This case concerns a long-running dispute between the parties which began in 2006. In his judgement, Pembroke J mainly addressed the parties' failure to finalise litigation, and referred to his earlier decision delivered in March, McLaughlin v Dungowan Manly Pty Ltd (No 3) [2011] NSWSC 215.

In that case, Dungowan Manly Pty Ltd (Dungowan) entered into share surrender agreements with its shareholders, under which one of Dungowan's properties would be converted from company title to strata title for its shareholders.  The McLaughlins, along with Beacon Properties Pty Ltd, were the only shareholders who had not entered into the agreements.  They brought proceedings alleging that the other shareholders' rights were immediately extinguished on completion of the agreements.

In finding for Dungowan, however, his Honour held that the other shareholders had residual rights after the completion of the agreements.  This was because his Honour considered that, to the extent of any ambiguity, the agreements should be construed in a manner that did not lead to the "inconvenient and capricious consequences" which the McLaughlins contended.  Further it was relevant that:

  • the agreements had omitted to provide for the extinguishment of shareholders' rights on completion, which impliedly suggested that the shareholders would retain their rights at least until a formal resolution had been passed to cancel the shares;
  • the agreements could not be characterised as share buy-back agreements for the purposes of s257A of the Corporations Act 2001 (Cth), which would have meant that all rights attaching to the shares would be suspended immediately once the company had entered into the agreements.  This was because the agreements made no reference to the necessary buy-back procedures and instead referred to s258B, which deals with transferring the right to occupy or use real property; and
  • even though the agreements provided that upon completion, the shareholders were to surrender their share certificates, and referred to the "former relationship of shareholder and company", these factors did not necessarily equate to the shareholders' loss of rights.

See case.

Parties wishing to provide for the immediate extinguishment of shareholders' rights following completion of a share surrender agreement should make this expressly clear.  In the absence of such express terms, the Court will be reluctant to find that this is what the parties intended.