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404
KINGSTON
AND ANOTHER V
[(1987) 11
KEPROSE PTY LTD
A
Court of Appeal: Hope, Priestley and McHugh JJA
21-22 October, 16 December 1987
Companies — Takeovers and acquisition — Acquisition by dissentient
shareholders — Holders of option — Right to require offeror to
purchase by giving notice — Who is “holder” of option for purpose of —
Companies (Acquisition of Shares) (New South Wales) Code, s 43(4), (6).
B
Statutes — Construction — Purposive approach — Discussion of —
Companies and Securities (Interpretation and Miscellaneous Provisions)
Act 1980, s 5A.
Held, that for the purposes of the Companies (Acquisition of Shares) (New South
Wales) Code, s 43, which deals with the rights of the holders of options in respect of
takeover offers to require acquisition of the options:
(a) the notice to be given pursuant to s 43(4) to the holders of renounceable options
is to be given to the holders of such options who are registered at the time the notice
is given; (413G, 416F, 419G)
(b) the holder of such an option who gives notice to an offeror pursuant to s 43(6)(a)
is the registered holder of the option at the time of giving the notice; (414D, 416C,
420C)
(c) (McHugh JA dissenting) the registered option holder who gives the s 43(6)
notice must be the same registered option holder as the one to whom the s 43(4)
notice was given. (414F, 416D, 425F)
Discussion by McHugh JA of the modern purposive approach to the interpretation
of statutes with reference to the Companies and Securities (Interpretation and
Miscellaneous Provisions) Act 1980, s 5A.
Note:
A Digest — COMPANIES [351]; STATUTES [18], [20]
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CASES CITED
The following cases are cited in the judgments:
A L Campbell & Co Pty Ltd v Federal Commissioner of Taxation (1951) 82 CLR 452.
Adler v George [1964] 2 QB 7.
Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129.
Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353.
Blue Metal Industries Ltd v Dilley [1970] AC 827.
Bond Corporation Pty Ltd v White Industries Ltd [1980] 2 NSWLR 351.
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147
CLR 297.
Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR
335.
Exxon Corpn v Exxon Insurance Consultants International Ltd [1982] Ch 119.
Fothergill v Monarch Airlines Ltd [1981] AC 251.
Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52.
Inland Revenue Commissioners v Ayrshire Employers Mutual Insurance Association Ltd
[1946] 1 All ER 637.
Jones v Director of Public Prosecutions [1962] AC 635.
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KINGSTON v KEPROSE PTY LTD (Hope JA)
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Jones v Wrotham Park Settled Estates [1980] AC 74.
Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850.
Kingston v Keprose Pty Ltd (1987) 5 ACLC 1031.
Lockwood, Re [1958] Ch 231.
Luke v Inland Revenue Commissioners [1963] AC 557.
Magor and St Mellons Rural District Council v Newport Corporation [1952] AC 189.
Public Prosecutions, Director of v Hester [1973] AC 296.
R v City of London Court Judge and Payne [1892] 1 QB 273.
R v Draper (1870) 1 VR (L) 118.
R v Oakes [1959] 2 QB 350.
R v Wimbledon Justices; Ex parte Derwent [1953] 1 QB 380.
R A Brierley Investments Ltd v Landmark Corporation Ltd (1966) 120 CLR 224.
Rouss, Re 116 NE 782 (1917).
Simo Securities Trust Ltd, Re [1971] 1 WLR 1455; [1971] 3 All ER 999.
Stock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231; [1978] 1 All ER 948.
Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1938] Ch 174.
Taxation, Federal Commissioner of v Patcorp Investments Ltd (1976) 140 CLR 247.
University College, Oxford (Master and Fellows) v Durdy [1982] Ch 413.
Wala Wynaad Indian Gold Mining Co, Re (1882) 21 Ch D 849.
Wiltshire v Barrett [1966] 1 QB 312.
The following additional cases were cited in argument and submissions:
Gjergja Atco Controls Pty Ltd v Cooper (1986) 10 ACLR 577; 4 ACLC 359.
Green v Crusader Oil NL (1985) 10 ACLR 120; 4 ACLC 118.
Parry Corporation Ltd v Boans Ltd (1984) 2 ACLC 249.
Slazengers (Australia) Pty Ltd v Milligan [1948] WCR (NSW) 39.
APPEAL
This was an appeal from the separate determination of a question by
Kearney J reported at (1987) 5 ACLC 1031.
T E F Hughes QC and B R McClintock, for the appellants.
E
C R Einstein, with him A J Meagher, M R J Ellicott and R J Powell, for
the respondent.
Cur adv vult
16 December 1987
F
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HOPE JA. On 31 October 1986, Keprose Pty Ltd (Keprose) made a
takeover announcement in respect of the shares in Base Resources Ltd (Base).
The date to which the takeover offers remained open was 15 December 1986
and by that time Keprose had become entitled to not less than 90 per cent of
the voting shares in Base. On 6 November 1986, Gammon Nominees Pty Ltd
(Gammon) began buying renounceable options granted by Base on behalf of
Mrs Jean Nesta Kingston (Kingston). Ultimately Kingston became the
beneficial owner of 2,410,000 renounceable options in Base, most of which
had been purchased before 8 January 1987. On 12 December 1986, an option
certificate for 1,044,500 renounceable options in Base was issued to Gammon
and it having thus become the registered holder of these options before the
close of the takeover offer, there is no dispute in the present proceedings
concerning them.
On 23 December 1986, Keprose sent notices pursuant to the Companies
(Acquisition of Shares) (New South Wales) Code, s 43(4), to the persons who
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[(1987) 11
were registered holders of the renounceable options on 15 December 1986.
These notices were apparently received by the then registered holders of the
options the subject of these proceedings on or before 8 January 1987. After
the close of the takeover offer on 15 December 1986, Kingston became the
registered holder of 200,000 of the options which had been purchased, and
Gammon became the registered holder of the remaining 1,165,500 options.
Gammon became the registered holder of 62,000 of the then options on 26
December 1986, and of the balance after 8 January 1987. Both Kingston and
Gammon gave notices purporting to be in pursuance of s 43(6) of the Code
after having become the registered holders of the options to which I have
referred. Kingston also gave such a notice in respect of all the 2,410,000
options. The vendors of the options, who had received notices pursuant to
s 43(4), also gave notices pursuant to s 43(6) to Keprose, these notices being
given, save in one case, after they had ceased to be the registered holders of
the options.
Negotiations then proceeded between the parties as to the terms on which
the options were to be acquired by Keprose but no agreement was come to.
Accordingly Kingston and Gammon applied to the Court to fix the terms of
purchase. Keprose challenged the right of Kingston and Gammon to compel
it to acquire the options, on the ground, inter alia, that no valid notice
pursuant to s 43(6) had been served upon it in respect of the options.
Section 43(4) and s 43(6) provide as follows:
“(4) Where—
(a) a Part A statement has been served as mentioned in paragraph (1)(a) and, during the relevant period referred to in that
paragraph, the number of voting shares in the company to which
the offeror is entitled becomes not less than 90% of the voting
shares in the company; or
(b) a take-over announcement has been made as mentioned in
paragraph (1)(b) and, during the relevant period referred to in that
paragraph, the number of voting shares in the company to which
the on-market offeror is entitled becomes not less than 90% of the
voting shares in the company,
the offeror or on-market offeror shall, within one month after the last
day upon which offers under the relevant take-over scheme remained
open or offers constituted by the take-over announcement remained
open, as the case may be, give, as prescribed, a notice to the holders of
non-voting shares in the company to which he is not entitled, and to the
holders of renounceable options or convertible notes granted or issued by
the company to which he is not entitled, stating that he became entitled
to shares as mentioned in paragraph (a) or (b), as the case may be, and
containing such other information (if any) as is prescribed.
