Watts Eagle Services Pty Ltd v Passon
[2018] VSC 682
•9 November 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2017 04220
| WATTS EAGLE SERVICES PTY LTD | Appellant |
| v | |
| CLAUDETTE ELISE PASSON (as Trustee for TEA-ROSE, ANGUS and MIETTA PASSON) | Respondent |
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JUDGE: | CAMERON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 August 2018 |
DATE OF JUDGMENT: | 9 November 2018 |
CASE MAY BE CITED AS: | Watts Eagle Services Pty Ltd v Passon |
MEDIUM NEUTRAL CITATION: | [2018] VSC 682 |
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CORPORATIONS – Appeal from Magistrates’ Court – Entitlement to dividends – Where shareholder declared bankrupt – Whether entitlement to dividends vested in bankruptcy trustee – Bankruptcy Act 1966 (Cth) ss 58, 116 considered – Settlement agreement in related proceedings – Whether shares assigned under agreement – Property Law Act 1958 (Vic) s 134 considered – New point raised on appeal – Whether prejudicial to respondent – Whisprun Pty Ltd v Dixon (No 2) [2003] HCA 48; (2003) 200 ALR 447 considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr D C Harrison | Macpherson Kelley |
| For the Respondent | - | Mr A Flower, FCG Legal Pty Ltd |
HER HONOUR:
What is this case about?
This case concerns whether Watts Eagle Services Pty Ltd (‘WES’) breached its constitution and failed to pay proper dividends to Claudette Passon (‘Ms Passon’).
The matter was heard before his Honour Magistrate Braun at the Magistrates’ Court in Melbourne on 19 and 20 September 2017. His Honour gave judgment on 20 September 2017. His Honour determined that WES had committed the alleged breach, and gave judgment for Ms Passon in the amount of $25,454, plus interest of $2,081.65 and costs in the amount of $9,481.
WES is appealing the final orders made by his Honour, pursuant to s 109 of the Magistrates’ Court Act 1989 (Vic).
Summary of decision
For the reasons that follow:
(1) Grounds 1, 2 and 3 of the appeal are allowed.
(2) Ground 4 of the appeal is dismissed.
(3) Ground 5 of the appeal is allowed.
Background
The matters arising out of Ms Passon’s shareholding in WES have had a well-worn history through the courts.
WES is a company, trading as ‘Victorian State Home Loans’ (‘VESL’). It was formerly controlled by Ms Passon’s late husband. It was agreed between the parties that up to 9 March 2011, Ms Passon held legal title to 140 of 200 total shares in WES.
On 9 March 2011, Ms Passon was declared bankrupt. Mr Peter Robert Vince was her trustee in bankruptcy (‘the trustee’). Clearly, as at that date, all of Ms Passon’s divisible property vested in the trustee.
The Federal Magistrates’ Court proceeding
Following her bankruptcy, Ms Passon claimed that she held her 140 shares in WES (‘the disputed shares’), not in her own right, but as trustee for her children, Tea-Rose, Angus and Mietta (‘the children’).
This claim was contested by the trustee, who subsequently commenced proceedings in the Federal Magistrates’ Court in February 2012 in which he sought a declaration that the shares held by Ms Passon vested in her bankrupt estate. In short, the trustee denied the existence of any trust. He claimed that the shares held by Ms Passon in WES were owned by her beneficially and, accordingly, were vested in him as trustee as at the date of her bankruptcy.
This proceeding was settled on 26 July 2012. The settlement culminated in an agreement made on that date between Ms Passon and the trustee (‘the Settlement Agreement’), to the effect that 91 of the disputed shares were vested in the trustee, by agreement pursuant to ss 58 and 116 of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’). Accordingly, Ms Passon retained only 49 shares in WES, out of the 140 that she originally held. It was common ground, and unchallenged, that Ms Passon held such shares as she held in WES on trust for the children (‘the share trust’). Mr Vincent John Savage was the trustee of the share trust at the time the Settlement Agreement was entered into.
Crucially, clause 4 of the Settlement Agreement provides:
All unpaid dividends of WES in respect of the disputed shares shall be payable and paid to CEP (on behalf of the share trust) and to PRV in the proportions of their respective shareholdings (i.e. 49/140ths to CEP and 91/140ths to PRV), subject to clause 9.
Clause 9 of the Settlement Agreement provides:
The unpaid dividends referred to in clause 4 hereof shall be paid first, as to $25,000, to CEP on account of her entitlement under clause 4, and any further unpaid dividends shall be paid to PRV until he is paid $46,430, after which any further unpaid dividends shall be payable to CEP and PRV in proportion with their respective shareholdings. For the purposes of this clause and other provisions in this agreement relating to the payment of dividends, the reference to “CEP” is to be read as a reference to CEP for and on behalf of the share trust.
Clause 11 of the Settlement Agreement provides:
PRV agrees that the sum of $25,0000 referred to in clause 9 and amounts referred to in clause 5 of this agreement is not income of CEP within the meaning of s 139L of the Bankruptcy Act 1966.
Clause 12 of the Settlement Agreement provides:
CEP agrees to pay the sum of $25,000 referred to in clause 9 of this agreement, upon receiving it, to VJS on account of fees and expenses claimed by VJS by reason of his acting as trustee of the share trust.
It was submitted that clause 9 was not relevant for the purposes of the appeal.
It is the construction of clause 4 of the Settlement Agreement that is the subject of Ground 1 of this appeal.
The oppression proceeding
On 14 April 2014, Ms Passon commenced a proceeding against WES in her capacity as a shareholder, claiming relief under s 232 of the Corporations Act 2001 (Cth). The claim consisted of three specific complaints about the activities of VSHL:
(1) the temporary removal from the ASIC register of Nicholas Psyhoglos as a director of VSHL;
(2) the sale in September 2013 by the trustee of 91 shares in VSHL to Jacqueline Amanda Ridgway for $75,000; and
(3) Peter Geoffrey Ridgway’s arranging of a private loan funded by Mr and Mrs Shaw-Stuart to Richard Moran, which was not done through VSHL (‘the oppression proceeding’).
This proceeding was settled by a deed of settlement (‘Deed of Settlement’) on or about October 2014. Pursuant to the Deed of Settlement, Ms Passon transferred her shares in WES to the other shareholder in WES for the sum of $190,000.
Clause 9 of the Deed of Settlement stated:
The Parties hereby release and forever discharge each other from any claim, demand, action, suit or proceeding for damages, debt, restitution, equitable compensation, account, injunctive relief, specific performance, declaratory relief or any other remedy and whether arising at common law, in equity, under statute or otherwise and whether involving a third party or Party to this Deed of Settlement and all liabilities, losses, damages, costs (including legal costs), interest, fees, penalties of whatever description (whether actual, contingent or prospective) arising out of, or in connection with the contents of, the allegations made in or the facts giving rise to the Proceeding.
The Magistrates’ Court proceeding
As noted above, this appeal is made from the decision of his Honour Magistrate Braun made on 20 September 2017.
WES declared dividends for the financial year ending 30 June 2012 in the sum of $100,000. It remains unclear precisely when the dividend was declared and paid. However, it was submitted by Ms Passon in the proceeding before his Honour Magistrate Braun that the dividend for the year ending 30 June 2012 was declared at some point prior to 26 July 2012. This was not contested.
Ms Passon submitted that she did not receive a dividend in proportion to her 70% shareholding in WES, only receiving $44,545.48. Accordingly, she submitted, she was underpaid $28,000 ($25,454.52 plus GST) in respect of these dividends.
It should be noted that in her complaint filed in the Magistrates’ Court, Ms Passon also submitted that WES declared dividends for the year ending 30 June 2013, and that she was owed $7,000 in respect of these dividends. This claim related to the period between 1 July 2012 and 26 July 2012, the last date being the day on which the Federal Magistrates’ Court proceeding was settled. However, his Honour Magistrate Braun made final orders on the basis that only the dividends in respect of the 2011-12 financial year were in dispute. This was not contested on appeal.
His Honour found that payments made to Ms Passon and others in the financial year ending 30 June 2012 were dividends, despite being described in the company’s financial statements as ‘management fees’.
His Honour cited several factors that led him to this conclusion: first, the so-called ‘management fees’ were calculated with reference to the shareholding of each of the shareholders; second, distributions described as dividends had previously been made to shareholders; third, Ms Passon’s only relationship with the company during the 2011–12 financial year was as a shareholder, and not a manager or service provider; and fourth, in the evidence of a former director of the company, the terms ‘management fees’ and ‘dividends’ were often used interchangeably during his tenure, for taxation reasons.
His Honour further found that, contrary to the submission of WES, Ms Passon held the disputed shares on trust for her children as at 26 July 2012, just before the Settlement Agreement was entered into. This finding was not appealed.
His Honour found, overall, that WES had breached its constitution in failing to pay proper dividends to Ms Passon during the relevant period.[1] His Honour made orders that WES pay Ms Passon $25,454 in respect of the 2011-12 dividends (his Honour found that WES was not liable to pay the portion of Ms Passon’s claim for $28,000 that supposedly related to GST, as GST is not payable on dividends), plus $2081.65 in interest and $9481 in costs.
[1]See above paras [1]–[2].
It is this decision that WES appeals.
Grounds of appeal
The grounds of appeal raised by WES are:
(1) His Honour erred in not determining that Ms Passon had given a legal assignment of her claim to her bankruptcy trustee.
(2) His Honour erred in not determining that, having given a legal assignment of her claim, Ms Passon had no standing to bring her claim.
(3) His Honour erred in awarding Ms Passon the amount he did in circumstances where:
(a) the amount awarded was in respect of unpaid dividends payable by the applicant to Ms Passon as shareholder of 140 shares in the applicant;
(b) Ms Passon had assigned 91 (65%) of those 140 shares to her bankruptcy trustee and retained 49 (35%) of those shares;
(c) Ms Passon had assigned the right to receive 65% of those dividends to her bankruptcy trustee; and
(d) Ms Passon had already been paid in excess of 35% of the dividends payable in respect of the 140 shares.
(4) His Honour erred in not interpreting a deed of settlement between WES and the Ms Passon’s predecessor trustee as barring Ms Passon’s claim.
(5) His Honour erred in failing to determine that any right which Ms Passon had to any dividend from the applicant, had vested in her bankruptcy trustee by operation of ss 58 and 116 of the Bankruptcy Act.
(6) In reaching his decision, his Honour purportedly exercised jurisdiction under the Bankruptcy Act, and thereby acted outside of jurisdiction.
The final ground (Ground 6) was not pressed by WES at the hearing of the appeal and accordingly, there is no need for the Court to consider it.
What do the parties say?
What does WES say?
Submissions by WES on Grounds 1, 2 and 3
WES submits that by operation of clause 4 of the Settlement Agreement, Ms Passon assigned any right to dividends in respect of 91 of the disputed shares to the trustee. She was therefore not entitled to receive any of the dividends that are the subject of her claim.
WES submits that Ms Passon was, in fact, overpaid. A total dividend of $70,000 was payable on the 140 shares. Ms Passon was only entitled to receive 35% () of the dividend payment ($24,500), but received 63.64% ($44,545.48). WES does not counterclaim for this alleged overpayment, nor has it sought restitution. Ms Passon conceded that she received $44,544.[2]
[2]It should be noted that no explanation was given for the discrepancy between the amount said by WES to have been received by Ms Passon and the amount that she conceded that she had received, being $1.48.
WES concedes that it did not plead assignment under s 134 of the Property Law Act 1958 (Vic) (‘the Property Law Act’) as a defence at trial. As such, it is not entitled to raise the defence on appeal unless that defence could not possibly have been met by further evidence at trial. WES contends, however, that it is for Ms Passon to satisfy the court that there was such evidence which could meet this point.
The key issues in the oppression proceeding are outlined above.
Submissions by WES on Ground 4
WES submits that clause 9 of the Deed of Settlement barred Ms Passon’s claim. WES contends that ‘the very essence’ of the oppression proceeding was Ms Passon’s shareholding in WES, and that affidavit material filed in that proceeding referred to WES shares and dividends. The affidavits in question are:
(1) Ms Passon’s affidavit, sworn 11 April 2014, which WES alleged referred to the shares and dividends both in the body of the affidavit and in its exhibits; and
(2) The affidavit of Mr Harry Reints, sworn 12 June 2014, which WES alleged referred to the shares and dividends.
WES relies on a number of authorities in submitting that clause 9 should be read broadly. Particular attention was paid to the term ‘arising out of, or in connection with’. WES relevantly submits:
In the present case, there is no compelling reason to read down the words “arising out of, or in connection with” in clause 9 of the deed of settlement. That clause is drafted in the broadest conceivable sense. It exhaustively recites the types of claims or demands which are barred; whether they are legal or otherwise; whether involving a party to the deed of settlement or not; in respect of any conceivable relief which might be sought. It settled what can only be described as acrimonious litigation. As the respondent’s shares in the appellant were being purchased and she had not further stake in the appellant, it is inconceivable that the parties did not intend the respondent’s claim to dividends to be covered.
It is submitted that the “allegations made in or the facts giving rise [to] the Proceeding” clearly includes the shares and the dividends. Alternatively, the applicant submits that on any analysis, the dividends payable on the shares “aris[e] out of, or in connection with” those allegations or facts.
In constructing the term ‘arising out of’, WES refers to IBM Australia Ltd v National Distribution Services Ltd, in which Clarke JA stated that the phrases ‘in relation to’ and ‘related to’ were ‘of the widest import and should not, in the absence of compelling reasons to the contrary, be read down’.[3]
[3](1991) 22 NSWLR 466, 483, citing Fountain v Alexander (1982) 150 CLR 615, 629, Dowell Australia v Triden Contractors Pty Ltd [1982] 1 NSWLR 508, 511, Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488.
The term ‘in connection with’ is said to have an ‘imprecise but broad meaning’. WES refers to Victorian Workcover Authority v Divadeus Pty Ltd (in liq), in which the Court of Appeal stated that those words were ‘of wide import, and depending on their context and purpose, can cover a wide variety of relationships’.[4]
[4][2016] VSCA 81 [110] (Ferguson and McLeish JJA, Ginnane AJA).
In constructing the term ‘in connection with’, WES refers also to Collector of Customs v Pozzolanic Enterprises Pty Ltd, in which the Full Federal Court said of the words ‘connected with’ that they were ‘capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote’.[5]
[5](1993) 43 FCR 280, 288 (Neave, French and Cooper JJ).
Submissions by WES on Ground 5
WES submits that in clause 2 of the Settlement Agreement, WES and Ms Passon agreed that beneficial title to 65% () of the shares vested in the trustee. Clause 2 states that ‘[b]eneficial title in 91 of the disputed shares is vested in PRV [the trustee] pursuant to ss 58 and 116 of the Bankruptcy Act’.
WES further submits that ‘property’ is broadly defined under s 5 of the Bankruptcy Act to include any dividends payable on the disputed shares. Therefore, when the 91 shares were vested in the trustee, the right to receive any dividends in respect of those shares also vested in the trustee.
What does Ms Passon say?
Submissions by Ms Passon on Grounds 1, 2 and 3
Ms Passon submits that leave should not be granted to WES to argue Grounds 1, 2 and 3, which together advance the argument that Ms Passon had assigned her legal right to dividends by virtue of clause 4 of the Settlement Agreement. Ms Passon submits that that WES did not raise this argument at trial, and therefore should not be allowed to do so on appeal.
In support of this argument, Ms Passon refers to the statement of Gleeson CJ, McHugh and Gummow JJ in Whisprun, that:
Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross examination.[6]
[6]Whisprun Pty Ltd v Dixon (No 2) [2003] HCA 48; (2003) 200 ALR 447, 461 [51] (‘Whisprun’).
Ms Passon further submits that the terms of the Settlement Agreement, in particular clauses 4, 9, 11 and 12, ‘dealt with dividends in a specific and complex way’. The operation of these clauses was not so straightforward that WES’s argument (that the clauses constituted a legal assignment of Ms Passon’s right to dividends) could not possibly have been met by ‘rebutting evidence or cross examination’. As such, if WES were allowed to raise this argument on appeal despite not having made it at trial, it would, in the words of their Honours in Whisprun, ‘give rise to a sense of injustice’. Ms Passon emphasises that the test in Whisprun is whether the argument ‘might possibly have been’ met by evidence or cross-examination at trial—not whether the argument actually would have been met.
The relevant part of Ms Passon’s outline of submissions states:
Clause 4 deals with “unpaid” dividends. Clauses 9, 11 and 12 further deal with the issue of dividends. It is provided that $25,000.00 be paid to the respondent to be transferred onto the then trustee of the share trust as consideration for his services to that date. It is further provided that the trustee in bankruptcy be paid $46,430.00 on account of his costs and remuneration. Thereafter dividends are to be paid in accordance with the new shareholding structure to be put in place in accordance with the terms.
Whether this gives rise to the assignment contended for by the appellant is a moot point and would, if raised at trial, been the subject of evidence from the respondent as to any negotiations or dealing relating to the terms which might cast light on whether the dividends the subject of this proceeding were part of the negotiations, were dealt with by the terms, intended to be dealt with by the terms or simply forgotten about.
Ms Passon further submits that even if WES is entitled to argue Grounds 1, 2 and 3, these grounds must fail, for two reasons.
First, she submits that any dividends that accrued in favour of Ms Passon prior to the conclusion of the Settlement Agreement were not subject to the assignment clauses in that agreement. This is due to the fact, it is contended, that s 134 of the Property Law Act only provides for assignment of legal rights from the date on which notice is given of the assignment—in this case from 26 July 2012, when the Settlement Agreement was concluded.
Second, she submits that the terms of the Settlement Agreement did not extend to the dividends that she claimed (successfully) in the Magistrates’ Court proceeding. The terms of the Settlement Agreement, Ms Passon submits, dealt explicitly with future dividends and undeclared dividends, and not with any dividends which were declared prior to the Agreement. As such, it is submitted the Settlement Agreement did not affect her entitlement to the dividends that were the subject of the Magistrates’ Court proceeding, as they were conceded by WES to have been declared.
Submissions by Ms Passon on Ground 4
Ms Passon submits that the release did not apply to the issue of dividend entitlements, as this was not an issue in the oppression proceeding.
She submits that regard should be had to the subject matter of the release before conducting any ‘fine analysis’ of the terms ‘incidental to’, ‘arising out of’ or ‘in connection with’. The release was given only for ‘allegations made in or the facts giving rise to the proceeding’, and her lawyers were very careful to circumscribe the issues to be dealt with in the oppression proceeding. These issues were agreed in an exchange of letters between the solicitors acting for the parties in the proceeding.
This submission rests on a line of authority to the effect that releases do not apply to all conceivable disputes between the parties, unless the words of the release clearly convey such a broad meaning.[7] Ms Passon submits that had the parties intended the release clause to have such a broad effect, this could have been conveyed by the inclusion of the ‘oft-used standard phrase’ at the end of the release clause: ‘…or arising out of or in connection with the relationship between the parties’.
[7]Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112, 129–30 (‘Grant v John Grant’); Doggett v Commonwealth Bank of Australia (2015) 47 VR 302, 317–18 [63] (‘Doggett v CBA’). See paras [64]–[66].
Submissions by Ms Passon on Ground 5
Ms Passon submits that the settlement agreement did not vest the entitlement to dividends in the trustee, either prospectively or retrospectively, for the same reasons she articulated in her submissions on Grounds 1, 2 and 3.
Ms Passon further submits that the Honourable Magistrate found that all of the disputed shares were held on trust prior to 26 July 2012, and as such, were not part of the divisible property of Ms Passon when she became bankrupt.[8]
[8]Bankruptcy Act s 116(2). See para [58].
The terms of the Settlement Agreement, Ms Passon submits, did not vest the entitlement that is the subject of this proceeding in the bankruptcy trustee. The moneys claimed in the proceeding did not relate to an undeclared or future dividend, but rather to a dividend that was declared and paid. The Settlement Agreement, it is submitted, deals comprehensively with future and undeclared dividends, and leaves the entitlement that is the subject of this proceeding untouched.
Relevant legislative provisions
Section 134 of the Property Law Act provides:
Legal assignment of things in action
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, shall be and shall be deemed to have been effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—
(a)the legal right to such debt or thing in action;
(b)all legal and other remedies for the same; and
(c)the power to give a good discharge for the same without the concurrence of the assignor:
Provided that, if the debtor, trustee or other person liable in respect of such debt or thing in action has notice—
(a)that the assignment is disputed by the assignor or any person claiming under him; or
(b)of any other opposing or conflicting claims to such debt or thing in action—
(c)he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the Trustee Act 1958.
Section 58 of the Bankruptcy Act provides that where a debtor becomes bankrupt, his or her property vests in the Official Trustee or, where a registered trustee has been appointed, in the registered trustee.
Section 116(1) of the Bankruptcy Act states that certain specified categories of property ‘is property divisible amongst the creditors of the bankrupt’. These categories include:
(b)the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge;[9]
[9]Ibid s 116(1)(b).
However, s 116(1) does not extend to various categories of property including, relevantly: ‘(a) property held by the bankrupt in trust for another person’.[10]
[10]Ibid s 116(2)(a).
What do the authorities say?
Raising new points on appeal
In Whisprun, Gleeson CJ, McHugh and Gummow JJ held that it is typically unacceptable for a party to raise a point in an appeal that it did not raise at trial:
It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial. Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination.[11]
[11]Whisprun [2003] HCA 48; (2003) 200 ALR 447, 461 [51].
Their Honours further held that even if the party seeking to make a new point on appeal did not seek to admit new evidence, it may nevertheless be unacceptable for them to raise that point:
Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action. Not only is the successful party put to expense that may not be recoverable on a party and party taxation but a new trial inevitably inflicts on the parties worry, inconvenience and an interference with their personal and business affairs.[12]
[12]Ibid.
Interpretation of contracts
The clear words of a contract are not, except in rare circumstances, displaced by evidence of a party’s actual subjective intention. As stated by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd:
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.[13]
[13](1973) 129 CLR 99, 109.
The unimportance of parties’ subjective intentions in the process of contractual construction was further explained by Heydon and Crennan JJ in Byrnes v Kendle:
Contractual construction depends on finding the meaning of the language of the contract – the intention which the parties expressed, not the subjective intentions which they may have had, but did not express. A contract means what a reasonable person having all the background knowledge of the “surrounding circumstances” available to the parties would have understood them to be using the language in the contract to mean. But evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of “surrounding circumstances”.[14]
[14](2011) 243 CLR 253, 284 [98].
Their Honours went on to list some of the circumstances in which the actual state of mind of a contracting party will be relevant:
[W]here one party relies on the common law defences of non est factum or duress; where misrepresentation is alleged; where one party is under a mistake and the other knows it; where the contract is liable to be set aside by reason of equitable doctrines of undue influence, unconscionable dealing or other fraud in equity; where the equitable remedy of rectification is available; where a question of estoppel arises; or where there is a question whether the “contract” is a sham.[15]
[15]Ibid 285–6 [101].
Interpretation of release clauses
Where the plain words of a release clause appear to release a contracting party from obligations that fall outside the purpose of the instrument which contains the release, equity may intervene to restrict the clause’s operation.
In Grant v John Grant, Dixon CJ, Fullagar, Kitto and Taylor JJ summarised the principle:
[E]quity proceeded upon the principle that a releasee must not use the general words of the release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question, and the actual intention of the releasor.[16]
[16](1954) 91 CLR 112, 129–30.
In Doggett v CBA, Whelan JA of the Victorian Court of Appeal discussed the principles applying to release clauses in detail. Relevantly, he explained the purpose of the principle expressed in Grant v John Grant, and noted that it was sometimes ‘described more widely than is justified’.[17] Regarding the purpose of the principle, his Honour said:
The equitable principles articulated in Grant v John Grant restrain a party from unconscientious reliance on legal rights. Particular circumstances may reveal that it would be unconscientious to allow the general words of a release to be relied upon. Grant v John Grant was such a case. But there will be no room for the application of those equitable principles if it is clear that the parties intended the general words of a release to encompass all conceivable further disputes.[18]
[17](2015) 47 VR 302, 317–18 [63].
[18]Ibid.
As the above statement of Whelan JA makes clear, the principle from Grant v John Grant allows the Court, when constructing a release clause that appears to have broad effect, to look at extrinsic evidence that would not generally be relevant when constructing a contract according to common law principles. However, this inquiry may reveal that the parties to the instrument truly intended for the release clause to have such a broad effect.
Decision and analysis
Grounds 1, 2 and 3
It is convenient to deal with these three grounds of appeal together.
The real question for the Court is whether the failure of WES to raise clause 4 of the Settlement Agreement before his Honour precludes that argument being raised before this Court on appeal.
The authorities set the bar quite high for parties seeking to raise arguments on appeal that were not raised at first instance.
WES did not provide any good reason as to why arguments based on clause 4 of the Settlement Agreement were not raised at the hearing before his Honour. It stated that counsel who appeared before the Court on the hearing of this appeal did not appear before the Honourable Magistrate and, accordingly, no light could be shed on the matter. This is hardly an explanation for the omission.
There is no doubt, as the High Court in Whisprun found, that raising a new point on appeal is likely to give rise to a sense of injustice and may not be in the interests of justice, even where further evidence may not be admissible. In my opinion, the community which this Court serves would demand no less than a full consideration of this point.
In this case, WES raised this new point by way of their notice of appeal dated 19 October 2017. The matter was heard before me on 17 August 2018. Therefore, there were many months within which Ms Passon had the opportunity to respond to this argument. Ms Passon did not do so. Before me, there was no affidavit material, outline of evidence or any other evidence on which the Court could rely that would form the basis of a reasonable conclusion that further evidence could have been adduced before his Honour going to the interpretation of clause 4 of the Settlement Agreement or, indeed, whether such evidence would be admissible at all, given the plain and ordinary meaning of clause 4.
Ms Passon contends, as referred to above,[19] that the Whisprun test only requires that any argument ‘might possibly have been’ met by evidence or cross-examination at trial and that there is sufficient material based on the circumstances of the case to satisfy this threshold.
[19]See above para [44].
Further, as noted, Ms Passon says that, by virtue of s 134 of the Property Law Act, any assignment of legal rights pursuant to clause 4 of the Settlement Agreement only provides for assignment of legal rights prospectively—that is, from the date on which the notice of assignment is given, in this case when Ms Passon signed the Settlement Agreement. I will return to this argument.
It is for the Court to determine the following questions:
(1)What is the proper construction of clause 4, and could that construction have been met by further evidence or cross examination before his Honour?
(2)Does s 134 of the Property Law Act preclude any claim by the trustee in relation to past unpaid dividends?
I will deal with each of these matters in turn.
What is the proper construction of clause 4, and could that construction have been met by further evidence or cross-examination before his Honour?
The legal principles relating to the construction of contractual clauses are settled and frequently applied. In relation to commercial contracts, a majority of the High Court in Electricity Generation Corporation v Woodside Energy Ltd stated that:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.[20]
[20](2014) 251 CLR 640, 656-657 [35] (citations omitted).
Building on this statement of principle, French CJ, Nettle and Gordon JJ stated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd that:
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[21]
[21](2015) 256 CLR 104, 116 [48] (citations omitted).
This accords with, and reaffirms, Mason J’s (as he then was) well-known statement in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.[22]
[22](1982) 149 CLR 337, 352 (Mason J).
This is not to say that the Court cannot have recourse to the ‘matrix of facts’[23] surrounding the parties at the time they were contracting, if that factual matrix can assist the Court in its primary task of objectively interpreting the meaning of terms as a ‘reasonable businessperson’ would understand them. These facts referred to must be objective.[24] Parties’ actual, subjective intentions or expectations are not admissible.[25]
[23]Prenn v Simmonds [1971] 1 WLR 1381, 1383-1384; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 351 (Mason J).
[24]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 117 [50].
[25]Ibid.
In the circumstances of the case, it may be that these objective facts can assist in determining, for example, the commercial purpose of the contract (a clearly relevant factor in interpreting commercial contractual terms). However, where the plain meaning of the term in the contract is clear, extrinsic materials must not be used to render that term ambiguous.
In my opinion, the plain words of clause 4 of the Settlement Agreement are readily and easily understood. There is no need for objective evidence to construe the words of that clause. In my opinion, clause 4 of the Settlement Agreement is expressed in plain and ordinary language. This is indeed a circumstance where construction of the clause is possible by reference to the contract alone.
While Ms Passon contends that the Settlement Agreement deals with the dividends ‘in a specific and complex way’, I do not agree. I consider the relevant clauses of the Settlement Agreement to be straightforward and capable of being construed in accordance with their plain and ordinary meaning.
As noted above, Ms Passon submitted that the terms of the Settlement Agreement did not extend to the dividends that she successfully claimed in the Magistrates’ Court proceeding. In her submission, the terms of the Settlement Agreement dealt explicitly with future dividends and undeclared dividends, and not with any dividends which were declared prior to the agreement. As such, the Settlement Agreement did not affect her entitlement to the dividends that were the subject of the Magistrates’ Court proceeding, as there were conceded by WES to have been declared.
As I have noted above, no evidence was put before the Court as to what further evidence may be relied upon by Ms Passon as an aid to such a construction.
Does s 134 of the Property Law Act preclude any claim by the trustee in relation to past unpaid dividends?
Ms Passon submitted that a person can only assign under s 134 of the Property Law Act rights that will arise in the future. Specifically to the current facts, the submission was that a person cannot assign a right to dividends which have already been declared, but could assign a right to receive dividends which are to be declared by the company in the future. That submission must be rejected.
Section 134 of the Property Law Act applies in respect of the assignment of any existing ‘debt or other legal thing in action’. The bundle of rights that attach to the assignment, as prescribed by s 134, will depend on the nature of that subject matter being assigned. But there is nothing in the statutory provision justifying the distinction sought to be drawn by Ms Passon. An enforceable right to receive dividends, albeit arising pursuant to a past declaration by the company, is a ‘lawfully assignable chose in action’[26] falling within the ambit of s 134.
[26]Federal Commissioner of Taxation v Everett (1980) 143 CLR 440, 447 (Barwick CJ, Stephen, Mason and Wilson JJ).
A declaration of a dividend will result in indebtedness on the part of the company to pay the dividend, although the timing of the indebtedness will depend on the terms of the corporate constitution, the nature of the declaration of dividend and the potential application of relevant statutory provisions.[27] However, once the debt arises, eligible members of the company will have a corresponding legal right to receive the dividend. As stated by Lindgren J in ABB Australia Pty Ltd v Commissioner of Taxation[28] (‘ABB’), that right is a legal chose in action capable of assignment under s 134 of the Property Law Act, and its equivalents in other jurisdictions.[29]
[27]See generally Corporations Act 2001 (Cth) s 254V; LexisNexis, Ford, Austin & Ramsay’s Principles of Corporations Law (September 2017) [18.030.3]; Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 609-611 [18]–[21], [26] (Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ); ABB Australia Pty Ltd v Commissioner of Taxation (2007) 162 FCR 189, 202-203 [49]–[56] (Lindgren J); In the matter of Alexandria Landfill Pty Limited [2016] NSWSC 1503 [66]–[82] (Brereton J).
[28](2007) 162 FCR 189.
[29]ABB Australia Pty Ltd v Commissioner of Taxation (2007) 162 FCR 189, 203 [56] (Lindgren J).
ABB involved the declaration of a dividend by a wholly-owned Australian corporate subsidiary to its Swiss parent company. At a general meeting of its members, the Australian subsidiary declared a dividend payable to its parent company on a specified date in the future. However, prior to that date, the parent company assigned for valuable consideration its right to receive the dividend to a non-resident third party. The ultimate issue in ABB was whether the Swiss parent company was liable to withholding tax on the dividend. Relevantly for current purposes, Lindgren J considered the effect of s 12 of the Conveyancing Act 1919 (NSW), the New South Wales equivalent of s 134 of the Property Law Act. His Honour relevantly concluded as follows:
The declaration of the final dividend [by the Australian subsidiary] created a debitum in praesenti solvendum in futuro — a present indebtedness payable in the future. That debt was a legal chose in action capable of being assigned at law under s 12 of the Conveyancing Act and its counterparts in other jurisdictions, before as well as after the time fixed for payment arrived.[30]
[30]Ibid.
The matter before his Honour was characterised by Ms Passon as a chose in action case. However, the very essence of the claims made before his Honour, being the alleged breach by WES of its constitution in failing to pay proper dividends to Ms Passon traverses, in my opinion, precisely the same issues that are contemplated by the Settlement of Agreement and, in particular, clause 4.
The doctrine of Anshun estoppel is well known. It has developed for easily comprehensible public policy reasons, namely, to prevent a party from relying on a matter in a second action if it was so relevant to the subject matter of a first action that it was unreasonable for the party not to have relied on it during the course of that first proceeding:
It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do.[31]
[31]Barrow v Bankside Agency Ltd [1996] 1 WLR 257, 260 (Sir Thomas Bingham MR), quoted in Timbercorp Finance Pty Ltd (in liq) v Collins [2016] VSCA 128 [137].
An essential element of the estoppel is that the party’s failure to rely on the matter in the first proceeding must have been unreasonable; it is not enough that they could have raised it but, for some justifiable reason, did not.[32] The Victorian Court of Appeal has characterised this test as follows:
The issue [is] not whether it would have been reasonable to make some claim or advance some defence in the earlier proceedings. Rather, ‘the issue is whether it was unreasonable to defer reliance upon the defence or cause of action’ in the earlier proceeding.[33]
[32]Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 602-603.
[33]Timbercorp Finance Pty Ltd (in liq) v Collins [2016] VSCA 128 [140], quoting Ormiston JA in Gibbs v Kinna [1999] 2 VR 19, 20[1] (emphasis in original).
In ASIC v Lindberg (No 10),[34] Robson J conducted what can only be described as an exemplary review of the authorities considering Anshun estoppel. His Honour summarised the relevant principles as follows:
[34]ASIC v Lindberg (No 10) (2009) 76 ACSR 181. Whilst his Honour’s decision was overturned on appeal, the Court of Appeal’s decision rested on the material facts of the case and not on his Honour’s assessment of the legal principles: see ASIC v Lindberg (No 2) (2010) 265 ALR 517.
Anshun estoppel
The relevant principles to this application appear to be as follows:
(1) The Anshun principle gives rise to an estoppel distinct from abuse of process principles.
(2) A second proceeding may be estopped under the Anshun principle where the cause of action raised is one which could have been raised in a previous proceeding where the same or substantially the same facts will arise for consideration in the second proceeding as in the first proceeding.
(3) Such a proceeding will only be estopped, however, if it was unreasonable to defer reliance upon the cause of action.
(4) Anshun estoppel is not limited to circumstances where there may be conflicting judgments, although the risk of conflicting judgments would generally speaking satisfy the criterion of unreasonableness.
(5) In considering whether it was unreasonable for a plaintiff not to have relied on the cause of action raised in the second proceeding, the court should consider all the relevant facts, including the character of the previous proceeding, the scope of any pleadings, the length and complexity of the trial, any real or perceived difficulties in raising the relevant claim earlier and any other explanation for the failure to raise the claim previously.
(6) The greater the extent of the overlap between the facts underlying each claim, the easier it is to argue that it was unreasonable not to raise the matter in the first proceeding.[35]
[35]Ibid 227 [263] (Robson J) (citations omitted).
I consider that the effect of clause 4 is to effect an assignment of Ms Passon’s rights in any unpaid dividends in relation to the disputed shares in the nominated proportions to which she previously may have been entitled. Ms Passon, in signing the Settlement Agreement, agreed to the assignment and it was effective as at that date. Because of the overlap of the issues which were the subject of the Settlement Agreement, and the matters before his Honour, in my opinion Ms Passon had no standing to bring her claim and indeed was estopped from doing so.
For all these reasons, the unpaid dividend in respect of Ms Passon’s proportion of the disputed shares, having been declared by WES prior to the Settlement Agreement were assigned to the trustee.
Accordingly, in my opinion, WES’s appeal in relation to Grounds 1 to 3 is allowed.
Ground 4
The determination of Ground 4 of the appeal from his Honour depends on the construction of clause 9 of the Deed of Settlement (that is, the agreement which settled the oppression proceeding).
The terms of clause 9 of the Deed of Settlement are set out above.
Although evidence in that proceeding did refer to dividends in WES, and shares in that entity, in my opinion that was not the essence of the case.[36]
[36]See para [17] above.
It is commonly the case that documents are exhibited to affidavits or reference made to issues which provide broad contextual background and are merely foundational. The inclusion of such documents certainly does not, in my view, elevate a matter to an issue in a proceeding, in the absence of the issue being raised squarely on the pleadings. In this case there were no pleadings, but the issues were enunciated in correspondence, namely a letter by Ms Passon’s solicitors dated 8 May 2014 (‘the 8 May 2014 letter’).
In my opinion, the issues in the oppression proceeding (outlined in paragraph [17] above) are not so broad as to encompass Ms Passon’s entitlement to any unpaid dividends in WES following her entering into the Settlement Agreement.
It is clear given the decision of his Honour that Ms Passon held the disputed shares on trust for the children that, absent any other facts matters or circumstances, there would be no question of the shares or indeed the dividends attaching to them vesting in the trustee. The issues in the oppression proceeding are fundamentally different from entitlement to dividends in WES.
Clause 9 of the Deed of Settlement is drafted in broad terms insofar as the scope of the release is concerned, however, it has limited compass specifying that such release apply to matters ‘arising out of, or in connection with the contents of, the allegations made in, or the facts giving rise to the proceeding’.
Having considered the issues in the oppression proceeding as set out in the 8 May 2014 letter, I accept, as submitted by Ms Passon, that there is no basis upon which it could be concluded that that proceeding was concerned with any entitlement to dividends in WES. His Honour’s analysis was thorough and considered and, in my opinion, he did not fall into error.
Accordingly, Ground 4 of the appeal is dismissed.
Ground 5
Clause 2 of the Settlement Agreement provides, in essence, that beneficial title in 91 of Ms Passon’s shares in WES vested in the trustee, pursuant to s 58 and s 116 of the Bankruptcy Act.
Those provisions of the Bankruptcy Act require no analysis in this context.
WES submitted that, in effect, the dividends follow the shares. WES expressed this submission in the following terms:
“Property” is broadly defined to include the any [sic] dividends payable on the shares.[37] Accordingly, upon the vesting of the 91 shares in the bankruptcy, the right to receive dividends in respect of those shares is property which vested in the bankruptcy trustee.
[37]Section 5 of the Bankruptcy Act defines ‘property’ to mean ‘real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property’.
However, in this case, there are other facts, matters and circumstances.
The Settlement Agreement changed what would have otherwise (in light of his Honour’s findings) been the case by operation of law. In other words, the disputed shares would not have vested in the trustee but the parties, by agreement, agreed that a proportion of them did. There is no reason why this Court should not uphold this agreement.
It is to be noted that his Honour observed:
The parties agreed as follows. By paragraph 1, Ms Passon holds 49 of the disputed shares on trust for her children, Angus Passon, Tia Rose Passon and Yetta Passon pursuant to the terms of the share trust. By paragraph 2 or clause 2, beneficial title in 01 of the disputed shares is vested in Mr Vince pursuant to s.58 and s.116 of the Bankruptcy Act.
According to the argument by Mr Devanny, that is a clear identification of the true facts which are that Ms Passon was beneficially entitled to the shares in question. But that is the point. The shares in question were 140 shares and that argument could only apply to 91 of them, but there is no evidence to show why one would differentiate any one of those shares of 140, let alone 91 on the one hand and 49 on the other.
The clear logic is against the submission made by Mr Devanny. The argument could just as well be argued the other way, but in any event, this agreement doesn’t constitute a finding by a court binding on the parties as to the actual basis upon which Ms Passon held these shares prior to this agreement being reached.
The fact that Mr Vince was prepared to also waive any dividends or other entitlements that those shares or at least 91 of them, might have in fact attracted in a relevant bankruptcy period indicates that this was nothing more than a settlement reached by the parties to avoid the vicissitudes of litigation. Whilst it is binding upon them, and whilst indeed Ms Passon transferred the 91 shares to Mr Vince pursuant to this agreement, it does nothing more than that. It certainly does not decide or determine the nature of the shareholding before this agreement and the transfer of the shares pursuant to it, and insofar as that is concerned, the parties agree that I need to make a finding about that and I do so.
It is clear from his Honour’s comments that he did indeed consider that the Settlement Agreement (and in this context clause 2 in particular):
(1)Created a transfer of 91 shares in WES by Ms Passon to the trustee; and
(2)Constituted a binding agreement as between the parties to the Settlement Agreement.
His Honour went on to find that Ms Passon held the disputed shares on trust for the children.
However, as I have observed, in my opinion even if this were the case at any time, the Settlement Agreement clearly changed that position by virtue of the assignment of 91 shares in WES by Ms Passon to the trustee.
A proportion (91) of the disputed shares being vested in the trustee by virtue of the Settlement Agreement necessarily brought with them the rights to the dividends attaching to those shares.
The basis for his Honour’s findings appears to be the concern to limit clause 4 to a prospective operation. As I have observed, that is a construction of clause 4 with which I do not agree.
Ms Passon’s 91 shares were, for the reasons I have set out above, validly assigned to the trustee, and indeed by virtue of clause 2 of the Settlement Agreement, it was agreed by Ms Passon that those shares be vested in the trustee pursuant to sections 58 and 116 of the Bankruptcy Act by agreement. The disputed shares may indeed not have been divisible property given Ms Passon’s claim at the time that she held the disputed shares on trust for the children, but the situation and the legal rights and entitlements of the parties were changed after the entry into of the Settlement Agreement. I do not consider his Honour’s observations about the nature of Ms Passon’s interest in the disputed shares prior to the entry into of the Settlement Agreement to be apposite.
Accordingly, I determine that his Honour erred in failing to determine that any right which Ms Passon had to any unpaid dividend from WES in respect of 91 of the disputed shares vested in the trustee, pursuant to s 58 and s 116 of the Bankruptcy Act.
It follows that the appeal in relation to Ground 5 is allowed.
Ground 6
This ground of appeal was not pursued.
I will hear the parties on the form of orders and the question of costs.
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