Federal Court of Australia

Butler v Total Tools Holdings Pty Ltd [2026] FCAFC 114

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The appellant must pay the respondent’s costs of the appeal, to be assessed if not agreed.

3.    By 4.00 pm AEST on 17 September 2026, the respondent must file and serve an outline of written submissions of no more than five pages in length addressing the basis on which the costs of the appeal should be assessed, and any affidavit evidence in support.

4.    By 4.00 pm AEST on 1 October 2026, the appellant may file and serve an outline of written submissions of no more than five pages in length in response, and any affidavit evidence in reply.

5.    By 4.00 pm AEST on 8 October 2026, the respondent may file and serve an outline of written submissions in reply of no more than three pages in length.

6.    The basis on which the costs of the appeal will be assessed will be determined on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    On 24 October 2018, the shareholders of the respondent (Total Tools) passed certain resolutions in general meeting. The appellant, Michael Butler, contends that one of those resolutions means that he has a legally enforceable right against Total Tools to compel it to issue shares to him.

2    The primary judge did not accept that contention. His Honour held that on its proper construction, the resolution does not mean what Mr Butler says it means. He also held that the resolution was not made under provisions of Total Tools’ constitution (TT Constitution) on which Mr Butler relied, so that it did not take any legal force from those provisions. His Honour further determined that Mr Butler, who was never a member of Total Tools and ceased to be a director in 2019, had no standing to seek to enforce the TT Constitution anyway.

3    As we will explain, the appellant has failed to articulate any credible reason for thinking that the primary judge was wrong on the first two of those points and it is unnecessary to determine the third. The appeal will be dismissed.

4    The respondent has filed a notice of contention, but the view we have taken of the appeal means there is no need to address it in these reasons.

The Resolution

5    It is convenient to set out the Resolution at the outset. As proposed in the notice of the annual general meeting of 24 October 2018, it was:

Creation and allotment of equity-based instrument for Michael Butler and Stephen Heath

All Members to consider, and if thought fit, pass the following resolutions by at least 75% majority of Members in accordance with clause 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement:

(a)     THAT the Board of the Company is authorised to create and allot to Michael Butler or his nominee, at a time of the Board’s choosing, an equity-based instrument in the Company or a successor entity of the Company, provided that:

(i)     the value of that equity-based instrument shall be equivalent to the value attributed to 30 ordinary shares in the Company (based on the number of issued shares in the Company as at 30 September 2018) in any future initial public offering or trade sale of the Company;

(ii)     the allotment of any such instrument is conditional upon the successful financial close of a trade sale of the Company or an initial public offering of the Company or a successor entity of the Company; and

(iii)     disposal or dealing in the equity-based instrument by Michael Butler in the event of an initial public offering is escrowed for two years from the date of listing of the Company.

...

6    The shareholders’ agreement referred to here is a Total Tools Shareholders’ Agreement that appears to have been entered into in or around October 2018. The relevant terms of that agreement will be set out and considered below.

7    Mr Butler and Mr Heath were each directors of Total Tools at the time of the annual general meeting. In the notice of meeting, the Resolution was followed by another one, in similar terms, in relation to the issue of an ‘equity-based instrument’ to Mr Heath equivalent in value to 20 ordinary shares in the company. It is common ground between the parties that each of those resolutions was passed unanimously at the annual general meeting.

The factual background

8    It is convenient next to summarise the factual background. This summary is based on the detailed findings of the primary judge. Those findings are not challenged on appeal. For the purposes of the appeal, it is only necessary to set out the facts in overview (save in respect of the explanatory memorandum extracted below).

9    Total Tools is a tool retailer that has been in business for more than 30 years. It operates a franchise system, where some shareholders and directors of the company are also franchisees that operate their own stores. There have also been stores owned by Total Tools itself and stores part-owned by Total Tools and part-owned by franchisees.

10    Mr Butler’s professional background is as an investment banker, and he also has a broad range of experience as a non-executive director of companies.

11    Mr Butler was appointed as a non-executive director of Total Tools in July 2016, with effect from 1 August 2016, and Mr Heath was appointed as a non-executive director at the same time. Both were recruited for similar reasons. From meetings with Total Tools directors prior to his appointment, Mr Butler understood his role would involve helping the company improve its financial, reporting and governance controls and systems, so as to bring it to a point where it could grow and potentially contemplate listing on the Australian Securities Exchange (ASX).

12    By the end of 2017, Mr Butler had prepared a discussion paper and a board paper which proposed that Total Tools could engage in an initial public offering (IPO) or a trade sale. On 31 January 2018, the board of directors of Total Tools (Board) resolved to proceed with this recommendation, and the resulting project was given the name ‘Special Tiara’.

13    Mr Butler subsequently arranged presentations to Total Tools shareholders and franchisees, and engaged in negotiations with a range of advisers. In March 2018, Mr Butler became the chair of the steering committee for Project Special Tiara. Mr Butler chaired frequent meetings with the advisers. Mr Heath was also working on the project.

14    On 23 May 2018, Mr Butler was appointed the chairman of Total Tools. While a non-executive director, by May or June of 2018 he was working around two days per week on Total Tools business, including Project Special Tiara. His evidence, which is not in dispute on appeal, is that during discussions with the previous chairman, Warren Jones, he was told that he and Mr Heath would be ‘looked after’ in return for the additional work they had been doing. A board paper first circulated in July 2018 and revised in or around August 2018 proposed that Mr Butler and Mr Heath be given the opportunity to purchase shares in the company on certain terms. By September 2018, this had become a proposal to issue ‘30 employee class shares’ to Mr Butler and 20 to Mr Heath, on the basis that they would each have the option to acquire the shares at a certain price with an interest-free loan from Total Tools.

15    In September 2018, Mr Heath expressed the view that it was not good governance for non-executive directors to have the same ‘equity plans’ as employees, and that the Board needed to have the flexibility to create the appropriate structure once the terms and vehicle for the proposed ‘liquidity event’ (that is, the sale or listing of Total Tools) were known. The primary judge describes internal communications and communications with advisers in some detail, but it is not necessary to do the same here. It suffices to say that the communications indicate that the Board did not at that stage know what form the liquidity event would take, so it was concerned, in Mr Heath’s words in an email of 28 September 2018, to ensure that it had:

… the flexibility and authority to structure and issue whatever equity-based instrument is ultimately found to be most appropriate (performance rights, ZEPOs, options, shares etc) and in whichever IssueCo is most appropriate.

16    Based on a comparison between separate correspondence from Mr Butler to Mr Heath and Mr Heath’s subsequent email referred to above, the primary judge found that Mr Butler was in fact the source of these observations by Mr Heath.

17    On 3 October 2018, by circular resolution, the Board approved the dispatch of a notice of annual general meeting including the proposed Resolution. An Explanatory Memorandum was attached to the notice (EM). It is necessary to extract the relevant section of that document in full:

Resolution 4: Issue of equity-based instrument to Michael Butler and Stephen Heath

Michael Butler and Stephen Heath are to be offered the equity based instrument as described in Resolution 4.

The Board appointed Michael Butler and Stephen Heath as Non-Executive Independent Directors to the Board of Total Tools Holding Pty Ltd (TTH) in August 2016 with the primary goals of setting the strategic, financial, operational, and governance frameworks required to maximise shareholder value and to create a liquidity event for Shareholders.

