Equity 8 Pty Limited v Shaw Stockbroking Limited

LEGISLATION CITED : Trade Practices Act 1974, ss.52, 75B(1), 82(1)

Equity 8 Pty Ltd v Shaw Scockbroking Ltd [2007] NSWSC 413 Jones v Bradley (No. 2) [2003] NSWCA 258 Leichhardt Municipal Council v Green [2004] NSWCA 341 CASES CITED : Pollard v Baulderstone Hornibrook Engineering Pty Ltd No. 2 [2007] NSWSC 486 Singh v Singh (No 3) [2004] NSWSC 866 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 3203 Yorke v Lucas (1985) 158 CLR 661

Equity 8 Pty Limited - Plaintiff Shaw Stockbroking Limited - Defendant Shaw Stockbroking Limited - Cross-claimant PARTIES : Equity 8 Pty Limited - First cross-defendant Cartesian Corporate Finance Limited - Second cross-defendant Bruce John Wookey - Third cross-defendant Ross Martin - Fourth cross-defendant

COUNSEL : Ms T.L. Wong - Plaintiff Mr D.R. Stack - Defendant

SOLICITORS : Gilbert + Tobin - Plaintiff Eastern Commercial Lawyers - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2963/05 EQUITY 8 PTY LTD v SHAW STOCKBROKING LIMITED & ANOR

1 Following my judgment of 2 May 2007 (Equity 8 Pty Ltd v Shaw Stockbroking Pty Ltd [2007] NSWSC 413), a few matters require attention. I shall use here the same abbreviations as I used there. 2 The first may be dealt with briefly. It relates to the claims in paragraph 11 of the further amended statement of claim and the claim in paragraphs 17 and 18 of the further amended statement of claim. In each case the claim is admitted by Shaw and there should be an award of damages accordingly to E8. In the first case the sum is $11,817.30 and in the second case the sum is $3,166.67. 3 The second and third matters requiring attention are raised by E8. They involve other parts of the further amended statement of claim on which I expressed no conclusion and on which determination is required. These are the claim in paragraphs 15 and 16 and the claim in paragraphs 19 and 20. 4 The fourth matter to be dealt with is one that was raised by Shaw when the matter was before the court last week for the formulation of orders. It is the absence, from the description of the orders at the end of the earlier judgment, of recognition of Mr Wookey's having been involved in breach of s.52 of the Trade Practices Act 1974 by E8 in relation to the bonus representation. 5 The fifth and final matter concerns costs. I have already indicated that there should be an order that the plaintiffs and cross-defendants pay the costs of the defendant and cross-claimant of the proceedings. It is submitted on behalf of the Shaw parties, however, that assessment of costs should be on the indemnity basis and I have heard submissions on that question this morning. 6 Let me turn then to the second matter I have mentioned, that is, the undetermined and still controversial matter in paragraphs 15 and 16 of the further amended statement of claim. Those paragraphs plead a claim for a "termination bonus" on the basis of an implied term. E8 contends that there is to be implied into the July 2002 agreement a term that Shaw would, upon any termination of the agreement, pay to E8 a pro rata portion of the annual bonus expressly provided for. The express provisions are referred to at paragraph [27] of the earlier judgment. 7 The implied term for which E8 contends is to the effect that part of the annual bonus referable to the portion of the year during which the agreement continued on foot should be paid at termination. It is alleged by E8 that Shaw breached this implied term by failing to pay on that pro rata basis for the period from 1 July 2003 to the date of termination of the agreement by Shaw, that is, 10 December 2003. 8 The test for the implication of terms is referred to at paragraphs [22] and following of the earlier judgment. I need not repeat it here. Having regard to that test, I do not accept that any term of the kind for which E8 contends is implied in this case. The express term with respect to bonus worked according to the amount of a "bonus pool" ranging from $500,000 to $3 million or more. The calculation and the availability of the bonus were obviously tied to a period, in that the express term had regard to net receipts on corporate transactions for a period and expenses for the period to produce the bonus pool for the period. The period is equally obviously a financial year. The structure of the express term is such that there can be no bonus calculation otherwise than for and in respect of a full financial year. 9 The implied term upon which E8 seeks to rely would be inconsistent with the express term. The parties cannot have intended that there should be any calculation with respect to part of the year when regard is had to the distinct likelihood of uneven performance during the year: for example, January, traditionally the holiday season, might well be a quiet month. The express term involves recognition of contribution to a whole year's effort. There is no basis on which the same intention could be imputed to the parties in respect of one day's effort or one week's effort or one month's effort or the effort of any other period short of the full year. 10 There is also the point that was forcefully made by Mr Hammerschlag in the course of his submissions at trial. I quote from page 308 of the transcript: "Can you imagine, one asks forensically, Mr Shapiro and Mr Wookey sitting around a table and Mr Wookey saying, 'And don't forget if I steal your clients and you terminate me for that, don't forget you have got to pay me a proportion of the bonus payable to the date on which you sack me', and my learned friend's proposition is, 'Yes, of course, Mr Wookey, that is so obvious it goes without saying.'"

