Supreme Court New South Wales Medium Neutral Citation: McLaughlin v Dungowan Manly Pty Ltd [2011] NSWSC 215 Hearing dates: 2 March 2011 Decision date: 25 March 2011 Before: Pembroke J Decision: See paragraph [57] Catchwords: CONTRACT - principles of construction - significance of context - capricious and inconvenient consequences - IMPLIED TERMS - construction or implication - nature and juridical basis CORPORATIONS LAW - oppression - single act - declaratory relief JUDGMENTS - first instance judgment - finally determines rights and liabilities - fixes current legal position - significance of appeal Legislation Cited: Corporations Act 2001 Cases Cited: Australis Media Holdings v Telstra Corp (1997) 24 ACSR 55 Australian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99 AWA Limited v Exicom (1990) 19 NSWLR 705 BP Refinery (Westernpoint) Pty Limited v Shire of Hastings (1977) 180 CLR 266 Castlemaine Tooheys Limited v Carlton & United Breweries Limited (1987) 10 NSWLR468 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Colt Industries Inc v Sarlie (No 2) (1966) 3 AllER 85 Compensation Scheme Limited v West Bromwich Building Society (1998) 1 WLR 903 Maggbury Pty Ltd v Hafele Australt Pty Ltd 210 CLR 181 McCann v Switzerland Insurance Ltd (2000) 203 CLR 579 Nouvion v Freeman (1889) 15 App Cas 1 Pacific Carriers v BNP Paribas (2004) 218 CLR 451 Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279 Royal Botanic Gardens & Domain Trust v South Sydney City Council (2009) 240 CLR 45 Toll FGCT Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Texts Cited: Ford, Austin & Ramsay, Ford's Principles of Corporations Law, "Buy-Backs of Shares" Volume 2, Loose leaf service, Butterworths (LexisNexis), Sydney, 1995 M Davies, A S Bell & P L G Brereton, "Nygh's Conflict of Laws in Australia" (Butterworths, 8th Edition, 2010) Category: Principal judgment Parties: Patrick David McLaughlin - first plaintiff Jennifer Therese McLaughlin - second plaintiff Dungowan Manly Pty Ltd - first defendant Rodney Mark Garratt - second defendant Max Humphreys - third defendant Peter William Brown - fourth defendant Representation: Counsel: S J Burchett - for the plaintiffs D A Priestley - for the defendant Solicitors: Turner Freeman - for the plaintiffs Pike Pike & Fenwick - for the defendants File Number(s): 2010/74510 Judgment Introduction 1The primary issue in this case requires the ascertainment of the meaning and effect of a series of individual agreements in identical form between the first defendant (the Company) and all but two of its shareholders. The shareholders who have not entered into the agreements are the plaintiffs and Beacon Properties Pty Ltd. Each agreement was formally entitled "Agreement for Surrender of Shares and Taking Strata Title". They were referred to as share surrender agreements. 2Until recently, the Company owned the land on which a residential apartment building at Manly is located. The system of title by which the shareholders in the Company were entitled to occupy their apartments in the building is known as company title. The share surrender agreements were entered into and completed in the period approximately April to July 2010. They were part of the process by which the company title was converted to strata title. When the share surrender agreements were entered into, the Company was a judgment debtor to the plaintiffs in the sum of approximately $212,000 plus costs pursuant to orders that were made by Ward J on 26 February 2010. Following the orders, the Company filed an appeal within the time stipulated by the rules. However the hearing of the appeal was aborted in the circumstances that I have explained in paragraphs [3] - [5] below. 3The plaintiffs contend that the effect of the share surrender agreements is that all rights of each shareholder who entered into such an agreement were immediately extinguished on completion. That is said to be because, upon completion, each such shareholder surrendered its shares, took in lieu a transfer of the strata unit to which it was entitled and paid all moneys due by it to the Company, save for any residual liability that may subsequently arise pursuant to Clauses 7 and 8. 4On this basis, the plaintiffs contended that they and Beacon Properties Pty Ltd are the only remaining shareholders and the only remaining persons entitled to notice or to vote at meetings of the Company. Apparently fortified by advice to this effect, the plaintiffs moved boldly in December 2010 to stop the appeal by the Company against the judgment of Ward J in their favour. They requisitioned an extraordinary general meeting of the Company, gave notice to the only other shareholder to whom, they contended, notice was required, namely Beacon Properties Pty Ltd, and caused a series of resolutions to be passed by the Company in general meeting on 6 January 2011. 5Those resolutions were principally to the effect that all persons purporting to act as directors of the Company were recognised as having ceased to hold office and (for more abundant caution) were removed; the plaintiffs were appointed as directors of the Company in place of the then named directors; and the new directors were authorised on the Company's behalf to take steps to dismiss the appeal. On 21 January 2011, the plaintiffs, purporting to act as the sole directors of the Company, terminated the retainer of the Company's solicitor, appointed their own solicitor in his place, and instructed the new solicitor to consent on behalf of the Company to the dismissal of the appeal. The Company 6Before addressing the construction issue, I should first explain the Company, its history, purpose and articles of association. It was formed in 1957 to acquire and hold the land and building known as Dungowan at 7 South Steyne, Manly. The building was constructed in 1919 and initially consisted of twenty-two flats over three storeys. It is listed in the Manly Local Environmental Plan 88 as an item of environmental heritage. 7The articles of association of the Company contain the usual provisions for a company established to hold land and buildings on the basis of company title. They state that ownership of specified share groups confers on the holder "the right to use as a home the flat in respect of which such group of shares is held". Associated with that right is an entitlement to peaceful enjoyment of all common property and a car space where specified. The Company was required to have at least two, and no more than six, directors unless otherwise determined by the Company in general meeting. The qualification to be a director was the holding of one of the share groups. The directors were authorised to manage the business of the Company and to impose levies and make calls on shares. Levies were payable in the proportion that the number of shares in each share group bore to the number of issued shares. No member was entitled to vote at a general meeting of the Company unless all calls, levies or sums payable in respect of its shares had been paid. 8One further feature of the articles of association should be mentioned. Article 25 provides that an instrument of transfer of any share group shall be executed by or on behalf of both transferor and transferee and that "the transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the register of members". 9In recent years the Company has undertaken extensive redevelopment of the building. As so often happens, this generated disputes and differences. The redevelopment was apparently opposed by the plaintiffs. Among many other things, they alleged that the conduct of the redevelopment, including the imposition of levies, the borrowing of moneys, the buy back of shares and a remuneration payment to a director, constituted oppression in the conduct of the affairs of the Company. All of these matters were the subject of a judgment of impressive length given by Ward J on 16 March 2010. 10By November 2008 the redevelopment was largely completed and the building re-occupied. In April 2009 a strata plan was registered. The following evidence was not challenged: 8 On registration of the strata plan in April 2009, strata titles to the flats in the Dungowan building issued in the name of the Company. The Company's banker (St George Bank Limited) held a first mortgage over the Company's title before the registration of the strata plan to secure repayment of the funds which St George had advanced to pay for the project work. On registration of the strata plan St George was shown as first mortgagee of all strata titles which issued to the Company. 9 In order to pay off the Company's debts (owed principally to St George and to the Australian Taxation Office) and in order to facilitate the transfer of strata titles to shareholders in exchange for their shares, the Company proposed to shareholders that they severally enter into a Share Surrender Agreement with the Company. Such agreements were entered into with all shareholders except [the plaintiffs] and Beacon Properties Pty Ltd. 11The plaintiff and Beacon Properties Pty Ltd are independent of each other. In the context of the disputes and differences surrounding the redevelopment, neither was willing to enter into the form of share surrender agreement that all other shareholders executed. Their precise reasons for doing so were not the subject of evidence - other than the limited issue concerning the dispute over the plaintiffs' indebtedness which I have discussed in paragraphs [47] to [56] below. Set-off 12There is a threshold issue of which I should immediately dispose. It would bring an end to the plaintiffs' primary case if it were decided against them. The last levy struck in connection with the redevelopment was in January 2010. The plaintiffs remain indebted in respect of that levy, which they are unwilling to pay. The amount due is $263,357.59 on which interest accrues. They contend that they are not liable to pay that amount because of an equitable set-off arising from the judgment and interest in their favour to which I referred paragraph [2] above. If there is no set-off, the effect of the articles is that the plaintiffs were disqualified from requisitioning and voting at the meeting of the Company on 6 January 2011 to which I referred in paragraph [4] above. 13The parties addressed this issue only at the level of principle. I was not required to investigate the precise amounts, including interest, which were respectively owing. I have concluded that the claim for a set-off is valid having regard to the criteria explained in AWA Limited v Exicom (1990) 19 NSWLR 705 (Giles J). It is not necessary to elaborate on all of the connecting factors. The underlying dispute, and the complex facts that attend it, give rise to a connection between the levy and the judgment that is sufficiently close and proximate. Because of that proximity, it would be unjust in the circumstances to visit the plaintiffs with the consequences of their considered refusal to pay the levy, without taking into account the judgment in their favour against the Company. Principles of Construction 14Before turning to the language of the share surrender agreements, I should explain the principles of construction that have informed my decision. Naturally, a question of construction should be resolved by reference to objective considerations. The actual intentions and expectations of the parties are superseded by, and merged in, the contract which they have made. Those subjective intentions and expectations are therefore irrelevant and unhelpful. Parties sometimes make contracts where the language used does not, on analysis, accord with the subjective intentions and expectations of one of them. However, absent rectification, the paramount importance of commercial certainty requires enforcement of the contract as made, not as it was intended or hoped to operate: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 (Mason J). 15The question in this case is whether the effect of completion of each share surrender agreement is that each shareholder immediately, and without more, ceased to be a shareholder for all purposes. In that context, it is worth observing that Mr Garratt QC, who was the moving force behind the redevelopment and is and remains the Chairman of the Board of Directors - unless the plaintiffs' pre-emptive strike is valid - explained that the process intended to be followed after the completion of each share surrender agreement was as follows: The Board intends that the change to the register [of members] will happen in due course after resolutions in general meeting are made to cancel the shares to which the surrendered certificates relate. 