Mango Boulevard Pty Ltd v Spencer
[2013] QCA 182
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- Unreported Judgment
- Appeal Determined (QCA)
- Mango Boulevard Pty Ltd v Spencer[2013] QCA 182
- Add to List
Mango Boulevard Pty Ltd v Spencer[2013] QCA 182
Mango Boulevard Pty Ltd v Spencer[2013] QCA 182
SUPREME COURT OF QUEENSLAND
CITATION: | Mango Boulevard Pty Ltd v Spencer & Ors [2013] QCA 182 |
PARTIES: | MANGO BOULEVARD PTY LTD |
FILE NO/S: | Appeal No 11807 of 2012 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 12 July 2013 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 3 April 2013 |
JUDGES: | Holmes and Gotterson JJA and Peter Lyons J |
ORDERS: |
|
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where a Deed was entered into for a project involving the acquisition and development of land at Mango Hill in Brisbane – where pursuant to the Deed, a Shareholder was relevantly in default under the Deed if any change occurred in its directors – where the appellant gave a Default Notice to both the first and second respondents which referred to the insolvency default provision in the Deed – where the appellant themselves were in default at the material time due to a change of directors – whether, at the relevant time, the appellant was eligible to give its Default Notices notwithstanding that it also was in default, and thereby become entitled to an option to acquire the shares of each of the first and second respondents pursuant to the operation of clause 10.3 of the Deed Elderslie Property Investments No 2 Pty Ltd v Dunn [2008] QCA 158, considered |
COUNSEL: | J K Bond SC, with E J Goodwin, for the appellant |
SOLICITORS: | Minter Ellison for the appellant |
- HOLMES JA: I agree with the reasons of Gotterson JA and the orders he proposes.
- GOTTERSON JA: On 10 December 2012, Mango Boulevard Pty Ltd (“Mango Boulevard”) filed a notice of appeal against a judgment given on 14 November 2012 in proceedings which it had commenced on 9 March 2006 initially against Richard Spencer (“Spencer’), Silvana Perovich (“Perovich”) and Kinsella Heights Developments Pty Ltd (“Kinsella Heights”) as first, second and third defendants respectively. These defendants are respondents to the appeal.
- The substantive relief sought in the proceedings concerned an entitlement which Mango Boulevard claims to have, to exercise an option to acquire the shares held by each of Spencer and Perovich in Kinsella Heights. The entitlement is claimed by virtue of the operation of clause 10.3 and other provisions of a deed styled “Shareholders Deed” (“the Deed”)[1] dated 4 July 2003 between Spencer, Perovich, Mango Boulevard acting as trustee for the Mango Boulevard Unit Trust and Kinsella Heights.
- Three additional defendants were joined in the proceedings subsequent to its commencement. Spencer contended that he held his shares in Kinsella Heights as trustee; that he executed the Deed in that capacity; and that the fourth defendant, Mio Art Pty Ltd, is successor as trustee of that trust. Spencer and Perovich each became bankrupt. Mr Robert Whitton, the trustee in bankruptcy for each of them, is the fifth and sixth defendant in those respective capacities. Each of these three defendants is also a respondent to the appeal. All respondents were represented in common at the hearing of the appeal.
The Deed
- The Deed was one of a suite of legal agreements entered into for a project involving the acquisition and development of land at Mango Hill in Brisbane. This was land which a company, Neolido Holdings Pty Ltd (“Neolido”), acting as agent for Kinsella Heights, had contracted to purchase and which Kinsella Heights would contribute to the project. One of the agreements was a Project Management Agreement[2] dated 24 June 2003 between Kinsella Heights, as principal, and Mango Boulevard acting as trustee for the Mango Boulevard Unit Trust whereby those parties agreed to associate in a joint venture in order to execute the project; and another was a Consultancy Services Agreement[3] between Kinsella Heights as principal, Mango Boulevard acting as trustee of the Mango Boulevard Unit Trust and Neolido whereby the last-mentioned was engaged as consultant to prepare the Development Application for the project.
