Thorby v Goldberg

[1964] HCA 41

HIGH COURT OF AUSTRALIA

McTiernan, Kitto, Menzies, Windeyer and Owen JJ.

THORBY v. GOLDBERG

(1964) 112 CLR 597

29 July 1964

Contract

Contract—Whether concluded bargain—Agreement by directors as to the future exercise of fiduciary powers—Illegality—Pleading—Non assumpsit—Illegality.

Decisions

July 29.
The following written judgments were delivered:- MCTIERNAN J. I agree with the judgement and reasons of Kitto J. (at p601)

KITTO J. This is an appeal by leave against a judgment of the Supreme Court of New South Wales (Full Court) upon a demurrer in an action for damages for repudiation of an alleged contract. The case has pursued a somewhat unsatisfactory course, but as to that I say no more than that I agree with the observations which my brother Owen makes upon it. I turn to the broad question which has been argued, namely whether the document which is pleaded by the defendants as being the agreement for the repudiation of which the plaintiffs sue constitutes a binding contract. The defendants contend that it does not. They say that its provisions in certain respects lack the certainty which is requisite for a contract ; that it records only the result of negotiations up to a point, leaving some essential matters to be agreed upon before the stage of concluded contract will be reached ; and that because it purports to bind the directors of a company as to the manner in which they shall exercise a discretion of a fiduciary nature it is void for illegality. (at p601)

2. The demurrer is to the third of seven pleas. The third plea contains only two allegations. One annexes the document and identifies it as the agreement alleged in the declaration, and the other alleges that seven of the sixteen defendants were at all relevant times directors of a company called Medical-Dental Building Pty. Limited. Assuming, as we must for the purposes of the demurrer, that the allegations in the declaration are true, Medical-Dental Building Pty. Limited, being the registered proprietor of certain land in Macquarie Street, Sydney, proposed to demolish an existing building on that land, to replace it by a modern multi-storey building, and to dispose of the space in it by selling or letting professional suites, shops and offices. In that state of affairs, the defendants, who were the only shareholders in the company, made the agreement with the plaintiffs which the latter rely upon as constituting a binding contract. In the document the defendants are described as a group and called the O Group. The plaintiffs are also grouped together, and they are called the G Group. The document purports to bind each member of each group individually (see cll. 15 and 16). Its general purpose is to bring the capital of the G Group into the company upon mutually satisfactory terms including terms as to rights of occupancy of space in the proposed new building. (at p602)

3. The document recites that the issued shares of the company, held by the members of the O Group, consisted of 420 "A" class shares only, and that the board of directors had decided in favour of a dividend of 30,000 pounds to be paid out of a revaluation of assets reserve account. It was agreed that this dividend should be declared and should be satisfied by the issue and allotment of the O Group of 30,000 "B" class shares of 1 pound each. Then it was agreed (see cl. 1 (c)) that the O Group should cause the company to pass such resolutions and prepare and file such contracts and notices as should be necessary to effect alterations to the articles of association "substantially in accordance with the principles set out in the Third Schedule (to the document) with such other consequential alterations to the articles as should be necessary for conformity and clarity". This is one of the provisions which are said to make the document either too uncertain to be a contract or a mere record of a partially and not completely concluded agreement. I shall come back to it in a moment. (at p602)

4. The document goes on (in cl. 2) to provide that the G Group should apply for a total of 420 "A" class shares and pay for them in full, and should apply for 120,000 "C" class shares and pay 1s. per share in respect of them. There was no "C" class of shares at that time, but the agreed alterations to the articles included the creation of "B" class and "C" class shares sufficient to cover the new building floor area requirement at the rate of ten shares to each one square foot of available floor space. The provision as to the G Group applying for "A" and "C" class shares was prefaced by the words "upon due execution hereof". There is nothing, however, in the suggestion that the provision insists upon an impossibility. The applications for "C" class shares cannot be complied with until the alterations are made to the articles, but the applications and the agreed payments can be made at once. (at p602)

5. Then cl. 3 provides for the next step: subject to due compliance by the G Group with the provisions of cl. 2, the O Group is to apply for a total of 90,000 "B" class shares and have 30,000 of them paid for by means of the proposed dividend out of the revaluation of assets reserve account. (at p602)

6. Clauses 4 and 5 continue the sequence of steps to be taken. Subject to and following upon compliance with cll. 1 to 3, the O Group is to cause a meeting of directors of the company to allot at par the shares applied for under cll. 2 and 3 ; and at that meeting three of the five directors are to resign and two members of the G Group are to be appointed to the board. Compliance with cll. 1-3, of course, includes compliance with cl. 1 (c), and the defendants point out that if any vice in cl. 1 (c) appears upon an examination of the Third Schedule it is carried into cl. 4. (at p603)

7. Then follow provisions (in cll. 6 and 7) that the two groups "shall arrange" that the serial numbers of the "B" and "C" class shares shall be such as to ensure that by virtue of the articles of association as altered in accordance with the Third Schedule the two groups shall have certain rights in respect of the occupancy of space in the new building. These are, in terms, provisions for the future arrangement of serial numbers by or under some agreement or agreements between the two groups ; and the defendants rely upon this in support of their contention that the document does not constitute a concluded contract. But when cll. 6 and 7 are read as a whole, it emerges that the distribution of the space in the new building as between the two groups is made with precision and finality, so that nothing is left for future agreement between the groups as regards their respective rights: all that they "shall arrange" is such a numbering of the shares as will ensure, under the provisions of the articles which attach rights of occupancy of particular suites to particular shares, that the respective rights of the groups as defined are given effect. The necessary implication is that each group promises to negotiate reasonably with the other for the contemplated arrangement of the serial number of the shares. The presence of such a subordinate and ancillary provision does not prevent the agreement as a whole from being a binding contract. It is only where future agreement is required in order that the agreed provisions and those to be agreed shall operate together as one contract that the agreed provisions cannot be treated as themselves constituting a contract. (at p603)

8. After providing for alterations in the company's capital, as to which I need say no more than I have already said, the schedule deals with article 5, an article directed to the allocation, amongst the "B" class shares, of suites in the proposed new building. It divides the "B" class shares, designated by their serial numbers, into numbered groups, and puts against each group the number or numbers of a suite or suites. The article is to be altered by reclassifying the group, serial and suite numbers "in accordance with the final new building plan and the proposed shares issued in terms of the principal agreement between members of the O and the G Groups". This means, clearly enough, in accordance with cll. 6 and 7 in the body of the document, as applied to the final building plan. It recognizes, of course, that the building plan is still subject to alteration, and in argument the defendants attempted to make something of that fact ; but I see no real point in it, for even conceding that any alteration of the existing plan would require the agreement of all parties, the only consequence is that the existing plan is the final plan unless and until amended by agreement. (at p604)

9. Provisions follow which call for no comment, save that they are lengthy and detailed and leave nothing to future agreement between the two groups. Then the schedule ends with a controversial provision as to rights of occupancy and the right of the company to make levies on shareholders to cover charges and expenses in respect of the building. It requires that the articles on these topics be "carefully reconsidered" (i.e. by the O Group, for it is that group which has to make the alterations) "and alterations made in the light of the latest practices and of the size and importance of this venture, and alterations made after discussion where considered necessary or desirable". The indefiniteness of this provision is said by the defendants to infect the whole document with fatal uncertainty. (at p604)

10. I shall deal with this last point first. In my view there is little to be said about it. "Discussion" seems clearly to mean discussion between the two groups or between representatives of them, and it is left to the O Group to decide whether discussion is necessary or desirable. The only real uncertainty lies in the stipulation that the reconsideration and alteration by the O Group are to be carefully considered in the light of the latest practices and of the size and importance of the venture. But the provision is directed only to the manner in which careful consideration is to be given by the O Group to the problem of determining the precise alterations to the articles which will best give effect to the principles agreed upon. Its very uncertainty shows that it is intended only as an admonition, in quite general terms, which the G Group offers and the O Group accepts, but which deliberately leaves the latter group to perform its task according to its own conceptions of the size and importance of the venture and of the proper application to such a venture of what it takes to be the latest practices. In my opinion the vagueness of the provision does not assist the contention that there is here no enforceable contract. (at p604)

11. The outstanding question as to uncertainty or lack of concluded agreement relates to the operation of cl. 1 (c) upon the provision for altering article 5. Undoubtedly a considerable discretion is committed to the O Group, and no doubt it was with that in mind that the parties made their vague stipulation as to careful reconsideration in the light of the latest practices and of the size and importance of the venture. But an agreement is not void for uncertainty because it leaves one party or group of parties a latitude of choice as to the manner in which agreed stipulations shall be carried into effect, nor does it for that reason fall short of being a concluded contract. Nothing is here reserved for determination by future agreement of the O and the G Groups. They have agreed upon all that they intend to be the subject of agreement between them. The case of Loftus v. Roberts (1902) 18 TLR 532 , which was much pressed upon us, has no application here. It decides only that where words which by themselves constitute a promise are accompanied by words which show that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought. Such a situation does not exist in the present case. (at p605)

