Bonds and Securities (Trading) Pty Ltd v Australian Foundation Investment Co Ltd (No 1)

[1974] HCA 12

HIGH COURT OF AUSTRALIA

McTiernan, Menzies, Stephen, Mason and Jacobs JJ.

BONDS AND SECURITIES (TRADING) PTY. LTD. v. AUSTRALIAN FOUNDATION INVESTMENT CO. LTD. (No. 1)

(1974) 131 CLR 34

5 April 1974

Practice

Practice—High Court—Appeal from Supreme Court of State—Concurrent appeal to Full Court of State—Whether appellant required to elect—Appealable amount—"Claim to or respecting any property . . . of the value of $3000"—Scheme of arrangement—Merger of companies—Appellant to receive newly issued shares in substitution for shares in companies dissolved in scheme save Whether value of new shares to be set off against value of original shares in calculating value—Judiciary Act 1903-1973 (Cth), s. 35 (1)(a)(2)—Companies Act 1961 (Vict.) s. 181 (2).

Decisions

April 5.
The following written judgments were delivered:-
McTEIRNAN J. I am of opinion that the preliminary objection and the objection to competency should be overruled for the reasons to be handed down by Mason J. (at p39)

MENZIES J. I have read the judgments of Stephen and Mason JJ., and agree with them. I would simply make one reservation which does not affect the resolution of this case. As at present advised I am not disposed to think that the appellant would have an appeal as of right merely because the order under appeal effected the transfer of property exceeding $3,000 in value to Australian Foundation Investment Co. Ltd. from the eight other companies party to the arrangement. (at p39)

STEPHEN J. Bonds &Securities (Trading) Pty. Ltd. seeks to appeal, as of right , from an order of the Supreme Court of Victoria approving of a scheme of arrangement entered into between a number of companies and their respective members, which companies may conveniently be described as the Capel Court Group. (at p39)

2. Bonds &Securities, being a member of certain of these companies, was represented at the meetings of members of those companies convened to consider the scheme of arrangement, and at those meetings opposed its adoption. Notwithstanding this opposition the scheme was approved of by large majorities at meetings of the members of each of the participating companies; Bonds &Securities then opposed the application which was later made to the Supreme Court, pursuant to s. 181 of the Companies Act 1961 (Vict.), for its approval of the scheme. It is from the order, made on that application, approving the scheme of arrangement that it now appeals to this court. (at p39)

3. The respondents object to the competency of the appeal and also raise the preliminary objection that Bonds &Securities has at present on foot an appeal to the Full Court of the Supreme Court of Victoria concurrently with its appeal to this Court. (at p40)

4. That the decision of a court should be the subject of concurrent appeals to two distinct appellate courts each of which proceeds to a hearing is, of course highly undesirable and, once apprised of the position, neither of the appellate courts would be likely long to permit such a situation to continue. Usually the situation may readily be remedied by requiring the appellant to elect which of the two appeals he will pursue - R. v. Poole; Ex parte Henry (1938) 61 CLR 1 . (at p40)

5. However, in the present instance Bonds &Securities is in a dilemma. The competency of its appeal as of right to this Court is under challenge; if that challenge be successful no appeal will lie to this Court without special leave. To require the appellant first to elect, before determining the objection as to competency, may subject it to real prejudice; to defer the time for election until competency has been determined and only then to require an election to be made if the appeal to this Court be found competent will avoid risk of prejudice, while at the same time ensuring that both appeals do not thereafter remain on foot. The existence of concurrent appeals to two distinct appellate courts, while open to serious objection, does not, as a matter of law, affect the competency of this appeal and will not, in any event, long persist if the above course be adopted. I would accordingly overrule the preliminary objection. (at p40)

6. I turn to the objection as to competency. Three distinct grounds are relied upon; the first consists of a reiteration of the preliminary objection which I have already dealt with and which in my view constitutes no good objection to competency. The other two grounds of objection to competency involve matters of some substance. (at p40)

