Vikran Fourteen Pty Ltd as Trustee for the Cadd Family Trust v Icarus Investments Pty Ltd
[2023] QSC 232
•20 October 2023
SUPREME COURT OF QUEENSLAND
CITATION:
Vikran Fourteen Pty Ltd as Trustee for the Cadd Family Trust v Icarus Investments Pty Ltd & Ors [2023] QSC 232
PARTIES:
VIKRAN FOURTEEN PTY LTD (ACN 007 144 167) AS TRUSTEE FOR THE CADD FAMILY TRUST
(applicant)
v
ICARUS INVESTMENTS PTY LTD
(ACN 103 631 394)
(first respondent)
and
MANDALAY BAY INVESTMENTS PTY LTD
(ACN 103 634 359)
(second respondent)
and
MANDALAY TECHNOLOGIES PTY LTD
(ACN 103 637 501)(third respondent)
FILE NO:
BS No 11432 of 2023
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
20 October 2023
DELIVERED AT:
Brisbane
HEARING DATE:
6 October 2023
JUDGE:
Davis J
ORDER:
1. The application is dismissed.
2. The applicant and the third respondent exchange written submissions on costs by 3 November 2023.
3. The issue of costs to be determined on any written submissions and without further oral hearing.
CATCHWORDS:
CORPORATIONS – MANAGEMENT AND ADMINISTRATION – OFFICERS OF CORPORATION – DIRECTOR – APPOINTMENT – where shareholders in two companies made a written shareholders’ agreement – where the shareholders’ agreement provided that directors in each company would be nominated by the shareholders – where the power to nominate was subject to unanimous agreement of the shareholders to the contrary – where the shareholders met and agreed unanimously to leave in place directors then installed – where no nominations were made by shareholders – where approximately 16 or 17 years later, the applicant, a shareholder purported to make nominations of directors pursuant to the written shareholders’ agreement – whether the power subsisted
Corporations Act 2001 (Cth), s 248D
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24, cited
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12, followed
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7, cited
Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 97 ALJR 194; [2023] HCA 6, cited
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, followed
Re Duomatic Ltd [1969] 2 Ch 365, cited
Rectron Australia BV v Lu [2013] VSC 384, citedCOUNSEL:
NJ Shaw for the applicant
No appearance for the first and second respondentsDLK Atkinson KC for the third respondent
SOLICITORS:
Ashurst Australia for the applicant
No appearance for the first and second respondentsHopgood Ganim for the third respondent
Vikran Fourteen Pty Ltd (Vikran) seeks declarations that its director and shareholder, Alan Stephen Cadd (Mr Cadd), was validly appointed as a director of each of the second respondent, Mandalay Bay Investments Pty Ltd (Investments) and the third respondent, Mandalay Bay Technologies Pty Ltd (Technologies) and that Victor Kalinowski (Victor), a director of the first respondent Icarus Investments Pty Ltd (Icarus), was appointed a director of Technologies.
Technologies resists the application. Each of Investments and Icarus have been served with the application but took no active part.
Background
Technologies is a wholly-owned subsidiary of Investments. Technologies conducts a business providing weighbridge software to quarries, industrial complexes and landfill and waste sites.
Twenty-five percent of the shares in Investments is owned by Vikran. The remaining 75% is held by Icarus.
As already observed, Mr Cadd is a director and shareholder of Vikran. The only other director and shareholder is Nicola Cadd who is married to Mr Cadd.
Icarus is controlled by two brothers, Victor and Simon Kalinowski (Simon). They are the only directors. The shares in Icarus are owned by Mabides Investments Pty Ltd (Mabides). Victor and Simon are the only shareholders in Mabides. In practical terms then, Victor and Simon control Icarus and own all equity.
Mr Cadd founded a business in 1997 through Weighmaster Pty Ltd (Weighmaster), a company he controlled. That business was similar to the one now conducted by Technologies.
Weighmaster’s business was sold to Victor and Simon with Mr Cadd retaining a 25% interest. This was achieved through the structure already explained with the holding company, Investments, being held as to 25% by the Cadds’ company, Vikran, and as to 75% being held by Victor and Simon’s company, Icarus.
In 2003, an agreement was entered into between Icarus, Vikran, Technologies and Investments (the shareholders’ agreement). No dated copy of the shareholders’ agreement can be located but it seems to have come into existence in early 2003. Both Technologies and Investments were incorporated on 6 February 2003.
