HNA Irish Nominee Limited v Kinghorn

1. The applicant be granted leave to appeal on the terms of the draft notice of appeal in the application for leave to appeal.
2. The appellant file a notice of appeal in the form of the draft notice of appeal within 7 days.
3. The appeal be dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

REASONS FOR JUDGMENT 1 These proceedings concern the proper construction of some provisions of the constitutions of 35 companies in a group referred to as the RILA companies. The proceedings were commenced by HNA Irish Nominee Limited (HNA). HNA holds an equitable interest in preference shares in each of the RILAs, and claims to be the registered holder of preference shares in a number of the RILAs. The holder of all the ordinary shares in each of the RILA companies is KV Aviation Holdings Pty Ltd (KVA). KVA and its directors are the defendants in the proceedings. 2 The primary judge ordered the separate determination of two questions: first, whether HNA was entitled to vote its preference shares in the RILA companies on a resolution proposed by it in a notice of meeting in respect of each of the RILAs; and, secondly, if HNA is so entitled, whether the resolution would be effective to vary the rights attached to the ordinary shares without the consent of the holders of the ordinary shares. 3 The learned primary judge decided the first question in the negative. In consequence, it was unnecessary for his Honour to decide the second question. 4 HNA seeks leave to appeal to this Court, urging that the learned primary judge was in error in his construction of the relevant provisions of each RILA's constitution. It was ordered that the application for leave to appeal be heard together with argument on the merits of the appeal. At the hearing the Court indicated that it proposed to deal with the merits of the proposed appeal. 5 The facts, which are not in controversy, are comprehensively explained in the reasons of the learned primary judge; is not necessary to repeat that summary here. It is, therefore, possible to proceed directly to a consideration of the material provisions of the corporate constitution.

THE PROVISIONS OF THE CONSTITUTION 6 The relevant provisions of the constitution of each of the RILA companies are in materially similar terms. Some of the RILA companies have issued more than one class of preference shares. For convenience, therefore, the learned primary judge referred to the constitution of the company, RILA VQY, as that company has "A" and "B" class preference shares. 7 Pursuant to Clause 65.1 of the constitution of RILA VQY, "The rights and conditions of the shares in the classes set out in Part A of Schedule 14 are summarised in the table in Part B of Schedule 4 and Part C of Schedule 14." The rights attaching to preference shares are set out in Schedule 14 Part C. 8 The first question agitated below concerns the interpretation of Schedule 14 Part C paragraph 2 of the constitution. It is in the following terms: 2. Voting A Preference Share does not entitle its holder to vote at any general meeting of the Company, except: (a) on a proposal: (i) to reduce the share capital of the Company; (ii) that affects rights attached to a Preference Share; (iii) to issue preference shares other than A Class Preference Shares or B Class Preference Shares; or (b) on a resolution to approve the terms of a buy back agreement; (c) during a period in which a dividend or part of a dividend on the relevant Preference Share is in arrears; and A Preference Share does not entitle its holder to petition the Company for a winding up, vote on a proposal to wind up the Company or vote during a winding up. The holders of the Preference Shares will be entitled to attend or speak at any general meeting of the Company. The holders of the Preference Shares will be entitled to receive a copy of each document (including without limitation, notices of general meeting, circulars and annual reports) sent to the holders of any class of shares. 9 Paragraph 5 of Schedule 14 Part C provides: The Company must not vary any of the rights attaching to the Preference Shares without the consent or sanction of the holders of the Preference Shares in accordance with the Constitution of the Company. Without limitation, the issue of preference shares, or the conversion of existing shares into preference shares which rank pari passu or in priority to the Preference Shares, constitutes a variation of the rights of the Preference Shares. 10 Paragraph 6 of Schedule 14 Part C provides: The Preference shares cannot be converted into ordinary shares. 11 Other provisions of the constitution of RILA VQY relevant to the issues are as follows:

