Green v Bolton

[1999] QCA 268

IN THE COURT OF APPEAL	99.268
SUPREME COURT OF QUEENSLAND

Appeal No. 2826 of 1999

Brisbane

[Green v Bolton & Ors]

BETWEEN:

BARRY GREEN and ERICA MAUD GREEN

(Applicants) Appellants

AND:

HARRY MACKAY BOLTON and VALERIE GLENDA BOLTON as trustees for the BOLTON FAMILY TRUST, BINBEX PTY LTD (ACN 010 744 395) as trustee for the BINBEX UNIT TRUST, TRILBY HOLDINGS PTY LTD (ACN 010 014 856) as trustee for the TRILBY HOLDINGS TRUST, TARYN PJH PTY LTD (ACN 009 773 577) as trustee for the PAUL HAURITZ DISCRETIONARY TRUST

(Respondents)	Respondents
de Jersey CJ Pincus JA Thomas JA

Judgment delivered 20 July 1999

Separate reasons for judgment of each member of the Court, each concurring as to the orders made.

APPEAL DISMISSED, SAVE THAT PARAGRAPH (a) OF THE DECLARATION MADE
BELOW ON 10 MARCH 1999 BE VARIED BY ADDING, AFTER THE WORDS
"SHAREHOLDER ENTITLEMENTS", THE WORDS "(SAVE FOR THE $25, 000
DIVIDEND PAYMENT INSTALMENT DUE ON 1 JULY 1999)".
APPELLANTS TO PAY RESPONDENTS' COSTS OF AND INCIDENTAL TO THE
APPEAL TO BE TAXED.

CONSTRUCTION AND INTERPRETATION OF CONTRACTS - contract for sale of shares - provision that sale complete upon payment of share purchase price and employee and shareholder entitlements - provision for adjustment of such entitlements - whether contemplated adjustments of temporary or permanent nature - whether relevant clause should be read down.

Australian Broadcasting Commission v Australasian Performing

Rights	Association Ltd (1973) 129 CLR 99
Counsel:	Mr H B Fraser QC, for the appellants Mr R J Douglas SC, with him Mr. PE Hack, for the respondents
Solicitors:	M F Lyons & Associates for the appellants Bowdens Lawyers for the respondents
Hearing Date:	9 June 1999

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2826 of 1999

Brisbane

Before de Jersey CJ
Pincus JA
Thomas JA

[Green v. Bolton & Ors]

BETWEEN:

BARRY GREEN and ERICA MAUD GREEN

(Applicants) Appellants

AND:

HARRY MACKAY BOLTON and VALERIE GLENDA BOLTON as trustees for the BOLTON FAMILY TRUST, BINBEX PTY LTD (ACN 010 744 395) as trustee for the BINBEX UNIT TRUST, TRILBY HOLDINGS PTY LTD (ACN 010 014 856) as trustee for the TRILBY HOLDINGS TRUST, TARYN PJH PTY LTD (ACN 009 773 577) as trustee for the PAUL HAURITZ DISCRETIONARY TRUST

(Respondents) Respondents

REASONS FOR JUDGMENT - de JERSEY CJ

Judgment delivered 20 July 1999

1                The appellants, Mr and Mrs Green, entered into an (undated) agreement in writing to sell

their shares in the company Automatic Control Company Pty Ltd to a number of natural persons and

corporations. The purchasers are the respondents to this appeal. The agreement provided also for

Mr and Mrs Green’s relinquishing control of the company to the respondents. The parties disagreed

as to the proper construction of those parts of the agreement which determined the amount payable

by the respondents, and Mr and Mrs Green brought a construction summons before a chamber

judge. They now appeal against the declarations made by that learned judge.

2                It is a comprehensive agreement comprising 16 foolscap size typed pages of terms, together

with five schedules and a number of attachments. Mr and Mrs Green agreed to sell their two shares

(clause 1.1), being the only issued shares in the company, for “the purchase price” set out in clause

1.2. Clause 1.2 provided that the completion of the sale should occur “upon payment ... of the

balance of the share purchase price and of the employee entitlements and of the shareholder

entitlements”. Each of Mr and Mrs Green was to be paid $42,500 for his or her share - by the

payment of a total of $80,000 on or before 30 June 1996 and $5,000 on or before 1 July 1999.

