Tisdale & Ors v Ballanday Pty Ltd & Ors

LEGISLATION CITED : Companies Act 1961 - s.144 (2) Corporations Act 2001 (Cth) - s.140(1)

• Barclays Bank Ltd v Inland Revenue Commissioners [1959] 3 All ER 140 - Burns v Siemens Brothers Dynamo Works Ltd [1919] 1 Ch 225 - Commissioner of Land Tax v Truscott [1983] 1 NSWLR 406 - Dawson v Dawson [1945] VLR 99 CASES CITED : - John v Federal Commissioner of Taxation (1986) 11 ACLR 75 - Hopkins Professional Services Pty Ltd v Foyster Holdings Pty Ltd (2001) 39 ACSR 519 - Pettaras v Pettaras [2004] NSWSC 1212 - T.H. Saunders & Co Ltd, In re [1908] 1 Ch 415 - Sky v Brody (1970) 92 WN(NSW) 934 - Tang v Bongreen Pty Ltd (2003) 47 ACSR 400

Terrance Roland Tisdale - First Plaintiff T&M Industries Pty Ltd - Second Plaintiff T&M Constructions Pty Ltd - Third Plaintiff PARTIES : T&M Group Engineering Pty Ltd - Fourth Plaintiff Ballanday Pty Ltd - First Defendant Christopher Paul Maley - Second Defendant Louise Barbara Marie Maley - Third Defendant

COUNSEL : D.H. Murr SC, F.G. Kalyk - Plaintiffs F.P. Carnovale - Defendants

SOLICITORS : Holman Webb - Plaintiffs Hugh & Associates - Defendants

1 The First Plaintiff, Mr Tisdale, seeks an interlocutory injunction restraining the First Defendant ("Ballanday") from exercising a vote attached to one ordinary share in the Second Plaintiff, T&M Industries Pty Ltd ("T&M"), of which share Mr Tisdale and Ballanday are registered as joint holders. 2 A shareholders' meeting of T&M is to be held in a few days' time. The matter has been brought on for hearing urgently in the Duty Judge List. 3 This Notice of Motion is part of much larger proceedings between Mr Tisdale and his interests on the one hand and the Second Defendant, Mr Maley, and his interests on the other. Mr Tisdale and Mr Maley were formerly directors of T&M. 4 There are three issued ordinary shares in the capital of T&M, one held by Mr Tisdale, one held by Ballanday alone and one held jointly by Ballanday and Mr Tisdale. Ballanday appears first in the company's register of members as the holder of the jointly owned share. Article 19 of T&M's constitution provides that where there are joint registered holders of a share and more than one of the holders is present at a shareholders' meeting, the shareholder whose name first appears in the register is alone entitled to vote. 5 In August 2001, Mr Maley resigned as a director of T&M and was replaced by a Ms Walsh who is aligned in interest with Mr Tisdale. 6 T&M is now party to litigation instituted by Mr Tisdale and his interests against Mr Maley and his interests and in such litigation T&M is on Mr Tisdale's side of the record. 7 At the extraordinary general meeting of members of T&M which is to be held very shortly, two resolutions are proposed. One resolution is to remove Mr Tisdale as a director of the company and the other is to appoint Mr Maley in his place. If Ballanday attends that meeting, as it intends to do, it will exercise the vote attaching to the share in its sole name, and pursuant to the right conferred by Article 19, it will also exercise the vote attaching to the jointly owned share. Ballanday intends to vote in favour of the resolutions so that they would be passed by a majority of two to one. The Board of T&M will then comprise Ms Walsh and Mr Maley. 8 As Ms Walsh is aligned with Mr Tisdale, it is said that the Board of the company will be deadlocked. In particular, it is said, a deadlock of the Board will stultify the ability of T&M to give instructions to its legal representatives in the litigation against Mr Maley. Further, as T&M Industries has financial dealings with other companies in a group of companies in which Mr Tisdale and Mr Maley have interests, a deadlock of the Board of T&M will adversely affect the trading abilities of those other companies.

