In the matter of Computer Room Solutions Pty Limited

[2021] NSWSC 845

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Computer Room Solutions Pty Limited [2021] NSWSC 845

Hearing dates:

30 June 2021, 1 July 2021

Date of orders:

13 July 2021

Decision date:

13 July 2021

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Parties to bring in short minutes of order to give effect to decision.

Catchwords:

CONTRACTS — Construction and interpretation — Construction of shareholders deed — Where disposal to non-affiliate company permitted with consent of other shareholders — Question as to degree of knowledge required for implied consent — Consent by conduct — Where conduct included assenting to resolutions; execution of resolutions; execution of share certificates.

CONTRACTS — Construction and interpretation — Whether shareholder company can waive certain requirements under shareholders deed in respect of itself — Where waiver allows company to avoid consequences of specified events.

CONTRACTS — Implied terms — Shareholders deed — Implied term that compulsory transfer notice must be issued within reasonable time.

CONTRACTS — Election — Whether sufficient knowledge of breach of shareholders deed for doctrine of election to operate.

EQUITY — Equitable remedies — Relief against penalties — Where shareholders deed provided for transfer of shares at cost on happening of certain events — Where such acquisition to occur at cost price rather than market value.

CORPORATIONS — Members’ rights and remedies — Oppression — Whether exercise of rights in respect of transfer under shareholders deed is oppressive in the relevant circumstances

Legislation Cited:

- Corporations Act 2001 (Cth), 232, 233

Cases Cited:

-Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; (2012) 290 ALR 595; [2012] HCA 30

-Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36

-Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778

-Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2016] AC 1172; [2015] 3 WLR 1373; [2015] UKSC 67

-Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79

-Elder's Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd (1941) 65 CLR 603

-Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; (2014) 306 ALR 25; [2014] HCA 7

- Ex parte Ford; In re Caughey (1876) 1 Ch D 521

-Gambotto v WCP Ltd (1995) 182 CLR 432; (1995) 16 ACSR 1; [1995] HCA 12

-Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11

-Liggins v Park Trent Properties Group Pty Ltd [2020] NSWSC 1113

-Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692

-Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; (2015) 325 ALR 188; [2015] HCA 37

-Munstermann v Rayward [2017] NSWSC 133

-Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28

-Price v Spoor [2021] HCA 20

-Questband Pty Ltd v Macquarie Bank Ltd [2009] QSC 007

-Questband Pty Ltd v Macquarie Bank Ltd [2009] QCA 266

- Re Leslie Muir Holdings Pty Ltd [2019] NSWSC 1519

- Re New Seabay Kitchen Pty Ltd [2019] NSWSC 1904; BC201912366

-Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71

-Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568

-Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65

-Sargent v ASL Developments Ltd (1974) 131 CLR 634; (1974) 4 ALR 257; (1974) 48 ALJR 410; [1974] HCA 40

-Scammell (G) & Nephew Ltd v H C & T G Ouston [1941] AC 251

-Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52

-Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152

-Tomanovic v Global Mortgage Equity Corp Pty Ltd (2011) 288 ALR 310; (2011) 84 ACSR 121; [2011] NSWCA 104

-Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68

-Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290; [2005] WASCA 106

-Wollondilly Shire Council V Picton Power Lines Pty Ltd (1994) 33 NSWLR 551

-York Air Conditioning & Refrigeration (A/sia) Pty Ltd v Commonwealth (1949) 80 CLR 11

Texts Cited:

- P W Young, The Law of Consent, (1986, The Law Book Company)

- C Sappideen & P Vines, Fleming’s The Law of Torts, (10th Ed, 2011, Thomson Reuters)

Category:

Principal judgment

Parties:

Sanbru Pty Ltd (First Plaintiff)
Sanbru Pte Ltd (Second Plaintiff)
Santosh Devaraj (Third Plaintiff)
Computer Room Solutions Pty Ltd (First Defendant)
Brendan John Dessent (Second Defendant)
Margaret Tracy Dessent (Third Defendant)
TGD Nominees Pty Ltd (Fourth Defendant)

Representation:

Counsel:
J Giles SC, S Hartford-Davis (Plaintiffs)
M Ashhurst SC, D Meyerowitz-Katz (Defendants)

Solicitors:
Corrs Chambers Westgarth (Plaintiffs)
Somerville Legal (Defendants)

File Number(s):

2021/103514

Judgment

The nature of the proceedings

1. By their Amended Originating Process filed on 18 June 2021, the Plaintiffs, Sanbru Pty Ltd (“Sanbru Australia”), Sanbru Pte Ltd (“Sanbru Singapore”) and Mr Santosh Devaraj seek declaratory relief and relief under s 233 of the Corporations Act 2001 (Cth) in respect of a purported transfer of their shares in the First Defendant, Computer Room Solutions Pty Limited (“CRS”) to the Fourth Defendant, TGD Nominees Pty Ltd (“TGD”), and also seek a declaration as to the validity of a resolution passed at a meeting of CRS’s members on 1 April 2021. The Second and Third Defendants, Mr Brendan Dessent (“Mr Dessent”) and Mrs Margaret Dessent (“Mrs Dessent”), and TGD in turn bring a Cross-Claim, part of which seeks the converse relief to that sought by the Plaintiffs, and the balance of which was not pressed.

2. The First Plaintiff, Sanbru Australia, is the corporate trustee for the Sanbru Discretionary Trust and is a shareholder in CRS and the Second Plaintiff, Sanbru Singapore, is the trustee for a Singaporean trust and also a shareholder in CRS. The Third Plaintiff, Mr Devaraj was and is a director of Sanbru Australia and Sanbru Singapore. The First Defendant, CRS, was founded by Mr and Mrs Dessent in 2016 and is engaged in the business of providing data and communications infrastructure goods and services. CRS has an issued share capital of 10,000,000 ordinary fully paid shares, of which Sanbru Singapore owns (or owned) 4,000,000 shares and Sanbru Australia in its capacity as trustee of the Sanbru Discretionary Trust owns (or owned) 1,100,000 shares. CRS rightly took no active role in the proceedings, so far as they reflect a dispute between its shareholders. Mr Dessent now owns 1,000,000 shares in CRS; was, from 30 October 2006 to 1 April 2021, a director of CRS and was and is the sole director and shareholder of TGD. Mrs Dessent now owns 1,000,000 shares in CRS, was employed by CRS as an office manager, and was appointed (or purportedly appointed) as director of CRS from 31 March 2021. TGD in its capacity as trustee of the Dessent Family Trust now owns at least 2,400,000 shares in CRS, and whether TGD now owns a larger number of shares in CRS turns on the matters in issue in these proceedings.  Mr Mark Dessent, who is Mr Dessent’s brother, owns 500,000 shares in CRS.

Chronology of events and affidavit evidence

3. I now turn to the chronology of events which is largely common ground between the parties, as indicated by their pleadings, and is also reflected in contemporaneous documents to which I refer below. It is common ground that interests associated with Mr Devaraj invested in CRS in 2015, when CRS was facing financial difficulties. Sanbru Australia (in its capacity as trustee of the Sanbru Discretionary Trust) then purchased 51 of the then 100 shares in CRS for $5.10, being $0.10 per share and granted a loan facility to CRS of up to $1.2 million for the purpose of implementing the restructure program for the promotion of efficient business practices by CRS, documented in a Capital Funding and Share Transfer Agreement dated 25 November 2015 (APC [7]-[9], POD [7]-[9]). As a result of the implementation of that agreement, 51 of the 100 shares in CRS were held by Sanbru Australia in its capacity as trustee of the Sanbru Discretionary Trust; 24 shares were held by TGD in its capacity as trustee of the Dessent Family Trust; 15 shares were held by Mr Dessent; and 10 shares were held by Mrs Dessent (APC [11], admitted POD [11]).

4. On 30 November 2015, CRS, TGD in its capacity as trustee of the Dessent Family Trust, Mr Dessent, Mrs Dessent and Sanbru Australia in its capacity as trustee of the Sanbru Discretionary Trust also entered into a Shareholders’ Deed (“Shareholders Deed”) (APC [10], POD [10]). Under cl 5.2(a) of the Shareholders Deed, the quorum for a shareholders’ meeting is two shareholders, one of whom must be Sanbru Australia. Under cl 6.1(b) of the Shareholders Deed, for so long as Sanbru Australia holds more than 50% of the shares in CRS, it is entitled to appoint up to two directors from time to time by notice to CRS.

5. Clause 12.1 of the Shareholders Deed provides that a shareholder must not dispose of a share unless all other shareholders consent to the disposal or the disposal is permitted under cl 12.2 of the Shareholders Deed. Clause 12.2 provides that, subject to cl 12.3, a shareholder may dispose of any of its shares if that disposal is of the entire legal and beneficial interest in those shares and the disposal is to an Affiliate (as defined) of the shareholder or the disposal is pursuant to cll 13, 14, 15 or 16 of the Shareholders Deed. The Plaintiffs do not contend that the disposal in issue in these proceedings were to an Affiliate of Sanbru Australia.

6. Clause 16 of the Shareholders Deed provides that, if a Transfer Event (as defined in cl 1.1 as, relevantly, an event by which a shareholder Disposes of shares in breach of the Shareholders Deed or CRS’s Constitution) occurs in relation to a shareholder (“Relevant Shareholder”), any other party may elect to give a Compulsory Transfer Notice (as defined as a written notice to all parties that a Transfer Event has occurred in relation to a shareholder). The giving of a Compulsory Transfer Notice has specified consequences, including that the Relevant Shareholder (as defined) is deemed to have given an irrevocable Transfer Notice under cl 13.1 on the date on which the Compulsory Transfer Notice was given in respect of all shares held by that shareholder at a price determined in accordance with cl 16.2. Clause 16.2 provides that, if the Transfer Event is a Bad Leaver Event (as defined as, relevantly, an event by which a shareholder Disposes (as defined) of shares in breach of the Shareholders Deed or CRS’s Constitution), the Transfer Price for the Relevant Shareholder’s shares is Cost Price (as defined as the price at which a shareholder acquires or acquired a share) on a per share basis. The Shareholders Deed identifies the rationale for this provision as that the ongoing contribution of each Key Person (as defined) is critical to the growth and success of CRS; the departure of a Key Person in circumstances where he or she is a Bad Leaver is likely to have a material negative impact on the value of the business and CRS; and accordingly the Transfer Price in cl 16.2(b)(i) reflects the parties’ best estimate at the date of the Shareholders Deed of the fair value of each share of the Relevant Shareholder if such circumstances arise. It will immediately be apparent that that rationale has no application to circumstances in which a transaction did not involve a Key Person’s departure from CRS. Clause 16.5 of the Shareholders Deed in turn provides that the requirements of cl 16 may be waived in respect of any Relevant Shareholder in whole or in part, and whether with or without any conditions, by Sanbru Australia. I will return to the significance of that provision below.

7. On 7 December 2015, Sanbru Australia made a loan of $500,000 to CRS (Mr Dessent 7.6.21 [18]), later formalised in a Deed of Loan dated 1 July 2016 secured by a Deed of Charge granting a charge over the whole of CRS’s assets and undertakings (Ex J1, pp 19, 26). It is common ground that loan was made on an interest free basis. Mr and Mrs Dessent and TGD contend that Sanbru Australia did not advance the balance of the $1.2 million loan, but nothing turns on that for the purposes of these proceedings. On 11 December 2015, Mr Dessent transferred 5 of his CRS shares to Mr Mark Dessent (APC [25], admitted POD [25]).

8. On 6 August 2018, Mr Devaraj emailed Mr Dessent, Mrs Dessent and others referring to his “need to discuss about the change of shareholding as I have mentioned previously” (Ex J1, 1127A). There is a dispute, which it is not necessary to resolve, as to whether the reference to a change of shareholding was to the proposed transfer of shares from Sanbru Australia to Sanbru Singapore or to a proposal to issue shares to a senior employee of CRS, which was under discussion about that time. Sanbru Singapore was incorporated on 7 September 2018 (Ex J1, 1764) and, about the same time, the chief financial officer of CRS, Mr Pynt, sent an email to Mr Dessent with the subject “Transfer of Santosh [Devaraj] Shareholding in CRS” (Ex J1, 1137), which Mr Dessent claims he did not read. A text message sent by Mr Dessent to Mr Devaraj on the same date (Ex J1, 1139A) seems to me to indicate that he was aware of the proposal to transfer those shares by that time, referring to a “[n]eed to meet on the weekend to discuss share options before anything is done with offshore shares etc”.

9. By a circular resolution also dated 7 September 2018, although it appears it was not executed until early October 2018, the board of CRS (including Mr Dessent) resolved that its register of members be updated so that 40 ordinary shares would be transferred from Sanbru Australia to Sanbru Singapore (“Sanbru Singapore Transfer”) for a total consideration of $40 and CRS issued a share certificate in favour of Sanbru Singapore with respect to 40 ordinary shares issued in consideration of $1 per share (APC [26], contested POD [26]). The Plaintiffs contend that the Sanbru Singapore Transfer was in the best interests of CRS and its shareholders, in that its purpose was to enable CRS to claim the tax-free payroll tax threshold and reduce CRS’s payroll tax liability (APC [28], [31])), and it appears to have had that effect.

10. On 12 September 2018, Sanbru Singapore entered into an Accession Deed (“Accession Deed”) (Ex J1, 1140) with respect to the Shareholders Deed, by which it covenanted with the parties to the Shareholders Deed to observe, perform and be bound by the terms of the Shareholders Deed to the intent and effect that it was taken from the date on which it was registered as a shareholder of CRS to be a party to the Shareholders Deed (APC [32]-[33], admitted POD [32]-[33]).

11. On 13 September 2018, Sanbru Australia transferred 40 shares in CRS to Sanbru Singapore for the consideration of $40.00. Mr Ashhurst and Mr Meyerowitz-Katz, who appear for Mr and Mrs Dessent and TGD, submit that the transfer of shares from Sanbru Australia to Sanbru Singapore was not “innocuous” on the basis that the arrangements between the shareholders in CRS reflected a “quasi-partnership agreement”. It is not necessary to reach any view as to that matter, where the issues before me are essentially issues of contractual construction or matters of law. I do not, however, accept that the arrangements documented by the Shareholders Deed are in the nature of a “quasi-partnership agreement” where, as Mr Giles (with whom Mr Hartford-Davis appears for the Plaintiffs) points out, the Shareholders Deed protects Sanbru Australia’s interests and Mr Devaraj’s interests, as an investor in CRS, by several provisions where corresponding protections are not available to Mr and Mrs Dessent and the interests associated with them. Mr Ashhurst also points to the evidence of Mr and Mrs Dessent that they were not aware that the transfer was a breach of the Shareholders Deed until they received advice from their solicitor to that effect on 18 and 20 January 2021. That will be relevant for some purposes, including the question of waiver or election by Mrs Dessent, but not for other matters to which I refer below.

12. On 21 September 2018, Mr Pynt sent a further email to Mr Dessent and Mrs Dessent and an executive of CRS with the title “Share transfer notification” which attached a share transfer form in respect of that share transfer from Sanbru Australia to Sanbru Singapore. A further email dated 2 October 2018 from Mr Pynt to Mr Dessent (Ex J1, 1150) referred to the need to lodge notification of that share transfer with the Australian Securities & Investments Commission (“ASIC”). Again, Mr Dessent claims not to have read those emails. An email dated 3 October 2018 (Ex J1, 1203ff) from Mr Pynt to Mr Dessent and Mrs Dessent and others, again with the subject “Share transfer notification” attached an updated ASIC extract recording Sanbru Singapore as holding 40% of CRS’s issued shares, a copy of the share certificate and the resolution of the directors of CRS, including Mr Dessent (Ex J1, 1203-1211). Mrs Dessent acknowledges that email “appears to have been” sent to her email address (Mrs Dessent 7.6.21, [35]). As I have noted above, Mr Dessent and Mrs Dessent seek to avoid the finding of knowledge that would otherwise arise from Mr Dessent’s involvement in effecting the transfer by the execution of corporate documents, and Mrs Dessent receiving advice of it, by each contending that they did not read the relevant documents.

13. Mr Ashhurst accepts in closing submissions that Mr Dessent was asked, as a director of CRS, to execute a share transfer in CRS to give effect to the transfer of shares from Sanbru Australia to Sanbru Singapore and to approve the registration of the transfer and did so on 3 October 2018 (Ex J1, 1196, 1133-1134). Mr Dessent’s evidence, in his affidavit and in cross-examination, was that he assumed the two companies were related because they had the same name and that he had been asked to attend to the registration by Mr Devaraj’s representative (Mr Dessent 7.6.21 [23]-[25]; T38-39, 45). It seems to me that a suggestion that Mr Dessent turned his mind to that question so as to make that assumption is not consistent with his evidence of his lack of attention to the nature of the transaction or his lack of recollection as to nearly all of the other matters as to which he was cross-examined.

14. At an extraordinary general meeting of CRS on 19 February 2019 attended by all shareholders, including Mr Dessent and Mrs Dessent and Mr Mark Dessent, the shareholders unanimously resolved to convert the existing shareholding of CRS from 100 shares at $1.00 per share into 10 million shares at $0.00001 per share, with each shareholder to maintain their same respective percentage holding of CRS’s issued shares (APC [37], admitted with a rejoinder in POD [37]; Ex J1, 1241-1245, 1257-1258). The minutes of that meeting record that Sanbru Singapore was then a shareholder in CRS (Ex J1, 1241-1245) and Mrs Dessent acknowledges that she realised at that meeting that two Sanbru entities held shares in CRS; that one of those entities was a Singapore entity; and that Mr Devaraj there referred to those shares as his shares (Mrs Dessent 7.6.21, [46], [48]). I will find below that, by voting in favour of this resolution, the members of CRS including Mr Dessent and (through him) TGD, Mrs Dessent and Mr Mark Dessent at least consented to the transfer of shares in CRS to Sanbru Singapore, for the purposes of cl 12.1(a) of the Shareholders Deed. I also address the Plaintiffs’ claim for waiver or election arising from this resolution below.

15. Mr Devaraj gave further notice of Sanbru Singapore’s holding to Mr Dessent and Mrs Dessent by an email dated 25 February 2019, which attached the Accession Deed signed by Sanbru Singapore “for CRS management directors’ record” (Ex J1, 1259-1261).

16. The Plaintiffs in turn rely on communications, between 19 June 2019 and 29 July 2019, between Mrs Dessent and representatives of Revenue NSW with respect to the audit of CRS’s liability under the Payroll Tax Act 2007 (NSW) (APC [40], admitted POD [40]). In the course of the payroll tax audit, an officer of NSW Revenue advised Mrs Dessent that, based on trust documentation provided in relation to Sanbru Singapore, he was satisfied that there was no ongoing common control as between another company associated with Mr Devaraj and CRS after 6 September 2018, and the question of grouping for CRS was only being considered for the prior period between 30 November 2015 and 6 September 2018. Mr Ashhurst submits, and I accept, that there is no evidence that Mrs Dessent knew the statutory test for “common control” applied by Revenue NSW, and I recognise that she explained her understanding in cross-examination by reference to the local operation of payroll tax requirements. Nonetheless, Mrs Dessent informed Mr Dessent of Revenue NSW’s position by email on 16 July 2019 (Ex J1, 1360), and Mr Dessent’s evidence is again that he did not read that email. That position was implicitly confirmed by a letter dated 4 September 2019 from NSW Revenue to Mrs Dessent which grouped CRS and other entities associated with Mr Devaraj for payroll tax purposes only until 6 September 2018 (Ex J1, 1406).

3. Subsequently, on 1 July 2019 and 1 July 2020, CRS’s directors declared and CRS paid dividends to Sanbru Singapore (Ex J1, 1353-1354, 1569).

4. A business was subsequently established by CRS’s shareholders in Singapore, conducted through a separate entity, Computer Room Solutions Pte Ltd, in which CRS’s shareholders held shares in the same proportions, so that Sanbru Singapore holds 40% of the shares and Sanbru Singapore holds 11% of the shares in that entity (Pynt [71]).

