Perera v Waranto Pty Ltd
[2004] VSC 465
•23 November 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 4280 of 2004
| CHRISTOPHER STEVE LEON PERERA | Plaintiff |
| v | |
| WARANTO PTY LTD & ORS | Defendants |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 November 2004 | |
DATE OF JUDGMENT: | 23 November 2004 | |
CASE MAY BE CITED AS: | Perera v Waranto Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 465 | |
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CORPORATIONS – CONTRACTS - interpretation of agreement restricting sale or transfer of shares - whether plaintiff had given a valid transfer notice in respect of his shares pursuant to an “option deed” – whether defendant shareholders had repudiated option deed
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Corbett | Strongman & Crouch |
| For the Defendants | Mr A T Broadfoot | Richmond & Bennison |
HIS HONOUR:
The plaintiff (“Perera”) is the holder of 1800 Class A (non-voting) shares in the first defendant, Waranto Pty Ltd (“Waranto”). By originating process filed 28 January 2004, the plaintiff sought an injunction pursuant to s.1324 of the Corporations Act 2001 (Cth) (“the Act”) requiring Waranto and its directors (the second, third, fourth and fifth defendants) to accord to the plaintiff all the rights of a shareholder of Class A shares in Waranto in accordance with the Act and the articles of association of Waranto and, if necessary, an order validating the issue of those shares. The plaintiff further sought a declaration that an option to purchase deed dated 28 June 1999 (“the Option Deed”) between the plaintiff and the second, third and fourth defendants had been terminated.
Waranto was incorporated on 16 June 1998. The plaintiff was a director of Waranto from 22 September 1998 until 1 April 2003. The second defendant (“Chandramohan”), the third defendant (“Suriyakumar”) and the fourth defendant (“Hillier”) are and have been since 5 November 1998 directors of Waranto. The fifth defendant is and has been a director of Waranto since 5 November 2003, replacing another director.
Pleadings were ordered in the proceeding and, arguably, the issues raised by the originating process and by the pleadings are wider than strictly might be raised by a proceeding under the Act rather than by way of writ. However the parties were content to proceed upon the basis that the issues raised should be dealt with in this proceeding.
Although a number of factual issues were raised in the original defence filed by the defendants, an amended defence considerably narrowed the issues between the parties and the issues were further narrowed at trial. The parties agreed that two issues were to be decided by the Court which may be stated in essence as follows:
(i)Had the plaintiff given a valid notice in respect of his 1800 shares pursuant to the Option Deed?
(ii)Had the second, third and fourth defendants repudiated the Option Deed, thereby entitling the plaintiff to accept such repudiation and terminate the Option Deed, as he had purported to do?
Facts
The facts relevant to these issues are not really in dispute and appear from the pleadings, and the affidavits and exhibits in evidence, and may be summarised as follows.
In about January 1998 Chandramohan and Suriyakumar (who resided in California) had agreed in substance with Perera that Perera would set up a business in Australia. The details of the arrangement between them are disputed but it has become unnecessary for the Court to resolve the dispute. In order to further the arrangement, Waranto was incorporated and Perera initially became a sole director and shareholder. A subsidiary of Waranto (“Ascorbic”) acquired a screen-printing business and, as a result, acquired the services of Hillier, who was experienced in that business. A further arrangement was reached between the plaintiff and Chandramohan, Suriyakumar and Hillier involving the participation of Hillier in the business. Again the details of the arrangement are disputed but it has become unnecessary for the Court to resolve that dispute.
On or about 2 November 1998, Perera, as the sole director and shareholder of Waranto, passed resolutions relating to the share structure of Waranto. As a result of those resolutions, Chandramohan and Suriyakumar came to hold all of the issued voting shares in Waranto (3600 ordinary shares each) and Perera came to hold 1800 Class A shares in Waranto and Hillier came to hold 1000 Class A shares. All of the issued shares were fully-paid $1 shares ranking equally in all respects, except that the Class A shares carried no voting rights.
On or shortly after 2 November 1998, Perera commenced to act as the chief executive officer of Ascorbic and Hillier became the managing director reporting to Perera. Ascorbic changed its name to Britescreen International Pty Ltd.
