406 - office of state revenue · statutes — construction — purposive approach — discussion of...

[(1987) 11SUPREME COURT404

AKINGSTON AND ANOTHER V KEPROSE PTY LTD

Court of Appeal: Hope, Priestley and McHugh JJA

21-22 October, 16 December 1987

Companies — Takeovers and acquisition — Acquisition by dissentientshareholders — Holders of option — Right to require offeror to

Bpurchase by giving notice — Who is “holder” of option for purpose of —Companies (Acquisition of Shares) (New South Wales) Code, s 43(4), (6).

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 SouthCWales) 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 noticeis 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) D(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 interpretationof statutes with reference to the Companies and Securities (Interpretation andMiscellaneous Provisions) Act 1980, s 5A.

Note: EA Digest — COMPANIES [351]; STATUTES [18], [20]

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.

FAvon 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.GExxon 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.

NSWLR] KINGSTON v KEPROSE PTY LTD (Hope JA) 405

Jones v Wrotham Park Settled Estates [1980] AC 74.AKammins 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.BR 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.

C 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.DSlazengers (Australia) Pty Ltd v Milligan [1948] WCR (NSW) 39.

APPEAL

This was an appeal from the separate determination of a question byKearney 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

HOPE JA. On 31 October 1986, Keprose Pty Ltd (Keprose) made atakeover announcement in respect of the shares in Base Resources Ltd (Base).FThe date to which the takeover offers remained open was 15 December 1986and by that time Keprose had become entitled to not less than 90 per cent ofthe voting shares in Base. On 6 November 1986, Gammon Nominees Pty Ltd(Gammon) began buying renounceable options granted by Base on behalf ofMrs Jean Nesta Kingston (Kingston). Ultimately Kingston became thebeneficial owner of 2,410,000 renounceable options in Base, most of whichhad been purchased before 8 January 1987. On 12 December 1986, an optionG certificate for 1,044,500 renounceable options in Base was issued to Gammonand it having thus become the registered holder of these options before theclose of the takeover offer, there is no dispute in the present proceedingsconcerning 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


were registered holders of the renounceable options on 15 December 1986. AThese notices were apparently received by the then registered holders of theoptions the subject of these proceedings on or before 8 January 1987. Afterthe close of the takeover offer on 15 December 1986, Kingston became theregistered holder of 200,000 of the options which had been purchased, andGammon became the registered holder of the remaining 1,165,500 options.Gammon became the registered holder of 62,000 of the then options on 26December 1986, and of the balance after 8 January 1987. Both Kingston and BGammon gave notices purporting to be in pursuance of s 43(6) of the Codeafter having become the registered holders of the options to which I havereferred. Kingston also gave such a notice in respect of all the 2,410,000options. The vendors of the options, who had received notices pursuant tos 43(4), also gave notices pursuant to s 43(6) to Keprose, these notices beinggiven, save in one case, after they had ceased to be the registered holders ofthe options.

CNegotiations then proceeded between the parties as to the terms on whichthe 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 ofpurchase. Keprose challenged the right of Kingston and Gammon to compelit to acquire the options, on the ground, inter alia, that no valid noticepursuant 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— D(a) a Part A statement has been served as mentioned in para-

graph (1)(a) and, during the relevant period referred to in thatparagraph, the number of voting shares in the company to whichthe offeror is entitled becomes not less than 90% of the votingshares in the company; or

(b) a take-over announcement has been made as mentioned inparagraph (1)(b) and, during the relevant period referred to in that Eparagraph, the number of voting shares in the company to whichthe on-market offeror is entitled becomes not less than 90% of thevoting shares in the company,

the offeror or on-market offeror shall, within one month after the lastday upon which offers under the relevant take-over scheme remainedopen or offers constituted by the take-over announcement remainedopen, as the case may be, give, as prescribed, a notice to the holders of Fnon-voting shares in the company to which he is not entitled, and to theholders of renounceable options or convertible notes granted or issued bythe company to which he is not entitled, stating that he became entitledto shares as mentioned in paragraph (a) or (b), as the case may be, andcontaining such other information (if any) as is prescribed.

…(6) Where a notice is given under sub-section (4) to the holder of any

Gnon-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 on-market offeror to acquire the shares, option or note; and

(b) if a holder of shares or of an option or note so gives notice withrespect to the shares, option or note, the offeror or on-market


offeror is entitled and bound to acquire those shares or that optionAor note on such terms as are agreed or as the Court, on theapplication of the offeror, on-market offeror or holder of theshares, option or note, thinks fit to order.”

The proper construction of s 43(6) being raised, the parties agreed to have aquestion determined separately as a preliminary point in the proceedings.This question was:

“1. Whether the only persons entitled to give to the defendant noticesBunder s 43(6)(a) of the Companies (Acquisition of Shares) Code 1980(NSW) (the Code) with respect to renounceable options in BaseResources Ltd are those persons:

(a) who were registered as holders of those options at the time suchnotices were given; and

(b) who as registered holders of those options, were given noticespursuant to s 43(4) of the Code by the defendant.”C

Kearney J answered each question: “Yes”. His Honour was also asked byKingston and Gammon to make a representative order under the SupremeCourt Rules 1970, Pt 8, r 14, appointing Gammon to represent the sellers ofthe options described as follows:

“… being the class of persons who were registered as holders ofoptions in Base Resources Ltd at the date of the defendant's noticepursuant to subsection 43(4) of the Companies (Acquisition of Shares)D (New South Wales) Code, who received the said notice and as to whoseoptions the plaintiffs subsequently became registered as holders and thatthese proceedings be continued by the second plaintiff on behalf of andrepresenting the said class.”

In the light of the conclusion to which he came on the question ofconstruction, it was not necessary for Kearney J to make any representativeorder. However he indicated that had he come to a contrary conclusion he

E would have considered that there was a basis for making such an order: seeKingston v Keprose Pty Ltd (1987) 5 ACLC 1031.

Submissions have been made to the Court both by the appellants, Kingstonand Gammon, and by Keprose based on the literal meaning of the words inthe relevant provisions and also on their purpose. Apart from any principle ofconstruction 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 constructionFthat would promote the purpose or object underlying the relevant Act(whether that purpose or object is expressly stated in the relevant Act ornot) shall be preferred to a construction that would not promote thatpurpose or object.”