- A third agreement was a Put & Call Option Agreement[4] dated 24 June 2003 to which was attached a draft Share Sale Agreement. The call option was exercised by 4 July 2003 in consequence of which Mango Boulevard acting as trustee for the Mango Boulevard Unit Trust, purchased fifty of the one hundred issued shares in the capital of Kinsella Heights, twenty-five from Spencer and twenty-five from Perovich. The purchase was upon terms contained in an executed Share Sale Agreement[5] dated 4 July 2003. Upon completion of the Share Sale Agreement, the issued shares in Kinsella Heights were owned as follows:
Spencer | 25 shares |
Perovich | 25 shares |
Mango Boulevard | 50 shares |
- The Deed was executed contemporaneously with the Share Sale Agreement. The purpose of the Deed was expressed to be to record the agreement of the parties to it “on the ownership of shares in (Kinsella Heights), the relationship between the parties and the way (Kinsella Heights) will carry on the Business and manage its affairs.”[6] It regulates mattes such as commitment to that company and its business; entitlement to nominate directors, board composition and function; management of the company and of the contract to purchase the land; profit sharing; and restrictions upon dealing with shares in the company.
- The dispute between the parties is centred upon the meaning and application of provisions within clause 10 of the Deed. It is convenient at this point to set out that clause and definitions of certain terms which are defined in clause 1.1 of the Deed. During the course of argument of the appeal, reference was made to other provisions and defined terms within the Deed. Where it is necessary to do so, I shall refer to them in the course of these reasons.
Clause 10 and certain defined terms
- Clause 10 of the Deed is headed “DEFAULT”. It provides:
“10.1A Shareholder will be in default under this Deed if:
(a)it transfers any of its Shares or any interest in any of its Shares except in accordance with this Deed;
(b)it fails to remedy any breach of its obligations under this Deed within 14 days after written demand for remedy has been made by another Shareholder;
(c)it goes into liquidation or is wound up or dissolved or a receiver, receiver and manager, official manager, administrator, trustee, provisional liquidator or similar officer is appointed over any of its assets or it enters into a scheme of arrangement, composition or compromise with or assignment for the benefit of any of its creditors or an inspector of all or any part of its affairs is appointed or if any steps or proceedings are taken for any of these purposes;
(d)it commits an act of bankruptcy, becomes bankrupt or unable to pay its debts or suspends payment of its debts within the meaning of the Bankruptcy Act 1966;
(e)any change occurs in its shareholders or its directors;
(f)it commits any criminal offence which affects or compromises the operations of the Company;
(g)execution, distress or other legal process is levied against any of the goods and assets of it and such process is not satisfied within 30 days of being levied.
10.2If a party is in default of its obligations under this Deed as described in sub-clause 10.1 (‘Defaulting Party’) then another party may give:
(a)notice in writing setting out the default (‘Default Notice’) to the Defaulting Party; and
(b)a copy of the Default Notice to the Company’s accountants together with an instruction to determine within 30 days of the their receipt of a copy of the Default Notice, at the cost of the Defaulting Party:
- the value of the Shares held by the Defaulting Party at the end of the last preceding Financial Year under the principles set out in clause 11; and
- the damages sustained by the other Shareholders (‘Non-Defaulting Parties’) resulting from the default by the Defaulting Party (‘Damages’).
10.3On serving a Default Notice on the Defaulting Party, the Non-Defaulting Party has, in addition and without prejudice to the Non-Defaulting Party’s other rights at law or in equity, an option (‘Option’) to acquire the Defaulting Party’s Shares at a price per Share determined by the Company’s accountants under paragraph 10.2(b)(i).
10.4The Non-Defaulting Party (‘Acquiring Party’) may, within 60 days of receiving the determination of the Company’s accountants under paragraph 10.2(b)(i), by notice in writing to the Defaulting Party exercise the Option.
10.5Completion of the sale of the Defaulting Party’s Shares must take place within 14 days of the date that notice under sub-clause 10.4 exercising the Option is given to the Defaulting Party at a time and place to be agreed by the Acquiring Party and the Defaulting Party or, failing agreement, at 10.00am on the next Business Day after the 14 day period at the Company’s registered office.
10.6At completion of the sale of the Defaulting Party’s Shares:
(a)the Acquiring Party must pay to the Defaulting Party the purchase price for the Defaulting Party's Shares less the following amounts:
(i)any payments incurred by the Non-Defaulting Parties for the Defaulting Party;
(ii)the damages assessed by the Company’s accountants under sub-paragraph 10.2(b) (ii); and
(iii)the costs of the Company’s accountants making the valuations referred to in paragraph 10.2(b); and
(b)the Defaulting Party must deliver to the Acquiring Party the certificates for the Defaulting Party’s Shares and transfers of and stamp duty declarations for the Defaulting Party’s Shares executed by the Defaulting Party.