• Clause 8.1 which provides that the company may appoint any eligible person as a director by resolution pass in general meeting.
• Clause 60.1 which provides that, without prejudice to any special rights conferred on the holders of existing shares or classes of shares, shares in RILA VQY may be issued by the directors and may be issued with such preferred, deferred or other special rights or such restrictions, with regard to dividend, voting, return of capital or otherwise, as the directors by resolution determine.
• Clause 64.1 which provides that the directors may issue shares in the capital of RILA VQY from the classes set out in Part A of Schedule 14. The classes of shares set out in Part A of Section 14 include the following:
• Class Name Authorised number (if any) Reserve Price Ordinary None specified $1.00 A Class Preference 100 $1.00 B Class Preference 100 $1.00

…

• Clause 64.2 which provides that while ever the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the company is being wound up, be varied with the consent in writing of the holders of 75% of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class. The provisions of this Constitution relating to genereal meetings apply so far as they are capable of application to such separate meeting of holders of shares of particular classes except that: (a) a quorum is constituted by such number of persons who, between them, hold or represent by proxy one-third of the issued shares of the class; and (b) any holder of shares of the class, present in person or by proxy, may demand a poll.
• Clause 64.3 The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking equally with the first-mentioned shares.
• Clause 65.1 which provides that the rights and conditions of the shares in the classes set out in Part A of Schedule 14 are summarised in the table in Part B of Schedule 14 and Part C of Schedule 14. Part B of Schedule 14 summarises the rights of shares in those classes as follows:
• Class Equity In Assets (Y/N) Votes per share Dividend pro-rata (Y/N) Dividend variable Redeemable Preference (Y/N) Ranking On Windup Other rights (Y/N) (Y/N) Ordinary Yes 1 Yes No No 1 No A Class Preference Refer to schedule 14 - Part C B Class Preference Refer to schedule 14 - Part C

THE PROPOSED RESOLUTIONS 12 The first resolution proposed in the Notice of Meeting provides for the deletion of paragraphs 2 and 6 of Schedule 14 Part C and the substitution of new paragraphs 2 and 6. The only relevant change relates to the B Class preference shares. Paragraph 2 of Schedule 14 Part C if amended as proposed by the first resolution proposed in the Notice of Meeting, would then be in the following terms: A B Class Preference Share does not entitle its holder to vote at any general meeting of [RILA VQY], except: (d) on a proposal or resolution: (i) to reduce the share capital of [RILA VQY] (other than a reduction of the ordinary share capital of [RILA VQY] by way of a return of capital to the ordinary Shareholders of an amount not exceeding the paid up capital on each such shares); (ii) that affects rights attached to a B Class Preference Share; (iii) to elect, appoint or remove directors; (iv) to amend [RILA VQY's] constitution; (v) to wind-up [RILA VQY]; (vi) to convert ordinary shares into a larger number; (vii) to alter the voting rights of any shares on issue; (viii) to issue preference shares other than A Class Preference Shares or B Class Preference Shares; or (e) on a resolution to approve the terms of a buy back agreement (other than a buy back agreement relating only to one or more ordinary shares for an aggregate consideration of no more than the paid up capital on each such share); (f) during a period in which a dividend or part of a dividend on the B Class Preference Share is in arrears; or (g) during a winding-up of [RILA VQY]. (emphasis added to indicate new provisions) 13 Paragraph 6 of Schedule 14 Part C would be amended by the addition of: Any B Class Preference Share may be converted into an ordinary share at the election of the holder of such class B Class Preference Share by notice in writing to [RILA VQY]. Any such conversion will occur automatically upon delivery of such notice. 14 The second resolution proposed in the Notice of Meeting would create a special Voting Share which would confer control over the company upon the holders of preference shares.

