Latham v Gilmour
[2005] VSC 227
•29 June 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 4686 of 2002
IN THE MATTER OF SCINORT PTY LTD (formerly TRONICS PTY LTD)
| RICHARD LESLIE LATHAM | Plaintiff |
| v | |
| JOHN JAMES WILTSHIRE GILMOUR | First Defendant |
| KIERAN JOHN HARFORD | Second Defendant |
| JOSEPH JOHN DANIEL GILMOUR | Third Defendant |
| SUSAN ELIZABETH HARFORD | Fourth Defendant |
| GILMOURS PTY LTD | Fifth Defendant |
| SCINORT PTY LTD (formerly TRONICS PTY LTD) | Sixth Defendant |
| SEIKI DENKI PTY LTD | Seventh Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23-24 June 2005 | |
DATE OF JUDGMENT: | 29 June 2005 | |
CASE MAY BE CITED AS: | Latham v Gilmour | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 227 | |
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PRACTICE AND PROCEDURE – terms of settlement – whether proceeding should be reinstated.
CONTRACT – terms of settlement – whether terms varied by the conduct of the parties.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Colbran, QC Mr M Campbell | Eales & Mackenzie |
| For the First to Fifth Defendants | Mr I D Martindale | Chessell Williams Lawyers |
| Sixth and Seventh Defendants | No appearance |
HIS HONOUR:
This is an application for the reinstatement of a proceeding in the Corporations List.
By originating process dated 7 March 2002 the plaintiff had brought an oppression proceeding pursuant to s.232 of the Corporations Act 2001 (Cth) against the defendants in relation to the affairs of two companies (the sixth and seventh defendants).
The interests of the parties in the companies may, for present purposes, be summarised as follows. The plaintiff owns four-twelfths of the shares in the sixth defendant (“Tronics” or “Scinort”) and a further one-twelfth interest through his shareholding in the seventh defendant (“Seiki Denki”). The other defendants, the Gilmour and Harford interests, own five-twelfths of the shares in Scinort and a further two-twelfths of Scinort through their shareholdings in Seiki Denki.
The originating process sought, inter alia, an order for the purchase of the plaintiff’s shares by the second and third defendants and, by amendment in October 2002, the originating process sought in the alternative an order that Scinort and Seiki Denki be wound up on the just and equitable ground.
The trial of the proceeding commenced before Hansen J on 28 October 2002. After the case was opened the plaintiff was cross-examined on his affidavits and the cross-examination continued on 29 and 30 October 2002. The parties then engaged in discussions and on 4 November 2002 Hansen J was informed by the parties that there were terms of settlement.
The Court ordered by consent on 4 November 2002 that the proceeding be struck out without adjudication and with a right of reinstatement and that there be no order as to costs. The plaintiff now applies for the reinstatement of the proceeding.
It is convenient at this stage to refer to the terms of settlement dated 4 November 2002 and signed by counsel of behalf of the plaintiff and by counsel on behalf of the first to fourth defendants. The fundamental provision was that all of the shares in Scinort were to be sold.
The terms provided, so far as relevant:
“1.All ordinary and preference shares in Tronics be sold as soon as reasonably practicable …
2.Pitcher Partners be engaged by all parties at the cost of Tronics to manage the sale process … and to seek offers for the shares at the best available price.
3.Until the shares are sold the board of Tronics shall act only on the basis of unanimity, failing which the board shall be bound to adopt the recommendation of Pitcher Partners. Pitcher Partners will maintain the status quo unless in their opinion to do so impedes the sale process. Each director must comply with the decisions of the board.
4.Unless Pitcher Partners advise that the price offered is unreasonable and should not be accepted, the parties must sell the shares at the highest price obtained by the sale process.
5.All parties must co-operate fully with Pitcher Partners to facilitate the sale of the shares.
6.All parties’ costs of the proceeding to date shall be borne by Tronics up to a maximum of $600,000 (as to 50% of the Plaintiff’s costs and 50% for the Defendants’ costs) … The parties shall otherwise bear their own costs to date.
7.The trial shall be stayed and adjourned until the first to occur of:
(a) Completion of the sale of the shares;
(b)Withdrawal of the shares from sale in accordance with the recommendation of Pitcher Partners; and
(c)31 December 2003 unless on or before that date an agreement for the sale of the shares has been entered into and has not been terminated.
8.If the shares are sold, the proceeding shall be struck out on completion of the share sale with the Plaintiff and the Defendants giving mutual releases.