9 Mr Murr SC, who appears with Mr Kalyk of Counsel for Mr Tisdale, stated at the outset of his submissions that, for the purposes of this interlocutory application, it must be assumed that each of Mr Tisdale and Ballanday is legally as well as beneficially the owner of his and its respective interests in the jointly owned share. The right which Mr Tisdale claims to have to restrain Ballanday from exercising its exclusive voting right in respect of the jointly owned share under Article 19 arises, so Mr Murr submits, from the construction of Article 19 and under the common law. 10 This was a rather curious stance to take in light of the fact that, in the Amended Statement of Claim, Mr Tisdale claims that Ballanday holds both its shares in T&M on trust for him, on a number of different grounds. One would have thought that Mr Tisdale would have argued this application on the ground that there was a serious question to be tried as to whether Ballanday held its shares in T&M on trust for him, so that it should be restrained from exercising its rights in respect of those shares except with Mr Tisdale's consent, pending final determination of the proceedings. 11 Nevertheless, as I have said, that was not the course which Mr Murr adopted. He presented arguments based solely on the construction of Article 19 and on the common law. Late in the course of his argument, however, Mr Murr submitted that the right of exclusive voting conferred on Ballanday in respect of the jointly owned share by Article 19 had been acquired by it as a result of Mr Maley's breach of fiduciary duty towards Mr Tisdale and that Ballanday, being Mr Maley's company, was a knowing participant in that breach. 12 This was an allegation and cause of action which had not been pleaded in the Amended Statement of Claim. I took the view that I should not permit Mr Tisdale to rely upon this ground in this application unless the ground was properly pleaded. An amendment to the Statement of Claim was, therefore, necessary. 13 Mr Murr then formulated the proposed amendment. Mr Carnovale, who appears for Ballanday, at first opposed the granting of leave to amend. However, upon resumption of the hearing of this matter yesterday, Mr Carnovale withdrew his opposition and leave to amend was granted. 14 The first question, therefore, is whether there is a serious question to be tried raised by the two bases upon which Mr Tisdale claims to be entitled to restrain Ballanday from exercising its exclusive right to vote under Article 19 of T&M's constitution.

15 Mr Murr's primary submission is founded upon a construction of Articles 18 and 19 of the T&M's constitution, which are as follows: "18. Subject to any rights or restrictions for the time being attached to any class or classes of shares, at meetings of members or classes of members each member entitled to vote may vote in person or by proxy or by attorney and on a show of hands every person present who is a member or a representative of a member shall have one vote, and on a poll every member present in person or by proxy or by attorney or other duly authorised representative shall have one vote for each share he holds.

19. Where there are joint registered holders of any share any one of such persons may vote at any meeting either in person or by attorney proxy or representative in respect of such shares as if he were solely entitled thereto and if more than one of such joint holders be present at any meeting in person or by attorney proxy or representative then that one of the said persons so present whose name stands first in order in the Register in respect of such share shall alone be entitled to vote in respect thereof." 16 Mr Murr submits that Article 19 is intended to regulate only the voting procedure at shareholders' meetings, or the relationship between shareholders on the one hand and the company on the other, and does not regulate the rights of joint shareholders inter se. He says that as a matter of common law, the right to vote attached to a jointly owned share is jointly owned property and one joint owner cannot exercise that joint property without the consent of the other. 17 Uninstructed by authority and putting aside any suggestion of contractual or equitable rights existing between joint holders of a share arising outside the constitution of the company, as Mr Murr has done for the purposes of this submission, I would have approached analysis of the submission in this very simple way:

• one joint owner of property cannot appropriate the whole of the joint property, or use it in a certain way, without the agreement of the other;

• the provisions of Article 19 of T&M's constitution are part of a contract not only between the company and each of its members but also between each member and each other member: Corporations Act 2001 (Cth) s.140(1)(c);

• Article 19 is, therefore, a contractual term as between Mr Tisdale and Ballanday as joint shareholders as to which of them shall be entitled to exercise the vote attaching to the jointly owned share;