30 June 1996 was termed as the “commencement date”. On that date, in exchange for that

aggregate sum of $80,000, Mr and Mrs Green were to secure the appointment of four more

directors, but with Mrs Green retiring; and the articles of association of the company were to be

amended to ensure that neither Mr nor Mrs Green could be governing director.

3                The “completion date” was defined (clause 21.1) as 1 July 1999 or any earlier date by which

Mr and Mrs Green may have been paid “the whole of the share purchase price, the employee

entitlements and the shareholder entitlements”. Title to the shares was to be transferred on the

completion date.

4                The issue in the case principally concerns employee entitlements and shareholder

entitlements. Part 2 of the agreement, which includes clauses 5 and 6, covers the latter. It records

an acknowledgement of a debt owed by the company to Mr and Mrs Green in the amount of

$123,772, to be paid in three instalments by, respectively, 31 August 1996, 30 June 1997 and 30

June 1998. Further, the company was to pay dividends “from available profits” totalling $176,228,

by quarterly instalments during the year ending 30 June 1998, and the year ending 1 July 1999.

5                The employee entitlements are provided for by Part 3, which includes clauses 7 and 8. The

company was to continue to employ Mr and Mrs Green, paying salary and superannuation

contributions. Mr Green was to be paid retirement benefits totalling $627,800, in four instalments

by, respectively, 31 March 1997, 30 June 1997, 30 June 1998 and 30 June 1999.

6                Part 4 is headed “Funding of Entitlements ...”. Clause 9.1 obliges the purchasers jointly to

contribute, by way of loan to the company, the moneys necessary to allow the company to pay Mr

and Mrs Green their shareholder entitlements and employee entitlements. There was an entitlement

in the Greens to terminate should the purchasers default in their obligation to make such

contributions, in which event there was provision for retransfer of the shares as necessary.

7                Part 5 confirms that Mr and Mrs Green’s entitlements “by way of share purchase price,

shareholder entitlements and employee entitlements” are those set out in schedule 2 to the agreement.

Schedule 2 contains a summary of the amounts payable by reference to dates, chronologically. By

clause 11.2, Mr and Mrs Green acknowledge that upon payment of the share sale price, the

shareholder entitlements and the employee entitlements, they would have no further claim against the

company.

8                Mr Fraser QC, who appeared for the appellants, emphasised the apparently absolute terms

in which those entitlements are, to this point in the agreement, accorded. The issue between the

parties is created by Part 5, especially clauses 12.1 and 12.2, which should be set out in full:

“PART 5 - ADJUSTMENTS IF REDUCTION IN PROFITABILITY, LOSS OF
ACUTHERM DISTRIBUTORSHIP

12         Adjustments if reduction in profitability

12.1 In the event that the profits of the Company (calculated adopting the same accounting policies as have been used in the Accounts, and subject to that according to accepted accounting principles and making all proper provisions and adjusting for abnormal and extraordinary items, but before deducting as an expense any of the Employee Entitlements provided for in Part 3 and any additional costs

incurred by reason of the sale and purchase provided for in this Agreement including premiums on the life policy for Mr Green) in any of the three years ending 30 June 1997, 30 June 1998 or 30 June 1999, fall below $250,000.00, then the amount payable by the Company to Mr Green and Mrs Green on account of the Shareholder Entitlements provided in Part 2 (and if necessary the Employee Entitlements provided in Part 3) shall be reduced, so that the total of the Shareholder Entitlements and the Employee Entitlements payable in that year shall not exceed the amount of the adjusted profit figure for that year.