Assistance in the application of this provision is to be found in statementsof principle concerning the application of the analogous common lawprinciples. Thus, in Kammins Ballrooms Co Ltd v Zenith InvestmentsG (Torquay) Ltd [1971] AC 850, the construction of a procedural provision ofthe Landlord and Tenant Act 1954 (UK) had to be determined. The Actprovided that no application under a particular section should be entertainedunless it was made not less than two nor more than four months after thegiving of a certain notice by the landlord or the making of a certain requestby the tenant. The question arose whether, despite this language, an


application by a tenant within two months of a tenant's request could be Aentertained where the landlord consented to or chose to ignore or not toobject to the tenant's premature application. Lord Diplock (at 880) pointedout that upon a literal approach semantics and the rule of syntax alone couldnever justify the conclusion that words “No application … shall beentertained unless” meant that some applications should be entertainednotwithstanding that neither of the conditions which followed the word“unless” were fulfilled. Such a conclusion could be justified only upon the Bassumption that the draftsman of the Act omitted to state in any words heused in the subsequent provision an exception to the absolute prohibition towhich Parliament must have intended it to be subject. His Lordship said(at 881), dealing with a construction resulting in a qualification to theapparently absolute provisions of the statute:

“… It is thus impossible to arrive at the terms of the relevantexception by the literal approach. This can be done only by the

Cpurposive approach, viz, imputing to Parliament an intention not toimpose a prohibition inconsistent with the objects which the statute wasdesigned to achieve, though the draftsman has omitted to incorporate inexpress words any reference to that intention.”

It was held that the tenant's application could be entertained if the landlordhad waived non-compliance with the statutory requirements.

Another and possibly more relevant decision is Re Simo Securities TrustDLtd [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 commercialconsiderations. The target company in a takeover had issued both shares andconvertible stock. The offer extended to convertible stock and gave eachholder a contractual right both to receive a conversion notice and to haveshares allotted and issued to him or his nominee. However, the offerdocument invited stockholders not to demand an allotment and then totransfer to the offeror, but to renounce in favour of the offeror. Two Equestions arose for decision, whether a scheme which involved the transfer ofan absolute right to an allotment of shares was a scheme involving thetransfer of shares within the meaning of s 209, and more relevantly, whether,for the purpose of determining whether the offer had been approved by theholders of not less than nine-tenths in value of the shares whose transfer wasinvolved other than shares held by the offeror or a nominee for the offeror,the shares which the stockholders never acquired because upon their Fnomination, they were directed to the offeror, should be counted.Brightman J having referred to a statement in the opinion of the JudicialCommittee in Blue Metal Industries Ltd v Dilley [1970] AC 827 at 850, thatthe language of an analogous New South Wales provision was commercialrather than juristic said (at 1464-1465; 1007):

“… In the context of the present case I do not think that there is anydifficulty in reading the words ‘a scheme or contract involving the

Gtransfer of shares’ as including a scheme or contract which involves thetransfer of an absolute right to an allotment of shares. Nor do I feel anydifficulty in reading approval ‘by the holders of not less than nine tenthsin value of the shares whose transfer is involved’ as including approvalby persons who have an absolute right to an allotment of shares. Thetelescoping of the three basic stages into the shortened two stages was


merely convenient conveyancing machinery to reduce needless paperAwork. In my opinion it would be lamentable if the court were compelledto read section 209 in such a manner as to preclude businessmen fromdoing by two steps what they could do by three steps. I see no necessityfor the narrow construction urged upon me by the applicants even in thelight of the consideration that section 209 is an enactment whichinterferes with the property rights of another.”

The general purpose of s 43 is to be found in its headnote: “Rights ofBremaining shareholders and holders of options and notes.” Section 42 gives aright to the takeover offeror to acquire compulsorily the shares of thoseholders who have not taken up the offer where it becomes entitled to not lessthan 90 per cent of the relevant shares. Section 43 deals with the rights of theholders 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) and43(3) give a right to the holders of what are described the remaining shares,C that is the shares to which the offer extended but whose holders did notaccept 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 ofnon-voting shares, renounceable options and convertible notes. Some of theserights could be included in a takeover offer but some could not. Whether theyare liable to be “locked in” because they had not accepted the offer or becausethe offer had not been extended to them, these provisions enable the holders

D of the rights to get out of their locked-in position by requiring the offeror toacquire their rights. In the course of the process provided by these subsectionsthe offeror might also acquire some rights, but essentially and primarily theprovisions are directed to the protection of the relevant minority interests.

The respondent's submission in relation to the questions asked is asKearney J found, namely, that the person giving a notice under s 43(6) mustbe the holder of the option to whom the offeror gave notice under s 43(4) andmust still be the holder of the option when he gives notice under s 43(6).EAlthough it would not seem to arise directly under the preliminary point,Keprose also submits that the shares must still be held by the same registeredholder when proceedings are taken in the court to fix the terms of acquisition.

Kingston and Gammon make two submissions as to construction. Theirpreferred construction is that the person to give the s 43(6) notice must be theperson who received the s 43(4) notice but that he need not still be theregistered holder of the option when he gives the s 43(6) notice. TheF alternative construction is that the person who gives the s 43(6) notice mustbe the registered holder of the option at the time when he gives the notice butneed 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 theofferor must acquire the options and who may make an application to thecourt to fix the terms, they submit that the offeror is bound and entitled toacquire the shares from the holder at the time when the matter is to be

G negotiated or determined and the obligation and right are not limited to theholder who gave the s 43(6) notice.

I will deal firstly with the construction of s 43(4). Under this subsection theofferor is required, within one month after the last day upon which offersunder the takeover announcement remained open, to give a notice to theholders of non-voting shares in the company and to the holders of


renounceable options and convertible notes granted or issued by the company Ato which it is not entitled. There are many decisions in the company law fieldsupporting the view that the words “held” or “holder” refer to the state of theregister: see, eg, Avon Downs Pty Ltd v Federal Commissioner of Taxation(1949) 78 CLR 353 at 363-364; Franklin's Selfserve Pty Ltd v FederalCommissioner of Taxation (1970) 125 CLR 52 at 71; Dalgety DownsPastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335at 342-343; Federal Commissioner of Taxation v Patcorp Investments Ltd B(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 privatecompanies in any year prior to the year of income:

C“… shall be an allowable deduction unless the company establishes tothe satisfaction of the commissioner that, on the last day of the year ofincome shares of the company carrying not less than twenty-five percent of the voting power were beneficially held by persons whobeneficially held shares of the company carrying not less than twenty-five per cent of the voting power on the last day of the year in which theloss was incurred.”