THE DECISION AT FIRST INSTANCE 15 HNA's argument on the first question agitated below was that paragraph 2(a)(ii) of Schedule 14 Part C allows the holder of a preference share to vote at "any general meeting of the company" in respect of "a proposal that affects rights attached to a Preference Share". It contended that this right is not confined to voting in respect of a proposal relating to the rights currently attached to a preference share, but extends to a proposal which may result in new rights being attached to a preference share consequent upon the passage of the resolution in question. 16 The learned primary judge summarised the argument put by HNA at [2010] FCA 311 at [35]-[36]: HNA says that to construe paragraph 2(a)(ii) as being limited to existing rights is to impose a restrictive gloss on the plain language of the Constitution. Further, HNA says that such a construction would be inconsistent with established principle. For example, a scheme of arrangement between a company and its members, whereby the company would be authorised in general meeting to make a buy back offer in relation to preference shares and acceptance of the terms of the buy-back offer would be compulsory for all holders of preference shares, may well be a proposal affecting rights attaching to the preference shares. The buy-back resolution may have no legal effect upon the rights attaching to the preference shares of itself and the buy back offer would have no operative existence independently of the scheme. Further, the buy-back resolution would be meaningless without reference to the scheme and inseverable from it. Nevertheless, the existing rights attached to the preference shares would be affected by such a proposal, which would entitle the company to buy-back all the preference shares, resulting in the compulsory acquisition and cancellation of the preference shares (see Re Village Roadshow Limited 48 ACSR 167 at [28]). Those principles, however, are not inconsistent with the proposition that paragraph 2(a)(ii) refers to existing rights of preference shareholders. An existing right of the holder of a preference share is to continue to be the holder of the preference share. It is inconsistent with that right for the right to be extinguished (See Gambotto v WCP Limited (1995) 182 CLR 432). 17 His Honour rejected that argument at [2010] FCA 311 at [37]: I do not consider that the resolution proposed in the Notice of Meeting is one that affects rights attached to the B Class preference shares within the meaning of paragraph 2(a)(ii) insofar as it would create additional rights, being rights that are not presently attached to those shares. To the extent that the resolution would do so, it is not one on which the holders of the B Class preference shares are entitled to vote. The first question should be answered in the negative. 18 In support of that conclusion, his Honour reasoned at [2010] FCA 311 at [32]-[34]: It is necessary to consider the respective powers that would be conferred upon the holders of the B Class preference shares if the proposal were implemented, as compared with their powers under the Constitution as it presently stands. Thus, there is presently no right to vote on the appointment of directors, but specific power would be given by proposed paragraph 2(d)(iii). Further, proposed paragraph 2(d)(iv) would confer power to vote on proposals to amend the Constitution whereas there is presently no such power. Similarly, proposed paragraph 2(d)(v) would confer power to vote on a proposal to wind-up where there is presently no such power. Under the proposed amended paragraph 6, specific power to convert preference shares into ordinary shares would be conferred, whereas under the Constitution as it stands at present, there is an express prohibition on conversion. I consider that the exception in paragraph 2(a)(ii) is limited to a proposal that affects existing rights attached to the preference shares under the Constitution and does not apply to a proposal that has the effect of adding material new rights. That is to say, it must be possible to identify rights that are presently attached to the preference shares and determine whether those rights are affected by the proposal. That follows from the use of the word "attached" in paragraph 2(a)(ii), which signifies rights that are actually in existence, and therefore attached to the shares at the time when the proposal is put forward. Rights that are not so attached, but would arise, and thereafter be attached, if a proposal is implemented, are not envisaged by par 2(a)(ii). To construe paragraph 2(a)(ii) otherwise would be inconsistent with the clear intention of the overriding prohibition in paragraph 2 on the holder of the preference shares voting at general meetings except in the restricted circumstances specified. The overall intention to be gleaned from the provisions of paragraph 2 is that the holders of preference shares would not, except in the circumstances expressly contemplated by paragraph 2, be entitled to vote on a matter that involves the control of RILA VQY.

