Rhodes v Fletcher

Judgment (Ex tempore) 1HIS HONOUR: These proceedings were commenced by originating process filed on 14 April 2011, whereby the plaintiff Russell William Bailey sought relief, principally under (Cth) Corporations Act 2001, s 233, that the second and third defendants Russell Leslie Clarke and Craig Robert Cooke purchase his shares in the first defendant company CRC Civil & Drainage Pty Limited on either of the following bases: (a) in accordance with the value of the shares as at 11 April 2008, or alternatively the date of the order, as determined by an independent valuer appointed by the court; (b) on such basis as the court may otherwise determine. 2The other relief sought in the originating process is not relevant for present purposes. On the first return date of the originating process, 9 May 2011, orders were made by consent, as follows: 1. An order pursuant to s 233(1)(d) of the Corporations Act that the second and third defendants, or either of them, purchase the plaintiff's shares in the first defendant ("the Company") in accordance with the value of those shares as at 11 April 2008 as determined by independent valuer appointed by the Court. 2. An order that the President of the NSW Branch of the Institute of Chartered Accountants or his/her nominee be appointed to undertake an independent valuation of the shares of the Company as at 11 April 2008, with such appointment to take place within 14 days. 3. An order that the fees of the independent valuer and any other costs of the independent valuation referred to in Orders 1 and 2 be paid by the Company. 3A valuation was duly conducted and ultimately delivered in January 2013, which valued the six shares in the company as at 11 April 2008 at $470,000. On that basis, as at that date, the plaintiff's two shares in the company were worth $156,667. On or about 22 February 2013, the second and third defendants agreed to purchase the plaintiff's shares for that sum and settlement of that transaction occurred on or about 16 April 2013. 4By the interlocutory process, subsequently amended in court today, the plaintiff now seeks an order that the second and third defendants or alternatively the first defendant pay the plaintiff's costs of the proceedings, and an order pursuant to (NSW) Civil Procedure Act 2005, s 100, or alternatively at general law, for interest on the sum of $156,667 for the period from 11 April 2008. A similar order is sought alternatively as additional relief pursuant to (Cth) Corporations Act 2001, s 233. 5I will deal first with the question of interest. The plaintiff was, it would seem, excluded from the company from about April 2008. Thereafter there were various communications between the parties which proposed and sought to progress a valuation of the company as at 11 April 2008 with a view to the plaintiff being bought out on the basis of such valuation. For various reasons, not all of which are clear but none of which appear to be truly attributable to fault on the part of either of the parties to the proceedings, those valuations did not proceed to completion. One valuer died, and a second valuer effectively declined to proceed with the valuation. It was in those circumstances that, almost three years later, the plaintiff filed the originating process. 6In none of the correspondence that passed between the parties up to then had there been reference to interest on the amount derived from the valuation. After service of the originating process, the defendants' solicitors wrote to the plaintiff's solicitors on 6 May 2011, referring to the previous apparent agreement that the plaintiff be bought out at valuation as at 11 April 2008, and proposing that the matter could be resolved without needing judicial determination by an order pursuant to s 233(1)(d) that the defendants purchase the plaintiff's shares "in accordance with the value of the shares as at 11 April 2008," and consequential orders to give effect to that. 7That is the only evidence of context prior to the consent orders. The consent order itself does not specify a price, but refers to a purchase "in accordance with the value of those shares as at 11 April 2008". Often, when the Court makes a compulsory purchase order, it will refer the matter for valuation but reserve the fixing of a price to the Court. In those circumstances it may be argued when the valuation comes before the Court that, if the valuation were as at an earlier date, interest might be included. That is what happened, for example, In the matter of Springex Pty Limited (Costs) [2013] NSWSC 277. That is not what happened in this case, and instead the value of the shares was to be "as determined by independent valuer". 