JNU International (Australia) Pty Ltd v U-M Trading Pty Ltd
[2001] VSC 40
•7 February 2001
| SUPREME COURT OF VICTORIA AT MELBOURNE | |
| COMMERCIAL & EQUITY DIVISION | Not Restricted |
COMMERCIAL LIST
No. 5368 of 1999
F4881
| JNU INTERNATIONAL (AUSTRALIA) PTY LTD | Plaintiff |
| v | |
| U-M TRADING PTY LTD | First Defendant |
| LAGU INTERNATIONAL PTY LTD | Second Defendant |
| RICHARD J. GARVEY | Third Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10-12 April 2000 | |
DATE OF JUDGMENT: | 7 February 2001 | |
CASE MAY BE CITED AS: | JNU International (Australia) Pty Ltd v U-M Trading Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 40 | |
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Contract – referral of dispute to expert – whether expert’s decision was in accordance with contractual mandate.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr P.B. Murdoch QC with | Anderson Rice |
| For the First and Second Defendants | Mr W. F. Lally QC with | Cornwall Stodart |
| For the Third Defendant | Mr N. J. Young QC with Mr M. C.Garner | Freehill Hollingdale & Page |
HIS HONOUR:
This proceeding arises under a share acquisition agreement dated 11 April 1990 (“the Agreement”). Under the “earn-out” provisions in the Agreement, an additional amount may become payable after completion as part of the price of the shares acquired, based on subsequent earnings. The dispute arises in relation to the conduct of the third defendant, an expert purportedly appointed under those provisions, one R.J. Garvey (“Garvey”). The plaintiff claims a declaration that Garvey’s preliminary determination dated 2 October 1997 and his certificate dated 15 March 1999 are both of no effect and not binding on the plaintiff (“JNU” or “the purchaser”) and the first and second defendants (“the vendors”). The vendors counterclaim the sum of $1,073,000 as the additional amount payable under the Agreement. Most of the events giving rise to the issues for determination are not in dispute and arise from correspondence and other documents.
The Agreement was made between JNU as purchaser and the vendors as vendors and others. The vendors agreed to sell and JNU agreed to buy the shares held by the vendors in the capital of UMCOS Australia Pty Ltd on the terms and conditions set out in the Agreement.
Clause 3 of the Agreement provided:
“3. Purchase Price
3.1.The purchase price for the Shares ('Purchase Price') shall be the net tangible asset value of the Group plus the additional amounts payable under the provisions of Clauses 3.2, 3.3 and 3.4.
3.1.1.The net tangible asset value shall be the total of $x + $y.
where
x = an amount equal to the value of all tangible current assets (and no assets shall be valued other than at book value) less all tangible current and non-current liabilities and
y = the value of the Stock as determined in accordance with Clause 5.
determined and certified (save for 'y') by the Company’s Auditors in accordance with generally accepted Australian accounting principles used in preparation of the Company’s three (3) previous years’ financial statements. Such determination shall be reviewed by the Purchaser’s Auditors who shall, if required by them, have full access to the working papers of the Company’s Auditors.
3.1.2.If any dispute arising as to the value of the Company’s net tangible assets is not resolved by the Company’s Auditors and the Purchaser’s Auditors within two (2) weeks of the dispute arising, it shall forthwith be referred for final resolution within thirty (30) days after such reference, to an expert agreeable to the Vendors and the Purchaser, or failing any agreement within seven (7) days of such dispute arising to the nominee, acting as an expert and not as an arbitrator, of the President of the Victorian Branch of the Institute of Chartered Accountants in Australia. The decision of such expert shall be final and binding on the parties and his costs shall be borne in equal shares by the Vendors and the Purchaser.
3.1.3.Neither the Vendors nor the Purchaser shall be entitled to refer a dispute for resolution unless the aggregate value of the amounts in dispute exceed ten thousand dollars (A$10,000.00).
For the purposes of Clauses 3.2 to 3.5, 'Purchaser' shall mean the Purchaser and all its subsidiaries after Completion.
3.2.In addition to the amount payable in terms of Clause 3.1, and at any time during the period 1st January to the 31st March, 1994, the Vendors shall be entitled, by notice in writing to the Purchaser, to require that the Purchaser pay the following additional amount as part of the Purchase Price in respect of the Shares sold to it on the basis of –
w =
z
2
(- r)
where
w =the balance of the Purchase Price payable by the Purchaser for the Shares sold by the Vendors
z =ten (10) times the average of the deemed after-tax earnings of the Purchaser over the two (2) financial years immediately preceding such notice
or
z =for financial years ending 31st December, 1995 and thereafter, ten (10) times the average of the deemed after-tax earnings of the Purchaser over the three (3) financial years immediately preceding such notice.
r =the amount certified for payment in terms of Clause 3.1.1
3.3.Subsequent to the financial years ending the 31st December, 1995 and thereafter, and at any time during the period 1st January to 31st March in each calendar year, the Purchaser shall be entitled, by notice in writing to the Vendors, to advise them that it intends to pay the balance of the Purchase Price of the Shares sold to it by the Vendors on the basis of –
w =
z
2
(- r)
'w' and 'r' shall have the same meaning attributable to those terms in Clause 3.2 but 'z' shall be the average of the deemed after-tax earnings over three (3) financial years
3.4In the calculation of any average of deemed after-tax earnings referred to in 'z', the Auditors shall calculate the deemed after-tax earnings in each year included in any average on the basis of –
date = (a – b) x
(1-c)
100
where
date = the deemed after-tax earnings
a = earnings before interest and tax
b = deemed interest on sixty percent (60%) of the book value of all the Purchaser’s operating assets, and for the purposes of 'b'
'operating assets' shall mean the average book value taken over the thirteen (13) month ends from 31st December to 31st December following, of all the Purchaser’s assets used in the organization and conduct of the business including, without limiting the generality thereof, all CURRENT ASSETS and NON-CURRENT ASSETS less all CURRENT LIABILITIES and NON-CURRENT LIABILITIES (excluding in each case any shareholder’s loans and any interest bearing debt).
CURRENT ASSETS and CURRENT LIABILITIES shall bear the meaning given to these terms in paragraph 6(1) of Schedule 7 to the Companies (Victoria) Code.
The interest rate (to determine the amount of interest) shall be a rate equal to the average ninety (90) day Bank Bill Rates for a financial year (as quoted on Reuter’s Screen BBSW) plus one percent (1%).
c =the general rate of company tax as provided for in the Income Tax Assessment Act, 1936 (C’wlth) for each such year.
