Leviston v PQ Management Pty Ltd

Case [2022] FCA 787

FEDERAL COURT OF AUSTRALIA

Leviston v PQ Management Pty Ltd [2022] FCA 787

File number: QUD 166 of 2020
Judgment of: DERRINGTON J
Date of judgment: 8 July 2022
Catchwords:

CONTRACTS – construction of contracts – oral variation of written agreement – post-contractual conduct – when agreement reached as to completion – whether additional purchase price by way of interest or further adjustment on completion – disputed adjustment date between the parties – differing versions of settlement agreement 

CONTRACTS – options – put and call options – whether valuation required prior to exercise of option – whether  notice of exercise invalid – call option not exercised in accordance with terms – purported exercise of call option invalid – purported transfer wholly ineffective and without authority – no entitlement to use power of attorney in Shareholders Agreement – declaration that purported transfer invalid  

CORPORATIONS – oppression – shareholder treated as no longer being a member of company – company conducted in disregard of interest shareholder had in its operation – removal of director – conduct oppressive, unfairly prejudicial and unfairly discriminatory against shareholder – oppression not intentional but real – allegations of oppression admitted – declaration that purported transfer of shares invalid – declaration that defendants engaged in contravention of s 232 of the Corporations Act 2011 (Cth) – appropriate remedy pursuant to s 233 of the Corporations Act 2001 (Cth) – method of valuation
Legislation:

Corporations Act 2001 (Cth)

Federal Court of Australia Act 1976 (Cth)
Cases cited:

Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662

Ballas v Theophilos (No 2) (1957) 98 CLR 193

BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192

Carter v Hyde (1923) 33 CLR 115

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353

Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

GEC Marconi Systems v BHP Information Technology Pty Ltd (2003) 128 FCR 1

Hagerty v Hills Central Pty Ltd [2018] NSWCA 200

Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295

Jones v Dunkel (1959) 101 CLR 298

Page v Good Impressions Offset Printing Pty Limited [2011] NSWSC 1398

Quadling v Robinson (1976) 137 CLR 192

Whitegum Petroleum Pty Ltd v Bernadini Pty Ltd [2010] WASCA 229
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 176
Date of hearing: 15 March 2022 and 26 April 2022
Counsel for the Plaintiff: Mr M White
Solicitor for the Plaintiff: Queensland Legal
Counsel for the Defendants: Mr M Lyons
Solicitor for the Defendants: McCullough Robertson Lawyers

ORDERS

QUD 166 of 2020
BETWEEN:

ANDREW TROY LEVISTON

Plaintiff
AND:

PQ MANAGEMENT PTY LTD

First Defendant

DONALD NEAL ISON

Second Defendant

GREGORY SHANE ELDRIDGE (and another named in the Schedule)

Third Defendant

ORDER MADE BY:

DERRINGTON J

DATE OF ORDER:

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Details
AGLC
Leviston v PQ Management Pty Ltd [2022] FCA 787
Case
[2022] FCA 787
Decision Date

CaseChat Overview and Summary

The matter of Leviston v PQ Management Pty Ltd concerned a dispute regarding the sale of shares in a company, Treated Waste Agencies Pty Ltd (TWA), from Mr Leviston to PQ Management. The legal issues centred around the validity of an oral variation to a written agreement, the enforcement of call options, and the conduct of PQ Management in relation to Mr Leviston as a shareholder. The court was tasked with determining whether the parties had reached an agreement on the completion date, the nature of any additional purchase price, and the validity of the call option exercised by PQ Management. Furthermore, the court had to assess whether PQ Management's conduct amounted to oppression under the Corporations Act 2001 (Cth).

The court found that the oral variation to the written agreement was invalid due to its vagueness and lack of formal record. The purported exercise of the call option by PQ Management was also deemed invalid as it did not adhere to the terms of the agreement. The court concluded that PQ Management's conduct was oppressive, unfairly prejudicial, and discriminatory against Mr Leviston, warranting a declaration of invalidity of the share transfer and a contravention of s 232 of the Corporations Act. The court ordered PQ Management to purchase Mr Leviston's shares in TWA at a specified price, less certain amounts, and also to pay interest on the purchase price from a particular date.

The court ordered that PQ Management purchase Mr Leviston's shares in TWA at a price determined by the market value or EBITDA, less specified amounts. Additionally, PQ Management was to pay interest on the purchase price from a particular date. The parties were granted leave to apply for further orders regarding interest and other issues, and the matter was referred for case management directions. The parties were also to be heard on the question of costs.

Orders

Orders of the court

1. It is declared that the purported exercise by the first defendant on 9 March 2020 of the call option granted in the written agreement between, inter alia, the first defendant and the plaintiff entered into on 29 July 2017, was ineffective to exercise the option.

2. It is declared that the purported transfer of the plaintiff’s 60,901 fully paid ordinary shares in the company Treated Waste Agencies Pty Ltd to the first defendant on 29 May 2020 was invalid and of no effect.

3. It is declared that by their conduct in relation to the plaintiff as a shareholder in Treated Waste Agencies Pty Ltd in the period since 29 May 2020, the first, second and third defendants have contravened s 232 of the Corporations Act 2001 (Cth).

4. The first defendant, PQ Management Pty Ltd, is to purchase the plaintiff’s 30% shareholding (being 60,901 fully paid ordinary shares) in Treated Waste Agencies Pty Ltd at a price being the greater of the amount equal to 30% of the market value of all of the shares in Treated Waste Agencies Pty Ltd or 30% of 2.2 times EBITDA (being the earnings of Treated Waste Agencies Pty Ltd before interest, taxes, depreciation and amortization calculated in accordance with the Australian Accounting Standards), such values to be determined as at 30 June 2020.

5. The amount to be paid by the first defendant to the plaintiff in respect of the purchase of shares referred to in Order 4 hereof is to be less the amount of $169,163.77 and less an amount in respect of interest on that sum calculated from 30 June 2020 on the same basis as interest is payable pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) on pre-judgment amounts.

6. The first defendant is to pay to the plaintiff interest on any amount found to be payable by the first defendant in respect of the purchase of the plaintiff’s shares in Treated Waste Agencies Pty Ltd pursuant to 51A of the Federal Court of Australia Act 1976 (Cth) from 30 June 2020.

7. The parties have leave to apply to the Court for further orders in relation to the issues determined in the reasons of the Court and in relation to the question of interest including its quantification.

8. The matter be referred to the Queensland District Registrar of this Court for the making of case management directions for the resolution of the remaining issues between the parties.

9. The parties are to be heard on the question of costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The issues in this matter were advanced by each of the parties at a high degree of generality and, as is apparent by the written submissions, with no close attention to the confines of the pleadings. That is unfortunate in circumstances where the matters to be decided require a precise analysis of the facts and of the inter-party agreements. An additional difficulty is that the parties had entered into agreements which were not well suited to the purpose for which they were intended. It appears that the agreements have been adapted from other agreements which may have been used for other transactions, and an attempt has been made to apply them for an ill-fitting purpose. Yet a further difficulty is that the parties adopted an entirely relaxed attitude to the manner in which the agreements were performed, including by entering into oral variations without any attempt to record them. To exacerbate matters, the variations entered into were vague and casually arranged. It was only when the disputes arose that the parties returned to consider their contractual rights and entitlements as they existed in the written documents. The facts The underlying factual context in which the dispute arose was largely agreed and the following description is taken from those matters in respect of which the parties expressed agreement. TWA was incorporated in 1991 and carried on business from premises at 8/12 Norval Court, Maroochydore, Queensland, supplying plumbing and draining services and operating under the business name “Plumbers Queensland”. Mr Leviston was from 6 December 1991 to 31 July 2017 the sole shareholder in TWA. PQ Management was incorporated on 10 May 2017 and has as its directors Mr Ison and Mr Eldridge. The company, Run to Paradise Pty Ltd (Run to Paradise), holds 79% of its issued shares and Abizane Pty Ltd (Abizane) holds the remaining 21%. Mr Ison holds 50% of the shares in Run to Paradise and his partner holds the remaining 50%. Mr Eldridge holds 50% of the issued shares in Abizane and his partner similarly holds the remaining 50%. In early 2017, Mr Leviston determined to sell his interest in TWA. He entered into negotiations with Mr Ison and Mr Eldridge, and on 12 May 2017 the parties executed a Memorandum of Understanding (MOU) and a Heads of Agreement. The general effect of these was that the newly incorporated PQ Management would acquire 70% of Mr Leviston’s shares in TWA for a price of $910,000 plus the value of any current stock in trade. Despite the later entry into a formal agreement for the sale of the shares, Mr Leviston seeks to rely upon the terms of both the MOU and the Heads of Agreement and it is appropriate to set out some of their terms.The Memorandum of Understanding The MOU recited that it was “between the Buyer (PQ Management) and Seller (Mr Leviston) listed herein and the Seller confirms the Buyer’s offer to enter into a Share Sale Agreement of the below mentioned Company upon the following terms and conditions”. It then provided:(a)the “Seller” was Mr Leviston;(b)the “Buyer” was PQ Management;(c)the “Completion Date” was 1 July 2017;(d)the “Purchase Price” was “$910,000 + Stock”;(e)“the Buyer agrees to enter into a Share Sale Agreement to be prepared by the Seller’s Solicitor” (paragraph 1);(f)the agreement was “subject to and conditional upon the parties entering into an agreement confirming that the Seller shall remain as the “QBCC License Nominee” for a period of up to three (3) years from the date of Completion on terms and conditions satisfactory to both parties within twenty (20) business days from the date of this Agreement” (paragraph 6);(g)the Purchase Price would be adjusted on completion by reference to the amounts of “Employee Entitlements”, “Current Aged Payable (Creditors)”, and “Current Aged Receivables (Debtors)” (paragraph 7);(h)“the Seller shall transfer out of the Company the following on or before Completion” (paragraph 8.1(a)):(i)“Personal motor vehicles”;(ii)“Cash at bank”;(iii)“Shareholder loans”; and(iv)“Retained profit”;(i)“the Seller warrants and agrees to execute a Deed of Restraint as prepared by the Buyers’ solicitors” for a 5 year period in the plumbing industry (paragraph 8.1(b));(j)“the Buyer warrants and agrees to enter into a rental agreement as prepared by the Sellers’ solicitors for the premises located at 8/12 Norval Court Maroochydore Queensland on terms and conditions satisfactory to both Buyer and Landlord” (paragraph 8.1(c));(k)the agreement was “subject to and conditional upon the parties entering into a Shareholder Agreement for the Company… on terms and conditions as agreed by the parties” (paragraph 9);(l)“if the Buyer receives advice that would recommend a structure of ownership contrary to that in this Agreement the Buyer may terminate this Agreement immediately and replace this Agreement with the Share Sale Agreement in the ownership structure as advised” (paragraph 10);(m)the agreement was also “subject to and conditional upon the Buyer receiving final finance approval on terms and conditions satisfactory to the Buyer in their sole discretion” within 20 business days (paragraph 10).

Evidence

Evidence Before The Court

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Decision

Reasons for decision

In the Originating Application a claim is made for interest on any amount ordered to be paid pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth). Mr Leviston is entitled to recover interest on any amount which is found to be owing to him subsequent to the valuation of his shares and after the deduction of the amount already paid. It is apparent that this cannot be calculated at this point in time and must await the outcome of the determination of the valuation of Mr Leviston’s shareholding. Conclusion in relation to the claim for oppression It follows that Mr Leviston is entitled to relief in relation to PQ Management’s purported acquisition of his shares. He seeks a declaration that the purported exercises of the call option were invalid, and there was no substantive submission made to the effect that if they were invalid a declaration was inappropriate. In the circumstances a declaration should be made. Mr Leviston seeks a further declaration that the purported transfer of his 60,901 fully paid ordinary shares to PQ Management on 29 May 2020 was invalid and, again, there is no basis to refuse to make it in the circumstances of this case. He seeks a further declaration that the first, second and third defendants have engaged in contravention of s 232 of the Corporations Act. No grounds were advanced as to why such an order should not be made given the circumstances and, where the defendants acted in disregard of Mr Leviston’s interests, he is entitled to vindicate his rights in this manner. Otherwise, there should be an order that PQ Management acquire Mr Leviston’s 30% shareholding (being 60,901 fully paid ordinary shares) in TWA at a price being the greater of the amount equal to 30% of the market value of all of the shares in TWA or 30% of 2.2 times EBITDA, such values to be determined as at 30 June 2020. An order should also be made that Mr Leviston’s shares be notionally acquired by PQ Management as at that date such that the price payable by PQ Management, calculated in accordance with the above less the amount of $169,163.77, be payable as of that date. Mr Leviston should have leave to apply for an order for the payment of an amount on account of interest under s 51A of the Federal Court of Australia Act in respect of any amount payable in respect of the purchase price from 30 June 2020. Costs Although both the plaintiff and the defendants have had substantial success in the proceedings and in approximately equal measure, they should nevertheless be heard on the question of costs.

Ratio Decidendi

Legal Principle Established

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