5. It appears that the commercial relationship between Mr Deveraj on the one hand and Mr Dessent and Mrs Dessent on the other subsequently deteriorated. Mr and Mrs Dessent and TGD, in evidence and submissions, address several events which appear to have been associated with that deterioration. I do not reach findings as to those events, because they are not material to the matters to be decided in these proceedings. Beginning in mid-February 2021, Sanbru Australia took steps directed to remove Mr Dessent as a director of CRS (APC [41]). On 5 March 2021, Sanbru Australia and Sanbru Singapore issued a notice of meeting of the members of CRS to be held on 1 April 2021 pursuant to section 249F of the Corporations Act, cl 5.1 of the Shareholders Deed and cl 51 of CRS’s Constitution, with the notice containing the text of a resolution to remove Mr Dessent as a director of CRS and appoint Mr Devaraj as a director of CRS (APC [43], admitted POD [43]).

6. On 25 March 2021, Mrs Dessent issued a Compulsory Transfer Notice (“First Compulsory Transfer Notice”) to Sanbru Australia at cost price of $0.001 (as adjusted to take account of the earlier share split) per share, relying on cl 16 of the Shareholders Deed (APC [44]). That notice offered no compensation to Sanbru Australia for the cost of the interest free financial accommodation that Sanbru Australia had provided to CRS since it acquired those shares. The parties have agreed, for the purposes of s 191 of the Evidence Act 1995 (NSW), that the value as at that date of the 11% shareholding in CRS held by Sanbru Australia was at least $2,937,473 and the value as at that date of a 40% shareholding in CRS held by Sanbru Singapore was at least $10,681,720.

7. By letter dated 30 March 2021, the solicitors for Sanbru Australia and Sanbru Singapore advised the solicitors for Mr and Mrs Dessent and TGD that Sanbru Australia had waived cl 16 of the Shareholders Deed by its transfer of the relevant shares to Sanbru Singapore, a matter that I will address below, and also advised of an express waiver of that clause under cl 16.5 of the Shareholders Deed as follows:

“Sanbru Australia necessarily waived the requirements of cl 16 of the Shareholders Deed at the time it transferred part of the shares in CRS to Sanbru Singapore on or about 7 September 2018, the transfer being the “event” which you assert justifies the issuing of the [First Compulsory Transfer Notice] … In any event, please take this letter as notice of Sanbru Australia expressly waiving the requirements of cl 16 of the shareholders deed.”

That letter also referred to other matters now raised by Sanbru Australia and Sanbru Singapore in these proceedings.

22. On 31 March 2021, after the advice that Sanbru Australia had waived cl 16 of the Shareholders Deed, CRS issued a Transfer Offer in relation to the shares held by Sanbru Australia in CRS, specifying a transfer price of $00.001, being the cost price for those shares as adjusted for the earlier share split (“First Transfer Offer”) (APC [45A], PCC [14]). I will assume, without deciding, that the issue of that Transfer Offer was valid where the Plaintiffs did not contend to the contrary, although no evidence was led of any corporate decision of CRS or board resolution to issue it.

23. A meeting of shareholders of CRS on 1 April 2021, attended by Sanbru Australia and Sanbru Singapore, resolved to remove Mr Dessent as a director of CRS and appoint Mr Devaraj as a director of CRS (APC [47]). I will address a dispute as to the validity of that meeting below.

24. On 7 April 2021, Mr Dessent and Mrs Dessent notified ASIC that Mr Dessent had ceased to be a director of CRS effective 31 March 2021; he had been reappointed as a director of CRS effective 31 March 2021; Mr Coote had ceased to be a director of CRS effective 31 March 2021; Mrs Dessent had been appointed as a director of CRS effective 31 March 2021; Mr Pynt had ceased to be secretary of CRS effective 1 April 2021; and Mrs Dessent had been appointed as secretary of CRS effective 1 April 2021 (APC [48], admitted POD [48]). I will assume, without deciding, that these transactions were valid where the Plaintiffs did not contend to the contrary, although no evidence was led to establish that any corporate act had occurred to support this notification.

25. Mrs Dessent, Mr Dessent and TGD allege that, on 8 April 2021, TGD gave an Acceptance Notice under cl 13.5(a) of the Shareholders Deed for 5,100,000 shares in CRS pursuant to the First Transfer Offer (“Acceptance Notice”); on 19 April 2021, CRS gave an Allocation Notice to TGD pursuant to cl 13.6 of the Shareholders Deed allocating 5,100,000 shares in CRS to TGD (“Allocation Notice”); and, on 19 April 2021, CRS as attorney for Sanbru Australia under cll 13.2, 13.9 and 21 of the Shareholders Deed completed the transfer of 5,100,000 shares in CRS to TGD (APC [48A]-[48C], admitted POD [48A]-[48C], PCC [15]-[18]). I will again assume, without deciding, that the Allocation Notice was valid where the Plaintiffs did not contend to the contrary, although my attention was again not drawn to evidence of a board meeting authorising the giving of that notice

26. On 1 June 2021, Mrs Dessent issued, or purported to issue a second Compulsory Transfer Notice to Sanbru Australia under cl 16 of the Shareholders Deed (“Second Compulsory Transfer Notice”) and a Compulsory Transfer Notice to Sanbru Singapore pursuant under cl 16 of the Shareholders Deed (“Third Compulsory Transfer Notice”) (APC [48D]). The Second Compulsory Transfer Notice required Sanbru Australia to transfer its shares in CRS to TGD at the cost price as adjusted to take account of the share split of $0.001 (a total of $11) per share, and the Third Compulsory Transfer Notice required Sanbru Singapore to transfer its shares at the cost price (again as adjusted to take account of the share split) of $0.001 (a total of $40), and again offered no compensation to Sanbru Australia or Sanbru Singapore for the cost of the interest-free loan provided to CRS since the time Sanbru Australia had acquired those shares.

27. On 2 June 2021, Mr Dessent, purportedly as a director of CRS, issued a second Transfer Offer to all shareholders of CRS except Sanbru Australia under cl 13 of the Shareholders Deed by which CRS, as agent of Sanbru Australia, offered to sell Sanbru Australia’s shares at a price of $0.001 per share (“Second Transfer Offer”) and a third Transfer Offer to all shareholders of CRS except Sanbru Singapore under cl 13 of the Shareholders Deed by which CRS, as agent of Sanbru Singapore, offered to sell Sanbru Singapore’s shares at a price of $0.001 per share (“Third Transfer Offer”) (APC [48E], admitted POD [48E]). It is not apparent how the steps taken by Mr Dessent could have had effect, given that he was (as I will find below) previously removed as a director of CRS on 1 April 2021. There is again no evidence of any corporate decision to take these acts.

28. I now turn now to the affidavit evidence. The Plaintiffs did not read affidavit evidence and relied on the tender of documents. Mr Dessent, Mrs Dessent and TGD relied on several affidavits, the first being Mr Dessent’s affidavit dated 7 June 2021. Mr Dessent there sets out the history of CRS and acknowledges that, in 2015, CRS was facing cashflow problems and its bank would not provide further finance, and he refers to Sanbru Australia’s taking up shares in CRS at that time. He also refers to the transfer of 40 shares in CRS from Sanbru Australia to Sanbru Singapore in September 2018, and addresses various emails which referred to that transfer which he claims not to have read, and to his practice of ignoring most emails he receives other than from customers of the business. He also refers to his perception that Sanbru Australia and Sanbru Singapore were both Mr Devaraj’s companies, and addresses the payroll tax investigation by the Office of State Revenue in about mid-2019. He also refers to his having received advice from his solicitor in respect of the transfer of shares from CRS Australia to CRS Singapore in early 2021 and addresses several other matters which are not material to the determination of these proceedings.

29. Mr Giles submits, and I accept, that Mr Dessent was not an impressive witness. He claimed to be unable to recall the large part of his involvement with relevant matters, notwithstanding that he had given affidavit evidence about them; he claims not to have read relevant documents, including the circulating board resolution and share certificate that he signed that brought about the change in the shareholding in CRS to which he now objects; and his evidence is that it was his practice to sign corporate documents without reading them (T38). He also claims not to read emails from CRS’s chief financial officer, his solicitor and Mrs Dessent, who herself plays a significant role in the administration of CRS (T40, 47-48). It is not necessary to determine whether Mr Dessent’s evidence was false, and an attempt to avoid his contemporaneous knowledge of the relevant transactions, or reflected a neglect of his statutory and general law obligations to CRS, in order to determine these proceedings.

30. By her affidavit dated 7 June 2021, Mrs Dessent also refers to the establishment of CRS, to the nature of its business and to the involvement of Mr Devaraj, Mr Mark Dessent and other persons in CRS. She refers to the transfer of shares in Sanbru Australia to Sanbru Singapore and also says that she does not recall seeing relevant documents at the time they were created although she acknowledges that an email dated 3 October 2018, to which I referred above, was sent to her email address. She refers to the share split in CRS which took place in February 2019; she acknowledges that there was reference to Sanbru Singapore at the EGM of CRS on 19 February 2019 and that she then understood that that company was a Singapore company; and she also refers to the payroll tax issue which arose in the first half of 2019 and to the circumstances in which a separate company was set up to conduct business in Singapore under the CRS name in late 2019 and early 2020, with the same shareholding structure as CRS. Mrs Dessent also refers to legal advice as to the share transfer from Sanbru Australia to Sanbru Singapore that she received in early 2021 and addresses other matters that are not material to the determination of these proceedings.

31. There is force in Mr Giles’ submission that it is unlikely that Mrs Dessent would have ignored the email with the heading “Share transfer notification” dated 3 October 2018, to which I referred above, notwithstanding her evidence to the contrary. However, little turns on that, where she accepted in cross-examination that she recognised at the meeting on 19 February 2019 that Mr Devaraj had two entities, one of which was a Singapore entity, and then made no inquiries as to the nature of Mr Devaraj’s association with Sanbru Singapore or the identity of its shareholders (T56). Although nothing turns on it for the result of these proceedings, Mrs Dessent was also advised by her solicitor by May 2019 that the effect of Sanbru Singapore’s interest in CRS was that CRS was majority owned by a foreign trust.

32. Mr and Mrs Dessent and TGD also rely on the affidavit dated 7 June 2021 of Mr Mark Pynt, the chief financial officer of CRS, who was not required for cross-examination. He also addresses the circumstances of the share transfer from Sanbru Australia to Sanbru Singapore in September 2018, the share split of shares in CRS in February 2019, the payroll tax issue and the establishment of the separate company to conduct CRS’s business in Singapore.

