Levy Schneider v Caesarstone Australia Pty Ltd
[2011] VSC 106
•4 April 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List E
No. 03809 of 2010
| LEVY SCHNEIDER | Plaintiff |
| v | |
| CAESARSTONE AUSTRALIA PTY LTD (ACN 121 819 976) | First Defendant |
| CAESARSTONE SDOT-YAM LTD | Second Defendant |
No. 05851 of 2010
| CAESARSTONE AUSTRALIA PTY LTD (ACN 121 819 976) | First Plaintiff |
| CAESARSTONE SDOT-YAM LTD | Second Plaintiff |
| v | |
| LEVY SCHNEIDER | Defendant |
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JUDGE: | Davies J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 March 2011 | |
DATE OF JUDGMENT: | 4 April 2011 | |
CASE MAY BE CITED AS: | Levy Schneider v Caesarstone Australia Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 106 | |
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PRACTICE AND PROCEDURE – Application to split trial – Preliminary questions – Principles for exercise of discretion – Application refused – Supreme Court (General Civil Procedure) Rules 2005 – Rule 47.04
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. I G Waller SC with Mr. H L Redd | Schetzer Brott & Appel |
| For the Defendant | Mr. M W Wise | Middletons |
HER HONOUR:
The issues for determination in both proceedings overlap to a very significant extent. In proceeding S CI 2010 05851 (“the restitution proceeding”), which was instituted first in time in the County Court of Victoria, the plaintiffs (“Caesarstone”) have sued the defendant (“Schneider”) for recovery of monies that Caesarstone paid Schneider on termination of his employment. In proceeding S CI 2010 03809 (“the oppression proceeding”), which was instituted in the Supreme Court of Victoria, Schneider has claimed relief against Caesarstone pursuant to s 233 of the Corporations Act 2001 (Cth) in relation to alleged oppressive conduct. The restitution proceeding has been uplifted to the Supreme Court of Victoria and by consent consolidated with the oppression proceeding. Caesarstone has now applied for a separate trial of preliminary questions under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005. These questions in effect adumbrate the principal issue for determination in the restitution proceeding. The application came on for hearing on 18 March 2011 and was opposed by Schneider.
The issues raised by the proceeding
The principal issue in the restitution proceeding is whether Schneider’s employment with Caesarstone was properly terminated for cause. On 9 November 2009 Caesarstone terminated Schneider’s employment and paid him $128,750 (gross) (“the termination payment”) in lieu of notice under the terms of his Employment Agreement with Caesarstone. In brief compass, it is alleged that between 9 November and 23 November 2009, Caesarstone became aware that Schneider had used his position as a director of the company to procure an increase in his remuneration without the authorisation of Caesarstone. Caesarstone alleges that this entitled them to dismiss Schneider summarily for cause, without payment in lieu of notice. It is alleged that Caesarstone, relying on those matters, terminated Schneider’s employment on or about 23 November 2009 with retrospective effect from 9 November 2009 or alternatively prospectively from 23 November 2009.[1] Caesarstone seeks the recovery of the termination payment and other relief based on consequential claims not relevant to the present application.[2]
[1]Statement of Claim filed 19 February 2010, 5-6 [6]-[10].
[2]Statement of Claim filed 19 February 2010, 6 [11]-[12].
Schneider filed a defence to the statement of claim. He has disputed relevantly that:
(a) he gave himself an unauthorised increase in remuneration. It is alleged that Caesarstone approved the remuneration increase and at no time prior to 23 November 2009 did Caesarstone raise any concerns with Schneider about the remuneration increase.[3]
(b) Caesarstone was entitled to dismiss him summarily.[4]
(c) Caesarstone is entitled to recover the termination payment.[5]
[3]Statement of Claim filed 19 February 2010, 5-6 [8]-[9].
[4]Defence filed 9 April 2010, [10].
[5]Defence filed 9 April 2010, [11]-[15].