10.7If the Defaulting Party defaults in complying with sub-clause 10.6, the Directors are irrevocably authorised by the Defaulting Party to receive the purchase money and to execute transfers of the Defaulting Party’s Shares to the Acquiring Party on behalf of the Defaulting Party. Following execution and stamping of the appropriate transfers, the Company must register the transfers of the Defaulting Party’s Shares and the Directors are to hold the purchase money on trust for the Defaulting Party. The receipt of the Directors for the purchase money will be a good discharge to the Acquiring Party and after its name has been entered in the register under this sub-clause the validity of the actions of the Directors under this sub-clause may not be questioned by any person.”[7]
(This clause refers to constituent parts of numbered provisions in clause 10 variously as “paragraphs” or “sub-paragraphs”. For consistency, I shall use the descriptions “clause” for a numbered provision and “sub-clause” for a constituent part of a clause throughout the Deed.)
- Clause 1.1 of the Deed sets out definitions which give meaning for terms “except to the extent that the context otherwise requires.”[8] Some forty-one terms are defined, two of which are not used in the Deed. The interpretive provision in sub-clause 2.1(a) provides that words importing the singular include the plural and vice versa again “except to the extent that the context otherwise requires”.[9]
- The term “Defaulting Party” is used in each of clauses 10.2 to 10.7 inclusive. A meaning is attributed to this term in the opening words of clause 10.2. The same term is also defined in clause 1.1 differently to mean:
“… a party which is in default of that party’s obligations under this Deed or a party who has committed an Event of Default pursuant to clause 11.1;”[10]
The term “Event of Default” is there defined to mean:
“… the occurrence of one or more of the events listed in clause 11.1;”[11]
(It is common ground that in each of these two definitions from clause 1.1, clause 10.1 has been erroneously referred to as clause 11.1.)
- Two other terms used in clause 10 need be noted. One is “Non-Defaulting Parties” used in sub-clauses 10.2(b)(ii) and 10.6(a)(i) for which a meaning is attributed by sub-clause 10.2(b)(ii) but for which no definition is given in clause 1.1.[12] The other is “Non-Defaulting Party” used in clauses 10.3 and 10.4,[13] for which no meaning is attributed by the provisions of clause 10 but which is defined in clause 1.1[14] to mean:
“… the parties other than the Defaulting Party at that time;”[15]
Issue in dispute
- On or about 22 February 2006, Mango Boulevard gave a Default Notice[16] to each of Spencer and Perovich. Recital B in each notice referred to the insolvency default provision in sub-clause 10.1(d) of the Deed. The operative provisions in each notice stated:
“1.This Default Notice is given pursuant to clause 10.2 of the Shareholders Deed.
- You are in default under the Shareholders Deed because you are unable to pay your debts.
- Particulars of your inability to pay your debts are set out in Annexure “A” to this Default Notice.
- A copy of this Default Notice will be given to the accountants for Kinsella Heights together with an instruction in the terms of clause 10.2(b) of the Shareholders Deed.
- Pursuant to clause 10.3 of the Shareholders Deed, on serving this Default Notice on you, Mango Boulevard has, in addition and without prejudice to its other rights at law or in equity, an option to acquire your shares in Kinsella Heights at a price per share determined by the accountants for Kinsella Heights under paragraph 10.2(b)(i) of the Shareholders Deed.[17]
- In purported reliance upon clause 10.2 of the Deed, on 24 February 2006, Mango Boulevard gave to the accountants for Kinsella Heights a copy of each of the Default Notices with written instructions to determine the value of the shares held by each of Spencer and Perovich in Kinsella Heights and for damages sustained by Mango Boulevard resulting from the notified default by each of them.[18]
- In a judgment given on a summary judgment application in the proceedings in December 2009,[19] the learned judge at first instance made declarations, on their own concessions,[20] that each of Spencer and Perovich was, in terms of sub-clause 10.1(d) of the Deed, unable to pay his or her debts at 22 February 2006. Thus, before his Honour on this later occasion, Spencer and Perovich did not, and could not, contend that the Default Notice that each was given was not based upon a default under sub-clause 10.1(d) on his or her part.