…
(6) Where a notice is given under sub-section (4) to the holder of any
non-voting shares, renounceable option or convertible note—
(a) the holder of the shares, option or note may, within 3 months
after the giving of the notice to him, require the offeror or onmarket offeror to acquire the shares, option or note; and
(b) if a holder of shares or of an option or note so gives notice with
respect to the shares, option or note, the offeror or on-market
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offeror is entitled and bound to acquire those shares or that option
or note on such terms as are agreed or as the Court, on the
application of the offeror, on-market offeror or holder of the
shares, option or note, thinks fit to order.”
The proper construction of s 43(6) being raised, the parties agreed to have a
question determined separately as a preliminary point in the proceedings.
This question was:
“1. Whether the only persons entitled to give to the defendant notices
under s 43(6)(a) of the Companies (Acquisition of Shares) Code 1980
(NSW) (the Code) with respect to renounceable options in Base
Resources Ltd are those persons:
(a) who were registered as holders of those options at the time such
notices were given; and
(b) who as registered holders of those options, were given notices
pursuant to s 43(4) of the Code by the defendant.”
Kearney J answered each question: “Yes”. His Honour was also asked by
Kingston and Gammon to make a representative order under the Supreme
Court Rules 1970, Pt 8, r 14, appointing Gammon to represent the sellers of
the options described as follows:
“… being the class of persons who were registered as holders of
options in Base Resources Ltd at the date of the defendant's notice
pursuant to subsection 43(4) of the Companies (Acquisition of Shares)
(New South Wales) Code, who received the said notice and as to whose
options the plaintiffs subsequently became registered as holders and that
these proceedings be continued by the second plaintiff on behalf of and
representing the said class.”
In the light of the conclusion to which he came on the question of
construction, it was not necessary for Kearney J to make any representative
order. However he indicated that had he come to a contrary conclusion he
would have considered that there was a basis for making such an order: see
Kingston v Keprose Pty Ltd (1987) 5 ACLC 1031.
Submissions have been made to the Court both by the appellants, Kingston
and Gammon, and by Keprose based on the literal meaning of the words in
the relevant provisions and also on their purpose. Apart from any principle of
construction to be found in the general law, the Companies and Securities
(Interpretation and Miscellaneous Provisions) Act 1980, s 5A, provides:
“In the interpretation of a provision of a relevant Act, a construction
that would promote the purpose or object underlying the relevant Act
(whether that purpose or object is expressly stated in the relevant Act or
not) shall be preferred to a construction that would not promote that
purpose or object.”
Assistance in the application of this provision is to be found in statements
of principle concerning the application of the analogous common law
principles. Thus, in Kammins Ballrooms Co Ltd v Zenith Investments
(Torquay) Ltd [1971] AC 850, the construction of a procedural provision of
the Landlord and Tenant Act 1954 (UK) had to be determined. The Act
provided that no application under a particular section should be entertained
unless it was made not less than two nor more than four months after the
giving of a certain notice by the landlord or the making of a certain request
by the tenant. The question arose whether, despite this language, an
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application by a tenant within two months of a tenant's request could be
entertained where the landlord consented to or chose to ignore or not to
object to the tenant's premature application. Lord Diplock (at 880) pointed
out that upon a literal approach semantics and the rule of syntax alone could
never justify the conclusion that words “No application … shall be
entertained unless” meant that some applications should be entertained
notwithstanding that neither of the conditions which followed the word
“unless” were fulfilled. Such a conclusion could be justified only upon the
assumption that the draftsman of the Act omitted to state in any words he
used in the subsequent provision an exception to the absolute prohibition to
which Parliament must have intended it to be subject. His Lordship said
(at 881), dealing with a construction resulting in a qualification to the
apparently absolute provisions of the statute:
“… It is thus impossible to arrive at the terms of the relevant
exception by the literal approach. This can be done only by the
purposive approach, viz, imputing to Parliament an intention not to
impose a prohibition inconsistent with the objects which the statute was
designed to achieve, though the draftsman has omitted to incorporate in
express words any reference to that intention.”
It was held that the tenant's application could be entertained if the landlord
had waived non-compliance with the statutory requirements.
Another and possibly more relevant decision is Re Simo Securities Trust
Ltd [1971] 1 WLR 1455; [1971] 3 All ER 999, where Brightman J construed
s 209 of the Companies Act 1948 (UK) on the basis of commercial
considerations. The target company in a takeover had issued both shares and
convertible stock. The offer extended to convertible stock and gave each
holder a contractual right both to receive a conversion notice and to have
shares allotted and issued to him or his nominee. However, the offer
document invited stockholders not to demand an allotment and then to
transfer to the offeror, but to renounce in favour of the offeror. Two
questions arose for decision, whether a scheme which involved the transfer of
an absolute right to an allotment of shares was a scheme involving the
transfer of shares within the meaning of s 209, and more relevantly, whether,
for the purpose of determining whether the offer had been approved by the
holders of not less than nine-tenths in value of the shares whose transfer was
involved other than shares held by the offeror or a nominee for the offeror,
the shares which the stockholders never acquired because upon their
nomination, they were directed to the offeror, should be counted.
Brightman J having referred to a statement in the opinion of the Judicial
Committee in Blue Metal Industries Ltd v Dilley [1970] AC 827 at 850, that
the language of an analogous New South Wales provision was commercial
rather than juristic said (at 1464-1465; 1007):
“… In the context of the present case I do not think that there is any
difficulty in reading the words ‘a scheme or contract involving the
transfer of shares’ as including a scheme or contract which involves the
transfer of an absolute right to an allotment of shares. Nor do I feel any
difficulty in reading approval ‘by the holders of not less than nine tenths
in value of the shares whose transfer is involved’ as including approval
by persons who have an absolute right to an allotment of shares. The
telescoping of the three basic stages into the shortened two stages was
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merely convenient conveyancing machinery to reduce needless paper
work. In my opinion it would be lamentable if the court were compelled
to read section 209 in such a manner as to preclude businessmen from
doing by two steps what they could do by three steps. I see no necessity
for the narrow construction urged upon me by the applicants even in the
light of the consideration that section 209 is an enactment which
interferes with the property rights of another.”
The general purpose of s 43 is to be found in its headnote: “Rights of
remaining shareholders and holders of options and notes.” Section 42 gives a
right to the takeover offeror to acquire compulsorily the shares of those
holders who have not taken up the offer where it becomes entitled to not less
than 90 per cent of the relevant shares. Section 43 deals with the rights of the
holders of shares and other interests against the offeror if they have become
“locked in” as a result of a successful takeover bid. Section 43(1), 43(2) and
43(3) give a right to the holders of what are described the remaining shares,
that is the shares to which the offer extended but whose holders did not
accept the takeover offer, to require the offeror to acquire those shares.
Section 43(4) to s 43(6) give similar though not identical rights in respect of
non-voting shares, renounceable options and convertible notes. Some of these
rights could be included in a takeover offer but some could not. Whether they
are liable to be “locked in” because they had not accepted the offer or because
the offer had not been extended to them, these provisions enable the holders
of the rights to get out of their locked-in position by requiring the offeror to
acquire their rights. In the course of the process provided by these subsections
the offeror might also acquire some rights, but essentially and primarily the
provisions are directed to the protection of the relevant minority interests.
The respondent's submission in relation to the questions asked is as
Kearney J found, namely, that the person giving a notice under s 43(6) must
be the holder of the option to whom the offeror gave notice under s 43(4) and
must still be the holder of the option when he gives notice under s 43(6).
