AUSTRALIAN INVESTMENT TRUST LTD. V. WOOLWORTHS LTD 3/1934

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QO RD # R. Decree of Supreme Court varied as follows :-

Omit so much thereof as orders that the suit be dismissed unless the plaintiff is prepared to accept the offer of the defendant to _ execute a charge over the shares held by the defendant in the com< pany Strand and Pitt Street Properties Ltd., containing a covenant in the form referred to in the judgment delivered on 15th December 1933 by Harvey C.J. in Eq. and as orders that, the plaintiff being prepared to accept the said offer, the defendant do execute suc! charge, .

If within one month the plaintiff by notice in writing served upon the defendant's solicitors and filed in the Registry at Sydney elects to accept such relief, substitute a declaration that the Plaintiff is entitled to require from the defendant an instrument duly executed by the defendant whereby the defendant's shares in Strand and Pitt Street Properties Ltd., being 25,000 shares of £1 each, are charged with the repayment to the plaintiff without interest of all moneys paid by the plaintiff in respect of the sald shares to the said Strand & Pitt Street Properties Ltd., and whereby the defendant covenants with the plaintiff that if within a "reasonable time a buyer is found by or on behalf of the plaintiff able and willing to buy at a price equal to the face value thereof the defendant's shares in the plaintiff company, being 25,000 shares of £1 each, the defendant will thereupon sell and transfer its said shares in the plaintiff company to such buyer and upon payment of the price will pay to the plaintiff without interest the moneys aforesaid, subject to a protteo that if the plaintiff is willing to accept a less sum in dischargd of the defentiant's liability under such covenant and procures a buyer able and willing to buy auch shares at a price equal to such less sum, the plaintiff may require the defendant to sell the same to the said buyer for such price and to pay the net proceeds ofthe sale to the plaintiff in full satisfaction of the defendant's liability uhder the covenant so that the plaintiff must depend exclusively upon the charge for the

'balance of such moneys' : reserve liberty to apply to the Supreme Court for further relief consistent with the said declaration,

If the plaintiff do not elect to accept such relief, dismiss the suit with costs.

Subject to the aforesaid variation, appeal dismissed with costs.

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AUETRALIAN INVESTYENT TRUST LINITED Vt WOOLZORTH'S LIWITED.

JUtGY

SYSTICE RICH .

+ AUSTEALIAN UNVESTYENT OTPOST LIVITEN, vv, POQLMO RTH S EPaT

POUGNENT... Bich Jy.

T havs read the judgment cf my brothas Dixen and agree sith

it./

9 a

AUGURALLIAN CUVEGTMENT TRUST LiMiTED Vv WOOLWORTHS LIMITED,

UDG. J.

The defendant - the respondent here - forwarded an application to the plaintiff - the appellant nere - for 25,000 shares in the Strand and Pitt Street Properties Limited, The covering letter, dated the 6th Sep- tember 1929, stated that the application was handed to the plaintiff upon the condition that the whole of the application and allotment moneys pay- able in respect of such shares should be paid by the plaintiff on behalf of the defendant and that the defendant should execute in favour of the plaintiff and at its expense a charge over such £5,000 shares, which was to contain a covenant by the defendant to repay such moneys without interest upon a sale being effected of £5,000 shares be¥onging to the defendant or the plaintiff - the Australian Investment Trust Limited, The plaintiff for- warded the application to the Strund and Fitt Street Properties Limited, which allotted 25,000 shares of £1 each to the defendant. The plaintiff paid the application and allotment moneys payable in respect of such shares to the Strand and Pitt Street Properties Limited, in accordance with the conditions of the covering letter. And this suit is brought by the plain- tiff against the defendant seeking specific performance by the defendant of its agreement to execute the charge and covenant pursuant to the covering letter of the 6th September 1929, The defendant was wiliing to execute the charge, and also a covenant to repay the moneys paid by the plaintiff out of the proceeds of the sale at par of the #5,000 shares held by the defendant in the plaintirf Company, But this the plaintiff would not ac- cept, and tuus defined its claim when required by this Court to state ex~ plicitly the covenant that it sought:

"The plaintiff claims that the defendant in the cnarge should covenant tnat tne defendant shall pay to the plaintiff within a period of twelve months from 5th February 1929 all moneys that the plaintiff should have paid

to Strand and Pitt Street Properties Ltd during tne said period in res- pect of the 25,000 shares in Strand and Pitt street Properties Ltd belong- ing to the defendant Company."

a

{he question turns upon the agreement of the parties, but it is in-

possible to ascertain that agreement from the covering letter of the 6th

ptember 1029 itself, for it is but tne last step in transactions that are somewhat confused, The defendant carried on waat is called a "chain store" business, and was desirous of obtaining a lease of some premises

in the strand arcade in the city of Sydney, Those premises, together with

3]

the whole of the arcude property and certuin Pitt street frontages, were tire property of Stewart Dawson Limited, The defendant had obtained an op- tion for the purchase of the property for £750,000, The terms were £50,000 on the signing of the contract, £100,000 on the signing of the transfer, amd the balance to remain on mortgage for a period of yéars. But subse- quently Stewart Dawson Ltd offered somewhat easier terms viz. £50,000

down and £100,000 in four quarterly instaiments of £45,000, The defendant was quite unable to finance the purchase out of its own funds, but it

had available for that purpose some £25,000 in cash, It therefore approach- ed the plaintiff - an investment and finance Company - on the mutter. It was suggested that a Company might be formed with the object of acquiring the Strand and Pitt Street properties and granting the defendant a lease

of the premises it required, And in such a Company the defendant was pre- pared to subscribe for shares to the amount of £25,000, But the plaintiff wes not prepared to undertake a transaction of this mughitude without the sup- port of its bankers; and the bankers refused their support unless the : plaintiff increased its capital from £200,000 to £500,000, The plaintiff proceeded to increase its capital by £100,000 , Another finance Company cal- ded the Phoenix Investment Company Limited arranged to take up 75,000 shares in the plaintiff Company, and on the 5th February 1928 the defendant also applied for 25,000 shares in the plaintiff Company. There is considerable dispute as to the terms upon which the defendant made this application. Wil- jiams, « director of the defendant,who negotiated the transaction with Dun- lop, the bianaging Director of the plaintiff Company, deposed:

"Dunlop asked me if I wouid consent to pay the money into the Trust, and I told him 'No, I told you before I did not want to pay the money into the Investment Trust', He then told me it did not look as though the tuing would

come off at all,or it was the quickost way of mandling it if I would con-

then sent. I did not want to do this, but he turned/to Bridgland" - who was the anaging Director of the Phoenix Investment Trust Ltd. - "ne had a dis-

cussion with Bridgland and said 'Look, if Mr Wisliams will put this mon into the Trust, will you undertake the sale of these shares for me at par?!

