Strahl v McKinnon
[2014] NZHC 1257
•20 June 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-6758 [2014] NZHC 1257
UNDER the Declaratory Judgments Act 1908 IN THE MATTER
of an application under Part 18 of the High
Court RulesBETWEEN
JOHN RUSSELL STRAHL Plaintiff
AND
ALEXANDER MALCOLM MCKINNON AND OTHERS
First Defendants
GOUGH HOLDINGS LIMITED Second Defendant
Hearing: 20 May 2014 Counsel:
R J B Fowler QC for Plaintiff
J W A Johnson and G J C Carter for First and Fifth named First
DefendantsJ A Farmer QC and P A Robertson for Third, Fourth, and Ninth named First Defendants
T C Weston QC and A V Foote for Fourteenth, Fifteenth and
Sixteenth named First DefendantsJudgment:
20 June 2014
RESERVED JUDGMENT OF MACKENZIE J
I direct that the delivery time of this judgment is
4.45 pm on the 20th day of June 2014.
Solicitors: DLA Phillips Fox, Wellington, for Plaintiff.
Wynn Williams Lawyers, Christchurch, for First and Fifth name First Defendants
Mortlock McCormack, Christchurch, for Third, Fourth and Ninth named FirstDefendants
Duncan Cotterill, Christchurch, for Fourteenth, Fifteenth and Sixteenth named First
DefendantsClark Boyce, Christchurch for Second Defendant
STRAHL v MCKINNON AND ORS [2014] NZHC 1257 [20 June 2014]
[1] This proceeding seeks a declaration under s 3 of the Declaratory Judgments Act 1908 on a question of construction concerning the constitution of the second defendant Gough Holdings Ltd (GHL).
[2] GHL is a holding company for the shares in Gough Gough and Hamer Ltd (GGH). That company was established by Mr T T Gough, who died in 1955. GGH was and is a successful company. A very valuable part of its business is a long-held dealership for heavy machinery marketed by Caterpillar Inc. At the time of his death Mr Gough owned substantially all the shares in that company. He was survived by his second wife and three children; a son and daughter of his first marriage and a son of his second marriage. From shortly after his death, continuing down to the present, the disposition of his estate has given rise to disputes within the family. As a result, ownership of GGH is now governed by a quite complex trust and company structure.
[3] Under a Deed of Family Arrangement approved by the (then) Supreme Court in 1962, the assets of the estate (substantially, shares in GGH) were to be held on trusts which varied the trusts in the will. The broad effect of the Deed was that, subject to payment of several annuities, the capital of the estate was held on trust as to one half for the issue of Mr O T Gough, the son of the first marriage, and as to one
half for the issue of Mr B T Gough, the son of the second marriage.1
[4] In 1986, and 1987, those arrangements were restructured. Deeds of Variation of Trust dated 28 November 1986 and 28 May 1987 were entered into. The variation was approved by this Court under ss 64 and 64A of the Trustee Act 1956. That variation carried the division of the estate into two halves a stage further than had been done in the 1962 Deed. Two subtrusts of the trusts of the estate were established, one for each branch of the family. Each subtrust had its own trustees, appointed by the beneficiaries of that subtrust. The trustees of the head trust (the head trustees) comprised one trustee from each of the two subtrusts, with a third person appointed by those trustees. In addition, two separate family trusts were established by separate deeds each dated 28 May 1987, the O T Gough Family Trust and the B T Gough Family Trust. These were in substantially similar terms, and the
beneficiaries of each were the respective members of that branch of the family.
1 The surviving daughter of the first marriage had no issue.
[5] As part of the restructuring, GHL was formed as a holding company to hold the estate’s interest in GGH, and also to acquire the shares in GGH which were then held by family interests separate from the estate’s holding. These represented about
15 per cent of the total capital. The capital of GHL comprised both ordinary shares and non-voting redeemable preference shares. The ordinary shares were issued to the O T Gough Family Trust and the B T Gough Family Trust, and the other family interests. The preference shares were issued to the two subtrusts of the estate trusts, and the other family interests. The two family trusts each held an equal number of ordinary shares, about 42.5 per cent each of the total. All the individual shareholders (of the remaining 15 per cent of the shares) were (in essence) members of the O T Gough or B T Gough branches of the family. Because of the terms of the original will, under which the individuals’ shareholdings in GGH had been obtained, there was a slight imbalance between members of the two branches of the family. Members of the B T Gough branch hold about 0.3 per cent more of the total ordinary shares than do members of the O T Gough branch.
