Supreme Court New South Wales Medium Neutral Citation: Sharpe v Grobbel [2017] NSWSC 2 Hearing dates: 3 January 2017 Decision date: 09 January 2017 Jurisdiction: Equity Before: Robb J Decision: See pars 201- 206 Catchwords: PRACTICE AND PROCEDURE – claim by plaintiffs for extension of interlocutory injunction – held interlocutory injunction should not be extended because the balance of convenience does not favour the extension – plaintiffs had established serious question to be tried in relation to their claims for relief – no question of principle Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 198; [2001] HCA 63 Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 Category: Procedural and other rulings Parties: Frederick Patrick Sharpe (first plaintiff) Joel Francis Fleming (second plaintiff) Christoph Grobbel (first defendant) Renat Heuberger (second defendant) South Pole Holdings (third defendant) Representation: Counsel: G Parker SC (first and second plaintiffs) J Giles SC/AJ Byrne (first, second and third defendants) Solicitors: Garland Hawthorn Brahe (plaintiffs) Dentons Australia (defendants) File Number(s): 2016/384961 Publication restriction: None Judgment Issue 1. The question before the court is whether an interlocutory order made by Slattery J on 22 December 2016 should be extended, and if so on what terms. Parties and other relevant entities 1. The plaintiffs, Mr Frederick Patrick Sharpe and Mr Joel Francis Fleming, are two of the directors of a company called Climate Friendly Pty Ltd (Climate Friendly). 2. The first and second defendants, Dr Grobbel and Mr Heuberger, are the other two directors of Climate Friendly. They are both residents of Switzerland. 3. The third defendant is South Pole Holding Ltd (South Pole), which is a company incorporated in Switzerland. South Pole is the majority shareholder in Climate Friendly (63.4%). Dr Grobbel is the CFO and Chairman of South Pole and Mr Heuberger is its CEO. 4. Climate Friendly itself has not been joined as a party to the proceedings. 5. Mr Sharpe is associated with a company called Sachil Investments Pty Ltd (Sachil), which holds 14.9% of the shares in Climate Friendly. 6. Mr Fleming is associated with a company called Biosoft Pty Ltd (Biosoft), which holds 17.6% of the shares in Climate Friendly. 7. Neither Sachil nor Biosoft has been joined as a party to the proceedings. 8. In addition, there are four further shareholders, who have also not been joined as parties. Together, they hold a total of 4.15% of the shares in Climate Friendly. Business of Climate Friendly 1. There is evidence that Climate Friendly conducts three distinct businesses. The first is the retailing of carbon credits to corporate clients domestically and internationally (the VER business). The second is the provision of renewable energy solutions to corporate clients domestically and internationally (RECs business). The third is the development of land-based carbon projects within Australia (variously called the NCF business, the CFI business, or the ERF business). 2. It will be convenient to mention that this case, in part, concerns a proposal that Climate Friendly sell the first two businesses to a company that is a subsidiary of South Pole, called South Pole Australia Pty Ltd (South Pole Australia). The proposal involves Climate Friendly retaining the third of the businesses. There is an issue as to whether a contract was made to put into effect that proposal, together with other proposals. 3. South Pole conducts similar businesses to Climate Friendly, through various subsidiaries around the world. 4. Apparently, in about 2012, South Pole acquired a majority shareholding in Climate Friendly. 5. In August 2015, Climate Friendly established or expanded its ERF business (the third business mentioned above) as a joint-venture with South Pole Carbon Asset Management Ltd (South Pole Carbon), a Swiss subsidiary of South Pole, governed by the terms of what was called a Cooperation Agreement. The Cooperation Agreement has some significance to a particular aspect of the interlocutory relief that the plaintiffs ask the court to continue, and I will return to a consideration of that agreement in that context. 6. On 23 November 2015, South Pole issued what was called a "reclassification notice" to Climate Friendly, which had the effect that preference shares in Climate Friendly held by South Pole were converted into ordinary shares. That had the consequence that South Pole's stake in Climate Friendly increased to 63.4% of all of the ordinary shares in the company, and also had an effect under the Constitution of Climate Friendly, to which I will come shortly. 7. It is convenient to record at this point that, although South Pole has been the majority shareholder in Climate Friendly at all immediately relevant times, the fact that companies associated with the plaintiffs were the majority shareholders in the company before South Pole acquired its shareholding, appears to have had the effect that on many occasions, in the course of the negotiations and communications relevant to the present dispute, the plaintiffs tended to regard themselves as representing Climate Friendly, and the first two defendants regarded themselves as representing South Pole. That is to say, there are numerous occasions when the counterparties to discussions have been expressed by both sides to be Climate Friendly on the one hand and South Pole on the other. That practice did not reflect the legal reality, in that the plaintiffs did not speak for Climate Friendly to the exclusion of the defendants, but spoke for the companies with whom they were associated, who were shareholders in Climate Friendly. Constitution of Climate Friendly 1. The constitution of Climate Friendly was apparently amended to include provisions to reflect the fact that in practical terms, Climate Friendly was to become a joint-venture between its original shareholders and South Pole. 2. Clause 16.5 entitled Sachil and Biosoft to appoint two directors between them, and South Pole to appoint two directors. 3. Following the issue of the reclassification notice referred to above, clause 16.8(c) had the effect, so far as is relevant to the present dispute, that the directors appointed by South Pole could exercise a casting vote at a meeting of directors of Climate Friendly. 4. Consequently, Mr Sharpe and Mr Fleming could be outvoted at meetings of directors by Dr Grobell and Mr Heuberger. 5. Clause 20 of the constitution is entitled "Matters Requiring Board Approval", and provides that the members of the company agreed that the board would have authority to conduct and manage the business of the company, and exercise all corresponding voting rights and other powers of control, including in relation to certain listed matters. Those matters include the sale or transfer of any part of the undertaking, business, property or assets of Climate Friendly. They also include the power to enter into, vary or terminate any contract or arrangement. Finally, they include any decision to commence, defend or compromise any litigation. 6. Clause 16.29, concerning conflicts of interest, is of particular importance. It provides: Where a dispute exists between the Company and a Member (or an Associate of a Member), then if that matter is considered by the Board: (a) all Directors are entitled to attend and participate in discussions on that matter; and (b) only those Directors who are not appointed by the Member with whom the dispute exists may vote on any resolution put to the meeting in respect of that matter. 1. The operation of this clause of the constitution is central to the plaintiffs' case in these proceedings. Term sheet 1. During the first half of 2016, the four directors of Climate Friendly negotiated the terms of an agreement that led to the signing of a document called the "Term Sheet". 2. The Term Sheet was signed by each of the four directors in the stated capacity as a director of Climate Friendly. 3. The Term Sheet does not identify the intended parties to the document in any conventional way. 4. The Term Sheet is expressed to have been dated 1 July 2016, but the evidence establishes that counterparts of the document were executed by Mr Sharpe and Mr Fleming on the one hand, and Dr Grobbel and Mr Heuburger on the other hand, some days before 1 July 2016. 5. It is apparent that the final form of the Term Sheet was prepared as a result of a number of revisions to an original draft. That appears to have had the effect that certain parts of the document are not consistent. For instance, the Term Sheet commences with the words: "TERM SHEET KEY POINTS FOR INCLUSION", and continues: "Below are key items for a terms sheet which can form the high level elements of our agreement". Next, under the heading "INTENDED OUTCOME", the first bullet point provides: "We propose an arrangement where [South Pole] will ultimately own 50.01% in ERS and 100% in the C & E Business". These provisions of the Term Sheet tend to suggest that the document would contain provisional matters for subsequent agreement. 6. However, the document ends with a number of provisions under the heading "TERM SHEET PRINCIPLES". That part of the document provides: All terms in Term Sheet to be incorporated in full and without amendment, diminution or qualification. Once agreed in a terms sheet, terms to be fixed and with no amendments due to any subsequent changes in business circumstances arising out of normal business including sales, invoicing and costs and no carveouts to exclude or include particular sales. The Term Sheet is designed to capture all the material matters that are agreed between the two parties and act as the basis on which legal documents can be drafted. Entitlements to distributions and tax obligations before and after Completion Date need to be thought through and agreed. In signing the Term Sheet, the Directors agree that: The Term Sheet captures all the material matters for the deal. That these matters are agreed between the two parties. That they will not attempt to renegotiate or modify these terms once signed. That the terms of this document are the basis upon which legal documents are to be drafted. This term sheet is binding on the parties. 1. While it is not necessary on this application to finally decide the point, there is plainly a strong argument based upon this aspect of the Term Sheet that it was intended to create a final and binding agreement, with the intent that the terms contained in the document would be reflected in formal legal documentation. 