…”
When the settlement was announced to Hansen J his Honour was asked to stay or adjourn the proceeding until the first to occur of the completion of the sale of shares or the withdrawal of the shares from sale in accordance with a recommendation of Pitcher Partners or on 31 December 2003. His Honour expressed a preference not to adjourn the proceeding but rather to strike it out with a right of reinstatement (that is strike it out of the Corporations List) with no adjudication on the merits. That is what occurred. In my view this form of order does not make any substantive difference in the circumstances to the parties’ rights under the terms of settlement.
It is common ground that the shares in Scinort were not sold but that the assets of Scinort (its business and real estate) were sold. It is also common ground that the sale of shares contemplated by para 1 of the terms of settlement was to be a sale with the business and real estate of Scinort essentially intact so that a sale of the assets of Scinort prior to a sale of the shares was inconsistent with what the parties intended and contemplated by the terms of settlement.
Because the shares have not been sold, the plaintiff seeks to reinstate the proceeding in order to litigate oppressive conduct alleged to have occurred, primarily but not exclusively, since the terms of settlement were entered into. The plaintiff has provided particulars of the alleged oppression alleged to have occurred since 4 November 2002 and it was not contended that the matters, or at least some of them, referred to therein, if proved, might not amount to oppressive conduct. Insofar as the plaintiff seeks to rely on matters of oppression since 4 November 2002, he is no doubt entitled, as an existing member of Scinort and Seiki Denki, to institute a new proceeding in relation to that conduct. On the other hand, if he is otherwise entitled to reinstate this proceeding, it was assumed that he will be able in the one proceeding to rely upon alleged oppressive conduct both before and after the date of the terms of settlement, or at least the contrary was not suggested. The main if not the only question debated was whether, as a result of conduct and events which had occurred since the terms of settlement, the plaintiff was no longer able to reinstate the proceeding.
Prima facie, the plaintiff and the defendants are not obliged to give each other mutual releases under para 8 of the terms of settlement and the stay and adjournment contemplated by para 7 of the terms of settlement (embodied in the Court’s striking out order) may be lifted. That is because the shares have not been sold and the date of 31 December 2003 has passed without an agreement for their sale being entered into.
The prime contention of Mr Martindale, of counsel for the first to fifth defendants, was that the terms of settlement had been varied so as to substitute the sale of the assets of Scinort for the sale of the shares in Scinort with the result that the plaintiff could not rely upon the fact that the shares had not been sold or agreed to be sold by the specified date in order to reinstate the proceeding. Mr Martindale accepted that there was no written or oral variation of the terms of settlement but submitted that the evidence showed that such a variation was to be implied or inferred from the conduct of the parties.
Mr Martindale advanced a detailed analysis of the events which had occurred since the terms of settlement had been signed designed to show that all parties had concurred in a “sale process” involving the sale of the assets of Scinort rather than a sale of the shares in Scinort and that the conduct of all parties had therefore been essentially inconsistent with the performance of the obligation to sell the shares under the terms of settlement so that it had to be implied from that conduct that all parties had agreed to vary to terms in the way mentioned above.
In my opinion Mr Martindale failed to substantiate this submission on the facts because, put shortly, the evidence demonstrates that the plaintiff at no time abandoned his stance that the shares in Scinort were to be sold under the terms of settlement and at no time agreed that the sale of the assets of Scinort should be substituted for a sale of the shares in Scinort. The most that could be said about the plaintiff’s course of conduct was that he acquiesced in the investigation of available bids for the assets of Scinort, thereby reserving to himself the option of agreeing to a sale of the assets if he thought in all the circumstances that such a sale was in his interests. However, the plaintiff never agreed to such a sale and when such a sale finally came up for decision he voted against it. Furthermore, it was always a possibility (even if unlikely) that a particular bidder for the assets might be persuaded to alter his bid and offer to purchase the shares, so that the plaintiff, by permitting such a bid to be investigated, was not precluding the possibility that the shares might be sold.
It is unnecessary to set out the full history of the negotiations, or the meetings of the parties and the part played by the plaintiff in those meetings. However I mention the following matters.
A meeting of the board was held on 15 November 2002 and was attended by Dr Shrapnel of Pitcher Partners. Dr Shrapnel said to the directors at the outset that, in effect, it was likely that the business and the building would have to be sold separately rather than the shares be sold. Mr Martindale referred to this statement and to subsequent advice[1] from Pitcher Partners and others that it would be very difficult to sell the shares and much more feasible and practical to sell the assets. However the issue before the Court is not whether that advice was correct and is not whether the plaintiff was unreasonable in failing to accede to it, but rather whether all of the parties including the plaintiff agreed to vary the terms of settlement so as to enable that advice to be implemented.
