This case illustrates the importance of ensuring that pre-emptive rights provisions in joint venture and shareholder agreements are drafted clearly and operate as intended by the parties. In this case, the Court found that a clause which deemed a change of control to be a disposal for the purposes of a pre-emptive rights provision was void for uncertainty.
Goldus Pty Ltd (Goldus) and Australian Mining Pty Ltd (AM) were parties to an unincorporated mining joint venture agreement (Agreement). Goldus claimed that the proposed sale by Australian Corporate Holdings Pty Ltd (ACH) of its shares in AM to a third party breached the pre-emptive rights provisions in the Agreement. In this regard, Parker J in the Supreme Court of South Australia found that:
- there was considerable uncertainty in the drafting around how the pre-emptive rights provisions should operate (ie a change of control of one of the joint venture parties was deemed to constitute a “disposal” for the purposes of the pre-emptive provisions, but it was unclear how those provisions were to operate in the context of a change of control given that a “disposal” referred to a disposal of an interest in the joint venture rather than a joint venture party);
- pre-emptive rights provisions in a joint venture agreement are intended to ensure that existing participants are empowered to exclude new participants by purchasing the outgoing participants interest if they so desire. Where there are 2 interpretations reasonably open, the one that accords with this objective should be preferred;
- notwithstanding the above, the interpretation advanced by Goldus (which went a considerable distance beyond a mutatis mutandis modification of the provisions) extended substantially beyond a purposive interpretation of the words actually used and would amount to “an impermissible rewriting” of the Agreement by the Court; and
- on the drafting and the facts in this case, the provision in the Agreement which sought to extend the pre-emptive rights to cover a change of control scenario was void for uncertainty.
Goldus further argued that the failure of AM to disclose the identity of the proposed purchaser breached the following terms which should be implied into the Agreement:
- neither party could sell its participating interest to an unrelated third party “who was incapable of discharging the rights and obligations required of a joint venture party under the Agreement or unreasonable or unsuited to carrying out a joint venture with the other party”; and
- any notice of a third party offer given for the purposes of the pre-emptive rights provisions must disclose the identity of the proposed third party purchaser.
Parker J refused to imply either of the above terms on the basis that:
- the first term would significantly limit the rights of a joint venturer to sell its participating interest and does not identify the basis upon which it was to be determined whether a third party fell within the ambit of the term. Further, it was not so obvious as “to go without saying” that either party would have accepted an obligation about such an important matter expressed in such uncertain terms. Due to its uncertain operation, Parker J was also not satisfied that the term would be reasonable and equitable or necessary to give business efficacy to the Agreement; and
- as the parties had been quite specific about the information that must be included in the relevant notice, it was not so obvious that “it goes without saying” that further information about the identity of the third party purchaser must also be included.