Coshott v Principal Strategic Options Pty Limited

[2001] NSWCA 110

Reported Decision: (2001) 38 ACSR 547
(2001) 19 ACLC 965

New South Wales

Court of Appeal

CITATION:	Coshott v Principal Strategic Options Pty Limited [2001] NSWCA 110
FILE NUMBER(S):	CA 40273/00
HEARING DATE(S):	29 November 2000
JUDGMENT DATE:	24 April 2001
PARTIES :	Robert Gilbert Coshott - Appellant Principal Strategic Options Pty Limited - Respondent
JUDGMENT OF:	Mason P at 1; Powell JA at 29; Giles JA at 46

LOWER COURT JURISDICTION :	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	Comm Div 50065/99
LOWER COURT JUDICIAL OFFICER :	Hunter J

COUNSEL:	M Cashion SC & P Bolster - Appellant B Coles QC - Respondent
SOLICITORS:	CKB Partners, Sydney - Appellant Watkins Tapsell, Kirrawee - Respondent
CATCHWORDS:	CONTRACT - put option - exercisable after "option date" - option date established by reference to "operative date" - operative date relevantly the date conditions in cl 3.2 were satisfied - conditions included the Company "allotting and registering to Coshott 100 ordinary shares in the Company" - shares not registered to Coshott until a date such that the option was exercised before the option date - (by Powell and Giles JJA) option not validly exercised) - (by Mason P) option validly exercised because by principles of estoppel shares taken to have been registered to Coshott at an earlier date. D
CASES CITED:	Alghussein Establishment v Eton College (1988) 1 WLR 587; Allco Steel Corporation Pty Ltd v Australian Development Corporation Pty Ltd (NSWCA, unreported, 14 November 1996) Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) (18 NSWLR 540; Eastern Distributors Ltd v Goldring [1957] 2 QB 600; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; Lucas v Smith [1926] VLR 400; New Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France (1919) AC 1; Patten v Thomas Motors Pty Ltd [1965] NSWR 1457; Verschures Creameries Ltd v Hull and Netherlands Steamship Co Ltd [1921] 2 KB 608; Whitehorn Bros v Davison [1911] NSWR 1457.
DECISION:	(By majority) Appeal allowed; orders made by Hunter J on 28 March 2000 set aside and in lieu thereof summons dismissed; respondent pay appellant's costs of the trial and of the appeal and have a certificate under the Suitors Fund Act if qualified.

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40273/00

EQ Com List 50065/99

MASON P

POWELL JA

GILES JA

Tuesday 24 April 2001

COSHOTT v PRINCIPAL STRATEGIC OPTIONS PTY LTD

JUDGMENT

1    MASON P: I have had the benefit of reading the judgments of Powell JA and Giles JA in draft. The facts are set out by Giles JA.

2    I agree with my colleagues that there is a critical distinction between allotment and registration. The upshot is that, on the true construction of the Deed, the put option was exercised too early - if time is calculated from the date of actual registration of the allotment of 100 shares to Mr Coshott. The allotment occurred on 28 August 1998 but registration thereof did not occur until 30 September 1998. The critical condition spoke of:

Coshott paying to the Company a total of $100 for and the Company allotting and registering to Coshott 100 ordinary shares in the Company (cl 3.2(b), emphasis added).

3    However, at least as between the parties it is not open to the appellant to dispute that he was registered as allottee on 28 August 1998. He is estopped from doing so, such estoppel operating by convention and by representation.

4    This in effect was the reasoning of Hunter J who held:

Clearly as at 28 August 1998 the company, Coshott and Strategic treated Strategic as being a shareholder of the company pursuant to the performance of conditions stipulated in cl 3.2(b) and (e) of the shareholders deed….
Nothing, in my view, could be clearer than that the parties treated those conditions precedent in clause 3.2(b) and (e) as referring to the effective dates of the allotment, registration and transfers and that the effective date was 28 August 1998, being within five business days as contemplated by that clause.

5    Hunter J also pointed out that 28 August 1998 was the last business day for satisfying (to the parties’ best endeavours) all of the conditions precedent. No party moved to terminate for non-performance by that day, as they might have done.

6    These findings were not challenged in the notice of appeal.

7    I shall endeavour to express in my own words why I agree with the learned trial judge and why these findings point incontrovertibly to the legal conclusions I have stated in par 3 above.

8    On 28 August 1998 various matters were transacted at a meeting of NSW Master Franchise Pty Ltd (NSWMF). Present were the appellant Mr Coshott, Mr Blake (the principal of the respondent (PSO)) and legal representatives of Mr Coshott and PSO. At the start of the meeting Mr Coshott was the sole director of NSWMF and the unregistered allottee of 2 shares (apparently from 24 July 1998).

9    Various documents were executed and exchanged. Amongst others the following interrelated transactions were effected:

1) A further 98 shares in NSWMF were allotted to Mr Coshott;
2) It was resolved that appropriate entries be made (of the two allotments totalling 100 shares) in the register of members;
3) Mr Coshott delivered to Mr Blake on behalf of PSO:

(a) a transfer of 50 shares (ie half of the allotted 100) from Coshott to PSO; and
(b) a deed of assignment of a $40,000 trade debt;


4) Mr Blake delivered to Mr Coshott a cheque for $1.25million being the agreed consideration for the transfer and assignment referred to in (3).

(It appears to have been common ground that the $100 referred to in cl 3.2(b) was paid or treated as paid. No point was taken on this account.)

10    The transfer of 50 shares from Mr Coshott to PSO recited that Mr Coshott transferred “as registered holder”. Mr Coshott as transferor and Mr Blake on behalf of PSO as transferee each signed the transfer on 28 August 1998. This executed transfer was tabled and it was resolved that, subject to stamping, it was approved for registration in the register of members.