Maximum shareholder valuation creation most often occurs when true alignment exists between Shareholders, Board and Management and it is recognised that within the TTH structure, the Independent Directors, recruited to assist in the processes required to maximise shareholder wealth are non-shareholders.

At the time that Michael and Stephen joined the Board, the valuation of TTH, according to the valuation undertaken by the Independent Valuer, was $17.2M on maintainable EBIT of $3.4M.

Michael and Stephen were appointed to assist the Board in maximising shareholder value and to create a liquidity event for the Shareholders that might otherwise have not been achieved and they will drive the sale process including preparing the governance frameworks required to meet ASX Listing Rules and Recommendations.

The proposed corporate structure leading into the sales process is forecast to deliver an EBIT in the range of between $40M - $50M and a valuation on sale in the range of between $400M - $500M. Assuming a valuation mid-point of $450M, this forecast would deliver to shareholders an improved value from the 2016 valuation of $17.2M of approximately $226M.

As a result of the “Dual Track Process” for the proposed sale of the Company, the final structure of the sale and whether that will ultimately lead to a sale of TTH or a successor entity, has yet to be determined. That being the case, the Board is seeking approval from shareholders to have the discretion to allot an Equity Based instrument in either TTH or a successor entity to both Michael Butler and Stephen Heath or their nominated related parties at a time determined by the Board subject to professional advice.

The vesting of the Equity Based Instrument will be conditional upon the successful completion of either a Trade Sale of TTH or an IPO of TTH or a successor entity. Further, any subsequent dealing in the Equity Based Instrument in the event of an IPO will be escrowed for a period of two years from the date of listing the company on the ASX.

The value of the Equity Based Instrument for Michael Butler or his nominate related party will be equivalent to the value attributed to 30 TTH shares, proportionate to the number of shares on issue in TTH as at 30 September 2018 in any future IPO or trade sale of TTH or successor entity. For example, based on the underlying valuation metrics included in the presentation given to the Shareholders at the 14 May 2018 meeting where a parcel of 108 TTH shares were valued at $10.5M, and assuming an IPO or Trade sale in June 2019, the value of 30 TTH shares would be approximately $2.9M.

The value of the Equity Based Instrument for Stephen Heath or his nominate related party will be equivalent to the value attributed to 20 TTH shares, proportionate to the number of shares on issue in TTH as at 30 September 2018 in any future IPO or trade sale of TTH or successor entity. For example, based on the underlying valuation metrics included in the presentation given to the Shareholders at the 14 May 2018 meeting where a parcel of 108 TTH shares were valued at $10.5M, and assuming an IPO or Trade sale in June 2019, the value of 20 TTH shares would be approximately $1.9M.

For the purposes of this Resolution, Equity Based Instrument means either Shares, Options, Rights or any other derivative so advised and agreed by the Board.

It is noted that Michael Butler and Stephen Heath, as directors of the Company, have an interest in the outcome of Resolution 4. The other directors of the Company have no interest in the outcome of Resolution, other than as existing shareholders of the Company. Each of the directors of the Company recommend that the Members vote in favour of the above resolutions.

18    As has been said, it is common ground that the Resolution was passed unanimously by shareholders at the annual general meeting on 24 October 2018.

19    Between that time and 1 April 2019, Project Special Tiara encountered difficulties and Mr Butler’s role in the project became contentious. Those developments culminated with Mr Butler resigning as chairman and non-executive director on that date.

20    On 1 September 2020, Mitre 10 Australia Pty Ltd (a wholly owned subsidiary of Metcash Limited) acquired 70% of the issued shares in Total Tools for approximately $57 million. On 28 June 2021, Mitre 10 acquired a further 15% of Total Tools shares for $59.4 million, and on 13 November 2023 it announced it would be acquiring the remaining shares later that month for $101.5 million. It is common ground that the first of these acquisitions satisfies the description of a ‘successful financial close of a trade sale of the Company’ for the purpose of satisfying the precondition to the issue of an equity-based instrument under the Resolution.

21    The primary judge detailed communications between Mr Butler and representatives of Total Tools and Metcash concerning the issue of equity to Mr Butler as a result of the sale and pursuant to the Resolution. The upshot of the communications was that on 2 March 2023, Metcash wrote to Mr Butler denying that he had any entitlement to the issue of 30 shares in Total Tools.

Mr Butler’s claim below

22    On 3 July 2024, Mr Butler commenced the proceeding at first instance. The principal remedy sought in the further amended originating process was an order for specific performance of an alleged contract with Total Tools whereby, he alleged, Total Tools:

by its members in general meeting determined that the remuneration to be paid to [Mr Butler] included the creation and allotment to him of shares in Total Tools … equivalent to 1.323% of its issued shares, conditional upon the successful financial close of a trade sale of Total Tools.

23    Mr Butler also sought a declaration that the successful financial close of the trade sale occurred on 31 August 2020, which is presumably referable to the first tranche of shares acquired by Mitre 10 on 1 September 2020. The further amended originating process sought, ‘[f]urther to’ the above remedies, damages of $7,190,824.61. Mr Butler abandoned his claim for damages before the close of the trial.

24    The matter proceeded on concise statements. It is not necessary to describe Mr Butler’s final further amended concise statement in any detail, save to note that it alleged that from the time that Mitre 10 acquired 70% of the shares in Total Tools, on 1 September 2020, Total Tools was ‘contractually bound pursuant to cl 4.6 of its constitution to issue shares in it to Mr Butler equivalent to 1.323% of the issued shares at that time (being 40,490 shares)’. The concise statement alleged that the power exercised by the shareholders when they passed the Resolution was a power under cl 11.1(b)(v) of the TT Constitution. Each of these provisions will be considered below. The concise statement went on to plead (at para 14B) that:

The unanimous vote of the members of Total Tools in favour of the Shareholders’ Resolution on 24 October 2018 was a formal act of Total Tools and legally bound Total Tools to issue shares equal to 1.323% of the issued shares in the Company upon the successful financial close of a trade sale of the Company.

25    The figure of 1.323% comes from dividing the 30 shares referred to in the Resolution by the 2,268 shares that Total Tools had on issue at the time.

26    The concise statement also alleged that the Resolution was a determination of the amount of remuneration to be paid to Mr Butler under cl 4.6(a) of the TT Constitution.

27    Those are the matters that were said to have meant that Total Tools was ‘contractually bound’ to ‘comply with’ the Resolution. Essentially, Mr Butler contended that he would then have been able to participate in the further buyouts of Total Tools shares that Mitre 10 undertook in June 2021 and November 2023. That was the basis of the calculation of $7,190,824.61 in the abandoned damages claim.

The primary judge’s decision

28    The primary judge described four issues to be determined at trial, as agreed by the parties. But since his Honour determined the first issue adversely to Mr Butler, the other three did not arise, so it is only necessary to set out the first. It was:

7     Issue 1: Upon its proper construction, did the Shareholders’ Resolution bind Total Tools to create and allot to Mr Butler (or his nominee) 39,467 shares in Total Tools upon the successful financial close of a trade sale? The parties agree that there was a successful financial close of a trade sale within the terms of the Shareholders’ Resolution on 1 September 2020.

