Supreme Court New South Wales Medium Neutral Citation: Great Australian Operations Pty Ltd (Receivers and Managers Appointed) v Washington H. Soul Pattinson and Company Limited [2012] NSWSC 1134 Hearing dates: 18 July 2012 Decision date: 31 August 2012 Jurisdiction: Equity Division Before: Slattery J Decision: Proceedings struck out to the extent they seek specific performance of an alleged agreement for sale of the plaintiff's shareholding interest. The plaintiff's alternative claim for damages permitted to continue. Catchwords: PRACTICE AND PROCEDURE - motion to strike out plaintiff's claim - motion challenging plaintiff's retainer of solicitors to conduct proceedings - defendant appoints receivers and managers to plaintiff's shareholding interest in mining company - proceedings brought in the name of the plaintiff by its directors to (1) enforce a sale agreement said to arise out of the exercise of rights under a buy out provision in a shareholders agreement, and alternatively (2) for damages for the breach of the alleged sale agreement - no challenge to validity of appointment of receivers - whether activating the buyout provisions of the shareholders agreement and whether commencing the proceedings arguably impairs or has an effect upon the receivers' functions - whether, after the appointment of receivers, the plaintiff's directors arguably have capacity to act in name of plaintiff to activate the shareholders agreement and to instruct solicitors to commence proceedings - whether the defendant has demonstrated the absence of a right to bring these proceedings warranting the entry of summary judgment against the plaintiff. Legislation Cited: Uniform Civil Procedure Rules 2005 Cases Cited: Agar v Hyde (2000) 201 CLR 552 Australian Securities and Investments Commission (ASIC) v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) (2011) 244 CLR 1 Bott v Carter [2012] NSWCA 89 Commonwealth of Australia v Griffiths (2007) 70 NSWLR 268 Deangrove Pty Ltd v Commonwealth Bank of Australia (2001) 108 FCR 77 Doulaveras v Daher (2009) 253 ALR 627 GE Capital Commercial Finance Limited v Sutton [2004] EWCA Civ 315 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Gomba Holdings (UK) Ltd v Homan [1986] 3 All ER 94 Great Australian Operations Pty Limited (Receivers and Managers Appointed) v CopperChem Limited [2012] FCA 391 Hawkesbury Developments Co Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199 Hillig v Darkinjung Pty Ltd (No. 2) [2008] NSWCA 147 M Wheeler & Co Ltd v Warmer [1928] Ch 840 Moss Steamship Co Ltd v Whinney [1912] AC 25 Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 Penthouse Publications Ltd v McWilliam (NSWCA, 14 March 1991, unreported) Re Geneva Finance Ltd (1992) 7 WAR 496 Sun-Life Properties Pty Ltd v Chellaston Pty Ltd (1993) 10 ACSR 476 United Service Insurance Co Ltd (in liq) v Lang (1935) 35 SR (NSW) 487 Category: Principal judgment Parties: Applicant:- Great Australian Operations Pty Ltd (Receivers and Managers Appointed) Respondent:- Washington H. Soul Pattinson and Company Limited Representation: Counsel: Applicant:- D.N. Hutley SC, C.N. Bova Respondent:- G. Sirtes SC; D. Neggo Solicitors: Applicant:- Christopher Stephen Frawley, M + K Lawyers Respondent:- Andrew John Christopher, Baker & McKenzie File Number(s): 2012/122746 Publication restriction: No EX TEMPORE Judgment 1There are two notices of motion before the Court. The first, filed on 16 May 2012, is brought by Washington H. Soul Pattinson and Company Limited ("Soul Pattinson"): it challenges the retainer of the solicitors apparently acting for the plaintiff, Great Australian Operations Pty Ltd (Receivers and Managers Appointed) ("Great Australian"); and it seeks summary dismissal of the proceedings pursuant to Uniform Civil Procedure Rules ("UCPR"), r 13.4 on the basis that the plaintiff's claim does not disclose a reasonable cause of action. 2The second motion filed by the Receivers and Managers of certain shares that Great Australian holds in CopperChem Limited ("CopperChem") seeks orders: pursuant to UCPR, r 6.27 that the Receivers and Managers be joined as defendants to the proceedings; and seeks the grant of an injunction to restrain the plaintiff from continuing the proceedings. 3It has been accepted in argument between the parties that I should consider the relief sought on the first of these motions and that the second motion may or may not arise for determination, depending upon the outcome of the first. If the first motion is successful in its challenge to the retainer of M + K Lawyers (the solicitors apparently acting for Great Australian), or otherwise in achieving summary disposal of the proceedings, there would be no point in joinder of the Receivers and Managers as defendants. The proceedings would be at an end. 4Mr Hutley SC and Mr C.N. Bova appear for Soul Pattinson. Mr Sirtes SC and Mr D. Neggo appear instructed by M + K Lawyers. Introduction to the Issues 5The essential facts of the case are not complex and span a relatively short period of time, from late last year through until early this year. Both Great Australian and Soul Pattinson are shareholders in CopperChem, a mining company. CopperChem owns copper mining tenements in the Cloncurry/Mt Isa region of North-West Queensland, where it explores for copper sulphide ore resources. It also operates a copper processing plant in the same area, at which it processes copper oxide into copper sulphate. 6In September 2009 Soul Pattinson decided to invest both debt and equity capital into CopperChem. On 23 September 2009, Soul Pattinson and Great Australian entered into four agreements to facilitate and structure Soul Pattinson's loan advances to, and its subscription for shares in, CopperChem. The agreements relating to the loan advances, as distinct from the acquisition of shares, are the subject of these proceedings. The agreements were respectively, a shareholders agreement, a loan agreement and an agreement for the mortgage of shares. A fourth agreement made the same day, a share subscription agreement, regulated the terms of Soul Pattinson's further investment in CopperChem's equity capital through subscription to Class "B" converting shares and Class "A" redeemable preference shares. The terms of this share subscription agreement are of no present relevance. 7The effect of the other three agreements was the following: the shareholders agreement governed the mutual shareholders relations between Soul Pattinson, which was being introduced as a shareholder of CopperChem, and Great Australian, an existing CopperChem shareholder. This shareholders agreement included, importantly for the current contest, mutual rights of pre-emption and of buyout, should one or other of these two shareholders in CopperChem seek to transfer its shares. 8Pursuant to the second agreement, the loan agreement, Soul Pattinson advanced $3.2 million in short term funding to CopperChem. The loan advance was repayable by CopperChem by 23 September 2011. Great Australian guaranteed the repayment of the loan. Great Australian gave security for its guarantee of CopperChem's primary obligations to repay the loan. 9Great Australian's provision of security came through a share mortgage agreement, the third agreement. Under this share mortgage agreement Great Australian mortgaged its 72 million shares in CopperChem, defined in this agreement as the "Secured Property", which secured Great Australian's guarantee obligation under the loan agreement. Upon default under the loan agreement Soul Pattinson was empowered under the share mortgage agreement to appoint receivers to the Secured Property. Under the share mortgage agreement the powers of such receivers included the right to sell, transfer or otherwise dispose of the whole or any part of Great Australian's shares in CopperChem. 10Shortly before the September 2011 due date for CopperChem's loan repayment it foreshadowed to Soul Pattinson and Great Australian that it was likely to default upon its obligations. The reasons for this situation are not relevant to the current dispute. In the notification sent on 16 September 2011 CopperChem made clear it would not be able to repay the debt, "when it falls due on 23 September 2011" and that it would not be in a position to pay interest owed as at 30 June 2011, due to what it described as "existing creditor and payroll commitments". 11The due date for payment passed. Then, on 26 September 2011 Soul Pattinson acted and issued a demand against Great Australian for the repayment of the amount then alleged to be outstanding under the loan agreement, the sum of $3,459,259.41, comprised of $3.2 million in principal and $259,241.35 in accrued interest. Great Australian did not meet this demand. Two days later Soul Pattinson appointed receivers and managers to the Secured Property, Messrs Kerr and Stone. 12On 28 September 2011 Soul Pattinson entered into a deed of appointment with Messrs Kerr and Stone appointing them as receivers and managers of Great Australian's Secured Property as defined in the share mortgage agreement. Simultaneously, Soul Pattinson notified Great Australian of their appointment. Messrs Kerr and Stone then commenced their receivership. 13Two months later Great Australian claims it took what was to become the first contested step in this litigation. On 20 December 2011, Mr Stephen Wolfe, a director of Great Australian, claims in these proceedings that he, on behalf of Great Australian, served a Mandatory Buy-out Notice on Soul Pattinson pursuant to the provisions of cl 13.2 of the shareholders agreement. 14Soul Pattinson disputes that the Mandatory Buy-out Notice was served. Indeed there is contention in this case whether or not the electronic transmission of the Mandatory Buy-out Notice occurred and whether any such transmission was in accordance with the shareholders agreement. 15But on this application, the Court does not have to decide any of those factual disputes. If the matter does proceed they are factual issues that will need to be determined. 16But importantly for the present application Soul Pattinson also disputes that, after the appointment of the receivers, Mr Wolfe or any director of Great Australian had any residual power to cause Great Australian to issue the December 2011 Mandatory Buy-out Notice. Soul Pattinson says, and Great Australian disputes, that the December 2011 notice is of no effect. 17Soul Pattinson did not respond to the Mandatory Buy-out Notice. On Soul Pattinson's case this is because it did not receive the notice. On Great Australian's case Soul Pattinson's failure to respond triggered the exercise of its rights under the shareholders agreement. Great Australian's board then acted on what was perceived to be Soul Pattinson's non-response. On 17 January 2012 Mr Wolfe, claiming to act on behalf of Great Australian, wrote to Soul Pattinson, and to the receivers, contending that by reason of Soul Pattinson's non-response to the Mandatory Buy-out Notice within the 15 days provided for by cl 13 of the shareholders agreement, that Soul Pattinson was deemed, under the shareholders agreement, to have given notice that it wished to buy the shares the subject of the notice. 