CMA Corporation Limited v Rowe (No 2)
[2010] FCA 1364
FEDERAL COURT OF AUSTRALIA
CMA Corporation Limited v Rowe (No 2) [2010] FCA 1364
Citation: CMA Corporation Limited v Rowe (No 2) [2010] FCA 1364 Parties: CMA CORPORATION LIMITED (ACN 113 329 016), CMA RECYCLING PTY LIMITED (ACN 107 209 503) and CMA RECYCLING VICTORIA PTY LIMITED (ACN 005 667 103) v DOUGLAS TREVOR ROWE and WMR INVESTMENTS PTY LIMITED File number: NSD 920 of 2010 Judge: FOSTER J Date of judgment: 3 December 2010 Date of hearing: 3 December 2010 Place: Sydney Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 20 Counsel for the Applicants: Mr NC Hutley SC, Mr JC Giles Solicitor for the Applicants: Minter Ellison Counsel for the Respondents: Mr P Tree SC, Mr CG Juebner Solicitor for the Respondents: Madgwicks Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 920 of 2010
BETWEEN: CMA CORPORATION LIMITED (ACN 113 329 016)
First ApplicantCMA RECYCLING PTY LIMITED (ACN 107 209 503)
Second ApplicantCMA RECYCLING VICTORIA PTY LIMITED (ACN 005 667 103)
Third ApplicantAND: DOUGLAS TREVOR ROWE
First RespondentWMR INVESTMENTS PTY LIMITED
Second Respondent
JUDGE:
FOSTER J
DATE OF ORDER:
3 DECEMBER 2010
WHERE MADE:
SYDNEY
THE COURT:
1.MARKS as MFI‑4 the document styled Further Amended Defence and Set-Off initialled by Foster J and placed in the Court file.
2.GRANTS leave to the respondents to amend their Defence in accordance with the draft Further Amended Defence and Set-Off which is MFI‑4.
3.DIRECTS that the said Further Amended Defence and Set-Off be filed and served by no later than close of business on Monday, 6 December 2010.
4.GRANTS leave to the respondents to file in Court and to read and rely upon the affidavit of Douglas Trevor Rowe sworn on 3 December 2010.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 920 of 2010
BETWEEN: CMA CORPORATION LIMITED (ACN 113 329 016)
First ApplicantCMA RECYCLING PTY LIMITED (ACN 107 209 503)
Second ApplicantCMA RECYCLING VICTORIA PTY LIMITED (ACN 005 667 103)
Third ApplicantAND: DOUGLAS TREVOR ROWE
First RespondentWMR INVESTMENTS PTY LIMITED
Second Respondent
JUDGE:
FOSTER J
DATE:
3 DECEMBER 2010
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The respondents have applied to amend their Defence. The amendments sought are four in number. I shall deal with each of them in turn.
The first amendment concerns par 19 of the Defence. Paragraph 19 pleads the respondents’ response to an allegation in the Statement of Claim to the effect that what is described in the Statement of Claim as the Tube Terminators Transaction conferred on the respondents a financial benefit when neither of the circumstances referred to in s 208(1)(a) and (b) of the Corporations Act2001 (Cth) (the Act) (Need for member approval) was satisfied. The effect of the amendment is to convert what is presently a bare denial into a bare denial coupled with a positive response, namely, that the Tube Terminators Transaction was entered into on an arms length basis. The particulars of that allegation are in the following terms:
The difference between the price which WMR Investments was obliged to pay for the Tube Terminators upon purchase from Eco-Cycle and the price at which it later sold the Tube Terminators to CMA Corp is equal to interest at an arms length commercial rate over the period during which WMR Investments financed the acquisition of the Tube Terminators for and on behalf of CMA Corp.
Senior Counsel for the applicants did not develop any submission in opposition to this amendment. It does not seem to me that, were I to allow the amendment, there would be prejudice of a kind which cannot be satisfactorily addressed by the applicants. It does not seem to me that there is any other reason why I should disallow this amendment. I propose to allow the amendment to par 19 of the Defence in the terms in which that amendment has been sought.
