Lion Nathan Australia Pty Ltd (ACN 008 596 370) v Coopers Brewery Ltd
[2005] FCA 1531
•1 NOVEMBER 2005
FEDERAL COURT OF AUSTRALIA
Lion Nathan Australia Pty Ltd (ACN 008 596 370) v Coopers Brewery Ltd
(ACN 007 871 409) [2005] FCA 1531INTERLOCUTORY APPLICATION – Dismissal of proceedings - O 20 r 2 and O 11 r 16 – no reasonable cause of action – share buy-back scheme – Articles of Association – express restriction or prohibition – meaning of transfer – transfer to members – power to dismiss should be exercised with exceptional caution – insufficient factual material – inappropriate use of power to dismiss proceedings
Corporations Act 2001 (Cth) s 125(1), s 140(1), s 257B, s 257H
Dey v Victorian Railways Commissioners (1949) 78 CLR 62 cited
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 cited
Webster v Lampard (1993) 177 CLR 598 cited
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 cited
Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728 considered
Pacific Carriers Ltd v BNP Paribas (2004) 208 ALR 213 cited
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 211 ALR 342 cited
Re Giga Investments Pty Ltd (in admin) (1995) 17 ACSR 472 cited
Bateman v Newhaven Park Stud Ltd (2004) 29 ACSR 454 cited
Re George Raymond Pty Ltd; Salter v Gilbertson (2000) 36 ACSR 381 citedLION NATHAN AUSTRALIA PTY LTD (ACN 008 596 370) v COOPERS BREWERY LTD (ACN 007 871 409)
No SAD 140 of 2005
FINN J
ADELAIDE
1 NOVEMBER 2005
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 140 OF 2005
BETWEEN:
LION NATHAN AUSTRALIA PTY LTD
ACN 008 596 370
APPLICANTAND:
COOPERS BREWERY LTD
ACN 007 871 409
RESPONDENTJUDGE:
FINN J
DATE OF ORDER:
1 NOVEMBER 2005
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
1. The respondent’s Notice of Motion dated 30 September 2005 be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 140 OF 2005
BETWEEN:
LION NATHAN AUSTRALIA PTY LTD (ACN 008 596 370)
APPLICANTAND:
COOPERS BREWERY LTD (ACN 007 871 409)
RESPONDENT
JUDGE:
FINN J
DATE:
1 NOVEMBER 2005
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
In this matter Coopers Brewery Ltd (“Coopers”) moved under O 20 r 2 of the Federal Court Rules, or, in the alternative, under O 11 r 16 to have the proceeding brought against it by Lion Nathan Australia Ltd (“Lion Nathan”) dismissed, or else Lion Nathan’s Statement of Claim struck out on the basis that no reasonable cause of action is disclosed.
Put shortly, Lion Nathan’s proceeding challenges, in nine distinct causes of action, the propriety of Coopers’ buy-back of its shares from sixteen of its then shareholders under a share buy-back scheme conducted in accordance with the requirements of Division 2 of Part 2J.1 of the Corporations Act 2001 (Cth) (“the Act”). Central to Lion Nathan’s claims are the allegations that the shares so bought back were transferred to Coopers and the transfers of those shares were registered without compliance with the requirements of Cooper’s Articles of Association (“the Articles”).
By way of preface to a consideration of the parties’ contentions, I should note the following well accepted principles to be applied in motions such as the present.
(i)The power to summarily dismiss an action as disclosing no reasonable cause of action should be exercised with “exceptional caution” and only in the clearest of cases: Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130; Webster v Lampard (1993) 177 CLR 598 at 602-603.
(ii)That need for exceptional caution is nowhere more important than in a case where the ultimate outcome depends upon the resolution of some disputed issue of fact: Webster v Lampard, at 603.
(iii)While the power should not be exercised “unless it is clear that there is no real question to be tried”: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99; “mere complexity of argument is not of itself a reason in an otherwise appropriate case not to strike out the statement of claim or to dismiss the action”: Charlick Trading Pty Ltd v Australian National Railways Commission unreported FCA 27 March 1997, Mansfield J, emphasis added.
To foreshadow my conclusions, the present is not an appropriate case in which to exercise this power.
THE CORPORATIONS ACT
By way of necessary background to the Act’s share buy-back scheme, I would note the following provisions which have assumed some significance in the parties’ contentions. First, s 125(1) provides that if a company has a constitution – and Coopers does – it may contain “an express restriction on, or a prohibition of, the company’s exercise of any of its powers”. Lion Nathan’s principal contention on this motion is that the Articles contain such a prohibition. This is denied by Coopers.
