Companies - Take-over offer - Offer conditional on acceptance in respect of "not less than" specified number of shares - Whether stated "minimum number of shares" - Non-payment of purchase price - Whether purchaser entitled to register transfer notwithstanding non-payment - Companies Act, 1961 (N.S.W.), s. 184 (2)(b), 10th Sch. cl. 3(a).*

*Clause 3 (a) of the 10th Sch. to the Companies Act, 1961 (N.S.W.) requires that a takeover offer "shall state (a) Whether or not the offer is conditional upon acceptance of offers made under the takeover scheme being received in respect of a minimum number of shares, and if so that number."

BARWICK C.J. I have had the advantage of reading the reasons for judgment related and I do not find any need to supplement my brother's account of them. (at p392)

2. In my opinion, the provisions of cll. 7 and 10 of the appellant's offer did not prescribe an exclusive method of acceptance. Indeed, in my opinion, postage not followed by delivery of the documents to the appellant would not have been effective to bind the appellant. I agree with my brother Menzies that the obligations of the offer are constructed round the actual receipt of the acceptance, including as part of it the shares and a signed transfer of them. Apart from all else, minimum acceptance attracting an unconditional obligation could not be ascertained if postage without delivery amounted to acceptance. I therefore agree that the actual delivery by French and the actual receipt through postage by Rudder concluded binding contracts in the terms of the offer. (at p392)

3. I also agree with my brother Menzies and for the reasons he gives that the offer fairly read did state a minimum number of shares to be offered before the offer should become unconditional ; and thus complied in this respect with statutory requirements. (at p392)

4. In my opinion, as in that of my brother Menzies, the promise of the appellant was to pay cash for the shares. As I read the appellant's offer, it was not entitled to present the transfer of the relevant shares to Australian Pines and Products Ltd. for registration until it had paid the transferors the appropriate purchase money for the same. The argument founded on cl. 4 (2) of the appellant's offer that registration was contemplated before payment is, to my mind, clearly unacceptable. The clause could work quite well if payment preceded or coincided with presentation for registration. I would, therefore, support an injunction against registration of the transfers unless and until payment in cash had been made for the number of shares the transfers represented. (at p392)

5. However, by the respective dates on which the respondents gave notice of rescission of the contracts to transfer shares, the appellant, in my opinion, had indicated its unwillingness to perform its agreement to pay for the shares before tendering the transfers for registration. In my opinion, this, in the circumstances of the case, furnished adequate ground for rescission : there was a manifested unwillingness to be bound by the contract properly construed. I, therefore, agree that the contracts were effectively rescinded. It follows, in my opinion, that there was no basis on which the appellant could retain the share scrip, the property in which had not and by that time could not pass to the appellant. (at p393)

6. In my opinion, the appeals should be dismissed. (at p393)

McTIERNAN J. I am of the opinion that these appeals should be dismissed. I think that the decision of Street J. in each case is clearly right. (at p393)

MENZIES J. Both matters arise from a takeover offer made by George Hudson Holdings Ltd. for the whole of the capital of Australian Pines and Products Ltd. The takeover offer was contained in a document dated 2(th August 1971, purporting to be in the form required by the Companies Act (N.S.W.). The offer was posted with an accompanying letter and a form of acceptance and transfer to all share-holders of Australian Pines and Products Ltd., including the respondents, French and Rudder. Shareholders wishing to accept the offer were advised to return the forms of acceptance duly completed, their share certificates and a transfer to George Hudson Holdings Ltd. The offer was dependent upon a minimum number of acceptances being received. In fact that number was received. French delivered his acceptance documents personally to the office of George Hudson Holdings Ltd. on 20th September 1971 ; Rudder posted the documents to that office on 30th August 1971. (at p393)