The second amendment is to par 33 of the Defence. That paragraph is part of a series of paragraphs which answer the applicants’ allegations concerning a property which is described in the pleadings as the Tasmanian Property. The essence of the applicants’ complaint concerning that property is that the lease which was entered into between the second respondent and the second applicant in respect of the Tasmanian Property was also a transaction which conferred a financial benefit upon the respondents when neither of the circumstances referred to in s 208(1)(a) and (b) of the Act was satisfied. The nub of the applicants’ complaint is that the rent which was agreed between the parties when the lease was entered into was substantially above the then fair market rent for the property. The existing positive averment in the Defence in respect of par 33 of the Statement of Claim is that the terms of the Tasmanian Property lease were arms length terms. The particulars relied upon in support of that pleading in the existing Defence are found in subpar (j) of par 27 of the Defence. Those particulars are in the following terms:
In the course of the purchase of Rowe’s shares in CMA Recycling (Vic) by CMA Corp, it was agreed that CMA Corp (or the relevant subsidiary) would pay rent equal to 9% of the value of the relevant leased premises. The agreement is set out in Schedule 4 to the Share Sale Agreement. The rent for the Tasmanian Property was approximately 9% of the value of the developed site.
By the proposed amendment, the respondents seek to add to those particulars by seeking to interpret the word “value” in subpar 27(j) as being equivalent to that sum of money which is the total of two amounts, namely, the acquisition price of the Tasmanian Property and the costs anticipated to be expended in developing that property as estimated by the respondents as at the date when the lease was entered into. In essence, therefore, by this amendment, the respondents seek to add to the substance of the way in which they propose to meet the allegation that the transaction did not have the requisite characteristics contemplated by s 208 of the Act.
The first respondent (Mr Rowe) filed an affidavit in this proceeding which was sworn on 28 October 2010 (Mr Rowe’s first affidavit) in which he addressed the circumstances in which the lease of the Tasmanian Property was entered into and other matters. In that affidavit, Mr Rowe referred to an agreement which he said he had made with Mr Hatfull, who was the Chairman of the applicant corporations at the relevant time, to the effect that certain properties which were earmarked for lease to the applicant corporations for their use when they acquired Southern Rocycling from Mr Rowe would be leased back to the applicants upon terms that the rent to be paid would be 9% of the value of each property, such value to be determined by sworn valuations (which is a term of art in Victoria in respect of real property). These properties are the properties which Mr Rowe says the parties called “the Project Green properties”.
It seems that this arrangement was reflected in the formal Share Sale Agreement. This arrangement between Mr Rowe and Mr Hatfull was made in 2007. As a consequence of this arrangement, the Project Green properties were leased upon the rental terms which I have outlined.
The prospect of the applicants leasing the Tasmanian Property arose towards the end of 2007. In pars 39 to 53 of his first affidavit, Mr Rowe deals with the circumstances in which that property came to be acquired and leased to one of the applicants. At par 48 of his first affidavit, Mr Rowe says that, at the time the quantum of the rent for the Tasmanian Property was struck, no development on that property had taken place and that therefore no development costs had by then been expended, although the land had been acquired by that time.
The acquisition cost of the Tasmanian land was $500,000 and the first respondent says that the development costs which he anticipated would be spent on the site were about $3.5 million. He says that he struck the rent at 9% of $4 million, being the total of the acquisition cost and the anticipated development costs. As I understand Mr Rowe’s first affidavit, Mr Rowe does not suggest that the estimate of development costs which he had in his mind in late 2007 and early 2008 was something that was specifically discussed between him and any officer of any of the applicants.
Senior Counsel for the applicants opposed this amendment on the basis that it is inconsistent with the evidence which the respondents have notified will be led in support of their case. He also submitted that the amendment, if allowed, would be embarrassing because the basis upon which Mr Rowe now says he struck the rent is new and is something that would have led the applicants to make further enquiries if it had been revealed earlier. Had such enquiries been made, the applicants would have been fairly placed to cross-examine Mr Rowe about these matters. He submitted that, as matters presently stand, the applicants will not have a fair opportunity to cross-examine Mr Rowe on this point. Counsel submitted that the amendment, if allowed, will cause prejudice which cannot be remedied in the immediate future, if at all.