- The genesis of the present dispute lies in the provision in sub-clause 10.1(e) that a shareholder is in default if “if any change occurs in its shareholders or directors”. It is common ground that several changes occurred in the directorship of Mango Boulevard subsequent to execution of the Deed. In August 2003, Mr Brent Hailey resigned as a director and was replaced by Mr Kenneth Bird. Later, in July 2004, Mr Russell Thomson was appointed a director of Mango Boulevard.[21]
- Before the learned judge at first instance, it was conceded for Mango Boulevard that these changes in the directorship were deemed defaults on the part of Mango Boulevard under sub-clause 10.1(e) of the Deed and that they remained so on 22 February 2006 when it delivered its Default Notices to Spencer and Perovich.[22] The relevance of the concession to the present dispute arises because of the fact that on 28 March 2006, each of Spencer and Perovich purported to give a clause 10 Default Notice to Mango Boulevard based upon those defaults.
- The compass of the present dispute is set by paragraph 8 of the amended defence which is pleaded as an answer to Mango Boulevard’s claims in the proceedings for declaratory relief that it is entitled to an option to acquire the shares of each of Spencer and Perovich in Kinsella Heights in accordance with clause 10 of the Deed. Omitting sub-paragraphs (c), (d) and (e) which plead the changes in directorship of Mango Boulevard to which I have referred, clause 8 pleads as follows:
“(a)on its true interpretation the entitlement to give a notice pursuant to sub-clause 10.2 of the Shareholders Deed is a right conferred upon a Non-Defaulting Party to the Shareholders Deed as defined, against a Defaulting Party as defined.
(b)pursuant to sub-clause 10.1(e) of the Shareholders Deed, a Shareholder was relevantly in default under the Shareholders Deed if any change occurred in its directors.
…
(f)in the premises pleaded in paragraphs (a) to (e) herein, from the date of the Hailey Resignation, the plaintiff was and remained in default under paragraph 10.1(e) of the Shareholders Deed and was not a Non-Defaulting Party as at 22 February 2006.”[23]
These sub-paragraphs, including the legal contention implicit in sub-paragraph 8(a), are disputed by Mango Boulevard.
- In summary, the issue which emerged from those parts of the pleadings and which the learned judge at first instance was required to resolve, was whether, at 22 February 2006, Mango Boulevard was eligible to give its Default Notices notwithstanding that it also was in default, and thereby become entitled to an option to acquire the shares of each of Spencer and Perovich pursuant to the operation of clause 10.3 of the Deed.
The decision at first instance
- The learned judge at first instance held, as Mango Boulevard had submitted, that the meaning attributed to “Defaulting Party” by clause 10.2 displaced the definition of that term in clause 1.1 for clause 10.2 and the other provisions in clause 10 which follow it and in which the term is used. It was clearly correct for his Honour to have so held given that the attributed meaning narrows a Defaulting Party to a party who is in default under clause 10.1 of the Deed whereas the clause 1.1 meaning is wider and includes also a party in default of its obligations under the Deed. This aspect of his Honour’s reasons is not challenged on appeal.
- As noted, there was no dispute before his Honour as to whether or not Spencer or Perovich was a Defaulting Party at 22 February 2006 according to the meaning favoured by his Honour. He had already determined that they were. The live issue concerned whether or not Mango Boulevard had then been eligible to serve the Notices of Default on them and thereby become entitled to options to acquire their shares.
- His Honour noted that under clause 10.3, an entitlement to acquire a Defaulting Party’s shares is conferred only upon a Non-Defaulting Party who has served a Default Notice on the Defaulting Party, and “not upon anyone who has given a Default Notice”[24] to a Defaulting Party”. I understand his Honour to have meant by this description, any other party to the Deed who, in fact, has given a Default Notice to a Defaulting Party.
