Plaintiffs v Defendants

2 The parties initially asked me to resolve certain questions of construction of the PDSA. It was said by both parties that if I did so they were confident that they would be able to resolve the outstanding issues between them and if they could not agree, the matters would be referred out to a special referee for quantification.

3 The parties agree that at this stage of the proceeding the matter should go to a special referee, an accountant, who would give an opinion on accounting issues of quantum. The parties have agreed on Mr Greg Meredith of Ferrier Hodgson as the special referee. The proposed order dated 7 December 2017, prepared by the defendants, provides for Mr Meredith to indicate his acceptance of his nomination within seven days of the order being made.

4 Essentially, the matter for the opinion of the special referee would be whether certain expenses incurred by the plaintiffs, were incurred in the normal course of business, and thus should be taken into account in calculating the defendant's service fee under the PDSA.

5 At my direction, the defendants prepared a 'Scott schedule', which they provided to the plaintiffs for their response, identifying the different positions of the parties on the issues to be referred to the special referee. The schedule is proposed to be an annexure to the order referring the matter to the special referee.

6 The Scott schedule identifies 13 categories of expense that the accountant will be called on to address. The defendants submit that it would be prudent to referee all issues to the special referee and thereafter have the Court make further determinations about which of the special referee's recommendations can be applied to the dispute.

7 The plaintiffs have objected to the referral in the form proposed by the defendants on the basis that it would entail unnecessary work for the special referee as it covers issues not suitable for determination. The plaintiffs submit that I should settle the questions asked of the special referee and in addition add any instructions I think fit for the guidance of the special referee.

8 The plaintiffs have the following specific objections to the current form of the proposed order.

Service fee for years prior to 2014 financial year

9 The service tee for the financial years 2010/11,2011/2012, and 2012/ 2013 (I shall refer to these years as the 'payment years', as invoices were issued and paid for those years) were purportedly calculated in accordance with the PDSA under the procedure laid down in the PDSA. Invoices were issued and paid.

10 Nevertheless, the proposed order would seek to have the special referee address expenses incurred by the plaintiffs and taken into account in those years in calculating the fee that was determined and paid to the first defendant.

11 The defence and counterclaim of the defendants sought to challenge the calculation of the service fee for each of the payment years. The plaintiffs argued that it was not open for the defendants to do so, as there had been deemed accord and satisfaction. The plaintiffs submit that under the PDSA, once payment is made and accepted there is no provision for later objection. The plaintiffs submit as much in paragraph 7 of their final written submissions.

12 Further, the plaintiffs submit that my judgment expressly held that the expenses dispute only related to financial years 2014, 2015 and 2016 (the non-payment years). They refer to paragraphs [87] and [211], where I make it clear that the objections to the treatment of expenses is limited to the financial years 2014, 2015 and 2016.

13 The defendants, in [129J of their final written submissions, did seek to recalculate the payment years. The defendants submit there is no basis for the TPC Group to allege that any deemed agreement under clause 3.3 of the PDSA precludes Castleway's service fee from being adjusted to remove any errors in the nominated accountant's calculations.

14 The defendants point to the portions of my judgment which refer to the dispute concerning the Rado Memorial, expenses for which were incurred in the payment years. The defendants submit that as this expense is mentioned in the judgment, I have, by implication, reopened the calculations for the payment years.

15 I find that, in my judgment, I held that the claims relating to the payment years were not to be referred to the special referee. By inference, I held that the payment years expenses cannot now be readjusted on the basis put forward by the defendants. There was no allegation by the defendants, of fraud or reliance on any equitable relief to re-open the calculations.

16 Accordingly, I have not included in the order, any questions relating to expenses for the payment years.

17 The TPC Group also objected to certain passages in the proposed reference included in the "Summary of Castleway's position." I deal with some of these submissions below. My observations may be of some assistance to the special referee. As it is, I have left in the order the "Summary of Castleway's position" as sought by Castleway. I feel it would not be appropriate to edit the observations of Castleway's position. The special referee should be aware, however, that although included in the order, the summary is that of the parties and not the Court's and its inclusion does not indicate the Court finds it relevant or appropriate. As the special referee is giving an opinion for the assistance of the Court, either party will be at liberty to make such submissions as they think fit on whether or not the Court should or should not accept or reject the special referee's opinion on any matter that is referred to him for his opinion.

Reference to Mrs Rado's reasons for having restructuring

In my view, an independent accountant might conclude that accounting, legal and director's fees relating to the realisation of the Group's assets, were incurred in the normal course of business of the TPC Group. This is particularly so as Castleway claims to be owed a substantial service fee, primarily calculated by reference to the profit realised by the asset realisation plan.

19 The plaintiff submits that despite this indication, the defendants are still seeking to agitate whether the asset realisation expenses were incurred for a proper purpose.

20 Row 3 of Part A deals with accounting expenses. The category is described as "associated with planning and implementing Mrs Rado's plan to realise TPC Group assets, including accounting services provided in connection with proceeding no S ECI 2015 00385 and in the course of negotiating proposed amendments to the PDSA".

21 Under the heading of 'summary of Castleway's position' Castleway states:

The asset realisation plan was devised during the term of the PDSA to satisfy her personal wish that her children would not need to deal with Mr Keeghan once she passes away. It was not planned or implemented to further the legitimate pursuit of the TPC Group's normal business activities.

22 I held that under the PDSA it was within the terms of the PDSA for Nancy to wind up the business. See [91]. So long as the fees related to the winding up of the business, I consider that it would be appropriate, under the PDSA, that the relevant companies bear those expenses.

23 The submissions deal with Nancy's motives. These are not relevant to the issues for consideration by the special referee. If there is a legal reason why the companies should not bear the costs of the asset realisation plan, they should be determined by the Court. On the other hand, if the companies bore the costs of preparing Mrs Rado's tax returns, then questions of motive do not arise. This should be a simple accounting allocation issue.

24 Any argument that an expense should be excluded by reason of an express provision of the PDSA will be dealt with by the Court.

25 The plaintiffs' argue that the dispute with respect to the director's fees paid to Mr Lee should be reframed so as to ensure that the special referee is not being called upon to consider the legitimacy of the TPC Group pursuing certain activities, but to consider whether such expenses were incurred in the ordinary course of business.

26 The extra pay to Mr Lee, as a director, should be approached as an accounting issue of identifying whether the extra pay related to services provided to Mrs Rado or the companies.

27 Where the work benefited both Mrs Rado and the companies it is for the accountant to apply normal accounting practice in allocating the expense. The difficulty with this exercise is that indirectly Mrs Rado benefits from things that benefit the companies as did Castleway. The exercise is further complicated by the claim that invoices relate to services performed for Nancy and her family in circumstances where the accountants for the TPC Group have given evidence that they have already undertaken an apportionment exercise of sorts, invoicing Nancy and her family separately for services provided to them.[2]

28 I would be assisted by the referee's opinion as to how an accountant would resolve these issues. The referee may take into account such matters as who benefited from the expense, directly or indirectly, why the expense was incurred, and who, in the normal course of business, would be expected to bear the expense.

29 By listing these matters, I am not seeking to direct or influence the referee's opinion, but merely to identify why it is that the Court would be assisted in having the referee's recommendations.

30 I should add that any reference to Mrs Rado also includes her family.

31 Accordingly, for the above reasons, I make the orders herewith.

[1] Re Adaz Nominees Pty Ltd (No 2) [2017] VSC 578 (5 October 2017) (my judgment).

[2] Transcript of Proceedings, Re ADAZ Nominees (No 2) (4 September 17) T711-712 XXN.