12.2 If any reduction is made in any year pursuant to clause 12.1 above, then the amount of the reduction shall be payable in the next year, or the year after that, to the extent that the profits in that next year or that year after exceed $250,000.00”

9                To understand the significance of those provisions, one should first note that all parties

agreed to use their best endeavours to maintain the profitability of the company until completion

(clauses 15.1 and 15.4). The issue between the parties arising from clause 12 is, essentially, whether

the contemplated adjustments were of temporary application, regulating the extent of the obligation

to pay “on account” of the entitlements, in the years up to the completion date of 1 July 1999,

subject always however to an overriding obligation to pay out the full amount of the entitlements by

that date; or whether alternatively, and as found by the learned judge, they could operate to reduce,

permanently, the amount payable to Mr and Mrs Green in respect of these entitlements. The judge

considered that clause 12 should be treated “as having a general overriding or qualifying operation”

on the earlier clauses which, taken alone, would have accorded an absolute entitlement to the

specified amounts, without reduction. Hence the declarations the judge made:

“That on the proper construction of the agreement referred to in the summons -

(a)         the moneys payable on the completion date in respect of Employee Entitlements and Shareholder Entitlements may be varied by operation of clauses 12.1 and 12.2;

(b)        clause 11.2 of that agreement does not operate to prevent the applicants from claiming or recovering after the completing (sic) date any part of the Shareholder Entitlements or the Employee Entitlements which may become payable after the completion date by operation of clauses 12.1 and 12.2 of the said agreement.

(c)         the completion date of the agreement is 1 July 1999

10              For ease of reference, Schedule 2 to the agreement follows:

“ SCHEDULE 2

Summary of payments to Mr Green and Mrs Green, year by year

Date	Nature of Payment	Amount $	Amount $
(not later than)	(in period)

1.7.96	Deposit upon shares	$80,000.00	by 1.7.96	$80,000.00
31.8.96	Repayment of loan account	$50,000.00
31.3.97	Long service leave payment, Mr Green	$100,000.00
Monthly from	Superannuation contributions for Mrs Green	$67,200.00
1.7.96 to 1.2.97	of $8,400.00
30.6.97	Retirement benefit for Mr Green and Mrs	$67,800.00
Green ($135,000.00 - $67,200.00 super)
30.6.97	Repayment of loan account	$50,000.00	year ending	$335,000.00
30.6.97
30.6.98	Repayment of loan account (balance)	$23,772.00
($123,772.00 - $50,000.00 - $50,000.00)
quarterly year	Dividend payment ($200,000.00 -	$76,228.00
ending 30.6.98	$123,772.00)
30.6.98	Retirement benefit for Mr Green (in lieu of	$140,000.00
superannuation)
30.6.98	Retirement benefit for Mr Green	$85,000.00	(year ending	$325,000.00
30.6.98)
30.6.99	Retirement benefit for Mr Green	$85,000.00
30.6.99	Retirement benefit for Mr Green (in lieu of	$150,000.00	(year ending	$235,000.00
superannuation)	30.6.99)
Quarterly year	Dividend payment	$100,000.00
ending 1.7.99
Balance of payment for shares	$5,000.00	(by 1.7.99)	$105,000.00
TOTAL	$1,080,000. 00"

11              It will be seen that clause 12.1, taken alone, contemplates the possibility of lesser amounts

than those specified in the schedule being paid, in any of the three years to 30 June 1999, if the

company’s annual profitability should fall below $250,000. As Mr Fraser stressed, the amount

payable in the particular year “on account of” the requisite entitlement would then be reduced. This

fitted well, he submitted, with the clear and absolute terms in which the agreement earlier confirms

those entitlements.

12              The difficulty in his argument is created by clause 12.2, which contemplates that should a

reduced amount be payable in, say, the year ended 30 June 1999, then “the amount of the reduction

(should) be payable in (the year ended 30 June 2000) ... to the extent that the profits in that ... year

... exceed $250,000". Does this imply that if the extent of the reduction cannot thereby be

“recouped”, in practical terms, Mr and Mrs Green’s entitlements are to be taken effectively to have

been permanently reduced? Emphasising the specified “completion date” of 1 July 1999, Mr Fraser

submitted that clause 12.2 should be read down, making it subject to an overriding obligation to

complete on 1 July 1999 and not later, and to pay by then the full shareholder and employee

entitlements referred to in Schedule 2 without reduction. In a situation where the company’s

profitability in the year ended 30 June 1999 fell below $250,000, Mr Fraser submitted, as the only

operation of clause 12 upon the obligation to pay, ultimately, the full amount of the specified

entitlements, a deferment to 1 July 1999 (being the specified completion date).

13              One must read the agreement as a whole, seeking to discern the parties’ intent, where

possible rendering the provisions “all harmonious one with another” (Australian Broadcasting

Commission v Australasian Performing Right Association Ltd (1973) 129 C.L.R. 99, 109).

It is possible to do that here, by reading Part 5 as providing for the possible reduction in the

entitlements elsewhere expressed. That was of course the approach of the learned chamber judge.

14              Mr Fraser’s submission cannot readily accommodate the need, in the event of profits of less

than $250,000 in the year ended 30 June 1999, to look to profitability in the year ended 30 June

2000 to determine whether the amount of the reduction might then be recouped. To overcome that

hurdle, he sought, as he put it, to “read down” clause 12. But the necessary modification to the

clause would do it too much violence. His emphasis on 1 July 1999 as an immutable completion

date sits uncomfortably with the point just made, as it does with other provisions of the agreement

which contemplate a continued life beyond that date - for example, clause 9.2.4 which provides for

the possible retransfer of shares back to Mr and Mrs Green. The commercial explanation for the

scheme appears to be the parties’ reliance on continued profitability of the company to the specified

level for the three years preceding the specified completion date, with the parties being obliged “to

use their best endeavours” to that end (clause 15), there being a mechanism then under clause 12

effectively to reduce the vendor’s entitlements appropriately in the event that expectations as to

profitability are not fulfilled.

15              In one respect His Honour’s declaration should nevertheless be varied. Clause 6.1 obliges

the company to pay dividends aggregating $100,000 “by equal quarterly instalments during the year

ending 1 July 1999". That means that an instalment of $25,000 will fall due on 1 July 1999. The

amount of $25,000 is not payable in the year ended 30 June 1999 to which clause 12.1 refers, and

there is therefore no prospect of reduction in the liability to pay that amount. This point was not

raised before His Honour. His declaration might be read as allowing for variation in the amount to

be paid in respect of that particular obligation. It should therefore be varied clearly to exclude that

amount.

16              The appeal should be dismissed, save that paragraph (a) of the declaration made by the

learned chamber judge on 10 March 1999 should be varied by adding, after the words “shareholder

entitlements”, the words “(save for the $25,000 dividend payment instalment due on 1 July 1999)”.

The appellants should pay the respondents’ costs of and incidental to the appeal to be taxed.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2826 of 1999

Brisbane

Before de Jersey CJ
Pincus JA
Thomas JA

[Green v Bolton & Ors]

BETWEEN:

BARRY GREEN and ERICA MAUD GREEN

(Applicants) Appellants

AND:

HARRY MACKAY BOLTON and VALERIE GLENDA BOLTON as trustees for the BOLTON FAMILY TRUST, BINBEX PTY LTD (ACN 010 744 395) as trustee for the BINBEX UNIT TRUST, TRILBY HOLDINGS PTY LTD (ACN 010 014 856) as trustee for the TRILBY HOLDINGS TRUST, TARYN PJH PTY LTD (ACN 009 773 577) as trustee for the PAUL HAURITZ DISCRETIONARY TRUST

(Respondents) Respondents

REASONS FOR JUDGMENT - PINCUS JA

Judgment delivered 20 July 1999

1. I have read the reasons prepared by the Chief Justice and agree with them. It is puzzling

   that the clauses of the agreement providing for payment to the appellants make no reference to cl

   12 and this gives rise to a suspicion that the parties might have intended cl 12 to have a lesser

   operation than its terms indicate. The appellants argued that one should read cl 12 down, so as to

   make the reductions it requires merely temporary ones, not affecting the sums payable on 1 July

   1999. But the language in which cl 12 is expressed is inconsistent with that construction. I agree
   that the orders proposed by the Chief Justice should be made.

