'We are in receipt of your letter and advise that our records show that your name appears twice on the register. One holding shows the country code as IRL (IRELAND) and the other as GBR (GREAT BRITAIN). Under the scheme of arrangement, there were restrictions on holders of certain countries being able to receive shares in the new company. These restrictions are governed by the laws of the various companies. A copy of the extract from the information booklet is enclosed.
Your holding coded as GBR has a current shareholding of 2,000 shares and the holding coded as IRL was transferred to the trustee and sold, resulting in cheque number 43801 being forwarded to you.'
On 23 February 2000, Mathew Walker wrote to the Toals stating that he had pursued their inquiry regarding the sale of their shares and had not had an official response from Aquarius Bermuda. He said:
'Your shares were sold by myself, under instructions provided by Aquarius Platinum.
I am happy to continue to pursue the matter on your behalf. But if you are not satisfied, then I suggest you contact the company directly The contact is Willi Boehm on 9367 6722.'
17 On 13 March 2000, Willi Boehm the company secretary wrote to Gary Toal enclosing a copy of a letter received from the company's legal advisers in relation to the disposal of his shares. He said:
'You will note from the enclosed letter that, in disposing of your shares, Aquarius was simply complying with the terms of the scheme of arrangement between Aquarius and its shareholders and optionholders.'
The enclosed letter of advice, dated 10 March 2000 from Clayton Utz, explained the background to the ineligible foreign shareholder procedure thus:
'Due to cost and time constraints, Aquarius Australia only sought legal advice in the jurisdictions in which there was a significant number of shareholders holding significant parcels of shares. Accordingly, Aquarius Australia sought advice in respect of the United Kingdom but not in respect of Northern Ireland.
Where Aquarius Australia determined that it was not practicable (due to cost and time constraints) to make inquiries in relation to a particular jurisdiction or where, having made such inquiries it was too onerous for the regulations in that jurisdiction to be complied with, Aquarius Australia made arrangements for the shares held by residents in those jurisdictions to be sold and for the proceeds of the sale to be forwarded to those foreign shareholders.'
The letter concluded:
'We acknowledge that Northern Ireland is part of the United Kingdom. However we understand that the securities laws of Northern Ireland may differ from those in the United Kingdom. Accordingly Aquarius Bermuda could not issue shares to shareholders in Aquarius Australia resident in Northern Ireland without making inquiries in relation to the legal requirements prescribed by the securities laws in Northern Ireland. As noted above no such enquiries were made.
We understand that a shareholder resident in Northern Ireland held two parcels of shares in Aquarius Australia on the record date for the Scheme of Arrangement and that his country of residence as shown in the Register was United Kingdom in relation to one parcel of shares and Northern Ireland in relation to the other parcel of shares. Accordingly, Aquarius Australia was bound contractually (by virtue of the Scheme of Arrangement approved by shareholders and option holders in Aquarius Australia on 23 August 1999) and bound by the order of the Supreme Court of Western Australia to treat the parcels of shares differently and to arrange for one parcel of shares to be sold and the other parcel of shares to be transferred to Aquarius Bermuda in consideration for the issue of shares in Aquarius Bermuda.'
This explanation was unimpressive. While it was acknowledged that Northern Ireland was part of the United Kingdom the mere possibility that the securities law of Northern Ireland might differ from those in the United Kingdom led to shareholders with a residence in Northern Ireland being treated differently from those in the United Kingdom of which Northern Ireland was, and still is, part.
18 Mr Gary Toal had tried on a number of occasions to contact Mr Boehm, the company secretary of Aquarius Bermuda. He eventually spoke to him on 23 March 2000 by telephone and explained his position and the sequence of events concerning the shares. Mr Boehm said words to the following effect:
'Put your complaints to me in writing and I will look into it.'
Mr Toal then followed up with a detailed account of events in a letter dated 23 March 2000. He pointed out that he and his father had still not cashed the cheque dated 6 October 1999. He then said:
'Due to Aquarius' mistake and no direct response for the best part of five months, our position has been compromised as the share price has more than doubled in the same period, which has left us showing a financial loss as we had no intention of selling our shares (Reference our letter 13 October 99).
We would appreciate a reinstatement of our shares immediately and confirmation by phone, fax or letter by Monday 3rd April or we feel after advice from our Solicitor, Accountant and Stock Broker that we have no option but to go to Litigation.'
Mr Boehm acknowledged the letter on 28 March 2000 and said he had forwarded it to the company's solicitors and would revert back to the Toals as soon as he received a response from them. However, in spite of this promise, the Toals received no further response or explanation from Willi Boehm.