As at 28 June 1999 all of the shareholders in Waranto, namely the plaintiff and the second, third and fourth defendants, entered into the Option Deed, which affected the rights of Perera and Hillier to dispose of any shares held by them in Waranto. The Option Deed was executed by Perera on his own behalf and on behalf of Chandramohan and Suriyakumar (pursuant to powers of attorney), and by Hillier on his own behalf.
In March 2003 the other directors terminated Perera’s appointment as chief executive officer and in April 2003 Perera ceased to be a director of Waranto.
On or about 3 September 2003, Perera’s solicitors gave a Transfer Notice in relation to Perera’s 1800 shares in Waranto purportedly pursuant to the Option Deed. The notice was given to the board of directors of Waranto and to Britescreen International Pty Ltd, and to the other parties to the Option Deed (the second, third and fourth defendants).
It is convenient at this point to refer to the relevant provisions of the Option Deed[1] which had been prepared by Waranto’s then solicitors, Arthur Robinson & Hedderwicks. The Option Deed recites that the shareholders have agreed that they would not sell, transfer or otherwise dispose of shares in Waranto without first complying with the terms and conditions of the deed. Despite the width of this recital, it is clear that the deed is concerned only with the shares of Perera and Hillier.[2]
[1]It is unnecessary, except in respect of critical provisions, to describe the full terms and conditions of the Option Deed or to explain all of the details of its machinery provisions.
[2]See definition of “Proposing Transferor” and cl. 2.1.
The Option Deed defines “Company” as Waranto and “Board” as the board of directors of Waranto. Clause 2.1 provides that no shares held by Perera or Hillier may be sold or transferred or otherwise disposed of unless the procedures provided for in the deed are followed. Clause 2.2 provides that the Proposing Transferor must give written notice (the Transfer Notice) to the Board that the Proposing Transferor wishes to transfer those shares and provides that the Transfer Notice must specify the number and class of shares which the Proposing Transferor wishes to transfer (the Transfer Shares), the price at which (and the proposed terms upon which) the Proposing Transferor wishes to sell the Transfer Shares and:
“the identity of any person who has indicated a willingness to purchase the Transfer Shares at that price …”
Clause 2.3 of the Option Deed provides that “the Transfer Notice must appoint the Board as the agent of the Proposing Transferor, empowered to sell the Transfer Shares … at the Transfer Price (as determined under clause 2.8).” By cl.2.5, a Transfer Notice is not revocable unless the Transfer Price determined under cl.2.8 is lower than the price specified by the Proposing Transferor in the Transfer Notice.[3] Clause 2.8 provides the mechanism for determining the Transfer Price. In essence, unless all shareholders agree, the Transfer Price is to be determined by an expert who must determine the fair value of the Transfer Shares. Clauses 2.6 and 2.7 require the Board to serve a copy of the Transfer Notice on all the other shareholders offering the Transfer Shares at the Transfer Price.
[3]Of course, if a Transfer Notice is so revoked, a Proposing Transferor cannot sell his shares without giving a fresh Transfer Notice.
If the Board does not receive acceptances from any shareholders at the Transfer Price, the Option Deed by cl.2.13 permits the Proposing Transferor to sell to any person or persons all of the shares at any price not less than the Transfer Price. It should be noted that by cl.2.13(c) of the Option Deed if the Proposing Transferor identifies a prospective purchaser within a specified period, the Proposing Transferor must notify the other shareholders who then have an opportunity to purchase the Transfer Shares on the same terms – if they do not, the Proposing Transferor is then free to sell to that prospective purchaser on those terms.
Clause 3 of the Option Deed provides, inter alia, that any Notice under the Deed must be delivered to the intended recipient by prepaid post or by hand or fax to the following address or fax number:
“The Board of Directors
Britescreen International Pty Ltd (ACN 082 978 630)
180 Carrington Street
REVESBY NSW 2212
Fax No.: (02) 9774 4011”
Clause 8 of the Option Deed provides:
“Each party agrees to do all things … as may be necessary or desirable to give full effect to the provisions of this deed and the transactions contemplated by it.”