[6] When GHL was re-registered under the Companies Act 1993, it needed a new constitution. Its terms were negotiated over a considerable period and the new constitution was registered in 1997. The question which arises for determination relates to the provisions as to appointment of directors in that constitution. The full terms of the relevant provisions, which are in cl 13 and the third schedule, are set out in the appendix to this judgment. A brief description of these provisions is desirable.
[7] Under cl 13, the directors are appointed by the head trustees, and may be removed by them. They retire by rotation at three yearly intervals. Directors who are in the full-time employment of the company are exempt from the rotation provision. If there are no longer head trustees, the third schedule to the constitution applies. Under the third schedule, directors are elected by the ordinary shareholders, by a simple majority vote. They are subject to removal by ordinary resolution, and retire by rotation at three yearly intervals. Full time employee directors are exempt from that rotation. Clause 13 is consequentially modified.
[8] For now, cl 13 applies in its unmodified form. It is now in prospect that the head trust may end, so that there will no longer be head trustees, and the third
schedule will become operative. There is a separate proceeding before this Court in Auckland about that. The present proceeding has been brought, in anticipation of that possibility, to determine a question of interpretation of the third schedule on which the family is deeply divided.
[9] The question involves the interpretation of cl 3 of the third schedule. That provides:
Disqualification from Appointment
No person shall be appointed as a Director who: (a) Has attained the age of 70 years;
(b) Is prohibited from holding office under the Act;
(c) Is a member of the Gough family unless all Shareholders unanimously agree.
[10] The essence of the question is this: what is the position of a member of the Gough family who is, at the time the third schedule becomes operative, a director, having been so appointed by the head trustees? The question is of practical application, because there are currently two family members, one from each branch, serving as directors appointed by the trustees. There is a significant difference between them in that one is an employee while the other is not.
[11] The plaintiff, Mr Strahl, commenced this proceeding in his capacity as a trustee of the O T Gough Family Trust, to determine the following question:
Where under clause 13.7 the provisions of the Third Schedule are applicable, does clause 3(c) of that Schedule prohibit the continuation in office of a director who is a member of the Gough family previously appointed by the head trustees but who has since become and continues as a full-time employee of the company, unless all shareholders unanimously agree to his/her continuation?
[12] Mr Fowler QC, for Mr Strahl, submits that this question can be answered by a purposive interpretation of the constitution, without reference to extrinsic materials. He submits that the correct answer is ‘yes’. Mr Farmer QC and Mr Johnson, who represent members of the O T Gough branch of the family, agree with that answer. They refer also to extrinsic material in doing so. Mr Weston QC, who represents members of the B T Gough branch of the family, disputes that
answer. He submits that the wording of cl 3 is clear and unambiguous and does not require automatic removal of the directors covered by its sub-clauses. He also relies on extrinsic material to support that interpretation.
[13] In addressing this question of interpretation, I am guided by the principles as to interpretation of contracts described by the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd.2 The constitution in this case is, by its nature, sufficiently analogous to a contract to make these principles applicable. It was drafted following an extensive consultation process in which all shareholders had an opportunity for input. It was adopted by the shareholders.
[14] The language used by the parties, appropriately interpreted, is the only source of their intended meaning. The interpretation is to be addressed on an objective basis, by considering what a reasonable and properly informed third party would consider the parties intended the words to mean. The ‘proper information’ includes the context in which the constitution was drafted and adopted, and all the facts and circumstances known to and likely to be operating on the minds of those involved in
that process.3
[15] I deal with the exercise of the interpretation in two stages, adopting the process described by Tipping J.4 First, I consider whether the question can be answered by reference only to the constitution itself, informed only by the brief background which I have described. Second, I cross-check the provisional answer so obtained by looking at such of the extrinsic material relied upon as is properly admissible for that purpose.
[16] The starting point is cl 3 of the third schedule. The nub of the question is whether the phrase “No person shall be appointed” is to be construed as applying only at the moment of appointment, or continuously throughout the period in which the appointment subsists. For convenience, I refer to these two possible interpretations as the ‘time of appointment’ meaning and the ‘term of appointment’
meaning.