18Not surprisingly, this provoked an exchange of correspondence between the parties. During the period 18 and 23 January 2012 Mr Wolfe, purporting to act for Great Australian on one side, and Soul Pattinson, and the receivers on the other side, corresponded: about whether the Mandatory Buy-out Notice had been received; about whether Great Australian, acting through Mr Wolfe had the power to issue such a notice; and what the legal effect of its service would be, were it served. These matters were not resolved through correspondence. 19Then on 18 April 2012 Mr Wolfe, again claiming to act in the name of Great Australian, commenced these proceedings, seeking to enforce against Soul Pattinson, contractual obligations he claimed for Great Australian had been created as a result the service of the Mandatory Buy-out Notice. 20The dispute widened to the receivers. On 1 May 2012 the receivers wrote to M + K Lawyers, the solicitors claiming to act for Great Australian, advancing the case that has been argued on the motion before the Court: that the receivers had exclusive control of the Secured Property, Great Australian's shares in CopperChem; and had exclusive power and authority to deal with the Secured Property; and that as a result Mr Wolfe and the board of Great Australian lacked the power or authority to cause Great Australian to deal with the Secured Property, or to enforce any rights or claims in respect of that Secured Property. 21The receivers argued that any action taken in the name of Great Australian in respect of the Secured Property without the receivers authority was invalid and an unlawful interference with their exclusive power and authority over that Secured Property and that therefore the purported Mandatory Buy-out Notice was invalid. 22On 7 May 2012, issue was joined when M + K Lawyers responded to the receivers. They asserted the validity of the December 2011 Mandatory Buy-out Notice and contended that these proceedings were not an unlawful interference with the receivers' powers to deal with Great Australian's shares in CopperChem or other secured property, or rights arising from that secured property. More correspondence to this effect passed between the parties later in May. Procedural Aspects of the Motions 23The motions were brought on before the Court urgently. Interlocutory argument took place about the timing of the hearing of these two motions. But as some of the relief sought in Soul Pattinson's motion involves the challenge to Great Australian's retainer of M + K Lawyers, it is appropriate that the matter be heard and if possible determined before trial and on this motion. 24There is one other procedural matter. Great Australian foreshadowed that it wished to amend its statement of claim to join the receivers and to seek relief against them. There was then at least one common objective of the parties: the joinder of the receivers. It was convenient in the disposition of the motions before the Court not to determine that motion for amendment. That was deferred until after the determination of these motions. But the motion and proposed amended statement of claim were tendered and became Exhibit 1. 25The Court will first deal with the strikeout motion and secondly the motion challenging M + K Lawyers' retainer. If the strikeout motion is effective then, when the retainer issue is considered, it is likely that the M + K Lawyers and counsel appearing were not properly retained for Great Australian. On the other hand, if the strikeout motion fails it would seem to be difficult, if not impossible, for the retainer argument to be maintained at a interlocutory stage. 26It is appropriate now to describe in more detail the three documents at the centre of these proceedings and motions; the shareholders agreement, the loan agreement and the mortgage, before considering the arguments put in support of the motion to strike out the proceedings. The Three September 2009 Transaction Documents The Shareholders Agreement 27The shareholders agreement was entered into on 23 September 2009, on the same date as the loan agreement and the share mortgage agreement. The shareholders agreement was designed to regulate the mutual rights between these two shareholders, the only shareholders, in CopperChem. 28The shareholders agreement included a number of definitions relevant to the issues argued before the Court that encompass interlocking references to the loan agreement and the share mortgage. "'Dispute' means any dispute or disagreement between any two or more Shareholders in relation to this Agreement, any other Transaction Document, the Company or any its current or proposed activities, budgets, operations or prospects or any other matter material to the successful operations of the Company. ... 'Share' means the following shares in the issued capital of the Company: (a)a fully paid ordinary share; (b)a Class B Converting Share; and (c)a Redeemable Preference Share. .... 'Share Mortgage' means a mortgage over all the Shares that are Registered in the name of the Second Shareholder, to and in favour the First Shareholder, as security for the performance by the Company and the Second Shareholder as guarantor of their respective and joint obligations under the Loan Agreement." 29The shareholders agreement defined (in cl 2) the "shareholders" in accordance with schedule 1 that: the first shareholder [Soul Pattinson] was the holder of 72 million in class B...shares and 100 class A redeemable all preference shares; and the second shareholder [Great Australian] was the holder of 72 million fully paid ordinary shares. 30The shareholders agreement regulated the governance of CopperChem under the mutual shareholding, by providing for each shareholder to appoint directors to CopperChem's board: "4.Directors 4.1Each Original Shareholder is entitled to appoint one (1) Director. 4.2The Original Shareholders will jointly agreed to appoint one (1) Independent Director. 4.3The maximum number of permitted Directors is three (3). 4.4At the time of this Agreement: (a)Stephen Becher Wolfe is a Director and shall be deemed to be the appointed director of the Second Shareholder. (b)Ian Peter Wilson is a Director and shall be deemed to be the Independent Director (Independent Director)". 31The shareholders agreement provided for: the injection of additional funding into CopperChem (cl 3); for the calling and holding of directors meeting (cl 5); for the presentation of accounts (cl 6); for resolutions on special matters (cl 7); for an agreed dividend policy (cl 8); and for the obligations of shareholders to assist the company (cl 9). 32A series of provisions in the shareholders agreement provide for the transfer of shares and the rights of shareholders in respect of purchase of shares or sales to third parties. "10.Transfer of Shares and Rights of Pre-Emption 10.1Subject to the provisions of clause 10.18 and to the terms and conditions of issue of the relevant Shares, a Shareholder must not sell transfer or otherwise dispose of any right title or interest in any Share held by that Shareholder other than in accordance with the provisions of this clause 10. 10.2Subject to the provisions of clause 10.14, a Shareholder wishing to transfer or sell its Shares must first offer those Shares to each other Shareholder, in their Respective Proportions. 10.3The Selling Shareholder must serve a written notice (Offer Notice) on each of the other Shareholders (each, an Offeree) nominating the offer price of the Sale Shares (Offer Price) and all other material terms and conditions upon which the Selling Shareholder is offering to sell or dispose of its Sale Shares. ... 10.14The Shareholders need not comply with the provisions of this clause 10 where: (a)all Shareholders agree in writing that the provisions of this clause 10 should not apply; (b)any transfer or other Dealing in any Shares occurs or is proposed to occur as a result of the enforcement of any right of the First Shareholder under the Share Mortgage; ... (e)a transfer of Shares is proposed to occur in accordance with the provisions of clause 11, clause 12 and clause 13, and provided that the proposed transferee of the abovementioned Shares enters into a Deed of Accession prior to and as a condition of the transfer of such Shares being effected and Registered." 33The shareholders agreement also includes (cl 11 and cl 12) "tag along" and "drag along" rights tailored for the possible sale of the parties' shares in CopperChem to third parties. But these rights are not relevant to the issues now joined. 34Importantly the shareholders agreement (cl 13) provides for the Mandatory Buy-out of one shareholder by the other. "13. Mandatory Buy-out 13.1relevant circumstances to trigger the provisions of clause 13.2 are: (a)the failure of any Dispute under a Transaction Document other than the Share Subscription Agreement to be resolved, and the resolution of that Dispute, where required or appropriate, documented in the manner and within the timetable contemplated in clause 15, or (b)the failure of any Dispute (as defined in the Share Subscription Agreement) to be resolved, and the resolution of that Dispute, where required or appropriate, documents in the manner and within the timetable contemplated in clause 3.5 of the Share Subscription Agreement. 13.2The Parties agree that, in the circumstances set out in clause 13.1, any Shareholder can then cause a mandatory buy-out (Mandatory Buy-out) of its Voting Shares in accordance with the following procedure: (a)the Party desiring to cause the buy-out (Party A) shall serve on the other Party or Parties (each a Party B) an irrevocable written notice (Mandatory Buy-out Notice) that sets out: (i)a time for completion of the purchase of all but not some of Party A's Voting Shares (Mandatory Sale Shares) by Party B which shall not be sooner than 30 days or nor later than 60 days after the date of the Mandatory Buy-out Notice; (ii)the price that Party A is prepared to accept for the sale of all the Mandatory Sale Shares to Party B; and (iii)any other material terms and conditions upon which Party A wants to effect the sale of the Mandatory Sale Shares. (b)Each Party B shall within 15 days of receipt of a Mandatory Buy-out Notice, give written notice to Party A stating whether it wishes to buy its Respective Proportion of the Mandatory Sale Shares. If any Party B fails to give such notice, that Party B shall nevertheless be deemed to have given notice that it wishes to buy all of its Respective Proportion of the Mandatory Sale Shares on the terms and conditions of the Mandatory Buy-out Notice. (c)If any Party B elects or is deemed to elect to buy all of its Respective Proportion of the Mandatory Sale Shares, then that Party B shall buy and Party A shall sell of that that Party B's Respective Proportion of the Mandatory Sale Shares at the price set out in the Mandatory Buy-out Notice, and subject to the provisions of clause 13.1(a)(i), completion of that sale shall take place on the date specified in the Mandatory Buy-out Notice, or such later date as the Parties to that proposed sale agree to. (d)If any Party B fails to purchase its Respective Proportion of the Mandatory Sale Shares as required under this clause 13.1, then Party A will thereupon become and remain entitled (but shall not be obliged) to purchase, and that Party B will thereupon become and remain obliged to sell, all (but not some) of the Shares of that Party B, by a date no later than 90 days after the date of the Mandatory Buy-out Notice, for the price set out in the Mandatory Buy-out Notice and otherwise upon terms and conditions that are no more favourable to Party A than those specified in clause 13.1(a)(iii). (e)Service of a Mandatory Buy-out Notice by Party A in accordance with clause 13.1(a) does not, of itself, oblige any other Party to serve a notice on any Party B. (f)For the avoidance of doubt, if Party A serves a Mandatory Buy-out Notice in accordance with clause 13.1(a), that Mandatory Buy-out Notice must be served on all other Parties. 