8     Issue 1 has been broken down into the following five sub-issues:

(a)     As a matter of construction, did the Shareholders’ Resolution merely authorise, or did it require, the board of Total Tools (the Board) to act?

(b)     Was the Shareholders’ Resolution made under cl 11.1(b)(v) of the TT Constitution (which outlines the circumstances in which the Board may issue shares without complying with the requirements relating to the pre-emption rights of existing members)?

(c)     In any event, can Mr Butler enforce the provisions of the TT Constitution or the Shareholders’ Resolution itself?

(d)     Is Mr Butler’s claim barred because he seeks to interfere with the internal management of Total Tools?

(e)     Even if Mr Butler succeeds on issues (a)–(d) above, does the Shareholders’ Resolution give rise to an obligation to issue shares (rather than other rights) in Total Tools (and not a successor) from 1 September 2020?

29    The primary judge turned to consider Issue 1 after summarising the evidence given by various witnesses. Consistently with the concise statement, his Honour summarised Mr Butler’s case in relation to the issue as being that the Resolution required the Board to issue shares to him on the successful close of a trade sale. While it appears that Mr Butler alleged that the Resolution had its own binding effect, the entitlement to specific performance was said to have come from the TT Constitution, which under s 140 of the Corporations Act 2001 (Cth) (Corporations Act) had effect as a contract between the company and each member, and between the company and each director.

30    The primary judge then considered the proper construction of the Resolution, in particular whether it required the issue of the equity-based instrument on the successful financial close of a trade sale (Issue 1(a)). Mr Butler submitted that the orthodox principles for the interpretation of commercial documents governed the interpretation of the Resolution, and that these principles required consideration of context and purpose, along with text. Mr Butler submitted that here, that required consideration of the text of the Resolution in the context of the EM, the TT Constitution and the Shareholders’ Agreement.

31    The primary judge mostly accepted those submissions, save that his Honour did not find that the TT Constitution was relevant to the task of construction, and also noted that there were ‘some important points of emphasis that arise from the different intention, nature and effect of resolutions, as opposed to commercial contracts’ (primary judgment (PJ) at [157]). At PJ [158], his Honour explained:

The principles for interpreting resolutions were explained in Griffiths v Martinez [2019] NSWSC 664 at [486]–[502] (Robb J). Those principles include recognising the informality and brevity of a resolution, giving effect to the clear meaning (when present) of the words of the resolution, considering the context and purpose of the resolution, and interpreting it with strictness to ensure that all parties with an interest in the matter agree on the single meaning and effect of the resolution. The observations of Beach J in Aveo Group Limited v State Street Australia Ltd [2015] FCA 1019 at [59]–[61] are also relevant.

32    The primary judge then considered the Resolution under four headings, including ‘Text and context’ and ‘The commercial purpose’. In so far as the text was concerned, his Honour found (emphasis in original):

159     I accept Total Tools’ submission that the text of the Shareholders’ Resolution and the Explanatory Memorandum are inconsistent with anything but an authorisation of certain acts by the Board. The language deployed is not that of obligation. It is significant that the text of the Shareholders’ Resolution expressly uses the word “authorised”.

160     The non-mandatory or non-obligatory nature of the Shareholders’ Resolution is reinforced by the grant of: (i)     a temporal discretion (“at a time of the Board’s choosing”); and (ii) a discretion as to the form of the chose in action granted (being “an equity-based instrument in the Company or a successor entity of the Company”), which, as Mr Butler himself pointed out in his email to Mr Heath on 28 September 2018, could be “performance rights, ZEPOs, options, shares etc” and was “highly likely not to be Ordinary Shares”.

161     The Shareholders’ Resolution also places limits on the Board’s discretion in relation to: (i) the value of the instrument; (ii) the requirement that there be a successful financial close of a trade sale or IPO; and (iii) the instrument provided to Mr Butler being escrowed for two years in the event of an IPO. I accept Total Tools’ submission that, properly construed, each is a restriction or limitation on the discretion otherwise conferred on the Board, rather than a condition precedent to an extant obligation or the only conditions the Board may impose.

33    As to context, the primary judge considered that the Resolution needed to be read in light of the EM. His Honour returned to this under the heading ‘The commercial purpose’, where he referred to the passage recognising that Mr Butler and Mr Heath, being ‘the Independent Directors, recruited to assist in the processes required to maximise shareholder wealth’ were ‘non-shareholders’. His Honour emphasised in particular the statement that Mr Butler and Mr Heath were to ‘drive the sale process including preparing the governance frameworks required to meet ASX Listing Rules and Recommendations’. His Honour reasoned:

169     The differing values of the equity-based instruments proposed to Mr Butler (30 shares) and Mr Heath (20 shares) reflected the expectation that Mr Butler would do more than Mr Heath to achieve a trade sale or IPO. That commercial purpose would be defeated if Total Tools was, by the Shareholders’ Resolution, bound to issue shares to Mr Butler and Mr Heath if a trade sale or IPO occurred, irrespective of their involvement.

170     On Mr Butler’s case, he would be entitled to the “equity-based instrument” if he had resigned the day after the Shareholders’ Resolution and Total Tools concluded a trade sale or an IPO any time thereafter. That demonstrates the commercial absurdity of the construction contended for by Mr Butler. It would, in effect, be a gift that diluted other shareholders for no reciprocal benefit.

171     I accept Total Tools’ submissions that materials beyond the Shareholders’ Resolution and Explanatory Memorandum are irrelevant to the questions of construction, since the shareholders were not all party to the prior or subsequent dealings, such that those dealings cannot logically bear on how a reasonable shareholder would understand the Shareholders’ Resolution.

34    Essentially for the reasons given in the passages that have been quoted, his Honour’s conclusion on Issue 1(a) was (at PJ [172]) that as a matter of construction, the Resolution ‘merely authorised the Board to exercise a discretion to act, which the resolution reserved to the Board’.

35    The primary judge then answered Issue 1(b) — ‘Was the Shareholders’ Resolution made under clause 11.1(b)(v) of the TT Constitution?’ — in the negative. His Honour pointed out that the Resolution was expressed to have been made under cl 9.3 of the Shareholders’ Agreement, not cl 11.1(b)(v) of the TT Constitution. Clause 9.3 provides:

In addition to any matter stipulated herein or required by the Corporations Act 2001 (Cth), [a] Special Resolution shall be required prior to the Company authorising or doing, or causing, suffering or permitting to be done any of the acts, matters or things specified in Schedule 3.

36    ‘Special Resolution’ is defined in cl 1.1 of the Shareholders’ Agreement as ‘a resolution that has been passed by 75% of the votes cast by Shareholders entitled to vote on the resolution’. Item 1 of Schedule 3 relevantly included among the matters requiring such a resolution: ‘Creating or issuing any shares (of any type or kind) or any other equity securities or securities with rights of conversion into equity securities or options over unissued shares in the Company.’

37    The primary judge thus found that the need to obtain shareholders’ approval under the Shareholders’ Agreement was one reason the Resolution was put. The other reason, he found, was ‘the fully informed consent of shareholders to any conflict/gain and dilution of shareholders’ interests’ (PJ [177]).