3.5.The Board of Directors of the Company shall obtain (and if they fail to instruct the Company’s Auditors within seven (7) days the Vendors or the Purchaser, as the case may be, may obtain) from the Company’s Auditors, a certificate in writing stating the value which, in their opinion, is attributable to the balance of the Purchase Price of the Shares sold by the Vendors to the Purchaser.
3.5.1.Within seven (7) days of a receipt of a notice by the Vendors or the Purchaser advising that the balance of the Purchase Price of the Shares is required to be, or will be, paid, either party shall notify the other of any extraordinary or unusual event which has occurred within the two (2) or three (3) years as the case may be on which the averaging is based which, in the opinion of the Vendors or the Purchaser has had the effect of distorting the balance of the Purchase Price and which should be taken into account by the Company’s Auditors when producing the certificate stating the balance of the Purchase Price to be paid (failing which the certificate referred to in Clause 3.5 shall be final and binding on the Vendors and the Purchaser).
3.5.2.If, within seven (7) days of production of the Auditors’ certificate, either party is not satisfied therewith in that it has not in that party’s opinion sufficiently taken into account the extraordinary or unusual event, the party concerned shall, within three (3) days of receipt of such certificate, notify the Board of Directors of the Company of its disagreement therewith.
3.5.3.If such dispute as to the value or the extraordinary or unusual event is not resolved between the Vendors and the Purchaser within seven (7) days of the notice to the Board of Directors of the Company, it shall forthwith be referred by the Board of Directors of the Company for final resolution within thirty (30) days after such reference, to a nominee acting as an expert and not as an arbitrator, of the President of the Victorian Branch of the Institute of Chartered Accountants in Australia whose resolution of such dispute and decision in regard to the value shall be final and binding on the Vendors, the Purchaser and the Company.
3.6.The Purchase Price shall be paid or otherwise satisfied in accordance with Clause 6.4.”
By letter dated 6 April 1994 from Cornwall Stodart, the vendors’ solicitors, to Anderson Rice, the purchaser’s solicitors, Cornwall Stodart advised:
“…doubt arose as to the correct interpretation in clause 3.2 of the Share Acquisition Agreement dated 11th April 1990.
The parties have now agreed that pursuant to that sub-clause, the vendors may give notice to the purchaser at any time during the period 1st January 1996 to 31st March 1996, and during the period 1st January to 31st March in succeeding years, on the basis that the second formula for “z” will then apply.
In these circumstances, the vendors will not give any notice prior to 31st March 1994. . .”
By letter dated 7 April 1994 from Anderson Rice to Cornwall Stodart, Anderson Rice confirmed “the amendment” to the terms of the agreement set out in Cornwall Stodart’s letter of 6 April 1994.
Some two years later, by letter dated 1 March 1996 from the purchaser’s holding company to the vendors, the purchaser gave notice as provided in Clause 3.3 of the Agreement of the purchaser’s intention “to pay the balance of the Purchase Price of the Shares sold by you to it.” The letter continued:
“As required under the Agreement, we hereby give you notice that we have an issue which we would expect the auditors to treat as extraordinary or unusual under the provisions of Clause 3.5.1, and this is as follows:-
In July 1993, the Company entered into an agreement to purchase the business of Dureau Tools and certain assets of the business. Since this acquisition, the business including the trademarks and agencies has had an extraordinary impact on the sales and profitability of the Company during the period which will form the basis for calculating the balance of the purchase price of the shares sold by you. Without adjustment, the Dureau acquisition would cause a distortion in the calculation of the balance of the purchase price. Accordingly, the effect of the acquisition of the Dureau Tools business (“the Dureau effect”) on the sales and profitability of the Company has been calculated. Schedule A (attached) sets out the sales and profitability of the Dureau business from the date of acquisition to the end of 1995 and shows the Dureau effect within each year. Schedule B provides a calculation of the net operating assets attributable to Dureau and the resulting adjustment required to be made to the deemed interest figure in the calculation of the balance of the purchase price.
The Agreement provides that the Board of Directors of the Company is to obtain a certificate stating the value attributable to the balance of the Purchase Price of the Shares and accordingly, we are forwarding a copy of this letter to Messrs Arthur Andersen with the request that they prepare the required valuation upon expiry of the seven day period for notification of extraordinary or unusual events as set out in the Agreement. A copy of that letter is attached. . .”
On 1 March 1996 the purchaser also wrote to Arthur Andersen & Co (“Arthur Andersen”):
“1) As you are aware, your firm is currently the auditor of JNU International (Australia) Pty Ltd.
2)Attached hereto is a copy of the Share Acquisition Agreement. . . .
3)In accordance with the terms of the Agreement, James Neill Holdings Limited has, on our behalf, now given notice to both UMCOS Australia Pty Limited and Lagu Two Pty Ltd relative to the provisions of Clause 3 and attached is a copy of that letter to the Vendors. You will note that in the notice given to the Vendors under Clause 3.5.1 attention is drawn to an event which requires consideration by you when producing the valuation. . . .
5)In terms of the provisions of Clause 3.3 and subsequent subclauses, we should be glad if you would take the necessary steps to provide the valuation required…”
By letter dated 26 March 1996 from Arthur Andersen to the purchaser, Arthur Andersen stated inter alia:
“This letter is written pursuant to the requirements of Clause 3.5 of the Share Acquisition Agreement. . . . and concerns the balance of the purchase price payable under Clause 3.3 of the Share Acquisition Agreement.
Certificate
In our opinion the balance of the purchase price of the shares sold by the vendors to the purchaser under the Share Acquisition Agreement described above is nil.”
The letter from Arthur Andersen set out its calculations and also said that Arthur Andersen had “concluded that the Dureau Acquisition is an unusual event”.
By letter dated 29 March 1996 from Cornwall Stodart to the purchaser, Cornwall Stodart on behalf of the vendors stated:
“We refer to the Arthur Andersen certificate of 26 March 1996…
On behalf of [the vendors] we hereby give notice under subclause 3.5.2 of the Share Acquisition Agreement of 11 May 1990 and the addendum to that Agreement of 3 July 1990 of their disagreement with the certificate, in that they are not satisfied with it on the basis that the events surrounding the acquisition of the Dureau Tools business were not extraordinary or unusual events and those events did not have the effect of distorting the balance of the purchase price referred to in the Agreement. Hence, they should not have been taken into account by Arthur Andersen when producing the certificate.
Accordingly, under subclause 3.5.3 of the Agreement, we request a meeting to resolve the dispute and await your further advice.”
By letter dated 17 April 1996 from Cornwall Stodart to Anderson Rice, Cornwall Stodart advised that the vendors “require the matter to be referred to an expert nominated by the President of the Victorian Branch of the Institute, in accordance with 3.5.3 of the agreement”.
By letter dated 1 May 1996 from Anderson Rice to Mr Roger Evans, Chairman – Victorian Branch, Institute of Chartered Accountants, Anderson Rice requested Mr Evans to “refer the papers [which were attached] to an expert for resolution in terms of Clause 3.5.3 of the Agreement.” The papers attached to the letter included a copy of the notice dated 1 March 1996, a copy of the letter to Arthur Andersen of the same date, a copy of the Arthur Andersen certificate and a copy of the Share Acquisition Agreement and Addendum.
By letter dated 6 May 1996 from Mr M.J. Nazzari, State Director of the Institute of Chartered Accountants in Australia, to Anderson Rice, Mr Nazzari provided to Anderson Rice a list of “valuers who may be able to assist”. The first name on the list was Garvey.
By letter dated 15 May 1996 from Anderson Rice to Mr Nazzari, Anderson Rice stated (with copies to their client and Cornwall Stodart):
“Further to your letter of 6 May 1996, our client and the Vendors agree to the appointment of Mr R Garvey of KPMG as Valuer. Please now forward the appropriate papers to him.”
On 17 May 1996 Garvey received a letter from Mr Nazzari dated 16 May 1996 stating:
“I have been advised by Anderson Rice Lawyers (original attached) that you have been appointed as Valuer.
I have pleasure in enclosing the appropriate papers in this matter.”
By letter dated 31 May 1996 from Garvey to the purchaser (with copies to the parties’ Solicitors) Garvey confirmed receipt of Mr. Nazzari’s letter. The letter stated inter alia:
“…I am writing to confirm that I am in receipt of a letter. . .advising of my appointment as valuer with respect to a dispute… This letter sets out my understanding of the assignment to be undertaken, an overview of my proposed approach and the terms of the engagement. I understand that subsequent to an Arthur Andersen certificate dated 26 March 1996 relating to, inter alia, an earn-out valuation with respect to the abovementioned acquisition, [the Vendors] have given notice under subclause 3.5.2 of the Share Acquisition Agreement… of their disagreement with that certificate on the basis that the Company’s acquisition of the Dureau Tools business from Amcor Ltd was not an “extraordinary or unusual event.”
Pursuant to subclause 3.5 of the Agreement, you have requested that I resolve this dispute by forming an opinion as to the intended meaning of the term “extraordinary or unusual event” as used in the Agreement, the outcome of which will impact upon the final purchase price defined in section 3 of the Agreement.”
The letter went on to state in some detail what Garvey’s approach would be and the steps and work he proposed to undertake. He said that his fees would be based upon standard professional hourly rates for the personnel involved, plus any out of pocket expenses at cost including any incurred in respect of the services of independent legal counsel. He then stipulated that all parties should provide him with all relevant material together with all other information requested by him. He sought an indemnity as to various matters.
The letter concluded:
“If you are in agreement with the terms and conditions set out in this letter please confirm your acceptance by signing the duplicate copy of this letter and returning the same to us. . .”
On 3 June 1996 Garvey received a letter of that date from Cornwall Stodart referring to his letter of 31 May 1996. The letter stated inter alia:
“…At the outset, we should emphasise that you have been appointed as an expert, not as a valuer. We believe it would assist if we set out the relevant chronology… together with our view of the role of the expert in this matter.
[A ”Chronology” was then set out]
It follows from the above chronology that the terms of reference for the expert pursuant to the Agreement, must be as follows:
(a)Were Arthur Andersen correct or incorrect in treating the Dureau Tools transaction as “unusual”?… they did not determine that the transaction was “extraordinary”, hence that issue or aspect is not before you for determination. In this regard, your comments in paragraph 3 are not correct insofar as they refer to “extraordinary”.
(b)If the expert determines that Arthur Andersen were correct, he need make no other determination.
(c)If the expert determines that Arthur Andersen were incorrect, (i.e. if the expert determines that the Dureau Tools acquisition was not unusual, he must then by applying only the formula set out in the Certificate, and by adopting only the figures and methodology used by Arthur Andersen, determine what amount is payable by the Purchaser to the Vendors as additional purchase price, pursuant to the agreement…”
The Cornwall Stodart letter also enclosed a report from BDO Nelson Parkhill dated 23 May 1996 and a statement on behalf of the vendors dated 24 May 1996, with attachments. The letter concluded:
“Your proposals are acceptable to our client. We have, on their behalf, signed your letter, and return that copy herewith.”
On 11 June 1996 Garvey received a facsimile from Anderson Rice, the purchaser’s solicitors. That letter stated:
“We have carefully considered the terms of reference which are detailed in your letter dated 31 May 1996, with which we are in agreement except that they are too narrow and should be somewhat broadened in as much as :
1.there is not only a difference of opinion between the Vendor and the Purchaser on the meaning of “extraordinary or unusual event” as applied to the acquisition of the Dureau Tools business and its impact on any valuation, but also the goodwill issue between the parties is not agreed if and when it ever becomes necessary to be considered.
From the Purchaser’s point of view it is all disputes which bear on the valuation which must be resolved by you as the expert. The intention of Clause 3.5.3 is clearly that you should provide a definitive ruling which does not leave any issues outstanding.”
2.you have the assurance of JNU International (Australia) Pty Ltd that any further information or documentation which may be reasonably required from either the Purchaser of JNU itself would be made freely available to you.
3.it has been agreed between the parties that the Vendors on the one hand, and the Purchaser on the other hand will bear your fees and disbursements costs on a 50/50 basis. Would you be good enough to give us an estimate of your fees, and at the same time would you kindly advise us on what basis your firm would propose charging for the work to be done? Insofar as any legal opinion is required, it may be prudent to obtain a quote for this.
We look forward to hearing from you.”
On 13 June 1996 Garvey wrote to the parties’ solicitors as follows:
“…I would like to clarify the following matters which have been raised in response to my engagement letter dated 31 May 1996:
(i)My appointment is as ‘expert’ in the resolution of a dispute regarding the acquisition of shares by JNU International (Australia) Pty Limited (formerly James Neill (Australia) Pty Limited) in UMCOS Pty Ltd by forming an opinion as to the intended meaning of “extraordinary and unusual event” as used in the Share Acquisition Agreement (“Agreement”) dated 11 April 1990 and addendums thereto.