2. As I have said, the Term Sheet does not specifically identify the intended parties. It is to be noted, however, that in the third and fifth bullet points in the extract set out immediately above, there is a reference to "the two parties". 3. A substantial number of the provisions in the Term Sheet concern the making of amendments to the constitution of Climate Friendly. The only persons who had the power to amend the constitution were its shareholders. In practical terms, no agreement to amend the constitution could be implemented without the cooperation of South Pole, Sachil and Biosoft, as that cooperation would be necessary to pass a special resolution to amend the constitution. 4. Climate Friendly itself did not have any authority to enter into an agreement with any one shareholder to effect an amendment to its constitution that bound any of the other shareholders. 5. The point is that, in so far as many of the terms of the Term Sheet appear to record an agreement between unidentified parties that the constitution of Climate Friendly would be amended in various ways, the Term Sheet would be ineffective if the agreement was not made by and on behalf of all of the shareholders in the company whose representatives had signed the document. 6. I will come back to this issue below. At this stage I will simply note that, given that the intended parties to the Term Sheet were not specified in the document, and each of the four persons who signed it did so as directors of Climate Friendly, in determining who were impliedly intended to be the parties to any agreement created by the Term Sheet, it is difficult to exclude the conclusion that those parties included Sachil and Biosoft. 7. The plaintiffs assert that the Term Sheet relevantly imposed three binding obligations on South Pole. The Term Sheet provides for other matters, but none of the parties suggested that these other matters were material to the question of whether or not the court should continue the interlocutory injunction granted by Slattery J. 8. The first two matters are dealt with in brief terms under the heading "INTENDED OUTCOME", first in the statement: "We propose an arrangement whereby [South Pole] will ultimately own 50.01% in the ERF and 100% in the C & E Business". Later in the document, under the heading "TRADEMARKS" there is a reference to C & E being spun out into a new entity owned by South Pole, which is called "Newco". I infer that the reference to the C & E Business is to the VER and RECs businesses. 9. As at the time the Term Sheet was signed, South Pole held 63.4% of the shares in Climate Friendly, the reference to South Pole ultimately owning 50.01% in the ERF business was apparently intended to refer to South Pole owning 50.01% of the shares in Climate Friendly after some form of buyback. The reference to South Pole owning 100% in the C & E Business apparently was intended to refer to a sale by Climate Friendly of that business to Newco. 10. There is also material in the Term Sheet under the heading "INTENDED OUTCOME" relevant to the nature of the buyback that was proposed. It is suggested that shares be bought back from minority shareholders and that, for every seven shares bought back, two go to Mr Sharpe, two go to Mr Fleming, and three go to South Pole. If the minority shareholders referred to were the holders of the 4.15% of the shares, then obviously the buying back of those shares would not be sufficient to effect a reduction of South Pole's shareholding to 50.01%. The observations in the Term Sheet concerning the mechanism by which South Pole's shareholding would be reduced to 50.01% are plainly rudimentary. 11. As will be seen, the nature of the agreement concerning how the reduction of South Pole's shareholding in Climate Friendly would be achieved evolved after the date of the Term Sheet. 12. The third matter relied upon by the plaintiffs is a provision in the Term Sheet as follows: "All terms to do with casting vote to be removed from Constitution". That term was supported by a provision in the Term Sheet to the effect that for every 20% shareholding a shareholder would be entitled to nominate one director onto the board; that shareholders would be allowed to pool their shares to reach the 20%; and each director would have one vote. 13. It must also be noted that, as part of a number of bullet points under the heading "EMPLOYEES AND RELATED PAYMENTS", there are three bullet points that, in brief, would require the Climate Friendly board to consider a proposal for IT systems to be provided by the South Pole Group to Climate Friendly on certain terms. These provisions have some relevance to that aspect of the interlocutory injunction which concerns changes that would be made to the manner of operation of Climate Friendly's business. 14. It is the plaintiffs' position that the Term Sheet created a final agreement that binds the parties to it. As I understand it, the plaintiffs say that the parties are Climate Friendly and South Pole. If the Term Sheet does not create a final and binding agreement, the plaintiffs say that steps subsequently taken by the parties completed any deficiencies in the Term Sheet, so that ultimately a binding agreement was reached, at least on the three matters that are of concern to this dispute. 15. The defendants, on the other hand, have taken the stance that the Term Sheet only constituted a proposal for consideration by the parties, and that even after formal documents were prepared to implement the proposal, South Pole remained free to decide not to enter into the agreement. 16. The plaintiffs rely upon a number of matters external to the documentation to support their argument that a binding agreement was made, or at least, at this stage of the proceedings, there is sufficient evidence to satisfy the requirement that there be a serious question to be tried on the issue of whether a binding agreement was made. For example, by an email dated 22 June 2016, Mr Heuberger said to Mr Sharpe, among other things: "Note that we have signed term sheet, where we negotiated at great length each and every imaginable detail. I don't understand why you are so afraid of letting the business start operating in the new structure as soon as possible – I really can't think of anything that could happen to your disadvantage". Much later, on 3 November 2016, in a further email Mr Heuberger said to Mr Sharpe: In hindsight, the share-swap deal between you and SP was commercially a bad idea for us. We are too late in the process now, but if we could turn back the clock, we wouldn't do this deal any more. The reason is that CF's carbon and RBCs business is way smaller than what we had in any plans. In particular, it turns out that Gold Power is essentially worthless in today's environment, which is dominated by IRECS and TIGR. Documentation of agreement 1. The plaintiffs arranged for solicitors to prepare documents to implement what they claim to be the agreement made in the Term Sheet. I infer that there were continuing negotiations between the four directors of Climate Friendly concerning the detail of the formal documentation. 2. The primary agreement was an asset sale agreement between Climate Friendly and South Pole Australia. It is only necessary to observe that the draft asset sale agreement is a detailed document, in a conventional form, which provides for Climate Friendly to sell what was described as "the Assets" to South Pole Australia for a price of $670,212.50. The Assets are defined by reference to a schedule and Climate Friendly's balance sheet. The definition is not transparent, but there was no suggestion that the Assets were not the VER business and the RECS business, and related assets. 3. The asset sale agreement contained the following terms concerning the payment of the purchase price: 3.2 The Vendor and South Pole Holding Ltd have entered into a buyback agreement under which the Vendor will purchase from South Pole Holding Ltd certain ordinary shares it owns in the issued capital of the Vendor for an amount equal to the Purchase Price, such that the Purchaser will thereafter owned 50.01% of the ordinary shares in the Vendor. 3.3 The Purchaser's obligation to pay the Purchase Price to the Vendor will be satisfied by South Pole Holding Pty Ltd and the Purchaser issuing a direction to the Vendor to retain the amount referred to in clause 3.2. 1. By clause 4, completion of the asset sale agreement was to be conditional upon completion of the share buyback between South Pole and Climate Friendly, and delivery by South Pole and South Pole Australia of the payment direction to Climate Friendly referred to in clause 3.3. 2. The terms of clause 3.2 provide some evidence that Climate Friendly and South Pole had entered into a buyback agreement, although this provision in the draft asset sale agreement is not conclusive. It suggests that it was no longer agreed that shares would be bought back from the minority share shareholders. Rather, all of the necessary shares would be bought back from South Pole. The terms of the asset sale agreement imply that the buyback price was to be the same as the sale price under the asset sale agreement, being the $670,212.50, and that on completion, South Pole Australia would perform its obligation to pay the purchase price by the two South Pole companies issuing a direction to Climate Friendly to retain the amount of the purchase price. The result would be that it would be a matter between the two South Pole companies as to whether South Pole Australia actually pay the amount of the purchase price to South Pole, so that the latter company would receive the consideration for the buyback of its shares by Climate Friendly. 3. I note in passing that the asset sale agreement does not itself make any reference to the procedural requirements in Part 2J.1 of the Corporations Act 2001 (Cth) (the Act) for the carrying out of an effective buyback by Climate Friendly. 4. It is to be noted that clause 12.5 of the asset sale agreement provided for a grant by South Pole Australia to Climate Friendly on and from completion of a non-exclusive, cost-free, licence to use intellectual property described as the "Project Management Tool" in connection with the continuing business of Climate Friendly, and subject to a qualification in clause 12.6, Climate Friendly agreed to use the Project Management Tool in connection with its business. Clauses 12.7 to 12.9 also provided for South Pole Australia to submit to Climate Friendly "an IT Proposal", which would involve South Pole Australia providing IT services to Climate Friendly in relation to its continuing business. Climate Friendly would be required to consider the IT Proposal on its merits, and if the proposal was accepted, the parties would be required to formally document an agreement concerning the IT Proposal. 