The plaintiff submitted that there was no "assignment" as the shares remained at all times with ACTA; all that happened was that control changed from ACTA's mortgagee to ACTA's agent, the deed administrator.
62 The represented defendants contended that the settlement deed of 17 August 2004 did not confer on Mr Rathner any relevant or subsisting interest in, or control over, ACTA's shares in AEPL. They contended that this was so because the settlement deed purported to do something which simply could not be done by either party. Mr Roger May and Global could not "assign" ACTA's shares in AEPL to Mr Rathner because they did not have the share script, it being held by Mr Lockwood's firm under the asserted lien, and because any such assignment would breach the transfer provisions of the constitution and the shareholders' agreement, and would be inconsistent with the 22 May 2003 settlement deed. This latter issue was deferred. They also submitted that Mr Rathner had no power under the DoCA to enter into a transaction under which he took an assignment of ACTA's shares in AEPL. They referred to the specific exclusions in clause 4.1(b) of the DoCA.
63 The represented defendants submitted that the plaintiff was attempting to re-write the settlement deed by characterising it as a "change of control" rather than as a purported assignment. They submitted that the words used were words of assignment. They suggested that the plaintiff now characterised the transaction as a change in control to avoid the inevitable consequence that an assignment would be inconsistent with the terms of the constitution and the shareholders' agreement.
64 The represented defendants also submitted that in the event of non-compliance with the settlement deed, the only remedy Mr Rathner had was that provided for in clause 8. They submitted that when 17 February 2005 passed without Mr Rathner obtaining possession of ACTA's Intermoco shares, his only right was to seek judgment relying upon the consent to judgment contained in clause 8.
65 Other matters were also raised in detailed written and oral submissions.
Issues of Power, Construction of the Settlement Deed, and Other Defences
66 Some of the objections raised in answer to Mr Rathner's claims can be dealt with briefly.
67 It seems to me that there is nothing in the submission that Mr Rathner did not have power to enter into the settlement deed of 17 August 2004. The powers provided to him in clause 4.1(a), and in clause 4.1(c) incorporating clauses 6.6 and 6.7, are very wide. In my view, he was empowered to take proceedings to enforce the provisions of the DoCA, and it was not suggested before Hansen J, when that proposed proceeding was the subject of the contested directions application, that there was no power to take enforcement proceedings. Mr Rathner was also, in my view, empowered to compromise those proceedings. The fact that as a result of the compromise, amendment of the DoCA was envisaged and perhaps required, does not seem to me to mean that he had no power to seek to enforce the DoCA's terms and to then settle the dispute which arose in consequence.
68 I also reject the suggestion that Mr Rathner's only remedy is to rely on clause 8 of the settlement deed. Whilst it is true that clause 2.3 provides that if he has not taken possession of ACTA's Intermoco shares by 17 February 2005 "clause 8 will apply", all clause 8 does is to provide for a consent to judgment. It does not impose upon Mr Rathner an obligation to seek that judgment in preference to any other course that might commend itself to him. Further, the language of clause 2.1 is present and immediate. I cannot see that clause 8, constituting a consent to judgment, has the effect of abrogating clause 2.1 (whatever its effect) once 17 February 2005 passes.
69 It was suggested that this construction creates an anomaly in that Mr Rathner might obtain both ACTA's shares in AEPL, under clause 2.1, and a judgment for $3.25m plus interest and costs, under clause 8.1. It does not seem to me that this is a result so anomalous as to require a construction of clause 2.1 which is inconsistent with its express terms. It may be that if Mr Rathner recovered in excess of $3.25m in total there would be some obligation to account in equity. It is unnecessary to decide that issue; Mr Rathner has not sought judgment and has not obtained judgment. He does seek to enforce the rights which he says he obtained pursuant to clause 2.1.
70 Clause 2.1 is expressed to be "subject at all times to clause 3". Clause 3 requires Mr Rathner to return any of ACTA's Intermoco shares in excess of 75 million which he receives. It was suggested in argument on behalf of Mr Lindholm and Mr Georges that this indicated that clause 2.1 was not intended to have immediate operation. I do not agree. Clause 3 is a claw-back provision consequent upon the prior operation of clause 2.1.