38    As to the contention that the Resolution was put under cl 4.6(a) of the TT Constitution (concerning directors’ remuneration), the primary judge held that there was no evidence that this provision was ever considered or raised for consideration by the shareholders in relation to the Resolution. It was not mentioned in the EM or the Resolution itself.

39    Further, his Honour held that there was no need at the time of the annual general meeting of October 2018 to address the pre-emptive rights that were the subject of cl 11.1(b) of the TT Constitution. It is convenient at this point to set out cl 11.1(a) and cl 11(b):

11.1     General

(a)     Board to issue shares

Subject to the Act and any special rights conferred on the holders of any shares or class of shares, the Board:

(i)     may issue or dispose of shares to any person at any time and on any terms and conditions and having attached to them any preferred, deferred or other special rights or restrictions, whether with regard to dividend, voting, return of capital or otherwise, as the Board thinks fit;

(ii)     may grant to any person an option over shares or pre-emptive rights at any time and for any consideration as the Board thinks fit; and

(iii)     has the right to settle the manner in which fractions of a share, however arising, are to be dealt with.

(b)     Pre-emption for existing Members on issue of shares

(i)     Before issuing shares of a particular class, the Board must offer them to Members holding shares of that class.

(ii)     As far as practicable, the number of shares offered to each Member under clause 11.1(b)(i) must be in proportion to the number of shares of that class held by that Member.

(iii)     To make the offer, the Board must give each Member a statement setting out the terms of the offer, including:

(A)     the number of shares offered to that Member;

(B)     the total number of shares offered; and

(C)     the period for which the offer will remain open.

(iv)     The Board may issue any shares not taken up under the offer under clause 11.1(b)(i) as they see fit.

(v)     The Members, by resolution in general meeting, may authorise the Board to make a particular issue of shares without complying with clauses 11.1(b)(i) to 11.1(b)(iv).

40    The primary judge held that the question of pre-emptive rights under cl 11(b) ‘may not have arisen at all if a new class of shares or a different type of equity was ultimately issued’ (PJ [183]). His Honour thus concluded that the Resolution was made under cl 9.3 of the Shareholders’ Agreement and not cl 11.1(b)(v) of the TT Constitution.

41    Finally, the primary judge determined Issue 1(c): ‘In any event, can Mr Butler enforce the provisions of the TT Constitution or the Shareholders’ Resolution itself?’ His Honour held that Mr Butler could not, essentially because at the time of his suit, he was not a party to the statutory contract constituted by the TT Constitution read with s 140 of the Corporations Act. He was never a member of Total Tools, and had ceased to be a director on 1 April 2019. Ordinary principles of privity of contract precluded his enforcing the TT Constitution. Nor was Mr Butler ‘a party’ to the Resolution. Further, he had not identified any obligation in the TT Constitution that Total Tools had breached or was to perform.

42    Having resolved these three sub-issues against Mr Butler, the primary judge decided that there was no need to determine any of the remaining issues. His Honour dismissed the application, with costs.

The basis of the appeal

43    Mr Butler’s notice of appeal sets out nine grounds of appeal. But the written submissions of his counsel mention the grounds not at all, and their oral submissions mentioned them only briefly in response to a question from the bench: see the discussion of the importance of properly drafted grounds of appeal and the need for written submissions to address grounds of appeal in SunshineLoans Pty Ltd v Australian Securities and Investments Commission [2025] FCAFC 34; (2025) 308 FCR 474 at [129]-[145].

44    It is therefore not appropriate to set out or address each ground individually. It is preferable to identify the key points made in the submissions and address them. They comprise the following contentions:

(1)    The primary judge failed to construe the Resolution in accordance with the objective theory of construction, so that his Honour erroneously read it as doing no more than authorising the Board to exercise a discretion. This, it is said, cannot have been the intention of the shareholders, as it would render the Resolution legally meaningless or futile. Senior counsel for Mr Butler advanced an interpretation of the text of the Resolution centred on the words ‘authorised to create and allot’ that was premised on the notion that only shareholders had the power to cause the allotment of shares to a particular person (relevantly here, Mr Butler). It is said to follow that the allotment of the shares was all that was authorised, which senior counsel implicitly presented as meaning that the directors had no discretion to do anything but allot the shares to Mr Butler if a trade sale occurred. In this way he sought to give the word ‘authorise’ a mandatory effect. Mr Butler also relied on selected dictionary definitions of ‘authorise’ that will be considered below.

(2)    The construction the primary judge adopted ‘erroneously denied the authority of the primary organ of Total Tools — the shareholders in general meeting’. This is said to have defied ‘the basic proposition that the members of a corporate entity may act pursuant to such powers as are conferred upon them by the constitution of the entity’ and to have ‘failed to take account of the principle of corporate law that the shareholders in general meeting are sovereign within the area of their authority’. The ‘sovereign power’ said to have been exercised by shareholders in making the Resolution was the power under cl 11.1(b)(v) of the TT Constitution. Senior counsel for Mr Butler characterised this as ‘a power of the company in general meeting to have those shares issued directly to Mr Butler’. Senior counsel also submitted that only the TT Constitution provided for what the Resolution did. Only the shareholders, it is said, had the power to ‘have shares allotted’ to Mr Butler. It also appears to be asserted that the primary judge’s conclusion means that the shareholders delegated some function to the Board, which they had no power to do. The point appeared to be that only the shareholders had the power under the TT Constitution to issue shares to a particular person, so the Resolution must be understood as directing that to occur, not delegating to the Board a power that it could not have. It is thus asserted that conferring a discretion on the Board defies cl 11.1 of the TT Constitution and was not a resolution that the Constitution empowered the shareholders to make. Mr Butler relies on Chiu v Zhao [2004] FCA 1714 and Aveo Group Ltd v State Street Australia Ltd [2016] FCAFC 81 (Aveo FC) at [47]-[50] in that regard.

(3)    In oral submissions, senior counsel for Mr Butler placed emphasis on a number of documents available to shareholders leading up to the annual general meeting which, he said, provided context that supported the construction of the Resolution for which he contends. These will be considered below; the EM is the main contextual document. The contention appears to be that these documents show that shareholders wanted Mr Butler to have an interest in seeing that a trade sale of Total Tools would happen and that they wanted him to be rewarded for efforts that he had already made in seeing that a trade sale of Total Tools would happen. The shareholders are said to have ‘wished to effect shares to Mr Butler’ and to have intended when they voted in favour of the Resolution, ‘that if there was a trade sale, the company was bound to issue shares to Mr Butler’. That is said to have been consistent with a recognition by shareholders of the improvement in the performance of Total Tools that Mr Butler had helped to bring about up to the time of the annual general meeting.

(4)    The primary judge is said to have impermissibly paid attention to events that took place after the date on which the Resolution was passed.

(5)    The primary judge is alleged to have constructed his own commercial rationale for his construction of the Resolution, thereby arrogating to himself ‘the role of arbiter of commercial reasonableness or likelihood’ (wording taken from Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 at [22] (Neuberger LJ)). This is said to be against the weight of evidence that Total Tools had expressly acknowledged that the Resolution was binding on Total Tools in its terms.

(6)    The primary judge erred by failing to determine the balance of Issue 1 and Issues 2 to 4.

(7)    It seems to be submitted that Mr Butler ‘has standing’ to enforce a relevant legal obligation against Total Tools.

(8)    Senior counsel also sought to raise, in oral reply only, an entirely different submission, that the case was based on Mr Butler’s contract of remuneration. It appears this argument was raised as an answer to Mr Butler being unable, as a stranger to the TT Constitution, to enforce a ‘contract’ said to be founded in a resolution of that company in general meeting.

45    We will now consider the first two of these points as coming under the heading of the proper construction of the Resolution. Since that depends in part on logically anterior questions as to the powers and functions of the corporate organs (board of directors and members in general meeting) those questions will be addressed too, as will the question of the provisions of the Shareholders’ Agreement or TT Constitution under which the Resolution was made. The third point, concerning what can be described as extrinsic materials, will then be addressed. We will then deal with the balance of the above points as other matters.

The proper construction of the Resolution

Principles

46    There is no dispute as to the principles that apply when construing shareholder resolutions. In general, the well-established approach to be taken to contractual construction should also be taken there. To adapt the well-known passage concerning the interpretation of contracts in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]-[47], the meaning of a shareholder resolution is to be determined objectively, by reference to its text, context (including the entire text of the resolution as well as any instrument or provision referred to in the text) and purpose. It is necessary to ask what a reasonable shareholder would have understood the Resolution to mean, which will require consideration of the language used in the Resolution, the circumstances addressed by it, and the commercial or governance purpose or objects to be secured.

47    To these generally applicable principles should be added a recognition of the particular character of shareholder resolutions. They are instruments that can affect the rights and interests of a large number of present shareholders, and potentially future shareholders and third parties. At the same time, they may be expressed in simple or informal language with the intention that they will be voted on (adopted or rejected) by shareholders that potentially have a range of backgrounds, circumstances and wishes. As with company constitutions, no narrow or pedantic construction should be given to them. See generally Aveo Group Ltd v State Street Australia Ltd [2015] FCA 1019 at [59]-[61] (Beach J) (Aveo FI) and Griffiths v Martinez at [487]-[489], [492], [495]-[497], [505] (Robb J).

48    Nevertheless, primacy should be given to the intention discernible from the text of the resolutions ‘because the range of surrounding circumstances available as aids to construction is a more unstable (or at least changeable) foundation than that available for construing contracts generally’: Aveo FI at [61]; Griffiths v Martinez at [488].

49    The primary judge understood these principles: see PJ [151]-[158]. As the following analysis confirms, there is no proper basis for the submission that his Honour did not approach the task of construction on an objective basis.

Text

50    The text of the Resolution is set out at [5] above. The primary judge’s analysis of the text is set out at [32] above. We cannot improve on that analysis. We adopt it as our own. It follows that the text of the resolution does not purport to require the Board to do anything. Rather, it authorises the Board to exercise a discretion within certain parameters.

51    Mr Butler’s submissions on appeal did not engage with that analysis by identifying any point at which it was wrong. In so far as the submissions addressed the text at all, they were confined to an assertion that the term ‘authorised to create and allot’ should be taken to mean that the Board was required to issue the ‘equity-based instrument’.

52    That was despite the fact that senior counsel for Mr Butler accepted in oral submissions that the ordinary meaning of ‘authorise’ is to permit something to be legally effective. The meaning of the word put by Mr Butler is not that meaning, but purports to be based on various dictionary meanings: from the Oxford English Dictionary (2nd ed) (OED) being ‘to set up as authoritative; to acknowledge as possessing final decisiveness’ and ‘to give legal force to; to make legally valid’; and from the Macquarie Dictionary, being ‘to give authority or legal power to; empower (to do something)’ and ‘to give authority for; formally sanction (an act or proceeding)’.

53    The authorities are replete with warnings that dictionary definitions are to be used with caution, if at all: see, eg, Commissioner of Taxation v Toowoomba Regional Council [2026] FCAFC 50; (2026) 315 FCR 369 at [26] (McElwaine and Wheatley JJ) and [82] (Feutrill J). These particular definitions do not advance Mr Butler’s case. The first OED meaning given is noted in that dictionary to be obsolete. The second meaning refers to the authorisation of a thing (such as a document) rather than the authorisation of a person or body of persons to do something, which is what the Resolution does. This selective use of idiosyncratic definitions demonstrates why the courts counsel caution in using dictionaries as interpretive aids. As for the Macquarie meanings, they merely confirm the ordinary meaning of ‘authorised’ in the sense of ‘given the power to do something in a legally effective way’.

54    Resort to the dictionaries is the only purely textual argument that Mr Butler advances. The rest of his arguments depend heavily on various matters of context. To those we now turn.

Which instrument(s) gave the Resolution legal effect

55    It is as well to commence by expressing our opinion as to the legal instruments that are said to have given the Resolution such legal effect as it had, as Mr Butler’s submissions depend in large part on that context to the Resolution. Regrettably, his submissions on the subject were confused, confusing and misconceived. Before dealing with them, we will state the straightforward position that in truth obtained here.

56    There is no mystery about it. As was said in Griffiths v Martinez at [496]: ‘The first rule should be that the words of the resolution mean what they say, so that if the meaning of the wording of the resolution is clear, it should be given that meaning.’ Here, the Resolution says that it is made ‘in accordance with clause 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement’. As the primary judge said, in neither the Resolution nor the EM is there a reference to the TT Constitution or any other instrument. That should be the end of the matter. To the extent that we need to explain further, that is solely to dispel the submissions put on Mr Butler’s behalf.

57    As senior counsel for Total Tools pointed out, that the Resolution was passed pursuant to the Shareholders’ Agreement, and not the TT Constitution, makes perfect sense. Clause 9.3 of the Shareholder’s Agreement and the relevant item from Schedule 3 are set out at [35]-[36] above. They require a special resolution to be passed prior to the company creating or issuing any shares (of any type or kind), or any other equity securities or securities with rights of conversion into equity securities, or options over unissued shares.

58    It is clear that at the time of the Resolution the Board did not know what kind of securities, if any, would be issued to Mr Butler or to Mr Heath. That appears on the face of the Resolution itself, including the use of the deliberately vague term ‘equity-based instrument’ and the broad references to the possible transaction forms of ‘a trade sale of the Company or an initial public offering of the Company or a successor entity of the Company’, which show that the structure and the vehicle for the transaction were unknown. It is confirmed by the EM, with its broad definition of ‘Equity Based Instrument’ as meaning ‘either Shares, Options, Rights or any other derivative so advised and agreed by the Board’ and the statement that ‘the final structure of the sale and whether that will ultimately lead to a sale of TTH or a successor entity, has yet to be determined’.

59    In those circumstances, it is obvious why the Board identified the need to be authorised by the shareholders to issue ‘any shares (of any type or kind) or any other equity securities or securities with rights of conversion into equity securities or options over unissued shares’, so as to invoke Item 1 of Schedule 3 to the Shareholders’ Agreement.

