29 In my view, the applicable accounting standards at the relevant time are not relevant to the proper interpretation of cl. 20.5 of the joint venture agreement. The breadth and imprecision of the definition of control in the accounting standards makes it unlikely that commercial parties would have had these standards in mind when considering whether a joint venturer was a subsidiary of another corporation. I will not refer to the accounting standards further.
30 I turn to consider the purpose or object of cl. 20.5.
31 When Part 20 of the joint venture agreement is read as a whole, its objective purpose is clear. Part 20 aims to prevent a joint venturer disposing of its interest to a new owner, without first offering the interest to the other joint venturers, at two levels. First, by preventing a direct transfer of the interest. This is the subject of cll. 20.2 and 20.3. Second, by preventing corporate re-organisations which have the effect that the joint venturer comes under the control of a new owner who was not, before that time, a related corporation of the joint venturer. This is the subject of cl. 20.5.
32 As I have said, the proviso to cl. 20.3 and the provisions of cl. 20.5 have an obvious anti-avoidance purpose; to prevent devices designed to transfer effective ownership or control of a joint venture interest to a new owner without triggering pre-emptive rights in the other joint venturers.
33 In reaching this conclusion as to the purpose of Part 20 as a whole and, in particular, cl. 20.5, I have considered the subject-matter of the joint venture agreement. Pre-emptive rights are usually included in resource joint venture agreements. Given the importance of the identity, financial capacity and reliability of the participants in a joint venture, pre-emptive rights operate to ensure that existing participants are empowered to exclude new participants by purchasing the outgoing participant's interest if they so desire. They also permit a joint venturer who may take the view that it has expended a significant amount of money in a high risk area to have an opportunity to increase its interest if another joint venturer desires to withdraw from the joint venture. This allows an enhanced opportunity to reap the rewards from past risk-taking and expenditures.[6]
34 These objectives may be defeated if pre-emptive rights provisions are interpreted narrowly. In my view, in interpreting pre-emptive rights provisions, a court should keep this steadily in mind. Where there are two interpretations of a pre-emptive rights clause in a joint venture agreement which are reasonably open, that which accords with the objective purpose of the provision should be preferred.
Are the Allstate Venturers subsidiaries of Otter?
35 I have framed the question in this way because it will determine the dispute between the parties. The statement of claim and the submissions of the parties also proceed on this basis.
36 Beaconsfield's counsel submit that the Allstate Venturers are subsidiaries of Otter within the meaning of cl. 20.5 because, by reason of the chain of majority and 100 per cent shareholdings illustrated in Annexure A, Otter has the capacity to control the casting of a majority of votes at general meetings, and thus to control the composition of their boards of directors.
37 Allstate's counsel submit that the Allstate Venturers are not subsidiaries of Otter because the words "subsidiary of another corporation" appearing in cl. 20.5 refer only to the relationship between a joint venturer and its immediate or direct holding, or parent, company. A number of arguments were put in support of this submission.
38 First, it was submitted that the words "subsidiary of another company" mean, in ordinary language, a company in which another company, the parent or holding company, holds a majority of the voting rights attaching to its issued shares. It was submitted that the words do not extend beyond this relationship to include companies further up the corporate tree which, through a chain of majority or 100 per cent shareholdings, have the capacity to control the casting of a majority of votes at a general meeting of the subsidiary, and thus to control the composition of its board of directors.
39 An attempt was made to support this submission by reference to the development of the concept of "subsidiary" in companies' legislation since the Companies Act 1929 (UK). It was submitted that, at all times, the companies' legislation has given, or assumed as a starting point, a core meaning to the concept of "subsidiary", by fixing upon the direct relationship between a company and its immediate holding company.
40 It was submitted that it was not until the Companies Act 1948 (UK) that the definition of "subsidiary" was extended beyond the relationship between a company and its immediate holding company, to include a company further up the corporate tree which holds more than one half of the issued share capital of the immediate parent.[7] This extended definition of "subsidiary" was not adopted in Tasmania until the Companies Act 1962 (Tas)[8]. Even then, the deeming provision did not extend beyond the holding company of a subsidiary's immediate holding company. This further extension of the definition did not occur until the enactment of s. 7(1)(b) of the Companies (Tasmania) Code 1981, which included a repeated, or recursive, application of the deeming provision. This had the effect of including within the definition of subsidiary the relationship between a company and any company further up the corporate tree which, by means of a chain of majority or 100 per cent shareholdings, has the capacity to control the casting of a majority of votes at a general meeting of the subsidiary, and thus to control the composition of its board of directors.
41 By the time of entry into the joint venture agreement, the Corporations Law was in force. Sections 46 and 49 contain the same provisions as to the meaning of "subsidiary" as appeared in s. 7(1) of the Companies (Tasmania) Code 1981. Those provisions are as follows: