Bakers Creek Developments Pty Ltd atf the Bakers Creek Trust v Gaviglio - [2013] QDC 295

DISTRICT COURT OF QUEENSLAND

CITATION:

Bakers Creek Developments Pty Ltd atf The Bakers Creek Trust v Gaviglio & Anor [2013] QDC 295

PARTIES:

BAKERS CREEK DEVELOPMENTS PTY LTD ACN 118020581 ATF THE BAKERS CREEK TRUST
(Plaintiff)

V

JOSEPH PETER GAVIGLIO
(Defendant)

and

RUTH MARCIA GAVIGLIO
(Defendant)

FILE NO/S:

D108/10

DIVISION:

Commercial List

PROCEEDING:

Trial

ORIGINATING COURT:

District Court of Queensland

DELIVERED ON:

28 November 2013

DELIVERED AT:

Brisbane

HEARING DATE:

13, 14, 15 May 2013 written submissions to 22 May 2013

JUDGE:

Andrews SC DCJ

ORDER:

The plaintiff is at liberty to submit a draft of a declaration and orders to be made in accordance with these reasons

The hearing is adjourned to allow the plaintiff to do so

CATCHWORDS:

CONTRACT – where vendors sold to the purchaser their only share in a cooperative – where the cooperative became a corporation before registration of the transfer of the share in the cooperative – where upon registration of the corporation the vendors were the holder of one share in the corporation – where the corporation issued valuable shares to the vendors – whether the valuable shares issued to the vendors on the basis that they held one share in the corporation or on the basis that they had been active members of the cooperative – whether the purchaser had a beneficial interest in the valuable shares

CONTRACT – INTERPRETATION – where vendors sold to the purchaser their only share in a cooperative – where vendors agreed to give the purchaser the benefits of past production from the land sold when the cooperative “is determining the distribution of bonuses” of the cooperative cooperative – whether “bonuses” in the contract has same meaning as in the rules of the cooperative – where cooperative determined to transfer to a corporation with a constitution providing for the issue of valuable shares to the vendors based on the past production from the land sold – where the corporation issued valuable shares to the vendors based on the past production from the land sold – whether the shares issued by the corporation were a distribution of bonuses determined by the cooperative and on the basis of the past production of the land sold

CONTRACT – SPECIFIC PERFORMANCE – whether appropriate to order specific performance of transfer of shares – where no discretionary arguments against specific performance – where shares unable to be traded on open market – where trade restricted to sugar cane growers

Cooperatives Act 1997 sections 101(8), 166(1) and (2), 169 and 303(3)

Agricultural and Rural Finance P/L v Gardiner (2008) 238 CLR 570

Black v Homersham (1878) LR 4 Ex D24

Re Kerrisk; Ex p Duus (1993) 41 FCR 276

Wimbush , Richards v Wimbush [1940] 1 Ch 92

Ford & Lee, Principles of the Law of Trusts, [22.2120]

COUNSEL:

Handran for the plaintiff

A Barlow for the defendant

SOLICITORS:

McKays Solicitors for the plaintiff

BC & A for the defendant

TABLE OF CONTENTS

Précis of facts found

Facts

Was there a conversation about the meaning of “shares” in special condition 4.1 before the contract was signed? Can it assist with interpretation?
Terms of the contract relied upon as an aid to interpretation
Rules of Mackay Sugar Cooperative Association Limited relied on as an aid to interpretation

Extracts from the constitution of MSL
The meaning of special condition clause 4.1 of the contract
How did the vendors come to hold Investment Shares?
Did the vendors receive the Investment Shares on the basis of who they were and not as a consequence of owning a share in the cooperative?
Could a share in the cooperative have been transferred to the purchaser?
What is the meaning of “bonuses” in special condition 6.4?
Who is the beneficial owner of Investment Shares held by the vendors?
How many Investment Shares should be transferred?

Orders

Précis of facts found

The vendors sold to the purchaser one of their two parcels of land used to grow sugarcane. They sold to the purchaser their only share in a cooperative that crushed their cane. They agreed to give the purchaser the benefits of past production from the land sold when the cooperative “is determining the distribution of bonuses” of the cooperative. The sale completed and the vendors provided a share transfer for their one share in the cooperative. The share transfer could not be registered as the register of members of the cooperative was closed. Subsequently, without opening its share register in the meantime, the cooperative determined to become a registered corporation with a constitution that would provide, in effect, for each shareholder of the cooperative to hold instead a share in the corporation and for there to be a division of that new share into valuable shares whose number was based on the past production of each shareholder’s farm. The cooperative registered as a corporation. The vendors became the holder of one share in the corporation which divided into thousands of valuable shares whose number was based on the past production of both farms in the prior ten years. The purchaser was not issued with any share upon registration of the corporation or upon division of the share.

Issues

What is the meaning of a “distribution of bonuses” in clause 6.4 of the contract?

Did the vendors become holders of the valuable shares in the new corporation because of who they were, namely, active members of the cooperative or because they remained registered as holder of the share they sold?

Was the sale of the share intended to be the sale of only any share which gave the purchaser a right to vote but not of a share in the capital of the cooperative? This issue involves the interpretation of special condition clause 4.1 of the contract and is the subject of three disputes. The first is about whether the vendors proved a relevant antecedent conversation between the parties’ solicitors which allegedly related to the meaning of “shares” in the clause. (The vendors failed to prove it.) The second is whether the conversation is relevant to the interpretation of the document. (Unnecessary to answer) The third is as to the interpretation of “shares” in the clause. (The vendor’s share in the cooperative)

The vendors put in issue the purchaser’s allegations in its pleading that the contract meant:

(a) The purchaser had the benefit of any distribution made in relation to or in connection with Rule 68 of the cooperative;[1]
[1]Third further Amended Statement of Claim (SOC) par 11(a).

(b) The property to be transferred to the purchaser included the vendors’ interest in the share capital of the cooperative by reason of the farm and/or by reason of their membership of the cooperative;[2]

(c) The property to be transferred to the purchaser included the vendors’ interest in the net assets of the cooperative by reason of the farm and/or by reason of their membership of the cooperative;[3]

(d) The property to be transferred to the purchaser included the vendors’ interest in the production history of the farm with the cooperative calculated in accordance with Rule 68.[4]

[2]SOC par 11(b)(i).

[3]SOC par 11(b)(ii).

[4]SOC par 11(b)(iii).

The purchaser submits the liability question is whether upon the proper construction of the contract, the plaintiff is entitled to 161,793 of the Investment Shares issued to the vendors. If the answer is “yes”, the purchaser seeks a declaration that they are held by the vendors on trust and seeks orders by way of specific performance so that the shares are transferred to it, and that it be paid any dividends issued in the interim.

In those premises pleaded, the purchaser alleges that the vendors hold the Investment Shares for it on trust[5] or alternatively that pursuant to an implied term of the contract[6] or express terms[7] the vendors were obliged to transfer the Investment Shares to the purchaser when they were issued.
[5]SOC par 18.
[6]SOC par 20A.
[7]SOC par 20B.

Facts

The plaintiff (purchaser) is a duly incorporated company. It sues in its capacity as trustee of the Bakers Creek Trust. It is, and at all material times was trustee of the Bakers Creek Trust.

At all material times before the contract was signed, that is to say prior to 23 October 2006 the defendants (vendors) were registered proprietors of a sugarcane farm known as Alexandria at Temples Lane, Bakers Creek in Queensland. It was comprised of two parcels of land, one of which was eventually sold to the purchaser (the Land) and one of which the vendors retained (the other land). Alexandria was about 183.677 ha. The Land sold is about 100.05 ha and the other land is about 83.617 ha. The Land sold was also called Farm 4056.

Also prior to 23 October 2006 the Mackay Sugar Cooperative Association Limited (the cooperative) existed and was registered under the Cooperatives Act 1997 (the Act). Its objects included acquiring and processing sugarcane of its members. The vendors were members of the cooperative and jointly held one share in the cooperative and they held that share in respect of or on account of the Land and the other Land. As a consequence of their membership of the cooperative (not as a consequence of holding their share) the vendors had the right to cast one vote between them at a meeting of the cooperative. Their share was personal property, by operation of s 142 of the Act and a sale or transfer of the share was subject to s 166 of the Act and could not occur except under the Rules of the cooperative.[8] The Land and the other land were used to produce sugarcane which was supplied to the cooperative. The Land sold had a harvest area was about 65 ha and normally produced about 5,600 tonnes of sugar cane annually to the start of the 2007 season.[9]
[8]Act s 166(2)
[9]Ex 3 doc 5

Also prior to 23 October 2006 the vendors had rights provided for in the Rules of the cooperative. One was essentially a right to receive a proportion of any surplus of net profits. The proportion was calculable according to a formula in Rule 65.[10] Another was a right upon a winding up or dissolution of the cooperative to receive, essentially, a share of the residual assets of the cooperative. The vendors’ share of a distribution on winding up would essentially be in the same proportion as the tonnage of sugar produced by the cooperative from their cane in the ten years before the winding up bore to the total tonnage of sugar produced from all members’ cane in those ten years. The relevant rule is Rule 68.[11]
[10]Set out below
[11]Set out below

The draft of the contract contained a problematic special condition clause 4.1. Eventually, the draft clause was amended by handwriting made by Mr Cooper, the solicitor acting for the vendors. He had some discussion with Mr Coates, solicitor for the purchaser at about the time he made the amendment to the draft. Mr Cooper was an experienced solicitor acting for the vendors in respect of the sale and from a date prior to the signing of the contract. It was his practice to ensure that agreements accurately recorded the consensus between parties. He made the hand written changes to the contract’s special condition at clause 4.1. He inserted “if” before the words “it owns shares in Mackay Sugar Co-Operative Limited”. He deleted the words “and that the” which appeared after the words “shares in Mackay Sugar Co-Operative Limited” and inserted instead the words “then those”.

On 23 October 2006 the purchaser, as trustee, and the vendors by themselves or their agent signed a contract for the sale of the Land and other property. The Land sold is more particularly identified as Lot 29 on SP185796, Lot 18 of RP739465 and Lot 119 on SP171916, County of Carlisle, Parish of Howard, being all of the land contained in title references 50618179, 21311020 and 50568087 respectively.

The contract made the purchaser’s obligation to complete the contract conditional upon the purchaser’s receiving a development approval for the Land. The contract made provision for continuing cane production on the Land pending settlement.

The Act limits the opportunity for sale or transfer of a share in a cooperative. Section 166 provides, so far as is relevant:

166 Sale or transfer of shares
(1)A share in a cooperative cannot be sold or transferred except–
…
(c)with the consent of the board – to any person if there are reasonable grounds for believing the person will be an active member of the cooperative.

(2)A share in a cooperative cannot be sold or transferred except under the rules of the cooperative.

The expression “active member of the cooperative” is not defined in the Act.

For the financial year to 30 June 2007 the concise financial report of the co‑operative showed that a fully franked “bonus distribution” was paid to members in the sum of $5,109,000.

As at 14 March 2008 the register of the members of the cooperative was closed. Members were notified that “Membership at that date will form the basis for the allocation of shares to be issued if members approve the restructure of Mackay Sugar from a co-operative to a company.”

The cooperative wrote to the vendors by letter of 10 April 2008 advising them of their “entitlement to shares in Mackay Sugar Limited under the restructure proposal” and purported to set out a provisional calculation of their “percentage entitlement in accordance with rule 68…as if the Co-operative was to be wound up”.[12]It noted that the entitlement was based on the shareholding as at 14 March 2008 and that the final calculation may be subject to amendment to take account of further transactions prior to 14 March 2008 but noted that the likely number of shares which would be issued to the vendors in the event the restructure proceeded was calculated by multiplying the vendors’ relative 10 year history entitlement by 200,000,000 and set out the calculation showing how 378,617 shares for the vendors was arrived at.
[12]Ex 3 vol 1 doc 7.

By about mid May 2008, an issue arose between the parties as a result of the purchaser’s apprehension that the cooperative would convert to a corporation which would issue shares.

The purchaser’s solicitor, Mr Coates, wrote on 19 May 2008 [13] asserting that should shares be issued, the vendors will effectively be holding such shares on trust for the purchaser to transfer them on demand pursuant to the terms of the contract and that a failure to transfer will be a breach of trust and of the contract. At that time Mr Cooper was either a principal or a consultant for the firm of solicitors acting for the vendors.
[13]Ex 3 vol 1 doc 11.

Mr Cooper signed a letter dated 20 May 2008 to the solicitors for the purchaser and specifically for reference to Mr Coates. It advised:

Our client is not prepared to sign any documents relating to the transfer of any shares that may or may not issue in any new entity proposed by the Board of Mackay Sugar Co-Operative Limited.
The contract allows for the transfer of one existing shares held by our client in Mackay Sugar Co-Operative Limited. Please provide any documentation that you require to be signed by our clients in relation to that one existing share.
It is our understanding that a voting share will issue to your client upon their becoming a member of the Co-Operative when it is notified of this sale.
Please also note that our client does not accept that any rights have issued to them with respect to the farm being sold on to your clients, that our client will hold shares on Trust for your client should shares issue in any new entity established by the Board of Mackay Sugar Co-Operative Limited.

The purchaser ultimately elected to complete notwithstanding the absence of a development approval. The date for completion became 22 May 2008. On that date the purchaser performed its obligations and the vendors, among other things, gave the purchaser a signed transfer for one share in the cooperative. The class of that share was not specified in the transfer. There vendors held no “voting share” in the cooperative. It was not established that there was such a class of share as a voting share notwithstanding the asserted “understanding” of the vendors’ solicitors in their letter dated 20 May 2008. No voting right attached to the vendors’ share.

The Act relevantly provides at s 169:

169 Transfer not effective until registered
A transferor of a share remains the holder of the share until the transfer is registered and the name of the transferee is entered in the register of members for the share.

I infer that because the register of the members of the cooperative closed on 14 March 2008, the purchaser was unable to attempt to perfect the transfer to itself of the share which had been the subject of the contract of sale. The share transfer was not capable of immediate registration because the register of members of the cooperative remained closed. The register of members remained continuously closed until the cooperative transferred to MSL. The share transfer to the purchaser was never registered. After the cooperative transferred to MSL I infer that the transfer of the share in the former cooperative could not be registered as such a share in the cooperative ceased to exist.

Since 22 May 2008, there has been produced from the Land and supplied to MSL more than 1,500 tonnes of sugar cane per annum. That amount was more than the minimum tonnage which would have been required to be produced by a hypothetical member of the cooperative who owned the Land for that hypothetical member to have complied with the production requirements in the rules of the cooperative.

At all material times prior to 23 October 2006 and 22 May 2008:

(a) The vendors held one share in the cooperative;

(b) The Land was used by the vendors to produce and supply sugar cane to the cooperative;

(c) The supply of that sugar cane to the cooperative, at the latest from 25 October 2006, was undertaken by the vendors pursuant to an agreement in writing styled “Cane Supply and Processing Agreement” between, amongst other persons, the vendors and the cooperative; however, when the contract was signed a cane supply agreement between the vendors and the cooperative and relating to the Land was operative;[14]
[14]Affidavit Mr Gaviglio par 8

(d) The vendors were members of the cooperative;

(e) The vendors had the right to attend and between them cast one vote at meetings of the cooperative;

(f) The vendor’s one share had a nominal value of $1;[15]

(g) The vendor’s share had no voting right attached.[16]

[15]Ex 3 doc 1 p 14.

[16]SOC par 3(g) Defence par 4(h).

On 6 June 2008 the cooperative wrote to members enclosing an information memorandum setting out an overview of the proposal for the cooperative to convert into MSL. Such parts of it as were tendered omitted every second page but were sufficient to reveal that the proposed corporation would issue Investment Shares to each member and cancelled member and that the number issued would be calculated on their ten year production history of the member’s land.[17]Ultimately, when the conversion took place, the end result which occurred on the third business day after the transfer of the cooperative to MSL was what this information memorandum proposed. Each member and cancelled member who had held one share in the cooperative became holders of numerous Investment Shares and the number each held was calculated on the ten year production history of sugar from sugarcane from the holder’s land.
[17]Ex 3 doc 15

For the financial year ended 30 June 2008 the concise financial report of the co‑operative revealed that the net profit for the financial year was $5.116 million which represented an increase of $2.077 million on the prior financial year; that total members equity decreased by $14.1 million on the previous year to $214.3 million and that there was no fully franked distribution paid.

At the time the parties entered into the contract, the Investment Shares did not exist. Neither party suggests that they were in contemplation of the parties or either of them at that time.

On 4 July 2008 a ballot closed for members of the cooperative to vote on a proposal that the cooperative convert to MSL.

On 17 July 2008, following a special resolution of its members and by operation of ss 302 and 305 of the Act, the cooperative ceased to be registered as a cooperative under the Act. Until then, the cooperative had been a trading cooperative with a share capital. The purchaser submitted that the issued share capital of the cooperative had a nominal value of about $1,020. The issued capital was disclosed in the concise financial report as having a value rounded to $1,000 at material times in 2007 and 2008.[18] There are likely to have been 1,020 shares on issue at material times.[19] The vendors, while not admitting the alleged fact made no submission that it was contested. I accept that the issued share capital of the cooperative had a nominal value of about $1,020. No monetary consideration was required fro the issue of the shares and no other financial transactions were required as a result of the restructure.[20]
[18]Ex 3 p 381.
[19]Ex 3 doc 16 p 281 and doc 22 p 342.
[20]Ex 3 doc 26 p 388 Concise Financial Report of the cooperative for FYE 2008 Note 5: Events subsequent to Reporting Date

On 17 July 2008 the cooperative “transferred to (and thereupon became registered as) an unlisted public corporation registered under the Corporations Act 2001, limited by shares.”[21]I regard the admitted allegation that the cooperative “transferred to” as meaning the cooperative “became registered as” an unlisted public corporation. That meaning is consistent with the jargon of the Act.[22] The expression in the pleadings was not used in the common sense of “transferred property to”. The co-operative became Mackay Sugar Limited ACN 087 463 671 (MSL). MSL, as a corporation, was taken to be the same entity as the corporation which had been constituted by the co-operative. Upon registration, MSL’s share capital comprised 1,020 shares of two classes.
[21]SOC par 12, Defence par 10.
[22]Act s 299

So far as I can see in the constitution of MSL, there is no express provision that shareholders of the cooperative are to be the shareholders of MSL. It is likely that the shareholders of the cooperative became the shareholders of MSL at the instant of MSL’s registration. This inference is likely because: MSL is limited by shares; MSL is taken to be the same entity as the cooperative; no person subscribed for shares in MSL; 1020 shares comprised the issued share capital of MSL upon its registration; the members of the cooperative held about 1020 shares; the constitution provided for the holder of an undefined share which the constitution called a “Grower Share” to have certain rights upon registration, but treated that holder as holding the Grower Share at the instant of registration of MSL as distinct from treating the holder as holding the share because of the registration.[23] The constitution made similar provision for the holder of a “Former Grower Share”. The inference that the former shareholders of the cooperative became the shareholders of MSL at the instant of MSL’s registration becomes stronger having regard to the Act at s 303 (3) which provides:

For a transfer of a cooperative having a share capital to a new
body having a share capital, the transfer must result in every
member of the cooperative at the date of transfer who held
shares in the cooperative being the holder of shares in the
capital of the new body equal in number and nominal value to
the shares held by the member as a member of the cooperative.

[23]Ex 3 doc 16 p 283 cl 5.1

The vendors became the holders of “shares in the capital of the new body equal in number and nominal value to the shares held” by them “as members of the cooperative”.[24]Thus, the vendors held one of the 1,020 shares in MSL which shares existed on the day of the cooperative’s registration as MSL. The vendors became the holder of that one share by virtue of the constitution of MSL and by virtue of their having held at the time of transfer one share in the cooperative. The vendors submitted that they became holders of Investment Shares by virtue of their being “active members of the cooperative as at 14 March 2008, and not as a consequence of what they owned”. For reasons explained below, I reject that submission.
[24]The Act s 303(3).

On 21 July 2008, the second business day after registration, 961 shares of one class[25] converted into “Investment Shares” and 59 shares of the other class[26] were renamed “Investment Shares”.[27]After that conversion and after that renaming, each “Investment Share” of the 1,020 had identical rights being those provided in the constitution of MSL at Schedule 3. Accordingly, it is unnecessary to determine which class of the two classes of share the vendors may have had in MSL on the day of its registration to determine whether the vendors became the holder of an Investment Share.
[25]Called “Grower Shares”.
[26]Called “Former Grower Shares”.
[27]Ex 3 doc 16 p 281

Because the vendors had owned one share in the cooperative, on the second business day after registration of MSL the vendors owned one Investment Share in MSL.

On 22 July 2008, the third business day following MSL’s registration, the 1,020 Investment Shares in MSL divided into 200 million Investment Shares in MSL with the rights attaching to them as set out in schedule 4 of the constitution of MSL.[28]
[28]Ex 3 doc 16 p 281 cl 4.2(e).

On the third business day following MSL’s registration the 200 million Investment Shares in MSL:

(a) Were fully paid with total capital paid or taken to be paid of $1,020;[29]

(b) Each had a net asset backing of approximately $1.[30]

[29]Ex 3 doc 22 p 342

[30]Ex 3 doc 7 p 228 and doc 26 p 379 and 382 and 383

On the third business day following MSL’s registration the one Investment Share to which the vendors had been entitled divided into a number of Investment Shares “to reflect the Ten Year Production History of Growers and Former Growers”[31]and those Investment Shares then had “the rights attaching to them as set out in Schedule 3” of MSL’s constitution.[32]In fact, the division of 1,020 into 200 million Investment Shares was calculated in accordance with a formula which was the same as the formula which was specified in Rule 68(3) of the Rules of the cooperative and the number held by any member or cancelled member after the division reflected each member’s or cancelled member’s ten year production history.[33]That formula in the rules of the cooperative was incorporated into the constitution of MSL. A division in accordance with the formula meant that the 1,020 divisions occurred into unequal numbers of shares. The constitution provided at schedule 4 that “At the same time, the right to receive a dividend and a capital contribution will be altered such that it will be determined on a per share basis, rather than linked specifically to the Ten Year Production History…” One consequence was that instead of holding one share in the cooperative having a value upon a winding up calculable by a formula in rule 68 relating to a ten year production history of the member’s farm to the time of winding up of the cooperative, a member of MSL would have numerous shares and each share would be of equal value, and the number of shares issued to the member related to the ten year production history of a farm at the time of registration of MSL rather than at the time of the winding up of the cooperative.
[31]Ex 3 doc 16 Constitution of MSL p 323 schedule 4
[32]Ex 3 doc 16 Constitution of MSL p281 cl 4.2(e) and p 323
[33]Ex 7 affid Ms Rasmussen par 11.

On the third business day following MSL’s registration the vendors’ holding of one investment share became a holding of 375,413 investment shares as a result of that division. The vendors had also received a Voting Share in MSL.

What number of shares is held on the basis of the production history of the Land?

In the ten year period from 1998 to 2007 inclusive, the sugarcane from the Land delivered to the cooperative’s mill was used to produce 6,604.02 tonnes of sugar for the cooperative. In the same period the total sugar production from all the members’ assignments was 8,413,729.29 tonnes. In the same period sugarcane from other land had been delivered to the cooperative’s mill on account of the vendors. The total sugar produced for the cooperative from sugarcane delivered to the mill on account of the vendors was 15,323.52 tonnes.[34] It follows that 8,719.32 tonnes of sugar was produced from sugarcane from other land on account of the vendors. In the calculation of entitlements to Investment Shares, the number of tonnes of sugar used for calculating the Ten Year Production History figure on account of the vendors’ share was increased on account of 469.59 tonnes of sugar described in the calculation of entitlements as “Your share of unallocated production”.[35]I infer that when the accounts of sugar produced for the cooperative were examined a quantity of sugar produced by the mill during the ten year period had not been allocated to particular assignments of land of the members. I infer that the apportionment of the unallocated production was equitable. Accordingly, I infer that it was distributed to the holders of assignments in the same ratios as the total sugar produced from the sugarcane delivered from their assignments during the ten years bore to the total sugar produced from all the members’ assignments. It follows that of the 469.59 tonnes of unallocated production attributed to the vendors’ share, only a portion was on account of the ten year production history of the Land and the balance was on account of the production history of the vendors’ other land. I calculate that the total sugar produced from the Land divided by (the total sugar produced from the Land and the other land) then multiplied by the unallocated portion produced the amount of the unallocated portion allocated on account of the production from the Land alone. Thus 6,604.02/15,323.52 times 469.59 tonnes was the unallocated production attributed to the ten year production history of the Land. That is 202.3805 tonnes. It follows that when the entitlements to Investment Shares were done, because of the ten year production history of the Land of 6,604.2 tonnes, the total production history for the Land and the other land was increased by 202.3805 tonnes. Because of the production history of the other land the total production history for the Land and the other land was increased by 267.20 tonnes.
[34]Subtract 469.59 tonnes from 15,793.11 tonnes shown in ex. 3 doc17 p 326
[35]Ex. 3 doc17 p 326

Mr Gaviglio deposed that 156,981 shares of the vendors’ entitlement were calculated by reference to the production history of the Land over the preceding ten years.[36] That calculation would be accurate if one ignored the shares which were issued because of the unallocated sugar production which was attributed to the Land and the other land.
[36]Affidavit Mr Gaviglio Ex 15 par 19

I calculate that as a result of the vendors’ holding of the one Investment Share on the second day after registration and as a result of the ten year production history of the Land the allocation to the vendors of sugar attributed to production from the Land increased by 202.3805 tonnes for the purpose of calculating the entitlement to Investment Shares. The Land was treated in the calculation of share entitlements as if it had produced (6,604.2+202.3805) being 6,806.5806 tonnes of sugar and the Land and the other land combined were treated as if they had produced 15,793.11 tonnes. The proportion of production attributed to the Land in the calculation of Investment Shares was 6,806.5806/15,793.11 or 43.09841% of the Investment Shares. That proportion of the total of the Investment Shares held by the vendors after division is 161,797 investment shares. The Purchaser claims only 161,793. I give the vendors the benefit of the doubt as to whether the purchaser’s calculation set out in the third amended statement of claim is correct.

Was there a conversation about the meaning of “shares” in special condition 4.1 before the contract was signed? Can it assist with interpretation?

The vendors alleged that the objective background of the contract, known to both parties before the contract was signed, included a conversation between Mr Coates and Mr Cooper, in which they rejected the proposition that shares in the capital of the cooperative were part of the property sold.[37] No express conversation to this effect was established by evidence. I am not satisfied there was such an express conversation and am not satisfied that any pre-contractual conversation was to that effect.
[37]Defence to the third further amended Statement of Claim (defence) par 9A(b)

The vendors also alleged that the objective background included a conversation between Mr Coates and Mr Cooper, in which they agreed that clause 4.1 of the contract “related only to a cane farmer’s share that gave them a right to vote.”[38]
[38]Defence par 9A(c)

The vendors argued that the court could use the conversation between Mr Cooper and Mr Coates, as an aid to interpreting the meaning of clause 4.1. The conversation deposed to by Mr Cooper was:[39]

“I advised Mr Coates that I was putting in amendments concerning the shares in the Co-Operative, because I could not recall whether a cane farmer with the Co-Operative had a right to vote, or a voting share was issued. Clause 4.1, was modified by me, after speaking with Mr Coates, and after reaching agreement that clause 4.1 related only to a cane farmer’s share that gave them a right to vote. That is the reason the words ‘if’ and ‘then those’ were inserted in the paragraph.”

[39]Defence par 9A(b)

Mr Cooper swore to that affidavit on 30 January 2013, more than six years after the conversation. He made no contemporaneous note of his conversation with Mr Coates in October 2006.

In mid May 2008, when the purchaser was apprehensive that the cooperative would convert to a public corporation which would issue shares and Mr Coates wrote to Mr Cooper to make demands of the vendors, it would have been appropriate for Mr Cooper, if he had remembered a relevant conversation with Mr Coates prior to the signing of the contract, to have reminded Mr Coates of their conversation.

The contents of Mr Cooper’s letter differentiate between two potential share classes which might be created being a voting share for the purchaser and other shares that might issue for the vendors. But the letter fails to assert that there was a conversation between Mr Coates and Mr Cooper relevant to the dispute. It omits reference to a prior agreement that clause 4.1 “related only to a cane farmer’s share that gave them a right to vote”. Mr Cooper’s letter was written 20 months after his conversation. His memory is likely to have been better at the time of writing the letter than four years and eight months later when he prepared an affidavit for trial. Mr Cooper’s letter omits reference to an express oral agreement or to his oral explanation that the vendors were keeping back from sale any type of share or right to a type of share or any other interest in the capital of the cooperative. The letter was consistent with the objective appearance of clause 4.1 that the vendors agreed, without qualification, that any shares the vendors then owned in the cooperative were included in the property sold.

Mr Cooper gave further evidence that he received a share transfer form and advised the vendors to sign it, knowing that it had no value. He took no steps to ensure in the transfer form that the word “Share” was amended to ensure that it referred only to a voting share. When explaining why he took no such steps Mr Cooper gave evidence that he did not see the transfer form. In that respect, his evidence was inconsistent with the earlier oral evidence that he “received a transfer form”.

In contrast to evidence by Mr Cooper was the evidence of Mr Coates, the solicitor for the purchaser. The purchaser’s solicitor remembered that before the contract was signed he spoke with Mr Cooper by telephone and about special condition 4.1 of the contract. He conceded the possibility that Mr Cooper had mentioned voting rights. He said that if the discussion had turned to the topic of detaching voting rights from other shareholder rights it would have jarred with him and he would have raised it with his client. That a solicitor would be jarred by talk of the detachment of voting from other rights is probable. If that had been discussed, a solicitor acting reasonably should confirm with the client that it was the intent of the agreement. Mr Coates had no such discussion with the purchaser.

Much time has passed since the alleged conversation. I am not satisfied that Mr Cooper’s memory of it is reliable. The vendors have not established on the balance of probability that a conversation between the solicitors was, in substance, as it was recalled by Mr Cooper. Mr Cooper’s recollection of the conversation cannot be used to assist in interpreting clause 4.1 of the special conditions of the contract.

The plaintiff submitted that clause 4.1 was unambiguous and not susceptible of more than one meaning and that, in that circumstance, it was improper to look to the antecedent conversation between Mr Cooper and Mr Coates as an aid to interpretation. As I am not satisfied about the relevant part of the conversation, it is unnecessary for me to decide this question of law. I must interpret the contract and clause 4.1 without regard to the conversation Mr Cooper alleged.

Terms of the contract relied upon as an aid to interpretation

As context aiding interpretation, the purchaser relies upon the following provisions from the contract’s standard commercial conditions[40]:
[40]TB1 tab 3 pp 105-113.

1 INTERPRETATION
1.1In this Contract, unless inconsistent with the context or subject matter:
…
(p)“Land” means the land described in Item H;

…
(s)“Property” means the property listed in Items H, I and J and includes any part of the Property;
…

4COMPLETION AND POSSESSION

The balance of the Purchase Price shall be paid on the Date for Completion in exchange for:
…
(b)a properly executed transfer for the Land in favour of the Purchaser capable of immediate registration (after stamping) in the appropriate office free from Encumbrances (other than those set out in Item L) and title to the Property (other than the Land) free from Encumbrances (other than those set out in Item L) but subject to the conditions of this Contract;

…
(g)all other instruments (which shall be duly stamped) in the possession or control of the Vendor evidencing estates and interests affecting the Property and which are exclusive to the Property;
…

10EXECUTION AND PRODUCTION OF DOCUMENTS

10.1Subject to compliance by the Purchaser with the Purchaser’s obligations under or by virtue of this Contract, the Vendor shall as required do all acts and execute all documents necessary for the purpose of completing the sale and ensuring that the Purchaser obtains a good and valid title to the Property but all transfer documents, any declaration required pursuant to clause 4(c), and all instruments or declarations required pursuant to clause 4(d) shall be prepared by and at the expense of the Purchaser and delivered to the Vendor within a reasonable time prior to the Date for Completion.
…
26TIME OF THE ESSENCE

Except as otherwise provided in this Contract, time shall be deemed to be of the essence of the Contract.

27NOTICES, COMMUNICATIONS, AUTHORITY, DIRECTIONS, ETC.

27.1Any document and any notice in writing or other written communication required or desired to be give by one party to the other under or pursuant to this Contract or concerning this Contract may be:
(a)given by the solicitor intending to give it;

(b)given to the other party’s solicitor;

…

…
34.7If the Supply is a Going Concern

…
(c)the Vendor warrants that:

(i)between the date of this Contract and the Date for Completion the Vendor will carry on the Enterprise; and
(ii)the Property (together with any other things that must be provided by the Vendor to the Purchaser at the Date for Completion under a related agreement for the same Supply) is all of the things necessary for the continued operation of the Enterprise;

…

(e) if either of the warranties in clause 34.7(c) is breached:
…
(iv)the Purchaser is entitled to compensation for the Vendor if there is a breach of the warranty;
…

As context aiding interpretation, the purchaser relied upon the following matters in the Items Schedule of the contract:[41]
[41]TB1 tab 3 pp 84-86.

H PARTICULARS OF LAND SOLD:
…
Area: 100.05 ha (total)
…
J OTHER CHATTELS INCLUDED IN SALE: Bore pump, motor and irrigation piping
…
N PURCHASE PRICE: $5,000,000…
…
Q DATE FOR COMPLETION: See Special Condition
…
GST1 Going Concern …Is this a sale of a Going Concern? Yes

As context aiding interpretation, the parties between them, relied on the following from the contract’s special conditions:[42]
[42]TB1 tab 3 pp 90-104.

1.4.This Contract supersedes all prior representations, arrangements, understandings and agreements (whether written and/or verbal) between the parties relating to the subject matter of this Contract and sets forth the entire and exclusive agreement and understanding between the parties relating to the subject matter of this Contract.
2.GST – If not Going Concern Concession then Farmland Concession
2.1.This Clause 2 only applies if for any reason this transaction is not a Supply of a Going Concern as contemplated by the parties and described in clause 34 of the Standard Commercial Conditions and the Purchaser does not exercise any rights it may have under clause 34.7(e)(i) to terminate the Contract.
…
2.4.For the purposes of claiming the farmland concession:

2.4.1.The Vendor warrants that the land is land which a sugarcane farming business has been carried on for at least five (5) years preceding the date of supply (i.e. the date of possession);
2.4.2.The Purchaser warrants that the Purchaser intends that a sugarcane farming business continue to be carried on, on the Land as and from the date of supply.

…
3. Water Licence and Water Allocation
3.1.
The Vendor warrants that there is a water licence number 180302 relating to the Land and that the licence is included in the property sold to the Purchaser …

…
3.2.The Vendor warrants the Vendor has a nominal entitlement of 201.0 mega litres per water year … and that the entitlement is included in the property sold to the Purchaser …

4. Shares in Mackay Sugar Co-Operative Limited
4.1.The Vendor warrants that if it owns shares in Mackay Sugar Co‑Operative Limited then those shares are included in the property sold to the Purchaser. The parties will sign any necessary documentation to transfer the shares to the Purchaser at completion.
…
6.Crop Maintenance

6.1.The Vendor agrees to continue the cane farming operation at the Property … until settlement date …
6.2.The Vendor agrees to transfer to the Purchaser as part of the Property sold the crop of sugarcane and stools growing on the Property at Completion.
6.3.The parties acknowledge that the crop to be harvested in the 2008 harvest season is included in the property hereby sold provided that if completion for any reason occurs after the commencement of crushing for the 2008 year then the Vendor will attend to harvesting the 2008 Crop and shall be entitled to the proceeds … to the date … and the purchaser shall pay the reasonable costs of harvesting and transport) to the vendor after the completion date
6.4.The Vendor further agrees that as and from the date of completion, the Purchaser shall be entitled to the benefit of all past production from the property when Mackay Sugar Co-Operative Limited is determining:

6.4.1.the distribution of bonuses;

6.4.2.the distribution of surplus monies on the winding up of Mackay Sugar Co-Operative Limited.

…
8. Cane Supply Agreement
8.1.If there is an existing Cane Supply Agreement relating to the Property then the Vendor agrees to provide the Purchaser with a copy of the document within seven days of the date of the Contract.
…

8.3.If there is a cane supply agreement in existence at completion then upon completion, the Vendor assigns to the Purchaser the burden and benefit of the cane supply agreement and the parties must do all things and sign all documents reasonably required to effect an assignment of that cane supply agreement.
…
11.Development Approval
11.16.This Contract is conditional upon the Purchaser receiving Development Approval by the Approval Date.

11.17. If the Development Approval has not been granted by the Approval Date
then the Purchaser may either give written notice…terminating this Contract…or waiving the benefit of this Condition.

Rules of Mackay Sugar Cooperative Association Limited relied on as an aid to interpretation

The Rules of Mackay Sugar Cooperative Association Limited registered 19 June 2000 were in force when the parties signed the contract. Between them, the parties relied upon the following rules as relevant to interpretation of the contract:

“Interpretation
1. In these rules
‘The Act’ … means the Cooperatives Act 1997…
‘share’ means share in the capital of the cooperative;

…
Active membership provisions
5. Under part 6 of the Act-
…
(2) Active membership requirements
(b)All members of a cooperative must be active members.
(c)A member who fails to be or stops being an active member must, under the Act, have their shareholding cancelled and, subject to section 132 of the Act, their share forfeited.

Qualifications for membership
6. ...
(2) Every member shall hold at least one (1) share.
(3)A person is not qualified to be admitted to membership of the cooperative unless there are reasonable grounds for believing the person will be active member of the cooperative. [s. 61]
…

Membership, subscriptions, periodic fees and shares
7.(1)No person has a right to become a member of the cooperative and the board may, at its discretion refuse an application for membership.
…
(3)Any person in whose name an assignment to a mill of the cooperative is for the time being held shall be entitled to apply to become a member of the cooperative…
…
(5)Applications for membership, must be lodged at the registered office in the application form approved by the board.
(6)Every application must be considered by the board.
(7)If the board approves of the application, the board must allot at least one share to the applicant which share shall be deemed to be fully paid.
(8)The applicant’s name together with the number of the share allotted, date of allotment and any other information required by or under the act must be entered in the register of members.
(9)The applicant must be notified in writing of the allotment and of the entry in the register and the applicant is then entitled to the privileges attaching to membership, or to the holding of a share, as is appropriate.
…
(12)(a) Subject to rule 8(2) every member-
(i)on selling, … otherwise transferring the whole of his or her assignment; …

shall, subject to rule 6(1)(c), automatically cease to be qualified to be a member of the cooperative and in accordance with rule 8, member of the cooperative shall cease

…
Ceasing membership
8.(1)Subject to Rule 8(2) a person stops being a member in any of the following circumstances-
…
(j)if the member disposes of the whole of his or her assignment; …

(2)Subject to Part 6 of the Act a member or the persons who collectively are a member, shall upon such member ceasing to be a member of the cooperative thereupon have no further interest in the cooperative or in any of its real or personal property or in any reserve fund. Such member shall however-
(a)be treated as if they were still a member and shall remain entitled to any moneys that may be owing to them at the date they ceased to be a member; and
(b)remain entitled to their share (if any) of any profits of the cooperative to be distributed or any additional payments for cane, in the manner provided by the rules, for the financial year of the cooperative next ending after the date when such person ceased to be member.

…
Capital and shares
12.(1)The shares of the cooperative shall have a nominal value of $1 each. [s. 144(2)]
(2)All the members of the cooperative at the date shall take effect hold one share issued to them under the repealed rules and such share shall be deemed to be issued under these rules and shall be deemed to be fully paid.
(3)Shares of the cooperative must not be quoted for sale or purchase at any stock exchange or in any other public way within the meaning of the Income Tax Assessment Act 1936 (Cwlth).
…
Cancellation of share
16.(1)A member’s share may be cancelled if-
(a)the member is no longer an active member and membership is cancelled under rule 19;
(b)the member ceases to hold any assignment to a mill of the cooperative in accordance with rule 7(12); or
(c)if the share has been forfeited by the member under the Act. [s. 172]

(2)The cooperative must cancel any share forfeited or transferred to the cooperative under these rules.
Transfer and transmission of shares
17.(1)A share in the cooperative cannot be transferred except-
…
(c) as otherwise provided by these rules or the Act.

(2)The instrument of transfer of any share must be executed by or on behalf of the transferor (the giver) and the transferee (the receiver).
(3)The transferor is taken to remain the holder of the share until the name of the transferee is entered in the register of members. [s. 169]
(4)A share must be transferred using the form approved by the board from time to time.
(5)The board may decline to register any transfer of a share to a person not qualified to be a member or of whom they do not approve. If the board refuses to register a transfer of share it shall send notice of the refusal to the transferee within 2 weeks after the date on which the board declined to register the transfer.
…
19.(1)The board shall, after giving notice under section 130 of the Act, declare the membership of a member who was a member for the period stated cancelled if– [s. 125]
…
(b)the member is not presently an active member and has not been an active member at any time during the past 24 months immediately before that time.

…
Notice of general meetings
30.(2)Notice must be given to the persons who are, under these rules entitled to receive notices from the cooperative…
…
Attendance and voting at general meetings
35.(1)Attendance at any general meeting shall be restricted to active members and directors …
…
(3)A member of the cooperative can not vote at a meeting of the cooperative unless the person is an active member of the cooperative.

...
Distribution of Profits
65.(1)The net profit of the operations of the cooperative shall be determined by the directors for each financial year … after charging the income of the cooperative with the payment of–
(a)all … expenses … considered by the directors to be an appropriate charge against the income …
(b)The purchase price … for sugar cane …, bonuses to members (as defined in rule 65(7)) and … provision … for … depreciation … as the directors … shall … determine.

