O'Brien v O'Brien & Nicholls Pty Ltd
[2001] VSC 411
•25 October 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 5495 of 2000
| JOHN PATRICK O'BRIEN and FOURTH TALJAN PTY LTD (ACN 007 107 628) | Plaintiffs |
| v | |
| O'BRIEN & NICHOLLS PTY LTD (ACN 005 707 246) and ORS | Defendants |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 September and 5 October 2001 | |
DATE OF JUDGMENT: | 25 October 2001 | |
CASE MAY BE CITED AS: | O'Brien and Fourth Taljan Pty Ltd v O'Brien & Nicholls Pty Ltd and Ors | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 411 | |
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Corporations Act – s.233 – oppression proceeding.
Terms of settlement – party seeking to re-open.
Valuation – parties agreed to be bound by valuation.
Orders – setting aside order striking out proceeding with right of reinstatement - jurisdiction - discretion to reinstate.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G.D. Bloch | Holding Redlich |
| For the Defendants | Mr J.D. Mattin | Macpherson & Kelley |
HER HONOUR:
The proceeding was struck out with a right of reinstatement upon the parties agreeing to terms of settlement. Differences arose as to the effect and outcome of the terms. The defendants O'Brien & Nicholls Pty Ltd ("the company"), Douglas Nicholls, Gregory Kilner, Renlik Nominees Pty Ltd, Margaret Nicholls, Roclee Pty Ltd and Keith Popovitz and Karen Popovitz (as trustees of the Keith Popovitz Family Trust) wish to enforce the terms of settlement. The plaintiffs, John Patrick O'Brien and Fourth Taljan Pty Ltd bring an application on summons to reinstate the proceeding.
Background
O'Brien was a former executive director of the company as were Nicholls and Kilner. The company owns and operates real estate businesses under the franchise known as "LJ Hooker" in Berwick, Cranbourne, Packenham and Narre Warren. O'Brien, Nicholls and Kilner owned or controlled through their individual entities over 90 per cent of the shares in the company. O'Brien owned 30.28 per cent, Nicholls 33.96 per cent and Kilner 25.86 per cent respectively. In the case of O'Brien, his corporate vehicle for ownership of shares was the second plaintiff, "Fourth Taljan".
In late 1999 differences arose between O'Brien on the one part and Nicholls and Kilner as to the other part regarding the management of the company. Ultimately, all parties agreed that O'Brien should cease his involvement with the company and that the parties would enter into certain agreements. First, an exit agreement was agreed upon on 16 December 1999 that specified the terms and conditions for the departure of O'Brien from the company. Secondly, a legal costs agreement was made orally on or about 25 January 2000 in which the company agreed to reimburse O'Brien for his legal costs incurred in taking action to recover his superannuation entitlements under the exit agreement. Thirdly, a share agreement whereby shares held by Fourth Taljan on behalf of O'Brien in the company were to be sold pursuant to a shareholders' agreement determined between the shareholders in 1996. The earlier shareholders' agreement outlined to whom the shares were to be offered in the instance of O'Brien, Nicholls or Kilner ceasing employment with the company and provided the means of determining the value of the shares.
The Plaintiffs' Claim
The plaintiffs commenced oppression proceedings pursuant to s.233 of the Corporations Law (now the Act) by originating process filed on 24 May 2001. O'Brien and Fourth Taljan alleged that Nicholls and Kilner were engaging in conduct to depress the value of the shares of O'Brien in the company. The plaintiffs alleged that the defendants changed company policy at a director's meeting on 16 February 2000 in regards to both the sales of properties and the inclusion of trade debtors commissions on sales. The plaintiffs alleged that as a result of the change in policy the profit of the company for the year ending 30 June 1999 was reduced from $329,748 to $137,168. As a consequence, no dividend payment was made to shareholders for the current financial year. Further, no dividends were payable under a proposed dividend plan for year ending 30 June 1999. In previous years dividends were paid regularly.
The plaintiffs also claimed that the defendants were engaging in conduct that was oppressive, unfairly prejudicial or unfairly discriminatory to the plaintiffs. The plaintiffs alleged that the defendants caused the company to breach the exit agreement, the legal costs agreement and the share agreement by depressing the value of the company shares. Further, O'Brien claimed that the meeting of directors on 16 February 2000 was convened for a time at which Nicholls and Kilner were aware O'Brien would be unable to attend and thereafter the meeting was held without giving O'Brien sufficient time to consider material prepared by the company's accountant.
O'Brien and Fourth Taljan commenced the proceeding under s233(1)(c) of the Corporations Act seeking relief to regulate the affairs of the company so as to:
(a)Reinstate the profit of the company for the year ended 30 June 1999;
(b)Disregard changes in accounting policies implemented at the meeting of directors of the company on 16 February 2000;
(c)Restore dividend payments outstanding under the proposed dividend plan for year end 30 June 1999 and ensure future dividends are to be paid in a manner consistent with the past;
(d)Value the company shares in accordance with the 1996 shareholders' agreement after reinstatement of profit and dividend payments.
They further claimed an order under s233(1)(d) of the Corporations Act requiring one of the second to seventh defendants to purchase the shares of O'Brien at the price determined at valuation should no other purchaser be found. Alternatively, they claimed the company should be required to purchase the shares at the valuation price.
At the direction of the court, the parties participated in mediation. As a result of the mediation the parties entered into terms of settlement. The terms were dated 24 November 2000. Orders were made by consent of all parties that the proceeding be struck out with a right of reinstatement. On or about 19 March 2001 the parties exchanged an executed deed re-engrossing the terms of settlement previously reached.
Terms of Settlement
The terms of settlement were designed to resolve the dispute by way of providing for the determination of unpaid profits by an accountant. Written submissions were to be provided to the appointed accountant. Clause 2.4 of the terms of settlement stated that the parties were to be bound by the determination of the accountant which was to be made as soon as practicable after 30 March 2001. Furthermore, the parties agreed to be bound by the determination. Under clause 2.5 of the terms the unpaid profit was to be paid by the company to the Fourth Taljan in three allotments. Clauses 2.4 and 2.5 provided:
"2.4 Determination of the Unpaid Profit
Upon receipt of all submissions from the parties, the accountant must make the determination as soon as practicable after 30 March 2001. The parties agree to be bound by the determination.
2.5 Payment of Unpaid Profit
O'Brien and Nicholls must pay to the seller (or its nominee notified in writing to O'Brien and Nicholls within 14 days of the determination) the unpaid profit in the following manner:
(a)in respect of the year ended 30 June 1999 within 30 days of the date of the Determination;
(b)in respect of the year ended 30 June 2000 within 60 days of the date of the Determination or 30 September 2001, whichever is the later; and
(c)in respect of the six-month period ended 31 December 2000 within 90 days of the date of the Determination or 31 December 2001, whichever is the later."
Clause 3 of the terms set out the valuation, sale and transfer of Fourth Taljan's units and the shares. A valuer was appointed to whom submissions could be made. The valuer was given a specified assumption as to the value to adopt in regards to a unit trust and to take into consideration the value of the rent roll and shares in businesses conducted by the company. The manner in which the completion of the sale and transfer of the seller's units and the shares was specified. Clause 3.4 provided:
"3.4 Payment of Unpaid Profit
Upon receipt of all submissions from the parties, the Valuer must determine the Purchase Price as soon as practicable after 30 March 2001 and the parties agree to be bound by the determination of the Purchase Price. In determining the Purchase Price, the Valuer must:
(a)assume that the written down value of the property, plant and equipment in the books and records of the Unit Trust is in the amount of $101,801, state that assumption and include that amount in the Determination;
(b)take into account the value of the:
(i)rent Roll;
(ii)shares of Total Home Care; and
(iii)shares of Display Investments; and
(iv)non-rental income of the business conducted by O'Brien & Nicholls, as at 30 November 2000."
Provision was made also for GST, confidentiality clauses, non-executive director's fees; inspection of documents, and a guarantee and indemnity.
The Terms considered in clause 9 the instance of default either by the purchaser, the seller or O'Brien. It provided:
"9.0 DEFAULT
9.1 Default by the Purchaser
Subject to this deed, if the Purchaser fails to pay:
(a)The Purchase Price in accordance with clause 3.6(b)(ii), the Purchaser hereby irrevocably consents to judgment in favour of the Seller in the amount of the Purchase Price (less any amount paid);
(b)The Unpaid Profit in accordance with clause 2.5, O'Brien & Nicholls hereby irrevocably consents to judgment in favour of the Seller in the amount of the Unpaid Profit (less any amount paid),
(c)Together with the costs of reinstating the Proceeding and entering judgment and penalty interest from the date of default to the date of entry of judgment and this deed may be produced as evidence of the Purchaser's consent to judgment.
9.2 Default by the Seller
Subject to this deed, if the Seller fails to comply with its obligations pursuant to clause 3.6(b)(i), the Seller consents to an order for specific performance in the same terms as the said clause together with the costs of reinstating the Proceeding and applying for such relief. This deed may be produced as evidence of the Seller's consent to such relief.
9.3 Default of O'Brien
Subject to this deed, if O'Brien fails to comply with its obligations pursuant to clause 3.6(b)(iii), O'Brien consents to an order for specific performance in the same terms as the said clause together with the costs of reinstating the Proceeding and applying for such relief. This and this deed may be produced as evidence of O'Brien's consent to such relief."
Clause 10 provided a release on execution from "all claims, demands, suits, proceedings, expenses and costs arising out of or in any way connected" with the proceeding.
There were also general purpose provisions providing for such matters as the deed to be the entire agreement and dispute resolution to be final and binding. The terms were signed by O'Brien.
The deed of settlement embodied the entire agreement between the plaintiffs and the defendants by which the dispute them between was resolved following mediation between the parties. Pursuant to clause 12.1 of the deed "the deed constituted the entire agreement between the parties regarding the matters set out in it and superseded any prior representations, understandings or arrangements between the parties, whether orally or in writing." Clearly, the purpose of the deed was to submit various issues to the accountant who could make a determination. Notably, clause 2.4 provided that "upon receipt of all submissions from the parties, the accountant must make the determination … " Significantly, the deed recited in clause 2.4 that, "The parties agree to be bound by the determination." Accordingly, both the plaintiffs and the defendants agreed to refer the dispute to the accountant to make a determination the parties would be bound by.
The Submissions to the Accountant
Each side was entitled to make written submissions to the accountant. The submissions were exchanged between the parties. Accordingly, prior to the accountant entering into the task of deciding the issues and making a determination, each side was fully aware of the facts and issues relied upon by the other side and if any matter was disputed or in dispute that party must have been in a position to put a further submission to the accountant. Apparently, no further submissions were made.
The Determination
On 31 May 2001 the appointed accountant, Peter Bruce Wilkinson, made his determination. The effect of that determination was that the plaintiffs' interests owed to the defendants $9,806.10, that is to say, the accountant found that there was loss not a profit. His conclusion was reached upon the agreed balance as at 30 June 1998. In his determination the accountant stated that various documents and financial reports relied upon by the plaintiffs and the defendants were contained within their submissions and responses to questions raised. Further, he stated that on the basis that all prior period profits had been distributed by way of payment of crediting of the loan account of unit holders, he determined the unpaid profit of the plaintiffs as the percentage interest in the undistributed profits and losses. The defendants claimed that upon this determination the plaintiffs have no further entitlements.
The Plaintiffs' Contentions
The plaintiffs relied on the affidavit of Wilkinson. When the application first came on for hearing no such affidavit had been filed. In the course of submissions the plaintiffs applied for an adjournment to give consideration to the filing of an affidavit to be sworn by Wilkinson. Subsequently, such affidavit was filed and the hearing of the summons resumed. In the affidavit Wilkinson purported to re-visit the determination and express opinions as to what he did and did not do with respect to the formulation of his determination. It was not open to the plaintiffs to file and rely upon the particular affidavit of Wilkinson. His determination was a matter that was the subject of agreement by the parties in the terms. It was not open to the plaintiffs or for that matter the accountant himself to re-visit the determination.
The plaintiffs contended that clause 2.5 of the terms contemplated payment of profits only and did not impose on Fourth Taljan an obligation to share in any loss. The plaintiffs contended, further, that the payment referred to in clause 2.5(a) of the terms was a discrete payment. They argued that the company and the defendants were not entitled to hide behind a clear error made by the accountant appointed to determine the "unpaid profit" where he erroneously formed the opinion that payment already received by Fourth Taljan in respect of profits for the year ended 30 June 1999 amounted to $89,186.95 whereas in fact only $22,710 had been received in respect of that period and the difference, namely, the sum of $66,476.95 was referrable to the year ended 30 June 1998 and, therefore, should not be taken into account.
The plaintiffs conceded that the terms of settlement were clear on their face and that there was no deficiency in the parties' expression of their intended agreement. Rather, the plaintiffs submitted that the determination of the accountant was tantamount to imposing an implied term into the terms of settlement that Fourth Taljan was obliged to share in any loss of the company. The plaintiffs relied upon the relevant authorities in relation to the parole evidence and extrinsic evidence rules: see Codelfa Construction Pty Ltd v State Railway Authority of New South Wales (1982) 149 CLR 337; Schuler (L.)A.G. v Wickman Machine Tools Sales Limited (1974) AC 235, 261; Allen v Carbone (1975) 132 CLR 528, 531; also, BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, at 26.
The plaintiffs submitted that it would have been a simple matter for the parties to have provided for the inclusion of a term providing for the participation by Fourth Taljan in losses as well as profits if that had been the true intention of the parties. The plaintiffs submitted that it was not.
The Defendants' Contentions
The defendants claimed that the deed of settlement embodied the entire agreement between the plaintiffs and the defendants. Specifically, they submitted that the accountant was required to make a determination of the issues submitted to him and all parties were to abide by those determinations. Hence, they claimed each side was entitled to make submissions to the accountant and to exchange them between parties, therefore, all parties were to be fully aware of the facts and issues relied upon by the other side and thus able to address appropriate submissions.
The defendants made two further claims. First, that there is a substantial question of law to be determined as to the binding and final nature of the determination of the accountant pursuant to the deed of settlement. The defendants submitted that the plaintiffs remedy lies in seeking to have the determination by the accountant set aside. The second claim is that the issues of fact canvassed in the affidavits relied on by the plaintiffs are controversial and cannot be determined upon a summary application. The defendants submitted that if the court has jurisdiction then judgment cannot be pursued by the plaintiffs on a piecemeal dissection of the determination. Instead, a trial of the issues raised in the affidavits filed by the plaintiffs should be ordered.
The defendants contended that the issues, if any, that have arisen are not matters relevant. They submitted that the deed constituted a contract between the plaintiffs and the defendants who agreed to be bound by the determination and that the contract is the entire agreement between the parties. The defendants argued that the plaintiffs now seek not only to resile from their contractual obligations pursuant to the deed but also to challenge the findings made in the determination of the accountant.
The Contractual Matters
As a preliminary observation, I note that the present summons is not an application for summary judgment. However, the relief sought is akin to such a procedure. Smith J in Roberts v Gippsland Agriculture (1956) VLR 555 at 564 said the following as to the desirability of such a course:
"In deciding whether justice can be done under the summary procedure the Court, of course, needs to consider a variety of matters involving questions of degree. These, I think, must include the extent to which extraneous matters are involved, how substantial are the questions to be determined, to what extent questions of credibility are likely to arise, and whether pleadings and discovery may be desirable."
I am satisfied that the parties entered into terms of settlement that were binding. Part of those terms provided that an accountant was to conduct an assessment or calculation of a certain sum constituting the profit of the business. In accordance with those terms the parties agreed to orders by consent that the proceeding be struck out without right of reinstatement. The relevant accountant was appointed. The calculation was made. The outcome was a loss. The plaintiff, in effect, asserts that the effect of the accountant's calculation and finding was to give rise to an implied term outside the terms allowing for the finding of a loss. I do not accept that submission. The terms are clear. I do not consider that there is any substantial question as to the terms of their validity or enforceability.
The parties have agreed by contract to be bound. As a general statement of principle the courts will not interfere where an expert is retained to conduct an assessment and parties have agreed by express terms to be bound by that assessment: see Arenson v Arenson (1973) 1 Ch 346, 363 CA; also, Campbell v Edwards (1976) 1 WLR 403, 407, 408, CA. The parties cannot go behind the assessment in the absence of fraud or special circumstances: see Campbell v Edwards, supra, 407. Even if the accountant made a mistake in the assessment the parties could not go behind his assessment: see Arenson v Arenson, supra, 363; also, Campbell v Edwards, supra, 408.
The court cannot embark upon a judicial exercise to review the accountant's determination, to make various findings of fact, to consider whether or not the determination was correct or whether it is now just or proper to substitute an alternate determination. The plaintiffs' remedy lies elsewhere and not in reinstating the proceeding and having the court embark upon an exercise whereby, in effect, the plaintiffs would have the court substitute its determination for that of the accountant.
I do not accept the arguments on behalf of the plaintiffs that the determination by the accountant involved the insertion of an implied term into the terms of settlement between the parties. I form my view on two grounds. First, it would be completely illogical for an accountant to conduct an assessment or calculation of profit of a company but having conducted such exercise on the basis of a company's records to be precluded from a determination that there was in fact a loss rather than a profit. Secondly, if the calculation made by the accountant constituted a mistake or error, for the reasons already stated it is not appropriate to deal with the matter at this stage. Rather, relief, if any, for the plaintiffs lies elsewhere.
The Jurisdictional Issue
Turning to the second issue, namely, jurisdiction, the courts have contemplated the question of jurisdiction where a proceeding has been struck out and a party wishes to reinstate the proceeding either to enforce or to ventilate issues arising from terms of settlement: see Roberts v Gippsland Agricultural, supra, 562ff. As the consent order in this matter was one that struck out the proceeding reserving a right of reinstatement it differs somewhat from the more absolute circumstances of a consent order for dismissal or striking out without qualification: see Green v Rozen (1955) 2 All ER 797; Roberts v Gippsland Agricultural, supra, 565; Law v Law (1905) 1 Ch 140, 158 CA; Bailey v Marinoff (1971) 125 CLR 529, 539; Palmdale Insurance Limited (in liq) v L. Grollo and Co Pty Ltd (1987) VR 396, 397-399. Nevertheless, whilst there is a discretion to reinstate the proceeding such discretion should be exercised judicially and only if the court is satisfied that the circumstances warrant reinstatement: see In Re Swire 30 Ch D 239, 243; Ainsworth v Wilding (1896) 1 Ch 673, 678.
For the reasons I have expressed I consider that the plaintiffs are bound by the terms. I do not consider, therefore, that there is any basis to exercise the discretion to reinstate the proceeding previously struck out by consent. It follows that the summons will be dismissed.
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