Court of Appeal Supreme Court New South Wales Medium Neutral Citation: LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd [2018] NSWCA 129 Hearing dates: 31 May 2018 Decision date: 20 June 2018 Before: Leeming JA at [1] Payne JA at [50] White JA at [51] Decision: 1. Grant leave to appeal. 2. Direct LSKF Holdings Pty Ltd to file a notice of appeal in accordance with the draft notice of appeal, and otherwise dispense with the rules as to service. 3. Appeal dismissed, with costs. Catchwords: CONTRACT – void or ineffective contract – illusory consideration – uncertainty – shareholders' agreement provided for funding requests to be made to 50% shareholder which was obliged to provide interest-free loans – loans could be recalled for any reason lender reasonably thought fit - whether promise to provide funding illusory because funding request required board unanimity and director who controlled lender could not be compelled to participate in funding request – whether director's discretion unfettered – whether discretion on part of director, and lender's entitlement to early repayment rendered promise uncertain – contract upheld and appeal dismissed Legislation Cited: Corporations Act 2001 (Cth), ss 232, 233, 236, 237, 1324 Supreme Court Act 1970 (NSW), s 68 Cases Cited: Anglican Development Fund Diocese of Bathurst v Palmer [2015] NSWSC 1856 Bailes v Modern Amusements Pty Ltd [1964] VR 436 Crawley v Short [2009] NSWCA 410; 76 ACSR 286 G Scammell and Nephew Ltd v Ouston [1941] AC 251 Giasoumi v Ribbera [2017] VSC 631 Loan Investments Corporation of Australasia v Bonner [1970] NZLR 724 Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52 O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 Placer Development Ltd v Commonwealth (1969) 121 CLR 353; [1969] HCA 29 Re Neath Rugby Ltd (No 2) [2008] BCC 390 Re Neath Rugby Ltd [2009] 2 BCLC 427 Shield Lifestone Holdings Pty Ltd v LSKF Holdings Pty Ltd [2018] NSWSC 335 Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 Texts Cited: N Seddon and R Bigwood, Cheshire & Fifoot Law of Contract (11th Aust ed, LexisNexis Butterworths, 2017) Category: Principal judgment Parties: LSKF Holdings Pty Ltd (Applicant) Shield Lifestone Holdings Pty Ltd (First Respondent) Litestone Holdings Pty Ltd (Second Respondent) Feng Ye (Third Respondent) Representation: Counsel: V Bedrossian (Applicant) J J Loofs SC, K J Young (First and Third Respondents) Solicitors: Kreisson Legal (Applicant) Jurisbridge Legal (First and Third Respondents) File Number(s): 2018/00117785 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2018] NSWSC 335 Date of Decision: 20 March 2018 Before: Pembroke J File Number(s): 2017/382211 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. LEEMING JA: This appeal, which has been expedited and heard concurrently with an application for leave, is confined to a very narrow point. That point is whether a shareholders' agreement is "a void and ineffective contract in consequence of the absence of consideration and/or uncertainty". The narrowness of the issue is the result of all other issues between the parties having been resolved at a mediation. The settlement agreement reserved for the determination of the Court the issue so framed, and then made provision for the consequences between the parties depending upon its resolution. Broadly speaking, if as the primary judge found the shareholders' agreement was not void or ineffective for want of consideration or uncertainty, then there is an agreed procedure for the appointment of a valuer and a buy-out mechanism, failing which the company will be wound up. This Court was told that a valuer had been appointed, but had not commenced valuing the company pending the determination of this appeal. 2. In March 2016, the first respondent, Shield Lifestone Holdings Pty Ltd ("SLH") acquired 50% of the shares in the second respondent, Litestone Holdings Pty Ltd ("Litestone"). The two equal shareholders in Litestone are SLH and the appellant, LSKF Holdings Pty Ltd ("LSKF"). Litestone has two directors: Mr Kyri Kyriakouleas, who is the sole director and shareholder of LSKF, and the third respondent to this appeal, Mr Feng Ye, also known as Thomas Ye, the sole director and shareholder of SLH. 3. Litestone is the owner of certain intellectual property assets associated with a kitchen benchtop product. It is also the owner of 100% of the shares in KLK Trading Pty Ltd ("KLK Trading"), which operates a business exploiting that intellectual property and manufacturing and selling the benchtop product. 4. Given the narrowness of the issue and the limited evidence in this Court, a very concise summary of the background, as emerges from the pleadings, is sufficient. In the period between September 2016 and March 2017, SLH transferred to KLK Trading's bank account some $381,000, and in the same period, Litestone repaid the sum of $50,000 to SLH. In the period between April 2017 and November 2017, a further $199,500 was transferred by Mr Ye or on his behalf to KLK Trading. 