of the information he obtained. Consequently, the only question is whether Mr Palmer received information as a director and whether he used it or used it for an improper purpose. 85Robash also places considerable emphasis on the meeting on 30 April 2009 and the fact that Mr Palmer learned at that meeting that BHPB had no other bidders. Certainly one of the capacities in which Mr Palmer attended that meeting was as a director of GPNL. In my opinion, he also attended that meeting as the major shareholder of GPNL, whose support BHPB regarded as essential. In any event, there is no evidence that Mr Palmer was told that there were no other bidders and it is most unlikely that that is what happened. Rather, it was a conclusion that he drew from what he was told by BHPB. Although, as I have said, one of the capacities in which Mr Palmer attended the meeting was as a director of GPNL, it seems clear that he could have met with BHPB any time he wanted to discuss the acquisition of the Yabulu refinery, either as a shareholder of GPNL or as another person interested in making a bid. He could have learned the same information he learned at the meeting on 30 April 2009. Again, it seems artificial in those circumstances to say that the conclusions he drew concerning BHPB's position were conclusions that were only available to him as a director of GPNL. 86The second difficulty with this aspect of Robash's case is that, on 3 June 2009, Mr Downie sent Mr Palmer information that GPNL had obtained for its own bid. His only purpose in doing so could have been to provide assistance to Mr Palmer's bid. There is no suggestion that Mr Downie breached his duties to GPNL in doing so, and it is difficult to see how that suggestion could be made. By then, it was obvious that GPNL's bid would not succeed. As Mr Downie recognised, GPNL's best hope was to see Mr Palmer's bid succeed and seek to persuade Mr Palmer to give GPNL a management contract for the refinery. But if Mr Downie did not breach his duty by giving Mr Palmer the information to use for the purpose of his (Mr Palmer's) bid, it is difficult to see how Mr Palmer breached his duties in using that information, assuming he did. 87The third difficulty with this aspect of Robash's case, is that there is no evidence of what information, if any, was used by Mr Palmer in his bid. That, or course, is not fatal to Robash's application. The question is whether there is a serious question to be tried, not whether GPNL will succeed. And it is at least arguable that, having been provided, with information, Mr Palmer used some of it. But this is an issue relevant to GPNL's prospects of success, which in turn is relevant to what is in GPNL's best interests. 88The fourth difficulty with this aspect of Robash's case is that, on 16 June 2009, the board of GPNL resolved that "GPNL will no longer pursue the Yabulu Refinery opportunity". 89Rule 117 of GPNL's constitution permits the board to authorise conduct which would otherwise be a breach of duty by a director. However, it is doubtful that that provision applies in this case. It only applies where the director notifies the board of a "Material Interest" as soon as practicable after the director becomes aware of the facts which give rise to that Material Interest: r 113. "Material Interest", in relation to a director, is defined to be: ... any interest (whether direct or indirect, whether actual or potential and whether financial or not) or duty of that Director which gives rise to a real possibility that the interest or duty may conflict with the duties owed by the Director to the Company. It is at least arguable that Mr Palmer did not give notice as soon as practicable after he became aware of the relevant facts. It is also arguable that the rule only applies to relieve the directors of breaches arising from a conflict and not from breaches by which the director makes a profit from his position as a director. In addition, it is arguable that the resolution itself was not a resolution authorising Mr Palmer to do anything. It was simply a resolution that GPNL did not intend to pursue a particular opportunity. For those reasons, r 117 can be put to one side. 90Nonetheless, the resolution of the board on 16 June 2009 is significant. There is no suggestion that that resolution passed by the board involved a breach by the directors who passed it of their duties. Nor, in my opinion, is there any basis on which it could reasonably be argued that the board was not fully informed when it took that decision. It knew the circumstances in which GPNL's own bid had failed. Mr Palmer was open about his own negotiations with BHPB. There was no suggestion that the board's support for Mr Palmer's bid was based on anything but the hope that Mr Palmer might agree to reimburse GPNL for some of its costs and agree to grant GPNL a management contract. The only purpose of the board passing the resolution it did with that knowledge was to permit Mr Palmer to pursue the opportunity itself. That was the result that was conveyed to Mr Palmer. Necessarily, that would involve Mr Palmer using whatever information he had gained over the past few months. In this respect, Mr Palmer's position seems to be indistinguishable from the position of Mr Hudson in Queensland Mines . 91Robash, however, sought to distinguish Queensland Mines on four bases. 92First, it submitted that the decision of GPNL's board was not a fully informed one because the board did not know what happened at Mr Palmer's meeting with Mr Wilson on 29 May 2009. I do not accept that submission. The only relevant thing to come out of the meeting on 29 May 2009 was that there was a discussion about the possibility of one of Mr Palmer's wholly owned companies bidding for the refinery which led to Mr Wilson's email dated 1 June. Mr Palmer forwarded that email to Mr Downie. In those circumstances, there can be no question that the board was properly informed of the relevant matters arising from the meeting on 29 May 2009 when it took its decision. 93Second, Robash submitted that the resolution of the board in Queensland Mines that the opportunity not be pursued was made before the director pursued the opportunity on his own behalf. In my opinion, there is no merit in that submission. At the time the resolution in Queensland Mines was passed, Mr Hudson had obtained the relevant licences in his own name and was actively seeking to establish a public company to whom, presumably, he would sell the licences. 94Third, Robash submitted that the principle for which Queensland Mines stands is that a resolution of the board is only effective in respect of the application of the conflicts rule. It was not effective in respect of the rule that the fiduciary could not make improper use of his position or information he obtained as a fiduciary. Again, I do not accept that submission. In Queensland Mines the Privy Council expressly found that "the opportunity to earn these royalties arose initially from the use made by Mr Hudson of his position as managing director of Queensland Mines" (18 ALR at 8). 