Page v Good Impressions Offset Printing Pty Limited [2011] NSWSC 1398

Supreme Court New South Wales

Medium Neutral Citation: Page v Good Impressions Offset Printing Pty Limited [2011] NSWSC 1398 Hearing dates: Monday, 7 November 2011 Decision date: 07 November 2011 Before: White J Decision: Refer to paras [20] and [22]-[26] of judgment. Catchwords: CORPORATIONS - notice of motion - application for enforcement of shareholders' agreement - where clause of shareholders' agreement sets out procedures to be followed if shareholder intends to transfer shares owned or controlled by him - where plaintiff seeks acquisition of shares as a remedy against alleged oppressive conduct, s 233 Corporations Act 2001 (Cth) - clause of shareholders' agreement does not apply to transfer of shares as a result of a court order for the purchase of shares pursuant to s 233, Corporations Act - parties cannot by agreement regulate how the court might exercise its powers under s 233, Corporations Act Legislation Cited: Corporations Act 2001 (Cth) Category: Interlocutory applications Parties: Andrew Michael Page (Plaintiff/Respondent) Peter Bruce Edwards (2nd Defendant/Applicant) Representation: D Eardley (Plaintiff) J Darvall (2nd Defendant) Herring & Associates (Plaintiff) Paul Mattick & Associates (2nd Defendant) File Number(s): 2011/53083

