Supreme Court New South Wales Medium Neutral Citation: In the matter of iCash Payment Systems Limited (No 2) [2013] NSWSC 1239 Hearing dates: Friday, 16 August 2013 Decision date: 16 August 2013 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Plaintiffs to provide Short Minutes of Order. Defendant to pay plaintiffs' costs on an indemnity basis. Catchwords: CORPORATIONS - Remedies - declaratory relief - plaintiffs claimed purported cancellation of fully paid ordinary shares issued by defendant as consideration for sale and transfer of shares in other company was invalid, void and of no effect - where plaintiffs late in complying with obligations under share sale agreement - consideration of whether defendant entitled to terminate agreement on account of plaintiffs' failure to have performed their obligations under the agreement - consideration of whether time essential under contract - time not essential so defendant not entitled to terminate agreement - plaintiffs entitled to relief sought. COSTS - Indemnity costs - where cross claim for misleading and deceptive conduct bordering on the preposterous and could never have had significant prospects of success Legislation Cited: (Cth) Corporations Act 2001, s 769B(4) Category: Principal judgment Parties: Wookwon Kang (first plaintiff) Byeongrib Yoo (second plaintiff) Youngwoon Woo (third plaintiff) Kisun Lee (fourth plaintiff) Namweon Lee (fifth plaintiff) Jonghong Park (sixth plaintiff) Suhan Jo (seventh plaintiff) Youngwoo Kim (eight plaintiff) Byoungnam Lim (ninth plaintiff) Eungin Kim (tenth plaintiff) Chung Lim (eleventh plaintiff) Kyoungsuck Oh (twelfth plaintiff) Youngkwan Kang (thirteenth plaintiff) Yeonhee Kim (fourteenth plaintiff) iCash Payment Systems Limited (defendant) Representation: Counsel: Dr A S Bell SC w Mr DFC Thomas (plaintiffs) Mr B W Walker SC w Mr JC Giles (defendant) Solicitors: Banki Haddock Fiora (plaintiffs) Whittens & McKeough Pty Limited (defendant) File Number(s): 13/ 202274 Judgment (Ex Tempore) 1HIS HONOUR: Some of the issues in this matter are complex. On the other hand, it seems to me that there are two crucial and dispositive issues on which I have reached a conclusion and the imminence of the meeting of 22 August 2013 makes it highly desirable I indicate that conclusion now, even if it be necessary to supplement my reasons at a later stage. 2By originating process filed on 3 July 2013, the plaintiffs claim a declaration that the purported cancellation of 12,425,867 fully paid ordinary shares issued by the defendant, iCash Payment Systems Limited to the plaintiffs as consideration for the sale and transfer to the defendant of 981,048 shares in NeoICP Inc was invalid, void and of no effect and consequential relief. 3As the case has developed, it seems to me the plaintiffs must succeed on their claim, unless the defendants prevailed on at least one of two issues. First, the defendant would be entitled to succeed if it is established that as at 21 June 2013, when the purported cancellation took place, the defendant was entitled to cancel the plaintiffs' shares consequent upon termination of the underlying share sale agreements. Secondly, the defendant would at least arguably be entitled to succeed if it were to prevail on its cross-claim in respect of misleading and deceptive conduct. 4Whether the defendant was entitled to cancel the shares as at 21 June 2013 depends essentially on when it was then entitled to terminate the fourteen share sale agreements between the defendant and each of the plaintiffs made on or about 19 December 2012, although not all of them are dated. By those agreements, each plaintiff agreed to sell to the defendant the shares held by that plaintiff in NeoICP. In each share sale agreement clause 3 provided as follows: 3. Completion 3.1 Completion place and date Completion will take place at midday on the Completion Date at the Purchaser's offices or at any other time and place as agreed between the parties. 3.2 Vendors obligations on Completion Subject to the Purchaser satisfying its obligations under clause 3.3, on Completion the Vendor will give and deliver to the Purchaser: (a) the share certificates for the Sale Shares; and (b) completed entry of a change of a holder in the register of the Company in favour of the Purchaser as transferee under Korean Law. 3.3 Purchaser's obligations on Completion Subject to the Vendor satisfying its obligations under clause 3.2, the Purchaser will on Completion issue to the Vendor the Completion Purchaser Shares specified alongside that Vendor's name in Schedule 1. 3.4 Title On Completion, full legal and beneficial ownership in the Sale Shares free from any encumbrances will pass to the Purchaser. 3.5 Interdependence The requirements of clauses 3.2 and 3.3 are interdependent and are to be carried out contemporaneously. No delivery or payment will be deemed to have been made until all deliveries and payments have been made. 3.6 Conditions of Completion (a) Completion is conditional on both the Purchaser and the Vendor complying with all their obligations under this clause 3. (b) if either the Vendor or the Purchaser (as the case may be) fails to fully comply with its obligations under this clause 3 and the parties do not complete then: (i) each party must return to the other all the documents delivered to it under this clause 3; (ii) each party must repay to the other all payments received by it under this clause 3; and (iii) each party must do anything reasonably required by the other party to reverse any action taken under this clause 3. 5In clause 1.1 "completion" was defined as follows: Completion means the sale and purchase of the Sale Shares in accordance with the terms of the agreement. 6The "completion date" was defined to mean "the date of this agreement". 