PRACTICE AND PROCEDURE – whether the appellants sought to advance submissions not advanced below and which depart from the manner in which the case was run before the primary judge – arguments now put by the appellants on appeal raise matters not developed to same extent below – no objection to appeal in respondent’s written submissions – no prejudice to first respondent if appellants permitted to advance arguments on appeal – appeal arguments concern questions of law and raise no new facts – expedient and in the interests of justice to entertain arguments put on appeal
CONTRACTS – restraint of trade provision in a shareholders agreement – whether the primary judge erred by failing to give restraint of trade clause a “commercial construction” – principles relating to the interpretive task – on a proper interpretation, the primary judge’s interpretation was not erroneous – Court must give effect to the unambiguous terms used by the parties – there is no power to remake or amend the contract to avoid a result which is considered to be inconvenient or unjust – commercial common sense not to be invoked retrospectively – mere fact of an undesirable result is no reason to depart from the natural language of the agreement
CONTRACTS – whether the primary judge’s interpretation was erroneous in that it failed to appreciate that the restraint of trade provision contained separate groups of restraints by “Covenantors” and “Affiliates” – the primary judge’s construction contains no such error – the appellants’ interpretation approaches the question of construction with the benefit of hindsight, and not as at the date of the restraint’s creation – text and structure of restraint’s chapeau does not indicate independent and separate restraints as contended by the appellants – appellants’ proposed interpretation inconsistent with another clause in shareholders agreement, cl 20.5 CONTRACTS – severance – principles relating to severance – whether a part of the chapeau to the restraint of trade provision can be severed in manner contended by the appellants – severance not possible in manner advanced by the appellants – part of the chapeau to the restraint of trade provision cannot be severed consistently with principles relating to severance
CONTRACTS – enforceability – whether the restraint of trade provision is valid and enforceable – the primary judge did not fail to properly construe the restraints – primary judge was correct to conclude that the restraints are not enforceable because they are unreasonable
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
Continue reading Findex Group Limited v McKay
Sign in free to access the full text
Details
AGLC
Findex Group Limited v McKay [2020] FCAFC 182
Case
[2020] FCAFC 182
Decision Date
CaseChat Overview and Summary
Findex Group Limited appealed against a decision of the primary judge in relation to a restraint of trade clause in a shareholders agreement. The appeal was dismissed by the Full Court of the Federal Court. The primary judge found the restraint of trade provision to be unreasonable and therefore not enforceable. The appellants submitted that the primary judge erred in his construction of the restraint of trade clause and that it should have been given a "commercial construction". The court held that the primary judge's interpretation was not erroneous as it gave effect to the unambiguous terms used by the parties. The court further held that the restraint of trade clause contained separate groups of restraints by "Covenantors" and "Affiliates", and that the primary judge's construction did not contain such an error. The court also held that the restraint of trade provision could not be severed in the manner contended by the appellants. Finally, the court held that the restraint of trade provision was not valid and enforceable because it was unreasonable.
The appeal was dismissed and the appellants were ordered to pay the first respondent's costs of and incidental to the appeal. The Full Court held that it was expedient and in the interests of justice to entertain the arguments put on appeal, as the appeal arguments concerned questions of law and raised no new facts. The court also held that there was no prejudice to the first respondent if the appellants were permitted to advance the arguments on appeal.
