Mio Art Pty Ltd v Mango Boulevard Pty Ltd

[2012] QSC 67

SUPREME COURT OF QUEENSLAND

CITATION:

Mio Art Pty Ltd v Mango Boulevard Pty Ltd and Ors [2012] QSC 67

PARTIES:

MIO ART PTY LTD (ACN 121 010 875) as trustee of the Spencer Family Trust
(Plaintiff)

v

MANGO BOULEVARD PTY LTD (ACN 101 544 601)
(First Defendant)

and

SILVANA PEROVICH
(Second Defendant)

and

ROBERT WILLIAM WHITTON as trustee of the bankrupt estate of Silvana Perovich
(Third Defendant)

and

BMD HOLDINGS PTY LTD (ACN 010 093 348)
(Fourth Defendant)

FILE NO/S:

BS 1714 of 2011

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court

DELIVERED ON:

23 March 2012

DELIVERED AT:

Brisbane

HEARING DATE:

19 March 2012

JUDGE:

McMurdo J

ORDER:

Pursuant to r 483(1) of the Uniform Civil Procedure Rules 1999 the following questions will be determined at a preliminary hearing in advance of the trial:

(1)       Whether the Landmark White valuation, as it is described on the Amended Statement of Claim, was “the Valuation” for the purposes of any, and if so which, of the terms of the Share Sale Agreement as it then bound the parties to it.

(2)       Whether the Sergiacomi Valuation, as it is described in the Amended Statement of Claim, was an “Alternative Valuation” for the purposes of any, and if so which, of the terms of the Share Sale Agreement as it then bound the parties to it.

(3)       Whether the Alternative Sergiacomi Valuation, as it is described in the Amended Statement of Claim, was an “Alternative Valuation” for the purposes of any, and if so which, of the terms of the Share Sale Agreement as it then bound the parties to it.

(4)       Whether the First Defendant is now required to participate in a mediation with the Plaintiff and the Second Defendant according to cl 4.8 of the Share Sale Agreement and if so, in the event that the dispute which is the subject of that mediation is not resolved within 30 days after it is referred to mediation, whether the First Defendant may then be required to submit to an arbitration pursuant to cl 4.9 of the Share Sale Agreement.

(5)       Whether the Plaintiff, the First Defendant and the Second Defendant are now obliged to submit to arbitration the question of the true value of the Property as that is referred to in the Share Sale Agreement.

CATCHWORDS:

Sudbrook Trading Ltd v Eggleton [1983] 1 AC 444, cited

COUNSEL:

F. M. Douglas SC and K. M. Connor SC and D. D. Keane counsel for the plaintiff
D. Kelly SC and D. de Jersey counsel for the first and fourth defendants

SOLICITORS:

Delta Law for the plaintiff
Minter Ellison for the first and fourth defendants

1. The plaintiff has applied to have certain questions heard separately at a preliminary hearing in advance of the trial.  There have been several formulations of those questions but ultimately they are set out in a draft order handed up at the conclusion of the hearing.  The first and fourth defendants are the active respondents to this application.  During the hearing they agreed that some questions could be tried conveniently ahead of others and offered their own draft.  The second and third defendants did not actively participate in this application. 

1. I have concluded that there should be a preliminary trial of certain questions.  The effect of these orders would be to include for separate determination those questions identified by the defendants’ draft but not all of those within the plaintiff’s draft. 

1. By a Share Sale Agreement made in 2003 (“the SSA”), Mr Spencer and the second defendant, Ms Perovich, agreed to sell to the first defendant, Mango Boulevard, shares in the company which owned land which it was proposing to develop.  The purchase price for those shares was to be the greater of $5 million or a certain sum calculated by reference to the improved market value of the land immediately after what was defined to be “the Effective Date”.  The parties are in dispute as to the valuation of the land.  They are also in dispute as to whether any of the (minimum) payment of $5 million has fallen due. 

1. There is a further area of controversy, which is whether, as the plaintiff pleads, Mango Boulevard failed to pursue relevant development approvals for the land as quickly as it should have done and whether it otherwise breached its obligations in pursuing those approvals.  The plaintiff seeks substantial damages on account of those breaches.  That part of the plaintiff’s claim, at least on the current pleadings, has the potential to require an extensive factual enquiry into practically everything which was done or not done over several years in respect of this land. 

1. The SSA provided for a sequence of steps by which the value of the land was to be determined.  The pleadings raise many issues as to whether those steps have been taken or must now be taken.  The SSA required the value to be determined by an arbitrator, if it was not determined by an earlier step in the agreed sequence.  The plaintiff’s case is that the value must now be assessed by an arbitrator.  On the hearing of this application, there seemed to be two ways in which that case was described.  The first is that, in the events that have happened, the parties have reached the point at which cl 4.8 requires a mediation of the question of the true value of the land and that failing a settlement at that mediation, cl 4.9 would require the dispute to be submitted to arbitration.  Alternatively, it was suggested that simply from the fact that the parties remain in dispute as to the true value of the land at the relevant date, the effect of the SSA now is to oblige them to have that dispute referred to arbitration.

1. At one point in the plaintiff’s argument, it was apparently suggested that in the events which have occurred, the value of the land could be fixed by the Court.[1]  However, there is no pleaded case to that effect.  If the plaintiff succeeds in this case, the purchase price will not be quantified by the judgment:  there would have to be an arbitration to determine the value. 