- The meaning preferred by his Honour for the term “Non-Defaulting Party” in clause 10.3 is the defined meaning set out in clause 1.1 of the Deed.[25] He interpreted that definition to mean that, at any given time, only a party to the Deed who is not a Defaulting Party as defined in clause 1.1 may be a Non-Defaulting Party. In other words, any party to the Deed who is in default of its obligations under the Deed or who has committed an Event of Default, being a Defaulting Party as defined in clause 1.1, may not, at the same time, be a Non-Defaulting Party. It is in influencing the meaning of the definition of “Non-defaulting Party” that his Honour identified a role for the definition of “Defaulting Party” in clause 1.1.[26]
- The learned judge at first instance drew upon the meaning that he gave to Non-Defaulting Party for clause 10.3 in two ways. He relied upon it to interpret the expression “another party” in clause 10.2 to mean another party to the Deed who is not a Defaulting Party, reasoning that the parties must be taken to have intended that only a party who is eligible to become entitled to an option to acquire shares under clause 10.3, that is to say a Non-Defaulting Party, may give a Default Notice.[27]
- Secondly, his Honour used it to reject an argument advanced by Mango Boulevard that the term “Non-Defaulting Party” in clause 10.3 takes a meaning which is informed by the expression “another party” in clause 10.2 interpreted amply to mean any other party to the Deed other than the Defaulting Party to whom a Default Notice is given, regardless of whether or not that party is itself a Defaulting Party as defined in clause 1.1, and consequently, not a Non-Defaulting Party. He did not accept an argument that that interpretation of the expression operated to invest the term “Non-Defaulting Party” in clause 10.3 with a meaning different from to that in clause 1.1 and that that meaning displaced the meaning given to it by clause 1.1.[28]
- Several other considerations played a part in his Honour’s preference for the meanings and interpretations adopted by him. One was that the argument advanced by Mango Boulevard involved an apparent anomaly that the same party might be, at the same time, both a Defaulting Party and a Non-Defaulting Party.[29] Another was the “curious result” that flows from this, namely, that each Defaulting Party might give a Default Notice to the other Defaulting Parties and thereupon become entitled to an option to acquire the shares of those others, a result of very real potential relevance for current circumstances given that Spencer and Perovich had also given Default Notices to Mango Boulevard. As to this, his Honour observed:
“…[U]pon an objective basis it is unlikely that the parties intended that each would be able to acquire the other's shares in these circumstances or that they intended that whoever was the first to give a Default Notice, or alternatively to exercise its option, would prevail.”[30]
- In accordance with his reasons, the learned judge at first instance concluded that Mango Boulevard, not being a Non-Defaulting Party at 22 February 2006, was not entitled to give the Default Notices and thereby become entitled to acquire shares. He therefore refused to make declaratory orders that Mango Boulevard is entitled to an option to acquire the shares of each of Spencer and Perovich in Kinsella Heights. Judgment was given dismissing the claim in the proceedings except for that part as had been determined in December 2009.
Appeal
- Mango Boulevard contends on appeal that the learned judge at first instance erred in concluding that the term “Non-Defaulting Party” in clauses 10.3 and following has the meaning given to that term by clause 1.1. It submits[31] that that construction should be rejected for four reasons, namely:
- Both the literal words of clauses 10.1 and 10.2 and their purposive construction reveal that the parties did not objectively intend the clause 1.1 definitions, of “Defaulting Party” and “Non-defaulting Party” to apply to clause 10, but instead inserted more specific definitions in the operative clauses consistent with context;
- The construction was reached by application of an argument from redundancy which was inappropriate in the circumstances;
- The construction involved use of a clause 1.1 definition as a substantive provision of the Deed further conditioning eligibility to give a Default Notice; and
- It operated in a way contrary to “the evident objective intention” of clause 10.
- Before considering each of these reasons, I would make the following observations. To my mind, to speak of clause 10 as having an evident objective intention with respect to the issue in dispute does not truly reflect the position. The use of the undefined expression “another party” in clause 10.2 to identify who might give a Default Notice and the use of the term “Non-Defaulting Party”, which does have definition in clause 1.1, to identify in clause 10.3 in whom resides an entitlement to acquire shares upon serving a Default Notice, together produce a circumstance in which the objective intention of the parties as to who may become entitled to an option to acquire shares under clause 10, is not plainly evident.
- In reality, objective intention in this respect, not being plainly evident, is to be ascertained by careful consideration of what meaning the parties intended each of the expression and the term to have in this context. As a matter of technique, such was the exercise undertaken by his Honour. It required him to have regard to a number of features of clause 10 and other provisions of the Deed on which the parties had relied, and on appeal rely, in order to develop arguments, one way or the other, with respect to objective intent. He was not required to resolve any dispute of fact or any dispute about the nature or content of canons of construction that might apply.
