PharmX Pty Ltd (in its capacity as trustee of the PharmX Unit Trust) v Fred It Group Pty Ltd (No 3)

PharmX Pty Ltd (in its capacity as trustee of the PharmX Unit Trust) brought an action against Fred It Group Pty Ltd, seeking clarification on the interpretation of certain provisions in a Shareholders’ Agreement and Unit Trust Deed. The primary dispute centred around the interpretation of a Change of Control clause in the Shareholders’ Agreement and its interaction with the Trust Deed. Additionally, the case addressed the meaning of the term ‘Relevant Interest’ in the context of a power to control the exercise of a power to dispose of shares, and the implications of certain pre-emptive rights and powers over the shares of other shareholders.

The court was required to determine whether specific powers granted by the Shareholders’ Agreement, including the power to restrain the transfer of shares, the pre-emptive right over shares, the power to require other shareholders to sell their shares to a third party, and the power to refuse consent to a transfer to a third party unless of good standing, constituted a ‘power to control the exercise of a power to dispose of’ shares. Furthermore, the court had to interpret whether a Relevant Interest was established under the Change of Control clause by reason of an acquisition arising from an agreement between shareholders, and whether a provision in the Shareholders’ Agreement imposed a requirement for special majority approval of the Trustee to pay a deemed but unpaid income distribution of the Trust.

In its decision, the court found that each of the specified powers did constitute a ‘power to control the exercise of a power to dispose of’ shares. It also determined that a Relevant Interest was indeed established under the Change of Control clause by reason of an acquisition arising from an agreement between shareholders. Finally, the court concluded that the provision in the Shareholders’ Agreement did not impose a requirement for special majority approval of the Trustee to pay the deemed but unpaid income distribution, given the nature of the entitlement to the unpaid income distribution and the obligation on the Trustee to pay the dividend without demand.

Consequently, the court ruled in favour of PharmX Pty Ltd on all points of contention, providing clarity on the interpretation of the Change of Control clause and the relevant powers and interests outlined in the Shareholders’ Agreement and Unit Trust Deed.