The shareholders’ agreement recognises that the intellectual property in the software will vest in Investments and be licensed to Technologies. Technologies would run the business and the shareholding in both Technologies and Investments will be 75% to Victor and Simon’s interests and 25% to the Cadds.[1]
[1]Shareholders’ agreement, clause 3.1.
That proportionate ownership of the shares is reflected in the proposed composition of the board of directors of each of Technologies and Investments. One director (25% of the board of each company) is to be appointed by Vikran and three (75% of the board of each company) by Icarus. Probably to ameliorate against the clear imbalance, an independent director was to be appointed. Various provisions of the shareholders’ agreement are relevant to the current dispute.
Investments and Technologies are referred to by definitions:
“‘Investments’ means Mandalay Bay Investments Pty Ltd (ACN 103 634 359) together with its successors, administrators and assigns”
‘Technology’ means Mandalay Technologies Pty Ltd (ACN 103 637 501) its successors, administrators and assigns”
The term “board” is defined as:
“‘Board’ means the board of directors of Investments or Technology together with any other party appointed by Investments. The Shareholders confirm the Boards of Investments and Technology will be comprised of the same people”
The term “Board” is defined as referring to the “board of directors of Investments or Technology”. In context, this means it applies to both. An example is clause 4.1.[2] Properly construed, it reads as if:
“The Board of Technologies[3] shall manage and administer the Business[4] and the affairs of Technologies and The Board of Investments shall manage and administer the Business[5] and the affairs of Investments.”
[2]Which appears at paragraph [21] of these reasons.
[3]I have called the company “Technologies”, not “Technology”.
[4]Defined as the Business of Technologies; clause 1.1.
[5]Defined as the Business of Investments; clause 1.1.
Another example of the operation of the defined term “the Board” is clause 4.2.[6] When properly construed, clause 4.2 reads as if:
“The Board of Technologies shall comprise [of directors appointed by the shareholders of Technologies as prescribed by the clause] [and] the Board of Investments shall comprise [of directors appointed by the shareholders of Investments as prescribed by the clause].”
[6]Which appears at paragraph [21] of these reasons.
The term “constitution” is defined as:
“‘Constitution’ means the constitution of Investments or Technology in force from time to time or the replaceable rules specified in the Corporations Act 2001 (Cth) if Investments or Technology has not adopted a Constitution”
The term “directors” is defined as:
“‘Directors’ as at the Agreement Date means the directors as may be appointed from time to time under the terms of this Agreement, including the Independent Director”
As already observed, an independent director was contemplated and defined as:
“‘Independent Director’ means any Director appointed by the Board from time to time (if any) who does not represent a corresponding Shareholder”
The term “shareholders” is defined as:
“‘Shareholders’ means collectively Icarus and Vikran, and ‘Shareholder’ means any one of them.”
Part 2 of the shareholders’ agreement concerns “ratification” where the respective parties make various acknowledgements. Relevantly here:
“2.2 Directors
The Shareholders acknowledge and agree that the Directors are the only Directors of Investments and Technology and have been duly and validly appointed in accordance with the Constitution and the Corporations Act 2001 (Cth);
2.3Agreement to Prevail
This Agreement is intended by the Shareholders to regulate their relationship as Shareholders in Investments and Technology. It is the intention (and agreement) of the Shareholders that the terms of this Agreement are paramount and in the event of any inconsistency between the terms of this Agreement and the Constitutions, then this Agreement shall prevail to the extent of any inconsistency unless prohibited by law.”
Part 3 of the shareholders’ agreement concerns the allotment of shares and is not relevant here. Part 4 concerns the board of directors of both Investments and Technologies. It provides:
“4. BOARD OF DIRECTORS
4.1Board
The Board shall manage and administer the Business and the affairs of Investments and Technology.
4.2Composition
The Board shall comprise one (1) Director appointed by Vikran, three (3) Directors appointed by Icarus and the Independent Director until the Shareholders unanimously agree otherwise, or the number of shareholders in Investments or Technology is increased in accordance with this Agreement and the Directors set out above shall be the only directors of Investments and Technology.