The Plaintiffs’ claim that the Transfer Event did not breach cl 12 because the CRS shareholders had consented to the transfer of shares to Sanbru Singapore

33. I should approach those issues by reference to well-established principles of contractual construction. In Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36, Gibbs J (as his Honour then was) observed that:

34. “It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.”

35. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40], the High Court observed (citations omitted):

36. “It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction …”

37. That approach was confirmed in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; (2014) 306 ALR 25; [2014] HCA 7 at [35] where French CJ, Hayne, Crennan and Kiefel JJ observed that (citations omitted):

“[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’.”

38. I have had regard to the High Court’s review of the principles of construction in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; (2015) 325 ALR 188; [2015] HCA 37 at [46]–[52], [59] and I proceed on the basis that construction should commence with the language used by the parties, although the Court may also have regard to objective surrounding circumstances. Mr Ashhurst also refers to Price v Spoor [2021] HCA 20 at [27], [42] as authority that an objective approach is applied in determining the rights and liabilities of a party to a commercial contract, by reference to its text, context and purpose, and “[t]he meaning to be given to its terms is determined by reference to what a reasonable business person would have understood those terms to mean.”

39. Mr Ashhurst also submits, and I accept, that the relevant provisions of the Shareholders Deed are part of a scheme commencing with cl 11, which imposes restrictions on the “Disposal” (as defined in cl 1.1 of the Shareholders Deed) of shares in CRS. As I noted above, cll 12.1 and 12.2 provide that a shareholder must not Dispose of a share in CRS unless all other shareholders consent to the Disposal, the Disposal is to an “Affiliate” of the shareholder or the Disposal is pursuant to cll 13, 14, 15 or 16 of the Shareholders Deed. It is now common ground that Sanbru Singapore is not an “Affiliate”, as defined, of Sanbru Australia. Clause 13 of the Shareholders Deed in turn sets out pre-emptive rights provision in respect of a shareholder’s Disposing of shares to a third party and cll 14 and 15 are “tag along” and “drag along” provisions. Clause 16 permits other shareholders to issue a Compulsory Transfer Notice where a “Transfer Event”, as defined, occurs in relation to a shareholder.

40. The Plaintiffs contend, first, that the transfer of shares from Sanbru Australia to Sanbru Singapore did not constitute a Transfer Event in contravention of cl 12.1 of the Shareholders Deed because each of the other shareholders consented to the transfer as required under cl 12.1(a) of the Shareholders Deed (APC [49]). The Plaintiffs rely in respect of Mr Dessent and TGD (of which he is the sole director) on his signing the resolution and share certificates by which CRS gave effect to the Sanbru Singapore transfer. They rely, in relation to Mrs Dessent, on her not objecting to the Sanbru Singapore transfer when notified of it on 3 October 2018 and again on 19 February 2019, and on all shareholders, including Mr Mark Dessent, having voted in favour of the resolution to convert Sanbru Singapore’s 40 shares in CRS into 4 million shares in February 2019 and, in relation to all shareholders, on dividends paid to Sanbru Singapore.

41. The principles applicable to consent, whether characterised as implied consent or consent by conduct, are considered by P W Young (writing extra-judicially) in The Law of Consent, 1986, where he refers to Prosser and Keeton on Torts, 5^th ed, p 113, for the observation that:

“Consent may therefore be manifested by words, or by the kind of actions which often speak louder than words. The defendant is entitled to rely upon what any reasonable man would understand from the plaintiff’s conduct. If the plaintiff expressly says, ‘it’s alright with me’ he will, of course, not be permitted to deny that he did not consent. By the same token, if she holds up her arm without objection to be vaccinated, she will not be heard to deny that she has consented after the defendant has relied upon her action: O’Brien v Cunard Steamship Co (1891) 28 NE 266. Silence and inaction may manifest consent where a reasonable person would speak if he objected.”

42. Similarly, Professor Sappideen and Professor Vines, in Fleming’s The Law of Torts, 10^th ed, [5.30] observe that consent may “as well be implied” as express and that “actions often speak louder than words” and again give the example of holding up one’s bare arm to a doctor at a vaccination point, as being as clear an assent as if it were expressed in words.

43. In closing submissions, Mr Giles submits that “retrospective” shareholder consent is sufficient for the purposes of cl 12.1(a) of the Shareholders Deed (although it does not seem to me that the characterisation of consent as “retrospective” is appropriate, where I find that consent was given prior to all of the Compulsory Transfer Notices) and that it is not necessary that that consent be “fully informed consent”, by contrast with the position which might arise in respect of waiver or election. Mr Ashhurst responds that a person cannot consent to a transaction unless he or she has knowledge of it: Ex parte Ford, In re Caughey (1876) 1 Ch D 521 at 527. However, the relevant transaction here was the transfer of shares from Sanbru Australia to Sanbru Singapore, and it seems to me that all that was required, by way of knowledge, for the CRS shareholders’ express consent under cl 12.1(a) of the Shareholders Deed to that share transfer was that those shareholders knew that those shares were to be transferred from Sanbru Australia to Sanbru Singapore. No doubt, a shareholder could have requested further information in order to consent to a transfer under cl 12.1(a) of the Shareholders Deed, but it did not need to do so to give such consent. I recognise that Mr Ashhurst valiantly contended to the contrary, seeking to include matters such as the shareholdings in Sanbru Singapore and the beneficiaries of a trust for which it was trustee as an element of that consent, but I can see no textual basis for such a requirement in respect of express consent to the transfer under cl 12.1(a) of the Shareholders Deed. Where the CRS shareholders could have expressly consented to a transfer from Sanbru Australia to Sanbru Singapore, knowing only that the transfer was to occur between those two entities, then it seems to me that they may also do so impliedly or by conduct knowing the same fact. In oral submissions, Mr Ashhurst also referred to the position in contract law, where silence is insufficient to give rise to a contract; however as P W Young J points out in The Law of Consent, that position is to be distinguished from the position where the question is whether one party consented to another’s action, and the actions taken by CRS’s shareholders in February 2019 were more than silence in any event.

42. In oral submissions (T83) Mr Ashhurst submitted that “retrospective” consent could not be provided to a transfer of shares for the purposes of cl 12.1(a) of the Shareholders Deed. Mr Ashhurst also drew attention to the prohibition in that clause on a shareholder disposing of a share unless the relevant consent was provided. However, that clause does not, in terms, require prior consent to the transfer; and there is no commercial reason to read such a requirement into the clause, where it does not appear in its terms. There is no apparent reason why the parties would wish to trigger the machinery of cll 12-16 of the Shareholders Deed if, for example, a consent was received immediately after a transfer was effected or, by extension, prior to CRS taking steps to transfer the relevant shares to other shareholders. I can see nothing in the mechanism of the clause that causes any difficulty with the giving of consent after the event, which has the consequence that a breach of the clause that at one point would have given rise to a Transfer Event ceases to do so, before transfer of the shares to other shareholders is implemented. Mr Ashhurst also asks, rhetorically, where is the certainty for the parties in that approach? (T85) It seems to me that there is no more uncertainty in determining whether consent is given, expressly or by conduct or impliedly after the event, than in determining whether such consent is given before the event. In oral submissions, Mr Ashhurst fairly accepted (T85) that express consent could be given on the day after the transfer, with disclosure of no more than the fact of the transfer and the identity of the transferee. Mr Ashhurst confirmed that position as to express consent at T87, although seeking to distinguish the position in respect of implied consent or consent by conduct. Once that position is accepted in respect of express consent, then there is no reason not to give effect to implied consent or consent by conduct, also given after the event, so long as it is given prior to CRS effecting the transfer of the shares to other shareholders.

The Plaintiffs contend that Mr Dessent consented to the transfer by reason of his assent to the resolution of the board of directors to update CRS’s register of members to record Sanbru Singapore as a shareholder on 7 September 2018; his execution of that resolution; and his execution of the share certificate issued to Sanbru Singapore. I accept that these matters, in addition to the February 2019 resolution, constitute Mr Dessent’s consent to the transaction, and it is not to the point that Sanbru Singapore had not then informed Mr Dessent, and he had not inquired, as to whether it would hold the shares in CRS as trustee or who were the beneficiaries of the trust when that consent was given. Mr Dessent’s consent to the transaction is sufficient to establish TGD’s consent to the transaction where he is the sole director and shareholder of TGD. The Plaintiffs also contend that Mrs Dessent’s consent to the transfer may be inferred from the matters to which I referred above, and at least the February 2019 resolution is sufficient to establish that consent. Mr Giles submits, and I accept, that it is sufficient to establish that Mr Mark Dessent also knew of and consented to that transfer, that he was present at the meeting on 19 February 2019 where Sanbru Singapore’s shareholding was noted and recorded in the minutes, and that he there voted in favour of the resolution to reconstruct CRS’s shares in the manner that involved the reconstruction of Sanbru Singapore’s shareholding. It is not necessary to address Mr Giles’ further submission that CRS also consented to the transfer, by registering that transfer or that CRS’s consent is consent by its shareholders in a closely held company.

It seems to me that all shareholders in CRS consented to the transfer impliedly or by conduct no later than February 2019, when each of Mr Dessent (and, through him, TGD), Mrs Dessent and Mr Mark Dessent then knew that Sanbru Singapore had become a shareholder in CRS in respect of a large portion of the shares previously owned by Sanbru Australia and that Sanbru Singapore’s shares were then to be converted from 40 shares in CRS into 4 million shares in the reconstruction of the shares in CRS. Where all shareholders consented to that transaction in that manner, then it is not to the point that Mr and Mrs Dessent claim to have assumed that Sanbru Australia and Sanbru Singapore had common ownership in doing so.

Implied term as to issue of Compulsory Transfer Notice within a reasonable time

45. Second, the Plaintiffs contend (APC [52]) that, where Mrs Dessent did not issue the First, Second and Third Compulsory Transfer Notices for a period of approximately two and a half years after the transfer of Sanbru Australia’s shares to Sanbru Singapore, then here issue of those notices in the first half of 2021 breached clause 22.1(c) of the Shareholders Deed or an implied term that notice must be issued within a reasonable time and the First, Second and Third Compulsory Transfer Notices were invalid and of no effect.

