Leviston v PQ Management Pty Ltd (No 3) - [2023] FCA 986

FEDERAL COURT OF AUSTRALIA
Leviston v PQ Management Pty Ltd (No 3) [2023] FCA 986

File number: QUD 166 of 2020

Judgment of: DERRINGTON J

Date of judgment: 22 August 2023

Catchwords:
EVIDENCE – expert evidence – valuation of shareholding – application of capitalisation of future maintainable earnings method – challenge to the correctness of the result of the valuation exercise – where the expert in part performed a calculation in accordance with accounting standards – whether the expert erred in placing weight on particular data points – challenge partially successful

PRACTICE AND PROCEDURE – judgments and orders – construction of orders – whether regard may be had to the reasons for which orders were made in the absence of ambiguity

Legislation:
Corporations Act 2001 (Cth)

Federal Court of Australia Act 1976 (Cth)

Cases cited:
Athens v Randwick City Council (2005) 64 NSWLR 58

Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 1441

Australian Energy Ltd v Lennard Oil NL (No 2) [1988] 2 Qd R 230

AVS Group of Companies Pty Ltd v Commissioner of Police (2010) 78 NSWLR 302

Doyle v Commissioner of Police (No 2) [2020] NSWCA 34

Ganesh v National Australia Bank Ltd [2021] VSCA 45

Hamersley Iron Pty Ltd v National Competition Council (2008) 247 ALR 385

Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2018] WASCA 185

Johnson v CUB Pty Ltd (2021) 287 FCR 520

Leviston v PQ Management Pty Ltd (No 2) [2023] FCA 295

Leviston v PQ Management Pty Ltd [2022] FCA 787

Lim v Comcare (2019) 165 ALD 217

Oswal v Apache Corporation (No 4) [2014] FCA 1291

Smith v Comcare (2014) 64 AAR 205

Yates Property Corporation Pty Ltd v Boland (1998) 89 FCR 78

Division: General Division

Registry: Queensland

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Number of paragraphs: 48

Date of hearing: 5 April 2023

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

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:

22 AUGUST 2023

THE COURT ORDERS THAT:
1.For the purposes of order 4 of the Orders of this Court dated 8 July 2022, the price to be paid by PQ Management Pty Ltd for the 30% shareholding (being 60,901 fully paid ordinary shares) of Mr Andrew Troy Leviston in Treated Waste Agencies Pty Ltd is $479,029 (four hundred and seventy-nine thousand and twenty-nine dollars).
2.The parties shall confer as to the mathematical calculations required to ascertain the precise amount to which the plaintiff is entitled pursuant to orders 4, 5 and 6 of the Orders of this Court dated 8 July 2022.
3.If the parties are…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] FCA 986
Decision Date: 22 August 2023

CaseChat Overview and Summary

Leviston v PQ Management Pty Ltd (No 3) involved a dispute between Mr Andrew Troy Leviston and PQ Management Pty Ltd concerning the valuation of Mr Leviston's 30% shareholding in Treated Waste Agencies Pty Ltd. The case was heard by the Federal Court of Australia, where the primary issue was the correct method to apply in valuing Mr Leviston's shares, specifically whether the capitalisation of future maintainable earnings method was appropriately applied.

The court examined the valuation report prepared by Mr Ashby, which proposed a capitalisation multiple of 3.00. The defence challenged the methodology, arguing that the expert placed undue weight on certain data points and failed to correctly apply accounting standards. The court found that Mr Ashby's conclusions were well-founded, supported by his analysis of comparable businesses and transactions. The court rejected the argument that a different method, specifically a 2.2 times EBITDA calculation, should be applied, as it did not align with the appropriate factors considered by Mr Ashby.

Ultimately, the court upheld the valuation of $479,029 for Mr Leviston's 30% shareholding, with adjustments for specific deductions and interest. The court ordered that PQ Management Pty Ltd must pay this amount for the shares, with further calculations to be agreed upon by the parties or determined in a subsequent hearing. The court also reserved the matter of costs for later determination.

Orders

Orders of the court

1. For the purposes of order 4 of the Orders of this Court dated 8 July 2022, the price to be paid by PQ Management Pty Ltd for the 30% shareholding (being 60,901 fully paid ordinary shares) of Mr Andrew Troy Leviston in Treated Waste Agencies Pty Ltd is $479,029 (four hundred and seventy-nine thousand and twenty-nine dollars).