5. A written shareholders' agreement was entered into in around April 2017. There has more recently been a disagreement between Messrs Kyriakouleas and Ye (and their companies) as to the continued funding to be provided to Litestone and KLK Trading. 6. Proceedings were commenced in 2017. A large factual issue was whether Mr Ye had acted in good faith in failing to participate in further borrowing requests which Mr Kyriakouleas considered should be made to SLH. The proceedings were set down for final hearing on 13 March 2018, but on that date, the parties participated in a mediation which, except in respect of the questions of absence of consideration and uncertainty mentioned above, resolved the entirety of the issues between them. Those outstanding issues were the subject of a short hearing on 14 March 2018 before the primary judge. His Honour delivered judgment on those issues on 20 March 2018: Shield Lifestone Holdings Pty Ltd v LSKF Holdings Pty Ltd [2018] NSWSC 335, finding that the shareholders' agreement neither lacked consideration nor was uncertain. The shareholders' agreement 1. The parties to the shareholders' agreement are Litestone, LSKF Holdings and SLH. The agreement was executed by Mr Kyriakouleas on behalf of Litestone and LSKF Holdings and Mr Ye on behalf of SLH. Submissions were principally directed to the "financial arrangements" addressed in cl 5 of the agreement. Clause 5.1 provided that no shareholder was under any obligation to provide financial accommodation to Litestone. Clause 5.2 is of central importance. It provided: "5.2 Shareholder Loan (a) So long as Shield Lifestone is a Shareholder in the event that funds are required by the Company for the purpose of performing the Assets Management Functions or any other activities as determined by the Board of Directors in accordance with this Agreement, the Board may request for Shareholder Loans from Shield Lifestone. (b) In addition to clause 5.2(a), so long as Shield Lifestone is a Shareholder, if the Company is reasonably requested by KLK to provide funds for the Business, the Board may request for Shareholder Loans from Shield Lifestone. (c) Notwithstanding anything contrary to this clause, the Company may only request for Shareholder Loans from the Shareholders on an as-needed basis. (d) On request of the Board under clauses 5.2(a) or 5.2(b), Shield Lifestone must provide the Shareholder Loans on the Loan Terms. (e) Unless otherwise agreed by the Board, the Company shall not enter into any arrangements requesting for external funds from any Australian banks or financial institutions. (f) All decisions in relation to funding must be made by the Board in accordance with clause 7." 1. Moderately elaborate provision was made in the shareholders' agreement for how the obligation in cl 5.2(d) might be engaged. Thus, provision was made preventing shareholders from exercising the decision-making rights of the board in respect of matters including funding (cl 6.3), board decisions concerning funding were required to be the subject of a Unanimous Directors' Resolution (cl 7.2(b)), Litestone's board was required to comprise two directors, namely, Messrs Kyriakouleas and Ye, and careful provision was made about issues of quorum and adjourned meetings and replacement directors, all of which had the effect of requiring Mr Ye's participation in any request by the board for a Shareholder Loan. 2. Clause 7.6 addressed the divergent duties that both men owed. It provided: "7.6 Duties of Directors (a) The Directors must act in good faith and in the best interests of the Company and the Group as a whole. Subject to this duty, a Director appointed by a particular Shareholder may have regard to and act in the interests of, their appointing Shareholder." 1. Shareholder Loans were regulated by the provisions of Schedule 3, which, generally speaking, made provision for interest free loans in the amount determined by the board for a period of three years, which was defined as the "Loan Term". There were two provisions by which the three year term could be altered. 1. The "Repayment Date" was defined to be "the expiry date of the Loan Term or an earlier date as may be determined by the Lender at its sole discretion". 