5. These provisions of the draft asset sale agreement have some relevance to the dispute between the parties concerning whether the court should continue the aspect of the interlocutory injunction which would prevent the defendants from causing the integration of Climate Friendly's business activities into the mode by which South Pole conducts its business. 6. By email dated 8 November 2016, Mr Fleming sent to Mr Heuberger and Dr Grobbel the documents that had been prepared by the solicitors for execution by South Pole or parties associated with it. The email states: "Overall the execution steps are that the four of us sign the documents, certain documents are then circulated to shareholders, the shareholders meeting is held (which is a formality), followed by completion actions". 7. The documents that are referred to are only the documents with which South Pole and associated parties were concerned. Apart from the draft asset sale agreement, the specific documents are not in evidence. They include a directors circulating resolution, a special resolution to approve the constitutional amendment, a buyback offer to South Pole, a share transfer form, a payment direction, as well as a number of documents that apparently related to the holding of a general meeting of the shareholders of Climate Friendly. The documents included the draft asset sale agreement and the payment direction referred to in clause 3.3 of that agreement. 8. I infer that the solicitors had prepared all of the documents intended to fully implement the agreement, including the steps necessary to comply with Part 2J.1 of the Act. It cannot be known on the evidence whether or not the documentation that was prepared was adequate to achieve its intended purpose. 9. There is no evidence of, or indeed any reference to, any documents being prepared for execution by Sachil and Biosoft to implement any part of the agreement. However, documents would have been required to enable those companies to resolve in favour of the share buyback and the amendments to the constitution of Climate Friendly. 10. Notwithstanding the absence of direct evidence, it should be the case that, if the plaintiffs say that the Term Sheet was a binding agreement in respect of the three matters referred to above, Sachil and Biosoft were also parties to the agreement, and bound to implement the steps required to be undertaken by all parties associated with the plaintiffs to give effect to the agreement. The validity of that proposition cannot be determined at this stage of the proceedings. Change of mind by defendants 1. Whether or not it involved a breach by any of them of any pre-existing contract, it is clear that the defendants changed their minds and decided that it was not in the interests of South Pole to implement all of the matters dealt with in the Term Sheet, or to execute the draft asset sale agreement in the form that was forwarded to them on 8 November 2016. 2. On 30 November 2016, Mr Heuberger and Dr Grobbel signed a letter on behalf of both South Pole and South Pole Australia. The subject matter of the letter was: "Termination of current discussion on Climate Friendly proposal". 3. The letter was addressed to "Freddie Sharpe and Joel Fleming". It may be significant that immediately under the reference to the plaintiffs as addressees, there is a reference to: "Climate Friendly Pty Ltd", and then the address of Climate Friendly is set out. 4. The manner in which the 30 November 2016 letter was addressed gives rise to a question as to whether it was intended that the addressees of the letter would be the plaintiffs personally, albeit at the address of Climate Friendly, or whether the true addressee was Climate Friendly, and the letter was merely written for the attention of the plaintiffs. 5. The first paragraph of the letter stated: Over the past months we have been discussing a proposal by Climate Friendly Pty Ltd, under which Climate Friendly Pty Ltd would sell its entire VER and RECS business to South Pole Australia Pty Ltd and South Pole Holdings Ltd would simultaneously reduce its shareholding in Climate Friendly Pty Ltd from about 63.4% to 50.01%. This proposal is noted in the document dated 1 July 2016. 1. The South Pole companies therefore categorised the Term Sheet as merely containing a proposal. 2. The letter stated that the South Pole companies "no longer wish to pursue the proposed transaction". 3. Three brief and relatively uninformative reasons were given for the change in the South Pole companies' position. The first alleged a number of unidentified misrepresentations and inaccuracies in the numbers that had been provided to South Pole. The second was a claim that the market had turned against the VER and the RECs businesses which had "proven to be in significantly worse shape than initially communicated". Thirdly, it was stated that giving up control of the asset management business in Australia no longer fitted with the strategy of South Pole. 4. On 2 December 2016, Mr Sharpe, describing himself as the CEO of Climate Friendly, wrote an email to Dr Grobbel and Mr Fleming, with a copy to Mr Heuberger. Mr Sharpe purported to speak on behalf of Climate Friendly, and stated that Climate Friendly did not accept the categorisation of the agreement as a proposal. He said that Climate Friendly did not accept the purported termination, and would, if necessary, move to hold both South Pole companies to the agreement as set out in the Term Sheet. 5. Dr Grobbel responded on 6 December 2016. In particular, he said to Mr Sharpe: "You are expressing your personal opinion in your email, maybe as a private individual, maybe as a shareholder but certainly not the view of Climate Friendly". 6. This appears to have been the first time that the defendants focused on the proposition that, whatever the approach they may have taken in the past, it was not correct to consider the plaintiffs as being persons who spoke on behalf of Climate Friendly, as South Pole was in fact the majority shareholder in that company. 7. The parties to these proceedings entered into various discussions concerning the consequences of the step that the defendants had taken on 30 November 2016. A number of meetings of the board and some of the shareholders of Climate Friendly took place (although in the case of meetings of shareholders, without due formality). 8. Materially, the minutes of a meeting of the board of Climate Friendly held on 12 December 2016 record in relation to an agenda item, being "Way forward after South Pole has declined Climate Friendly proposal dated 1 July 2016", that Dr Grobbel made the following statements: CG noted that the deal embodied in the term sheet had two linked steps as agreed: An asset sale of carbon & energy businesses Buyback of CF shares from SP CG said he believed that the asset sale was in the interests of CF, but that the buyback was not. 1. Mr Fleming responded that the asset sale and buyback were the central elements of the restructured deal that had been agreed. 2. It is of note that the evidence includes a record of a discussion immediately after to the close of the board meeting on 12 December 2016, which was specifically described as not being part of the board meeting. Mr Sharpe is recorded as having made the following statement: "To be clear, my goal is to seek performance of the agreement as embodied in the term sheet and subsequent documents". 3. The statements made by Dr Grobbel and Mr Sharpe are of significance to the resolution of the present dispute. Dr Grobbel in effect stated that the defendants believed that the implementation of the asset sale was in the interests of Climate Friendly, but that the buyback was not. Mr Sharpe stated that his goal was to seek performance of the whole of the agreement as embodied in the Term Sheet and subsequent documents. 4. Mr Sharpe's statement is significant, because he expressed the plaintiffs' intention to seek to enforce all aspects of the Term Sheet. Mr Sharpe did not take the stance that the asset sale agreement was so intricately connected with the other aspects of the Term Sheet, particularly the buyback and the removal of the casting vote of the directors appointed by South Pole, that the asset sale should not go ahead unless the other aspects of the Term Sheet were also implemented. 5. The evidence includes a note of an informal shareholder discussion, which apparently also took place after the conclusion of the board meeting on 12 December 2016. Mr Heuberger is recorded as having given the following explanation for South Pole's change of position: RH said the root cause for SP not wanting to proceed was that the deal was "massively out of the money": the CFI business was gaining value so much. The Carbon/REC business was declining in value. The success of the CFI business in the fourth PRF option meant the deal was even more out of the money. 1. There is evidence that, on about 10 November 2016, the NCF (or ERF) business of Climate Friendly was successful in obtaining a number of 10 year Government contracts, with an estimated contract value of approximately $180 million, which brought the total contract value under management of NCF to in excess of $500 million. Mr Sharpe expressed the view that obtaining these 10 year Government contracts had the effect, in general terms, of significantly boosting the long-term value of the NCF business. 2. On 14 December 2016, Mr Heuberger and Dr Grobbel wrote a further letter to the plaintiffs. Again, the letter was addressed to the plaintiffs at Climate Friendly. However, this letter purported to have been written on behalf of South Polar and Climate Friendly. Mr Heuberger and Dr Grobbel signed the letter as directors of Climate Friendly. 3. The letter referred to Climate Friendly as having "made a proposal consisting of two consecutive transactions". Transaction 1 was said to be the sale of part of Climate Friendly's business to South Pole Australia for $670,212.50. Transaction 2 was described as being the purchase by Climate Friendly of shares in that company from South Pole for $670,212.50 "with a subsequent capital reduction of the same amount and South Pole Holding giving up its casting vote in the board". After making a number of statements to justify the position adopted by the defendants, the letter addresses the issue of the application of clause 16.29 of the constitution of Climate Friendly. The plaintiffs had taken the stance that, as there was a dispute between Climate Friendly and South Pole, the directors appointed by the latter company were disqualified from voting on any resolution in respect of the dispute. In effect, the letter expressed the position that there was no genuine dispute between the parties and that "the current situation is merely a commercial negotiation in relation to the sale of" aspects of Climate Friendly's business. It asserted that there could not be a dispute unless the board of Climate Friendly resolved that there was a dispute. 