(ii)In addition to (i) above, but dependent on its outcome, my appointment as ‘expert’ will also include the resolution of a dispute over the treatment and recognition of goodwill arising from the acquisition of shares in UMCOS Pty Ltd, the outcome of which will impact upon the final purchase price payable, as defined in section 3 of the Agreement…
Unless I am notified to the contrary, I will assume that you are in agreement with all of the above terms of reference. . .”
On 17 June 1996 Garvey received a letter from Cornwall Stodart dated 13 June 1996 which stated inter alia:
“…Messrs Anderson Rice have provided us with a copy of their letter to you of 11th instant and we wish to make some comment in respect thereto…
1.We believe your terms of reference are as set out on page 3 of our letter to you of 3rd instant. We therefore disagree with Anderson Rice that the other matters in their paragraph 1 should be considered. Your determination, using the terms of reference we have put forth, will we believe, resolve all issues between the parties…”
On 18 June 1996 Garvey wrote to the parties’ solicitors clarifying two matters, the first of which was that point (i) of his letter of 13 June 1996 should have read “extraordinary or unusual” rather than “extraordinary and unusual.”
On 18 June 1996 Garvey received a facsimile letter from Cornwall Stodart. That letter stated inter alia:
“We acknowledge your letter of 13th instant, which would have crossed our letter to you of the same date.
As we said in our letter of 13th instant, your “terms of reference” are in our opinion exclusively those set out on page 3 of our letter to you of the 3rd instant.
This means, in response to your numbered paragraphs of your most recent letter,
(i)You are required to form an opinion only whether Arthur Andersen were correct or incorrect in treating the Dureau Tools transaction as “unusual”.
The “extraordinary” aspect does not arise for determination for you.
(ii)You are not entitled to deal with the goodwill issue. . .”
On or about 19 June 1996 Garvey received a letter from Anderson Rice which stated inter alia:
“We have just received Messrs Cornwall Stodart’s letter of 18 June 1996, and attach a copy of our reply.
There would seem to be little purpose in debating further with them the disagreement between our clients as to your role, save and except to reiterate that you have been appointed as an expert to resolve the dispute between the parties as to the “earn out” (if any) and both the question of “extraordinary or unusual event” and “value” are inextricably interwoven….”
The letter from Anderson Rice attached a copy of a letter from Anderson Rice to Cornwall Stodart dated 19 June 1996. The letter from Anderson Rice to Cornwall Stodart stated inter alia:
“We do not understand the issues being raised by your clients as the nub of the issue is whether there is any amount payable to your clients or not, whether “extraordinary or unusual event” has been correctly interpreted and whether the correct formula has been used following that determination. For what other purpose would an expert be appointed?
In any event, we enclose herewith a copy of our client’s submission to Mr Garvey and it is for him to make his determination. . .”
Also on 19 June 1996, Garvey received a facsimile letter from Cornwall Stodart which stated inter alia:
“We have a copy of your letter of 18th instant to Anderson Rice.
Paragraph (i) must be read subject to the terms of reference set out in our letter of 3rd instant. We reiterate at this point [sic] in our letters of 13th and 18th instant. . .”
On or about 20 June 1996 Garvey received a letter dated 20 June 1996 from Anderson Rice containing submissions on behalf of the purchaser and enclosing the purchaser’s “formal reply” to Cornwall Stodart’s letter of 3 June 1996. That formal reply comprised a letter dated 17 June 1996 from Spear & Jackson PLC on behalf of JNU to Garvey. The 5 page letter from Spear & Jackson PLC stated inter alia:
“…There are, in fact, three areas of dispute between the two parties which need to be resolved by you. These may be summarised as follows and are discussed in more detail below:
(a)Incorrect formula used in the original valuation certificate: in the preparation of their original valuation certificate, Arthur Andersen used the incorrect valuation formula. Arthur Andersen have since acknowledged this fact and revised their certificate accordingly on 7 May;
(b)Extraordinary or unusual event: as you are already aware, the vendors dispute the treatment of the acquisition of the Dureau Tools business (“Dureau”) as an extraordinary or unusual event by Arthur Andersen in arriving at their valuation certificate; and
(c)Incorrect treatment of goodwill amortisation: in their calculation of Deemed After Tax Earnings (“DATE”) as part of the valuation model, Arthur Andersen added back to the reported profits of JNU the charge relating to goodwill in respect of the acquisition of the shares in Umcos Australia Pty Ltd. We dispute that this adjustment should have been made. . .”
On or about 24 June 1996 Garvey received a further letter from Cornwall Stodart of that date, stating inter alia:
“We have a copy of the materials sent to you by Anderson Rice dated 20 June.
Our clients will want to make a detailed response to those materials and the purpose of this letter is to ask you not to make any determinations until after you have received these further materials. . .”
On or about 27 June 1996 Garvey received a 6 page letter from Cornwall Stodart dated 25 June 1996. That letter replied to the letter from Anderson Rice to him of 20 June 1996, and stated inter alia:
“…Pursuant to clause 3.5.2, a party had the right, if it was not satisfied with the auditor’s opinion in the limited circumstances set out in that sub-clause, to notify the Board of Directors of the company of its disagreement. If the dispute was not resolved, then pursuant to clause 3.5.3, that dispute was to be referred to an expert. All this happened.
The expert’s task is therefore extremely limited. It is to deal only with any issues raised by a party pursuant to clause 3.5.2. It was only the vendors who gave notice pursuant to that clause. The purchaser raised no issue. The only issue therefore for resolution by the expert is the issue raised by the vendors dealing with “extraordinary or unusual” – and in this case, only “unusual” because Arthur Andersen did not decide that the transaction in question was “extraordinary”. They decided it was “unusual”…”
On 1 July 1996 Garvey wrote to the parties’ solicitors Cornwall Stodart and Anderson Rice advising that:
“…It seems desirable to suggest that all final written submissions be made to me no later than 5:00 p.m. on Friday, 12 July 1996. No submissions will be accepted by me after that time…”
Garvey further advised that as part of his assignment Garvey wished to visit the company premises and meet with management after 12 July 1996, and that the purpose of that visit was to allow him to develop a further understanding of the Company’s business activities in so far as they affected his engagement.
