In the matter of Rafic Pty Ltd [2018] NSWSC 1608

Supreme Court of NSW|2018-10-10|Before: Black J, Brereton J

Solicitors: Hassett Lee (Plaintiff) Barraket Stanton (First Defendant) File Number(s): 2017/111018

Judgment - ex tempore (revised 11 october 2018)

This application has arisen in a somewhat unusual way. The Defendant, Rafic Pty Limited ("Company"), initially exercised liberty to restore, granted by Brereton J on 9 November 2017, in proceedings brought by the Plaintiff, Mr Joseph Essey, against the Company. It did so in circumstances that Mr Joseph Essey had commenced proceedings in the Local Court of New South Wales seeking an order for interest arising, or purportedly arising, under s 101 of the Civil Procedure Act 2005 (NSW) in respect of the judgment of Brereton J. There is no real explanation of why Mr Essay had commenced those proceedings in the Local Court of New South Wales in respect of the implementation of a judgment of this Court. In the event, as matters have proceeded, the parties have proceeded sensibly and the proceedings in the Local Court of New South Wales have been abandoned and this Court has been left to determine matters arising from its own judgment.
The matters in issue turn, in large part, upon a question of construction of s 101 of the Civil Procedure Act in the particular circumstances, although the parties have also agitated factual issues which may or may not require determination, depending upon the resolution of that question of construction.

Factual Background

By way of background, Brereton J made orders in November 2017 in the context of an oppression claim brought by Mr Joseph Essey. Mr Hassett, who appears for Mr Joseph Essey, characterised that claim as arising from the dismissal of Mr Joseph Essey as a long term employee of the Company and his removal as a director of the Company. I proceed on that basis for the purposes of this application, without seeking to determine factual matters that were previously in contest before Brereton J and were determined by his Honour in making the orders that he made. The orders made by Brereton J were that: "1. The first defendant, Rafic Pty Limited, purchase pursuant to Corporations Act s 233(1)(e) the shareholding of the plaintiff, Joseph Fred Essey, for a price of $2,388.129.40, and that the company's share capital be reduced accordingly. 2. There be liberty to apply, by arrangement with Brereton J's Associate on three days' notice, for further directions for the implementation of Order 1."
It will immediately be noted that the form of order 1 made by Brereton J required the First Defendant, the Company, to do an act, namely to purchase Mr Joseph Essey's shareholding at a specified price, and also provided for the manner in which that act would be implemented, which was to involve a reduction in the Company's share capital. I will return to the significance of that matter below.
The parties have led evidence from which it is possible to assemble a chronology of events. Mr Joseph Essey relies on the affidavit of his solicitor, Mr Hassett, dated 5 October 2018, and the Company relies on the affidavit of its solicitor, Ms Quarrell, dated 8 October 2018 and the affidavit of one of its directors, Mr Paul Essey, who is the brother of Mr Joseph Essey, dated 9 October 2018.
The chronology which emerges from those affidavits is as follows. On 9 November 2017, Brereton J delivered the judgment to which I referred above. Mr Hassett characterised that judgment in his affidavit as amounting to an order that the Company pay Mr Joseph Essey the sum of $2,388,129.40. I do not accept that characterisation, because the order was plainly framed as an order that the Company purchase Mr Joseph Essey's shareholding for a specified consideration. What was contemplated by that order was, first, a share transaction and, secondly, a payment to Mr Joseph Essey in consideration for him parting with possession of his shares on the Company. The difficulty with Mr Hassett's characterisation is immediately apparent, namely that that order did not require that the Company pay Mr Joseph Essey the amount of $2,388,129.40 independent of any purchase of his shares or the consequential reduction in the Company's share capital.
Correspondence followed, commencing in early December 2017, in which Mr Hassett made enquiries of the Company's solicitors as to the progress being made in respect of the payment to be made pursuant to the Court's orders. An email sent by Mr Hassett at that time properly recognised the nature of the relevant order, as requiring that payment would be made in respect of the purchase of Mr Joseph Essey's shares, although Mr Hassett seeks to recharacterise that transaction in his affidavit, incorrectly, as involving the payment of a judgment debt.
Mr Paul Essey refers, in his affidavit, to the steps which were taken to raise finance to purchase Mr Joseph Essey's shares, commencing with a directors' meeting of the Company in December 2017, and then involving dealings with a mortgage broker in December 2017. Correspondence continued through February 2018, and the transaction had not been implemented by that time.
Mr Joseph Essey subsequently issued a creditor's statutory demand in respect of the amount claimed, which described the relevant debt as: "Judgment given by the Supreme Court of New South Wales in the relevant proceedings in the amount of $2,388,129.40."
That characterisation begged the question of how that amount could come to be payable without the underlying share transaction having occurred.
An application to set aside that creditor's statutory demand was brought by the Company and Mr Joseph Essey in turn sought summary dismissal of that application to set aside the creditor's statutory demand. The parties then appear to have resolved that question by an agreement (Ex R1) that the Company would pay Mr Joseph Essey an amount of $100,000 by 29 March 2018 and, upon receipt of that amount, Mr Joseph Essey's solicitor would undertake that Mr Joseph Essey would not commence winding up proceedings for a period of four weeks until 26 April 2018. The creditor's statutory demand was not dismissed as part of that resolution.
I should pause here to note that, while all this skirmishing was going on in respect of the creditor's statutory demand and prior to the proceedings brought by Mr Joseph Essey in the Local Court of New South Wales, no-one had done what might well have been done when there was a delay in performance of the orders made by Brereton J, namely to take advantage of the liberty to apply which his Honour had granted. That could have been done to secure further directions for the implementation of order 1, which could have included directions as to the date by which the share purchase transaction was to be implemented.
Mr Paul Essey refers, in his affidavit, to a subsequent borrowing from the Commonwealth Bank of Australia in April 2018, to finance the Company's payment to Mr Joseph Essey in consideration of the cancellation (as distinct from purchase) of his shares. Ms Quarrell in turn sets out, in her affidavit, some of the matters to which Mr Hassett refers in respect of the issue of the creditor's statutory demand, and also refers to steps which had been taken by the Company to prepare documentation in respect of the relevant transaction although, as I will note below, that transaction does not appear to have been implemented in the manner contemplated by his Honour's orders. Ms Quarrell notes that, following the creation and execution of those documents by various persons, including Mr Joseph Essey, a settlement took place on 28 May 2018, at which a bank cheque in the amount of $2,288,129.40 was given to Mr Joseph Essey.
Mr Hassett, with some justification, advances criticisms of the time taken by the Company to implement his Honour's orders. Ultimately, those orders were implemented, or at least action which broadly had the same result as contemplated by those orders was taken, by the cancellation of the ordinary shares held by Mr Joseph Essey in the Company in consideration of the payment of the amount contemplated by the order, which took place by way of a selective capital reduction.