2. The final clause in the schedule was headed "Early Repayment". It provided that "Notwithstanding anything contrary to this clause, the Lender may request for early repayment of the Amount Outstanding if any of the following occurs, and the date of early repayment must be at least 30 Business Days from the date of request for early repayment". There followed subparagraphs dealing with default, Litestone ceasing to be the sole owner of the intellectual property, SLH ceasing to be a shareholder, and, importantly for some of the submissions advanced on appeal, "for any reason which the Lender in its sole reasonable opinion thinks fit". The reasons of the primary judge 1. The reasons of the primary judge were concise and to the point. It appears that the majority of the submissions to the primary judge, no differently from those made in this Court, were directed to establishing that the funding obligation was illusory. 2. No issue was taken with the primary judge's formulation of principle. His Honour observed that in general terms, a contract that reserves to a party a true discretion or option whether to carry out what appears to be a promise is void. He referred inter alia to the statement by Kitto J in Placer Development Ltd v Commonwealth (1969) 121 CLR 353 at 356; [1969] HCA 29: "... wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all." 1. The primary judge observed that little was needed to show that it was inappropriate to characterise a discretion as unfettered, in the sense that it left the promisor with an unqualified option whether to perform the promise or not, and noted that all that was required is 'some vestige of an objectively ascertainable obligation', referring to Giasoumi v Ribbera [2017] VSC 631 at [82]. His Honour cited the formulation of principle by Hammerschlag J in Anglican Development Fund Diocese of Bathurst v Palmer [2015] NSWSC 1856 at [349]: "A promise is not illusory because the promisor has some discretion in how its obligations are to be performed. It is only necessary that there be an obligation that the promise be performed and that the discretion is contained within the defined parameters ..." 1. The primary judge then turned to Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52, in which one issue was whether a contract for the sale of land was void because the purchaser's performance was allegedly voluntary and depended on an unfettered discretion. The contract was subject to the purchaser "receiving approval for finance on satisfactory terms and conditions". It was held that the purchaser did not have an unfettered discretion and that his decision as to whether the finance was satisfactory was circumscribed by defined parameters. Mason J said of this: "The judgment of the purchaser as to what constitutes finance on satisfactory terms is not an unfettered discretion – it must be reached honestly, or honestly and reasonably": at 590. 1. In the application of those principles to the shareholders' agreement, his Honour observed that LSKF's argument that the obligation in relation to funding amounted to an unfettered discretion and was therefore illusory rested on a narrow foundation. His Honour stated that it depended on the effect of the words 'may request' in cll 5.2(a) and (b), read in isolation, without giving weight to the textual context and the overriding good faith obligation of each director stipulated in clause 7.6(a). 2. The primary judge distinguished Bailes v Modern Amusements Pty Ltd [1964] VR 436, which had turned on an obligation to repay a shareholder loan 'when the company considers that it is in a position to repay'. His Honour's dispositive reasoning was at [13]-[15]: "The discretion to request a shareholder loan in both Clauses 5.2(a) and (b) is controlled by objectively ascertainable criteria. The ground for a request in Clause 5.2(a) depends on the express factors stipulated in that clause, namely the existence of a requirement that funds are needed by the company 'for the purpose of performing the Assets Management Functions' or 'any other activities as determined by the Board of Directors in accordance with this Agreement'. The ground for a request in Clause 5.2(b) depends on the existence of a 'reasonable request' by KLK 'to provide funds for the Business'. In both cases, the operation of the discretion whether to request a shareholder loan is further controlled by each director's express obligation to 'act in good faith and in the best interests of the Company and the Group as a whole' subject to his entitlement to have regard to and act in the interests of his appointing shareholder. These are defined, ascertainable and justiciable criteria whose performance can be tested by time-honoured court processes. As Mason J said in Meehan v Jones at 589: 'There is in this formulation no element of uncertainty – the courts are quite capable of deciding whether the purchaser is acting honestly and reasonably'. To apply those remarks to this case, one only need substitute for 'honestly and reasonably' the words 'in good faith in accordance with Clause 7.6(a) of the shareholders' agreement'. For those reasons, I have concluded that there is nothing illusory in the obligation to request a shareholder loan. It is neither optional nor unfettered." 