CBP Centre Pty Ltd v VentureCrowd Pty Ltd

This case involved a selective share buy-back pursuant to a written agreement between a company and a shareholder. The shareholder transferred shares to the company, however, the company declined to pay the transfer price. The company’s position was that the written agreement did not require it to pay the transfer price in circumstances where the “Completion Date” specified in the written agreement had not yet arrived. Justice Freeburn held that on a proper construction of the written agreement, the company’s obligation to pay the transfer price and the shareholder’s obligation to transfer the shares were concurrent or dependent obligations requiring a simultaneous exchange of the shares and the transfer price. Judgment was entered for the shareholder for the amount of the transfer price with the parties to be heard on the form of order, interest, and costs.

Freeburn J

28 June 2024

Background

The applicant, a shareholder, owned shares in the respondent, a company (the “shares”). [1]. The company made an offer to buy-back the shares for an agreed price (the “transfer price”). [1]. The shareholder accepted the offer and entered into a selective share buy-back agreement with the company (the “Buy-Back Agreement”). [1]. The shareholder caused its shares to be transferred to the company, however, the company declined to pay the transfer price. [2]. The shareholder sought an order that the company pay the transfer price. [3]. Whilst the company accepted that it was obliged to pay the transfer price, it maintained that it was not obliged to do so until the “Completion Date”, as defined in the Buy-Back Agreement, had arrived. [3]. The “Completion Date” had been defined as either the second business day after the next “external capital raise” or any other date which the company nominated. [3], [10], [12]. The primary controversy between the parties was the proper construction of the Buy-Back Agreement, in particular, cll 4(d) and 5 which provided as follows:

“4.Transfer Price

(d)In consideration of the transfer and buy-back of the Shares, the Company must pay to the Holder the Transfer Price on the Completion Date”. [8].

“5.Completion

(a)Completion of the transfer and buy-back of the Shares must take place on the Completion Date.

(b)Subject to clause 5(d), on Completion the Holder must deliver to the Company:

(i)a duly executed and completed transfer in favour of the Company all of the Shares in registrable form and in the form of Schedule 3; and

(ii)share certificates (if any) in respect of the Shares.

(c)The Holder authorises the Company to complete on behalf of the Holder, in accordance with the terms of this Agreement, any share transfer provided by the Holder to the Company for the purposes of satisfaction of the obligations of the Holder under clause 5(b).

(d)The Holder irrevocably appoints each director or secretary of the Company severally the attorney of the Holder with power:

(i)in the name of the Holder to complete, execute and deliver to the Company a transfer of shares for the transfer of the Shares from the Holder to the Company and also to do anything necessary or desirable (including to complete, execute and deliver to the Company any other document in connection with or incidental to a transfer of shares) to effect such transfer of shares; and

(ii)to delegate his or her powers (including, without limitation, this power to delegate) to any person who is an employee of the Company for any period and to revoke a delegation.

(e)On Completion the Company must pay to the Holder the Transfer Price”. [9].

Whether the company was required to pay the transfer price upon the transfer of the shares

Justice Freeburn observed that there was a tension between the temporal requirements of cll 4(d) and 5(a) which were to the effect that performance of the shareholder’s obligation to transfer the shares and the company’s obligation to pay the transfer price was to occur on the Completion Date; and the machinery requirements of cl 4(d) and cl 5 which were to the effect that the event of completion, as distinct from the Completion Date, was to be achieved by means of a simultaneous exchange of the shares and the transfer price. [47]–[55]. The principles that applied to resolving this tension were not in dispute: see [37]–[41]. A reasonable businessperson would have regarded the shareholder’s obligation to transfer the shares and the company’s obligation to pay the transfer price as concurrent or dependent obligations requiring simultaneous exchange of the shares and the transfer price. [47]–[52], [56]. Whilst in some transactions the parties may objectively intend a temporal requirement to assume a position of primacy in a bargain, this could not be inferred in the circumstances of this case. [60].

A further basis for requiring the company to pay the transfer price was identified: see [63]–[72]. Words or clauses may be rejected if they are inconsistent with the main object of a contract. [64]. This can occur where something has gone wrong i.e. words or clauses produce a result which is so absurd that it cannot have been intended. [68]. Though absurdity is not essential for application of this principle. [68]. The result can also “flout[] business common sense” or be “commercially nonsensical” or “aberrant”. [68]. Something had gone wrong in this transaction. [69]. A partial completion of a share buy-back had occurred where the shareholder transferred the shares, but the company declined to pay for them on the basis that the Completion Date had not yet arrived. [69]. It may never arrive. [69]. This produced a commercially nonsensical result. [69]. The only possible commercial justification for the result was that an external capital raise was necessary to fund the transfer price, however, payment of the transfer price was not conditional on the company obtaining funding through such a source. [70].

Disposition

Judgment was entered for the shareholder for the amount of the transfer price with the parties to be heard on the form of order, interest and costs. [85].

D Kerr of Counsel