71 Finally, I do not consider that there is any substance in the objection based upon the fact that the firm Horwath holds the share certificates and are claiming a lien. On no basis could it be concluded that there has been an assignment at law to Mr Rathner which is effective. There is no reason why an equitable assignment cannot occur, and be given effect to, subject to an existing lien.[18]
"Change in Control" or "Assignment"
72 Clause 2.1 of the settlement deed of 17 August 2004 is expressed as an agreement to assign. The assignment is expressed to be to Mr Rathner. Clause 2.2 addresses the position of Mr Rathner "as the owner of the AEPL Shares". Clause 4.1(b) requires Mr Roger May and Global to deliver to Mr Rather an executed share transfer form "in favour of Rathner", together with the share certificates in relation to ACTA's shares in AEPL.
73 The transaction so provided for, however it might be characterised, is not "transmission", nor is it merely providing for a position such as arises as the ordinary consequence of corporate liquidation, as discussed above.
74 Counsel for Mr Rathner submitted that as Mr Rathner was at all times acting as agent for ACTA, under clause 3 of the DoCA, and was dealing with ACTA's mortgagee, under the Global charge, what was agreed was no more than a "change in control". Mr Rathner's counsel submitted that use of the term "assign" was not a good choice of words.
75 Paragraph 25 of the AEPL constitution provides that a member "may not transfer a share" unless the pre-emptive rights provisions have been complied with. The shareholders' agreement prohibits any "Disposal" otherwise than as provided for, which expression is defined to mean "sell, transfer or assign". The restrictions in the shareholders' agreement seem to me to be the applicable restrictions, but it is of no consequence, as if either applied there was contravention.
76 I do not accept Mr Rathner's position on this issue. I reject the submission that the settlement deed merely provides for a "change in control". The word used in clause 2.1 is "assign". The word used in clause 2.2 is "owner". A transfer is required in favour of Mr Rathner under clause 4.1. In my view, the intention of the parties was to assign the entire legal and equitable interest in ACTA's shares in AEPL to Mr Rathner. It is true that he was to hold them in his capacity as deed administrator, and it is true that as such, the DoCA provided that he was acting as ACTA's agent, but if this transaction had proceeded as provided for in the settlement deed, the shareholder of AEPL would have become Mr Rathner himself. What was agreed to be done was an assignment to Mr Rathner, just as the deed says. The assignment and the transfer provided for in the settlement deed contravened the provisions of the constitution and the shareholders' agreement.
77 This is not the end of the matter, however. Generally, the represented defendants proceeded on the basis that any assignment or transfer in contravention of the constitution and the shareholders' agreement was necessarily entirely void. The trend of modern authorities is against that approach.
Status of an Agreement to Transfer in Contravention of Pre-emptive Rights
78 The authority sometimes relied upon in support of the proposition that a purported transfer in contravention of pre-emptive rights is ineffective to transfer any relevant interest to the transferee is the decision of the House of Lords in Hunter v Hunter.[19]
79 Hunter v Hunter is a difficult case. The facts are complicated. At the risk of over-simplifying the issues, I will attempt a summary. The proceeding involved two transactions by a bank holding an equitable mortgage over certain shares which were the subject of pre-emptive rights provisions in the company's articles. In the first transaction, the bank, as mortgagee, had obtained registration of its nominees, which was held to have occurred in contravention of the pre-emption provisions in the articles. In the second transaction, the bank had then sold the relevant shares in circumstances held to have been in compliance with the pre-emption provisions in the articles. There were two proceedings. In one, certain shareholders sought to rectify the register consequent upon the wrongful registration of the bank's nominees. The shareholders succeeded and there was no appeal to the House of Lords. In the second action, the mortgagor claimed to be entitled to redeem notwithstanding the sale by the bank to a purchaser in accordance with the pre-emption provisions. The Court of Appeal ordered that upon the mortgagor being restored to the register, he should execute a declaration of trust in favour of the bank and the bank's purchaser. On appeal, the House of Lords overturned this decision. The judgments are not uniform in their reasoning, but they do support the proposition that in the complex facts of that case no equitable estate passed to the purchaser from the bank. Hunter v Hunter is an authority often distinguished and confined to its own facts.
80 It was distinguished by Vaisey J in 1950 in Hawks v McArthur.[20] In that case, the shareholder, Mr McArthur, had sold his shares to persons named Mr Fraser and Mr Roberts in contravention of pre-emption provisions in the company's articles. Because of the contravention, the transfer was never registered, although Mr Fraser and Mr Roberts paid Mr McArthur the full purchase price. Mr Hawks was a judgment creditor of Mr McArthur. Mr Hawks sought to execute on the shares still registered in Mr McArthur's name. Vaisey J held that he could not have this relief as the equitable title in the shares was in Mr Fraser and Mr Roberts. Vaisey J said: