Beck v Tuckey Pty Ltd

[2007] NSWSC 1065

Reported Decision: 213 FLR 152

New South Wales

Supreme Court

CITATION:	Beck v Tuckey [2007] NSWSC 1065
HEARING DATE(S):	1, 3 August 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	3 August 2007
DECISION:	Order that register be corrected to record first plaintiff as holder of share in first defendant. Order that second defendant pay plaintiffs’ costs on indemnity basis.
CATCHWORDS:	CORPORATIONS – Internal management – shareholders – transfer of shares – discretion to decline registration – where directors equally divided – register rectification – where discretion to decline registration not affirmatively exercised – where transfer formally defective – transfer nonetheless effective to vest beneficial interest – whether order can be made conditional upon remedying defects – COSTS – formal defects capable of cure notified only in submissions at hearing.
LEGISLATION CITED:	(CTH) Corporations Act 2001 ss 175, 1071B, 1071F (CTH) Corporations Regulations reg 7.11.22 (NSW) Companies (New South Wales) Code 1986 s 186
CASES CITED:	Bothranch Pty Limited v Monitronix Limited (1989) 15 ACLR 35 Grant v John Grant & Sons (1950) 82 CLR 1 Leaver v Taxi Combined Services (Launceston) Pty Limited (2002) 10 Tas R 362; [2002] TASSC 2 Monardo v Complete Hardware Ltd (1990) 20 NSWLR 489, 2 ACSR 605 Moodie v Shepherd [1949] 2 All ER 1044; [1950] SC (HL) 60 Re Chas Jeffries & Sons Pty Ltd [1949] VLR 190 Re Hackney Pavilion Limited [1924] 1 Ch 276 Re Zinotty Properties [1984] 1 WLR 1249 Roberts v Coussens (1991) 25 NSWLR 171; 9 ACLC 1403 Sutherland v Bosch (Aust) Pty Limited (2000) 33 ACSR 680 Turner v Bladin (1951) 82 CLR 463 Vaughan v Duncan [2005] NSWSC 670 Whitehouse v Capital Radio Network Pty Limited (2004) 13 Tas R 27; 48 ACSR 569 Whitehouse v Carlton Hotel Pty Limited (1982) 7 ACLR 329 Whitehouse v Carlton Hotel Pty Limited (1987) 162 CLR 285
PARTIES:	Alexi Shoshana Beck (first plaintiff) Tamar Rivqa Beck (second plaintiff) Tuckey Pty Limited (first defendant) Amiram Weinstock (second defendant)
FILE NUMBER(S):	SC 6043/06
COUNSEL:	Mr J Simpkins SC (plaintiffs) Mr J B Whittle SC w Mr J V Gooley (second defendant)
SOLICITORS:	Harris Freidman Hyde Page (plaintiffs) KB Legals (second defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Friday, 3 August 2007

6043/06 Alexi Shoshana Beck & Anor v Tuckey Pty Limited & Anor

JUDGMENT (ex tempore)

1 HIS HONOUR: The first plaintiff Alexi Beck seeks an order pursuant to (CTH) Corporations Act 2001, s 175, and alternatively s 1071F, to the effect that she be registered as the holder of one share in the first defendant Tuckey Pty Limited, pursuant to a transfer from her mother the second plaintiff Tamar Rivqa Beck, who is presently the registered holder of 70 of the 100 issued shares in Tuckey. Ten shares are held by the second defendant Amiram Weinstock, who is the brother of Tamar Beck, and ten are held by the estates of each of their mother and father, which have apparently not yet been distributed. So far as the evidence goes, Tamar Beck and Mr Weinstock each inherit half of the shareholding of their mother, and Mr Weinstock inherits two-thirds and Mrs Beck one-third of the shareholding of their father; on that basis, it would seem that the beneficial entitlements are about 78 shares to Mrs Beck and 22 shares to Mr Weinstock.

2 The transfer to Alexi Beck the subject of these proceedings has not been registered, because the directors – Tamar Beck and Mr Weinstock – having neither resolved to approve registration nor resolved to decline registration, the Board having been equally divided when a resolution that the transfer be registered was proposed. The articles of Tuckey relevantly provide as follows:

Art 3. Proprietary Company Provisions
The Company is registered as a proprietary Company and accordingly:


(1) the right to transfer shares is restricted in the manner hereinafter provided;

(2) the number of members of the Company (counting joint holders of shares as one person and not counting any person in the employment of the Company or of its subsidiaries or any person who while previously in the employment of the Company or its subsidiaries was and thereafter has continued to be a member of the Company) is limited to fifty;

(3) any vision to the public to subscribe for, and any offer to the public to accept subscriptions for, any shares in, or debentures of, the Company is prohibited; and

(4) any invitation to the public to deposit money with, and any offer to the public to accept deposits of money with, the Company for fixed periods or payable at call, whether bearing or not bearing interest is prohibited.
Art 28. Transfer of Shares
Subject to these Articles and except as provided in paragraph (8) of this Article no shares in the Company shall be transferred unless and until the rights of pre-emption conferred by paragraphs (1) to (7) inclusive of this Article have been exhausted:


(1) Any member proposing to transfer any share or shares (hereinafter referred to as ‘the transferor’) shall give notice in writing to the Company of his intention to do so (hereinafter called a ‘transfer notice’) specifying the share or shares he proposes to transfer and if he so desires the price per share which he is willing to accept. Such notice shall constitute the Company the Transferor’s agent for a period of twenty eight days from the date of the Company’s receipt thereof for the sale (subject to the other provisions of this Article) of such share or shares to any person eligible to be a member (whether or not a member) at the price per share specified in the transfer notice or determined in terms of Sub Article 28(2) below. A transfer notice shall if it relates to more than one share operate as a separate notice in respect of each of such shares. A transfer notice shall not be revocable expect as provided in Sub Article 28(2) below.

(2) If no price is specified or if in the opinion of the Directors the price per share specified by the Transferor is not its fair value the Directors shall request the Auditor or if there be no Auditor a person selected by the Directors or failing such selection by the President for the time being of the Australian Society of Accountants (the Auditor or person so selected being referred to in this Article as ‘the Valuer’) to determine the fair value per share of such shares and the Valuer shall comply with such request. The costs of such valuation shall be borne by the Transferor and the Company equally. Thereafter the Directors shall notify the Transferor of the fair value so determined and the Transferor shall be entitled to withdraw his transfer notice within seven (7) days after receiving such notification (but not thereafter save with the written consent of the Directors). In so determining such fair value the Valuer shall be considered to be acting as an expert and not as an Arbitrator and accordingly the provisions of the Commercial Arbitration Act 1985 shall not apply.

(3) The share or shares the subject of a transfer notice shall be offered by the Directors to all other holders of shares in the Company as nearly as may be in proportion to the existing shares held by them respectively at the price specified by the Transferor or determined by the Valuer (whichever be the lower); and the offer shall limit the time within which the same may be accepted and specify that any member entitled who desires to acquire shares in excess of his proportion should in his reply state how many excess shares he desires is to acquire. If all the members entitled do not claim their proportions the unclaimed shares shall be used in or towards satisfying the requests for excess shares. Any shares which shall not be capable (without introducing fractions) of being offered to the members entitled in proportion to their existing holdings shall be offered to the members entitled or some of them in such proportions or in such manner as may be determined by lots to be drawn under the direction of the Directors.

(4) If the Directors shall within a space of twenty eight days after receiving a transfer notice find a purchaser in terms of Sub Article 28(3) hereof willing to purchase all or any of the shares the subject of the transfer notice and shall give notice thereof to the Transferor, the transferor shall be bound upon payment of such price to transfer the share or shares concerned to such purchaser.

(5) If in any case the Transferor after having become bound as aforesaid makes default in transferring any such share or shares, the Company may receive the purchase money and the transferor shall be deemed to have appointed any one director or the Secretary of the Company as his agent to execute a transfer of such share or shares to the purchaser and upon the execution of such transfer the Company shall hold the purchase money in trust for the Transferor. The receipt of the Company for the purchase money shall be a good discharge to the purchaser and after his name has been entered in the Register of Members in purported exercise of the aforesaid power the validity of the proceedings shall not be questioned by any person.

(6) If within the period stipulated in Sub Article 28(4) the Directors shall not find a member or purchaser in terms of Sub Article 28(3) for all or any of the shares concerned, the transferor may at any time within six (6) months thereafter sell those shares or any of them to any person at any price but not being less than the price as specified by the Transferor or determined by the Valuer (whichever be the lower) but subject nevertheless to the right of the directors to decline to register any transfers as provided in Article 31.

(7) The Company in general meeting may by special resolution make and from time to time vary rules as to the mode in which any shares specified in any transfer notice shall be offered to the members and as to their rights in regard to the purchase thereof and in particular may give any member or class of members a preferential right to purchase the same.

(8) The foregoing provisions of this Article shall not apply to any transfer of share or shares:

(a) merely for the purpose of effectuating the appointment of a new Trustee;
(b) to a husband, wife, brother, sister, parent, child or grandchild of a member;
(c) by a Trustee to a Beneficiary under a will;
(d) to a husband, wife or next of kin of a deceased member;
(e) where all the members of the Company (excluding the proposed transferor) sign an instrument waiving all rights of entitlement they have under this Article.

PROVIDED that it is proved to the satisfaction of the Directors that the transfer bona fide falls within one of these exceptions.

Art 29.
(1) Subject to Article 28, a member may transfer all or any of his shares by instrument in writing in any usual or common form or in any other form that the Directors approve.

(2) An instrument of transfer referred to in Sub Article (1) shall be executed by or on behalf of both the transferor and the transferee:

(3) a transferor of a share or shares remains the holder of the share or shares transferred until the transfer is registered and the name of the transferee is entered in the register of members in respect of such share or shares.
Art 30.
The instrument of transfer must be left for registration at the registered office of the Company, accompanied by the certificate of the shares to which it relates and such other information as the Directors properly require to show the right of the transferor to make the transfer, and thereupon the Company shall, subject to the powers vested in the Directors by these Articles, register the transferee as a shareholder.
Art 31.
The Directors may decline to register any transfer of shares, without giving any reason therefor.

3 On 25 June 2006, Tamar Beck executed a form of transfer of one of her 70 shares in Tuckey to her daughter, Alexi Beck, expressed to be for a consideration of $55,000, although the evidence shows that the purchase price was advanced by Tamar Beck to Alexi Beck pursuant to a loan agreement under which no repayments have yet been made and no interest, though it is payable, has been paid, no payment having been demanded. On 12 July 2006, Tamar Beck convened a meeting of the directors for 14 July for the purpose of approving the transfer. Mr Weinstock replied that he was unable to attend. Mrs Beck responded on 13 July, proposing a telephone or audiovisual link for the purposes of conducting a meeting. There was no response to that suggestion, nor to a further letter which sought to confirm the arrangements for a meeting on 14 July. Mrs Beck attended at the appointed time and place. Mr Weinstock did not, and telephone calls to him were diverted to a call centre.

4 On 24 July 2006, Mrs Beck sent Mr Weinstock a letter enclosing copies of her correspondence of 12 July and proposing that a further meeting be held on 28 July. Mr Weinstock responded, on 27 July, proposing an alternative date, 11 August. Mrs Beck responded, on 3 August, that 11 August was inconvenient for her, and suggested 10 August. On 8 August, Mr Weinstock notified Mrs Beck that he was unable to attend on 10 August and proposed 18 August. On 9 August, Mrs Beck sought to insist that the meeting be held on 10 August, but when Mr Weinstock replied again that he was unavailable, she relented and accepted his earlier proposal of 11 August, albeit starting at a slightly later time.

5 The meeting of 11 August was attended by Mrs Beck and Mr Weinstock. Mrs Beck proposed and voted for a resolution approving registration of the transfer. Mr Weinstock opposed and voted against that resolution. He advanced no reason on that occasion, beyond that he had considered the matter and considered it contrary to the interests of the company. No chairman having been elected, there was no casting vote. The meeting closed without any resolution having been adopted.

6 Corporations Act, s 175, provides as follows:

(1) A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected.

(2) If the Court orders the company or scheme to correct the register, it may also order the company or scheme to compensate a party to the application for loss or damage suffered.

(3) If:
(a) the Court orders a company or scheme to correct its register of members; and
(b) the company or scheme has lodged a list of its members with ASIC;
the company or scheme must lodge notice of the correction with ASIC.

7 The legislation now uses the term “correct” in place of the earlier term “rectify”, but it is doubtful this makes any practical difference. An applicant for a “correction” order is, at least ordinarily, required to show that he or she has a personal equity that the Court will protect [Grant v John Grant & Sons (1950) 82 CLR 1, 51 (Fullagar J); Whitehouse v Carlton Hotel Pty Limited (1982) 7 ACLR 329, 331 (Thomas J; affirmed on other grounds, Whitehouse v Carlton Hotel Pty Limited (1987) 162 CLR 285, 315)]. At least prima facie, a member of a company shows such an equity by establishing that his, her or its name has been wrongly omitted from the company’s register [Grant v John Grant & Sons, 51]. Such an equity can be demonstrated by proving an agreement to become a member [Whitehouse v Carlton Hotel, 332].

8 Corporations Act, s 1071F, provides as follows:

(1) If a relevant authority in relation to a company:

(a) refuses or fails to register; or
(b) refuses or fails to give its consent or approval to the registration of;
a transfer or transmission of securities of the company, the transferee or transmittee may apply to the Court for an order under this section.

(2) If the Court is satisfied on the application that the refusal or failure was without just cause, the Court may:

(a) order that the transfer or transmission be registered; or
(b) make such other order as it thinks just and reasonable, including:
(i) in the case of a transfer or transmission of shares—an order providing for the purchase of the shares by a specified member of the company or by the company; and
(ii) in the case of a purchase by the company—an order providing for the reduction accordingly of the capital of the company.

(3) In this section:
relevant authority, in relation to a company, means:

(a) a person who has, 2 or more persons who together have, or a body that has, authority to register a transfer or transmission of securities of the company; or
(b) a person, 2 or more persons, or a body, whose consent or approval is required before a transfer or transmission of securities of the company is registered.

9 The purpose of s 1071F was to provide an easier remedy than rectification and to widen the power of the Court to do justice to the parties in the case of a dispute about registration of a transfer [Monardo v Complete Hardware Ltd (1990) 20 NSWLR 489, 2 ACSR 605]. It reflects the principle that the holder of a share has a prima facie right to transfer it [Roberts v Coussens (1991) 25 NSWLR 171; 9 ACLC 1403, 1416-7]. The prevailing view is that the onus of showing an absence of just cause for the purposes of s 1071F remains with the applicant for registration, and that the corporation and the directors do not bear any onus of establishing just cause [Roberts v Coussens; Leaver v Taxi Combined Services (Launceston) Pty Limited (2002) 10 Tas R 362; [2002] TASSC 2 [7]]. However, that is not to say that, once it appears objectively that there is no such cause, an evidentiary onus may not easily shift to the directors to raise some cause [Roberts v Coussens]; and while failure to give reasons does not of itself vitiate the decision or prove there is no just cause, at least where reasons are not required to be given, nonetheless, the failure to provide reasons may, in the context of the whole of the evidence, assist in the drawing of an inference that there is no good reason.

10 The plaintiffs submit that Alexi Beck is entitled to be registered as a shareholder – as the pre-emptive provisions of Art 28 do not apply in the case of a transfer to the daughter of an existing shareholder – unless the directors have positively exercised their discretion to decline registration under Art 31, which, by reason of their failure to pass any resolution at all, they have not done.

11 Where the corporate constitution provides that a transfer is to be registered, but at the same time confers on the directors a discretion to decline to register, the transferee is entitled to be registered unless and until the directors formally and affirmatively exercise their discretion to decline; and where the directors are evenly divided and there is no casting vote, there is no such exercise of discretion [Re Hackney Pavilion Limited [1924] 1 Ch 276; Re Chas Jeffries & Sons Pty Ltd [1949] VLR 190, 194; Moodie v Shepherd [1949] 2 All ER 1044; [1950] SC (HL) 60, 66, 68, 71; Re Zinotty Properties [1984] 1 WLR 1249, 1260; Bothranch Pty Limited v Monitronix Limited (1989) 15 ACLR 35, 48; Sutherland v Bosch (Aust) Pty Limited (2000) 33 ACSR 680, 686 [42]].

12 For Mr Weinstock, Mr Whittle SC submits that this is not so in a case of a closely held company, where the effect of such a construction would be to reward the first in a race to introduce a new shareholder to the corporation. I disagree, for a number of reasons. First, the construction of such Articles is and has for many years been well-established, as the cases to which I have just referred show. Other forms of Articles which require a positive exercise of discretion by directors to approve registration are also in use and can be adopted if a result different from that well-established by authority is desired. Secondly, there is no reason to distinguish the way in which Articles are construed in a closely held company from those in a larger public company. In any event, a number of the cases to which reference has been made, in which the conventional construction has been applied, involved proprietary companies. Thirdly, there is no good policy reason supporting the result for which Mr Weinstock contends. The introduction of a new shareholder by transfer does not change the voting power, nor affect the balance of the equity holdings in the company; at its highest, it increases the number of members available to produce a quorum at a general meeting. Although there are some exceptional cases in which the ability to veto corporate business by denying or breaking a quorum may be significant, of which Whitehouse v Capital Radio Network Pty Limited (2004) 13 Tas R 27; 48 ACSR 569 is an instance, there is no such basis in the context of a company such as Tuckey in which the shareholdings are far from equal and until relatively recently there had been four shareholders from which any two could assemble a quorum and it was not necessary for each shareholder to co-operate in holding a meeting as it now is, the number of shareholders having been reduced to two by the deaths of Mr and Mrs Weinstock Senior.

13 However, Mr Whittle has advanced two other bases upon which it is said that the relief should be refused.

14 The first is that, at least at the date on which proceedings were instituted, there had not been compliance with the requirements of Article 30, in that the evidence did not establish that the transfer had been left for registration at the registered office of the company nor accompanied by the share certificate. However, the evidence does establish that the transfer was tabled at the Board meeting – which was held not at the registered office (which is Mrs Beck’s home) but elsewhere – although there is no evidence that it was then accompanied by the share certificate. During the adjournment of the hearing over the last two days – which was necessitated by the raising of this (and the following) issue only in the course of closing submissions – the transfer, accompanied by the share certificate, has been delivered to the registered office.

15 In my view, the purpose of Article 30 is to ensure that the transfer is brought to the attention of the company and that the right of the transferor to make the transfer is established. This follows, in particular, from the use of the words in Article 30 “such other information as a director properly requires to show the right of the transferor to make the transfer.” The transfer was tabled and considered at a meeting of the Board. The Board did not then require the share certificate or any other information in order to be satisfied of the right of the transferor to transfer. Had it done so, it would have resolved, under Article 30, to require the transferor to produce the share certificate and other information. If it were not satisfied of the right of the transferor to transfer, that is what it ought to have done. In the context of this company, the directors could have entertained no bona fide doubt as to Mrs Beck’s right to transfer. In my view, the transfer, having been tabled and been considered without the Board proceeding to require any evidence of the right to transfer, the company waived further compliance with Article 30: its purpose had been served. Alternatively, if production of the share transfer could not be waived, it nonetheless did not affect, as I will come to explain, the beneficial entitlement of the transferee under the transfer who was at least entitled to have it registered, subject to compliance with formal requirements, including production of the share certificate, which has, as I have said, since occurred.

16 The second argument advanced by Mr Whittle is that in the absence of a “proper instrument of transfer” within the meaning of Corporations Act, s 1071B, the directors were prohibited from registering the transfer, and the transferee therefore had no entitlement to be registered when proceedings were instituted. Corporations Act, 1071B, relevantly provides:

…

(2) Subject to subsection (5), a company must only register a transfer of securities if a proper instrument of transfer (see subsections (3) and (4)) has been delivered to the company. This is so despite:

(a) anything in its constitution; or
(b) anything in a deed relating to debentures.

(3) An instrument of transfer is not a proper instrument of transfer for the purposes of subsection (2) if it does not show the details, specified in the regulations, in relation to the company concerned.