Finally, it should be noted that, although Waranto was not a party to the Option Deed, the deed purports to impose a number of obligations upon the Board of Directors of Waranto. For example, cl.2.6 provides that the Board “must” serve a copy of the Transfer Notice on all the Shareholders other than the Proposing Transferor and cl.2.11 requires that the Transfer Shares “must” be offered by the Board for purchase at the Transfer Price and cl.2.13 provides that the Board (if it does not receive certain acceptances) “must” give written notice to the Proposing Transferor and to each Purchaser and cl.2.14 provides that the Board “must” give the written notice therein referred to in the circumstances described.
The Transfer Notice given by Perera was addressed to the Board of Directors of Waranto and stated that Perera wished to transfer his 1800 A Class shares in Waranto for a price of A$1.4M on certain terms therein set out and the notice appointed the Board as his agent pursuant to the Option Deed. The notice was given to Waranto and to each of the parties to the Option Deed, and was also posted by prepaid post to the address as set out (as above) in clause 3 of the Option Deed.
A response to the Transfer Notice was received by certain lawyers then acting for Perera. The response was in the form of a letter dated 12 September 2003 from one John Tamplin, Senior Employee Relations Officer, Printing Industries Association of Australia. The letter read as follows:
“I write to you regarding the above matter and apologise for the delay in replying, however, it was necessary to verify the issues raised by Mr Perera and to consider further advice as well as correspond with the principals of the company.
My instructions are that Mr Perera was offered 1800 shares contingent upon the company under his control and management meeting certain performance targets as reflected in the projections submitted to the bank who financed the acquisition of Brite Solutions Pty Ltd.
Brite Solutions Pty Ltd failed to meet those projections at any time during Mr Perera’s management.
On Mr Perera’s departure from the company, the stockholders discovered that Mr Perera had issued stock certificates to himself and had registered the transaction with the Australian Securities Commission.
That share distribution to Mr Perera was never authorised by the stockholders nor did Mr Perera have the appropriate Board resolutions to issue and register the share certificates under his name.
As a result, the shareholders decline to acknowledge the ownership of the shares by Mr Perera as clear and legitimate. It follows that the shareholders will not entertain Mr Perera’s offer to purchase the shares…”
The plaintiff’s present solicitors, Strongman & Crouch, sought a further response from, and addressed a number of questions to, the defendants and, by letter dated 26 November 2003, received the following reply from Carneys, a New South Wales firm of solicitors:
“We refer to your facsimile of yesterday morning and your earlier correspondence of 5 November 2003 addressed to Britescreen International Pty Limited and Waranto Pty Limited. I confirm that we act for Waranto Pty Ltd, Brite Solutions (NSW) Pty Ltd and Brite Solutions (VIC) Pty Ltd.
Our clients’ position is as conveyed by the Printing Industries Association in their letter of 12 September 2003 to Harmers Workplace Lawyers. We understand that Harmers act for Mr Perera with respect to issues concerning his former employment.
We are instructed that upon entering into his employment, Mr Perera was offered a shareholding contingent upon the business under his control and management meeting certain performance targets as reflected in the projections submitted to the Bank which financed the acquisition of Brite Solutions Pty Ltd. Brite Solutions Pty Ltd has not met those projections at any time under Mr Perera’s employment.
Upon Mr Perera ceasing employment the principals of Brite Solutions discovered that Mr Perera was the holder of 1800 A class shares in Waranto Pty Ltd, the ultimate holding company of Brite Solutions (NSW) Pty Ltd and Brite Solutions (VIC) Pty Ltd. That shareholding was never authorised, nor did Mr Perera have the appropriate board resolution to issue and register the certificates in his name.
The shareholders do not acknowledge the ownership of the shares ostensibly held by Mr Perera. It follows that our clients will not entertain Mr Perera’s offer to purchase the shares.
As to the specific matters raised in your letter of 5 November 2003 we are able to indicate that all shareholders are aware of the transfer notice. The other questions raised in your letter are in our view not relevant.” (Emphasis added)
I note that, although Carneys stated in the above letter that they acted for Waranto and two other companies, it is clear that they were additionally speaking on behalf of and upon instructions from “the shareholders” (i.e. the shareholders in Waranto other than Perera: the second, third and fourth defendants) who they describe as “our clients”.