2. Subject to the satisfaction of the minimum acceptance condition, the offer provided for payment within ninety days of the return of the completed form of acceptance with share certificates and transfer. Neither French nor Rudder was paid within this time or at all. On 24th December 1971, a provisional liquidator to George Hudson Holdings Ltd. was appointed. Five days later the holder of a floating charge over the whole of the assets and undertaking of the company appointed a receiver, John Colville Garrity, who is the second-named appellant in these matters. On 24th January 1972, French purported to rescind the contract for the sale of his shares and demanded the return of the share certificates and the form of transfer. The transfer of the shares had not been registered. On 1st February, Rudder, who was in the same position, did likewise. Their demands not having been complied with, the respondents commenced separate proceedings which were heard by a judge of the Supreme Court of New South Wales sitting in Equity. (at p393)

3. In each matter the respective respondent claimed that : (1) there was never a binding contract between him and George Hudson Holdings Ltd. for the sale of his shares ; (2) if there was such a contract, it had been rescinded ; (3) if there was a binding contract, the respondent was at all times entitled to an equitable lien over the shares pending payment for them. In each matter, the respondent had a declaration made in his favour and the appellants now appeal to this Court against these declarations. These appeals were, by consent, heard together. (at p394)

4. In the matter of French, it was not disputed that if the offer provided that acceptance could only be by posting, then, personal delivery of the documents to the office of George Hudson Holdings Ltd., did not constitute acceptance of the offer. His Honour examined the provisions of the offer and the accompanying letter and concluded that posting had been stipulated as the one mode of acceptance. Accordingly, without finding it necessary to consider other matters, he made a declaration that at no time was there a binding contract. First, was this correct? Clause 7 of the offer is as follows :

"7. To accept the offer the accompanying form of acceptance

and transfer (duly completed) together with the relevant

share certificate(s) for ordinary shares in A.P. & P. must

be delivered to Hudsons by forwarding same to :-

The Secretary,

George Hudson Holdings Limited,

1 Bridge Road,

Glebe. N.S.W. 2037

If a share certificate is not readily available or is lost

Hudsons may at its discretion treat the Form of Acceptance

and Transfer as valid although not accompanied

by such certificate but no cash will be paid until any

irregularity has been resolved and the share certificate

received or an indemnity acceptable to Hudsons has

been given."

This must be read with cl. 10 (G) and the final sentence of cl. 10, which are as follows :

"10. G. Place this form together with ALL your share certificate(s)

and other documents (where applicable)

in the enclosed envelope and post as soon as possible

to :

The Secretary,

George Hudson Holdings Limited,

1 Bridge Road,

Glebe. N.S.W. 2037.

Failing strict compliance with the foregoing provisions,

Hudsons may (but shall not be obliged to)

grant further time in which such compliance may

be effected and the acceptance validated." (at p394)

5. Consideration of other provisions shows, however, that the offeror was concerned with the delivery or receipt of the acceptance and the accompanying documents, rather than the forwarding of them. Indeed, in cl. 7 itself, there is reference to delivery and receipt ; moreover, cl. 6 makes it clear that liability to pay the price depended not upon the forwarding of the documents but upon their receipt. Again, cl. 4 (1) reveals that the offer was conditional upon the receipt of acceptances for a minimum number of shares. It appears to me that an analysis of the transaction between French and the appellant company which treated what French had done in delivering the documents as he had as constituting not an acceptance of the offer made but a counter-offer, would be unrealistic. French was intending to accept the offer which had been made to him and the receipt by the appellant company of the documents was, without question, regarded as an acceptance. No doubt French was one of the persons whose acceptance went to make up the stipulated minimum. (at p395)

6. It has been accepted law for a long time that for an acceptance to be effective, it must comply with the requirements stipulated in the offer. This law I do not here controvert, although in an interesting argument Mr. Bainton questioned its basis. It is also the law that where an offer does not stipulate for a particular mode of acceptance, it is sufficient that acceptance is communicated by the offeree to the offeror. Here, in French's case, acceptance was communicated unless in the context, cl. 7 means that there is acceptance by posting and that there cannot be acceptance without posting. Notwithstanding the use of the words "... must be delivered ... by forwarding ...", I do not, in the context, read cl. 7 as meaning either that acceptance will be complete upon posting or that there can be no acceptance without posting. Accordingly in my opinion, the fact that Rudder's acceptance was by posting, whereas French's acceptance was by delivery warrants no distinction being drawn between the two matters. I think both stand or fall together according to how the matters which they have in common are to be resolved. (at p395)