(2)The directors may appropriate from such net profits such amount … as they … shall think fit for:-
… [in summary: various items including replacement, improvement, addition to buildings and plant, purchase of real or personal property and repayment of debt]

(3)The surplus of such net profit, if any shall be distributed at the absolute discretion of the directors in whole, in part or not at all among the members who supplied sugar cane to the cooperative in such year in the following proportion:

members share of surplus = surplus x A
B

where

A = tonnage of IPS sugar manufactured from the sugar cane delivered to and accepted by the cooperative from the member
B = tonnage of IPS sugar manufactured from the sugar cane delivered to and accepted by the cooperative from all members.

(4)The surplus or balance thereof (if any) remaining undistributed shall be transferred to the unappropriated profits accumulation fund.

(5)Any distribution of surplus shall be made in cash or in the discretion of the directors such distribution shall be satisfied by the crediting to each member in the books of the cooperative the amount which each member would otherwise have had distributed to him or her in cash. The cooperative shall upon such credit being made issue to each member a certificate of entitlement under the seal of the cooperative in such form as the directors shall determine showing the amount which has been credited to such member’s account.
(6)Any credit arising under Rule 65(5) shall be a debt due by the cooperative to each member and shall subject to section 266 of the Act be repayable by the cooperative to such member at such time … as the directors may … determine …
(7)For the purposes of this rule 65–
(a)the purchase price payable for sugar cane’ shall be the price fixed from time to time by the award in each year together with such additional amount per tonne (if any) to be added to the price fixed in the award as the directors in their absolute discretion shall determined; and
(b)‘bonuses to members’ shall mean such additional amount per tonne (if any) to be added to the price fixed in the award as the directors in their absolute discretion shall determine.

(8)Any part of the surplus arising in any year from the business of the cooperative may be credited to any person who is not a member, but is qualified or deemed to be a member under another provision of these rules, by way of bonus or rebate in accordance with this rule 65 in proportion to the business done by him or her with the cooperative, if–
(a)the person was a member at the time the business was done and the membership has lapsed; or
(b)the person has applied for membership after the business was done. [s.267(1)]

…
(14)No money standing to the credit of the retained earnings account created before or after the date these rules came into force may be distributed to the members hereof unless such distribution shall be authorised by a special resolution.
…
Winding Up
68.(1)The cooperative must be wound up under part 12 of the Act.
(2)If on the winding up or dissolution of the cooperative there remains after the satisfaction of all its debts and liabilities any assets such assets shall be paid to or distributed among the members of the cooperative in accordance with each member’s entitlement.
(3)For the purpose of rule 68(2):

“Members’ entitlement”, shall be the proportion of the tonnage of IPS sugar manufactured from sugar cane crushed at the mills of the cooperative and delivered to and accepted by the cooperative from each member, in accordance with the Principles, over a period of ten (10) complete crushing seasons immediately preceding the winding up as bears to the total tonnage of IPS sugar manufactured from sugar cane crushed for the said period of ten (10) complete crushing seasons and delivered to and accepted by the cooperative from all of the members supplying cane to the mills of the cooperative.
“Principles” means the following principles which are to be applied in determining a member’s entitlement and the production history attaching to a member’s assignment:-
(a) The member who grows the sugar cane delivered to and accepted by the cooperative will be entitled to treat the IPS sugar produced from that cane supplied as that member’s production.
(b) Unless the parties otherwise agree, if a member sells or otherwise transfers his or her assignment, the benefit of the past production relating to that assignment passes to the purchaser or transferee.
(c) A lessee of any assignment, whose sugar cane is delivered to and accepted by the cooperative will be entitled to the benefit of that production, but the past production history does not pass to the lessee.
(d) In applying the Principles set out in (a), (b) and (c) above the director may in their absolute discretion determine any competing claims as to production and production histories, and the directors is final and binding.

(4)Subject to rule 75, if after the date of incorporation of the cooperative a person obtains a grant of new assignment and becomes a member of the cooperative as the holder of such new assignment but has not been a member for a period of ten (10) years as aforesaid, such member shall rank for the purpose of his or her entitlement as aforesaid for the tonnage of IPS sugar manufacture for sugar cane delivered to and accepted by the cooperative from each such member over the number of years such member has been a member.
(5)If any question shall arise as to the entitlement of any member under this rule 68 the liquidator shall refer the question to the person s who were the directors at the date of the winding up and the decision of the directors thereon shall be final and shall be conclusive in all respects and shall bind all members. The entitlement of each member is the proportion determined in accordance with the definition at the date of the winding up.”

Extracts from the constitution of MSL

So far as seems relevant to the resolution of the issues in this proceeding, the constitution of Mackay Sugar Limited provided:

3.2 Definitions
…

10 Year Production History means a shareholder’s production history calculated in accordance with rule 68(3) of the rules of the former Mackay Sugar Co-Operative Association Limited and upon which a shareholder is entitled to Investment Shares in the Company arising from the Conversion Proposal (which means regard would be had to the last ten complete crushing seasons prior to the registration of the Company).

4            Shares
4.1          Classes of Shares
The shares of the Company, on issue, will be divided into the following classes:
(a)        Grower Shares; and
(b)        Former Grower Shares.

4.2 Initial share capital upon registration
(a)Upon registration of the Company, the share capital issued in the Company will comprise 961 Grower Shares and 59 Former Grower Shares.
(b)The rights attaching to each class of shares upon registration of the Company are set out in Schedule 1.
(c)On the first business day following registration of the Company; the 961 Grower Shares and 59 Former Grower Shares will remain but the shares will have the rights attaching to them as set out in Schedule 2.
(d)On the second business day following registration of the Company:
(i)the 961 Grower Shares will be converted into 961 Investment Shares. In addition 961 Voting Shares will be issued. The shares will have the rights attaching to them as set out in Schedule 3; and

(ii)the 59 Former Grower Shares will be renamed as Investment Shares and will have the rights attaching to them as set out in Schedule 3.

(e)On the third business day following registration of the Company, the 1020 Investment Shares will be divided into 200,000,000 Investment Shares and will have the rights attaching to them as set out in Schedule 4.
…

Schedule 4

Rights attaching to shares post registration (rule 4.2(e))
On the third business day following the registration of the Company the number of Investment Shares will be increased from 1020 to 200 million shares by effecting a division of the Investment Shares to reflect the Ten Year Production History of Growers and Former Growers. At the same time, the right to receive a dividend and a capital contribution will be altered such that it will be determined on a per share basis, rather than linked specifically to the Ten Year Production History.
The rights attaching to the shares will then be as follows:
…
Investment Shares
(a) to receive notice of and to attend general meetings of the Company;
(b)to receive dividends as determined from time to time by the Directors to be payable equally to the holders of shares; and
(c)in a winding up or reduction of capital of the Company to participate equally in the distribution of the surplus assets of the Company.”

The meaning of special condition clause 4.1 of the contract

The vendors submit that in determining, objectively, the meaning of the contract one can have regard to a number of matters. The first was the fact that Investment Shares did not exist when the contract was executed. I accept that submission. The vendors submitted that the prior negotiations led to an agreement between the solicitors that clause 4.1 was to preserve the purchaser’s right to vote. I reject that submission for reasons explained above. The vendors submitted that after the contract had been signed and when it was anticipated that Investment Shares might issue in MSL, a draft contract was produced with a view to dealing with the proposed Investment Shares and that it is an aid to interpretation of the contract in issue. In the course of the hearing I ruled that those matters were irrelevant to a determination of the meaning of the contract.[43] The vendors submitted that the contract was for the sale of a cane farm for development purposes rather than as a cane farm and that this distinction was relevant for interpreting special condition 4.1. I reject that submission having regard to the following: The sale was conditional upon the purchaser’s receiving a development approval by a particular date; the condition was for the benefit of the purchaser; the purchaser was entitled to proceed if the condition was not fulfilled; there are other indicia in the contract to show that it was the sale of a cane farming going concern. The fact that the contract was conditional upon obtaining development approval does not persuade me that I should interpret standard condition 4.1 in any way other than according to its words.
[43]Agricultural and Rural Finance P/L v Gardiner (2008) 238 CLR 570 [35]

I am satisfied that the contract at special condition 4.1 contained an agreement by the vendors to include their one share in the cooperative in the property sold to the purchaser.

How did the vendors come to hold Investment Shares?

Recall that the vendors held one share in the cooperative at the time they contracted to sell to the purchaser. Within several days after the registration of the cooperative as MSL the vendors were holders of 375,413 Investment Shares in MSL and were no longer the holder of their share in the cooperative. It is necessary to analyse the process by which this occurred.

On registration of the cooperative as MSL, the vendors became the holder of one share in MSL. The process by which this should have occurred was described in the Act. I infer that it is the process which did occur. The vendors became holders of “shares in the capital of the new body equal in number and nominal value to the shares held” by them “as members of the cooperative”.[44]The Act provides at s 303(3):

For a transfer of a cooperative having a share capital to a new
body having a share capital, the transfer must result in every
member of the cooperative at the date of transfer who held
shares in the cooperative being the holder of shares in the
capital of the new body equal in number and nominal value to
the shares held by the member as a member of the cooperative.

[44]The Act s 303(3).

I am unsure whether the vendors held, upon registration, a Grower Share or a Former Grower Share as those two classes of shares in MSL are described in the constitution of MSL. It does not matter for this proceeding which class they held as the difference in the rights of each class concerned only a right to vote at general meeting. On registration of MSL Grower Shares and Former Grower Shares otherwise had several relevant identical rights.[45] The identical rights were:
[45]The constitution rule 4.2(b) and schedule 1

(a) To receive dividends as determined from time to time by the Directors to be payable to the holders of shares;

(b) To receive income distributions or bonuses proportionally based on the production of sugar cane which is supplied under a Cane Supply and Processing Agreement by that shareholder in the previous 12 months; and

(c) In a winding up or reduction of capital of the Company to participate in the distribution of the surplus assets of the Company proportionally based on the Ten Year Production History of that shareholder.

On the first business day after registration of MSL that one share held by the vendors, whether it was a Grower Share or a Former Grower Share, underwent changes of rights. The relevant changes in share rights for Grower Shares and for Former Grower Shares were identical. The basis for directors to determine dividends changed and became based on the “Ten Year Production History” of the shareholder. The right to receive income distributions or bonuses was lost. The rights in the event of winding up or reduction of capital remained unchanged. On the first business day following the registration of MSL[46] both classes of shares had the following identical rights:

(a) To receive dividends as determined from time to time by the Directors to be payable to the holders of shares (based on the Ten Year Production History of that shareholder); and

(b) In a winding up or reduction of capital of the Company to participate in the distribution of the surplus assets of the Company proportionally based on the Ten Year Production History of that shareholder.[47]

[46]Exhibit 3 doc 16 Constitution s 4.2(c)

[47]Exhibit 3 doc 16 Constitution schedule 2 Grower Shares (c) and (d) and Former Grower Shares (b) and (c).