Prior to that, I had told Dunlop when he approched me and said it looked

as though the business would fail phut - I stressed the joint that if the transi'er could be made in tae new Company almost m imucdiateiy I could see

no objection perhaps to it, but the transfer of tne shares in tne new Cem-

oO

pany to us'would have to be made immediately. He asked Bridgland would he undertake the sale of those shares in the Trust for him at par. PBridg- land said, Yes, he wouid, but he certainly could not undertaxe to do it imuediately, he would bave to give him time to do it, it was a latye pareel, and he would probably want six months to do this, and also he stressed tne fact he would want the very lowest application and allot- ment moneys in order to get the money in...Dunlop said 'Mr Wiiliems, I can arrange with Mr Bridgland to seil these shares at no cost to Wool- worths, but I wiil have to give him time to do it, ' He explained to me also, with a transaction of this size, by the time the title was ap- proved and the agreements completed and the contracts ail in order, it would protably take anything up to six months before it could be completed . LT said 'Provided, ir Dunlop, you will undertake to elfect this transfer for us into the new Company and you will undertake the responsibility of seLling these at par, I am willing to reconmend to my Board to give you twelve months', He assured me that would be done, in fact within 4 min- ute or two he had handed me an application shure form for the Australian Investment Trust."

Dunlop, on the otner hand, deposed:

Mr Williams said "have a further epatien option over Stewart Dawson(s property for a month!, I thitk he said he paid £200 for it. He said 'T have a fresh proposition to put before you, and that is Woolworths to taixe up £5,000 shares in thes your Trust, the Trust Company, when the new Company! - the Strand and Pitt Street Properties as it was afterwards called - 'is formed, the 'trust to take up 25,000 shares in that Company for Woolworths and pay for them, we to reimburse you or pay you in twelve montas. Mr Bridgland here is arranging with me tnat he will sell. tne saares in the Trust on behalf of Woolworths and witnout loss to that

Company during that period', I turned to Mr Bridgland, and he confirm-

ed it. I said 'I cannot give you an answer at the moment, leave 1t with me and I wiil consider it'™", Next day "I told nim that I had seen

Stewart Dawson and that he had offered easier terms viz é

000 down and £100,000 to be paid in four quarterly instalments of £.5,000 each,

t we"

I said 'That assists our finances considerably', I told nim then

would widerweite ares in the new Company and form it, He said 'Taut is good', I told him that under the new arrangements I would not need

tae whole of the £25,000 for Woolworths in oue sum. He said tThat will suit us, it will save ay Comgany interestt",

Some correspondence passed between the parties in February 1929 which is mainly concerned with the terms of the lease which the defendant required. But a letter of 25th February 1929 sets forth that the defendant's ap- plication for shares is "made conditionally upon the proposed Company being formed and registered within three months......and acquiring the

properties in question, and also upon condition of the proposed Company

when formed and registered entering into a lease with Woolworths immediate-

Ww iy aiter registration." In April of 1929 the plaintiff notified the de- fendant taat 25,000 snares of £1 each had been allocted to it in the plain. tiff Company on the terms of its application. But another director of the defendant, Scott Wayne, was not satisfied with this letter of allotment, and ue saw Dunlop, Scott Wayne deposed:

"I told Mr Dunlop that the allotment of shares was not in accordance with the arrangement as I understood, I understood we were to receive shares

in the Strand Company and not in the Trust. ar Dunlop stuted that. the Trust capital had been too small to handle the finance of the Strand and Pitt Street purchase, and it had been arranged to. increase the capital of the Trust, and in order to assist the Trust, Mr Williams had arranged with Mr Dunlop-that our £25,000 was to go into the Trust and ultimately.

be exchanged for shares in the Strand Company, I asked him how the trans~ fer was to be managed, how he proposed to exchange the shares. He said those shares would be sold, I said 'How will the shares be sold?! He said tas the Trust cannot sell the shares it has been arranged with the Phoenix Company to sell the shares", I asked who the Phoenix Company were, he said the Phoenix Company were the promoters of the Trust and had also under- written a large number of shares."

Scott Wayne further said that he would communicate with Williams and ad- vise Dunlop further. In the meantime, the defendant protested that the al- lotment of shares was not made in accordance with the terms of its arrange

ment with the plaintiff, and the piaintiff repiied:

"Phe £25,000

3 intended originaily for shares in a Company to purcha Stewart Dawson's property. Owing to the smallness of the capital of this Trust, we could nob get the necessary bank accommodation, To assist us in

000 shares

this, Wr Wiiliams, acting for W.olworths, agreed to take up

in this @

trust om the fiotation of the Company to purchase

Stewart Dawsons was to retain £5,000 shares of its underwriting in that Company,to be transferred to Woolworths Ltd when the shares in this Trust were sold, time not to exceed twelve months, The Phoenix Investment Com- pany Ltd agreed to dispose of the shares within that period without any cost to Woolworths Ltd, We have the assurance tnat the Phoenix Company will give a written undertaking to this effect", Later, Scott Wayne saw Dunlop, and communicated to nim the contents of villiams' letters. Scott Wayne stated that he was worried about the Phoenix Company because he doubted its stability. Dunlop redsured him, but Scott Wayne asked what assurance was there that the Phoenix Company would sell the shares. Dualop replied that the Bhoenix Company would give an un- dertaking and that he would procure the document. On the 2nd May laze, Duntozas the Managing. Director for the plaintiff, wrote to tie defendant as follows: "as arranged with your Mr Scott Wayne I send herewith undertaking by the Phoenix Investaient Company Ltd to unload 25,000 saares in this Trust at par within 12 months," The undertaxing was addressed to the gefendanty, and was as follows: "In connection with your application for 25,000 shares in the Australian Investment Trust Ltd., we confirm our arrangement made witi your Mr Wil- iijams, namely that we will unload these shares for you at par and replace with 25,000 shares in Strand and Pitt Street Properties themfvitnin twelve months", The application and ailotment moneys were tnen paid by the defendant on = the 25,000 shares which it had applied for in the plaintiff Company. It is clear, at this stage of tne transaction, taat neither party contemplated a payment oz more than £25,000 by the defendant, It is equaily clear taat all parties contemplated a sale of the 25,000 siures in the plaintiff Com pany at par or better within twelve months, and the taxing up by the defen- dant of an equal number of shares in the Company formed to acquire the