Although it would not seem to arise directly under the preliminary point,
Keprose also submits that the shares must still be held by the same registered
holder when proceedings are taken in the court to fix the terms of acquisition.
Kingston and Gammon make two submissions as to construction. Their
preferred construction is that the person to give the s 43(6) notice must be the
person who received the s 43(4) notice but that he need not still be the
registered holder of the option when he gives the s 43(6) notice. The
alternative construction is that the person who gives the s 43(6) notice must
be the registered holder of the option at the time when he gives the notice but
need not be the same person as the registered holder who received the s 43(4)
notice. In relation to the ancillary question as to the person from whom the
offeror must acquire the options and who may make an application to the
court to fix the terms, they submit that the offeror is bound and entitled to
acquire the shares from the holder at the time when the matter is to be
negotiated or determined and the obligation and right are not limited to the
holder who gave the s 43(6) notice.
I will deal firstly with the construction of s 43(4). Under this subsection the
offeror is required, within one month after the last day upon which offers
under the takeover announcement remained open, to give a notice to the
holders of non-voting shares in the company and to the holders of
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renounceable options and convertible notes granted or issued by the company
to which it is not entitled. There are many decisions in the company law field
supporting the view that the words “held” or “holder” refer to the state of the
register: see, eg, Avon Downs Pty Ltd v Federal Commissioner of Taxation
(1949) 78 CLR 353 at 363-364; Franklin's Selfserve Pty Ltd v Federal
Commissioner of Taxation (1970) 125 CLR 52 at 71; Dalgety Downs
Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335
at 342-343; Federal Commissioner of Taxation v Patcorp Investments Ltd
(1976) 140 CLR 247 and Bond Corporation Pty Ltd v White Industries Ltd
[1980] 2 NSWLR 351 at 363.
These decisions all concern the use of the words in connection with shares.
In Avon Downs, Dixon J had to consider the meaning of the words
“beneficially held” in s 80(5) in the Income Tax Assessment Act 1936-1944
(Cth) which provided shortly that no loss incurred by certain private
companies in any year prior to the year of income:
“… shall be an allowable deduction unless the company establishes to
the satisfaction of the commissioner that, on the last day of the year of
income shares of the company carrying not less than twenty-five per
cent of the voting power were beneficially held by persons who
beneficially held shares of the company carrying not less than twentyfive per cent of the voting power on the last day of the year in which the
loss was incurred.”
Dixon J considered first the meaning of the word “held”. He discussed and
quoted at some length from the decision of Chitty J in Re Wala Wynaad
Indian Gold Mining Co (1882) 21 Ch D 849, lastly referring to this passage in
the judgment of Chitty J (at 854):
“… I use now myself the term which is common in the Courts, ‘a
shareholder,’ that means the holder of the shares. It is the common term
used, and only means the person who holds the shares by having his
name on the register.”
His Honour then (at 364) said:
“Section 80(5) is concerned with voting. Its purpose is both to exclude
nominees from the enumeration of voting power and to take in those
who are members of the company and vote independently of control.
There is therefore every reason to treat the provision as using the
terminology of company law with the meaning attached to it in
company law.”
He went on to hold that the transferor of a share who had been paid the
consideration for its transfer but still remained on the register held simply as a
passive trustee until the registration of the transfer and the entry of the
transferee's name on the register. Although such a transferor was, during this
period, the holder of the share, he did not hold beneficially.
This decision was applied in Dalgety Downs where Webb, Fullagar and
Kitto JJ, having said that they were of opinion that the construction of
s 80(5) upon which the Deputy Commissioner had acted was correct, said
(at 341):
“… Dixon J so held in Avon Downs Pty Ltd v Federal Commissioner
of Taxation (1949) 78 CLR 353, basing his conclusion upon the view
that in the terminology of company law shares are said to be ‘held’ by
the person who is registered as a shareholder in respect thereof, and that
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s 80(5), being concerned with voting power, should be treated as using
that terminology. We share this view. Indeed it is not too much to say
that the verb ‘hold’ and its variants, when used in relation to shares in
companies, normally refers to the legal ownership of the shares
according to the register of members. The Companies Acts of the United
Kingdom and of the several States of the Commonwealth have
uniformly used the word in this sense; and common usage has followed
their example. Before a different meaning is accepted, some justification
must be found in the context, or the subject-matter.”
In discussing other provisions of the Income Tax Assessment Act (Cth),
their Honours said (at 343):
“… The policy manifested by these sections might quite well have led
to their being expressed so as to be applicable to loans made or
remuneration paid to persons entitled to shares in equity only, as well as
to registered members, but evidently the uncertainty resulting from a
desertion of the register of members as the sole source of information as
to the persons in respect of whom the sections apply was considered a
decisive practical reason for not carrying the policy to that length.”
This statement did not concern company legislation but it is to be noted
that it distinguished between persons entitled to shares in equity only and
registered members and referred to uncertainly resulting from going outside
the register as the sole source of information as a policy consideration.
In Franklin's Selfserve Menzies J applied Dalgety Downs and thus also
Avon Downs.
There are some references in the judgments in these cases to the legal
ownership to the shares, but this term is used in the sense of the legal
ownership of the person on the register. Although there are some provisions
in the Companies (New South Wales) Code which it might be argued assume
that the passing of legal ownership in shares dependent upon entry in the
register: see eg, s 183(3), s 191(1)(a) and Forms 1 and 2, there seems to be no
express provision on the matter. However s 178(1)(b) of the Code provides
that a share is transferable as provided by the articles. Article 19(3) of
Table A provides that a transferor of shares remains the holder of the shares
transferred until the transfer is registered and the name of the transferee is
entered in the register of members in respect of the shares. Article 35 of
Base's articles provides that a transferor shall be deemed to remain the holder
of a share until the name of the transferee is entered in the register in respect
thereof.
The above and other like decisions were applied in Federal Commissioner
of Taxation v Patcorp Investments Ltd. Gibbs J said (at 295) that the
decisions affirmed the general principle that entry in the register is necessary
to constitute membership of a company, and clearly established that the
beneficial ownership of shares, without registration, did not make a person a
shareholder. The decision also established that registration dates not from the
time of actual entry in the register, but from the time the directors approve of
registration: see (at 272) per Mason J; (at 295-296) per Gibbs J. Whatever the
articles provide and whatever in the case of particular companies may be the
strict position about the passing of the legal title to shares, it is in my opinion
clear that a transferee does not become a shareholder until his name is on the
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register, the date of registration being deemed to be the date on which the
directors approved registration of the transfer.
There appear to be no authorities as to the meaning of the words “held” or
“holder” in relation to renounceable options, nor are there legislative
provisions similar to the ones which I have described in relation to shares. If
the option gives rights to the issue of a marketable security the Companies
(New South Wales) Code, s 191(2) and Forms 4, 5, 6 and 7 (made applicable
by s 196) seem to assume that any transfer of that option would be registered.
It has been submitted that any renounceable option is an “interest made
available by a company” as that expression is used in various provisions of
Pt IV, Div 7. If that is so, there are provisions in that Division which assume
that any transfer of such an option will be registered in the “appropriate
register” (ss 183-187). I am not clear that options are such interests, and since
it is not necessary to decide the matter in these proceedings, I think it better
not to seek to resolve it now.