12. Subject to the question of illegality, I see no reason to doubt that the document annexed to the third plea is a concluded contract for a repudiation of which damages may be recovered. (at p605)

13. The argument for illegality postulates that since the discretionary powers of directors are fiduciary, in the sense that every exercise of them is required to be in good faith for the benefit of the company as a whole, an agreement is contrary to the policy of the law and void if thereby the directors of a company purport to fetter their discretions in advance: see Gower on Modern Company Law 2nd ed. (1957) p. 478. It is said that the agreement in the present case does purport to bind those of the O Group who are directors to take future steps as to which it is their duty to exercise an unfettered discretion when the time comes for taking those steps. There may be more answers than one to the argument, but I content myself with one. There are many kinds of transactions in which the proper time for the exercise of the directors' discretion is the time of the negotiation of a contract, and not the time at which the contract is to be performed. A sale of land is a familiar example. Where all the members of a company desire to enter as a group into a transaction such as that in the present case, the transaction being one which requires action by the board of directors for its effectuation, it seems to me that the proper time for the directors to decide whether their proposed action will be in the interests of the company as a whole is the time when the transaction is being entered into, and not the time when their action under it is required. If at the former time they are bona fide of opinion that it is in the interests of the company that the transaction should be entered into and carried into effect, I see no reason in law why they should not bind themselves to do whatever under the transaction is to be done by the board. In my opinion the defendants' contention that the agreement is void for illegality should be rejected. (at p606)

14. I have considered with care the various matters which seemed to Sugerman J., who dissented in the Supreme Court, to indicate an intention that the document shall not operate as a binding contract until after the further agreement of the parties upon points left open and a subsequent allotment of shares as provided by cl. 4. With respect, I do not myself find in those parts of the document to which his Honour has referred, or elsewhere, any sufficient reason for gathering that that was the intention of the parties. There is far too much, in my opinion, of an opposite tendency. In the result I agree in the conclusion of the learned judges who formed the majority in the Supreme Court. (at p606)

15. I would accordingly dismiss the appeal. (at p606)

MENZIES J. The Full Court of the Supreme Court of New South Wales (Hardie J. and Collins J., Sugerman J. dissenting) decided in favour of the plaintiffs in this action upon a demurrer to the defendants' third plea and this is an appeal by leave against that decision. Early in the hearing before us it became apparent that, if the pleadings were to be construed strictly, the question would be whether a document signed by the parties and dated 16th January 1958 (hereinafter called "the agreement") imposed any contractual obligations at all, and it could well happen that our order would not decide the point which the plea and the demurrer were intended to raise and have determined. To obviate this counsel for the parties agreed that the result of the appeal should turn upon the questions whether cll. 1, 4 and 6 of the agreement imposed contractual obligations. If they do, the appeal should fail and the judgment for the plaintiffs on the demurrer stand. This course has the merit of enabling us to deal with what was the actual decision of the Full Court. (at p606)

2. The appellants sought to establish that the clauses in question do not impose contractual obligations upon the interrelated grounds (i) that it appears from the agreement that there was no completed agreement between the parties about matters to which the clauses relate and (ii) that the clauses in their context lack the certainty requisite to establish legal rights and obligations. It was further argued that the agreement contained illegal convenants. It will therefore be necessary to examine the agreement as a whole but, before I do so, I would say that I do not think the law to be applied is in any doubt and I agree with and will apply the following statement of that law from the dissenting judgment of Sugerman J. He said: - "It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties. Again, there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention". (at p607)

3. The agreement in question purported to be a deed to which sixteen persons forming what is called the "O Group" and five persons forming what is called the "G Group" were parties. It is now described in the pleadings as an agreement in writing because, as we have been informed, although it was originally described as a deed, it was subsequently discovered that it had not been properly executed. I am prepared to consider the case on the footing of the pleadings as they now stand. (at p607)