Strand and Pitt Street properties with the pro

s of the sale of tne

shares in the plaintiff Company, I doubt if any of the megetiasiens ne-

gotiators of tae transaction adverted to the position tast wou.

the shares were not sold or were sold ut a price below par. Everyone was

satisfied tiat the shares could and would be sold by the Phoenix Company

and that proc

sds would be sufficient to take up an eyual number of

ny

res in the new Compauy in the name of the defendant, Sut however tiis

may be, the learned trial Judge was satisfied that there was no agreenent

on the part of the defendant to find moneys or to pay ror an additional

25,000 shares in the new Company or to reimburse the ,ilaintiff Company

if it foun the moneys in respect of such shares, The deponents were in direct opposition, as we have seen, one to tne otaer, and in these circ- umstances it is quite impossible for this Court to disturb the findingé or the learned Judge.

Great stress was laid at the trial upon the auestion whether the 25,000 shares were to be sold by the Phoenix Company as agent for the plaintiff or as agent for the defendant. I do not think, however, thet this is quite tne right approach, It is true that the snares could not be sold without some authority from the defendant; it is equally true that the plaintiff nad some arrangement with Bridgland as to tne commission he should recsive from the plaintiff on the sale of these shares, But the eritical question is what was the agreement actually made, or to be im-

puted to the parties in case the 25,000 shares were not sold or were sold

below par. . an The next stage of the transaction was the formation and registra- tion of the new Company - the Strand and Pitt Street Properties Limited. In August of 1929, the parties directed their attention to taking up: shares in the new Company so that the defendant might become a shareholder in that Company. The defendant forwarded an application for 25,000 shares in the new Company,to the plaintiff, but accompanying it was a letter - of 13th August 1929 stating that the application was conditional upon the plaintiff uxt paying the whole of tne moneys required in respect of such shares, and upon 4n agreement being entered into by the new Gompany to grant a lease of part of the premises acquired from Stewart Dawson . The letter also stated tuat the defendant would execute a cnarge in favour of the plaintiff over the 25,000 shares in the new Company, and in it covenant to repay such moneys witnout interest upon a sale being effect- ed of tne «5,000 shares belonging to Woolworths Limited - the defendant - in the hands of the Australian Investment Trust Limited - the plaintiff. As the apriication was conditional, the plaintiff replied tnat it was use-

less, and returned it to the defendant, Further negotiations took place

between the parties, and on the Sth September 1

S, the defendant for- warded to the plaintitf an application for 25,000 shares in the new Coit- pany, and the covering letter before set forth upon which this suit is founded. The new Company appears to have failed, The defeudant Company, however, obtained a lease or an agreement for a lease of the premises that it required, The Phoenix Investment Trust Limited was unable to, or in any case did not, sell or unload the 85,000 shares neld by the defen- dant Company in tne plaintiff Company at par within twelve months, but the defendant Company has acquired 25,000 shares in the Strand and Pitt Street Properties Limited, which are not, I think, of much if any value at the present time,

The strength of the plaintiff's position is that it paid moneys for and at the request of the defendant Company upon the shares taken up py it in the Strand and Pitt. Street Properties Limited, and prima facie an obli,.ation arises to repay those moneys to the plaintiff. But that obligation is negatived when the letters and the oral statements of the parties which have been accepted oy the learned trial Judge are examined. The arrangement was that the defendant Company should find £25,000, which in the first place should be applied in taking up shares In the plaintiff Company, But the parties stigulated that those shares should be sold ~

'unloaded on the public! is the phrase - at par within twelve months, and

the proceeds ap

Strand and sitt Street Properties Limited, The basis of the arrangement

plied in acquiring an eyuivaient number of shares in the

between the parties was that the proceeds of the sale of the 25,000 shares in the plaintiff Company should provide the fund out of which the payments or liabilities in respect of the 25,000 shares in the Strand and Pitt Street Properties Limited should be met, The undertaking of the Phoenix Investment Trust Limited to the defendant Company to unload the shares at par within twelve months made this arrangement sufficiently safe and se- cure, and sco it would have been but for the failure of that Company, Both parties relied upon it, But it is quite contrary to the intention of the parties, as gathered from their lesters and commaications, taat a per- sonal obligation should rest upon the defendant Company in case the

shares should not be sold. a covenant to repay such moncys, wit interest,

upon a sale belng effected of the £5,000 shares belonging to Woolworths Investment

Limited in the Australian/frust Ltd negatives such an intention, The

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obligation is conditioned upon the sale, and che implication is that the proceeds of the shares create the fund out of which the obligation is

to be met, The result is that the covenant now claimed by the plsintirr cannot be supported, and that its appeal should be dismissed,

It way be that the same result could be reached by way of an es- toppel by judgment, The pluintiff brought am action at Common Law alleg- ing a special contract, substantially in the terms of the covenant now claimed, and also upon the common money counts, but a verdict was found for the defendant, and judgment entered accordingly . But in the view I take of the substance of this case, the matter does not call for determin- ation, and I merely call attention to Hoysted's Case 1926 A.C, 155.

The decree made in this suit is unusual and not to be followed, It orders that the suit stand dismissed out of the Supreme Court unless the plaintiff is prepared to accept the offer of the defendant to execute a charge over the shares held by the defendant in the Company,Strand and Pitt Street Properties Limited, containing a covenant in the form asf »referred to in the said judgment, and the plaintiff being prepared to accept the said offer,without prejudice to its right of uppeal against this decree, the Court ordered the defendant to execute the charge and that the execution of the churge by the defendant is without prejudice to the plaintiff's right of appeal, This decree should be varied, and it should be ordered that unless the plaintirt elects within a limited tine to accept a cnarge and covenant in/terms hereinbefore mentioned indicated, then the suit should be dismissed.