For the purposes of the relevant statutory provisions, renounceable options
must be transferable for they are defined to mean options to have an
allotment of shares in a corporation made to the holder of the option being an
option that is capable of being assigned: Companies (Acquisition of Shares)
(New South Wales) Code, s 6. Section 131 of the Code provides that a
company shall keep a register of options granted to persons to take up
unissued shares in the company, but it makes no express provision in relation
to the subsequent transfer or transmissions of options. The articles of
association of Base contain no relevant provision, nor, for that matter, does
Table A. Section 3G of the Stock Exchange's Listing Rules provides that
where a company has issued options it shall keep a register of optionholders
in the same way as companies are obliged to keep a register of members. This
would require the register to record the transfer of options. In addition when
a company has been served with a Pt A or Pt C statement it must, if
requested by the offeror, supply a written statement setting out, inter alia, the
names and addresses (so far as they are known to the company) of the persons
who, at the date of the service of the statement, held renounceable options
granted or issued by the company.
Although it is arguable that all public companies which have issued
renounceable options must have a register which records transfers as well as
grants of renounceable options, it is possible that non-listed public companies
are not required to have, and that some do not have, a register containing
these particulars.
If the transfer of renounceable options is not regulated by company
legislation, their assignment, since they are choses in action, is presumably
regulated by the Conveyancing Act 1919, s 12. This section would require an
assignment to be in writing and that notice of the assignment be given to the
company, if a transfer of the legal title is to be effected. The articles of the
company or the terms of the options could no doubt impose additional
requirements to the method of assignment, and in particular if they required
registration as a condition of the transfer of legal title, there is no reason why
effect should not be given to such a provision.
In this regard Keprose has referred to cl 4 of the “Summary of Rights
Attaching to the Share Options” which provides:
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“4. The rights of transfer attaching to the Share Options shall be the
same as those attaching to the Ordinary Shares of the Company.”
Assuming that in order to perfect a transfer of the legal title to a share, the
name of the transferee must be entered in the share register, that requirement
could not apply directly to options, for option holders are not as such
members of the company. However this would seem to be too strict a
construction of a provision in a commercial document. Base registered
transfers in its register of options and in my opinion if the requirement for
such a registration was caught by cl 4, the transfer of legal title to the options
would require registration of the transfer by Base. The question then arises
whether such a condition falls within the description of the “rights of
transfer” in cl 4. It may be arguable that it does not relate to rights of transfer
but rather to the requirements to be satisfied if a transfer which the option
holder has a right to effect is to pass the legal title. However I think this is too
technical an approach to such a document and in my opinion the effect of
cl 4 was to make registration by the company of a transfer of an option in its
register of options a condition of the vesting of legal title in the transferee.
It is with this background that I go to the meaning of the words “the
holders of renounceable options” in s 43(4). There can be no doubt that the
holders of non-voting shares referred to in the subsection are the registered
holders of those shares. The use of the expression “holder” in relation to
renounceable options seems to assume a usage of the word similar to its usage
in relation to shares. In s 43(6) the one word “holder” is used indifferently to
apply to shares, renounceable options and convertible notes. This view is also
supported by the provisions of s 131(2)(a) of the Companies (New South
Wales) Code which require the entry in the relevant register of “the name and
address of the holder of the option”. Although on one view this provision
may assume that the person whose name is entered is already the holder of
the option for the purposes of the Code, it is not dissimilar to the provision of
the Companies (New South Wales) Code, s 256, relating to the registration of
members. That section requires a company to keep a register of its members
and a statement of the shares held by each member. Furthermore the
provisions of the Companies (Acquisition of Shares) (New South Wales)
Code, s 36, shows that the target company is to be regarded as being at least
the prime source of the identity of the holders of renounceable options.
Although, as I have indicated, a public company which is not listed might not
have a register of options which records transfers, a transfer of the legal title
of an option would require at least notice to the company and in commercial
reality it should I think be assumed that a public company having a register of
options and receiving notices of transfers would record the transfers in that
register. I should think that this accords with usage of the term “holder” in
relation to renounceable options issued by public companies and that to give
a meaning to the word other than registered holder would produce an
uncertainty which would frustrate the beneficial or effective operation of the
relevant provisions of s 43.
Accordingly, subject to a qualification which I shall mention, the
expression “the holder of renounceable options” in s 43(4) should be
construed to mean the registered holders of those options, the registration
being deemed to take effect as from the time when the directors approved
registration. The qualification includes cases where the person who was the
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registered holder has died before the notice is given, and no name of a
personal representative has been placed upon the register. It would seem that
in this case, the name of the deceased shareholder still being on the register,
his estate can properly be regarded as the shareholder and in the person of his
executor or administrator be the recipient of the notice: A L Campbell & Co
Pty Ltd v Federal Commissioner of Taxation (1951) 82 CLR 452. There may
be other cases of transmission where the same result follows.
It seems to have been assumed during some parts of the argument that the
holder to whom a s 43(4) notice is given must be the registered holder at the
time of the close of the takeover offer. I see no reason why such a
construction should be placed upon the provision. Read literally, the holder
to whom the notice is given must be the registered holder at the time of the
giving, that is, the sending, of the notice. There is no stay of the registration
of transfers during the period of offer or after the close of the offer, and there
is nothing in the terms of the subsection nor, so far as I can see, in its purpose,
which would require the offeror to give the notice to a person registered at
the time of the close of the takeover offer but not registered at the time of the
giving of the notice.
This being the meaning of “holder” in s 43(4), the language of s 43(6) shows
that a similar meaning is intended in that subsection. The introductory words
of the subsection refer to a notice given under s 43(4) to the holder of the
renounceable option; that holder was the registered holder of the option. The
holder referred to in s 43(6)(a) must be the same person, for the right to give a
notice is given to the holder of the option within three months after the
giving of the s 43(4) notice to him. He is thus the holder, that is, the registered
holder, to whom the s 43(4) notice was given. Likewise in s 43(6)(b) the words
“a holder” refer to the same holder, for he must be a holder who “so gives
notice with respect to the … option”. The holder giving the notice must be
the person who received the s 43(4) notice and thus the holder at that time.
Indeed this is not in contest between the parties. The contest is whether the
person who was given a notice under s 43(4) and who is entitled to give a
notice under s 43(6)(a) must still be the holder of the option at the time he
gives a notice under s 43(6).
Construing the subsection literally, I have concluded that the holder of an
option who is given a right to give a notice under s 43(6)(a) must not only be
the same person as the holder who was given a notice under s 43(4) but must
still be the registered holder of the option when he gives that notice.
Paragraph (a) does not give the right to give the notice to “the person” who
was the holder of the option when the notice was given; the right is given to
“the holder of the option”. It is true that the holder may exercise the right at
any time within three months after the notice was given to him, but he must
still satisfy the description “the holder” when he gives the notice. The natural
meaning of this language is that the person giving the notice, being the holder
who received the s 43(4) notice, is the holder of the option at the time when
he gives a notice under s 43(6)(a). As in the case of s 43(4) notices, the legal
personal representative of a deceased recipient of a s 43(4) notice, whether
registered or not, is no doubt entitled to give a s 43(6) notice, and the same
position may apply to other transmittees. It follows from this conclusion that
the “holder” referred to in the introductory words in par (b), being the person
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who was the holder of the option at the time when the s 43(4) notice was
given, must still be the holder of the option when the s 43(6)(a) notice is given.
This being the literal meaning of the provision, is there anything in its
context or purpose that would lead to a different result. Part of the
background relied upon for that different result by Kingston and Gammon is
that options are traded on the market, as appears, for example, from the
application of s 194 of the Companies (New South Wales) Code to rights to
marketable securities and the reference in those provisions to the role of
brokers, and from the Stock Exchange Rules to which I have earlier referred.
There is nothing in any relevant legislation which puts an end to the
marketing of options because a takeover offer has been made or because a
notice has been given under s 43(4). It would be anomalous, so it was
submitted, if that trading were allowed to be continued but a transferee was
not given the benefit of the same rights as his transferor. Kingston and
Gammon also point to the provisions of s 43(2) in relation to the analogous
right given to a holder of remaining shares to require purchase by the offeror.