2 Vector Gas Ltd v Bay of Plenty Energy [2010] NZSC 5, [2010] 2 NZLR 444.
3 At [19].
4 At [24].
[17] Mr Weston submits that the ‘term of appointment’ meaning is not within the natural and ordinary meaning of the words, and that there is therefore no ambiguity. I do not agree with that proposition. The appointment of a director is an act. That act confers a status. The words “no person shall be appointed” are, on their natural and ordinary meaning, capable of referring either to the act of appointment in isolation, or to the status which that act confers. On that latter meaning, the prohibition applies not only to the act of appointment itself, but also to the holding of the status which the act of appointment confers. The latter is not an unnatural or extraordinary meaning of the phrase. In my view, either of the ‘time of appointment’ or the ‘term of appointment’ meaning would be consistent with the ordinary use of language.
[18] The case is therefore one involving the type of ambiguity which arises because of the inherent imprecision of the English language. The precise meaning which the language is intended to convey must at this first stage be gleaned from contextual clues, and from any purpose apparent from the document itself which the provision is intended to achieve.
[19] As one contextual clue, Mr Weston submits that when the constitution refers to appointment in a continuous sense, the term “holding office” is used.5 The context in which that term is used, in the provisions to which Mr Weston refers, makes the expression ‘holding office’ a more natural one than the expression
‘appointed’ in a continuous sense. The use of the term ‘appointed’ in those contexts would read rather awkwardly. There is not such a clear distinction in the use of the two terms in the constitution to lead to the conclusion that the use of ‘appointed’ in a continuous sense cannot have been intended.
[20] Mr Weston also submits that the use of the phrase “shall be appointed”, indicates a future act of appointment, occurring after the third schedule has become operative. I do not find that submission persuasive in favour of either interpretation. The use of the future tense could apply equally to a future act of appointment or to a
future status of appointment.
5 Clauses 13.8(e), 14.6 and 15.1(a)(ii) of the constitution.
[21] Another contextual clue is to consider the position of a director who attains one of the statuses prohibited by cl 3 after appointment. Clause 3(a) prohibits appointment after age 70. The position under the presently operative provision, cl 13.3(c), is that a director who attains the age of 70 ceases to be a director at the next annual meeting. That paragraph will in effect be repealed when the third schedule comes into effect. There are therefore two possibilities for a director appointed under the third schedule who turns 70:
(a) if cl 3 has the ‘time of appointment’ meaning, that director will remain in office until retirement by rotation, or retirement from full time employment with the company; or
(b)if cl 3 has the ‘term of appointment’ meaning, that director must cease to be a director on turning 70.
[22] On the first possibility, the repeal of cl 13.3(c) means that the period in which a director who turns 70 may remain in office is extended beyond that currently applicable. On the second possibility, cl 13.3(c) is unnecessary, because the director will have vacated office before the next annual meeting.
[23] It seems more likely that cl 13.3(c) was repealed because it was unnecessary, rather than to make the term of office of a director turning 70 potentially longer than previously. That consideration favours, though only slightly, the ‘term of appointment’ meaning.
[24] Clause 3(b) addresses the position of a director who is prohibited from holding office under the Companies Act 1993. That is not expressly dealt with under cl 13, and the removal of such a director is covered only by s 157 of the Companies Act, not by the constitution. When the third schedule becomes operative, there will be an express provision in cl 3 preventing the appointment of a prohibited person. Clause 3 will therefore change the previous position, under which reliance is placed only on the Act to effect removal. If cl 3 has the ‘term of appointment’ meaning, the express provision as to removal covers all situations requiring removal of a director for disqualification under the Act, because any director becoming disqualified will
be subject to cl 3. If cl 3 has the ‘time of appointment’ meaning, it does not cover all situations, because it only prevents the initial appointment or reappointment when the person is already disqualified. It seems more likely that the constitution would deal either with all situations or none, rather than dealing with some. That consideration favours, though again only to a small extent, the ‘term of appointment’ meaning.
[25] Clause 3(c) has two elements: being a member of the Gough family and unanimous agreement of shareholders. Membership of the Gough family is defined to include only descendants (whether natural or adopted) of the late T T Gough. On that definition, that element of cl 3(c) cannot be acquired after appointment as a director. Depending on how any dissent from unanimous agreement is able to be expressed, it is possible that disqualification to be a director under this subclause could arise after the date of appointment. That is not an issue which counsel addressed, and I express no view on it. It could potentially raise a complication under the ‘term of appointment’ meaning but not the ‘time of appointment’ meaning. That consideration favours, to a small extent, the ‘time of appointment’ meaning.