- The other observation I would make is centred upon the definition of the term “Non-defaulting Party”. The meaning of it adopted by his Honour construes the expression “the Defaulting Party” within that definition as one to be read in the plural as well as the singular. That is to say, if more than one party qualifies as a Defaulting Party as defined in clause 1.1 at the same time, then each of them is a Defaulting Party for the purposes of the definition of the term ‘Non-defaulting Party” and hence cannot also then be a Non-defaulting party.
- This construction is one that declines to draw from the contextual use of the singular “the” in the expression an intention of the part of the parties to the Deed that the interpretation provision in clause 2.1(a) that words importing the singular include the plural, be displaced. For myself, I am unable to regard the use of the singular in this instance as clearly evincing an intention that, for the definition, there is to be at any one time only one party who is a Defaulting Party with the consequence that all other parties are “Non-defaulting Parties” whether they are in default or not. Much stronger indication that such a meaning was intended than the mere use of the singular might is to be expected if that were the intention.
- I ought mention also that whilst the term “Non-Defaulting Party” is in the singular, the definition describes it as meaning “the parties …”. It is, I think, quite clear that this is a reference to the parties severally, and not to them collectively. It cannot have been envisaged that those parties collectively would have an option under clause 10.3 once one of them only had served a Default Notice.
- I mention these matters because during oral argument, it was submitted on several occasions that his Honour had failed to give sufficient attention to the use of the singular “the” in the expression “the Defaulting Party” in the definition of the term “Non-defaulting Party”. Referring to an argument which had been advanced at first instance, senior counsel for Mango Boulevard submitted that a reading of the definition as applicable to one Defaulting Party only fits comfortably with the context of clause 10.3. The Defaulting Party upon whom a Default Notice is, or is to be, served is the Defaulting Party and the party serving it is the Non-Defaulting Party.
- In my view, several considerations militate against such a reading. One is the construction which is referenced to the plural “Defaulting Parties” and to which I have referred. A second is that given that the terminology chosen for both defined terms is referenced to default, it is unlikely that the parties intended the definition of the term “Non-Defaulting Party” merely to signify a distinction between a Defaulting Party who is, or is to be, served with a Default Notice and all other parties to the Deed. A distinction at an additional level, referenced to default-based conduct, is implicit in the terms themselves. Lastly, had a mere distinction of identity only been intended, then there is good reason to expect that the parties would have used the simple expression “any Non-Defaulting Party” in lieu of “another party” in clause 10.2. Overall, I am not persuaded that his Honour misinterpreted the definition of the term “Non-defaulting Party” in clause 1.1 in any material way.
Analysis
- With regard to the first reason, Mango Boulevard submits that his Honour embarked upon an unjustifiable selective application of clause 1.1 definitions for clause 10. The selectivity, it is said, is demonstrated by his Honour’s applying the clause 1.1 definition of Non-defaulting Party in the case of the term “Non-Defaulting Party” but not applying the clause 1.1 definition of Defaulting Party to the term “Defaulting Party”. So also, in not applying the clause 1.1 definition of Non-defaulting Party to the term “Non-Defaulting Parties” used in clauses 10.2(b)(ii) and 10.6(a)(i).
- The criticism of this approach as “unjustifiable” appears to be based upon a proposition that for clause 10, one approach only is justifiably open when it comes to all terms used in it which have a defined meaning in clause 1.1, and that that approach is to regard the defined meaning as displaced by a different meaning which it is sought to attribute to the term from the language of clause 10 itself. I am unable to accept this as a valid basis for criticism. There is no principle of construction which requires acceptance or rejection of definition clause meanings for all terms used in a given clause. Indeed, such a principle would risk contradiction with an express intention of the parties that the definitions in the definitions clause are to apply except to the extent that context requires otherwise. Within the one clause, context may indicate that a defined meaning is displaced for one term used in it but not for another.
- Furthermore, for the reasons which I have already mentioned and which are non-contentious, the clause 1.1 definition of the term “Defaulting Party” is clearly displaced in clause 10.2. The displacement in the case of the term “Non-Defaulting Parties” is equally clear. In clauses 10.2(b)(ii) and 10.6(a)(i) where that term is used, the damages are those of all other shareholders who have sustained them by reason of the default of the Defaulting Party, and regardless of whether the shareholder is also a Defaulting Party as defined in clause 1.1.
