Re Venture Capital Group Pty Ltd (No 3)
[2018] VSC 513
•12 September 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COPORATIONS LIST
S CI 2012 03857
IN THE MATTER OF VENTURE CAPITAL GROUP PTY LTD (ACN 111 119 914)
(in its own right and as trustee of the VCG Trust)
| ALPHATER CONSULTING ENGINEERS PTY LTD (ACN 107 954 629) | Plaintiff |
| v | |
| MILES ROZMAN and ORS | Defendants |
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JUDGE: | Robson J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 July 2018 |
DATE OF JUDGMENT: | 12 September 2018 |
CASE MAY BE CITED AS: | Re Venture Capital Group Pty Ltd (No 3) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 513 |
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CONTRACT – Plaintiff a minority interest holder in a café business – Agreement by the defendant to buy out minority interest holder at market valuation under the terms of a dispute resolution agreement – Dispute as to construction of the agreement – Orders sought on the construction of the agreement and for performance of the dispute resolution agreement – Specific performance – Whether Court had power to appoint a valuer that required agreement of both parties and where parties could not agree.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D B Clough | Lennon Mazzeo |
| For the Defendants | Mr M S Osborne QC with Mr K R Hickie | B2B Lawyers |
TABLE OF CONTENTS
Introduction.......................................................................................................................... 1
Interlocutory process.......................................................................................................... 2
Minority interest.................................................................................................................. 3
Resolution of the minority interest issue......................................................................... 8
Appointment of Mr Stout................................................................................................... 9
Specific performance of the dispute resolution agreement........................................ 13
Damages.............................................................................................................................. 14
Costs.................................................................................................................................... 14
Conclusions........................................................................................................................ 15
HIS HONOUR:
Introduction
Mr Parisi (through Alphater Consulting Engineers Pty Ltd (Alphater)) and Mr Rozman (and companies of his) own Venture Capital Group Pty Ltd and other entities, known as the VCG Group, that conducted the Café Moderno and the Bite Franchise businesses. Mr Parisi and Mr Rozman fell out and entered into a dispute resolution agreement (DRA), under which Mr Rozman and his companies were to acquire Mr Parisi’s 25.5 per cent interest in the VCG Group at their market valuation. I will refer to Mr Rozman and his companies simply as Mr Rozman.
Under the DRA, Mr Rozman and Alphater were to each nominate their own valuer to complete valuations of the VCG Group. In the event that the valuers disagreed, the valuers were to meet and identify the matters in issue between them and those matters were then to be referred to an independent expert who would resolve the issues in dispute and complete the valuation.
The parties each appointed valuers which reached different valuations. The parties were unable to agree on the terms of the DRA that governed the role of the independent expert which led to the originating process being issued on 6 July 2012 by Alphater. The Court was asked to answer certain questions relating to the construction of the DRA. I did so and made orders accordingly.[1]
[1]Re Venture Capital Group Pty Ltd [2012] VSC 654.
The valuations had been carried out by Mr Richardson on behalf of Alphater, and Mr Bala on behalf of Mr Rozman. The valuers did not agree with each other’s valuations. After my judgment in October 2012, the parties appointed Mr Kenneth Stout of Boutique Corporate Advisory to be the independent expert to resolve the issues in dispute between the two valuers and to complete the valuation.
On 30 July 2014, some months after he was appointed, Alphater terminated Mr Stout’s engagement as the independent expert. Mr Rozman contended that Alphater’s termination of Mr Stout’s engagement was a breach of the DRA and that the breach constituted a repudiation of the agreement.
On 5 August 2014 Mr Rozman purported to accept Alphater’s alleged repudiation of the DRA. Alphater disputed it had breached the DRA and its purported termination.
The original proceeding was brought back before me to resolve whether or not the DRA had been breached by Alphater and terminated by Mr Rozman. In Re Venture Capital Group Pty Ltd (No 2),[2] I held that Alphater’s termination of Mr Stout’s engagement was in breach of the DRA. I held that Alphater, by such action, had repudiated the DRA and that Mr Rozman had accepted the repudiation of the DRA, and thus terminated it.