[26] A further contextual clue is that there is no express provision in cl 3 which specifies the consequences of a director becoming disqualified under any of the three paragraphs after the date of appointment. No such provision is needed if cl 3 bears the ‘time of appointment’ meaning, because a director is not, on that interpretation, subsequently disqualified for not continuing to meet the qualification which applied at the time of appointment. That consideration favours, though only to a small extent, the ‘time of appointment’ meaning. I do not regard that as an important pointer to the interpretation of cl 3. Directors have no security of tenure under cl 13 as it stands. They are subject to removal by the head trustees. There is no provision as to the consequences of removal. There is no more obvious need for a provision as to the consequences of automatic removal by reason of a director becoming disqualified under the third schedule after election by the shareholders.
[27] The points I have discussed about cl 3 itself are contextual clues. They point, on my assessment of them, to the ‘term of appointment’ meaning. They are however
of relatively minor significance. Much more important is a consideration of the purpose of cl 3(c) in the context of the constitution as a whole.
[28] More light is cast on the question whether cl 3 is to be read in the ‘time of appointment’ or the ‘term of appointment’ sense by considering the context of cl 3 in the constitution as a whole. The constitution refers to the two branches of the Gough family. As Mr Fowler put it, the constitution on its face is forged around a careful balancing and equal treatment of the two branches of the family. As Mr Weston correctly notes, the shareholdings of the two branches are not exactly equal. Subject to that qualification, I accept the submission that there is a careful balancing of the interests of the two branches. That is apparent from the terms of the constitution, read as a whole. For example, under cl 4.4(a), each branch must approve any issue of new shares, and they must be issued proportionately to existing holdings. Under cl 12.8(a), the quorum for shareholder meetings requires representation from both branches of the family.
[29] Reliance is placed, on both sides of the argument, on the provisions in cls 5 and 6 of the third schedule dealing with the rotation of directors, and exceptions from rotation. The broad effect of these provisions is that all directors are subject to re-election at three yearly intervals, except for employee directors. All counsel representing the O T Gough branch submit that the ‘time of appointment’ meaning would leave open the possibility that a member of the Gough family who is an employee director when the third schedule comes into force would remain a director indefinitely, an outcome which they submit is not consistent with the careful balancing of the interests between the two branches of the family which the constitution seeks to achieve. Mr Weston, representing the B T Gough branch, submits that the ‘term of appointment’ meaning would effectively remove the effect of the exemption from rotation for a Gough family member who was an employee director.
[30] In my view, little assistance is to be gleaned from the rotation and exemption provisions in cls 5 and 6. If the ‘time of appointment’ meaning applies, then any Gough family member who is a director when the third schedule becomes operative will remain a director. That person will continue to be a director until the expiry of
the three year term, or until ceasing employment, and will then be ineligible for reappointment without unanimous agreement. If the ‘term of appointment’ meaning applies, any family director will become immediately ineligible. It does not seem to me that the length of time for which the directorship might continue under the first meaning is of particular assistance in deciding whether it is intended by cl 3(c) that the directorship can continue at all. To the limited extent that it is possible to obtain assistance from the rotation and exemption provisions, I consider that they favour the
‘term of appointment’ interpretation of cl 3. That interpretation is better suited to achieving the objective of unanimous shareholder agreement on the presence of any member of the Gough family on the board. It prevents the presence of such a director without unanimous agreement, whether for a period of up to three years or indefinitely.
[31] I do not find the submission that such an interpretation will remove the exemption from rotation for a Gough family director persuasive in favour of the
‘time of appointment’ meaning. Under the present conditions of appointment, all directors are subject to removal by the head trustees. No present director, whether an employee or not, has any security of tenure as a director. The head trustees could, before the third schedule becomes effective, remove all Gough family members (whether employees or not). That power of removal is not affected by the existing rotation and exception provisions in cl 13.5 and 13.6. The fact that an outcome similar to removal would occur automatically on the ‘term of appointment’ interpretation is therefore not a persuasive argument against that interpretation.
[32] For these reasons, I reach the tentative conclusion, based only on the wording of cl 3, when it is read in context of the constitution as a whole, and without regard to any extrinsic contextual material, that the ‘term of appointment’ meaning is the meaning intended by the constitution.
[33] I now turn to cross-check the conclusion I have reached by considering the words used in cl 3 in the context of the constitution as a whole, by now taking into account the external context and the facts and circumstances known to those involved in the drafting and adoption of the constitution.
[34] The first point which I glean from that external context is that it confirms and explains the intention of the constitution to treat the two branches of the Gough family as separate entities, and to achieve a balance between them. The restructuring of the estate trust and the formation of the two family trusts in 1987 entrenched and gave an institutional structure to what had by then become deep divisions within the family. Family disputation at that time had such an adverse effect on the business of GGH that its principal business asset, its Caterpillar dealership, was at risk. Caterpillar had gone so far as to impose, as a specific condition of the continuation of the dealership, a requirement “that no members of the Gough family serve in any
capacity as an employee, a director, or a trustee of either of the two family trusts”.6
[35] When the constitution was drafted in 1997, that deep division between the two branches of the family still existed, and Caterpillar’s requirement needed to be addressed in the constitution. The contemporary documents demonstrate that both of these considerations were present in the minds of those who prepared and commented on the draft constitution.
[36] Counsel referred me to some of the materials relating to the drafting of the constitution, and sought to obtain support for their respective positions from correspondence among the parties who were consulted in the drafting process. Care needs to be taken not to place too much reliance on the way those involved in the drafting process have expressed their comments. Those may or may not have prevailed in the process of drafting and adopting the constitution. The ‘matrix of fact’ to which regard may be had in interpreting a contract does not generally include
the previous negotiations of the parties and their declaration of subjective intent.7
What matters is not the detail of the various comments, but what the exchanges reveal about the way the considerations to which I have referred were addressed in the final document. It is only to the extent that the correspondence and documents shed light on the objective intention of the parties that they provide a reliable aid to
the interpretation.8 Viewed in that way, it is clear that the constitution was intended
6 Letter from Caterpillar of Australia Ltd, dated 7 July 1986.
7 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 (HL); Vector Gas Ltd v Bay of Plenty Energy Ltd¸ above n 2, at [27]-[31] per Tipping J and at [70]-[78] per McGrath J.
8 Vector Gas Ltd v Bay of Plenty Energy Ltd¸ above n 2, per Tipping J at [29].
to ensure that there would be strict controls on the ability to appoint a member of the Gough family as a director, and that those controls should include the need for the assent of both branches of the family to any such appointment. Those intentions were given effect in cl 13, by reason of the composition of the head trustees, and explicitly in cl 3 of the third schedule.
[37] Mr Weston submits that the historical context shows that before the 1980s restructuring there had been significant family involvement in company management, and that the concerns which were addressed in the 1986/87 restructuring about family involvement were prompted by a particular situation that existed at that time. He submits that the restriction on family directors was a specific response to Caterpillar’s concerns, and that there is no evidence that this was a broader policy of that company, intended to last forever. He submits that both before and after this period, family member involvement was encouraged by Caterpillar, and that this fact tends against such an interpretation of what happened in the 1980s. He therefore submits that the clear purpose of cl 3(c) in the third schedule was to ensure that Caterpillar’s views were given a high degree of weight, and that there was no broader, more far reaching intention to exclude family members.
[38] I do not accept that submission. The history demonstrates that Caterpillar’s concerns were a catalyst for the restructuring proposal.9 However, the restructuring proposed, and ultimately adopted, addressed a much wider range of issues. It was not limited to addressing Caterpillar’s concerns and its requirement of no family involvement in the business. Inter-family issues, including the possibility of family directorships, were addressed in the negotiations over both the 1986/87 restructuring and the 1997 constitution on a much broader basis than that, as I have briefly described.
[39] Also, it is not permissible to take into account a subsequent change of attitude by Caterpillar in interpreting the constitution. There is evidence that the head trustees have from 2007 appointed family members as directors. It may be inferred that Caterpillar has indicated its acceptance of those appointments. However, in
interpreting the constitution, the Court is concerned with the context when it was
9 See particularly the draft proposal for restructuring ownership, dated 5 June 1986.
adopted. There are cases in which the subsequent conduct of parties to a contract has been taken into account in determining the meaning which they have given to a contract.10 This is not such a case. To the extent that Caterpillar’s view is relevant to the interpretation of the constitution, what is relevant is its view in 1997, not its view now. The evidence does not show that in 1997 its view had changed from that which it expressed very clearly and firmly in 1986.
[40] Initially, while control is vested in the head trustees, the inter-family issues and Caterpillar’s requirements are addressed by vesting the power to appoint and remove directors in the head trustees. The head trustees represent both branches of the family, and so achieve the necessary balance between branches. The head trustees could be expected, by reason of their duties as trustees, to be responsive to Caterpillar’s concerns, which had the potential to be extremely damaging to the value of the assets of the trusts if the dealership was put at risk.
[41] That initial position was to end when the head trust ended. The task, in interpreting the third schedule, is to determine how the parties who contributed to the drafting and ultimate adoption of the constitution, viewed, in 1997, the likely situation which would need to be provided for in the ongoing governance of the company when the ‘institutionalization’ of the two branches of the family, through the trust structure, no longer existed.
[42] Tipping J in Vector Gas Ltd v Bay of Plenty Energy Ltd noted that the necessary inquiry concerns which a reasonable and properly informed third party would consider the parties intended their words to mean.11 It would not be immediately obvious to a notional reasonable observer that the interests of the two branches of the family, as shareholders, are necessarily diametrically opposed. It might seem that their interests are to some extent at least aligned, to the extent of
ensuring that the business prospers. It would also not be immediately obvious to a notional reasonable observer that the interests of all members of one branch of the family are completely aligned. As individuals, the shareholders might well have
different views about what should be done to ensure that the business prospers.
10 See for example Raptorial Holdings Ltd (In Receivership) v Elders Pastoral Holdings Ltd
[2001] 1 NZLR 178 (CA) at [27].
11 Vector Gas Ltd v Bay of Plenty Energy Ltd¸ above n 2, at [19].
Different views might be taken by some members within one branch, and there might be an alignment of views between some members of both branches.
[43] However, that notional reasonable observer, once properly informed of the background, would see very clearly that the situation was not viewed in that way in
1997. The constitution clearly continues the division between the two branches of the family, as I have described. The evidence indicates to me that one of the circumstances likely to be operating on the minds of those involved in drafting and adopting the constitution was an expectation that family division would continue, and would need to be addressed after the institutional structures of the trust had gone. While subsequent events are not an aid to interpretation, it is pertinent to observe that this expectation at the time the constitution was adopted has been borne out by subsequent events. The way the argument in this case has been divided along strict family lines is a clear demonstration of the continuing division.
[44] It would also not be immediately obvious to a notional reasonable observer that the appointment as a director of a member of one branch of the family will necessarily advantage that branch, and disadvantage the other branch. It might be expected that those considering the appointment or election of all directors, including family members, would be influenced by considerations of ability to perform the role of a director in a way which will help assure the prosperity of the business. These considerations might objectively be thought to be common to the interests of all shareholders, and not differentiated along family lines. However, once again, it is clear that a notional reasonable observer, when properly informed of the background in 1997, would realise that to be an unrealistic expectation for this family. The family history which I have briefly described (and as it continues through this litigation) demonstrates otherwise. The adopters of the 1997 constitution clearly had an expectation that, when the intervening trust structure is removed so that members of the family directly hold the shares in GHL, considerable modification to ordinary majority control by shareholders would still be necessary to address the long standing family divisions. To address that expectation, the constitution provided for strict control on the ability of the shareholders to elect any family member as a director. The strictness of that control extended to a requirement for unanimity before an appointment could be made.
[45] Because of the history, it may not have been foreseen in 1997 as a realistic possibility that there may be family member directors in office when the third schedule becomes operative. The notional reasonable and properly informed observer in 1997 might therefore have considered it most unlikely that any family member would be in office when cl 3 becomes operative. In that event, the issue of interpretation which now arises would be academic. That might explain, to the satisfaction of that notional observer, why cl 3 did not expressly address that possibility. Whatever view may be taken in this point, I conclude that the reasonable and properly informed observer would conclude from the context in which the constitution was adopted in 1997, that the intention of the constitution was to prevent any family member holding office as a director in any circumstances without unanimous agreement. That view, informed by the relevant context, confirms the view which I have formed from a consideration of its terms alone.
[46] For these reasons, I conclude that cl 3 bears the ‘term of appointment’
meaning.