11    The parties knew that registration of the transfer depended upon the stamping of the transfer. The Minute stipulated expressly:

RESOLVED that subject to stamping, the Share Transfer be approved for registration in the Register of Members of the Company.
Since the meeting took place at about 7.30pm on a Friday evening no one would have envisaged stamping being effected that day.

12    There was no stamp duty inhibition upon immediate registration of the effect of the allotments, although (for reasons which follow) this is not critical. Nothing in the evidence suggests that those present at the meeting believed that registration of Mr Coshott as owner of the 100 allotted shares had occurred or would occur on that day. But the evidence shows that the parties proceeded on the basis that he was so registered and it is this that estops the appellant from asserting to the contrary.

13    Mr Coshott’s capacity to give an effective transfer of the 50 shares depended ultimately upon him being the owner of those shares, ie being the registered owner (as he asserted). This capacity depended in turn upon the registration of the allotment of the 98 shares that were added that day to his initial (unregistered) holding of 2 shares.

14    The parties dealt with each other at the “settlement meeting” on 28 August (Mr Coshott’s phrase: Blue 33W) on the basis that Mr Coshott had the capacity in law to transfer the 50 shares that later became the subject of the put option. He represented his title to do so by the assertion that he transferred “as registered owner”. The Deed also contained a warranty by him that as at a time immediately prior to the transfer he was “the legal and beneficial owner” of the shares (cl 3.9(a)). The representation in the transfer itself was further confirmed by the subsequently delivered share certificate for the 50 shares which was expressed to be given under the common seal of NSWMF on 28 August 1998, and was signed by Mr Coshott as sole director/secretary. A solicitor from the firm representing Mr Coshott and NSWMF also entered the transfer in the share register by recording that the “transaction date” was 28 August 1998.

15    PSO parted with $1.25 million on the basis of this representation in the transfer and the warranty in the Deed. That is not to say that Mr Coshott and Mr Blake actually believed that registration of the allotment in favour of Coshott had occurred. It was sufficient for their purposes (and for mine) that the transfer transaction was completed on those clearly expressed bases (Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 676-677).

16    The findings of Hunter J set out above concerning what his Honour termed the “effective date” of registration are a shorthand manner of saying the same thing.

17    Because one is dealing with a type of estoppel by convention based upon what was objectively represented by each party to the other, it did not require evidence of actual belief by the respondent before the estoppel could operate. Even if the parties knew the “true” facts they each proceeded on a contrary assumption and each can justly be held to it (Grundt at 676-677).

18    The findings were made in relation to the construction of the Deed, albeit by reference to communications between the parties subsequent to the date of the contract. The appellant challenges this reasoning because it seeks to construe the Deed of 21 August by reference to the later events of 28 August. I find it unnecessary to consider this submission. The factual conclusion was in my view, incontrovertibly correct. It addressed the issue of “effective date” debated at trial (see eg Blue 48-49) and was entirely consonant with Mr Coshott’s concession that the allotment (though unregistered) was effective from 28 August (Blue 41-42). Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 was discussed in submissions at trial (Blue 48). I do not accept the appellant’s submission (par 9) that the findings were based upon the fact that the Deed defined shareholder to mean each of Coshott and PSO. Hunter J’s reasoning at [16]-[27], including his citation of Australian Broadcasting Corporation at 550 is based upon the events of 28 August 1998, not the pure construction of the Deed unaffected by those later events.

19    The findings are also correct in law and relevant to the appeal having regard to the principles of estoppel by convention and by representation. As I have demonstrated already, the transfer was accepted and the transaction settled on the express basis that the vendor represented that he transferred the 50 shares “as registered holder”.

20    The matter may be tested by taking a step further than the respondent had to take. Assume it was critical for the respondent to show that the appellant actually had legal title to the 50 shares on 28 August as distinct from it being sufficient that he represented the registration of the transferred shares. The principles of feeding an estoppel show that, at least as between the parties, the appellant is to be taken to have had that title as at 28 August in light of subsequent events.

21    Where vendor and purchaser complete a sale transaction on a particular date there will usually be an express or implied representation of title by the vendor. Here it was express. If it turns out that title was lacking then the purchaser may usually terminate. But if the vendor gets in the title before the purchaser terminates (ie “feeds the estoppel” or “feeds the contract”) then the title will be as represented, not just as between the original parties, but for the benefit of any subsequent party dependent on the purchaser’s title whose title might otherwise be void or voidable (Whitehorn Bros v Davison [1911] 1 KB 463, Lucas v Smith [1926] VLR 400, Patten v Thomas Motors Pty Ltd [1965] NSWR 1457, Allco Steel Corporation Pty Ltd v Australian Development Corporation Pty Ltd, NSWCA unreported 14 November 1996).

22    The doctrine involved is a species of estoppel by convention (Allco per Beazley JA at p11, Simos AJA agreeing), but goes further because it may feed the title of persons who were not parties to the contract or sale (see eg Whitehorn at 480-1). It is different from equitable estoppel in that the effect is to transfer a real title and not merely a metaphorical title by estoppel (Eastern Distributors Ltd v Goldring [1957] 2 QB 600 at 611).

23    In Patten, Collins J for the Full Court (at 1459) and in Allco, Beazley JA (at 10) cited with approval the following passage from Benjamin on Sale 8th ed p10 (emphasis added):

A person who does not purport to sell goods otherwise than as an owner or by the authority of the owner is estopped from denying to the buyer that he was the owner at the time of the sale (Edmands v Best (1862), 7 LT 279). Any subsequently acquired title goes to feed the contract and the property whose title is acquired by the seller vest in the buyer.

24    Halsbury’s Laws of England, 4th ed “Sale of Goods” at par 747 is to similar effect where is it stated that:

A person who, not being the owner, sells goods, not purporting to do so as agent of the owner, or otherwise than as owner of the goods, is estopped, as between himself and the buyer, from afterwards alleging that he was not the owner at the time of the sale.