THE ARGUMENTS ON THE APPEAL 19 In this Court, both parties made reference to the legislative background provided by the Corporations Act 2001 (Cth) (the Act). 20 Mr Leeming SC who appeared with Mr Hewitt for HNA took as his starting point the proposition that "prima facie", every member of a company has a right to vote at meetings of the company. He referred to s 250E(1) of the Act which provides: 250E How many votes a member has (replaceable rule‑see section 135) Company with share capital (1) Subject to any rights or restrictions attached to any class of shares, at a meeting of members of a company with a share capital: (a) on a show of hands, each member has 1 vote; and (b) on a poll, each member has 1 vote for each share they hold. … Company without share capital (2) Each member of a company that does not have a share capital has 1 vote, both on a show of hands and a poll. Chair's casting vote. (3) The chair has a casting vote, and also, if they are a member, any vote they have in their capacity as a member. … 21 It may be said immediately that, as Mr Leeming recognised, his point as to the prima facie entitlement of every shareholder is "Subject to any rights or restrictions attached to any class of shares". The proper starting point for the argument is necessarily a consideration of the terms of the corporate constitution which creates "rights and distinctions." 22 Mr Leeming also referred to s 136 of the Act which provides relevantly: 136 Constitution of a Company (1) A company adopts a constitution: (a) on registration - if each person specified in the application for the company's registration as a person who consents to become a member agrees in writing to the terms of a constitution before the application is lodged; or (b) after registration - if the company passes a special resolution adopting a constitution or a court order is made under section 233 that requires the company to adopt the constitution. … (2) The company may modify or repeal its constitution, or a provision of its constitution, by special resolution. … (3) The company's constitution may provide that the special resolution does not have any effect unless a further requirement specified in the constitution relating to that modification or repeal has been complied with. … 23 Mr Leeming's point in referring to s 136 was that the rights of shareholders under a company's constitution are inherently and fundamentally "fluid" and susceptible to change. So much may be accepted, but at the same time reference must be made to s 140(1) which establishes the binding contractual effect of the corporate constitution. Section 140(1) provides as follows: 140 Effect of constitution and replaceable rules (1) A company's constitution (if any) and any replaceable rules that apply to the company have effect as a contract: (a) between the company and each member; and (b) between the company and each director and company secretary; and (c) between a member and each other member; under which each person agrees to observe and perform the constitution and rules so far as they apply to that person. … 24 Mr Leeming referred to s 246B which provides relevantly: 246B Varying and cancelling class rights If constitution sets out procedure (1) If a company has a constitution that sets out the procedure for varying or cancelling: (a) for a company with a share capital - rights attached to shares in a class of shares; or (b) for a company without a share capital - rights of members in a class of members; those rights may be varied or cancelled only in accordance with the procedure. The procedure may be changed only if the procedure itself is complied with. If constitution does not set out procedure (2) If a company does not have a constitution, or has a constitution that does not set out the procedure for varying or cancelling: (a) for a company with a share capital - rights attached to shares in a class of shares; or (b) for a company without a share capital - rights of members in a class of members; those rights may be varied or cancelled only by special resolution of the company and: (c) by special resolution passed at a meeting: (i) for a company with a share capital of the class of members holding shares in the class; or (ii) for a company without a share capital of the class of members whose rights are being varied or cancelled; or (d) with the written consent of members with at least 75% of the votes in the class. ... 25 Both Mr Leeming and Mr Robb QC who appeared with Mr Clarke for KVA referred to s 254A(2) which provides for the issue of preference shares. It is in the following terms: 254A Power to issue bonus, partly-paid, preference and redeemable preference shares … (2) A company can issue preference shares only if the rights attached to the preference shares with respect to the following matters are set out in the company's constitution (if any) or have been otherwise approved by special resolution of the company: (a) repayment of capital; (b) participation in surplus assets and profits; (c) cumulative and non-cumulative dividends; (d) voting; (e) priority of payment of capital and dividends in relation to other shares or classes of preference shares. … 26 In this Court, HNA maintains its argument that para 2(a)(ii) of Schedule 14 Part C permits the holder of a preference share to vote on proposals to add new rights to preference shares. A number of more particular submissions are advanced in support of this argument. These submissions tend to overlap to some extent but it is convenient to set them out separately. 