60    Contrast that with cl 11.1(b) of the TT Constitution, which concerns the issue of ‘shares of a particular class’: cl 11.1(b)(i). At the time of the annual general meeting, the Board did not know what class of shares it was going to issue, or whether it was going to issue any shares at all. It could not put any resolution under cl 11.1(b)(v) of the TT Constitution to members without knowing those things. The primary judge correctly recognised the significance of this (see [40] above). Also, there was no need for a special resolution under that provision, which is what the Resolution was.

61    There was also a suggestion in Mr Butler’s submissions that the Resolution was passed under cl 4.6 of the TT Constitution. In so far as this is potentially relevant, it provides:

4.6    Remuneration & Reimbursement of Expenses

(a)     Remuneration of Director

(i)     The Company must pay the Directors remuneration for carrying out the duties and responsibilities of the office of Director required by the Act.

(ii)     The Members in general meeting may determine the amount of remuneration to be paid to each Director under clause 4.6(a)(i).

(iii)     The remuneration that is determined by the Members to be paid under clause 4.6(a)(ii) is a debt due to the Directors, which accrues from day to day.

(iv)     Remuneration under this clause 4.6(a) may be provided in such manner that the Board decides, including by a fixed fee, by percentage of profits, and by way of non cash benefits including contributions to a superannuation fund.

(v)     The amount of remuneration to be paid to each Director determined by the Members under clause 4.6(a)(ii) does not include any insurance premium paid or agreed to be paid for a Director under clause 16.3(a).

(b)     Remuneration of Directors for extra services

(i)     If the Board or the Members request a Director to perform services in addition to those required by the Act, the Board may determine that the Company remunerate the Director for those services.

(ii)     Remuneration under this clause 4.6(b) may be provided in such manner that the Board decides, including by a fixed fee, by percentage of profits, and by way of non cash benefits including contributions to a superannuation fund.

(iii)     The Board may determine that the Company remunerate the Director as contemplated by this clause 4.6(b) in addition to or substitution for the remuneration paid or payable under the other provisions of this clause 4.6.

…

62    But, once again, the Resolution and EM make no mention of these provisions. The Resolution says that it is proposed in accordance with provisions of the Shareholders’ Agreement, not the TT Constitution. Nor is there any basis to infer that cl 4.6 of the TT Constitution was the true source of the legal effectiveness of the Resolution. Once again, no special resolution was necessary under cl 4.6. Further, taken together, cll 4.6(a)(ii), (iii) and (iv) authorise the members in general meeting to determine ‘the amount of remuneration to be paid to each Director’, which is to be ‘a debt due to the Directors’. This connotes that in so far as any resolution of the shareholders is concerned, the remuneration is to be quantified in money. To the extent that it is contemplated that it may be provided in ‘non cash benefits’, it is for the Board to specify that, not the shareholders: cl 4.6(a)(iv). None of this fits easily with the Resolution. At the hearing of the appeal, senior counsel for Mr Butler conceded that an entitlement to have shares issued could not be characterised as a ‘debt due’ for the purpose of cl 4.6(a)(iii).

63    In any event, the role of the shareholders under cl 4.6(a) is confined to determining the amount of remuneration ‘for carrying out the duties and responsibilities of the office of Director required by the Act’: cl 4.6(a)(i). Mr Butler’s submissions seemed to emphasise that the issue of the equity-based instrument was to provide recognition for efforts he had made above and beyond the minimum duties and responsibilities of the office of director required by the Corporations Act, and to align his incentives to those of shareholders. But when it was put to senior counsel, in effect, that these were ‘services in addition to those required by the Act’, so that they were the subject of cl 4.6(b), which provides for approval of remuneration by the Board and not the shareholders, he denied that the services provided by Mr Butler were in addition to those that led him to be asked to join the Board. But that is not to the point; he was asked to join the Board, in part, so that he could provide services beyond those required under the Corporations Act. The suggestion that the Resolution was passed under cl 4.6 is untenable.

64    We therefore reject the submission that the Resolution was passed under any provision of the TT Constitution. It was passed under cl 9.3 of the Shareholders’ Agreement.

The functions of the respective corporate organs

65    Having established that, it is now possible to determine, as relevant context, what functions of the shareholders in general meeting and of the Board were respectively exercised, or contemplated to be exercised, in and as a result of the Resolution.

66    Section 124(1) of the Corporations Act provides that a company has all the powers of a body corporate, relevantly including powers to issue shares in the company and other securities specified in the section.

67    Section 198A(2) of the Corporations Act provides that the directors may exercise all the powers of the company except any powers that the Act or the company’s constitution require the company to exercise in general meeting. But that is a replaceable rule, so that under s 135(2) of the Corporations Act, it is able to be displaced or modified by the company’s constitution. Clause 1.2(b) of the TT Constitution accordingly provides: ‘To the maximum extent permitted by the Act, the provisions of the Act that apply as replaceable rules are expressly displaced and do not apply to the Company.’ So it is to the TT Constitution that one must look to see what functions are assigned to the Board and the shareholders respectively in relation to the issue of shares and other securities.

68    To that should be added a reference to cl 3 of the TT Constitution, which provides:

The internal management of the Company will be governed by this Constitution, provided, however, that at any time that the Shareholders Deed is in effect, if the subject matter of any clause of this Constitution is also dealt with in the Shareholders Deed, the Shareholders Deed will govern that subject matter instead of this Constitution, and if there is any inconsistency between this Constitution and the Shareholders Deed or a provision of this Constitution conflicts with a provision in the Shareholders Deed, the Shareholders Deed prevails.

69    Neither party suggested that the reference here to the ‘Shareholders Deed’ meant anything other than the Shareholders’ Agreement. So the Shareholders’ Agreement was capable of modifying the division of functions and powers between the Board and the shareholders.

70    Similarly to s 124 of the Corporations Act, cl 2.2 of the TT Constitution provided that Total Tools had all the powers of a body corporate, including the power to issue a range of specified securities. This says nothing about which organ of the company was to exercise that power.

71    As to that, cl 5.1 provides:

(a)    Unless otherwise provided by the Act or this Constitution, the business of the Company is to be managed by or under the direction of the Board.

(b)     The Board may exercise all of the powers of the Company except any powers that any provision of the Act or this Constitution require the Company to exercise in general meeting.

…

72    Clause 5.4 gives the Board the power to delegate any of its powers, but there is no suggestion that it has done this in respect of any matter in issue in this appeal.

73    The TT Constitution was thus consistent with the ‘typical constitutional balance of powers’ between the members in general meeting and the board of directors: Aveo FC at [46] (Allsop CJ, Foster and Gleeson JJ). It is worth setting out the summary of the usual position given in Aveo FC in full:

46    Companies have two primary organs: the members in general meeting and the board of directors. The typical constitutional balance of powers between these organs sees management power vested exclusively in the directors, with specific powers conferred on the members: Austin RP and Ramsay IM, Ford, Austin and Ramsay’s Principles of Corporations Law (16th ed, LexisNexis Butterworths, 2015) at 240 [7.070]. That balance of powers is, however, always subject to the precise terms of the relevant constitution, and any relevant statute.

47    These themes are anchored in a substantial body of law. As was stated in John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113 at 134 each organ is sovereign in its sphere, and the balance can only be changed by altering the company’s constitution:

If powers of management are vested in the directors, they and they alone can exercise these powers. The only way in which the general body of shareholders can control the exercise of powers vested by the articles in the directors is by altering their articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders.