Orders
Orders of the court
1. The appeal is dismissed.
2. The appellants will pay the first respondent’s costs of and incidental to the appeal, to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
For the reasons that follow, we will dismiss the appeal. BACKGROUND FACTS The parties to the appeal accept that the primary judge accurately summarised the circumstances giving rise to the proceeding in Primary judgment, [11]-[46]. There is no notice of contention. From February 2003, McKay was one of five principals of Civil Financial Planning Pty Ltd (Old Civic). Old Civic operated a financial planning and advisory business from premises located in Canberra servicing private clients, largely comprising members of Commonwealth government superannuation schemes who were in or close to retirement. McKay held his stake in Old Civic through Vandaman: Primary judgment, [12]-[14]. On or around 14 July 2009, the principals of Old Civic (on behalf of their stakeholder companies) and Findex signed a document entitled “Non-Binding Heads of Agreement Joint Venture Transaction” (HOA): Primary judgment, [16]. Under the HOA, a new company was to be established to acquire the business of Old Civic, Findex would acquire 55% of the shares of that new company and the parties would enter into a shareholders agreement to govern their relationship into the future. Clause 13 of the HOA provided that the anticipated transaction documents would include “appropriate non-compete and non-solicitation obligations in favour of Findex, in a form which is appropriate for a transaction of this nature”. In April 2010, New Civic was incorporated in Victoria: Primary judgment, [20]. On 21 May 2010, Findex, each of the shareholding entities of the relevant five principals including Vandaman (as vendors) and the principals themselves concluded a Share Sale Agreement dated 21 May 2010 (SSA): Primary judgment, [21]. Under the SSA, New Civic would acquire the business of Old Civic, the vendors (including Vandaman) would sell 60% of New Civic’s shares to Findex on completion for $11 million (less certain amounts), and the parties would execute “the Shareholders Agreement”: Primary judgment, [22]-[25]. On 31 May 2010, under a Business Sale Agreement, New Civic acquired the business of Old Civic for $18 million: Primary judgment, [27]. Vandaman became the owner of 200 shares in New Civic at a value of $18,000 for each share, and a total value of $3,600,000: Primary judgment, [27]-[28]. On 1 June 2010, Findex acquired 60% of New Civic’s shares, including 120 of the shares owned by Vandaman. Findex paid Vandaman approximately $2,152,647.40 for its New Civic Shares: Primary judgment, [27]-[29]. On 1 June 2010, New Civic and the shareholders of New Civic (ie Findex as to 60% and each of the shareholding entities in Old Civic as to the remainder) executed the Shareholders Agreement: Primary judgment, [30]. It included two put/call options which provided for the transfer of the remaining 40% of New Civic shares to Findex, in two tranches of 20% each: Primary judgment, [31]. By 29 August 2013, both options were exercised and Findex owned 100% of New Civic’s shares: Primary judgment, [33]. Findex paid a total of $15 million for those shares, of which approximately 85% was attributed to the client list of Old Civic and 15% to goodwill: Primary judgment, [35]. Vandaman was paid a total of $2,991,586.80 for all its New Civic shares: Primary judgment, [33]-[35].
Evidence
Evidence Before The Court
Relevant principles as to whether appellants should be permitted to advance matters not put below were set out in Linkhill, by North and Bromberg JJ at [30] to [38]:In Suttor v Gundowda (1950) 81 CLR 418 the High Court (Latham CJ, Williams and Fullagar JJ) said at 438:The circumstances in which an appellate court will entertain a point not raised in the court below are well established. Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards. In Connecticut Fire Insurance Co. v. Kavanagh (1892) AC 473, Lord Watson, delivering the judgment of the Privy Council, said, "When a question of law is raised for the first time in a court of last resort, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient in the interests of justice, to entertain the plea. The expediency of adopting that course may be doubted, when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below.”[Emphasis added.]That approach was adopted by Mason J, with whom the other members of the Court agreed, in O’Brien v Komesaroff (1982) 150 CLR 310 at 319. Then, in University of Wollongong v Metwally & Ors (No 2) (1985) 60 ALR 68 the Court (Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ) said at [7]:It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.In Coulton v Holcombe (1986) 162 CLR 1 the majority (Gibbs CJ, Wilson, Brennan and Dawson JJ) said at [9]:It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.Their Honours said that there was no distinction to be drawn in the application of these principles between an intermediate court of appeal and ultimate court of appeal (at [9]). The majority further also endorsed the rationale of these principles which had been stated by the Court of Appeal from which the appeal had been brought as follows at [10]:[T]he finality of litigation; the difficulty of inducing an appeal court to consider new facts; the undesirability of encouraging tactical decisions not to present an issue at first instance: keeping it in reserve for appeal; and the need for vigilance to avoid injustice to a party having to meet new facts and new issues of law for the first time at the appeal court.Citing and applying these authorities, the joint judgment (Mason CJ, Wilson, Brennan and Dawson JJ) in Water Board v Moustakas (1988) 180 CLR 491 summarised the position at [13] thus:More than once it has been held by this Court that a point cannot be raised for the first time upon appeal when it could possibly have been met by calling evidence below. Where all the facts have been established beyond controversy or where the point is one of construction or of law, then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied.[Emphasis added.]In Branir Pty Ltd v Owston Nominees (No 2) [2001] FCA 1833 (Branir) Allsop J (as his Honour was then) (with whom Drummond and Mansfield JJ agreed) referred to some further considerations which might be taken into account by an appeal court when faced with a party seeking to raise a new point. He said at [38]:First, the finality of litigation and the importance of parties being bound to the cases they make at trial should never be overlooked: Gleeson CJ and Hayne J in Crampton, supra at [15] and [157], respectively and University of Wollongong v Metwally, supra; see too JB Chandler Investment Company Limited (in voluntary liquidation) v Commissioner of Taxation [1993] FCA 641; (1993) 47 FCR 588 per Gummow J at 593G. Secondly, the difficulty of the party against whom the new point is raised reaching back in time to assess, necessarily hypothetically, how the conduct of the trial would, or may, have been different should not be underestimated. Such judgments or assessments can require re-agitation or reconsideration of decisions taken before and at trial (which may be privileged) and which can be very difficult to assess and articulate after the event. The entitlement of a party to the benefit of the opportunity of informed and reasonably contemporaneous assessment of relevant evidence, or inquiry, should be respected. Thirdly, the potential unfairness on counsel conducting an appeal who will be expected to assist the court in respect of the prejudice, or lack of it, to his or her client in the face of such matters being raised should not lightly be brushed aside. Even when counsel cannot positively say that something in particular would have been done differently, that does not mean that the court will be satisfied of a lack of prejudice. The possibility of evidence or the possibility that the hearing would have taken a different course, if not fanciful, may well suffice to deny raising of the new point. These considerations should not be seen as not requiring counsel frankly and candidly to say that the trial would not have been conducted differently if he or she is of that view. Fourthly, and in conclusion, before any new point be allowed, the court should be able to be satisfied that the raising of it could work no injustice on the other party and is otherwise in the interests of justice.[Emphasis added.]Applying these authorities, the Full Court in VUAX v Minister for Immigration & Multicultural & Indigenous Affairs [2004] FCAFC 158 restated, at [46], that: … Leave to argue a ground of appeal not raised before the primary judge should only be granted if it is expedient in the interests of justice to do so …(Emphasis in the original.)
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
As to ground 2, McKay submits that the appellants’ contention that cl 20.2 should be construed as being constituted by “multiple independent restraints” must be rejected. McKay submits that this is so for three reasons. First, the clause is to be construed as at the date of its creation: citing Just Group Limited v Peck [2016] VSCA 334; 344 ALR 162, [57(d)]. McKay submits that the appellants seek to approach the clause with the benefit of hindsight, now knowing the precise matters which are of concern to them, and seeking to dispense with the rest in order to preserve the clause’s validity. Second, McKay submits that the appellants’ construction ignores the commercial context of the transaction. McKay submits that the way in which the clause has been drafted points firmly to the parties’ intention being to prohibit conduct not only by the Covenantors but also by their Affiliates. Third, McKay submits that the appellants’ construction is contradicted by cl 20.5 which, as the primary judge observed, “does not identify that there are ‘separate, several and independent’ restraints other than with reference to the restraint periods of time and the restraint areas”: Primary judgment [126]. That, McKay submits, is significant because, presumably, the express statement in cl 20.5 was intended to prescribe all of the ways in which the various aspects of cl 20.2 were intended to be “separate, several and independent”. McKay submits that cl 20.5 only refers to the cascading provisions dealing with area and time, not to any other matters in cl 20.2.Consideration of Grounds 1 and 2Principles The relevant legal principles that the Court should apply to the task of construction were not in dispute between the parties in this appeal. The appellants’ submissions conveniently summarised the relevant general principles as follows. The exercise of construction is undertaken for the purpose of ascertaining the real meaning of the restraint, independently of the rules proscribing tests of reasonableness for the purpose of ascertaining its validity: Butt v Long (1953) 88 CLR 476, 487 per Dixon CJ. The Court should approach the task of construction on the basis that the parties intended to produce a commercial result, and one which makes commercial sense: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 (Woodside Energy), [35]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; 261 CLR 544 (Ecosse Property), [17]. A commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience: Woodside Energy, [35]; Zhu v Treasurer (NSW) [2004] HCA 56; 218 CLR 530, [83]; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310, 313-314. Commercial contracts must be interpreted fairly and broadly, without being too astute or subtle in finding defects: Pan Foods Company Importers and Distributors Pty Ltd v Australia and New Zealand Banking [2000] HCA 20; 170 ALR 579, [14]; Australasian Performing Right Association, 109-110.