That, to my mind, underlines the conclusion that the test for the implication of terms is not satisfied in this context. 11 There is, accordingly, no basis for the implication for the term for which E8 contends and there will be no award of damages to E8 on the basis of paragraphs 15 and 16 of the further amended statement of claim. 12 The third matter to be addressed is the claim in paragraphs 19 and 20 of the further amended statement of claim. Shaw made a reduced payment to E8 under the July 2002 agreement for the months of February to July 2003. E8 alleges, and Shaw admits on the pleadings, an agreement that Shaw would reimburse E8 for the reduced payments. There is a dispute, however, as to the proper amount of the reimbursement. E8 says that it is $24,573.72. Shaw says that it is $11,110.74. There are four areas of difference with respect to this discrepancy of $13,462.98. 13 The first controversial question is whether Simon Kidston took eight days of unpaid leave in March/April 2003. Shaw says that he did and that as a result two sums, one of $3,333.33 inclusive of GST, and the other of $2,833.34 inclusive of GST - an aggregate of $6,166.67 - should be deducted from the $24,573.72 claimed by E8. The position of E8 is that Mr Kidston did not take the eight days unpaid leave. 14 This aspect of the particular sub-dispute accordingly turns on questions of fact about when Mr Kidston was working and when, if at all, he was on unpaid leave. E8 says that Shaw has produced no evidence in support of the proposition that Mr Kidston took eight days unpaid leave and that the result for which Shaw contends in that respect therefore should be rejected. But it is E8, as plaintiff, which is pursuing the claim and bears the burden of proof. E8 has the benefit of an admission or concession that Mr Kidston worked for all but eight days of the relevant period. In order to permit the court to find in its favour, in relation to the full number of days, E8 would have to show, by evidence, that Mr Kidston worked on every day. 15 I have been taken this morning to documents about salary figures (or, more precisely, transfers of money for salaries) for April 2003. They show a figure of $4,283.97 for Mr Kidston in respect of that month. I have also been taken to comparable figures for surrounding months. The figures for Mr Kidston, in respect of each of the surrounding months, is $6,791.66. There is accordingly a basis for an inference that Mr Kidston did not work in, and was not paid for, some part of April. On the basis of those salary figures, E8 now concedes the Shaw position based on Mr Kidston's having had unpaid leave of eight days. That is sufficient to dispose of that particular aspect. It is determined in the way for which Shaw contends. 16 The next controversial question relevant to the difference of $13,462.98 in respect of the claims in paragraphs 15 and 20 of the further amended statement of claim concerns hours worked by and salary rate applicable to Shauna Carter. E8 contends that Ms Carter's rate of remuneration at the relevant time was $57,000 per annum. Shaw says it was $51,000 per annum. The difference between the parties turns on which was in reality the applicable rate. 17 The evidence includes the contemporary documents about transfers of funds for salaries to which I have made reference in relation to Mr Kidston's position. There are entries in those documents concerning Ms Carter for relevant months. The documents for the periods July to October 2002 show, in respect of Ms Carter, an annual rate of $76,000. There are no records that I could find for November and December 2002 and January 2003. There is a record for February 2003 which shows an annual figure of $51,000 for Ms Carter. The records for each of March and April 2003 show an annual figure of $57,000 for Ms Carter. There is also evidence in the form of Ms Carter's letter of resignation that her employment by E8 came to an end on 25 April 2003. 18 On the basis of the evidence that I have just mentioned it would not be correct to regard either $51,000 or $57,000 as the annual rate applicable to Ms Carter for each of the months, February to July 2003. The correct conclusion on that evidence would be that the rate was $51,000 for February and $57,000 for each of March and April. However, that evidence is supplemented by an e-mail of 17 February 2003 from Mr Wookey to Ms Carter and Mr Sidney, making it clear that Ms Carter's salary reduction from the pre-existing level of $76,000 was intended always, and in respect of all periods, to be only a reduction of $19,000; that is, that her reduced salary should be $57,000. On that basis, and having regard to the fact that the e-mail appears to be suggesting a need for some readjustment, I conclude that the correct approach is to regard Ms Carter's salary rate for each relevant month as having been $57,000 per annum. Calculations for damages purposes should be made accordingly, that is, on the basis for which E8 contends. 19 The next area of controversy, in relation to paragraphs 19 and 20 of the further amended statement of claim, concerns an item of $300 plus GST of 10 per cent, that is, an aggregate of $330. This relates to payroll tax. E8 contends that it should be awarded this sum of $330. Shaw says that it should not. Resolution of the difference seems to turn on the terms of whatever might be applicable payroll tax legislation and the question whether some threshold of $600,000 applicable to total payroll was reached. No one has referred to any provision of any payroll tax legislation, nor have I been referred to any total payroll tax figure actually applicable and with which I might have compared any threshold that examination of the legislation might have brought to light. Again E8, in this area, bears the onus of proof. The onus of proof has not been discharged. E8 will not be awarded the sum of $300 plus GST of 10 per cent making a total of $330. 20 The final area to be addressed in relation to paragraphs 19 and 20 of the further amended statement of claim is the subject of written submissions which I will quote in full. The submission made by E8, as plaintiff, is really responsive to a submission made by Shaw, as defendant. I therefore quote, first, the submission made by Shaw: "The other reason for the difference in the shortfall relates to Bruce Wookey applying the uplift factor of 10 per cent and then adding GST (refer to row 5, pages (sic) 31 of the second Wookey affidavit) but then only reducing the shortfall by the uplift factor with no GST (refer to row 7, page 33 of the second Wookey affidavit)." 21 The submission by E8 in response is: "Shaw makes a claim regarding the manner in which GST has been calculated which has not been properly articulated in documents provided to E8 to date."