On the second business day following registration of MSL the 961 Grower Shares converted into 961 Investment Shares and the 59 Former Grower Shares were renamed as Investment Shares.[48] From this moment there were 1,020 Investment Shares, one of which was held by the vendors. The rights to dividends and in a winding up or reduction of capital remained identical on that day with those rights which the two classes of shares had enjoyed on the first business day following registration[49] namely:

(a) To receive dividends as determined from time to time by the Directors to be payable to the holders of shares (based on the Ten Year Production History of that shareholder); and

(b) In a winding up or reduction of capital of the Company to participate in the distribution of the surplus assets of the Company proportionally based on the Ten Year Production History of that shareholder.

[48]Exhibit 3 doc 16 p281Constitution s 4.2(d).

[49]Constitution schedule 3 Investment Shares (b) and (c).

On the third business day after registration of MSL the 1,020 Investment Shares divided into a total of 200 million Investment Shares and the vendors’ one Investment Share divided into 375,413 Investment Shares. The rights to dividends and to participate in a winding up or reduction of capital changed[50] from the rights of the prior business day. The change meant that the rights became rights:
[50]Constitution rule 4.2(e) and schedule 4

(a) To receive dividends as determined from time to time by the Directors to be payable equally to the holders of shares; and

(b) In a winding up or reduction of capital of the Company to participate equally in the distribution of the surplus assets of the Company.

Thus, the amount of any dividend and of any capital return on winding up or reduction of capital was “altered such that it will be determined on a per share basis, rather than linked specifically to the Ten Year Production History”[51] which had been the basis on the two prior business days.

[51]Constitution schedule 4.

When the process is analysed in that way, one sees that the vendors’ first share in MSL came to be held by them when MSL was registered. It came to be held by them as a consequence of their ownership as members of the cooperative of the one share in the cooperative which they had sold to the purchaser.

Their rights to the number of Investment Shares they came to hold after division was as a consequence of their ownership of one Investment Share and also as a result of the constitution of MSL at Schedule 4 which provided for an increase in the number of Investment Shares and as a result of MSL’s dividing the vendors’ one Investment Share into a larger number determined in accordance with the constitution, which is to say that it was determined in accordance with the Ten Year Production History of that shareholder of the Land sold and the other land retained by the vendors.

Another feature of the process is seen by contrasting the process with what would have occurred if the cooperative had been wound up and the assets of the cooperative had been distributed among its members in accordance with rule 68 of the cooperative. If the cooperative had been wound up the vendors would have received their share of the assets of the cooperative calculated by reference to the ten year production history of the Land and the ten year production history of the other land. Instead, on the third business day after the transfer to MSL the vendors received no assets of the cooperative or of MSL. They received their share of the Investment Shares in MSL calculated by reference to the ten year production history of the Land and the ten year production history of the other land. If there had been a winding up before the transfer of the one share in the cooperative, the contract’s special condition 6.4 would have meant that the vendors would have held on trust for the purchaser any distribution to the vendors of the proceeds of sale of the cooperative’s assets. On that hypothesis, it would be accurate to say that the parties did not intend a distribution of the proceeds of sale of the cooperative’s assets to be conveyed as part of the property the subject of the contract.

The vendors submitted that the parties “did not intend investment shares to be conveyed as part of the property the subject of the Contract”.[52]I accept that the contract had no reference to Investment Shares. They did not exist when the contract was signed. They did not exist on the date for completion, though the parties anticipated at that date that they would come into existence after that date. If the submission was intended to mean that the parties intended that Investment Shares be excluded from the benefits to which the purchaser could become entitled, I would reject the submission. I am not satisfied that the contract reveals such intent.
[52]Defendants’ submissions par 8.

The vendors submitted that in the absence of an express term transferring Investment Shares in MSL to the purchaser, the property sold by the contract is irrelevant.[53]I reject the submission. The contract at special condition 6.4 purported to determine ownership of rights to financial benefits which might arise after the date for completion. The terms about property sold are a part of the whole of the contract’s terms. The contract’s terms must be read as a whole to determine whether there was an intention implied about the ownership of the right to shares in a corporation to which the cooperative might transfer after the date for completion.

Did the vendors receive the Investment Shares on the basis of who they were and not as a consequence of owning a share in the cooperative?

[53]Defendants’ submissions par 3(a).

The vendors submitted that they received the Investment Shares as a consequence of who they were, active members of the cooperative as at 14 March 2008, and not as a consequence of owning a share in the cooperative.[54]
[54]Defendants’ submissions par 3(b) and T3-76

One should recall that the vendors came to hold their Investment Shares as a consequence of the facts and events set out in these reasons above. Reference to s 303 (3) of the Act suggests that the vendors’ submission that they did not receive Investment Shares as a consequence of what they owned is incorrect. The vendors’ ownership of a share in the cooperative at the date of transfer of the cooperative was a precondition for the vendor’s becoming holders of a share in the capital of MSL equal in nominal value to the share they held in the cooperative.

The vendors’ submission that they received Investment Shares as a consequence of who they were, namely active members of the cooperative, overstates the significance of their active membership.

Membership of the cooperative did not arise simply from the purchase of a share. A share in the cooperative would be allotted by the board to an applicant for membership if the board approved the application. No person had the right to membership of a cooperative as the board might, at its discretion, refuse an application for membership.[55]The vendor’s holding of one share in the cooperative had been related also to their having the attributes of “active members”. The rules of the cooperative provided:

“All members of a cooperative must be active members.”[56]

To establish active membership an applicant or member was required to hold “assignment to a mill of the cooperative”, meaning at least 20 hectares of land assigned to supply sugar cane; was required to sell and deliver not less than 500 tonnes of sugar cane to the cooperative’s mill annually or if unable to do so, at the discretion of the board could retain membership by paying $100. To establish active membership an applicant or member was also required not to sell or otherwise dispose of sugar cane except on specified bases.[57] One could not qualify to be admitted to membership of the cooperative unless there were reasonable grounds for believing the applicant would be an active member of the cooperative.[58] Every member was required to hold at least one share.[59] A member who failed to be or stopped being an active member was required under the Act to have the shareholding cancelled and, subject to s 132 of the Act, the share forfeited.[60]

[55]Rule 7(1).

[56]Rule 5(2)(b).

[57]Rule 5(2)(a).

[58]Rule 6(3).

[59]Rule 6(2).

[60]Rule 5(2)(c).

The vendors’ conformity with the attributes of active members of the cooperative was one basis for their initial eligibility to hold their one share in the cooperative until the date it transferred into MSL. There is no suggestion that continuing qualification for active membership was assessed and used as a basis for determining who would hold a share in the transformed cooperative. Rule 19 (1)(b) reveals that a member could cease to be an active member without loss of membership. Thus, it was possible to be a member and a shareholder without being an active member. To be eligible to hold a share in MSL at the time of the transfer of the cooperative to MSL it was essential to hold a share in the cooperative. It was not essential to be an active member. I reject the submission that the vendors received their Investment Shares because they were active members of the cooperative. Their being owners of their share was the essential basis.

Because the vendors remained the holders of the one share in the cooperative they became holders of one share in MSL upon registration of the cooperative as MSL. On the first business day after registration that share became or was renamed an Investment Share. That did not occur because of their active membership of the cooperative (which had transformed) but because they held one share in MSL and because the constitution of MSL provided for this result. On the third business day after registration their one Investment Share divided into many. A division occurred not because of their active membership in the cooperative (which had transformed) but because the constitution of MSL provided for a division. The number into which the shares divided was determined by reference to the constitution of MSL and the Ten Year Production History from both the Land and the other land delivered to the cooperative’s mill. The number into which the one Investment Share divided did not depend upon establishing that the vendors were active members.

The vendors did not receive the investment shares as a consequence of who they were.

There is an argument which the vendors did not specifically raise. It warrants mention and rejection. The constitution of MSL in defines “Ten Year Production History” by reference to a “shareholder’s production history calculated in accordance with rule 68(3)”. The definition’s use of the word “shareholder’s”, adds no strength to the vendors’ submission that they received the Investment Shares on the basis of who they were. To calculate a “shareholder’s production history… in accordance with rule 68(3) of the rules of the” co-operative requires one to follow the principles set out in the former rule 68(3). Principle 68(3)(b) is not consistent with the notion that only a member whose assignment was the source of the sugar produced could be the person entitled. Clause 68(3)(b) shows that unless parties otherwise agree, if a member sells his or her assignment, the benefit of past production relating to that assignment would pass to the purchaser.

Could a share in the cooperative have been transferred to the purchaser?

The vendors submitted that a share held by an active member of the cooperative cannot be transferred except in two limited circumstances which did not exist in the case.[61] The vendors relied upon rule 17(1). The circumstance for a transfer set out in rule 17(1) (a) and (b) did not apply in the current situation. Those subrules provided for transfers on the death of a member or to a person appointed to administer the estate of a shareholder under a law relating to the administration of the estates of persons who, through mental or physical infirmity, are incapable of managing their affairs. However, subrule 17(1)(c) contemplated that there would be other occasions for a transfer.
[61]Defendant’s submissions par 9(c) and T3-77.

The rules had the effect of a contract under seal between the members of the cooperative and between the cooperative and each member.[62]The issue is one of interpretation of the rules to determine whether they permitted a transfer of a share, other than on the two specific situations provided for in rule 17(1)(a) and (b), and in a situation where the vendors purported to sell to the purchaser their Land as a going concern and their one share “as otherwise provided by these rules or the Act”.
[62]The Act s

There was no specific instance of an occasion when a transfer was permissible nominated in the rules, other than those in rule 17(1)(a) and (b). That does not mean that in interpreting the rules as a whole, that the intent was that those were the only situations when a transfer should be permitted.

In approaching that task of interpreting the rules, s101(8) of the Act notes, so far as is relevant, that “The rules may contain… provisions not inconsistent with this Act”. Section 166(1)(c) of the Act creates an exception to a prohibition against the sale or transfer of a share in a cooperative. It implies that a share can be sold “(c) with the consent of the board-to any person, if there are reasonable grounds for believing the person will be an active member of the cooperative”. The production from the land since the date for completion has been sufficient to meet the production criteria for active membership. Further, the former rules of the cooperative at rule 68 (3)(c) provided that upon sale of an assignment, the purchaser would have entitlements to participate in the distribution of assets consequent upon the winding up of the cooperative. That implies that the purchaser of the assignment was also entitled to the rights attached to a share in the cooperative. It implied a right to transfer a share with the consent of the board.