13.3None of the rights in clause 13.2 for a Mandatory Buy-out that arise as a result of the circumstances in clause 13.1(a) are permitted to be exercised until after the first anniversary of the date of this Agreement. 13.4The rights in clause 13.2 for a Mandatory Buy-out that arise as a result of the circumstances in clause 13.1(b) may be exercised at any time until the First Shareholder has paid for all the Shares that it has agreed to subscribe for, under the Share Subscription Agreement, but may not be exercised after that time. 13.5A Mandatory Buy-out may not occur in relation to the Redeemable Preference Shares. 13.6In the event that a Mandatory Buy-out is caused by the Second Shareholder in relation to ordinary shares of the First Shareholder, the Mandatory Buy-out may only be completed if, prior to or upon the completion the Mandatory Buy-out, all dividends that may be payable as provided for in the terms of the Redeemable Preference Shares have been fully paid out and all the Redeemable Preference Shares have been redeemed." 35One party setting in motion the clause 13.2 mechanism by serving a Mandatory Buy-Out Notice under clause 13.2(a) should produce a clear result. That is the aim of the provision: either the other party elects to buy or does nothing and is deemed to elect and must buy the shares (cl 13.2 (b) and (c)), or the first party has an option to buy at the price it offered in the notice to sell (cl 13.2(d)). 36Finally, the shareholders agreement provides for dispute resolution. A dispute resolution procedure was mandated through Clause 15. 37The factual issue in the proceedings about whether or not the Mandatory Buy-out Notice was received arises out of shareholders agreement cl 20, which provides for the service of notices under the agreement. The Loan Agreement 38The loan agreement of the same date, 23 September 2009, controls Soul Pattinson's loan advance of $3.2 million to CopperChem. The parties put argument in submissions about the meaning of the defined term "dispose", a term which appears in both in the loan agreement and the share mortgage agreement in relevantly identical terms. The loan agreement defines "dispose", in relation to persons and property the following way: "Dispose, in relation to a person and any property, means to sell, transfer, assign, create a Security Interest over, declare oneself a trustee of, part with the benefit of or otherwise dispose of that property (or any interest in it or any part of it), whether done before, on or after the person obtains any interest in the property, including, in relation to a Security Share, to enter into a transaction in relation to the Security Share (or any interest in it or any part of it) which results in a person other than the Mortgagor: (a)acquiring or having any equitable or beneficial interest in the Security Share, including an equitable interest arising under a declaration of trust, an agreement for sale and purchase or an option agreement or an agreement creating a charge or other Security Interest over the Security Share; ..." 39Subject to the other terms of the loan agreement, the lender, Soul Pattinson, agreed (clause 2) to make the loan available to the borrower. Repayment and prepayment were provided for (in cl 4). And clause 4(b) also provided that:- "4(b)The Guarantor will not Dispose, or attempt to dispose of any Security Shares without the prior written consent of the Lender." 40The loan agreement provided for events of default (in cl 7) and the rights of the lender on default (cl 8.1). 41Great Australian's guarantee was provided for in cl 10.1:- "10.Guarantee and Indemnity 10.1Guarantee (a)The Guarantor hereby unconditionally and irrevocably guarantees to the Lender (for the purpose of this clause 10, the Beneficiary) the payment of the Debt and the performance by the Borrower (for the purpose of this clause 19, an Obligor) of each of its other obligations under any Transaction Document (collectively the 'Obligations')." The Share Mortgage Agreement 42The share mortgage agreement was also made on the same date, 23 September 2009. 43A number of the definitions in the share mortgage agreement were the subject of submissions. They are set out below. "'Mortgaged Contract' means any agreement the benefit of which forms part of the Secured Property. ... 'New Rights' means the Mortgagor's interest in all dividends in connection with the Secured Property and any other rights (including all distributions, benefits of any agreement or trust deed and all issue rights) arising in respect of the Secured Property. ... 'Secured Property' means all the Mortgagor's present and future legal and equitable right, title and interest in: (a)the Mortgaged Shares; (b)any New Rights; (c)any Mortgaged Contract; and (d)any proceeds, moneys, dividends, distributions, return of capital, buy back arrangement, marketable securities or other property whatsoever now or in the future, payable or otherwise distributable in respect of the Mortgaged Shares, the New Rights or the Mortgaged Contracts whether by reason of a winding up, conversion, substitution, consolidation, sub-division, redemption, option bonus, warrant, cancellation, re-classification, reconstruction, amalgamation, rights issue or otherwise." 44The share mortgage agreement secured the re-payment of the debt, by creating a mortgage of the "Secured Property" as defined (cl 2). The share mortgage agreement also restricted (in cl 4.1) the mortgagor's [Great Australian's] dealings in the Secured Property:- "4.Dealings 4.1Restricted dealings Without the consent of the Mortgagee, the Mortgagor may not, and may not agree to, do any of the following: (a)Dispose of any Secured Property; ... (d)Assign or otherwise deal with the Secured Property, this mortgage or any interest in them, or allow any interest in them to arise or be varied;" 45The share mortgage agreement also provides for the maintaining of the Secured Property. One of those obligations of maintenance is set out in clause 6I and featured in argument between the parties:- "6.Maintaining the Secured Property The Mortgagor agrees to: (c)(details of New Rights) provide to the Mortgagee or its nominee, immediately after becoming aware of the New Rights, particulars of all New Rights and all documentary or other evidence of New Rights." 46The share mortgage agreement provided for the mortgagee's powers on default (in cl 13). These powers included that the mortgagee's right on default to appoint one or more receivers (clause 13.3(b)). 47More detailed powers upon the appointment of receivers are provided for by cl 15. The mortgagee may under clause 15.1(a) appoint a receiver to "all or any part of the Secured Property or its income". The receivers powers are then specified in clause 15.4:- "15.4Receiver's powers Unless the terms of appointment restrict a Receiver's powers, the Receiver may do one or more of the following: (a)sell, transfer or otherwise dispose of the Secured Property or any part thereof; (b)obtain registration of the Secured Property in the Mortgagee's or its nominee's name; (c)do everything necessary to enable the Mortgagee or its nominee to receive any New Rights; and (d)do anything else the law allows an owner or a Receiver of the Secured Property to do." 48The receivers' disposal of property in the exercise of their powers is binding between the parties. It is described as "final" under cl 16 of the share mortgage agreement. Some Further History 49Before considering argument on the motion, it is useful to consider a little more of the dealings between the parties between August 2011 and February 2012. 50Two important uncontested matters should first be mentioned. The plaintiff does not seek to set aside the appointment of the receivers on 28 September 2011. The validity of their appointment is not under challenge by the directors of Great Australian and seems to be accepted for all purposes on these applications. 51The second uncontested matter was the performance of the subscription agreement for the injection of further equity capital in CopperChem. A further approximately $21 million in equity has been injected into CopperChem by Soul Pattinson under that agreement. At the time of hearing the motion the 72 million shares the subject of the December 2011 Mandatory Buy-out Notice represented a little over 6 percent of CopperChem's issued capital. 52The dispute between the parties started with Great Australian sending a letter on 4 August 2011 to Soul Pattinson, seeking to activate the dispute resolution provision of the shareholders agreement, clause 15, by giving notice of certain alleged disputes. There were several grounds of alleged dispute, none of which are relevant to the present motion. 53On 5 August 2011 Messrs Baker and McKenzie on behalf of Soul Pattinson, responded to that notice, indicating that the matters raised were all disputed, but acknowledging that the dispute resolution procedure under clause 15 of the shareholders agreement had been activated. 54Then by a letter on 23 August 2011, Soul Pattinson informed Mr Wolfe and the directors of CopperChem, that certain events of default under the loan agreement were now being alleged, including that the company had failed to make certain payments of interest. 55On 6 September 2011 M + K Lawyers, the solicitors for Great Australian proposed mediation. Between early September and some time in October 2011 the parties communicated about the issue of a possible mediation. 56On 7 September 2011 Great Australian sent what was claimed to be a first Mandatory Buy-out Notice under shareholders agreement cl 13. This September 2011 notice is not the notice the subject of the Statement of Claim, and will be referred to throughout the balance of these reasons as either "the first Mandatory Buy-out Notice", or "the September 2011 notice". 57In the September 2011 notice Great Australian offered to accept 60c per share upon the sale of its CopperChem shares to Soul Pattinson. Great Australian made it a term of the offer that prior to completion Soul Pattinson should release Great Australian from all its obligations as guarantor under the loan agreement of 23 September 2009. 