19 In March or April 2000, Gary Toal brought the matter to the attention of Brian McQaid, the manager of the First Trust Bank through whom he and his father had purchased the shares. He asked him to chase the matter up through Goodbody Stockbrokers who had been engaged in the original share purchase. From May to November 2000 he regularly discussed the matter with Brian McQaid as he had occasion to speak with him almost weekly in connection with his other business affairs. In or about August or September 2000 he spoke to Goodbody Stockbrokers directly and was told that they were still investigating the matter.
20 In a letter dated 28 April 2000 to Mr Boehm, Mr Peter Smith of Goodbody Stockbrokers wrote to Mr Boehm. He referred to the letter of 10 March 2000 to the Toals. He pointed out that when the original Aquarius Australia stock had been sent for registration in March 1997, Goodbody Stockbrokers had specified the address as Northern Ireland. They did not specify a country code but at some stage the company's registrars had specified two different country codes for each holding which were registered identically on the certificates. He asked for an explanation as to why the error had been made and part of the holding registered as showing residence in Ireland and the other in Great Britain. He also pointed out that Northern Ireland is part of Great Britain and that the Toals' total holding should have been registered with a company code of GBL.
21 Mr Boehm responded to Mr Smith on 17 May 2000. This response essentially repeated elements of the Clayton Utz advice that:
'… the securities laws of Northern Ireland may differ from those in the United Kingdom. Accordingly, it was not possible for Aquarius Platinum Limited (formerly Strategic Mines Limited) ('Aquarius Bermuda') to offer or issue Aquarius Bermuda shares to shareholders in Aquarius Australia resident in Northern Ireland without making enquiries in relation to the legal requirements prescribed by the securities laws in Northern Ireland. For this reason, the terms of the Scheme of Arrangement provided that Aquarius Australia shares held by persons resident in, inter alia, Northern Ireland would be sold.'
22 Mr Gary Toal phoned Mr Smith in July 2000 and was told there had been no further progress in relation to getting their shares back. He phoned Mr McQaid at the First Trust Bank again in November 2000 and asked him to follow up with Goodbody Stockbrokers to see if they had had any luck with Aquarius Bermuda. By December 2000, as they still had not had their shares reinstated, the Toals instructed John Hannaway, a partner of PricewaterhouseCoopers in Belfast to advise the Toals as to the best course of action. Subsequently, they instructed PricewaterhouseCoopers Legal in Sydney in February 2001 to act on their behalf in the matters. The Toals did not seek payment on the cheque which became stale in 2001.
23 In addition to the efforts already referred to, the Toals sought by letter from their solicitors of 14 March and 6 June 2001 to have their names re-entered in the share register of Aquarius Australia. At no time has that occurred nor have they been issued with shares in Aquarius Bermuda.
24 It is an agreed fact that since 24 September 1999, Aquarius Bermuda has declared and paid the following dividends in respect of fully paid shares:
(a) 12 October 2001 7 cents per share
(b) 19 April 2002 3 cents per share
(c) 18 October 2002 6 cents per share
(d) 28 March 2003 2 cents per share
(e) 31 October 2003 3 cents per share
25 Had the Toals been issued 18,000 shares in Aquarius Bermuda in addition to the 2,000 with which they were issued under the scheme of arrangement they would have received dividends in respect of those shares in the amount of $3,780.
History of the Present Proceedings
26 The present proceedings were instituted on 1 October 2002 by an application filed in the New South Wales District Registry of the Federal Court. The Toals initially sued only Aquarius Bermuda. They claimed orders under s 175 of the Corporations Act 2001 (Cth) for rectification of Aquarius Bermuda's share register as at 24 September 1999 to show them as the holders of 20,000 shares. They also claimed damages and costs under s 175(2). Declaratory relief and ancillary orders were also sought.
27 On 8 November 2002, the solicitors for the applicants appeared before a Deputy District Registrar and handed up consent orders at the request of the respondent seeking an order for the transfer of the proceedings to the Supreme Court of Western Australia. The order was sought under the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). It appears the Registrar was not satisfied that the requirements of s 5(4) of the Act were made out. She referred the matter to a judge. Subsequently, a motion was filed by the respondents seeking the transfer of the proceedings to the Supreme Court of Western Australia and, in the alternative, to the Western Australian District Registry of the Federal Court. On 15 November 2002, Conti J made orders transferring the matter to the Western Australian District Registry of the Federal Court under s 48 of the Federal Court of Australia Act 1976 (Cth). On 3 December 2002, Aquarius Australia was joined as second respondent to the application. Subsequent programming orders were made including an order for the applicants for security for the costs of the respondent. By the time the matter came on for trial in November 2003, the parties had reached agreement on many of the relevant facts as appears from the preceding factual history. In the end, the debate was one about remedy.
The Relief Claimed
28 The further amended originating application filed in this Court on 16 October 2003 was in the following terms, which are set out in full:
A. DETAILS OF APPLICATION
This application is made under ss175(1) and 175(2) of the Corporations Act 2001, and rule 2.2 of the Federal Court (Corporations) Rules 2000 and at common law and in equity.
The first and second applicants apply for correction of the first respondent's share register in accordance with section 175(1) of the Corporations Act 2001 and payment of compensation pursuant to s175(2) of the Corporations Act 2001.
Further, or in the alternative, the first and second applicants seek specific performance of the Scheme of Arrangement and the Deed Pollby the first respondent and/or damages in lieu of specific performance.
Further, or in the alternative, the first and second applicants seek damages against the first respondent for breach of contract.
Further, or in the alternative, the first and second applicants seek specific performance of the Implementation Agreement by the second respondent, and/or damages in lieu of specific performance.
Further, or in the alternative, the first and second applicants seek damages against the second respondent for breach of contract and/or for breach of trust.
On the facts set out in the supporting affidavits, and the matters pleaded in the Statement of Claim issued in these proceedings, the first and second applicants claim (defined terms correspond with those in the Statement of Claim):
1. An order that the first respondent forthwith issue 18,000 fully paid shares in itself to the applicants.
2. An order under s175(1) of the Corporations Act 2001 that the first respondent's share registry be corrected, as at 24 September 1999, to show the applicants as holders of 20,000 shares.
3. An order under s175(2) of the Corporations Act 2001 that the first respondent pay the applicants by way of damages $3,780.00.
4. An order that the first respondent pay the applicants interest on $3,780.00 from the date each dividend was paid to the date of judgment under s51A of the Federal Court of Australia Act 1976.
4A. Further, or in the alternative to paragraphs 1 to 4 above, an order for specific performance of the Scheme of Arrangement and the Deed Poll by the first respondent issuing 18,000 fully paid shares in itself to the applicants.
4B. Further, or in the alternative to paragraph 4A above, an order that the first respondent pay damages in addition to or in lieu of specific performance of the Scheme of Arrangement and the Deed Poll.
4C. Further, or in the alternative to paragraphs 1 to 4B above, an order for specific performance of the Implementation Agreement by the second respondent ensuring that the Aquarius Bermuda Share Issue is effected.
4D. Further, or in the alternative to paragraph 4C above, an order that the second respondent pay damages in addition to or in lieu of specific performance of the Implementation Agreement.
5. Further, or in the alternative to paragraphs 1 to 4D above, an order that the first respondent pay the applicants damages for breach of contract together with interest on such damages under s51A of the Federal Court of Australia Act 1976.
5A. Further, or in the alternative to paragraphs 1 to 5 above, an order that the second respondent pay the applicants damages for breach of contract and/or for breach of trust, together with interest on such damages under s51A of the Federal Court of Australia Act 1976.
6. An order that the respondents pay the applicants' costs of the proceedings.
7. Such other order as the Court thinks fit.'
The Question of Jurisdiction
29 The application was filed on 1 October 2002 and sought, inter alia, relief under s 175 of the Corporations Act 2001 (Cth) which, at the time the application was filed, provided:
'175(1) A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected.
175(2) If the Court orders the company or scheme to correct the register, it may also order the company or scheme to compensate a party to the application for loss or damage suffered.
175(3) If:
(a) the Court orders a company or scheme to correct its register of members; and
(b) the company or scheme has lodged a list of its members with ASIC;
the company or scheme must lodge notice of the correction with the ASIC.'
The applicants thereby invoked the jurisdiction conferred upon the Court by s 1337B of the Corporations Act which provides:
'(1) Jurisdiction is conferred on the Federal Court of Australia with respect to civil matters arising under the Corporations legislation.'
30 Relief framed in the alternative under the amended application included specific performance and/or equitable compensation and/or damages. These claims arose out of the same dispute that gave rise to the claim under the Corporations Act. They comprise, on accepted tests, part of the matter in respect of which jurisdiction was conferred upon the Court by s 1337B and are within that jurisdiction notwithstanding that the primary claim is not now pressed.
31 No point is taken as to jurisdiction by the respondents and counsel for the respondents disclaimed any suggestion that the federal claim could be regarded as colourable. I am satisfied therefore that the claims for relief set out in the amended application fall within the jurisdiction of the Court.
The Scheme Documents
32 In order to determine what, if any, legal basis exists for the grant of the relief sought in this case it is necessary to have regard to the relevant Scheme documents.