95Fourth, Robash submits that Queensland Mines only applies where the board can be regarded as representative of all the shareholders. That cannot be said of the board in this case. I do not accept this submission. As I have said, the Privy Council gave two reasons for its advice. One of those reasons undoubtedly turned on the nature of the company and the composition of the board. But the second reason did not. It turned on the particular facts of the case and, in particular, the fact that there was no prospect of Queensland Mines pursuing the relevant venture and, in those circumstances, it was willing to turn that venture over to one of its two major shareholders who set about taking all the risks and doing all the work necessary to progress the venture. That was the position of Mr Palmer in this case. The opportunity came to both Mr Palmer and GPNL - although in GPNL's case most likely only because of Mr Palmer. Mr Palmer chose not to pursue that opportunity and gave GPNL a chance to do so. At the beginning, Mr Palmer and GPNL shared the information that they were given by BHPB. When it became obvious that GPNL could not pursue the opportunity itself because it could not raise financing, it agreed to turn that opportunity over to Mr Palmer. In the particular circumstances of this case, I think the only reasonable conclusion is that the GPNL board by its resolution on 16 June 2009, accepted that the acquisition of the refinery fell outside the obligations of Mr Palmer and GPNL as a fiduciary. 96Taking these matters into account, I do not think that there is a serious question to be tried that Mr Palmer breached his duties by using information he gained as a director of GPNL to pursue his acquisition of the Yabulu refinery. Are proceedings in the best interests of GPNL? 97Even if I am wrong in the conclusion that I have reached on the question whether there is a serious question to be tried, I do not think that the proceedings are in the best interests of GPNL. 98In considering whether the proceedings are in the best interests of GPNL, it is necessary to consider, among other things, the costs of the proceedings, their prospects of success and their likely effect on the company. 99Ms Pearsall, the partner at Blake Dawson responsible for the conduct of the current application on behalf of GPNL, estimates that GPNL's costs of the proposed proceedings will be approximately $750,000 and that the costs of Mr Palmer and the Palmer companies will be approximately $1,170,000. No issue is taken with those estimates. Mr Pearce, who is the sole director and shareholder of Robash, has indicated that, if leave is given, he will undertake to the court to cause Robash, as trustee of the Robash trust, to pay GPNL's legal fees and to indemnify it against any adverse costs order. In addition, Mr Pearce has undertaken to guarantee Robash's performance of the undertaking up to $1 million, and there is evidence before the court to suggest that Mr Pearce has more than sufficient assets in his superannuation fund to honour that guarantee. On the other hand, the net assets of the Robash trust are approximately $10,000 as at 30 September 2011. It has total assets of approximately $835,000. Its principal liability is a loan owed to Mr Pearce of approximately $845,000 (it has net assets because of a refund due from the commissioner of taxation). It can be inferred from the evidence that there will be sufficient funds to meet GPNL's own legal costs, but that there will not necessarily be funds available to meet any adverse costs order against GPNL in the event that it is unsuccessful in the proceedings. 100GPNL is largely a dormant company at the moment. If it is to have any hope of progressing the Gladstone refinery, on which it has already spent substantial sums of money, it will have to raise additional capital. There cannot be any real doubt that that will be more difficult for so long as it is involved in major litigation against its majority shareholder. 101In my opinion, the risks associated with the proposed proceedings are substantial. Even assuming that I am wrong in my conclusion that there is not a serious question to be tried, the case could not, on any view, be regarded as being straightforward. Even if GPNL is successful, it cannot be assumed that it will be entitled to an account of the profits that the Palmer Companies have earned and can be expected to earn from the Yabulu refinery. It may well be that the court takes the view that it is more appropriate to award GPNL only a small proportion of past profits, on the basis of the approach stated by the High Court in Warman [1995] HCA 18; (1995) 182 CLR 544. GPNL's strongest case appears to be that Mr Palmer breached his duties as a director by using information he gained as a director in pursuing his own bid for the Yabulu refinery. If the court concluded that some of the information learned by Mr Palmer only came to him as a director, it would still be necessary to identify that information clearly and consider to what extent that information assisted Mr Palmer, when compared to the other information that was given to him in some other capacity. It would also be necessary to consider the substantial risks undertaken by the Palmer companies in acquiring the Yabulu refinery, including the very substantial liabilities that they have undertaken. Those risks have not and could not have been undertaken by GPNL alone. GPNL is in a position where it has been able to wait to see what the outcome of the acquisition has been before commencing proceedings. It is not at all clear that, in those circumstances, GPNL would recover a large amount. 102Having regard to these matters, I am not satisfied that it is in the best interests of GPNL to permit Robash to bring the proceedings on its behalf. To do so would expose GPNL to the risk of a substantial costs order against it. It may disrupt GPNL's ability to raise additional capital. GPNL's prospects of success are by no means certain, and, even if it is successful, its recovery will not necessarily be large. Is Robash acting in good faith? 103The only basis on which GPNL submits that Robash is not acting in good faith is that it is seeking to obtain a benefit which, in good conscience, it should not receive: see Swansson [2002] NSWSC 583; (2002) 42 ACSR 313 at [43] per Palmer J. Having regard to the conclusions I have reached, it is not necessary to consider this submission. Orders 104The originating process should be dismissed with costs. ********** 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. Decision last updated: 04 November 2011