Re SRW Nominees Pty Ltd (No 3)
[2020] VSC 475
•6 August 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS’ LIST
S ECI 2017 00223
IN THE MATTER of SRW NOMINEES PTY LTD
BETWEEN:
| LAURIENT HOLDINGS PTY LTD (ATF THE MICHAEL REINER FAMILY TRUST) AND MICHAEL JASON REINER | Plaintiffs |
| v | |
| SOFTPRO AUSTRALIA PTY LTD (IN ITS OWN RIGHT AND ATF THE WAJSMAN DISCRETIONARY TRUST), BEN WAJSMAN AND SHAGIL PTY LTD | Defendants |
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JUDGE: | Robson J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 June and 13 July 2020 |
DATE OF JUDGMENT: | 6 August 2020 |
CASE MAY BE CITED AS: | Re SRW Nominees Pty Ltd (No 3) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 475 |
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CORPORATIONS – Oppression proceedings under s 232 of the Corporations Act 2001 (Cth) – Final orders in the proceedings – Whether Judgment should be entered rather than mere final orders – Consideration of a stay application under r 66.16 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) – Application for a stay granted – Consideration of an application for indemnity costs – Costs ordered on the standard basis.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Grady | Coterminous Legal |
| For the Defendants | Mr CM Archibald QC, with Ms SM Hooper | Arnold Bloch Leibler |
TABLE OF CONTENTS
Introduction.......................................................................................................................... 1
Form of final orders............................................................................................................. 2
Decision on final form of the orders................................................................................. 4
Plaintiffs’ submissions on costs......................................................................................... 4
Defendants’ submissions on costs..................................................................................... 6
Decision on costs.................................................................................................................. 9
Stay of execution of judgment......................................................................................... 10
Defendants’ submissions on stay application............................................................... 10
Plaintiffs’ submissions on stay application.................................................................... 12
Decision on stay application............................................................................................ 13
HIS HONOUR:
Introduction
In this matter, Mr Michael Reiner and his related corporate entities instituted oppression proceedings against Mr Ben Wajsman and his related corporate entities. Mr Reiner sought an order that Mr Wajsman purchase Mr Reiner’s half share in the business.
The trial was heard in two parts. In May and June 2019, I heard evidence and argument on whether the conduct of Mr Wajsman was oppressive under s 232 of the Corporations Act 2001 (Cth) (Corporations Act).
Upon the conclusion of that hearing, I found that I was satisfied that the conduct of Mr Wajsman and the relevant corporations under his control had been and was contrary to the interests of the members of the corporations as a whole and oppressive to, unfairly prejudicial to, and unfairly discriminatory against Mr Reiner.
I found that the only fair remedy was to require Mr Wajsman to take complete control and ownership of the business by buying out Mr Reiner’s interest in the corporations.
Accordingly, on 11 June 2019, I ordered that Mr Wajsman and his company purchase Mr Reiner’s interest in the corporations for a price to be determined.
Reasons for these orders were published in Re SRW Nominees Pty Ltd (No 1).[1]
[1][2019] VSC 547.
In January 2020, I heard evidence and argument on the amount for which Mr Wajsman should purchase Mr Reiner’s half share in the business and on other orders for compensation and interest sought by Mr Reiner.
On 5 June 2020, I delivered judgment in this matter,[2] which fixed the sum payable by the defendants for the fair value of the plaintiffs’ shares, compensation for profits not distributed, and interest. I directed the plaintiffs to provide a proposed minute of order to the Court reflecting my decision and set down the matter for hearing on the form of final orders and costs in the proceeding.
[2]Re SRW Nominees Pty Ltd (No 2) [2020] VSC 323.
This judgment assumes knowledge of my earlier decisions, and I adopt the defined terms used in those earlier decisions.
The parties filed written submissions on costs on 25 June 2020.
On 25 June 2020, the defendants filed and served a summons, seeking a stay of execution of the judgment to be entered for 90 days, pursuant to r 66.16 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic). The application was supported by an affidavit of Ben Wajsman affirmed 25 June 2020. The application was set down for hearing on 26 June 2020 alongside the hearing on costs and form of final orders.
At the hearing on 26 June 2020, the plaintiffs sought an adjournment of the stay application to enable them to put on evidence in reply, to which the defendants agreed. The hearing of the application was adjourned to 13 July 2020.
At the hearing on 26 June 2020, I heard argument on costs, and on the final form of the orders in this matter. An issue between the parties was whether judgment should be entered, which would finalise the matter. I reserved my decision.
On 13 July 2020, I heard the defendants’ application for a stay of execution of the judgment. After a brief adjournment, I informed the parties of my decision on all outstanding issues, that is, on the form of final orders, on the costs in the proceeding, and on the application for a stay of execution of judgment. I ordered that judgment be entered for the plaintiffs, there be a stay of execution of judgment to the extent of $1,700,000, and that the defendants pay the plaintiffs’ costs of the proceeding on the standard basis.
I now provide reasons for my orders made 13 July 2020.
Form of final orders
A significant issue between the parties was whether judgment should be entered, which would bring the proceeding to an end.
The plaintiffs submitted that judgment should not be entered in this proceeding, but rather that the defendants should be ordered to pay the judgment sum, with liberty to apply reserved, for the following reasons.
The plaintiffs contend that in a usual oppression case, where a person is ordered to buy out the oppressed party, the latter retains their shares as security until such time as payment is made. In this case, the plaintiffs transferred all their shares in the corporations on 24 January 2020 in exchange for a significant interim payment prior to the hearing on quantum. The plaintiffs submitted that the need for the Court’s supervision arises because the defendants have obtained title to all the shares but have not yet paid for them. They contend that, should the defendants not comply with judgment, the plaintiffs should not be left to their cumbersome, costly, difficult methods of enforcement, but should instead be able to make an application to access further remedies under s 233 of the Corporations Act. By way of example, the plaintiffs indicated that an application to appoint receivers to the corporations could be made to the Court. If judgment were entered, the plaintiffs would not have standing to bring another oppression claim under s 233 as they are no longer shareholders in the corporations.
The plaintiffs further submitted that Mr Reiner was very concerned about his ability to enforce judgment, and the application for a stay has heightened his concern. The defendants’ application for a stay of execution is discussed below. The plaintiffs submitted that Mr Reiner’s apprehension is reasonable, when one has regard to the history of this proceeding and to my observations, in my ex tempore ruling at the conclusion of the hearing on liability, about Mr Wajsman’s approach to this proceeding. In my ex tempore ruling, I noted my impression that
Mr Wajsman would do everything in his power to frustrate any attempt to value the company on a basis that might do justice to Mr Reiner.[3]
[3]Ruling of Robson J dated 11 June 2019.
The defendants submitted that the proceeding is at an end and, accordingly, the further sum to be paid should be entered as a judgment of the Court. They submitted that the plaintiffs’ submission that the proceeding should remain on foot as a vehicle to assist the plaintiffs in judgment debt recovery is extraordinary. The defendants submitted that the plaintiffs will have all the ordinary judgment enforcement mechanisms available to any ordinary judgment creditor. The defendants contend that keeping the proceeding on foot would occasion further cost and is wholly inappropriate.
Decision on final form of the orders
I consider the usual mechanisms available to judgment creditors sufficient to enforce the judgment. My observations in my ex tempore ruling do not extend to a finding that Mr Wajsman would disregard an order of this Court to make payment. In the course of the proceeding, Mr Wajsman has not displayed any tendency to ignore orders of this Court to make payments to the plaintiffs.
Although there is some merit in the plaintiffs’ submissions, and having regard to my previous observations, in my opinion, it would be inappropriate for this proceeding to remain on foot once the defendants have been ordered to pay the judgment sum. I consider it in the interests of the parties, and the administration of justice, to finally resolve all issues in this matter. The parties have demonstrated a high degree of antagonism to each other, and have shown very little willingness to resolve the multitude of issues between them. The length of the quantum judgment amply demonstrates the degree to which the parties would go in disputing every possible issue. My concern is that if judgment was not entered, the antagonism between the parties may manifest itself in further applications to the ultimate detriment of both parties. In my opinion, it is in the interests of both parties, and in accordance with the overarching purpose of the Civil Procedure Act2010 (Vic), that the matter be brought to an end.
Plaintiffs’ submissions on costs
As regards the costs of the proceeding, the plaintiffs sought an order that the defendants pay the plaintiffs’ costs on an indemnity basis. The plaintiffs submit that the conduct of the proceedings by the defendants, as detailed in the liability judgment, justifies a departure from the standard basis for the assessment of costs.
In the liability judgment, I found that Mr Reiner had not been given full access to the books and records of the corporations in order to litigate these proceedings.[4] I found that, at times, Mr Reiner’s limited access to the books and records was completely cut off by Mr Wajsman.[5] I found that the IT expert engaged by the plaintiffs was unable to log in with the credentials provided to Mr Reiner and that, in respect of certain data, the IT expert had to seek assistance from a highly skilled colleague to hack into the data in order to access it.[6]
[4]Re SRW Nominees Pty Ltd [2019] VSC 547, [105].
[5]Ibid.
[6]Ibid [102].
The plaintiffs contend that the behaviour of the defendants in this proceeding, in restricting access to books and records, constitutes misconduct in the defence of the proceedings. They contend that, accordingly, a special costs order is necessary to do justice to Mr Reiner, and to express the Court’s rightful denunciation of the defendants’ conduct.
Moreover, the plaintiffs submit that the defendants’ misconduct unduly prolonged the litigation by preventing the matter from being finally determined at the May 2019 trial, and necessitated a second hearing on quantum some seven months after the first hearing on liability. The plaintiffs contend that the second hearing occasioned significant cost to Mr Reiner and delayed the judgment to which the Court has found Mr Reiner was entitled. They submit that such delay also causes non-financial consequences for litigants, such as additional stress, distraction and delay, which should not be ignored.
Finally, the plaintiffs contend that the defendants’ conduct also had broader impacts for the administration of justice, such as depriving other litigants of valuable judicial resources, and eroding confidence in the administration of justice. In Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd, Kirby P held that
The Court is entitled, in modern circumstances of enlarged attention to the efficient administration of justice, to keep in mind the consequence of an indemnity costs order not only for the particular parties before it but for the signal which it sends about the due administration of justice in like cases.[7]
[7]Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242, 246.
The plaintiffs submit that this is a relevant consideration in the Court’s discretion to award indemnity costs.
Defendants’ submissions on costs
The defendants submit that the plaintiffs have not discharged the burden of showing that the order for costs should depart from the standard position. The defendants contend that the access issue alone is not sufficient to invoke the Court’s indemnity jurisdiction.
The defendants submit that the appropriate costs orders are as follows:
(a) the defendants pay the plaintiffs’ costs of the proceeding on the standard basis up to and including 21 August 2019, being the date the plaintiffs confirmed no access issues remained; and
(b) the defendants pay 65% of the plaintiffs’ costs on the standard basis thereafter, reflecting the fact the plaintiffs only enjoyed limited success in respect of the quantum aspect of the trial. This factor is discussed below.
In the alternative, the defendants submit that the defendants pay the plaintiffs’ costs of the entire proceeding on the standard basis.
The defendants contend that the plaintiffs were not wholly successful in their claim, as they succeeded only in part in establishing that they were entitled to the relief they sought at the quantum hearing, both as regards the money sum awarded, and the ruling of the Court on many of the issues agitated by the plaintiffs.
The defendants’ submission refers to two documents which the plaintiffs filed in support of their claim: an Amended List of Issues; and a Calculation of Plaintiffs’ Claim document.
The hearing on quantum was conducted with extensive reference to the Amended List of Issues, which detailed the issues for the Court to decide to determine the quantum payment due to the plaintiffs. The quantum judgment considered each contested issue.
The defendants submit that the plaintiffs lost on more issues than they won, as the Court adopted the plaintiffs’ position on eight issues, but the defendants’ position on ten issues. In the remaining eight issues, the Court’s decision reflected some point between the plaintiffs’ and defendants’ positions.
After the trial, the plaintiffs filed a Calculation of Plaintiffs’ Claim document, which enumerated their claim as to the fair value of the plaintiffs’ shares, the compensation owed to the plaintiffs for profits not distributed, and interest, as at 5 February 2020. The defendants filed a document in response, detailing their position on the same.
The defendants submit that the judgment sum awarded to the plaintiffs was around 63.2% of the sum the plaintiffs claimed at 5 February 2020. In the quantum judgment, compensation for profits and interest were calculated to 23 June 2020, being the date proposed in the judgment for final orders to be entered. The defendants further submit that if the plaintiffs’ claim for compensation and interest were updated to 23 June 2020, the sum awarded by the Court would represent approximately 60.9% of the plaintiffs’ claim.
The defendants submit that, from 22 August 2020, the defendants should pay 65% of the plaintiffs’ costs on the standard basis, to reflect the fact the plaintiffs were only partially successful in respect of their quantum claim.
As discussed above, the plaintiffs contend that the defendants’ conduct in restricting access unduly prolonged the litigation by preventing the matter from being finally determined at the first trial hearing. The defendants dispute this, contending that quantum matters could not be resolved at the initial trial hearing because the plaintiffs only raised objections to the joint expert valuation on the first day of trial.
In preparation for trial, a joint expert valuation was ordered by the Court.[8] Mr Darryn Hockley of Grant Thornton was appointed by the Court and jointly engaged by the parties.[9] Mr Hockley’s report was finalised on 10 October 2018, some seven months prior to the commencement of the trial. On the first day of trial, the plaintiffs brought an application to amend their points of claim, as they did not accept the financials which formed the basis of Mr Hockley’s valuation. Counsel for the plaintiffs indicated that the plaintiffs sought to lead valuation evidence of their own, but were not in a financial position to do so, and would not be in such a position unless the Court found the defendants’ conduct oppressive and ordered interim relief payments.
[8]Order of Kennedy J made 2 March 2018.
[9]Order of Kennedy J made 24 August 2018.
The defendants contend that the need for a second hearing on quantum arose because the plaintiffs did not raise their rejection of the Hockley Report in the seven months between its finalisation in October 2018 and the first day of trial on 27 May 2019.
Moreover, the defendants contend that the quantum trial was further delayed by the plaintiffs’ actions. The continuation of the trial was set down for hearing on 19 November 2019. Orders made 15 August 2019 set down timetabling dates. The plaintiffs failed to comply with the orders, by which they were required to file and serve any further affidavits on which they intended to rely, and any expert report, by 4 October 2019.[10] The defendants contend that, because of the plaintiffs’ failure to comply, the defendants still did not know what payment the plaintiffs were seeking by 4 October 2019 and, accordingly, the continuation of trial was vacated and re-fixed for hearing commencing 29 January 2020.
[10]Order of Robson J made 15 August 2019.
The defendants contend that the re-fixing from November to January prolonged the proceeding, and in turn the compensation and interest to which the plaintiffs were entitled.
The defendants also complain that they incurred significant costs in responding to three affidavits of Michael Reiner filed in preparation for the quantum hearing, including significant portions of the affidavits which were ultimately not relied upon. One affidavit was not relied upon at all at trial, and the two other affidavits were heavily filleted during the hearing, as many issues which they initially put in dispute were not pressed at trial.
Finally, the defendants submit that even if the proceeding was prolonged solely due to the access issues caused by the defendants’ conduct, indemnity costs do not follow by reason of that fact alone, either in respect of the period for which the proceeding was prolonged or the entire proceeding.
Decision on costs
I consider that the defendants’ conduct in the proceedings in relation to access to books and records constitutes reasonable grounds that enlivened the Court’s power to award indemnity costs.
On the other hand, I find that the litigation was prolonged by the plaintiffs by their failure to raise their rejection of the joint expert valuation prior to the first day of trial, and that it was further prolonged by the plaintiffs’ failure to comply with timetabling orders, which necessitated a further two-month delay of the quantum hearing. I accept that both delays would have occasioned further costs for both parties. I also accept the defendants’ submissions that the plaintiffs were only partially successful in obtaining the relief they sought at the hearing on quantum, which took three sitting days.
In reply, counsel for the plaintiffs submitted that costs require the Court to make an overall evaluative judgment of where the discretion lies, and referred to Elite Protective Personnel Pty Lt v Salmon (No 2)[11] as authority for the proposition. In that case, the Court held that
Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation.[12]
[11][2007] NSWCA 373.
[12]Ibid [11] citing James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261, 272.
In exercising my discretion based upon matters of impression and evaluation, I find that a fair and reasonable outcome would be met by an order that the defendants pay the plaintiffs’ costs of the whole proceeding on the standard basis. In doing so, I have not ordered indemnity costs on the basis of Mr Wajsman’s conduct, which I found constitutes reasonable grounds for such an order, nor have I disallowed any costs on grounds the plaintiffs received less than they claimed, lost on many discrete issues, and prolonged the litigation which occasioned further cost.
Stay of execution of judgment
In the quantum judgment, I found that a sum of $3,526,299 was payable by the defendants to the plaintiffs for their claim, of which some $1.7 million has been paid in interim payments.[13] Accordingly, some $1.8 million is still to be paid. As discussed above, the defendants submitted, and I accepted, that judgment should be entered for the remaining amount. The defendants sought a stay of execution on judgment entered in order for Mr Wajsman to obtain finance from the National Australia Bank (‘NAB’) to pay the judgment sum.
[13]Re SRW Nominees Pty Ltd (No 2) [2020] VSC 323, [302]. A further interim payment of $15,000 was made on 12 July 2020.
Defendants’ submissions on stay application
The defendants sought a stay of 90 days from the date of judgment, being the timeframe they contend would be required for NAB to process an application for finance in the present circumstances. The time required by the bank for processing appears to have been enlarged by the current COVID-19 pandemic and the resulting economic climate. The defendants contend that NAB requires the entry of formal judgment to commence the formal application process. The plaintiffs do not dispute that the application process may take 90 days.
The defendants submit that, as Mr Reiner obtained the benefit of substantial interim payments, they should be allowed a fair opportunity to obtain finance so that the best prospect of meeting the judgment can be achieved. They submit that a stay would allow for that process to take place without distraction or disturbance from Mr Reiner seeking to exercise his rights to enforce the judgment immediately.
In his affidavit affirmed 25 June 2020, Mr Wajsman deposed of his concern that any immediate action by Mr Reiner to enforce the judgment may jeopardise the bank application.
The defendants submit that a stay is consistent with the rationale of the relief granted, that the defendants be compelled to buy out the plaintiffs’ share. At trial, the plaintiffs sought an order that the defendants buy out their shares, as opposed to a public sale process or an order for damages. The plaintiffs obtained their preferred relief. The defendants submit that the form of relief should carry with it an implication of a reasonable time period for the person being compelled to buy the shares to raise the funds to do so. I accept there is merit in this submission.
Of dispute between the parties is whether the defendants, through the corporations, have sufficient cash resources to meet the judgment without obtaining finance. The defendants contend that they do not currently have sufficient liquid funds available to pay the judgment amounts as a lump sum.
The plaintiffs relied on an expert opinion of Mr Campbell Jackson dated 1 July 2020, in which Mr Jackson analysed the financial position of the corporations to provide a liquidity analysis and cash flow statement analysis. Mr Jackson opined that, based on the information in the exhibits to Mr Wajsman’s affidavits, as at 30 April 2020, the two main trading corporations, SRW and BBSF, had surplus working capital (excluding related party debts) in the range of $1,159,888 and $1,355,537, depending on the assessment of the Accounts Receivable.
The defendants submit that the plaintiffs’ material, including Mr Jackson’s report, does not get high enough to conclude that there are available resources now in the companies to meet the judgment amount of $1.7 million without finance. They contend, which I accept, that working capital is not a cash resource. They further submit that, given the worsening of the current pandemic since 30 April 2020, further contest may indicate a slightly or vastly worsening financial position of the corporations.
Plaintiffs’ submissions on stay application
The plaintiffs submit that the prima facie position is that the plaintiffs are entitled to the fruit of their judgments and to have it enforced immediately and without delay.
The plaintiffs submit that all Mr Reiner seeks to achieve through this proceeding is to be paid for what was taken from him by Mr Wajsman four years ago. Accordingly, they submit, Mr Wajsman has had four years to raise funds and Mr Reiner should not have to wait a day longer in order for Mr Wajsman to be able to pay the debt in a manner most convenient to him. The plaintiffs submit that Mr Wajsman’s conduct, both in oppressing Mr Reiner and throughout the proceedings is, in and of itself, a reason the stay application should be dismissed.
The plaintiffs further submit that the Court cannot conclude that the defendants are unable to meet the judgment. They contend that Mr Wajsman has significant interests in property and has not deposed as to their worth. It may be, the plaintiffs submit, that judgment could be met by the sale of a property. On this point, counsel for the defendants submitted that the property interests are ‘mortgaged to the hilt’ and confirmed they form part of NAB’s cross-security against the defendants’ loan facilities of $3.2 million and $1.6 million.
At the hearing, counsel for the plaintiffs clarified that he does not contend that all free cash in the business should be taken out to meet the judgment debt. He conceded that any responsible director of a business must ensure that the corporation has sufficient working capital. Instead, counsel contended that the surplus working capital of $1.1 million indicates some capacity for the companies to pay some amount now.
Finally, the plaintiffs submit that Mr Wajsman’s financial position must be balanced against that of Mr Reiner, which the evidence demonstrates is poor.
Decision on stay application
On the evidence before me, I accept that the defendants do not have sufficient cash available to pay the considerable judgment amount. I accept that any immediate enforcement action by Mr Reiner may jeopardise the prospects of Mr Wajsman obtaining finance to fully and finally meet the judgment.
I accept the defendants’ submission that, given significant interim payments have been made to Mr Reiner, Mr Wajsman should be allowed a fair opportunity to obtain finance to fully and finally meet the judgment sum, which I consider to be in the interests of both parties. I accept that a stay is consistent with the rationale of the relief sought and granted.
I find that the plaintiffs have not established that the corporations have sufficient liquidity to make good the judgment without finance. Furthermore, as conceded by the plaintiffs, I do not consider that the defendants should have to take out all free cash in the businesses. First, the corporations are not defendants in this proceeding, and, as the plaintiffs conceded, a responsible director must ensure that the companies have sufficient working capital to continue.
Second, the plaintiffs sought a buyout of its shares by the defendants, as they considered such relief would result in a greater money sum than a public sale or the winding up of the corporations. The plaintiffs contended, and I accepted, that the business would probably be worth more to defendants than to a third party. Consistently with the relief sought by the plaintiffs, the defendants should be given some latitude to raise the buyout sum, particularly as plaintiffs accepted that the business itself would not be sold by the defendants to meet the plaintiffs’ judgment.
Further, on the evidence before me, I am not satisfied that the corporations have sufficient liquidity to provide the funds to buy out the plaintiffs’ shares without adversely impacting their trading in the current economic climate, in practice risking a winding up of the corporations. In my opinion, it would not be fair to refuse a stay on the grounds the defendants are able to do so, given that the plaintiffs did not seek a winding up order, but received the benefit of a greater value for their shares through pursuit of a buyout order.
On the other hand, I accept that Mr Reiner’s financial position is also poor. Accordingly, I consider that a stay should be granted, save for the amount which I consider the defendants are able to pay immediately. Although I raised the option of a partial stay with both counsel, neither party made any submissions on the amount which the defendants could currently pay as a lump sum.
In his affidavit in support, Mr Wajsman deposed that, with the agreement of NAB, the defendants could draw down on existing facilities to pay a ‘small lump sum amount’, and would agree to do so. He did not depose to a sum. However, Mr Wajsman deposed that he is a guarantor of a NAB loan facility of $1,632,800, held in the name of the first defendant, which has a drawn balance of $1,531,641.49. Accordingly, I infer that the amount referred to by Mr Wajsman is around $100,000.
In balancing the financial positions of Mr Reiner and Mr Wajsman, I consider a stay of execution to the extent of $1,700,000 for 90 days but not otherwise, is appropriate.
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