58There was a rapid response to this notice from Messrs Baker and McKenzie, the solicitors acting for Soul Pattinson. They took issue with it on a number of grounds. They disagreed that there was a genuine, "dispute" under the shareholders agreement. They pointed out that by reason of the term of the September 2011 notice requiring Soul Pattinson to release Great Australian from its obligations under the loan agreement before completion, that Great Australian was imposing a non-reciprocal term in the notice. Baker and McKenzie maintained that this was not permissible, because of the subsequent buy and sell obligations under shareholders agreement cl 13. It is not necessary for the Court to decide either of those issues. But they perhaps explain why a second notice was served in a different form. 59In the midst of these exchanges, on 16 September 2011, the independent CopperChem director informed Soul Pattinson that having considered the financial position of CopperChem he, "Does not believe it would be possible to repay the debt under the loan agreement dated 23 September 2009 when it falls due on 23 September 2011 and CopperChem was not in a position to pay interest as at 30 June 2011 due to trade creditor and payroll commitments". 60On 19 September 2011, Soul Pattinson gave notice on a without admissions basis that it did not wish to buy its proportion of the shares proposed for sale under the first Mandatory Buy-out Notice and otherwise reserved its rights. 61Then on 23 September 2011 default under the loan agreement occurred, as these reasons have already indicated, and the receivers were appointed by deed on 28 September 2011. The 28 September 2011 deed provided, definitions of "security" and "Secured Property" in cl 1.1 that referred back to the share mortgage agreement as follows:- "2.Appointment of Receivers 2.2In exercise of the powers given to WHSP under the Security and by law, WHSP appoints the Receivers jointly and each of them severally to be the receivers and managers of all the Secured Property and of the income derived from them, will all powers, authorities and discretions conferred upon and vested in receivers and managers under and by virtue of the Security or at law. 2.2The Receivers hereby accept the appointment effected by clause 2.1 of this deed. 2.3The Receivers shall be the agents of the Company." 62The 28 September 2011 deed, clause 2 refers to the exercise of powers authorities and discretions conferred by virtue of "the security" or "at law". The "security" is the original share mortgage agreement of 23 September 2009. 63I should mention in passing one argument based on the deed. Mr Sirtes contended that the functions conferred on the receivers upon their appointment under this deed were narrower in scope than the functions that could be exercised under the share mortgage agreement. But having regard to the terms of cl 2.1 and cl 1.1(h) of the deed, I do not find that construction persuasive. 64The question arises after the receiver's appointment on 28 September 2011 whether steps taken in the name of Great Australian by its board, were indeed validly taken. That is the issue that these proceedings must decide. But for convenience of expression and to avoid unwieldiness these reasons sometimes refer to actions taken by "Great Australian" after this date, without always qualifying that statement by pointing out that Great Australian's name is at times being used by its directors in circumstances that are challenged in these proceedings. 65Great Australian commenced other proceedings in the Federal Court on 14 November 2011, proceedings related to the construction and performance of the share subscription agreement. It sought and obtained injunctive relief preventing the receivers and Soul Pattinson from dealing with Great Australian's 72 million shares, without first giving 7 days prior notice. That injunction remained in place until the conclusion of contested proceedings before Jacobson J in April 2012, when the injunctions were dissolved: cf Great Australian Operations Pty Limited (Receivers and Managers Appointed) v CopperChem Limited [2012] FCA 391. 66On 17 January 2012, a second Mandatory Buy-out Notice, the buy-out notice of 20 December 2011 was forwarded to Soul Pattinson under cover of a letter from Great Australian. Great Australian's letter of 17 January 2012 said, "Pursuant to our notice to you of 20 December 2011 we note that you have failed to give written notice stating whether you wish to buy your respective portion of the mandatory sale shares within 15 days of this notice being served in accordance with cl 13.2(b) of the shareholders agreement you are therefore deemed to have given notice that you wish to buy all your respect prosecution of the mandatory sales shares". The 17 January letter attached the 20 December 2011 notice, which stated:- "This is a notice in accordance with clause 13 of the Shareholders Agreement between Washington H. Soul Pattinson and Company Limited ('WHSP') and Great Australian Operations Pty Ltd ('GAO'), dated 23 September 2009 ('Shareholders Agreement'). The provisions of clause 13.2 of the Shareholders Agreement are triggered as the dispute the subject of the notice from GAO dated 4 August 2011 ('Dispute') has not been resolved between the parties and documented in a manner agreed to by the parties to the Dispute, as contemplated by clause 15 of the Shareholders Agreement. This document is an irrevocable written notice, constituting a Mandatory Buy-out Notice contemplated under clause 13.2 of the Shareholders Agreement. The material terms and conditions upon which GAO wants to effect the sale of all of GAO's Voting Shares ('Mandatory Sale Shares') are: (a)time for completion of the purchase by WHSP of the Mandatory Sale Shares is Monday, 30 January 2012; (b)the price that GAO is prepared to accept for the sale of all of the Mandatory Sale Shares to WHSP is $0.55, per share." 67The letter then pointed out that 30 January 2012 was the date nominated for completion of the purchase under the 20 December Mandatory Buy-out Notice which these reasons will also call the Second Mandatory Buy-out Notice. 68The differences between the second Mandatory Buy-out Notice and the first Mandatory Buy-out Notice were simple. The second notice altered the terms of the offer reducing the price per share to 55c and dropping the condition in relation to the release of Great Australian's obligations under the loan agreement to CopperChem. Even this second notice would have involved, if accepted, a substantial payment for Great Australian's 72,000,000 CopperChem shares, of $39,600,000. 69The final phase of the communications between the parties in January and February this year is important to the arguments put on the motion. Soul Pattinson's response to Great Australian's letter of 17 January 2012 was threefold: first to deny that the Second Mandatory Buy-out Notice was valid under cl 13.2; secondly, to contend that the company did not have the requisite authority to issue the buyout notice; and thirdly, to contend that there was no evidence that the notice had been sent. It was clear that Soul Pattinson itself was denying that the directors of Great Australian had any authority to issue the notice. 70A similar position was taken by the receivers a few days later:- "Following our appointment as Receivers and Managers you, as directors of the Company, do not have any power or authority to cause the Company to deal with the Shares or any other property of the Company subject to the Mortgage. We as Receivers and Managers are the only persons with the power and authority to deal with the Shares and that other property. Accordingly, Mr Kerr and I do not regard the two 'notices' that you have purportedly caused to be issued by the Company to the Appointor (dated 20 December 2011 and 17 January 2012 respectively) (Notices) as having been validly issued by the Company pursuant to the Shareholders' Agreement dated 23 September 2009 referred to in those Notices. You have signed and issued those Notices without any power or authority from the Company (or us) to do so." 71Finally in this account, M + K Lawyers dispute the position that was being taken by the receivers and by Soul Pattinson. In further correspondence M + K Lawyers put a number of the arguments that have become submissions in these proceedings. The UCPR r13.4 Strike Out Test and the Pleadings 72The applicable law in relation to the application for striking out under UCPR, r 13 is clear. A plaintiff ought not be denied access to a trial before the customary tribunal, which deals with actions of the kind brought, unless the lack of a cause of action is "clearly demonstrated". The test has been put various ways: that the claim is "so obviously untenable that it cannot possibly succeed", or is "manifestly groundless, or "discloses a case which the Court is satisfied cannot succeed": General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, at 129 per Barwick CJ; and Agar v Hyde (2000) 201 CLR 552. 73There is a need for caution in exercising the power. So, "once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend on it, then it is not competent for the Court to dismiss the action as frivolous and vexatious and an abuse of process": Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 per Dixon J. But the exercise of the jurisdiction is not reserved for those cases where argument is not necessary; argument perhaps of an extensive kind, may be necessary to demonstrate that the plaintiff's claim cannot possibly succeed: see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, at 130 per Barwick CJ; and see also Bott v Carter [2012] NSWCA 89 at [13] - [14] per Basten JA. The need for exceptional caution is necessary where it is apparent that the ultimate outcome turns upon the resolution of some disputed issue or issues of fact: Webster v Lampard (1993) 177 CLR 598. 74There are appellate judicial dicta upon the issue of whether Civil Procedure Act 2005, s 56 may alter the conditions for engaging the power under UCPR, r 13.4: Bott v Carter [2012] NSWCA 89 and Commonwealth of Australia v Griffiths [2007] NSWCA 370; (2007) 70 NSWLR 268 at [155], per Young CJ in Eq. 75These are the applicable principles. But their application faces different issues, depending upon the precise component the relief sought that is being considered. 76The relief sought in the Statement of Claim is layered. Great Australian seeks declarations, specific performance and in the alternative damages, as follows:- "1.A declaration that the mandatory buy out notice dated 20 December 2011 is valid. 2.A declaration that the defendant elected to buy all of its Respective Proportion of the mandatory sale shares on the terms and conditions of the mandatory buy out notice dated 20 December 2011. 3.A declaration that there is a valid and binding agreement between the plaintiff and the defendant for the sale of the plaintiff's shares in CopperChem Limited to the defendant. 4.An order that the provisions of the Shareholders Agreement and the mandatory sale of the plaintiff's shares in CopperChem Limited under clause 13 be specifically performed and carried into effect on the terms and conditions of the mandatory buy out notice dated 20 December 2011. 5.In the alternative, damages. 6.Interest under section 100 of the Civil Procedure Act 2005 at such rates and during such periods as the Court may determine. 7.Costs" 77The contest between the parties was in part a contest about characterisation of this pleading. The applicant on the motion, Soul Pattinson sought to argue that the pleading was seeking enforcement by way of specific performance of an agreement said to have been made by the issuing of the second Mandatory Buy-out Notice under the terms of shareholders agreement clause 13 and that the three declarations sought were ancillary to that relief. 