4.3Right of Appointment
The power to appoint a Director under this clause 3 shall include a Right to remove at any time a person so appointed by a Shareholder as a Director. Any appointment or removal of a Director shall be by Notice to Investments or Technology and signed by the Shareholder appointed or removing Director as the case may be and shall become effective upon service upon Investments or Technology of the Notice of appointment or removal.
4.4Alternate Director
A Shareholder shall be entitled at any time and from time to time to appoint any person or persons to act as an alternate to that Shareholder’s appointed Director and shall be entitled to terminate the appointment of that alternate Director at any time.
4.5Chairman
The Directors may appoint a chairman of the Board from time to time who shall be a Director.
4.6 Term
The term of the chairman shall be for a period of one year unless the chairman resigns or is replaced in accordance with this Agreement.
4.7Removal
The Shareholders agree that:
(a)if the chairman for any reason whatsoever ceases to be a Director of Investments or Technology or is removed from the office of chairman, the Board shall appoint a new chairman;
(b)the Independent Director appointed pursuant to clause 4.2 can be removed by unanimous resolution of the remaining Directors representing the Shareholders.
4.8Quorum
(a)Director’s Meetings
There shall be a quorum at any meeting of the Board if there is present two (2) Directors with at least one Director appointed by each Shareholder (or that Director's alternate Director) present.
(b)A quorum for any meeting of the Shareholders shall consist of at least two (2) shareholders of Investments and one (1) shareholder of Technology.
4.9Right exercisable
Except as may otherwise be provided for in this Agreement or in the Constitution, the Rights vested in or exercisable by the Board under the Constitution shall be exercised by the Directors present at a duly constituted meeting of Directors.
4.10Shareholders meetings
The chairman shall unless the Board otherwise agrees, chair all meetings of the Board and Shareholder meetings of lnvestments or Technology.
4.11Casting vote
In the event of an equality of votes at a meeting of the Board or at a general meeting of Investments or Technology; the chairman shall not have a second and or casting vote.
4.12No entitlement
Subject to clause 4.13 and unless otherwise agreed to by a unanimous decision of all Shareholders, the Directors of Investments or Technology shall not be entitled to any Directors fees.
4.13Other Capacity
Notwithstanding their appointment as a Director, a Director shall be entitled to receive remuneration or reimbursement, of expenses or costs when acting in a capacity other than as a Director, including when acting in capacity as an employee, agent or servant of Investments or Technology.
4.14Decision making
Despite any fiduciary duty, principle of general law or provision of the Corporations Act 2001 (Cth) or the Constitution, any Director may make a decision in the interests of the Shareholder appointing the Director alone, without being required to have regard to:
(a)the interests of the other parties; or
(b)the interests of the Shareholders as a whole, but this clause will not operate to relieve a Director from any other duty, liability or Obligation owed by the Director to Investments or Technology.
Clause 24.2 is a “no waiver” provision in these terms:
“24.2 Waiver
The non-exercise of or delay in exercising a Right of a party shall not operate as a waiver of that Right, nor does a single exercise of a Right preclude another exercise of it or the exercise of other Rights. A Right may only be waived by Notice, signed by the party (or its Authorised Representative) to be bound by the waiver.”
By the time of the execution of the shareholders’ agreement, the only directors of each of Investments and Technologies were Victor and Simon. Victor and Simon were the initial directors when each company was incorporated. Victor resigned as a director of Technologies on 4 November 2004.
Despite the terms of the shareholders’ agreement, no party attempted to alter the composition of either board of directors for about 19 years. As Mr Cadd explained in his affidavit:
“13.To the best of my recollection, there was very little negotiation of the SHA. As I have said at paragraph 9 above, the SHA was prepared by Redchip Lawyers.
14.At the time, I was focused on my other business ventures and suggested that the Kalinowski brothers take primary management of the running of the business. Simon was to be the chief executive officer of Technologies and he continues to hold this title. Based on the ASIC searches conducted:
(a)Simon and Victor have been appointed as directors of Investments since 6 February 2003; and
(b)Simon has been appointed as a director of Technologies since 6 February 2003. Victor was also appointed as a director of Technologies between 6 February 2003 and 4 November 2004.
