Case: Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Company NL [1968] HCA 37 ; (1968) 121 CLR 483
Outcome: referred to
In Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Company NL [1968] HCA 37 ; (1968) 121 CLR 483 at 492, Barwick CJ, McTiernan and Kitto JJ said the following about the power vested in directors to issue new shares: The suggested corollary is that an exercise of the power cannot be maintained as having been bona fide in the interests of the company unless the company had at the time of the exercise an immediate need of the capital to be paid up on the new shares. In many a case this may be true as a proposition of fact; but in our opinion it is not true as a general proposition of law. 28 Further on (at 493) their Honours said as follows: The principle is that although primarily the power is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons relate to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends. An inquiry as to whether additional capital was presently required is often most relevant to the ultimate question upon which the validity or invalidity of the issue depends; but that ultimate question must always be whether in truth the issue was made honestly in the interests of the company. 29 And further on (at 493-494) their Honours said as follows: But if, in making the allotment, the directors had an actual purpose of thereby creating an advantage for themselves otherwise than as members of the general body of shareholders, as for instance by buttressing their directorships against an apprehended attack from such as Harlowe, the allotment would plainly be voidable as an abuse of the fiduciary power, unless Burmah had no notice of the facts. 30 Further, I accept that even an honest and good faith exercise of power by directors may nevertheless be improper. 31 Thirdly, I make some observations on the factual enquiry necessary in identifying the purpose for which a power may be exercised. It may be possible to conclude on a collective reason or purposes of a board comprising multiple directors, even though each statement by a director of his or her reasons or purposes may differ (see eg Langton v Forsayth Mineral Exploration NL (1975) 1 ACLR 227). This is not to say that each director's position must not be analysed separately; but I must determine the substantial purpose of the directors (if necessary the majority of directors) which is causative of the decision being made to allot the shares (see Harlowe's [1968] HCA 37 ; 121 CLR 483 and Re Southern Resources Ltd (No 2) (1989) 15 ACLR 770). Obviously, I must have regard to the circumstances surrounding the decision in question, as well as the evidence of the directors themselves. 33 In Harlowe's 121 CLR 483, in determining whether an allotment of shares had been made for an improper purpose, Barwick CJ, McTiernan and Kitto JJ said at 493: Directors in whom are vested the right and the duty of deciding where the company's interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts. 35 Similarly in Idameneo (No 123) Pty Ltd v Symbion Health Ltd (2007) 64 ACSR 680 , at [114], Lindgren J stated: There is a well-known line of authority to the general effect that it is the province of directors, not the courts, to identify where the interests of a company lie, and that the courts do not exercise a supervisory function over the business judgments of directors: see, for example, Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37 ; (1968) 121 CLR 483 at 493; Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 at 832.