46. Mr Giles submits that there is an implied term in cl 16 of the Shareholders Deed that any Compulsory Transfer Notice must be issued within a reasonable time, implicitly after the date at which the Transfer Event occurred. I accept that, where a commercial contract requires something to be done but does not fix a time for that to occur, the law will often imply a term that the act must be done within a reasonable time: York Airconditioning and Refrigeration (A/sia) Pty Ltd v Commonwealth (1950) 80 CLR 11 at 62; Questband Pty Ltd v Macquarie Bank Limited [2009] QSC 007 at [102(2)], not challenged on appeal in Questband Pty Ltd v Macquarie Bank Ltd [2009] QCA 266 at [33]; Liggins v Park Trent Properties Group Pty Ltd [2020] NSWSC 1113 at [110]. Mr Giles also refers to the principles applicable to the determination of what constitutes a reasonable time under an implied term of this kind in Questband Pty Ltd v Macquarie Bank Limited above at [102(3)] as follows:

“When by a contract an act is required to be performed within a reasonable time what is a reasonable time is a question of fact which depends upon the circumstances including the context in which the contract was made. The limit of a reasonable time is determined by reference with what is fair to both parties. Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 567–8. Whether a reasonable time, or more than a reasonable time, has elapsed must be decided at the point when the lapse of time is said by one party to have become unreasonable. It cannot be determined at the date of the contract. Rudi’s Enterprises Pty Ltd (1987) 10 NSWLR 568 at 576. A relevant fact is delay by the party complaining about the lapse of time. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1988-9) 166 CLR 623 at 638–9. When what is in issue is the exercise of a right or the giving of a notice what is a reasonable time is to be determined by reference to the circumstances when the right is to be exercised (Business and Professional Leasing Pty Ltd v Akuity Pty Ltd [2008] QCA 215 at [46] or when the notice is given; Australian Blue Metal Ltd v Hughes [1963] AC 74 at 99.”

47. I also proceed on the basis that what is a “reasonable time” depends on the circumstances, and is a question of fact: Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 576.

48. Mr Ashhurst responds that there is no implied term that a Compulsory Transfer Notice must be issued within a reasonable time after a Transfer Event occurs, or alternatively, that reasonable time can only begin to run after shareholders become aware of the facts that would constitute a “Transfer Event” or “Bad Leaver Event”, and that the Compulsory Transfer Notices were here issued within a reasonable time after Mrs Dessent became aware of the breach of the Shareholders Deed, for which she contends, after receiving advice from her solicitor in early 2021, as I noted above. Mr Ashhurst also submits that cl 28.7 of the Shareholders Deed, which provides that no delay in exercising any right under the Deed operates as a waiver, is inconsistent with an implied term that a Compulsory Transfer Notice must be issued within a reasonable time. I do not accept that submission, since the existence of that implied term limits the exercise of a right under that section, rather than taking effect as a waiver. In closing submissions, Mr Ashhurst also contends that the period of any reasonable time must be reasonable under the circumstances as determined at the time that the reasonable time is said to expire, and that a reasonable time could not have passed prior to Mrs Dessent becoming aware of the facts that meant that the Sanbru Australia and Sanbru Singapore were not Affiliates, as defined in the Shareholders Deed.

49. It seems to be that such a term is to be implied here, where the parties would not have intended that CRS could be left to act for several years on the basis that it was allowing voting rights to a shareholder and potentially paying dividends to a shareholder (as it did to Sanbru Singapore), where that shareholder’s shares would later be forfeited as a result of an act that occurred several years before. The time which is “reasonable” would be determined having regard to Mrs Dessent’s knowledge of the relevant transfer, but I have found above that Mrs Dessent knew of the share transfer from Sanbru Australia to Sanbru Singapore at least by the time of the February 2019 meeting. It is not necessary that she also had, as Mr Ashhurst contends, further knowledge as to additional facts relevant to whether any exception to the pre-emptive rights provisions in the Shareholders Deed may or may not be satisfied in the relevant circumstances. On any view, it seems to me that a reasonable time for the giving of a Compulsory Transfer Notice had elapsed between February 2019, when Mrs Dessent had knowledge of the transfer, and 25 March 2021 when she gave the First Compulsory Transfer Notice and the later dates on which she gave the Second Compulsory Transfer Notice and the Third Compulsory Transfer Notice.

The Plaintiffs’ claim of lack of good faith or improper purpose

50. The Plaintiffs submit that there is also an implied term in the Shareholders Deed that the right to issue a Compulsory Transfer Notice must be exercised in good faith and for a proper purpose. They contend (APC [55]) that it was a substantial purpose of Mrs Dessent, in purporting to issue the First Compulsory Transfer Notice, to prevent Sanbru Australia and Sanbru Singapore from exercising their rights pursuant to the Shareholders Deed and as a members pursuant to CRS’s Constitution to pass a resolution in general meeting removing Mr Dessent as a director of CRS and appointing Mr Devaraj as a director of CRS. The Plaintiffs also contend (APC [55A]) that it was a substantial purpose of Mrs Dessent, in purporting to issue the Second and Third Compulsory Transfer Notices, to exclude all entities in which Mr Devaraj held an interest or over which Mr Devaraj had control from the membership of CRS and retaliate against Mr Devaraj for the steps he had taken. The Plaintiffs also contend (APC 56]-[56A]) that these substantial purposes were not purposes for which Mrs Dessent’s powers or rights under cl 16.1 of the Shareholders Deed to issue a Compulsory Transfer Notice could validly be exercised; the issue of those Compulsory Transfer Notices was for an improper purpose, or in breach of the implied term, and the Compulsory Transfer Notices were invalid and of no effect. I do not find it necessary to reach a finding as to this claim, given the conclusions which I have reached on other grounds.

Whether a Compulsory Transfer Notice could be issued to Sanbru Singapore

51. The Plaintiffs also plead (APC [57A]-[57B]) that, in receiving the shares transferred by Sanbru Australia, Sanbru Singapore did not breach the Shareholders Deed because, at the time of the Sanbru Singapore Transfer, Sanbru Singapore was not yet a member of CRS; had not yet acceded to the Shareholders Deed; and was not bound by the terms of the Shareholders Deed and that Sanbru Singapore did not commit a Material Breach (as defined) of the Shareholders Deed; a Transfer Event with respect to Sanbru Singapore did not occur; and the requirements for issuance of the Third Compulsory Transfer Notice pursuant to cl 16.1(a) of the Shareholders Deed had not been satisfied; so the Third Compulsory Transfer Notice was invalid and of no effect. The Plaintiffs also contend (APC [57C]-[57D]) that Sanbru Singapore’s receipt of shares was, obviously enough on one view, not its Disposal (as defined) of them in breach of cl 12 of the Shareholders Deed.

52. Conversely, Mr Ashhurst submits that the transfer of the shares in Sanbru Australia to Sanbru Singapore was a “Transfer Event” and a “Bad Leaver Event” in relation to Sanbru Singapore as well as Sanbru Australia because, where one shareholder disposes of shares to another shareholder, that is an event “in relation to” both shareholders. I do not accept that submission, where that interpretation of cl 16 would have the draconian consequence that an innocent third party transferee, not aware of any breach of the relevant provisions of the Shareholders Deed, could be exposed to a later compulsory transfer of its shares at cost price rather than at fair value. I am not satisfied the transfer of shares from Sanbru Australia to Sanbru Singapore was either a Transfer Event or a Bad Leaver Event in relation to Sanbru Singapore. However, that conclusion is not necessary to my findings, since I have held that the other shareholders in CRS had consented to that transfer by February 2019 and that Sanbru Australia had waived the relevant requirement, before CRS effected the relevant transfer of the shares to TGD.

The Plaintiffs’ claim that Sanbru Australia has waived the requirements of clause 16 of the Shareholders Deed

53. The Plaintiffs alternatively plead (APC [58]) that Sanbru Australia waived the requirements of cll 16.1 to 16.4 of the Shareholders Deed by seeking the approval of the board of directors of a resolution to update CRS’s register of members to record Sanbru Singapore as a member of CRS; causing the transfer of Sanbru Australia’s shares to Sanbru Singapore; causing or permitting Sanbru Singapore to execute the Accession Deed; and causing an associate of Mr Devaraj, Mr Kauter, to provide Mr Pynt of CRS with a share transfer form and to request that CRS’s register of members be updated, including by lodging notification with ASIC. They alternatively plead (AFC [59]) that, on 30 March 2021, Sanbru Australia expressly waived the requirements of cl 16 of the Shareholders Deed. They contend that, for these reasons, the First, Second and Third Compulsory Transfer Notices, the First Transfer Offer, the Acceptance Notice, the Allocation Notice, the Second Transfer Offer and the Third Transfer Offer are invalid and of no effect.

54. Mr Ashhurst submits that cl 16.5 of the Shareholders Deed does not apply where Sanbru Australia is the “Relevant Shareholder” for the purposes of that clause or that Sanbru Australia cannot waive its compliance with the requirements of the constitution. Mr Ashhurst also submits that the fact that some subparagraphs of the definition of “Bad Leaver Event” expressly exclude Sanbru Australia is inconsistent with the operation of cl 16.5 for which the Plaintiffs contend. Mr Ashhurst alternatively contends that the word “requirements” in cl 16.5 of the Shareholders Deed is to be read down to procedural requirements of the clause, although it is not apparent which requirements would fall within that category. In closing submissions, Mr Ashhurst appears to read the word “requirements” in cl 16.5 as directed to conditions precedent before the clause operates, but I do not accept that term has so narrow a meaning as a matter of general usage, and read in the context of the Shareholders Deed.