17 (CTH) Corporations Regulations reg 7.11.22 relevantly provides:

7.11.22 Details to be included in instrument of transfer
(1) For subsection 1071B (3) of the Act, for a transfer of unquoted securities, the State or Territory in this jurisdiction in which the company is taken to be registered is a prescribed detail.
…

18 The transfer did not, until yesterday, contain any such reference identifying the jurisdiction of the company’s incorporation and was, therefore, not a “proper instrument of transfer”; registration was, therefore, prohibited by s 1071B. However, the circumstance that registration is prohibited does not deprive the transfer of the character of a valid assignment vesting an equitable interest in the share in the transferee [Vaughan v Duncan [2005] NSWSC 670, [120]], and the detail as to the jurisdiction of incorporation can be inserted at any time before registration, not only before execution or delivery of the transfer [Vaughan v Duncan, [119]]. Those details having now been inserted, in the course of the hearing, there is now no longer any obstacle to registration of the transfer. Accordingly, although the directors could not have registered the transfer until the details of the jurisdiction of incorporation were inserted in the transfer, as they were yesterday, Alexi Beck nonetheless had a beneficial entitlement to the share in question when proceedings were instituted.

19 However, that does not change the position that, as at the date on which the Summons was filed, she was not entitled to immediate registration, and Mr Whittle submits that, on the authority of the decision of the Chief Judge in Monardo v Complete Hardware Ltd, the result is that the proceedings should be dismissed. In Monardo, there was no form of transfer in existence at all at the date when proceedings were instituted. His Honour held that it was necessary that there be a transfer in existence at the time of institution of proceedings, because until there was a transfer the transaction had not proceeded beyond an agreement or proposal to transfer, and what triggered s 186 (which was a predecessor of s 1071F) was not an agreement or proposal, but a transfer. His Honour said (at 491-492):

It seems to me abundantly clear from the words “a transfer” in s 186 that the document must actually be in existence when the court is asked to consider whether there has been a refusal or failure to register the transfer. This is because of s 183, and the view is reinforced by s 185. It must be remembered too that up until 1985, s 186 was complementary to s 185 and it is only because of the 1985 amendments that it has an expanded operation.

Where, however, the question before the court is not directed to the refusal to register, but to an anterior act, then I think there is something to be said for the proposition that so long as the transfer is in existence it is not absolutely necessary that it be presented to the consenting authority to view. It is not necessary that the document be there, upon which the consenting authority can inscribe it or his consent.

However, it does seem to me that the actual transfer must be in existence, because until it is in existence there has been no transfer, as a matter of law, and the transaction has not proceeded past either an agreement to transfer or a proposed transfer. If one is being asked to consent to a transfer, then one is being asked to consent to a transaction which is to a great degree passed and closed. There is all the difference between this situation and a situation of a proposed transaction. This distinction is made as a matter of practice when under a trust deed a trustee is asked to consent to something which either the beneficiary has done or is about to do. The court considers what it is that needs to be done and if the trust deed requires that the consent must be given to a proposal, then the consent must precede the proposed action being consummated: see, eg, Greenham v Gibbeson (1834) 10 Bing 363; 131 ER 944 at 375; 949 and cf Offen v Harman (1859) 1 De G F & J 253; 45 ER 355.

20 It does not follow that a transfer must be in “proper form” in accordance with s 1071B in order to trigger s 1071F and its predecessors. It is also worth observing that Monardo arose in the context of a takeover, and his Honour said (at 490):

The defendants say that the Court has no jurisdiction to make any order on the plaintiff’s summons because the plaintiff has no locus standi and has no statutory cause of action as at the date when the summons was issued. It may be that after the transfer was executed, if the transfer is presented to the managing director at that time and consent is refused, that the plaintiff can commence fresh proceedings. In many cases that would mean that the court would be extremely unhappy to deal with the present motion as a mere technicality, but commercial experience has shown that in a take-over situation it is often wise to deal with matters strictly according to technicalities and to let the parties carry on their battle in the usual commercial fashion.

