Nellbar Pty Ltd v Jones Partners Pty Ltd
[2018] WASC 292
•30 NOVEMBER 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NELLBAR PTY LTD -v- JONES PARTNERS PTY LTD [2018] WASC 292
CORAM: MASTER SANDERSON
HEARD: 7-15 JUNE 2018
DELIVERED : 18 SEPTEMBER 2018
PUBLISHED : 30 NOVEMBER 2018
FILE NO/S: COR 265 of 2013
BETWEEN: NELLBAR PTY LTD
Plaintiff
AND
JONES PARTNERS PTY LTD
First Defendant
PORTER STREET INVESTMENTS PTY LTD
Second Defendant
WOODHAVEN PTY LTD
Third Defendant
FILE NO/S: COR 266 of 2013
BETWEEN: NELLBAR PTY LTD
Plaintiff
AND
HAMPTON TRANSPORT SERVICES PTY LTD
First Defendant
JOHN LOAD CECIL JONES
Second Defendant
BURCHELL FRANCIS CECIL JONES
Third Defendant
PORTER STREET INVESTMENTS PTY LTD
Fourth Defendant
WOODHAVEN PTY LTD
Fifth Defendant
Catchwords:
Corporations Law - Parties seeking to separate their interests by buy‑out - Court appointed expert - Operation of O 40 of Rules of the Supreme Court
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1965 (UK)
Rules of the Supreme Court 1971 (WA)
Result:
Buy‑out orders made
Category: B
Representation:
COR 265 of 2013
Counsel:
| Plaintiff | : | Mr S Penglis & Mr P J Hannan |
| First Defendant | : | Mr P Van Der Zanden |
| Second Defendant | : | Mr L A Warnick |
| Third Defendant | : | Mr L A Warnick |
Solicitors:
| Plaintiff | : | Nova Legal |
| First Defendant | : | Hotchkin Hanly |
| Second Defendant | : | HHG Legal Group |
| Third Defendant | : | HHG Legal Group |
COR 266 of 2013
Counsel:
| Plaintiff | : | Mr S Penglis & Mr P J Hannan |
| First Defendant | : | Mr P Van Der Zanden |
| Second Defendant | : | Mr L A Warnick |
| Third Defendant | : | Mr L A Warnick |
| Fourth Defendant | : | Mr L A Warnick |
| Fifth Defendant | : | Mr L A Warnick |
Solicitors:
| Plaintiff | : | Nova Legal |
| First Defendant | : | Hotchkin Hanly |
| Second Defendant | : | HHG Legal Group |
| Third Defendant | : | HHG Legal Group |
| Fourth Defendant | : | HHG Legal Group |
| Fifth Defendant | : | HHG Legal Group |
Case(s) referred to in decision(s):
Nil
MASTER SANDERSON:
These cases represent internecine warfare at its worst. The Jones family has divided into two camps. Ten years ago both camps realised they needed to separate their business interests. Over some five years there were sporadic negotiations as to how the separation should be effected but in the end no agreement could be reached. On Christmas Eve 2013, these two sets of proceedings were issued. In the context of the litigation, further attempts were made to settle the disputes. Two mediations were held - one before the Hon Neville Owen and the other before Registrar Whitby. In principle, agreements were reached but came to nothing. So eventually the matters were listed for hearing.
Because of the complexity of the matters and the various allegations made by the respective parties, pleadings were ordered. These pleadings ran to hundreds of paragraphs. Affidavits were lodged by the protagonists. These affidavits in at least two cases were more than 500 pages in length. A trial bundle was prepared. It contained nine lever arch volumes of documents. Counsel was instructed on both sides. At the commencement of the trial, the courtroom was full of counsel solicitors, witnesses and interested parties. The trial was listed for five days but in fact extended into the seventh day.
After the commencement of the trial, the parties continued to negotiate. They moved, crab-like, ever closer together. Listening to the case I was struck by the lack of any real dispute between the parties and the need for a settlement. On a number of occasions I made this point to counsel. But the trial continued inexorably. Eventually, on the afternoon of the sixth day, counsel indicated the parties had reached in principle agreement. There were differences between them as to the final form of orders in each case. In the main these differences were form rather than substance. What remained was one relatively minor issue. I will deal with that issue in these reasons and I will also deal with rulings I made during the course of the hearing in relation to a court appointed expert and O 40 of the Rules of the Supreme Court 1971 (WA) (the Rules).
