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HNA Irish Nominee Ltd v Kinghorn

HNA Irish Nominee Ltd v Kinghorn

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FEDERAL COURT OF AUSTRALIA
HNA Irish Nominee Limited v Kinghorn [2010] FCAFC 57

Citation: HNA Irish Nominee Limited v Kinghorn [2010] FCAFC 57

Appeal from: HNA Irish Nominee Limited v Kinghorn [2010] FCA 311

Parties: HNA IRISH NOMINEE LIMITED and ALLCO MANAGED INVESTMENTS LIMITED v GEOFFREY ANDREW KINGHORN, DAVID LLOYD VEAL, KV AVIATION HOLDINGS PTY LIMITED ACN 054 680 376, and RIL AVIATION VQZ LIMITED ACN 110 563 007 & ORS

File number(s): NSD 409 of 2010

Judges: KEANE CJ, JACOBSON AND RARES JJ

Date of judgment: 1 June 2010

Catchwords: CORPORATIONS – interpretation of constitution – the applicant held an equitable interest in preference shares in many of the respondent companies – the applicant claimed it was entitled to vote its preference shares on a resolution it proposed by a notice of meeting in respect of those respondent companies – the applicant claimed the resolution affected “rights attached to a Preference Share” – whether the applicant was entitled to vote its shares

Legislation: Corporations Act 2001 (Cth) ss 136, 140, 246, 246B, 254A, 250E

Cases cited: Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 123; [1948] HCA 23, applied
Greenhalgh v Arderne Cinemas Limited (1946) 1 All ER 512, cited
International Air Transport Association v Ansett Australia Holdings Limited (2008) 234 CLR 151; [2008] HCA 3, considered
White v Bristol Aeroplane Company Limited (1953) 1 Ch 65, cited

Place: Sydney

Date of hearing: 20 May 2010

Number of paragraphs: 49

Counsel for the Applicants: M Leeming SC, with J Hewitt

Solicitor for the Applicants: Chang Pistilli & Simmons

Counsel for the Respondents: SD Robb QC, with J Clarke

Solicitor for the Respondents: DibbsBarker

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 409 of 2010

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:
HNA IRISH NOMINEE LIMITED
First Applicant

ALLCO MANAGED INVESTMENTS LIMITED
Second Applicant

AND:
GEOFFREY ANDREW KINGHORN
First Respondent

DAVID LLOYD VEAL
Second Respondent

KV AVIATION HOLDINGS PTY LIMITED ACN 054 680 376
Third Respondent

RIL AVIATION VQZ PTY LIMITED
ACN 110 563 007
Fourth Respondent

RIL AVIATION VQW PTY LIMITED
ACN 110 562 831
Fifth Respondent

RIL AVIATION MSN 163 PTY LIMITED
ACN 111 127 087
Sixth Respondent

RIL AVIATION MSN 185 PTY LIMITED
ACN 111 127 130
Seventh Respondent

RIL AVIATION VQU PTY LIMITED
ACN 114 265 833
Eighth Respondent

RIL AVIATION VQT PTY LIMITED
ACN 114 265 842
Ninth Respondent

RIL AVIATION VQS PTY LIMITED
ACN 114 265 860
Tenth Respondent

RIL AVIATION VQR PTY LIMITED
ACN 114 265 922
Eleventh Respondent

RIL AVIATION VQQ PTY LIMITED
ACN 114 265 940
Twelfth Respondent

RIL AVIATION VQP PTY LIMITED
ACN 114 265 968
Thirteenth Respondent

RIL AVIATION 9V-SFG PTY LIMITED
ACN 116 838 905
Fourteenth Respondent

RIL AVIATION 9V-SLE PTY LIMITED
ACN 115 858 298
Fifteenth Respondent

RIL AVIATION EI-DLN PTY LIMITED
ACN 115 857 488
Sixteenth Respondent

RIL AVIATION EI-DLO PTY LIMITED
ACN 115 857 684
Seventeenth Respondent

RIL…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] FCAFC 57
Decision Date: 1 June 2010

CaseChat Overview and Summary

HNA Irish Nominee Ltd initiated proceedings against Kinghorn to assert its entitlement to vote on a resolution regarding preference shares in multiple respondent companies. The applicant claimed that it held an equitable interest in these preference shares and that the resolution would affect rights attached to those shares. The court had to determine whether the applicant was entitled to vote on the proposed resolution. The Federal Court of Australia reviewed the arguments presented by both parties, focusing on the interpretation of the company's constitution and the specific rights attached to preference shares.

The primary legal issue was the interpretation of paragraph 2(a)(ii) of Schedule 14 Part C of the company's constitution, which allows the holder of a preference share to vote at "any general meeting of the company" on a proposal affecting rights attached to a preference share. HNA argued that this right extended to proposals that might create new rights attached to the preference shares. The applicant contended that the resolution proposed in the notice of meeting would create a special Voting Share, conferring control over the company upon the holders of preference shares, thus affecting the rights attached to those shares. The court considered whether the resolution would create new rights that were not currently attached to the preference shares and whether such a resolution would entitle the holders of preference shares to vote.