[1]For example in the board meeting which occurred on 1 May 2003, Dr Shrapnel indicated that normally a purchaser would prefer to buy the business rather than the shares because a purchaser would not know what liabilities went with the company, although sometimes purchasers might suddenly opt to purchase the shares. There was further discussion of this topic at a board meeting on 14 August 2003 again indicating the difficulty of selling the shares and attracting a comment from the plaintiff that it seemed to him that the settlement agreement addressed the sale of the shares.
On 20 June 2003 the proceeding was mentioned before Hansen J when counsel for the plaintiff stated that the plaintiff was concerned that the terms of settlement were not being complied with and after discussion it was indicated by counsel for the plaintiff that there would be an application for reinstatement and there would need to be a timetable for affidavits. The only order made was that costs be reserved, his Honour indicating that it was up to the plaintiff to take the initiative.
On 2 October 2003 Dr Shrapnel sent an email to the directors which included a statement that Pitcher Partners required affirmation from the plaintiff that he was willing to proceed with the sale of the business rather than the sale of the shares should such yield a higher return to equity holders. The plaintiff thereafter signed an Information Memorandum for prospective bidders which in terms was consistent with a possible sale either of the shares or of the business of Scinort.
An email from the plaintiff to Dr Shrapnel and the other directors dated 27 November 2003 indicated that he required tax advice from Pitcher Partners regarding the proceeds of sale so that he could consider his decision but he agreed for a bidder for the assets being invited to do due diligence “without [the plaintiff] making any commitment at this stage”. The reference to tax advice relates to the plaintiff’s preference for selling his shares which were pre-CGT assets.
By email from the plaintiff to Dr Shrapnel and the other directors dated 8 December 2003, the plaintiff expressed his belief that Hindal[2] should proceed to due diligence with a party which was then seeking to purchase the shares and the plaintiff expressed the hope that Hindal would be able to increase that party’s bid and hence the final offer to provide a better return for the shareholders and the plaintiff went on in the email to ask a number of other questions related to the sale process.
[2]Hindal Corporate Pty Ltd was a financial advisor brought into the process by Pitcher Partners.
On 22 December 2003 at 9.09am Hindal forwarded by email a sale analysis report to all interested parties assessing the offers which had been made. At 10.09am on the same day the plaintiff responded in a lengthy email. The plaintiff said that there was insufficient data for him to make a decision and sought a good deal of information and advice on a variety of matters. At 4pm on the same day the plaintiff sent a further email to Dr Shrapnel and to all interested parties stating:
“Given that the Terms of Settlement only specify that ‘all ordinary and preference shares in Tronics be sold’ and there has been only one offer to date for the shares I request that the questions and comments in my email sent today at 10.09AM be answered urgently.
I would have thought that the answers to my questions and comments should have been available as a matter of course considering the work that has been done by Pitcher Partners and Hindal. I am of the opinion that I should not be put under pressure to make a decision in a very short time frame without this information.
Should you proceed as you intend without providing me with the information which I have requested and allow me to participate I reserve my rights against all of yourself, Pitcher Partners and my fellow directors.”
Dr Shrapnel replied to the plaintiff by email dated 23 December 2003 stating, inter alia, that he believed that the plaintiff need to decide whether he was supporting the “sale process” or not. I note that Dr Shrapnel, in his reference to the sale process, ignores the distinction between the sale process contemplated by the terms of settlement and a more general sale process involving the sale of one or more assets of Scinort. In that regard the plaintiff responded by email thanking Dr Shrapnel for the data and saying that he was analysing it and then stating:
“As you will understand I have to consider my position very carefully as the decision will affect the rest of my life and my family. Consequently I am not prepared to be pressured into a response without giving the matter proper consideration and obtaining the appropriate advice.
There has been approximately 14 months for the sale process so far with continual failures by Pitcher Partners to meet the time lines proposed by you. I do 100% support the sale process of the shares as described in the Terms of Settlement.”
The plaintiff went on to discuss the after-tax return to him from the competing bids and a number of other matters and concluded that he needed a response to these matters so he could make a decision.
Later that day Dr Shrapnel sent the plaintiff a number of answers to the questions he had raised. The question whether these answers were adequate for the purposes of the plaintiff is again a matter irrelevant on the present application. Later that day Dr Shrapnel sent an email to the plaintiff and others saying that time had run out, that a bidder for the business offered a better prospect than another bidder for the shares, and requiring their confirmation to proceed with the bidder for the business.