15.As set out in paragraph 1314[7] above, I was focused on other business matters with Informed Sources and so Vikran did not seek to appoint a nominee director to the board of Investments and Technologies at the time. I believed that Simon and Victor would act in the best interests of Investments and Technologies and run the business properly given that they held 75% of the business and their duties as directors. In the circumstances, I did not see the need at the time for Vikran to have a board seat to supervise the running of the business.
16.However, I (on behalf of Vikran) did not write to or say to the Kalinowski brothers or Icarus that Vikran was giving up its right to nominate a director under clause 4.2 of the SHA, nor have I done so since the entry into the SHA. It has always been Vikran’s intention to retain its right to appoint a director to Investments and Technologies, should the need arise.
17.I have no recollection of there being any discussion between Simon, Victor and me about the composition of the board of each of Investments and Technologies. Further, at no time was there conversation about Vikran giving up its rights to appoint a nominee director and I would not have agreed to it.”
And later:
“20.After a few years, it was agreed at one of our meetings between the three of us that we needed to start to get more formal in our governance. In particular, we agreed that before reaching the stage where further directors could be appointed to Technologies (including relevantly by Vikran) there needed to be greater predictability of reporting and performance with respect to the business’ operations. To achieve this, we agreed that we would meet on a more regular basis.”
[7]This should obviously read “13 and 14”.
In September 2019, Simon disclosed that he had borrowed $1 million from Technologies in order to purchase some shares in another company.
On 20 September 2019, a shareholders meeting of Technologies was held. It was attended by Simon, Victor, Mr Cadd and Mrs Cadd. Simon agreed that he would not again take money from the company without approval and he would repay the money already taken. It was agreed that Simon would in the future require approval to disburse company money.
In October 2021, it seemed that Simon was again misusing the funds of Technologies.
By this point, Victor and Simon had fallen out. Any meeting of either the board of directors or of the shareholders of Icarus (the major shareholder of both Investments and Technologies) was potentially deadlocked.
As the only directors of Investments were Victor and Simon, the board of directors was potentially deadlocked.
Simon remained the only director of Technologies.
Any shareholders’ meeting of either Investments or Technologies would be met with the problem of internal conflict and potential deadlock within the majority shareholder, Icarus.
On 9 March 2022, Vikran purported to exercise its right under clause 4.2 of the shareholders’ agreement to appoint Mr Cadd a director of Investments. Simon disputed that appointment and correspondence was exchanged. Attempts were made to resolve the issues and a formal mediation was held on 22 May 2023 but failed to resolve the dispute.
On 5 June 2023, Vikran purported to nominate Mr Cadd as a director of Investments pursuant to what it saw as its rights under clause 4.2 of the shareholders’ agreement. Victor agreed in writing to that appointment.
Vikran’s solicitor wrote to Icarus making various assertions and:
1.sought Icarus’s acknowledgement of the validity of the appointment of Mr Cadd to the board of Investments;[8] and
2.advised that Vikran had no objection to Icarus appointing a third director; and
3.invited Icarus to discuss the appointment of an independent director.
[8]This is the effect of paragraph 55(c) of Mr Cadd’s affidavit.
That correspondence did not provoke a response and on 6 June 2023 notice of appointment of Mr Cadd as a director of Investments was served on the registered office of Icarus.
Over this period, Victor remained a director of Investments. In that capacity, he gave notice to each of Mr Cadd and Simon of a meeting of the board of directors of Investments to be held on 6 July 2023 by video-conference.
That notice of meeting advised that the resolutions which would be put were:
1.the appointment of Mr Cadd and Victor as directors of Technologies;
2.consideration of an acknowledgement that Mr Cadd had been appointed a director of Investments on 6 June 2023.[9]
[9]The date of service of the notice of nomination of Mr Cadd dated 5 June 2023.
Service of notice of the board meeting did elicit a response from Simon and correspondence was exchanged. Simon denied the validity of the notice.
On 6 July 2023, the meeting was purportedly held by Mr Cadd and Victor. Both appeared by video. Simon made no appearance.
It was purportedly resolved by Investments, as the only shareholder of Technologies, to appoint Mr Cadd and Victor as directors of Technologies.
Simon disputes the appointment of Mr Cadd as a director of Investments and disputes the appointment of Mr Cadd and Victor as directors of Technologies.
After the purported meeting on 6 July 2023, correspondence again passed between the parties. Simon alleged various irregularities including that the meeting was held via video. Mr Cadd purported to call a meeting of directors of both companies on 13 July 2023 with physical appearance necessary.