• accordingly, as a matter of contract, Ballanday alone is entitled to exercise the vote attaching to the jointly owned share in the circumstances provided by Article 19, without further consent of Mr Tisdale being necessary. 18 Mr Murr, however, submits that there is authority which supports his proposition that, notwithstanding an article such as Article 19, the first registered joint shareholder cannot exercise the voting right attached to the jointly owned share without the consent of the other joint shareholders, even though there is no agreement or equitable relationship between them which would have the effect of varying or negating Article 19. On analysis, I do not think that the authorities which Mr Murr cites support his submissions. None of them is directly in point or provides any useful analogy. 19 In Re T.H. Saunders & Co Ltd [1908] 1 Ch 415, the company's articles provided that the executors or administrators of a deceased member should be the only persons recognised by the company as having any title to the deceased member's shares. The executors of a deceased member applied to the Court for an order rectifying the share register so that the register did not disclose that the executors were the owners of the shares by virtue of their representative capacity. Such an order was made. 20 As an ancillary matter, the company submitted that it was entitled to insert the names of the executors as joint holders of the shares in the register in any order it chose. The executors, however, had agreed amongst themselves as to the order in which their shares should be registered, the company having an article to the same effect as the present Article 19, and the insisted that their names be registered in the agreed order. 21 At p.423, Warrington J said: "It seems to me that the joint holders of shares are entitled to arrange amongst themselves which of them shall stand first on the register and exercise on behalf of all the right of voting which belongs to them collectively." 22 The only proposition for which this passage of the judgment stands as authority, in my opinion, is that if joint shareholders agree amongst themselves which shall stand first in the register so as to be entitled to exercise a right such as is given by Article 19, then that agreement must be given effect by the company. The case is not authority for the wider proposition that, absent any agreement, between joint shareholders varying the effect an article such as Article 19, the joint shareholder first named in the register cannot exercise the right conferred by Article 19 without the concurrence of all other joint shareholders. 23 In Burns v Siemens Brothers Dynamo Works Ltd [1919] 1 Ch 225, the plaintiffs were co-trustees of a parcel of shares in the defendant company and were, accordingly, registered as joint holders of the shares. The company's articles contained the equivalent of the present Article 19. The plaintiff trustees desired that the block of shares jointly owned should be divided into two blocks, jointly owned, and the name of one of them as joint holder should stand first in the register for one block and the name of the other should stand first as joint holder of the other block. The company objected, saying that to permit splitting the block of shares in this way would double the voting power of the trustees on a show of hands at a shareholders' meeting. 24 Astbury J followed the decision of Warrington J in In re T.H. Saunders in holding that the trustees were entitled to agree amongst themselves as to how the voting rights conferred by an article such as Article 19 could be exercised. Accordingly, this decision does not advance Mr Murr's submission any further. 25 In re T.H. Saunders and Burns v Siemens Brothers Dynamo Works were followed by O'Bryan J in Dawson v Dawson [1945] VLR 99, again in the context of co-trustees agreeing amongst themselves to break up a block of jointly owned shares into parcels and to place the name of each of the trustees first as joint holder of one of the blocks of shares. O'Bryan J made such an order but his Honour observed that even though the block of shares could be broken up in this way and the register altered to show different joint holders as first named in respect of different parcels, each first named joint holder could only vote with the consent of the other two joint holders because the joint holders were co-trustees and the law required co-trustees to act unanimously: at p.103. 26 Mr Murr referred also to Barclays Bank Ltd v Inland Revenue Commissioners [1959] 3 All ER 140 and to Commissioner of Land Tax v Truscott [1983] 1 NSWLR 406. However, both of those cases were concerned with the incidence of revenue impositions and did not raise at all the point now under consideration. 27 In Sky v Brody (1970) 92 WN(NSW) 934, the plaintiff and the defendant were co-trustees of a parcel of shares. The company had an article to the same effect as the present Article 19. The parties disagreed as to how the shares should be voted and sought to divide the parcel into two blocks, with the plaintiff registered as first named holder of one parcel and the defendant registered as first joint holder of the second. The plaintiff also sought an interlocutory injunction restraining the defendant from exercising his present exclusive right to vote as the first named joint holder of the shares, without the consent of the defendant. 28 Street J granted the injunction and refused to divide the shareholding as requested, holding that the fact that one co-trustee stands first as joint shareholder in the register of a company is irrelevant to the carrying out of the co-trustees' duties in relation to the shares. One co-trustee cannot exercise the right to vote conferred by Article 19 without the consent of the other because trust law requires co-trustees to act unanimously: at p.935. The decision in this case has no bearing on the submission advanced by Mr Murr because it is concerned with the special position of co-trustees who are registered as joint shareholders. 29 Mr Carnovale, on the other hand, relies on the decision of this Court in John v Federal Commissioner of Taxation (1986) 11 ACLR 75. that case, however, was concerned with the construction of s.144(2) of the Companies Act 1961 and not with the construction of the present Article 19. The case did not consider the submission which has been put by Mr Murr and I do not gain any real assistance from it. 30 In the absence of any authority in support of the proposition advanced by Mr Murr, I am unable to accept his submission. It seems to me that the question is to be decided by first principle, in the way in which I have analysed it above. 31 I conclude that, absent any relationship between joint shareholders arising out of a trust, express, implied or constructive, or arising out of contract or estoppel such as would vary the rights conferred by an article such as the present Article 19 on the joint shareholder first named in the register, Article 19 operates as an agreement between the joint shareholders as to who shall have the right to vote in respect of the jointly held shares. That right is not subject to any term implied by the law or implied to give business efficacy to the contract. Accordingly, the right may be exercised by the first named joint shareholder without the necessity for consent from any other joint shareholder. 32 Of course, it will be relatively rare that persons will become registered as joint holders of shares in the absence of some relationship between them arising out of trust, joint venture, partnership, contract or estoppel. In reality, therefore, it will be rare that the first registered shareholder will be able to exercise the exclusive right to vote conferred by Article 19 unless all joint shareholders agree to the manner of its exercise. 33 However, the first ground upon which the Plaintiff says that there is a serious question to be tried has been advanced on the basis that no legal relationship affects the exercise of the right conferred by Article 19 other than the relationship of joint ownership. For the reasons which I have given, I do not think that this ground raises an issue for trial sufficient to support the injunction sought.