There the holder has a right to give the notice with respect to shares “of
which he is the holder”; there is no such language to be found in s 43(6).
Moreover, so it was submitted, the purpose of s 43(4), 43(5) and 43(6) is to
prevent, inter alia, option holders from being locked in after a successful
takeover offer has been made. Such a purpose could in part be frustrated if
option holders to whom a s 43(4) notice had been given were not able to sell
the options with the benefit of the s 43(6) rights.
Assuming the purpose of s 43(4) to s 43(6) is to enable option holders and
others from being locked in after a successful takeover bid, the persons to be
safeguarded are primarily those who are involuntarily and not voluntarily
locked in. If a person buys options at a time when he knows he may be locked
in if a current takeover bid is successful, there seems to be no reason why the
legislation should protect him against a difficulty the risk of which he
knowingly accepted and against which, as I will suggest, he could have
protected himself by contract. In theory the buyer of an option before a
takeover offer is announced might not become the registered holder until
after a s 43(4) notice is given, but having regard to the time factor involved,
this risk is theoretical rather than real.
On one view if a registered holder receives a s 43(4) notice but nonetheless
decides to sell to someone other than the offeror company, he is electing not
to require that company to acquire his options: cf the comment in R A
Brierley Investments Ltd v Landmark Corporation Ltd (1966) 120 CLR 224
at 232. If however the parties to such a transfer wish to ensure the retention
of the benefit of s 43(6) there would seem to be no great problem in making
appropriate contractual arrangements to achieve that result. The contract of
purchase could leave the seller as the registered holder and require him to
exercise the s 43(6) right on the buyer's behalf. There is nothing in the Act to
give the beneficial owner an entitlement to exercise the right given by s 43(6),
but likewise there is nothing which requires the registered holder to be the
beneficial owner if he is to exercise that right.
As regards other provisions in the Code, Keprose points to s 25. This
section makes special provision for the case where a person who was not the
registered holder at the time a takeover offer was made has become the
registered holder or has become entitled to be registered as the holder of the
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relevant shares before the offer closes. No such provision is to be found in
s 43 in relation to non-voting shares, renounceable options or convertible
notes. Furthermore, so it is submitted, a significant degree of uncertainty
would be introduced into the procedures established by s 43(6) if the
construction contended for by the appellants were the correct one. Many
examples of that uncertainty could be given. Thus if the registered holder of
options at the time when a s 43(4) notice is given sells and transfers his
options to a purchaser who becomes the registered holder, the latter may or
may not want a notice under s 43(6) to be given. Nonetheless the person
entitled to give the notice is the transferor who was the registered holder at
the time of the giving of the s 43(4) notice. Disputes could obviously arise in
this area, leaving the offeror in uncertainty as to what his rights or obligations
were. As it seems to me the purposes of s 43(4) to s 43(6) to protect option
holders and others against being involuntarily locked in and to provide
certainty and efficiency in takeover operations strongly support the conclusion that the holders of options and other rights to which these provisions
refer are, subject to transmission on death or possibly other events, the
persons who are at all times the registered holder of the option or other right
and that that holder is the holder at the time when the s 43(4) notice is given.
Accordingly I would agree with Kearney J that the answer to both
question A and question B is “Yes”. It is unnecessary to consider the
question of the making of a representative order.
Although not directly arising under the preliminary questions, a further
question that was discussed at the hearing was the identity of the person from
whom the offeror must acquire the shares and with whom he must negotiate
as to terms, and who is the holder who can apply to the court to fix terms. If
the construction which I have adopted as to the meaning of the provisions is
correct, that person is the same person, namely, the person who was the
registered holder of the shares at the time of the giving of a s 43(4) notice and
who, being still the registered holder, gave the s 43(6) notice, and from whom,
being still the registered holder, the shares are to be acquired.
I would dismiss the appeal with costs.
PRIESTLEY JA. Hope JA's reasons, with which I agree, fully state the
way I would seek to explain the operation of the relevant parts of the
Companies (Acquisition of Shares) (New South Wales) Code; so much so that
I see no purpose in my going over the same ground. However, as the Court is
divided I will state shortly why I take the view that I do on the point of
division.
The Court is unanimously of the opinion that (i) the notice to be given
pursuant to s 43(4) to holders of renounceable options is to be given to
holders of such options who are registered at the time the notice is given and
(ii) the holder of such an option who gives notice to an offeror pursuant to
s 43(6)(a) is the registered holder of the option at the time of giving the notice.
The question on which the Court has divided is whether additionally the
registered option holder who gives the s 43(6)(a) notice must be the same
registered option holder as the one to whom the s 43(4) notice was given.
I have two main reasons for thinking the option holder must be the same
person at each stage. One is that on both my first and subsequent readings of
s 43(6), the later readings being in the light of slowly increasing grasp of both
verbal and commercial context and the significance of the competing
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meanings proposed, the words have conveyed to me that the holder first
spoken of in the subsection is the same person as the holder next referred to,
in par (a). A principal element in this understanding is that the relevant words
of s 43(6) “where a notice is given … to the holder of any … renounceable
option … the holder … may, within three months after the giving of the
notice to him, require etc” to my mind mean very clearly that it is the person
to whom the notice is given who has the three months to decide whether or
not to require the offeror to acquire the option. The alternative meaning
which is favoured by McHugh JA, is one which, such is the protean nature of
language, I can understand as a possibility, but which I must also say, does
not fit nearly as readily into my understanding of s 43(6) as does the meaning
that comes first to my mind each time I come back to the provision.
The other main reason is that I do not see that the purpose or object
underlying the Code is any the less promoted by one interpretation than the
other. (The emphasised words come from the Companies and Securities
(Interpretation and Miscellaneous Provisions) Act 1980, s 5A, with which
s 33 and s 34 of the Interpretation Act 1987 should now be compared.) In
fact the interpretation I favour seems to me at least as practical as the other in
providing a way out for option holders in that (i) it makes implementation of
the scheme of s 43 easier for the offeror to administer while (ii) leaving it
open to a person buying a renounceable option after a takeover offer is
announced to preserve the s 43 position by agreement with the person selling
the option. As to (i), if the alternative construction were adopted, what would
happen if a registered option holder gave notice under s 43(6)(a) immediately
after receiving a s 43(4) notice, then sold the option to a second person who
became registered within the three months and also gave timely notice under
s 43(6)(a)? No doubt a court would answer the question, perhaps with ease,
perhaps only with difficulty. It would not arise at all under the construction I
prefer. Again, what would be the position if the registered holder, having
received a s 43(4) notice, sold the option just before the three months period
ended, with the result that the buyer could not be registered before the three
months was up? Presumably, on the alternative construction that buyer
would be locked in. As to (ii), I think that although the agreement between
buyer and seller to preserve the s 43 position would need to be carefully done,
I see no reason why it could not be done, or why as a matter of practice it
could not readily become common form. If it did become common form it
could just as readily become an incident of option sales occurring before a
takeover announcement as after. Although it seems to me that the procedure
I have been discussing is sound in theory and should be able to be
implemented in practice I recognise there may be practical difficulties as well.
However they seem to me at worst to be no greater than those involved in the
alternative construction.
Two things have become apparent in the course of considering questions
argued in this case. One is that on any view of s 43 it could provide better and
more detailed machinery for dealing with the various situations that may
arise if renounceable options are sold either shortly before or after a takeover
offer is made. I would think appropriate amendments could readily be
drafted, should it be thought the difficulties caused by the present subsection
are sufficiently great.
The second thing is that although I think appropriate amendments could
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readily be drafted, I would find it difficult to make more than general
statements about drafting, in my present state of knowledge of the
commercial situation concerning renounceable options. I mentioned earlier
that my understanding of the verbal and commercial context of s 43(6) slowly
widened in the course of my consideration of the issues before the Court. I
am not at all happy that it widened sufficiently in regard to commercial
context. This is partly because the construction of s 43 was argued before the
Court solely by reference to certain statutory provisions and the requirements
of the Stock Exchange. The Court was not assisted with any material
concerning the way the market in renounceable options operated when s 43
was first enacted or operates now. This applies both to any public market as
well as completely private sales of options. Although the Court has some
general knowledge of the commercial background that knowledge is unlikely
in the nature of things to be as detailed as that of the draftsman of the
relevant statutory provisions, or of those dealing in whatever markets there
are in options, or of the legal representatives of the parties to the litigation.
Thus I have had to approach the ascertainment of the meaning of the
relevant provisions to a considerable extent in the dark as to the general
background by reference to which the persons most concerned with the
options will have understood the meaning of the relevant provisions. It seems
to me highly desirable that in future cases the court be supplied with much
more material than it was in this case. In the absence of such material,
examples have been taken in my reasons and those of the other members of
the court which may have a greater or less degree of relevance to what may
actually happen in whatever markets there are; I have no way of knowing
how relevant the examples actually are. Nevertheless I have had to come to a
conclusion on the meaning of s 43 as best I could, on the available materials.
On the overall understanding of the matter that I now have, s 43(6) conveys
to me the meaning I have earlier stated.
In my opinion the appeal should be dismissed with costs.
McHUGH JA. In an action in the Equity Division see Kingston v
Keprose Pty Ltd (1987) 5 ACLC 1031, Kearney J was asked to answer a
preliminary question of law pursuant to the Supreme Court Rules 1970,
Pt 31, r 2. The question was:
“1. Whether the only persons entitled to give to the defendant notices
under s 43(6)(a) of the Companies (Acquisition of Shares) Code 1980
(NSW) (the Code) with respect to renounceable options in Base
Resources Ltd are those persons:
(a) who were registered as holders of those options at the time such
notices were given; and
(b) who as registered holders of those options, were given notices
pursuant to s 43(4) of the Code by the defendant.”
His Honour answered the question “Yes”.
Section 43 of the Companies (Acqusition of Shares) (New South Wales)
Code provides so far as relevant:
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“…
(4) Where—
(a) a Part A statement has been served as mentioned in paragraph (1)(a) and, during the relevant period referred to in that
paragraph, the number of voting shares in the company to
which the offeror is entitled becomes not less than 90% of the
voting shares in the company; or
(b) a take-over announcement has been made as mentioned in
paragraph (1)(b) and, during the relevant period referred to in
that paragraph, the number of voting shares in the company to
which the on-market offeror is entitled becomes not less than
90% of the voting shares in the company,
the offeror or on-market offeror shall, within one month after the last
day upon which offers under the relevant take-over scheme remained
open or offers constituted by the take-over announcement remained
open, as the case may be, give, as prescribed, a notice to the holders of
non-voting shares in the company to which he is not entitled, and to the
holders of renounceable options or convertible notes granted or issued by
the company to which he is not entitled, stating that he became entitled
to shares as mentioned in paragraph (a) or (b), as the case may be, and
containing such other information (if any) as is prescribed.
…
(6) Where a notice is given under sub-section (4) to the holder of any
non-voting shares, renounceable option or convertible note—
(a) the holder of the shares, option or note may, within 3 months
after the giving of the notice to him, require the offeror or onmarket offeror to acquire the shares, option or note; and
(b) if a holder of shares or of an option or note so gives notice with
respect to the shares, option or note, the offeror or on-market
offeror is entitled and bound to acquire those shares or that
option or note on such terms as are agreed or as the Court, on
the application of the offeror, on-market offeror or holder of the
shares, option or note, thinks fit to order.”
I think that, when regard is had to the purpose of s 43, the preliminary
question should be answered “No”. The appeal, therefore, should be allowed.
The meaning of “holder” in s 43:
The word “holder” when used in relation to shares ordinarily means the
person who is registered as the holder of the shares: Avon Downs Pty Ltd v
Federal Commissioner of Taxation (1949) 78 CLR 353 at 363-364; Federal
Commissioner of Taxation v Patcorp Investments Pty Ltd (1976) 140 CLR
247 at 294-295. In a statutory provision, a different meaning will be
attributed to the word only when the context, subject matter, or purpose of
the provision requires it: cf Dalgety Downs Pastoral Co Pty Ltd v Federal
Commissioner of Taxation (1952) 86 CLR 335 at 342.
Nothing in s 43 or the Code as a whole gives rise to any doubt that
Parliament intended the prima facie meaning of “holders” or “holder” to
apply. Accordingly, the notice required to be served pursuant to s 43(4) must
be served on the persons who are the registered holders at that time. But is
the person who received the notice under s 43(4) the only person who can
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exercise the right given by s 43(6) and must he still be registered as the holder
of the shares, option or note when he exercises that right?
The opening words of s 43(6) state the condition upon which the exercise
of the right depends. It is the giving of a notice to the holder of a share, option
or note. The word “holder” in that condition refers to the registered holder
who was served under s 43(4). Likewise the word “holder” in pars (a) and (b)
must refer to the person registered as the holder of the shares, options or
notes. The appellants made no contrary submission. But the effect of their
first submission was that the word “holder” in par (a) of s 43(6) had no
temporal connotation. On this construction the “holder of the shares, option
or note” is simply descriptive of the person who has received the notice under
s 43(4). If this construction is correct, a person who has sold his share, option
or note can still give a notice under s 43(6). The construction has the
consequence that the offeror is “bound to acquire those shares or that option
or note” even though neither the purchaser nor the offeror or on-market
offeror wishes to sell or buy them. In my opinion the term “the holder” in
par (a) of s 43(6) must mean the person who is registered as the holder of the
shares, option or note at the time when he requires the offeror to buy the
holding. The first submission of the appellant is rejected.
The real question in the case is whether the use of the words “after the
giving of notice to him” in s 43(6)(a) introduce a personal element into the
statutory scheme so that only the person who has received the s 43(4) notice
can exercise the right under s 43(6). The appellant's second submission was
that any person who was the holder of the shares, options or notes could give
notice within the three months period specified in s 43(6). The answer given
by Kearney J to the preliminary question rejects the appellant's submission
and adopts the personal right approach. The construction which his Honour
placed upon s 43(6) means, however, that, if a person buys an option before a
s 43(4) notice is sent and does not obtain registration before notice is given
under s 43(4), as occurred in the present case, he obtains no right under
s 43(6).
The argument in support of the conclusion reached by his Honour
naturally seized on the words “to him” in s 43(6)(a). The respondent
contended that the use of the pronoun “him” indicated that the section
required an identity between the person receiving the notice and the person
exercising the right under s 43(6). While I appreciate the force of the
argument, I do not regard the use of the pronoun “him” as decisive. A
pronoun is only a substitute for a noun. The personal right theory of s 43 has
less force if the noun “holder” is substituted for “him” so that s 43(6) reads:
“Where a notice is given under sub-section (4) to the holder of any …
renounceable option … the holder of the … option … may, within 3
months after the giving of the notice to (the holder), require …”.
When this substitution is made, the nature of the right given by s 43(6)
seems much less personal. I think it likely that the pronoun “him” was used to
enhance the elegance of the drafting rather than to emphasise the personal
nature of the right. Moreover, if s 43 means that only the holder who was
served with the s 43(4) notice can give a notice under s 43(6), then a person
who became registered as an executor or trustee after the service of that
notice would be outside the section.