27 First, it is said that para 2(a)(ii) should be given its plain meaning and not construed with the imposition of a restrictive gloss whereby the word "rights" is understood as if the word "existing" appeared before it. 28 Secondly, it is said that para 2 must be read with para 5, and that the learned primary judge's reasoning fails to have regard to the words "at any general meeting", in that the exception to the prohibition is a positive conferral of a right to vote at a general meeting, not merely meetings of holders of particular classes of shares. Paragraph 5 of Schedule 14 Part C confirms the protection (reinforced by clause 64.2 and s 246B of the Corporations Act 2001 (Cth)) of preference shareholders against constitutional change without a special resolution by a class meeting, and so para 2 should be construed so as to give full effect to the right of preference shareholders to vote at a general meeting. 29 Thirdly, it is said that para 2(a)(ii) invites a comparison of the rights attaching to a preference share before the proposed resolution is voted upon and the rights which will exist if the proposal is carried. In this regard, it is said that the resolution in question would, if passed, expand the existing voting rights of a holder of a preference share to vote at a general meeting (eg. to appoint or remove directors) but it would also subtract from the voting rights of a preference shareholder in that the preference shareholder would no longer be able to vote on certain capital reductions or buy-back arrangements: whether rights are "affected" so as to entitle a holder to vote at a general meeting should not depend on whether existing rights are expanded or withdrawn. 30 Fourthly, it is said on behalf of HNA that if para 2 is to be construed as if it included the word "existing" by reason of the word "attached", it would follow by a parity of reasoning that para 5 should be construed as if the word "attaching" referred to "existing" rights. That reading would, so it is said, reduce the class protection conferred on holders of preference shares in that they would not be able to vote at a general meeting to oppose a resolution proposed by ordinary shareholders to confer new control rights on holders of preference shares. The preference shareholders would not be able to vote at a general meeting; nor would they have the protection of a class meeting. 31 Fifthly, it is said that, contrary to the reasoning of the learned primary judge, the "prohibition" in para 2 is not "overriding"; to the contrary, para 2(a)(ii) is empowering in that it preserves the prima facie position under s 250E of the Corporations Act that all members of a company may vote at a general meeting. 32 Sixthly, it is said that it is not surprising that holders of preference shares should have ample freedom to vote to adjust the rights attaching to preference shares given that, as the learned primary judge held at [28], "the preference shares have the lion's share of the immediate benefits flowing from prosperity or profitability and of any return of capital or surplus assets." 33 Finally, it is submitted that even if the correct approach to the proper construction of para 2(a)(ii) is to look for an effect on existing rights of shareholders, then holders of preference shares had at all times a right to vote to appoint directors albeit one that was qualified temporally to those times when a dividend had not been paid. That existing, albeit qualified, right attached to the shares prior to the general meeting and was affected by the proposed resolutions. On that footing it is submitted that the learned primary judge erred in stating at [32] that "there is presently no right to vote on the appointment of directors" and "there is presently no such power [to vote on amendments to the company's constitution]." 34 Mr Robb argues that HNA's approach is inconsistent with the evident intent of the constitution of the RILA VQY. KVA argues that if para 2(a)(ii) is engaged by the proposal to attach new rights to the preference shares, preference shareholders with a majority of votes in comparison with ordinary shareholders could negate the restrictions on voting by preference shareholders and so take over absolute control of the company from its ordinary shareholders. 35 KVA also argues that the provision of paragraph 5 of Schedule 14 Part C prevents a variation by the company of "any of the rights attaching to the Preference Shares without the consent or sanction of the holders of the Preference Shares in accordance with the Constitution of the Company" so as to give the holders of preference shares the same protection against the erosion of their existing rights as clause 64.2 affords different classes of shares generally. The voting power erected, exceptionally, by para 2(a)(ii) also serves to protect holders of preference shares by ensuring that they are able to vote on a resolution to approve any proposal which might erode their existing rights.