8The valuation having been delivered, the parties agreed in correspondence culminating on 22 February 2013 that the price for the shares was $156,666.67, and that payment of that sum and execution and delivery of the executed share transfers would "perfect order 1 of the consent orders made by Barrett J on 9 May 2011". In those circumstances, it seems to me that the proper construction of the consent orders - which did not refer to or make provision for interest, and which were entered into in the context that there had never been a claim for interest in the originating process, nor referred to in any of the correspondence - is that the consent orders encapsulated an agreement that the amount payable would be the amount reflected by the value as at 11 April 2008, and not at some later date. If reference to interest was omitted by oversight or otherwise, that cannot now be visited on the defendants who agreed to and have acted on the orders in the form in which they then were. In that respect I think the observations of Bergin J, as her Honour the Chief Judge then was, in Rhodes v Fletcher [2002] NSWSC 637 (at [61]) are equally applicable to this case: This case is distinguishable from the facts of the cases relied upon by the plaintiff. This case never went to trial on the question of oppression. The implicit admission of the existence of the necessary condition of the Court's power to make the consent orders referred to earlier does not convert this case into one in which an award of interest is appropriate. The parties reached an agreement and made no provision for interest to be paid. The parties agreed that the valuation was conclusive and binding and that the first defendant would pay the valuation sum (orders 8 & 9). The plaintiff is unable now to impose upon the defendants a claim for interest that was never contemplated by the orders and not made until after the second report. In any event the valuation was made on 6 April 2001 and the obligation imposed on the defendants by the consent orders was to pay that amount. It was paid within 3 months in circumstances in which I have found there was no unreasonable delay by the defendants. 9Against this, it was argued that it was significant that in Rhodes v Fletcher the defendant had adduced evidence that she had allowed the plaintiff to choose the date of valuation, and that had she known that interest was to be claimed she would not have agreed to the date chosen by the plaintiff. While it is true that such evidence was adduced in Rhodes and not in this case, and although her Honour referred to that evidence, I seriously question its admissibility in a context where one is concerned with the objective construction of the orders and their effect, rather than the subjective intention of either party in entering into them - although it might have been admitted as relevant to estoppel or detriment. For example, I do not think it would have been permissible in this case for the plaintiff to adduce evidence that the plaintiff agreed to the orders on the basis or assumption that he could still claim interest if the valuation took some time to be completed. Accordingly, I do not think that the distinction that there was such evidence in Rhodes but not in this case is one that makes any material difference to the analysis. 10For those reasons, I decline to make an order for interest, or analogous to an order for interest. 11So far as costs are concerned, this is a case in which the question of oppression was never litigated. True it is that evidence was filed but it is not correct to say that it was adduced, because there was never any hearing on the question of oppression; and true it is that the Court's order made by consent referred to s 233, but that it seems to me was simply to identify the source of power that was being invoked, and did not involve a concession for general purposes that there had been oppressive conduct. 12Were it to be held that in every case where a compulsory purchase order is made by consent - which after all is the way in which most oppression cases are resolved - there was an implied admission of oppression, that would result effectively in the plaintiff being entitled to a costs order in every such case, and would operate as a powerful disincentive to settlement of proceedings on that common basis. 13It seems to me that this is one of those cases in which the plaintiff did not act unreasonably in commencing proceedings. The plaintiff did obtain substantial success in the sense of obtaining a compulsory purchase order but it can not be said that such order represented capitulation by the defendants because, as in so many of this type of case, such an order is a very convenient, practical and commercial way of resolving the dispute. This therefore is a case in which the ordinary approach of the Court, where proceedings are settled save as to costs without a hearing on the merits and without either party having acted unreasonably, applies and accordingly that there should be no order as to costs, to the intent that each party bear its own costs. 14In reaching that conclusion, I have not overlooked the circumstance that the defendants made an offer to the plaintiff which, at least on one construction, was of $170,000 on 14 April 2008. The fact that such an offer was made in April 2008, three years before proceedings were commenced, in the context that the matter was not brought to completion three years later, does not make the plaintiff's commencement of proceedings three years later unreasonable. 15Accordingly, I order that the interlocutory process as amended be dismissed. 16There is to be no order as to the costs of the proceedings to the intent that each party bear its own costs.