DDixon J considered first the meaning of the word “held”. He discussed andquoted at some length from the decision of Chitty J in Re Wala WynaadIndian Gold Mining Co (1882) 21 Ch D 849, lastly referring to this passage inthe judgment of Chitty J (at 854):

“… I use now myself the term which is common in the Courts, ‘ashareholder,’ that means the holder of the shares. It is the common termused, and only means the person who holds the shares by having hisname on the register.” E

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 thosewho are members of the company and vote independently of control.There is therefore every reason to treat the provision as using theterminology of company law with the meaning attached to it incompany law.” F

He went on to hold that the transferor of a share who had been paid theconsideration for its transfer but still remained on the register held simply as apassive trustee until the registration of the transfer and the entry of thetransferee's name on the register. Although such a transferor was, during thisperiod, the holder of the share, he did not hold beneficially.

This decision was applied in Dalgety Downs where Webb, Fullagar andKitto JJ, having said that they were of opinion that the construction of Gs 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 Commissionerof Taxation (1949) 78 CLR 353, basing his conclusion upon the viewthat in the terminology of company law shares are said to be ‘held’ bythe person who is registered as a shareholder in respect thereof, and that


s 80(5), being concerned with voting power, should be treated as usingAthat terminology. We share this view. Indeed it is not too much to saythat the verb ‘hold’ and its variants, when used in relation to shares incompanies, normally refers to the legal ownership of the sharesaccording to the register of members. The Companies Acts of the UnitedKingdom and of the several States of the Commonwealth haveuniformly used the word in this sense; and common usage has followedtheir example. Before a different meaning is accepted, some justificationBmust 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 ledto their being expressed so as to be applicable to loans made orremuneration paid to persons entitled to shares in equity only, as well asto registered members, but evidently the uncertainty resulting from aCdesertion of the register of members as the sole source of information asto the persons in respect of whom the sections apply was considered adecisive practical reason for not carrying the policy to that length.”

This statement did not concern company legislation but it is to be notedthat it distinguished between persons entitled to shares in equity only andregistered members and referred to uncertainly resulting from going outsidethe register as the sole source of information as a policy consideration.D

In Franklin's Selfserve Menzies J applied Dalgety Downs and thus alsoAvon Downs.

There are some references in the judgments in these cases to the legalownership to the shares, but this term is used in the sense of the legalownership of the person on the register. Although there are some provisionsin the Companies (New South Wales) Code which it might be argued assumethat the passing of legal ownership in shares dependent upon entry in theEregister: see eg, s 183(3), s 191(1)(a) and Forms 1 and 2, there seems to be noexpress provision on the matter. However s 178(1)(b) of the Code providesthat a share is transferable as provided by the articles. Article 19(3) ofTable A provides that a transferor of shares remains the holder of the sharestransferred until the transfer is registered and the name of the transferee isentered in the register of members in respect of the shares. Article 35 ofBase's articles provides that a transferor shall be deemed to remain the holderF of a share until the name of the transferee is entered in the register in respectthereof.

The above and other like decisions were applied in Federal Commissionerof Taxation v Patcorp Investments Ltd. Gibbs J said (at 295) that thedecisions affirmed the general principle that entry in the register is necessaryto constitute membership of a company, and clearly established that thebeneficial ownership of shares, without registration, did not make a person a

G shareholder. The decision also established that registration dates not from thetime of actual entry in the register, but from the time the directors approve ofregistration: see (at 272) per Mason J; (at 295-296) per Gibbs J. Whatever thearticles provide and whatever in the case of particular companies may be thestrict position about the passing of the legal title to shares, it is in my opinionclear that a transferee does not become a shareholder until his name is on the


register, the date of registration being deemed to be the date on which the Adirectors 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 legislativeprovisions similar to the ones which I have described in relation to shares. Ifthe 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 applicableby s 196) seem to assume that any transfer of that option would be registered. BIt has been submitted that any renounceable option is an “interest madeavailable by a company” as that expression is used in various provisions ofPt IV, Div 7. If that is so, there are provisions in that Division which assumethat any transfer of such an option will be registered in the “appropriateregister” (ss 183-187). I am not clear that options are such interests, and sinceit is not necessary to decide the matter in these proceedings, I think it betternot to seek to resolve it now. C

For the purposes of the relevant statutory provisions, renounceable optionsmust be transferable for they are defined to mean options to have anallotment of shares in a corporation made to the holder of the option being anoption that is capable of being assigned: Companies (Acquisition of Shares)(New South Wales) Code, s 6. Section 131 of the Code provides that acompany shall keep a register of options granted to persons to take upunissued shares in the company, but it makes no express provision in relation Dto the subsequent transfer or transmissions of options. The articles ofassociation of Base contain no relevant provision, nor, for that matter, doesTable A. Section 3G of the Stock Exchange's Listing Rules provides thatwhere a company has issued options it shall keep a register of optionholdersin the same way as companies are obliged to keep a register of members. Thiswould require the register to record the transfer of options. In addition whena company has been served with a Pt A or Pt C statement it must, if

Erequested by the offeror, supply a written statement setting out, inter alia, thenames and addresses (so far as they are known to the company) of the personswho, at the date of the service of the statement, held renounceable optionsgranted or issued by the company.

Although it is arguable that all public companies which have issuedrenounceable options must have a register which records transfers as well asgrants of renounceable options, it is possible that non-listed public companies

Fare not required to have, and that some do not have, a register containingthese particulars.

If the transfer of renounceable options is not regulated by companylegislation, their assignment, since they are choses in action, is presumablyregulated by the Conveyancing Act 1919, s 12. This section would require anassignment to be in writing and that notice of the assignment be given to thecompany, if a transfer of the legal title is to be effected. The articles of the

Gcompany or the terms of the options could no doubt impose additionalrequirements to the method of assignment, and in particular if they requiredregistration as a condition of the transfer of legal title, there is no reason whyeffect should not be given to such a provision.

