Thorby v Goldberg

[19]

The agreement contains certain recitals which, with what follows, show when it was made (i) that there was in existence a company called Medical-Dental Building Pty. Limited which owned premises at 229 and 231 Macquarie Street, Sydney, upon which a building then stood; (ii) that the members of the O Group held the whole of the issued capital of the company (i.e. 420 "A" shares of £1 each fully paid); (iii) that there had been proposals to re-organize the company's capital and to amend its articles of association; (iv) that there were plans in an advanced stage of preparation to demolish the existing building and to erect a larger building for occupation by the shareholders of the company from time to time and their tenants; (v) that the O Group, being the directors and members of the company, had determined to convert the company from a proprietary into a public company and to make consequential and other alterations to its articles of association - these included the creation of "A", "B" and "C" shares and an unclassified reserve of at least 100,000 shares of £1 each; (vi) that it was in contemplation that the members of the O Group would take up 90,000 "B" shares of £1 each to be fully paid in the altered capital of the company and entitling them to the occupation of a specified part of the building; (vii) that it was in contemplation that the members of the G Group would take the following shares in the altered capital of the company - 420 "A" shares of £1 each to be fully paid and 120,000 "C" shares of £1 each to be paid to 1/- upon allotment with the balance deferred and that these shares would entitle them to the occupation of a specified part of the building; and (viii) that the directors of the company had resolved to increase the book value of the premises by £30,000 to be credited to a Revaluation of Assets Reserve from which it would recommend members (the O Group) to pay a dividend of £30,000 to be satisfied by the issue of 30,000 "B" shares of £1 each fully paid. The last recital is as follows: "And whereas the O Group and the G Group subject to and following admission of the several members of the G Group to membership of the Company desire to make an agreement as between their respective groups to qualify and restrict their rights as individual members of the Company according to the Articles of Association of the Company after the alterations and for the other matters more particularly hereinafter set out".

[23]

Clause 7 was directed to ensuring the O Group occupation rights to space in the building by virtue of their 90,000 "B" shares. Clause 8 was directed to ensuring that a member of the O Group would obtain from a member of the G Group the lease of a particular ground-floor shop. Clause 9 required the members of the O Group to give to the members of the G Group options to purchase the 30,000 "B" bonus shares referred to in cl. 3. The minimum price at which the parties would sell shares outside the groups was fixed by cl. 11. Clause 12 related to a roof garden area and the provision of lifts to reach it. By cl. 13 it was agreed inter alia: - "(b) That the Architect shall be Hans Peter Oser of the Firm of H. P. Oser and Associates and that the builder shall be James Wallace Pty. Limited on a negotiated comparable basis with other invited tenders (c) That each Group and the Company shall use its and their best endeavours to jointly carry on selling and letting by a central organization provided that this shall not extend to prevent any individual member from privately dealing with his shares subject however to Article 11 hereof". By cl. 14 each group empowered Dr. S. Goldberg - one of the G Group - to negotiate for immediate vacant possession of the existing building with limited compensation as set out in the Fourth Schedule to existing tenants and made provision for his reimbursement in specified contingencies. Clauses 15 and 16 were as follows: - "15. All covenants agreements and conditions in this Deed contained (except where the context will not permit or where it is stated to be otherwise) and entered into on behalf of either the O Group or the G Group shall be deemed to be made by and with the several members of the Group specified and their respective executors administrators and assigns and to the intent that if any covenant shall not be enforceable at law then as far as a Court shall permit it shall be enforceable in Equity by decree of specific performance or by injunction or by any other appropriate remedy available in Equity." "16. Each member of each Group covenants with all other members of both Groups that he shall so conduct himself in his capacity as a member and/or Director of the Company as to give effect to the provisions hereinbefore contained."

[25]

The First Schedule showed, with respect to the members of the O Group, the shares held (420 "A" shares) and those to be applied for (90,000 "B" shares). The Second Schedule showed, with respect to the members of the G Group, the shares to be applied for (viz. 420 "A" shares and 120,000 "C" shares). The Third Schedule, as appears from cl. 1 of the agreement, set out the main principles according to which the articles of association of the company are to be altered. Some of these provisions are of critical importance. Clauses 2, 3 and 17 are as follows: - "2. Article 4. Nominal Capital to be altered and reconstituted and increased to provide for: - (a) 840 "A" shares of £1 each to be numbered A1 to A840 inclusive, of which 420 numbered A1 to A420 have already been allotted. (b) A number of "B" shares and "C" shares shall be created sufficient to cover the new building floor area requirement at the rate of ten shares to each one square foot of available floor space. (c) A Reserve capital unclassified of not less than 100,000 shares of £1 each available for future allotment by the Board upon such terms and conditions as it shall from time to time determine." " 3. Article 5. The Group, Serial and Suite numbers to be reclassified in accordance with the final new building plan and the proposed share issues in terms of the principal agreement between members of the O and the G Groups." "17. Those Articles setting out the rights of members of the Company to occupancy and the rights of the Company to make levies, etc., are to be carefully reconsidered and alterations made in the light of the latest practices and of the size and importance of this venture, and alterations made after discussion where considered necessary or desirable. Special provision shall be made to ensure that only one of the ground floor shops may be used for Optical purposes and that no other member or his tenant, licensee or invitee claiming through that member shall carry on or allow to be carried on on the premises any business which would compete unreasonably therewith." In cl. 4 the rights to be attached to the various classes of shares are set out.

