Butler v Total Tools Holdings Pty Ltd

Total Tools had operated as a tool retailer for more than 30 years, with a mix of franchisee, company-owned and jointly owned stores. Mr Butler, an investment banker and experienced non-executive director, joined the board in 2016 to help improve governance, reporting and financial systems and prepare the business for growth or a possible ASX listing.

By early 2018, the board had approved a project to explore an IPO or trade sale. Mr Butler chaired the steering committee, worked with advisers and became company chairman. A proposal to reward him and another director evolved from employee-class shares into a deliberately flexible equity-based instrument because the final transaction structure was not yet known.

On 24 October 2018, shareholders unanimously passed a resolution saying the board was authorised to create and allot an equity-based instrument to Mr Butler or his nominee, at a time of the board's choosing. The instrument was to be equal in value to 30 ordinary shares, and any allotment was conditional on successful financial close of a trade sale or IPO.

The wording mattered. It identified a power, the body that could use it, limits on the value and a transaction condition. It did not say the company must create and allot the instrument, that Mr Butler had earned an entitlement or what would happen if he left before the transaction.

The sale project ran into difficulty and Mr Butler's role became contentious. He resigned as chairman and non-executive director on 1 April 2019.

On 1 September 2020, Mitre 10 Australia acquired 70% of Total Tools for about $57 million. The parties agreed that this was a successful financial close of a trade sale for the resolution. Mitre 10 bought another 15% for $59.4 million in June 2021 and later announced the purchase of the remaining shares for $101.5 million. In March 2023, the company denied Mr Butler had any entitlement to the 30-share equivalent.

Mr Butler argued that the unanimous vote was a formal company act that bound Total Tools to create and allot the instrument once the sale closed. His pleaded 1.323% figure was his calculation from 30 ordinary shares divided by the 2,268 then on issue; the resolution itself did not use that percentage. The Full Court rejected his construction. The ordinary meaning of authorised was central: it gave the board authority but did not impose a duty.

The shareholders agreement required a 75% special resolution before the company created or issued equity. The 2018 resolution removed that shareholder-level gateway; it did not exercise the board's retained power to create and allot the instrument. Because the resolution created no obligation, the Court did not need to decide whether Mr Butler had standing to enforce the constitution.

Start by deciding whether the commercial bargain is discretionary, earned over time or payable when a transaction occurs. In this case, authorised and at a time of the board's choosing pointed strongly to discretion. Avoid those words if the intended promise is a binding entitlement once stated conditions are met, then make every document support that choice.