- There is no comparably compelling feature or features of clause 10 which, in the case of the term “Non-Defaulting Party” in clause 10.3, displaces the clause 1.1 meaning. I am unable to discern in the use of the expression “another party” any persuasive indication of an intention that it is to inform the meaning of the term “Non-Defaulting Party” to a point of displacing the defined meaning of it in clause 1.1. By contrast, for example, had that expression been immediately followed in clause 10.3 by the descriptor “(‘Non-Defaulting Party’)”, then the argument for displacement in clauses 10.3 and following would have had considerably more force.
- I now turn to the second reason. I understand this reason to be based upon an attribution to his Honour of reasoning that in order to give the clause 1.1 definitions of Non-defaulting Party, and, indirectly, of Defaulting Party, some work to do, the former should be the meaning of Non-Defaulting Party in clause 10.3. As I read his Honour’s reasons for judgment, reasoning of that kind did not play an integral role in his conclusion. At paragraph 12, he said:
“For Mango Boulevard, it is argued that these definitions have no application to cl 10. It points out that the definitions clause (cl 1.1) begins with the statement that the definitions do not apply where the context otherwise requires. But apart from cl 10 and a related provision, the definitions in cl 1.1 of these three expressions have no work to do within the Deed. The expressions Defaulting Party and Non-Defaulting Party appear in cl 11.2(a), which provides that the Defaulting Party is to bear the burden of the costs of the valuation and transfer of shares which are compulsorily acquired under cl 10. But having regard to the relation between cl 11.2 and cl 10, the expressions must have the same meanings in both clauses. Thus the effect of Mango Boulevard’s argument is that the definitions of these expressions, together with the expression “Event of Default”, which are within cl l.l are redundant. On an objective view, that is an unlikely intention to attribute to the parties. This is not a document which is the product of the use of some standard form with the addition of a few terms for the particular facts and circumstances of this transaction, where the standard terms might be easier to disregard. According to cl l.l, these expressions are to be given the meanings which are set out in that clause. The question is whether this is precluded by the words of cl 10.”
Later, he observed[32] that the clause 1.1 definition of Defaulting Party had a role to play in influencing the meaning of the defined term “Non-defaulting Party” which he was adopting for clause 10.3.
- His Honour’s observation[33] that it is unlikely that all parties to the Deed intended that the clause 1.1 definitions to which he referred be redundant, is unremarkable. So also is his observation[34] with respect to the definition of “Defaulting Party”. Neither of those observations suggest that his Honour adopted the meanings he favoured for the purpose of giving these definitions a role to play. A more accurate description of his Honour’s technique is that he coupled his conclusion with an observation that the adoption of the meanings he favoured has had the consequence that those definitions do have a role to play.
- In respect of the third reason, it is true that the meaning preferred for Non-Defaulting Party in clause 10.3 – the meaning in clause 1.1, influenced the meaning that he gave to the expression “another party” in clause 10.2. In my view, it is overstatement to characterise what he did as using the clause 1.1 definition as a substantive provision of the Deed in order to impose a condition of eligibility to give a Default Notice. In truth, it was the parties’ choice to use the term “Non-Defaulting Party” in clause 10.3 to describe who may become entitled to an option to acquire shares, which influenced the meaning he gave to the expression. The use of that term was unaccompanied by any special definition or any other unambiguous textual indication on their part to signal that they intended the term to have a meaning other than that given to it by clause 1.1.
- As to the fourth reason, I refer to the observations I have already made concerning the “evident objective intention” of clause 10 for which Mango Boulevard contends. In developing this reason, Mango Boulevard also claims that the “curious result” that his Honour saw, and to which I have referred, is “unsupported by analysis or evidence and was not justifiable”.
- In my view, the conclusion that there was a curious result was not one that required evidence in order for it to be made. His Honour was making an observation that he thought it unlikely that the parties would have intended that Defaulting Parties might have enforceable options to acquire each other’s shares or, perhaps even less likely, that enforceability of such options might depend upon whoever of them gave notice, or exercised the option, first. It requires no evidence to imagine that the parties as co-venturers would be unlikely to have intended that where each has defaulted, one of them with the financial means to do so might compulsorily acquire all the shares of others who at that time do not have matching financial means to exercise their respective options.
- His Honour’s conclusion was a relevant consideration for interpretation. Courts have long regarded an unreasonable result which would flow from one of several competing constructions as relevant to whether that particular construction ought to be regarded as the one the parties intended.[35]
- I am not persuaded that any of the four reasons which Mango Boulevard has advanced warrant a conclusion that the learned judge at first instance erred in reaching the conclusion challenged on appeal. I agree with that conclusion and with the reasoning his Honour gave for it.