4. The letter gave a summary of the position of South Pole Australia and Climate Friendly that the former company was willing to complete what was described as Transaction 1, but there was no benefit to Climate Friendly in completing Transaction 2. 5. The defendants caused a revised version of the asset sale agreement to be prepared. It is materially the same as the version that was sent to the defendants on 8 November 2016, save for the fact that it deleted the original clause 3.2, and inserted the following new clause 3.2 (which took the form of an amendment to the original clause 3.3): The Purchaser's obligation to pay the Purchase Price to the Vendor will be satisfied by South Pole Holding Ltd or the Purchaser paying the Purchase Price of AUD 670,212.52 a bank account of the Vendor. 1. Clause 4 containing the conditions which had the practical effect of linking the completion of the sale to the implementation of the share buyback was also deleted. 2. The effect of the revisions is that the asset sale agreement would be implemented by the payment of the purchase price into the bank account of Climate Friendly. There was no provision for the coincident implementation of the share buyback agreement. 3. A small number of additional amendments were made to the original draft of the asset sale agreement, but the parties did not submit that these other revisions were material. The revised draft of the asset sale agreement included the original terms concerning the Project Management Tool and the IT Proposal, although the relevant clauses had different numbers to the original draft. 4. On 16 December 2016, the present solicitors for the plaintiffs sent a letter to the South Pole Group. The letter stated that the solicitors acted for Climate Friendly. Among other things, the letter asserted that there was a dispute between the solicitors' client, Climate Friendly, and South Pole, and that the effect of the dispute was to trigger clause 16.29 of the constitution, with the result that the directors appointed by South Pole could not vote on any resolution put to any board meeting in respect of the dispute. 5. This letter prompted a response dated 19 December 2006, that was written on behalf of Climate Friendly by Mr Heuberger and Dr Grobbel. The letter questioned whether the solicitors were authorised to act on behalf of Climate Friendly. In effect, the letter asserted that the letter under response had been written by the solicitors to reflect only the opinion or desire or attitude of the individuals who had instructed the solicitors. The letter stated: "There has been no board meeting or resolution of Climate Friendly which authorised your appointment". 6. A further meeting of the board of directors of Climate Friendly took place on 20 December 2016. The court does not have any minutes of what took place at that meeting, or any direct evidence of what occurred. 7. The plaintiffs have set out in Annexure A to their summons a list of 11 resolutions (described as "the Defendants' Resolutions"), which the plaintiffs say were resolved upon by Mr Heuberger and Dr Grobbel at the meeting in purported reliance upon their casting vote. Annexure B to the summons sets out a resolution which the plaintiffs say was made by the board with the support of the plaintiffs, and on the basis that clause 16.29 of the constitution disqualified Mr Heuberger and Dr Grobbel from voting. 8. I will consider the terms of the two competing sets of resolutions in more detail below. It is sufficient to note for the present that the hearing was conducted on the basis that Annexures A and B to the summons sufficiently set out the competing resolutions (save for some doubtful matters to which I will return below). The plaintiffs' proceedings 1. The plaintiffs were given leave to file their summons in court on 22 December 2016. 2. The summons sought the following relief: 1. A declaration that there exists a dispute within the meaning of section 16.29 of the Constitution of Climate Friendly Pty Ltd ("Climate Friendly") between Climate Friendly and South Pole Holding Ltd ("South Pole") concerning the legal effect of the document signed on 1 July 2016 and headed "Term Sheet Key Points for Inclusion" ("the Term Sheet") ("the Dispute"). 2. A declaration that no director appointed by South Pole is entitled to vote with respect to any resolution with respect to the Dispute. 3. A declaration that the resolutions submitted by the first and second defendants to the meeting of the Board of Directors of Climate Friendly on 20 December 2016 annexed hereto and marked with the letter "A" ("Defendants' Resolutions") and purportedly passed by a majority consisting of the first and second defendants are invalid and of no effect. 4. A declaration that the resolution submitted by the first and second plaintiffs to the meeting of the Board of Directors of Climate Friendly on 20 December 2016 annexed hereto and marked with the letter "B" ("Plaintiffs' Resolution") and purportedly voted down by majority consisting of the first and second defendants was passed in accordance with the Constitution of Climate Friendly and is valid and effective as a resolution of the Board of Climate Friendly. 5. An order restraining the first and second defendants by themselves, their servants or agents, from taking any steps: (a) to frustrate or impede the operation of the Plaintiffs' Resolution; or (b) to implement, or to instruct other persons to implement, the Defendants' Resolutions or any of them. 1. A notable feature of the relief sought in the summons is that the plaintiffs have not sought directly to enforce what they assert is the binding agreement created by the Term Sheet. Rather, their action hinges on the effect and implementation of clause 16.29 of the constitution. In essence, the plaintiffs seek relief which will have the effect of declaring the Defendants' Resolutions to be invalid, and to order the first and second defendants not to implement the Defendants' Resolutions. The plaintiffs also seek a declaration that the Plaintiffs' Resolution was valid, and an order preventing the first and second defendants from frustrating or impeding the operation of the Plaintiffs' resolution. 2. It will be convenient to consider the terms of the Defendants' Resolutions in more detail below, as the interlocutory injunction that has already been made by the court, and is sought to be extended by the plaintiffs, would prevent the implementation by the defendants of the Defendants' Resolutions. No interlocutory injunction has been granted concerning the Plaintiffs' Resolution. 3. The Plaintiffs' Resolution is in the following terms: The Company, if so advised by its legal representatives: (a) take legal proceedings (including seeking any injunctive relief or restraining orders) to enforce the Term Sheet against South Pole Holdings Ltd or such other members of the South Pole Group as the company may be advised; (b) take legal proceedings (including any injunctive relief or restraining orders) against Christoph Grobbel and Renat Heuberger for any breach of directors' duties or any misleading and/or deceptive conduct by them associated with: (i) the entry by the Company into the Term Sheet; (ii) the implementation of the terms of the Term Sheet; (iii) the breach of the terms of the Term Sheet; (iv) any other matter as advised by the Company's legal representatives. 1. The important aspect of the Plaintiffs' Resolution is that the plaintiffs seek a declaration as to its validity, and an order restraining the first and second defendants from frustrating or impeding the operation of that resolution. The effect is that what the plaintiffs seek is declarations and orders from the court that will have the effect that Climate Friendly will take legal proceedings to enforce the Term Sheet. 2. Accordingly, it is clear that the plaintiffs wish to enforce the Term Sheet, including, it appears, the execution and implementation of the draft asset sale agreement, albeit in the form of the draft that was delivered on 8 November 2016. 3. That draft asset sale agreement is materially in the same terms as the draft asset sale agreement that the defendants wish to cause Climate Friendly to enter into and complete, save for the completion of the agreement contemporaneously with the agreement which the plaintiffs allege was also made for the buyback by Climate Friendly of some of South Pole's shares in that company. 4. The plaintiffs' position it is that the Term Sheet created a contract between Climate Friendly and South Pole (and no other parties). That claim is necessary to support the assertion that a dispute arose only between those two companies for the purposes of clause 16.29 of the constitution. The plaintiffs, as directors of Climate Friendly, do not have standing without leave granted under ss 236 (1)(a)(ii) and 237 of the Act, to pursue a claim in the name of Climate Friendly. It appears that the plaintiffs assert that, as directors, they have standing to seek the relief sought in the summons on the basis of s 140 of the Act. However, s 140(1)(b) has the effect that a company's constitution has effect as a contract between the company and each director, under which each person agrees to observe and perform the constitution and rules so far as they apply to that person. 5. I will return to the issue of the plaintiffs' standing, and the adequacy of the joinder of parties to these proceedings, below. The defendants accepted that s 140 at least gave the plaintiffs standing to apply for a declaration as to the meaning and effect of the constitution of Climate Friendly. They resisted the claim that the plaintiffs, as directors, had standing to seek any of the other relief claimed in the summons. I will merely note at this point that s 140(1)(b) provides that the relevant contract is between Climate Friendly and the plaintiffs. If that is so, then it should be necessary for the company to be joined as a party, even if necessarily as a defendant, given the effect of the internal dispute between the shareholders, which casts doubt on the issue of who has power to control the actions of Climate Friendly. As the claim for relief is presently constituted, Climate Friendly is not a party, and the plaintiffs have claimed standing under s 140 of the Act to claim relief against other directors and the majority shareholder, none of whom is made by s 140 party to a contract with the plaintiffs. Claim for interlocutory relief 1. The plaintiffs were also given leave to file in court on 22 December 2016 a notice of motion which sought interlocutory relief until further order. The order sought would restrain the first and second defendants from taking any steps to frustrate or impede the operation of the Plaintiffs' Resolution; or to implement the Defendants' Resolutions. 2. In fact, on 22 December 2016, Slattery J made the following relevant order: 3. An order, until 5 PM on 3 January 2017 restraining the first and second defendants by themselves, their servants or agents, from taking any steps to implement, or to instruct other persons to implement, the Defendants' Resolutions annexed hereto and marked with the letter "A" or any of them. 1. When the matter came on for hearing before me on 3 January 2007, the plaintiffs applied for an order extending order 3 made on 22 December 2016 until the determination of their claim (although, as will be seen, they offered to submit to an early final hearing of that claim). The defendants resisted the plaintiffs' application, and submitted that no further interlocutory injunction should be granted by the court. 2. It is appropriate at this point to set out in outline the Defendants' Resolutions, as contained in Annexure A to the summons. 3. Resolution 1 was: 1. The Climate Friendly board decided that no dispute exists between Climate Friendly and South Pole on any matter. 1. It will be immediately noticed that Resolution 1 will have no effect at all if in fact a relevant dispute existed between Climate Friendly and South Pole. The board of directors of Climate Friendly could have no constitutional power to decide the question of whether rule 16.29 of the constitution had been triggered. 2. Resolutions 2 and 3 are the primary resolutions, and provided as follows: 2. Climate Friendly Pty Ltd should offer to South Pole Australia Pty Limited to sell its VER & RECs business at the terms defined in the asset sale agreement attached to the invitation to this meeting with the changes shown in track change. 3. Any two Directors of the board of directors should execute that transaction as soon as feasible. 1. As I understand it, it is agreed that the asset sale agreement referred to in Resolution 2 is the revised asset sale agreement considered above, which provides for the purchase price to be paid into Climate Friendly's bank account. 2. If an interlocutory injunction is granted as sought in relation to Resolutions 2 and 3, that will prevent Climate Friendly and South Pole Australia entering into and completing the revised asset sale agreement. 3. Resolutions 4 to 9 are a series of relatively complex practical resolutions concerning the operation of Climate Friendly's business. It seems that the effect of the implementation of those resolutions will be to integrate various business practices adopted by South Pole companies (in particular South Pole Carbon) into the continuing business operations of Climate Friendly. That includes the use of the Project Management Tool referred to in both versions of the draft asset sale agreement, and also the use of IT support provided by South Pole Carbon. 4. As I understand it, the plaintiffs submitted that Resolutions 4 to 9 were consequential on the implementation of Resolutions 2 and 3. I doubt that that is so. If Resolutions 2 and 3 are implemented, then part of the business of Climate Friendly will be sold to South Pole Australia, which will then conduct that business as it sees fit. The terms of the draft asset sale agreement that related to the Project Management Tool and the IT Proposal appear to me to relate to Project Friendly's operation of "the Business", which is defined in clause 1.1 as meaning "the business carried on by the Vendor from time to time", which will be the remaining business. 5. If that is so, it is doubtful that Resolutions 4 to 9 could in any real way relate to the dispute as alleged by the plaintiffs. Both versions of the draft asset sale agreement appear to involve the implementation of at least some aspects of Resolutions 4 to 9 (although the resolutions are expressed in a detailed form that does not permit the court to determine the extent to which the resolutions are congruent with the requirements of the draft asset sale agreement). It may be noted that some of these resolutions expressly relate to the CFI business (being the business to be retained by Climate Friendly), and in a number of the resolutions, matters concerning the operation of that part of the business to be sold to South Pole Australia are expressly excluded from the effect of the resolutions (see Resolutions 4, 5 and 6). 6. The relevant point is that it is not at all clear that Resolutions 4 to 9 are anything other than resolutions concerning the continuing operation of that part of the business of Climate Friendly to be retained by that company, whether the plaintiffs or the defendants succeed in this litigation, and have no real connection to the dispute which the plaintiffs allege exists between Climate Friendly and South Pole. The truth is that the evidence concerning the significance and effect of Resolutions 4 to 9, and their connection, if any, with the alleged dispute, is extremely murky. 7. It is not necessary to set out the terms of Resolution 10, as the plaintiffs abandoned their claim for the making of an interlocutory injunction which included any reference to Resolution 10. 8. Resolution 11 purports to disallow Mr Sharpe, as the CEO of Climate Friendly, from spending any time as such or any resources of Climate Friendly on legal action against South Pole. 9. The plaintiffs conceded during the hearing that there was real doubt about whether the alleged Resolution 11 was made. The plaintiffs think it was, although the defendants take the stand that it was not. If it is the defendants' position that Resolution 11 was not made, that would strongly militate against the court making an interlocutory injure injunction to restrain them from implementing it. 10. In any event, I would not make an interlocutory injunction that referred to Resolution 11, as it is limited to the time spent by Mr Sharpe as CEO of Climate Friendly, and in so far as it disallows him from using the resources of the company on any legal action, his duties to the company would not permit him to do so without a valid board approval (given the terms of clause 20.1(m) of the constitution). 11. In response to a number of submissions put by the defendants, and observations made by the court during the course of the hearing concerning the question of who the proper parties to these proceedings may be, the plaintiffs put to the court an alternative approach. They stressed that this approach was an alternative, and they did not abandon their primary approach, which was that an appropriate interlocutory injunction should be granted pending an early final hearing of the claim for relief that they make in their summons. 12. The alternative approach, as I understand it, reflected an acknowledgement that the relief sought by the plaintiffs in their summons did not deal with the underlying dispute between the parties, which was whether Climate Friendly was entitled to enforce the Term Sheet as a final agreement binding South Pole. 13. The plaintiffs recognised that they do not have standing to institute proceedings on behalf of Climate Friendly without the leave of the court granted under ss 236(1)(a)(ii) and 237 of the Act. 14. The plaintiffs indicated that they wish to amend their present claims to seek an order granting the necessary leave to the plaintiffs, as directors of Climate Friendly, to institute proceedings on behalf of Climate Friendly to enforce the alleged agreement made by the Term Sheet. 15. The plaintiffs said that it would be necessary for the court to make consequential directions including: (1) for the joinder of Climate Friendly as an additional defendant; (2) the joinder (if thought fit) of the other shareholders in Climate Friendly; (3) the joinder (if thought fit) of South Pole Australia; and (4) directions for the filing of further evidence. 16. The plaintiffs said that, just as they were prepared to submit to an early final hearing of the claims for relief in their summons, they were also prepared to submit to an early hearing of their new claim for an order granting them leave to commence proceedings on behalf of Climate Friendly to enforce the Term Sheet against South Pole. 17. On both of these bases, the plaintiffs asked the court to extend the interlocutory injunction until the determination of each of their applications. 18. It is therefore necessary for the court to deal with the plaintiffs' proposal that either the claims for relief in the summons, or the application for leave to commence proceedings on behalf of Climate Friendly, could be dealt with on an early basis. The plaintiffs said that they could file any additional evidence, and application for leave, within a few days, and that the court could deal with the applications at some time within the next week. 19. The defendants took a responsible attitude to this possibility. They said that they would cooperate as far as possible, but without knowing what additional evidence would be served upon them, they were unable to assist the court realistically in relation to its enquiry as to when the defendants would be in a position to deal with the plaintiffs' claims. 20. The defendants are in a real sense inhibited by the fact that Mr Heuberger and Dr Grobbel are residents of Switzerland, which will interfere with their ability to give instructions, and will prevent them being able to give first-hand evidence at any hearing contemplated by the plaintiffs. 21. I have decided that it is not realistic or feasible for the court to accede to the plaintiffs' proposal that either of their applications be dealt with within the next week or so. 22. First, the plaintiffs have not demonstrated any particular basis for the court to give them extreme expedition. 23. Secondly, this dispute has come before the court during the court vacation, and I would not be prepared to disturb the court's vacation arrangements, by fixing the applications that the plaintiff wishes to make at any particular time during the vacation. If I were to hear the applications, that would have to happen by 13 January 2017, which I do not consider to be feasible. I would not impose the hearing of this case on the duty judge who will replace me during the vacation. 24. More significantly, however, I do not consider the claims for relief in the summons to be suitable for an extremely urgent hearing on a final basis, and I consider that it would be preferable for the plaintiffs' alternative application for leave to be dealt with by the court in due course. 25. As to the relief claimed in the summons, my view is that that claim raises conceptual difficulties which make it inappropriate to be dealt with on an urgent basis. The plaintiffs' claim in the summons deals with only part of the wider dispute between the parties. It is something of the nature of a de facto separate question, although not in a technical sense one that might be heard following an order under UCPR rule 28.2. 26. In an immediate sense, if the declarations and orders sought by the plaintiffs in the summons were made by the court, the defendants would be precluded from implementing any of the Defendants' Resolutions, and they would be enjoined from interfering with the implementation by the plaintiffs of the Plaintiffs' Resolution. However, the granting of that relief would not address the underlying dispute. It cannot be ignored that there is an issue between the parties as to whether the Term Sheet created a binding contract. I have not dealt with the evidence in detail, but there is an issue whether, in the present circumstances, the implementation of the buyback would be in the interests of Climate Friendly. 27. In simple terms, I believe that it is probable that the determination of the claims for relief in the summons will not, as a practical matter, resolve the dispute between the parties. 28. The summons assumes the truth of the proposition that there was a dispute between Climate Friendly and South Pole, so that only the directors appointed by South Pole were disqualified. That assumption is not clearly true. I have made observations above to the effect that, in my view, there is a high probability that Sachil and Biosoft were also parties to the agreement. 29. It will be remembered that the parties to the agreement are not identified in the Term Sheet. Only the directors of Climate Friendly signed the document. Climate Friendly must have been a party, in so far as the Term Sheet contemplated a sale of part of Climate Friendly's business. South Pole must have been a party, in so far as part of the agreement involved it agreeing to a share buyback by Climate Friendly. However, the Term Sheet also provided for amendments to the constitution of Climate Friendly. That company had no authority to bind its shareholders to an agreement on that issue. The supposed agreement could not be implemented without South Pole, Sachil and Biosoft also being bound. 30. While it is not necessary to decide the point in this instance, and I do not do so, there is a real possibility that, for the purposes of clause 16.29 of the constitution, any dispute that arose was a dispute not only between Climate Friendly and South Pole, but also between Climate Friendly and Sachil and Biosoft. The plaintiffs do not solely represent or control Climate Friendly. If they can say that a dispute arose between the company and South Pole as to whether the whole of the Term Sheet was a binding contract, the defendants should also be able to say that the dispute arose between the company and Sachil and Biosoft, as to whether the company was obliged to implement the buyback. 31. This is at least an esoteric question, but its existence has influenced me to doubt that clause 16.29 has the effect contended for by the plaintiffs, in so far as it disqualifies the first and second defendants, but not the plaintiffs. 32. Whether or not that observation be true, I have formed the view that the suggestion that the early final hearing of the claims for relief in the summons will bring this to dispute to a conclusion is likely to be illusory. 33. The consequence is, that the issue of whether any interlocutory injunction should be continued must be dealt with on the basis that it is probable that the court will have to deal with and resolve this dispute in a conventional timeframe. Entitlement to interlocutory relief 1. The present application does not raise any issue of principle. The parties accept that the entitlement of the plaintiffs to the grant of the interlocutory injunction sought depends upon the plaintiffs satisfying the following tests, as stated by Gleeson CJ and Crennan J in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [19] (footnotes omitted): [19] … As Doyle CJ said in the last-mentioned case, in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff's entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the Court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd should be folIowed… 1. See also the following observations by Gummow and Hayne JJ at [70] – [71] (footnotes omitted): [70] When Beecham and American Cyanamid are read with an understanding of the issues for determination and an appreciation of the similarity in outcome, much of the assumed disparity in principle between them loses its force. There is then no objection to the use of the phrase "serious question" if it is understood as conveying the notion that the seriousness of the question, like the strength of the probability referred to in Beecham, depends upon the considerations emphasised in Beecham. [71] However, a difference between this Court in Beecham and the House of Lords in American Cyanamid lies in the apparent statement by Lord Diplock that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, then there will be a serious question to be tried and this will be sufficient. The critical statement by his Lordship is "[t]he court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried". That was followed by a proposition which appears to reverse matters of onus: So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought." (emphasis added) Those statements do not accord with the doctrine in this Court as established by Beecham and should not be followed. They obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought. 1. The plaintiffs must also be able to identify legal or equitable rights which are to be determined at trial, and in respect of which final relief is sought: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 198; [2001] HCA 63 at [8] to [16], [60] and [91]. 2. I have concluded that the plaintiffs have not made out their claim for a continuation of the interlocutory injunction granted by Slattery J on 22 December 2016. 3. That conclusion is primarily based on my determination that the balance of convenience does not favour a continuation of the interlocutory injunction, and additionally in part because it would not be appropriate for the court to continue the interlocutory injunction in the terms sought. I have generally been satisfied that the plaintiffs have established a serious question to be tried in relation to the issues necessary to support their application. 4. In reaching this decision I have not ignored the submission made on behalf of the plaintiffs that, because by the proceedings the plaintiffs are only challenging the entitlement of the first and second defendants to vote on the resolutions contained in the Annexures to the summons, and they are not seeking to enforce the agreement that they say was made by means of the Term Sheet, the court should determine the balance of convenience on the basis that, if the plaintiffs succeed, the Defendants' Resolutions will be invalid. It may be that, if the plaintiffs succeed, the resolutions that will lead to Climate Friendly entering into the revised asset sale agreement will be void. However, while the plaintiffs may be entitled to pursue the limited course that they are pursuing for their own tactical reasons, it does not follow that, in considering the balance of convenience, the court is not required to consider the matter in the whole of the context. It follows from the very terms of the summons that, if the plaintiffs succeed in establishing that the Defendants' Resolutions are invalid, they will also succeed in establishing that the Plaintiff's Resolution is valid. They will then proceed to seek to enforce the agreement that they say was made by the Term Sheet in the name of Climate Friendly. The issue is not simply whether resolutions that will lead Climate Friendly to enter into the revised asset sale agreement are void, so that the revised asset sale agreement may be invalid. The issue is whether, if that is the case, Climate Friendly should attempt to enforce an agreement which includes the implementation of an asset sale agreement on marginally different terms to the revised document. 5. The real issue is whether Climate Friendly should enter into the original asset sale agreement or the revised one. In either case, there will be a sale of the assets the subject of both versions of the agreement. It is true that, if the plaintiffs succeed, Climate Friendly may then fail to establish that the Term Sheet created an agreement that bound South Pole. In that event, neither side of the dispute would have established that Climate Friendly had a right to enter into any version of the asset sale agreement. That is not, however, an outcome which either side of the dispute wishes to achieve. There is no basis for the court to assess the risk that the tactical course taken by the plaintiffs will miscarry and defeat the aspirations of all parties. There is no evidence as to the consequences of that outcome. There is no evidence to be taken into account, in weighing the balance of convenience, concerning any consequences that may flow from the parties having to unwind the sale of any assets by Climate Friendly to South Pole Australia. Even that possibility assumes that the parties remain so intransigent that the commercial outcome is one that none of the parties wish to achieve. 6. It will be convenient to deal first with the application in so far as it relates to Resolution 1. 7. The plaintiffs did not contest the proposition that Resolution 1 will be of no effect if there was in fact a dispute as to the purposes of clause 16.29 of the constitution of Climate Friendly. 