34 The second ground upon which Mr Murr submits that a serious question for trial arises is advanced upon much stronger ground. It is that the evidence demonstrates, at least on a prima facie basis, that Mr Maley was for many years Mr Tisdale's solicitor, that he was requested by Mr Tisdale to undertake responsibility for administering T&M's affairs including the keeping of its books and records, and that it was Mr Maley who, without Mr Tisdale's knowledge and consent, caused the name of his own company, Ballanday, to be entered first in the company's share register as the holder of the jointly owned share. It is said that in those circumstances Mr Maley owed a fiduciary duty to Mr Tisdale and he was therefore prohibited from taking advantage of his position to obtain a benefit for himself or for his company. It is said that in entering the name of Ballanday first in the register in respect of the jointly owned share, Mr Maley was appropriating to Ballanday the valuable voting right conferred by Article 19, that Ballanday acquired that right with the same knowledge as Mr Maley possessed, and that Ballanday consequently holds that right upon a constructive trust for Mr Tisdale so that it cannot exercise the voting right without Mr Tisdale's consent. 35 The amendment to the Statement of Claim reflecting this cause of action having been allowed, Mr Carnovale did not really contest that the evidence was capable of raising a serious question to be tried on that cause of action. 36 I find, therefore, that on the second issue raised, the Plaintiff has shown a serious question to be tried.

37 As to the balance of convenience, Mr Carnovale urges that Mr Maley should not be denied a voice on the Board when he and his interests are 50% shareholders of T&M. 38 On the other hand, Mr Murr says that the injunction should be granted to preserve the status quo pending final hearing. He points out that Mr Maley has not been a director of T&M since he resigned in 2001 and that his presence on the Board now may well inhibit the company's ability to prosecute the proceedings which it has brought against Mr Maley and his interests. 39 In my opinion, there is substance in Mr Murr's submission. The evidence does not show any change in the affairs of T&M since Mr Maley resigned as a director in 2001 which requires that Mr Maley now involve himself in the company's governance or requires that Mr Tisdale be removed from its governance. 40 The authorities show that the Court, in considering the balance of convenience in an application for interlocutory relief in a case such as this, seeks to preserve the status quo. Generally speaking, preservation of the status quo in a shareholders' or directors' dispute means that such rights as the shareholders or directors have under the constitution of the company and the Corporation Act are left to be exercised as the shareholders or directors determine: see e.g. Tang v Bongreen Pty Ltd (2003) 47 ACSR 400; Hopkins Professional Services Pty Ltd v Foyster Holdings Pty Ltd (2001) 39 ACSR 519; Pettaras v Pettaras [2004] NSWSC 1212. 41 In my opinion, the balance of convenience in this case is in favour of preserving the status quo, both as to the constitution of the Board of T&M and as to the exercise of the right conferred under Article 19 of the constitution of T&M, pending a final hearing of the proceedings. 42 Accordingly, an injunction will be granted in terms of the Plaintiffs' Amended Notice of Motion.

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