ITC Limited v Timbercorp Limited (in Liquidation) - [2009] SASC 342

Supreme Court of South Australia
(Civil)
ITC LIMITED v TIMBERCORP LIMITED (IN LIQUIDATION)
[2009] SASC 342
Judgment of The Honourable Justice Kourakis (ex tempore)
6 November 2009
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS
CORPORATIONS - OTHER MATTERS
The plaintiff and the defendant are large companies involved in the forestry industry - they entered into a joint venture to construct and operate a woodchip export terminal called PPT - each owned 50% of the shares of PPT - if one party offered to sell its shares in PPT to a third party, the Shareholders' Deed gave the other party the right of pre-emption - if a "default event" occurred to one party pursuant to cl 7.4 of the Shareholders' Deed, the other party, upon commissioning an independent valuation of the shares, had the option to purchase the defaulting party's shares at the lesser price of $1 per share or the price of the shares as valued - the defendant went into administration on 23 April 2009 - the defendant then went into liquidation and the administrators were appointed as liquidators on 29 June 2009 - during the period of 18 to 30 September 2009 the liquidators of the defendant were engaged in the process of finding a third party purchaser for the shares - however, the plaintiff exercised its call option pursuant to cl 7.2 of the Shareholders' Deed, stating its entitlement to purchase the shares for $1 per share - a third party agreed to purchase the shares on 30 September 2009, after which the defendant issued a Notice of Sale to the plaintiff, offering the option to exercise its right of pre-emption - whether a "default event" occurred to the defendant - whether the plaintiff complied with the pre-requisites for the valid exercise of the option to purchase the shares at $1 per share - whether the defendant issued a valid notice of sale to the plaintiff.
Held: The ordinary meaning of “administrator” appearing in cl 7.4 is wide enough to include a liquidator – by appointing a liquidator, the defendant threatened to cease business, which is a default event – the defendant’s negotiations with the third party and the entry into the Sale and Purchase Deed on 30 September 2009 were not a disposal of the shares and not default events for the purposes of cl 7.4(e) – the plaintiff complied with the pre-requisites for the valid exercise of the option to purchase the shares at $1 per share – the defendant’s notice of sale was served after the plaintiff exercised its default option and is therefore ineffective.
Corporations Act 2001 (Cth) s 439C(a), s 477(1)(a), s 506, referred to.
Lindholm, in the matter of Opes Prime Stockbroking Limited [2008] FCA 1425; Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500; Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64; J & H Manktelow Pty Ltd v Alloway Grazing…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2009] SASC 342
Decision Date: 6 November 2009

CaseChat Overview and Summary

ITC Limited and Timbercorp Limited were parties to a joint venture agreement, each owning 50% of the shares in PPT, a woodchip export terminal. Following the defendant's entry into liquidation, the plaintiff exercised its right of pre-emption, seeking to purchase the defendant's shares for $1 per share. The defendant's liquidators challenged the validity of the plaintiff's exercise of this right, arguing that the plaintiff had not complied with the necessary pre-requisites and that the defendant's subsequent notice of sale to the plaintiff was valid. The central legal issues were whether a "default event" had occurred under clause 7.4 of the Shareholders' Deed, whether the plaintiff had complied with the pre-requisites for the valid exercise of the option to purchase the shares at $1 per share, and whether the defendant had issued a valid notice of sale to the plaintiff.

The court found that the term "administrator" in clause 7.4 of the Shareholders' Deed was broad enough to encompass a liquidator. The appointment of a liquidator by the defendant constituted a default event, as it threatened to cease the business. The court also determined that the defendant's negotiations with a third party and the subsequent entry into the Sale and Purchase Deed were not disposals of the shares and did not constitute default events under clause 7.4(e). Furthermore, the plaintiff had complied with the pre-requisites for exercising its option to purchase the shares at $1 per share. Lastly, the defendant's notice of sale to the plaintiff was issued after the plaintiff had exercised its default option, rendering it ineffective.

The court concluded that there was no breach of clause 3.5 and no need to declare the existence of default events under clause 7.4. The plaintiff would be heard on the precise orders to be made in accordance with the court's reasons.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

KOURAKIS J

The plaintiff contends that this is not an issue on the pleadings. I have found that there is no breach of cl 3.5 and the question does not therefore arise. In addition, there is no purpose to be served by making the declaration in the light of my finding as to the existence of default events under cl 7.4.Conclusion I will hear the parties as to the precise orders which should be made in accordance with these reasons.

Ratio Decidendi

Legal Principle Established

Established by: KOURAKIS J

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