The plaintiff should pay the costs of the suit in any event, and

also of this appeal,

vii

AUSTRALIAN INVSET MENT TRUST LIMITED v WeoLbWwoRTHs Ltd DIxcN J.

JUDGMENT

LIMITED

WOOLWORTHS LTD

The appellant,the Australian Investment 'rust Limited, is a

financial and underwriting company formed in the year 1928, in January and February 1929,the respondent,Woolworths Ltd, 2 trading company conducting a " chain-store " business,obtained from the owners of the fee simple of a large piece of land in the City of Sydney two successive options of purchase at a price of £770,000 of

which about £50,000 would be payable at once and £100,000 within a

short time. Woolworths Ltd required business premises in the City

and to this end acauired the options. it was, however,unable from its own resources to carry through such a transaction, it hoped to a find some other investor or investors who would undertake the purchase of the fee simple in the exercise of the later option and would grant to it a long lease of so much of 'the premises as it needed for its business, one of its directors,named Williams, placed this proposal before the managing director of the appellant, ~ake the Investment Company,one Dunlop. Dunlop was prepared to undert# on behalf of his company the formation or promotion of a new

company to exercise an option and acquire the land. Woolworths Ltd

was willing to contribute £25,000 to the capital of the new company.

"The Investment Company found,however,that its bankers would not

3 '

support the enterprise unless it ingreased its own capital from £200,000, the amount ak apparently issued,to £00, 000, Dunlop reported this difficulty to Williams and proposed that Woolworth Ltd's £25,000 should,in the first instance, be appli@a in taking up shares of the Investment Company to assist it in raising the required extra capital. When the new company had been floated, shares in it would in some way replace the shares in the investment . Company. Williams consented to this course early in February 1929. One of the promoters of the investment Compamy, was an underwriting

company called Fhoenix Investment Company Limited,the managing

director of which was nawed Bridgland. 'this Company had,for an

" Bv

under

sicn,undertaken the responsibility of the first issue of the Investment Company's capital,and appears to have underwritten the second issue proposed of £100,000, Bridgland was present at some of the disciissions between Williams and Dunlop. Those discussions ended in Woolworths Ltd's sending in,on 5th

February 1929,an application to the Investment Company for 25,000 &I shares in that Company and paying to it two shillings and six pence a share { £3,125 ) application money. The application was

endorsed " This application is subject to our letter of 5th " Tebruary 1929." The letter commenced " We enclose herewith

" our application for 25,000 £1 shares to be placed on our behalf in

the New Company to be formed to purchase,...the property covered

by our option ..... Our application is forwarded on the basis of ys

"of the tentative agreement reached with you. "

Then followed a statement of terms relating to the proposed lease,and a condition that Woolworths Ltd should have the right to nominate one director of the new company, The shares applied for in the Investment Company were,on 8th April 1929,allotted to Woolworths Ltd and payment of the balance of the sum of £25,000 was requested, The Investment Company had set about promoting the new company which actually went to allotment on 6th September 1929. In the meantime difficulties had arisen as to the manner in which the shares,which Woolworths Ltd had subscribed for in the Investment

Company,should be replaced by shares in the new company. Much

vb Pape

discussion and correspondence had taken between the parties, the effect of which is in dispute. As a.result,however,WVoolworths Lid executed an application for 25,000 et shares in the new company,and handed it over to the Investment Company. Woolworths Ltd paid the amount of the shares issued to it in the investment Company, it was arranged that the investment Company should,at eny rate in the first instance,pay the amount of the shares in the new company applied for in the name of Woolworths Ltd,and this to the extent of £18,750 the Investment Company did as and when the new company called up its capital during the ensuing year. The Investment

Company claims that Woolworths Ltd is liable to repay this sum of

money. The latter denies that it is so liable except upon io

which havé uot occurred, In substance,the condition

which it sets up is that the shares issued to it in the Investment Company should be sold at their face value and so produce the £25,000, In other words,it contends that,upon the true arrangement between the parties,it was not intended in any event to find more than one sum of £25,000, The @ontroversy turns upon the ascertain- ment end interpretation of the agreement actually made between the parties, The Investment Company,having first sued unsuccessfully at law for part of the money, brought a suit in equity seeking specific performance of an alleged agreement on the part of

at Woolworths Ltd to enter into a covenant to repay,and to execute a

charge to secure such repayment over the shares allotted to it in 8

the new company. Yhe suit was heard by Harvey U.d. in Bg.,who found upon the facts that the covenant into which Woolworths Ltd had agreed to enter was conditional,in effect,upon the Investment Company procuring,through Bridgland or his deputy,the sale of the sharee in the Investment Company issued to Woolworths Ltd,a sale which,as I understand His Honour's finding,must be at par. in

ort of the appeal this conclusion was attacked as based upon an

erroneous interpretation of portions of the evidence upon which had

His Honour/relied,particularly in reference to the credence to be

given to the conflicting testimony of the witnesses. In aid of

this attack,reliance was placed also upon the correspondence

between the parties, A consideration of the criticisms made 4V

8s judgment has led me to the concluston that the

vergion of the arrangement made for which the appellant contends cannot be adopted in this Court. Conceding that in some respects the criticisms made by the appellant's counsel of the judgment appealed from may be well founded,nevertheless upon the whole of

the evidence,including the corres,ondence,the account given by Dunlop of the course taken by the transaction appears to me be the less probable. It failed to find acceptance before the learned pe? primary Judge,and,in my opinion, it should fail to find acceptance

in this Court. It is unnecessary to give more than a brief

statement of the facts acceptance of which is involved in this view.

ie

To

It is enough to stzte these upon which the true nature of the arrangement between the parties must be determined. Before the Investment Company's bank refused to support it in the transaction unless it increased its capital, the parties intended that Woolworths Ltd should subtseribe £25,000 of the capital of the new company,which the Investment Company should promote for the purpose of acquiring the property under the option. When it became necessary for the Investment Company to increase its capital by

