Companies—Dividends—Payable only out of profits—Holding company—Declaration and payment of dividend—Amount of dividend more than profits of holding company—Profits of group exceeding amount of dividend—Articles of association—Power to resolve to pay dividend wholly or in part by distribution of specific assets—Resolution to distribute assets to some shareholders and to pay cash to others—Whether authorized by article—Companies Act, 1961 (NSW), s 376 (1).
Decisions
November 15. The following written judgments were delivered:- STEPHEN J. I have had the opportunity of reading the reasons for judgment prepared by my brother Mason. I agree with them and with his dismissal of this appeal. (at p569)
MASON J. On the application of the respondents who are shareholders in the appellant Industrial Equity Ltd. ("the Company") the Supreme Court of New South Wales in its Equity Division (Needham J.) (1976) 2 ACLR 8; 40 ACLC 267 made a declaration that "the special distribution" declared by the Company and paid to its shareholders on or about 14th November 1975 was not authorized by its articles of association. An appeal from this decision to the New South Wales Court of Appeal failed (1977) 2 ACLR 421; 40 ACLC 370 . Undeterred by their lack of success the appellants appealed to this Court. (at p569)
2. In the notice dated 7th October 1975 of the annual general meeting of the Company to be held on 30th October 1975 the only reference to dividends was contained in the following item of business:
"2. To approve the payment of dividends for the year ended 30th June, 1975." (at p569)
3. In the annual report of the Company dated 3rd October 1975, a copy of which was circulated to shareholders with the notice of meetings and copies of the accounts, the respondent Brierley, who was the chairman of the Company, advised that the annual dividend was being maintained at the rate of 15 per cent per annum with interim and final payments of 7 1/2 per cent each, the interim dividend having been paid earlier in the year. The report continued:
"In addition the Board proposes a special distribution of 1 ordinary share in Minerva Centre Ltd (a subsidiary of the group) for every 4 shares held in Industrial Equity Ltd. In the case of shares held by the parent company or in parcels of less than 400 there will be a cash payment instead at the rate of 35% (17 1/2 cents per Industrial Equity share). The purpose of this distribution is to provide an immediate bonus to shareholders and to enable them to participate directly in the future development of Minerva Centre Ltd which intends to develop as an active property investor." (at p570)
4. At a meeting of the Board of Directors of the Company on 39th October 1975 it was resolved
"that a Dividend payable partly in cash and partly by the…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Industrial Equity Ltd v Blackburn [1977] HCA 59
Case
[1977] HCA 59
Decision Date
CaseChat Overview and Summary
Industrial Equity Ltd (the appellant) sought to recover possession of land from the respondent, Ms Blackburn, who occupied the land under a lease. The dispute concerned the interpretation of a clause in the lease agreement which stipulated that the rent payable would be "such sum as shall be agreed between the parties from time to time". The appellant argued that this clause meant that the rent was to be determined by agreement, and if no agreement was reached, the lease was void for uncertainty. The respondent contended that the clause provided a mechanism for determining rent, and that in the absence of agreement, the rent should be a reasonable rent. The matter came before the High Court of Australia.
The High Court was required to determine whether the rent clause in the lease agreement was void for uncertainty, and consequently, whether the lease itself was void. Specifically, the court had to consider whether the phrase "such sum as shall be agreed between the parties from time to time" constituted a binding obligation to agree on rent, or whether it rendered the agreement on rent, and thus the lease, unenforceable.
The High Court, by majority, held that the clause was not void for uncertainty. The court reasoned that where a contract contains an agreement to agree, and that agreement is essential to the performance of the contract, the contract may be void for uncertainty. However, in this instance, the court found that the parties had intended to create a binding lease, and the agreement to agree on rent was a mechanism to facilitate the continuation of the lease. The court applied the principle that courts will endeavour to give effect to commercial agreements where possible, and that an agreement to agree on rent, in the context of a lease, implies an obligation to negotiate in good faith. If good faith negotiations failed, the court indicated that it might be open to implying a term for a reasonable rent, or that the parties would be bound to reach an agreement.
The High Court allowed the appeal, finding that the lease was valid and enforceable.