The plaintiff responded to the last mentioned email as follows:
“My position is that I have been put under unreasonable and undue pressure to make a decision on who should be invited to perform exclusive due diligence. I have not been provided with the information I have requested in a timely manner in order to make such an important decision …
I wish to act in the best interests of the company and accordingly will act on the advice of Pitcher Partners and Hindal that [the bidder] should be invited to perform exclusive due diligence.
I am reserving my rights against all of yourself, Pitcher Partners and my fellow directors in this matter.”
In my view the plaintiff’s agreement to Scinort proceeding to permit a bidder for the business to “perform exclusive due diligence”, in the context of the plaintiff’s reservation of rights and his various statements to that date, did not amount to an agreement to vary the terms of settlement to permit a sale of the business rather than a sale of the shares and was not an act inconsistent with the performance of the parties’ obligations under the terms of settlement. It is clear that the plaintiff was willing to consider an offer from that bidder but was not committing himself one way or the other and nobody could have been in any doubt that he still preferred a sale of the shares. Indeed there is no evidence that any of the individual defendants believed at this or at any other time that the plaintiff had agreed that the shares should not be sold or that the sale of the business and the real estate was a satisfactory substitute for the sale of the shares from his point of view.
On 26 February 2004 the plaintiff sent an email to the other directors and to Dr Shrapnel referring to the express terms of para 7 of the terms of settlement, stating that 31 December 2003 had come and gone and they had not had an offer for the shares. At that stage the bidder for the business had withdrawn and the plaintiff noted in his email that they had been waiting for almost two months to allow for the possibility of that bidder purchasing the shares but they had withdrawn.
A board meeting was held on 2 March 2004 to discuss the position and it was disclosed that there was the possibility of a management buy-out (“MBO”).
A letter was written by the solicitors for the plaintiff dated 10 March 2004 to the solicitors for the first to fifth defendants. The letter was marked “without prejudice” and Mr Martindale objected to its admission into evidence. Mr Colbran QC, who appeared with Mr Campbell of counsel for the plaintiff, submitted that the first three paragraphs of the letter were not without prejudice but conceded that the balance of the letter was privileged. I agree with Mr Colbran’s submission. There is an offer of settlement contained in the letter which is clearly without prejudice but the first three paragraphs were clearly intended to be put on an open basis, and read as follows:
“I am instructed by Dr Latham to make application to the Supreme Court to reinstate his Supreme Court litigation against your clients, on the basis that we have gone beyond 31 December, 2003 and not only has there been no completion of the sale of the shares, but there is no offer for the purchase of the shares on the table.
I will be serving the appropriate documentation upon your office shortly.
Notwithstanding the action that Dr Latham is now taking, he is prepared to allow the management buy-out team to conduct due diligence and then to consider any reasonable offer that they may care to make for the purchase of his shares.”
In relation to a proposed MBO offer notified to the plaintiff on 22 March 2004, the plaintiff responded, inter alia:
“Please note that I reject this offer and have instructed my solicitors to make application to the Supreme Court to reinstate my legal proceedings.
The MBO offer is not adequate. The offer is for the purchase of the business and not for my shares. As I have stated on many previous occasions, I do not want any continuing relationship with the directors/shareholders of Tronics and the proposed MBO offer does not solve this problem.”
On 26 March 2004 proposed board resolutions were circulated to all directors to be voted on by 29 March 2004. The circulated document referred to the background to the resolutions and that the directors were not unanimous in agreeing to invite the MBO team to exclusive due diligence but that Pitcher Partners had recommended “that the MBO bid be taken forward and that the board vote on the sale of the remaining assets and the liquidation of the company.” The resolutions included an acceptance of the bid by the MBO team and the signing of an acceptance of the indicative offer (for the sale of the business) and that other assets including the real estate be sold in due course.
The plaintiff did not vote on the circulated resolutions and indicated by an email of 31 March 2004 that he was not ready for a number of reasons to “communicate my response to the draft resolutions”.
By an email dated 24 May 2004 the plaintiff indicated his wish to transfer his shares in Scinort to his superannuation fund “should the business be sold” but I do not read this as evidencing an agreement to vary the terms of settlement.
By email dated 29 June 2004 to all interested parties, Dr Shrapnel advised that a final MBO bid was about to eventuate and that all directors should begin to consider carefully the sale of the business at a value of around $6m to $6.5m.