4. The agreement contains certain recitals which, with what follows, show when it was made (i) that there was in existence a company called Medical-Dental Building Pty. Limited which owned premises at 229 and 231 Macquarie Street, Sydney, upon which a building then stood ; (ii) that the members of the O Group held the whole of the issued capital of the company (i.e. 420 "A" shares of 1 pound each fully paid) ; (iii) that there had been proposals to re-organize the company's capital and to amend its articles of association ; (iv) that there were plans in an advanced stage of preparation to demolish the existing building and to erect a larger building for occupation by the shareholders of the company from time to time and their tenants ; (v) that the O Group, being the directors and members of the company, had determined to convert the company from a proprietary into a public company and to make consequential and other alterations to its articles of association - these included the creation of "A", "B" and "C" shares and an unclassified reserve of at least 100,000 shares of 1 pound each ; (vi) that it was in contemplation that the members of the O Group would take up 90,000 "B" shares of 1 pound each to be fully paid in the altered capital of the company and entitling them to the occupation of a specified part of the building ; (vii) that it was in contemplation that the members of the G Group would take the following shares in the altered capital of the company - 420 "A" shares of 1 pound each to be fully paid and 120,000 "C" shares of 1 pound each to be paid to 1/- upon allotment with the balance deferred and that these shares would entitle them to the occupation of a specified part of the building ; and (viii) that the directors of the company had resolved to increase the book value of the premises by 30,000 pounds to be credited to a Revaluation of Assets Reserve from which it would recommend members (the O Group) to pay a dividend of 30,000 pounds to be satisfied by the issue of 30,000 "B" shares of 1 pound each fully paid. The last recital is as follows: "And whereas the O Group and the G Group subject to and following admission of the several members of the G Group to membership of the Company desire to make an agreement as between their respective groups to qualify and restrict their rights as individual members of the Company according to the Articles of Association of the Company after the alterations and for the other matters more particularly hereinafter set out". (at p608)

5. Clause 1 of the agreement was as follows: "1. Upon due execution hereof O Group will cause the Company to convene such meetings pass such Resolutions and prepare and file such contracts and notices as shall be prescribed or necessary: - (a) To declare a dividend of Thirty thousand pounds (30,000 pounds ) wholly and exclusively out of the sum standing to the credit of the "Revaluation of Assets Reserve Account" of the Company and to have that dividend satisfied by the issue and allotment to the members in accordance with its Articles of Association of Thirty thousand (30,000) "B" class shares of the nominal value of one pound (1 pound) each credited as fully paid up on allotment to the members of the Company holding "A" class shares who are members of O Group. (b) To change the name of the Company to "Medical-Dental Building Limited" and to file a Statement in Lieu of Prospectus with the Registrar-General consequent upon such change of name. (c) To effect alterations to the Articles of Association substantially in accordance with the principles set out in the Third Schedule hereto, with such other consequential alterations to the Articles of Association as shall be necessary for conformity and clarity to comply with (b) of this Clause." (at p608)

6. Clause 2 required the G Group "upon due execution hereof" (i) to apply and pay for 420 "A" shares and (ii) to apply for 120,000 "C" shares and pay no more than 1/- per share. Clause 3 required the O Group "upon due execution hereof" and subject to due compliance of the G Group with the provisions of cl. 2, to apply for 90,000 "B" shares of 1 pound each by applications to be accompanied by a request to the company directing it to apply the capitalized 30,000 pounds in paying up in full at par 30,000 "B" shares. Clause 4 was as follows: - "Subject to and following upon compliance with the provisions of cll. 1 to 3 inclusive O Group shall cause a meeting of the Directors of the Company to be duly convened as soon as practicable and for that meeting to proceed to allotment at par of the shares applied for pursuant to cll. 2 and 3 hereof and in the case of "C" shares paid to One shilling (1/-d.) per share." (at p609)

7. Clause 5 related to the re-organization of the board of directors "subject to and following upon compliance with the provisions of cll. 1 to 4 hereof". Clause 6 was as follows: - "The O Group and the G Group shall arrange that the serial numbers of the one hundred and twenty thousand (120,000) "C" shares to be issued and allotted to the members of the G Group in accordance with cll. 2 and 4 hereof shall be such as to ensure that by virtue of the Articles of Association of the Company the G Group members will have the right as shareholders initially upon first allotment of such shares to them to occupancy of Twelve thousand (12,000) square feet in area of the new building being: - (i) The entire 10th Floor ; (ii) The entire 4th Floor ; (iii) The ground floor with the exception of the northernmost shop facing Macquarie Street having Seven hundred and twenty seven (727) square feet overall area ; (iv) The lower ground floor with the exception of an area of One thousand five hundred and eight (1,508) square feet provided that if the Australian General Dental Laboratories shall not become entitled to occupancy of that particular area then the whole of the lower ground floor without exception." (at p609)