7On 19 December 2012, the directors of the defendant resolved to issue the "completion purchaser shares" referred to in the share sale agreement to each purchaser. From that date, until at least May of 2013, the defendant treated each of the plaintiffs as a shareholder, had them registered as shareholders, announced to the Australian Stock Exchange that they had issued shares to them and acquired shares in NeoICP, and notified various Korean authorities of its acquisition of the plaintiffs' shares in NeoICP. 8However, as it transpires the plaintiffs did not on or about 19 December deliver to the defendant the share certificates in respect of their shareholding in NeoICP, nor cause transfers to be registered in the share register of NeoICP. Ultimately, the plaintiffs' shares in NeoICP were transferred to the defendant and registered in the register of NeoICP as so transferred on various dates in May and June 2013. The transfer of the shares formerly held by all plaintiffs, other than those which I shall specifically mention, had been registered by 7 June 2013, the earliest having been on 28 May. The transfer of the shares formerly held by the plaintiff SH Jo was registered at 17:24, Seoul time, on 21 June; WK Kang on 24 June; YW Woo on 24 June; and KS Lee (in three parcels) also on 24 June. 9Meanwhile, on 21 June 2013, a meeting of the directors of the defendant was convened, on four hours' notice, conducted by telephone, and purported to resolve to cancel the shares in iCash that had been issued to the plaintiffs. Although various reasons and grounds have been advanced as to why that was done, the legality of the cancellation depends not on what grounds might have been put forward from time to time, but whether there is any legal ground now available for that cancellation, even if it was not thought of or advanced at the time. (Mr Ham, one of the directors, did not participate as he was otherwise engaged and did not receive the notice.) 10The defendant now invokes in particular clause 3.6(b) of the Share Sale Agreement, set out above. The construction and application of clause 3 as a whole, in the context of the events which have happened, is not without its complexities. One of the problems, of course, is that what was contemplated by clause 3.5 as happening "contemporaneously" (or simultaneously) did not happen contemporaneously or simultaneously. On the day of the agreement, the defendant issued the completion purchaser shares to the vendor plaintiffs, but the plaintiffs did not then give and deliver the share certificates nor a transfer of the sale shares. That did not happen, as I have said, until May or June 2013 and even then no shares certificates were delivered. 11Notwithstanding these difficulties, it seems to me that clause 3.6(b) contemplates two requirements before it has effect. The first is a failure by one or other party to fully comply with its obligations under clause 3; and the second is that the parties do not complete the agreement. A mere failure fully to comply with the obligations under clause 3 is insufficient; non-completion of the agreement is an additional requirement. That involves the idea that, rather than proceeding to completion of the agreement, the agreement is discharged, other than by completion. Thus it could not be said that clause 3.6(b) had been attracted while the contract remained on foot, although not yet completed. The intent of clause 3.6 seems to me to be that either party was entitled to refuse to perform its obligations on completion, if the other's corresponding obligations were not contemporaneously performed. However, neither party invoked that right. In those circumstances, clause 3.6(b) means that documents delivered in escrow pending completion, must be returned, if the contract or if the parties do not ultimately proceed to complete the agreement. It does not mean that there is an ongoing right pending completion to return of documents delivered in escrow pending completion. 12A fundamental question is whether, as at 21 June 2013, the defendant was entitled to terminate the share sale agreements on account of the plaintiffs' failure as at that time to have performed their obligations under clause 3.2. Even if strict formal compliance with each requirement of clause 3.2 was required, that could be so only if time was or had been made essential. In equity, time stipulations in contracts, including times for completion, are ordinarily regarded as non-essential. It is true that in the context of commercial contracts, including some share sale agreements, the court will more readily infer that time is essential. That is particularly so where what is involved is an on-market transaction in a market in which prices for shares are fluctuating. This is a rather different case. This was a calculated attempt (by the defendant) to purchase a position in NeoICP in order to accumulate - when combined with other transactions - a 95 percent shareholding, so that it could then effect a compulsory acquisition. In those circumstances, the considerations that sometimes inform a view that a share sale agreement is essential as to time are absent. Moreover, clause 3.1 specifically provided that completion may take place "at any other time and place as agreed between the parties", which tells against time being essential. 