[47] The question posed in this proceeding relates only to the position of a Gough family director who is also an employee. For the reasons I have given, I consider that the position of an employee family director is no different from that of any other family director who may hold office when the third schedule becomes operative. It is therefore not appropriate to give an answer to the question as posed. Rather, I make the following declaration:
Where under clause 13.7 the provisions of the Third Schedule are applicable, clause 3(c) of that Schedule prohibits the continuation in office of a director who is a member of the Gough family previously appointed by the head trustees unless all shareholders unanimously agree to his/her continuation.
[48] Costs are reserved. The parties may submit memoranda.
“A D MacKenzie J”
APPENDIX
13. DIRECTORS
13.1 Number of Directors:
(a) The minimum number of Directors shall be three. (b) The maximum number of Directors shall be seven.
13.2 Appointment of Directors:
(a) Subject to subclause (b) hereof the Head Trustees shall be entitled to appoint and remove any person as a Director of the Company.
(b) The Head Trustees may, on the recommendation of the Board, appoint any full-time employee of the Company or a subsidiary thereof, as a Director of the Company.
(c) The appointment and removal of a Director appointed pursuant to subclauses (a) or (b) shall be effected by notice served by the Head Trustees at the registered office of the Company. The removal of a Director appointed under subclause (b) shall not affect the executive position of that person.
(d) No Director or person who has attained the age of 70 years shall be appointed or reappointed.
(e) For the avoidance of doubt the right of appointment and removal of all executives of the Company and its subsidiaries shall be vested in the Board who may delegate that power.
13.3 Removal and Cessation of office of a Director
A Director shall cease being a Director of the Company:-
(a) Upon that Director being removed by notice under clause 13.2(c).
(b) Upon a Director giving notice of resignation to the Company such notice to be effective from the date specified therein or if no date is specified then forthwith on that notice being given.
(c) At the annual meeting after the Director attains the age of seventy.
13.4Rotation: The Head Trustees shall determine those Directors who are to retire by rotation at the annual meeting of the Company. If the Trustees make no determination as aforesaid then subject to clause 13.5 one third of the Directors (excluding any Directors who are full time employees of the Company or a subsidiary of the Company) shall retire from office at the annual meeting in each year but such one third shall be calculated so that no Director is subject to retirement by rotation except at three yearly intervals. Those to retire shall be those who have been longest in office. If two or more Directors were last elected on the same day the Directors to retire shall be determined by lot unless the Directors agree among themselves.
13.5 Exceptions to Rotation: The Directors who are in the full time employment of the
Company or any subsidiary of the Company are exempt from the obligation to retire
under clause 13.4 but are subject to removal only as a Director (but not as an employee) by the Head Trustees at any time.
13.6Disqualification: Without limiting Section 157, the office of Director shall be vacated if the Director:
(a) Absents himself or herself from the meetings of Directors for a period of three months or does not attend at least one-half of the meetings of Directors held in each year, without special leave of absence from the other Directors: or
(b) Being an employee of the Company ceases such employment provided that the Head Trustees may by direction to the Board waive this provision requiring that employee to vacate office as a Director.
13.7During such time as there are Head Trustees only the Head Trustees shall be entitled to remove and appoint the Directors of the Company or if there are no Head Trustees then the provisions in the Third Schedule hereto shall apply in addition to clauses 13.1, 13.3 (but excluding subclauses 13.3(a) and (c)), 13.4 to 13.6 and 13.8 but with the exclusion of clause 13.2.
13.8 Managing Director: Without limiting Section 128 or 130:
(a) The Board may appoint one or more of their body to the office of managing Director or managing Directors of the Company either for a fixed term not exceeding five years or without any limitation as to the period for which he or she is or they are to hold such office. The Directors may fix his or her or their remuneration which may be in addition to his, her or their remuneration as an ordinary Director or Directors and may be either by way of salary, commission or profits earned or participation in the profits of the Company or by a combination of two or more of those modes. The Board may terminate that appointment.
(b) Subject to any contract, the managing Director shall be subject to the provisions as regards resignation and removal (as set out in clauses 13.2(c) and 13.3) and disqualification as the other Directors.
(c) The Board may entrust to and confer upon a managing Director any of the powers exercisable by the Board (except the power to issue equity securities, make calls, forfeit Shares, borrow money or issue debentures) upon such terms as they may think fit, either collaterally with or to the exclusion of their own powers, and may revoke, withdraw, alter or vary all or any of those powers.