25    Edmands v Best is cited by Halsbury subject to the comment that it is doubtful whether, in an action at the suit of the seller, a third person may rely upon this estoppel. This qualification presents no problem in the present case, which concerns only the immediate parties to the transaction.

26 Giles JA does not think that the passage set out at [4] above involved a finding that Mr Coshott and PSO treated cl 3.2(b) as satisfied as at 28 August 1998. I would not disagree. The parties may not have turned their minds to such a matter. But subjective adversion to cl 3.2(b) was not necessary. This was an estoppel based upon what the parties objectively represented to each other (by their documents) as the common basis of the transaction effected on 28 August 1998. It was simply not open for Mr Coshott to blow hot and cold in relation to the asserted transfer of shares “as registered holder” for which (together with the transfer of $40,000 of the debt due to him under the loan agreement) he was paid $1.25 million on the spot (Verschures Creameries Ltd v Hull and Netherlands Steamship Co Ltd [1921] 2 KB 608, Grundt).

27    At trial the appellant was unrepresented. However, the exchanges with the Bench indicate that he had an acute awareness of the facts and issues and a familiarity with court procedures. He relied upon a carefully argued written submission (Blue 187). The “main thrust” of his case was that the operative date from which the option period was to be calculated did not arrive until NSWMF allotted and registered to himself 100 ordinary shares in the company, as stipulated in cl 3.2(b) (Blue 31T, 33D, 49-41, 46M, 190G, 192). It was common ground that date was 30 September 1998 (Blue 54). Mr Coshott nevertheless agreed that the allotment was effective from 28 August, but he maintained that this was not enough to satisfy cl 3.2(b) (Blue 41-43).

28    The appeal should be dismissed with costs.

29    POWELL JA: Although the basic facts which have given rise to this appeal have been set out by Giles JA in his Judgment, which I have read in draft, it seems to me that, before recording my view as to the proper approach to be taken to the questions raised on the hearing of the appeal, certain additional matters might be noted.

30 Insofar as is relevant, the Corporations Law, as at 21 August 1998, provided:

(a) that a company must maintain a register of members (s. 168);

(b) that the register of members must include:

(i) each member's name and address; and
(ii) the date on which the entry of the member's name was made (s. 169);


(c) that a person was a member of a company if he had agreed to become a member and his name was entered on the register of members (s. 246A);

(d) that, in the absence of evidence to the contrary, a register was proof of the matters shown in the register (s. 176);

(e) that, notwithstanding anything in its constitution, a company should not register a transfer of shares unless a proper instrument of transfer had been delivered to the company (s. 1091(1AA));

(f) that a person transferring shares remained the holder of the shares until the transfer was registered and the name of transferee was entered in the register of members in respect of the shares.

31    Insofar as is relevant, the Regulations of NSW Master Franchise Pty. Limited provided as follows:

"6.2 the company is not bound by or compelled in any way to recognise … any other right in respect of a share except an absolute right of ownership in the registered holder.
7.1 A person whose name is entered as a member in the register of members is entitled without payment to receive a certificate in respect of the share or shares registered as issued …
………
19.1 Subject to these regulations, 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.
19.2 An instrument of transfer referred to in regulation 19.1 shall be executed by or on behalf of both transferor and transferee.
19.3 A transferor of shares remains the holder of the shares transferred until the transfer is registered and the name of the transferee is entered in the register of members in respect of the shares.
20. The instrument of transfer must be left for registration at the registered office of the company, together with such fee (if any) not exceeding $10.00 as the directors require, accompanied by the certificate of the shares to which it relates and or 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 regulations, register the transferee as a shareholder.
21. Notwithstanding anything contained in regulation 20 above, and except as provided in Schedule 3 hereto the directors may in their sole and unfettered discretion refuse to register any transfer of a share without assigning any reason or grounds therefor."

32 Insofar as is relevant, the Duties Act 1997, which came into operation on 1 July 1998, provided as follows:

"8. Imposition of duty on certain transactions concerning dutiable property
(1) This Chapter charges duty on:
(a) a transfer of dutiable property;
……….
11. What is 'dutiable property'?
Dutiable property is any of the following:
………
(d) shares in:
(i) a NSW company;
………
33. Shares, units, derivatives and interests (marketable securities)
(1) The rate of duty chargeable on dutiable transactions in respect of marketable securities, other than marketable securities to which sub-section (2) applies, is 60 cents per $100, or part, of the dutiable value of the marketable securities.
……….
301. Registration of instruments
A person must not register in a register of legal or beneficial interests in dutiable property an instrument that effects a dutiable transaction or an instrument chargeable with duty unless:
(a) it is duly stamped, or
(b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner.
………
302. Registration of transfers of shares
(1) A corporation, company or society must not enter in its records a transfer of shares on which duty is charged under this Act or a transfer made as a consequence of a sale or purchase of shares in respect of which duty is charged under this Act unless:

(a) a transfer has been delivered to the corporation, company or society, and
(b) the transfer, including an SCH - regulated transfer, is duly stamped."

33    Although, as is apparent from what Giles JA has written in his Judgment, the bulk of the submissions on the hearing of the appeal were directed toward the questions whether the provisions of clause 3.2(b),(e) of the Shareholders Deed were satisfied on 28 August 1998, it should not be overlooked that clause 3.3 provided:

"On the Operative Date, each Shareholder will be registered as the holder of the Shares set out opposite his name below:
………"

34    It is quite clear that, as at 28 August 1998:

(a) Mr. Coshott had not, at any prior time, been registered as the holder of one hundred ordinary shares in the capital of NSW Master Franchise Pty. Limited;

(b) Mr. Coshott was not registered as the holder of fifty ordinary shares in the capital of NSW Master Franchise Pty. Limited;

(c) Principal Strategic Options Pty. Limited was not registered as the holder of fifty ordinary shares in the capital of NSW Master Franchise Pty. Limited.

35    The transfer of fifty ordinary shares in the capital of NSW Master Franchise Pty. Limited was delivered to Mr. Blake or his solicitor so that it might be stamped and then returned to Mr. Coshott or his solicitors so that it might be registered.

36    On 17 September 1998, Messrs. Blake Dawson Waldron wrote to Mr. Blake as follows:

"We enclose a copy of the share transfer which has now been stamped.
We will send the original share transfer to Corrs Chambers Westgarth for registration in the Share Register of NSW Master Franchise Pty. Limited. A Share Certificate showing your ownership of the shares will then be issued by the company. We will send you this Certificate once we receive it from Corrs.
Please contact us if you have any queries."
The copy of the share transfer accompanying that letter bears a notation indicating that it had been stamped in the sum of $7,500.00, that sum representing duty at the rate provided by s.33(1) of the Duties Act 1997 upon a consideration of $1,250,000.00.

37    In the Summons which was filed on its behalf on 18 May 1999 (RAB 1), the Respondent claimed:

"1. A declaration that the Plaintiff is entitled to recover from the Defendant; the sum of $1,290,000 pursuant to clause 13.11(a)(i)(A) of the Shareholder's Deed dated 21 August 1998 between the Plaintiff, the Defendant and NSW Master Franchise Pty. Limited ACN 083 570 941 ('the Company') ('Shareholder's (sic) Deed').
2. Specific performance of the option agreement contained in the Shareholders Deed."
and asserted (inter alia):

"A. NATURE OF THE DISPUTE
6. Pursuant to the Shareholder's Deed, the Plaintiff paid to the Defendant the sum of $1,250,000 for 50% of the shares of (sic) the Company.
7. Clause 13 of the Shareholder's (sic) Deed provided for an option whereby the Plaintiff could sell back to the Defendant the 50% shareholding according to a formula set out in that Clause and on the exercise of the option.
………
EXERCISE OF THE OPTION
20. By Notice in writing dated 29 April 1999, the Plaintiff exercised its option pursuant to clause 13.11(a)(i)(A) of the Shareholder's (sic) Deed.
21. The Defendant has wrongfully refused to perform his part of the option agreement contained within the Shareholder's Deed."

the allegations in paragraphs 20 and 21 of the Summons being put in issue by Mr. Coshott in his Defence.

It is to be noted, here, that the Respondent's claim to relief was founded on what it alleged was the due exercise of the option and not upon any alleged unconscionable conduct on the part of Mr. Coshott.

38    The hearing before Hunter J was conducted upon the basis of an agreed Statement of Facts (BAB 53-55) and an agreed Bundle of Documents, no oral evidence being tendered on the part of either Mr. Coshott or the Respondent.

39    Before the hearing commenced senior counsel then appearing for the Respondent had delivered to Hunter J an Outline of Argument (BAB 182-186) which contained the following:

"1. The Plaintiff claims a declaration and specific performance of an option agreement, damages for breach of contract, interest and costs.
2. In paragraph 20 of his Defence the Defendant has denied that the plaintiff has properly exercised the option.
3. The Defendant has filed a Cross-Claim claiming damages for breaches by the Plaintiff of the various agreements.
THE ISSUES
4. The Plaintiff is not pursuing its claim for damages as originally claimed in paragraphs 22 to 25 of the Summons.
5. The only issues remaining on the pleadings are:
5.1 whether or not the Plaintiff has properly exercised the option in 13.11 of the Shareholders Deed: Bundle p15.22;
5.2 The Defendant's Cross-Claim for breach of contract.
THE EXERCISE OF THE OPTION
………
11. There are five conditions set out in clause 3.2 of the Shareholders Deed. There is no dispute that four of them were satisfied on 28 November 1998. The dispute relates to the fifth condition, clause 3.2(e).
12. Clause 3.2(e) stipulates as a condition 'Coshott transferring to PSO 50 shares [in the Company] and $40,000.00 of the debt due to Coshott under the Loan Account for a consideration of $1,250,000.'.
13. There appears to be no dispute that the debt of $40,000.00 was transferred by the Defendant to the Plaintiff on 28 August 1998. The dispute is as to whether the Plaintiff (sic) transferred to the Defendant (sic) 50 shares in the Company on 28 August 1998. The Defendant apparently says that the shares were transferred, within the meaning of clause 3.2(e), on 30 September 1998, the date upon which a clerk entered in the company's Register of Members the Plaintiff as the holder of the 50 shares.
………
15. The Plaintiff contends that the Operative Date was 28 August 1999 (sic) and that the Option Date was therefore 28 April 1999 because, on the true construction of Clause 3.2(e) of the Shareholders Deed, the date of 'Coshott transferring to PSO 50 shares' means the date upon which the Defendant does all that is necessary for him to do in order to:
15.1 vest an immediate equitable title in the Shares in the Plaintiff; and
15.2 put the Plaintiff in the position whereby it will become the registered holder of the Shares.
………
17. Accordingly, on 28 August 1998 the Defendant had transferred the Shares to the Plaintiff within the meaning of clause 3.2(e) in that he had done all that was necessary for him to do to vest an immediate equitable title to the shares in the Plaintiff and to put the Plaintiff in the position whereby it would become the registered holder of the shares."
while in the Written Submissions which he provided to Hunter J before the commencement of the hearing (BAB 187-195), Mr. Coshott submitted (inter alia):

"The defendant submits that satisfaction of clause 3.2(e) requires that the transfer of the shares be registered and the plaintiff's name entered in the register as the holder of those shares. In support of this submission, the defendant relies on the statutory provisions as set out above, the provisions of the Company's Constitution set out above and the provisions of the Shareholders Deed set out above. In addition, the defendant relies on clause 3.3 to support this submissions.
The defendant submits that the evidence shows that it was not until, at the earliest, 31 August, 1998, in a position to transfer any title in the shares to the plaintiff. For, the 'allotment' was not registered until then, at the earliest.
The plaintiff submits that clause 3.2(e) is satisfied by the defendant vesting equitable title in the shares in the plaintiff in putting the plaintiff in the position whereby it will become the registered holder of the shares. This submission overlooks the plaintiff's obligations to stamp and register the transfer under the Shareholders' Deed and under the legislation set out above. It also overlooks the statutory provisions on registration set out above and the Constitution of the Company which form part of the Shareholders Deed. Further, it overlooks clause 3.3 of the Shareholders Deed."