   IN THE COURT OF APPEAL

   SUPREME COURT OF QUEENSLAND

   Appeal No. 2826 of 1999

   Brisbane

Before de Jersey CJ
Pincus JA
Thomas JA

[Green v Bolton & Ors]

BETWEEN:

BARRY GREEN and ERICA MAUD GREEN

(Applicants) Appellants

AND:

HARRY MACKAY BOLTON and VALERIE GLENDA BOLTON as trustees for the BOLTON FAMILY TRUST, BINBEX PTY LTD (ACN 010 744 395) as trustee for the BINBEX UNIT TRUST, TRILBY HOLDINGS PTY LTD (ACN 010 014 856) as trustee for the TRILBY HOLDINGS TRUST, TARYN PJH PTY LTD (ACN 009 773 577) as trustee for the PAUL HAURITZ DISCRETIONARY TRUST

(Respondents) Respondents

REASONS FOR JUDGMENT - THOMAS JA

Judgment delivered 20 July 1999

1. The relevant parts of the agreement are sufficiently referred to in the reasons of the Chief

   Justice with which I agree.

2. The ultimate submission of the appellants was that clause 12 should be read as subsidiary to the overall "Entitlements" of the appellant vendor mentioned in clause 11. The respondents' submission is that clause 12 merely provides for part payment out of profits during the three years

   leading up to settlement, and that any balance under clause 11 must then be paid by the respondents

   on completion.

3. In my view clause 12 cannot be sensibly read down to play the subsidiary role for which

   the appellants contend. Such a submission virtually robs clauses 12.1 and 12.2 of practical effect,

   in that, on the appellants' construction, clause 12.2 does no more than defer the date of payment

   by one day in the event that the contemplated profits over the period in question fell short of the

   amount contemplated by clause 11. If one contemplates a short fall in the third year it is difficult to

   see how on this construction it could be "payable in the next year ... to the extent that the profits in

   that next year ... exceed $250,000".

4. The purchase price contemplated by clause 11 consisted of three components namely share

   sale price, shareholder entitlements and employee entitlements. The question is whether the

   shareholder entitlements stated in the scheduled clause 11.1 are qualified by clauses 12.1 and 12.2.

   It seems to me that the agreement gives no clear statement of minimum price or of any fixed

   entitlement to a particular sum for shareholder entitlements. If it had been intended that the payment

   of the profits of the company over the three years in question were to be mere instalments or

   payments on account, one would have expected a clear indication that they bore such a character,

   or some mention of a balance to be payable on settlement. It seems to me that reading the

   agreement as a whole it does not make the shareholder entitlements figures in Schedule 2 a fixed

   component of the purchase price. Rather the intention seems to have been that the amount payable

   to the appellants "shall be reduced" in accordance with the scheme set out in clauses 12.1 and 12.2,

   which allows for adjustments beyond settlement date.

   5                    Further indications which go against the existence of a fixed sale price are contained in Part

   5 (clauses 12 and 13) each of which provides for particular reductions according to events that might

   occur after the making of the agreement. These events were reduction in profitability (clause 12) and

   loss of the Acutherm distributorship (clause 13).

   6                    I appreciate, as did the learned judge below, that some possible combinations of fact might

   produce odd or curious results according to the interpretation that his Honour adopted. Such results

   however would be no more odd or curious than the one day extension that the appellants submit is

   the effect of clause 12.2. Whilst neither interpretation is entirely satisfactory, the agreement as a

   whole does not in my view contemplate a fixed purchase price in respect of the shareholder

   entitlements under clause 11.2. That clause provides for provisional entitlements to be adjusted

   according to events that might happen under Part 5. Other parts of the agreement including clause

   9 support the view that there is life in the agreement and the prospect of adjustment after settlement

   date.

   7                    It is unnecessary to canvass further the many points raised by counsel for the respective

   parties in favour of one view or the other. In my view, subject only to the minor adjustment

   proposed by the Chief Justice, the construction expressed by the learned chamber judge and his

   reasons for preferring that construction were correct.

   8                    I agree with the orders proposed by the Chief Justice.