78In support of this characterisation Soul Pattinson pointed out that the agreement that Great Australian sought to enforce was the one pleaded in paragraph 19 and 20 of the Statement of Claim, as follows:- "19.In the circumstances, GAP [Great Australian] became entitled to enforce its rights under the provisions of clause 13 of the Shareholders Agreement, including in respect of service of a MBON. 20.On 20 December 2011, GAP served on WHSP [Soul Pattinson] a MBON in accordance with clause 13 of the Shareholders Agreement." 79The respondent, Great Australian, on the other hand sought to emphasise there were really two kinds of claim in the pleading: one represented in the prayer for a decree of specific performance (order 4), but in the alternative, a claim for damages (order 5). Great Australian argued that declarations could be made and consequential relief given in the form of damages (or alternatively no consequential relief given) without the Court making a decree of specific performance, if specific performance was found to be inconsistent with the exercise of the receiver's powers. The Arguments on the Strike Out Motion 80I now turn to the argument the applicant, Soul Pattinson, advanced on the motion. Mr Hutley appropriately conceded that in order to succeed in the strikeout motion under UCPR, r 13.4 it was necessary for Soul Pattinson to take Great Australian's case at its highest and to assume against itself the correctness of all the allegations made in the Statement of Claim in respect of the second Mandatory Buy-out Notice: cf Penthouse Publications Ltd v McWilliam (NSWCA, 14 March 1991, unreported, BC 9102223). 81There were several of these allegations. They are best listed by reference to the terms of cl 13 itself. The threshold for the operation of cl 13 is that there must be a dispute under a transaction document (cl 13.1(a)). That was a matter in contest. Great Australian said Soul Pattinson admitted a "dispute" in correspondence and that Soul Pattinson was now estopped from denying a dispute existed. But I do not have to concern myself with any of that. Mr Hutley concedes as he must on such an application, that only for the purposes of this argument, there is a "dispute" sufficient to enliven clause 13 of the shareholders agreement. 82There are other arguments about the second Mandatory Buy-out Notice: that it was not received; and that, if it were received, it was not sent in accordance with the shareholders agreement clause 20. Again Mr Hutley concedes against himself the correctness of these contentions, but only for the purposes of this argument. 83The central argument relates to the question of the power to issue the second Mandatory Buy-out Notice. Soul Pattinson's, argument is put a number of ways. But the essential point is reasonably straightforward: that both the issuing of the notice and the enforcement of any contract alleged to arise under the notice, are inconsistent with the exclusive powers over the Secured Property conferred upon the receiver. 84The applicant says by virtue of the 28 September 2011 appointment of the receiver over Great Australian's 72,000,000 CopperChem shares, the "Secured Property" under the share mortgage agreement, that Great Australian lost the rights (1) to issue a clause 13 Mandatory Buy-out Notice under the shareholders agreement, and (2) to enforce any contract for sale with Soul Pattinson said to arise from the issue of the notice. Soul Pattinson submits that the loss of these rights is so clear that the contrary is not arguable to the standard required under the General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 test. 85As Mr Hutley succinctly put the case: it would be absurd that the company could still be in a position to cause the disposition of the very security over which the receiver has been appointed. 86The argument proceeds in two main ways. The first way is by a way of direct comparison between (1) what is sought to be done in the company's name in issuing and enforcing the second Mandatory Buy-out Notice, and (2) the functions of the receiver. 87Soul Pattinson's first argument starts with the definition of "Secured Property" under the loan agreement, which includes "the Mortgaged Shares" and "the New Rights" as defined. The Mortgaged Shares are Great Australian's 72 million CopperChem shares as defined in the share mortgage agreement. The share mortgage agreement in cl 15.4 provided powers to the receivers "to sell, transfer, or otherwise dispose of the Secured Property": cl 15.4(a). The share mortgage agreement includes a grant of power to the receivers: to obtain the registration of the Secured Property in the mortgagee's or its nominee's name (cl 15.4(b)); for the doing of everything necessary to enable a mortgagee to receive any New Rights as defined (cl 15.4(c)) and, doing anything else, the law allows the owner of Secured Property to do: share mortgage agreement (cl 15.4 (d)). Soul Pattinson submits, with some force, that this is an authorisation for any form of sale, transfer or disposition of the Secured Property. 88Soul Pattinson's point is re-enforced by reference to the receivers' 28 September 2011 deed of appointment and the Corporations Act 2001 (Cth), s 420. The deed of appointment provides for the receivers to have all the powers and authorities vested in the receivers by virtue of the share mortgage agreement. The other source of power for the receivers is, of course, Corporations Act, s 420. Soul Pattinson correctly submits that nothing in Corporations Act, s 420 alters or reduces the scope of the powers conferred on the receivers by the deed and by the share mortgage agreement. 89Soul Pattinson submits: that after 28 September 2009 the receivers had the power to dispose of the Secured Property; that, when the second Mandatory Buy-out Notice was issued, the receivers had already been appointed over the Secured Property; and therefore, that the directors of Great Australian had no capacity to sell the shares, as to do so would be inconsistent with the receivers' exclusive power of sale of the Secured Property: see Hawkesbury Developments Co Ltd v Landmark Finance Pty Ltd (1969) 2 NSWR 782 at 790 per Street J as his Honour then was, Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 at 819 - 821, per Shaw L.J. and Re Geneva Finance Ltd (1992) 7 WAR 496, at 513, per Owen J. The incompatibility arises, it is said immediately upon the second Mandatory Buy-out notice being issued, because by that notice the director Mr Wolfe was purporting to deal with the Secured Property, namely the Mortgaged Shares by sale transfer or other disposition. 90In my view, the contrary proposition is not maintainable so far as enforcing any sale of the Mortgaged Shares is concerned. Enforcing the sale of these securities by specific performance is inconsistent with the extensive and exclusive powers of the receivers to deal with the Mortgaged Shares. That is why the Court concludes below that Great Australian's claim for specific performance of the alleged sale agreement arising from the issuing of the second Mandatory Buy-out Notice can be struck out. But it is a different question as to whether all Great Australian's in personam rights to damages arising out of the shareholders agreements must fall away upon appointment of the receivers. 91The second way Soul Pattinson puts its argument is based on the "New Rights" component of Secured Property as defined in the share mortgage agreement. Soul Pattinson submits that the share mortgage agreement's "Secured Property" includes "New Rights", which are the mortgagor's interest in "any other rights (including all distributions benefits of any agreement or trust deed and all issue rights) arising in respect of the Secured Property". 92Soul Pattinson submits that the benefit of cl 13.2 of the shareholders agreement is a right "arising in respect of the Secured Property". Whether the right in question here existed prior to the issue of the first or the second Mandatory Buy-out Notices, or only after those events is not a matter I have to decide. But it seems that after the issue of the second Mandatory Buy-out Notice, if a right to enforce a resulting sale agreement arose, then such an agreement, which would be created through the operation of the combination of cl 13.2 and the second Mandatory Buy-out Notice, was at least arguably a New Right and therefore arguably Secured Property. 93Soul Pattinson also puts an analogous argument drawing upon the definition of "Mortgaged Contract" in the share mortgage agreement, in much the same way as it relies upon the definition of "New Rights". A "Mortgaged Contract" is "any agreement the benefit of which forms part of the Secured Property". Any share sale agreement made by the operation of the shareholders agreement clause 13 will produce proceeds from the sale of Secured Property and are arguably a "Mortgaged Contract" forming part of the Secured Property. 94Before moving to Great Australian's argument in reply, I propose briefly to mention the case law that applies in the circumstances of this case, which received attention from counsel on both sides. The Applicable Principles of Law 95Counsel surveyed applicable authority. The starting point for discussion of relevant legal principles was: Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 ("Newhart"). The facts of the case may be shortly stated. The defendant bank financed the plaintiff's property development. The development failed and the bank appointed a receiver to the plaintiffs' undertaking and property. But the plaintiffs sought to assert a claim for breach of contract against the bank arising out of the bank's withdrawal of financial support for the development. The plaintiffs issued a writ claiming damages for breach of contract, which the bank sought to have set aside on the basis that it had been issued without the receiver's consent. 96In Newhart the Court of Appeal accepted as a statement of general principle and the starting point for their reasoning that any action by directors should not be allowed, which would interfere with the proper discharge of the receiver's function in gathering available assets of the company to discharge the debts owing to a debenture holder: cf M Wheeler & Co Ltd v Warmer [1928] Ch 840. But the Court cautioned against putting the position too widely and emphasised that the principle does not mean that any actions by directors which interfere with the receivers must not be allowed: per Shaw LJ at 819B-C. On that subject Shaw LJ said the following (at 821):- "If that means that nobody else can take any step in regard to the assets of the company which does not amount to dealing with, or disposing of, the assets, it would appear to me to be too wide and not supported by any authority which has been cited to us. What, of course, the directors cannot do, and to this extent their powers are inhibited, is to dispose of the assets within the debenture charge without the assent or concurrence of the receiver, for it is his function to deal with the assets in the first place so as to provide the means of paying off the debenture holders' claims. But where there is a right of action which the board (though not the receiver) would wish to pursue, it does not seem to me that the rights or function of the receiver are affected if the company is indemnified against any liability for costs (as here). I see no principle of law or expediency which precludes the directors of a company, as a duly constituted board (and it is not suggested here that they were not a duly constituted board when they took the step of instituting this action) from seeking to enforce the claim, however ill-founded it may be, provided only, of course, that nothing in the course of the proceedings which they institute is going in any way to threaten the interests of the debenture holders." 