I reject the implied submission that the vendors’ share in the cooperative could not have been transferred to the purchaser. I find that it could have been transferred to the purchaser so long as the purchaser qualified to be a member and so long as the board did not disapprove of the purchaser’s becoming a member of the cooperative[63]and so long as there were reasonable grounds for believing the purchaser would be an active member of the cooperative. The vendors’ arguments were based upon construction of rule 17 and section 166 of the Act, rather than upon the willingness or ability of the purchaser to qualify for membership and active membership and board approval. It was not pleaded that the purchaser would not have been willing and able to complete.
[63]Rule 17(5).

I am not satisfied that the share could not have been transferred by the vendors to the purchaser if the register had not remained closed and if the cooperative had not transferred into MSL.

The vendors had another argument based upon the complication that they retained the other land. By retaining the other land the vendors remained capable of satisfying the requirements of active membership and capable of retaining their eligibility for membership of the cooperative. Because of that membership they remained eligible to retain a share in the cooperative. They submitted that the share they retained at material times after the contract was signed was retained by them by virtue of their ownership of the other land and not by virtue of their ownership of the Land. I accept that as between the vendors and the cooperative, the vendors’ right to hold their one share was capable of continuing because the vendors owned the other land. However, as between the vendors and the purchaser there was a sale of that share and the purchaser was entitled to seek its transfer to the purchaser and registration. On the hypothesis that the cooperative had not transferred to MSL, the purchaser would have been at liberty to apply to the cooperative for membership and for the registration of the transfer to the purchaser of the vendors’ share. The vendors would have remained eligible for membership of the cooperative because they retained the other land and, presumably, would have continued to qualify as active members. The vendors, having agreed their share was property sold and having provided a share transfer form in respect of it would have been obliged to seek for themselves, another share of the same class. I reject the submission that the vendors’ share in the cooperative could not be transferred because it was held by virtue of the vendors’ ownership of the other land.

The transfer could not be registered while the register of members of the cooperative remained closed. The register of MSL is open.

The purchaser is the registered holder now of a voting share in MSL. The vendors did not suggest that the purchaser is not qualified to be a transferee of Investment Shares in MSL or that there is any impediment to a transfer.

What is the meaning of “bonuses” in special condition 6.4?

The word “bonuses” appears in clause 6.4 of the special conditions. The word is not defined in the contract. Subjective intentions are irrelevant to interpretation. The objective intention emerging from the contract is relevant.

The word “bonuses” was used in the rules of the cooperative which existed at the time of the contract. The contract did not refer to the rule which uses the word. The contract did not suggest that the meaning of the word in the rules of the cooperative was the intended meaning of the word in the contract.

It means there was no argument from either side on a significant issue: the meaning of “bonuses” in special condition 6.4.

Rule 65 of the rules of the cooperative is headed “Distribution of Profits”. Despite the heading, upon analysis the rule deals with distributions of more than just profits. It provides for distributions of income and separately provides for distribution of profits. The rule uses the word “bonuses” and the word “bonus”. Rule 65 provides for at least three ways to return funds to members. One was by way of what the rule described as “bonuses.”[64] The rule provides, in effect, for the discretionary payment of bonuses to members. If payable, the bonus would be an “additional amount per tonne…to be added to the price fixed in the award” in that year as the purchase price payable for sugar cane.[65] The amount depended on the relative tonnage supplied by the member. Rule 65(3) did not specify the period over which the relative tonnage supplied was to be calculated. It could arguably have been the relative tonnage in one year or in more than one year.
[64]Rule 65(1)(b) and 65(7).
[65]Rule 65 (7) set out below herein

The second way in which Rule 65 provides for distributions to members was by a distribution of all or part of the surplus of net profit, at the absolute discretion of the board, among the members who supplied sugar cane to the cooperative in that year.[66] The surplus of net profit was a figure derived after charging the income of the cooperative[67] with, in effect, expenses,[68] the said “bonuses” added to the tonnage price,[69]depreciation[70]and for renovations, acquisitions, repayments and reserves and contingencies, among other things.[71] A consequence of charging the income with amounts for such reserves and contingencies and other things is that the cooperative would then retain such earnings in an account for as a reserve and for contingencies and the other matters set out in rule 65(2).
[66]Rule 65(3)
[67]Rule 65(1)
[68]Rule 65(1)(a)
[69]Rule 65(1)(b)
[70]Rule 65(1)(b)
[71]Rule 15(2)

It is significant that Rule 65 provided that net profit was to be determined after charging income with payment of expenses and bonuses. Bonuses were payable from “income” not from “net profit”. Discretionary distributions to members were to come from “surplus of net profit”. Thus, the strict reading of Rule 65 suggests that bonuses were not a distribution out of net profits. In spite of the heading, bonuses were not a distribution of profits.

A third form of distribution to members was contemplated by rule 65(14). It was of money standing to the credit of the retained earnings account. Such a distribution required a special resolution. Nothing in the contract suggested that the “bonuses” in special condition 6.4 were to be limited to bonuses made by the board as opposed to bonuses made by special resolution.

A fourth form of distribution was contemplated at rule 65(8). It was from “the surplus arising in any year from the business of the cooperative.” Thus, it would be a distribution from the surplus arising after the said “bonuses” and after the said distributions from surplus of net profit. This distribution would be by way of “bonus or rebate in accordance with this rule 65”. It was probably intended to be like the said “bonuses” paid to members though paid from surplus of net profits rather than from income. It was payable, not to members, but to persons qualified to be a member (on the conditions set out in the rule extracted herein).

There was evidence deposed to by Mr Cooper[72] about how a “bonus” was generally understood by farmers; that it was money paid to a grower by the cooperative; that the amount would be based on the tonnage of sugar cane supplied by the grower and the sugar content of that cane; that it would be paid at the end of a season, once in the year; that payment would be at the discretion of the board of the cooperative; that if the board determined to issue a bonus it would ordinarily be based upon the tonnage from the last season; that a bonus might also include an amount in respect of a prior season’s profits or prior seasons’ profits. Because of that understanding, Mr Cooper deposed that contracts for the sale of cane farms in 2006 needed to address the possibility that money might be paid by the cooperative in the form of a bonus that related to sugar cane supplied in earlier seasons.
[72]Ex 16, Affidavit Mr Cooper paragraphs 42 and 44.

The features of a bonus understood by farmers which Mr Cooper described are features matching those of the types of payment contemplated in rule 65: bonuses paid out of income, distributions paid out of net profit, bonuses paid out of surplus. The bonus Mr Cooper described was also capable of referring to a payment out of a prior season’s profit and thus out of accumulated profits or a “retained earnings” account.

The concise financial report of the cooperative for the financial year ended in 2007 provided at note 4 that $5.109 million fully franked “Bonus Distribution” was paid.

The purchaser contended that “bonuses” in special condition 6.4 of the contract should not be given the limited meaning consistent with “bonuses” where the word appears in Rule 65 of the rules of the cooperative. The vendors’ defence, when the trial began, pleaded a meaning for bonuses that referred to Rule 65 but did not limit the meaning to the meaning of “bonuses” in Rule 65. The defence did not limit the meaning to the meaning appearing in Rule 65(7)(b). The defence suggested that a distribution of profits was capable of being a bonus. The defence was consistent with the affidavit evidence of Mr Cooper proposed to be led by the vendors. The vendors ended the trial with a different pleading which omitted their earlier allegation.

When the trial began, the vendors relied on their defence to the second further amended statement of claim. That defence alleged[73] that “special condition 6.4.1 when properly construed provides for the transfer to the (purchaser) of the (vendors’) rights, if any, to a distribution of profits by (the cooperative) pursuant to rule 65 of the Rules”. That allegation did not limit the meaning of special condition 6.4.1 to providing for the transfer of “bonuses” pursuant to rule 65(7)(b). A third further amended statement of claim was filed by the purchaser on the first day of trial and the vendors pleaded to it on the last day of the trial. In the purchaser’s written outline of submissions the purchaser purported to accept the vendor’s pleaded meaning for “bonuses”[74]as it appeared in the defence used on the first day of trial. The submission was:

The property sold to the plaintiffs included any “shares” the defendants owned in the cooperative[75] and “the benefit to all past production” from Bakers Creek when the cooperative determined distributions on a winding up or dissolution[76], and “bonuses”. The defendants contend that “bonuses” meant (or special condition 6.4.1 was properly construed to refer to) the defendants’ “rights (if any) to a distribution of profits” under Rule 65[77]. The plaintiff accepts that construction. It follows that the parties’ intended by special condition 6.4.1 that, from settlement, the plaintiff gets the benefit of any distribution of annual profits on account of any past production, including the distribution of any bonuses, under Rule 65.

[73]Defence to the second further amended statement of claim par 8(b)

[74]Purchaser’s outline par 30.

[75]Special condition 4.1

[76]Special condition 6.4. The contract spoke of “surplus monies”. That simply reflects how capital was to be returned to members on a winding up.

[77]Defence, paragraph 8(b)

That submission was obviously drafted before the vendors deleted their allegation by a subsequent pleading on the third and last day of the trial. The vendors’ allegation as to the proper construction of special condition 6.4.1 was not repeated on the last day of the trial in the vendors’ defence to the third further amended statement of claim. The vendors’ written outline and oral address did not make a submission as to the meaning of “bonuses” in special condition 6.4 and did not suggest that the vendors intended to allege anything different from what had appeared in their defence to the second amended statement of claim. Counsel for the purchaser made his oral submission without adverting to the materiality of the omission from the vendors’ pleading. He proceeded as if there was no material change and relevantly submitted:[78]

there was a reference in the contract to bonuses as well by reference to past production. There’s a consensus in this case, one of very few, where “bonuses” meant something more than just the increase in supply price which was able to be made under rule 65, which was the profit – annual distribution of profit power. Mr Cooper says that “bonuses”, in fact, meant “profits”, and I’ve said on a number of occasions throughout the course of trial that the only sensible construction of “bonuses” in that special condition can be “profits”.

[78]T3-83 l 41

Counsel for the purchaser there squarely raised and dismissed a specific and restricted meaning of bonuses in rule 65. His reference to “an increase in supply price” was a paraphrase of the attribute of the particular bonus described in rule 65(7)(b). He submitted there was a consensus that the word “bonuses” in the contract meant something more than just that.