33 The Scheme of Arrangement was expressed to be between Aquarius Australia and 'its Shareholders and Optionholders'. It referred in its recital to ancillary documents being 'an Implementation Agreement' between Aquarius Australia and Aquarius Bermuda and a Deed Poll executed by Aquarius Bermuda. The Implementation Agreement was said, in the recital to the Scheme, to evidence the agreement of Aquarius Australia and Aquarius Bermuda to implement the terms of the Scheme. The Deed Poll was said to have been made by Aquarius Bermuda 'in favour of the Aquarius Shareholders and Aquarius Optionholders pursuant to which it has covenanted amongst other things, to carry out the obligations contemplated of it under this Scheme'. The persons so benefited were the shareholders and optionholders of Aquarius Australia as appears from the definition of those terms in the Scheme.
34 Substituting the words 'Aquarius Australia' for 'Aquarius Platinum' and the words 'Aquarius Bermuda' for 'Strategic Platinum' where they appear in the Scheme documents, cl 3.1 of the Scheme provided:
'3.1 Subject to the conditions in clause 2.1 being satisfied and on this Scheme becoming binding in accordance with clause 8 the following will occur to give effect to this Scheme:
(a) legal and beneficial ownership of all the [Aquarius Australia] Shares will be transferred to and vest in [Aquarius Bermuda] as at the Effective Date;
(b) after the Scheme Record Date and no later than 10 Business Days after the Effective Date, [Aquarius Bermuda] will issue to each [Aquarius Australia] Shareholder at the Scheme Record Date one (1) [Aquarius Bermuda] Share for every one (1) [Aquarius Australia] Share held by that [Aquarius Australia] Shareholder at the Scheme Record Date....'
This obligation was qualified in respect of foreign shareholders by cl 3.3 which provided:
'3.3 The laws of the country of residence (as shown in the Register) of an [Aquarius Australia] Shareholder whose address in the Register is a place outside Australia and its external territories ('Foreign Shareholders') may prevent the allotment of [Aquarius Bermuda] Shares in accordance with the Scheme. The laws of the United Kingdom, Jersey, Hong Kong, New Zealand and South Africa do not prevent the offer and issue of [Aquarius Bermuda] Shares to [Aquarius Australia] Shareholders resident in these jurisdictions. Unless a Foreign Shareholder's country of residence (as shown in the Register) is the United Kingdom, Jersey, Hong Kong, New Zealand or South Africa, the [Aquarius Bermuda] Shares to which that Foreign Shareholder shall become entitled will be issued to a nominee appointed by [Aquarius Australia] who will sell those shares and pay the proceeds received, after deducting any applicable brokerage, stamp duty and other taxes and charges, to that Foreign Shareholder.'
35 Provisions relating to the implementation of the Scheme included cls 7.1 and 7.2:
'7.1 Not earlier than the Scheme Record Date and no later than 10 Business Days after the Effective Date, [Aquarius Australia] Shareholders will be sent by prepaid post (and airmail in the case of overseas [Aquarius Australia] Shareholders) to their respective addresses as shown in the Register as at the Scheme Record Date or at such other addresses as they may direct:
(a) notification that the Scheme has become effective on the Effective Date, being the date on which [Aquarius Australia] Shares were transferred, and notification [Aquarius Bermuda] Shares have been issued and the date of such issue; and
(b) holding statements for the [Aquarius Bermuda] Shares issued to the [Aquarius Australia] Shareholders.
7.2 The [Aquarius Bermuda] Shares to be allotted and issued to the [Aquarius Australia] Shareholders pursuant to this Scheme will be fully paid shares of par value US$0.15 each and will rank pari passu in all respects between themselves.'
36 The time at which the Scheme became binding was specified in cl 8.1:
'The Scheme shall become binding on [Aquarius Australia] and each [Aquarius Australia] Shareholder and [Aquarius Australia] Optionholder only if the Court makes and order under section 411(4)(b) of the Corporations Law approving the Scheme, that order becomes effective under section 411(10) and the other conditions set out in clause 2 are satisfied.'
37 Clause 9 of the Scheme contained general provisions including the following:
'9.3 This Scheme overrides Aquarius' constitution and binds [Aquarius Australia], the [Aquarius Australia] Shareholders and [Aquarius Australia] Optionholders.
9.4 [Aquarius Australia] Shareholders acquiring [Aquarius Bermuda] Shares under this Scheme agree to be bound by and accept the [Aquarius Bermuda] Shares subject to the memorandum and bye-laws (sic) of [Aquarius Bermuda].
9.5 Neither [Aquarius Australia] nor [Aquarius Bermuda] nor any officer of either of those companies will be liable for anything done or for anything omitted to be done in performance of this Scheme in good faith.
9.6 The [Aquarius Australia] Shareholders and [Aquarius Australia] Optionholders consent to [Aquarius Australia] doing all things necessary for the implementation and performance of its obligations under this Scheme.