7. The first asserts that the order appealed from is such that the requirements of s. 35(1)(a) of the Judiciary Act 1903-1973 have not been satisfied and that accordingly no appeal as of right lies. The scheme of arrangement which the order approved is one purporting to be between nine companies of the Capel Court Group and their members. It is designed to effect what may be loosely described as a merger of those nine companies into one. This is to be achieved by the transfer of the assets of eight of them to the ninth, its assumption of all their liabilities and its allotment to the members of those eight companies of shares in its capital in predetermined propertions to their existing shareholdings. The eight companies are then to be dissolved without winding up, by which time they will have neither assets nor liabilities and their shares will be valueless since their assets will have been transferred to and be vested in the ninth company. (at p41)

8. The provisions of the scheme giving effect to this proposal are succinct; it provides for the allotment of new shares by the ninth company to members of the other eight in agreed proportions, for payment of interim dividends by the eight and for the transfer of their assets to, and the assumption of their liabilities by the ninth company, followed by their dissolution without winding up. Only two other provisions call for mention. One is the common provision in schemes of arrangement empowering the ninth company to consent to any alteration or condition which the Court may see fit to approve or impose. The other is described in the scheme as relating to severability and is designed to deal with the situation should meetings of members of one or more of the eight transferor companies fail to agree by the requisite majority to the proposed scheme; in that event the scheme is nevertheless to take effect as to the remaining transferor companies if so altered by the directors of the companies in the group as to render it inapplicable to any company whose members do not agree to it. (at p41)

9. It is to the order dealing with this scheme of arrangement that s. 35(1)(a) of the Judiciary Act is to be applied and if the order is to fall within that sub-section it is the terms of par. (2) that will most aptly apply; that paragraph refers to every judgment which "involves directly or indirectly any claim, demand or question, to or respecting any property or any civil right amounting to or of the value of Three thousand dollars". (at p41)

10. The order naturally falls into three parts. The first approves of the scheme of arrangement, adding a declaration that the scheme is to bind each of the nine companies and their shareholders - see s. 181(2). I am not concerned on this application with whether this declaration is effective in the case of the ninth company, the transferee company, or its members, the scheme not in fact involving any compromise, or arrangement as between those parties; nor am I concerned to consider what effect, if any, the inclusion of nine companies and the shareholders of eight of them in the one scheme may have upon the applicability of s. 181. (at p41)

11. The second part, pursuant to s. 183(2) of the Companies Act, directs that with an irrelevant exception all the property, rights and powers of the eight transferor companies be transferred to the ninth company, subject to all existing charges. It thus seeks to effect, in rather wider language, what a specific provision of the scheme of arrangement itself provides for. It also directs the transfer of all the liabilities and duties of the eight transferor companies, but nothing presently turns on this. (at p42)

12. The final part of the order directs the dissolution, without winding up, of each of the eight transferor companies upon a specified day, once again echoing the terms of the scheme of arrangement but assigning a precise date for dissolution. It is said by the respondents that no part of this order falls within s. 35(1)(a)(2). (at p42)

13. The order of the Supreme Court must, I think, be viewed in its entirety and it will be its effect as a whole upon the property of the appellant, consisting of shareholdings in a number of the transferor companies, that will determine the application of s. 35(1)(a)(2). However in considering its effect it will not, I think, be appropriate to set off against the value of this property of the appellant the value of the appellant's entitlement to have allotted to it new shares in the ninth company - Ballas v. Theophilos (No. 1) (1957) 97 CLR esp at pp 195, 199 . (at p42)

14. The effect of the order, viewed in this light, may be stated as follows: whereas before the order the appellant held shares of great value in a number of the transferor companies those shares, as a result of the order, will first be deprived of all value and will then cease to exist when the companies themselves cease, by dissolution, to have any existence. An order having this effect is, in my view, necessarily one involving a question respecting property of the appellant amounting to the value of $3,000. To regard the transfer of the assets of the transferor companies as involving no question respecting any property of the appellant and then to couple that with a description of the effective disappearance of the appellant's shares, following dissolution, as an event involving property of the appellant which is then of no value, the transfer of assets having deprived those shares of all value, is but to obscure the effect of the order upon the appellant by a concentration upon its parts and a disregard of the whole. (at p42)

