Sheahan v Verco & Hodge (No 2)RST RC No. Scciv-96-1303

SHEAHAN & ANOR v VERCO & HODGE (No. 2)
[2002] SASC 156
(RESTRICTED CIRCULATION - ADVANCE COPY OF REASONS OF THE FULL COURT)
Full Court: Doyle CJ, Lander and Wicks JJ

DOYLE CJ. For the reasons given by Lander J, with which reasons I agree, I would allow the appellants to re-open the argument of the appeal, subject to the question of the costs of the first hearing.
LANDER J On 6 March 2002 this Court delivered its reasons for dismissing an appeal from a decision of a judge of this Court in turn dismissing the appellants’ claim against the respondents: Shehan & Anor v Verco & Hodge [2002] SASC 68.
The orders made by this Court have not been drawn up or sealed.
On 25 March 2002 the appellants filed an application seeking an order that this Court recall and re-open its orders and in lieu of the order dismissing the appeal make an order allowing the appeal and entering judgment for the appellants (plaintiffs) in the amount of $102,155 plus interest.
The first appellant is the liquidator of the second appellant, of which the respondents were directors.
This matter involved a claim by the appellants that the respondents had been guilty of a breach of their duties as directors of the second appellant and as a result the second appellant suffered loss and damage.
The appellants attempted to prove that loss and damage by comparing the second appellant’s financial position by reference to its balance sheet as at 1 July 1991 and 12 March 1992.
In addressing damages in such a manner the appellants needed to establish the liabilities of the second appellant as at 12 March.
In this Court’s reasons this Court concluded that the appellants had failed to establish a liability of $152,477 said to be owing by the second appellant to Mobil Oil (Mobil) as at 12 March 1992. That conclusion was a significant factor in this Court finding that no loss had been proved.
This Court also concluded that to have been the decision of the Court below.
In reaching its conclusion this Court said that the appellants had not established that any liability to Mobil had been incurred during the period 1 July 1991 to 12 March 1992.
This Court, therefore dismissed the appeal, because this Court concluded, like the trial judge, that even though the respondents had been guilty of various breaches of duty the appellants had not established that the second appellant had suffered any loss or damage thereby.
It is claimed by the appellants that this Court made two errors in reaching its conclusions. First, it wrongly assumed that the trial judge was of the opinion that the appellants had not established the debt owing to Mobil. It was argued that the trial judge had found there to be a liability to Mobil at 12 March. Secondly, and in any event, there was evidence to support the appellants’ contention that there was a liability in the sum of $152,477 to Mobil as at 12 March 1992.
The Full Court of this Court has determined that it has power to re-open an appeal for the purpose of considering whether one of its own decisions is wrong. In McAdam v Robertson (1999) 73 SASR 360 the Full Court concluded that the court could re-open one of its own decisions if the court had misapprehended “in a significant respect” the facts of the case or the law applicable to those facts. In that case the Full Court’s orders had also not been drawn up.
It must be clearly demonstrated to the Full Court that the Court has misapprehended a relevant fact or misunderstood the relevant law. It must also be demonstrated that the factual error or error of law has impacted adversely on the applicant and to a significant degree on the result in the matter before the Court.
In this case, the debt owing to Mobil was critical to the determination of whether the second appellant had suffered loss or damage by reason of the respondents’ breach of duty.
Both parties at the earlier hearing recognised the importance of that fact and both parties addressed this Court at length in relation to that matter.
Indeed the appellants’ counsel was specifically asked whether there was proof that fuel had been supplied by Mobil prior to the relevant date. It was pointed out to him that unless the liability was incurred prior to the relevant date the liability could not be brought to account for the purpose of determining whether any loss or damage had been suffered.
The following exchange took place with Counsel:
His Honour:  “Was it proved it was for fuel supplied before 11 March (sic).”
Counsel:   “I can’t answer that without seeing 10A and 10B.”
His Honour:  “That’s your problem. Otherwise the 152 might be for fuel between 11 March (sic) and 17 March.”
Counsel:“It may be. That puts me back in the position in which I was before. It may be that 10A and 10B do prove that assumption. At this point in time I can’t assist your Honour with whether it does or it doesn’t.”
This Court’s attention was not directed to any evidence in the appeal books which would have established the existence of that debt as at 12 March 1992.
The appeal books consisted of nearly 1600 pages of documents which were comprised in seven volumes. The oral evidence comprised about 330 pages of the appeal books and the exhibits tendered before the trial judge comprised about 1,000 pages.
By agreement between the parties a number of exhibits were not copied and included in the appeal books.
I do not agree that this Court has misapprehended the reasons of the trial judge on the topic of the existence of this debt.
When the appeal was originally argued before this Court it was assumed by all parties that the trial judge had not concluded that the debt to Mobil had been proved. That assumption was manifested by the manner in which the appellants argued the appeal. The appellants put before this Court a schedule which they said comprised adjustments which needed to be made to a balance sheet which had been prepared by a witness, Mr Verco. The trial judge accepted that balance sheet as the basis for his conclusions. It was argued that Mr Verco, and by implication the trial judge, had not brought those adjustments to account in determining whether the second appellant had made a loss over the relevant period. One of those adjustments included the debt owing to Mobil.
I do not agree that there was any misapprehension by this Court of the reasons of the trial judge. Indeed if the trial judge had concluded the liability had been proved he could not have reached the conclusion that he did.
The second submission made by the appellant was that there was proof that the debt was owed by the second appellant to Mobil as at 12 March 1992.
On this application the appellants’ counsel (who was not counsel either at trial or on the appeal) has taken this Court to a number of documents contained in the appeal books which it is claimed establish the existence of the debt.
Moreover and more importantly, the appellants have brought to the attention of this Court documents which were not contained within the appeal books which do tend to establish the existence of that debt.
I am satisfied that there is some material within the appeal books which support the existence of the Mobil debt. I am also satisfied that there is material not included on the appeal books but tendered in evidence before the trial judge which supports the existence of that debt.
None of that material was brought to this Court’s attention on the hearing of the appeal.
I am satisfied that this Court might in those circumstances have misapprehended a fact which was important to the result which this Court reached.
I am satisfied therefore that the appellants have passed the threshold test referred to in McAdam v Robertson (supra) and have demonstrated a misapprehension of fact which was important to the conclusion arrived at by the Court.
The question is whether or not this Court should in the circumstances allow the appellants to re-open the appeal in particular where this Court was not provided with a reference to the evidence which tended to establish the fact that the Court found had not been proved.
There are competing considerations. On the one hand the evidence was available and could have been brought to the attention of this Court. On the other hand if there was a liability of that kind owing to Mobil it may be that the decision is based upon an incorrect factual assumption.
Of course the power to re-open is not exercised simply to allow a party to put a better argument than has previously been put. Nor does the power exist to allow a party to re-argue a point in an endeavour to persuade the Court to change the Court’s mind. The power to re-open is exercised for the purpose of doing justice between the parties and in particular to correct a miscarriage of justice.
I have considered whether this Court should refuse to re-open this appeal because the error of fact, if there be one, was not the responsibility of this Court.
However, in the end I believe that there is a real risk that a miscarriage of justice could occur by reason of a misapprehension of an important fact in the matter. If there is a real risk of a miscarriage of justice the issue of fault should not be decisive.
However, I think if the matter is re-opened it cannot be re-opened simply for the purpose of deciding whether the particular fact has been proved or not. In the reasons that have already been published, this Court left open other questions. This Court did not decide whether it was appropriate to assess loss or damage simply by reference to the balance sheet of the second appellant as at 1 July 1991 and 12 March 1992. If it was appropriate to assess damages upon that basis this Court also left open the further question being the manner in which the assets of the company should be valued. There is a third matter which arises by reason of this application. If there was a liability to Mobil as at 12 March 1992 in the sum claimed does the balance sheet of 12 March 1992 include a corresponding asset for the fuel which must have been in the Company’s tanks? There is evidence of the quantity of fuel which was in the Company’s tanks at 12 March 1992. Neither counsel was able to say whether the balance sheet did include an item of stock being the fuel supplied by Mobil and contained in the second appellant’s tanks.
I think that if this matter is re-opened it must be re-opened so as to allow the appellants and respondents to argue all issues arising out of the decision of the Court below. In other words I believe if the matter is to be re-opened then the matter has to be re-argued in its entirety.
Apart from this debt this Court considered other adjustments which the appellants said should have been made to the balance sheet. The Court concluded that some adjustments needed to be made to Mr Verco’s balance sheet. Other adjustments were rejected. I do not think it would be appropriate, as a term of re-opening the appeal, to restrict the appellants to arguing only the adjustment of the Mobil debt. That is because the other arguments to which I have referred require an examination of the value of both assets and liabilities. It would be unfair to the appellants to restrict them on their arguments on liabilities whilst allowing the respondents to fully argue the value of the assets.
Allowing this application would put the respondents to considerable expense because it would mean that the costs of the first appeal would have been lost.
I therefore would order that the appellants be granted leave to re-open this appeal subject to hearing submissions as to whether this should be on condition that the appellants pay the respondents’ costs of the first hearing in any event.
WICKS J I would allow the appellants to re-open the argument of the appeal. However, I doubt whether that, in itself, would be sufficient. I suspect that what is required here is further evidence compiling assets and liabilities and, where necessary, a valuation of particular assets. The assets in a balance sheet applicable in the present case would be based normally on historic cost.
As Lander J points out in his reasons, if this matter is to be re-opened, it must be re-opened so as to allow the appellants and respondents to argue all issues arising out of the decision of the Court below. In other words if the appeal is to be re-opened, it is to be re-argued in its entirety. It is my understanding in matters of this kind that where a business is to be valued, if it is a going concern, the valuation is made on the basis of maintainable earnings. Where, however, the business has ceased to be a going concern, it is appropriate to make a valuation based on assets less liabilities. Where appropriate, individual assets would have to be valued on the basis of their then market value and brought to account on that basis. I do not think that this has been done in this case. If that is so, then it would seem to me that a re-opening of the argument alone would not be sufficient; what would really be required would be a professionally prepared valuation prepared by an accountant with the necessary experience who could be summoned to give evidence in support of his valuation.. Expert evidence in relation to particular assets may also be necessary. See generally, McCathie and Others v The Federal Commissioner of Taxation (1944) 69 CLR 1 at pp 10-11 and Abrahams v The Federal Commissioner of Taxation (1945) 70 CLR 23 at p 42.9.
Re-opening the appeal would require a reconsideration of the question of costs.

[2002] SASC 156

30 June 2002