40    The Written Submission which were provided on behalf of the parties prior to the commencement of the hearing before Hunter J and the transcript of the hearing before Hunter J make it clear that the principal issue which was debated on that hearing was whether, upon the proper construction of the Shareholders Deed and in the events which happened, the conditions set out in clause 3.2 of the Shareholders Deed were satisfied by what took place on 28 August 1998 so that that date became the "Operative Date". In these circumstances, and notwithstanding that, on the hearing of the appeal there was some discussion as to whether or not Mr. Coshott's conduct ought to be regarded as having been unconscionable, it seems to me that it would not be proper for this Court to determine the fate of this appeal on any basis other than that upon which the hearing before Hunter J was conducted.

41    Although, as is apparent from what I have written above, on the hearing before Hunter J Mr. Coshott had submitted (inter alia) that the provisions of clause 3.2(e) had not been fulfilled on 28 August 1998, on the hearing of the appeal Mr. Coshott's submissions were directed primarily to what was said to have been the non-fulfilment of clause 3.2(d) on 28 August 1998.

42    It seems to me, however, that, if one directs one's attention solely to the provisions of clause 3.2, one is adopting too narrow an approach to the question of that clause's proper construction.

43 While, if it be proper to say that the words of a particular provision, or of particular provisions, in a written instrument are plain and unambiguous, the Court is not authorised to depart from the intention thus revealed, the task of the Court called upon to construe a written instrument is, first, to seek to discern the real intention of the draftsman, and, then, so to construe the instrument as, if it be possible, to make a consonant whole giving effect to the intention thus discerned. While it may be said that, given the provisions of the Corporations Law and of the Regulations of NSW Master Franchise Pty. Limited to which I have earlier referred, the word "registering" - particularly when used in conjunction with the word "allotting" - appearing in clause 3.2(b) clearly required not merely that the Board had resolved to allot one hundred ordinary shares in the capital of NSW Marketing Franchise Pty. Limited to Mr. Coshott but also that the appropriate entries had been made in the company's register of members, the provisions of clause 3.2(e) and of clause 3.3 provide support - if support be needed - for that view, for, unless he had first been registered as the holder of those shares, Mr. Coshott would not have been able effectively to transfer fifty of those shares to the Respondent so that, on "the Operative Date" both he and the Respondent would be registered as the holder of fifty of those shares.

44    This being so, I agree with Giles JA's conclusion that "the Operative Date was 30 September 1998, it following that the option was not validly exercised by the Respondent.

45    I agree with the Orders proposed by Giles JA.

46    GILES JA: This is an appeal from a decision of Hunter J given on 28 March 2000, by which the appellant Mr Robert Coshott was ordered to pay the respondent Principal Strategic Options Pty Ltd (“PSO”) $1,250,000 plus interest. Only one matter was argued on appeal, and other matters in issue before his Honour or raised in the notice of appeal fell away.

The issue on appeal

47    Mr Coshott was the sole director of and beneficial shareholder in NSW Master Franchise Pty Ltd (“the Company”). It was proposed that the Company acquire from Schlotzsky’s Australasia Pty Ltd (“Schlotzsky’s”), of and in which Mr Coshott was also the director and beneficial shareholder, the right to franchise the use of a “system” and associated intellectual property for the conduct of Schlotzsky’s Restaurants in New South Wales and the Australian Capital Territory.

48    A deed dated 21 August 1998 (“the Shareholders Deed”) made provision for PSO, a company controlled by Mr Andrew Blake, to become an equal shareholder with Mr Coshott in the Company. It seems that the shares in the Company to which Mr Coshott was beneficially entitled were two redeemable preference shares held by the subscribers, and that it was intended that those shares be redeemed, that 100 ordinary shares be issued to Mr Coshott, and that Mr Coshott transfer to PSO 50 of the ordinary shares and assign to it $40,000 of $80,000 to become due from the Company. In consideration of the shares and the debt PSO would pay $1,250,000 to Mr Coshott.

49    Clause 3.2 of the Shareholders Deed stated these and some other steps as conditions precedent, and cl 3.3 stated the result. The clauses read -

“ 3.2 Conditions precedent
The obligations of the Shareholders under this document shall be conditional on the following conditions having been satisfied:

(a) the Company redeeming the Shares issued to the initial subscribers of the Company;

(b) Coshott paying to the Company a total of $100 for and the Company allotting and registering to Coshott 100 ordinary shares in the Company;

(c) the Company entering into a final and binding Area Development Licence Agreement with Schlotzsky’s Australasia Pty Ltd;

(d) Coshott advancing to the Company $80,000 and the Company paying $80,000 to Schlotzsky’s Australasia Pty Ltd as the Area Development Fee; and

(e) Coshott transferring to PSO 50 Shares and $40,000 of the debt due to Coshott under the loan agreement for a consideration of $1,250,000.

