Yellow Rock Resources Ltd v Valentino - [2013] WASC 436

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: YELLOW ROCK RESOURCES LTD -v- VALENTINO [2013] WASC 436

CORAM: MASTER SANDERSON

HEARD: 12 NOVEMBER 2013

DELIVERED : 5 DECEMBER 2013

FILE NO/S: CIV 2004 of 2013

BETWEEN: YELLOW ROCK RESOURCES LTD (ACN 116 221 740)
Plaintiff
AND
DAVID PETER VALENTINO
Defendant

Catchwords:

Corporation law - Provision in forfeiture as to when calls on partly paid shares can be made - Turns on own facts

Legislation:

Nil

Result:

Call can only be made in one year
Calls not cumulative

Category: B

Representation:

Counsel:

Plaintiff: Mr M F Holler
Defendant: Mr J A Thomson SC

Solicitors:

Plaintiff: AustAsia Legal Pty Ltd
Defendant: Tottle Partners

Case(s) referred to in judgment(s):

Srimati Premila Devi v Peoples Bank of Northern India Ltd (in liq) [1938] 4 All ER 337

MASTER SANDERSON: The plaintiff commenced proceedings on 24 September 2012. It subsequently amended the indorsement of claim which was on the writ of summons and filed a statement of claim on 10 October 2012.
On 5 August 2013 the defendant applied for summary judgment. The defendant lodged an affidavit in support of his application for summary judgment which was directed at the 10 October 2012 statement of claim.
By letter directed to the registrar on 30 August 2013 the plaintiff applied to amend its writ of summons and statement of claim. A minute of further amended writ of summons dated 26 August 2013 was filed on 4 September 2013 and a substituted minute of amended statement of claim dated 5 September 2013 was filed on 17 September 2013.
On 17 September 2013 the plaintiff applied for summary judgment. The plaintiff filed an affidavit in support of the application and referred to the minute of further amended writ of summons dated 26 August 2013 and the substituted minute of amended statement of claim dated 5 September 2013.
Procedurally then the position was something of a mess. However both counsel were anxious to have their respective summary judgment applications determined. It was therefore agreed between the parties the plaintiff would have leave to amend its statement of claim and that statement of claim would be taken as verified by affidavit as is required by O 14 of the Rules of the Supreme Court 1971 (WA). For the defendant's part it would be assumed the affidavit filed in support of his summary judgment application would relate to the amended statement of claim dated 5 September 2013. Counsel are to be commended for the practical hard headed approach they adopted to the applications.
Before dealing with the summary judgment applications themselves I should say something about what were in effect cross‑applications for judgment. Such a situation is unusual but is by no means unique. It has advantages. Where there are no disputes of fact or where the facts are agreed and the point at issue is one of statutory or contractual construction the procedure is very useful. It allows for summary determination without the need for a full trial. There is only one disadvantage. No appeal is available from a decision dismissing a plaintiff's application for summary judgment. An appeal is available from a decision refusing a defendant summary judgment. So a situation could arise where the plaintiff's application for judgment is dismissed and the defendant's application is granted. On appeal it would be open to the Court of Appeal to set aside the judgment in favour of the defendant but it would not be open to the Court of Appeal to enter judgment for the plaintiff. The position could perhaps be overcome by the plaintiff making a second application for summary judgment. It is difficult to see how such an application could be resisted.
Turning then to the facts of this case the defendant was an individual investor in shares in the plaintiff. The defendant applied for and was allotted 15 million partly paid shares in the plaintiff pursuant to his application made under a prospectus dated 9 November 2009. The shares were allotted on 10 December 2009. The application for the partly paid shares and the issue of them was in accordance with the terms of the prospectus and formed a contract between the parties. The shares were issued at a purchase price of $0.039 per share partly paid to $0.0001.
It is convenient at this point to refer to the prospectus pursuant to which the shares were issued and to relevant provisions in the constitution of the plaintiff.
Clause 7.3 of the prospectus is headed 'Rights and Liabilities attaching to Partly Paid Shares'. It is in the following terms:
The Partly Paid Shares will be issued at an issue price of $0.0001 each and convertible to ordinary fully paid shares in the capital of the company on payment of a further $0.0389 per partly paid share.
In addition to the rights and liabilities conferred on holders of Partly Paid Shares as detailed in section 7.1, the following additional rights and liabilities attach to a Partly Paid Share pursuant to the Constitution of the Company:
(a)The Company shall not make a call on the Partly Paid Shares for a period of 12 months from the date of issue.
(b)Subject to (a), the maximum call per annum from date of issue shall be $0.005 per Partly Paid Share.
(c)A holder of Partly Paid Shares may make full payment of any uncalled amount, at their sole discretion, at any time, subject to a minimum conversion of 500,000 Partly Paid Shares or such lesser number where the balance held is less than 500,000 Partly Paid Shares.
(d)Subject to the Corporations Act and the terms on which the Partly Paid Shares are issued, the Directors may make a call on the holders of the partly paid shares for any money unpaid on them.
(e)The Partly Paid Shares are freely transferrable.
(f)The Company must comply with the Corporations Act and the ASX Listing Rules in relation to the dispatch and content of notices to members on whom a call is made and a member to whom notice of a call is given must pay to the Company the amount called in accordance with the notice.
(g)If an amount called is not paid on or before the due date, the person liable to pay the amount must also pay interest on the amount from the due date to the time of actual payment and all expenses incurred by the Company as a consequence of the non‑payment.
(h)To the extent permitted by the ASX Listing Rules, the Company has a first and paramount lien on every partly paid share which is presently payable to the Company.
(i)The Directors may at any time after a call becomes due and payable and remains unpaid serve a notice on the member to pay the unpaid amount, interest and all expenses accrued.