On 2 July 1996 Garvey received a facsimile letter from Anderson Rice enclosing the “formal reply” from the purchaser. That formal reply comprised a 5 page letter dated 2 July 1996 from Anderson Rice to Cornwall Stodart which stated inter alia:
“..1.7the role of the expert is not extremely limited, other than by the provisions of Clause 3.5.3 . . .
1.8 on 3 June 1996 the Vendors’ submissions were received, but the Vendors cannot, as they have sought to do, impose unilateral terms of reference on the expert after a general reference was made under Clause 3.5.3, and thereby exclude the Purchaser from raising other valid issues such as the incorrect application of a formula, and the incorrect treatment of goodwill amortisation.
1.9in conclusion, we would point out that the notice given under Clause 3.5.3 requiring reference to an expert was without qualification. . . .
3.The expert can only carry out his function in an expert manner, and if an incorrect formula has been applied, he is at liberty, indeed he is obliged, to apply the correct one to arrive at an expert resolution of the dispute…”
On 4 July 1996 Garvey received a further letter from Cornwall Stodart dated 3 July 1996 enclosing a copy of this letter to Anderson Rice dated 3 June 1996 (which in turn responded to Anderson Rice’s letter to Cornwall Stodart of 2 July 1996). The letter from Cornwall Stodart to Anderson Rice stated inter alia:
“…1.8 -Suffice to say we disagree completely. Clause 3.5.3 refers in the first line to “such dispute”. That term can refer only to a dispute notified by a party pursuant to Clause 3.5.2. Only the vendors gave such notification.
1.9 -We disagree. The agreement was after all prepared by the solicitors for the purchaser. It sets out very clearly the rights and obligations of the parties in this area. No question of natural justice arises so far as the expert is concerned. He must look exclusively to the agreement to ascertain his terms of reference, which we have correctly set out in our letters to him. His task is to determine the “dispute”. The matters to which you refer in this paragraph have not been raised as disputes within the confines of the agreement.
It is, if we might say so, begging the question to say that an incorrect formula was used. It is clear that Arthur Andersen used the correct formula.
We would be obliged to insist that the expert acts within the terms of reference we have put forward. . . .
3 -We are repeating ourselves but we repeat, the question of the formula is not an issue for determination by the expert. This is quite apart from the fact that Arthur Andersen used the correct formula, in our view. . .”
On 5 July 1996 Garvey wrote to the parties’ solicitors jointly. In that letter Garvey stated:
“I acknowledge receipt of your most recent correspondence (Anderson Rice letter dated 2 July 1996, Cornwall Stodart letter dated 3 July 1996).
It is clear that your clients are unable to agree as to my precise terms of reference, despite a number of attempts by me to clarify these. I do not consider it to be within the scope of my role as expert to determine my own terms of reference and you should be aware that I have sought and obtained independent legal advice which confirms my view.
I therefore advise that I am unable to proceed further with my assignment until I receive a joint letter of instruction from you which sets out my precise terms of reference”.
On 9 July 1996 Garvey visited JNU’s premises for the purpose indicated in his letter of 1 July 1996.
On or about 6 August 1996 Garvey received a letter dated 5 August 1996 from Cornwall Stodart. That letter referred to his visit to the JNU premises and suggested that Garvey might be assisted by speaking face to face with Mr Walmsley, “who speaks for the vendors”. In the letter Cornwall Stodart asked if Garvey could provide them with copies of whatever Garvey had received from JNU on his visit.
A letter dated 5 August 1996 from Cornwall Stodart to Anderson Rice, referred to Garvey's letter to Cornwall Stodart and Anderson Rice of 5 July and suggested that:
“to progress this matter, we jointly request Mr Garvey to make a determination whether the “Dureau transaction” was, or was not, “unusual”. (Arthur Andersen have already determined that the transaction was not “extraordinary” so only the unusual aspect needs now to be determined).
If Mr Garvey determines that the transaction was unusual, the dispute will end at that point, because on no construction of the agreement could our clients be entitled to any further payment.
If Mr Garvey determines that the transaction was not unusual, the parties can reserve their rights as to what further action they may then take. You are aware of our views and we are aware of yours.
We would be pleased to have you reply as soon as possible.”
Garvey was not sent a copy of this letter and did not see it until after about April 1998.
On 7 August 1996 Garvey wrote to Cornwall Stodart in response to their letter of 5 August 1996. In his letter Garvey enclosed copies of the documents Garvey had received from JNU upon his visit to its premises on 9 July 1996. Garvey further advised that:
“I have no objection to meeting with Mr Walmsley as you suggest, but only on the following basis:
1.My terms of reference having been agreed by both parties (refer my letter dated 5 July 1996) prior to such a meeting.
2.The [sic] JNU be offered the opportunity of being present during such discussion as you have suggested.
3.That the purchaser be offered the same arrangement, as you have also suggested.”
On or about 8 August 1996 Garvey received a facsimile letter from Anderson Rice of that date. That letter enclosed a copy facsimile transmission forwarded to Cornwall Stodart on 8 August 1996 for his information. The facsimile transmission from Anderson Rice to Cornwall Stodart dated 8 August 1996 stated inter alia:
“With reference to your letter dated 5 August 1996 addressed to Mr Garvey, our client does not agree with the suggestion that there should be a face to face meeting between the expert and Mr Walmsley which in our client’s view is neither appropriate or necessary. Quite apart from the fact that the suggestion is outside the terms of reference by JNU International Pty Ltd to the expert, the issues at stake have been fully canvassed in a very detailed exchange of correspondence.”
By letter marked “without prejudice” and dated 8 August 1996, Anderson Rice responded to Cornwall Stodart’s proposal of 5 July 1996 concerning the problem of Garvey’s terms of reference. Negotiations as to this continued between the parties’ solicitors during August and September 1996 by both letter and telephone.
On or about 22 August 1996 Garvey received a facsimile letter from Anderson Rice of that date in response to his letter of 7 August 1996 to Cornwall Stodart and stated inter alia:
“. . . Nevertheless, if Mr Walmsley wishes to address you directly, whatever you might have to say must be directly related to the terms of reference ( and none other) as it is likely that Mr Walmsley will seek to canvass the entire relationship between the parties since 1990 – indeed, he has already done so at some length in the correspondence which you already have, and our client would object to any address by Mr Walmsley outside the specific terms of reference to you, which have yet to be agreed with Messrs Cornwall Stodart. . . ”
On 27 August 1996 Garvey wrote to Anderson Rice in response to their letter of 22 August 1996. In his letter Garvey stated inter alia:
“. . . Your attention is drawn to paragraph 1 of my letter to Messrs Cornwall Stodart dated 7 August 1996. I again emphasise that until my terms of reference have been agreed by both parties then no such meeting is appropriate. Indeed, depending upon those terms, no meeting may ever be necessary.”
