Jardein Pty Ltd v Stathakis

Case [2007] FCAFC 148

FEDERAL COURT OF AUSTRALIA

Jardein Pty Ltd v Stathakis [2007] FCAFC 148

CORPORATIONS — appeal from orders requiring sale of appellant’s share in company to respondent — whether primary judge erred in finding value of company to be nil — whether evidence of key witness “glaringly improbable” or “contrary to an incontrovertible fact” — whether appellant denied natural justice — whether primary judge erred in failing to order winding up of company

Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth) s 46

Abalos v Australian Postal Commission (1990) 171 CLR 167 referred to
Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 cited
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 cited
Browne v Dunn (1893) 6 R 67 applied
Devries v Australian National Railways Commission (1993) 177 CLR 472 referred to
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 referred to
Fox v Percy (2003) 214 CLR 118 applied
Heaton v Luczka (unreported, New South Wales Court of Appeal, 3 March 1998) cited
Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219 discussed
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588 referred to
Warren v Coombes (1979) 142 CLR 531 referred to
White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 cited

JARDEIN PTY LTD (ACN 002 933 600) v NICK STATHAKIS
VID 140 OF 2007

NORTH, WEINBERG AND MIDDLETON JJ
12 SEPTEMBER 2007
MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 140 OF 2007
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

IN THE MATTER OF ALL COLOUR MEDIA PRINTING (VICTORIA) PTY LTD

BETWEEN:

JARDEIN PTY LTD (ACN 002 933 600)
Appellant

AND:

NICK STATHAKIS
Respondent

JUDGES:

NORTH, WEINBERG AND MIDDLETON JJ

DATE OF ORDER:

12 SEPTEMBER 2007

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The appellant pay the respondent’s costs of the appeal, such costs to be taxed in default of agreement.

3.The District Registrar of the Federal Court arrange for the executed share transfer to be delivered forthwith to the solicitors for the respondent. 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 140 OF 2007
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

IN THE MATTER OF ALL COLOUR MEDIA PRINTING (VICTORIA) PTY LTD

BETWEEN:

JARDEIN PTY LTD (ACN 002 933 600)
Appellant

AND:

NICK STATHAKIS
Respondent

JUDGES:

NORTH, WEINBERG AND MIDDLETON JJ

DATE:

12 SEPTEMBER 2007

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

THE COURT

  1. This appeal concerns the value to be attributed to All Colour Media Printing (Victoria) Pty Ltd (“ACMP”), a company which is in the business of printing foreign language newspapers.  Its predecessor was owned and operated by Theodore Skalkos who, as it happens, is an undischarged bankrupt.  The…

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AGLC
Jardein Pty Ltd v Stathakis [2007] FCAFC 148
Case
[2007] FCAFC 148
Decision Date

CaseChat Overview and Summary

Jardein Pty Ltd has appealed against a decision that valued the company's share in ACMP at nil. The appeal is based on three grounds: first, the primary judge's failure to consider the evidence of Lisa Stathakis as glaringly improbable; second, the denial of natural justice by not requiring Mr Stathakis to answer questions posed by Mr Blashki; and third, the failure to conclude that a buyout was not possible and instead order that the company be wound up. The primary judge, in reviewing the company’s books, concluded that the value of Jardein’s share in ACMP was nil due to the company’s liabilities exceeding its assets by over $260,000. In contrast, Mr Blashki valued the share between $124,676 and $179,812, primarily due to his differing assessment of the company’s profitability. The critical difference between the two valuers lay in their treatment of unrecorded cash payments and expenses, with Mr Blashki believing they had been misappropriated.

The court addressed the appeal by examining the evidence and the grounds presented. It found that the primary judge had not erred in his assessment of the evidence. The court determined that the primary judge's decision was based on a thorough review of the evidence and that there was no basis to find the evidence of Lisa Stathakis as "glaringly improbable" or "contrary to an incontrovertible fact." The court also found that the trial was conducted fairly and that there was no denial of natural justice. Lastly, the court concluded that the primary judge's decision to not wind up the company was justified given the potential for a buyout.

The appeal was dismissed, and the costs of the appeal were awarded to the respondent. The court ordered that the executed share transfer be delivered to the respondent’s solicitors.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs of the appeal, such costs to be taxed in default of agreement.

3. The District Registrar of the Federal Court arrange for the executed share transfer to be delivered forthwith to the solicitors for the respondent.

Background

Background to the litigation

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Evidence

Evidence Before The Court

By Amended Notice of Appeal, Jardein appeals against that order. It relies upon three grounds. These grounds were reformulated during the course of argument. In substance they are as follows:1.because his Honour failed to find that the evidence of Lisa Stathakis, the respondent’s daughter, was “glaringly improbable” and/or “contrary to an incontrovertible fact”, he erred in finding that the value of the company was nil; 2.his Honour denied Jardein natural justice by causing the trial to be conducted without requiring Mr Stathakis to supply answers to a series of questions posed by Mr Blashki in his letter of 20 October 2006; and3.having concluded that ACMP’s liabilities exceeded its assets, his Honour should have concluded that no buy out was possible and ordered instead that the company be wound up.THE EVIDENCE BEFORE THE PRIMARY JUDGE Mr Smith prepared his valuation of Jardein’s share in ACMP after reviewing the company’s books. His reason for concluding that the entire business was basically worthless was primarily because he calculated its liabilities as exceeding its assets by more than $260,000. At the same time, he estimated ACMP’s “future maintainable earnings” to be a modest $40,000 per annum. As previously indicated, Mr Blashki valued Jardein’s half share in ACMP at between $124,676 and $179,812. Both Mr Smith and Mr Blashki adopted essentially the same methodology. They agreed that the business should be valued on the basis of capitalisation of future maintainable earnings. They also agreed, in general, on the multiple to be applied to those earnings. Mr Smith thought the appropriate range was 3.0 to 3.5 while Mr Blashki thought it should be 3.5 to 4.0. The critical difference between the two valuers turned upon their treatment of the company’s records. Mr Blashki concluded that ACMP had received more than $300,000 in cash in the period May 2003 to June 2006. Those cash payments had not been recorded in its official records. That meant that ACMP was significantly more profitable than Mr Smith had assumed. In addition, Mr Smith had valued the business upon the basis that ACMP had expended significant amounts on what Ms Stathakis described as “collating”. Those amounts, totalling over $230,000, were said to represent cash paid to casual workers who manually put the various newspapers and other publications together. The liabilities created by those cash payments exceeded the entire revenue generated by ACMP. Mr Smith therefore concluded that the net asset position of the company was negative. That largely explained how he arrived at the assessment that the value of the business was nil. Mr Blashki on the other hand took a different view of the collating expenses. He was not satisfied that those monies had in fact been expended on collating. He noted that the payments had not been properly accounted for, and were not recorded correctly in the company’s books. He therefore did not bring those monies to account. He concluded that they had been misappropriated by Mr Stathakis, and ought therefore to be treated as an asset of the company. For that reason he was much more positive in his assessment of the company’s net asset position, and of its value.

Decision

Reasons for decision

NORTH, WEINBERG AND MIDDLETON JJ
The fact that the sum of $1.00 happened to equate to the par-value of the single share owned by Jardein was, as it happens, merely coincidental. CONCLUSION For the reasons set out above the appeal must be dismissed. The appellant must pay the respondent’s costs of the appeal to be taxed in default of agreement. The executed share transfer, presently in the custody of the Court, should be delivered to Mr Stathakis’ solicitors.

Ratio Decidendi

Legal Principle Established

Established by: NORTH, WEINBERG AND MIDDLETON JJ

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