7. The first such matter is the contention that there never was a binding contract because the offer made was not in conformity with the Companies Act (N.S.W.). Section 184 (2) (b) of that Act provides that a takeover offer was not to be made unless it complies with the requirements set out in Pt A of the 10th Sch. to the Act. Clause 3 (a) of the 10th Sch. requires that :

" ... the offer shall state -

(a) Whether or not the offer is conditional upon acceptance

of offers made under the takeover scheme being received

in respect of a minimum number of shares, and if so that

number."

It was contended that cl. 4 (1) of the offer did not satisfy these requirements because it did not state a definite number but left the offeror at liberty to fix a minimum provided that it was not less than 46,852. The offer was there expressed to be conditional upon the receipt of acceptances "in respect of not less than forty-six thousand eight hundred and fifty-two (46,852) shares". It was contended that a number which was "not less than forty-six thousand eight hundred and fifty-two" could be forty-six thousand eight hundred and fifty-two or any greater number at the option of the offeror so that the clause did not fix one ascertainable and definite number as a minimum number. In considering this contention it is to be observed that in cl. 4 (1) there is an explanation of the number forty-six thousand eight hundred and fifty-two, namely, "being fifty-one per cent of the issued capital of A.P. & P." (at p396)

8. I agree with his Honour that upon a fair reading of the clause, it complies with the requirements of the 10th Sch. and that the offer was made conditionally upon acceptance in respect of 46,852 shares or more being received. The number 46,852 is therefore the "minimum number of shares" for the purposes of cl. 3 (a) of the 10th Sch. To construe the clause as enabling the offeror to deny notwithstanding the receipt of acceptances in respect of 46,852 shares that the minimum had not been reached would be contrary to a fair reading of the clause. (at p396)

9. In my opinion, therefore, in each matter a binding contract for the sale of shares was made. This brings me to consider whether those contracts can still be relied upon to warrant the appellants' retaining the respondents' share certificates and using them to effect registration of the respondents' shares in Australian Pines and Products Ltd. (at p396)

10. As I have said, each respondent purported to rescind the contract which had been made : French on 24th January 1972, and Rudder on 1st February 1972. The ninety days for payment had, in each case, expired but each notice was given after the appointment of a provisional liquidator and receiver of the appellant company. The ground of termination was in each case non-payment of the purchase price as stipulated showing an intention on the part of the company not to be bound by the contract. The appellant's answer is that according to the contract the purchasing company was entitled to effect registration of the shares covered by these certificates and transfers received by it and to do so without payment for the shares so that non-payment has no significance beyond giving the vendors a right to payment of the purchase price stipulated. My construction of the offer and the transfer is that it is only after payment that the company was authorized to use the certificates and transfers to obtain registration of the respondents' shares. Both the offer in cl. 3 and the letter accompanying it state that the consideration for each share is ten dollars payable in cash. Clause 6 of the offer provides that, within ninety days of the receipt of the completed form of acceptance and transfer with the share documents, George Hudson Holdings Ltd. would dispatch by mail "... a cheque for the amount of cash payable pursuant to cl. 3 of this offer". The form of acceptance and transfer is expressed to be "... in consideration of the payment to me of cash shown as my entitlement as above in accordance with and pursuant to the terms and conditions of the said offer of the 27th August 1971". His Honour held that the transaction was a sale for cash. With this I agree. I consider that it was the obligation of the purchaser to pay for the shares before using the transfers to effect registration in its name. In his argument to the contrary, Mr. Bainton relied upon cl. 4 (2) of the offer but I do not regard its provisions as inconsistent with regarding the offer as one to pay cash before transfer. (at p397)