By email dated 6 July 2004 from the plaintiff to Dr Shrapnel and all interested parties, the plaintiff set out the details which he needed in order to be in a position to vote on the MBO offer and, in a lengthy email dated 12 July 2004 to the same persons, indicated his numerous concerns and queries concerning the MBO proposal. By email dated 26 July 2004 after referring to a number of matters the plaintiff indicated that he thought that the MBO offer ought to be rejected.
By letter dated 2 August 2004 from Pitcher Partners to the first defendant, as chairman of Scinort, Pitcher Partners stated that during the course of the sale process the parties had agreed to accept an offer for the sale of the business should an offer for the shares not be forthcoming. I am satisfied that Pitcher Partners was incorrect in that statement and that the parties had never so agreed for the reason that the plaintiff had never so agreed. In the letter Pitcher Partners concluded by saying that the parties were bound to sell at the highest price obtainable unless Pitcher Partners advised that the price offered was unreasonable and should not be accepted and that Pitcher Partners did not so advise. This was a reference to para 4 of the terms of settlement but, for the reason I have just given, the reference was inapposite as para 4 applied only to the sale of shares and not to the sale of the business.
At a board meeting on 4 August 2004 the plaintiff (and his wife who was also a director) voted to reject the MBO offer to purchase the business of Scinort.
On 16 March 2005 the plaintiff accepted moneys for the redemption of his preference shares. By interlocutory process dated 24 March 2005 the plaintiff sought reinstatement of this proceeding.
I am satisfied in light of the evidence as a whole, particularly having regard to the factual matters recited above, that the plaintiff did not agree to any variation of the terms of settlement and, more specifically, the plaintiff did not ever agree to a sale of the business or assets of Scinort being substituted for a sale of the shares under the terms of settlement. Accordingly Mr Martindale’s primary submission is rejected.
In the alternative Mr Martindale submitted that the plaintiff had “waived” his rights under the terms of settlement or was estopped from relying upon them. I pressed Mr Martindale to state precisely what legal or equitable doctrines or principles he was submitting were applicable and what authorities he relied upon. I also asked Mr Martindale to refer me to relevant authorities so that I might understand what he meant by “waiver” or “estoppel” in the circumstances of this application. Mr Martindale said that he had no authorities to refer to and he declined the opportunity to seek out such authorities.
In the circumstances it is difficult to say any more about Mr Martindale’s alternative submission than the following. In my opinion the facts do not disclose any conduct by the plaintiff constituting a waiver of his right to insist upon the sale of the shares under the terms of settlement. Nor do I think that there was any conduct by the plaintiff which would have reasonably led the other parties to have any belief that he was agreeing to a variation of the terms of settlement or waiving his rights thereunder. In any event there is no evidence of any such belief.
It does not avail the first to fifth defendants to contend that it was unlikely that a purchaser for the shares would ever be found. The fact is that that is what was agreed in the terms of settlement. The plaintiff’s decision to permit a bidder for the business to proceed with an “exclusive due diligence” was not inconsistent with his insistence on performance of the terms of settlement and in the context simply indicated his agreement to look at any alternative propositions which arose without committing himself to them. The plaintiff, by acquiescing in a process which meant that the 31 December 2003 deadline would pass without a sale of the shares, did not thereby abandon his rights under the terms of settlement. At its highest, it might be put that the plaintiff’s conduct resulted in time no longer being of the essence and that a reasonable time remained available for the sale of the shares. In the event the shares were not sold and the assets of Scinort were sold, results which the parties agreed were contrary to para 1 of the terms of settlement. It is not necessary, having regard to the parties agreement about this, to consider alternative constructions of the terms of settlement which were referred to in the course of debate with counsel.
The reality is that the consequence of a decision to reinstate the proceeding is somewhat limited, as I presently understand the position. That is because the plaintiff would in any event have been entitled to commence a new proceeding relying upon alleged oppressive conduct occurring after the date of the terms of settlement and, for example, affecting the purchase price obtained for Scinort’s assets. Nor is it clear whether, in such a new proceeding, the plaintiff would be unable to rely on alleged oppressive conduct occurring before the terms of settlement if Mr Martindale’s submission is correct that the parties were no longer required to give mutual releases. Be that as it may, neither party suggested that this application was a matter of discretion. It was accepted that the plaintiff was either entitled to have the proceeding reinstated or he was not and this depended upon whether the terms of settlement were unaffected by his subsequent conduct and in my view they were so unaffected.
For the foregoing reasons I ordered that the proceeding should be reinstated.
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