48    In Australian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2016] FCAFC 80, we considered the case law which establishes the basic proposition that the members of a corporate entity may only act pursuant to such powers as are conferred upon them by the constitution of the entity, or by statute. It is the vesting of power in the shareholders by the Act or constitution which provides the necessary foundation for a resolution by shareholders in respect of a particular matter. The shareholders may pass a resolution which expresses an opinion or an intention, provided that the resolution is authorised by the company’s constitution (or by statute).

74    While Mr Butler purports to rely on this passage, in truth he misconceives it, by making the sweeping assertion that the shareholders in general meeting are ‘sovereign’. He disregards the division of powers and functions between the shareholders and the Board that, in this case, is to be found principally in cl 5.1 and cl 11.1 of the TT Constitution.

75    The relevant provisions of cl 11.1 are set out at [39] above. It is plain from cl 11.1(a) that the power to issue shares or options or pre-emptive rights rests with the Board. By cl 11.1(b), that power is subject to certain conditions before it can be exercised by the issue of shares in an existing class. Essentially, the conditions require that the shares to be issued are offered to shareholders that already hold shares of that class. Only to the extent that the offers are not taken up may the Board issue the shares as they see fit. The Board is empowered to issue shares in accordance with those conditions without any act of the members in general meeting. The relevant power of the members in general meeting is a confined one. It is to authorise the Board to make a particular issue of shares without complying with the conditions requiring that they be offered to existing shareholders: cl 11.1(b)(v).

76    In short, subject to compliance with those conditions, and whether those conditions have effectively been lifted by a resolution of the shareholders in general meeting, the power to issue shares, options or pre-emptive rights rests with the Board.

77    A further condition is imposed by cl 9.3 of the Shareholders’ Agreement. As explained at [35]-[36] above, it is that the shareholders in general meeting pass a special resolution before Total Tools may create or issue any shares, or any other equity securities, or securities with rights of conversion into equity securities, or options over unissued shares. A special resolution of that kind authorises the issue of equity securities, in the sense that once the resolution is passed, that issue may be made by the company without any concern that the Shareholders’ Agreement is breached or that the breach might render the issue ineffective as a matter of law.

78    Our attention was drawn to no other provision of the Shareholders’ Agreement that might affect the power of the Board to issue shares or any other equity-based instrument.

79    The upshot of all this is that under cl 5.1(b) and cl 11.1(a) of the TT Constitution, the power to issue any share or any equity-based instrument rests with the Board. That power is subject to the observance of certain conditions in cl 11.1(b), which may effectively be waived by resolution by shareholders, and to the passage of a special resolution under cl 9.3 of the Shareholders’ Agreement.

The implications for Mr Butler’s case

80    We now turn to consider what this means for Mr Butler’s case.

81    First, and fundamentally, save as may have been provided by the TT Constitution (or the Shareholders’ Agreement read with cl 3 of the TT Constitution), the shareholders in general meeting had no power to direct the Board to do anything. That emerges from the principles of corporate internal governance that are summarised in the passage from Aveo FC set out above. The survey of the relevant provisions of the TT Constitution and Shareholders’ Agreement just undertaken confirms that the shareholders had no power to direct the Board to allot any shares, or other equity-based instrument, to anyone. The interpretation of the Resolution advanced by Mr Butler is inconsistent with those elementary principles, as applied to the TT Constitution and Shareholders’ Agreement.

82    Further, the conclusions above mean that, in passing the Resolution, the members of Total Tools were not exercising any power to issue shares conferred under the TT Constitution, let alone any ‘sovereign power’. Again, there is no mystery about what they were doing. They were ensuring that if those shares or other relevant securities were issued in the future, the company would be complying with cl 9.3 of the Shareholders’ Agreement. Total Tools was a party to that agreement. It would have breached the Shareholders’ Agreement had it issued any equity-based instrument to Mr Butler without the Resolution having been passed first. The passage of the Resolution removed that as an issue.

83    That is a complete answer to Mr Butler’s repeated submission that the construction of the Resolution adopted by the primary judge meant that it was futile and had no legal effect. It did not mean that. It meant that the Resolution had the straightforward legal effect just described. It enabled Total Tools to issue an equity-based instrument to Mr Butler at the appropriate time without breaching the Shareholders’ Agreement.

84    This was an intelligible and useful purpose even though the Resolution, on its plain textual meaning, permitted but did not require the issue of the equity-based instrument. The context provided by the Shareholders’ Agreement (and the TT Constitution), and the apparent objective of the Resolution, therefore give no reason to depart from that plain textual meaning.

85    Putting it another way, cl 9.3 of the Shareholders’ Agreement did require the Resolution, being a special resolution, to be passed to authorise the Board to issue the equity-based instrument, in the sense of permitting the Board to do so in a legally effective way. If the special resolution had not been passed, the issue of the equity-based instrument may not have had legal effect, or at least it would have been open to challenge and had other legal consequences potentially adverse to the company. Understanding it this way does not derogate from the textual meaning which the primary judge assigned to the Resolution; it confirms it.

86    It also follows from the above that there is no basis for the contention that the only course available to the Board after the shareholders had ‘authorised [it] to create and allot’ the equity-based instrument was to issue that instrument, once the precondition of a trade sale or IPO eventuated. This submission is difficult to understand, but it seems to be based on the premise that the power to cause an allotment of shares in Total Tools rested with the shareholders. As has been explained, it did not.

87    Further, the submission that the primary judge’s construction of the Resolution had the shareholders impermissibly delegating to the Board a function reserved to them falls away. The primary judge’s construction of the Resolution resulted in and/or contemplated each of the two organs exercising the respective functions reserved to them by the TT Constitution and the Shareholders’ Agreement.

88    The submission that the shareholders in general meeting should be treated as the ‘primary organ of Total Tools’, so that disregarding their asserted will was wrong, is untenable. There is no need to characterise the Board or the shareholders as the ‘primary’ organ of the company. It is enough to say that, as explained above, the primary judge’s construction of the Resolution was entirely consistent with the arrangements for the internal governance of Total Tools that emerge from the TT Constitution and the Shareholders’ Agreement. To the extent that Mr Butler submits that the shareholders must be recognised as ‘sovereign within the area of their authority’, the primary judge’s construction of the Resolution did just that — within their area of authority.

89    Further and in any event, the submission that the Resolution was passed pursuant to cl 11.1(b) of the TT Constitution is also untenable (not that it would have made any difference if it had been). As a corollary of this, the submission that conferring a discretion on the Board to issue shares or another equity-based instrument defied cl 11.1(a) is also untenable. For the reasons given, cl 5.1 and cl 11.1(a) empowered the Board to do those things and cl 11.1(b) was not engaged.

90    Chiu v Zhao does not assist Mr Butler. He seemed to rely on Dowsett J’s finding in that case that a resolution purporting to authorise the directors of a company ‘to make any future issue of shares without complying with section 254D(1) [of the Corporations Act] as they see fit’ was inconsistent with s 254D(4) of the Act. His senior counsel submitted that cl 5.1 of the TT Constitution, authorising the Board to exercise the powers of the company not reserved to the shareholders, meant that a discretion to issue or not to issue the equity-based instrument could not be conferred on the Board.