Each Shareholder shall use its best endeavours to secure the fulfilment of the conditions set out in paragraphs (a) to (e) of this clause 3.2 by a date which is five Business Days after the date of this document (“Termination Date”). If the conditions or any of them are not fulfilled by the Termination Date then either Shareholder may terminate this document by notice in writing given to the other whereupon this document shall be at an end and neither Shareholder shall have any claim against the other (except in respect of a Shareholder’s failure to use best endeavours as required by this clause).
3.3 Shareholding on the Operative Date
On the Operative Date, each Shareholder will be registered as the holder of the Shares set out opposite his name below:

Shareholder	Number of Shares	Relevant Proportion
Coshott	50	50%
PSO	50	50%

50    In the definitions clause in the Shareholders Deed “Shareholder” was defined to mean each of Mr Coshott and PSO. “Area Development Licence Agreement” was defined to mean an agreement between the Company and Schlotzsky’s “in respect of the franchising of certain restaurants in New South Wales dated on or about the date of this agreement”. “Operative Date”, in the manner to be explained the crucial concept in the appeal, was defined to mean the later of the date of commencement of the Area Development Licence Agreement (“the ADLA”) and the date the conditions set out in cl 3.2 were satisfied.

51    In cl 13.11 of the Shareholders Deed Mr Coshott granted to PSO a put option to sell to him its shares in the Company and the balance, if any, of the debt of $40,000 referred to in cl 3.2(e). Clause 13.11 provided -

“ 13.11 Aggregate Fee Purchase
(a) If, on the Option Date:

(i) the Company has not become entitled to receive an amount of $2,500,000 in Aggregate Fees; or

(ii) a franchise agreement has not been executed between the Company and Schlotzsky’s Australasia Pty Ltd for the franchise of a Schlotzsky’s training restaurant in the Sydney metropolitan area,
Coshott hereby grants PSO an option to sell to Coshott the PSO Shares and the balance, if any, of the debt of $40,000 referred to in clause 3.2(e), for a purchase price calculated as follows:
(A) in the event of sub-clause (i) above,
P = $1,250,000 - AF
2

where P - purchase price for PSO Shares
and balance debt and

AF - Aggregate Fees, and

(B) in the event of sub-clause (ii) above, the Fair Market Value of the PSO Shares on the Option Date.
(b) Where:
(i) clause 13.11(a)(ii) applies, the option may be exercised by PSO at any time after the Option Date and prior to the date one month after the Option Date;
(ii) clause 13.11(a)(i) applies, the option may be exercised by PSO at any time after the Option Date and before the later of (A) one month after the date on which Coshott gives to PSO written particulars of the Aggregate Fees received by the Company prior to the Option Date, and (B) the date one month after the Option Date;
in either case by PSO giving to Coshott a notice of exercise of option duly executed by PSO.

(c) For the purposes of this clause 13.11 the Company shall provide to PSO details of the Aggregate Fees on or before the Option Date.”

52    “Aggregate Fees” was defined in the definitions clause to mean the total fees of two kinds to which the Company was entitled “in the period from the Operative Date to the Option Date under the terms of each franchise agreement entered into by the Company during that period”, with specific statement of when the Company was entitled to a fee. Under the Shareholders Deed more shares could be issued to Mr Coshott and PSO, and “PSO Shares” was defined to mean all the shares registered in the name of PSO or of which PSO was the beneficial owner on the Option Date. “Option Date” was defined to mean the date eight months after the Operative Date.

53    On 12 April 1999 Mr Coshott sent a fax to PSO stating that total revenue to that date from granting sub-franchises in New South Wales was nil. It was common ground that as at 12 April 1999, and indeed at all material times thereafter, the Company had not become entitled to receive any Aggregate Fees. On 29 April 1999 PSO purported to exercise the option in reliance on cl 13.11(a)(i).

54    Mr Coshott’s contentions before Hunter J included that 29 April 1999 did not fall within the period stated in cl 13.11(b)(ii) during which the option could be exercised, because the Option Date had not arrived. The ADLA had been entered into, and had commenced, on 28 August 1998. The date of exercise of the option, 29 April 1999, was one day more than eight months after the date of commencement of the ADLA. But if the conditions in cl 3.2 of the Shareholders Deed were satisfied at a later date than 28 August 1998, then the later date was the Operative Date and the eight months ran from the later date. Mr Coshott contended that the conditions in cl 3.2 of the Shareholders Deed were not satisfied until 30 September 1998, because only on that date did there occur “the Company … registering to Coshott 100 ordinary shares in the Company” as required by cl 3.2(b), so that the Option Date was 30 May 1998 or 1 June 1998

55    Neither this contention nor Mr Coshott’s other contentions were accepted by Hunter J. Mr Coshott repeated this contention on appeal. He put his argument as an Option Date later than 29 April 1998 vitiating the exercise of the option, but it may be that it would also vitiate the ground for the exercise of the option in reliance on cl 13.11(a)(i), as an argument that it could not be said as at 29 April 1998 that the Company had not become entitled to receive an amount of $2,500,000 in Aggregate Fees “on the Option Date”.

56    This issue on appeal, then, was whether the Operative Date should be held to have been not 28 August 1998 but 30 September 1998.

Allotment and registration of shares

57 A meeting was held at the offices of Corrs Chambers Westgarth (“Corrs”), the solicitors for the Company and Mr Coshott, late on 28 August 1998. It was attended by Mr Coshott, Mr Blake and their legal representatives. Minutes recorded business transacted and resolutions by Mr Coshott as sole director of the Company pursuant to s 248B of the Corporations Law.

58    Mr Coshott signed an application for two ordinary shares in the Company and another application for 98 ordinary shares in the Company. Both applications were dated 28 August 1998. According to the minutes, an application for 98 ordinary shares on which a purchase price of $1 per share had been paid was tabled, and it was resolved -

“… that shares be allotted to Robert Coshott in accordance with the Application for Shares and that the appropriate entries in the Register of Members of the Company be made.
FURTHER RESOLVED that the Australian and Investments Securities Commission [sic] be notified of the allotment of shares in the capital of the Company pursuant to the Corporations Law.”
There was no similar resolution in relation to the application for two ordinary shares in the Company.