Victor and Mr Cadd attended the purported meeting. Simon did not. Various resolutions of both Investments and Technologies were purportedly passed.
The meeting of 13 July 2023 of the directors of Investments purported to pass a resolution:
“That to the extent there were any procedural irregularities with respect to the meeting of directors of Investments held on 6 July 2023 (6 July Meeting), including that it was held via technology, the directors resolve to ratify, for all purposes, the resolutions passed at that 6 July Meeting.
All directors present voted in favour of Resolution and the resolution passed.”
If that resolution was validly passed, then the resolution of Investments appointing Mr Cadd and Victor as directors of Technologies had been ratified.
Both the purported meeting of 13 July 2023 of the directors of Investments and of the directors of Technologies purported to pass a resolution:
“Consent to the use of technology.
The attendees discussed the appropriateness of ‘in person’ meetings compared with Zoom/TEAMS meeting. Both attendees agreed that in the future, the use of technology would be an advantage and acceptable. Further, the members agreed the need for periodic ‘face to face’ meetings to ensure best relations can be maintained.
Those resolutions were designed, no doubt, to meet the terms of s 248D of the Corporations Act 2001 (Cth) which is in terms:
“248D Use of technology
(1)A directors' meeting may be called or held using any technology.
(2)Without limiting subsection (1), a directors’ meeting may be held:
(a)at one or more physical venues; or
(b)at one or more physical venues and using virtual meeting technology; or
(c)using virtual meeting technology only.
(3)Despite subsections (1) and (2), if technology is used to call a director’s meeting, or to hold a directors’ meeting (whether or not the meeting is held at one or more physical venues), the technology must be reasonable.”
Victor swore an affidavit which was read by Vikran on the present application. That affidavit is quite short and refers to Mr Cadd’s affidavit. Victor swears to the truth of various identified paragraphs in Mr Cadd’s affidavit. Those include paragraphs 13, 16, 17 and 20.[10] It says nothing inconsistent with what Mr Cadd says in paragraphs 14 and 15 of his affidavit.[11]
[10]Which appear at paragraph [24] of these reasons.
[11]Which also appear at paragraph [24] of these reasons.
The present application
Vikran seeks the following declarations:
“1.Declarations that:
(a)on 6 June 2023, Alan Stephen Cadd of 25 Munro Street, Indooroopilly, Queensland, was validly appointed as a director of Mandalay Bay Investments Pty Ltd ACN 103 634 359 (Investments);
(b)the meeting of the directors of Investments on 6 July 2023 was validly called and held;
(c)the resolutions passed at the meeting of the directors of Investments on 6 July 2023 were lawfully passed;
(d)the written resolution of Investments as sole shareholder of Mandalay Technologies Pty Ltd ACN 103 637 501 (Technologies) dates[12] 6 July 2023 was a valid resolution pursuant to section 249B of the Corporations Act 2001;
(e)on 6 July 2023 Alan Stephen Cadd and Victor James Kalinowski were validly appointed as directors of Technologies;
(f)the meeting of directors of lnvestments on 13 July 2023 was validly called and held;
(g)the resolutions passed at the meeting of directors of lnvestments on 13 July 2023 were lawfully passed;
(h)the meeting of directors of Technologies on 13 July 2023 was validly called and held; and
(i)the resolutions passed at the meeting of directors of Technologies on 13 July 2023 were lawfully passed.”
[12]This should read ‘dated’.
Other ancillary relief is sought but, for the reasons explained below, the real argument is as to whether the declarations should be made.
The real issues
By clause 4.2 of the shareholders’ agreement, Vikran had a right to appoint a director of Investments. Mr Cadd explained in his affidavit that Vikran chose not to do so in 2003. That is not said by Technologies to constitute a waiver of the right.[13] What is said is that on a proper construction of clause 4.2 any right of a shareholder to appoint a director was lost if the shareholders agreed unanimously to take a different course which Technologies said they did.
[13]Shareholders’ agreement, clause 24.2.
Neither party sought to cross-examine any deponent to any affidavit. Both based their respective cases on an interpretation of Mr Cadd’s affidavit[14] with competing submissions as to the proper construction of the shareholders’ agreement.
[14]Especially paragraph 20.