Judgment 1HIS HONOUR : By notice of motion filed on 26 September 2011 the second defendant seeks the following orders: " 1. The plaintiff comply with the terms of paragraphs 12 and 30 of the Shareholders' Agreement made in or about 1999 between Lynn Frances Edwards, the second defendant, the plaintiff and the first defendant. 2. The hearing of the motion filed by the plaintiff on 29 August 2011 be stayed pending the plaintiff's compliance with order 1. " 2Paragraph 30 of the shareholders' agreement contained a clause for alternative dispute resolution. Insofar as the relief sought was based on that clause, it is no longer pressed. That is because Barrett J has earlier ordered the proceedings to be mediated. I am told that has been done. In effect the substance of clause 30 has been complied with. 3Clause 12 of the Shareholders' Agreement sets out procedures to be followed if the shareholder intends to transfer the shares owned or controlled by him. It provides: " 12. DISPOSAL OF SHARES BY SHAREHOLDERS 12.1 Except as herein provided, no Shares in the Company shall be transferred by any Shareholder unless and until the rights of pre-emption hereinafter conferred shall have been exhausted. For the purpose of this clause, a Shareholder shall mean either of the Edwards or Andrew Michael Page. 12.2 A Shareholder who intends to transfer the Shares owned or controlled by him in the Company (called 'the Vendor') shall give notice in writing to the Directors ('the Transfer Notice') indicating such intention. The Transfer Notice must include all the Shares owned by the Vendor. The Transfer Notice shall constitute the Board as agent for the sale of the Shares at a price equal to the value of the Shares of the Vendor as determined by the Company's Accountant on instructions from the Board, (such valuation to be completed as soon as possible after the date of receipt of such notice by the Board) in accordance with clause 12.3. 12.3 (a) The Board shall promptly advise the Vendor in writing of the valuation of the Vendor's Shares as determined by the Company's Accountant. The Company's Accountant shall arrange for a valuation of the business of the Company to be carried out by a Valuer experienced in the valuation of businesses of the same kind as is/are carried out by the Company, with five [years'] valuation experience at least in those particular businesses. Upon receipt of such valuation, the Company's Accountant shall then determine the value of the Vendor's Shares and notify the Vendor accordingly. (b) The Vendor shall have a period of 14 days from the date of such valuation to dispute such valuation, by written notice to such effect to the Board, who shall then refer the valuation to the President of the Instituted of Chartered Accountants in New South Wales for determination. The President of the Institute of Chartered Accountants shall act as an expert and not as an Arbitrator in determining the value of the Shares and his decision shall be final and binding on the Vendor. The Vendor and the Company shall share the cost of such valuation. (c) The value of the Shares as determined by the Company's Accountants (or if disputed, by the President of the Institute of Chartered Accountants) shall be the price at which the Shares shall be offered for sale. 12.4 (a) The Vendor's Shares shall in the first instance be offered by the Board to the other Shareholder. (b) The offer to the other Shareholder shall be made by notice in writing specifying the number and class of Shares offered and the Price and on the terms specified in the Transfer Notice and stating that if the same is not accepted in whole within twenty-one (21) days from its receipt, it shall be deemed to be declined. (c) The Vendor shall be bound upon payment of the Price determined as aforesaid, to transfer the Shares to the Purchaser provided however that the Vendor shall only be obliged to transfer the Shares if an offer has been received for all of the Shares specified in the Transfer Notice. (d) If the Vendor having become bound to transfer the Shares shall make default in so doing the Company may receive the purchase money and shall thereupon cause the name of the Purchaser to be entered in the books of the Company as the holder thereof and shall hold the purchase money in trust for the Vendor. The receipt of the Company for the purchase money shall be a good discharge to the Purchaser and after his name has been entered in the books of the Company in purposed exercise of the aforesaid power, the validity of the proceedings shall not be questioned by any person. (e) If at the expiration of thirty (30) days after receipt of the Transfer Notice, the Company shall not have found a Shareholder or person selected as aforesaid willing to purchase all of the Shares mentioned in the Transfer Notice, the Vendor shall be entitled at any time within three (3) months after the expiration of the said period of thirty (30) days to sell and transfer those Shares to any person at a price and on terms not less favourable than those specified in the Transfer Notice provided always that the new purchaser enters into a deed wherein that purchaser agrees to be bound by the provisions of this Agreement in lieu of the Vendor. " 4In these proceedings the plaintiff complains that he was forced to resign as an employee of the first defendant due to undue financial pressure exerted on him by both that company and the second defendant. He alleges that the first and second defendants engaged in oppressive conduct by excluding him from discussions and negotiations to sell the company's business, by excluding him from participation in management in various respects, by denying him access to books and records of the company, and by attempting to issue shares in the company to an unrelated third party. 5An alternative claim was added by way of amendment on 30 September 2011. By the amendment the plaintiff says that a concluded agreement was made on 6 October 2010 for the payment of $400,000 to him in return for his selling his shares to the second defendant, resigning as director of the company and as an employee of the company, and releasing the company from its liability to repay a loan said to be owing to him. 6The plaintiff claims damages of $366,643.16, being the difference between the moneys he says were payable pursuant to the alleged agreement and the total net payments received by him following his resignation. Alternatively, he seeks an order for specific performance of the alleged agreement. 7In the statement of claim, as originally filed, the plaintiff sought an order that the first and the second defendants acquire his shares on a fair market value basis. He sought an order that such acquisition and payment for the shares be made within 28 days of the making of the order. 8Following the amendment it seems that there are two bases upon which the plaintiff seeks to compel the second or the first and second defendants to acquire his shares. The first is pursuant to s 233 of the Corporations Act 2001 (Cth) as a remedy against alleged oppressive conduct. The second is pursuant to the alleged agreement said to have been concluded on 6 October 2010. 9The second defendant argues that clause 12 of the shareholders' agreement applies and that as the plaintiff wishes for his shares to be acquired he is bound, so it is said, to give a transfer notice in accordance with clause 12.2 appointing the board to act as agent for the sale of the shares at a price equal to the value of the shares to be determined by the company's accountant on instructions from the board in accordance with clause 12.3. 10In effect, the second defendant seeks a final order by way of specific performance, or partial specific performance, of that term. Such a claim could not properly be brought by way of notice of motion as it seeks in substance final relief, and not interlocutory relief. No cross-claim has been filed. But I do not think the question should be determined by matters of procedure. 11It is clear that if there were an agreement of the kind alleged by the plaintiff, it could be enforceable notwithstanding that the procedures in clause 12 of the shareholders' agreement were not followed. That is to say, it would be open to the plaintiff and the second defendant, who are both parties to the shareholders' agreement, to vary the terms of that agreement by making a contract for the transfer of the shares, and by agreeing on a price. That raises the difficulty that the plaintiff's claim that there was a concluded agreement, which included an agreement for the sale of his shares to the second defendant, has not been determined. 12No application was made for the separate determination of the allegations raised by the amendment to the statement of claim. In the absence of such a determination, either by determination of a separate question or summary disposal, it would not be possible to grant the final relief envisaged by paragraph 1 of the notice of motion. 13It is fair to say that prima facie there are considerable difficulties in the way the plaintiff puts that part of his claim. But that is not a sufficient reason for dealing with the second defendant's claim for final relief sought in paragraph 1 of the notice of motion without the plaintiff's claim raised by amendment to the statement of claim having been first determined. 14Nor do I think that clause 12 of the shareholders' agreement can be an answer to the claim for compulsory purchase of the shares under s 233. Clause 12 deals with the position where a shareholder intends by the voluntary act of his or hers to transfer the shares owned or controlled by him or her. In my view, the clause simply does not apply to a transfer that would occur as a result of the court's making an order for the purchase of a shareholders' shares pursuant to s 233(1)(d) or (e) of the Corporations Act . 15That that is so appears from clauses 12.2 and 12.3. 16A sale pursuant to a Transfer Notice given under clause 12.2 is to be at a price equal to the value of shares determined by the company's accountant on instructions received from the board. It is in the last degree unlikely that the parties would have intended that clause to apply if the shareholder sought and was successful in obtaining an order for purchase of his shares as a result of oppressive conduct of the company's affairs. Nor could the parties by their agreement confine the power of the court as to how shares to be compulsorily purchased should be valued. Typically on such an application the court will have to determine questions such as the date at which shares are to be valued, whether there is to be a discount for the shares being purchased being a minority holding, and how the valuation should be made so as to remove the depressive effect on the value of the shares of the oppressive conduct that would have been found. 17None of these matters is addressed in the procedures for valuation in clause 12.3. But fundamentally, given that the parties could not, by their agreement, regulate how the court might exercise its powers under s 233 for the valuation of the shares ordered to be purchased, it is not to be assumed that they intended to do so by that clause. 18It seems to be true that the plaintiff has repeatedly expressed his wish that the shares be acquired. The second defendant says that the procedure was open to him to give a transfer notice under clause 12 so as to activate the procedures in that clause. That may or may not be a good answer to the plaintiff's claim for relief under s 233. I express no view about that. It is not a matter that has yet been pleaded. But the possibility that such a defence may be available is not a reason for compelling the parties to proceed under clause 12. 19In my view, clause 12 does not apply to the present matters. 20For these reasons, I order that the second defendant's notice of motion filed on 26 September 2011 be dismissed. 21I will hear the parties on costs and as to the further progress of the matter. [Parties addressed.] 22I order that the costs of the second defendant's notice of motion filed on 26 September 2011 be the plaintiff's costs in the proceedings. 23The exhibits to the affidavits may be returned. 24I order that by 21 November 2011 the plaintiff file and serve a further amended statement of claim, which is to plead with full particularity any further conduct that the plaintiff will allege falls within s 232 of the Corporations Act so as to provide a ground for an order under s 233. 25I will give leave to the plaintiff to amend the further amended statement of claim generally. 26I stand over the proceedings to 28 November 2011 before the Corporations List judge. 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: 21 November 2011