In this regard Keprose has referred to cl 4 of the “Summary of RightsAttaching to the Share Options” which provides:


“4. The rights of transfer attaching to the Share Options shall be theAsame 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, thename of the transferee must be entered in the share register, that requirementcould not apply directly to options, for option holders are not as suchmembers of the company. However this would seem to be too strict aconstruction of a provision in a commercial document. Base registeredtransfers in its register of options and in my opinion if the requirement forBsuch a registration was caught by cl 4, the transfer of legal title to the optionswould require registration of the transfer by Base. The question then ariseswhether such a condition falls within the description of the “rights oftransfer” in cl 4. It may be arguable that it does not relate to rights of transferbut rather to the requirements to be satisfied if a transfer which the optionholder has a right to effect is to pass the legal title. However I think this is tootechnical an approach to such a document and in my opinion the effect ofC cl 4 was to make registration by the company of a transfer of an option in itsregister 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 “theholders of renounceable options” in s 43(4). There can be no doubt that theholders of non-voting shares referred to in the subsection are the registeredholders of those shares. The use of the expression “holder” in relation torenounceable options seems to assume a usage of the word similar to its usage

D in relation to shares. In s 43(6) the one word “holder” is used indifferently toapply to shares, renounceable options and convertible notes. This view is alsosupported by the provisions of s 131(2)(a) of the Companies (New SouthWales) Code which require the entry in the relevant register of “the name andaddress of the holder of the option”. Although on one view this provisionmay assume that the person whose name is entered is already the holder ofthe option for the purposes of the Code, it is not dissimilar to the provision ofthe Companies (New South Wales) Code, s 256, relating to the registration ofEmembers. That section requires a company to keep a register of its membersand a statement of the shares held by each member. Furthermore theprovisions of the Companies (Acquisition of Shares) (New South Wales)Code, s 36, shows that the target company is to be regarded as being at leastthe prime source of the identity of the holders of renounceable options.Although, as I have indicated, a public company which is not listed might nothave a register of options which records transfers, a transfer of the legal titleF of an option would require at least notice to the company and in commercialreality it should I think be assumed that a public company having a register ofoptions and receiving notices of transfers would record the transfers in thatregister. I should think that this accords with usage of the term “holder” inrelation to renounceable options issued by public companies and that to givea meaning to the word other than registered holder would produce anuncertainty which would frustrate the beneficial or effective operation of the

G 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 beconstrued to mean the registered holders of those options, the registrationbeing deemed to take effect as from the time when the directors approvedregistration. The qualification includes cases where the person who was the


registered holder has died before the notice is given, and no name of a Apersonal representative has been placed upon the register. It would seem thatin 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 hisexecutor or administrator be the recipient of the notice: A L Campbell & CoPty Ltd v Federal Commissioner of Taxation (1951) 82 CLR 452. There maybe other cases of transmission where the same result follows.

It seems to have been assumed during some parts of the argument that the Bholder to whom a s 43(4) notice is given must be the registered holder at thetime of the close of the takeover offer. I see no reason why such aconstruction should be placed upon the provision. Read literally, the holderto whom the notice is given must be the registered holder at the time of thegiving, that is, the sending, of the notice. There is no stay of the registrationof transfers during the period of offer or after the close of the offer, and thereis nothing in the terms of the subsection nor, so far as I can see, in its purpose, Cwhich would require the offeror to give the notice to a person registered atthe time of the close of the takeover offer but not registered at the time of thegiving of the notice.

This being the meaning of “holder” in s 43(4), the language of s 43(6) showsthat a similar meaning is intended in that subsection. The introductory wordsof the subsection refer to a notice given under s 43(4) to the holder of therenounceable option; that holder was the registered holder of the option. The Dholder referred to in s 43(6)(a) must be the same person, for the right to give anotice is given to the holder of the option within three months after thegiving of the s 43(4) notice to him. He is thus the holder, that is, the registeredholder, 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 givesnotice with respect to the … option”. The holder giving the notice must bethe person who received the s 43(4) notice and thus the holder at that time. EIndeed this is not in contest between the parties. The contest is whether theperson who was given a notice under s 43(4) and who is entitled to give anotice under s 43(6)(a) must still be the holder of the option at the time hegives a notice under s 43(6).

Construing the subsection literally, I have concluded that the holder of anoption who is given a right to give a notice under s 43(6)(a) must not only bethe same person as the holder who was given a notice under s 43(4) but must Fstill 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” whowas 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 atany time within three months after the notice was given to him, but he muststill satisfy the description “the holder” when he gives the notice. The naturalmeaning of this language is that the person giving the notice, being the holder

Gwho received the s 43(4) notice, is the holder of the option at the time whenhe gives a notice under s 43(6)(a). As in the case of s 43(4) notices, the legalpersonal representative of a deceased recipient of a s 43(4) notice, whetherregistered or not, is no doubt entitled to give a s 43(6) notice, and the sameposition may apply to other transmittees. It follows from this conclusion thatthe “holder” referred to in the introductory words in par (b), being the person


who was the holder of the option at the time when the s 43(4) notice wasAgiven, 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 itscontext or purpose that would lead to a different result. Part of thebackground relied upon for that different result by Kingston and Gammon isthat options are traded on the market, as appears, for example, from theapplication of s 194 of the Companies (New South Wales) Code to rights tomarketable securities and the reference in those provisions to the role ofBbrokers, and from the Stock Exchange Rules to which I have earlier referred.There is nothing in any relevant legislation which puts an end to themarketing of options because a takeover offer has been made or because anotice has been given under s 43(4). It would be anomalous, so it wassubmitted, if that trading were allowed to be continued but a transferee wasnot given the benefit of the same rights as his transferor. Kingston andGammon also point to the provisions of s 43(2) in relation to the analogous

C 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 “ofwhich 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 toprevent, inter alia, option holders from being locked in after a successfultakeover offer has been made. Such a purpose could in part be frustrated ifoption holders to whom a s 43(4) notice had been given were not able to sellthe options with the benefit of the s 43(6) rights.D

Assuming the purpose of s 43(4) to s 43(6) is to enable option holders andothers from being locked in after a successful takeover bid, the persons to besafeguarded are primarily those who are involuntarily and not voluntarilylocked in. If a person buys options at a time when he knows he may be lockedin if a current takeover bid is successful, there seems to be no reason why thelegislation should protect him against a difficulty the risk of which heknowingly accepted and against which, as I will suggest, he could haveEprotected himself by contract. In theory the buyer of an option before atakeover offer is announced might not become the registered holder untilafter 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 nonethelessdecides to sell to someone other than the offeror company, he is electing notto require that company to acquire his options: cf the comment in R AFBrierley Investments Ltd v Landmark Corporation Ltd (1966) 120 CLR 224at 232. If however the parties to such a transfer wish to ensure the retentionof the benefit of s 43(6) there would seem to be no great problem in makingappropriate contractual arrangements to achieve that result. The contract ofpurchase could leave the seller as the registered holder and require him toexercise the s 43(6) right on the buyer's behalf. There is nothing in the Act togive the beneficial owner an entitlement to exercise the right given by s 43(6),

G but likewise there is nothing which requires the registered holder to be thebeneficial owner if he is to exercise that right.