15. However even were it proper to look separately at parts of the order and to treat them in isolation, the same result ensues. The first part of the order, approving of the scheme of arrangement, makes the scheme binding upon the appellant by virtue of the statute - Companies Act s. 181(2). The appellant is thus deprived of any right to complain of the transfer of assets which the scheme effects or of the subsequent dissolution of the transferor companies and, with it, the extinction of its shareholdings in those companies. The scheme expressly provides that allotment of the new shares is to be in full satisfaction of all rights whatsoever previously possessed by the members of the transferor companies. An order the immediate and direct effect of which is to convert a mere proposal into a binding arrangement affecting against its will the appellant's shares, is in my view one involving a question respecting property of the requisite value within s. 35(1)(a)(2). (at p43)

16. The final ground of objection to competency turns upon the fact that the appellant was not, at whatever may be thought to be the relevant time, a member of each of the eight transferor companies. It is said that it therefore lacks locus standi; not altogether but to the extent that the scheme of arrangement concerns companies of which it was not a member. As to this submission I have had the advantage of reading the reasons for judgment prepared by my brother Mason, and agree with what he says concerning it. (at p43)

17. I would overrule the objection to competency. (at p43)

MASON J. The objection to competency now before the Court is taken to an appeal from an order made on 26th October 1973 by Gowans J. in the Supreme Court of Victoria approving under s. 181 of the Companies Act 1961 (Vict.) an arrangement between the nine respondent companies and their members. The respondent companies are known as the Capel Court Group of investment companies. They are closely associated with Messrs. J. B. Were &Son, a firm of stockbrokers. They have substantial assets and the listed value of their share investments, taken collectively, is $49,000,000. (at p43)

2. The object of the arrangement approved by the Court was to merge the interests of the nine companies into one of their number, Australian Foundation Investment Co. Ltd. ("A.F.I.C.") by transferring the assets and liabilities of the other companies (hereinafter called "the transferor companies") to that company, and dissolving the transferor companies on the footing that the shareholders in those companies would be allotted stock units in A.F.I.C. according to a table of relativities which had been prepared in the light of valuations of the existing assets of the transferor companies and the estimated assets of A.F.I.C. (at p43)

3. In accordance with an order of the Court, meetings of members of the nine companies were held on 11th July 1973 at which the arrangement was approved by substantial majorities. After the order convening the meetings had been made, but before they were held, a company called Five Fitzal Pty. Ltd., which was associated with another company, Brinds Ltd., announced that it proposed to make a takeover offer for the shares in six of the companies participating in the arrangement, at prices exceeding the then current stock exchange quotations for the shares. Thereafter the appellant, which is also associated with Brinds Ltd., proceeded to acquire shares in the six companies. (at p44)

4. The following table sets out the number of stock units, together with their cost price, which the appellant held or was entitled to have registered in its name in the six companies as at 26th October 1973:

Company No. of stock

units held No. of stock units held or entitled to have registered Total cost of acquisition

Capel Court 189,580 270,561 $343,802 Brenton 16,200 19,650 $18,438
Halliburton 42,700 64,151 $57,386
Jonathan 62,925 82,450 $55,156
Sherbourne 83,230 87,770 $75,707
Clonmore 72,050 136,825 $107,657

The aggregate market value of the stock units in the six companies which the appellant held or in respect of which it was entitled to be registered on 5th November 1973 was $614,000. (at p44)

5. The appellant by its representatives attended the meetings convened pursuant to the order of the court and opposed the arrangement. Subsequently it appeared as an objector when the application for an order approving the arrangement came on for hearing. (at p44)

6. There has been debate as to the value of the stock units which the appellant holds in the six companies and as to the likely value of the stock units to which it would become entitled in A.F.I.C. if the order approving the arrangement is upheld. The respondent has pointed to deficiencies in the evidence and it is common ground that there are difficulties in making a valuation of the stock units in A.F.I.C. once the merger takes place. However, I am satisfied that an inference should be drawn that the value of the stock units held by the appellant in each of the six companies was at all material times in excess of $3,000. (at p44)