22 These submissions do nothing to elucidate the nature or basis of the claim made. The onus of proof to support the claim rests with E8. The onus has not been discharged. There will be no inclusion of any element for this matter in the calculation of damages. 23 The fourth matter to which I referred at the outset is the liability of Mr Wookey for E8's breach of s.52 of the Trade Practices Act in relation to the bonus representation. At paragraph [162] of the earlier judgment I said that E8 had, through Mr Wookey, made to Shaw the misleading or deceptive representations on the Bell bonus issue referred to at paragraph [74] of the judgment. At paragraph [163] I referred to the "misleading or deceptive representation by E8 through Mr Wookey" and went on to state the substance of the representation. At paragraph [73] I described the state of Mr Wookey's knowledge of relevant matters at the time he made the representations. The state of his knowledge, as there described, was such that he knew, when he made them, that the representations were false. What was not expressly said in the earlier judgment, but clearly implied, is that Mr Wookey, in acting for E8 in relation to the bonus matter, had actual knowledge that the statements he was making were false; furthermore, that he intended to induce Shaw to act on the faith of the statements that were false misleading and deceptive and known by him to be so. 24 On the basis of the findings expressed in the earlier judgment, therefore, Mr Wookey was, in terms of s.75B(1) of the Trade Practices Act "involved in" the contravention of s.52 on the part of E8 described at paragraphs [162] and [164] of the earlier judgment. The mental elements indicated by Yorke v Lucas (1985) 158 CLR 661 existed. It follows, by force of s.82(1), that Shaw may recover from Mr Wookey, as well as from E8, the loss or damage described at paragraph [165] of the earlier judgment. The orders should reflect this. 25 Finally, there is the matter of costs. As I have said, it was indicated in the earlier judgment that, on the basis that costs should follow the event, the plaintiffs and cross-defendants must pay the costs of the defendant and cross-claimants. The beneficiaries of that outcome, that is the Shaw parties, now say that costs should be assessed on the indemnity basis. 26 In contending that costs should be awarded on the indemnity basis, Shaw relies on certain proposals made by it to the E8 parties. The first was contained in a letter of 10 December 2003, the day on which Shaw terminated the July 2002 agreement and the individuals associated with E8 were required to leave the Shaw premises. The letter of 10 December 2003 is a letter from Mr Shapiro, the managing director of Shaw, to Mr Wookey, the managing director of E8. The letter proposed certain "commercial terms", including payment of the management fee to 30 December 2003, and a payment by way of bonus for the period of six months to 31 December 2003, calculated on a revised or specially tailored basis set out in the letter, having regard to the financial year basis referred to in the agreement itself, but with deduction from the bonus of amounts for the Park Plaza fee, the CGC fee and the Bell bonus. 27 The letter began by offering "the following commercial terms". It said at the end: "We trust we will be able to conclude the termination arrangement as set out above." And finally: "Please let us hear from you as soon as possible and in any event by no later than 17 December 2003." 28 The second letter relied on by Shaw is a letter of the 23 December 2003 from Mr Shapiro to Mr Wookey. It was sent by e-mail at 10.47am on that day. The letter referred to a meeting on Sunday 21 December 2003 and reiterated that Shaw had terminated the agreement for cause and would "provide the courts and the regulators with the substantial evidence we have obtained." The letter went on to say that Shaw was prepared to offer E8 "a payment in full and final settlement, payable upon execution of the appropriate releases by both parties on the under-mentioned basis." It then referred to an attached bonus calculation consisting of a closely typed page of figures and referring to adjustments. Attention was drawn to the total sum at the foot of the enclosed schedule, being $127,434.48. The letter described this as the amount that "may" be due to E8, stating however that Shaw had been advised that because E8 breached the agreement E8 was not entitled to any amount. The letter then continued: "Nonetheless, in order for both E8 and Shaw to avoid further disruption and costs to their businesses, we are prepared to offer E8 an amount of $250,000 in full and final settlement payable immediately upon the appropriate releases." 29 There then followed concluding paragraphs as follows: "This offer will expire at 5 pm today. You advised on Sunday that you are travelling today and I should contact Ros, Nick or Simon. I have thus copied them in this e-mail. We await your acceptance of this offer which we believe is appropriate in the circumstances."