9.7 [Aquarius Australia] must execute all deeds and other documents and do all acts and things as may be necessary or expedient on its part to implement this Scheme in accordance with its terms.'
The Implementation Agreement
38 The Implementation Agreement was made on 17 June 1999 between Aquarius Australia and Aquarius Bermuda (described in the Agreement by their former names of Aquarius Platinum Ltd and Strategic Platinum Mines Ltd respectively). In the recitals to the Agreement it was stated that:
'D. The Parties consider that it is to their respective advantages that the Scheme of Arrangement be implemented and accordingly wish to record and confirm the terms and conditions upon which they will co-operate with and assist each other to that end.'
39 The Agreement contained undertakings by Aquarius Bermuda including the following:
'3.1 In consideration of the undertakings given by [Aquarius Australia] pursuant to this Agreement, [Aquarius Bermuda] agrees to do all such things and to execute all such deeds and other documents that may be necessary or expedient on its part to implement the Restructure including, without limitation:
(a) after the Scheme Record Date and no later than 10 Business Days after the Effective Date, allotting and issuing to each [Aquarius Australia] Shareholder one (1) [Aquarius Bermuda] Share for every one (1) [Aquarius Australia] Share previously held by that [Aquarius Australia] Shareholder on the Scheme Record Date;
...
(c) after the scheme Record Date and no later than 10 Business Days after the Effective Date entering into its register of members the respective names and addresses of each holder of [Aquarius Bermuda] Shares issued in accordance with the terms of this Agreement;
....
(f) using its best endeavours to obtain all necessary approvals required from its shareholders and all other regulatory approvals required under the laws of Australia and Bermuda in connection with the Scheme; and
...
3.4 [Aquarius Bermuda] hereby undertakes in favour of [Aquarius Australia] as trustee for the benefit of all [Aquarius Australia] Shareholders and [Aquarius Australia] Optionholders to do all those things and execute all those deeds and other documents as may be necessary or expedient on its part to implement the Scheme and, without limiting the generality of the foregoing, to perform each of the undertakings given by it in clause 3 of this Agreement.'
40 Clause 4 contained undertakings by the two companies which included the following:
'4.1 The Parties must each use their best endeavours to procure that the Scheme of Arrangement is implemented in accordance with its terms as soon as practicable after execution of this Agreement and must at all times do all acts and things necessary, and provide such assistance as the other Party may reasonably require, for that purpose.
...
4.3 [Aquarius Bermuda] and [Aquarius Australia] hereby acknowledge and agree that the benefit of each of the covenants given by [Aquarius Bermuda] in this Agreement shall be held by [Aquarius Australia] on trust for all [Aquarius Australia] Shareholders and [Aquarius Australia] Optionholders as beneficiaries of those covenants.'
41 Clause 8 under the heading 'GENERAL' contained the following:
'8.1 The non-exercise of or delay in exercising any power or right of a Party does not operate as a waiver of that power or right nor does any single exercise of a power or right preclude any other or further exercise of it or the exercise of any other power or right. A power or right may only be waived in writing signed by the party to be bound by the waiver.'
By cl 8.6 the Agreement was to be governed by and construed according to the laws of Western Australia.
The Deed Poll
42 Aquarius Bermuda also executed a Deed Poll dated 17 June 1999 and expressed to be in favour of 'Each holder of ordinary shares from time to time in [Aquarius Australia]...'. Recital F to the Deed Poll was in the following terms:
'[Aquarius Bermuda] is entering into this Deed Poll for the purpose of covenanting in favour of the [Aquarius Australia] Shareholders and [Aquarius Australia] Optionholders to perform its obligations under the Agreement.'
The agreement thus referred to was the Implementation Agreement.
43 Clause 1.2 was in the following terms:
'[Aquarius Bermuda] acknowledges that this Deed Poll may be relied on and enforced by any [Aquarius Australia] Shareholder and [Aquarius Australia] Optionholder in accordance with its terms even though the [Aquarius Australia] Shareholders and [Aquarius Australia] Optionholders are not party to it.'
44 In relation to its obligations under the Scheme, cl 3 provided:
'[Aquarius Bermuda] will comply with its obligations under the Agreement and do all things necessary or expedient on its part to implement the Scheme.'
45 The payment of Scheme consideration was dealt with in cl 4 which repeated promises made on the part of Aquarius Bermuda to allot and issue one of its shares to each Aquarius Australia Shareholder in respect of every one Aquarius Australia share registered in the name of that Aquarius Australia Shareholder in the Register on the Scheme Record Date. The same provision for Foreign Shareholders as appeared in the Scheme document was set out in cl 4.3 of the Deed Poll.
