Ceneavenue Pty Ltd v Martin

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SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

CENEAVENUE PTY LTD & ORS v MARTIN & ORS

[2007] SASC 465

Judgment of The Honourable Justice Bleby

24 December 2007

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS

PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - SUMMARY JUDGMENT

Application for summary judgment for part of plaintiff’s claims – relevant facts not in dispute – interpretation of Shareholder’s Agreement – principles of interpretation of commercial agreement – implication of terms – whether accountant acting as valuer or arbitrator in valuing shares – whether principles of natural justice applied to valuation – whether valuer’s methodology can be challenged – application for summary judgment granted.

Corporations Act 2001 (Cth) ss 181, 182, 1317H; Supreme Court (Civil) Rules 2006 (SA) r 232, 233; Common Law Procedure Act 1854 s 17, referred to.
Elders Limited v Incitec Pivot Ltd & Anor [2006] SASC 99; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206; Zeke Services Pty Ltd & Anor v Traffic Technologies Ltd & Anor [2005] QSC 135; Legal & General Life Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314; Arenson v Arenson [1973] Ch 346; Strang Patrick Stevedoring Pty Ltd v James Patrick & Co Pty Ltd (1993) 32 NSWLR 583; Holt v Cox (1997) 23 ACSR 590; WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489, applied.
Bank of South Australia v SA Health Commission (1996) 65 SASR 409, not followed.
Re Dawdy and Hartcup (1885) 15 QBD 426; Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 QdR 8, discussed.
Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336, considered.

CENEAVENUE PTY LTD & ORS v MARTIN & ORS
[2007] SASC 465

Civil

  1. BLEBY J. The plaintiff Ceneavenue Pty Ltd (“Ceneavenue”) owns 75% of the shares issued in seven companies comprising the Renniks Group of companies.  It owns the shares as trustee for the Bertram Family Trust.  Four of the companies comprising the Renniks Group are also plaintiffs in the action.  The Renniks Group trades as a hirer of equipment to major events, corporate exhibitions and private and commercial functions.

  2. Andrew David Martin (“Mr Martin”), the first defendant, was, from 16 January 2004 until 4 October 2006, employed as the Chief Executive Officer of the Renniks Group.  Gillmar Holdings Pty Ltd (“Gillmar”), the second defendant, is a company controlled by Mr Martin’s wife, Janine Beverley Martin (“Mrs Martin”), the fourth defendant, although the plaintiffs allege that at all material times since the incorporation of Gillmar, Mr Martin has been a director and the “controlling mind” of Gillmar.  The third defendant, Music Men (Aust) Pty Ltd, is a company controlled by Mr and Mrs Martin.  It has no relevance for the purpose of this application.  Mrs Martin was…

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Details
Case
[2007] SASC 465
Decision Date

CaseChat Overview and Summary

Ceneavenue Pty Ltd, the plaintiff, filed an application for summary judgment against Martin, the defendant, in a dispute concerning the interpretation of a Shareholder’s Agreement. The Agreement involved Ceneavenue’s acquisition of shares in the Renniks Group of companies, with Martin holding shares through Gillmar. The dispute centred on the valuation of shares, specifically the interest payment required if the Renniks Group acquired Wavals before repaying the purchase price. The Supreme Court of South Australia was tasked with determining the application for summary judgment.

The legal issues the court had to address were multifaceted. Firstly, it had to determine whether the accountant who valued the shares was acting as a valuer or an arbitrator. If he was acting as an arbitrator, Gillmar had a right to be heard, which was not afforded. Secondly, if the accountant was a valuer, the court had to decide whether principles of natural justice applied, entitling Gillmar to be heard on the valuation. Thirdly, if the accountant was a valuer, the court had to consider whether the valuation methodology could be challenged, particularly regarding the inclusion of Wavals and other companies added to the group post the Agreement, and the determination of EBIT and the appropriate multiplier. Lastly, the court had to determine whether Ceneavenue's right to acquire Gillmar's shares under the Agreement included shares in companies other than the original Renniks Group companies.

The court granted the application for summary judgment, concluding that the accountant acted as a valuer, not an arbitrator. It found that principles of natural justice did not apply to the valuation process, and therefore, Gillmar was not entitled to be heard. Additionally, the court held that the valuation methodology was not subject to challenge as the terms of the Agreement did not explicitly require Gillmar's input. Regarding the scope of the shares to be acquired, the court determined that Ceneavenue's right under the Agreement included shares in all companies within the Renniks Group, as constituted at the time of the valuation.

The final orders included the transfer of Gillmar's shares in all companies of the Renniks Group to Ceneavenue at the price calculated according to the valuation conducted by Mr. Andrew. The court's decision resolved the specific performance claim regarding the valuation of the shares, setting aside other claims for further determination.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