In their submission in reply, in the last minutes of the trial, the vendors submitted: “The word “bonuses” which had been referred to have the meaning set out in rule 65 sub (7)(b) of the rules.”[79]The making of such a submission meant that there was no consensus as the purchaser’s counsel had assumed and that the meaning of “bonuses” in the contract was submitted to be narrower than the earlier defence had suggested and narrower than the vendors’ evidence led from Mr Cooper as to the understanding of farmers. Vendors’ counsel made no argument in support of his unexpected submission.
[79]T 3-95 l 45

I proceed on the basis that the vendors contend that the meaning of bonuses in special condition 6.4 was limited to the special meaning of “bonuses” one might have derived from construing “bonuses” in rule 65(7)(b). Further, it seems proper to proceed on the basis that the vendors resile from their earlier allegation that “special condition 6.4.1 when properly construed provides for the transfer to the (purchaser) of the (vendors’) rights, if any, to a distribution of profits by (the cooperative) pursuant to rule 65 of the Rules”.

When the contract was signed it did not purport to limit the “bonuses” to which the purchaser might be entitled or to incorporate a meaning from the rules of the cooperative. The contract did not purport to reserve to the vendor any “benefit of past production” of the Land. There was no provision that the vendors were to have the benefit of past production if the cooperative determined to make distributions, other than bonuses, on the basis of past production. The fact that on a winding up the purchaser was to have the benefit of all past production suggests that the vendors were not reserving to themselves any benefit of past production, in the event of winding up. The contract as a whole has the appearance of an agreement by which the vendors reserved no benefit of past production to themselves. The fact that there is room for argument about the scope of the word “bonuses” does not involve as a corollary that the vendors were retaining some right arising from the past production of the Land. If special condition 6.4 meant the purchaser is to have the benefit of all past production only when the cooperative is determining the distribution of “bonuses” in rule 65(7)(b) but that the vendors were to have other distributions, it is likely that the distinction would have been made in the special condition. The whole condition reads as if the purchaser alone is entitled to the benefit of all past production from the Land when the cooperative is distributing profits or bonuses under rule 65. The fact that the vendors sold their only share is consistent with and reinforces that interpretation. The fact that the vendors did not by contract provide that they should retain any benefit of past production is consistent with and reinforces that interpretation.

The fact that only the purchaser was to have the benefit of past production is of some assistance in determining the meaning of “bonuses” in the contract. It suggests that whatever benefits might be due from the production history and payable by the cooperative as bonuses or as a distribution of profits or as a distribution of other retained amounts or in its winding up were agreed to be the purchaser’s. I so find.

Who is the beneficial owner of Investment Shares held by the vendors?

On the third business day following MSL’s registration the vendors’ holding of one investment share became a holding of 375,413 investment shares.

That share came to be held by the vendors as a direct result of their continuing to hold the one share in the cooperative that they had sold to the purchaser. Where a contract for the transfer of an item of property would ordinarily be enforced by a decree of specific performance and the buyer has paid the purchase price in full the seller is a constructive trustee of that property.[80] The purchaser was beneficially entitled to the first Investment share into which the vendors’ first share in MSL converted on the first business day after registration of MSL.
[80]Ford & Lee, Principles of the Law of Trusts, [22.2120].

A purchaser of shares is ordinarily entitled to the dividends declared after the day for completion of the purchase even though the dividend may relate to profits earned before the contract to purchase.[81] The purchaser submitted that the allocation of Investment Shares in MSL, in substitution for the share held by the vendors in the issued capital of the cooperative is no different. The purchaser submitted that the investment shares were issued in substitution for the existing share and that the analogy used by Morton J in re Wimbush , Richards v Wimbush [1940] 1 Ch 92 at 99 was apposite:

“The purchaser has bought the tree, and with it the fruits that are ripening on the tree.”

[81]Black v Homersham (1878) LR 4 Ex D24; re Wimbush Richards v Wimbush [1940] Ch 92 cited with approval in Re Kerrisk; Ex p Duus (1993) 41 FCR 276 at 281 per Cooper J

The purchaser bought the vendors’ share with all the rights from the date for completion, which the share conferred in the cooperative’s capital. One of those rights was to the one share in the capital of MSL due to the vendors on the day of MSL’s registration. Another was the rights which that one share in MSL created in respect of the capital of MSL. It was only because the vendors remained registered as the holder of the one share in the cooperative to which the purchaser was beneficially entitled that the vendors came to be the holders of one Investment Share in MSL on the second business day following registration of MSL. But for holding that share the vendors would not have become the holders of at least 375,412 Investment Shares on the third business day after registration. On the facts of this proceeding I regard the vendors’ increase in their shareholding from one Investment Share into many based upon the constitution of MSL and the Ten Year Production History of the Land as analogous to the declaration of a dividend on the Investment Share and to the appearance of fruit ripening on the purchaser’s tree.

The vendors held their interest in their one share in the cooperative on trust for the purchaser on the day that the cooperative transferred to MSL. Upon that transfer the vendors held their one share in the capital of MSL on trust for the purchaser. The number of Investment shares they received as a result of the division which relates to the Ten Year Production History from the Land they also hold on trust for the purchaser.

The vendors have not argued that damages would be an adequate remedy. They raised no discretionary bases for declining to award specific performance. The Investment Shares are shares in an unlisted public company and are not able to be traded on the open market. They can be traded only amongst growers. In these circumstances specific performance is an appropriate remedy.

These findings are sufficient to warrant orders that the vendors transfer Investment Shares to the purchaser.

There is another argument which was not the subject of submissions by either party. It is an argument which favours the purchaser. It is consistent with allegations in clause (a) of paragraph 11 in the third further amended statement of claim and with the paragraphs following paragraph 11. The determination of the cooperative by its members was to transfer to a corporation with a particular constitution. That determination was a “determination” within the meaning of special condition 6.4 of the contract and it was a determination of “the distribution of bonuses” within the meaning of special condition 6.4 of the contract. I find this having regard to my finding above of the meaning of “bonuses” in the special conditions of the contract. The cooperative by agreeing on the constitution of MSL agreed a mechanism by which the profits and retained earnings of the cooperative were to be distributed. While it was to be a distribution which would be completed after the registration of MSL it was nevertheless a distribution of profits and retained earnings which were the cooperative’s when the decision was made by the cooperative to transfer to a corporation with the proposed constitution. The cooperative determined how to distribute its bonuses. It seems to me that independently of the argument that the purchaser is entitled to a number of the Investment Shares because it was the purchaser of one share in the cooperative, the purchaser is entitled to the same Investment Shares on the basis of special condition 6.4 of the contract. That is because those shares came to be held through a distribution of bonuses determined by the cooperative and on the basis of the past production of the Land.

How many Investment Shares should be transferred?

The purchaser argues that it is entitled to such of the Investment Shares as were issued on the basis of the Ten Year Production History of the Land but seeks the benefit of the unallocated sugar in computing the number issued on the basis of the production history of the Land. The Purchaser claims only 161,793. I have set out my calculations above and accept the purchaser’s claim to a beneficial interest in that number.

Appropriate Orders

I am unaware whether the vendors still hold the investment shares initially issued to them. If they do hold those shares it would be appropriate for me to declare that the vendor’s hold an interest in 161,793 of those investment shares in Mackay Sugar Limited ACN 057 463 671 on trust for the purchaser and to make an order for specific performance generally in accordance with the draft order which has been submitted by the purchaser. If any dividends issued on the shares since the hearing it is appropriate that the purchaser receive them. It is appropriate for the matter to be stood down until later in the day or adjourned to allow the purchaser to submit a draft order. The plaintiff submitted at the hearing that if it succeeded costs should follow the event. Subject to the vendors’ being at liberty to make submissions to the contrary, it is appropriate that a draft order provide that the defendants pay the plaintiff’s costs of the proceeding to be assessed on a standard basis.

CITATION:	Bakers Creek Developments Pty Ltd atf The Bakers Creek Trust v Gaviglio & Anor [2013] QDC 295
PARTIES:	BAKERS CREEK DEVELOPMENTS PTY LTD ACN 118020581 ATF THE BAKERS CREEK TRUST (Plaintiff) V JOSEPH PETER GAVIGLIO (Defendant) and RUTH MARCIA GAVIGLIO (Defendant)
FILE NO/S:	D108/10
DIVISION:	Commercial List
PROCEEDING:	Trial
ORIGINATING COURT:	District Court of Queensland
DELIVERED ON:	28 November 2013
DELIVERED AT:	Brisbane
HEARING DATE:	13, 14, 15 May 2013 written submissions to 22 May 2013
JUDGE:	Andrews SC DCJ
ORDER:	The plaintiff is at liberty to submit a draft of a declaration and orders to be made in accordance with these reasons The hearing is adjourned to allow the plaintiff to do so
CATCHWORDS:	CONTRACT – where vendors sold to the purchaser their only share in a cooperative – where the cooperative became a corporation before registration of the transfer of the share in the cooperative – where upon registration of the corporation the vendors were the holder of one share in the corporation – where the corporation issued valuable shares to the vendors – whether the valuable shares issued to the vendors on the basis that they held one share in the corporation or on the basis that they had been active members of the cooperative – whether the purchaser had a beneficial interest in the valuable shares CONTRACT – INTERPRETATION – where vendors sold to the purchaser their only share in a cooperative – where vendors agreed to give the purchaser the benefits of past production from the land sold when the cooperative “is determining the distribution of bonuses” of the cooperative cooperative – whether “bonuses” in the contract has same meaning as in the rules of the cooperative – where cooperative determined to transfer to a corporation with a constitution providing for the issue of valuable shares to the vendors based on the past production from the land sold – where the corporation issued valuable shares to the vendors based on the past production from the land sold – whether the shares issued by the corporation were a distribution of bonuses determined by the cooperative and on the basis of the past production of the land sold CONTRACT – SPECIFIC PERFORMANCE – whether appropriate to order specific performance of transfer of shares – where no discretionary arguments against specific performance – where shares unable to be traded on open market – where trade restricted to sugar cane growers Cooperatives Act 1997 sections 101(8), 166(1) and (2), 169 and 303(3) Agricultural and Rural Finance P/L v Gardiner (2008) 238 CLR 570 Black v Homersham (1878) LR 4 Ex D24 Re Kerrisk; Ex p Duus (1993) 41 FCR 276 Wimbush , Richards v Wimbush [1940] 1 Ch 92 Ford & Lee, Principles of the Law of Trusts, [22.2120]
COUNSEL:	Handran for the plaintiff A Barlow for the defendant
SOLICITORS:	McKays Solicitors for the plaintiff BC & A for the defendant