The court rejected HNA's argument, finding that paragraph 2(a)(ii) referred to existing rights of preference shareholders and did not extend to the creation of new rights. The resolution proposed in the notice of meeting, which would create additional rights not presently attached to the preference shares, was not one on which the holders of the preference shares were entitled to vote. The resolution in question was deemed not to affect the rights attached to the preference shares within the meaning of the relevant constitutional provision. Consequently, the court held that the applicant was not entitled to vote on the proposed resolution.

In light of the court's findings, it granted the applicant leave to appeal on the terms of the draft notice of appeal in the application for leave to appeal. The applicant was required to file a notice of appeal in the form of the draft notice of appeal within 7 days. The appeal was ultimately dismissed with costs.

Orders

Orders of the court

1. The applicant be granted leave to appeal on the terms of the draft notice of appeal in the application for leave to appeal.

2. The appellant file a notice of appeal in the form of the draft notice of appeal within 7 days.

3. The appeal be dismissed with costs.

Note:

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The second resolution proposed in the Notice of Meeting would create a special Voting Share which would confer control over the company upon the holders of preference shares.THE DECISION AT FIRST INSTANCE HNA’s argument on the first question agitated below was that paragraph 2(a)(ii) of Schedule 14 Part C allows the holder of a preference share to vote at “any general meeting of the company” in respect of “a proposal that affects rights attached to a Preference Share”. It contended that this right is not confined to voting in respect of a proposal relating to the rights currently attached to a preference share, but extends to a proposal which may result in new rights being attached to a preference share consequent upon the passage of the resolution in question. The learned primary judge summarised the argument put by HNA at [2010] FCA 311 at [35]-[36]:HNA says that to construe paragraph 2(a)(ii) as being limited to existing rights is to impose a restrictive gloss on the plain language of the Constitution. Further, HNA says that such a construction would be inconsistent with established principle. For example, a scheme of arrangement between a company and its members, whereby the company would be authorised in general meeting to make a buy back offer in relation to preference shares and acceptance of the terms of the buy-back offer would be compulsory for all holders of preference shares, may well be a proposal affecting rights attaching to the preference shares. The buy-back resolution may have no legal effect upon the rights attaching to the preference shares of itself and the buy back offer would have no operative existence independently of the scheme. Further, the buy-back resolution would be meaningless without reference to the scheme and inseverable from it. Nevertheless, the existing rights attached to the preference shares would be affected by such a proposal, which would entitle the company to buy-back all the preference shares, resulting in the compulsory acquisition and cancellation of the preference shares (see Re Village Roadshow Limited 48 ACSR 167 at [28]). Those principles, however, are not inconsistent with the proposition that paragraph 2(a)(ii) refers to existing rights of preference shareholders. An existing right of the holder of a preference share is to continue to be the holder of the preference share. It is inconsistent with that right for the right to be extinguished (See Gambotto v WCP Limited (1995) 182 CLR 432). His Honour rejected that argument at [2010] FCA 311 at [37]:I do not consider that the resolution proposed in the Notice of Meeting is one that affects rights attached to the B Class preference shares within the meaning of paragraph 2(a)(ii) insofar as it would create additional rights, being rights that are not presently attached to those shares. To the extent that the resolution would do so, it is not one on which the holders of the B Class preference shares are entitled to vote. The first question should be answered in the negative.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

Citation:	HNA Irish Nominee Limited v Kinghorn [2010] FCAFC 57
Appeal from:	HNA Irish Nominee Limited v Kinghorn [2010] FCA 311
Parties:	HNA IRISH NOMINEE LIMITED and ALLCO MANAGED INVESTMENTS LIMITED v GEOFFREY ANDREW KINGHORN, DAVID LLOYD VEAL, KV AVIATION HOLDINGS PTY LIMITED ACN 054 680 376, and RIL AVIATION VQZ LIMITED ACN 110 563 007 & ORS
File number(s):	NSD 409 of 2010
Judges:	KEANE CJ, JACOBSON AND RARES JJ
Date of judgment:	1 June 2010
Catchwords:	CORPORATIONS – interpretation of constitution – the applicant held an equitable interest in preference shares in many of the respondent companies – the applicant claimed it was entitled to vote its preference shares on a resolution it proposed by a notice of meeting in respect of those respondent companies – the applicant claimed the resolution affected “rights attached to a Preference Share” – whether the applicant was entitled to vote its shares
Legislation:	Corporations Act 2001 (Cth) ss 136, 140, 246, 246B, 254A, 250E
Cases cited:	Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 123; [1948] HCA 23, applied Greenhalgh v Arderne Cinemas Limited (1946) 1 All ER 512, cited International Air Transport Association v Ansett Australia Holdings Limited (2008) 234 CLR 151; [2008] HCA 3, considered White v Bristol Aeroplane Company Limited (1953) 1 Ch 65, cited
Place:	Sydney
Date of hearing:	20 May 2010
Number of paragraphs:	49
Counsel for the Applicants:	M Leeming SC, with J Hewitt
Solicitor for the Applicants:	Chang Pistilli & Simmons
Counsel for the Respondents:	SD Robb QC, with J Clarke
Solicitor for the Respondents:	DibbsBarker

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 409 of 2010