DISCUSSION 36 Textual and contextual considerations, as well as considerations of logic and commercial purpose, lead us to accept KVA's contentions rather than those of HNA.

37 In Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 154, Dixon J spoke of the "interest" or "share" of shareholders in a company as "an interest consisting of a congeries of rights in personam," making the point (at 152) that "these rights all arise out of the contract inter socios." It is a long hallowed usage in this field of discourse to speak of the bundle of rights conferred on a shareholder by the corporate compact between the members of a company as the "rights attached" to that member's share: see Greenhalgh v Arderne Cinemas Ltd [1946] 1 All ER 512 esp at 515-516; White v Bristol Aeroplane Co [1953] 1 Ch 65 at 70, 75.

38 Paragraph 2(a)(ii) is concerned with the rights which have actually been conferred by the corporate compact on holders of preference shares and are currently exerciseable by them. The ordinary and natural meaning of the text of paragraph 2(a)(ii) is that it is concerned with rights that are "attached" to the preference shares at the time when the question of the right to vote arises for determination. The learned primary judge's reasoning does not add a gloss to the text as HNA argues. Indeed, to accept HNA's contention would mean that the text of paragraph 2(a)(ii) should be read as if it provided "that affects rights which could be attached to a Preference Share" or "that affects rights of a holder of a Preference Share". If that had been the intention the text could easily have been drafted to accommodate it. It is certainly impossible sensibly to read the paragraph as if it said "that affects rights not yet attached to a Preference Share".