59    A transfer of 50 shares in the Company from Mr Coshott to PSO for a consideration of $1,250,000 was signed by Mr Coshott as transferor and on behalf of PSO by Mr Blake, and was dated 28 August 1998. According to the minutes -

“ SHARE TRANSFERS A share transfer form for the transfer of 50 ordinary shares in the capital of the Company from Robert Coshott to Principal Strategic Options Pty Ltd (“Share Transfer”) was tabled.
RESOLVED that subject to stamping, the Share Transfer be approved for registration in the Register of Members of the Company.
SHARE CERTIFICATES RESOLVED that Share Certificate No 2 be issued to Robert Coshott under the common seal of the Company certifying that he is the holder of 98 ordinary shares in the capital of the company.
FURTHER RESOLVED that Share Certificate No 3 be issued to Principal Strategic Options Pty Ltd under the common seal of the Company certifying that it is the holder of 50 ordinary shares in the capital of the Company.
FURTHER RESOLVED that Share Certificate No 2 in the name of Robert Coshott be cancelled and that Share Certificate No 4 be issued to Robert Coshott under the common seal of the Company certifying that he is the holder of 48 ordinary shares in the capital of the Company.”

60    The minutes then recorded resolutions ratifying the entry into the Shareholders Deed and approving entry into the ADLA. It was resolved that Mr Blake be appointed as a director of the Company effective from the date on which his consent so to act was received. The evidence included a form of consent to act as director dated 28 August 1998, but the appeal papers did not reveal whether it was signed by Mr Blake or received by the Company on that date.

61    At the time of the meeting a notification to the Australian Securities and Investments Commission (“ASIC”) of allotment of the 98 shares in the Company to Mr Coshott was signed by Mr Coshott and dated 28 August 1998. On 31 August 1998 Mr Severino, a solicitor employed at Corrs, sent the notification to ASIC.

62    Between 17 and 30 September 1998 the stamped transfer of the 50 shares from Mr Coshott to PSO was sent to Corrs. On 30 September 1998 Mr Severino made entries in the register of members of the Company recording -

(a) allotment of two ordinary shares to Mr Coshott, the date of allotment being shown as 24 July 1998;

(b) allotment of 98 ordinary shares to Mr Coshott, the date of allotment being shown as 28 August 1998; and

(c) the transfer of 50 shares to PSO, the transfer date being shown as 28 August 1998.

Contrary to the requirements of s 169(1)(b) of the Cororations Law, the register did not provide for recording the date on which the entries of the member’s name in the register was made, and no such dates were recorded.

63    On 1 October 1998 Mr Severino created a computer generated updated register of the Company which included PSO as the holder of the 50 shares.

64    On or about 9 October 1998 a share certificate for the 50 shares was sent to PSO. It was expressed to be given under the common seal of the Company on 28 August 1998, and was signed by Mr Coshott as sole director/secretary. The appeal papers were silent as to any other share certificates.

Discussion

65    No separate argument was directed to whether the two shares in the Company were regularly allotted. The reason for the date 24 July 1998 is unclear, but whatever Mr Severino may have had in mind it seems to have been accepted in the proceedings that, if cl 3.2(b) was satisfied as to the 98 shares, there was no separate question as to the two shares.

66 Mr Coshott submitted that “registering” in cl 3.2(b) meant, according to normal usage, entering in the Company’s register of members, and that the condition precedent was not satisfied until 30 September 1998. He said that registering was stated as a separate act from allotting, and pointed to the many provisions in the regulations part of the Company’s constitution and in the Corporations Law for which registration of an allotment or transfer of shares was a necessary or material event, including that the Company was only obliged to recognise a registered shareholder. Anticipating one of PSO’s arguments, he said that referring to registration in the Shareholders Deed did not invite the uncertainty of when a clerical act was carried out, because if s 169(1)(b) of the Corporations Law were obeyed the date of registration would be known.

67    PSO’s response took three forms: addressing the meaning of “registering” in cl 3.2(b); addressing the meaning of “satisfied” in the definition of Operative Date; and challenging Mr Coshott’s entitlement to assert an Operative Date later than 28 August 1998.

68    First, PSO submitted that “registering” in cl 3.2(b) had to be given effect as part of the Shareholders Deed as a whole, and did not mean compliance with the clerical necessities of registration. Rather, it was said, it meant doing sufficient to legally bind the Company to allot and register the shares to Mr Coshott, to ensure that in a practical sense Mr Coshott had 100 ordinary shares in the Company some of which he could then sell to PSO. It was sufficient that it had been resolved not only to allot shares to Mr Coshott, but also “that the appropriate entries in the Register of Members of the Company be made” and that a share certificate be issued to Mr Coshott. If satisfaction of the condition required compliance with the clerical necessities of registration, the parties would be exposed to uncertainty of when registration occurred, and should not be taken to have intended what was described as an uncommercial position.

69 I do not think that this can be accepted, in the face of the clear words on which Mr Coshott relied. The resolution that the shares be allotted and appropriate entries made did not constitute registration of Mr Coshott as shareholder, and did not ensure that he had shares to sell to PSO. The uncertainty argument is of little weight when the parties must be taken to have contracted in the knowledge of s 169(1)(b) of the Corporations Law, and the best endeavours obligation in cl 3.2 showed that the parties wanted no less than full satisfaction of the conditions precedent.