[26]

Despite the argument for the respondents to the contrary, I am satisfied upon a consideration of the agreement as a whole that the G Group could be under no obligation by virtue of cl. 2 to apply for shares unless and until the capital of the company was re-organized and the articles altered in accordance with cl. 1 (c) and pars. 2, 4 and 17 of the Third Schedule so that, unless these provisions were intended to impose binding legal obligations and their terms were sufficiently precise to do so, the demurrer ought to have failed. Before dealing with those matters, however, I ought to dispose of a more general argument upon which the appellants relied. It was that the last recital showed that there was to be no agreement unless and until the members of the G Group became shareholders of the company in accordance with cll. 2 and 4 and that the area of agreement did not extend beyond that indicated by the words of the recital appearing after the words "desire to make an agreement". This argument I reject. The obligation to allot shares to the members of the G Group under cl. 4 arises "subject to and following upon compliance with the provisions of cll. 1 to 3 inclusive". The language of cl. 4 is clearly that of contract and I have found no reason why it cannot be so regarded. The last recital cannot alter what is clearly expressed in the operative parts of the agreement even if it were properly to be regarded as evidencing an intention to confine agreement to the matters set out therein. I do not think, however, it should be so regarded. It merely relates to what the parties desire after the G Group have become members of the company. The recitals naturally enough follow roughly the order in which it is anticipated events will occur and the last recital relates to a stage comparatively late in the proceedings. In his dissenting judgment Sugerman J. relied heavily upon the last recital together with the use of the word "will" in cll. 1, 2 and 3 and the word "shall" in cl. 4 and the following clauses to indicate an intention that it was not until after cl. 4 had operated that it was intended that there could be any binding obligation. His Honour's reasoning, however, does not account for the use of the word "shall" in cl. 4 itself and, if that clause was one of obligation, the argument based upon the recital disappears because an obligation arises before the G Group become shareholders of the company, i.e. cl. 4 requires the allotment of shares to the O Group and to the G Group. His Honour's reasons do not seem to me, with respect, to bear out his statement "I believe, that the parties to this agreement did not intend to enter the realm of binding contract until an allotment of shares had taken place pursuant to cl. 4". His Honour was also disposed to think that it was intended that the G Group should be at liberty to withdraw in certain circumstances. He said: - "If an implication is to be made the more natural implication is of a liberty on the part of the G Group to withdraw should the O Group not procure the making of alterations to the articles as provided by cl. 1 (c), or should the alterations made prove unacceptable to it. It is only in this way that a result can be avoided which could not have been contemplated by the parties, namely that the G Group should be bound to accept allotment of the shares however unacceptable might be the alterations made at the instance of the O Group". With regard to this I am myself disposed to think that cl. 2, and therefore cll. 3 and 4, could not be performed until the articles had been altered to create the necessary "A" and "C" shares for, until that were done, the company would not have "A" and "C" shares for which an application could be made. Indeed I would go further and conclude that all the alterations required by cl. 1 (c) had to be made prior to applications under cll. 2 and 3. I find nothing in the agreement, however, to suggest that there is a power of withdrawal such as his Honour envisaged. It seems to me, moreover, that cll. 15, 16 and 17 of the agreement manifest very clearly the intention of the parties that all its provisions were intended to establish binding legal relationships. I therefore come back to what I regard as the crux of the case - i.e. the character and effect of cl. 1 (c) and pars. 2, 4 and 17 of the Third Schedule. If here binding legal obligations are to be found, no objection on grounds of indefiniteness against cll. 4 or 6 could be maintained.

[27]

It is to be observed that cl. 1 is framed so that it cannot impose any obligation except upon the members of the O Group and that par. (c) thereof, although expressed in language that is apt enough to create a legal obligation, does leave the form of the alterations to be made to the O Group. If there were no more, however, I would regard cl. 1 (c) as sufficient to impose upon the O Group an obligation to amend the articles of association in the manner therein provided. It was however argued that, as the O Group comprised sixteen people, it would have to be left to those sixteen to agree among themselves as to the form of amendment that would meet their obligation. This is in a sense true but, as any amendment would have to be made by special resolution, the obligation as necessarily expanded is to carry a special resolution effecting alterations in conformity with the requirements of cl. 1 (c). If this were to be done, the obligation would be fulfilled even by a minority who voted against it. If it were not, then every member of the O Group would be in breach. Indeed it seems that this sort of complication was in the minds of the parties when cl. 16 was framed which is apt to impose an obligation upon each member of the O Group to the other members of that group as well as to the members of the G Group to do his part to ensure an amendment of the articles that would accord with the requirements of cl. 1 (c). For the foregoing reasons I think the proper conclusion is that the parties to the agreement did intend to agree as to the matters with which cl. 1 (c) is concerned. Such a desire to agree, however, is not enough; there must be actual agreement to create legal obligations and it was argued that an arrangement leaving the O Group itself to frame the requisite alterations cannot be enough, although it was conceded that it would have been different had the framing of the alterations to accord with cl. 1 (c) been left to some third person. I do not accept the distinction which counsel for the appellants here sought to draw. It is an objection to a contract if one party is left to choose whether he will perform it but it is an entirely different matter if there is an obligation to do a specified thing of a general description but it is left to the party who is to perform it to choose the particular thing that he will do in performance of it. An arrangement with an artist that he should for a specified fee paint a portrait of a particular person if the artist, upon seeing the proposed sitter, should decide to do so would be no contract to paint a portrait whereas an arrangement that the artist would for a specified fee paint a portrait of such person as he, the artist, should choose would be a contract. It does not seem to me a valid objection that it is for the O Group not only to pass but help to frame the special resolutions to alter the articles of association in accordance with cl. 1 (c).