8. They submitted, however, that the real vice of Resolution 1 is that the defendants might take steps premised on the illusory validity of Resolution 1, and in some unidentified way prejudice the plaintiffs by requiring them to act upon the basis that there was no dispute, when in fact there was. 9. That raises the question of the effect of an interlocutory injunction that for a relatively long period restrained the first and second defendants from taking any steps to implement, or to instruct other persons to implement, a resolution that the board decided that no dispute exists between Climate Friendly and South Pole on any matter. 10. In my view, an interlocutory injunction expressed in those terms would be too vague and indefinite to justify the order being made, as it would not adequately identify any conduct that the first and second defendants were prohibited from engaging in. 11. I am also not satisfied on the evidence that there is any particular need for the court to grant the interlocutory injunction sought. If Resolution 1 is correct, then it will have effect because a dispute does exist for the purposes of rule 16.29. If not, the resolution will simply be of no effect. 12. The primary question is whether the interlocutory injunction should be granted in relation to resolutions 2 and 3, which if implemented will involve part of the business conducted by Climate Friendly being sold to South Pole Australia on the terms of the revised asset sale agreement. 13. As the defendants submitted, all parties desire for the asset sale agreement to be implemented, albeit on slightly different terms. 14. The plaintiffs have not submitted, or made out a case on the evidence, that the completion of the revised asset sale agreement, without the implementation of the buyback or the amendment of the constitution, will be so substantially different in commercial effect than if all of the terms of the Term Sheet were to be implemented at the one time, that the separate completion of the revised asset sale agreement should be prohibited. That is, the plaintiffs have not made out a case that, for example, the price payable under the asset sale agreement was determined upon the basis that it was assumed that the buyback agreement and the amendment of the constitution would occur at the same time, so that there would be a sale at a substantial undervalue if the sale were to take place without the other steps contemplated by the Term Sheet. 15. On the evidence before the court, if there is a binding agreement that requires South Pole to participate in the buyback and the amendment of the constitution, there is no substantial reason why those steps cannot be implemented after the determination of the proceedings whereby it is established that South Pole is contractually obliged to implement those matters. 16. That is, the three separate matters that are in issue appear, on the evidence, to be sufficiently discrete so that, if the implementation of the asset sale agreement that all parties want to happen is completed, there is no real reason why the other steps cannot satisfactorily be completed at a later and separate time. 17. That conclusion appears to be particularly clear in relation to the claimed agreement that the constitution should be amended to remove the casting vote of directors appointed by South Pole. 18. It is also substantially true in relation to the claim to enforce the buyback agreement. The only real difference is that, under the revised asset sale agreement, one of the South Pole companies will be required to pay the purchase price into the bank account of Climate Friendly, rather than for that money to be used to fund the buyback by Climate Friendly of South Pole's shares. 19. If the purchase price is retained by Climate Friendly, and relevant parties succeed in establishing that South Pole is contractually obliged to implement the buyback, then the purchase price could be paid to South Pole as consideration for the transfer of the relevant shares. 20. During the course of the hearing, I mentioned to counsel for the plaintiffs that a possible subject matter of an interlocutory injunction could be a restraint against the defendants causing the purchase price to be expended pending the determination of the question of whether the buyback had to be implemented. The plaintiffs did not seek to claim any interlocutory order on that basis. 21. In substance, therefore, I have primarily been influenced by the fact that, on the evidence, and also taking into account the Plaintiffs' Resolution, all parties want the asset sale agreement to be implemented. No practical reason has been demonstrated as to why that implementation will cause any practical inconvenience, if it is ultimately determined that the other aspects of the Term Sheet should also be implemented by the defendants, albeit at a later time. 22. It will also not be appropriate for the court to grant the interlocutory injunction sought in so far as it relates to Resolutions 4 to 9. 23. As I have explained above, these resolution are detailed in nature, and involve the board of Climate Friendly resolving as to how the company should conduct its business, primarily, if not exclusively, in relation to the part of its business that will be retained after the implementation of the asset sale agreement. 24. That is a matter within the province of the board of directors of Climate Friendly, and the court would be very hesitant about granting an interlocutory injunction which prevented the implementation of the resolutions, in the absence of the clearest understanding of what the consequences of the interlocutory injunction might be. 25. In this respect, the general fuzziness of the evidence as to the meaning and effect of Resolutions 4 to 9, and the consequences of the granting of any interlocutory injunction in respect of them, in my view militates against the court in the exercise of its discretion granting the interlocutory injunction. 26. As I have also observed above, there are strong grounds for doubting that these particular resolutions relate to the alleged dispute, rather than the ongoing business operations of Climate Friendly. 27. I have not yet considered the issues, but the evidence establishes that there are a number of reasons why Climate Friendly is obliged in any event to implement some measures generally of the nature of those dealt with in Resolutions 4 to 9. 28. One of these issues is that, early in 2016, the Clean Energy Regulator, a Commonwealth government agency created under the Clean Energy Regulator Act 2011 (Cth), began investigating Climate Friendly in connection with the conduct of an entity with which it had conducted transactions through the ERS Business. The regulator determined that Climate Friendly's operating and management procedures were inadequate, and, under threat of revocation by the regulator of various contracts, Climate Friendly was required to provide, and did provide on 27 September 2016, an enforceable undertaking to review and update the ERS Business's operating, information and records management procedures within three months (to December 2016). 29. The enforceable undertaking contains various terms, including the following clause 9(c): Climate Friendly hereby undertakes to … Review internal standard operating, information and records management procedures related to emissions reduction fund projects and update these where necessary to ensure compliance with all relevant legislative requirements and the inclusion of additional due diligence measures, including but not limited to increased quality assurance, quality controls and management oversight of information all requests submitted to the Regulator within three months of the date of this Undertaking. The review and any necessary updated procedures will be finalised to the reasonable satisfaction of the Regulator… 1. Furthermore, on 21 August 2015, Climate Friendly entered into an agreement called "Cooperation Agreement" with South Pole Carbon. In short, the agreement provided for the two companies to cooperate with each other in the development of carbon farming initiative projects (described as "CFI"), which falls within that part of the business to be retained by Climate Friendly. 2. The defendants put an argument that the Cooperation Agreement (particularly by reference to Schedule 1), imposed upon Climate Friendly an obligation that various functions and processes and systems of Climate Friendly's business (such as those relating to project management) should be migrated from Climate Friendly's existing systems to those operated by South Pole Carbon (including the Project Management Tool referred to in the asset sale agreement). 3. The workings of the Cooperation Agreement in this respect are not easy to follow; however, the plaintiffs did not contest that Climate Friendly was under some obligation under the Cooperation Agreement to implement relevant changes to its operating systems. 4. On the evidence, it is impossible to relate the subject matter of resolutions 4 to 9 to the steps that Climate Friendly must take to honour its obligations under the enforceable undertaking, or to comply with the Cooperation Agreement. The plaintiffs seemed to accept that some steps may be necessary, but there was disagreement as to whether all of the steps in Resolutions 4 to 9 were necessary. In these circumstances, the plaintiffs submitted that the interlocutory injunction sought should be granted up to the hearing, with what was described as a carve out to the effect that nothing in the orders shall prevent Carbon Friendly taking such management steps as may be required (1) to comply with the enforceable undertaking; and (2) to comply with Carbon Friendly's obligations under the Cooperation Agreement. 5. The appropriateness of an interlocutory injunction framed in these terms must depend upon the effect of the words "as may be required". There is no clarity on the evidence as to which, if any, and to what extent, the steps contemplated by Resolutions 4 to 9 may be required for either of the purposes identified in the "carve out". Moreover, it is clear from the submissions made by the plaintiffs that there is already serious disagreement between the parties concerning the steps that are in fact required. 6. In these circumstances, it would not be appropriate for the court to grant the injunction sought, even subject to the suggested "carve out", as to do so would almost certainly generate serious dispute between the parties, and would provide no clarity to the defendants concerning the actions that they were prohibited from taking. 