£100,000,Dunlop,not unnaturally desired that the £25,000 should be

devoted in the first instance to the fulfilment,so far as it would

g0,0f this requirement. Williems did not desire to take up

shares in the investment Company and consented to do so as a ye

iL

temporary expedient only,which,while it might deley,would not prevent,the application of the £25,000 as a subscription of capitel in the new company, Although the Investment Company would act as underwriters in respect of the issue of tne new company's capital, Bridgland's company were the underwriters for the capital of the Investment Company, The proposal to issue another £100,000 capital in the latter company, therefore,concerned him . Whether for this reason,or because cf some closer connection with the Investment Company,he was introduced into the transaction between Williams and Dunlop. Possibly Williams hadno very clear conception as to how shares in the new company would be issued to his company in

replacement of the shares it would take up in the Investment 1)

Company. But the proposal of Dunlop and Bridglend was that the shares in the investment Company issued to Woolworths Ltd should be disposed of and the proceeds applied tm in taking up shares in the new company, This wuld mean that,although £25,C00 of the new capital required by the Investment Company would be found immediatel: yet in the end Bridgland would remain under the necessity of placing the whole share capital of £100,000. At that time it was not intended that anything should be paid to the new company in respect of the shares in it obtained by Woolworths Ltd until its shares in the appellant company were actually sold and the proceeds became available for the purpose. Bridgland gave his assurance that

the shares would be sold within twelve months, 'ihe basis of the \24

o

transaction was that they should be sold at par. It was on this footing that Williams,on 5th February 1929,sent in the application for shares in the Investment Company and wrote the accompanying

letter,drafted by its solicitor,which commenced " In connection with " our application of 5th inst for 25,000 £1 shares which are to be

" allotted to us or our nominees in a company which is to be

" promoted and registered by you as a limited liability company

"under the Companies Acts of N.S.W, for the purpose of acquiring" the property. the letter states that the application is mde conditionally uyon the registration of the proposed company within three months and the acquisition of the property and grant of a lease to Woclworths Ltd upon terms which it proceeds to set out.

In a reply of the same date,Dunlop referred to the application as

one for 25,000 shares in the Investment Company,as in fact it was , but confirmed the stetement of the conditions. When the investment Company's letter of Sth April 1929 was received notifying the allotment of the 25,000 shares in it and requesting payment, Williams had left Sydney. Another director of WoolvorthaLtd, named Wayne, took the matter in hand. At first,pending communication with Williams ,he wrote refusing to accept allotment on the ground that, notwithstanding the letter of 25th February 1929 drafted by the company's solicitor, a misunderstanding had maexuxxred arisen. He interviewed Dunlop and told him that he understood his company was to receive shares in the new company,not in the Investment Company.

Dunlop expleined how it came about that shares in the Investment roy

Company were applied for,and Wayne asked how the shares were to be exchanged. Dunlop answered that the shares in his company were to be sold and that,as his company could not sell its own shares, they would be sold by Phoenix Investment Company Ltd which had promoted it

and underwritten its shares. Dunlop wrote to Woolworths Ltd a

letter dated 12th April 1929 as follows :-

" Your letter of llth inst received. I am sorry there has been a

misunderstanding, H#riefly the facts are ~

The £25,000 was intended originally for shares in a Company to " purchase Stewart Dawson's property. wing to the smallness of the "capital of this trust we could not get the necessary Bank

" accommodation, To assist us in this mr Willisms,acting for

" Woolworths,agreed to take up 25,000 shares in this Trust. 'he

Trust on the floytation of the Company to purchase Stewart Dawson's,

yi

"was to retain 25,000 shares of its underwriting in that Company Limited

" to be transferred tc Woolworths ktt when the shares in this

" Trust were sold,time not to exceed twelve months,

" 'he vhoenix investment Company Limited agreed to dispose of the

" shares within that period without any cost to Woolworths Limited,

We have the assurance that the Phoenix Company will give a

"written undertaking to this effect.

* whe fact that your Company signed an application for 25,000

shares in this Trust proves our contention, 'the shief condition

referred to in application was that the Trust would do its utmost

to protect your Company for a lease of part of new premises which

"will be fulfilled.

" We now await Mr Williams' report. "

In reply,Wayne wrote that he had received a telegram from Williams as follows :- " Agreement was for 25,000 shares in trust

" Company which were to be transferred to new Company,when formed,"

and that he awaited a full reyort from Williams as the arrangements were not known to him,or the Chairman of Directors,or the Company's Solicitor, Dunlop's letter of 12th April 1929 was forwarded to

Williams and his reply dealing with it was read by Wayne to Dunlop.

It contained the following passage :~ " The first jaregraph of

Mr Dunlop's letter is correct. 'he shares were to go into the 4ge"

Trust,later to be transferred by the trust into the new Company in

" the name and on behalf of Woolworths,Ltd. Also it was intended

that the time within which this transaction was to be-concluded was not to exceed twelve months. Yhe full responsibility to do this was and is on the Investment Trust. The undersigned has no

recollection of any sugzestion that this responsibility was to be

"

delegated to the vhoenix investment Coy.,that is evidently some

" arrangement Mr Dunlop has made for his own protection, but it in

"no way concerns Woclworths. 'the Australian investment rust

th

"

"

" time,the idea was to make the transfer almost immediately.

Wayne also gave Dunlop to understand that ,according williams,the transaction did not depend upon the sale cf the

by the rhoenix Investment Company Ltd,which was acting under

most likely be effected in a much shorter time then twelve

agreed to place 25,000 shares in the new Company in the name of Woolworths,Ltd within « period of twelve months. 'the undersigned

however was given to understand by mr Dunlop that this wuld

months «

In fact the 12 months was only mentioned tp give them breathing

to

shares

some

arrangement with the Investment Company. Dunlop said his Company

could not sell the shares and it had been arranged that the Fhoenix

Company should do so, Wayne expressed misgivings about that

Company and asked what ascurance he had that it would sell the

SHAIEE

ap

v

shares, Dunlop said that it wuld give an undertaking.Wayne,in effect,asked him to obtain it. On 2nd hay 1929,Dunlop wrote to

Woolworths Ltd :- " As arranged with your Mr Scott Wayne I send " herewith undertaking by the khoenix Investment Co.,Ltd to unload

"25,000 shares in thie trust at par within twelve months," The undertaking enclosed was addressed to woolwcrths Ltd and signed by Bridglend as managing director of the Phoenix Investment Coy Ltd.