Mr Joseph Essey's claim for interest under s 101 of the Civil Procedure Act

With that background, Mr Joseph Essey's claim is a straightforward one. Mr Joseph Essey contends that the order made by Brereton J is within the scope of s 101 of the Civil Procedure Act and that, where payment was not made within 28 days after the date on which judgment took effect, Mr Joseph Essey is entitled to interest under that section. Mr Joseph Essey contends, obviously correctly, that payment was not here made by the Company within 28 days of the date of Brereton J's judgment on 9 November 2017, and that he is entitled to interest under that section from early December 2017 until the date on which payment was made, namely 28 May 2018. It should be recognised that Mr Joseph Essey in fact lost the advantage of receipt of the funds for that period in which a delay occurred.
Turning now to the question whether s 101 of the Civil Procedure Act applies in the relevant circumstances, that section provides that: "(1) Unless the Court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid."
The term "judgment" is in turn defined widely, as Mr Hassett points out, in s 3 of the Civil Procedure Act to include "any order for the payment of money." Mr Hassett contends that that definition is sufficiently wide to include Brereton J's order, so far as it was an order for the purchase of Mr Joseph Essey's shares for the specified price.
Mr Neggo, who appears for the Company, responds that s 101 of the Civil Procedure Act applies only to a judgment that imposes an obligation to pay money and that the interest would only run on any unpaid amount from the date that it was due to be paid. Mr Neggo submits that order 1 made by Brereton J is not an order for the payment of money but an order that, as I noted above, requires the Company to purchase Mr Joseph Essey's shares, and the payment of money was, Mr Neggo submits, peripheral to that order. Mr Neggo also submits that Brereton J's order did not provide for any specific date by which the Company was to pay the purchase price for Mr Joseph Essey's shares, and that neither party exercised the liberty to apply granted by his Honour to seek any order relating to a date for purchase.
Mr Neggo submits that the Company's obligation to pay the purchase price of the shares was concurrent and dependent with Mr Joseph Essey's obligation to complete the transaction contemplated by the order. It is plain that the Company could not comply with that order, or at least could not be required to comply with that order, unless Mr Joseph Essey also took the steps necessary to allow the relevant purchase of the shares to be implemented. Mr Neggo submits that Mr Joseph Essey did not sign and provide to the Company the documents necessary to effect a capital reduction and cancellation of his shares until 28 May 2018. While that proposition is strictly correct, I do not reach any conclusion that there was any delay on Mr Joseph Essey's part, and I note that Mr Hassett's submission, which attributes the relevant delay to the Company, has significant support in the evidence.
More fundamentally, however, Mr Neggo submits that the purchase price payable by the Company was simply not a debt due and payable to Mr Joseph Essey until the date on which the transaction was implemented, and no entitlement to interest arises prior to that date.
Mr Neggo refers to the decision of White J in Re Contact 121 Pty Limited and Contact 121 (Qld) Pty Limited [2011] NSWSC 979, where his Honour considered a somewhat similar argument to that which is now put by Mr Joseph Essey. His Honour there noted the width of the definition of "judgment" but also pointed, in a contractual setting, to the interdependence of obligations between the relevant parties, such that the plaintiff in that case would not be entitled to sue for the price of shares as a debt that was due and payable where the obligation of the defendant to pay money and the obligation of the plaintiff to transfer the shares were dependent obligations. His Honour there noted that, in that contractual setting, the price for the shares was not payable on a different day from that on which the shares were to be transferred. His Honour found that the monies there ordered to be paid were not payable other than against the receipt of a duly executed share transfer and share certificate, but observed that the plaintiff was not without remedy, which was damages for breach of contract rather than interest under s 101 of the Civil Procedure Act.