1. His Honour rejected the submissions based on uncertainty shortly and for similar reasons. He relied on the general principle that a contractual obligation expressed in language "so obscure and so incapable of any definite or precise meaning that the court is unable to" attribute to the parties any particular contractual intention is void for uncertainty, citing G Scammell and Nephew Ltd v Ouston [1941] AC 251 at 268 and Meehan v Jones at 587. He noted an important qualification, namely, that courts are "astute to adopt a construction which will preserve the validity of the contract": Meehan v Jones at 589. His Honour invoked authorities on the construction of commercial contracts to the effect that they should be construed on the assumption that the parties intended to produce a commercial result, and so as to avoid "making commercial nonsense or working commercial inconvenience". On that basis, he concluded that the shareholders agreement was not void for uncertainty. Submissions on appeal 1. Mr Bedrossian, who appeared at first instance and in this Court, identified three main points: the commercial purpose of the shareholders' agreement was to secure funding, funding under cl 5 was essentially discretionary on the part of Mr Ye, and the agreement as a whole failed if it was ineffective to secure the purpose of providing funding. He confirmed that by "discretionary" he meant that he contended that Mr Ye's discretion was uncontrollable. He accepted that the obligation in cl 5.2(d) on its face imposed an obligation upon SLH, but said that in substance it was not enforceable, because only if Mr Ye agreed would the obligation ever be engaged. 2. The essence of the submission turned upon whether Mr Ye's discretion as one of two directors to participate in a funding request was unfettered. To this, Mr Bedrossian said that Mr Ye was not a party to the agreement, and could not be compelled as a matter of contract. Acknowledging that Mr Ye was subject to statutory and equitable obligations as a director, he accepted that remedies were available, but maintained that "the Court in those circumstances is still in my respectful submission not going to step into the commercial circumstances of the company and either make on behalf of the director or force the director to make what is a commercial decision". This would amount to "the Court entering into the commercial arrangements and making a decision in the stead of the director", which it would not do. 3. His written submissions elaborated two further responses to the duties owed by Mr Ye as director, as follows: "First, even if Mr Ye (as a director of Litestone) were to act in breach of his duties by failing to cause Litestone to make a request to SLH for funding, that would, at most, result in Mr Ye having a potential personal liability to Litestone. That does nothing to assist Litestone to compel SLH to provide funding. There is no contractual entitlement on the part of Litestone that is enforceable against SLH. Secondly, the personal liability of Mr Ye referred to above is a mere potentiality. Even putting aside the subjective aspects associated with ascertaining whether the relevant threshold tests were satisfied ("are required", "is reasonably requested", "on an as-needed basis") and putting aside the Court's traditional reluctance to enter upon the territory of directors' commercial decisions, Mr Ye would likely be entitled to point to the over-riding discretion specified in sub-clauses 5.2(a) and (b) ("may request") and thereupon argue that choosing not to request funding from SLH was not inconsistent with that express discretion." 1. It was also submitted that the funding promise in cl 5.2 was "so obscure and conditional as to be devoid of any meaningful (and enforceable) content", relying on the contestability of the words "are required", "is reasonably requested", "on an as-needed basis" and "may request". 2. In oral submissions, Mr Bedrossian also acknowledged that, on one view, Mr Ye might owe a fiduciary obligation not only to Litestone, but also directly to LSKF, if the company were in truth "a partnership in corporate guise", sometimes called a "quasi partnership" (see Crawley v Short [2009] NSWCA 410; 76 ACSR 286 at [122]). In response to this possibility, he focussed on the funding obligation not being specifically enforceable: "But the problem is that I say the action will be one against Mr Ye personally for some breach and that if there is success in that action, that will result in damages owed by Mr Ye, that is not a specific performance of a funding obligation on behalf of SLH. And that what this shareholders' agreement was meant to provide and what it needs to provide is funding not damages for breach, those being two very different things, of course including because of the timing of the access. The funding is required to undertake commercial activities including, for example, to pay debts and obligations that are owed, perhaps immediately. An action against Mr Ye personally for breach may be with damages down the track does nothing to bring into Litestone funds to actually operate its commercial activities." 