Western Areas Exploration Pty Ltd v Streeter & Ors [2011] HCATrans 330 (9 December 2011)

Last Updated: 9 December 2011

[2011] HCATrans 330

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P4 of 2011

B e t w e e n -

WESTERN AREAS EXPLORATION PTY LTD

Applicant

and

TERRENCE ERNEST JAMES STREETER

First Respondent

DAVID CHARLES COOPER

Second Respondent

JUNGLE CREEK GOLD MINES PTY LTD

Third Respondent

Application for special leave to appeal

HAYNE J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 9 DECEMBER 2011, AT 9.31 AM

Copyright in the High Court of Australia

MR M.L. BENNETT: May it please, your Honours, I appear on behalf of the applicant. (instructed by Bennett & Co.)

MR C.L. ZELESTIS, QC: May it please, your Honour, with my learned friend, MR T.M. RETALLACK, I appear for the respondents. (instructed by Maxim Litigation Consultants)

HAYNE J: Yes, Mr Bennett.

MR BENNETT: Your Honours know that the application raises two discrete separate points - whether there should have been a finding consonant with the reasons for decision of the dissenting judgment of Justice Murphy in the Court of Appeal that there was a breach of fiduciary duty by the respondents and the second is the issue of laches in which the majority judgments of her Honour the learned President and Appeal Justice Pullin concurred with Justice Murphy.

Your Honours will have seen that the central answer to the point we raise that Appeal Justice Murphy’s analysis of the existence of a breach of fiduciary duty is to be preferred to the reasons of the majority, given by her Honour the learned President, lies in a contention that there was no separate case advanced at trial for the conflict to arise from the sale of the 70 per cent interest in a collection of tenements called the Cue tenements; Cue being a remote goldfields location in the State of Western Australia. Can I say to your Honours - - -

HAYNE J: Assume that that point were to be decided in your favour, what do you do about laches? You have all three members of the Court of Appeal against you on that issue. Do you not have to get over that to achieve any success?

MR BENNETT: Yes, we do and that involves the Court - - -

HAYNE J: Why are they wrong on the question of laches then becomes the - - -

MR BENNETT: It involves a reconsideration of what their Honours in Fysh v Page talked of the elements of the equity. Correctly analysed, we would say that guidances can be obtained from Justice Owen’s decision in Bell v Westpac that the doctrinal basis of laches must rest on one of two pillars - either acquiescence or reliance to the detriment of the person who claims the benefit of laches.

KIEFEL J: But the finding here was of acquiescence.

MR BENNETT: The finding was an inference of acquiescence through the passage of time attributing to the corporate entity the delay principally of one of its directors and one of its shareholders, the shareholders being a collection of 25. The adoption of statement of principle by his Honour Justice Murphy of the Lagunas Nitrate decision, in particular the speech of Lord Blackburn in the House of Lords decision, shows that what his Honour should have directed inquiry to was not merely the question of the information of some of the shareholders, but how those shareholders could have moved to oust the errant fiduciaries who had control of the board of the applicant at the relevant time through to 2006.

Now, I accept his Honour said that by some time after the publication of the prospectus for the Western Areas NL in May of 2000, each of the shareholders of Western Areas Exploration obtained a copy of the prospectus and could have put the facts together then moved to requisition and call a meeting to spill Messrs Streeter and Cooper from the board of the applicant. As Lord Blackburn observed in Lagunas Nitrate, it is necessary to allow a period of time for that to occur. Shareholders cannot instantly assume control from errant fiduciaries who occupy the position of directors.

KIEFEL J: But they took six years, did they not, to remove them?

MR BENNETT: Well, it was six years before it was done. They did not embark on it and it would not be right to suggest otherwise.

CRENNAN J: You raise, do you not, exhaustively, these sorts of considerations in paragraph 59 of your written submissions, 408 of the application book?

MR BENNETT: Yes.

CRENNAN J: In the context of it being six years how do these considerations operate to overcome that six-year period?

MR BENNETT: Firstly, your Honour, by focusing on what the applicant claimed was effected by the breach of fiduciary duty, that is, the claim limited only to the discounted shares and options that were obtained had been agreed prior to May of 2000 and were issued on the float occurring in July of 2000. Now, that relief and only that relief was the subject of claim by the applicant, not the other shares subscribed for by Mr Streeter and Mr Cooper and by Mr Streeter’s corporate alter ego, Jungle Creek, nor any attempt to claim the benefits of rights issues or other subscriptions, directors’ options.

What we say in a consideration of the elements of the equity is equity does not turn a blind eye to the considerable benefits that Mr Cooper and Mr Streeter thereafter obtained in the order of a value of some $17 million alone for being directors of the company, let alone the value they obtained from their position as insiders subscribing to the capital of Western Areas NL during the course of its progression to an operating mining company.

KIEFEL J: This is like a reverse change of position defence, is it? There is no acquiescence if they are not disbenefitted?

MR BENNETT: The acquiescence has to be manifest, we would say, in some aspect of treating as their own property which is otherwise capable of being impugned. There is no suggestion that Messrs Streeter and Cooper made any change of position and it would be wrong to put to one side and ignore the benefit - - -

HAYNE J: They invested it, did they not? They invested further in the company. There was new venture?

MR BENNETT: It is correct that they invested further in the company, but if one takes the position that obtained as at the time that they originally subscribed they not only took the discounted options but Mr Streeter subscribed at the prospectus of the issue price for the prospectus, and thereafter the investment that he made was consistent with a commercial development of Western Areas NL.