On 20 February 1997 Garvey received a letter dated 19 February 1997 from Cornwall Stodart enclosing the balance of his account for fees and which stated inter alia:
“The matter generally is at the moment the subject of discussion between ourselves and Messrs Anderson Rice.”
The parties’ solicitors continued to endeavour to reach an agreement. As a result of further correspondence, the parties’ solicitors finally agreed upon the terms of a letter to Garvey.
Garvey received that letter dated 2 June 1997 from the purchaser. A copy was provided to Cornwall Stodart. That letter advised:
“Further to the meeting at our office on 9 July 1996, it has now been agreed with the Vendors that the original brief given to you should be limited, at this stage, to the following –
1.You will determine whether the Dureau transaction by JNU was “an extraordinary or unusual event” as provided in the Agreement.
2.If your determination is adverse to the Vendors, you will state so accordingly whereafter the matter will be at an end as far as you are concerned.
3.If your determination is adverse to JNU then, based on –
the figures used by Mr Alfredson (these being the deemed after tax profits and interests); and
the financial or technical methodology adopted by Arthur
Andersen
you are requested to provide a valuation certificate applying the formula, which in your opinion, is the correct one to apply under the Agreement.
4.Any issue of goodwill will be ignored.
We understand that the Vendors on the one hand and the Purchaser on the other, wish to make further submissions to you. However, to bring matters to a head, it has been agreed that any further submissions by either party shall be made to you by no later than Friday 13 June 1997, with each of the parties having a right of reply by no later than Friday, 20 June 1997.
We trust that these modified terms of reference are acceptable to you, and it would be appreciated if you would kindly act accordingly.”
In June 1997 Garvey received a series of further written submissions by letter on behalf of the parties.
On 18 August 1997 Garvey wrote to the parties’ Solicitors jointly, stating:
“. . .
1. My role as expert
Having proceeded further with this engagement, I have referred once again to the letter dated 2 June 1997 from the Company, which sets out specific terms of reference. One of the specified terms of reference was that I should apply the formula which in my opinion was the correct one to apply under the Agreement.
Having considered the matter further, in conjunction with my legal advisers, I have formed the view that it is not within my role as an accounting expert, to adjudicate between the parties in relation to a dispute as to which formula should apply under the Agreement.
My role, as set out within clause 3.5.3 of the Agreement, is to resolve the question of whether the Dureau Acquisition was “an extraordinary or unusual event” as provided in the Agreement. I note that this is a matter upon which I have not yet formed a view. If my view upon that question is adverse to the Company, my role should then be to perform the relevant calculation of the value of the balance of the purchase price, using (where there is a dispute to the appropriate formula) the formula agreed between the parties.
I therefore advise that I do not propose to issue any opinion until I receive a joint letter of instruction from you which confirms that, if necessary to the light of my decision on that question, you will jointly direct me as to the appropriate formula to then apply. . . . ”
On 1 September 1997 Garvey received a letter dated 29 August 1997 from Anderson Rice, stating:
“We refer to your letter dated 18 August 1997 and have been instructed to respond to the matters raised and to provide the information requested.
1. Role as Expert
The terms of reference provided to you in the letter dated 2 June 1997 are unambiguous and were agreed between the parties. To reiterate, it is the joint instruction of both parties that you should initially determine whether the Dureau Acquisition was “unusual or extraordinary”. If so, there is nothing further for you to do, but if not, you should use your own judgment to determine the value of the business based on the figures and methodology adopted by Arthur Andersen.
It is not necessary, therefore, to request a joint letter from the parties to instruct you regarding the appropriate formula to apply and indeed you will appreciate that this has been, and remains, a bone of contention between the parties. Your role as expert is to apply the appropriate formula in the Share Acquisition Agreement . . . without being concerned with any dispute between the parties on this issue. . . .
The understanding between the parties is that if it proves necessary to adopt a formula, then the formula which you determine to be the correct one is that which you will use. . . .”
The letter then went on to provide further information that had been requested by Garvey in July 1997 and concluded:
“We trust that the above information clarifies the issues raised and we look forward to hearing from you in due course.”
On 4 September 1997 Garvey received a letter from Cornwall Stodart dated 4 September 1997 (a copy of which was provided to Anderson Rice), stating:
“We had intended to submit a draft of our proposed reply to you to Messrs Anderson Rice prior to submitting it to you. As they have written to you direct, without prior reference to us, we shall do likewise.
1. Role as Expert
Because the parties are not at this point able to agree between themselves on the appropriate formula, we request that you simply resolve the question of whether the Dureau transaction was “extraordinary or unusual” as provided in the agreement. We require you to do no more than that and when you have formed your view, to issue your appropriate opinion.
We are quite happy for you to proceed in the matter by stages, i.e. first give your opinion on the “extraordinary or unusual” issue. The debate about the formula can be resolved immediately after you have taken that step. Our clients are anxious to deal with the question of commercial substance.
It is clear that we and Anderson Rice are on common ground on this point, at least, namely that your first task as an expert is to determine whether the Dureau transaction was “extraordinary or unusual”.”
Garvey testified by his witness statement that based on:
"(1)the advice from Anderson Rice in their letter . . . of 29 August 1997 that “it is the joint instruction of both parties that you should initially determine whether the Dureau Acquisition was “unusual or extraordinary”. If so there is nothing further for you to do . . .”;
(2)the advice from Cornwall Stodart in their letter to him of 4 September 1997 that “we are quite happy for you proceed in the matter by stages, i.e. first give your opinion on the “extraordinary or unusual” issue” and “it is clear that we and Anderson Rice are on common ground on this point, at least, namely that your first task as an expert is to determine whether the Dureau transaction was “extraordinary or unusual”; and
(3)the fact that Anderson Rice did not at any time after 4 September 1997 advise him (either in writing or otherwise) that they took issue with or disagreed with the advice from Cornwall Stodart referred to in (2) above contained in Cornwall Stodart’s letter to him of 4 September 1997 (which letter Garvey assumed had been copied to Anderson Rice by Cornwall Stodart at about that time in accordance with customary practice)"
he decided that he should go ahead and determine whether the Dureau acquisition was an extraordinary or unusual event as provided in the Agreement.