97The principle being stated in Newhart was that: if there is a right of action which the receiver would not wish to pursue, that the proper functions of the receiver may not necessarily be prejudiced by the board pursuing that right of action. If the board does decide to commence proceedings, however ill founded, if those proceedings do not threaten the interests of debenture holders as debenture holders, then they may be permitted to proceed. The Court of Appeal pointed out that there are other considerations in play: the receiver may choose to ignore some asset such as a right of action because it was unprofitable, but that does not foreclose the directors of the company pursuing that asset if it is in the company's best interests: per Shaw LJ at 819G-H. 98The next case to which counsel referred the Court is the decision of Hoffman J, as his Lordship then was, in Gomba Holdings (UK) Ltd v Homan [1986] 1 WLR 1301 ("Gomba"). The facts of that case may be shortly stated. The defendant bank as mortgagee appointed a receiver to the plaintiffs, a group of companies with a sole director. The sole director made an agreement with a third party, which he claimed would allow the group to pay off the bank's indebtedness and reclaim their mortgaged assets. Purporting to act in the plaintiff's names the director brought three motions for: (1) financial information about the receivership to conclude negotiations with the third party; (2) an order for redemption; and (3) a restraint on the receiver's disposal of mortgaged assets. Motions (2) and (3) failed before Hoffman J because of the receivers unrestricted rights of the sale mortgaged assets and problems with the plaintiffs establishing the need for the orders on balance of convenience. But Motion (1) failed not because the plaintiffs had no right to the information sought but because they had failed to establish a need for it and because the balance of convenience did not favour the making of the orders. 99Hoffman J then dealt with the question of the receivers' powers. Hoffman J considered (at 1306 E-H) Lord Atkinson's statement in Moss Steamship Co Ltd v Whinney [1912] AC256,263 that the receiver should have the power to carry on the day to day process of realisation and management of the company's property without interference from the board, because the receivers appointment "entirely supersedes the company in the conduct of its business [and] deprives it of power to ... dispose of the property put into the possession or under the control of the receiver". But in Gomba the plaintiffs were not seeking to press a chose in action against the bank. In the circumstances Hoffman J cautioned (at 1306H - 1307E) against reliance on Newhart in the following way:- "Counsel for the plaintiffs relied strongly on the decision of the Court of Appeal in Newhart Developments Ltd v Co-op Commercial Bank [1978] 2 All ER 896, [1978] 1 QB 814 which decided that the residual powers of the board in receivership enabled it to authorise an action for damages against the debenture holder to be brought in the name of the company without the consent of the receiver. This was an exceptional case in which the receiver for obvious reasons did not consider that the debenture holder's interests would be served by pursuing the action. The alleged chose in action was therefore not an asset which, in Lord Atkinson's words, the receiver had 'taken into his possession or control'. He wanted to have nothing to do with it. The court decided that the board was therefore free to bring the action in the interests of unsecured creditors and shareholders. But counsel for the plaintiffs relied in particular on the following passage in the judgment of Shaw LJ ( [1978] 2 All ER 896 at 900, [1978] 1 QB 814 at 820): 'The receiver is entitled to ignore the claims of anybody outside the debenture holders. Not so the company; not so, therefore, the directors of the company. If there is an asset which appears to be of value, although the directors cannot deal with it in the sense of disposing of it, they are under a duty to exploit it so as to bring it to a realisation which may be fruitful for all concerned.' It is easy to see what Shaw LJ meant in the context of the case before him, but counsel for the plaintiffs relies on the generality of this statement for a submission that the directors have a continuing duty to exploit the assets of the company and that the receivers are therefore obliged to provide whatever information is necessary to enable the directors to carry out that duty. I cannot accept that the Court of Appeal contemplated some kind of diarchy over all the company's assets. This would be contrary to principle and wholly impractical. In my judgment the board has during the currency of the receivership no powers over assets in the possession or control of the receiver." 100Hoffman J was pointing out that an important aspect of Newhart was that there the claimed chose of action was not an asset which the receiver had taken into his possession or control; rather that the receiver, wanted to have nothing to do with it. 101The next case to which the Court was referred was the Court of Appeal's decision in GE Capital Commercial Finance Limited v Sutton [2004] EWCA Civ 315 ("GE Capital"). The facts of that case are not of present significance, other than that the Court of Appeal was there considering an application for documents brought in the name of a company in receivership. The receivers took the point that the proceedings were not properly commenced. 102Their Lordships relevantly dealt with the powers of receivers (at [45] and [46]) and considered the statements of Shaw LJ in Newhart in the following way - "[45]The relationship between the powers of receivers and the powers of directors, in the context of proceedings brought in the name of the company, were considered by this Court in Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814, [1978] 2 All ER 896. Shaw LJ pointed out, (ibid, at p 819E-F) that the power to bring proceedings in the name of the company conferred on receivers (in that case, by the terms of the debenture) was no more than an enabling power; the provision conferring that power "does not divest the directors of the company of their power, as the governing body of the company, of instituting proceedings in a situation where so doing does not in any way impinge prejudicially upon the position of the debenture holders by threatening or imperilling the assets which are subject to the charge". Shaw LJ went on to say this (ibid, at p 821B-D): "What, of course, the directors cannot do, and to this extent their powers are inhibited, is to dispose of the assets within the debenture charge without the assent or concurrence of the receiver, for it is his function to deal with the assets in the first place so as to provide the means of paying off the debenture holders' claims. But where there is a right of action which the board (though not the receiver) would wish to pursue, it does not seem to me that the rights or function of the receiver are affected if the company is indemnified against any liability for costs (as here). I can see no principle of law or expediency which precludes the directors of a company, as a duly constituted board (and it is not suggested here that they were not a duly constituted board when they took the step of instituting this action) from seeking to enforce the claim, however ill-founded it may be, provided only, of course, that nothing in the course of the proceedings which they institute is going in any way to threaten the interests of the debenture holders." It is clear, we think, that the reference, in the last sentence of that paragraph, to "the interests of the debenture holders" is to the interests of the debenture holders as such - that is to say, to their interests in the assets subject to the charge. [46]It cannot be said, in the present case, that the institution of proceedings in the APL action goes in any way to threaten the interests of GE, as debenture holder, in the assets subject to the debenture. In so far as the BT documents are assets subject to the debenture, the order sought in the APL action is for the return of those documents to APL; not for the return of those documents to Mr Paul Sutton. And, if those documents are returned to APL, there can be no impediment which denies the APL receivers the right to examine and make use of those documents for the purposes for which they were sought in the letter of 25 February 2003; that is to say, for the purpose of: ". . . investigating matters relating to the indebtedness [of APL to GE] and, in particular, the provision of . . . security and guarantees by various parties, including Paul Sutton, . . . in consideration of GE's agreement to continue the facility . . ." 103The Court was also taken to a number of important Australian cases. They start with Street J's decision in Hawkesbury Developments Co Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199 (at 209) and (1969) 2 NSWR 782, at 790, which is authority for the propositions that upon the appointment of a receiver that the capacity of the company's own organs to function bears a direct inverse relationship to the validity and scope of the receivership (at 290; 790); and thus it will ordinarily be open to a company to challenge the validity of a debenture founding the appointment of a receiver (at 291; 791). 104The next important step is the decision of Owen J in Re Geneva Finance Ltd (1992) 7 WAR 496 ("Geneva"), in which his Honour refined a practical test derived from Shaw LJ's statements in Newhart. His Honour's statement of the test has since been commented upon with approval both by French J, as his Honour the Chief Justice of Australia then was, and by other judges. In Geneva Owen J discussed the decision in Newhart and then proceeds as follows: "In my opinion the reasoning implicit in Newhart indicates the direction which the enquiry should take. The task is to look at the effect which the exercise of the power will have on the receiver's functions rather than to concentrate on the identification and a delineation of the residual duties reposed in the directors." 105But when it comes to undertaking that task Owen J made clear in Geneva that the Court's task may involve determining matters of fact. His Honour said (at 511), "It is a question of fact to be decided in each case whether the purported exercise of power by the directors is detrimental to the functions of the receiver. If it is, the directors must defer to the receiver. If it is not, it does not offend the principle which Newhart enunciates." 