Mr Hassett in turn seeks to distinguish that decision on two bases. The first is that, as I have noted, that case concerned an order for transfer of shares in a contractual setting. It does not seem to me that that distinction is of a substantive character, where what was here contemplated by Brereton J's order was a purchase under s 233 of the Act for a specified price, and a reduction of the Company's share capital. In Contact 121 Pty Limited and Contact 121 (Qld) Pty Limited above, White J had pointed to the significance of the interdependence of the obligation to pay money and the delivery of the relevant shares. That interdependence also exists here where there was no obligation upon the Company to pay an amount of $2,388,129.40 to Mr Joseph Essey before the point at which the shares were purchased (although, I interpolate, that ultimately did not occur since the parties took a different course) and the Company's share capital was reduced. Mr Hassett's argument, it seems to me, proves too much. If he is correct in the construction that he gives to s 101 of the Civil Procedure Act, then Mr Essey would be entitled to interest on an amount that was to be paid to him irrespective of whether the relevant shares were transferred to the Company.
The second distinction drawn by Mr Hassett is that White J had referred, in Contact 121 Pty Limited and Contact 121 (Qld) Pty Limited above, to the fact of an alternative remedy available to the plaintiff in a contractual setting, namely a claim for breach of contract. Mr Hassett submits that there was no such alternative remedy available to Mr Joseph Essey. It seems to me that that submission does not assist Mr Joseph Essey. An alternative remedy was always available to Mr Joseph Essey, namely to exercise the liberty to apply which Brereton J had granted. Had he exercised that liberty to apply, it would have been open to Brereton J to modify his orders to require the transaction take place by a particular date, or to make an order for payment for interest on the consideration payable on the transfer, if his Honour was satisfied that unreasonable delay on the Company's part was established. That step of restoring the matter before Brereton J was not taken, but the fact that Mr Joseph Essey did not exercise the remedy that was available to him does not mean that it was not available to him.
In the result, it seems to me that s 101 of the Civil Procedure Act does not apply in the relevant circumstances. The substance of the order made by Brereton J was, as I have noted above, not an order for the payment of the amount of the judgment, even in the extended sense to which I have referred above. It was an order that the Company purchase the shares for a specified price, and the Company's share capital be reduced, and neither of those steps could take place without the other. No amount was due and payable by the Company to Mr Joseph Essey unless and until the shareholding was dealt with and the Company's share capital was reduced.
I should note, for completeness, that the Company at one point advanced an alternative argument that the Court could "otherwise order" for the purpose of s 101 of the Civil Procedure Act. Mr Hassett then made submissions as to why the Court should not otherwise order that s 101 of the Civil Procedure Act does not apply, which involve criticisms of a lack of communication between the Company and Mr Joseph Essey as to how it was to pay the suggested judgment debt, the Company's response to the creditor's statutory demand issued by Mr Joseph Essey, and the delay in making the relevant payment. Mr Neggo rightly did not press this argument in oral submissions. If the section applied, then there would be no reason in the circumstances that it should not have been allowed to operate as it would ordinarily operate.
There was no formal application in this case because of the unusual way in which it arose, and there is therefore no application to be dismissed. I determine, as a matter of substance, that Mr Joseph Essey has no entitlement to interest under s 101 of the Civil Procedure Act in the relevant circumstances. Mr Joseph Essey must pay the costs of and incidental to the application.

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