46 Clause 6 provided:
'This Deed Poll is irrevocable and, subject to clause 2, remains in full force and effect until [Aquarius Bermuda] has completely performed its obligations under this Deed Poll or the earlier termination of this Deed Poll under clause 2.'
Clause 2 related to the satisfaction conditions precedent and is not material for present purposes. By cl 10 the Deed Poll was governed by the laws of Western Australia.
The Legal Effect of the Scheme Documents
47 Section 411 and its statutory predecessors make an agreement binding on a company and its members and creditors notwithstanding that one or more of them do not join in it - Australian Securities Commission v Marlborough Mine Golds (1993) 177 CLR 485 at 500-501. Speaking of a United Kingdom predecessor of s 411, Crossman J said in Re Garner's Motors Ltd [1937] 1 Ch 594 (at 598):
'In my judgment the effect of s 153 of the Companies Act 1929 is to give to a scheme when sanctioned by the Court under the section a statutory operation. The scheme when sanctioned by the Court becomes something quite different from a mere agreement signed by the parties. It becomes a statutory scheme.'
See also Re Terri Co Pty Ltd [1987] 12 ACLR 457 at 462 per Martin J; Caratti v Hillman (1973) CLC 40-071 at 27,550 per Wickham J.
48 The statutory source of the rights and liabilities conferred by a scheme of arrangement approved by the Court was pointed out by McLelland CJ in Eq in Re Australian Consolidated Press (1994) 14 ACSR 639. The constitutional source of the power of any meeting convened under s 411 is that section itself activated by order of the Court. His Honour said (at 640):
'Such a meeting is not a general meeting of the company even if it happens that all the persons and the only persons entitled to attend it are members of the company. It is a meeting which is convened for a specific statutory purpose and which is subject to provisions different from those to which a general meeting of the company convened under its articles of association is subject.'
49 The statutory origin of the rights and liabilities created under an approved scheme of arrangement does not mean that it can be taken to bind any party other than the company and its members or creditors. So where a merger is proposed whereby the shareholders are to receive shares in an acquiring company in lieu of their shares in the company being acquired, the scheme approving the exchange of the shares for those of the acquiring company will not of itself bind the acquiring company - Re Advance Bank Australia Ltd (1996) 22 ACSR 476. This appears to have provided the rationale for the Implementation Agreement and the Deed Poll. The effect of the execution of those documents by Aquarius Bermuda was that shareholders in Aquarius Australia could enforce as against Aquarius Bermuda their entitlements to its shares.
50 It was not contended by the respondents that the applicants lacked any effective remedy as against either of the respondents. So far as the scheme itself is concerned any remedy by a shareholder against Aquarius Australia, were it necessary, might be framed in terms of an order under s 175 of the Corporations Act 2001 or in the nature of specific performance, made pursuant to s 23 of the Federal Court of Australia Act. That could be characterised as a species of statutory injunctive relief in aid of rights deriving from statute rather than the grant of the equitable remedy.
51 The Scheme of Arrangement is expressed to be binding on Aquarius Australia and each of its Shareholders and Optionholders upon the making of the order under s 411 approving the Scheme. It is not expressed to bind Aquarius Bermuda. However, the issue, by Aquarius Bermuda, of its shares to the shareholders in Aquarius Australia is central to the operation of the Scheme and expressly provided for in cl 3.1(b). The legal obligation upon Aquarius Bermuda to issue its shares is imposed contractually by its Implementation Agreement with Aquarius Australia as trustee for the shareholders in Aquarius Australia.
The Breaches and the Remedies
52 It is now not in dispute, indeed it is agreed, that, in breach of the terms of the Scheme of Arrangement:
- 18,000 shares in Aquarius Bermuda were not issued to the Toals;
- That it did not have regard to the country of residence of the applicants as disclosed by their address in the Register in determining their entitlement to shares in Aquarius Bermuda but had regard to the erroneous description of the domicil;
- Aquarius Australia did not accurately maintain and check the Register in relation to the incorrect additional entry as to the Toals' domicil.
It is also agreed that, at all material times, Aquarius Bermuda has had the power to issue 18,000 shares to the applicants. It is common ground that in failing to issue the Toals with one Aquarius Bermuda share for every Aquarius Australia share held by them, Aquarius Bermuda breached the Implementation Agreement and the Deed Poll.