As regards other provisions in the Code, Keprose points to s 25. Thissection makes special provision for the case where a person who was not theregistered holder at the time a takeover offer was made has become theregistered holder or has become entitled to be registered as the holder of the


relevant shares before the offer closes. No such provision is to be found in As 43 in relation to non-voting shares, renounceable options or convertiblenotes. Furthermore, so it is submitted, a significant degree of uncertaintywould be introduced into the procedures established by s 43(6) if theconstruction contended for by the appellants were the correct one. Manyexamples of that uncertainty could be given. Thus if the registered holder ofoptions at the time when a s 43(4) notice is given sells and transfers hisoptions to a purchaser who becomes the registered holder, the latter may or Bmay not want a notice under s 43(6) to be given. Nonetheless the personentitled to give the notice is the transferor who was the registered holder atthe time of the giving of the s 43(4) notice. Disputes could obviously arise inthis area, leaving the offeror in uncertainty as to what his rights or obligationswere. As it seems to me the purposes of s 43(4) to s 43(6) to protect optionholders and others against being involuntarily locked in and to providecertainty and efficiency in takeover operations strongly support the con-

Cclusion that the holders of options and other rights to which these provisionsrefer are, subject to transmission on death or possibly other events, thepersons who are at all times the registered holder of the option or other rightand 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 bothquestion A and question B is “Yes”. It is unnecessary to consider thequestion of the making of a representative order.

Although not directly arising under the preliminary questions, a further Dquestion that was discussed at the hearing was the identity of the person fromwhom the offeror must acquire the shares and with whom he must negotiateas to terms, and who is the holder who can apply to the court to fix terms. Ifthe construction which I have adopted as to the meaning of the provisions iscorrect, that person is the same person, namely, the person who was theregistered holder of the shares at the time of the giving of a s 43(4) notice andwho, being still the registered holder, gave the s 43(6) notice, and from whom, Ebeing 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 theway I would seek to explain the operation of the relevant parts of theCompanies (Acquisition of Shares) (New South Wales) Code; so much so thatI see no purpose in my going over the same ground. However, as the Court isdivided I will state shortly why I take the view that I do on the point of Fdivision.

The Court is unanimously of the opinion that (i) the notice to be givenpursuant to s 43(4) to holders of renounceable options is to be given toholders 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 tos 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

Gregistered option holder who gives the s 43(6)(a) notice must be the sameregistered 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 sameperson at each stage. One is that on both my first and subsequent readings ofs 43(6), the later readings being in the light of slowly increasing grasp of bothverbal and commercial context and the significance of the competing

NSWLR] KINGSTON v KEPROSE PTY LTD (Priestley JA) 417

meanings proposed, the words have conveyed to me that the holder firstAspoken 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 wordsof s 43(6) “where a notice is given … to the holder of any … renounceableoption … the holder … may, within three months after the giving of thenotice to him, require etc” to my mind mean very clearly that it is the personto whom the notice is given who has the three months to decide whether ornot to require the offeror to acquire the option. The alternative meaningBwhich is favoured by McHugh JA, is one which, such is the protean nature oflanguage, I can understand as a possibility, but which I must also say, doesnot fit nearly as readily into my understanding of s 43(6) as does the meaningthat 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 objectunderlying the Code is any the less promoted by one interpretation than theother. (The emphasised words come from the Companies and Securities

C (Interpretation and Miscellaneous Provisions) Act 1980, s 5A, with whichs 33 and s 34 of the Interpretation Act 1987 should now be compared.) Infact the interpretation I favour seems to me at least as practical as the other inproviding a way out for option holders in that (i) it makes implementation ofthe scheme of s 43 easier for the offeror to administer while (ii) leaving itopen to a person buying a renounceable option after a takeover offer isannounced to preserve the s 43 position by agreement with the person selling

D the option. As to (i), if the alternative construction were adopted, what wouldhappen if a registered option holder gave notice under s 43(6)(a) immediatelyafter receiving a s 43(4) notice, then sold the option to a second person whobecame registered within the three months and also gave timely notice unders 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 Iprefer. Again, what would be the position if the registered holder, havingreceived a s 43(4) notice, sold the option just before the three months periodEended, with the result that the buyer could not be registered before the threemonths was up? Presumably, on the alternative construction that buyerwould be locked in. As to (ii), I think that although the agreement betweenbuyer 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 itcould not readily become common form. If it did become common form itcould just as readily become an incident of option sales occurring before aF takeover announcement as after. Although it seems to me that the procedureI have been discussing is sound in theory and should be able to beimplemented 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 thealternative construction.

Two things have become apparent in the course of considering questionsargued in this case. One is that on any view of s 43 it could provide better and

G more detailed machinery for dealing with the various situations that mayarise if renounceable options are sold either shortly before or after a takeoveroffer is made. I would think appropriate amendments could readily bedrafted, should it be thought the difficulties caused by the present subsectionare sufficiently great.

The second thing is that although I think appropriate amendments could


readily be drafted, I would find it difficult to make more than general Astatements about drafting, in my present state of knowledge of thecommercial situation concerning renounceable options. I mentioned earlierthat my understanding of the verbal and commercial context of s 43(6) slowlywidened in the course of my consideration of the issues before the Court. Iam not at all happy that it widened sufficiently in regard to commercialcontext. This is partly because the construction of s 43 was argued before the

BCourt solely by reference to certain statutory provisions and the requirementsof the Stock Exchange. The Court was not assisted with any materialconcerning the way the market in renounceable options operated when s 43was first enacted or operates now. This applies both to any public market aswell as completely private sales of options. Although the Court has somegeneral knowledge of the commercial background that knowledge is unlikelyin the nature of things to be as detailed as that of the draftsman of the

Crelevant statutory provisions, or of those dealing in whatever markets thereare 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 therelevant provisions to a considerable extent in the dark as to the generalbackground by reference to which the persons most concerned with theoptions will have understood the meaning of the relevant provisions. It seemsto me highly desirable that in future cases the court be supplied with much