21 In the context of an application under another predecessor of s 1071F, Crawford J in the Supreme Court of Tasmania said, in Leaver v Taxi Combined Services (at [28]):

28. Subject to the view I later take of the transfer to the Harry Lewis Property Trust, and to the matter of unpaid stamp duty, I agree with counsel for the applicants that the other deficiencies in the forms of transfer were matters of form and not substance. They did not trouble the board of directors. It was common to the transferors, the transferee and the board, what each form was intended to transfer. Particularly having regard to the wide powers of the Court under s 1094(2), the Court may mould its orders to allow the applicants to amend the forms or submit fresh ones should that be necessary. Although the failure to pay stamp duty was not a mere matter of form, the same response is warranted when considering that failure. The board, if it had wished, could have refused to act on the forms because of all of the deficiencies. It could properly have claimed just cause for refusing approval. In such a circumstance, the applicants could have corrected the deficiencies and resubmitted amended or fresh forms of transfer which were not deficient. In the circumstances, I am not persuaded that the applications should be dismissed because the board would have had just cause for refusing to approve the transfers if it had adverted to the deficiencies. For reasons I will explain later, I do not hold that the board may not now rely on causes which were not expressly relied upon at the time. However, in a situation where causes now relied upon were apparent at the time but not then relied upon as causes and where they are of a technical nature and capable of being remedied by the applicants, I am unpersuaded that they may properly be regarded as constituting just cause for the board’s original decision.

22 The same applies in this case, which is closely analogous. Monardo, on the other hand, is distinguishable, for several reasons. First, unlike Monardo, this is not a takeover case, but a dispute between the two surviving shareholders in a private family company, so that there is less reason to allow mere technicalities, which can be cured, to be decisive. Secondly, and most significantly, in this case a transfer was in existence when proceedings were commenced and when the directors considered, but did not determine, approval of its registration. True it is that there were a number of formal defects in it, one of which resulted in a legal prohibition on registration until it was cured, but they did not deprive the transfer of the effect of vesting a beneficial interest in the transferee.

23 There is, in this context, an analogy with an application for specific performance in circumstances where the purchaser is not immediately entitled to performance. In Turner v Bladin (1951) 82 CLR 463, Williams, Fullagar and Kitto JJ said (at 472):

We are of opinion that the contract was specifically enforceable. We reject the contention that a contract, some part of which is not immediately performable, is not capable of specific performance. In our opinion proceedings for the specific performance of a contract which is of such a kind that it can be specifically enforced can be commenced as soon as one party threatens to refuse to perform the contract or any part thereof or actually refuses to perform any promise for which the time of performance has arrived. The court can then make a decree that the contract ought to be specifically performed and carried into execution, and can so mould its decree and order such inquiries, accounts and other proceedings under the decree as may be necessary to carry into effect all the promises of both parties whether they are presently performable or are only performable in the future.

24 That passage is redolent of the observations of Crawford J in Leaver, in which his Honour likewise referred to the ability of the Court to mould its orders, to allow the applicants to amend the defective forms or to submit fresh ones. In this case, but for the events which have subsequently transpired, it would have been possible to make an order for rectification of the register, subject to and conditional upon the presentation of the transfer and share certificate at the registered office, and the insertion in the transfer of the details of the jurisdiction of registration. In other words, at the time when proceedings were instituted, the transferee had an entitlement to registration, subject to compliance with certain formal requirements, unless the directors exercised their discretion to decline. The prima facie entitlement to registration arises from the vesting in the transferee of the equitable interest conveyed by the transfer, although the entitlement was not immediate but conditional upon remedying the formal defects in the transfer. Nonetheless, in its conditional form, the entitlement existed at the date of institution of the proceedings. The requirement to attach conditions to any order that might be made has since been removed, by the evidence that the formal defects have since been remedied. Accordingly, in my view, the plaintiffs are entitled to an order under s 175 rectifying the register by registering Alexi Beck as the holder of the subject share.