30 On 24 December 2003 Mr Wookey wrote to Mr Shapiro responding directly to the letter of 23 December 2003. By that time, of course, the offer contained in the letter of 23 December 2003 was no longer open for acceptance. It had expired at 5 pm on that day. Mr Wookey nevertheless replied, expressing regret that "we cannot accept Shaw's proposal contained in the letter". He went on to cover a number of matters, including an allegation that E8 did not know what Shaw considered to be the "just cause" for termination of the agreement. 31 A separate letter of 24 December 2003 was sent by E8's solicitors to Shaw's solicitors referring to Mr Shapiro's letter to Mr Wookey dated 10 December 2003. The solicitors outlined a damages claim by E8 against Shaw in the sum of $1,507,250 and then conveyed an offer to settle on the basis of a payment of $590,000, inclusive of costs, by Shaw to E8, which offer was expressed to be open until the close of business on 30 January 2004. 32 It is clear that neither of the offers on which Shaw relies (that is, the offer in Mr Shapiro's letter of 10 December 2003 and the offer in Mr Shapiro's letter of 23 December 2003) was an offer of compromise in accordance with the rules of court. The provisions of the rules relevant to such matters therefore do not apply. But it is the contention of Shaw that the letters are Calderbank letters and that the court should, in the exercise of its general discretion with respect to costs, order that the costs awarded to Shaw be assessed on the indemnity basis. The outcome of the proceedings to E8 was much less favourable than the position it would have occupied had either offer been accepted. 33 The principles in this area emerge from a number of decisions of the Court of Appeal, in particular, SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 3203, Jones v Bradley No. 2 [2003] NSWCA 258 and Leichhardt Municipal Council v Green [2004] NSWCA 341. A useful summation of the principles appears in the judgment of Hislop J in Pollard v Baulderstone Hornibrook Engineering Pty Ltd No. 2 [2007] NSWSC 486, that is, a judgment delivered yesterday. I gratefully adopt paragraphs 5 to 9 of his Honour's judgment: "Rule 42.1 of the Uniform Civil Procedure Rules 2005 ("the rules") provides 'Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs'.