55. Mr Ashhurst also submits that, if the objective intention of the draftsperson of the Shareholders Deed was to permit Sanbru Australia to avoid the consequences of a “Bad Leaver Event” (as defined), then the definition of that term would have included the words “except in relation to Sanbru” in subclause (b), in the same manner as those words are included in subclauses (c)-(e) of that Definition. I accept that that is one drafting strategy that would have been open, but the availability of one drafting approach does not exclude the use of a different drafting approach, by allowing a waiver under cl 16.5 that would achieve the same result. Mr Ashhurst also refers to Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 at [107]-[108] for the proposition that a rectification suit would be required, if a party seeks to give the words of a contract “a meaning which, by no stretch of language or syntax they will bear”, but it seems to me that the meaning of cl 16.5 for which the Plaintiffs contend does not have that character. Mr Ashhurst also contends that cl 16.5 is void for uncertainty, and makes further submissions as to the meaning of the word “requirement” and the variety of meanings that can be given to the word “waiver” and advances several arguments to support the submission that cl 16.5 of the Shareholders Deed is obscure and uncertain.

56. Mr Giles responds that the waiver of the requirements of cl 16 contemplated by cl 16.5, is “in respect of any Relevant Shareholder” and that provision contemplates that those requirements may be waived in respect of their application to such a shareholder generally, and extends at least to the requirement in cl 16 for that shareholder to transfer its shares at cost price rather than fair value in the relevant circumstances. Mr Giles also submits that the Court should not ignore the word “any” in the phrase “any Relevant Shareholder” and that there is no basis for reading the words “except if it is Sanbru Australia” into that clause, and that there is no obvious commercial reason why Sanbru Australia’s express right to waive the compliance of that clause should be limited to shareholders other than itself.

57. I do not accept Mr Ashhurst’s submission that this clause cannot be invoked by Sanbru Australia in respect of the application of cl 16 to itself. The express words of this clause provide for Sanbru Australia to waive the requirements of that clause “in respect of any Relevant Shareholder” and a “Relevant Shareholder” is defined as any shareholder in relation to which a Transfer Event occurs, not any shareholder other than Sanbru Australia. The giving of that right to Sanbru Australia is not inconsistent with other aspects of the Shareholders Deed which, as Mr Giles points out, confers several specific rights on Sanbru Australia which are not available to other shareholders. A waiver under this clause could operate to the benefit of other shareholders, if it was exercised in their favour, and would also operate to the benefit of Sanbru Australia (and, if necessary, Sanbru Singapore) where Sanbru Australia exercised it in its and their favour. I also do not accept Mr Ashhurst’s submission that the definition of “Bad Leaver Event” is inconsistent with the operation of cl 16.5 for which the Plaintiffs contend. The operation of that clause in respect of Sanbru Australia could have been excluded by introducing excluding words in subclause (b) of the definition of “Bad Leaver Event”, but that is an alternative means of achieving a similar result to allowing Sanbru Australia the discretion to waive cl 16, under cl 16.5, which it may or may not exercise in respect of other shareholders and may predictably exercise in favour of itself.

58. I also do not accept Mr Ashhurst’s submission that the word “requirements” in cl 16.5 of the Shareholders Deed is to be read down to procedural requirements of the clause. It seems to me that the phrase “[t]he requirements of this clause 16”, as a matter of general usage, should be read as extending to all of the requirements of that clause directed to the steps to be taken in respect of a transfer and not given a more limited application. Mr Ashhurst also submits that cl 16.5 does not avoid the consequences of non-compliance with cl 16, but that question does not arise since, if Sanbru Australia has the right to waive, and has waived, the requirements of the clause, then no non-compliance with those requirements or with the clause arises. I cannot see any uncertainty in the clause, whether of the kind considered in Scammell (G) and Nephew Ltd v HC & TG Ouston [1941] AC 251 at 268 or in the authorities which I reviewed in Re Leslie Muir Holdings Pty Ltd [2019] NSWSC 1519 at [37]-[38], to which Mr Ashhurst refers.

53. The question than arises whether Sanbru Australia, having the power to waive the requirements of cl 16 under cl 16.5 of the Shareholders Deed, had done so. I am not persuaded that Sanbru Australia’s earlier actions amounted to a waiver for the purposes of cl 16.5 of the Shareholders Deed, since they are equally consistent with Sanbru Australia simply not having recognised the application of cl 16 of the Shareholders Deed at the relevant time. However, I am satisfied that the express waiver on 30 March 2021 was effective for the purposes of cl 16.5 of the Shareholders Deed. It does not seem to me to matter that that waiver occurred after Mrs Dessent had issued the First Compulsory Transfer Notice, where it occurred before CRS gave effect to any transfer of Sanbru Singapore’s shares to TGD. After a degree of vacillation in oral submissions, it appeared that Mr Ashhurst accepted that proposition.

The Plaintiffs’ claim for election and that Mrs Dessent is estopped from issuing the Compulsory Transfer Notices

60. The Plaintiffs plead (APC [38]) that, by voting in favour of the resolution passed in February 2019, to restructure the shares in CRS including Sanbru Singapore’s shares in CRS, Mrs Dessent waived any right to issue, or elected not to issue, a Compulsory Transfer Notice under cl 16.1 of the Shareholders Deed with respect to the Sanbru Singapore Transfer.

61. Turning first to the applicable legal principles, in Elder’s Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd (1941) 65 CLR 603, the High Court considered a shareholder’s right to rescind an issue of shares, as to which it had not paid the full issue price. Rich ACJ, Dixon and McTiernan JJ observed that an election was not established where a party did not exercise any rights adversely to the company and did nothing inconsistent with a future renunciation of his shares, but “merely acted as if he were a shareholder and failed to disclaim that character”. Mr Ashhurst contended that Mrs Dessent’s actions here were of a similar character; it does not appear to me that that is the case, where she and the other Defendants acted at the 19 February meeting to bring about a reconstruction of shares in CRS, including Sanbru Singapore’s shares in CRS, which would not otherwise have occurred. That seems to me to be more than a mere failure to deny that Sanbru Singapore was a shareholder in CRS.

62. In Sargent v ASL Developments Ltd (1974) 131 CLR 634 (“Sargent”), Stephen J (with whom McTiernan J agreed) observed (at 642) that, for the doctrine of election to operate, “there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses”. His Honour pointed to a variance in the authorities as to the nature of the knowledge which the elector must possess, and then observed that:

“An elector must at least know of the facts which give rise to those legal rights, as between which an election must be made.”

63. His Honour noted that “full knowledge of the material facts” was required, although he also referred to Elder’s Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd above at 617 as authority that knowledge of circumstances such as will provide information from which the decisive fact giving rise to the legal right is “a clear if not a necessary inference” would be sufficient. After a comprehensive review of the authorities, his Honour noted that an elector is deemed to know the terms of his or her own contract and the rights it confers, or at least cannot take advantage of his or her own ignorance, and summarised the knowledge requirement (at 645) as follows:

“All that need be established in order for the doctrine of election to apply is knowledge … of the facts giving rise to inconsistent legal rights”.

The party alleged to have made the election was taken to know of his or her rights under the contract; and knowledge of the relevant facts giving rise to the requisite right was enough to invoke the doctrine.

64. Mason J in turn observed (at 658) that:

“If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon. It is with these considerations in mind that the law attributes to the party the making of a choice, though he be ignorant of his alternative right. For reasons stated earlier the affirming party cannot be permitted to change his position once he has elected.”

65. In Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290; [2005] WASCA 106 at [35]-[39], Steytler P in turn referred to the elements of election, as requiring a choice between two inconsistent legal rights, and requiring “knowledge on the part of the elector and words or conduct sufficient to amount to the making of the election”, with that knowledge being “full knowledge of the material facts”, on the basis that a party to a contract is taken to know of the rights that it confers; and that, unequivocal conduct is required to establish an election that is not consciously made.

66. Mr Giles submits that the concept of election requires that a party be confronted with mutually exclusive causes of action between which it must, in fairness to the other party, make a choice and refers to Sargent for that proposition. In closing submissions, Mr Giles submits it is not necessary for the Plaintiffs to show that Mrs Dessent had actual knowledge of every material fact and that it is sufficient, having regard to Sargent, that she had knowledge of “circumstances such as will provide information from which the decisive fact giving rise to the legal right is ‘a clear if not a necessary inference’”. Mr Giles also submits that, as at 19 February 2019, Mrs Dessent knew that there had been a disposition of shares to Sanbru Singapore, as she accepted in her affidavit evidence and on cross-examination; is taken to know the contractual provision prohibiting transfers of shares under cl 12.1, unless there was consent or, relevantly, a transfer to an Affiliate, and the terms of the definition of Affiliate; knew that, at least prior to the passage of the resolution on 19 February 2019, she had not given her consent to a transfer; and knew that, not knowing whether Sanbru Singapore was an Affiliate, there had been a breach of cl 12.1 and a “Transfer Event” had arisen. I do not accept that submission since, it seems to me, Mrs Dessent’s knowledge, on that basis, was no more than there may or may not have been a breach of the relevant provision, depending on whether Sanbru Singapore was in fact an Affiliate of Sanbru Australia, as defined; and it appears the answer to that question did not come to her knowledge until early 2021.

67. Mr Ashhurst responds that Mrs Dessent did not have sufficient knowledge of the existence of a breach of the relevant provisions to be put to a waiver or election. On balance, I accept that submission, where it seems to me that the requirements of knowledge for a waiver or election are more demanding than the requirements for knowledge in respect of consent to the transaction under cl 12.1(a) of the Shareholders Deed or the lapsing of a reasonable time to give a Compulsory Transfer Notice, which required only that Mrs Dessent, or shareholders generally, had knowledge of the transfer from Sanbru Australia to Sanbru Singapore.

68. The Plaintiffs also pleaded (APC [61]-[65]) but ultimately did not press a claim for conventional estoppel, recognising, correctly, that it added little to their election claim.