91    None of that follows. Section 254D is a replaceable rule that provides for pre-emptive rights which is similar to cl 11.1(b) of the TT Constitution. But the terms of the resolution in issue in Chiu v Zhao were broader than the Resolution here, and in their breadth they went beyond the authorisation of a ‘particular issue of shares’ that is the subject of the power of shareholders under s 254D(4). Anyway, as has been explained, cl 11.1(b), the equivalent to s 254D in the TT Constitution, did not govern the situation here. As for cl 5.1, for the reasons explained, there was no need for the shareholders to confer the power to issue the equity-based instrument on the Board. It already had that power under the TT Constitution, albeit subject to potential conditions imposed under cl 9.3 of the Shareholders’ Agreement and cl 11.1(b) of the TT Constitution.

The extrinsic materials

92    We now turn to consider the materials outside the text of the Resolution itself on which senior counsel for Mr Butler relied at the hearing of the appeal. They were:

(a)    the EM;

(b)    the Annual Report of Total Tools for the financial year ending 30 June 2018;

(c)    a run sheet for the annual general meeting of 24 October 2018; and

(d)    a slide deck that appears to have been presented at the annual general meeting.

93    It is sufficient to deal with these documents in overview because, with the exception of the EM, they were a distraction. Senior counsel took us to passages in the documents which arguably showed, putting it at its very highest, that Mr Butler’s efforts had led to a significant increase in the value of shares in Total Tools, that the shareholders were very happy with this, that they expected Mr Butler to be instrumental in bringing about a future ‘liquidity event’ that would prove highly profitable to them, and that they expected the Board to take steps to ensure that Mr Butler received a suitable reward, by the issue to him, on favourable terms, of some form of equity stake in the company. It may be accepted that the evidence described at [14]-[15] above provides some support for these matters.

94    But even on that generous interpretation of the materials, they do not take Mr Butler’s case any further. That is because:

(1)    Nowhere do the materials expressly or implicitly demonstrate an intention on the part of the shareholders that the company was binding itself to granting that reward to Mr Butler, or that the shareholders in general meeting were purporting to bind the Board to see that Mr Butler received that reward.

(2)    As such, both Mr Butler’s interpretation of the Resolution and that of the primary judge are consistent with the intention that can (generously) be derived from the documents. They each advance the shareholders’ purpose. But on the plain text of the Resolution, how far and how fast that purpose was to be advanced was for the Board to determine. For the reasons given above, there was no real constructional choice in the Resolution on which the documents might bear.

(3)    Also for the reasons given above, if the Resolution had purported to bind the Board to issue an equity-based instrument to Mr Butler, it would have been ineffective to do so.

95    We exempt the EM from the conclusion that these documents are irrelevant, because it was so intimately bound up with the passage of the Resolution that it is plainly appropriate to take it into account in the task of construction. It therefore deserves particular consideration. The text is at [17] above. Consideration of it reveals the following:

(1)    The EM expresses an intention that Mr Butler and Mr Heath ‘are to be offered the equity based instrument’. While it is open to construe this as referring to a mandatory requirement to make that offer, it is ambiguous, and it is at least equally apt to denote an expression of intention. This is the closest the EM gets to supporting Mr Butler’s construction of the Resolution.

(2)    As we have already mentioned, the EM defines ‘Equity Based Instrument’ in a broad way. The discretion that this gives the Board to determine the form of the instrument and the express statement that this is to be as ‘advised and agreed by the Board’ supports the primary judge’s construction of the Resolution. So too does the expressed qualification that the allotment of an equity-based instrument would be ‘at a time determined by the Board subject to professional advice’. Mr Butler’s case that the company was bound to issue ordinary shares to him cannot be reconciled with this latitude afforded to the Board.

(3)    This also supports a finding that at the time of the annual general meeting, the Board did not know what form the instrument would take. Even within the two alternatives of a trade sale or IPO, a range of structures, and so a range of vehicles for the issue of an equity-based instrument, was possible. As explained above, this uncertainty confirms that cl 9.3 of the Shareholders’ Agreement conferred the power that the shareholders were exercising, and that cl 11.1(b) of the TT Constitution did not. Further confirmation of that is found in the statement in the EM that ‘the final structure of the sale and whether that will ultimately lead to a sale of [Total Tools] or a successor entity, has yet to be determined’.

(4)    Overall, the EM does demonstrate an intention to reward Mr Butler and Mr Heath for anticipated future outcomes, and to align their incentives with those of shareholders generally. But as explained above, that is consistent with both constructions of the Resolution that are in issue here.

96    On balance, the EM supports the primary judge’s construction of the Resolution more than it does Mr Butler’s construction.

Other matters

97    We need deal only briefly with the remaining submissions of Mr Butler.

Events post-dating the passage of the Resolution

98    One of the alleged errors of which Mr Butler complains is that in construing the Resolution, the primary judge took into account matters that occurred after it was passed. There is no proper basis for this submission. His Honour’s actual reasoning as to the construction of the Resolution betrays no such error. He did summarise evidence that witnesses called by Total Tools had given about events after the Resolution, but that evidence had no bearing on his Honour’s approach to the task of construction.

The commercial rationale

99    The submission that the primary judge arrogated to himself the role of arbiter of commercial reasonableness is mere criticism, gratuitous and unjustified. Consistently with the orthodox principles of construction, his Honour identified a commercial purpose for the Resolution from the EM and the Resolution itself.

100    There was some time spent at the hearing of the appeal on whether the intention manifested in the Resolution could only have been to reward Mr Butler and Mr Heath had they continued to work on the liquidity event through to its successful realisation. For the reasons the primary judge gave (see [33] above), there is merit in the idea that it was. But given our clear view of the matter as a whole, it is not necessary to make a firm determination on that issue.

Failure to determine the balance of the issues

101    This complaint goes nowhere, given the correctness of the primary judge’s view as to the construction of the Resolution, and the provision of the Shareholders’ Agreement under which it was passed.

Standing to enforce the relevant legal obligation

102    Total Tools had no legal obligation to issue an equity-based instrument to Mr Butler. It is not necessary to determine whether he had standing to enforce that non-existent obligation.

The late contract submission

103    A submission that senior counsel for Mr Butler sought to make in oral reply submissions seemed to concern a contract that had not been pleaded in his concise statement or identified in his notice of appeal. While the alleged source of the contract was not made completely clear, senior counsel for Mr Butler seemed to submit that the combined effect of Mr Butler’s contract of remuneration, his ‘letter of engagement’ and the Resolution provided some enforceable contract between Mr Butler and the company to issue Mr Butler shares that was separate to, or at least went beyond, the contractual effect of the TT Constitution alone. To the extent that it was a submission that Total Tools somehow came to be contractually bound to issue the shares because of cl 4.6 or cl 11.1 of the TT Constitution (see [24] and [26] above), we have rejected that already. To the extent that the submissions sought to rely on some different contract, it was not open to senior counsel to seek to put a new case at such a late stage, and we need not address it further.

Outcome

104    The appeal is devoid of merit. It will be dismissed, with costs.

105    Total Tools wishes to be heard as to the basis on which costs will be assessed. That will be programmed to be determined on the papers.

Associate:

Dated:    3 September 2026