The oppression proceeding was commenced by way of originating process supported by affidavit in compliance with the Supreme Court (Corporations) Rules 2003. Schneider subsequently filed a statement of claim, in compliance with an order of the Court. The statement of claim alleges Schneider’s status as a shareholder of Caesarstone Australia, the conduct relied on as constituting oppressive conduct and the relief sought. Schneider’s status as a shareholder is based on a claim that he is entitled to a 6% shareholding in Caesarstone Australia by and under a Co-Investment Agreement dated 31 March 2008 between the parties. It is alleged that it was a term of that agreement that this entitlement arose if Caesarstone Australia terminated Schneider’s employment at any time prior to 1 January 2010, other than for cause under the Employment Agreement.[6] It is also alleged that it was a term of the Co-Investment Agreement that Schneider had the option to put those shares to Caesarstone Australia within 3 months of the end of the Employment Agreement, if Caesarstone Australia terminated Schneider’s employment during the first 2 years.[7] It is further alleged that on or about 3 February 2010 Schneider gave notice to Caesarstone of his exercise of the put option, and that on or about 22 February 2010 Caesarstone wrote to Schneider alleging that Schneider was not entitled to exercise the put option on the ground, amongst other things, that Schneider’s employment had been terminated for cause.[8] The oppressive conduct is alleged to have included the institution of the restitution proceeding.[9] Schneider seeks by way of relief pursuant to s 233 of the Corporations Act 2001 (Cth), an order requiring Caesarstone to purchase his shares in accordance with the notice of exercise of the put option, or alternatively at a fair and reasonable price.
[6]Statement of Claim filed 23 July 2010, 8 [10(d)].
[7]Statement of Claim filed 23 July 2010, 7 [9(j)].
[8]Statement of Claim filed 23 July 2010, 17-18 [34]-[35].
[9]Statement of Claim filed 23 July 2010, 18-19 [39]-[41(d)].
By way of defence, Caesarstone relies on the terms of the Employment Agreement and alleges that Schneider’s employment was terminated for cause and, that pursuant to the Co-Investment Agreement, Schneider was not entitled to the 6% shareholding nor able to exercise the put option.[10] Caesarstone have also raised a counterclaim, the nature of which is not relevant to this application.
[10]Defence filed 27 August 2010, 12-13 [34].
The preliminary questions
The questions which Caesarstone seeks to have determined as a preliminary matter are as follows:
(a) was Schneider’s employment with Caesarstone Australia under an Employment Agreement dated 31 October 2007 validly terminated for cause by notice from Caesarstone to Schneider dated 23 November 2009?
(b) was Schneider dismissed “in circumstances of cause” for the purposes of clause 5.1 of the Co-Investment Agreement?
(c) has there been “an event of default/breach” of the Employment Agreement “in circumstances of cause” for the purposes of clause 9.3 of the Co-Investment Agreement?
It was submitted that these questions identify the substantial questions in controversy between the parties, as the principal issue on which both proceedings turn is whether the termination of Schneider’s employment for cause was valid or not. The answer would determine whether Schneider had any contractual entitlement to the shares or to exercise the put option. It was submitted that both proceedings, properly viewed, are a dispute as to the rights of each party under the Employment Agreement and the Co-Investment Agreement. It was also argued that the determination of the preliminary questions would likely put an end to the oppression proceeding as the Co-Investment Agreement regulates Schneider’s entitlement to shares in Caesarstone and his right to cause Caesarstone to repurchase those shares. It was further submitted that the validity of the termination of Schneider’s employment for cause, and the effect of that termination under the Co-Investment Agreement, were self contained issues that may properly be determined in isolation from other questions in the consolidated proceeding. Finally, it was contended that a trial on the preliminary questions was the most efficient, cost effective, timely and just means of hearing and determining the consolidated proceeding.
Reliance was placed by Caesarstone on the fact that affidavits had already been filed by the parties in the oppression proceeding which would stand as evidence in chief on the preliminary questions. A trial on the preliminary questions was estimated to run for 4-5 days, whereas the estimate of trial duration of all of the issues in dispute would be in the order of 10-12 days. Additionally it was submitted that the preliminary questions would not require the significant discovery involved if all issues were dealt with. Specifically, it was argued that the discovery process, is likely to take many months, if all issues are dealt with together, due in part to a substantial portion of the business documentation being in Hebrew and that this would impose substantial time and cost burdens on the parties.
For Schneider, it was argued that the answers to the proposed separate questions would not necessarily resolve the entirety of the disputes between the parties. Specifically, it was argued that if the Court concluded that the summary termination was unlawful and that Schneider is entitled to a 6% shareholding, there remains the question as to the proper value of that shareholding which may depend on findings of fact in Schneider’s oppression case to determine what is a fair valuation in all the circumstances. Further, it was submitted that there is a commonality of witnesses in both proceedings and that there will be issues of credit of witnesses who would give evidence at both stages of the hearing of the proceeding.
Applicable legal principles
As a general rule, it is only appropriate for the Court to make an order under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 for the trial of a preliminary question where the determination of that question will be likely to end the litigation or substantially narrow the issues in dispute, or where there is a clear demarcation between that issue and all other issues in the case.[11] This process is directed to enabling litigation to be concluded as expeditiously and inexpensively as possible. The splitting of a trial is appropriate where this would be an effective, cost efficient, timely and just means of hearing and determining the proceedings.[12] Thus there is a need for the Court in exercising its discretion to consider whether splitting the trial would result in utility, economy and fairness to the parties.[13] In Tepko Pty Ltd v Water Board[14] Kirby and Callinan JJ cautioned that:
The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap.
…
Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question.[15]
The discretion to make an order under r 47.04 must be exercised with great caution. Generally such an order should only be made in a clear case, as stated by Dodds-Streeton J in Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Ltd (No 2).[16]
[11]Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215.
[12]David Jones Ltd v Perpetual Limited [2008] VSC 61, 48.
[13]Tepko Pty Ltd v Water Board (2001) 206 CLR 1, 170 (Kirby and Callinan JJ).
[14](2001) 206 CLR 1.
[15]Ibid 168, 170.
[16][2004] VSC 341, 181.
In my view, it is not appropriate to have a separate trial of the questions put forward by Caesarstone.
First, the proposed form of orders makes plain that splitting the trial is, in the circumstances of this case, inappropriate. There has been substantial affidavit material filed on behalf of each of the parties in the oppression proceeding. The proposed orders include that:
Those parts only of the affidavits filed by the parties in the proceedings as are relevant to the trial of the preliminary questions stand as the evidence-in-chief for the trial of the preliminary questions.
This requires the parties to determine and, in the absence of agreement, for the Court to adjudicate on which paragraphs should be admitted into evidence for the purposes of the trial of the preliminary questions. The task of identifying the relevant parts of those affidavits undoubtedly will be time consuming and controversial.
Next, it is apparent that there is substantial controversy about the facts. The resolution of the separate questions carries with it the strong prospect that the Court will be asked to make findings of credit or findings on the reliability of evidence. It is highly undesirable that witnesses be confined to evidence on matters relevant to the determination of the separate questions, on which findings of credit and reliability will be made, without opportunity for the Court to hear the whole of the evidence before forming any view. It also has the prospect that findings on the preliminary questions may preclude the same judicial officer from again dealing with the matters going to the credit of the common witnesses.[17]
[17]British American Tobacco Australia Services Ltd v Laurie (2011) 273 ALR 429.
Next, I am not satisfied that there is a clear demarcation between the issues raised by the separate questions and the balance of the issues in the consolidated proceeding. The Court could not at this stage conclude with confidence that the issues of oppressive conduct and valuation of shares are not intertwined with the preliminary questions based on the contractual arrangements between the parties.
Moreover, there is no clear line of demarcation with respect to the evidence to be called in relation to those issues. That is to say, the Court could not at this stage conclude with confidence that the factual matters relied on by Caesarstone to support its case that Schneider was terminated with cause would not be factual matters that would also arise for consideration and finding by the Court in respect to the alleged oppressive conduct.
Next, there is in my view a reasonable risk of delay and duplication if the trial was split. I am highly doubtful that the splitting of the trial would provide an effective, efficient, timely and fair means of hearing and determining the proceeding.
For Caesarstone, it was urged that discovery is a significant issue because so many of the documents relevant to the combined proceedings are located overseas and in Hebrew. Whilst that is a factor to be taken into consideration, it is not a determinative consideration as to whether the Court should split the trial. Whilst I accept that discovery may be an onerous and expensive step, the burden should be capable of being managed through appropriate case management and cooperation of the parties.[18]
[18]Civil Procedure Act 2010 (Vic) s 20.
Accordingly I refuse the application.
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