Brickworks decision appears to blunt one weapon in the armoury of shareholder activists: RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756

Removing directors - formalities are important: In the matter of Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) and S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] NSWSC 881

Can a deed be binding on a party who hasn’t executed it?: Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141

Brickworks decision appears to blunt one weapon in the armoury of shareholder activists: RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756

There was an apparent victory for board autonomy in the recent Federal Court decision in RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756.  The Court rejected a claim by institutional investor Perpetual Investment Management Limited that a long-standing cross shareholding between Brickworks Ltd and Washington H. Soul Pattison & Company Ltd is “oppressive” to minority shareholders.

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Removing directors - formalities are important: In the matter of Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) and S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] NSWSC 881

This case serves as reminder of the importance of good record-keeping and timely lodgement of ASIC notifications in connection with the removal of a director, as well as clear communication with the director that he or she has been removed. A director who has been removed from office may still bind a company where he or she has not been informed of their removal, the appointment is supported by ASIC records and the company continues to hold him or her out as a director.

The relevant factual background to this case was as follows:

• on the evening of 16 June 2017, Mr Lee appointed Mr Hogan and Mr Sprowles as administrators of Sydney Project Group Pty Ltd and S.E.T. Services Pty Ltd (the Companies) based on his opinion that the Companies were insolvent or likely to become insolvent;
• at the time of their appointment, Mr Hogan and Mr Sprowles believed that Mr Lee was the sole director of the Companies and this was confirmed by ASIC searches obtained by them both before and following their appointment;
• Mr Mehajer (the sole shareholder of the Companies) later claimed to have convened a meeting on the morning on 16 June 2017 and, in his capacity as sole shareholder, resolved to remove Mr Lee as director and appoint his sister in his place;
• Forms 484 notifying ASIC of the change in director were not lodged until 18 June 2017; and
• Mr Hogan and Mr Sprowles first became aware that Mr Lee had purportedly been removed as director of the Companies when they were provided with updated ASIC searches on 19 June 2017 which showed the change.

In making an order under section 447C of the Corporations Act 2001 (Cth) (Act) confirming the validity of the appointment of Mr Hogan and Mr Sprowles as administrators of the Companies, Robb J found that:

• there was not sufficient evidence to conclude that the meeting to remove Mr Lee in fact took place before the appointment of Mr Hogan and Mr Sprowles; and
• Mr Mehajer did not inform Mr Lee that he had been removed as director and in fact continued to correspond with Mr Lee as if he was a director (Mr Mehajer gave evidence that he did not believe that the removal would be official until ASIC was notified).

Robb J also held that because ASIC’s records showed Mr Lee as sole director at the time of their appointment, Mr Hogan and Mr Sprowles were entitled to assume, pursuant to sections 128(1) and 129 of the Act, that Mr Lee was a duly appointed director of each of the Companies.  Robb J further held that Mr Merhajer’s belief that Mr Lee would remain a director until ASIC was notified meant that Mr Lee and the Companies positively held out Mr Lee as continuing to be the sole director.

Can a deed be binding on a party who hasn’t executed it?: Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141

A recent decision of the Supreme Court of Victoria - Court of Appeal provides guidance on when a deed may be binding even when not executed by a party, and how the subsequent conduct of the party may be taken as evidence that it was in fact a party.  The case also illustrates when a heads of agreement in relation to the sale of shares will merely be an ‘agreement to agree’ the terms of the sale rather than an immediately enforceable agreement for the sale of the shares.

The case concerned a document entitled “Binding Heads of Agreement” (HOA) which set out the parties’ intention to enter into a share sale agreement for the purchase by Anyoption Holdings Limited (Anyoption) from Nurisvan Investment Ltd (Nurisvan) of the shares in FIBO Australia Pty Ltd  (FIBO).  The HOA, which was in the form of a deed, was executed by Anyoption and FIBO.  Nurisvan was named as a party to the HOA but did not execute it (and there was no execution clause for it).

After lengthy negotiations about the terms of the share sale agreement, Nurisvan advised that it did not regard itself as bound by any agreement with Anyoption, and did not accept that there was any obligation to comply with the HOA.

Was the HOA a binding deed or contract?

In finding that the HOA was a binding contract despite not being executed by Nurisvan, the Court held that:

• in an appropriate commercial context, a deed which is intended to be executed but is not executed by each party, can operate as a binding contract if the non-executing party otherwise binds itself to it; and
• a deposit paid by Nurisvan for the obligations assumed under the HOA constituted adequate consideration.

In considering whether Nurisvan was a party to the HOA (and was the therefore bound by it) even though it did not execute it, the Court held that the question must be determined objectively by an evaluation of the contractual document and the circumstances in which it was executed (specifically whether it might be implied from the terms of the HOA that Nurisvan intended to be a party and to be bound by it).  In this regard, the Court affirmed that evidence of post-contractual conduct is admissible in determining whether a contract was in fact formed (but not in construing a contract), but found no settled view on whether post-contractual conduct may be relied on to found or support an inference as to the identity of a party.  However, the Court pointed to examples in previous cases where post-contractual conduct by an alleged party to a contract was regarded as an admission by it that it was a party, and ultimately found that the trial judge was correct to take into account the post-contractual conduct of the parties to determine whether Nurisvan was in fact a party to the HOA.

The Court then pointed to the following to support a finding that Nurisvan was a party to the HOA:

• Nurisvan was plainly a necessary party to any contract to sell its shares in FIBO;
• the HOA noted Nurisvan as the vendor and set out the rights and obligations of Anyoption as purchaser and Nurisvan as vendor (and it was necessary for Nurisvan to be a party to give the HOA any business efficacy at all);
• the fact that no sale of the shares in FIBO could possibly take place without Nurisvan’s agreement gave rise to a ‘strong inference’ that Nurisvan agreed to be bound by the HOA; and
• email correspondence between Nurisvan and Anyoption during negotiation of the share sale agreement made it plain that Nurisvan accepted that it was a party to the HOA.

Was the HOA an enforceable contract for the sale of shares?

Despite the Court’s finding that the HOA was a binding contract (notwithstanding not being executed by Nurisvan), the Court ultimately found for Nurisvan that the HOA was merely a contract to negotiate in good faith with respect to entering into a share sale agreement (i.e an ‘agreement to agree’ within the third category of cases in Masters v Cameron) and was not an immediately binding contract for the sale of the shares.

In so finding, the Court considered:

• the language of the HOA (e.g. references to the parties wishing to ‘manifest their intention’ (rather than their ‘agreement’) to sell the shares and the parties’ ‘respective bona fide intention’ to enter into a share sale agreement);
• that some of the clauses in the HOA would be unnecessary if the HOA constituted a contract to enter into a share sale agreement (e.g. clause 4 which prevented the parties from negotiating with third parties while the sale agreement was being negotiated); and
• the extent of the terms that were left for future negotiation (which was very apparent when the HOA was compared with the ninth draft of the share sale agreement).