13In my view, time was not essential under this contract and there is no suggestion that it was subsequently made essential by notice. Even if it was originally essential, the defendant, by not insisting on performance of the plaintiffs' obligations on the completion date and subsequently treating the plaintiffs as shareholders, brought about a position in which time was no longer essential, and could not be relied upon without a notice to complete. In those circumstances, no notice to perform or to complete having at any stage been given, the defendant was not entitled to terminate the contracts on 21 June 2013. It follows that the defendant was not entitled to cancel the plaintiffs' iCash shares on that date. 14I have not addressed - because, given the urgency of providing a decision in this case it has not been possible to address them exhaustively - the plaintiffs' alternative cases based on election, conventional estoppel, statutory unconscionable conduct or relief against forfeiture. It suffices to record that had I not found for the plaintiffs on the principal basis which I have, I would have found for them at least on the ground of relief against forfeiture. Although it was submitted that the traditional heads of relief - fraud, accident, mistake or surprise - were not supported by evidence, it seems to me that in this case there is a very powerful case of surprise, if not of mistake. The surprise is that, having treated the plaintiffs as shareholders for the best part of six months at a time at which they were registered as shareholders and in respect of which, after the first three months, they were entitled to deal with their shares on the Stock Exchange, and at a time when at least the vast majority of the plaintiffs had actually transferred their shares, the defendant without notice insisted on strict compliance with formal requirements which had not to that point been drawn to the plaintiffs' attention nor insisted upon. In particular, at a time when the defendant was very keen to consummate the transaction it was perhaps cavalier as to its own interests as to what it insisted on from the plaintiffs, but it was only when it was no longer eager to pursue the transaction that it took a quite different approach in that respect. 15It was suggested that the plaintiffs had no beneficial interest that could be the subject of a grant of relief against forfeiture because of clause 3.4. However, clause 3.4 relates to the sale shares, not the shares issued to the plaintiffs in iCash. Moreover, clause 3.4 does not mean that equitable ownership in the sale shares did not pass until completion. It would be very curious if that were its effect, in circumstances where not only had agreements for sale been made, but also the consideration had been paid by the issue of the consideration shares. In my view, clause 3.4 means that on completion the whole legal and equitable interest in the sale shares is vested in iCash as the purchaser, but it does not mean that the equitable interest did not vest at any earlier time. In any event it does not mean that the plaintiffs had not acquired a beneficial and legal interest in the shares in iCash issued to them in respect of which they were registered. Those are not the only matters that inform consideration of relief against forfeiture, but they indicate in substance why this is a strong case for it. 16So far as the cross-claim for misleading conduct is concerned, even if the statement attributed to Mr Maney - to the effect that the vendors were mainly independent investors and suppliers of NeoICP - was, in the context in which it was made, materially misleading, and even if it was relied on by the defendant, it is just not possible to attribute it to the plaintiffs so as to make them guilty of misleading and deceptive conduct. Mr Maney was not their agent, within (Cth) Corporations Act 2001, s 769B(4), or otherwise. To the contrary, he was despatched by the defendant to Korea to secure as many purchases of shares in NeoICP as he could. He was acting for and in the interests of the defendant in that respect, and perhaps also in his own interests. But in my view it is bordering on the preposterous to attribute to him the status of agent for the plaintiffs. Accordingly, even if everything else were accepted in the misleading and deceptive conduct case, it must fail for that reason. 17It seems to me that the plaintiffs are therefore entitled to the relief that they claim and, prima facie, to costs. I doubt that it is either appropriate or necessary to make all the orders sought in the originating process, and perhaps the best course is to adjourn the proceedings to Monday morning to allow the plaintiffs to bring in short minutes of orders to give effect to this judgment. 18The greater part of the hearing was occupied by the misleading and deceptive conduct case. As I have said, the attempt to attribute Mr Maney's alleged misrepresentation to the plaintiffs was bordering on the preposterous and could never have had significant prospects of success. 19So far as the contract case is concerned - which, though it took less time in evidence, was in many ways the main part of the case - it seems to me that the defendant, by its radical act on 21 June in cancelling the shares, embarked on a provocative and high risk course of action which, the evidence now reveals, was motivated by the interest of the incumbent directors (other than Mr Ham) in minimising votes adverse to them. 20I have deliberately refrained from commenting on the evidence of the directors (other than Mr Ham) because, where it is unnecessary to do so to decide a case, it is usually better to avoid making adverse comments. It suffices to say that the evidence they gave justified the effort expended in their cross-examination. 21I am usually reluctant to depart from the ordinary costs order to make an indemnity order, but in this case the combination of the decision of the defendant to embark on a provocative high risk course of action, with the hopelessness of its misleading conduct case, justifies such a course. The defendant should pay the plaintiffs' costs on an indemnity basis. ********** 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: 14 January 2014