Notwithstanding that testimony, I am satisfied (insofar as it matters), after hearing his cross-examination and re-examination, that when Garvey decided on about 10 September 1997 that he should go ahead and determine only the Dureau transaction issue, he did not believe that Anderson Rice had departed from the position, that he was obliged to go on and decide the question of the correct formula if he determined the Dureau transaction issue adversely to JNU.
Between about 10 September 1997 and 2 October 1997 Garvey undertook, and procured his staff to undertake, considerable work in making his determination as to whether the Dureau transaction was an extraordinary or unusual event. Garvey spent approximately 25 working hours on this task and the KPMG staff assisting him spent approximately 64 hours. KPMG’s fees in relation to this work were $19,274.00. As stated below, on 10 December 1997 Garvey issued an account to the parties in this amount. On or about 6 March 1998 the vendors paid $5,000 of this amount. Garvey has not been paid the remainder, despite requesting payment from both parties.
On 2 October 1997, Garvey provided the parties with a letter to JNU dated 20 October 1997 which contained his determination. Garvey’s letter stated inter alia:
“. . . I have indicated to both solicitors that I do not believe that it is within my role as an accounting expert to adjudicate between the parties in relation to a dispute as to which formula should apply under the Agreement as that question would require the resolution of legal issues as to the correct construction of apparently ambiguous provisions of the Agreement. Accordingly, I provide no opinion in this regard.
Notwithstanding the disagreement as to my role, I do not believe this precludes me from providing my opinion as to the first specific term of reference set out in the 2 June 1997 letter, i.e. to “determine whether the Dureau acquisition by JNU was an extraordinary or unusual event as provided in the Agreement”. As this issue is independent of the dispute as to which formula should apply, I now consider it appropriate to complete the primary task.
The following opinion is therefore provided in my role as expert
per clause 3.5.3 of the Share Acquisition Agreement (“the Agreement”). In providing my opinion, I have placed reliance on the information provided and have formed my opinion based on the premise that all relevant material has been provided to me. I refer you to the terms of my letter of engagement dated 31 May 1996 in this regard.”
His letter then set out his reasons and opinion on the question whether the Dureau transaction was an extraordinary or unusual event, and concluded:
“I therefore conclude that the Dureau transaction was neither an extraordinary nor unusual event. Calculation will therefore be required as to the balance of the purchase price payable under the Agreement but, for the reasons previously stated, I am unable to perform the required calculations until the parties provide joint instructions as to the appropriate formula to apply.”
By letter dated 7 October 1997 from Cornwall Stodart to Anderson Rice, Cornwall Stodart stated:
“We refer to Mr Garvey’s decision contained in his letter to the company of 2nd instant.
The only question that was properly before Mr Garvey, namely the “Dureau transaction” has now been finally resolved.
Mr Garvey must now be asked to calculate the balance of the purchase price payable, using the formula and other methodology contained in Arthur Andersen’s Certificate of 26 March 1996.
We have set out in prior correspondence why this is the case and will not repeat these arguments in this letter. In our view the position is clear pursuant to the Share Acquisition Agreement.
Unless we have your agreement to give Mr Garvey a joint direction to proceed on this basis, we have instructions to apply to the Court for appropriate declarations and orders.
We would need your reply within 14 days.”
By letter dated 8 October 1997 from Anderson Rice to Cornwall Stodart, Anderson Rice replied:
“We are in receipt of your letter of 7 October, a copy of which has been forwarded to our client who is currently considering its position.
It goes without saying, however, that the expert has failed to fulfil the mandate given to, and accepted by, him in the letter from JNU International (Australia) Pty Ltd of 2 June 1997, a matter which is also being considered by our client.
We shall communicate with you further as soon as we receive our client’s instructions. . . .”
Cornwall Stodart responded to Anderson Rice by letter of the same date, stating:
“We acknowledge your letter of 8th instant.
As to your second paragraph, we do not agree. Mr Garvey has more than adequately stated his position. This question will no doubt be resolved in any Court proceedings which become necessary. . . .“
Copies of the three last mentioned letters were not provided to Garvey.
On 10 December 1997 Garvey issued to the solicitors for the parties his account for professional services rendered to that date in relation to his role as expert.
The first communication Garvey had with the purchaser or its solicitors after 2 October 1997 was on 24 March 1998, when Garvey received a letter of that date from Anderson Rice. In that letter Anderson Rice stated:
“You derived your authority from the agreement between the Vendors and the Purchaser, and consequently your powers and duties were those, and only those, which the parties conferred on you. You had no authority to determine the question of whether Dureau was “an extraordinary or unusual event” adversely to the Purchaser and then refuse to provide the valuation.
The conclusion to be derived from your failure to act in accordance with the terms of the appointment accepted by you is that your finding on the issue of “an extraordinary or unusual event” is of no effect and is not binding on any of the parties. It goes without saying that you cannot now rectify your failure at this stage.”
On or about 1 April 1998 Garvey received a facsimile letter from Cornwall Stodart dated 31 March 1998 which stated:
“We have a copy of Anderson Rice’s letter to you of 24 March last. That letter was sent without our prior knowledge or approval.
We do not agree with the views expressed in that letter, and are not in sympathy with them. We thought it appropriate to pass our views on to you.
We will be instituting Supreme Court proceedings shortly, which will bring about a resolution of the matter.”
After receipt of Anderson Rice’s letter to Garvey of 24 March 1998, Garvey referred that letter to his solicitors, Freehill Hollingdale & Page. On 6 April 1998 Freehills wrote to Anderson Rice (with a copy to Cornwall Stodart) stating that Garvey had fully performed his obligations under the Agreement and complied in good faith with the terms of reference dated 2 June 1997 to the extent to which Garvey was obliged and was capable and that his position remained that Garvey would perform the required calculation under the Agreement at such time as the parties provided joint instructions as to the appropriate formula to apply. The letter also requested that the purchaser pay the $9,637 owed by it in respect of his 10 December 1997 account. In the course of their letter, Freehills said:
“In the circumstances, our client was placed in an impossible position, having had the matter referred to him for expert determination in circumstances where the Agreement is ambiguous, and where the parties are unable to agree either to the appropriate formula, or to the approach that he should adopt given their failure to agree.
Our client then decided, in good faith, to issue his opinion on the accounting issue of whether the Dureau transaction was extraordinary or unusual. This he did by way of his letter dated 2 October 1997.