By letter dated 23 January 2004 to Carneys and to those defendants who were parties to the Option Deed, Strongman & Crouch purported to accept on Perera’s behalf the repudiation of the Option Deed by those parties and to terminate the Option Deed. This proceeding was then commenced on 28 January 2004.
By letter dated 6 February 2004, Carneys responded to the letter dated 23 January 2004 from Strongman & Crouch, contending that there had been no repudiation of the Option Deed because “The Transfer notice served upon us does not specify the identity of the party (or that there was no party) willing to purchase the shares” and that accordingly the Transfer Notice was defective.
Issues narrowed and clarified by the pleadings
In response to the statement of claim dated 19 March 2004, the defendants by their original defence filed 8 April 2004 denied the allegation that the second, third and fourth defendants had entered into the Option Deed (see paragraph 17 of the statement of claim and paragraph 17 of the defence).
By paragraph 27 of the statement of claim it was alleged that the second, third and fourth defendants had informed Perera that they would take no action in response to his Transfer Notice and particulars thereof were provided by referring to the letter from Tamplin dated 12 September 2003 and the letter from Carneys dated 26 November 2003. By paragraph 27 of their original defence, the defendants admitted the said allegations in paragraph 27 of the statement of claim.
By their amended defence dated 6 August 2004 the defendants admitted that Perera was the holder of 1800 A Class shares in Waranto (which they had previously denied) and also then admitted the allegation that the second, third and fourth defendants had entered into the Option Deed. They added to the admission that the Transfer Notice had been received a denial “that the purported “Transfer Notice” was a Transfer Notice within the meaning of the Option Deed” and gave as the grounds for this denial:
“the purported Transfer Notice does not specify the identity of any person who has indicated a willingness to purchase the Transfer Shares and is not addressed to the Board of Directors of Britescreen International Pty Ltd.”
Further, by the said amended defence:
(a)the defendants admitted “that the Plaintiff is entitled to a declaration that the Plaintiff is a shareholder holding 1800 Class A shares in Waranto …”;
(b)the defendants repeated their admission of the allegations contained in paragraph 27 of the statement of claim;
(c)the defendants repeated their denial that Chandramohan, Suriyakumar and Hillier had repudiated the Option Deed and further alleged “that the Option Deed remains on foot and the Plaintiff remains bound by and is subject to its terms”.
Determination of the issues raised
The first submission of Mr Broadfoot, who appeared as counsel for the defendants, was that the Transfer Notice given by Perera under the Option Deed was defective because it failed to specify the identity of a prospective purchaser or state that there was no prospective purchaser. Mr Broadfoot contended that this was required upon a proper construction of cl.2.2 of the Option Deed or by implication. In my opinion this submission is untenable. On a plain reading of cl.2.2 of the Option Deed the Transfer Notice must specify the identity of any person who has indicated a willingness to purchase the Transfer Shares at the nominated price. Clearly, if there is no such person, the person cannot be specified and the use of the word “any” confirms that the requirement only applies when such a person exists. If no person is specified in the Transfer Notice, the inescapable inference is that no such person exists (as was the fact). It is unreasonable and unnecessary to read into the clause or imply a requirement that the Transfer Notice expressly state that no such person exists.
The next submission of Mr Broadfoot was that the Transfer Notice was defective because it was not in terms addressed to the name and address set out in cl.3 of the Option Deed. In other words, the Notice was addressed to the Board of Directors of Waranto and not to the Board of Directors of Britescreen International Pty Ltd. This submission is entirely misconceived. The Transfer Notice is addressed to the correct company. What cl.3 of the Option Deed requires is that the Transfer Notice (among other notices) be delivered to the intended recipient by prepaid post or by hand or fax to the address therein set out (of the Board of Directors of Britescreen International Pty Ltd). This in fact occurred. The Transfer Notice was served on a number of persons at a number of addresses including the address set out in cl.3 of the Option Deed, as appears from the evidence including a copy of a letter bearing the address required by cl.3 of the Option Deed.