[2][2015] VSC 319.
The Court of Appeal in Alphater Consulting Engineers Pty Ltd v Miles Rozman[3] set aside my orders and held that Mr Stout’s engagement had been wrongly terminated by Alphater but that Alphater had not, by so doing, repudiated the agreement. The Court of Appeal remitted the proceeding to the Trial Division for rehearing and determination in accordance with their reasons. The Court said:[4]
The question of damages and all issues concerning the further performance of the dispute resolution agreement, including the appointment of an independent expert (who subject to his consent, could theoretically be Mr Stout) are matters more suitable to be dealt with in the Trial Division after calling of such further evidence, if any, as the judge hearing the matter considers appropriate.
[3][2016] VSCA 111 (‘Alphater v Rozman’).
[4]Alphater v Rozman, [69].
The Court of Appeal published further reasons and pronounced orders on 1 June 2016. Relevantly, the Court of Appeal ordered that the costs of the proceeding in the Trial Division to date be reserved to the judge who hears the remitted proceeding.[5]
[5]Order 7 of the Court of Appeal of 1 June 2016.
Interlocutory process
By an interlocutory process dated 1 June 2018, in this proceeding, Alphater made an application under s 36 of the Supreme Court Act 1986 for declaratory relief under the Court’s inherent powers in equity to order specific performance and its inherent powers to order costs.
On the facts stated in the affidavit of Nick Mazzeo dated 1 June 2018, Alphater seeks the following relief:
1Declaration that it is a term of the Dispute Resolution Agreement that the value of Alphater’s interests in the VCG Group shall not be reduced due to Alphater’s interest being a minority holding but rather shall be 25.5% of the value of the VCG Group determined as if the latter were sold in its entirety as a going concern.
2Specific performance of the Dispute Resolution Agreement, such that [Alphater], jointly with [Miles Rozman and ors], re-appoint Mr Kenneth Stout, alternatively another independent expert to conduct the third stage of the said Dispute Resolution Agreement and, if not Mr Stout and in default of agreement in respect of the appointment of another independent expert, an independent expert appointed by the President for the time being of the Institute of Chartered Accountants.
3Specific performance of the Dispute Resolution Agreement, such that the propose [sic] letter of instruction to the independent expert as NM-15 to the affidavit, be the terms of engagement of Mr Stout, alternatively another independent expert.
4With respect to the proceeding remitted to the trial division by the Court of Appeal by order 5 made on 1 June 2016, order that any damages payable by [Alphater] to [Mr Rozman and ors] are confined to costs and expenses thrown away by reason of the unilateral decision of [Alphater] to terminate the engagement of Mr Stout but excluding the costs of and associated with [Mr Rozman’s and ors’] provision of material to Mr Stout in breach of the Dispute Resolution Agreement or the Stout engagement.
5With respect to the question of costs remitted to the trial division by the Court of Appeal by order 7 on 1 June 2016, order that Mr Rozman and ors pay Alphater’s costs of an [sic] incidental to the proceeding.
6Order that Mr Rozman and ors pay Alphater’s costs of and incidental to this application.
Minority interest
Alphater submits that Mr Rozman has created an issue to be resolved by the independent expert that was not identified as an issue by the two initial valuers when they met and identified the issues between them, as required under the DRA. In particular, Alphater says that Mr Rozman has raised as an issue whether Alphater’s interest should be valued by merely dividing the value of the VCG Group as at 30 June 2010 by 25.5 per cent (which is Alphater’s interest in the VCG Group) or whether Alphater’s interest should be valued as a minority interest.
Alphater submits that the DRA provides for the valuation of Alphater’s “interest” in the VCG Group, not Alphater’s shareholdings. Alphater submits that the concept of a “minority interest” might be apt for valuation of a shareholding but not for a broadly conceived “interest” for the purposes of a simple settlement agreement.
Alphater says that in Stage 1 of the DRA, each of the parties’ valuers (Mr Richardson and Mr Bala) simply calculated 25.5 per cent of their respective valuations of the VCG Group.[6] Neither treated Alphater’s interest as a minority interest or took any such issue into account.
[6]The valuation of Mr Richardson, for the Plaintiff, is Exhibit MAP-17 of the Affidavit of Matthew Alfred Parisi sworn 6 July 2012 (July 2012 Parisi Affidavit); Plaintiff’s Document Bundle, p 1. The valuation of Mr Bala, for the Defendants, is Exhibit MAP-18 of the Parisi Affidavit; Plaintiff’s Document Bundle, p 9.
Alphater says that in Stage 2 of the DRA, neither Mr Richardson nor Mr Bala identified the minority interest issue as a matter of difference between them.[7] Neither party raised the issue at that time.
[7]The letter provided by Mr Richardson for the purposes of Stage 2 is contained in Exhibit MAP-32 of the July 2012 Parisi Affidavit; Plaintiff’s Document Bundle, p 13. The letter provided by Mr Bala for the purposes of Stage 2 is contained in Exhibit MDS-9 of the Affidavit of Matthew Dominic Sweeney sworn 1 May 2015 (May 2015 Sweeney Affidavit); Plaintiff’s Document Bundle, p 23.
Alphater submits that Mr Stout, in his letter[8] dated 11 October 2013 to the parties, asked: “What are the instructions for the [Independent Expert] regarding assumptions (the possibility of buying that interest considered a minority interest) …?”
[8]May 2015 Sweeney Affidavit, Exhibit MDS-2; Plaintiff’s Document Bundle, p 35.
Alphater’s solicitors, by their letter[9] dated 28 October 2013, replied to Mr Stout:
“The determination of [Alphater’s] interest in the VCG Group as at 30 June 2010 should be a simple arithmetic exercise of 25.5% of the whole i.e. you can assume that [the Plaintiff] holds a 25.5% interest in the entire VCG Group.
This is an agreed buy out, therefore you should value the entire VCG Group and simply calculate 25.5% of that amount.”
…
“The valuation date has been determined by agreement. You are simply to value the VCG Group as at the agreed date, with full information at your discretion, and assume that Alphater/Parisi interest is 25.5% of the whole.”
[9]Affidavit of Matthew Alfred Parisi sworn 5 November 2014 (November 2014 Parisi Affidavit), Exhibit MAP-43; Plaintiff’s Document Bundle, p 39.
Mr Rozman’s solicitors, by their letter[10] dated 15 November 2013, replied to Mr Stout:
“It is agreed that [the Plaintiff’s] interest is 25.5% of the Group. It is a matter for you how you approach the individual enterprises, but the Parisi interest is 25.5% in each case. There are no agreed assumptions as to a minority interest and that is a valuation issue for you.”
…
“We do not agree that you are required (necessarily) to simply arrive at a total value and then calculate 25.5% of that total. It is a matter for you how you say the 25.5% interest may be arrived at, and whether questions of premium or minority discounts are relevant, provided that you reach a conclusion as to the value of the 25.5% interest taking into account any relevant valuation matters as you see fit.”
[10]November 2014 Parisi Affidavit, Exhibit MAP-44; Plaintiff’s Document Bundle, p 42.
The Dispute Resolution Agreement
It is useful to set out the relevant terms of the dispute resolution agreement. The Court of Appeal in Alphater v Rozman set out the terms of the dispute resolution agreement as follows.
[17] The terms of the agreement were the subject of an earlier hearing, in the oppression proceeding, conducted by the trial judge.[11] In the first judgment, the trial judge found that the terms of the agreement were as follows:
[11]Re Venture Capital Group Pty Ltd [2012] VSC 654 (‘the first judgment’).
(a) Miles Rozman (or his nominee) shall purchase all of Alphater’s interests in Venture Capital Group Pty Ltd (‘VCG’), the VCG Unit Trust and all other entities and trusts forming part of the Café Moderno and Bite businesses (‘VCG Group’), at their market valuation.
(b) The aforesaid ‘market valuation’ shall be determined as follows:
i) (Stage 1) Miles Rozman, Darren Brierley and VCG, on the one hand, and Matthew Parisi and Alphater, on the other, shall each engage a valuer to provide a valuation of Alphater’s interest in the VCG Group.
ii) (Stage 2) The two valuers shall then meet to attempt to resolve any differences between their respective valuations and to identify any issues not capable of resolution.
iii) (Stage 3) Any issues which are unable to be resolved as between the valuers then be referred to an independent expert for determination and each of Miles Rozman, Darren Brierley and VCG, on the one hand, and Matthew Parisi and Alphater, on the other, be bound by the determination of such expert and the resulting valuation.
(c) Miles Rozman, Darren Brierley and VCG shall provide to Matthew Parisi and Alphater such access to the financial records of the VCG Group as their valuer requires for the purpose of conducting his valuation.
(d) Until the resolution of the dispute, Miles Rozman, Darren Brierley and VCG undertake:
i) At all times to conduct the VCG [business] in a bona bide [sic] manner.
ii) Not to open any other bank accounts in the name of VCG or use for VCG’s benefit any accounts other than the Westpac accounts currently held by VCG, without providing to Matthew Parisi and Alphater 7 days advance notice in writing.
iii) Miles Rozman, Darren Brierley and VCG shall provide to Matthew Parisi weekly accounts extending payment terms with suppliers (if such reports exist), quarterly details of rebates, monthly bank statements and monthly PLU summaries, subject to Matthew Parisi and Alphater providing an undertaking of confidentiality in relation to any reports provided.
iv) At all times allow only the payment of bona fide expenses of VCG from the bank account referred to in the previous paragraph as incurred in the ordinary and proper course of business and not to pay any sum of money to themselves or any other person unless authorised in writing by Matthew Parisi, save that:
1. Miles Rozman and Darren Brierley reserve the right to call for the repayment of funds recently advanced to VCG by them for the purposes of renovation of Chadstone, Armidale and Epping should external finance become available, otherwise loan accounts shall be repaid only on the basis that Matthew Parisi receives the same pro rata payment (in accordance with his unit holding in the VCG Unit Trust) on his loan accounts.
2. Miles Rozman be reimbursed for business expenses incurred by him on the credit card used by him for purchases and expenditures for the VCG Group, subject to Miles Rozman providing relevant documents relating to [sic]
Qualifications 1 and 2 shall be subject to Miles Rozman, Darren Brierley or VCG providing to Matthew Parisi and Alphater (and/or its representatives) relevant documents in relation to such financing, advances and credit card use upon request.
v) To provide access to and copies of the books and records of VCG including its financial records to Matthew Parisi’s and Alphater’s accountants and all legal advisers (for the purposes of any valuation and providing instructions to Matthew Parisi’s and Alphater’s accountant and legal advisers) at the cost of Miles Rozman, Darren Brierley or VCG.
(e) In the event that the matter be referred to an independent expert for determination as referred to in Paragraph (b)(iii) above then:
i) The expert must be a qualified accountant with substantial experience in the valuation of companies and operations similar to those conducted by VCG.
ii) The parties must agree the identity of the expert within 7 days after a final report is obtained from a meeting of the parties’ respective valuers and if the matter is unable to be resolved, failing which the identity of the expert will be determined by the Institute of Chartered Accountants.
iii) As far as practicable the parties and the independent expert be bound by Rule 50 (Referee out of Court) of the Supreme Court (General Civil Procedure) Rules 2005 (Victoria).
(f) Each party is to meet the costs of their own valuation.
(g) The parties’ respective valuations are to be conducted by reference to documents including but not limited to:
i) The VCG books of account up to 30 June 2010.
ii) The documents set out in the facsimile dated 30 November 2010 from KSR Partners to Shankar Balac [sic].
[18] While originally there was a dispute about whether (g)(i) was a term of the agreement, in the first judgment, the judge concluded that the agreement did not contain any term that the books would be limited to the accounts up to 30 June 2010. Immediately one can see that (g)(i) of the agreement does not have the effect of limiting the independent expert’s reference to documents to books of account up to 30 June 2010. Thus the apparent dispute between the parties as to the existence of the term in (g)(i) is of no moment for present purposes.
Mr Rozman does not dispute that originally under Stage 2 the two valuers were to meet to attempt to resolve any differences between their respective valuations and to identify any issues not capable of resolution. Mr Rozman does not dispute that the valuers did not identify as an issue, whether Alphater’s interest should be merely valued as a percentage of the valuation of the VCG Group, or as a minority interest.
Mr Rozman submits, however, that when the parties agreed on the instructions to Mr Stout as the independent expert, they varied or refined the terms of the DRA. Mr Rozman points to the instructions to Mr Stout agreed to by both parties which state:
Having determined the valuation of the VCG Group as at 30 June 2010, you are to value Alphater’s interest in the VCG Group, assuming a 25.5% share.
….
You may take into account any additional factual material which you request be provided by the parties, provided it is relevant to resolving the differences between the first two valuations (as set out in the aforementioned Richardson report and Bala letter) and, therefore, the valuation as at 30 June 2010 of the VCG Group and Alphater’s interest in it.
Mr Rozman says that these instructions leave open the point that 25.5 per cent may not be merely a mathematical calculation and that the parties may make submissions to the independent expert on that issue.
Resolution of the minority interest issue
In my opinion the valuation of Alphater’s interest should be conducted on the basis that Alphater’s interest should not be reduced by being a minority holding, but should be 25.5 per cent of the value of the VCG Group as determined by the independent expert.
The only matters to be referred to the independent expert were the issues that were in dispute as between the initial valuers appointed by each of Alphater and Mr Rozman. The valuers were to meet and identify the issues in dispute between them. The valuers did not identify as an issue for resolution whether Alphater’s interest should be valued as a minority interest and not as being 25.5 per cent of the value of VCG, determined as if the latter were sold in its entirety as a going concern.
I am not satisfied that the letter to Mr Stout constituted a variation of the DRA to permit valuing Alphater’s interest as a minority interest. I would expect a clear and unambiguous statement of intention to vary the DRA if that were intended. The passages in the letter relied on by Mr Rozman are ambiguous to say the least.
I am satisfied that under the terms of the DRA it is not open to the independent expert to value Alphater’s interest on any basis other than 25.5 per cent value of the VCG Group as a whole. Accordingly, I will make the declaration sought to the effect of paragraph 1.
Appointment of Mr Stout
As stated in the interlocutory process, Alphater seeks an order that Mr Stout be reappointed the independent expert.
Alphater may be liable to pay damages for its breach of the DRA by wrongly terminating Mr Stout’s appointment. Alphater argues that it would be efficacious if Mr Stout were reappointed, as he has already grasped the relevant information of the matter and, accordingly, costs would be avoided by his reappointment. Mr Stout is willing to be re-engaged.
Alphater submits that the failure to reappoint Mr Stout unnecessarily adds to the parties’ costs of complying with Stage 3 of the DRA, insofar as it entails wasted expenditure on the time it would take another independent expert to achieve the degree of knowledge of the matter that Mr Stout already has.
Alphater says that if Mr Stout is re-engaged then Mr Rozman will have suffered little or no loss from the breach. Alphater says that Mr Rozman’s reasons for refusing to re-engage Mr Stout are not compelling. Alphater says that Mr Rozman’s failure to agree to reappoint Mr Stout unnecessarily and unreasonably inflates Mr Rozman’s asserted claim for damages arising from the termination of Mr Stout’s previous engagement. Alphater submits that any loss suffered by Mr Rozman will be mitigated by the re-appointment of Mr Stout and that Mr Rozman has an obligation to take reasonable steps to mitigate the loss arising from Alphater’s breach of the DRA. Alphater says that it will be difficult to calculate any loss. Alphater submits that the difficulties will be largely avoided if Mr Stout is reappointed.
Alphater submits that specific performance ought to be granted, to require Mr Rozman to re-engage Mr Stout jointly with Alphater, for the reasons given above.
Alphater submitted that an order for specific performance is a discretionary remedy granted on equitable principles with an eye to the substantial justice of the case. Mr Clough, counsel for Alphater, cited in support passages from Dal Pont Equity and Trusts in Australia,[12] where the learned author says:[13]
A decree of specific performance is a court order to a contracting party to perform her or his obligations according to the terms of the contract. It is understood by the notion that personal obligations under a contract should be enforced where damages would be an inadequate remedy. Being a creature of equity, specific performance is a discretionary remedy and the court acts on equitable principles with an eye to the substantial justice of the case.
[12]GE Dal Pont, Equity and Trusts in Australia, 6th ed, Thomson Reuters, Law Book Co, (Dal Pont).
[13]Dal Pont, [33.05].
Mr Clough submitted that Dal Pont also makes the point that “The court has discretion and control regarding any matter the parties cannot solve by agreement,” in making an order for specific performance.[14] In fact, the full passage from Dal Pont reads:[15]
When an order for specific performance is made, the parties’ rights under the contract subsist but there is added the requirement to defer to the court’s discretion and control in respect of any matter the parties cannot solve by agreement. So it is said that a person who obtains a decree for specific performance of a contract puts into the hands of the court the manner in which it is to be performed.
[14]Dal Pont, [33.05]; transcript of hearing of application on 18 July 2018, page 13.
[15]Dal Pont, [33.05].
This passage does not offer any support for Mr Clough’s submission. The passage makes clear the author is addressing a situation where the court orders specific performance of a contractual obligation and directs the manner in which the contractual obligation will be carried out. In this case, there is no contractual obligation to appoint Mr Stout and the contract provides a mechanism for the appointment of an independent expert.
Dal Pont makes clear that specific performance is generally premised upon a breach or the reasonable apprehension of a breach of a legally enforceable contract.[16] Dal Pont acknowledges that specific performance may be available outside of contracts in such instances as estoppel and part-performance.[17] In this case, Mr Clough does not rely on any contractual term or other ground to establish the grounds upon which the Court could exercise its power to order specific performance of an appointment that is not agreed to in the DRA.
[16]Dal Pont, [33.10].
[17]Dal Pont, [33.10].
Mr Rozman does not agree to appoint Mr Stout as the independent expert. Mr Rozman opposes the application to appoint Mr Stout again. Mr Rozman says that he has lost confidence in Mr Stout.
Mr Rozman submits that the DRA provides for the current circumstances where the parties do not agree on the appointment of an expert to carry out the valuation, by providing that in the event of disagreement as to the independent expert that an independent expert be appointed by the President for the time being of the Institute of Chartered Accountants.
In the case before me, the parties have agreed on a mechanism to appoint an independent expert if they are unable to agree who should be appointed the independent expert. Mr Clough has not satisfied me that the Court has a general equitable discretion to require the parties to accept Mr Stout as the independent expert as it would be efficacious and save costs and reduce the potential damages payable by Alphater to Mr Rozman. I reject the submission that the Court has power to order that Mr Stout act as the independent expert.
Alphater submits that as an alternative to specific performance, the Court could obviate the need to quantify the wasted costs associated with another independent expert being appointed, if the Court were to rule that Mr Rozman is not entitled to damages resulting from the termination of Mr Stout.
I accept the submissions made on behalf of Mr Rozman. It is implicit in the Court of Appeal decision that the parties were obliged upon an appointment of the independent expert to permit the independent expert to complete the obligations imposed on him or her under the DRA. In the circumstances where Mr Stout’s appointment was wrongly terminated by Alphater, the obligation remains on the parties to appoint an independent expert to conduct the third stage of the DRA and in default of agreement in respect of the appointment of another independent expert, an independent expert appointed by the President for the time being of the Institute of Chartered Accountants should be appointed.
In the circumstances where Mr Rozman does not agree to the appointment of Mr Stout, I can find no reason why the agreement should not be followed and that an independent expert should be appointed by the President for the time being of the Institute of Chartered Accountants. The fact that the damages which might be sought by Mr Rozman may be greater than if Mr Rozman agreed to appoint Mr Stout, in my opinion, does not provide any basis for the Court to make an order contrary to the terms of the DRA.
Alphater cited no authority for the proposition that a party who has suffered loss by another party’s breach of contract has a duty to mitigate its loss by giving up a contractual entitlement under the contract that it considers to be in its interests. That may or may not be a matter that might be taken into account in the assessment of damages.
I decline to make the order sought in paragraph 2 as to the reappointment of Mr Stout.
Specific performance of the dispute resolution agreement
As for the application by Alphater for an order for specific performance concerning the amended letter of instructions, I do not consider such an order is warranted.
I find, however, that the letter of instructions to the independent expert exhibited as ‘NM-15’ to the affidavit of Nick Mazzeo does encompass what the parties have agreed as being the issues outstanding as between the valuers appointed by each of Alphater and Mr Rozman and his interests, and as such should be provided to the independent expert appointed by the President for the time being of the Institute of Chartered Accountants.
Mr Rozman says that the proposed letter of instructions to the independent expert of 4 December 2017[18] makes two changes to the instruction to Mr Stout of 11 September 2017. The first deals with the minority interest issue. I have resolved that with the proposed declaration. Secondly, the letter adds the following:
It has been determined that the valuation is a market valuation, which entails that you must have regard only to facts known or anticipated at the date of valuation, ignoring hindsight.
[18]Exhibit NM-15 to the affidavit of Nick Mazzeo of 1 June 2018.
This observation was not included in the letter of 11 September 2017 to Mr Stout. Mr Rozman objects to these amendments to the agreed letter of instructions. I refer to my judgment in Re Venture Capital Group Pty Ltd (no 2) at [113]–[125], which makes it clear that under the terms of the DRA any use of hindsight material would not be consistent with a market valuation of the businesses as required under the DRA.
If there is any risk that the independent expert might refer to hindsight material, then to avoid the valuation being subject to a challenge on the grounds that it has been conducted inconsistently with the DRA, the independent expert’s attention should be drawn to the paragraphs I have referred to.
As both parties were heard on the issue of the use of hindsight material under the DRA, and the issue went to the construction of the DRA, it is implicit that the independent expert should be informed in his instructions of the Court’s resolution of this issue.
I find that the appropriate method of addressing the issue is for the independent expert to be provided with the paragraphs I have referred to, without any attempt to summarise or comment on my judgment, save to say that this is a relevant ruling by the Court on the construction of the DRA that should be observed by the independent expert.
The independent expert should also be informed that Alphater’s interest in the VCG Group should be calculated at 25.5 per cent of the market value of the VCG Group as at 30 June 2010.
I shall make an appropriate order of specific performance as sought in paragraph 3.
Damages
In my opinion it is inappropriate at this stage to make any determination on the issue of damages. No claim for damages has been made. In any event, depending on the outcome of the independent expert’s decision, there may be no claim for damages. It is premature and it is speculative for me to make orders and declarations as to how the damages ought to be calculated.
I decline to make the order sought in paragraph 4.
Costs
In my opinion it is premature to make any decision on the costs of the various proceedings, until the matters in dispute have been fully resolved and where the Court can therefore take into account the outcome of the proceedings in making its decision as to costs. I therefore decline to make any orders as sought in paragraph 5.
Conclusions
I propose to make the following orders:
1.I declare that under the proper construction of the Dispute Resolution Agreement (DRA), the market valuation of the plaintiff’s interest in the VCG Group shall be calculated as 25.5 per cent of the market valuation of the VCG Group as a whole as at 30 June 2010 as a going concern, and shall not be reduced due to the plaintiff’s interest being a minority holding in the VCG Group.
2.That the DRA be specifically performed by the parties seeking the appointment of an independent expert by the President for the time being of the Institute of Chartered Accountants, in default of agreement between the parties, within a reasonable time, on the appointment of an independent expert.
3.That the DRA be specifically performed by the parties providing to the independent expert a letter of instructions, to the effect of the letter of 11 September 2017 to Mr Stout, and a copy of paragraphs [113]–[125] of my judgment in Re Venture Capital Group Pty Ltd (No 2) [2015] VSC 319; and by informing the independent expert that Alphater’s interest in the VCG Group should be calculated at 25.5 per cent of the market value of the VCG Group as at 30 June 2010 and that no allowance be made for Alphater’s interest being a minority interest in the VCG Group.
4.That the further hearing of the application for costs, damages and other relief sought in this proceeding be adjourned sine die.
5.I reserve the costs of the application.
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