16Mr Garratt's evidence reveals only what he intended or hoped. I have not relied on it on the question of construction. But I mention it because the process it reveals is not only logical and orderly, but also accords with what I would have expected to take place. The question in this case however is whether the legal effect of the share surrender agreements, and therefore the presumed intention of the parties, leads to an altogether different result. 17On the plaintiffs' construction, any steps subsequent to completion such as resolution in general meeting, cancellation of shares and changes to the register of members, would be otiose. On their case, an exceedingly untidy situation prevailed so that as and when share surrender agreements were completed, individual shareholders ceased to be shareholders (or at least to have any rights) and individual directors ceased to be qualified to hold office. The result, most convenient to the plaintiffs, is that because they have refrained from entering into a share surrender agreement while all other shareholders have done so, except Beacon Properties Pty Ltd, the plaintiffs now effectively own and control the Company. Beacon Properties Pty Ltd has played no active part. It may in fact no longer be a shareholder. The evidence did not make its position clear. 18The plaintiffs' construction also raises another question. That is whether, in circumstances where the Company had lodged an appeal against the judgment of Ward J, the parties should be taken to have intended by the share surrender agreements to bring about a situation where, in effect, the only persons that would be left in control of the Company, and therefore in a position to conduct the appeal, would be the opponents to the appeal ie the plaintiffs. 19These consequences raise for consideration the principle of construction explained by Gibbs J in Australian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99 at 109: If the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, even though the construction adopted is not the most obvious or the most grammatically accurate. 20When Gibbs J explained the basis on which a court might favour a construction which is "not the most obvious or the most grammatically accurate", he was not elucidating a principle intended to operate in isolation from the general principles of construction. He was simply recognising that in certain cases it will be apparent from the context or otherwise that the meaning that should be attributed to contractual language is not always that which is the most obvious or grammatically accurate. Significance of Context 21A finding that the proper construction of legal language is not the most obvious, is merely a consequence of the intrinsically ambulatory nature of words. Language means different things to different people, even when the same words are used. That is because words are mere symbols. They can only "convey meaning according to the circumstances in which they are used": Codelfa ( supra) at 401 (Brennan J). That is why there is an actual and conceptual difference between the meaning of words - "a matter of dictionaries and grammar" - and the meaning of a contractual document - "what the parties using those words against the relevant background would reasonably have understood [them] to mean": Investors Compensation Scheme Limited v West Bromwich Building Society (1998) 1 WLR 903 at 912-3 (Lord Hoffman). The wisdom of Learned Hand J's mid-century warning "not to make a fortress out of the dictionary" remains as forceful today as it was when first uttered: Cabell v Markham 148 F.2d 737 at 739. 22For those reasons, the cardinal significance of context, and the dangers of adopting an approach too literal, have been authoritatively recognised by the High Court of Australia: Royal Botanic Gardens & Domain Trust v South Sydney City Council (2009) 240 CLR 45 at [10] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ); Maggbury Pty Ltd v Hafele Australt Pty Ltd 210 CLR 181 at [11]; Pacific Carriers v BNP Paribas (2004) 218 CLR 451 at 461-2; Toll FGCT Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179. See also " From Text to Context: Contemporary Contractual Interpretation" (address by the Hon JJ Spigelman AC, Chief Justice of New South Wales to The Risky Business Conference, Sydney, 21 March 2007). 23Associated with these statements of principle is the necessity, at least in a commercial contract, of adopting a businesslike interpretation: McCann v Switzerland Insurance Ltd (2000) 203 CLR 579 at [22]. Emphasising the need to adopt a businesslike interpretation in a commercial contract is another way of saying more deftly, and with less robustness, what Lord Diplock declaimed in Antaios Campania Naviera SA v Salem Rederierna AB (The Antaios) [1985] AC 191 at 201: if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense. 24However, this approach cannot be taken too far. I prefer not to rely on it except perhaps in an obvious case. Minds may differ. And one man's business commonsense or commercial purpose may not necessarily be that of another: Maggbury (supra) at [43] (Gleeson CJ, Gummow and Hayne JJ). It would be a distraction from the proper process of construction to move too far into a debate about competing commercial purposes and business commonsense. That is partly a consequence of the fact that every commercial contract necessarily represents an accommodation of competing objects. Share Surrender Agreements - The Contentions 25I should now turn to the actual language of the share surrender agreements and the parties' competing contentions. In advancing the construction for which they contend, the plaintiffs emphasise certain linguistic features of the share surrender agreements. They were principally as follows: (a)Recital G provides that the Shareholder desires to surrender the Shares and take in lieu a transfer of the Strata Unit in accordance with Section 258B of the Corporations Act; (b)Clause 1(a) provides that on or before the Completion Date the Shareholder shall relevantly pay certain amounts including the Net