Dmore 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 ofthe court which may have a greater or less degree of relevance to what mayactually happen in whatever markets there are; I have no way of knowinghow relevant the examples actually are. Nevertheless I have had to come to aconclusion 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 Eto 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 vKeprose Pty Ltd (1987) 5 ACLC 1031, Kearney J was asked to answer apreliminary question of law pursuant to the Supreme Court Rules 1970,Pt 31, r 2. The question was:

F“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 BaseResources Ltd are those persons:

(a) who were registered as holders of those options at the time suchnotices were given; and

G(b) who as registered holders of those options, were given noticespursuant 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:

NSWLR] KINGSTON v KEPROSE PTY LTD (McHugh JA) 419

“…A(4) Where—(a) a Part A statement has been served as mentioned in para-

graph (1)(a) and, during the relevant period referred to in thatparagraph, the number of voting shares in the company towhich the offeror is entitled becomes not less than 90% of thevoting shares in the company; or

(b) a take-over announcement has been made as mentioned inBparagraph (1)(b) and, during the relevant period referred to inthat paragraph, the number of voting shares in the company towhich the on-market offeror is entitled becomes not less than90% of the voting shares in the company,

the offeror or on-market offeror shall, within one month after the lastday upon which offers under the relevant take-over scheme remainedopen or offers constituted by the take-over announcement remainedC open, as the case may be, give, as prescribed, a notice to the holders ofnon-voting shares in the company to which he is not entitled, and to theholders of renounceable options or convertible notes granted or issued bythe company to which he is not entitled, stating that he became entitledto shares as mentioned in paragraph (a) or (b), as the case may be, andcontaining such other information (if any) as is prescribed.

…D (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 on-market offeror to acquire the shares, option or note; and

(b) if a holder of shares or of an option or note so gives notice withrespect to the shares, option or note, the offeror or on-market

E offeror is entitled and bound to acquire those shares or thatoption or note on such terms as are agreed or as the Court, onthe application of the offeror, on-market offeror or holder of theshares, option or note, thinks fit to order.”

I think that, when regard is had to the purpose of s 43, the preliminaryquestion should be answered “No”. The appeal, therefore, should be allowed.

The meaning of “holder” in s 43:FThe 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 vFederal Commissioner of Taxation (1949) 78 CLR 353 at 363-364; FederalCommissioner of Taxation v Patcorp Investments Pty Ltd (1976) 140 CLR247 at 294-295. In a statutory provision, a different meaning will beattributed to the word only when the context, subject matter, or purpose ofthe provision requires it: cf Dalgety Downs Pastoral Co Pty Ltd v FederalG Commissioner of Taxation (1952) 86 CLR 335 at 342.

Nothing in s 43 or the Code as a whole gives rise to any doubt thatParliament intended the prima facie meaning of “holders” or “holder” toapply. Accordingly, the notice required to be served pursuant to s 43(4) mustbe served on the persons who are the registered holders at that time. But isthe person who received the notice under s 43(4) the only person who can


exercise the right given by s 43(6) and must he still be registered as the holder Aof the shares, option or note when he exercises that right?

The opening words of s 43(6) state the condition upon which the exerciseof the right depends. It is the giving of a notice to the holder of a share, optionor note. The word “holder” in that condition refers to the registered holderwho 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 ornotes. The appellants made no contrary submission. But the effect of their Bfirst submission was that the word “holder” in par (a) of s 43(6) had notemporal connotation. On this construction the “holder of the shares, optionor note” is simply descriptive of the person who has received the notice unders 43(4). If this construction is correct, a person who has sold his share, optionor note can still give a notice under s 43(6). The construction has theconsequence that the offeror is “bound to acquire those shares or that optionor note” even though neither the purchaser nor the offeror or on-market

Cofferor wishes to sell or buy them. In my opinion the term “the holder” inpar (a) of s 43(6) must mean the person who is registered as the holder of theshares, option or note at the time when he requires the offeror to buy theholding. The first submission of the appellant is rejected.

The real question in the case is whether the use of the words “after thegiving of notice to him” in s 43(6)(a) introduce a personal element into thestatutory scheme so that only the person who has received the s 43(4) noticecan exercise the right under s 43(6). The appellant's second submission was Dthat any person who was the holder of the shares, options or notes could givenotice within the three months period specified in s 43(6). The answer givenby Kearney J to the preliminary question rejects the appellant's submissionand adopts the personal right approach. The construction which his Honourplaced upon s 43(6) means, however, that, if a person buys an option before as 43(4) notice is sent and does not obtain registration before notice is givenunder s 43(4), as occurred in the present case, he obtains no right under Es 43(6).

The argument in support of the conclusion reached by his Honournaturally seized on the words “to him” in s 43(6)(a). The respondentcontended that the use of the pronoun “him” indicated that the sectionrequired an identity between the person receiving the notice and the personexercising the right under s 43(6). While I appreciate the force of theargument, I do not regard the use of the pronoun “him” as decisive. A Fpronoun is only a substitute for a noun. The personal right theory of s 43 hasless 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 3months 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

Genhance the elegance of the drafting rather than to emphasise the personalnature of the right. Moreover, if s 43 means that only the holder who wasserved with the s 43(4) notice can give a notice under s 43(6), then a personwho became registered as an executor or trustee after the service of thatnotice would be outside the section.

Accordingly, I think that the words of s 43(6) are capable of at least two


meanings. The first meaning is that the right may be exercised only by theAperson who received the notice. The second meaning is that, within threemonths of the service of the notice, the right may be exercised by the personwho is then the registered holder of the shares etc. Although the meaning ofs 43(6) is ambiguous, I think that on balance the personal right theoryrepresents the grammatical meaning. But that is not the end of the matter.The ultimate question is whether the grammatical meaning gives effect to theintention of Parliament.B

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 withinthe factual outline delineated by that proposition. The proposition may beneatly contained in a single sentence; or it may only be deducible from anexamination of a number of sentences in a number of sections or paragraphs.

C Once deduced, the proposition is taken to represent what Parliamentintended to enact. The difficulty is to determine whether Parliament intendeda 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 whichParliament intended to enact.

