A/asian Oil Exploration Ltd v Lachberg

A/asian Oil Exploration Ltd v Lachberg - [1958] HCA 51 - HCA 1958 case summary — Zoe

[5]

It is apparent from this very general reference to the character of the relief sought by the respondents that M.K.I. had a direct interest in maintaining the validity of the agreement in question and it will further appear that this company and individual shareholders of A.O.E. had a like interest in resisting any injunction restraining A.O.E. from registering transfers of its shares pursuant to arrangements whereby many of the latter had undertaken to take up shares in M.K.I. either for a cash consideration or in exchange for their holdings in A.O.E. That being so it is beyond question that the relief claimed should not have been granted in the suit as at present constituted. But no objection was raised by the defendant either by its statement of defence or at the hearing though we were told that when the parties spoke in the Supreme Court to the minutes of the order the defendant objected to any order being made in a form which would purport to bind any person or company who was not a party. The absence of proper parties has been a source of considerable embarrassment to us on this appeal and, indeed, has caused us to doubt whether we should attempt, at this stage, to deal with the various substantive questions involved. But if we were simply to discharge the order of the Supreme Court on this ground after the full argument before us of the substance of the matter, without any indication of the views we have formed, we would cause widespread misunderstanding and embarrassment. Further, so far as the question of the validity of the agreement is concerned, there are strong grounds for regarding the question of parties as more formal than real in its significance. In the first place, M.K.I. was formed for the express purpose of acquiring A.O.E.'s holding in M.K.U. In the next place, three of the directors of A.O.E. were also directors of M.K.I. at the relevant time. Then it is certainly true that the two companies bore otherwise the closest association one to another. One may be sure that the failure to join M.K.I. was due to an assumption that it was not an independent party which ought to be there so that it might present a case of its own. In all the circumstances we have thought it proper, having given full consideration to the agreement of 17th February 1958, not to withhold an expression of our views upon the question of its validity.

[6]

Coming now to the substance of the matter, it is convenient to make some reference to the circumstances in which the agreement was made before reciting its material provisions. A.O.E. was incorporated in 1954 as a limited liability company with an authorised capital of £5,000,000 divided into 20,000,000 shares of five shillings each. Its main purpose was to survey, search for, explore, prospect, inspect and examine and develop any land in any part of the world containing or supposed to contain any oil petroleum natural gas pitchblende shale metals uranium minerals mineral oil and other specified substances. When the agreement was made its issued capital was 11,051,150 shares of five shillings each and these were fully paid up with the exception of a comparatively insubstantial sum representing calls in arrears. In all its paid-up capital amounted to £2,782,348. But according to the balance sheet published on 30th April 1957 it had sustained a loss of its share capital amounting to £1,716,513 leaving the total shareholders' funds at £1,065,835. The loss of paid-up capital had mainly occurred in administrative and exploratory and developmental costs incurred in connexion with its undertakings. Its assets included the 994,900 shares in M.K.U. already referred to and these appeared in the balance sheet at cost, £248,725. The other assets of the company consisted of fixed assets such as land buildings plant and equipment, and "Oil Permits", "Uranium Leases" and leases of mineral sands and other items representing pre-paid expenses loans sundry debtors and stores on hand. It would seem that the values shown in the balance sheet for the assets other than the M.K.U. shares were extremely high whilst, on the other hand, it is reasonable to suppose from the evidence in the case that the values of the shares in M.K.U. were greatly in excess of the stated figure. To what extent the value of these shares exceeded the balance sheet figure is a matter of some importance and further reference will be made to the evidence on this point at a later stage. The published figures, however, suggest that the company had lost a considerable amount of its paid-up capital but whether this was or was not a true reflection of the company's capital position depends to a great extent upon the value to be attributed to the M.K.U. shares.