The application for summary judgment is accordingly only for part of one of the plaintiff’s claims against one of the defendants. Such an approach is permitted by r 233 of the Rules.The relevant facts The Renniks Group of companies presently comprises: Renniks Trading Pty Ltd (“Renniks Trading”), which is a supplier to major corporate events; Renniks Exhibitions Pty Ltd (“Renniks Exhibitions”), which is a supplier to corporate exhibitions; Renniks Assets Pty Ltd (“Renniks Assets”), which owns the equipment that is supplied by Renniks Trading, Renniks Exhibitions and Wavals; Renniks Employment Services Pty Ltd (“Renniks Employment”), which provides the employment services to other companies in the Renniks Group; Wavals Trading Pty Ltd (“Wavals”), which is a supplier to smaller private and commercial functions and events; Party Hire Warehouse Pty Ltd (“PHW”); and ACN 101163419 Pty Ltd (“Renniks Employment Old”), which used to provide the employment services to other companies in the Group prior to July 2005 when that function was taken over by Renniks Employment. In January 2004 the Renniks Group comprised only Renniks Assets, Renniks Trading and Renniks Employment Old. At that time Ceneavenue acquired two thirds of the shares issued in each company in the Renniks Group for $2.7M from people called Forster. Ceneavenue already owned one third of the shares in each of the companies in the Group, and so this acquisition resulted in Ceneavenue owning 100% of the shares issued in each of the companies of the Group. On 16 January 2004 what is known as the Shareholder’s Agreement (“the Agreement”) was entered into. That was an agreement between the three companies then comprising the Renniks Group, Ceneavenue, Gillmar as a nominee of Mr Martin and Mr Martin himself. By that Agreement Ceneavenue agreed to assign 25% of the issued capital in each of the companies in the Renniks Group to Gillmar. The agreed purchase price was the sum of $1,137,500, the whole of which, together with stamp duty on the transaction, was to be advanced to Gillmar by Ceneavenue by way of interest free loan. The Agreement contemplated that the loan would be repaid by deductions from dividends payable to Gillmar upon the shares in the companies. At that stage Wavals was not in the Group, but its acquisition was in contemplation. Clause 2.1.6 of the Shareholder’s Agreement provided:Notwithstanding any other provision of this Agreement, in the event that prior to repayment of the Purchase Price the Companies shall have acquired the of that company (sic) known as “Wavals” or its assets, Gillmar shall be required to forthwith make an immediate payment of interest upon the Loan in an amount of two hundred thousand dollars ($200,000.00) (“the Interest Payment”). The expression “the Companies” referred to in that clause is employed in the Agreement as a descriptor of the three parties to the Agreement then comprising the Renniks group, namely Renniks Trading, Renniks Assets and Renniks Employment Old. The interest payment referred to was to be advanced to Gillmar by Ceneavenue upon the same terms and conditions of the loan.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

BLEBY J
There is no dispute as to the facts I have so far recorded. There is a dispute as to what the appropriate actual market value should be because of the variables involved in the capitalisation of future maintainable earnings. There is no dispute as to the actual EBIT as shown in the audited accounts of the Group for the year ended 30 June 2006. There is a dispute as to the amount of the debt due by Gillmar to Ceneavenue, but there is no dispute that it exceeds the purchase price of $929,475, being the market value of Gillmar’s shares determined by Mr Andrew.The claim for summary judgment By its present application as finally formulated, Ceneavenue seeks an order for the transfer of the shares held by Gillmar in all companies included in the Renniks Group to Ceneavenue at the price calculated in accordance with the valuation of Mr Andrew. In substance, Ceneavenue is seeking an order for specific performance of clause 2.2 of the Shareholder’s Agreement. At this stage Ceneavenue does not seek an order for repayment of the monies advanced by way of loan to Gillmar for the acquisition of the shares or any of the other relief claimed in the Statement of Claim. What is sought is a discrete head of relief which, if granted, will not affect the resolution of other issues in the Statement of Claim other than a mathematical calculation of the amount of the balance of the loan said to be repayable by Gillmar to Ceneavenue. On Ceneavenue’s case for summary judgment the relevant facts are not in dispute. No oral evidence has been called or is necessary. Its case depends only on those undisputed facts and the proper interpretation of the Shareholder’s Agreement. Both parties have had an opportunity to lead evidence of any primary facts on which they rely or from which inferences should properly be drawn. In those circumstances I consider that this is an appropriate case for summary judgment if the criterion specified in r 232 of the Supreme Court (Civil) Rules 2006 can be met, namely that there is no reasonable basis for defending Ceneavenue’s present claim. On the other hand, if Ceneavenue fails in any of the four issues which I have identified below, it will fail in its application either because it has no entitlement to the relief claimed or because the issue gives rise to matters which are inappropriate to be determined by an application for summary judgment.Issues arising on the application There are four principal issues which arise on the plaintiff’s application for summary judgment:1.Whether the accountant of the Renniks Group, in valuing the shares, was acting as a valuer or as an arbitrator. There is no dispute that, if he was acting as arbitrator, Gillmar had a right to be heard and was not afforded that opportunity;2.If the accountant was acting as a valuer, whether, in the circumstances of the Shareholder’s Agreement, principles of natural justice applied such that Gillmar had a right to be heard on the valuation;3.If the accountant was acting as a valuer, whether the methodology he adopted can be challenged. In particular, questions arise as to –(a) the inclusion of Wavals in the valuation;(b) the inclusion in the valuation of other companies added to the group after the date of the Shareholder’s Agreement; and(c) whether the accountant’s determination of EBIT and the appropriate multiplier can be questioned;4.Whether the right of Ceneavenue to acquire Gillmar’s shares under clause 2.2 of the Shareholder’s Agreement includes its shares in companies other than Renniks Assets, Renniks Trading and Renniks Employment Old, being the only companies comprising the Renniks Group at the date of the Shareholder’s Agreement.

Ratio Decidendi

Legal Principle Established

Established by: BLEBY J

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