8. Clause 7 was directed to ensuring the O Group occupation rights to space in the building by virtue of their 90,000 "B" shares. Clause 8 was directed to ensuring that a member of the O Group would obtain from a member of the G Group the lease of a particular ground-floor shop. Clause 9 required the members of the O Group to give to the members of the G Group options to purchase the 30,000 "B" bonus shares referred to in cl. 3. The minimum price at which the parties would sell shares outside the groups was fixed by cl. 11. Clause 12 related to a roof garden area and the provision of lifts to reach it. By cl. 13 it was agreed inter alia: - "(b) That the Architect shall be Hans Peter Oser of the Firm of H. P. Oser and Associates and that the builder shall be James Wallace Pty. Limited on a negotiated comparable basis with other invited tenders (c) That each Group and the Company shall use its and their best endeavours to jointly carry on selling and letting by a central organization provided that this shall not extend to prevent any individual member from privately dealing with his shares subject however to Article 11 hereof". By cl. 14 each group empowered Dr. S. Goldberg - one of the G Group - to negotiate for immediate vacant possession of the existing building with limited compensation as set out in the Fourth Schedule to existing tenants and made provision for his reimbursement in specified contingencies. Clauses 15 and 16 were as follows: - "15. All covenants agreements and conditions in this Deed contained (except where the context will not permit or where it is stated to be otherwise) and entered into on behalf of either the O Group or the G Group shall be deemed to be made by and with the several members of the Group specified and their respective executors administrators and assigns and to the intent that if any covenant shall not be enforceable at law then as far as a Court shall permit it shall be enforceable in Equity by decree of specific performance or by injunction or by any other appropriate remedy available in Equity." "16. Each member of each Group covenants with all other members of both Groups that he shall so conduct himself in his capacity as a member and/or Director of the Company as to give effect to the provisions hereinbefore contained." (at p610)

9. By cl. 17 each group appointed one of its members to act for the group. Clause 18 was as follows: - "The only alterations which shall be made to the existing Articles of Association prior to the allotment of "A" shares to the members of the G Group will be those relating to the increase and reconstitution of the nominal capital and specifying the rights applicable to the new classes of shares as set out in brief in the Third Schedule." (at p610)

10. The First Schedule showed, with respect to the members of the O Group, the shares held (420 "A" shares) and those to be applied for (90,000 "B" shares). The Second Schedule showed, with respect to the members of the G Group, the shares to be applied for (viz. 420 "A" shares and 120,000 "C" shares). The Third Schedule, as appears from cl. 1 of the agreement, set out the main principles according to which the articles of association of the company are to be altered. Some of these provisions are of critical importance. Clauses 2, 3 and 17 are as follows: - "2. Article 4. Nominal Capital to be altered and reconstituted and increased to provide for: - (a) 840 "A" shares of 1 pound each to be numbered A1 to A840 inclusive, of which 420 numbered A1 to A420 have already been allotted. (b) A number of "B" shares and "C" shares shall be created sufficient to cover the new building floor area requirement at the rate of ten shares to each one square foot of available floor space. (c) A Reserve capital unclassified of not less than 100,000 shares of 1 pound each available for future allotment by the Board upon such terms and conditions as it shall from time to time determine." "3. Article 5. The Group, Serial and Suite numbers to be reclassified in accordance with the final new building plan and the proposed share issues in terms of the principal agreement between members of the O and the G Groups." "17. Those Articles setting out the rights of members of the Company to occupancy and the rights of the Company to make levies, etc. are to be carefully reconsidered and alterations made in the light of the latest practices and of the size and importance of this venture, and alterations made after discussion where considered necessary or desirable. Special provision shall be made to ensure that only one of the ground floor shops may be used for Optical purposes and that no other member or his tenant, licensee or invitee claiming through that member shall carry on or allow to be carried on on the premises any business which would compete unreasonably therewith." In cl. 4 the rights to be attached to the various classes of shares are set out. (at p611)