I do not accept that the amendment will cause the difficulties which Senior Counsel has submitted will be caused. It seems to me that the respondents have always contended that the basis upon which the rent was struck for this property was 9% of $4 million—$4 million being $500,000 for the acquisition price of the land and $3.5 million being Mr Rowe’s estimate of development costs.
I am disposed to allow this amendment as it seems to me that it neither causes the prejudice which the applicants submit that it will cause nor is it inconsistent with the case which is currently being put by the respondents. I should stress, however, that allowing the amendment is a long way short of accepting the propositions to which the respondents argue it will ultimately lead.
The next amendment sought is an amendment to par 63 of the Defence. Paragraph 63 is an answer to an allegation in similar terms to the other allegations to which I have already referred, but on this occasion the allegation made is in respect of a lease of a property in Western Australia. In a way which is similar but not identical to the structure of the Defence in respect of the Tasmanian Property, the Defence as presently drafted picks up particulars which are contained in par 58(b) of the current Defence. Those particulars are in the following terms:
In the course of the purchase of Rowe’s shares in CMA Recycling (Vic) by CMA Corp, it was agreed that CMA Corp or the relevant subsidiary would pay rent equal to 9% of the value of the relevant leased premises. The agreement is set out in Schedule 4 to the Share Sale Agreement. The rent for the WA Property was approximately 9% of the purchase price of the WA Property.
The proposed amendment seeks to give to the word “value” the meaning set out in proposed subpar 63(d). I set out those particulars as follows:
Refer to the particulars to paragraph 58(b) herein and the respondents say that in respect of the WA property its value was its acquisition price together with the Second Respondent’s costs expended in developing the WA Property for the Applicants’ use.
It seems to me that the allegation made in par 63(d) of the Defence as it is presently drafted was, in effect, an allegation that the “value” for the purposes of quantifying the amount, 9% of which was to be rent, was the purchase price of the property (not some value as determined by a valuer or on some other basis).
The proposed amendment seeks to add to the content of that term by including the actual development costs as part of the relevant amount. There is some evidence in Mr Rowe’s first affidavit that the rent for this property was to be struck upon the same basis as the rent agreed for the Project Green properties. Whether or not that is so, what does seem to be already in the pleading is the proposition that, in respect of the WA property, value is to be determined by reference to cost. I do not think that the particulars in subpar 58(b) should necessarily be read as stating a position on behalf of the respondents that there was an underlying agreement which led to the actual rent being charged as it in fact was charged for this lease. There is a series of facts asserted, the last of which is that the rent was to be 9% of the purchase price.
It seems to me that, notwithstanding the terms of par 62 of Mr Rowe’s affidavit, it was always open to the respondents to argue, on the existing pleading, that the rent, having been struck on the basis alleged, was arrived at on an arms length basis. The only material change to the existing pleading effected by the proposed amendment is to include the actual development costs in those costs which were to comprise the gross figure which was to be used to calculate the rent. I do not think that this amendment is of a character that would cause irremediable prejudice to the applicants nor do I think that it is inconsistent with the evidence which the respondents seek to adduce in their case. I propose to allow it.
The fourth amendment relates to the New South Wales Property. The relevant paragraph to which the amendment is sought is par 107. That paragraph picks up particulars from subpar 102(b) which, to all intents and purposes, are in the same terms as the particulars in subpar 58(b) concerning the WA Property. I do not see the respondents’ contentions in respect of the New South Wales Property as being any different from those which the respondents wish to advance in respect of the WA Property. For that reason, I propose to allow this amendment as well.
For all of the above reasons, I will allow all of the amendments which have been sought in MFI‑4.
I will direct that a Further Amended Defence and Set-Off in accordance with MFI‑4 be filed and served by no later than close of business on Monday, 6 December 2010.
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate:
Dated: 15 December 2010
0
0
0