(j)If a member does not comply with a notice served then any or all of the partly paid shares in respect of which the notice was given may be forfeited. On forfeiture, shares become the property of the Company and forfeited shares must be, if the ASX Listing Rules permit sold, disposed of, or cancelled on terms determined by the Directors or offered by public auction.
(k)The interest of a person who held shares which are forfeited is extinguished but subject to the ASX Listing Rules remains liable to pay all money that was payable at the date of forfeiture.
(l)Subject to the terms on which a partly paid share is on issue, the net proceeds of any sale made to enforce a lien or on forfeiture will be applied in the following order; in payment of the costs of sale; in payment of all amounts secured by the lien or all money that was payable in respect of the forfeited share; and where the share was forfeited, in payment of any surplus to the former member whose share was sold.
(m)In the event of any reorganisation of the issued capital of the Company on or prior to the conversion to an ordinary fully paid share, the rights of a partly paid shareholder will be changed to the extent necessary to comply with the applicable ASX Listing Rules in force at the time of the reorganisation.
It is common ground between the parties on 5 June 2012 the plaintiff called for the payment of $0.005 per Partly Paid Share for the 12 month period commencing 14 December 2009 and ending 13 December 2010. It also called for a further payment of $0.005 per Partly Paid Share for the period commencing 14 December 2010 and ending 13 December 2011. The amount claimed for each of these periods was $75,000 making a total claim of $150,000. The defendant did not make payment on the calls. The statement of claim goes on to plead the failure to make payment of the calls led to an acceleration of the defendant's obligation to make full payment leading to a claim of some $583,500. At the commencement of the hearing counsel for the plaintiff conceded there was a question to be tried as to the plaintiff's entitlement to seek the accelerated payment. Thus the plaintiff was claiming judgment for $150,000.
It was the defendant's position the plaintiff was not entitled to make the calls that it did. The defendant said on the proper interpretation of cl 7.3(b) of the prospectus the plaintiff could only make one call per year and could not aggregate calls for years past. For the reasons which follow the defendant's position must be accepted.
Before dealing with the particular provisions in question it is well to remember provisions which allow for the forfeiture of shares - and that is what cl 7.3 of the prospectus does - are to be strictly interpreted. This point was made by Lord Romer in Srimati Premila Devi v Peoples Bank of Northern India Ltd (in liq) [1938] 4 All ER 337. His Lordship giving judgment of the Privy Council said:
This may seem to be somewhat technical, but, in the matter of the forfeiture of shares, technicalities must be strictly observed, and it is not, as is sometimes apt to be forgotten, merely the person whose shares are being forfeited who is entitled to insist upon the strict fulfilment of the conditions prescribed for forfeiture, for the forfeiture of shares may result in a permanent reduction of the capital of a company (344).
It was the plaintiff's position in looking at cl 7.3(b) it was necessary to give meaning to the words 'from date of issue'. When put next to the words 'maximum call per annum' it was submitted the defendant had an obligation to make payment annually if calls were made by the plaintiff. This obligation carried over from year to year. It was not then necessary to make a call in a particular year. Calls for a particular year could be made some time later.
Reference was also made to the constitution of the plaintiff and in particular cl 3.1. Relevantly the plaintiff relied on cl 3.1(a) which appears under the subheading 'Calls'. The clause reads as follows:
Subject to the Corporations Act and the terms of issue of a Share, the Company (under the control of the Directors) may, at any time, make calls on the Members of a Share for all, or any part of, the amount unpaid on the Share.
That provision in the constitution is limited by the 'terms of issue of a Share' - in this case the prospectus. So it is necessary to go back to the terms of the prospectus and cl 7.3(b). In my view that clause simply cannot be read in the way the plaintiff claims. The scheme of the clause is tolerably clear. An amount is paid on the issue of partly paid shares. Pursuant to cl 7.3(a) no call can be made for a further payment for a period of 12 months. Thereafter pursuant to cl 7.3(b) calls can be made annually. But such calls do not have to be made. The board of the corporation may decide there is no need for further capital and a call is unnecessary. No holder of partly paid shares reading this provision could be sure that he or she would be called upon to make payment each and every year. There is a real possibility that will occur but no certainty. On that basis the defendant's interpretation of the clause is to be preferred.
In considering a Prospectus it is important to remember to whom the document is directed. Persons who take up shares may or may not read the Prospectus - the more cynically minded might say investors never read the Prospectus. Be that as it may an investor is entitled to have put before him or her a clear statement of the obligations which arise under a Prospectus. If the obligation to make payment of calls is an annual event which arises whether or not notice is given by the company the Prospectus needs clearly to state that is the position. In this case an investor would know after purchasing partly paid shares he or she had no further liability for a 12 month period. Relying on the wording of the Prospectus if a further 12 months passed (that is two years from the issue date) and no call was made the investor would be entitled to expect he or she had no liability to meet a call for that past 12 month period. They might have to meet a call in the following 12 months. But again if that 12 month period passes without a call then no liability accrues. The reference to the 'date of issue' in cl 7.3(b) is in my view nothing more than a reference date from which the right to make calls arises.
At the conclusion of the hearing I indicated to the parties I would grant the defendant's application for summary judgment and dismiss the plaintiff's claim. They will be the orders. The plaintiff should pay the defendant's costs of the action and all reserved costs to be taxed if not agreed.