(d) Every managing Director shall be liable to be dismissed or removed as set out in clause 13.3(c) or by the Board and shall have no right to continue in that office. The only remedy shall be a claim in damages against the company.
(e) If the managing Director ceased to hold office as a Director from any cause he or she shall cease to be managing Director.
THIRD SCHEDULE
ELECTION OF DIRECTORS
1. Nomination of Directors:
(a) No person (other than a Director retiring at the meeting) shall be elected as a Director at the meeting of Shareholders unless that person has been nominated by a Shareholder entitled to attend and vote at the meeting.
(b) Subject to clause 3 there shall be no restriction on the person who may be nominated as Directors nor shall there be any precondition to the nomination of a Director other than compliance with time limits in accordance with this clause and that person is less than 70 years of age.
(c) The opening date (if any) for nominations, shall not be later than three months, and the closing date for nominations shall not be earlier than two months, before the meeting at which the election is to take place.
(d) Notice of every nomination received by the Company before closing date for nominations shall be given by the Company to all persons entitled to attend the meeting together with, or as part of, the notice of meeting. Failure to do so shall not invalidate the nomination but the meeting, as far as the election of Directors is concerned, shall be adjourned until such notice shall have been given.
(e) No resolution to appoint or elect a Director (including a resolution or re- elect any Director appointed under clause 2(a)) shall be put to Shareholders unless:
(i) the resolution is for the appointment of one Director; or
(ii) the resolution is a single resolution for the appointment of two or more Directors, and a separate resolution that it be so voted on has first been passed without a vote being cast against it.
(f) Nothing in this clause prevents the election or two or more Directors by ballot or poll.
2. Appointment of Directors:
(a) The Directors may appoint any person to be a Director, either to fill a vacancy or as an addition to the existing Directors.
(b) Any person who is appointed as a Director by the Directors shall retire from office at the next annual general meeting of the Company, but shall be eligible for re-election at that meeting.
3. Disqualification from Appointment
No person shall be appointed as a Director who: (a) Has attained the age of 70 years;
(b) Is prohibited from holding office under the Act;
(c) Is a member of the Gough family unless all Shareholders unanimously agree.
4. Alternate Directors:
(a) A Director may appoint another person to be an alternate Director during his or her absence or inability to act as Director. No Director may appoint another person to act as alternate Director for him or her, except with the consent of a majority of his or her co-Directors. That appointment may be revoked by a majority of his or her co-Directors. A Director may not be appointed to act as alternate for another Director. No Director shall appoint a deputy or agent otherwise than by way of appointment as an alternate.
(b) An alternate Director shall be entitled to all notices of meetings of the Directors and any minutes or documents sent to Directors and to attend and vote at any meetings of Directors but shall not vote at that meeting except in the place of the Director for whom he or she is an alternate. An alternate Director shall not be entitled to be remunerated otherwise than out of the remuneration of the Director appointing him or her. Any appointment or revocation under this clause shall be effected by written notice to the Company.
(c) The appointment of an alternate Director shall be cancelled and an alternate Director shall cease to hold office whenever the Director who appointed him or her ceases to be a Director. A Director retiring at any meeting and being re-elected shall not for the purposes of clause 2 be deemed to have ceased to be a Director.
4. Removal:
All Directors shall be subject to removal from office as Directors by Ordinary
Resolution.
5. Rotation:
Subject to clause 7, at least one-third of the Directors or, if their number is not a multiple of three, then the number nearest to one-third, shall retire from office at the annual meeting each year but shall be eligible for re-election at that meeting. Those to retire shall be those who have been longest in office. If two or more Directors were last elected on the same day, the Directors to retire shall (unless they agree among themselves) be determined by lot.
6. Exceptions to rotation:
(a) The following Directors shall be exempt from the obligation to retire under clause 5:
(i) Directors appointed by the Directors, who are subject to re-election under clause 2; and
(ii) Any Director who is in the full time employment of the Company or a subsidiary of the Company.
(b) For the purposes of clause 6, the managing Director shall be included in, and the Directors referred to in clause 6(a)(i) shall be excluded from, the number of Directors upon which the calculation is based.
7. Re-election
The Company at a meeting at which a Director retires may fill the vacated office by electing a person to it. In default a retiring Director shall if offering himself or herself for the re-election be deemed to have been re-elected unless at that meeting it is expressly resolved not to fill the vacated office or unless a resolution for the re- election of that Director is put to the meeting and lost.
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