Rule 42.15 of the rules provides, relevantly, that where an offer of compromise is made by a defendant pursuant to rule 20.26, and the plaintiff does not accept that offer and recovers a judgment less favourable to him or her than the terms of the offer then, unless the Court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs until the beginning of the date following the day on which the offer was made from which date the defendant is entitled to its costs assessed on an indemnity basis. In the case of an offer pursuant to rule 20.26 the court's discretion to 'order otherwise' will, in general, be exercised only in an exceptional case - Leichhardt Municipal Council v Green [2004] NSWCA 341 and it is for the plaintiff to prove that the court should 'order otherwise' - Gretton v The Commonwealth of Australia [2007] NSWSC 149 at [9]. The court may also make an order that a defendant is entitled to indemnity costs where an offer has been made in a Calderbank letter and the judgment obtained by the plaintiff is less favourable to him or her than the terms of the offer. Unlike a notice of offer of compromise under rule 20.26 '…the mere making of an offer by a "Calderbank letter" and its non-acceptance followed by a result more favourable to the offeror (less favourable to the offeree) than that represented by the offer will not automatically lead to the making of an order for payment of costs on an indemnity basis' - MGICA (1992) Pty Ltd v Kenny and Good Pty Ltd (1996) 70 FCR 236 at 239. The court may have regard to a Calderbank letter when deciding questions of costs but 'In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure' - SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37], Jones v Bradley (No 2) [2003] NSWCA 258. Relevant factors are whether the rejection of the compromise offer was reasonable in the circumstances and the timeframe in which the offeree had to consider the offer - Crump v Equine Nutrition Systems Pty Limited (No 2) [2007] NSWSC 25 at [40]. It is for the defendant to persuade the court that the plaintiff acted unreasonably in rejecting the Calderbank offer - Gretton at [16]. Circumstances to be considered in determining whether the failure to accept the offer was unreasonable or not include the making of an assessment of the strengths and weaknesses of the plaintiff's case looking at the claim prospectively at the time the offer was made. This task is not to be determined with the benefit of hindsight - Gretton at [24]." 34 The central question on this aspect of the case is whether E8's failure to accept either of the offers made by Shaw, that is the offer of 10 December 2003 and the offer of 23 December 2003, in all of the circumstances was such as to warrant departure from the ordinary rules as to costs. The fact that the offeree emerges from the litigation worse off than if the offer had been accepted does not, of itself, warrant departure from the ordinary basis of assessment. The real question is whether non-acceptance of the offer was reasonable in the circumstances and it is for the party occupying the position occupied here by Shaw to persuade the court that the party in the position of E8 acted unreasonably in not accepting the offer. 35 Ms Wong, in her written submissions, supplemented orally, has drawn attention to a number of matters in this respect which require attention. In relation to the offer of 10 December 2003, she points to the fact that, as I have mentioned, the offer was made on the day of termination of the agreement when the E8 employees were asked to leave Shaw's premises. She makes the point that people were, at that stage, no doubt in a state of some disruption. She also make the point that, as is shown by the letter of 10 December itself, the arrangements which attended the departure of the individuals from the premises entailed their no longer having access to E8's electronic files, with the result, I infer, that they had no ready means of access to the financial information that it would have been necessary for them to consider in order to form a view about the proposal in 10 December letter which, as I have said, was based on certain calculations regarding remuneration and bonus. 36 Ms Wong next makes the point that the letter of 10 December 2003 did not convey an offer of a fixed sum. There were not only the matters of calculation to which I have just referred, which might, with the application of effort on the basis of full information, have produced a figure, but there were also matters for future determination for decision. For example, paragraph 6(b) of the letter said: "Expenses for the purposes of calculating any bonus due will be assessed in (sic) a fair and reasonable basis, based on salaries and direct expenses and in accordance with the heads for the work expended in advancing and/or including the mandates detailed in paragraph 2 above for the period 1 January to 30 April 2004."