Its text was as follows :~ " In connection with your application for

" 25,000 shares in The Australian investment Trust Limited,we confirm

" our arrangement made with your air Williams,namely that we will

unload these shares for you at par,and replace them with 25,0u0

shares in Strand and ritt Street ¥froperties,within twelve months,"

In August 1929,Wayne was no longer in Sydney and the time was

ye

approaching when the application must be made for shares in the

new company which had been registered under the name of Strand and

Pitt Street troperties Ltd. The matter was discussed by Dunlop

with eother director of woolworths itd,named Christmas, AS a

result,on 13th August 1929 Woolworths Ltd wrote to the Investment

Company the following letter :- " This is to confirm the verbal

arrangement wade by your Mr Dunlop with our Mr Christmas under which' Waolworths Limited is to lodge an immediate application for 25,000 shares in Strand and Fitt Street rroperties Limited upon the condition thet the whole of the moneys required are to be paid by Australian Investment 'rust Limited on behalf of Limited

Woolworths Zk&t and Woolworths Limited is to execute in favour of Australian Investment Trust Limited and at the expense of that

Company a charge over such 25,0CO shares which charge is to

contain a covenant by Woolworths Limited to repay such moneys ye

al

* without erest ua sale being effected of the 25,000 shares "belonging to Woolworths Limited in the Australian investment trust

" Limited,

" The application is also conditional upon an agreement being "entered into forthwith by Strand and Pitt Street vroperties Ltd. " with Woolworths Limited to grant a lease of the premises described " 4n the letter of 25th #ebruary,1929,from Woolworths Limited to the " Directors of the Australian Investment rrust Limited for the term

" herein mentioned, "

At the same time an application was signed by Christmas,as managing director of Woolworths Ltd,for 25,000 shares of £I in the new company, 'The Investment Company replied stating that a conditional application was unnecessary and was useless and returned

it. On 4th September 1929,Dunlop wrote to Woolworths Ltd as ab

' follows :- " Strand and Fitt Street Properties Ltd "The application for 25,000 shares in the above Company on your behalf has to be made not later than I'riday,éth inst., so that

" completed list of sha

holders be handed to the Registrar on 7thinst.

I understand that the Agreement to lease has been avproved by further your solicitors and ours,therefore,there is no/need for delay.

I enclose fresh application for your signature, slease return to

us by Friday at latest,otherwise we must apply for the shares in the " name of the Trust and your name will not appear,also it will mean " considerable loss in stamp duty when the shares are transferred

later according to our arrangement.

X An agreement must be entered into between yourselves and the Trust regarding these shares to the effect that we undertake to pey "all the calls and that you hold the shares in trust for us till such

" time as you reimburse us. " a vy"

On 6th September 1929,Christmas sent to the investment Company an

unconditional application in his company's name, He sent it with the following letter :- " We are forwarding you herewith Horm of Applicatio " for 25,000 shares in the above company which has now been signed on behalf of Woolworths Limited,and which is handed to you won the

*" condition that the whole of the application and allotment moneys payable in respect of such shares are to be paid by Australian Investment trust Limited on behalf of Woolworths Limited and Yoolworths Limited is to execute in favour of Australian Investment Trust Limited,and at the expense of that Company, a charge over such 25,000 shares which is to contain a covenant by woolworths Limited to repay such moneys without interest upon a sale being effected of the 25,000 shares telonging to Woolworths Limited in the

" Australian Investment trust Limited. * he covenant described by these letters is to pay upon a sale

being effected of the shares in the investment Company. it isa

conditional covenant and upon the facts of the case,as I consider

they must be found, it is impossible to treat Woolworths Limited as

under an unconditional liability to pay the amount contributed to

the new company in respect of the shares allotted to Woolworths

Limited, But the question at once arises what is the meaning an

effect of the condition. In other words,upon whom is it incumbent to procure the buyer and at what price ? dn answering these questions,more must be considered than the text of the final letter, the transaction was not reduced to writing so as to make the writing the exclusive record of the agreement between the parties. The true intent of their agreement must be collected from the whole course of

the transaction, It is true thet prima facie a payment made on ati : 2

behalf of another person at his request is repayable by him. As the shares in the new company were allotted to Woolworths Ltd,it may be said that payments made by the Investment Company in respect of the liability upon the shares were made on behalf of Woolworths Ltd,and prima facie recoverable from it unconditionally. in this view nothing but a clear expression of a condition might be considered enough to qualify or defeat the liability, But it must be remembered that Woolworths Ltd made it clear that it intended to contribute a sum of £25,000 and no more to the enterprise, that sum by

was devoted tm it to the acquisition of shares in the proposed

company. 'the money was diverted to the purpose of supplying new

zs

capital to the Investment Company at its request and upon

Maw condition that x4 should afterwards reach the proposed company,or, at any rate,that shares in the proposed company should be fortheot: The sale of the shares in the Investment Company became a necessary element in the arrangement, because only by that means could the shares in the new company replace them fully paid. When the letter of lst May was written by Bridgland,and that of 2nd may 1926 by Dunlopy,it was intended that the shares in the Investment Company should be sold before the shares in the new company were paid up,or, perhaps,taken up. A payment by the investment Company in respect

of these shares out of its own funds does not seem then to have been

in contemplation . it was not unnatural, therefore, that Bridglané 3

should speak of " unloading the shares for you ",viz.Woolworths Ltd, The shares stood in that company's name and it was thst company which required that they should be sold and stood to suffer if they were not. But both Bridgland and Dunlop make it clear that the sale was to be at par. In cther words,the assurance sought and given was that the shares would produce the amount needed to pay the capital of the new company. In August the transaction assumed a new aspect when,the shares still being unsold,it became necessary to subscribe for shares in the new company and progressively to pay up the capital sa subscribed. to the extent to which the investment

Conpany paid this capital,it became the person that stood to suffer

3y!