Perhaps inevitably after the hearing of this matter had concluded, there were applications to re-open the matter - the first by the Jones party interests and the second by the Nellbar interests. Later in these reasons I will explain why I refused leave to re-open on the Jones party interests application. The application by Nellbar interests was on a slightly different basis. A property owned by Hampton Transport Services Pty Ltd (HTS) was sold for a considerable sum and that effected the value of HTS. The parties were also in agreement the proceeds of the sale of this property (known as the Lakes Road Property) should be distributed irrespective of any other orders which were made. So effectively, I allowed the Nellbar interests to re-open their case. There then followed a flurry of minutes of proposed orders. The difference between the parties took time to resolve. The orders that are eventually to be made reflect the distribution of proceeds of sale of the Lakes Road Property and also reflect the altered value of HTS.
Given the way the matter was resolved, it is not necessary for me to detail the complex corporate structure which led to this dispute. What follows is a brief summary which will put the orders to be made in context. All of the relevant businesses were established by three brothers - Barton Cecil Jones Snr (Boss Jones), John Load Cecil Jones (John Jones) and Burchell Francis Cecil Jones (Burchell Jones). It was agreed between all parties that although they conducted business through a myriad of companies, their businesses enterprises were a quasi-partnership. Each of the brothers had a particular area of interest but they discussed the business affairs on a daily basis and they transferred money from one business to another without any regard to separate corporate entities involved. Very few, if any, directors meetings were held - the brothers simply discussed matters, reached agreement and acted accordingly. The brothers got along with one another extremely well and none of them can remember a confrontation.
Boss Jones died in October 2006. His interests passed to his children. For the purposes of this litigation, Boss Jones' two sons Barton Jones Jnr (Bart Jones) and David Jones (Dave Jones) are the important individuals. Boss Jones' interest in the business was held through Nellbar Pty Ltd (Nellbar), the plaintiff in both actions. Effectively, Nellbar held a one third interest in all of the relevant companies. John Jones and Burchell Jones through their respective companies held one third each. Relevantly, for present purposes, Nellbar had a one-third interest in Jones Partners Pty Ltd (Jones Partners) with the other two thirds being held equally between John Jones and Burchell Jones; it also held a one third interest in HTS with the other two thirds being held equally by John Jones and Burchell Jones.
During his lifetime, Boss Jones established HTS. That was his particular area of interest. After his death, the business was carried on by Bart Jones and Dave Jones.
Jones Partners was looked after by John and Burchell Jones. It was in the nature of a conglomerate - it held shares in certain listed mining entities, it owned hotels in Esperance and it had extensive agricultural interests. HTS is a successful transport and logistics enterprise. It is run on a day to day basis by Bart Jones and Dave Jones. John Jones does have some input but it was not in dispute the day-to-day management of the company was in the hands of Bart and Dave Jones. The day to day management of Jones Partners was left to John and Burchell Jones. Although a shareholder, Nellbar had no interest in being involved in the management of the enterprise. In fact it was clear the Nellbar interests regarded Jones Partners as a black hole into which money was being poured with no real prospect of any significant return.
So the position really was quite simple. Nellbar wished to buy John and Burchell Jones out of HTS - in other words acquire the two third interests John and Burchell Jones held in HTS and its related entities. John and Burchell wanted to buy Nellbar out of Jones Partners. The end point was clear - it was always clear. It was the mechanics of the separation which caused the problem. During the course of the action, the parties resolved that rather than appoint their own independent valuation experts, they would agree to a court expert. This was done under O 40 of the Rules:
Order 40 - Court experts
1.Terms used
In this Order unless the contrary intention appears -
Court expert means an independent expert appointed under rule 2 to inquire into and report upon a question of fact or opinion;
expert in relation to any question arising in a cause or matter, means any person who has such knowledge or experience of or in connection with that question that his opinion on that question would be admissible in evidence.
2.Court expert, appointment of etc.
(1)In any cause or matter which is to be tried without a jury and which involves a question for an expert witness the Court may at any time -
(a)on the application of any party, on terms, appoint an independent expert, or if more than one such question arises, 2 or more such experts to inquire into and report upon any question of fact or opinion not involving questions of law or of construction; and
(b)direct a Court expert to make a further or supplemental report or inquiry and report; and
(c)give such instructions in relation to the inquiry and report of a Court expert as the Court thinks fit.
(2)Instructions pursuant to subrule (1)(c) may make provision concerning any experiment or test necessary to enable the Court expert to make a satisfactory report.
3.Report of Court expert
(1)The Court expert must file the expert's report with such copies thereof as the Court requires and the proper officer must send a copy of the report to each party or his solicitor.
(1A)Unless the Principal Registrar has given approval for it to be filed electronically, the Court expert's report cannot be filed electronically.
(2)Any part of a Court expert's report which is not accepted by all parties shall be treated as information furnished to the Court, and shall be given such weight as the Court thinks fit.
4.Cross examination of Court expert
Upon the application of any party made within 14 days after receiving a copy of the Court expert's report, the Court shall make an order for the cross examination of the Court expert by all parties either -
(a)before the Court at the trial or at some other time; or
(b)before an examiner at such time and place as the Court directs.
5.Remuneration of Court expert
(1)The remuneration of the Court expert shall be fixed by the Court and shall include -
(a)a fee for making the report and a fee for making any supplementary report; and
(b)a proper sum for each day during which his presence is required either in Court or before an examiner.
(2)The parties shall be jointly and severally liable to pay the Court expert's remuneration, without prejudice to the question by whom it shall be paid as part of the costs of the cause or matter.
(3)Where any party opposes the appointment of a Court expert, the Court may, as a condition of making the appointment require the party seeking the appointment to give such security for the Court expert's remuneration as the Court thinks fit.
6.Further expert witnesses
(1)Where a Court expert has made a report pursuant to this Order on any question, any party who gives to the other interested parties a reasonable time before the trial or hearing, notice of his intention to do so, may call one other expert witness to give evidence on the question reported on by the Court expert.
(2)Except as provided by subrule (1) no other expert witness shall be called by any party without the leave of the Court, and such leave shall not be granted unless the Court considers the circumstances of the case to be exceptional.
This case appears to be the first time this order has been used. It follows closely the former English O 40 of the Rules of the Supreme Court 1965 (UK). It would appear that in England the order was little used and when it was used it was largely in relation to Official Referee's business. But clearly there is scope in using the order to avoid the interminable arguments between experts. That said, the order has a number of oddities.
First, under r 3(1) the expert must file the report with the court and the court then sends a copy of the report to each party or his solicitor. That procedure was followed in this case. The expert commented that he would have preferred to send a copy of the report in draft to each of the parties and invite their comments before making a final report. That could perhaps be done if a direction to that effect was given by the court. But under r 2(1)(c) it appears the only instructions that can be given to the expert by the parties are those sanctioned by the court. The parties are not at liberty to communicate with the expert without the court's approval even if that communication is copied to other parties.
Secondly, any party may cross-examine the expert provided they give notice to that effect fourteen days after receiving a copy of the expert's report. In this case, notice was not given of intention to cross‑examine the expert within the 14 day period but an order was made extending the time within which the notice could be given. That order was made by consent. The wording of r 4 is such that it is open to question whether the court can actually extend the time for the giving of notice. This point was not taken in this case and remains for determination at a later date.
Thirdly, under r 3(2) where a party does not accept the expert's report, the report is treated as 'information' and given such weight as the court thinks fit. In fact that occurred in this case - the defendants indicated they did not accept the expert's report in relation to the valuation of HTS. So the report became information. Cases are determined on evidence and the use of the word 'information' is most unusual in the context of civil litigation. In fact I indicated to the parties I would rely on the expert report in reaching a decision on the value of HTS. I thought the report carried great weight and could reasonably be relied upon. But the precise way in which a report is to be treated in a particular case is not entirely clear from the rule.
Fourthly, under r 6(1) one party has only to give to the other party notice of an intention to call their own expert witness within 'a reasonable time'. That expression must be applied on a case by case basis. In this case, notice was given by Jones Partners only two days before the hearing. I was not satisfied that was a reasonable time and therefore I was not prepared to allow Jones Partners to call expert evidence. Clearly notice ought to be given at a directions hearing or well in advance of trial to allow appropriate orders to be made.
Fifthly, what a party is required to do under r 6(1) is give 'notice of its intention' to call another expert witness. Counsel for the defendants maintained that all that was required in any circumstance was notice to the other party - the expert evidence itself did not have to be disclosed. Counsel for the plaintiffs maintained that 'notice' meant either a copy of any relevant report or details of the contents of that report - mirroring the provisions which were in O 36A. In my view, counsel for the plaintiffs was correct in his interpretation. If a party had merely to advise that an expert would be called without disclosing the substance of the expert report, there could be no orderly trial. Once the expert evidence was led an adjournment would be certain. The rule has to be interpreted so as to facilitate the orderly conduct of litigation.
In this case I ruled that the defendants had not given notice as required by rule 6(1) within a reasonable time. I could see nothing in the circumstances of this case which were 'exceptional' as was required by rule 6(2) if leave to call experts was to be given. The main argument put on behalf of the defendants was that the time between the provision of the court appointed expert's report and the trial was so short there had been insufficient time for the defendants to finalise their position. While there was some merit in that argument, I was not satisfied the timeframe was so short that the circumstances were exceptional. I therefore refused the defendants leave to call their own expert witnesses.
Before dealing with the one outstanding matter separating the parties, I should indicate in broad terms the orders I intend to make. The orders in relation to the HTS matter are in terms of the second to fifth defendants minute dated 7 August 2018 as follows:
(COR 266/13)
1.For the purposes of these orders and declarations, the following definitions apply:
(1)'Nellbar' means the Plaintiff.
(2)'Hampton Transport Services 'means the First Defendant.
(3)'Mr John Jones' means the Second Defendant.
(4)'Mr Burchell Jones' means the Third Defendant.
(5)'Porter Street Investments' means the Fourth Defendant.
(6)'Woodhaven' means the Fifth Defendant.
(7)'COR 265/2013 Orders' means the orders made this day in Supreme Court of Western Australia action COR 265 of 2013.
(8)'HTS Entity' means any of the following:
(a)Hampton Transport Services.
(b)Any subsidiary of Hampton Transport Services.
(c)Road Trains of Australia Pty Ltd.
(d)Hampton Livestock Transport Pty Ltd.
(e)Road Trains of Australia Property Trust.
(f)Hampton Property Trust.
(9)'Jones Partners' means Jones Partners Pty Ltd.
(10)'Jones Partners Entity' means any of the following:
(a)Jones Partners; and
(b)any subsidiary of Jones Partners.
(11)'Jones Buy-Out Amount' means the amount payable under the COR 265/2013 Orders by Porter Street Investments and Woodhaven to Nellbar for Nellbar's shares in Jones Partners.
(12)'PS & W Shares' means those shares (or interests in shares) in Hampton Transport Services and Hampton Livestock Transport Pty Ltd and the units in the Hampton Property Trust which are held by Porter Street Investments and Woodhaven.
(13)'PS & W Amount' means the amount to be paid for the PS & W Shares, being:
(a)if the sale of the Lakes Road Property is completed and the Lakes Road Distribution is made before the Settlement Date, [Amount A]; or
(b)otherwise, [Amount B].
(14)'Settlement Date' means the date on which the PS & W Shares are transferred and the PS & W Amount is paid.
(15)'Mr Bart Jones' means Barton Cecil Jones Junior.
(16)'Lakes Road Distribution' means distribution of the Lakes Road Net Proceeds, as follows:
(a)26% to Porter Street Investments as a fully franked dividend;
(b)26% to Woodhaven as a fully franked dividend;
(c)26% to Nellbar as a fully franked dividend;
(d)11% to Mr Bart Jones; and
(e)11% to Mr David Jones.
(17)'Lakes Road Net Proceeds' means the proceeds received by Hampton Transport Services from the sale of the land being Lot 14 on Deposited Plan 75343 and the whole of the land in Certificate of Title 2818/856 (the Lakes Road Property) pursuant to an offer and acceptance signed and dated 29 May 2018, after deduction of the Lakes Road Sale Expenses.
(18)'Lakes Road Sale Expenses' means:
(a)capital gains tax, goods and services tax and any other government taxes or imposts arising from the sale of the Lakes Road Property;
(b)settlement agents' fees associated with the sale of the Lakes Road Property;
(c)all of the costs of Andrew Barclay & Associates for acting as solicitors for Hampton Transport Services on the sale of the Lakes Road Property; and
2.DECLARE that the affairs of Hampton Transport Services have been conducted and are being conducted in a manner that was and is oppressive to, or unfairly prejudicial to, or unfairly discriminatory against Nellbar within the meaning of s 232(e) of the Corporations Act 2001 (Cth).
3.DECLARE that the affairs of Hampton Transport Services have been conducted and are being conducted in a manner that was and is contrary to the interests of Hampton Transport Services' members as a whole within the meaning of section 232(d) of the Corporations Act 2001 (Cth).
4.ORDER pursuant to section 233 of the Corporations Act 2001 (Cth) that, subject to paragraph 5 below, within 120 days of the date of this order:
(1)Porter Street Investments and Woodhaven shall transfer the PS & W Shares to Nellbar; and
(2)Nellbar shall pay the PS & W Amount to or according to the direction of Porter Street Investments and Woodhaven.
5.In the event that Nellbar becomes obliged by the COR 265/2013 Orders to transfer the shares held by Nellbar in Jones Partners to Porter Street Investments and Woodhaven or their nominees, ORDER that:
(1)compliance with paragraph 4 above is conditional upon performance by Porter Street Investments and Woodhaven of their obligations under the COR 265/2013 Orders; and
(2)the transfer of the PS & W Shares and the payment of the PS & W Amount shall occur simultaneously with payment of the Jones Buy-Out Amount by Porter Street Investments and Woodhaven, to or according to the direction of Nellbar.
6.ORDER that Nellbar and Hampton Transport Services are to take all reasonable steps to cause the discharge on and from the Settlement Date of any guarantee, security or other form of financial support provided by any of Mr John Jones, Mr Burchell Jones, Porter Street Investments and Woodhaven for any liability of any HTS Entity.
7.ORDER that, as from the Settlement Date, Nellbar and Hampton Transport Services shall indemnify each of Mr John Jones, Mr Burchell Jones, Porter Street Investments and Woodhaven against any liability incurred by them under any of the guarantees, securities or other forms of financial support referred to in paragraph 6 above.
8.ORDER that Mr John Jones resign any position as a director, secretary or other officer of any HTS Entity on the Settlement Date.
9.ORDER that Mr Burchell Jones resign any position as a director, secretary or other officer of any HTS Entity on the Settlement Date.
10.ORDER that until the day after the Settlement Date, each of Mr John Jones, Mr Burchell Jones, Porter Street Investments and Woodhaven, whether by themselves, their servants, agents or otherwise, are restrained, and an injunction is hereby granted restraining them from:
(1)paying or committing moneys belonging to any HTS Entity other than in the ordinary course of business of the relevant HTS Entity;
(2)declaring any dividend in any HTS Entity;
(3)selling, leasing, charging, mortgaging, encumbering or otherwise committing any of the assets of any HTS Entity,
except:
(4)for:
(a)the sale of the Lakes Road Property;
(b)the payment of the Lakes Road Sale Expenses; and
(c)the declaration of a dividend and the making of payments required to achieve the Lakes Road Distribution; and
(5)otherwise with the written approval of each of Mr John Jones, Mr Burchell Jones and Mr Bart Jones.
11.ORDER pursuant to section 233 of the Corporations Act 2001 (Cth) that Mr John Jones and Mr Burchell Jones shall do everything within their power to cause compliance with Order 3 of the COR 265/2013 Orders.
12.ORDER pursuant to section 233 of the Corporations Act 2001 (Cth) that each of Nellbar, Hampton Transport Services, Mr John Jones, Mr Burchell Jones, Porter Street Investments and Woodhaven use their best endeavours to achieve compliance with the orders made in paragraphs 4, 5 and 7 above.
13.Without limiting the generality of paragraph 12 above, ORDER pursuant to section 233 of the Corporations Act 2001 (Cth) that Mr John Jones and Mr Burchell Jones shall not make any statement or do anything which might prejudice the ability of Nellbar to obtain finance to fund payment of the PS & W Amount.
14.ORDER that if Nellbar does not pay the PS & W Amount within the 120 days provided for in paragraph 4 above, then the orders contained in paragraphs 4 – 9 above are discharged, and the matter is to be relisted for further orders.
15.ORDER that Mr John Jones, Mr Burchell Jones, Porter Street Investments and Woodhaven pay 75% of Nellbar's costs of this proceeding, including any reserved costs (other than the costs of Nellbar's application to reopen its case, as to which Nellbar is to bear its own costs), as agreed or failing agreement to be taxed as if this proceeding had been commenced by writ of summons.
16.ORDER that Mr John Jones, Mr Burchell Jones, Porter Street Investments and Woodhaven pay 75% of Hampton Transport Services' costs of this proceeding (other than the costs of Nellbar's application to reopen its case, as to which Nellbar is to pay the costs of Hampton Transport Services), including any reserved costs, as agreed or failing agreement to be taxed as if this proceeding had been commenced by writ of summons.
17.ORDER that all parties have liberty to apply on 7 days' notice with respect to any issues which may arise with respect to the implementation of the orders contained herein.
In relation to the Jones Partners matter, the orders that I intend to make are in terms of the second and third defendants minute dated 7 August 2018 as follows:
(COR 265/13)
1.DECLARE that the affairs of the First Defendant (Jones Partners) have been conducted in a manner that was oppressive to, or unfairly prejudicial to, or unfairly discriminatory against the Plaintiff (Nellbar) within the meaning of section 232(e) of the Corporations Act 2001 (Cth).
2.ORDER pursuant to section 233 of the Corporations Act 2001 (Cth) that, on the Settlement Date as defined in the orders made this day in Supreme Court of Western Australia action COR 266 of 2013 and simultaneously with payment of the PS & W Amount as defined in those orders:
(1)the shares held by Nellbar in Jones Partners be transferred to the Second Defendant Porter Street Investments Pty Ltd (Porter Street) and the Third Defendant Woodhaven Pty Ltd (Woodhaven) or their nominees; and
(2)Porter Street Investments and Woodhaven shall pay to or according to the direction of Nellbar the amount of [Amount C].
3.ORDER that at the time specified in order 2:
(1)Porter Street Investments is to repay its loan specified in the table below;
(2)Jones Partners is to repay its loan as specified in the table below; and
(3)Jones Partners is to cause its subsidiary Warrigal Pty Ltd to repay its loan as specified in the table below.
Lender
Borrower
Amount
Abernethy Road Pty Ltd
Jones Partners Pty Ltd
Abernethy Road Pty Ltd
Warrigal Pty Ltd
Abernethy Road Pty Ltd
Porter Street Investments Pty Ltd
Total
4.ORDER that Porter Street Investments and Woodhaven pay 75% of Nellbar's costs of this proceeding, including any reserved costs, as agreed or failing agreement to be taxed as if this proceeding had been commenced by writ of summons.
5.If Nellbar does not comply with the orders contained in paragraphs 4 ‑ 6 of the orders made this day in Supreme Court of Western Australia action COR 266 of 2013, the proceeding is to be relisted for further directions.
6.All parties have liberty to apply on 7 days' notice with respect to any issues which may arise with respect to the implementation of the orders contained in paragraphs 2 and 3 above.
[The orders actually state the various amounts which were to be paid by the parties. For instance, in par 1(13) of the HTS orders, the 'PS & W Amount' was actually specified. All of the amounts were agreed between the parties but nonetheless they remain commercially confidential. No purpose would be served in disclosing these amounts in a publicly available decision. The position may well have been different had a dispute as to valuations persisted.]
The amounts in the orders represent the mid-point of the expert valuation. Because in the end there was no difference between the parties as to what value should be put on the businesses, there is no need for me to go through the methodology used by the expert and detail how he arrived at valuations of particular companies. It is enough if I say that I am satisfied that the methodology he employed was proper and appropriate. In the end, he came up with a range of valuations and then settled on what was referred to throughout the trial as a 'mid-point'. It is that mid-point valuation which I have adopted.
A number of the features of the orders require comment. In pars 2 and 3 of the HTS Orders and par 1 of the Jones Partners' orders, there are declarations made as to oppressive conduct and related matters. Of course declarations are always discretionary and need not necessarily be made even where parties are in agreement that they should be made. But in this case, there is no doubt there was oppressive conduct such as would justify the making of the orders. It is unnecessary for me to go into detail. But I will give one example of such conduct. Order 3 in the Jones Partners orders refers to certain loans made by Abernethy Road Pty Ltd to various entities associated with the Jones Partners group. Abernethy Road is a company associated with HTS - in other words it is effectively part of the Nellbar Group although it is owned 1/3 by Nellbar and 2/3 by Jones Partners. The loans made by Abernethy Road to the Jones parties were made without approval of the Nellbar interests. On any view, they were made to prop up Jones Partners. Such an action was clearly oppressive to the Nellbar interests both with respect to HTS and with respect to their minority holding in Jones Partners. There was no discernible benefit to Abernethy Road or the Nellbar interests in the loans being made to Jones Partners. Further, given the questionable financial position of Jones Partners, there was no real benefit to the Nellbar interests in Jones Partners becoming further indebted. The fact that the orders anticipate these loan transactions being unwound confirms their lack of utility and that they were by their nature oppressive.
The orders in both matters anticipate what is effectively a shareholder buy-out. It requires the Nellbar interests to find many millions of dollars to buy out Jones Partners. There was no evidence led at the trial to indicate the Nellbar parties had the wherewithal to obtain the necessary funds. That is not a criticism of the way the case was run - it was always anticipated if orders were made, time would be made available to the parties to effect a buy-out. However, the fact remains a buy-out may not be possible. If it is not, then some alternative method separating the parties’ interests must be found. In the minute of proposed orders they tendered, the Nellbar interests had what amounted to a self-executing order for liquidation. In other words, if the Nellbar interests were not able to effect the buy-out within the specified time period, they would file a consent of a liquidator and all of the companies would be placed in liquidation. Counsel for Jones Partners was horrified by that prospect. He referred to it - correctly in my view - as the ‘Armageddon Scenario’. It would have had the consequence of liquidating some companies which were highly profitable. The appointment of the liquidator would have triggered provisions of finance arrangements and destroyed any goodwill within the group. So it seemed to me the best option if a buy-out does not prove possible, was to bring the matter back for further consideration.
When I put that proposal to counsel for the plaintiffs he made two points. First, it means there is a lack of finality in the orders. Given the length of time the dispute has dragged on, that was the last thing that his clients wanted. The second point was that really there was no alternative to liquidation if the buy-out was not possible. Both points have considerable merit.
On balance it seems to me preferable to stage the orders. Thus if a buy-out is possible, the matter is finally concluded. If it is not then perhaps in the course of seeking to raise money to effect the buy-out, the possibility of a trade sale may have arisen. Or there may be some other option which is not presently obvious but which may avoid the Armageddon Scenario. Given the consequences of a liquidation, it seemed to me prudent to explore that possibility. It is difficult to see any alternative to liquidation if the buy-out does not take place. The possibility of appointing a receiver requires further consideration although it is hard to see how such an appointment would be appropriate. It may be the staged liquidation of companies within the group would be a better option than simultaneous liquidation. But at this point alternative possibilities need not be considered. I am satisfied it is in the interests of the parties to give the matter further consideration when and if the buy-out option fails.
The orders as presently framed do not provide the Nellbar interests with the option of purchasing parts of the HTS business even if the overall buy-out does not proceed. In the form of orders originally tendered by the Nellbar interests, this 'cherry picking' would have been possible. Having given the matter careful consideration, counsel for the defendants maintained such an order was inappropriate. I think counsel is correct. If an overall buy-out by the Nellbar interests is not possible, then the way in which the parties' interests are separated should be the subject of further consideration. There is a real risk of unfairness to the Jones Partners' interests if there is a piecemeal disposal of the assets of HTS.
For their part, the Nellbar interests proposed orders in relation to Jones Partners which would have increased the value of Jones Partners by a considerable amount by moving the date of valuation back. I can see no justification for making such an order. It would, in effect, have the consequence of deciding by implication Jones Partners had been inappropriately managed. On the evidence, I could not make that finding. It is an altogether different finding from concluding there had been oppressive conduct. I am satisfied the valuation date proposed by the Jones parties is appropriate.
The Nellbar interests also sought to make use of the expert valuation in their negotiations with financiers. On one view the expert evidence, having been tendered, it is part of the public record. However, given the terms of O 40 of the Rules and the fact the expert report is 'information', it is arguable it would not form part of the public record.
While it is in everyone's interests that the buy-out occur and anything which advances the possibility of the buy-out is to be encouraged, there is an impediment to the valuation being provided to potential financiers or potential purchasers of the business. The terms upon which the expert opinion was provided do not allow for access by third parties without the consent in writing of the expert. On that basis, the Jones Partners' interests objected to the report being made available at the discretion of the parties. In my view, the objection is well made. It may be with the agreement of the parties and the expert the report can be made available. That is a matter which will have to be resolved by discussions between the parties. If one or other of the parties thought the point was so important and discussions between the parties had not resolved any impasse then I would be prepared to make further directions under the liberty to apply provisions but at the moment I am not prepared to authorise the release of the report by either party.
There is then the question of costs. It is admitted by the Jones parties that the conduct of the affairs of the companies has been oppressive. That means the plaintiffs have been largely successful in both actions. However, it was the plaintiff's position that Jones Partners and the related companies ought to be wound up and that no buy-out should have been ordered. On that issue the plaintiffs have not been successful. A considerable amount of time was spent cross‑examining Mr John Jones and much of that cross-examination was directed at this issue. Given the plaintiffs were not successful completely, I am satisfied that an order that only a percentage of the plaintiffs costs be paid is appropriate.
That then leads to the one issue which remained between the parties - whether or not there should be a buy-out in relation to Jones Partners. It was the plaintiff's position the affairs of the companies in Jones Partners had been conducted in such a way that it was unclear as to whether or not the companies were trading while insolvent. Effectively, what the plaintiffs were seeking to do was have a liquidator appointed so that the history of Jones Partners could be investigated and if it was thought appropriate action could be taken against the directors for breach of their duties.
In my view no useful purpose would have been served by ordering the winding up of Jones Partners when a buy-out would operate to the obvious benefit of the plaintiffs. It is true that there was some evidence that, applying the cash flow test, Jones Partners was for a period, insolvent. It certainly could not have survived without the support of its shareholders. But one of the matters which can be taken into account in determining whether a company is insolvent is its access to funds from directors and shareholders. There was no evidence to suggest Jones Partners did not meet its debts as and when they fell due. They may have had to borrow funds to do so and it may well have been that there was negative equity in the companies but there is nothing to suggest insolvent trading. In fact the independent expert put a positive value on Jones Partners. That indicates a company of substance and nothing would be gained by its liquidation.
The defendants applied to re-open their case on the basis Mr John Jones had been approached about the possibility of a trade sale. The details were somewhat sketchy because Mr John Jones was not aware that a business broker who had looked at the possibility of a trade sale some time ago was still actively pursuing a sale. Essentially what the defendants wished to do was to delay final orders in this matter while the possibility of a trade sale was further investigated.
I refused the defendants leave to re-open their case. I accept, and it was conceded by the plaintiffs, that there is scope in the appropriate circumstances to allow a case to be re-opened. But in this case it was not appropriate for the following reasons. First, the matter has gone on too long. At any stage it was open to the defendants to lead evidence as to the prospect of selling all or any part of the companies that make up the group. That may have been a viable alternative to a buy-out or liquidation. But the parties proceeded to trial on the basis that the possibility of a sale to a third party had been canvassed and was not an option. To have allowed the defendants to re-open their case would have in effect re-cast the basis upon which the action was conducted. It would have inevitably led to significant delays and perpetuated the stalemate which led to the action in the first place.
That feeds into the second point. Resolution of the impasse between the parties cannot be delayed any longer. It is not in the interests of the parties nor is it in the interests of justice for this matter to continue as yet another prospect of dubious worth is explored. The parties have been given every opportunity to resolve their differences without the intervention of a court. They have failed. They must now accept the need for orders to bring their relationship to an end.
That said, there is nothing in the orders which would stop Jones Partners from exploring the possibility of a sale of all or any part of the business. It may be if an offer was put by a third party it might be attractive to the plaintiffs. Insofar as there was any evidence on this question at all, it suggested the plaintiffs might be prepared to sell their interests if the price was right. I accept that in attempting to obtain offers for the companies the presence of buy-out orders might well be a limiting factor. But as I have indicated I can see no justification for delaying the resolution of this matter any further.
A copy of these reasons was provided to the parties in advance of the making of any orders. I would be prepared to consider minor adjustments to the form of the orders to accommodate any reasonable concerns.
[Amended minute of orders dated 23 November 2018, prepared by the second to fifth defendants in COR 266 of 2013, and amended minute of orders dated 29 November 2018, prepared by the second and third defendants in COR 265 of 2013, were agreed by the parties. On 30 November 2018 final orders were extracted in terms of the amended minutes of orders and the final orders were to take effect from 30 November 2018.]
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
ASSOCIATE TO MASTER SANDERSON18 SEPTEMBER 2018
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