Accordingly, I think that the words of s 43(6) are capable of at least two
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meanings. The first meaning is that the right may be exercised only by the
person who received the notice. The second meaning is that, within three
months of the service of the notice, the right may be exercised by the person
who is then the registered holder of the shares etc. Although the meaning of
s 43(6) is ambiguous, I think that on balance the personal right theory
represents the grammatical meaning. But that is not the end of the matter.
The ultimate question is whether the grammatical meaning gives effect to the
intention of Parliament.
The modern approach to statutory construction:
A rule of law enacted by statute consists of a proposition which gives rise
to legal consequences when the act or omission of some person falls within
the factual outline delineated by that proposition. The proposition may be
neatly contained in a single sentence; or it may only be deducible from an
examination of a number of sentences in a number of sections or paragraphs.
Once deduced, the proposition is taken to represent what Parliament
intended to enact. The difficulty is to determine whether Parliament intended
a particular set of facts to fall within the factual outline of the proposition.
That is, the difficulty is to determine the ambit of the factual outline which
Parliament intended to enact.
Where the text of the legislative provision which embodies the proposition
is grammatically capable of only one meaning and neither the context, the
purpose of the provision nor the general purpose of the Act throws any real
doubt on that meaning, the grammatical meaning must be taken as
representing Parliament's intention as to the meaning of the law. A court
cannot depart from the grammatical meaning of a provision because that
meaning produces anomalies or injustices where no real doubt as to the
intention of Parliament arises: Cooper Brookes (Wollongong) Pty Ltd v
Federal Commissioner of Taxation (1981) 147 CLR 297 at 305, 320 and
Stock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231 at 234-235, 237, 238;
[1978] 1 All ER 948 at 951, 954, 955. If the grammatical meaning does give
rise to an injustice or anomaly, however, a real doubt will usually arise as to
whether Parliament intended the grammatical meaning to prevail: cf Cooper
Brookes (at 320). As Cardozo J said in Re Rouss 116 NE 782 at 785 (1917):
“Consequences cannot alter statutes, but may help to fix their meaning.” A
resulting anomaly or injustice is not itself, however, a ground for departing
from the grammatical meaning. Equally the natural and ordinary grammatical meaning of the provision is not decisive. The courts no longer follow
statements to the effect of that of Higgins J in Amalgamated Society of
Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 at 162, that
“when we find what the language means, in its ordinary and natural sense, it
is our duty to obey that meaning, even if we think the result to be
inconvenient or impolitic or improbable”: see Cooper Brookes (at 319-320).
Ascertaining the ordinary grammatical meaning of a legislative provision is
only the first step in the process of statutory construction. If the
consequences of the literal or grammatical construction raise a real doubt as
to Parliament's intent, the court is justified in refusing to give the words their
literal or grammatical construction: R v City of London Court Judge and
Payne [1892] 1 QB 273 at 290, 301; R v Wimbledon Justices; Ex parte
Derwent [1953] 1 QB 380 at 384; Re Lockwood [1958] Ch 231 at 238; R v
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Oakes [1959] 2 QB 350 at 354, 355; Luke v Inland Revenue Commissioners
[1963] AC 557 at 577; Adler v George [1964] 2 QB 7 at 9-10; Wiltshire v
Barrett [1966] 1 QB 312 at 332-333; Kammins Ballrooms Co Ltd v Zenith
Investments (Torquay) Ltd [1971] AC 850 at 879; University College, Oxford
(Master and Fellows) v Durdy [1982] Ch 413 at 419; Director of Public
Prosecutions v Hester [1973] AC 296 at 323 and Cooper Brookes
(Wollongong) Pty Ltd v Federal Commissioner of Taxation (at 311, 320-321).
Fifty years ago in Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd
[1938] Ch 174 at 201, MacKinnon LJ said that when “the purpose of an
enactment is clear, it is often legitimate, because it is necessary, to put a
strained interpretation upon some words which have been inadvertently
used” (my emphasis).
However, it is not only when words have been inadvertently used that a
court is empowered to give a legislative provision a strained construction. A
strained construction may be justified because words have been omitted:
Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd (at 880882); or because by inadvertence Parliament has failed to deal with an
eventuality required to be dealt with if the purpose of the Act is to be
achieved: Jones v Wrotham Park Settled Estates [1980] AC 74 at 105; or
because the statute proceeds on a mistaken assumption: R v Draper (1870)
1 VR(L) 118; or because the purpose of the provision indicates that
Parliament did not intend the grammatical meaning to apply: Adler v George
(at 10); Wiltshire v Barrett (at 332-333); R v Oakes (at 354-355); or because
words must be omitted to avoid absurdity; Re Lockwood (at 238). As many
of the cases show, the purpose of the legislation may require a meaning to be
placed on the words of a particular provision which, standing alone, they
cannot reasonably bear. In Adler v George, the Divisional Court held that
the words “in the vicinity of any prohibited place” meant “in or in the vicinity
of any prohibited place”. In Wiltshire v Barrett the Court of Appeal held that
the words “may arrest … a person committing an offence” meant “may
arrest … a person committing or apparently committing an offence”. In
Kammins the House of Lords held that the words, “No application … shall
be entertained unless …” meant that some applications could be entertained
although the unless clause was not satisfied. But as Mason and Wilson JJ
pointed out in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (at 321), the propriety of departing from the literal rule
does not depend upon labels. It:
“… extends to any situation in which for good reason the operation of
the statute on a literal reading does not conform to the legislative intent
as ascertained from the provisions of the statute, including the policy
which may be discerned from those provisions.”
In Jones v Director of Public Prosecutions [1962] AC 635, Lord Reid said
(at 662) that you may not attach to a statutory provision a meaning which
the words of that provision cannot reasonably bear. His Lordship expressed
the view that if the words “are capable of more than one meaning, then you
can choose between those meanings, but beyond that you must not go”. The
often quoted remarks of Lord Simonds in Magor and St Mellons Rural
District Council v Newport Corporation [1952] AC 189 at 191 are to the
same effect. But if these remarks were ever a correct exposition of the cases,
they no longer express the modern law of statutory construction. In Jones v
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Wrotham Park Settled Estates, Lord Diplock said (at 105) that if the
application of the literal or grammatical meaning would lead to results which
would defeat the purpose of a statute the court may read words into the
legislation. But his Lordship said that words could only be read into a statute
if three conditions were fulfilled. First, the court must know the mischief with
which the Act was dealing. Secondly, the court must be satisfied that by
inadvertence Parliament has overlooked an eventuality which must be dealt
with if the purpose of the Act is to be achieved. Thirdly, the court must be
able to state with certainty what words Parliament would have used to
overcome the omission if its attention had been drawn to the defect.
The purposive approach:
A purposive and not a literal approach is the method of statutory
construction which now prevails: cf Fothergill v Monarch Airlines Ltd [1981]
AC 251 at 272-273, 275, 280, 291. In most cases the grammatical meaning of
a provision will give effect to the purpose of the legislation. A search for the
grammatical meaning still constitutes the starting point. But if the grammatical meaning of a provision does not give effect to the purpsoe of the
legislation, the grammatical meaning cannot prevail. It must give way to the
construction which will promote the purpose or object of the Act. The Acts
Interpretation Act 1901 (Cth), s 15AA, and the Interpretation Act 1987
(NSW), s 33, both require this approach to statutory construction. The
companies legislation has its own direction to this effect. The Companies and
Securities (Interpretation and Miscellaneous Provisions) Act 1980, s 5A,
enacts:
“In the interpretation of a provision of a relevant Act, a construction
that would promote the purpose or object underlying the relevant Act
(whether that purpose or object is expressly stated in the relevant Act or
not) shall be preferred to a construction that would not promote that
purpose or object.”