if the shares were not gold. it stipulated for security over the shares in the new company,but it did not stipulate expressly for

reimbursement from Woolworths Ltd,except when the shares were sold. In these circumstances,it does not appear to be reasonable to treat the terms of the sale in contemplation as varied. the gale of

the shares in the Investment Company remaingnot only the occasion,

but also the source of the payment. the sale mst be a sale at par. It almost necessarily follows from this that it was the investment Company and not Woolworths Ltd thst should find the purchaser.' No doubt, Bridgland was. expected to do so,and if he fulfilled his

undertaking,it was of no importance to tie parties on whose behalf he

acted, But as a matter of wntract between tie parties no yw 4 ?

implication arose imposing a duty upon Woolworths Ltd to exercise reasonable diligence to find a buyer. tio doubt, if it sold the shares voluntarily below par without the consent of the investment Company,by thus rendering fulfil_ment of the condition impossible, it would expose itself to an immediate liability to pay. out, short of this,the covenant it agreed to give would impose no liability upon it to repay the full amount to the investment Company unless and until the shares were sold at par. 'the purpose of the sale is to produce a sum for repayment to the Investment Company. It seems reasonable,therefore,to imply a

further condition,viz. that,if the investment Company is content

to accept less than the full amount it paid upon the shares in the new company,it may require a sale below par of tie Woolworths Ltd's shares in its own capital. in that event,the covenant operates only as to the sum produced by the sale, in any case, the sale, whether for par or less,must take place within a reasonable time, After the effluxion of a reasonable time,the covenant would cease to imyose an effectual obligation, The charge upon tue shares in the new company apparently was intended to secure the investment Company in case a sale did not take place. But recourse to the remedies arising from the charge might be had,although no sale of

the shares in the investment Company had been effected and a

reasonable time had not elapsed. if the full sum were not 7%

produced by those remedies, a sale of the shares might be insisted upon to produce the balance, it is a reasonable consequence of this position, a position which the express arrangement between the parties apbears to bring about,that if a sale for less than per is required by the investment Company,the charge remains an available security for the balance. It may result that woolworths Ltd would lose the whole of its £25,000, But it would not incur any liability in debt beyond the': sum produced by the sale of its shares in the Investment Company, What,in the event,actually happened in detail is not made clear by tue evidence, But neither

Bridgland nor anyone else effected a sale of the shares at par or 47

shares allotted to Woolworths Ltd in the new company. it requested Woolworths Ltd to give a covenunt and charge in a form which referred only to tue a sale of the shares without stating the price. "ventually Woolworths Ltd insisted that the covenant should state the price as par and no covenant was given. the new company appears to havefailed and the charge to be given over its shares may be of little or no value, at any rate,the personal liability of Woolworths Ltd is the matter in contest. In my opinion that liability is not now enforceable.

The decree appealed from requires Woolworths Ltd to

give a covenant and a charge. the covenant is to be conditional

only,but the condition is so expressed as to make it uncertain on thé face of the decree what exactly is intended, 1 think the — substance of tae covenant is to repay the amount paid by the Investment Company upon the investment Company's procuring a purchaser of the shares at a price at least equal to the face

value thereof. It may be desirable to amend the decree to express, this meaning,and,perpaps,also,the implication contained in the

agreement between the parties.

'the apyeal should be dismissed with costs.

AUSTRALIAN INVESTMENT TRUST LIMITED v

WOOLWOR® LIMITED

TUDGHENT MoTIERNAN J. In my opinion the appeal should be dismissed.

The appellant, at the instance of the respondent, promoted a new company called Strand and Pitt Street Properties Limited, to exer- cise certain options held by the respondent, to purchase "land variously described as the Strand and Pitt Street Properties and Stewart Dawson's property, in the City of Sydney. The respondent wished to erect business premises on the land and it was proposed that the new company should give a lease to the respondent. The bank which was to provide financial accommodation to enable the land to be acquired, insisted that the appellant's capital should be increased by £100,000. The respondent was to take up 25,000 £1 shares in the new company but it agreed to help the appellant to comply with the bank's condition by putting the sum which was available to buy these shares in the new capital of the appellant, Following upon that agreement the respondent company wrote a letter to fhe appellant company in which they said "We enclose herewith our

"application for twenty-five thousand (25,000) £1 shares to be placed on

our behalf in the New Company to be formed to purchase Stewart'Dawson's property covered by our option in Pitt and King Streets", The application which was enclosed was for 25,000 ordinary shares of £1 each in the appellant company. The letter continued "Our application is forwarded

on the basis of the tentative agreement reached with you" and proceeded to state a number of conditions which the respondent company required

to be put in its lease which it was to get from the new company. The appellant did not reply to this letter and on 25th February, the respond- ent wrote a further letter to the appellant in which the following reference to the application of the 5th February is made."In connection with our application of Sth inst. for 25,000 81 shares which are to be allotted to us or our noninees in a Company which is to be promoted

and registered by you as a Limited Liability Company under the Companies Acts of New South Wales".The letter then describes the purpose for which

the new company was to be formed and continues "This application is

av

tiade conditionally upon the proposed company being formed and registered within three months from this date and acquiring the properties in question and also upon the condition of the proposed Company when formed r,

and registered entering into a Lease with Woolwoths immediately after registration to the following effect". The letter then proceeded to state the terms and conditions of the lease and concluded,"We shall be glad to receive your acceptance of these terms,which are in lieu of and are to be substituted for those set out in our letter to you of the Sth inst".

On 8th April the appellant company allotted the respondent 25,000 shares in the appellant's capital and on 1lth April notified the respondent that the shares had been so allotted. This notification was received by Scott Waine, a director of the respondent company, who had not previously handled this matter. He interviewed Dunlop, the director of the appellant company, who had the conduct of the matter for it, and on llth April also wrote to him, The appellant replied by letter dated 12th April which contained the following statement:- "Briefly stated the facts are:- "The £25,000 was intended originally for shares in a company to purchase "Stewart Dawson's property. Owning to the smallness of the capital of "this Trust we could not get the necessary Bank accommodation.To assist "us in this Mr. Williams, acting for Woolworths agreed to take up 25,000 "shares in this Trust. The Trust on the flotation of the Company to "purchase Stewart Dawson's was to retain 25,000 shares of its under- "writing in that Company to be transferred to Woolworths Limited when "the shares in this Trust were sold, time not to exceed twelve months " The Phoenix Investment Company Limited agreed to dispose of she shares within that period without any cost to Woolworths Limited. "We have the assurance that the Phoenix Company will give a written yundertaking to this effect.