Secondly, s 140(1) of the Act contains insofar as presently relevant that:
“A company’s constitution … that apply to the company have effect as a contract:
(a)between the company and each member; and
(b)between the company and each director and company secretary; and
(c)between a member and each other member;
under which each person agrees to observe and perform the constitution and rules so far as they apply to that person.”
The provisions of Division 2 of Part 2J.1 of the Act permitting a company to buy back its own shares is premised on the requirements of s 257A. That section provides, insofar as presently relevant, that a company may buy-back its own shares if it follows the procedures laid down in the Division. The type of buy-back adopted by Coopers was an “equal access scheme” within the “10/12 limit”: see s 257B.
An “equal access scheme” is one required by s 257B to satisfy the following conditions:
(a)the offers under the scheme relate only to ordinary shares;
(b)the offers are to be made to every person who holds ordinary shares to buy back the same percentage of their ordinary shares;
(c)all of those persons have a reasonable opportunity to accept the offers made to them;
(d)buy-back agreements are not entered into until a specified time for acceptances of offers has closed;
(e)the terms of all the offers are the same.
I emphasise in passing that the language of this subsection is the contractual language of “offer”, “acceptance” and “agreement”.
Apart from imposing obligations on a company both to lodge specified documentation with ASIC: s 257E; and to do so within a prescribed time before the buy-back agreement of the present type is entered into: s 257F(b); the Act requires disclosure in the offer of all information known to the company “that is material to the decision to accept the offer”: s 257G.
Section 257H provides:
“257H(1) Effect of acceptance of the buy-back offer on share rights. Once a company has entered into an agreement to buy back shares, all rights attaching to the shares are suspended. The suspension is lifted if the agreement is terminated.
257H(2) Shares transferred to the company and cancelled. A company must not dispose of shares it buys back. An agreement entered into in contravention of this subsection is void.
257H(3) [Cancellation on transfer back] Immediately after the registration of the transfer to the company of the shares bought back, the shares are cancelled.”
Importantly, Note 1 to s 257A of the Act specifies that:
“If a company has a constitution, it may include provisions in the constitution that preclude the company buying back its own shares or impose restrictions on the exercise of the company’s power to buy back its own shares.”
Again I foreshadow that Lion Nathan contends – and Coopers disputes – that the pre-emption provisions of Coopers’ Articles of Association constitute such an express prohibition.
Finally, I should make brief reference to the evolution of buy-back schemes in Australia’s corporations legislation.
In 1989, the then Companies Code was amended to permit companies to pay shareholders to cancel ordinary shares but only in prescribed circumstances. The legislation only permitted companies to cancel shares in return for consideration paid by the company to the shareholder, and did not permit companies to exercise any rights as shareholders or otherwise deal in the shares to be cancelled.
The Corporations Law, which came into operation on 1 January 1991, continued the 1989 regime by Division 4B of Part 2: “Permitted Buy-back of Shares”. Under this Corporations Law procedure, a number of stringent conditions had to be met before a company could conduct a share buy-back. Section 206DA contained a general, preliminary condition:
“The first condition is that the company’s articles contain a buy-back authorisation [as defined in s 206BB] at the relevant time.”
In December 1995, the First Corporate Law Simplification Act 1995 (Cth) relaxed the controls and extended the ability of a company to buy-back shares. One of the changes was that there was no longer any need for companies to have buy-back authorisations in their constitutions. The previous scheme was repealed by s 3 and Schs 1 and 2 of the First Corporate Law Simplification Act 1995 (Act No 115 of 1995), operative as at 9 December 1995.
I refer to this history for this reason. While Coopers’ Articles contained pre-emptive provisions relating to share transfers for some period prior to 1995, those 1995 Articles were amended, seemingly at the time, in consequence of what in the Statement of Claim has been called the “Coopers Shares Agreement” of 3 March 1995, to give Lion Nathan what I will call the “Lion Nathan pre-emptive right”.
At the time of the Coopers Shares Agreement (i.e. before the 1995 Simplification Act), Coopers’ Articles did not contain a provision authorising a buy-back such as was statutorily required at that time.
COOPERS’ CONSTITUTION
There are only two provisions of the Memorandum of Association (“the Memorandum”) to which I need refer although I should make the following additional comments. The original Memorandum appears to have been lodged in 1923. It clearly has been amended since then.