[8]

As already mentioned the agreement of 17th February 1958 evidenced the sale by A.O.E. to M.K.I. of the whole of the former's shareholding in M.K.U. By cl. 2 of the agreement the purchase price was fixed at £346,720 and it was agreed that this sum should be paid within ninety days from the date of the agreement. Further it was provided that A.O.E. should deliver to M.K.I. upon the execution of the agreement a document of transfer in registerable form signed in blank by A.O.E. as transferor and, also, an irrevocable authority to obtain delivery of the relevant share certificates from A.O.E.'s bankers on payment of the purchase money. Thereafter, by cl. 4 of the agreement, it was provided that after the completion of the agreement, and so long as A.O.E. should remain the registered holder of the shares, that company should be and remain a trustee thereof for M.K.I. and that A.O.E. should forthwith upon receipt of all or any notices, dividends, rights or other benefits in respect thereof notify M.K.I. and transmit or transfer the same to M.K.I. and should exercise its right of appointment of directors to the board of M.K.U. from time to time in such manner as might be requested by M.K.I. Doubtless, since registration would have destroyed the right of A.O.E. to nominate two directors of M.K.U., it was not intended that this transfer should be registered. Finally by cl. 7, M.K.I. declared that it would, at the cost charge and expense in all things of A.O.E., as soon as convenient but not later than sixty days from the date thereof, make the following offers to the shareholders of A.O.E.: (a) an offer of fifteen shares in the capital of M.K.I. for every hundred shares held in the issued capital of A.O.E. subject to the payment in full of five shillings per share on application, and (b) an offer to exchange ten fully paid shares in the capital of M.K.I. for every hundred shares of the issued capital of A.O.E. These offers were to be made to such shareholders of A.O.E. as should appear on the register as at 25th February 1958 "or such extended time as the vendor may require".

[14]

In their statement of claim the respondents alleged that the M.K.U. shares were worth at least £2,000,000 and they pointed to the statement made, under the hand of the chairman of directors of A.O.E. (Mr. Tilley), in the circular of 5th December 1957 which convened the December meeting of the A.O.E. shareholders to consider one of the earlier proposals. In this circular there appeared the unequivocal statement that "The 994,900 shares in Mary Kathleen Uranium Limited, conservatively reckoned on present estimates at a value of not less than £2,000,000 and the rutile plant and leases, standing in moderately at £500,000 are only portion of the company's assets". In his evidence Mr. Tilley endeavoured to persuade the court that he had the former figure in mind only as the amount of profit which A.O.E. would receive from its shareholding in M.K.U. during the succeeding eight years, that is to say, during the currency of the contract which M.K.U. had made with the United Kingdom Atomic Energy Authority for the sale of its products during this period. But when it is seen that the price agreed upon for the sale of uranium ore to the authority made provision for rising costs and contained a component calculated to enable M.K.U. to write off the capital cost of establishing its undertaking - some £13,000,000 - during the same period and that, Mr. Tilley, as a director of M.K.U. had, at the end of 1957, been party to an annual report of that company which contained "the statement that the tonnage of oxide in the ore-body is greater than was originally estimated and will be in excess of that required to complete the initial contract with the Authority", his explanation is, to say the least, unsatisfactory. He was a director not only of A.O.E. but of M.K.U., and, it should be added, of M.K.I., and he must be taken to have been acquainted with the material facts upon which his unequivocal statement in the circular of 5th December 1957 was based. Moreover in a letter to the Secretary of the Perth Stock Exchange, dated 19th December 1957, A.O.E. pointed out that the price of eight shillings per share, which had been proposed as the basis of an earlier plan to relieve the company's financial straits, was "only a fraction of their real value". There is a great deal in the evidence to indicate that the value of the M.K.U. shares was greatly in excess of the amount of the purchase price specified in the agreement of 17th February 1958 but it is unnecessary to dwell upon it for there are other considerations which, in our view, make this conclusion inevitable. In the first place there is not the slightest evidence to show that the sum of £346,720 was in any real sense a "price" for the shares; that "price" appears to have been fixed solely by reference to the amount of A.O.E.'s indebtedness and entirely without reference to the value of the shares themselves. Secondly, unless the value of the shares was considerably in excess of £346,720 there was not the slightest reason for seeking to impose upon M.K.I. an obligation to issue its shares, in the manner specified in the agreement of 17th February 1958, to A.O.E. shareholders. Indeed, it may be said, unless the shares were worth more than this sum there would have been no sense or purpose in the arrangement.

At a glance

Court

Decision date

Before

Source

Judgment (26 paragraphs)

Parties