If the appointment of Mr Cadd as a director of Investments is not authorised by clause 4.2 of the shareholders’ agreement, then he was not validly appointed as a director of Investments. It would then follow that he had no authority to join in the resolution of Investments (as the only shareholder of Technologies) appointing himself and Victor as directors of Technologies.
Therefore, the central issue is as to the validity of the purported appointment of Mr Cadd to the board of Investments on 6 June 2023. That largely depends on the construction of clause 4.2 of the shareholders’ agreement.
Technologies raises a separate point, namely that there was no authority to conduct a meeting of Investments electronically on 6 July 2023. That, it says, is because the preconditions of s 248D of the Corporations Act were not made out.
The proper construction of the shareholders’ agreement
The shareholders’ agreement is a commercial agreement. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[15] French CJ, Nettle and Gordon JJ followed Codelfa Construction Pty Ltd v State Rail Authority (NSW)[16] and Electricity Generation Corporation v Woodside Energy Ltd[17] and summarised the relevant principles in construing a commercial agreement as follows:
“46The rights and liabilities of parties under a provision of a contract are determined objectively,[18] by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.[19]
47In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.[20] That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[21]”[22]
[15](2015) 256 CLR 104.
[16](1982) 149 CLR 337.
[17](2014) 251 CLR 640.
[18]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35].
[19]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 (citing Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574), 352. See also Sir Anthony Mason, “Opening Address”, Journal of Contract Law, vol 25 (2009) 1, at p 3.
[20]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35].
[21]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35].
[22]See also Kiefel J (as her Honour then was) and Keane J at [109].
Later, in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd,[23] the High Court observed:
“It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract.[24] In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it[25].”[26]
[23](2017) 261 CLR 544.
[24]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35] and the cases at fn 58.
[25]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35] and the cases at fn 60.
[26]At [16], followed in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 97 ALJR 194 at [27].
The exercise of construction is to objectively determine the intention of the parties from the text and in so doing take into account matters of context including the commercial nature of the document, and its purpose. It is not an exercise of consideration of the commercial wisdom of what was, or might have been agreed.
Clause 4.2 is not expressed in terms of bestowing rights. It is expressed as a description of the constitution of the board of directors of each of Investments and Technologies.
Clause 4.3 is headed “Right of appointment”. It, though, does not expressly bestow a right of appointment. Rather, it acknowledges “the power to appoint a director under this clause 3” and then provides that the power includes a power to remove the director so appointed.
The reference to “this clause 3” could be a reference to “this [sub-clause] 3” of clause 4. The reference to clause 3 may be an error and the reference should be to “this clause 4”. Most probably it is just a mistake. Nothing turns on it.
The definition of “Board” creates a curiosity. “Board” is defined as “the board of directors of Investments or Technology together with any other party appointed by Investments”. That is difficult to reconcile with clause 4.2. By clause 4.2, the “Board” shall be comprised of the directors nominated by each shareholder, together with the independent director, but the definition of the “Board” means the board of directors plus “any party appointed by Investments”. That circularity seems difficult to reconcile.
Despite the clumsiness of the drafting, clauses 4.2 and 4.3, when read together, objectively show an intention to bestow a power on Vikran to appoint one director and bestow a power on Icarus to appoint three. That is because the description of the board is of “one (1) director appointed by Vikran” and “three (3) directors appointed by Icarus”.
Clause 4.2 is silent as to how the independent director is appointed. It seems contemplated by clause 4.2 that the independent director would not be appointed by nomination of any shareholder. The definition of “Independent Director”[27] shows that the independent director is to be appointed by the “Board”, namely the board of directors of each of Investments and Technologies.
[27]Which appears at paragraph [18] of these reasons.
Clause 4.2 describes the composition of the board of each of Investments and Technologies “until the shareholders unanimously agree otherwise”. The shareholders are Vikran and Icarus. Therefore, if Vikran and Icarus “unanimously agree otherwise”, the board of each of Technologies and Investments shall not be as described in clause 4.2 but shall be as unanimously agreed.