If your Honours looked at the juxtaposition between pages 283 and 284 of the appeal book, your Honours see on the left-hand page in paragraph 350 of Appeal Justice Murphy’s reasons for decision, a summary of the economic development of the key value in Western Areas and all the Forrestania tenements, and on the right-hand page in paragraph 351, the investments made by Mr Streeter – put Mr Cooper to one side.

You can see that Mr Streeter’s investments or further investments in the company followed on from the commencement of negotiations to purchase the Forrestania tenements, and in February when Western Areas raised capital to proceed with the purchase of Forrestania, Mr Streeter did not invest then. He invested after the contract had been entered into to acquire 75 per cent of Forrestania.

Now, that was not an act done in reliance upon no claim being made. That was Mr Streeter as a director of Western Areas NL having faith in the decision ultimately vindicated by the discoveries that were made at Flying Fox to buy from Outokumpu the Forrestania tenements. So there is no causal connection between the absence of a claim and a decision to further invest. This is to be contrasted as a case with a traditional mining case where the focus is on a claim to the mining asset. This was a claim for a very constructive trust over a very confined parcel of shares and options that had been achieved by Mr Streeter and Mr Cooper in the period leading to the float. Thereafter they - - -

HAYNE J: Where do we find most conveniently, in the reasons of the Court of Appeal, rejection of the argument that you now advance?

MR BENNETT: Effectively commencing at page 366 in paragraph 621 from his Honour, Appeal Justice Murphy. Her Honour the learned President just simply concurred in that finding. His Honour critically at 646 at page 373 applies principles relating to a claim for a constructive trust over a mine to a claim for a constructive trust over shares in a company through which a speculative business had been built up and operated. Nullacourt Pty Ltd v Walker was a very small, close-held private company, unlike a public company with tradable shares. The rejection principally starts at 663, your Honour Justice Hayne.

HAYNE J: Where does his Honour go wrong, do you say?

MR BENNETT: We say that effectively the finding of acquiescence which her Honour referred to is at 674. By failing to have regard to the elements of the equities and the Fysh v Page test, we would say, you failed to have regard to the benefits that had been obtained, quite independently of the claim through the period of time. The attribution of delay you see examined at 671, but his Honour - - -

HAYNE J: But it is at 674, is it not, that is the key conclusion.

MR BENNETT: The key finding - - -

HAYNE J: What is wrong with it?

MR BENNETT: The starting point is that his Honour proceeds from a finding at 671 that the:

shareholders, comprising 80% . . . knew of the material facts by May 2000 –

He then allows no time for those shareholders to obtain control, contrary to the principles that he had recited from Lagunas Nitrate. He says:

There was opportunity after May 2000 to ‘change [the]...governing body . . . but nothing was done –

There could be nothing done, we would say, prior to the vesting of the shares and options that are impugned by the claim made by the applicant prior to them occurring because there was an insufficient time to change the board of Western Areas. He then comments that there is an inadequate explanation for delay.

Accepting that, we say that is a factor that does not necessarily lead to an acquiescence in the risk and in the potential reward from the shares issued on the float, principally because the claim is not limited to the point, we would say, that those shares and options were in the money, were successful as a result of the development of the Forrestania negotiations that occurred within 18 months of the period of the float. The float in July 2000 and December 2001 was the negotiations commenced for the acquisition and the acquisition occurred within a period of some 20 months of the float.

The second aspect, that 674 is the acquiescence finding, his Honour then finds against us that there would be a “great injustice” and you see this in 675. The aspect of the great injustice we would say that his Honour errs in is failing to consider the enormous benefit Mr Streeter and Mr Cooper acquired from the transaction which gave rise, we would say, to the constructive trust over the initial discounted shareholding and options that they obtained.

The point we make in our written submissions is to say that this Court should examine the phrase “elements of the equities”, establish and enunciate the clear principles on which those elements are to be considered and it is necessary to look, we would say, in the consideration of the elements of the equities at the correlative benefits that outweigh what is said to be the great injustice against a respondent of a late claim being made to property where those respondents have not altered their positions, not acted to their detriment at all. That is the essential point that we would urge upon your Honours.

HAYNE J: Thank you, Mr Bennett. We need not trouble you, Mr Zelestis.

The Court of Appeal of the Supreme Court of Western Australia divided in opinion about the application of principles concerning the liability of a director who diverts a business opportunity from the company in which the director holds office to another company with which the director is associated - Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, and the consequences of acting in apparent performance of one duty but in breach of another conflicting duty - Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, but all members of the Court of Appeal agreed that the applicant’s laches barred any claim for equitable relief to which it would otherwise have been entitled.

The Court of Appeal found that the applicant, knowing of the relevant facts and circumstances, had delayed six years before instituting the proceedings in the Supreme Court and that in the meantime the worth of the relevant shares had greatly increased because of unrelated further investment in and risk taking by the company. We see no reason to doubt the Court of Appeal’s conclusions about laches.

In these circumstances, an appeal to this Court would enjoy insufficient prospects of success to warrant a grant of special leave to appeal. We express no opinion on the issues about which the Court of Appeal divided. Special leave to appeal is refused, with costs.

MR BENNETT: As your Honour pleases.

MR ZELESTIS: May it please the Court.

AT 9.47 AM THE MATTER WAS CONCLUDED