106The importance of Geneva is that Owen J, considering arguments such as those advanced by the applicant on the strikeout motion, said the appropriate task is to look at the actual effect that the exercise of the power by the directors will have upon the receiver's function. Application of this test is of great assistance in deciding the result on this motion. 107These statements in Geneva has been subsequently considered with approval in other Australian cases. In Sun-Life Properties Pty Ltd v Chellaston Pty Ltd (1993) 10 ACSR 476 and again in Australian Securities and Investments Commission (ASIC) v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) (2011) 244 CLR 1, French J considered with approval these passages of Owen J's reasoning. 108In Deangrove Pty Limited (Receivers and Managers Appointed) v Commonwealth Bank of Australia ("Deangrove") [2001] FCA 173 at [37] and [38]; (2001) ACSR 465 Sackville J considered with approval Owen J's analysis of the nature of the Court's task, including assessing the relevant detriment from the exercise of the power on the functions of the receiver, and that the exercise is a factual inquiry. 109In Deangrove the defendant bank had appointed receivers to the plaintiff company. The directors of the company commenced proceedings alleging misleading and deceptive conduct by the bank in the execution of the mortgage that founded the appointment of the receivers. The receivers had not indicated they would themselves pursue the misleading and deceptive conduct claim but rather had failed to reply to a letter seeking their approval to the commencement of the proceedings by directors in the name of the company. Sackville J permitted the proceedings to go forward and said (at [40]):- "[40] In my view, the authorities clearly support the proposition that, where a company in receivership has a claim against the debenture holder and the receiver declines to pursue the claim, the directors are entitled to initiate and maintain proceedings in the name of the company, provided the directors offer the company a satisfactory indemnity against costs. The latter requirement is designed to ensure that the interests of the debenture holder, qua debenture holder, are not prejudiced: O'Donovan, Company Receivers and Administrators (2nd ed, 1992), at [8.30]. The entitlement of the directors reflects the fact that, as Street J observed in Hawkesbury Development, at 210, it borders on the absurd to contemplate that a receiver would institute proceedings in the name of the company challenging the very debenture to which he or she owes office. It is almost as absurd to contemplate the receiver instituting proceedings against the debenture holder or chargee claiming damages for misleading and deceptive conduct or breach of duty. In any event, an action conducted by the receiver against his or her appointor is likely to encounter a variety of practical difficulties: Kerr on Receivers (2nd Cum Supp to 17th ed, 1997), at 77." Great Australian's Argument and Conclusion. 110This short survey of relevant authority assists in dealing with Mr Sirtes SC's argument on behalf of Great Australian in answer to the motion. Some of Great Australian's arguments were more persuasive than others. The Claim for Specific Performance 111Great Australian did not adequately answer the motion to strike out its claim for specific performance. The receivers' powers under the share mortgage agreement and the September 2011 deed of appointment to sell or dispose of the subject shares are clear. If one applies Owen J's test in Geneva, the relief sought for specific enforcement of the share sale agreement said to have been created through the service of the second Mandatory Buy-out Notice, it is clear that there is a direct detriment to the exercise of the receiver's functions. The relief sought, in order 4 of the Statement of Claim, for the specific performance of an agreement alleged to have been so made, must involve the disposition of the shares pursuant to that alleged agreement. There is in the relief sought a direct interference with and detriment to the exercise of the receiver's functions. The directors have no authority to commence proceedings to seek such relief. 112To this extent, in my view, the applicant's motion will be successful. I do not see any basis for saying otherwise, despite a number of arguments Mr Sirtes advanced. This is a case where, so far as that portion of the claimed relief is concerned, it can be said there is no maintainable argument at trial. It is a significant step for any Court to take to deprive a party of a right to final hearing at trial. But, on that particular part of this case, it seems to me that this is an appropriate case to so conclude. 113Mr Sirtes sought to advance a number of arguments to counter this conclusion. I will briefly deal with them. Before doing so, I observe though, that these arguments also raise the question about what happens to the pleaded damages claim, which the directors wish to pursue in the alternative to the specific performance claim. 114Mr Sirtes' first argument is that the share mortgage agreement does not change the bilateral rights of each party under the shareholders agreement cl 13, that where there is a dispute one or other party can issue a Mandatory Buy-out Notice. He submits that, when construed together, the creation of the share mortgage agreement does not interfere with the parallel rights that arise under the shareholders agreement. 115But insofar as the pleading claims relief for specific performance, it seems to me that this is not the right question. The correct question is the one Owen J formulated in Geneva: would the obtaining of the claimed relief for specific performance cause detriment to the exercise of functions by the receivers. In my view, it must. 116Secondly, Mr Sirtes submits that the matter could be looked at as a matter of classification of the rights sought to be enforced. He asks what is the legal right sought to be enforced in the pleading: (1) the legal right to acquire the shares; or (2) the rights of the parties to the shareholders agreement? Mr Sirtes says that what is claimed is not property that falls within the terms of the Mortgaged Shares as defined and nor is it to be construed as a New Right. 117It seems to me that whilst this sort of classification argument may well be useful for analysis of the action for damages, it does not justify maintaining an action for specific performance of an alleged sale agreement arising out of the second Mandatory Buy-out Notice. The unquestioned appointment of the receivers and the receivers' functions under their deed of appointment are simply inconsistent with such an action. 118Then Mr Sirtes puts another argument. He says in substance that nothing has been done by serving the second Mandatory Buy-out Notice and commencing proceedings to imperil the Mortgaged Shares, the 72 million CopperChem shares. He submits Great Australian is merely contending that the other shareholder under the shareholders agreement, Soul Pattinson, is required to buy the shares. 119Mr Sirtes then asks in effect "how can that be prejudicial?" But it seems to me that it must be. To require by way of specific performance a sale of the shares in this form, at price which under cl 13 must be set by, and has indeed been set by (that is, in the name of) Great Australian, upon other terms that have been set by Great Australian, and initiated at a time and to be completed at a time which have been set by Great Australian, does usurp and is detrimental to the exercise of the functions of the receiver to deal with the shares. The specific performance action must have the effect of preventing the receivers from selling to third parties at the time and on the terms of their choice. Of course, Great Australian says before me that as it only owns 6 percent of the company, that such a sale to a third party is only a highly unrealistic possibility. 120It is not for the Court in effect to second-guess the receivers as to what actual prejudice might arise from enforcement of the sale agreement said to arise from the alleged service of the second Mandatory Buy-out Notice. The fact is that by seeking to enforce an agreement said to arise under the second Mandatory Buy-out Notice, Great Australian would be taking control of the sale process in a way wholly inconsistent with the exercise of the receiver's functions. 121But then, Mr Sirtes took a different tack, without expressly conceding that he was abandoning the claims brought in specific performance. The Claim for Damages 122The second suite of arguments Mr Sirtes advanced pointed to the alternative pleaded claim against Soul Pattinson, the claim for damages. This alternative creates a more persuasive argument for Great Australian. 123Great Australian submits in introduction that it would be a surprising proposition that upon the appointment of a receiver all of the rights under the shareholders agreement in relation to the shares were to disappear, because of something that CopperChem has done (for example, as here, a defaulting on the loan agreement), thereby depriving Great Australian of the right to issue a Mandatory Buy-out Notice to allow it relieve itself of the shareholder relationship. 124But Mr Sirtes elaborates. He submits that Great Australian's exercise of rights under the shareholders agreement clause 13 also results in the claim for damages under the shareholders agreement. He submits Great Australian is entitled to pursue that claim in personam against Soul Pattinson and that the evidence suggests, at least to the point of being arguable at trial, that the receivers have declined to pursue that claim in the name of the company and have in substance abandoned it. On this argument Great Australian really concedes that the claim for damages is Secured Property but says it has been abandoned. So much seems to me to be at least arguable. I make no final determination about the matter. But on the exchange of correspondence, especially Great Australian's letter of 17 January 2012, and Soul Pattinson's response on 18 January 2012 and the response by the receivers on 20 January 2012, ground an arguable inference that the receivers may have abandoned any such claim for damages. The same inference may also arguably be founded on the subsequent correspondence between the parties up to May 2012 and on the defence filed in these proceedings, denying any entitlement in Great Australian's directors to bring the present proceedings. But as Owen J said in Geneva this "is a question of fact" to be decided in each case. It is a matter for trial. 125Mr Hutley also pressed upon the Court a contention that to leave the proceedings on foot in a way that allowed the in personam claim for damages to proceed but which removed the claim for specific performance would still be an interference with the exercise of the receiver's functions. In substance he was putting that allowing the directors of Great Australian to proceed in this way would fail Owen J's test in Geneva at 510, that it would be a step which "would in the reasonable opinion of the receiver, prejudice the proper administration of the receivership". But in my view there is no necessary inference of prejudice just from the survival of the action for damages. The receivers will still able to deal with and realise the shares as they see fit in accordance with the functions conferred upon them as receivers. An action for damages does not necessarily prevent this. As Owen J said in Geneva "it is a question of fact to be decided in each case" whether the directors' purported exercise of power is detrimental to the receivers. That question of possible detriment is also a question of fact for the trial, not a question for summary dismissal. 