Arkin v Tridon Australia Pty Ltd [2002] FCA 1629

FEDERAL COURT OF AUSTRALIA Arkin v Tridon Australia Pty Ltd [2002] FCA 1629 Business Corporations Act 1990 (Ontario) s177(1), 178(4) Corporations Act 2001 (Cth) s 290(1), (2), (4) HARRY LEE ARKIN v TRIDON AUSTRALIA PTY LTD N 3016 OF 2002 HELY J 24 DECEMBER 2002 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 3016 OF 2002

BETWEEN: HARRY LEE ARKIN

APPLICANT

AND: TRIDON AUSTRALIA PTY LTD

RESPONDENT

JUDGE: HELY J

DATE OF ORDER: 24 DECEMBER 2002

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The matter be listed for directions on a date to be fixed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 3016 OF 2002

BETWEEN: HARRY LEE ARKIN

APPLICANT

AND: TRIDON AUSTRALIA PTY LTD

RESPONDENT

JUDGE: HELY J

DATE: 24 DECEMBER 2002

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The respondent ("TAPL") is a company incorporated in New South Wales. In 1988 shares in TAPL were held as to about 67 percent by Mr R W Lennox (or his associates) and as to about 33 percent by Tridon Ltd. Tridon Ltd later changed its name to ACD Tridon Inc ("ACDT"). ACDT is an Ontario Corporation registered under Corporations No 59314. 2 On 4 October 1988 a Distributorship Agreement was entered into between ACDT of the one part, and TAPL and Tridon New Zealand Ltd (a subsidiary of TAPL) ("TNZL") of the other part. Also on 4 October 1988 a Shareholders' Agreement was entered into between ACDT of the one part and Mr Lennox of the other part. Under the Shareholders' Agreement Mr Lennox had the power to appoint two persons to the board of TAPL, and ACDT had the power to appoint one member. If a person ceases to be a director of TAPL, the party which appointed him is entitled to appoint a replacement. 3 Clause 14 of the Shareholders' Agreement provides that each party shall not "transact" with its shareholding in TAPL except in circumstances which are not presently material. Clause 16 provides that on the occurrence of an event of default, the non-defaulting party may compulsorily acquire the shares of the defaulting party at a fair value. Included in the events of default is the passing of a resolution for the reduction of capital of the party concerned. Clause 17 of the Shareholders' Agreement provides that the rights and obligations of the parties to it are personal, and "no party may assign such rights and obligations" without the consent of the other. 4 Tomkins Canada Acquisition Corporation ("TCAC") held all of the shares in ACDT. Section 177(1) of the Business Corporations Act 1990 of Ontario ("BCAO") provides for the amalgamation of a holding corporation and one or more of its subsidiary corporations which may amalgamate and continue as one corporation. 5 On 30 August 1999 a Certificate of Amalgamation issued in relation to a purported amalgamation of ACDT and TCAC. The product of that amalgamation was ACDT Tridon Inc under Corporations No 1371372. I shall refer to the product of that purported amalgamation as "ACDT (1371372)" without prejudging whether the purported amalgamation was effective, and if so whether there is any difference in legal personality between ACDT, on the one hand, and ACDT (1371372) on the other. 6 On 13 August 2001, pursuant to the Shareholders' Agreement, ACDT (1371372) purported to appoint the applicant as a director of TAPL. Mr Lennox, on behalf of TAPL, lodged with the Australian Securities & Investments Commission ("the ASIC") a Notice of Change to Officeholders, which notified that the applicant was appointed as a director of TAPL. 7 It is common ground that since that date the applicant has acted in the position of a director of TAPL, whether or not he was validly appointed to that position. Thus, for example, on 8 November 2002 TAPL gave notice to the applicant of a board meeting of TAPL to be held on 2 December 2002 to adopt the financial accounts for TAPL for the year ended 30 September 2001. 8 As part of the amalgamation process, a resolution was purportedly passed by ACDT that all shares of ACDT should be cancelled on the endorsement of the certificate of amalgamation pursuant to s 178(4) of the BCAO "without any repayment of capital in respect thereof". 9 Mr Lennox asserts that this resolution was a resolution for the reduction of capital of ACDT and an event of default under the Shareholders' Agreement, which entitled him to require that ACDT's one-third interest in TAPL should be transferred to him. 10 On 19 January 2002 entries were made in the register of members of TAPL to give effect to the claimed exercise by Mr Lennox of his rights under cl 16 of the Shareholders' Agreement to acquire ACDT's shares in TAPL.