1. Thus while Mr Bedrossian accepted that Mr Ye was subject to an obligation to act in good faith and in the best interests of Litestone in deciding whether or not to make a request for funding, he said that the obligation was not enforceable, because it was too vague or was subject to an overriding discretion, or alternatively was only enforceable in damages, and certainly was not specifically enforceable. 2. As a further aspect of uncertainty, Mr Bedrossian referred in writing and orally to the provisions governing early repayment of the loan, in particular the power to require repayment for any reason which SLH's in its sole reasonable opinion thought fit. Although accepting that there was a "marginal" element of objective standard from the opinion being required to be "reasonable", he contended: "how that gives any clarity, functionality or certainty to this agreement is just not apparent in my submission". 3. Mr Loofs, who with Ms Young appeared before the primary judge as well as in this Court, said in their written submissions that there were "fetters or objective limitations" upon the discretion to provide funding, which were not uncertain, and that any doubt should be removed so as to avoid "making commercial nonsense or working commercial inconvenience". The written submissions continued: "A promise made by Party A to pay Party B an amount determined by Party C is good consideration. Where Party C can be controlled by Party A, the question arises as to whether such control (or discretion) is unfettered. If not unfettered, for example by good faith or purposive obligations in clause 7.6, 'some vestige of an objectively ascertainable obligation' exists, and consequently consideration exists." 1. The respondents' written submissions rejected the contention that the terms of cl 5.2 and in particular the discretions upon which LSKF relied were so vague as to be illusory or uncertain. They also sought to look beyond the contract, and submitted that contributions of $381,000 had been provided prior to the signing of the shareholders' agreement but after issuing shares, and a further $199,500 after entry into the agreement. 2. In oral submissions, Mr Loofs said that there were ample powers to enforce the obligation if it were shown that Mr Ye was breaching his duties and/or if oppression were made out. He started with oppression: "There are powers, ample powers to remedy the nightmare scenario that's been painted by our opponents under 232 of the Corporations Act. That would involve either a court being convinced that his behaviour required direction, and an order made in that regard, or of course, his removal as a director. If the position was as locked up and hopeless as our friends contend, that would provide an immediate answer to the problems of funding, and one would then have presumably a friendly accountant or someone else appointed to make a good faith decision concerning the requirement for funding. So we say that contention that Mr Ye is uncontrollable, simply can't stand in the face of those remedies." 1. Mr Loofs submitted that the power to demand early repayment did not undo the funding obligation, relying on both express and implied obligations of reasonableness, and that as a matter of construction, the "Repayment Date" (which referred to the Lender's "sole discretion") was required to be set when the loan was made, and could not be used to shorten the term of an existing loan, which was governed by the final clause dealing with "Early Repayment" summarised above. He submitted that it was admitted on the pleadings that substantial funding had in fact been provided, which he characterised as "part performance" of the agreement, that there was a dispute about whether further funding would be provided, but that that dispute was a breach argument, not a "no consideration" argument. 