Indebtedness and surrender the certificate(s) for the Shares. The Company shall tender in exchange an executed transfer in registrable form of the Strata Unit; (c)Clause 6 provides that save as provided in this Agreement from completion neither party shall be liable or indebted to the other on any account in connection with their former relationship of shareholder and company or arising from their dealings pursuant to that relationship; (d)Clause 7 provides that save as provided in Clauses 7 and 8, the sole debt and liability which either party may have to the other following completion will be on the basis of a reconciliation of all assets and liabilities of the Company as at 28 February 2010. If on the said reconciliation, the assets of the Company exceed its liabilities, the Company shall pay the surplus to the persons who were its members; (e)Clause 8 provides that notwithstanding Clause 7, the Company may from time to time perform a further reconciliation taking into account, among other things, moneys owing or to become owing between the parties to the proceedings in the Court of Appeal. If on any such further reconciliation, a balance is owing in favour of the Company, the Company shall distribute the same to the persons who were its members; (f)Clause 10 provides that the Shareholder warrants that as at the Completion Date the Shareholder shall give good title to the Shares to the Company; (g)Clause 12 provides that if following completion, some further step or steps is or are reasonably required to achieve the object of this agreement, the parties agree to cooperate and do all things necessary for that purpose. 26The plaintiffs contend that those features of the share surrender agreements not only lead to the consequence for which they contend (as a matter of construction or implication), but that they also trigger the operation of the provisions of Division 2 of Part 2J.1 of Chapter 2J of the Corporations Act. Those provisions deal with share buy backs. If the effect of the share surrender agreements is that they amount to a share buy-back, then Section 257H(1) provides that once a company has entered into an agreement to buy back shares, all rights attaching to the shares are suspended. I will return to this issue later. 27The defendants on the other hand contend that the share surrender agreements do not amount to share buy backs. They rely on apparent omissions from the language which the parties have chosen to adopt -language which might arguably have been expected to be included if the agreements were intended to operate in the manner for which the plaintiffs contend. On the defendants' case, the parties to the share surrender agreements must have contemplated, without saying so expressly, that the shareholders would remain as shareholders of the Company for certain limited residual and unspecified purposes following completion - at least until the formal process of resolution in general meeting and cancellation of the shares could take place. 28They rely, among other things, on the fact that the share surrender agreements do not contain any express reference to a shareholder giving up all rights solely by reason of the fact of completion. Nor is there any express reference to a shareholder's membership of the Company being extinguished upon completion. Further still, the agreements themselves do not purport to be, or describe themselves as, "transfers". Nor is there any language in the recitals or operative provisions expressly dispensing with the usual need to cancel the shares and alter the register of members. Properly construed, in the unique context in which they arose, the defendants contend that the share surrender agreements were not intended upon completion to immediately sever a shareholder's interest in the Company or to bring to an immediate end for all purposes the legal relationship of Company and shareholder. Further, the agreements expressly refer to Section 258B in Division 3 of Chapter 27.1 of the Corporations Act and do not in terms contemplate the buy back procedure specified in Division 2. In fact they are inconsistent with that procedure. The Appeal 29Before seeking to reconcile those contentions, I should mention the matters that constitute the unique context in which the agreements were made. I have already referred to the first contextual matter, namely the appeal by the Company against the judgment of Ward J in favour of the plaintiffs. It seems objectively unlikely that it could have been intended that solely by completion of the share surrender agreements, the conduct of the Company's appeal would be left effectively in the hands of the plaintiffs. The plaintiffs' disputes and differences with the Company over the re-development, their complaints against the directors, their litigation against the Company and their failure to agree to the terms of share surrender agreements in the same form as other shareholders, were all well known facts at the time. So were, of course, the judgment in favour of the plaintiffs against the Company and the Company's appeal from that judgment. In the circumstances, a construction of the share surrender agreements that leads to the plaintiffs being in a position to control the Company and dismiss that appeal, has the appearance of being capricious, certainly inconvenient, and perhaps also unreasonable. I do not think that the language of the share surrender agreements compels that result. 