7. I have already explained above that the plaintiffs do not pursue their claim for an interlocutory injunction based upon Resolution 10, and for reasons already given, I would not grant such an interlocutory injunction in relation to Resolution 11. 8. In these circumstances, it is not strictly necessary for me to consider in detail the arguments made by the parties on the issue of whether the plaintiffs have established a serious question to be tried concerning their entitlement to the final relief sought. 9. Nonetheless, it will be appropriate for me to make some observations as to why I am satisfied that the plaintiffs have established that there are serious questions to be tried; albeit that I am doubtful that some of those questions would be decided in favour of the plaintiffs at a final hearing. 10. Given the manner in which the plaintiffs have formulated their claims in their summons, their case hinges on the question of whether clause 16.29 of the constitution of Climate Friendly has been triggered, and has had the effect that the first and second defendants were disqualified from voting in favour of the Defendants' Resolutions, and against the Plaintiffs' Resolution (while the plaintiffs themselves were not so disqualified). 11. This is a convenient place to interpolate that the way in which the plaintiffs have framed their case has the effect that the issue is whether there is a serious case to be tried as to whether a dispute existed as to whether the Term Sheet contained the binding agreement alleged by the plaintiffs, and not whether there is a serious question to be tried concerning whether the Term Sheet did give rise to that agreement. Had that latter issue been directly material, I would have held that, by reason of the part of the Term Sheet set out under the heading "TERM SHEET PRINCIPLES" that I have extracted above, and also the various subsequent statements made by the defendants, the plaintiffs have established a reasonably robust case at this interlocutory stage of the proceedings that the Term Sheet created a binding agreement (the principal doubts being as to the certainty of some of the terms and the identity of the parties to that agreement). 12. The defendants submitted that, under clause 20.1 of the constitution of Climate Friendly, it was for the board alone to decide whether to sell or transfer any part of the business of the company; whether to enter into, vary or terminate any contract; and whether to commence, defend or compromise any litigation. Consequently, these matters did not fall within the authority of Mr Sharpe as CEO. 13. Accordingly, the defendants submitted that it was not for the plaintiffs to decide that a dispute existed between Climate Friendly and South Pole. Whatever the communications may have been between various parties, they could only be negotiations until the board of Climate Friendly determined, in the exercise of its powers, how it should respond to the negotiations. It was therefore for the board of the company to decide, in relation to the stance taken by one of its shareholders, South Pole, whether the company should accept that position or dispute it. In substance, the plaintiffs say that, until the board of the company considered the question, a dispute could not exist. An aspect of the defendants' argument is that a dispute cannot exist for the purposes of clause 16.29 of the constitution simply because one party makes a claim against the other, or asserts that a dispute exists. That is, the dispute could not be created by the unilateral action of only one of the parties. 14. To some extent, this argument appears to be falsified by the fact that, initially, both the plaintiffs and the defendants in their communications appeared to be satisfied to treat the plaintiffs as representing Climate Friendly, and the first and second defendants as representing South Pole. I have referred in outline above to the correspondence by which the defendants appeared to engage in a dispute between South Pole and Climate Friendly. 15. The plaintiffs relied in particular on the 30 November 2016 letter, written on behalf of the two South Pole companies, and arguably addressed to Climate Friendly, which stated that the South Pole companies no longer wished to pursue the transaction embodied in the Term Sheet. 16. The plaintiffs also relied upon Mr Sharpe's 2 December 2006 letter in which, as the CEO of Climate Friendly, he stated that the company did not accept the purported termination of the agreement, and would move to enforce it. 17. While there is force in the defendants' argument that the decision whether or not Climate Friendly should contest the position taken by the South Pole companies was within the exclusive province of the board of directors, it is not in my view clear that, on the proper construction of clause 16.29, a dispute could not arise without some formal resolution of the board. It may be that the dispute could arise on the objective circumstances if Climate Friendly had the benefit of a contract and the other party, being South Pole, had breached the contract by repudiating it. Clause 16.29 is evidently intended to regulate the possibility of a conflict of interest arising in such a situation, and it is at least arguable that the intent of the clause would be frustrated if directors appointed by the party who had repudiated the agreement with the company could exercise their casting vote to cause the company to abandon its contractual rights, so that no dispute arose. 18. There is also a reasonable argument that the 30 November 2016 letter objectively notified Climate Friendly of the existence of the dispute. It is not absolutely clear, at this stage of the proceedings, that Mr Sharpe was incapable of notifying a dispute by means of his 2 December 2016 letter. 19. I am satisfied that the plaintiffs have established that there is a serious question to be tried that a relevant dispute existed for the purposes of clause 16.29 of the constitution at the time of the 20 December 2016 board meeting. 20. The defendants also submitted that the interlocutory injunction sought by the plaintiffs should be declined on the basis that the plaintiffs did not have standing to obtain the relief sought in their summons, and the necessary parties had not been joined to the proceedings. 21. As I have noted, the defendants accepted that the plaintiffs had some standing because of the terms of s 140(1)(b) of the Act. They accepted that this standing may be sufficient to enable the plaintiffs to seek the declaration in order 1 of the summons, but not any other of the relief. 22. The issue of standing raises a number of difficult questions, which in the circumstances, and the time available for the consideration of these reasons, I need not finally decide. 23. As I have indicated above, it appears to me that, if the plaintiffs claimed to have standing on the basis of a statutory contract between themselves, as directors, and the company, Climate Friendly, then the company must be a party. It is not. 24. Section 140 of the Act does not create a contract between the directors, or between any director and a shareholder. I prefer the view that s 140 does not give the plaintiffs the standing they need to seek relief against their fellow directors or a shareholder in the company. 25. In my view, it is most likely to be true that, in reality, the plaintiffs, even in relation to the limited relief they seek in the summons, are seeking relief on behalf of Climate Friendly, in relation to the statutory contract between that company and the other directors (and possibly, though not clearly, the statutory contract between the company and its shareholder, South Pole). If that is so, the claim should fail because leave has not been granted under s 237 of the Act. 26. It is not clear whether Sachil and Biosoft are necessary parties to the proceedings. I am inclined to the view that their absence as parties in reality reflects an illusory position adopted by the plaintiffs that the only parties to any contract created by the Term Sheet are Climate Friendly and South Pole, which is a stance necessary for the plaintiffs to take if they are to have any chance in succeeding in an argument that clause 16.29 of the constitution disqualifies the first and second defendants, but not the plaintiffs. 27. If I am right in my conclusion that Sachil and Biosoft must have been parties to any contract, then it appears to me to be plain that those companies would be proper and necessary parties to the proceedings. 28. The position is not clear in relation to the other shareholders, who hold 4.15% of the shares in Climate Friendly. 29. It now seems clear that there was not ultimately an agreement that Climate Friendly would buy back those shareholders' shares. It may be that their interests would sufficiently be accommodated by the proper implementation of the requirements of Part 2J.1 of the Act, so that they are not necessary parties to the proceedings. 30. The defendants also made an argument that the court should decline to continue the interlocutory injunction granted on 22 December 2016, on the ground that there was material non-disclosure of evidence. It is not necessary for the court to deal with that question. Result 1. It will therefore be appropriate for the court to dismiss the plaintiffs' notice of motion filed on 22 December 2016. 2. The plaintiffs should be ordered to pay the defendants' costs of the notice of motion on the ordinary basis. 3. I will, however, hear the parties as to the appropriate order for costs, as in my view there is a strong argument that the costs of preparing the evidence upon which all parties relied on the interlocutory hearings will be necessary and relevant to the determination of the dispute between the parties on a final basis. It may be that the costs of preparing the evidence should not be dealt with on the basis that they related solely to the interlocutory application. 4. The parties should consider the orders that should be made for the future conduct of these proceedings. Those orders may provide for an application for leave for the plaintiffs, or others, to commence proceedings on behalf of Climate Friendly, and other matters necessary to deal with the continuation of the proceedings. 5. The parties should communicate with my Associate in that regard after the commencement of the new court term. 6. At this stage, the only order that I make is that the plaintiffs' notice of motion filed on 22 December 2016 be dismissed. ********** 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: 10 January 2017