The fact that your Company signed an application for 25,000 "shares in this Trust proves our contention. The chief condition fe= "ferred to in application was that the Trust would do its utmost to

protect your Company for a lease of part of new premises which will "be fulfilled",

The new company was formed at the end of July or the beginning of August 1929,It entered into an underwriting agreement with the appellant which

forwarded to the respondent for signature an application for 25,000 the shares in the new company. After discussion as to/terms of the lease

which were arranged, the respondent sent to the appellant a letter, dated 6th September 1929, which is in the following terms:-

" re Strand and Pitt Street Properties Limited.

" We are forwarding you herewith Form of Application for 25,000 "shares in the above company which has now been signed on behalf of "Woolworths Limited,and which is handed to you upon the condition that "the whole of the application and allottment moneys payable in respect "of such shares are to be paid by Australian Investment Trust Limited

nq

3.

'on behalf of Woolworths Limited, and Woolworths Limited is to execute "in favour of Australian investment Trust Limited, and at the exponse of "that Company, a charge over such 25,000 snares which is to contain

"a covenant by Woolworths Limited to repay such moneys without interest "upon a sale being effected of the 25,000 shares belonging to Woolworths "Limited in the Australian Investment Trust Limited",

The parties are in dispute as to the meaning of the condition "upon a sale being effected of 25,000 shares belonging to Woolworths Limited in the Australian Investment Trust Limited", It is common ground that the letter of 6th September is not the sole repository of the agreement between the parties. The effect of this condition must there- fore be determined upon a consideration of all the correspondence and conversations which took place between the parties in the course of the transaction, The view which is taken as to the credibility of the witnesses will determine what parts of the oral evidence should be relied upon, In a careful analysis of the evidence idr, Weston forcibly stated a number of reasons why the estimate, which the learned Chief Judge in Equity formed of the cref@ibility of the witnesses, should not be adopted. But there is no such conflict between the documents and the ascertained facts on the one hand, and the conclusions founded on the evidence of witnesses whom the learned Judge believed on the other, as to afford any substantial grounds for rejecting His Honour's viéws as to the credibility of any of the witnesses. The appellant contended that the proper inference from the whole course of dealing between the parties was that the respond- ent was obliged to effect the sale referred to in the concluding part of the letter of 6th September. It would be otiose to recapitulate in detail the facts and the whole of the correspondence between the parties in the light of which this letter id to be construed. Reference has already been made to the receipt on llth April by Scott Waine, a director of the respondent company, of a notification that the appellant had allotted 25,000 shares in its own capital to the respondent. At this critical stage he had a discussion with Dunlop. The learned Judge accepting Scott Waine as a trustworthy witness thus summarises the effect of this interview as it was comprehended by this witness:- "From his interview with Mr. Dunlop he understood that, the finalarrange- "ment had been that the defendant company should apply for shares in the "plaintiff company,that such shares should subsequently be sold and the "Money applied in set off against the moneys required to take up shares "in the Strand Company".

Again, this witness read to Dunlop the following extract from a letter

purporting to explain the transaction, which the witness had received

4, from another director who hadpeen in the negotiations before him.:- "The shares were to go into the Trust, later to be transferred by the "Trust into the new company in the name and on behalf of Woolwotths Ltd. "Also it wasintended that the time within which this transaction was "to be concluded was not to exceed twelve months. The full responsibility "to do this was and is on the In vestment Trust; the undersigned has no "pecollection of any suggestion that this responsibility was to be "delegated tothe Phoenix Investment Co., that is evidently some "arrangement Mr. Dunlop has made for his own protection, but it in no "way concerns Woolworths." «<—-—-—— The evidence does not show that Dunlop denied that this statement represented the arrangement between the parties. But what is. there expressly stated is sharply in conflict with the version ofthe arrangement which Dunlop insisted upon at the trial. The appeadant, however, relies upon a document which the learned trial Judge says was the "most debated in this case and is the plaintiff's sheet anchor" addressed by Bridgland, the Principal Director of the Phoenix Investment Trust, to the respondent. The document is in these terms:- "In connection with your application for 25,000 shares in the Australian "Investment Trust Limited, we confirm our arrangement made with your "Mr. Williams, namely that we will unload these shares for you at par, "and replace them with 25,000 shares in Strand and Pitt Street Properties "within twelve months", Upon a consideration of the whole course of the transaction, I agree with the learned Judge that this letter does not establish, asthe appellant contended, that it was a term of the arrangement that respon- sibility for selling its shares 'padipe-apeediies§ rested upon or had been accepted by the respondent. His Honour was right in construing that letter to mean that Bridgland was selling the shares on behalf of the respondent company in the sense that the transaction was arranged between the appellant and the respondent to provide the means for taking up shares in the new company.. The respondent, for the accommodation of the appellant took up shares in its new capital with the moneys which it was well understood between the parties were to be applied in paying for shares in the new company in which it was essential for the respondent's purposes that it should be a large shareholder. It was 4 never intended that the respondent's outlay would exceed the amount of these moneys, namely 225.000. Accordingly, the respondent provided the application and allottment moneys in respect of the respondent's shares in the new company because the respondent's funds, which were to

fat.

have been available for this purpose, had been gamut in the capital of the appellant company for its accommodation. The parties agreed that

he

5.

the moneys so paid by the appellant should be repaid to it upon a sale of the respondent's shares in the appellant's capital being affected.

"In my opinion the agreement between the parties imposed the obligation of selling the shares on the appellant and the respondent is not under a personal Liability to the appellant to repay the moneys. It is, I think,a necessary implication that the sale would be at a price not less than the nominal value of the shares. The appellant is entitled under its agreement to the execution of a charge over the respondent's shares in the new company and to the execution of a covenant for the repayment of the moneys paid in respect of these shares upon a sale being effected by the appellant of the respondent'd 25,000 shares of £1 each in the capital of the appellant at a price not less than £1 per share.

In the result the appellant fails in the appeal.

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