The Plaintiffs’ claim that clause 16.2(b)(i) is a penalty

69. Alternatively, the Plaintiffs claim (APC [70]) that cl 16.2(b)(i) of the Shareholders Deed is a penalty and unenforceable. They particularise that claim as follows:

“Particulars

i    Payment of Cost Price as the Transfer Price where a Transfer Event occurs in circumstances where:

A   the shares were acquired at a time when CRS was not performing well; and

B   CRS has, since Sanbru Australia acquired its shares, experienced improved financial performance,

is out of all proportion to the greatest loss that CRS or its shareholders could incur by reason of the transfer of the shares, or any legitimate interest the protection of which clause 16 is intended to serve.

ii    The purpose of the Compulsory Transfer Notice, being to ensure the critical ongoing contribution of Santosh Devaraj as a “Key Person” under the Shareholders Deed to the growth and success of CRS and the value of CRS and the protection of CRS from the material negative impact on the value of CRS were Santosh Devaraj to depart the company (as provided by clause 16.2(c) of the Shareholders Deed, and in Santosh Devaraj’s case, as, or primarily as, a source of finance), is not achieved by the Compulsory Transfer Notice as:

A   the transfer of shares to Sanbru Singapore did not involve Santosh Devaraj departing the business;

B   the transfer of shares to Sanbru Singapore was rather for the benefit of CRS by reason of its reduction of CRS’ payroll tax liability; and

C   the transfer of shares occasioned no damage to CRS.”

70. It is not necessary to determine this claim, given the findings that I have reached as to consent and waiver above. However, I will refer to the case law and indicate the view that I would likely have reached if it was necessary to decide the matter, in deference to the parties’ submissions and against the contingency that an appeal may be brought against the conclusion that I have reached on other grounds.

71. The parties focussed on the concept of a penalty at common law, rather than in equity, in respect of this claim. The approach to a penalty, at common law, has generally had regard to the several propositions identified by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (“Dunlop”) as follows:

“1.   Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case.

2.   The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage …

3.   The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach …

4.   To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:

(a)    It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach…

(b)   It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid … This though one of the most ancient instances is truly a corollary to the last test…

(c)   There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage" …

On the other hand:

(d)   It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties…” [citations of authority omitted]

72. The concept of a penalty was subsequently described in Legione v Hateley (1983) 152 CLR 406 at 445; [1983] HCA 11 by Mason and Deane JJ as “in the nature of a punishment for non-observance of a contractual stipulation” involving “the imposition of an additional or different liability upon breach of the contractual stipulation”. In Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662; [2005] HCA 71, a unanimous High Court in turn observed that:

“The law of penalties in its standard application is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach.”

The Court also there observed (at 667–669) that the unenforceability of a penalty required that the stipulation applicable on breach was “extravagant and unconscionable in amount” or “out of all proportion” by comparison to a genuine pre-estimate of damages.

73. The description of a penalty in Legione v Hateley above was quoted with approval by the High Court in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; (2012) 290 ALR 595; [2012] HCA 30 (“Andrews”) and by Lord Neuberger and Lord Sumption in Cavendish Square Holding BV v Makdessi; Parking Eye Ltd v Beavis [2016] 1 AC 1172; [2015] 3 WLR 1373; [2015] UKSC 67 (“Cavendish”) at [31]. In closing submissions, Mr Ashhurst relied on the outcome in Cavendish that an option to acquire a shareholder’s shares in a company for net asset value, excluding goodwill, where the shareholder breached restraints on competition, was not a penalty. It seems to me that that outcome is of limited assistance, where the valuation basis adopted in that clause was less onerous than an acquisition at cost price in the clause in issue here. It also seems to me to be preferable that I adopt the approach identified in the Australian case law where real differences are emerging between the law of England and Wales and Australian law in respect of penalties.

74. In Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28, Kiefel J (with whom French CJ agreed) referred to the observations of Lord Dunedin in Dunlop and emphasised the requirement that a stipulated sum be “extravagant and unconscionable” before it could be characterised as a penalty and identified the question (at [29]) as whether the relevant payment was “out of all proportion to the interests of the party which it is the purpose of the provision to protect”. Her Honour noted that an interest may be of a business or a financial character and observed that it did not follow from Dunlop that a term which reflected, or attempted to reflect, “other kinds of loss or damage to a party’s interests beyond those directly caused by the breach will be a penalty”. Gageler J observed (at [122]) that the equitable jurisdiction in respect of relief against penalties had not been abolished, although, he added, the occasions for equitable intervention would be comparatively rare. His Honour also referred to Dunlop and subsequent Australian decisions and summarised the necessary inquiry (at [165]) as whether a stipulation is “properly characterised as having no purpose other than to punish”.

75. Keane J in turn pointed (at [220]) to the importance of the values of commercial certainty and freedom of contract and observed that:

“[T]he Courts will not lightly invalidate a contractual provision for an agreed payment on the ground that it has the character of a punishment.”

His Honour also observed (at [221]) that an agreed payment should be struck down where a “gross disproportion is such as to point to a predominant punitive purpose” and that, if the provision is not “distinctly punitive”, then the penalty rule did not displace the parties’ ability to agree to a contractual allocation of benefits and burdens and rights and liabilities following a breach of contract. His Honour also held (at [222]) that the decision in Dunlop did not support a narrow view of the interests that could legitimately be protected by a provision for an agreed payment. Nettle J, dissenting, applied substantially the same test as the majority (at [331]), namely whether the amount of the fee was “wholly disproportionate to the greatest costs which could have been conceived of at the time of entry into the contract”.

76. In Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778, Ward CJ Eq observed (at [2855]) that, in determining whether a provision is a penalty:

“In short, it is necessary, first, to identify the interests which are sought to be protected by the impugned stipulation … and, second, to ask whether the impugned stipulation was a stipulation collateral or accessory to another stipulation (the primary stipulation) which imposed an additional detriment upon [one party] for the benefit of [another party], in the sense that it was in the nature of a security for and in terrorem of the satisfaction of the primary stipulation in a manner that was out of all proportion to the interests of [the party] intended to be protected by the primary stipulation.”

77. It will be convenient to address these three matters in turn. Had it been necessary to determine this issue, I would have been inclined to hold that cl 16.2(b)(i) of the Shareholders Deed protects the legitimate interests of the shareholders in the ongoing contribution of each of the Key Persons (as defined) to the Business, where that is the express rationale for that provision acknowledged by the parties in the Shareholders Deed. It does not seem to me that the clause protects any wider interest in avoiding a transfer of shares to non-shareholders, where the pre-emptive right provisions permit rather than prevent such a transfer after the specified steps are taken.

78. I now turn to the question whether cl 16.2(b)(i) of the Shareholders Deed is a stipulation collateral or accessory to another stipulation which imposes an additional detriment upon one party (relevantly, a shareholder whose shares are to be acquired at cost) for the benefit of another (the acquiring shareholder). Mr Giles submits that a penalty is in the nature of a punishment or detriment imposed upon a party for non-observance of a primary stipulation. He also submits, and I would be inclined to accept, that the relevant primary stipulation is here the requirement that a shareholder must not dispose of a share except in prescribed circumstances under cl 12.1 of the Shareholders Deed, and that the relevant punishment or detriment is imposed by cl 16 which provides for a “Transfer Event” where a shareholder Disposes of shares in breach of the Shareholders Deed, making plain that the detriment is imposed by reason of a breach of the primary requirement.

79. The primary issue in dispute between the parties was whether the provision for the acquisition of shares at cost price under cl 16.2 of the Shareholders Deed was out of all proportion to the interests of the party intended to be protected by the primary stipulation, relevantly the protection of the legitimate interests of the shareholders in the ongoing contribution of each of the Key Persons (as defined) to the Business, and when that was to be determined. Mr Giles submits that cl 16.2(b)(i) of the Shareholders Deed works as a severe punishment or detriment to the shareholders whose shares are to be compulsorily transferred, by forfeiting a shareholder’s shares at a price below their market value. Mr Ashhurst responds that the requirement for transfer of the shares at cost price is fair and proportionate to the interest to be protected, where the value of the shares may have increased or may have decreased, and on the basis that whether the provision is a penalty is to be determined at the date of contracting. I am inclined to think that submission has a degree of unreality about it, where the parties recorded their expectation of an improvement in CRS’s fortunes in the Shareholders Deed and would hardly have entered into the relevant arrangements if they thought it likely that the value of shares in CRS would decline rather than increase.

77. There was, as I noted above, also an issue between the parties as to whether the case law permits the question whether a provision is a penalty to be determined only at the point of contracting or whether, in the case of a provision that provides for a forfeiture of assets rather than a money payment, that question would or could be determined at the date of that forfeiture. There is force in Mr Giles’ submission that Ringrow (at 665) at least leaves open the relevance of a difference between the price payable at the point of transfer of the relevant property and the actual value of what is transferred, where property is transferrable on a particular event. Mr Ashhurst responds with reference to the observation in Dunlop and other English cases quoted with approval by Lord Neuberger and Lord Sumption in Cavendish at [9] that the question whether a damages clause is a penalty falls to be decided as a matter of construction and at the time that it is agreed. Mr Ashhurst also relies on Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551, where Handley JA held that a provision requiring the resale of land where work was not undertaken on it was not a penalty, because the land would never be worth more to the respondent than the re-sale price unless and until it had substantially commenced the necessary building work. It seems to me that that is a finding of fact in the relevant circumstances of that case rather than a statement of legal principle. That finding of fact is not available here, both because there is no reason to think that the existence of the relevant pre-emptive rights would devalue the shares in CRS to their cost price, where shares are ordinarily valued by reference to the net assets which underlie them or the cashflow that may be derived from them; and there is every reason to think that is not the case, given the agreed fact that the value of the shares in Sanbru Australia and Sanbru Singapore as at the date of the Compulsory Transfer Notice substantially exceeded the cost price of those shares. It seems to me that it would not have been necessary to determine this question here, because I would have been inclined to the view that the relevant provision is a penalty on either basis.

78. If whether cl 16.2(b)(i) of the Shareholders deed is a penalty is to be determined at the date of contracting, I would have been inclined to the view that the operation of that clause is wholly disproportionate to the interest identified in the Shareholders Deed as protected by it. A reorganisation in breach of that clause could readily occur where there was no loss of a Key Person’s involvement; the clause does not require any or any sufficient connection between a breach of cl 12 of the Shareholders Deed and the protected interest of avoiding the adverse consequence of a Key Person ceasing to participate in the Business; and, to that extent, its adverse consequences for a shareholder in breach of cl 12 extend well beyond the identified rationale for the reduction of the transfer price to cost price as set out in cl 16.2(c), by reference to the loss of the value contributed by a Key Person (as defined) to CRS.