2. Mr Loofs also sought to rely upon some other arguments which had not been advanced before the primary judge (he had been stopped early in his address). These were opposed and in large measure were not ultimately pressed. Accordingly, they need not be summarised. Resolution of the appeal 1. The shareholders' agreement was not a deed. Consideration was required. It will be unnecessary, in order to resolve this appeal, to explore the outer limits of what is sufficient to constitute consideration. However, I doubt whether it assists to take a selective extract from a decision ("some vestige of an objectively ascertainable obligation") and apply it as though that is the test. In fact, what Mukhtar AsJ said, in the passage relied on by the primary judge and the respondents, in Giasoumi v Ribbera at [82] was: "As long as there is some vestige of an objectively ascertainable obligation that can be broken by the promisor, then the promise probably amounts to a good consideration". The same qualified proposition is found in N Seddon and R Bigwood, Cheshire & Fifoot Law of Contract (11th Aust ed, LexisNexis Butterworths, 2017), p 195. 1. The consideration in the present case, on the limited basis upon which the parties chose to go to trial, was wholly executory. In essence, it was the promise by SLH, which had been given 50% of the shares in Litestone, to provide funding in accordance with Schedule 3 upon receipt of a funding request. I reject the respondents' submission to the contrary, that the consideration was partly executed. There was no evidence of any loans before the primary judge or in this Court, in light of the limited way in which the issues were litigated. And although it was admitted on the pleadings that funds had been provided, both before and after the shareholders' agreement was executed, only those provided later in time were alleged to have been provided pursuant to the shareholders' agreement, and that allegation was denied in terms. For better or worse, the parties chose to litigate what was left of their dispute, following the mediation, on two pure questions of law, with no evidence other than the shareholders' agreement itself. 2. SLH's promise to fund, in cl 5.2(d), was plainly enforceable, in the sense that it would give rise to a right to damages if it were breached. The fact that it was probably not specifically enforceable, in accordance with what Kearney J described in Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280 at 289 as the "general rule" applicable to contracts to lend money, because damages would be an adequate remedy, does not deny that it was enforceable. (I say "probably" because there are occasions when a promise to make an unsecured loan is specifically enforceable. Even the majority of the Privy Council in Loan Investments Corporation of Australasia v Bonner [1970] NZLR 724 accepted that there were exceptions to the general rule (at 735), and, as Sir Garfield Barwick wrote in his highly persuasive dissent, and as Kearney J held in Wight v Haberdan, that will occur when damages are not an adequate remedy, for example when they are impossible or very difficult to assess.) I mention the distinction between a promise being enforceable in the sense of its breach sounding in damages and being specifically enforceable because it relates to the main submission advanced on appeal. 3. On one view, that would be an end to the matter. However, LSKF's submission turned upon the antecedent step of making a funding request. LKSF maintained that Mr Ye's involvement was both necessary and subject to an unfettered discretion. The respondents accepted that if Mr Ye's decision were truly unfettered, then SLH's promise was illusory. I think that that was a proper concession to make. The position would be different if SLH's obligation to provide funds turned on a decision by a third party. But SLH was Mr Ye's creature; it was admitted on the pleadings that he was its sole director and shareholder. Although whether or not consideration is illusory is a somewhat formal rule – if only SLH had provided a peppercorn with its promise, this dispute would have taken a different course – I think that an assessment of whether a valuable promise to lend money is illusory should have regard to the substance of the situation. 4. For its part, LSKF conceded that Mr Ye was not free to act self-interestedly. That concession was also properly made. Mr Ye was obliged in equity and under the Corporations Act 2001 (Cth) to act in good faith in the best interests of Litestone. Those duties were owed to Litestone. (The precise effect of cl 7.6 may be passed over, because on no view could its second sentence, which was expressly subject to the first sentence, detract from Mr Ye's duty to Litestone.) However, that did not prevent their enforcement on the application of Mr Kyriakouleas or LSKF. 5. A breach by Mr Ye of his duty to Litestone was enforceable. Either or both of LSKF (as a member) and Mr Kyriakouleas (as a director) could bring a derivative action pursuant to s 236 of the Corporations Act on behalf of Litestone. Leave would be required, but s 237(2) enumerates circumstances in which leave must be granted. Speaking generally, if LSKF or Mr Kyriakouleas could demonstrate that there was a serious question to be tried as to the breach of duty by Mr Ye and that it was in the best interests of Litestone that leave be granted, then it is likely that all of the elements of s 237(2) would be satisfied, such that leave must be granted. However, even if there were an element of discretion involved in the grant of leave, that does not mean that Mr Ye's power to refuse to participate in a funding request, in breach of his obligations as a director, was unfettered. 