- There is an additional relevant feature of clause 10 which, in my view, supports that conclusion. Clause 10.2(b) provides for determination by the accountants for Kinsella Heights of the value of the shares held by the Defaulting Party and of the damages sustained by other shareholders resulting from the default. Clause 10.6, in turn, provides that upon completion of the compulsory acquisition, the Acquiring Party must pay to the Defaulting Party the purchase price for the Defaulting Party’s shares (presumably the value as determined by the accountants) less:
- any payments incurred by the Non-Defaulting Parties for the Defaulting Party;
- the damages as valued by the accountants; and
- the costs of the valuations.
- However, neither clause 10.2 nor clause 10.6 refer to damages that the Defaulting Party might have sustained as a result of a default on the part of a party who, whilst also qualifying as a Defaulting Party as defined in clause 1.1, claims to have given a Default Notice and thereby become entitled to an option to acquire its shares under clause 10. The consequence of this is that a Defaulting Party at settlement would be paid an amount calculated by deduction of the items listed in clause 10.6, but unaugmented by the amount of damages it might have so sustained.
- It is true, as Mango Boulevard points out, that an accrued right to recover such damages would be preserved by clause 12.2 of the Deed. But the point is that a former shareholder in that position would be left to remedies at law to recover the damages. In my view, it is fair to observe that had the parties contemplated that a party who is also a Defaulting Party might, by virtue of giving a Default Notice, become entitled to an option to acquire shares, then, in all probability, they would have provided in clause 10.2 for valuation of damages sustained by the recipient of Default Notice resulting from the default on the part of the giver of the Notice, and in clause 10.6 for a reciprocal augmentation of the purchase price by the amount of those damages as valued. It is also fair to observe that the fact that the parties did not so provide, indicates, with some force, that they did not intend that a party who is a Defaulting Party as defined in clause 1.1, be eligible to become entitled to an option to acquire shares compulsorily under clause 10.
Disposition
- For these reasons, I consider that this appeal should be dismissed.
Orders
- I would propose the following orders:
- Appeal dismissed.
- Appellant to pay the respondents’ costs of and incidental to the appeal.
- PETER LYONS J: I agree with the reasons of Gotterson JA and the orders he proposes.
Footnotes
[1] AB 229 – 257.
[2] AB 162-175.
[3] AB 176-194.
[4] AB 197-203.
[5] AB 206-228.
[6] AB 232; Recital F.
[7] AB 246-248.
[8] AB 232.
[9] AB 237.
[10] AB 234.
[11] AB 235.
[12] As explained later in these reasons, the exception for sub-clause 2.1(a) to which I have referred has the effect that the definition of “Non-Defaulting Party” in sub-clause 1.1 read in the plural is displaced by the attributed meaning in these two sub-clauses.
[13] Its synonym is “Acquiring Party”: see clause 10.4; which is also used in clauses 10.5, 10.6 and 10.7.
[14] The term defined in clause 1.1 is actually “Non-defaulting Party” whereas that used in clause 10 is “Non-Defaulting Party”. No party to the appeal seeks to attribute any significance to the font difference for the letter “d” between the two.
[15] AB 235.
[16] AB 258-260; 261-263.
[17] AB 258.
[18] AB 264-265.
[19] Mango Boulevard Pty Ltd v Spencer and Ors [2009] QSC 389.
[20] At reasons [63].
[21] Reasons [8]; AB 42 Amended Defence paragraphs 8(c), (d) and (e) admitted in Amended Reply paragraph 4, AB 45.
[22] Reasons [8].
[23] AB 42-43.
[24] Reasons [19]. I note that clause 10.2 confers an entitlement to give a Default Notice in writing whereas clause 10.3 is conditioned upon serving a Default Notice. No party to the appeal seeks to attach any significance to this difference in terminology.
[25] Reasons [19].
[26] Reasons [18].
[27] Reasons [19].
[28] Reasons [20].
[29] Reasons [16].
[30] Reasons [22].
[31] Written outline of argument paragraphs [28]-[31].
[32] At reasons [17].
[33] At [12].
[34] At [17].
[35] L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251; Elderslie Property Investments No 2 Pty Ltd v Dunn [2008] QCA 158 paras [20]-[22].