If there is unanimous agreement as to the constitution of each board,[28] there is no right to remove a director under clause 4.3 or appoint an alternative director under clause 4.4. That is because clause 4.3 only applies to “a person so appointed by a shareholder as a director”.[29] The reference to “so appointed” must mean appointed pursuant to clause 4.2. Therefore, if Vikran appointed a director under clause 4.2, it could remove that director under clause 4.3. Any director not appointed by nomination under clause 4.2 but by unanimous agreement, is relevantly, not “so appointed” and an individual shareholder has no right to remove the director.
[28]As opposed to appointment by a shareholder.
[29]Emphasis added.
Similarly, the person under clause 4.4 appointed as an alternative director is one who is “alternate to that shareholders’ appointed director”.
Therefore, if “the shareholders [have] unanimously agree[d]” to a board comprised otherwise than as described by clause 4.2:
1.any right of shareholders to appoint directors is gone because that right only applies “until the shareholders unanimously agree otherwise”;[30] and
2.if the shareholders have so agreed and the board of each is comprised not of directors appointed by the individual shareholders but by resolution of a meeting of shareholders, then:
(a)any director is not subject to removal under clause 4.3; and
(b)any alternate director may not be appointed under clause 4.4.
[30]Emphasis added.
There is no real contest as to the proper construction of clause 4.2. In written submissions, counsel for Vikran said:
“16.The commercial purpose of the SHA is to regulate the operation of Investments and Technologies and bind Vikran and Icarus to conduct the affairs of those companies in particular ways. An agreement of this nature is effective of itself as a resolution of the shareholders of the companies.[31] The terms of clause 4 of the SHA in general manifest a clear intention that both shareholders would have a right to be represented on the board of both Investments and Technologies, unless there was an express agreement to the contrary or a clear written waiver of the right.”
[31]Rectron Australia BV v Lu [2013] VSC 384 at [68] citing Re Duomatic Ltd [1969] 2 Ch 365.
There is, in my view, nothing to suggest that if the shareholders have “unanimously agreed otherwise”, than to have the board of each of Technologies and Investments constituted as described in clause 4.2 of the shareholders’ agreement, that the powers of appointment can be exercised thereafter. It may have been commercially sensible to preserve such a right[32] but that is not the point.
[32]Vikran’s written submissions, paragraphs 14 and 15.
It was common ground that the shareholders’ agreement prevails over the constitutions of each of the companies to the extent of any inconsistency.[33]
[33]Rectron Australia BV v Lu [2013] VSC 384 at [68] citing Re Duomatic Limited [1969] 2 Ch 365.
Whether there is any inconsistency may depend on the circumstances then prevailing. For example, clause 4.8 concerns the quorum at a meeting of directors. The quorum is said to be two directors “with at least one director appointed by each shareholder (or that director’s alternate director) present”. That assumes appointment by individual shareholders pursuant to clause 4.2 rather than appointment of directors by the shareholders meeting generally. In the event that “the shareholders unanimously agree[d] otherwise” than the composition of the board pursuant to clause 4.2, then there would not be (for the purposes of clause 4.8) a “director appointed by each shareholder” and so clause 4.8 could have no operation. The respective constitutions of the two companies would dictate the quorum of the meeting of the board of directors.
The constitution of each of the two companies has not been altered or repealed. Therefore, if the shareholders have “unanimously agreed otherwise” than to the composition of the board of directors as specified by clause 4.2, then clauses 4.3, 4.4 and 4.8 will not operate and the provision of the respective constitutions of the two companies will operate in that space.
Did the shareholders unanimously agree otherwise?
Mr Cadd explained in his affidavit how he was focussed on other business ventures so he let Victor and Simon run the business of Technologies and, it seems, Investments. Those statements of Mr Cadd concern the running of the business not the board of directors of the owner of the business (Technologies) or the parent shareholder in Technologies (Investments). Critically, though, Mr Cadd said that he did not “see the need at that time[34] for Vikran to have a board seat to supervise the running of the business”.[35]
[34]When the business was first transferred to Technologies.
[35]Paragraph 15 of Mr Cadd’s affidavit which appears at paragraph [24] of these reasons.
Mr Cadd, in his affidavit, explains that “after a few years”, so in about 2006 or 2007, he met with Victor and Simon and it was agreed that no further directors would be appointed until some later stage when there was “greater predictability of reporting and performance”.[36]
[36]Paragraph 20 of Mr Cadd’s affidavit which appears at paragraph [24] of these reasons.