53 There seems to be no scope for any useful remedy directed to Aquarius Australia in respect of its obligations under the Scheme. No correction to the share register of Aquarius Australia which could be ordered under s 175 or otherwise would overcome the effect of the breaches which have occurred. On the Effective Date of the Scheme all Aquarius Australia shares were transferred to and vested in Aquarius Bermuda. There is therefore no further substantive step that Aquarius Australia can take under the Scheme in respect of its own shares to rectify the breach that has occurred. There is nothing further that it needs to do to perfect the obligation owed to it by Aquarius Bermuda under the Implementation Agreement or the obligation owed by Aquarius Bermuda to the shareholders under the Deed Poll. That obligation, reflected in a contractual right under the Implementation Agreement, held in trust by Aquarius Australia for its shareholders, was to issue shares to those shareholders on a one for one basis excepting Foreign Shareholders whose shares were to be sold. No doubt an argument could be made for the retrospective correction of the Aquarius Australia Register in respect of the Toals' shares to reflect their domicil in Great Britain. There seems, however, little point in making such a direction at this stage.
54 The question of a damages award against Aquarius Australia also seems somewhat academic as it is now wholly owned by Aquarius Bermuda.
55 It is agreed between the parties that the Implementation Agreement expressly conferred a benefit on the Toals as Shareholders of Aquarius Australia within the meaning of s 11(2) of the Property Law Act 1969 (WA). Section 11(2) provides:
'Except in the case of a conveyance or other instrument to which subsection (1) applies, where a contract expressly in its terms purports to confer a benefit directly on a person who is not named as a party to the contract, the contract is, subject to subsection (3), enforceable by that person in his own name but -
(a) all defences that would have been available to the defendant in an action or proceeding in a court of competent jurisdiction to enforce the contract had the plaintiff in the action or proceeding been named as a party to the contract, shall be so available;
(b) each person named as a party to the contract shall be joined as a party to the action or proceeding; and
(c) such defendant in the action or proceeding shall be entitled to enforce as against such plaintiff, all the obligations that in the terms of the contract are imposed on the plaintiff for the benefit of the defendant.'
Neither subss (1) nor (3) apply to the present case. The agreement, as noted earlier, is governed by and construed according to the laws of Western Australia.
56 Although the applicants initially claimed orders against Aquarius Bermuda for the issue of 18,000 fully paid shares in it pursuant to s 175 of the Corporations Act, that claim is not pressed. No orders can be made against Aquarius Bermuda pursuant to the Scheme of Arrangement which is not binding on that company. The applicants proceed rather by way of a claim in the nature of specific performance of the Implementation Agreement and a Deed Poll and, in addition, or in the alternative, damages. The question is whether orders by way of specific performance should be made against it in relation to its obligations under the Agreement and the Deed.
57 Extensive argument was advanced on behalf of Aquarius Bermuda against the grant of specific performance on what were essentially discretionary grounds. Reference was made to cases involving contracts for the sale of shares. It was conceded that such contracts are within the scope of the remedy of specific performance but contended that in this case, as in the case of a contract for the sale of shares, damages would be an adequate remedy. The observation of Dixon J in Dougan v Ley (1946) 71 CLR 142 was relied upon (at 150) :
'In the case of goods or securities obtainable upon the market, damages at law place the disappointed buyer or seller in as good a position as delivery of the articles or receipt of the price because it enables him to go upon the market.'
58 Counsel for the respondents submitted that, '[the] reason why specific performance is never decreed in response to breach [of] such contracts is because of the discretionary factor of the unavailability of an alternative remedy at law ie damages' (emphasis added). Reference was made to a number of cases and texts including the following passage from the 4th Edition of Meagher, Gummow and Lehane's, Equity Doctrines and Remedies (Butterworths 2002) at 20-040:
'A contract for the sale of shares, stock or other securities is, generally speaking, specifically enforceable if the securities are not readily obtainable in the market …; it will not be specifically enforceable if the securities are readily obtainable on the market "and anyone can go and buy them" (Re Schwabacher (1907) 98 LT 127 at 128 per Parker J) because damages will be an adequate remedy: the purchaser can obtain in the market an equivalent number of identical securities, and if he has to pay more than the contract price, damages will be an adequate recompense.'
59 The present case is one in which the Toals have at all times maintained their entitlement to the issue of 18,000 shares in Aquarius Bermuda. They have never resiled from that position. They have understandably regarded the proposition that they should apply the proceeds of the cheque which they received from Aquarius Bermuda to purchase less than 18,000 shares in the open market and then sue for damages, as unsatisfactory. In taking that view it may be said that they do not differ from a disappointed purchaser under a contract for the sale of shares which the vendor has failed to perform. And upon a superficial analysis, that is true.