   [1]cf Sudbrook Trading Ltd v Eggleton [1983] 1 AC 444.

1. The plaintiff’s claim to be compensated for Mango Boulevard’s failure to adequately pursue the relevant approvals is affected by the question of the value of the land and thereby the price which the plaintiff is to be paid for its shares. In broad terms, the lower that price, the higher will be the plaintiff’s claim on that basis. 

1. These factors provide reasons to advance that part of the case which will affect the quantification of the purchase price, either by an arbitration or by a conclusion (in favour of the first and fourth defendants) that the value of the land has been conclusively determined already.  Further, the claim for compensation is, as I have mentioned, one which requires an extensive factual enquiry.  It will necessitate the disclosure of a large amount of documents and the cost of that exercise, according to some of the evidence filed upon the application for security for costs, would be several hundred thousand dollars.  And there must be a real prospect that the prior determination of the questions affecting the quantification of the purchase price, at least if that determination is in the plaintiff’s favour, would have the practical effect of putting paid to the claim for compensation.

1. There is a distinct claim for the payment of $5 million as the minimum purchase price.  That is defended on many grounds, some of which would involve substantial factual questions.  They do not appear to be grounds which would assist the first and fourth defendants in resisting a claim for a price significantly higher than $5 million, if such a price is shown to be payable in the outcome of the disputes about valuation.  I am not persuaded that the questions concerning the liability or otherwise for that sum of $5 million (or part of it) should be heard with the questions affecting the quantification of the price, ahead of the balance of the case. 

1. On what I would call the valuation controversy, there are many issues raised by the pleadings which are not specifically described in the questions which I have set out for a preliminary hearing.  But they are issues which would be contested as part of the litigation of those five questions.  For example, there is an issue as to the effect of a variation to the SSA, and in particular its provisions for the valuation of “the Property”, in consequence of the parties’ agreement that Urbex would make separate applications, at different times, for approval to develop different parts of the land, rather than making the one application over the whole of the land.  That issue would arise at least for the purpose of question 1 and arguably for each of the five questions.  Similarly the argument that the Sergiacomi valuations were obtained too late would arise at least for questions 2, 3 and 4. 

1. Within the plaintiff’s pleadings, there is some tension between, on the one hand, its case that the Landmark White valuation was not a valuation commissioned according to the SSA as varied, or a valuation performed according to cl 4.4 and, on the other, the allegation that the sequence of steps prescribed by cl 4 has occurred to the point of that of mediation in cl 4.8.  The plaintiff will argue that on the proper interpretation of the SSA, such flaws in respect of the Landmark White valuation do not affect its entitlement to require a mediation and in turn an arbitration.  It was said that the plaintiff has pleaded these matters about the Landmark White valuation as an anticipated defence, in the event that it is not entitled to have the value fixed by an arbitrator, to a case that it is bound by the value determined by Landmark White.  Therefore, so it was argued for the plaintiff, it is unnecessary for the Court to consider, at this preliminary hearing, whether the Landmark White valuation was in accordance with the SSA.  In my view, the status of the Landmark White valuation should be explored.  It may be unnecessary ultimately to rule upon its efficacy, because of the alternative arguments for the first and fourth defendants in resisting an arbitration and in the absence of a counterclaim by them in reliance upon that valuation.  But in order to consider whether events have occurred which require a mediation or arbitration under this contract, it will be necessary to give some consideration to the content of the Landmark White valuation and perhaps to the circumstances of its procurement. 

1. It will be necessary to consider the content of the Sergiacomi valuations, at least because the first and fourth defendants plead that their content does not accord with cll 4.4 and 4.6.  Upon the plaintiff’s argument, that fact may not be relevant.  But it will be necessary to determine it at least if the defendant’s cannot resist a mediation or arbitration upon other grounds.  Therefore, there will be a need for a factual investigation of what the SSA described as the “methodology as provided in cl 4.4”.[2]  This makes it yet more difficult to justify the exclusion of a consideration of the content as well as the procurement of the Landmark White valuation. 

   [2]Clause 8.3.

1. This does not mean that the preliminary hearing will explore whether in any of these valuations, there is some error or whether the amount arrived at was incorrect.  In that respect, each side’s pleadings would seem to include criticisms of one or other valuation which, if made out, could not matter for the efficacy of the valuation for the purposes of the SSA.  For example, there are the allegations in paragraph 38.1 of the statement of claim.  And it is apparently alleged by the plaintiff that Landmark White proceeded upon the basis of instructions provided by Mango Boulevard which, whilst not being inconsistent with the assumptions prescribed by cl 4.4, were inappropriate.[3]  Similarly, the first and fourth defendants plead that the Sergiacomi valuations were based “upon an incorrect and irrational assessment of development costs, including the infrastructure charges, and prices for lots”.[4]  Ahead of the preliminary hearing, consideration must be given by each of the parties to those irrelevant allegations and if necessary, they will be ordered to be struck out unless there is some reason for them which can be explained. 

   [3]Statement of claim, para 39, particulars (iii).

   [4]Defence, paras 21(b)(iii)(B)(V) and 22A(c)(iii)(D).

1. Therefore the review of the content of the valuations should be sufficiently confined to prevent this preliminary hearing, as a whole, exceeding five days.  That case could be heard early in the second half of 2012.  It will be necessary to make directions towards that hearing.  But first there will be the question of security for costs to be considered.  The first and fourth defendants will have to amend their application for security to address the costs involved in this preliminary hearing.