In doing so, given the ambiguity in the Agreement as to the formula and the failure of the parties to agree to the matters referred to above, he fully performed his obligations under the Agreement and complied in good faith with the terms of reference dated 2 June 1997 to the extent to which he was obliged and of which he was capable.
Our client’s finding on that matter required there to be a calculation of the Purchase Price under the Agreement, and in that regard he again stated that he was unable to perform the required calculation until such time as the parties provided joint instructions as to the appropriate formula to apply.
Our client’s position remains that he will perform the required calculation under the Agreement at such time as the parties provide joint instructions as to the appropriate formula to apply.”
By proceeding No. F4881 (“the construction proceeding”) commenced in the Commercial List of this Court on 7 April 1998, the vendors brought proceedings against inter alia the purchaser and Garvey to resolve the dispute concerning the correct formula under clause 3.3 of the Agreement. The vendors sought a declaration that “z” meant ten times the average of the deemed after-tax earnings of JNU over the three financial years immediately proceeding the giving of notice by JNU to the vendors (whereas JNU contended that the words “ten times” did not form part of the definition of “z”). On 24 April 1998 at the first directions hearing in the construction proceeding, before Hansen J, Mr Monichino said as counsel for the vendors (without demur from counsel for JNU):
“The expert has reached an impasse in his determination because he can’t make a final determination unless he takes a particular view of the construction of the share sale agreement. The vendor, my client, is trying to bring the impasse to a head by bringing these proceedings seeking a declaration as to the proper construction of the relative part of the share sale agreement and in the alternative says that if its contention as the proper construction is wrong the agreement should be rectified. I simply say that, Your Honour, for the purposes of making absolutely clear that the plaintiffs… do not seek any relief against the independent expert other than to have him bound by the determination.”
On or about 18 September 1998 Cornwall Stodart sent a facsimile letter to Freehills of that date in relation to the construction proceeding (a copy to Anderson Rice). That letter stated inter alia:
“In the event that the Court decides:
(a)that on the proper construction of clause 3.3 of the share acquisition agreement, the clause means what the Plaintiffs contend (namely that “z” means ten times the average of after-tax earnings of JNU over three financial years immediately preceding the giving of a notice);
alternatively
(b)that clause 3.3 of the agreement should be rectified so as to have the meaning that the Plaintiffs contend (namely that a ten times multiplier is to be applied in the formula),
please confirm that your client will proceed to provide a valuation certificate based upon the figures used by Mr Alfredson and the financial or technical methodology adopted by Arthur Andersen, applying the formula set out in clause 3.3 as determined by the Court as aforesaid (namely that your client will complete item 3 in the joint letter of instructions to him dated 2 June 1997).”
By letter dated 18 September 1998 Anderson Rice said to Cornwall Stodart:
“You are already on notice of our clients’ position in relation to Mr Garvey having no further involvement in this matter in view of his failure to carry out his accepted mandate.
Your letter to Freehill Hollingdale & Page is therefore of no consequence.”
In reply, Cornwall Stodart said by facsimile letter dated 22 September 1998 inter alia:
“. . . If you are saying that Mr Garvey has repudiated his retainer and that your clients have accepted that repudiation, we would have expected your clients to raise this issue in a defence and counterclaim filed in the proceeding to date. Your clients have had ample opportunity to do so but have failed to do so.
If your clients wish to allege repudiation, they should raise the issue now and in this proceeding (before the matter is set down for trial) so that all the issues which are in dispute between the parties are before the Court, at the one time, and can be determined once and for all.
In order for your clients to raise the repudiation argument in this proceeding, they will need to seek leave to deliver a counterclaim. On our present instructions, we would not object to this amendment. It will, of course, necessarily involve the Plaintiff delivering a defence to that counterclaim. We would expect that you apply for leave to amend at next Friday’s directions hearing.
If you choose not to amend your pleadings so as to incorporate the Garvey issue (if indeed it is an issue), then any subsequent attempt by you to raise the Garvey issue in separate proceedings will be vigorously opposed on the basis that the proper time to have raised the issue was now and that accordingly, your client is estopped (as per the principles in the Anshun case) from raising the argument at a future point in time. . . . “
On 23 September 1998 Freehills wrote by facsimile to Cornwall Stodart in response to their letter of 18 September 1998 advising:
“Our client’s position (subject to any amendments to the pleadings between now and trial, and to the terms of any judgment delivered in this matter) is that if the court clarifies the proper construction of the share acquisition agreement, our client will then perform the required calculation under the agreement based on that construction (given that the parties have been unable to provide joint instructions as to the appropriate formula to apply under the agreement).”
On 25 September 1998 there was a further directions hearing in the construction proceeding before Hansen J. Mr Monichino appeared as counsel for the vendors and Mr Heath as counsel for the purchaser. Mr Monichino said to the court:
“What has happened in recent days is that there’s been a flurry of correspondence in which it appears now that the first and second defendants have hinted, although not expressly said so, that the expert has repudiated his retainer and therefore, regardless of what the court determines is the construction of that clause, or alternatively whether that clause should be rectified, the expert has no further role to play.
Your Honour, I stand here and I invite the first and second defendants to raise that issue as a counter-claim in the present proceeding before this proceeding is set down for trial. That would increase the trial by about two days and it will still be heard in February and that would be far more satisfactory than this proceeding continuing to finality and in the event that the plaintiffs [succeed], the plaintiffs are facing a second proceeding. That’s going to involve a horrible duplication of cost and time.
So let the transcript record that if that invitation is not taken up and a second proceeding is commenced, that the plaintiffs will be contending that the first and second defendants are estopped from raising that issue in a separate proceeding based on the principles in Anshun’s case.”
By letter dated 27 October 1998 to Cornwall Stodart, Anderson Rice responded to Cornwall Stodart’s “Anshun” argument and by letter dated 5 November 1998 Cornwall Stodart continued this debate.
I note the following in relation the pleadings in the construction proceeding:
(a) para. 5 of the amended statement of claim pleaded that Garvey was joined as a necessary party in order that he be bound by the decision of the Court;
(b) para. 18 of the amended statement of claim pleaded that in about May–June 1996 JNU referred the dispute to Garvey for a final and binding resolution;
(c) para. 19 of the amended statement pleaded that on about 2 June 1997 the parties agreed to refer to Garvey three matters ((i) whether the Dureau transaction was an extraordinary or unusual event; if no to(i) which was the appropriate formula to apply; if not (i), to provide a valuation certificate);
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