11. Upon the construction of the contracts which commends itself to me, it seems to me to matter little whether or not the contracts have been rescinded in deciding the entitlement of the appellants as against the respondents to be registered in respect of the shares the subject of the contracts. If the contracts have been rescinded, then it seems to me that the appellants have no right to retain the shares; if they have not, then the appellants should be restrained from using the share certificates and transfers to effect registration of the shares unless and until the purchase price has been paid. The only difference in result would be that if the contracts have not been rescinded, the appellants should be given the opportunity of carrying them out by paying the cash stipulated to be paid before transfer. (at p397)

12. It is, however, necessary for the proper determination of these appeals to decide whether or not the contracts were effectively rescinded. I consider that they were. A failure to pay the purchase price within the ninety days stipulated without anything more would not have been, of itself, a breach entitling the vendors to rescind. Here, however, there was a great deal more. What the appellant company proposed to do was to obtain registration of the shares without paying ten dollars in cash for each of them. To do this would have constituted a fundamental breach of contract and the plain intention to follow that course did warrant rescission by the vendors. (at p397)

13. It is implied in what I have written that possession of the share certificates with the executed transfers does not, of itself, warrant the appellant company, and those claiming with it or through it, to obtain registered transfers of the shares. It is not to the point that Australian Pines and Products Ltd. might be bound to register executed transfers delivered to it with share certificates; the question here concerns the rights of the shareholders of the company against those who held their share certificates together with executed transfers. So long as the contracts in relation to those shares stood, the rights of the parties were governed by the contracts. The rescission of the contracts does not mean that the appellants' position was improved and what was held subject to contractual obligations was then held free of any obligation at all. Upon rescission, the appellant company lost any right to the share certificates which it held; they belong - as they belonged - to the shareholders and upon demand ought to have been returned to them. In the judgment of Street J. it is said (1972) 1 NSWLR, at p 539 :

"Rescission for breach will not operate to revest title that

has already passed or to undo any step already taken under a

contract. But this does not extend further to enable the

party in breach, subsequent to rescission, to continue to enjoy

benefits under the contract that have not been fully assured

to him and in respect of which his only claim to continuing

enjoyment rests on continuity of authority under the contract."

14. Having reached the foregoing conclusion, it is unnecessary to express any conclusion upon the claims of the respondents to a lien over the shares pending payment for them. (at p398)

15. The appeals should, in my opinion, be dismissed. (at p398)

WALSH J. I am in substantial agreement with the reasons for judgment prepared by Menzies J. in which the facts are set out. I wish to add the following observations upon some of the submissions made on behalf of the appellants. (at p398)

2. It was submitted that, even if the contracts for the sale of the shares were validly determined by the respondent plaintiffs, that did not entitle them to get back into their hands the transfers of the shares and the share certificates. It was said that when these were handed over by the plaintiffs in pursuance of the contracts there was a transfer of rights, including the right to obtain registration of the share transfers and that this transfer of rights took effect as a completed act. The rights to hold the documents and to use them to obtain registration of the share transfers were vested completely in the appellant company and were not dependent upon a continued existence of the contracts as contracts binding upon the plaintiffs. Therefore it was said that the determination by the plaintiffs of the contracts for breach by the appellant company could not affect those rights. It could not operate to transfer them back to the respective plaintiffs. (at p399)

3. In my opinion the conclusion for which the appellants contend would be correct if the handing over of the signed transfers of shares and the share certificates had the effect which the argument attributes to them. But, in my opinion, it did not have that effect. It must be kept in mind that the question in dispute is a question as to the respective rights of the parties to the contracts. It is not a question arising between those parties or one of them on the one hand and the company, the shares of which were being transferred, on the other hand. It is not a question as to the rights of some third party, claiming to have entered into a dealing with the appellant company in reliance upon its possession of the transfers and the certificates. The question being one as to the rights, as between themselves, of the parties to the contracts must be determined by ascertaining what was the intention of the parties as disclosed by the relevant documents. (at p399)

4. The appellants would have been entitled, in my opinion, to succeed if they could have made good the proposition that what each plaintiff was intended to receive, as the consideration for his transfer of his shares, was not the actual payment of the stipulated price but was merely the promise of the appellant company to pay that price. In that event there would be no ground for denying that the appellant company had obtained the right to procure registration of the shares or for holding that that right could be destroyed or impaired by the notice of termination of the contracts given by the plaintiffs. But, in my opinion, the appellants have not established that proposition. In my opinion the consideration for the transfer consisted of payment of the price and not of a covenant or promise to pay it. (at p399)

5. The appellants are not precluded, by their failure to make out the proposition to which I have just referred, from contending that although the actual payment of the price was intended to be the consideration for the transfers yet the agreements had the effect that the plaintiffs were to hand over the transfers and the share certificates upon terms that the appellant company was to be at liberty to obtain registration in advance of the fulfilment by it of its obligation to pay the price. It would have been open to the parties to make agreements of that kind, under which the obligation of the company to pay the price was not one which must necessarily be fulfilled before the completion by it of its title to the shares by registration of the transfers. The question is whether the agreements were of that kind, giving a right to obtain registration which was independent of the performance of the obligation to pay the price, or were agreements under which the right which the appellant company obtained was a right upon payment of the price to seek and obtain registration. This is a question which is not to be determined, in my opinion, by reference to any general rule relating to contracts of sale or relating to contracts for the sale of shares. It is not to be resolved, in my opinion, by saying that under a contract for the sale of land the purchaser obtains, when a contract has been signed of which specific performance would be granted, an equitable estate in the land and that the purchaser of shares should be regarded, in like manner, as obtaining an equitable interest, superior to a mere contractual right. The question is to be determined by a consideration of the particular contracts with which these cases are concerned. The relevant terms of these contracts, to which reference is made in the judgment of Menzies J., are such that I am of opinion, in agreement with his Honour, that the appellant company was not authorized to use the certificates and the transfers to obtain registration except after payment of the stipulated price. (at p400)

6. On the foregoing view of the effect of the contracts the submission that the determination of them made by the plaintiffs could not be effective to divest from the appellant company any rights in relation to the shares or to their registration which had already vested in it is really irrelevant to the main issue between the parties. Upon the view that I have adopted the rescission of the contracts did not take away from the appellant company an absolute right vested in it to obtain registration of the transfers. At no time did it have such a right. The determination of the contracts was not, however, devoid of any legal significance. Until it took place, the plaintiffs were bound to accept payment and to permit the appellant company to obtain registration and they had no right at that time, in my opinion, to have the documents returned to them. But when the contracts were validly determined by the plaintiffs, that put an end to the authority which the appellant company had to hold and to use the documents and no reason remained why they should not be ordered to be returned to the plaintiffs. (at p400)

7. Counsel for the appellants referred us to some passages in the judgments in Brunker v. Perpetual Trustee Company Ltd. [1937] HCA 29; (1937) 57 CLR 555 and particularly to what was said by Dixon J. (1937) 57 CLR, at pp 599-605 , when discussing the circumstances in which an intending donor of land may be powerless to countermand or to intercept a transfer which he has given to an intended donee or to prevent it from being used to obtain registration. In my opinion these observations have no bearing upon the central questions in the case now before the Court. But counsel sought to place some reliance upon the statement (1937) 57 CLR, at pp 602-603 to the effect that the donee may obtain property in the piece of paper upon which the transfer is written, by means of its delivery to him by the donor, and that the donor may be unable to recall it or to prevent its use by its owner to obtain registration. It was submitted that the property in the share transfers in the present cases passed, at law, to the appellant company and remained in it, notwithstanding the rescission of the contracts, and that this property in the documents could not be recalled by the plaintiffs. But, in my opinion, this argument cannot be sustained if it appears that the plaintiffs have rights, which a court of equity will recognize, to have it declared that the appellant company was not entitled to use the transfers to obtain registration, except upon payment of the price, and to obtain injunctions against their use in that way. If those rights in the plaintiffs are established, an order for the delivery up of the documents is merely an ancillary remedy for the securing of those rights and may properly be made by the Court. (at p401)

8. One final matter remains to be mentioned. In the Supreme Court Street J. made a declaration in Rudder's case that so long as the contract between the plaintiff as vendor and the defendant George Hudson Holdings Ltd. as purchaser relating to the shares remained on foot, and so long as the purchase price thereunder remained unpaid by the defendant George Hudson Holdings Ltd. to the plaintiff, the plaintiff was entitled to an equitable lien over the shares (1972) 1 NSWLR 529 . Having regard to the conclusions that I have reached as to the effect of the contract and of the events that occurred, it does not seem appropriate that there should be a declaration in those terms. The appellant company did not obtain a legal title to the shares and it is now restrained by injunction from obtaining that legal title, so that the question does not arise whether, if it had obtained the legal title, it would have held it subject to an equitable lien in favour of the plaintiffs. But upon my view of the matter, the appellant company did not have vested in it an equitable interest in the shares. I think that the beneficial ownership of them, as well as the legal title, remained in the plaintiffs. This means that there was no property in the appellant company which could be held by it subject to an equitable lien in favour of the plaintiffs, nor did they need the protection of such a lien. The Supreme Court did not have before it for its decision any competing claim by a third party of an equitable interest superior to the rights of the plaintiffs, and no declaration was needed, it appears to me, that the plaintiff had a lien so long as the contract remained on foot. However having considered the submissions made to this Court on behalf of the appellants, I think that the arguments against the declaration of the lien proceeded upon the assumption that the appellants were successful in their main argument, namely, that they had obtained and retained a right to registration without payment of the price. If they should be held to fail on that issue, they were not concerned, as I understood the argument, to raise any objection to the declaration of a lien, which would be in that event regarded by them as academic. Since the matter has been dealt with in that way by the appellants, I think that there is no need to vary the decretal order in Rudder's case by deleting or revising the declaration as to a lien. (at p402)

9. In French's case, it will be necessary, in my opinion, to set aside the declaration contained in the decretal order and to make in its place declarations and orders similar to those which the Supreme Court made in Rudder's case. (at p402)

10. Subject to those variations I am of opinion that the appeals should be dismissed. (at p402)

MASON J. In these appeals I have had the advantage of reading the reasons for judgment prepared by my brother Menzies. I am in agreement with what his Honour has written and with the orders which he proposes and I do not wish to add anything for myself. (at p402)

2. In my opinion the appeals should be dismissed. (at p402)

Declaration of the Supreme Court of New South Wales in Equity "that there is not now and there never has been a binding contract between the plaintiff and the defendant George Hudson Holdings Ltd. for the sale by the plaintiff to the defendant George Hudson Holdings Ltd. of the shares of the plaintiff in the issued capital of Australian Pines and Products Ltd. numbered 28097 to 29096 inclusive" set aside and in lieu thereof order that the defendant George Hudson Holdings Ltd. be and it is hereby restrained from lodging with Australian Pines and Products Ltd. for registration by that Company the transfer in its favour executed by the plaintiff in respect of the said shares and that the defendant George Hudson Holdings Ltd. be and it is hereby restrained from dealing in any way with the said transfer or with the Certificate for the said shares or with any right title or interest that the defendant George Hudson Holdings Ltd. might have in respect of the said shares and that the defendant George Hudson Holdings Ltd. deliver up to the plaintiff or his solicitor the said Transfer and Share Certificates at such time and place as may be arranged between the solicitors or as may be fixed by the further order of the Supreme Court. Otherwise the appeal is dismissed with costs.