[30]

Clause 17 of the Third Schedule required the O shareholders to alter article 5 attaching rights to occupy particular suites to particular "B" shares and articles 25 to 27 dealing with levies upon shareholders to meet outgoings for charges and expenses in respect of the building upon the company's premises. Clauses 6 and 7 of the agreement already provided for the division of space in the new building as between the O and G Groups and the task of the O Group under par. 17 of the Third Schedule was, in keeping with that division, to determine (i) what shares should carry the right of occupancy to what space at the rate of one square foot for every ten "B" or "C" shares; (ii) the rights of the occupants to their own space and to space for common use; (iii) the rights of the company to make levies upon members, and to amend the articles accordingly. It is to be remembered that the company's articles adopted in 1956 did contain provisions relating to these matters in respect of a building to be erected and it is those articles that were in 1958 to be carefully reconsidered and altered (i) "in the light of the latest practices and of the size and importance of this venture" and (ii) "after discussion where considered necessary or desirable". Despite Mr. Bowen's criticisms I find these provisions reasonably straightforward. The alterations are, it is true, to be left to the O Group itself but the alterations made would affect the O Group and the G Group alike, for the division of space had been determined, so I attach little importance to the argument that the G Group would not be likely to entrust the definition of their rights to the O Group. The articles as they were framed in 1956 and stood in 1958 related to a multi-storey building to be erected; what the members of the O Group were required to do before making the alterations was to review those articles taking into account the latest practices and having such discussions among themselves, with the G Group or with any other persons as they considered necessary or desirable. Although much was made of it, I cannot find any real ambiguity or difficulty in the direction to make alterations "in the light of the latest practices" relating to rights of member occupants and the rights of such a company to make levies on its members. It is true there are many things that might be done to ascertain the latest practices but the choice is left to the O Group itself and one can imagine that at least a possible course would be to have a search made of the articles of association of a few companies known to have embarked during the past couple of years upon like projects or to make enquiries from a solicitor or estate agent. The direction about discussions is quite general and it would have been left to the O Group itself to decide what discussions were necessary or desirable.

[37]

The facts are fully set out in the judgment of Menzies J. and I agree that, for the reasons given by him, the appeal should be dismissed. There are, however, two matters about which I wish to say something. The first relates to the course taken by the pleadings which led to the demurrer. Where a plaintiff, in a common law action in New South Wales, declares upon an agreement in writing alleged to have been made by him with the defendant, setting out in his declaration what he claims to be the legal effect of the agreement but not its precise terms, and the defendant, while admitting that he has entered into the agreement upon which the declaration is based, disputes the construction which the plaintiff has placed upon it, it is a common and proper practice for the defendant to plead that the agreement sued upon was "in the words and figures following, that is to say" and then set out the document verbatim, thus forcing the plaintiff to demur to the plea. In such case the true construction of the document is the issue of law tendered by the demurrer. In the present case the defendants pleaded the verbatim terms of the document upon which the declaration was based, together with the Memorandum and Articles of Association of Medical Dental Building Pty. Ltd., and an allegation that, at all relevant times, seven of the defendants were directors of that Company. When the demurrer came on to be heard, however, it appeared that the pleader's purpose was to raise two submissions. First, to deny that there was any agreement between the parties because the writing created no legal obligations; and in the second place, to contend that if it did disclose an agreement, it was one which was contrary to public policy and illegal. The proper way to raise the first of these matters was by pleading non assumpsit and the plea here in question is in reality no more than an argumentative plea of non assumpsit which, if dealt with appropriately, should have been struck out. The second submission sought to raise what is, in substance, a defence of illegality, a defence which is required to be pleaded specially and should not be entertained under a plea of non assumpsit whether argumentative or not. However, notwithstanding these serious departures from the rules and practice of common law pleading, all parties joined in urging us to consider and decide the questions of law which they wished to have determined and, since that course was followed by the Full Supreme Court, it seems to be better that we deal with the appeal in the same way and thus avoid the expense and delays to which the parties would otherwise be subjected.

Thorby v Goldberg - [1964] HCA 41 - HCA 1964 case summary — Zoe

At a glance

Court

Decision date

Before

Source

Judgment (38 paragraphs)

Parties

Cited By (15)