In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal

That the first defendant [Mr Cheal] pay to the first plaintiff [Ms Fitzpatrick] a sum equal to half of the value attributable to the Chilli Surfboards Pty Ltd company name and associated goodwill as at 30 June 2006 (valued on the basis that ownership of the Chilli trade marks TM 767677 and 804353 reposed in the second defendant at the relevant time), such sum to be as agreed between the parties, or,s failing such agreement within 28 days, such sum to be as determined by the Court on a date to be fixed or as determined by an expert appointed by the Court, the identity of whom and the terms of reference to whom shall be fixed by further order of the Court. 16The defendants' primary contention is that it was not later open to me (on 1 June 2012) to reach conclusions (and make orders) inconsistent with the above order that had been made on 5 April 2012. Ms Francois emphasises that this order had not been recalled or challenged in any way. Ms Francois submits that the Court was bound by that order (in the sense, as I understand her submission to be, that there was no power to amend that order or to make an order that would alter its operation). 17Counsel for the plaintiffs (Mr Evans) submits that the terms of the order of 5 April 2012 are irrelevant in the sense that the question ultimately addressed in the judgment of 1 June 2012 was as to the fair price for Ms Fitzpatrick's shares having regard to the nominal value attributed to the company name but that in any event, inherent in the order made on 5 April 2012, was the potential that the sum payable to Ms Fitzpatrick would be determined in accordance with the legal principles applicable in cases of oppression (and hence that there was no denial of procedural fairness and no inconsistency with the earlier order so as to permit the reopening of the 1 June judgment). 18Having regard to the terms of the relevant order of 5 April 2012, Mr Evans submits that it encompassed within it three alternatives (one of which was for the court to determine (failing agreement between the parties within 28 days as to the value attributable to the company name and associated goodwill) "such sum" and did not limit the grant of relief to relief only by way of an order that the defendants to pay to the plaintiff a "sum equal to half the value attributable to the Chilli Surfboards Pty Ltd company name and associated goodwill as at 30 June 2006" (valued on the basis that the trademarks reposed in the second defendant at the relevant time). Rather, he submits that it was open to me, in the absence of the parties having agreed such a sum or that issue having been referred to an expert valuer, to grant relief in accordance with s 233 of the Corporations Act in the manner that I did. 19It will be apparent from my reasons of 1 June 2012 that when I came (after the provision of written submissions), almost two months after the initial orders were made, to determine (on the papers) the question of the nominal value to be attributed to the value of the company name and associated goodwill, I considered that question in the overall context of what would be a fair price for Ms Fitzpatrick's 50% share in the company (by way of a remedy for the oppressive conduct in which I found Mr Cheal had engaged in the affairs of the company). Part of that fair price was reflected in the half share of the net assets of the company as already quantified in order 1 of the orders made on 5 April 2012. The remaining question at that stage was as to what value should be attributed to the goodwill of the company name. I had indicated during the course of submissions on 5 April 2012 my view that, in the absence of expert evidence as to its value, I could attribute only a nominal value thereto. 20Having reviewed the authorities on the relief to be granted for oppression (as well as a number of authorities in other contexts in which attention was given to the manner in which nominal value or nominal damages should assessed), I considered that there was support for the proposition that the court should err on the side of the wronged (or oppressed) party, when determining the fair price payable for that party's share in the company and that it was appropriate in the circumstances to allocate the whole of the nominal value to Ms Fitzpatrick's share in effect as a premium payable for that share. 21In so doing I did not have regard to any potential inconsistency that might thereby be occasioned in light of the wording of the earlier 5 April orders (those orders themselves providing for the components of the price payable for Ms Fitzpatrick's shares). It is by reference to those orders that Ms Fitzpatrick's entitlement to payment arose and upon which any action to enforce payment of the sum referred to therein would have been based. 22In other words, if Ms Fitzpatrick had sought to enforce the compulsory purchase orders of 5 April 2012, the sum that would have been payable by Mr Cheal pursuant to those orders would have been the aggregate of the sum specified in order 1 and the sum specified in order 2 (the latter being the sum equal to half the value attributable to the company name and associated goodwill however that value ultimately fell to be determined), subject to any set-off in respect of any costs orders that might be made. By agreement between the parties, that value ultimately fell to be determined by me. However, the orders of 5 April 2012 on their face were to operate in the same way whichever of the methodologies for fixing the value were to be adopted. 23For the reasons outlined in my 1 June judgment, I fixed the value attributable to the company name at $4,000. Had the matter rested there, the additional sum payable by Mr Cheal under order 2 of the 5 April 2012 orders would have been $2,000 (not $4,000). 24Seen in that light, the allocation of the whole of the nominal value so determined to Ms Fitzpatrick's shares went beyond the task contemplated by order 2 of the 5 April orders and I accept that this was not a matter that had been raised with the parties following the 5 April orders and before judgment was published (it being done on the papers) on 1 June 2012. 25To the extent that account may be taken of the trial judge's ex post facto observations in ascertaining the objective intention of the Court in the making of orders (see Newmont Yandal Operations Pty Ltd v J Aron Corporation and Goldman Sachs Group Inc [2007] NSWCA 195 per Spigelman CJ at [91] and [95], albeit there in the context of the slip rule), I placed on record on 27 July 2012 that the potential application of the oppression authorities (as to the court erring on the side of the oppressed) was not something I had in mind during in the debate on 5 April 2012 as to what orders should be made. At [182] Spigelman CJ said: Satellite litigation and delay should be avoided with respect to both the inherent jurisdiction and the slip rule. ... the judge who made the orders is overwhelmingly the preferable person to make the corrections. That s/he may be influenced by, and even express, her or his subjective intention is not a ground for disqualification. 26I accept that on 5 April 2012 the issue as to whether any allocation of value as between the respective shares other than a 50/50 allocation should be made was not raised and that the defendants did not then or later have the opportunity to raise the question of inconsistency with the earlier orders that might thereby be occasioned. 27In those circumstances, I consider that a proper basis for the 1 June judgment to be reopened has been established so as to permit the defendants to make submissions as to that aspect of the orders. As noted above, the defendants do not cavil with the attribution of a figure of $4,000 by way of the nominal value; they simply cavil with the allocation of the whole of that value to Ms Fitzpatrick's share for the purpose of the price payable for that share in accordance with the 5 April orders. (The disproportionality between the cost of raising that issue and the sum in dispute - $2,000 - is explicable by reference to the potential impact of that minor difference on the costs argument to which I will turn shortly.) 28Ms Francois' submissions (on the assumption that the relevant part of the judgment were to be recalled) rest, as I understand them, primarily on the basis already noted above namely that there was no power as at 1 June 2012 to vary the regime put in place by the 5 April 2012 orders (and hence that it was not open to me to order that Mr Cheal pay the whole of the value of the goodwill to Ms Fitzpatrick as opposed to a 50% share of that goodwill). 29Insofar as Ms Francois contended that the Court was "bound" by those earlier orders, what in substance she contends (as I apprehend it) is that, the 5 April order having been made and remaining in place, the only power to vary it (by putting in place in effect a different way of calculating the fair price for Ms Fitzpatrick's share) would have been if application had been made by Ms Fitzpatrick within 14 days for the 5 April 2012 orders to be varied or if the "slip rule" (in 36.17 of the Uniform civil Procedure Rules) had been enlivened. 30In the event that this primary submission is not accepted, the defendants submit that Mr Cheal should not be required to pay the additional $2,000 because it is said to be illogical that an asset of the company can be allocated to increase the shares of one particular shareholder. Ms Francois contends that compensation for Ms Fitzpatrick being "kept out of the enjoyment of the value" of the shares (adopting the reasoning in Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 to which I had referred in my 1 June judgment) is met by the orthodox award of interest on the fair value of the shares. (The passage referred to by Ms Francois in her submissions is that cited in my earlier reasons and I do not repeat that here.) 31Second, Ms Francois submits that the allocation of the full amount to Ms Fitzpatrick's share fails to take into account the inclusion in the overall valuation of the shares of an "asset" comprised of a debt of $5,000 (being the amount said to be still owing from Ms Fitzpatrick to the company for the car "she took" after her separation from Mr Cheal). Reference was made to Ex B, Vol 1, page 208 (a copy of which was handed up to me on the hearing of the present application as the exhibits were no longer retained on the court file). It is submitted that it is illogical to consider that further compensation is required in circumstances where Ms Fitzpatrick owes money to the company "and yet will be paid in effect by Mr Cheal half of what she still owes". 32Pausing there, Mr Evans submits (and there is in my view force in this submission) that there was no suggestion raised during the hearing that any such loan was relevant to be taken into account in determining the entitlements of Ms Fitzpatrick. Mr Evans submits that any such loan would now be statute barred (though it would not necessarily have been statute barred as at June 2006 being the time at which the valuation exercise was to be carried out) and that there may have been arguments based on estoppel or the like that could have been raised in defence to a claim for that amount. (Indeed, Mr Cheal's affidavit on the current application deposes that he "gave" Ms Fitzpatrick the car after their separation, which seems inconsistent with Mr Cheal now seeking to maintain any claim on behalf of the company to that asset.) A call by Mr Evans for any notices of demand in respect of the debt recorded in the company accounts in respect of the car was met by the response from Ms Francois that there was nothing to produce. Whatever may be the position in relation to the car, I am not persuaded that an entry in the company accounts for a book debt not previously the subject of any claim by the company should affect the question whether the whole of the premium payable for use of the company name should be allocated to the shareholder whose interests were oppressed by its appropriation. 33Third, Ms Francois submitted (though this was conceded to have been infelicitously worded) that the finding that the first defendant "wrongfully deprived" Chilli #1 of the opportunity to obtain payment for its name was punitive because the process being undertaken by the Court under s 233 of the Corporations Act 2001 (Cth) (being the forced acquisition of the first plaintiff's shares at fair market value) "already remedies" Mr Cheal's oppressive conduct. 34As I understand it, what Ms Francois intended by that submission was that the impact of the order is punitive (not that the finding of oppression was itself punitive). I do not accept that the order now subject to review was punitive for the reasons indicated in my last judgment in this matter. 35Had the question of the "fair price" to be allocated in relation to the goodwill component (as opposed to the question of what was the value of a half share of the company's asset in the company name) been at the forefront of my mind at the time of the debate as to the orders to be made on 5 April 2012 judgment, and had the issue then been determined more broadly, I am by no means persuaded on the basis of the defendants' present submissions that I would have concluded that it was inappropriate to require Mr Cheal to pay to Ms Fitzpatrick the full value of the asset that had been diverted from the company. 36However, I think there is force to the submission (assuming I have understood it correctly) that, orders having been made on 5 April 2012 (following debate with Counsel as to the appropriate orders to reflect the findings made in my principal judgment) which provided for the methodology by which the amount payable for Ms Fitzpatrick's shares in the company fell to be calculated, it was not open to me later to vary the methodology so ordered (or to vary the quantum of the sum payable for the compulsory purchase of those shares as calculated in accordance with that methodology) in the absence of either an application by the plaintiffs for the recall or variation of the 5 April 2012 orders or circumstances that would give rise to the inherent jurisdiction under the 'slip rule'. 37In Storey & Keers Pty Ltd & Anor v Johnstone (1987) 9 NSWLR 446, McHugh JA, as his Honour then was, said the following (at 449) in relation to the slip rule: The Courts of Common Law and the Court of Chancery had inherent power to correct any clerical mistake or error in a judgment or order if it was the result of an accidental slip or omission: Lawrie v Lees (1881) 7 App Cas 19 at 34-35. This power was an exception to the general principle that a party is bound by a judgment or order once it has been drawn up unless he can set it aside: Kinch v Walcott [1929] AC 482. But although the principle of the slip rule is clear enough in conception, its application in practice has often proved difficult. The dividing line between a mistake or error which is the result of an accidental slip or omission and a mistake or error which is the product of a deliberate decision has often been difficult to draw. The difficulty became much greater when it was decided that an error might be the result of an accidental slip or omission even though, because of the inadvertence of the party's legal representative, the point was not raised at the hearing of the action: cf L Shaddock & Associates Pty Ltd v Parramatta City Council [No 2] (1982) 151 CLR 590 at 594-595. 38At 453 his Honour said that the rationale of the slip rule requires that an omission or mistake should not be treated as accidental if the proposed amendment requires the exercise of an independent discretion or as a matter upon which a real difference of opinion might exist. 39The Court of Appeal in Newmont Yandal considered that the inherent jurisdiction of the court permits the correction of orders the legal consequences of which were unforeseen or contrary to those intended, applying Ivanhoe Gold Corporation Limited v Symonds (1906) 4 CLR 642; In re Swire; Mellor v Swire (1885) 30 ChD 239 (at [60]). However, the power of correction is not available for the purpose of revisiting and exercising afresh a discretion originally considered in relation to a particular issue. 40In Mutual Shipping Corp of New York v Bayshore Shipping Co [1985] 1 All ER 520, at 530; [1985] 1 All ER 520; [1985] 1 Lloyd's Rep 189, Donaldson MR said that: It is the distinction between having second thoughts or intentions and correcting an award of judgment to give true effect of first thoughts or intentions which creates the problem. Neither an arbitrator nor a judge can make any claim to infallibility. If he assesses the evidence wrongly or misconstrues or misappreciates the law, the resulting award or judgment will be erroneous but it cannot be corrected ... The remedy is to appeal, if a right of appeal exists. The skilled arbitrator or judge may be tempted to describe this as accidental slip, but this is a natural form of self-exculpation. It is not an accidental slip. It is an intended decision which the arbitrator or judge later accepts as having been erroneous. (my emphasis) 41In Expo Aluminium (NSW) v Patman Pty Ltd (No.2) (unreported, NSWCA, 29 April 1991), the Court of Appeal said that the slip rule "connotes a limitation on the scope of the rule that has been said to preclude its application to mistakes that are the consequence of a deliberate decision". The distinction there drawn is between a mistake as to the effect of the decision and the making of a fresh or different decision once the consequences of that earlier decision were made known. 