Mr Cadd swears that he never gave away Vikran’s right of appointment. Whether that is so, is ultimately a matter of law as to the legal effect of clause 4.2 of the shareholders’ agreement upon the evidence.
By deciding in 2006-2007 not to appoint directors under clause 4.2, the respective shareholders agreed that the board of each would remain as Simon and Victor as directors of Investments and Simon as sole director of Technologies. They therefore “unanimously agreed otherwise” than to nominate directors under clause 4.2. That position then prevailed until 6 June 2023 when Vikran purported to appoint Mr Cadd; some 16 or 17 years later.
The significance of the delay by Vikran in purporting to exercise the right of appointment under clause 4.2 is not as to waiver. It has evidentiary significance. The fact that no step was taken for some 16 or 17 years after the meeting held “a few years” after the sale of the business to Technologies, circumstantially supports a finding that there was an agreement in 2006-2007 to have Victor and Simon as the directors of Investments and Simon as the director of Technologies.[37]
[37]Although Victor by that stage had resigned from the board of Technologies.
It was submitted on behalf of Vikran that the meeting in 2006-2007 was not a meeting of all shareholders as Mrs Cadd was not present. Therefore, there could not be unanimous agreement of the shareholders to constitute the board of directors of each of Investments and Technologies contrary to that as described in clause 4.2. That submission should be rejected.
The shareholders of each of Technologies and Investments are Icarus and Vikran. Mr and Mrs Cadd do not hold shares in either company.
When Mr Cadd, Victor and Simon met in 2006-2007, they were clearly meeting as representatives of the shareholders of Technologies and Investments. That must be so because they were discussing the appointment of directors to those two companies.
Mr Cadd was representing Vikran. He was not a director of either Technologies or Investments. His interest in meeting with Victor and Simon was as a representative of Vikran, the owner of 25% of the equity of the two companies. As can be seen from paragraph 20 of his affidavit, Mr Cadd purported to make agreements on behalf of Vikran. There is nothing to suggest that he was not authorised to do so. Mrs Cadd’s absence is of no moment.
Conclusions
Pursuant to clause 4.2 of the shareholders’ agreement, Icarus, through Victor and Simon, and Vikran, through Mr Cadd, unanimously agreed in 2006-2007 that the board of Investments should consist of Victor and Simon and that Simon would be the only director of Technologies. The making of that agreement spelt the end of the right of Vikran and Icarus to nominate their own directors to the two companies pursuant to clause 4.2.
Therefore, any further appointments to the boards of Investments or Technologies could only be achieved in compliance with the respective constitutions of those companies.
It follows that Vikran could not, as it purported to do in June 2023, nominate Mr Cadd as a director of Investments. Therefore, the claim for the declaration in paragraph 1(a)[38] of the application must fail.
[38]As appears in paragraph [49] of these reasons.
Victor, as a director of Investments, was entitled to call a meeting of directors on 6 July 2023. However, Mr Cadd was not a director of Investments. There was no authority to constitute a meeting of a board of directors of Investments where that meeting included Mr Cadd as he was not a director. Mr Cadd could not vote on behalf of Investments (as shareholder of Technologies) to appoint himself and Victor as director of Technologies. It follows that the declarations sought in each of paragraph 1(c), (d) and (e)[39] cannot be made.
[39]As appears at paragraph [49] of these reasons.
The declarations sought in relation to the meeting of 13 July 2023[40] can also not be made. That meeting suffered from the same fatal flaws as the meeting of 6 July.
[40]Paragraphs 1(f), (g), (h) and (i) as appears at paragraph [49] of these reasons.
It is unnecessary to consider s 248B and whether the meeting on 6 July 2023 could be conducted electronically. As I have explained, no valid resolutions were made on 6 July 2023.
Relief other than the declarations is sought in the application. No submissions were advanced in support of that relief and it was not suggested that such relief could be given in the face of a finding that the purported appointment of Mr Cadd as director of Investments was invalid.
The application must be dismissed.
At the hearing of the application, the parties expressed their wish to exchange written submissions on costs after judgment in the application and to have the question of costs decided without further oral hearing. That is appropriate.
Orders
It is ordered:
1.The application is dismissed.
2.The applicant and the third respondent exchange written submissions on costs by 3 November 2023.
3.The issue of costs to be determined on any written submissions and without further oral hearing.
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