11. Despite the argument for the respondents to the contrary, I am satisfied upon a consideration of the agreement as a whole that the G Group could be under no obligation by virtue of cl. 2 to apply for shares unless and until the capital of the company was re-organized and the articles altered in accordance with cl. 1 (c) and pars. 2, 4 and 17 of the Third Schedule so that, unless these provisions were intended to impose binding legal obligations and their terms were sufficiently precise to do so, the demurrer ought to have failed. Before dealing with those matters, however, I ought to dispose of a more general argument upon which the appellants relied. It was that the last recital showed that there was to be no agreement unless and until the members of the G Group became shareholders of the company in accordance with cll. 2 and 4 and that the area of agreement did not extend beyond that indicated by the words of the recital appearing after the words "desire to make an agreement". This argument I reject. The obligation to allot shares to the members of the G Group under cl. 4 arises "subject to and following upon compliance with the provisions of cll. 1 to 3 inclusive". The language of cl. 4 is clearly that of contract and I have found no reason why it cannot be so regarded. The last recital cannot alter what is clearly expressed in the operative parts of the agreement even if it were properly to be regarded as evidencing an intention to confine agreement to the matters set out therein. I do not think, however, it should be so regarded. It merely relates to what the parties desire after the G Group have become members of the company. The recitals naturally enough follow roughly the order in which it is anticipated events will occur and the last recital relates to a stage comparatively late in the proceedings. In his dissenting judgment Sugerman J. relied heavily upon the last recital together with the use of the word "will" in cll. 1, 2 and 3 and the word "shall" in cl. 4 and the following clauses to indicate an intention that it was not until after cl. 4 had operated that it was intended that there could be any binding obligation. His Honour's reasoning, however, does not account for the use of the word "shall" in cl. 4 itself and, if that clause was one of obligation, the argument based upon the recital disappears because an obligation arises before the G Group become shareholders of the company, i.e. cl.4 requires the allotment of shares to the O Group and to the G Group. His Honour's reasons do not seem to me, with respect, to bear out his statement "I believe, that the parties to this agreement did not intend to enter the realm of binding contract until an allotment of shares had taken place pursuant to cl. 4". His Honour was also disposed to think that it was intended that the G Group should be at liberty to withdraw in certain circumstances. He said: - "If an implication is to be made . . . the more natural implication is of a liberty on the part of the G Group to withdraw should the O Group not procure the making of alterations to the articles as provided by cl. 1 (c), or should the alterations made prove unacceptable to it. It is only in this way that a result can be avoided which could not have been contemplated by the parties, namely that the G Group should be bound to accept allotment of the shares however unacceptable might be the alterations made at the instance of the O Group". With regard to this I am myself disposed to think that cl. 2, and therefore cll. 3 and 4, could not be performed until the articles had been altered to create the necessary "A" and "C" shares for, until that were done, the company would not have "A" and "C" shares for which an application could be made. Indeed I would go further and conclude that all the alterations required by cl. 1 (c) had to be made prior to applications under cll. 2 and 3. I find nothing in the agreement, however, to suggest that there is a power of withdrawal such as his Honour envisaged. It seems to me, moreover, that cll. 15, 16 and 17 of the agreement manifest very clearly the intention of the parties that all its provisions were intended to establish binding legal relationships. I therefore come back to what I regard as the crux of the case - i.e. the character and effect of cl. 1 (c) and pars. 2, 4 and 17 of the Third Schedule. If here binding legal obligations are to be found, no objection on grounds of indefiniteness against cll. 4 or 6 could be maintained. (at p612)

12. It is to be observed that cl. 1 is framed so that it cannot impose any obligation except upon the members of the O Group and that par. (c) thereof, although expressed in language that is apt enough to create a legal obligation, does leave the form of the alterations to be made to the O Group. If there were no more, however, I would regard cl. 1 (c) as sufficient to impose upon the O Group an obligation to amend the articles of association in the manner therein provided. It was however argued that, as the O Group comprised sixteen people, it would have to be left to those sixteen to agree among themselves as to the form of amendment that would meet their obligation. This is in a sense true but, as any amendment would have to be made by special resolution, the obligation as necessarily expanded is to carry a special resolution effecting alterations in conformity with the requirements of cl. 1 (c). If this were to be done, the obligation would be fulfilled even by a minority who voted against it. If it were not, then every member of the O Group would be in breach. Indeed it seems that this sort of complication was in the minds of the parties when cl. 16 was framed which is apt to impose an obligation upon each member of the O Group to the other members of that group as well as to the members of the G Group to do his part to ensure an amendment of the articles that would accord with the requirements of cl. 1 (c). For the foregoing reasons I think the proper conclusion is that the parties to the agreement did intend to agree as to the matters with which cl. 1 (c) is concerned. Such a desire to agree, however, is not enough; there must be actual agreement to create legal obligations and it was argued that an arrangement leaving the O Group itself to frame the requisite alterations cannot be enough, although it was conceded that it would have been different had the framing of the alterations to accord with cl. 1 (c) been left to some third person. I do not accept the distinction which counsel for the appellants here sought to draw. It is an objection to a contract if one party is left to choose whether he will perform it but it is an entirely different matter if there is an obligation to do a specified thing of a general description but it is left to the party who is to perform it to choose the particular thing that he will do in performance of it. An arrangement with an artist that he should for a specified fee paint a portrait of a particular person if the artist, upon seeing the proposed sitter, should decide to do so would be no contract to paint a portrait whereas an arrangement that the artist would for a specified fee paint a portrait of such person as he, the artist, should choose would be a contract. It does not seem to me a valid objection that it is for the O Group not only to pass but help to frame the special resolutions to alter the articles of association in accordance with cl. 1 (c). (at p614)