Where the text of the legislative provision which embodies the propositionis grammatically capable of only one meaning and neither the context, the

D purpose of the provision nor the general purpose of the Act throws any realdoubt on that meaning, the grammatical meaning must be taken asrepresenting Parliament's intention as to the meaning of the law. A courtcannot depart from the grammatical meaning of a provision because thatmeaning produces anomalies or injustices where no real doubt as to theintention of Parliament arises: Cooper Brookes (Wollongong) Pty Ltd vFederal Commissioner of Taxation (1981) 147 CLR 297 at 305, 320 andStock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231 at 234-235, 237, 238;E[1978] 1 All ER 948 at 951, 954, 955. If the grammatical meaning does giverise to an injustice or anomaly, however, a real doubt will usually arise as towhether Parliament intended the grammatical meaning to prevail: cf CooperBrookes (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.” Aresulting anomaly or injustice is not itself, however, a ground for departingfrom the grammatical meaning. Equally the natural and ordinary grammati-F cal meaning of the provision is not decisive. The courts no longer followstatements to the effect of that of Higgins J in Amalgamated Society ofEngineers 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, itis our duty to obey that meaning, even if we think the result to beinconvenient or impolitic or improbable”: see Cooper Brookes (at 319-320).

Ascertaining the ordinary grammatical meaning of a legislative provision isG only the first step in the process of statutory construction. If the

consequences of the literal or grammatical construction raise a real doubt asto Parliament's intent, the court is justified in refusing to give the words theirliteral or grammatical construction: R v City of London Court Judge andPayne [1892] 1 QB 273 at 290, 301; R v Wimbledon Justices; Ex parteDerwent [1953] 1 QB 380 at 384; Re Lockwood [1958] Ch 231 at 238; R v


Oakes [1959] 2 QB 350 at 354, 355; Luke v Inland Revenue Commissioners A[1963] AC 557 at 577; Adler v George [1964] 2 QB 7 at 9-10; Wiltshire vBarrett [1966] 1 QB 312 at 332-333; Kammins Ballrooms Co Ltd v ZenithInvestments (Torquay) Ltd [1971] AC 850 at 879; University College, Oxford(Master and Fellows) v Durdy [1982] Ch 413 at 419; Director of PublicProsecutions 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 B[1938] Ch 174 at 201, MacKinnon LJ said that when “the purpose of anenactment is clear, it is often legitimate, because it is necessary, to put astrained interpretation upon some words which have been inadvertentlyused” (my emphasis).

However, it is not only when words have been inadvertently used that acourt is empowered to give a legislative provision a strained construction. Astrained construction may be justified because words have been omitted:

CKammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd (at 880-882); or because by inadvertence Parliament has failed to deal with aneventuality required to be dealt with if the purpose of the Act is to beachieved: Jones v Wrotham Park Settled Estates [1980] AC 74 at 105; orbecause the statute proceeds on a mistaken assumption: R v Draper (1870)1 VR(L) 118; or because the purpose of the provision indicates thatParliament 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 Dwords must be omitted to avoid absurdity; Re Lockwood (at 238). As manyof the cases show, the purpose of the legislation may require a meaning to beplaced on the words of a particular provision which, standing alone, theycannot reasonably bear. In Adler v George, the Divisional Court held thatthe words “in the vicinity of any prohibited place” meant “in or in the vicinityof any prohibited place”. In Wiltshire v Barrett the Court of Appeal held thatthe words “may arrest … a person committing an offence” meant “may Earrest … a person committing or apparently committing an offence”. InKammins the House of Lords held that the words, “No application … shallbe entertained unless …” meant that some applications could be entertainedalthough the unless clause was not satisfied. But as Mason and Wilson JJpointed out in Cooper Brookes (Wollongong) Pty Ltd v Federal Com-missioner of Taxation (at 321), the propriety of departing from the literal ruledoes not depend upon labels. It:

F“… extends to any situation in which for good reason the operation ofthe statute on a literal reading does not conform to the legislative intentas ascertained from the provisions of the statute, including the policywhich 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 whichthe words of that provision cannot reasonably bear. His Lordship expressed

Gthe view that if the words “are capable of more than one meaning, then youcan choose between those meanings, but beyond that you must not go”. Theoften quoted remarks of Lord Simonds in Magor and St Mellons RuralDistrict Council v Newport Corporation [1952] AC 189 at 191 are to thesame 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


Wrotham Park Settled Estates, Lord Diplock said (at 105) that if theAapplication of the literal or grammatical meaning would lead to results whichwould defeat the purpose of a statute the court may read words into thelegislation. But his Lordship said that words could only be read into a statuteif three conditions were fulfilled. First, the court must know the mischief withwhich the Act was dealing. Secondly, the court must be satisfied that byinadvertence Parliament has overlooked an eventuality which must be dealtwith if the purpose of the Act is to be achieved. Thirdly, the court must beBable to state with certainty what words Parliament would have used toovercome 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

C a provision will give effect to the purpose of the legislation. A search for thegrammatical meaning still constitutes the starting point. But if the grammati-cal meaning of a provision does not give effect to the purpsoe of thelegislation, the grammatical meaning cannot prevail. It must give way to theconstruction which will promote the purpose or object of the Act. The ActsInterpretation Act 1901 (Cth), s 15AA, and the Interpretation Act 1987(NSW), s 33, both require this approach to statutory construction. Thecompanies legislation has its own direction to this effect. The Companies andDSecurities (Interpretation and Miscellaneous Provisions) Act 1980, s 5A,enacts:

“In the interpretation of a provision of a relevant Act, a constructionthat would promote the purpose or object underlying the relevant Act(whether that purpose or object is expressly stated in the relevant Act ornot) shall be preferred to a construction that would not promote thatpurpose or object.”E

But first and last the function of the court remains one of construction andnot legislation. As Lord Diplock has pointed out “the task on which a court ofjustice is engaged remains one of construction; even where this involvesreading into the Act words which are not expressly included in it”: Jones vWrotham Park Estates Ltd (at 105).

Purposive construction often requires a sophisticated analysis to determinethe legislative purpose and a discriminating judgment as to where theF boundary of construction ends and legislation begins. But it is the techniquebest calculated to give effect to the legislative intention and to deal with thedetailed and diverse factual patterns which the legislature cannot alwaysforesee but must have intended to deal with if the purpose of the legislationwas to be achieved. Moreover, it is the technique which may finally inducethe draftsmen of statutes to state broad principles rather than to draw thedetailed enactments which now emanate from the legislatures. Only then will

G statute law escape the comment of Sir Carleton Allen that a “statute isprobably the most repellent form of written expression known to man”: “TheLiterature of the Law”, Aspects of Justice (1958) (Stevens & Sons Ltd) at 284.