30In fact, Clause 8 of the share surrender agreements expressly referred to the appeal but in a manner that is not determinative of the central issue of construction. That clause provided that if, on any further reconciliation following the appeal, a balance is found to be owing in favour of the Company, the Company shall distribute the same "to the persons who were its members". On the other hand if a balance were found to be owed by the Company, the clause provided that "the Shareholder" shall pay to the Company the proportion thereof which corresponds with the portion of the levy struck on 16 January 2010 which it was obliged to pay. The words "to the persons who were its members" indicate that it was anticipated that at the time when any such further reconciliation took place, those shareholders who had completed their share surrender agreements would no longer be members. It does not follow however that it was contemplated that they would cease to be members immediately upon completion of the agreements, without more. The language used is consistent with the shareholders remaining members until some appropriate further formal steps have been taken to conclude their membership. Such steps might involve the passing of a resolution by the Company, the cancellation of the shares and the alteration of the register of members. The same applies to the use of the words "the persons who were its members" in Clause 7. By itself, the words "who were its members" do not determine the issue. The Directors 31It also seems objectively unlikely that it could have been intended that, by the share surrender agreements, each director holding office should forthwith cease to be qualified to remain a director and should ipso facto cease to hold office, immediately upon completion of his or her respective share surrender agreement. This is a consequence that also appears to be both inconvenient and capricious. If correct, it left the Company with no directors for a considerable time until the plaintiffs appointed themselves at a meeting of the Company on 6 January 2011 - a meeting which they alone had requisitioned and at which they were the only attendees. The parties knew that the business of the Company was entrusted to the directors. They also knew that, at a minimum, following completion of the share surrender agreements, the remaining business of the Company included the prosecution of the appeal against the judgment in favour of the plaintiffs. Further, as the plaintiffs and Beacon Properties Pty Ltd had, to the knowledge of all parties, not entered into a share surrender agreement, and therefore would remain shareholders until the position was resolved, other business of the Company presumably had to be attended to - for which there needed to be directors in office. An outcome that leads to the progressive disqualification of directors, with no replacement, as and when share surrender agreements were completed so that the last persons standing became the plaintiffs and Beacon Properties Pty Ltd, does not seem likely to have been intended. The Register of Members 32The articles of association of the Company also constitute another contextual matter of which the parties can be taken to be aware. The Company was required to maintain a register of members. Article 25 made implicitly clear that, at least in relation to the transfer of shares, the register of members was determinative. Thus it stated that the transferor would remain the holder of the shares proposed to be transferred "until the name of the transferee was entered in the register of members". This feature, which is commonly found in articles of association, has important practical and legal consequences in the conduct of the affairs of a company. It is the means by which, among other things, a date is fixed by reference to which rights to vote and to receive dividends are resolved and determined. It emphasises that, in the practical day to day management of the affairs of a company, one should not lightly infer that a shareholder has lost all rights until the steps leading to cancellation of shares and alteration of the register of members have been taken. The parties can be taken to have been aware of this provision of the articles. The Buy Back Procedure 33Another matter that deserves attention is the express choice made by the parties to contract by reference to Section 258B of the Corporations Act . The parties referred to it in Recital G. They can be taken to have been aware of the buy back provisions in Sections 257A-257J but they made no reference to them. Section 258B is in Division 3 which does not purport to deal with share buy backs. Sections 257A-247J are in Division 2 which does. The parties clearly made a choice between Division 2 and Division 3. It may be assumed safely that they chose the latter rather than the former because they thought, rightly or wrongly, that Division 3 covered their situation and Division 2 did not. In carrying out and performing the share surrender agreements none of the steps required by the buy back procedure in Division 2 was undertaken. None was expressly contemplated by the agreements. The Implication 34In seeking to make their case, the plaintiffs acknowledge that the legal consequence for which they contend is not expressly stated in the share surrender agreements and must be a matter of implication. The implication on which they rely is said to be an implication of fact or law. The principal implication for which they contend is that it was agreed that: The shareholder would not after completion, claim to retain or exercise any right to the shares or right, qualification or office arising from the surrendered shareholding. 35The precise basis of this implication was never fully elucidated. It was merely said to "arise" from the express terms. The particular basis of an implication may be important in a given case. Some implications are no more than the necessary logical or linguistic consequence of the express terms that the parties have chosen. In such a case, the implication is derived by a process of construction, by which the true effect of the actual language is revealed and explicated. This approach was exemplified by McLelland CJ in Equity in Australis Media Holdings v Telstra Corp (1997) 24 ACSR 55 at 67 when he said: "In my opinion, on the true construction of the agreement, it was implicit in its express terms ...". The decision was reversed on appeal but this reasoning was not criticised: (1998) 43 NSWLR 104 (CA); cf Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448-9 (McHugh and Gummow JJ). 36More often, the implication cannot be found simply by a process of construction and will fall into one of two recognised categories. It may be an implication of fact that is necessary to give business efficacy to the particular contract. If the contract is constituted by a formal written agreement which is apparently complete on its face, as in this case, the implication must satisfy the cumulative criteria identified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283. See Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422 (Brennan CJ and Dawson & Toohey JJ) and at 441-2 (McHugh and Gummow JJ). Alternatively, the implication may be one of law, which applies as a necessary incident of a particular class of contract: Codelfa Constructions v State Rail Authority (supra) at 345 (Mason J); Byrne v Australian Airlines Ltd (supra) at 448 (McHugh and Gummow JJ); Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 487 (Hope JA). Proper Construction 37As I have by now foreshadowed, I am not satisfied that the implication for which the plaintiffs contend has been established on any basis. I do not think that the language compels it. Nor is it necessary for business efficacy or so obvious that it goes without saying. And the collateral consequences to which I have referred in paragraphs [29]-[31], militate against the reasonable possibility of it. Nor are the share surrender agreements a class of contract with recognised legal incidents. 38The terms of the share surrender agreements expressly contemplate that further steps may be required to achieve their objects. They do not state that immediately upon completion a shareholder shall lose all rights in his capacity as a shareholder. They refrain from identifying a precise point in time when the shareholder will cease to be a shareholder. In the case of a transfer of shares, that would not ordinarily occur until the entry of the name of the transferee in the register of members. In the case of a surrender and cancellation of shares, except where there is a buy back pursuant to Section 257A of the Corporations Act, that would not ordinarily occur until at least the Company has resolved to cancel the shares. In both cases notification to ASIC only after those events had occurred would be contemplated. 39If the parties wished to achieve the consequences for which the plaintiffs contend, it would have been a simple matter for the issue to be addressed in the share surrender agreements. The issue of the status of a shareholder following completion of a share surrender agreement was a matter with potentially serious ramifications for the ongoing conduct of the affairs of the Company. The plaintiffs contend for an implication that leads to consequences that are, at least, inconvenient. On the other hand the defendants' contentions require no implication. They recognise that the parties stopped short of providing for the immediate consequences to shareholders of completion. The outcome for which they contend is consistent with what might ordinarily be expected to occur in the case of the transfer or cancellation of shares. And it results in a situation that is logical and orderly. 40As I have said, the language of the share surrender agreements does not compel a different result. Recital G is merely expressed in terms of a futurity. The fact that Clause 1(a) requires the Shareholder to surrender his certificate(s) for his Shares on or before the Completion Date is neutral. Physical surrender pursuant to an agreement, although ordinarily a significant factor, does not necessarily equate in all cases, without more, to the loss of all rights in respect of the Shares. The overall context in which the surrender occurs, must be considered. The fact that Clause 6 refers to the "former relationship of Shareholder and Company" in the context of releases from further liability that are intended to operate from Completion, is not by itself conclusive. It is consistent with an expectation that, except as provided for in Clauses 7 and 8, there will be no further occasion after Completion for any liability or indebtedness to arise. But it does not clearly or directly point to the Shareholder ceasing to be a Shareholder, and losing all rights whatsoever, including voting rights, immediately upon Completion. Clearer language would be required. The fact that Clauses 7 and 8 use the words "to the persons who were its members" is not determinative. They merely assume that by the time the contemplated reconciliations take place, the persons to whom distributions are required to be made will have ceased to be members. They do not indicate that the cessation of membership was necessarily intended to occur immediately upon completion. Finally, the warranty of title to the shares in Clause 10 is not by itself determinative of the essential proposition for which the plaintiffs contend. 41Each of those clauses is certainly a factor, but none of them is conclusive. They are ambiguous, individually and collectively, when considered against the overall context, including the known background facts, the probabilities, the absence of direct language, the impractical and inconvenient consequences that would otherwise follow and the express acknowledgement in Clause 12 that further steps may be required to achieve the objects of the agreement. For the reasons that I have explained, I prefer a construction that does not lead to those consequences. This is especially so when there is a rational possibility that the share surrender agreements are silent on the issue for the very reason that the parties intended that shareholders would only cease to be shareholders for all purposes when the Company had resolved in general meeting to cancel their shares and the necessary alterations to the register of members were made. Whatever way one looks at it, it seems likely that the dramatic and inconvenient consequences for which the plaintiffs contend were never contemplated as a reasonably possibility. Corporations Act 42A question then arises as to whether, notwithstanding the construction of the share surrender agreements which I have found, and notwithstanding the absence of any express language of "buy back" in those agreements, I should hold that the transactions are covered by Division 2 of Part 2J.1 of Chapter 2J of the Corporations Act. The provisions of Division 2 stipulate, among other things, the procedures to be followed when a company proposes to buy back its own shares. One of those requirements, at least in the case of an equal access scheme, is that before the "buy back agreement" is entered into, the Company must lodge with ASIC a document setting out the terms of the offer: Sections 257E and 257F. This was not done. 43Indeed, it is clear that none of the requirements of Division 2 was followed prior to the entry into the share surrender agreements. Nor were they followed after entry into the agreements. The express reference to Section 258B in the share surrender agreements makes it reasonably clear that, for what it is worth, the parties thought that their agreements were not buy back agreements governed by Division 2. Not only was there express reference only to Section 258B, no reference to the provisions of Division 2, and no attempt prior to entry into the share surrender agreements to satisfy the notice requirements of Sections 257E and 257F, there was also no language of "transfer" of shares or "buy back" in the agreements. In a buy back agreement, a transfer of shares is required to be brought into existence and the transfer is required to be registered: Section 257A(3). The share surrender agreements do not, in terms, contemplate such a procedure, although the articles of association contemplate that transfers of shares will be effected by some recognisable form of transfer. Instead the share surrender agreements use the language of "surrender" of shares. Even if the contemplated surrender is regarded as a transfer of shares, there was not proposed to be, as consideration for any such transfer, the payment of any monetary consideration by the Company. As a matter of practice, a non-monetary consideration for a share buy back is a little difficult to envisage. Ford even suggests that it is doubtful whether the consideration on any type of buy back can be anything other than money: see Ford, Austin & Ramsay, Ford's Principles of Corporations Law , "Buy-Backs of Shares", Volume 2, loose leaf, Butterworths (LexisNexis) Service 56 at [24.441]. 44Significantly, in the case of a buy back agreement, all rights attaching to the shares are suspended upon entry into the agreement: Section 257A(1). However, by reason of the construction that I have found, a different situation prevailed under the share surrender agreements. The presumed intention of the parties in this case is that, pending cancellation of their shares, shareholders retained residual rights so as to ensure, among other things, that existing directors remained in office and the remaining business of the Company could be managed. Having construed the share surrender agreements to mean that shareholders did not lose all rights on completion, I would be reluctant to characterise the share surrender agreements as buy back agreements, with the consequence that Section 257H applies, when in a direct and material sense, the parties' agreement, properly construed, reveals that they should be presumed to have had a different intention. The bizarre consequence would be that, although the presumed intention of the parties is that shareholders retain rights after completion, the legal effect of the entry into the agreements would be precisely the opposite - by reason of Section 257H. 45All of this suggests that there is force in the defendants' contention that the share capital reduction contemplated by the share surrender agreements is of a different order to that which is the subject of Division 2. Section 258B(2) provides that "a company may transfer to a person an interest in land in exchange for, or in satisfaction of, a right to occupy or use the land of the kind referred to in sub-section (1)". The land referred to in sub-section (1) is land which the company owns or holds under lease in circumstances where the company's constitution permits it to grant to a shareholder, as a shareholder, a right to occupy or use the whole or part of the land. 46It is quite apparent that Section 258B is a statutory validation of the capital reduction that is necessarily involved when, as part of the process of conversion from company title to strata title, a shareholder in a company surrenders his shares in return for a transfer of the strata title over the apartment which his shares entitle him to occupy. In such a process, there is no express legislative requirement for the application of all of the steps and procedures prescribed by the buy back provisions of Division 2. I am not prepared to conclude that those provisions should be held to apply by a process of implication. Divisions 2 and 3 appear to me to be free-standing, to apply in different circumstances, and to have different subject matters. Their purpose and object are not identical. Oppression 47The final issue is the plaintiffs' claim that the conduct of the affairs of the Company was oppressive or, unfairly prejudicial to, or unfairly discriminatory against them. I was given little assistance on this issue. The plaintiffs' counsel said it was very much a fall-back issue and devoted only one sentence in his written submissions to the point as follows: Alternatively, in all the circumstances and particularly the refusal to permit the plaintiff to enter into and complete an SSA, it can only have been unfairly discriminatory and oppressive [see Fexuto P/L v Bosnjak Holdings (2001) 37 ACSR 672 and Campbell and Another v Backoffice Investments P/L (2009) 257 ALR 610 at (176) ff]. 48The defendants' written submissions were even more brief. They simply said that: The Statement of Claim asserts oppression, at [22]. However, there is insufficient evidence served in support of this claim and the defendant assumes that the claim is not presently to be pressed, if at all. 49When I requested assistance, the plaintiffs referred me to only two letters. The first was written by the plaintiffs' solicitors on 15 March 2010. The second was written by the Company's solicitors on 22 April 2010. It is apparent from that correspondence that the parties had reached a stalemate. The Company contended that the consequence of its appeal was that it was not possible to agree and state the final indebtedness of the plaintiffs. The Company's solicitor could not see a way of overcoming the problem. His letter continued: Until the indebtedness of Mr & Mrs McLaughlin can be agreed and stated, the agreement cannot be finalised and Dungowan will not be in a position to transfer the title to Lot 6. He concluded by saying, with the appearance of reasonableness: "If you can see a way around the problem, please say". 50My attention was not directed to any other correspondence or documents relevant to the issue. I was not made aware of the further negotiations, if any, between the parties on this question. I was not asked to take into account any finding of fact in the judgment of Ward J between the same parties: see [2010] NSWSC 187. Nor was there any evidence from the plaintiffs as to the way in which, as a matter of fact, they had suffered or were suffering actual oppression, prejudice or discrimination. It all came down to the solitary contention that the stance taken by the Company that the plaintiffs' share surrender agreement could not be finalised into until crystallisation of the plaintiffs' indebtedness following resolution of the appeal, was oppressive. I accept that an isolated act, if sufficiently serious, may attract relief: Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279 at 289. But it was not made clear what specific relief against oppression was appropriate or on what basis the discretion to grant relief should be exercised. 51Oppression within the meaning of Section 232 of the Corporations Act is not something that is readily determined in the abstract. In this case, I can deduce that, despite not having entered into and completed a share surrender agreement with the Company, the plaintiffs remain in occupation of the apartment to which they are entitled. I do not know the terms of their occupation. I do not know whether, from an economic perspective, the delay in acquiring the strata title to their apartment pending the appeal, is operating to their disadvantage. 52Nonetheless, despite the deficiencies in the explication of the plaintiffs' case on oppression, I have reached the view that the position taken by the Company was wrong and that its conduct was in contravention of Section 232 of the Corporations Act. It was wrong because, contrary to the Company's solicitor's assertion, the final indebtedness of the plaintiffs could be established. The statement by the Company's solicitors that "Mr & Mrs McLaughlin's indebtedness cannot be finalised until the outcome of the [appeal] proceedings" was based on an incorrect premise. It is a premise that seems to be frequently and mistakenly perpetuated. The Judgment of Ward J 53The judgment of Ward J was a final and binding judgment of the Supreme Court of New South Wales. It established a fixed amount, on which the interest that is continuing to accrue, can be readily calculated. The final indebtedness of the plaintiffs for the purpose of their share surrender agreement was therefore capable of precise and accurate determination. It matters not that in this case the Company has filed an appeal. Litigation in the court should not be seen as a two stage process so as to deprive the judgment at first instance of practical force or effect. It is sometimes said that a judgment at first instance is presumed to be correct unless and until overturned on appeal. But even that statement is not entirely accurate. It is not a matter of presumptions. The judgment at first instance is the judgment of the court. It determines the parties' rights and liabilities. The fact that the judgment may or may not be overturned on appeal is beside the point - at least for the purpose of fixing the current legal position. It is a mistake to assume that there is something inherently conditional about a judgment at first instance simply because the losing party has a right of appeal. The fact that an appeal lies from a judgment has never meant that the judgment is not final, conclusive and capable of enforcement - within Australia or internationally where it is recognised: Colt Industries Inc v Sarlie (No 2) (1966) 3 AllER 85; see Nouvion v Freeman (1889) 15 App Cas 1 ; see M Davies, A S Bell & P L G Brereton, " Nygh's Conflict of Laws in Australia" (Butterworths, 8 th Edition, 2010 page 818 at [40.30] et seq) . It is a different question altogether, raising quite different juridical considerations, whether a stay should be granted pending the appeal. 54This is the false premise on which the Company's stance is based. The reason given by the Company for refraining from concluding the plaintiffs' share surrender agreement is misconceived. The plaintiffs' indebtedness can be finalised. The ascertainment of that amount is not an obstacle. The share surrender agreement can readily provide for an adjustment of the balance owing as between the Company and the plaintiffs in the event that the appeal is determined in the Company's favour and the plaintiffs' judgment for $212,000 is overturned. Relief 55However, there are difficulties in determining what relief, if any, is appropriate. The oppression case was put on such a limited basis that I do not know what other factors, if any, are contributing to the current stalemate between the Company and the plaintiffs. None was identified. If the only reason for the plaintiffs not having the strata title to their apartment is the Company's erroneous contention that their final indebtedness cannot be established and therefore that their share surrender agreement cannot be finalised, that reason is legally baseless. But it does not seem appropriate to make any of the specific orders contemplated by Section 233(a) - (j) of the Corporations Act. I recognise, of course, that the powers of the court are not limited to those particular matters. But I have obtained no assistance from the pleadings. No specific declarations or orders are suggested in the Summons or in the Statement of Claim. 56In the end, the most that I am prepared to do is to declare that the asserted inability to finalise the indebtedness of the plaintiffs, by reason of the Company's unresolved appeal from the decision of Ward J, is not a valid basis for the Company refusing to finalise the terms of the plaintiffs' proposed share surrender agreement. 57Subject to that declaration, I have found against the plaintiffs on the question of construction and the summons should be dismissed. The plaintiffs should pay 75% of the defendants' costs. ********** Amendments 04 May 2011 - Amend citation: Australis Media Holdings v Telstra Corp Amended paragraphs: Cover sheet and paragraph 35 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 May 2011