But first and last the function of the court remains one of construction and
not legislation. As Lord Diplock has pointed out “the task on which a court of
justice is engaged remains one of construction; even where this involves
reading into the Act words which are not expressly included in it”: Jones v
Wrotham Park Estates Ltd (at 105).
Purposive construction often requires a sophisticated analysis to determine
the legislative purpose and a discriminating judgment as to where the
boundary of construction ends and legislation begins. But it is the technique
best calculated to give effect to the legislative intention and to deal with the
detailed and diverse factual patterns which the legislature cannot always
foresee but must have intended to deal with if the purpose of the legislation
was to be achieved. Moreover, it is the technique which may finally induce
the draftsmen of statutes to state broad principles rather than to draw the
detailed enactments which now emanate from the legislatures. Only then will
statute law escape the comment of Sir Carleton Allen that a “statute is
probably the most repellent form of written expression known to man”: “The
Literature of the Law”, Aspects of Justice (1958) (Stevens & Sons Ltd) at 284.
If the objects and purposes of a statute and the means of their
achievements are not declared, they can only be determined by examining the
statute as a whole. The ordinary meanings of the individual words together
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with any statutory definitions will invariably indicate what those objects,
purposes and means are. The cumulative weight of their core meanings will
indicate the general purpose or purposes of the statute. But when the statute
has been read as a whole and its purpose determined, the prima facie meaning
of a provision must, if necessary, give way to the construction which gives
effect to the statutory object or purpose. The meaning of a legislative
provision is not necessarily the sum of the meanings of its constituent
elements: cf Exxon Corpn v Exxon Insurance Consultants International Ltd
[1982] Ch 119 at 144. Words may give colour to each other, modifying their
primary meaning, and causing the whole provision to have its own unique
meaning. Likewise the general objects and purposes of the statute will give
colour to the individual words, phrases and provisions sometimes modifying
their ordinary meanings.
Once the object or purpose of the legislation is delineated, the duty of the
Court is to give effect to it in so far as, by addition or omission or
clarification, the relevant provision is capable of achieving that purpose or
object. Where the court can see the purpose of a provision from an
examination of its terms, little difficulty should be met in giving effect to that
purpose. The days are gone when judges, having identified the purpose of a
particular statutory provision, can legitimately say, as Lord Macmillan said in
Inland Revenue Commissioners v Ayrshire Employers Mutual Insurance
Association Ltd [1946] 1 All ER 637 at 641, of the means used to achieve the
purpose: “The legislature has plainly missed fire”. Lord Diplock, in an extra
judicial comment on that decision has said, that “if … the Courts can
identify the target of Parliamentary legislation their proper function is to see
that it is hit: not merely to record that it has been missed”: “The Courts As
Legislators”, The Lawyer and Justice (Sweet & Maxwell) (1978) at 274.
The purpose of s 43:
One of the primary purposes of s 43 and the Code is to ensure that
minority holders are not locked into a company where the person taking over
the company has obtained at least 90 per cent of the shares of that company:
see s 43(1) to s 43(3) as well as s 43(4) to s 43(6). But if s 43(6) is given the
construction for which the respondent contends, minority holders such as the
appellants will miss out on the protection which the legislation promotes. It is
true that those who purchase shares or notes or options from minority
holders after the s 43(4) notice is given or even after a takeover offer is
announced may theoretically be able to protect themselves by contractual
stipulation. But a person who acquires a holding before the announcement is
made cannot obtain protection by contract. Moreover, a seller, entering into
a contractual restriction, would be required not only to remain the registered
holder for a time but, if necessary, to lend his name to litigation for the
purpose of determining the value of the shares, notes or options. Not many
sellers would find that course attractive. In the case of securities which are
bought in the market, it hardly seems possible for a purchaser to obtain
protection by a contractual stipulation.
Moreover, another of the purposes of s 43 is to give a holder a lengthy
period in which to decide whether or not he should sell his holding to the
offeror. The right to make an election within three months of receiving the
notice is explicable only on the basis that the holder should have a fairly
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lengthy period to monitor the progress of the company under its new
controller before the holder makes a decision to sell his share, note or option
to the controller. The terms of s 43(2), which gives a similar right to a holder
of shares in the class of shares which has been taken over, reinforces this view
of the section. The theory of s 43(2) is that, though the holder has rejected the
original offer by the offeror or on-market offeror, he is to be given another
three months from the date of the notice of the 90 per cent acquisition to
make up his mind whether he should sell his shares to the offeror. So it is not
one of the objects of the legislation that the minority holders should make a
quick election as to whether they will sell their holdings to the offeror or that
the offeror should quickly know whether he has to acquire the holdings.
The adoption of the impersonal right theory of s 43(6) promotes the
purpose of the Code. It protects a group of holders whom Parliament would
certainly have wished to protect if the purpose of the legislation was to be
achieved. The failure to do so must have been the result of inadvertence. I
cannot think of any reason why Parliament would want to protect registered
holders but not those beneficial owners who were obtaining registration when
the notice under s 43(4) was given. It is true that in some cases the adoption
of the impersonal right theory might confer a benefit on persons who buy
shares, notes or options after the announcement of the 90 per cent
acquisition. Nevertheless, the adoption of that theory does not defeat any
purpose of the legislation. Nor does it add to the burden of the person making
the successful takeover. The period in which his liability can be enforced is
still limited to three months after giving the s 43(4) notice. Moreover, it is not
very likely that persons will want to buy a minority holding after a takeover
of 90 per cent of the shares. It is precisely because purchasers are difficult to
find in these circumstances that s 43 was enacted to protect the minority
holders. Adoption of the personal right theory of s 43 does defeat the purpose
of the legislation. For it has the consequence that purchasers of shares, notes
and options who have not had them registered at the date of the s 43(4) notice
are effectively locked in to the company.
In my opinion, the direction in the Companies and Securities
(Interpretation and Miscellaneous Provisions) Act, s 5A, requires us to declare
that the holder who gives the s 43(6) notice need not be the same person who
received the s 43(4) notice. It is sufficient that a notice was given under
s 43(4) and that the person giving the notice under s 43(6) is the present
registered holder. Once the holder gives notice the offeror or on market
offeror becomes bound to acquire the securities. It is not open to anybody else
to give the notice. In my opinion the appeal should be allowed.
The appellants also asked Kearney J to make a representative order under
the Supreme Court Rules 1970, Pt 8, r 14, appointing Gammon as the
representative of the sellers of the options:
“… being the class of persons who were registered as holders of
options in Base Resources Ltd at the date of the defendant's notice
pursuant to subsection 43(4) of the Companies (Acquisition of Shares)
(NSW) Code, who received the said notice and as to whose options the
plaintiffs subsequently became registered as holders that these proceedings be continued by the second plaintiff on behalf of and representing
the said class.”
Because of the conclusion to which he came on the question of
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construction, Kearney J found it unnecessary to make this representative
order. His Honour indicated, however, that if he had come to a contrary
conclusion he would have considered that there was a basis for making the
order. Having regard to the conclusion I have reached concerning the
construction of s 43, I am not sure that the order is required. I would give the
appellants liberty to apply for the making of such an order if they think it
necessary.
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Orders:
The appeal is allowed. Answer to question 1 made by his Honour set aside.
In lieu thereof answer question 1: “No.” The respondent should pay the costs
of the appeal and of the hearing on the preliminary question before
Kearney J. The appellants have liberty to apply for the making of a
representative order if they think it is necessary. The further hearing of the
proceedings is remitted to the Equity Division.
(By majority)
Appeal dismissed
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Solicitors for the respondent: Freehill Hollingdale & Page.
N J HAXTON,
Barrister.
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