If the objects and purposes of a statute and the means of theirachievements are not declared, they can only be determined by examining thestatute as a whole. The ordinary meanings of the individual words together


with any statutory definitions will invariably indicate what those objects, Apurposes and means are. The cumulative weight of their core meanings willindicate the general purpose or purposes of the statute. But when the statutehas been read as a whole and its purpose determined, the prima facie meaningof a provision must, if necessary, give way to the construction which giveseffect to the statutory object or purpose. The meaning of a legislativeprovision is not necessarily the sum of the meanings of its constituentelements: cf Exxon Corpn v Exxon Insurance Consultants International Ltd B[1982] Ch 119 at 144. Words may give colour to each other, modifying theirprimary meaning, and causing the whole provision to have its own uniquemeaning. Likewise the general objects and purposes of the statute will givecolour to the individual words, phrases and provisions sometimes modifyingtheir ordinary meanings.

Once the object or purpose of the legislation is delineated, the duty of theCourt is to give effect to it in so far as, by addition or omission or Cclarification, the relevant provision is capable of achieving that purpose orobject. Where the court can see the purpose of a provision from anexamination of its terms, little difficulty should be met in giving effect to thatpurpose. The days are gone when judges, having identified the purpose of aparticular statutory provision, can legitimately say, as Lord Macmillan said inInland Revenue Commissioners v Ayrshire Employers Mutual InsuranceAssociation Ltd [1946] 1 All ER 637 at 641, of the means used to achieve the

Dpurpose: “The legislature has plainly missed fire”. Lord Diplock, in an extrajudicial comment on that decision has said, that “if … the Courts canidentify the target of Parliamentary legislation their proper function is to seethat it is hit: not merely to record that it has been missed”: “The Courts AsLegislators”, 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 E

minority holders are not locked into a company where the person taking overthe 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 theconstruction for which the respondent contends, minority holders such as theappellants will miss out on the protection which the legislation promotes. It istrue that those who purchase shares or notes or options from minorityholders after the s 43(4) notice is given or even after a takeover offer is Fannounced may theoretically be able to protect themselves by contractualstipulation. But a person who acquires a holding before the announcement ismade cannot obtain protection by contract. Moreover, a seller, entering intoa contractual restriction, would be required not only to remain the registeredholder for a time but, if necessary, to lend his name to litigation for thepurpose of determining the value of the shares, notes or options. Not manysellers would find that course attractive. In the case of securities which are

Gbought in the market, it hardly seems possible for a purchaser to obtainprotection by a contractual stipulation.

Moreover, another of the purposes of s 43 is to give a holder a lengthyperiod in which to decide whether or not he should sell his holding to theofferor. The right to make an election within three months of receiving thenotice is explicable only on the basis that the holder should have a fairly


lengthy period to monitor the progress of the company under its newAcontroller before the holder makes a decision to sell his share, note or optionto the controller. The terms of s 43(2), which gives a similar right to a holderof shares in the class of shares which has been taken over, reinforces this viewof the section. The theory of s 43(2) is that, though the holder has rejected theoriginal offer by the offeror or on-market offeror, he is to be given anotherthree months from the date of the notice of the 90 per cent acquisition tomake up his mind whether he should sell his shares to the offeror. So it is notBone of the objects of the legislation that the minority holders should make aquick election as to whether they will sell their holdings to the offeror or thatthe offeror should quickly know whether he has to acquire the holdings.

The adoption of the impersonal right theory of s 43(6) promotes thepurpose of the Code. It protects a group of holders whom Parliament wouldcertainly have wished to protect if the purpose of the legislation was to beachieved. The failure to do so must have been the result of inadvertence. I

C cannot think of any reason why Parliament would want to protect registeredholders but not those beneficial owners who were obtaining registration whenthe notice under s 43(4) was given. It is true that in some cases the adoptionof the impersonal right theory might confer a benefit on persons who buyshares, notes or options after the announcement of the 90 per centacquisition. Nevertheless, the adoption of that theory does not defeat anypurpose of the legislation. Nor does it add to the burden of the person makingthe successful takeover. The period in which his liability can be enforced isDstill limited to three months after giving the s 43(4) notice. Moreover, it is notvery likely that persons will want to buy a minority holding after a takeoverof 90 per cent of the shares. It is precisely because purchasers are difficult tofind in these circumstances that s 43 was enacted to protect the minorityholders. Adoption of the personal right theory of s 43 does defeat the purposeof the legislation. For it has the consequence that purchasers of shares, notesand options who have not had them registered at the date of the s 43(4) noticeEare 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 declarethat the holder who gives the s 43(6) notice need not be the same person whoreceived the s 43(4) notice. It is sufficient that a notice was given unders 43(4) and that the person giving the notice under s 43(6) is the presentregistered holder. Once the holder gives notice the offeror or on marketF offeror becomes bound to acquire the securities. It is not open to anybody elseto give the notice. In my opinion the appeal should be allowed.

The appellants also asked Kearney J to make a representative order underthe Supreme Court Rules 1970, Pt 8, r 14, appointing Gammon as therepresentative of the sellers of the options:

“… being the class of persons who were registered as holders ofoptions in Base Resources Ltd at the date of the defendant's notice

G pursuant to subsection 43(4) of the Companies (Acquisition of Shares)(NSW) Code, who received the said notice and as to whose options theplaintiffs subsequently became registered as holders that these proceed-ings be continued by the second plaintiff on behalf of and representingthe said class.”

Because of the conclusion to which he came on the question of


construction, Kearney J found it unnecessary to make this representative Aorder. His Honour indicated, however, that if he had come to a contraryconclusion he would have considered that there was a basis for making theorder. Having regard to the conclusion I have reached concerning theconstruction of s 43, I am not sure that the order is required. I would give theappellants liberty to apply for the making of such an order if they think itnecessary.

Orders: BThe 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 costsof the appeal and of the hearing on the preliminary question beforeKearney J. The appellants have liberty to apply for the making of arepresentative order if they think it is necessary. The further hearing of theproceedings is remitted to the Equity Division.

(By majority)Appeal dismissed C

Solicitors for the appellants: Dawson Waldron.

Solicitors for the respondent: Freehill Hollingdale & Page.

N J HAXTON,

Barrister.

D

E

F

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