7. At the commencement of the hearing of the objection to competency a preliminary objection was taken by the respondent. Then the preliminary objection was based on the circumstance that after it had filed its notice of appeal to this Court the appellant filed a notice of appeal to the Full Court of the Supreme Court against the order made by Gowans J., seeking the same relief as is sought in the appeal to this Court. The respondent submitted that this Court would not proceed with the hearing of an appeal when there is pending a concurrent appeal by the appellant in another court and that this Court should adjourn the appeal sine die so as to allow the appellant, if it were so minded to abandon its other appeal. This course was taken in R. v. Poole; Ex parte Henry (1938) 61 CLR 1, at p 7 , where an appeal was also pending to a court of quarter sessions against the decision of a magistrate. The principle on which the court then acted was expressed in these words:
"This Court, however, is, in Australia, the court of final appeal. It is not consistent with the character of such a court that it should entertain an appeal while proceedings are pending in an inferior court which has jurisdiction, not yet fully exercised, to determine the subject matter of that appeal." (at p45)

8. It is one matter to apply this principle to an appellant who brings two competent appeals from the one order to two different courts, but it is quite a different matter to seek to apply it in a case where, as here, objection has been taken to the competency of the appeal brought to this Court and an appeal is lodged to the Full Court to guard against the possibility that this appeal may be held to be incompetent. The pursuit of such a course, so it seems to me, involves no affront to the dignity of this Court, provided that once the competence of the appeal in this Court is established, the appellant forthwith takes appropriate steps to discontinue the concurrent appeal. I would therefore overrule the preliminary objection. (at p45)

9. The objection to competency is not as easily disposed of. The case that the appellant has an appeal as of right is based on s. 35(1)(a)(1) and (2) of the Judiciary Act 1966-1973. The appellant says that the order appealed from was pronounced with respect to a matter at issue of the value of $3,000 or more because, contrary to the appellant's claim, the order provided for the dissolution of the six companies in which the appellant held, or was entitled to be registered as the holder of, stock units valued at $614,000, approximately, and thereby destroyed those stock units, or because the order effected the transfer of the assets and liabilities of the transferor companies to A.F.I.C., the value of these assets being of the order of $29,000,000 and the value of the assets of the six companies in which the appellant holds stock units being of the order of $14,000,000. Alternatively it is said that by reason of the same provisions the order involves directly or indirectly a question respecting property of the requisite value. (at p46)

10. It is unnecessary to deal with the suggestion that the case falls within s. 35(1)(a)(1) because, as it seems to me, the appeal falls within s. 35(1)(a)(2) in that the effect of the order is to dissolve the transferor companies, thereby destroying the appellant's stock units in the six companies, being property of a value well in excess of $3,000. (at p46)

11. It is not a complete or comprehensive statement of the order to say of it that it merely approves the arrangement between the companies and their members and that it therefore involves no question respecting property. The effect of an order under s. 181 of the Companies Act is to make the provisions of the arrangement, including the provisions for transfer of assets and the dissolution of the transferor companies, binding between the companies and their members. Moreover, the specific orders made in exercise of the powers conferred by s. 183(a) and (d) transfer the assets of those companies and dissolve them. The order for dissolution necessarily destroys the share capital of the companies; one cannot hold shares in a company no longer in existence. The possibility that an order may be made under s. 307 of the Companies Act declaring the dissolution void does not imply the continued existence during dissolution of the dissolved company's share capital and stock units. (at p46)

12. The order involves directly the question whether the transferor companies should be dissolved; as the dissolution of the companies itself deprived the appellant of its stock units in the six companies, the order involved indirectly, if not directly, the question whether the appellant should be deprived of its stock units. Expressed in this fashion, the order indirectly involved a question respecting those stock units. (at p46)

13. It is, then, the value of those units that is critical for the purposes of par. (2) of s. 35(1)(a). It is not for the appellant to show that the value of its stock units exceeded by more than $3,000 the value of the stock units in A.F.I.C. to which it would become entitled under the arrangement. As Dixon C.J., Webb and Fullagar JJ. said in Ballas v. Theophilos (No. 1) (1957) 97 CLR, at p 195 :
"It amounts in truth to no more than this, that once you get the denial by a judgment of a claim to a title to an estate or interest in land or an interest in personalty and the estate or interest of which the judgment deprives the claimant is itself of the requisite value you do not inquire further. For it means that he has been prejudiced in proprietary rights which he claims of the prescribed value. You do not inquire further to ascertain whether the appellant himself is consequentially relieved of a personal liability or liabilities which would sufficiently counterpoise the prejudice economically to enable one to say that on balance his economic situation has not suffered to the extent of 1,500 pounds." (at p47)

14. Ebert v. Union Trustee Co. of Australia Ltd. (1957) 98 CLR 172 was a case in which a beneficiary sought a decree for general administration of an estate the value of which exceeded $3,000, but in which the share of the plaintiff was less than $3,000. Although there was a prayer that an account be taken on the basis of wilful default and neglect it was held that the decree sought would not itself determine any such question but "conceivably might result in further steps". (at p47)

15. As Mr. Young, for the respondents, pointed out, the economic loss which the appellant suffers by the making of the order is not the value of its stock units but that value less the value of the stock units which it will acquire in A.F.I.C. under the arrangement and in one sense the issue for the Court in determining whether the arrangement should be approved is whether it would involve the appellant and other stockholders in the individual companies in economic loss, for in that event the Court would not approve the arrangement on the ground that it was unfair to members of one or more of the individual companies. If no more were involved than this, the appellant would be bound to show that the difference in value was not less than $3,000 but the order deprives the appellant of its existing stock units valued at well in excess of $3,000; as the order deprives the appellant of property of the requisite value it is unnecessary for it to show that by the order it suffers economic loss in the requisite amount. (at p47)

16. The appellant's alternative case, based on the order for the transfer of the assets of the transferor companies to A.F.I.C., calls in question the meaning of the reference to "any property" in s. 35(1)(a)(2). In general the expression has been read as applying to the appellant's property. But there are cases in which the judgement appealed from involves a question respecting property in which the appellant lacks a proprietary interest but nevertheless has a sufficient locus standi for other interests to support his position as an appellant. There are other cases in which the judgment involves a question respecting property in which the appellant has a limited interest, not of the requisite value, but sues in a representative capacity so that the value of his interest and the interests of the persons he represents amount to $3,000 or more. (at p48)

17. The application of the paragraph to these cases was referred to in the judgment of Dixon J. (as he then was) in Oertel v. Crocker (1947) CLR 261, at p 274 . Having regard to the conclusion which I have otherwise reached favourable to the appellant, there is at this time no occasion to explore these difficulties. (at p48)

18. There remains for consideration the respondents' point that the appellant's locus standi as an objector is confined to the arrangement in so far as it relates to the six companies in which the appellant holds shares or is entitled to be registered as a shareholder. The submission is based on the proposition that s. 181 contemplates an arrangement between a company and its members, not an arrangement between companies or an arrangement between a company and the members of other companies. It follows, according to the argument, that the arrangement put before the Court consisted of separate arrangements between each of the companies and its members. Viewed in this light the appellant has no locus standi as an objector in relation to those companies in which it is neither a stockholder nor a creditor. In other circumstances it might be that the respondents' submission should prevail. Here, however, the arrangement was put forward as one comprehensive scheme. Only cl. 4, to which I shall shortly refer, contemplated that it would have a severable operation. The appellant's locus standi to challenge the arrangment in its application to A.F.I.C. National Reliance Investment Co. Ltd. and Jason Investment Co. (Australia) Ltd., the companies in which it held no stock units, was not contested before Gowans J. and, having regard to the manner in which the case has been dealt with in the first instance, I do not think that effect should now be given to the respondents' submission on the objection to competency. (at p48)

19. Reliance was placed on cl. 4 of the scheme, which is designed to ensure that the scheme is severable in its application to A.F.I.C. and one or more of the transferor companies. However, the clause provides only that the scheme is to have a severable application if it is approved by the requisite majority of shareholders in A.F.I.C. and one or more of the transferor companies and not by such a majority in another or other transferor companies. It makes no provision for the severable application of the scheme in the event that the Court should refuse to approve it. (at p48)

20. In the result I would dismiss the preliminary objection taken by the respondents and overrule the objection to competency. (at p49)

JACOBS J. I agree with the order proposed by Mason J. and with his reasons. (at p49)

Orders

Preliminary objection and objection to competency overruled with costs.