126Given the extent of the power conferred over the company's property by the share mortgage agreement cl 15.4, and given the terms of the appointment of the receiver, not all powers in the company have been removed from the directors; only those in respect of dealing with the Secured Property. And it is arguable that the receivers and Soul Pattinson, have declined to pursue the damages claim. As Sackville J explained in Deanegrove, there may be an opportunity in the name of the company for the directors of the company to act in the space arguably abandoned by the receivers. Such claims often involve challenges to the instrument appointing the receiver as occurred in Deangrove. But such claims for damages may arguably be wider and include matters after the receivership commences. 127Mr Sirtes advances other supplementary arguments. A number of those contentions are arguable at final hearing. All these contentions do much the same thing: they make a case that the in personam rights arising out of the shareholders agreement are still available in one form or another against Soul Pattinson despite the appointment of receivers. In my view they are maintainable and worthy of consideration at a final hearing. 128I will briefly list these arguments. There are three of them. The first is an argument that concedes Great Australian is not able to go and sell these shares to third parties. But as Mr Sirtes says, Great Australian can nevertheless issue a notice to its fellow shareholder, Soul Pattinson, which is entitled to reject or accept it. The other shareholder he says, has the choice under cl 13, to accept or reject the offer, or take another course. It seems to me to be at least arguable that the right to issue a Mandatory Buy-out Notice may not be impaired in circumstances where the notice makes a range of choices available to Soul Pattinson itself under cl 13. Mr Hutley argues that the directors have no authority to even issue a cl 13.2(a) notice after the receivership. But, after all, the only other shareholder who would receive the notice was Soul Pattinson. If it accepts the notice it would presumably consent to the sale. If it declines, the notice then Great Australian can make clear that the result will only be an action in damages. That is what has now in substance happened here. 129Mr Sirtes' second argument is in effect a comparison between the rights of pre-emption under shareholders agreement cl 10.14(b), rights which are expressly made subject to the operation of the share mortgage agreement, and cl 13 which is not made subject to the share mortgage agreement Mr Sirtes argues that it cannot have been an accidental part of the September 2010 transaction structure that some equivalent to cl 10.14(b) was not included in cl 13, so as to make clear that cl 13 was only operative before a receiver was appointed. Rather the absence of a cl 10.14(b) equivalent in cl 13 supports an argument that the cl 13.2 right to issue a notice may be independently exercised notwithstanding the appointment of a receiver. 130Mr Sirtes' third argument is that the defined word "dispose" in the share mortgage agreement and the loan agreement is modified, in effect so as not to include the rights under cl 13.2 of the shareholders agreement. This argument has lesser force but seems also to be maintainable. 131When the plaintiff's case is looked at merely as an in personam claim for damages against Soul Pattinson, it is not able to be dismissed because of those arguments which are deployed at final hearing. 132For those reasons Soul Pattinson's strikeout claim fails except in relation to the claim for a decree of specific performance. But the rest of the pleaded claim may proceed to trial, an outcome that is regulated by UCPR 13.5: namely "the proceedings may be continued as regards any claim or part of a claim not disposed of by dismissal". 133There are procedural constraints on the way this litigation will now proceed. I point out, as Justice Sackville did in Deangrove (at 474) that merely because the directors may be entitled to initiate or maintain proceedings in the name of the company, that does not mean that they can do so using the company's assets; indeed, their right to do so may be subject to providing the company with a satisfactory indemnity against the costs of the litigation. Nor does the conduct of the litigation by the directors in the name of the company displace the ordinary application of principles about the provision of security for the defendant's costs of such litigation: cf UCPR r 42.21(1)(d). 134The consequence of my declining to strike out the proceedings, other than the claim for a decree of specific performance is that the Court must now deal with these procedural issues. The Challenge to Retainer 135The law in relation to challenges to the retainer is clear. Such challenges are not really an issue for defence at trial but should generally be disposed of before trial: United Service Insurance Co Ltd (in liq) v Lang (1935) 35 SR (NSW) 487 at 496, 497; Hillig v Darkinjung Pty Ltd (No. 2) [2008] NSWCA 147; and, Doulaveras v Daher [2009] NSWCA 58; (2009) 253 ALR 657 at 133 per Campbell JA. 136The appropriate course is the one the parties have taken here. They have sought as soon as the issue of a challenge to retainer came to light, to have it brought before the Court. There are good reasons for arguing the question promptly once it is clear that such a challenge exists. Otherwise the parties may be engaging, as the authorities point out, in the charade of purporting to decide issues between parties when one of those parties when one of those parties is not really there. 137What should now happen to Soul Pattinson's challenge to the retainer of M + K Lawyers? The relevant retainer is one to conduct in the name of Great Australian the part of the proceedings that have survived Soul Pattinson's motion for dismissal, which proceedings now continue under UCPR, r 13.5, as an action for damages. It seems to me that this is one of those cases, like that considered by the Court of Appeal in Hillig v Darkinjung Pty Ltd (No. 2) [2008] NSWCA 147 at [54] - [57], and in Doulaveras v Daher [2009] NSWCA 58; (2009) 253 ALR 657, where the remaining issue of the challenge to M + K Lawyers' retainer should be deferred to be determined the final hearing. 138An action for damages in the name of Great Australian is not capable of now being summarily dismissed on the basis that Great Australian's directors had no authority to use its name to bring such an action. It seems equally difficult now to determine against those directors that they lacked the authority in Great Australian's name to retain M + K Lawyers to bring and to continue this action for damages. 139It may yet be found at a final hearing that the directors of Great Australian lacked the authority to bring and to continue an action for damages in its name, although the action cannot now be summarily dismissed. It is likely that if that were the outcome at a final hearing, a Court would also conclude that those same directors lacked the authority to retain M + K Lawyers to act for Great Australian to bring this action. The question of M + K Lawyers' retainer is likely to remain a live one. 140The Court must consider facilitating the just, quick and cheap resolution of the real issues in the proceedings: Civil Procedure Act s 56. Such considerations indicate here that the most desirable course is to adjourn the motion challenging M + K Lawyers' retainer for determination at the final hearing at the same time as the other issues with which it closely overlaps. After discussing the Court of Appeal's reasoning in Hillig v Darkinjung Pty Ltd (No. 2) [2008] NSWCA 147, at [54] - [57], in Doulaveras v Daher [2009] NSWCA 58; (2009) 253 ALR 657 at 133, Campbell JA said at [136], that where the issues involved in deciding whether a solicitor is validly retained or not are dependent upon complex questions that also arise at the hearing that it may be appropriate to determine all those questions together at final hearing. "[136]I respectfully agree with the conclusion in Hillig. The court is now required to organise its business in a way that facilitates the just, quick and cheap resolution of the real issues in the proceedings: s 56 of the Civil Procedure Act. If, as in Hillig, the issues involved in deciding whether a solicitor is validly retained are dependent on complex questions that also arise at the hearing, the just, quick and cheap disposal of the real issues may require the question of retainer to be dealt with in the course of a final hearing. As well, one can envisage situations where the question that is involved in a final hearing is a question of law that can be argued quickly, so that it would be wasteful to require the parties to come to court on one day to argue about retainer, and on another day to argue about the issue involved in the final hearing. In such a case, a single hearing in which the challenge to retainer and the final hearing are heard concurrently may be appropriate. Further, sometimes the basis on which a question concerning a solicitor's retainer arises might become known only immediately before or in the course of a hearing, and in such a case it might be appropriate to permit the challenge to be argued at the final hearing rather than have the parties incur the delay and extra cost involved in adjourning the final hearing." 141In this case the just, quick and cheap disposal of the real issues in these proceedings indicates that the question of retainer should be dealt with in the course of a final hearing. I do not think it is possible in this case to decide the question of retainer in effect without deciding the issues that the Court has now allowed to proceed for determination at a final hearing. The matter is one in the Court's discretion. In the exercise of that discretion the motion challenging M + K Lawyers' retainer will be adjourned for determination at the final hearing of these proceedings. Conclusions 142Both sides have been to a degree successful. Soul Pattinson, the applicant on the strikeout motion has been successful, to the extent that prayer for relief 4, for the specific enforcement of an alleged agreement for the sale of shares, will be struck out. But Great Australian has been successful in that the claim for damages, prayer for relief 5, and the declarations, prayers for relief 1,2 and 3 will remain. 143This mixed result may lead to further argument as to costs. I will direct the parties to put on their written submissions in relation to issues of costs by Monday 17 September 2012. At the same time they should bring in either agreed, or in competing form, their short minutes of order dealing with the further conduct of the proceedings, including any applications for orders for security as to 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: 20 September 2012