70    Secondly, PSO submitted that in determining when the condition in cl 3.2(b) was satisfied, as a matter of construction of the Shareholders Deed satisfaction within the meaning of the definition of Operative Date could occur otherwise than by actual entry in the register of members. It was said that it was sufficient that Mr Coshott and PSO treated the relevant condition as satisfied, and that they had treated it as satisfied as at 28 August 1998. PSO relied on the signing by Mr Coshott of the share transfer on 28 August 1998, saying that this presupposed that he was a shareholder and amounted also to satisfaction of the condition in cl 3.2(e), and in particular on the statement in the share transfer that Mr Coshott transferred the shares “as registered holder”. PSO submitted -

“What is very plain is that the principal object which they were working towards, which is the precondition in (e) was certainly satisfied and Mr Coshott got the $1.25 million, an event which could only have been satisfied if he in turn transferred 50 shares, an event which in turn could only be satisfied if he had been effectually and lawfully entitled to an allotment and registration of an allotment of the 100 shares, he having only up to this time two previous shares, and if none of those things had happened, then the transaction which the parties gave effect to could not have happened.”

71    Hunter J’s reasons included the sentence, “Clearly as at 28 August 1998 the company, Coshott and Strategic treated Strategic as being a shareholder of the company pursuant to the performance of conditions stipulated in cl 3.2(b) and (e) of the shareholders deed”. I do not think that what Hunter J said involved a finding that Mr Coshott and PSO treated cl 3.2(b) as satisfied as at 28 August 1998, or that the other matters on which PSO relied warranted such a finding. But in any event I do not think that satisfaction within the meaning of the definition of Operative Date could occur by something less than, in the words of cl 3.2, securing fulfilment of the conditions in the paragraphs of that clause. Mr Coshott and PSO were obliged to use their best endeavours to secure fulfilment of the conditions, and the Shareholders Deed could be terminated if any of the conditions was not fulfilled within five business days. As a matter of construction of the Shareholders Deed, there was no room for satisfaction by anything less than actual registration, that is, entry in the register of members.

72    Treating the condition in cl 3.2(b) as satisfied arose again in one way PSO’s third submission was put, and it is convenient to deal with it now.

73    Neither the signing of the share transfer on 28 August 1998 nor, in the circumstances, the statement in the share transfer that Mr Coshott transferred the shares “as registered holder” amounted to treating the condition as satisfied as at 28 August 1998. As both Mr Coshott and Mr Blake must have known, when the share transfer was signed Mr Coshott was not registered as the holder of the 100 shares. The resolution that the appropriate entries be made so indicated, and the appropriate entries were not made in the course of the meeting, so the share transfer was in anticipation of, and subject to, registration of Mr Coshott as the holder of the shares whereupon the transfer of the shares as registered holder would come into effect. Whenever Mr Coshott “got the $1.25 million”, and the evidence did not disclose when the money was paid, the condition in cl 3.2(e) was satisfied only to the extent that the share transfer was signed and handed over, and the parties “gave effect” to “the transaction” as at 28 August 1998 short of registration of Mr Coshott as the holder of the shares. That neither of them exercised the right of termination does not mean that they treated all conditions as fulfilled.

74    I do not think that Hunter J had in mind the matters on which PSO relied when he referred to the parties treating PSO as being a shareholder of the Company. Seen in the context of his Honour’s reasons, Hunter J was saying that, because the Shareholders Deed gave to each “Shareholder” a right to appoint a person to be a director and Mr Blake was conditionally appointed as a director, PSO was recognised as having the status of a shareholder. With respect, I consider that the reasoning is erroneous, because the entitlement to appoint a director was conferred upon PSO as a “Shareholder” as defined not as a holder of shares.

75    Thirdly, PSO submitted that Mr Coshott was not entitled to assert an Operative Date later than 28 August 1998, because he and PSO had treated cl 3.2(b) as satisfied as at that date and alternatively because he had been obliged to use his best endeavours to bring about registration no later than 28 August 1998 and could not take advantage of his failure to do so. Estoppel by convention or unconscionable conduct could arguably provide the legal basis for the first way in which the submission was put, but the necessary factual foundation is absent. Although they were not referred to, the second way in which the submission was put could arguably be founded on the line of cases in which New Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France (1919) AC 1 at 9 and Alghussein Establishment v Eton College (1988) 1 WLR 587 at 591-4 are prominent, but there was no finding and it is not self-evident that, had Mr Coshott used his best endeavours to bring about his registration as holder of the 100 shares, cl 3.2(b) would have been satisfied no later than 29 August 1998.

76    As is apparent from the transcript of the hearing before Hunter J, the reality is that the parties did not direct their attention to the factual questions of any conduct of Mr Coshott and PSO treating cl 3.2(b) as satisfied as at 28 August 1998 or of failure by Mr Coshott to secure the fulfilment of that condition. It would be wrong to uphold PSO’s submission, in either of the ways it was put, when its factual foundation was not litigated at the trial and evidence bearing upon it might have been brought if the matters had been in issue.

77    It is well established that, whether an option is no more than an offer to make a contract or a conditional contract which may be made unconditional, if it prescribes a time and manner for exercise of the option a purported acceptance at some other time or in some other manner is ineffective. This was not in dispute in the appeal. The purpose of cl 13.11 was to enable PSO to withdraw from its involvement in franchising Schlotzsky’s Restaurants, and to recover its $1,250,000, if at the end of a designated period the franchising had not been successful. If Mr Coshott’s contention be accepted, he will keep the $1,250,000 and PSO will be left with shares which are presumably of little value. I nonetheless find myself constrained to the conclusion that the Operative Date was 30 September 1998, and that in the manner the proceedings were conducted it must be held that the purported exercise of the option prior to the Option Date was ineffective.

Orders

78    The appeal should be allowed. The orders made by Hunter J on 28 March 2000 should be set aside, and in lieu thereof the summons should be dismissed. PSO should pay Mr Coshott’s costs of the trial and of the appeal and have a certificate under the Suitors Fund Act if qualified.

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