Clause 2 of the Memorandum provides that:
“2.The Company has without limitation all powers conferred on companies by the Corporations Law.”
Clause 4 in turn provided that the capital of the company comprised $10,000,000.00 divided into 5,000,000 shares of $2 each. It is not clear on the material before me whether or not this clause was repealed by s 1427(1) of the Company Law Review Act 1998.
Turning to Coopers’ Articles, the provisions dealing with transfer of shares are the ones of principal moment. Articles 38 to 65 deal with the transfer and transmission of shares. Articles 38, 39 and 40 are of central importance. They provide respectively:
“38.Notwithstanding the provision of any other Article including Article 54, the Directors must register any transfer of shares which requires registration and which is expressly permitted by Articles 40-53 or which is made in compliance with such Articles. No member may make any transfer of shares and the Directors must not register any transfers of shares without complying with Articles 40-53.
39.In Articles 38-53, ‘transfer’ includes:-
(a)sell, assign, offer, dispose of, transfer or deal in any way with any right, title or interest in any share (whether legal or beneficial and whether for valuable consideration or not); and
(b)to agree to sell, assign, offer, dispose of, transfer or deal in any way with any right, title or interest in any share (whether legal or beneficial and whether for valuable consideration or not); and
(c)create, declare or allow to be created any trust over any share.
A member shall be entitled to mortgage, charge or otherwise encumber its shares provided that if the person taking the mortgage, charge or encumbrance seeks to become or have some other person become the registered holder of the shares the member will then be deemed to have offered to sell those shares to the other members. In such event that member irrevocably authorised and empowers the Directors and for such purposes appoints the Directors as its agent and attorney to sign a Transfer notice under Article 40 with respect to those shares. The price of those shares will be the value as certified by the Auditor under Article 42.
40.Except where the transfer is made pursuant to Article 53 the person proposing to transfer any share (hereinafter called ‘the proposing Transferor’) shall give notice in writing (hereinafter called ‘the Transfer Notice’) to the Company that the proposing Transferor desires to transfer the same. Such Transfer Notice shall specify the sum the proposing Transferor fixes as the fair value and shall constitute the Company agent of the proposing Transferor for the sale of the share to any member of the Company at the price so fixed or at the option of the Purchaser at the fair value to be fixed by the Auditor in accordance with these Articles. A Transfer Notice may include several shares and in such case shall operate as if it were a separate notice in respect of each. A Transfer Notice shall not be revocable except with the sanction of the Directors.”
Subsequent provisions deal with the finding of a “purchasing member”: Article 41; independent valuation of the shares (“the fair value”) in the event of a difference over price: Article 42; offering the shares to designated institutions within a specified period in the event of no willing purchasing member being found: Article 46; offering the shares to Lion Nathan if the institutions fail to notify a desire to purchase within a specified time: Article 49.
ADDITIONAL BACKGROUND MATTERS
First, the Coopers Buy-Back offer was for up to 10 per cent of the ordinary shares in Coopers. It in fact yielded only 2.1 per cent of the ordinary shares from the sixteen shareholders who took up the offer.
Secondly, the Coopers Shares Agreement is not in evidence before me, though it is skeletally described in the Statement of Claim. The modification of Coopers’ Articles to provide for Lion Nathan’s pre-emptive right was apparently an obligation imposed by the Agreement. The Statement of Claim (inter alia) pleads breaches of express and implied terms by Coopers’ purchasing and becoming registered as the holder of the Buy-back shares without complying with the provisions of the Articles to which I have referred.
To anticipate my conclusions, this agreement would appear to constitute a part of the factual matrix in which to construe the provisions of Coopers’ Articles after their amendment so as to confer the Lion Nathan pre-emption right.
THE PARTIES’ CONTENTIONS
Coopers relies upon three contentions. These are (i) the articles do not contain for s 125(1) purposes an express restriction on, or prohibition of, its exercise of Coopers’ power to avail of the buy-back provisions of the Act; (ii) the word “transfer” in Article 39 of the Articles on its proper construction does not extend to the buy-back which, it is said in reliance on Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728, did not “transfer” to (i.e. vest in) Coopers, the same right or interest as was formerly held by a transferor; and (iii) in any event, the Articles are not intended to catch a transfer to the company, but only transfers to outsiders in order to keep the register within a particular and defined set of members.
Lion Nathan’s position is that the transfer provisions of the Articles expressly preclude utilisation of the buy-back scheme of the Act; the Articles have their own definition of “transfer” which clearly extend to a transfer under the statutory scheme; and the issues of construction are, in part, over the construction of the Corporations Act but they also involve the construction of the Articles and evidence has not yet been put on as to the factual matrix in which the construction of the Articles as a contract can properly be undertaken.