42Applying the principles outlined in those authorities, I do not consider that this is a case in which the slip rule could properly be invoked (whether or not the 5 April 2012 orders were by consent, as Ms Francois contends, or were (as I think more accurately stated would be the case) the product of acceptance by Counsel that if I were minded to take the course there proposed then the suggested form of the orders there being discussed would appropriately be made). 43Therefore, I consider that the appropriate relief on the present application before me is to recall that portion of the judgment of 1 June 2012 that contains the conclusion that Ms Fitzpatrick should be awarded a sum more than half of the value determined to be the nominal value of the goodwill; to vacate order 1 of the orders that I made on 1 June 2012; and to substitute therefor an order that, pursuant to order 2 made on 5 April 2012, the first defendant pay to the first plaintiff the further sum of $2,000 (that being half of the value attributed to the goodwill associated with the Chilli #1 company name as at 20 June 2006), the timing of such payment (and the payment under order 1 of the 5 April orders) to be dependent on any costs set-off. Costs 44This brings me to the question of what costs orders should be made in respect of the proceedings. At the outset I note that Bergin CJ in Eq ordered that Ms Fitzpatrick's costs of the application by Ms Fitzpatrick pursuant to s 237 of the Corporations Act for leave to bring proceedings in the name of Chilli #1 (alleging breach of fiduciary duty by Mr Cheal as a director of that company) should be her costs in the cause. Ms Francois therefore accepts that the defendants cannot seek their costs of that portion of the proceedings (though she contends that neither should the plaintiffs have those costs in the events that have transpired). I consider the costs of that application in due course. 45For the plaintiffs, it is submitted that there should be an order for payment of their costs on the basis of the ordinary rule that costs follow the event. Mr Evans notes that both Ms Fitzpatrick's claim seeking relief for oppression and the company's claim for breach of fiduciary duty were upheld. 46Insofar as the ultimate remedy was for the compulsory purchase of Ms Fitzpatrick's shares, the claims for relief made in the proceedings had been in the alternative. While I had considered that the most efficient way of remedying the wrong occasioned to Ms Fitzpatrick was a compulsory purchase order (rather than granting relief to the company and it then being a matter for the company to be wound up in order for Ms Fitzpatrick to obtain the value of her shareholding), ultimately it was the plaintiffs' election as to which of the alternative claims for relief were to be the subject of final orders. 47Ms Francois submits that Ms Fitzpatrick should be ordered to pay the defendants' costs of the proceedings (other than of the leave application for the derivative suit) on a party/party basis. In summary, the primary submission of the defendants is that there should be a costs order in their favour on the basis that the plaintiffs unreasonably rejected one or both of two settlement offers made to them during the course of the proceedings. In the alternative, it is submitted that the plaintiffs should be ordered to pay the defendants' costs of and incidental to the issue as to the ownership of the Chilli Surfboards trademark (and as to the valuation of the business based upon the assumption that it owned the said trademark), that being said to be the most significant issue in the case (and one on which it is said that the plaintiffs did not succeed). 48(Mr Evans disputes the characterisation of the result of the proceedings as being that Ms Fitzpatrick 'lost her case' that the trademark was owned by the company. He contends that the main issues in the proceedings were whether Mr Cheal and the other defendants had acted oppressively in respect of Ms Fitzpatrick as a shareholder in Chilli #1 in the terms of s 232 of the Corporations Act and whether Mr Cheal, with the assistance of Cheal Industries and Chilli #2, had acted in breach of the fiduciary duty he owed to Chilli #1. He points to the success of the plaintiffs on both of those issues.) 49The settlement offers in question were, first, an offer (in its terms expressly said to be made pursuant to the rules applicable to offers of compromise) dated 18 December 2009 in the amount of $20,000 plus costs as agreed or assessed and, second, an offer made on 22 July 2011 (and repeated on 19 August 2011) in the amount of $55,000 inclusive of costs (that being said to be made by reference to the principles in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586). 50There seems to be no dispute between the parties as to the principles broadly applicable on a costs application of this kind. 51The public policy objectives underlying the offer of compromise procedures under the Rules and, by extension, those underlying the effect given to Calderbank offers have recently been reiterated (Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344), the Court of Appeal there referring to the identification of the objects underlying the Offer of Compromise procedures under the equivalent Supreme Court Rules as found in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724. Those objects include: