Dick v Alan Powell Holdings & Ors

McCullogh Robertson for Allan Powell Holdings Pty Ltd, A.I. Powell Holdings Pty Ltd and Trekmere Pty Ltd

[1] The applicant in the principal proceeding, Mr Dick, holds 15 per cent of the issued capital in the first respondent, Alan Powell Holdings Pty Ltd ('APH'). The second and third respondents hold the balance of the shares - AL Powell Holdings Pty Ltd ('ALP'), which is owned by Mr Alan Powell, holds 75 per cent, and Trekmere Pty Ltd ('Trekmere'), which is owned by Mr Tom Smith, holds 10 per cent. APH was in the business of owning and operating car dealerships in Bundaberg. That business has ceased.

[2] The principal proceeding brought by Mr Dick seeks relief under Part 2F.1 of the Corporations Act; i.e. these are oppression proceedings. The primary relief

Mr Dick seeks in the principal proceeding is an order pursuant to s 233 of the Corporations Act 2001 (Cth) that ALP and/or Trekmere purchase all of the shares Mr Dick holds in APH at a price determined by the Court.

[3] The present application has been brought by APH, ALP and Trekmere, seeking an order that the principal proceeding be struck out. The application is brought on three grounds:

(a) For want of prosecution constituted by 'gross non-compliance with the Court's orders', pursuant to Uniform Civil Procedure Rules 1999 (Qld) UCPR Rule 280(2);

(b) On the basis that 'the claim must be struck out because the applicant has a perfectly satisfactory right, in the constitution of the company, to compel the second and third respondents to purchase his shares in the first respondent that he has failed to avail himself of', being an application for summary judgment under UCPR Rule 293(2);

(c) The claim is bound to fail at trial on the merits, and ought be struck out under Rule 171(1).

[4] The principal proceeding, which was commenced in February 2006, is on the Supervised Case List. Directions, including consent directions, for the management of this case have been made from time to time. The catalyst for the aspect of the application to which submissions before me were principally directed, namely the application under Rule 280, was Mr Dick's failure to comply with an order made by consent by the supervising judge on 11 July 2008, which specifically required that 'the applicant's witness statements be re-served attaching copies of all the documents referred to in the statements by 21 July 2008'. On two previous occasions, Mr Dick had been ordered to serve 'a written statement of the proposed evidence in chief of each witness of fact to be called'. The first deadline was 30 January 2008. The second deadline was 28 March 2008. Ultimately, on 8 July 2008, documents which purported to be the witness statements for Mr Dick's case were served on the respondents, but these statements were manifestly unacceptable, not least because of the fact that they largely did nothing more than refer to documents said to be contained in the 'trial book', in many instances without even specifically identifying the documents to which reference was sought to be made. The state of those statements precipitated the order on 11 July 2008, which was made by consent, requiring Mr Dick's witness statements to be re-served attaching copies of the documents referred to in the statements. That was to occur by 21 July 2008. It still has not happened. There was a conspicuous absence of an explanation from Mr Dick as to why the statements were not re-served in accordance with that order. Nor was there an explanation as to why they have still not been re-served. The situation is exacerbated by the fact that on 3 September 2008, Mr Dick's solicitors wrote to the respondents' solicitors saying:

'The practical consequence of the significant amendments made to the defence was that certain of the facts that the applicant formally sought to prove by the tender of documents have now been admitted.

This had the result that the applicant no longer needed to tender all of the documents referred to in his witness statement.

It has taken us some time to order the new defence, compare it to the witness statement of Mr Dick and determine which documents the applicant no longer needed to include and the consequential changes to Mr Dick's witness statement.

We will be providing you with a revised witness statement from Mr Dick tomorrow which takes account of the changes that have been made necessary by the amended defence.'

[5] As I have already observed, the witness statements have still not been provided. No explanation was given to me as to why the promise that Mr Dick's statement would be provided by 4 September 2008 was not fulfilled.

[6] Counsel for the respondents urged me not to view this default as an isolated incident, but to see it as the latest in a course of conduct of 'gross default of court orders' which amount to an abuse of process.

[7] The respondents' solicitor has filed an affidavit in which he recounts in some detail:

(a) the significant period of delay in progressing the proceeding after it was instituted;

(b) the further delay in provision of a statement of claim (which was not served until three months after its directed date);

(c) the bringing of what were described as frivolous applications by the applicant;

(d) a failure by the applicant to comply with a consent order made in November 1997 in relation to the production of a valuation; and

(e) ongoing failures by the applicant to comply with case management directions made in December and again in March 2008 for the ongoing conduct of the matter. In particular, it would appear that the applicant was derelict in attending to the directions which required the production of expert reports, to the extent that the regime for the ongoing conduct of the matter needed to be completely reworked so as, on 11 July 2008, to vacate, inter alia, previous orders which had been made relating to the delivery of expert reports.

[8] Counsel for Mr Dick sought to point out that dilatoriness in the matter had not been a one way street, and that there had been instances of delay and non-compliance with orders by the respondents in the past. My attention was also drawn to the fact that on 4 August 2008, the respondents filed and served a second further

re-amended defence, which, whilst having the salutary effect of seeking to refine the matters at issue between the parties, also contained a significant number of further express allegations and re-pleading of matters which had previously been admitted.

[9] Despite those matters which would be sought to be sheeted home to the respondents' side of the ledger, I am nevertheless of the view, having had regard to the whole of the conduct of this case by and on behalf of the applicant, that there has been a failure on the part of the applicant to observe properly the undertaking implied by Rule 5(3) to 'proceed in an expeditious way'. That, in the context of the applicant's failure to comply with the consent order made on 11 July 2008, would render it appropriate, in my view, for an order to be made under Rule 280(2).

[10] The question, then, is as to what order should be made.

[11] Counsel for the respondents urged vigorously for an order that the proceeding be dismissed. It was submitted that this was not merely a case of isolated

non-compliance, but the latest example of a history which indicates 'an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period' leading to unnecessary delay, expense and other prejudice to the respondents[1]1 It was further submitted that, in considering whether to exercise the discretion to dismiss the proceeding under Rule 280, it is material to consider the merits of the principal proceeding[2]2

Counsel for the respondents pointed to the ongoing prejudice being suffered by the respondents by virtue of the continuance of the litigation, citing the observations of McPherson J in Cooper v Hopgood & Ganim[3]:

'Ordinary members of the community are entitled to get on with their lives and plan their affairs without having the continuing threat of litigation and its commercial consequences hanging over them. The psychological as well as the commercial effects of such a state of affairs ought not to be underestimated.'

[13] As I have already noted, the principal relief sought by Mr Dick is for his shares in APH to be bought out at a price determined by the Court. Counsel for the respondents, however, sought to persuade me, in effect, that the principal proceeding is completely devoid of utility:

(a) Counsel for the respondents undertook a careful analysis of the various alleged incidents and circumstances on which Mr Dick's claim for oppression is based with a view to establishing either that events had not occurred in the manner contended for by Mr Dick (for example that the sale of certain property owned by APH at 26 Bourbong Street, Bundaberg had not occurred at an undervalue, that being one of the allegations of oppressive or discriminatory conduct alleged by Mr Dick) or that events which had occurred (such as the retainer of solicitors by the respondents) could and did have no, or at worst, minimal, effect on the value of Mr Dick's shareholding in APH.

(b) APH's articles of association contain a provision which, in the circumstance of Mr Dick having ceased to be employed by APH, requires him to sell his shares in APH to the other members of that company, with further provision for those shares to be purchased at 'fair value' to be assessed by the company's auditor, or if there is no auditor, a chartered accountant appointed by the directors of the company for that purpose. Mr Dick has ceased to be employed by the company, but has not availed himself of this procedure expressly provided for under the Articles of association.

(c) APH is asset-rich and has no liabilities. It could and should be wound up, in which event Mr Dick would be entitled to be paid out in proportion to his shareholding in the company.

[14] The matters to which the respondents point in asserting that the applicant's case of oppression is hopeless are, however, the very matters which the applicant would seek to have ventilated at trial. The allegations clearly raise matters of fact which need to be investigated at trial on the subject of specific factual findings by a trial judge. Similarly, when findings are made as to which of the events alleged by Mr Dick did, or did not, occur, it will be necessary to analyse individually and compendiously whether such events as may be found to have occurred constituted conduct of a company's affairs which was oppressive, unfairly prejudicial or unfairly discriminatory conduct, such as to found the claim for relief under Part 2F.1 of the Corporations Act. Those sorts of determinations are ill-suited to summary determination on an application such as this.

[15] Moreover, it is not an answer for present purposes to say that a payout for Mr Dick can be achieved either by him having recourse to the procedure provided for under the articles of association, or, for that matter, by recourse to liquidation.

[16] If Mr Dick does establish a case of oppressive conduct for the purposes of the Corporations Act, considerations will then arise as to the appropriate relief in the circumstances. If it be determined that his shares should be purchased, the Court will need to determine the sum at which those shares are to be purchased. That process is not necessarily the same as ascribing a 'fair value' to the shares, or ascertaining the dividends which will flow to the shareholders after a liquidation sale of the company's assets. It is not just a question of value, but is a matter of the Court fixing a price that should be paid to Mr Dick.[4]

The basic requirement when a compulsory purchase order is made under s 233 of the Corporations Act is that the price at which the shares are to be purchased must be fair on the facts of the particular case. In ascertaining that price, regard will be had to assessing the value of the shares at a selected date had it not been for the effect of the oppressive conduct.[5] Examples of the sorts of matters which will need to be considered in that valuation process are identified in Ford's Principles of Corporation Law[6] in the following passage:

'The court will need to consider the appropriate basis of valuation. Is it to be the amount which would be distributed to shareholders assuming an orderly winding up? Or should the shares be valued on a "going concern" basis? Is the company's goodwill its main asset" Is that goodwill dependent on the present controllers? If it is not so dependent, would it be appropriate to capitalise the estimated future maintainable earnings at the rate appropriate to the type of business: eg Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACRS 606; 11 ACLC 568? Would it be inequitable to the defendants to have to buy out the applicant on terms equivalent to the sale of the company's business to a stranger when the business may have been carried on as a family business with no intention of selling it: Sanford v Sanford Courier Service Pty Ltd (1987) 10 ACLR 549 at 560; 5 ACLC 394?'

[18] Moreover, the Court will need to make an assessment of the date on which the shares are to be valued. The Court will also have to consider the relevance and appropriateness of alternative methods of acquisition provided for under the articles of association (as in this case). It is not a foregone conclusion that the price which the Court would order to be paid under s 233 is the same as the value which would be reached on a valuation process under the articles of association. In that regard, the Full Federal Court of Australia in Dynasty Pty Ltd v Coombs[7] said, in the context of that case[8];

'His Honour, in fixing upon a fair price for Mr Coombs' shares, did not apply a discount factor because of there being a minority holding. We believe that his Honour was correct. There are, of course, arguments that properly assert that a minority shareholder, being contractually aware of the provisions of his or her company's articles of association, should be bound by those articles and by any provision that gives pre-emptive rights to other shareholders. In ordinary circumstances a minority shareholder wishing to sell his or her shares should offer them to the other shareholders; if a dispute arises as to value, it is common place for the articles to provide that the auditor of the company shall ascertain the value of the shares. That exercise might well involve a discount factor in the value. But Mr Coombs was not a minority shareholder who was a willing seller; he had been forced into instituting legal proceedings because he had been oppressed.'

[19] Accordingly, I am not able to accede to the submissions made on behalf of the respondents to the effect that the principal proceeding lacks merit and utility, and that this bolsters the argument in favour of making an order for the proceedings to be struck out under Rule 280. For completeness, I should add that these considerations would weigh against the grant of summary judgment under Rule 293 or a striking out of the proceeding under Rule 171.

[20] All of that being said, the question is whether the applicant's conduct in the principal proceeding has reached the stage of habitual non-compliance such as to warrant the imposition of the ultimate sanction by way of striking out of the proceeding. The matter is close. I am far from impressed with the applicant's flouting of orders of this Court and lack of observance of the undertaking implied by Rule 5. The exercise of my discretion in this regard, however, must be tempered by recalling that it is a 'well-established principle that the object of courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases'.[9] I am also well mindful of the court's appropriate high degree of caution in adopting the remedy of summarily terminating a claim.[10]

It seems to me in the exercise of my discretion under Rule 280(2) that this is, however, an appropriate case for the imposition of what might be described as the case management tool of last resort, namely a self-executing order. The serious, indeed terminal, consequences which flow from non-compliance with such orders mean that they should be reserved for use in cases such as this.

In the course of argument, it also became apparent that there is a pressing need for the applicant, Mr Dick, to get his house in order so far as expert evidence is concerned. Again, that has been the subject of omission on his part in the past, and should also appropriately be the subject of a self-executing order today.

The respondents, who properly brought this application, should have their costs of and incidental to the application. I have already intimated to the parties that I would be prepared to entertain an application to fix those costs.

I will hear the parties as to the form of orders now required.

1. [1] Lenijamar Pty Ltd v AGC Advanced Ltd [1990] FCA 520; (1990) 98 ALR 200 per Wilcox and Gummow JJ at 208-209.
2. [2] Lenijamar, per Pincus J at 215; Quinlan v Rothwell [2008] QSC 143 per Chesterman J at [25].
3. [3] [1999] 2 Qd R 115 at 124.
4. [4] Dynasty Pty Ltd v Coombs [1995] FCA 1447; (1995) 13 ACLC 1290 at 1308.
5. [5] ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1995) 15 ACSR 536 at 539; Rankine v Rankine (1995) 18 ACSR 725.
6. [6] At [11.430].
7. [7] [1995] FCA 1447; (1995) 13 ACLC 1290.
8. [8] At 1308.