2. The parties shall confer as to the mathematical calculations required to ascertain the precise amount to which the plaintiff is entitled pursuant to orders 4, 5 and 6 of the Orders of this Court dated 8 July 2022.

3. If the parties are unable to agree on the matter in paragraph 2 within 21 days from the date of this order, the matter be set down for a further hearing.

4. 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

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

It follows that it is not possible to justify any departure from the capitalisation multiple of 3.00. It is apparent from Mr Ashby’s report that he derived that capitalisation multiple having appropriate regard to, amongst other things, TWA’s size, access to capital markets, diversification and management capability, relative to comparable businesses: paragraphs [4.10.5] – [4.10.14]. Those matters led him to conclude that the multiple in this case should be at the lower end of the range of multiples for the comparable companies and transactions that he analysed. This conclusion was supported by his analysis of the earnings multiples implied by PQ Management’s acquisition of 70% of TWA’s equity, effective 1 August 2017. Although he was quite thoroughly cross-examined on these issues, he was unshaken in his opinion and his explanations for his conclusions remain well-founded.Conclusion Despite the most valiant attempts by Mr Lyons to dislodge Mr Ashby’s assessment of 30% of the market value of all of the shares in TWA as at 30 June 2020, the figure of $479,029 on which he settled should be accepted. For the reasons expressed above, that figure should prevail over the figure produced by his calculation of 2.2 times EBITDA in accordance with Australian Accounting Standards. It follows that PQ Management is prima facie required to pay $479,029 to acquire Mr Leviston’s 30% shareholding in TWA. This amount must be adjusted in accordance with the other orders in the principal reasons. Specifically, the sum of $169,163.77 must be deducted from it, along with any interest on that sum, calculated from 30 June 2020 on the same basis as interest that is payable pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) on pre-judgment amounts. The remainder is payable by PQ Management as the purchase price for Mr Leviston’s 30% shareholding in TWA. He is entitled to judgment in that amount, together with interest from 30 June 2020, in accordance with the principal reasons. It is therefore appropriate to declare that, for the purposes of the calculations required by order 4 of the Orders of this Court dated 8 July 2022, the price to be paid by PQ Management Pty Ltd for the 30% shareholding (being 60,901 fully paid ordinary shares) of Mr Andrew Troy Leviston in Treated Waste Agencies Pty Ltd is $479,029. The parties should have some time to confer as to the mathematical calculations required to ascertain the precise amount to which the plaintiff is entitled pursuant to orders 4, 5 and 6 of the orders of 8 July 2022. They may also be heard on the question of costs.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

File number:	QUD 166 of 2020
Judgment of:	DERRINGTON J
Date of judgment:	22 August 2023
Catchwords:	EVIDENCE – expert evidence – valuation of shareholding – application of capitalisation of future maintainable earnings method – challenge to the correctness of the result of the valuation exercise – where the expert in part performed a calculation in accordance with accounting standards – whether the expert erred in placing weight on particular data points – challenge partially successful PRACTICE AND PROCEDURE – judgments and orders – construction of orders – whether regard may be had to the reasons for which orders were made in the absence of ambiguity
Legislation:	Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth)
Cases cited:	Athens v Randwick City Council (2005) 64 NSWLR 58 Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 1441 Australian Energy Ltd v Lennard Oil NL (No 2) [1988] 2 Qd R 230 AVS Group of Companies Pty Ltd v Commissioner of Police (2010) 78 NSWLR 302 Doyle v Commissioner of Police (No 2) [2020] NSWCA 34 Ganesh v National Australia Bank Ltd [2021] VSCA 45 Hamersley Iron Pty Ltd v National Competition Council (2008) 247 ALR 385 Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2018] WASCA 185 Johnson v CUB Pty Ltd (2021) 287 FCR 520 Leviston v PQ Management Pty Ltd (No 2) [2023] FCA 295 Leviston v PQ Management Pty Ltd [2022] FCA 787 Lim v Comcare (2019) 165 ALD 217 Oswal v Apache Corporation (No 4) [2014] FCA 1291 Smith v Comcare (2014) 64 AAR 205 Yates Property Corporation Pty Ltd v Boland (1998) 89 FCR 78
Division:	General Division
Registry:	Queensland
National Practice Area:	Commercial and Corporations
Sub-area:	Corporations and Corporate Insolvency
Number of paragraphs:	48
Date of hearing:	5 April 2023
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

ORDER MADE BY:	DERRINGTON J
DATE OF ORDER:	22 AUGUST 2023