60 In my opinion, the circumstances of this case raise wider considerations affecting both the position of the Toals and the public interest. They were the owners of shares in Aquarius Australia which they never agreed to sell or exchange. Their obligation to accept the exchange was a product of the approval by the Supreme Court of Western Australia of the Scheme of Arrangement. It must be taken, that in giving that approval, the court had regard to the interests of the shareholders in Aquarius Australia. The creation, by the Implementation Agreement and the Deed Poll, of enforceable entitlements to the issue of shares in the acquiring company was linked to the Scheme and to that approval. The existence of the legal and equitable rights arising under the Implementation Agreement and the Deed Poll do not derive in a formal sense from the Scheme. It is plain, however, that approval would not have been given nor the Scheme come into force but for their existence. Because of the circumstances in which the Implementation Agreement and the Deed Poll and the rights created by them came into existence, the shareholders in Aquarius Australia are in a different category from the purchaser of shares under a contract. There is here a public policy dimension. The court should be slow to accede to the proposition that a shareholder, whose rights are subject to appropriation on conditions laid down in a scheme which derives its force from a public statute, should have to bear the burden of a failure by the scheme's proponents to carry out its provisions. The burden in this case, rather dismissively thrust upon the Toals in answer to their complaints, was the burden of taking the proceeds of the Aquarius Bermuda cheque and purchasing in the market a number of shares, fewer than they were entitled to after brokerage and other outgoings were deducted from those proceeds, and then seeking to recover their shortfall.
61 Public policy is a relevant factor in the exercise of the discretion to withhold specific performance. As has been said in Jones and Goodhart, Specific Performance (2nd Edition, Butterworths, 1996) (at 65):
'Specific performance may be denied if it would be contrary to public policy to enforce the contract specifically, even if the contract is not illegal.'
See Post v Marsh [1880] 16 Ch 395 and Wroth v Tyler [1974] Ch 30. Public policy which may be a factor in withholding relief may also be relevant to the decision to grant it.
62 There is no novelty in the consideration of public interest in relation to the discretion to grant or withhold specific performance. In considering whether to exercise the discretion to grant an injunction the court is under a duty to consider the interests of the public - Miller v Jackson [1977] 1 QB 966 per Cumming-Bruce LJ (at 988). In Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 42, a passage from Dr Spry's Equitable Remedies, 5th Edition (1997), at 402-403 was adopted, which included the following statement:
'Regard must be had 'not only to the dry strict rights of the plaintiff and the defendant, but also the surrounding circumstances, to the rights or interests of other persons which may be more or less involved'. So it is that where the plaintiff has prima facie a right to specific relief, the court will, in accordance with these principles, weigh the disadvantage or hardship that he would suffer if relief were refused against any hardship or disadvantage that might be caused to third persons or to the public generally if relief were granted, even though these latter considerations are only rarely found to be decisive. (Conversely, detriment that might be caused to third persons or to the public generally if an injunction were refused is taken into account.)' (emphasis added)
63 In my opinion there is a public interest and associated with that a public policy consideration in favour of the making of an order for the performance by Aquarius Bermuda of its obligations under the Implementation Agreement and the Deed Poll. An order for specific performance in these circumstances will recognise and uphold the importance of the ancillary contractual obligations which were relied upon in securing the judicial approval for the Scheme of Arrangement.
64 The legitimate concerns of the Toals, who wanted no more than to receive the shares to which they were entitled by virtue of the Scheme of Arrangement, were treated lightly by those who should have taken them seriously. I note that in its defence Aquarius Bermuda maintained until October 2003 that '… it was never under any obligation to issue 18,000 shares to the applicants' (see par 19(a) of the Amended Defence dated 16 June 2003). I do not accept that the performance by Aquarius Bermuda of its obligations under the Implementation Agreement and the Deed Poll will dilute the value of shares held by other shareholders. All shareholders in Aquarius Bermuda acquired their shares in a company which was under an obligation to the Toals. The Toals will not take the benefit of the cheque proffered to them.
65 In addition to specific performance the Toals are entitled to recover the loss which they have suffered as a result of the failure by Aquarius Bermuda to issue them with 18,000 shares at the appropriate time. The amount of that loss is represented by the dividends which they would have been entitled to receive on 18,000 shares in Aquarius Bermuda since 24 September 1999. It is not disputed that that sum amounts to $3,780 as at 31 October 2003.
66 There was much debate about whether the Toals had failed to mitigate their loss. That debate would have been relevant had I decided that they were not entitled to specific performance. To the extent that their delay in commencing proceedings is relied upon as a discretionary factor against the award of that remedy, I do not accept that they have acted unreasonably or that Aquarius Bermuda has any ground on the basis of such delay for resisting the grant of relief.
Conclusion
67 For the preceding reasons I will order specific performance by Aquarius Bermuda of its obligations under the Implementation Agreement and the Deed Poll by requiring it to issue 18,000 shares to the applicants. I will also order that they pay damages in the amount of $3,780 representing dividends which the Toals have not received. The respondents will be required to pay the costs of the application.
I certify that the preceding sixty seven (67) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.