6. Further, if the relationship between Messrs Kyriakouleas and Ye and their companies was in truth a quasi partnership, such that Mr Ye or SLH owed fiduciary obligations directly to Mr Kyriakouleas or LSKF, then proceedings could be brought directly against Mr Ye or SLH in equity. There is something to be said for this being the true legal characterisation of the agreement between the two companies controlled by the two men. Indeed, some clauses of the shareholders' agreement are framed as if the men were parties. One is cl 7.6 purporting to bind the two directors. Another is cl 21, which contains provisions for the resolution of disputes by the appointment of directors' representatives with authority to negotiate when a unanimous board resolution is required. But it is not necessary, in order to resolve this appeal, to make a finding on this issue, and it would be wrong to do so given the evidentiary near-vacuum in which this litigation was conducted. 7. It is also possible that the same conduct by Mr Ye would entitle LSKF or Mr Kyriakouleas to bring proceedings under s 233 of the Corporations Act because the conduct of the affairs of Litestone was contrary to the interests of its members as a whole and oppressive in the senses specified in s 232. For example, Mr Ye was not free to refuse to participate in funding requests, at least insofar as such conduct might amount to oppression in the senses specified in s 232 and thereby enlivening the power to make orders under s 233 at the instance of either or both of LSKF and Mr Kyriakouleas. 8. In all of the cases considered above, the fact that cl 5.2 is not expressed in mandatory terms, but rather is permissive (notably, "may request" in cl 5.2(a)) does not prevent Mr Ye from being bound by his duties owed to Litestone to act in good faith and in the best interests of that company. 9. If it were found that Mr Ye was breaching his obligations, then a variety of efficacious orders could be made. Damages could be ordered under s 1324(10) or possibly also s 68 of the Supreme Court Act 1970 (NSW), because of the difficulties of injunctive relief mentioned below. True it is that this would be an order made against Mr Ye, rather than against SLH. LSKF raised this as an answer: "[T]here's another answer, another element to the answer to your Honour's query on this issue and that's this. [T]he principles regarding enforceability of the provisions in a contract turn upon whether or not a party, that is in these circumstances, Shield, can be compelled to comply with its obligations. I say that there is no capacity to bring an action against Shield for non-compliance because it - or if Mr Ye hasn't done what he - if Mr Ye has stood in the way in his role as a director." 1. But that answer cannot be a sound response to LSKF's submission, which acknowledged that SLH's promise to provide funding in accordance with cl 5.2(d) was enforceable so long as a funding request was received, and sought to impugn what it maintained was the unfettered discretion on the part of Mr Ye. 2. In other words, if SLH refused a funding request, it could unquestionably be sued in damages for breach of contract. In support of its submission that SLH's funding promise was illusory, LSKF contended that Mr Ye could not be compelled to participate in a funding request, and that that in substance rendered SLH's promise illusory. The answer to this submission is that Mr Ye's duty was not an unfettered discretion. It was an enforceable obligation. I do not accept that because a breach by Mr Ye of his duty does not lead (or at least, does not directly lead) to an order compelling SLH to provide funding, that SLH's promise is illusory. 3. There is force in LSKF's submission that a mandatory injunction pursuant to s 233(1)(j), 1324(1) and (7) or in equity would be, to say the least, problematic, involving as it does a commercial decision by a director (although these reasons should not be read as saying anything as to the width or narrowness of the power so to order). And it may be acknowledged that, contrary to the respondents' submission, there would be powerful considerations pointing against an order removing Mr Ye from the board and appointing a "friendly accountant" (not least for the reasons given by Lord Hoffmann in O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 at 974-976 having regard to SLH's 50% shareholding and the interest-free debt funding provided by it). That said, s 233 supports a very wide range of orders, as is illustrated by those made in Re Neath Rugby Ltd (No 2) [2008] BCC 390, appeal dismissed [2009] 2 BCLC 427. 4. But there is no occasion in this appeal to consider hypothetically, devoid of evidence of the circumstances which led to the falling out between the two men, the difficult exercise of discretion involved in such cases. It is wrong to conflate the unlikelihood, or even the unavailability, of relief by way of injunction or specific performance compelling Mr Ye to participate in a funding request with the propositions that his company's promise is unenforceable or that his discretion is unfettered. 5. In summary, what matters for the purpose of determining whether the consideration for the shareholders' agreement was illusory is whether the obligation imposed upon Mr Ye is enforceable. That obligation need not be specifically enforceable. A contract for the sale of a parcel of listed shares is not specifically enforceable, so long as identical shares are readily available on the market; the fact that damages may be the purchaser's only remedy does not make the vendor's promise unenforceable. After all, the rule that a contract, in order to be valid, must be supported by consideration which is not illusory is a rule of the common law. Whether equity would intervene, in its auxiliary jurisdiction, or else leave the other party to its remedy in damages, says nothing about whether the consideration was illusory, such that there was never, in law, a contract at all. 6. Similar reasons lead me to reject LSKF's submissions based on uncertainty. There is nothing uncertain about LSH's obligation to provide a loan if and when it receives a funding request. Let it be assumed, favourably to LSKF, that uncertainty of the obligation on the part of Mr Ye to participate in a funding request renders LSH's promise unenforceable, an assumption implicitly made by the parties, but one which should not be regarded as free from controversy. But while the evaluation of whether a director has, in any particular case, acted in accordance with his or her duties may be contestable and indeed finely balanced, it is not uncertain in the sense that it is so vague or lacking in content that there is no obligation at all. 7. The provisions for early repayment of the loan do not alter the position. The loan may not be recalled on SLH's unfettered discretion. The better view is that the power of the Lender to shorten the term insofar as it is contained in the definition of "Loan Term" may only be exercised at the commencement of the loan, thereby permitting a loan for a shorter or longer term than the default three years. The power to demand repayment of an existing loan in advance of its term is in the final clause, and that power may only be exercised on notice and on a reasonable basis. In other words, as Mr Bedrossian submitted in reply, the two provisions operate at different points in time. That would seem to be the best way of harmonising two contractual provisions each of which authorise the lender to alter the term of the loan, in accordance with the conventional preference for a construction which supplies "a congruent operation to the various components of the whole": Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16]. However, even if that be wrong, and there were a separate power in the definition of "Loan Term", its exercise would on settled principles be subject to an implied obligation of reasonableness, and that is sufficient. 8. True it is that the fact that the interest-free finance is repayable upon short notice and on reasonable grounds materially reduces the value of the promise. However, it does not render the promise illusory or uncertain. A power to recall a loan for a reason that is reasonable may be enforced in the ways outlined above, in accordance with what was held in Meehan v Jones. Orders 1. For those reasons, although there should be a grant of leave, the appeal must be dismissed. There is no reason to displace the ordinary rule that costs follow the event. I propose these orders: 1. Grant leave to appeal. 2. Direct LSKF Holdings Pty Ltd to file a notice of appeal in accordance with the draft notice of appeal, and otherwise dispense with the rules as to service. 3. Appeal dismissed, with costs. 1. PAYNE JA: I have read the decision of Leeming JA in draft. I agree with the orders proposed by his Honour and with his Honour's reasons. 2. WHITE JA: I agree with Leeming JA. 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: 20 June 2018