13. Because I think that the parties did intend by cl. 1 (c) to impose a legal obligation upon the O Group to alter the articles in the manner specified, it appears to me there can be no ground for disappointing their intention unless what is specified in the Schedule is either impossible of performance or so uncertain that it cannot be regarded as specifying anything or unless what was agreed was for some reason or other invalid or illegal. (at p614)

14. Two criticisms of substantial importance were directed to the Third Schedule. The first related to the alteration of the nominal capital set out in cl. 4 ; the second to the terms of cl. 17. It is convenient to deal with cl. 17 first because the attack on cl. 4 really depends upon considerations other than ambiguity. (at p614)

15. Clause 17 of the Third Schedule required the O shareholders to alter article 5 attaching rights to occupy particular suites to particular "B" shares and articles 25 to 27 dealing with levies upon shareholders to meet outgoings for charges and expenses in respect of the building upon the company's premises. Clauses 6 and 7 of the agreement already provided for the division of space in the new building as between the O and G Groups and the task of the O Group under par. 17 of the Third Schedule was, in keeping with that division, to determine (i) what shares should carry the right of occupancy to what space at the rate of one square foot for every ten "B" or "C" shares ; (ii) the rights of the occupants to their own space and to space for common use ; (iii) the rights of the company to make levies upon members, and to amend the articles accordingly. It is to be remembered that the company's articles adopted in 1956 did contain provisions relating to these matters in respect of a building to be erected and it is those articles that were in 1958 to be carefully reconsidered and altered (i) "in the light of the latest practices and of the size and importance of this venture" and (ii) "after discussion where considered necessary or desirable". Despite Mr. Bowen's criticisms I find these provisions reasonably straightforward. The alterations are, it is true, to be left to the O Group itself but the alterations made would affect the O Group and the G Group alike, for the division of space had been determined, so I attach little importance to the argument that the G Group would not be likely to entrust the definition of their rights to the O Group. The articles as they were framed in 1956 and stood in 1958 related to a multi-storey building to be erected ; what the members of the O Group were required to do before making the alterations was to review those articles taking into account the latest practices and having such discussions among themselves, with the G Group or with any other persons as they considered necessary or desirable. Although much was made of it, I cannot find any real ambiguity or difficulty in the direction to make alterations "in the light of the latest practices" relating to rights of member occupants and the rights of such a conpany to make levies on its members. It is true there are many things that might be done to ascertain the latest practices but the choice is left to the O Group itself and one can imagine that at least a possible course would be to have a search made of the articles of association of a few companies known to have embarked during the past couple of years upon like projects or to make enquiries from a solicitor or estate agent. The direction about discussions is quite general and it would have been left to the O Group itself to decide what discussions were necessary or desirable. (at p615)

16. It is for the foregoing reasons, which I do not think differ substantially from those of Hardie J., that I consider the appellants failed in their attack upon cl. 1 (c) of the agreement and cl. 17 of the Third Schedule thereto which was based on the grounds that an intention is revealed not to agree unless and until the G Group became shareholders and that the agreement is at any rate too uncertain without further agreement to be considered a binding legal contract. (at p615)

17. I turn now to cl. 4 of the Third Schedule. The starting point for considering it is par. 4 of the company's memorandum of association, which is as follows: - "The share capital of the Company is Five hundred and ninety-three thousand pounds (593,000 pounds) divided into eight hundred (800) A Class shares of one pound (1 pound) each and five hundred and ninety-two thousand two hundred (592,200) B Class shares of one pound (1 pound) each with power to divide the shares in the share capital for the time being of the Company into several classes and to attach thereto respectively any preferential deferred qualified or special rights privileges or conditions." Compliance with cl. 4 of the Third Schedule on the basis that it would be necessary to allot 90,000 "B" shares to the O Group and 420 "A" shares and 120,000 "C" shares to the G Group would therefore require (i) the conversion of 40 "B" shares into "A" shares making the total number of "A" shares 840 ; (ii) the conversion of 120,000 "B" shares into "C" shares; and (iii) the conversion of 382,160 "B" shares into unclassified shares, leaving 90,000 "B" shares. I think there was nothing to prevent this being done pursuant to s. 153 of the Companies Act, 1936 and the provisions of cl. 4 of the company's memorandum of association and articles contained in the company's articles of association. This was the view of all of the Judges of the Full Court and it is not necessary to elaborate the matter further. (at p616)