39 HNA's submission to the effect that the prima facie position is that preference shareholders are entitled to vote at general meetings of the company cannot stand with the evident intention of para 2 to establish a regime under which the general position is that a holder of preference shares has no right to vote at a general meeting of the company. As a matter of logic, HNA's contention cannot be accepted. If it were accepted, it would enable HNA to rely upon the exception to a general denial of any voting right to repeal the general rule. 40 Mr Leeming emphasized that paragraph 2 contemplates that holders of preference shares may vote at general meetings of the company. His point was that paragraph 2 is plainly concerned with the right to vote at a general meeting rather than at class meetings. Mr Leeming's point may be accepted as far as it goes: the problem is that it does not go very far towards establishing the construction of paragraph 2(a)(ii) for which he contends. Indeed, it goes no way towards resolving the central difficulty with accepting his argument, namely that it would allow the exception in paragraph 2(a)(ii) to overwhelm the general rule. 41 There is a contextual argument which may also support the plain meaning of the text of paragraph 2(a)(ii). In the context of Schedule 14 Part C, paragraph 2 is the only provision concerned with the right to vote. The other provisions of Schedule 14 Part C concern other rights, such as the right to dividends and redemption (paragraphs 3, 4 and 7), the protection of the rights of preference shareholders against variation of the rights attaching to their shares without their consent (paragraph 5), the non-convertible nature of preference shares (paragraph 6) and the transfer of preference shares. Within that context, it may be argued that where paragraph 2(a)(ii) refers to "rights attached to a Preference Share" it is not self-referential but rather is outward looking and is referring to rights dealt with in Schedule 14 Part C and elsewhere, other than the right to vote. Paragraph 2 can thus be seen, in its context, as making exhaustive provision in respect of a preference shareholder's voting rights on a range of subjects which did not include voting rights on the matters which are the subject of the proposed resolution. 42 In giving a commercial contract a business like interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract and the objects that it is intended to secure: International Air Transport Association v Ansett Australia Holdings Limited (2008) 234 CLR 151 at 160 [8] per Gleeson CJ; see too at 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ. A corporate constitution has the effect of a contract between the company and each of its members, the company and each director and secretary, as well as the members amongst themselves (s 140(1) of the Act). The range of surrounding circumstances available as aids to the construction of such a contract is perhaps more limited than in other cases. This is because constitutions, and replaceable rules, can be amended at different times and in different circumstances. In addition, the members who are the corporators at particular times may change. These factors suggest that ordinarily primacy must be given to the objective intention discernable from the language in which the constitution is expressed rather than to other features of the surrounding matrix of fact in which its provisions may have been made. 43 Nevertheless, we consider that para 2, read as a whole and in the context of Schedule 14 Part C, is intended to serve the commercial purpose of preserving the existing rights of holders of preference shares against erosion without their having a say in the matter. It is far from apparent that it is concerned to allow them to vote to achieve an expansion of their existing rights. In this regard, paragraphs 2(a)(i) and 2(b) expressly permit preference shareholders to vote on proposals to reduce the share capital of the RILAs, and which might affect their ability to make good the entitlements of preferred shareholders. Paragraph 2(a)(iii) permits preference shareholders to vote on a proposal to issue other preference shares. By clause 64.3 and para 5 of the Schedule the issue of other preference shares is taken to be a variation of the rights attached to the preference shares. These specific provisions suggest that para 2(a)(ii) has a protective role rather than the expansionary potential for which HNA contends. The specific provisions of clause 64.3 and para 5 would hardly be necessary if paragraph 2(a)(ii) had the broader operation for which HNA contends. 44 Mr Leeming noted, as did the learned primary judge at [23], that if the first resolution were to be passed, the rights attached to the B class preference shares would be diminished in that the holders of B class preference shares would not then be entitled to vote, either on a proposal to reduce the share capital (if the reduction was no more than a return of capital to the ordinary shareholders of an amount not exceeding the paid up capital on those shares) or on a proposal to approve the terms of a buy back agreement relating to only one or more ordinary shares for an aggregate consideration of no more than the paid up capital on those shares. The learned primary judge said: If that were the extent of the proposal, it is clear enough that the proposal would be one that affects rights attached to the B Class preference shares within the meaning of para 2(a)(ii) of Part C of Schedule 14 as it stands. That is to say, it would affect the right to vote on a proposal to reduce capital or to approve a buy back agreement. However, the proposal … goes well beyond diminishing or reducing particular rights attached to the preference shares. Further, it goes beyond merely altering or affecting existing rights. The question is whether a proposal that creates additional rights for holders of B Class preference shares is one that affects rights attached to themwithin the meaning of paragraph 2(a)(ii) of Part C. (Emphasis in the original). 45 In this Court, Mr Leeming was disposed to argue that because aspects of the proposed resolution diminish existing rights attached to the preference shares, the resolution was within paragraph 2(a)(ii) even on the construction propounded by Mr Robb. But to say that is akin to saying that the Trojan Horse was not a wooden horse because it also contained several Greeks. Because the proposed resolution seeks to add to the existing rights of preference shareholders, it does not come within the exception to the general rule carved out by paragraph 2(a)(ii). 46 Mr Leeming argued that, on the construction of paragraph 2(a)(ii) propounded by Mr Robb, preference shareholders could have rights forced on them against their will. One answer to this objection to the interpretation advanced by Mr Robb is that the objection is so far-fetched and fanciful that it is quite unlikely to have been addressed by those who drafted Schedule 14 Part C. Another answer is that, to the extent that rights are forced upon preference shareholders, it remains a matter for them whether they seek to exercise those rights. 47 HNA's final argument is to the effect that preference shareholders currently enjoy the right to vote at a general meeting notwithstanding that this right is qualified in such a way as to be currently dormant. It may be accepted, as Mr Leeming says, that paragraph 2(c) permits preference shareholders to vote during a period in which dividends on the preference shares are in arrears, which is a right given to the preference shareholders to exercise equal control of the management and affairs of the company at times when it is not making sufficient profits to fund the preferred dividends. At the highest for HNA, however, its right to vote upon the current proposal was not exercisable at the time of the meeting at which the resolution was put.

conclusion and order 48 For these reasons, we consider that the decision of the learned primary judge was correct. 49 In deference to the quality of the arguments presented in this Court, leave to appeal should be granted, but the appeal should be dismissed with costs.

• I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Keane, and Justices Jacobson and Rares.