79. If whether cl 16.2(b)(i) of the Shareholders Deed is a penalty is to be determined at the date of transfer of the relevant assets, then I would have been inclined to the view that the value which the parties have agreed as the minimum value of Sanbru Australia and Sanbru Singapore’s shares in CRS indicates that the operation of the clause in the present circumstances has a significantly penal operation, which enriches TGD by approximately $13 million at Sanbru Australia’s and Sanbru Singapore’s expense.

Plaintiffs’ claim for relief against forfeiture

83. The Plaintiffs also claim (APC [72]-[74]] that cl 16 of the Shareholders Deed is a forfeiture provision and, if the transfer of shares from Sanbru Australia to Sanbru Singapore constituted a Transfer Event in accordance with cl 12.1 of the Shareholders Deed and Mrs Dessent was entitled to issue the First, Second and Third Compulsory Transfer Notices to Sanbru Australia and Sanbru Singapore respectively, then the Transfer Event has occasioned no loss (or, at most trivial loss) to Mrs Dessent or any other shareholder or CRS. They contend that Mrs Dessent’s reliance on clause 16 of the Shareholders Deed to issue the First, Second and Third Compulsory Transfer Notices to Sanbru Australia and Sanbru Singapore respectively is coloured by fraud, mistake, accident and surprise and is otherwise unconscionable and Sanbru Australia and Sanbru Singapore are accordingly entitled to relief against forfeiture of their shares in CRS. I do not consider it necessary to address this aspect of the Plaintiffs’ claim, which does not add anything to the findings which I have reached above and the results which will follow from it, and could not succeed if the other claims which I have addressed above had failed.

Whether cl 16 of the Shareholders Deed applied to Sanbru Singapore as transferee

84. A further issue arises because Mr Dessent and Mrs Dessent and TGD seek to extend the application of cl 16 of the Shareholders Deed beyond Sanbru Australia, which transferred the relevant shares, to Sanbru Singapore which received the transfer of those shares, on the basis that Sanbru Singapore had acceded to the Shareholders Deed and was bound by it before the transfer occurred. I will address this contention briefly, although it will not impact the result in this case given the findings that I have reached on other grounds.

85. In closing submissions, Mr Ashhurst submits that the transfer of shares from Sanbru Australia to Sanbru Singapore was a “Transfer Event” and a “Bad Leaver Event” in relation to Sanbru Singapore, as well as Sanbru Australia, because one shareholder’s disposing of shares to another shareholder is an event “in relation to” both shareholders for the purposes of the definition of “Transfer Event”, and subclause (b) of the definition of “Bad Leaver Event” uses the phrase “any shareholder” rather than the phrase “that shareholder” that is used in subclauses (d)-(e) of the definition of “Bad Leaver Event” and subclause (f) of the definition of “Transfer Event”. It seems to me that that submission places undue weight on minor differences of language between those provisions. Mr Ashhurst also submits that the Plaintiffs’ interpretation would defeat the “purpose of the substantive provisions” of the definitions, but it seems to me that that submission wrongly assumes that that purpose can be derived other than by the proper construction of the relevant clauses in their context. While there is force in Mr Ashhurst’s submission that that clause does not offer complete protection to other shareholders, if read in the manner for which the Plaintiffs’ contend, there is no reason to assume that the parties intended to achieve such complete protection by imposing sanctions on a third party acquirer of shares, rather than reading the clause in accordance with its terms.

The Plaintiffs’ oppression claim

86. Finally, the Plaintiffs contend (APC [75]-[76]) that these matters have the result that the affairs of CRS have been conducted in a manner that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against Sanbru Australia and Sanbru Singapore; or contrary to the interests of the members as a whole, and the    First, Second and Third Compulsory Transfer Notices, the First Transfer Offer, the Acceptance Notice, the Allocation Notice, the purported transfer of Sanbru Australia’s and Sanbru Singapore’s shares to TGD, the Second Transfer Offer and the Third Transfer Offer should be set aside or orders made that they be of no effect. Mr Giles referred to Gambotto v WCP Ltd (1995) 182 CLR 432 at 447; (1995) 16 ACSR 1; [1995] HCA 12, where the High Court observed, in connection with a compulsory acquisition of a minority’s shares brought about by the amendment to a company’s articles, that “an expropriation at less than market value is prima facie unfair” and that “the onus lies on those supporting expropriation to show that the power is validly exercised”. The facts of that case are some distance from the facts of the present case, and it does not seem to me to be necessary here to consider the principles applicable to the expropriation of shares by constitutional amendment, where the relevant provisions were included in the Shareholders Deed from the outset.

87. It is not necessary to determine the Plaintiffs’ oppression case given the findings I have reached on other grounds above. Had it been necessary to do so, I would have found that case was established on wider grounds than the expropriation of Sanbru Australia’s and Sanbru Singapore’s shares in CRS at cost price. The principles applicable to an oppression claim under s 233 of the Corporations Act are well-established. Section 232 of the Corporations Act provides that the Court may make an order under s 233 if:

“(a)   the conduct of a company’s affairs; or

(b)   an actual or proposed act or omission by or on behalf of a company; or

(c)   a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d)   contrary to the interests of the members as a whole; or

(e)   oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.”

88. This section and its predecessors extend to conduct involving “commercial unfairness” or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68; Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152, not challenged in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310; 84 ACSR 121; [2011] NSWCA 104 at [140]. The applicable principles were summarised by Stevenson J in Munstermann v Rayward [2017] NSWSC 133 at [22] as follows (omitting citations):

“(1)    The test of oppression is an objective one of unfairness ...

(2)    The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly …

(3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director ...

(4)    Conduct of a company’s affairs may be oppressive even though the conduct is otherwise lawful ...

(5)    Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole …

(6)    A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used …

(7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing …

(8) The discretion under s 233 is wide as to the appropriate remedy …

(9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive ….

(10) The aim of any order under s 233 must be to put an end to the oppression …

(11)    The court should only look to wind up an otherwise solvent company as a “last resort” …

(12)    As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party ….

(13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances.”

89. I also bear in mind the observation in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above that each case has to be considered on its own facts and circumstances, and by reference to the conduct as a whole.

90. Had it been necessary to determine this claim, I would have found that the matters which the parties have addressed in respect of other claims were sufficient to establish the Plaintiffs’ claim in oppression. It seems to me that the issue of the Compulsory Transfer Notices in the circumstances to which I have referred above would have amounted to oppression, where Mr Dessent had executed relevant documents to give effect to the transfer of shares in Sanbru Australia to Sanbru Singapore, even if he did not trouble to read them; Mr Devaraj was not then asked who were the shareholders in Sanbru Singapore or the beneficiaries of any trust, if that mattered to Mr Dessent or other shareholders; Mrs Dessent and Mr Mark Dessent knew the fact of that transfer no later than February 2019 and Mrs Dessent also knew by that time that the transfer was to a Singapore entity; Mrs Dessent also knew, through her dealings with Revenue NSW, that it was to CRS’s financial advantage that Revenue NSW had concluded that Sanbru Australia and Sanbru Singapore were not under common control, even if she did not fully understand the basis of that conclusion; and, in seeking to have Sanbru Australia’s and Sanbru Singapore’s shares transferred to them at cost long after the transfer occurred, the other shareholders in CRS do not offer to compensate Sanbru Australia or Sanbru Singapore for the cost of providing interest free finance to CRS over a long period on the basis that those entities were shareholders in CRS.

Plaintiffs’ claim as to validity of members’ meeting and resolution of 1 April 2021

91. The Plaintiffs plead (APC [77]- [87]) that the notice of general meeting given by Sanbru Australia and Sanbru Singapore on 5 March 2021 was given in accordance with cll 51 and 53-56 of CRS’s Constitution and s 249F of the Corporations Act; that, if the First Compulsory Transfer Notice was valid pursuant to cl 16.1 of the Shareholders Deed, cl 63(1) of the Constitution prevails to the extent that it is inconsistent with cl 16.1 of the Shareholders Deed; and the meeting of 1 April 2021 was validly convened and the resolutions passed at that meeting, removing Mr Dessent as a director of CRS and appointing Mr Devaraj as a director, were validly passed.

92. In closing submissions, Mr Ashhurst identifies Mr Dessent’s and Mrs Dessent’s and TGD’s case in respect of the 1 April 2021 meeting as being that the meeting was invalid by reason of the absence of a quorum, on the basis that Sanbru Australia was unable to vote at that meeting after the Compulsory Transfer Notice was issued on 25 March 2021. I do not accept that submission, where Sanbru Australia would have remained a shareholder on the register until the transfer was effected. It follows from the findings that I have reached above that that meeting was valid, because Sanbru Australia’s and Sanbru Singapore’s shares had not been transferred to TGD on that date, nor had any basis for such a transfer arisen.

Mr and Mrs Dessent’s and TGD’s Cross-Claim

93. By Interlocutory Process filed on 7 June 2021, Mr and Mrs Dessent and TGD seek a declaration that TGD validly acquired Sanbru Australia’s shares in CRS pursuant to cll 13 and 16 of the Shareholders Deed; or alternatively that the Compulsory Transfer Notice issued by Mrs Dessent on 1 June 2021 in relation to Sanbru Australia’s and Sanbru Singapore’s shares was validly issued. It follows from the findings that I have reached above that those declarations cannot be made. Mr and Mrs Dessent and TGD initially also sought, but ultimately did not press, a declaration that, if the Court finds the resolution passed at a meeting of members of CRS was otherwise valid, that resolution amounted to oppression. That claim was rightly not pressed given Mr Dessent’s claim in the hearing that he systematically failed to read documents that had been provided to him and signed by him in his capacity as a director of CRS.

Orders

94. I direct the parties to bring in their agreed orders within 7 days to give effect to this judgment and as to costs, or otherwise their respective draft orders and short submissions as to the differences between them, which will likely include orders rectifying ASIC’s register as to the shareholders in CRS of the kind that I made in Re New Seabay Kitchen Pty Ltd [2019] NSWSC 1904.

**********

Amendments

21 July 2021 - Amend Dr Meyerowitz-Katz to D Meyerowitz-Katz

[2] last sentence - delete the words "The Fifth Defendant"

[57] 2nd line - "Sanbru Singapore" to "Sanbru Australia"

[81] 2nd line - insert word "have" between "I would" and "been inclined"

Decision last updated: 21 July 2021