For the foregoing reasons I am satisfied that the Transfer Notice and the service thereof complied with the Option Deed and that the submissions to the contrary are without foundation.
Mr Broadfoot next submitted that the other parties to the Option Deed (Chandramohan, Suriyakumar and Hillier) had not repudiated the Option Deed. He submitted that the failure by the Board of Waranto to take the steps outlined in the Option Deed could not constitute repudiation by the other parties to the Option Deed and Waranto itself was not a party thereto. He further submitted that Chandramohan and Suriyakumar and Hillier had no relevant obligations under the Option Deed and accordingly there was nothing in respect of which they could evince an intention not to be bound and nothing in respect of which they could show an intention to fulfil the contract constituted by the Option Deed in a manner substantially inconsistent with their obligations thereunder.[4] Of course, Hillier had obligations identical to those of Perera in respect of the Class A shares, but that is irrelevant for the purposes of this submission. Mr Broadfoot further submitted that it would not be consistent with the fiduciary duties of the second, third and fourth defendants as directors of Waranto to hold that they were bound, by virtue of the Option Deed to which they were parties in their capacity as shareholders, to act in any particular way in their capacity as directors. There was no obligation upon Waranto or its Board created by the Option Deed.
[4]Citing Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 634 per Mason CJ referring to Shevill v Builders Licensing Board (1982) 149 CLR 620, 625-6.
If, as Mr Broadfoot submitted, the Option Deed imposed no obligations upon the shareholders (other than a Proposing Transferor) and the Option Deed depended for its successful operation on the voluntary performance by the Board of Directors of Waranto of the acts purportedly required to be undertaken by it under the Option Deed, a Proposing Transferor is prevented from selling his shares except as thereby permitted or enabled but has no corresponding right to require the other shareholders to take any steps to set the necessary machinery in motion under the Option Deed. Such an unreasonable construction should only be adopted if no other construction is open. However, in my view there is a reasonable alternative construction which is not only open but which provides for a commercially sensible operation of the Option Deed and serves the evident purposes of the deed. By cl.8 of the Option Deed each of the parties agreed to do all things necessary or desirable to give full effect to the provisions of the deed. If there were not such an express obligation, no doubt the same or a similar obligation would be implied in order to give business efficacy to the Option Deed. In my opinion cl.8 requires the parties (other than the Proposing Transferor) to take such steps as are within their power to procure or cause the Board to perform what is “required” of it under the deed, whether in their capacity as shareholders or as directors. The Option Deed was entered into between all the existing shareholders of Waranto including the two controlling and voting shareholders (Chandramohan and Suriyakumar). The evident intent and expectation of the parties was that, if in receipt of a Transfer Notice, the Board would be procured or caused by the relevant parties to carry out the steps laid down by the Option Deed. It is no answer to say that in their capacity as directors the parties might have had fiduciary duties to the company which required them to act otherwise. That hypothetical situation had not, on the evidence, arisen and, if it did, would perhaps give rise to other questions.
In the foregoing circumstances I consider that the second, third and fourth defendants have by their conduct, taken as a whole, objectively evinced an intention not to be bound by the Option Deed and to renounce the same. In particular I refer to the conduct showing, expressly or by inference, that they had no intention to perform their obligation to procure or cause the Board of Waranto to set in motion the necessary machinery under the Option Deed. That conduct includes the unjustified and untenable assertion that the Transfer Notice was defective, invalid or not duly served, their statement in substance that Perera was not the lawful owner of any shares in Waranto, their statement that they would not entertain Perera’s offer to purchase (i.e. for them to purchase) his shares and the very fact that nothing was done by them or happened under the Option Deed after service of the Transfer Notice. I therefore find that the second, third and fourth defendants repudiated the Option Deed.
I am satisfied that the plaintiff was entitled to, and did, accept that repudiation and terminated the Option Deed.
There will be a declaration, as against all defendants, that the plaintiff is the lawful and beneficial owner of 1800 Class A shares in Waranto. There will be a further declaration that the Option Deed has been terminated by the plaintiff and is no longer of any force or effect. I will hear submissions as to costs.
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