25 Mr Whittle submitted that, now that the formal defects had been remedied, the matter should be returned to the Board for its further consideration. I do not see why this course should be adopted in the circumstances. First, the attitude of each of the parties has been made quite clear – either by express evidence or by necessary inference from the position that they have adopted in the proceedings – such that it can be seen that there is no prospect of the directors resolving affirmatively to exercise their discretion to decline registration (because Tamara Beck will not support such a resolution). Secondly and more importantly, there was an existing entitlement to relief, albeit conditional, at the time when proceedings were instituted. The supervening removal of the formal defects does not justify requiring that the plaintiffs should now have again to await the determination of the Board, which has already had ample opportunity to exercise its discretion to decline registration if so minded, but has not done so. I do not accept that the Board’s discretion arises only upon compliance with Article 30 (or presentation of a “proper form of transfer”); consistently with Monardo, the existence (not presentation) of a transfer is sufficient to trigger the discretion. Nor do I accept that the Board has never had an opportunity to consider exercising its discretion; it did so, after a transfer was in existence at the August 2006 meeting. Had it been desired to preserve the opportunity for the Board to reconsider the matter, it could have refused to proceed then because of the formal defects, allowing the plaintiffs to remedy the defects by lodging an amended form at the registered office. The Board did not do so. Although I need not determine the question, I doubt that Mr Weinstock adverted to the formal defects when he declined to support registration at the Board meeting; and consistently with the approach adopted by Crawford J in Leaver, I am unpersuaded that the application should be dismissed, even if the board would have had cause for refusing to approve the transfers had it adverted to the defects, which could have easily been remedied.

26 The formal objections advanced on behalf of Mr Weinstock were notified and articulated, for the first time, when written submissions were handed up at the commencement of the hearing. Had they been raised before proceedings were instituted, the whole of the proceedings could have been avoided. A defendant may be entitled in this type of proceeding to keep its powder dry, but if it chooses to do so, it cannot complain if there are consequences so far as the costs of proceedings which could have been avoided by earlier notification of the issues in dispute are concerned. Apart from the formal defects – which, if notified at an earlier stage, could have been remedied either before proceedings or earlier in the proceedings – there was no viable defence to Alexi Beck’s claim to be registered. I do not see why the plaintiffs in those circumstances should be out of pocket, and the costs order which I will make in favour of the plaintiffs should be on an indemnity basis.

[Counsel heard on costs]

27 The basis upon which the Court makes an indemnity costs order can, for present purposes, be summarised as that the party entitled to costs has been unreasonably required to incur costs, through being subjected to litigation which was brought or defended without reasonable cause, or necessitated or exacerbated by unreasonable conduct. As I have said, but for the formal defects to which I have referred, there was no viable defence to this application. The formal defects were notified at the very last moment, and were remedied shortly after they were raised. The costs occasioned by their being raised would have been wholly avoided had they been raised before the proceedings were instituted.

28 Although I have listened carefully to what Mr Whittle has said on the topic – and he has said everything that could be urged against an indemnity costs order – I remain unpersuaded that any other costs order would be appropriate. Indeed, I think it would give quite a wrong message to directors generally in companies of this type if such an order were not made; it would indicate that it was reasonable to oppose registration on technical grounds and wait till the very last minute of litigation to notify those grounds. I do not accept that the view I hold makes a director, in effect, a guarantor or an insurer of a transferee, as was submitted. All that is expected is reasonable behaviour; but it is not reasonable behaviour on the part of a director to reject a transfer for formal defects which could easily be remedied, yet not inform the transferor or transferee of the defects until the final hearing of the application has commenced. Such behaviour unreasonably requires the transferor and transferee to incur costs. That is not to suggest that directors must give reasons for declining to register a transfer; only that where the reason is an easily curable formal defect, they unreasonably put the transferor and transferee to costs if they do not afford them an opportunity to remedy the defect, and for that purpose inform them of it.

29 I make order 2 in the Amended Originating Process (that the register of members of the first defendant be corrected to record the first plaintiff as the holder of one ordinary share in the first defendant). I make order 4 in the Amended Originating Process (that the second defendant pay the plaintiffs’ costs of these proceedings). I order that those costs be assessed on the indemnity basis.

30 I order that the operation of the foregoing orders be stayed until 14 August 2007. I direct that if application is to be made for a continuation of the stay, a notice of motion and any supporting evidence together with a draft summons for leave to appeal, including the proposed grounds of appeal, be filed and served by Thursday 9 August 2007, returnable before me on Tuesday 14 August 2007.

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