A fair and reasonable basis did not provide any means of calculating a figure. 37 In paragraph 6(c) there was reference to income and the need for it to have been received and cleared by Shaw's bank in order to be taken into account. There then appeared this sentence: "All legal costs on an indemnity basis incurred by Shaw, using its own solicitors in the collection of these fees, will be deducted from the cleared funds received on these outstanding amounts." 38 The next sentence reads: "Shaw, in its absolute discretion, may agree to settle for a lessor amount on each and every outstanding invoice or claim." 39 Again, therefore, there was an element of uncertainty arising from not only future events, but also the application of Shaw's "absolute discretion". 40 In paragraph 6(e), also dealing with the bonus calculation, there was reference to a number of matters to be taken into account. One was the "Park Plaza claim" against which appeared an asterisk referring to a footnote: "Likely to be settled today at $130,000 including GST". Again, therefore, there was an element of uncertainty and no means of arriving at a figure. 41 In relation to the letter of 23 December 2003 Ms Wong also makes a number of points, among them, the following: first, that the E8 personnel still did not have access to electronic records which would have assisted them in coming to a view about what their just desserts might be in their own minds and second, that the offer, while it did refer to a specific amount of $250,000, was open only from 10.47am to 5 pm on 23 December 2003 - a period of just over six hours. 42 I am of the opinion that these submissions, made in respect of the substance of both the letters, have force. There is also the important point that both offers were forthcoming before the full parameters of the dispute between the parties had unfolded and had been exposed. Mr Wookey's response to one of the letters, as I have said, made the point that the E8 individuals were not aware of the basis on which Shaw considered itself to have a right of termination. The E8 solicitor's letter of 24 December refers to "your client's persisting failure to offer any explanation for its conduct". 43 Mr Stack draws attention to the fact that findings the court has made show that Mr Wookey and Mr Martin, the principals of E8, were directly and intimately involved in the events which formed the basis of the justification for Shaw's termination of the contract. He also points to the fact that the persons concerned here are astute business people, well able to understand financial matters. That, however, to my mind, does not outweigh or cause to be relegated the considerations to which Ms Wong has referred as relevant to the court's assessment of the reasonableness or unreasonableness of the failure, by E8, to accept the two Shaw offers. 44 In the whole of the circumstances, and having regard to the particular matters to which Ms Wong drew attention, as well as the important consideration that the full parameters of the dispute had not been articulated at the relevant time, I am not prepared to find that it was unreasonable for E8 to have declined or failed to accept the offer in the letter of 10 December or the offer in the letter of 23 December 2003. Accordingly, the order with respect to costs will be as outlined at subparagraph (e) of paragraph [204] of the earlier judgment, without the addition of any direction that there should be an assessment of costs on the indemnity basis.

[Counsel for E8 sought costs of the application for indemnity costs] 45 There has been an application by E8 for costs of the motion for indemnity costs. In a proceeding such as this, and on the basis which I attempted to articulate in Singh v Singh (No 3) [2004] NSWSC 866, this would not be an appropriate order. Most of this morning has been taken up with other matters. The matter of costs and the basis of assessment should be regarded as part and parcel of the proceedings as a whole and there should not be any separate costs order.

[Short adjournment for formulation of short minutes] 46 I make the declarations in items 1, 3 and 5 of the short minutes which I initial and date. 47 I make the orders in items 2, 4, 6, 7 and 8 of the short minutes.

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