18. It remains to consider the contention that at any rate the agreement is illegal or is otherwise void because it ties the hands of the shareholders and the directors of the company with regard to the exercise of their powers and duties in the future. All the members of the Full Court rejected this contention and so do I. I do not think any question can really arise about the rights of shareholders to bind themselves to exercise their votes in a particular way at future meetings of a company. While I wish to guard against being understood as deciding that a director of a company can in an ordinary case bind himself to exercise his power as a director in a particular way, I have not in this case found any ground for objection to the directors of the company committing themselves, as I think they did, to act as set out in the agreement - for example, to allot shares as provided by cl. 4 or to resign and accept resignations as set out in cl. 5. All the shareholders were party to the agreement and what the directors undertook to do was what all the shareholders committed themselves to ensure that they did. I agree with what Sugerman J. said in rejecting the argument that in these circumstances what those members of the O Group who were directors undertook to do was tainted with illegality. (at p616)

19. There were a number of minor points raised in the argument in relation to particular points of uncertainty which were, I think, sufficiently disposed of in the course of argument. The only one to which I shall refer here is that the O Group could not itself do all that it undertook under cl. 1, for, for instance, according to the articles it was for the directors and not the shareholders to capitalize profits: see Article 133. I would, however, read cl. 1 as meaning that the O Group will cause the company and its directors to do what is therein set out. (at p616)

20. For the foregoing reasons I would dismiss this appeal. (at p616)

WINDEYER J. I agree entirely in the judgment of my brother Kitto. I do not wish to add anything to what he has said. (at p616)

OWEN J. The facts are fully set out in the judgment of Menzies J. and I agree that, for the reasons given by him, the appeal should be dismissed. There are, however, two matters about which I wish to say something. The first relates to the course taken by the pleadings which led to the demurrer. Where a plaintiff, in a common law action in New South Wales, declares upon an agreement in writing alleged to have been made by him with the defendant, setting out in his declaration what he claims to be the legal effect of the agreement but not its precise terms, and the defendant, while admitting that he has entered into the agreement upon which the declaration is based, disputes the construction which the plaintiff has placed upon it, it is a common and proper practice for the defendant to plead that the agreement sued upon was "in the words and figures following, that is to say" and then set out the document verbatim, thus forcing the plaintiff to demur to the plea. In such case the true construction of the document is the issue of law tendered by the demurrer. In the present case the defendants pleaded the verbatim terms of the document upon which the declaration was based, together with the Memorandum and Articles of Association of Medical Dental Building Pty. Ltd., and an allegation that, at all relevant times, seven of the defendants were directors of that Company. When the demurrer came on to be heard, however, it appeared that the pleader's purpose was to raise two submissions. First, to deny that there was any agreement between the parties because the writing created no legal obligations ; and in the second place, to contend that if it did disclose an agreement, it was one which was contrary to public policy and illegal. The proper way to raise the first of these matters was by pleading non assumpsit and the plea here in question is in reality no more than an argumentative plea of non assumpsit which, if dealt with appropriately, should have been struck out. The second submission sought to raise what is, in substance, a defence of illegality, a defence which is required to be pleaded specially and should not be entertained under a plea of non assumpsit whether argumentative or not. However, notwithstanding these serious departures from the rules and practice of common law pleading, all parties joined in urging us to consider and decide the questions of law which they wished to have determined and, since that course was followed by the Full Supreme Court, it seems to be better that we deal with the appeal in the same way and thus avoid the expense and delays to which the parties would otherwise be subjected. (at p617)

2. The remaining matter on which I wish to add something relates to the submission made on behalf of the defendants that one effect of the document pleaded was to fetter the directors in the future exercise of their discretion and that, for this reason, the agreement was contrary to public policy and unlawful. While I agree with the reason given by Menzies J. for rejecting the argument, there is, I think, a further ground upon which it fails. For all that appears from the plea, the directors of the Company may, before the execution of the agreement, have given proper consideration to the desirability of entering into it and decided that it was in the best interests of the Company that it should be made. If so, it would be impossible to argue that they had, by executing the document, improperly fettered the future exercise of their discretion. In fact they would already have exercised it and, in the absence of an allegation that they had done so improperly, the suggested defence could not be sustained. There is no such allegation and, for this reason as well as for that given by Menzies J., I am of opinion that the submission cannot be supported. (at p618)

Orders

Appeal dismissed with costs.