I indicated at the outset that this is not an appropriate case in which to exercise my powers under either O 20 r 2 or O 11 r 16. Whether or not it will be found to be the case that the word “transfer” in Article 39 ought properly be construed so as to encompass a buy-back such as was effected under the Act by Coopers and, secondly, that the pre-emptive provisions in Coopers’ Articles expressly precluded Coopers from availing of the Act’s buy-back power, it is inappropriate that I now express a concluded view on these questions. The reason for this is that I am not satisfied that the materials presently before me are adequate and appropriate to determine the various issues of construction raised. In particular, I am bereft of information both as to the factual matrix in which to construe Coopers’ Articles of Association bearing in mind in particular that they have the effect of a contract: see generally Ford’s Principles of Corporations Law Vol 1 [6.080]; and see also Pacific Carriers Ltd v BNP Paribas (2004) 208 ALR 213 at [22]; Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 211 ALR 342 at [40]; and, in particular, as to the significance of the Coopers Share Agreement and to the extent to which, if at all, it provides context for construing the share transfer provisions after the Lion Nathan amendments to the Articles were made.
Lion Nathan indicated in submissions that it had not as yet the evidence on affidavit relevant to the construction of the Articles. Whatever the actual significance of that evidence in resolving the issues of construction – both in relation to the proper construction of the Articles for the purposes of s 125(1) of the Act and to the meaning of “transfer” in Article 39 – it has the potential to be relevant to either. It is for this reason that in exercising the “exceptional caution” required of me, I will dismiss Coopers’ motion.
While I have not, for the reasons I have given, reached a concluded view on the issues I have raised – and they will arise in the context of the hearing of the matter – it is appropriate I advert to the following questions.
First, the Coopers Share Agreement leading to the Lion Nathan amendment of the Articles took effect when Coopers had no power to buy back its shares. Its Articles contained no provision authorising it to do so. In consequence it may be said that the language of the Articles understandably addressed, in particular, transfers to persons other than the company. Nonetheless, was the language of the article (especially as modified in the context of the Coopers Share Agreement) such as to warrant its application to a state of affairs which may not have been envisaged at the time: Re Giga Investments Pty Ltd (in admin) (1995) 17 ACSR 472; but to which it could be applied?
Secondly, while the Victorian Court of Appeal in Coles Myer Ltd v Commissioner of State Revenue held that a buy-back arrangement did not, for stamp duty purposes, operate as a transfer of marketable securities within the meaning of the Stamps Act 1958 (Vic), is this decision properly distinguishable in the present setting given both the language of Article 39 and the contractual language of s 257B(2) and s 257H(1); cf Bateman v Newhaven Park Stud Ltd (2004) 29 ACSR 454? As Article 39 clearly encompasses a sale and purchase, and assuming for present purposes that the language of the Offer made to the shareholders was that of sale and purpose, does it matter that Coopers was unable to enjoy the bought back shares in the way that the selling shareholders did: cf Re George Raymond Pty Ltd; Salter v Gilbertson (2000) 36 ACSR 381 at [17] ff?
Thirdly, if the Articles have the construction propounded by Lion Nathan, do they expressly restrict or prohibit Coopers’ resort to the Act’s buy-back scheme in that in Article 38 they expressly preclude a member from making “any transfer of shares” and the directors from registering “any transfers of shares” without complying with Articles 40-53? In determining whether there is such a prohibition as s 125(1) stipulates, is one concerned with the form or the substance of the alleged prohibition or restriction?
In my view, it would be inappropriate to dispose of this proceeding in a summary manner. It may be that in the end Coopers’ contentions may prevail. However, absent an understanding of the context – and it appears to be a complex one – in which the present dispute arises, I am not satisfied that it would be fair or proper to accede to the motion. It is not appropriate to engage in construction in a vacuum.
I will order that Coopers’ motion of 30 September 2005 be dismissed.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn . Associate:
Dated: 1 November 2005
Counsel for the Applicant: Mr A Myers QC with Mr M Wyles and Mr R Strong Solicitor for the Applicant: Mallesons Stephen Jaques Counsel for the Respondent: Mr R Whitington QC with Mr M Blue QC and Mr Blight Solicitor for the Respondent: Piper Alderman Date of Hearing: 26 October 2005 Date of Judgment: 1 November 2005
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