Tawfik v Bill [2010] NSWSC 1034 | Case summary

2009/289276 JOSEPH TAWFIK & ANOR v MARTIN BRUCE BILL & ANOR JUDGMENT 1 This is an oppression suit. The plaintiffs (Mr Tawfik and Mrs Tawfik) are members of Contact 121 Pty Ltd and Contact 121 (Qld) Pty Ltd. The other members are the defendants (Mr Bill and Mr Boden). 2 The plaintiffs allege that the affairs of the two companies have been conducted in a manner that is contrary to the interests of the members as a whole or oppressive to or unfairly prejudicial to the plaintiffs or unfairly discriminatory against them. 3 On 21 December 2009, the court, at the invitation of the parties and with their consent, noted certain agreements of the parties and made certain orders, as follows: "The Court notes that: 1. the parties have agreed to appoint Brendan P Halligan (trading as Halligan & Co) ("Halligan") to provide an opinion as to the market value ("Value " ) of all of the issued share capital in each Contact 121 Pty Limited (ACN 093 596 537) and Contact 121 (Qld) Pty Limited (ACN 118 907 047) together "Companies " ); 2. the parties have agreed that the Value will be binding on them for all purposes in the proceedings; 3. the Defendants have agreed, in consideration of the plaintiffs consenting to the orders set out below: (a) to use their best endeavours to procure the absolute and unconditional release and discharge of the first named Plaintiff from his obligations under each guarantee given by him in respect of the obligations of either one or both of the Companies to any person or company, including without limitation the Companies' obligations: (i) in respect of lease at Level 4, 15 Castlereagh Street, Sydney; (ii) in respect of lease at Level 1 and Level 4, 26 Marine Parade Southport; (iii) in respect of lease at Level 8, 80 King William Street, Adelaide; (iv) to Australia and New Zealand Banking Group Limited; (v) to CBFC Limited; and (vi) to Bank of Western Australia Limited; (b) to use their best endeavours to procure the absolute and unconditional discharge of any security granted by the first named Plaintiff in respect of his obligations to Bank of Western Australia Limited; and (c) to indemnify the first named Plaintiff and keep him indemnified against any loss he incurs arising out of or relating to any claim made against him under a guarantee described, or of the type described, in paragraph 3(a) or the security mentioned in paragraph 3(b). By consent the Court orders that, subject to the parties consenting to a subsequent order to the contrary: 1. Orders made by Registrar Musgrave contained in correspondence dated 13 November 2009 for the Defendants to file and serve evidence by 4 December 2009 be vacated. 2. Pursuant to section 233 of the Corporations Act 2001, the Defendants purchase or, if the parties so agree in writing, the Defendants cause the Companies to purchase, all of the shares in the Companies held by the Plaintiffs (whether in their joint names or solely in the name of the first Plaintiff) ("Shares " ) at a price equal to 47.5% of the Value ("Price") on the following terms: (a) Completion of such purchase ("Completion " ) must take place in Adelaide at the offices of Mellor Olsson Lawyers no later than 30 days after Halligan notifies the solicitors for the Plaintiffs and the solicitors for the Defendants of the amount of the Value, or at such other place and time as the parties may agree in writing. (b) On Completion the Defendants must pay (or, if the parties so agree in writing, cause the Companies to pay) the Price by bank cheque to the plaintiffs or as they may direct in writing. (c) On Completion the Plaintiffs must deliver to the Defendants (or if the parties so agree in writing, to the Companies) transfers of the Shares duly executed by the registered holders in favour of the Defendants (or, if the parties so agree in writing, the Companies), together with the share certificates for the Shares. 3. Prior to Completion, each party have liberty to apply for an order for discovery and issue subpoenas or notices to produce in accordance with Uniform Civil Procedure Rules 2005. 4. If Completion takes place on or before 31 March 2010, the proceedings be dismissed with no order as to costs. 5. If Completion does not take place on or before 31 March 2010, the proceedings be listed for further directions on 7 April 2010." 4 The parties thus adopted a consensual regime under which the defendants were subjected by court order to an obligation to purchase (or procure the purchase of) the plaintiffs' shares in the Contact 121 companies for a price calculated by reference to "the Value". Determination of "the Value" is not dealt with by any order of the court. Rather, the parties have agreed a method of determination, involving acceptance by them of an opinion of an expert. They have agreed to be bound by that determination. The regime the parties have devised and adopted thus entails elements they have already agreed but not caused to be embodied in any order of the court, elements they have agreed and caused to be imposed by consent orders and an element of particular significance that is to be determined by a third party in the context of the parties' agreement to accept that determination. 5 The process of determination by an expert provided for in the parties' agreement (and noted by the court) thus plays a pivotal role in the effectuation of the consent orders. 6 Also on 21 December 2009, Mr Halligan (the chartered accountant referred to in the parties' agreement noted by the court and in the consent orders) issued to the parties' respective solicitors an engagement letter to which was attached so-called "standard terms" and two standards issued by the Accounting Professional and Ethical Standards Board, being APES 215 and APES 225. The letter stated that the letter itself and the attached standard terms "together set out the terms of our engagement" and that the engagement would be conducted in accordance with "the professional and ethical pronouncements of the Institute of Chartered Accountants in Australia", including the attached APES 215 and 225. 7 The plaintiffs and the defendants, by their respective solicitors, signed an acknowledgment endorsed on this letter whereby they acknowledged, first, having read and understood the letter and the standard terms and, second, acceptance of the letter and the standard terms as forming "a binding agreement" between Mr Halligan and them. 8 On 26 May 2010, the court was invited to make and made by consent of the parties orders as follows: "1. Further to paragraph 1 of the matters noted by the Court on 21 December 2009, the Defendants make any further submission to Halligan (to the extent they are entitled to do so) by 5.00pm on Friday 4 June 2010. 2. The emailing of a PDF version of Halligan's signed valuation report to the solicitors for the parties will constitute 'notification' of 'the amount of the Value' for the purposes of paragraph 2(a) of the Consent Orders made on 21 December 2009. 3. Further to paragraph 3 of the matters noted by the Court on 21 December 2009, the Defendants notify the first-named plaintiff within 14 days of receiving notification as set out in paragraph 2 above as to the actions they have taken to procure each release and discharge mentioned in sub-paragraphs (a) and (b) of that paragraph 3." 9 The parties accept that the words "to the extent they are entitled to do so" in order 1 of 26 May 2010 recognise that the making of submissions to Mr Halligan is regulated by the engagement letter agreement. 10 It is against this background that the defendants filed on 19 July 2010 an interlocutory process seeking an order as follows: "Further to the orders made on 21 December 2009 and 26 May 2010, that the parties provide a joint supplementary letter of instructions to Brendan P Halligan, trading as Halligan & Co, ('Halligan') in terms appearing in the attached schedule." 11 The "attached schedule" consists of a form of letter to Mr Halligan referring to the engagement letter of 21 December 2010 and continuing: "Further to the above, you are jointly instructed by the Plaintiffs and the Defendants to have regard to the following:" 12 Then follows reference to certain documents to be described presently. 13 The order sought by the defendants is accordingly an order which, if made, would compel both the plaintiffs and the defendants to modify or supplement the instructions to Mr Halligan set out in the existing engagement letter. The making of any such order is opposed by the plaintiffs. 14 The significance of the additional instruction the defendants wish to see given to Mr Halligan by both the plaintiffs and the defendants should be explained. The engagement letter requires Mr Halligan to value the share capital of the two Contact 121 companies and to do so on assumptions that certain described conduct (alleged by the plaintiffs to have been oppressive) did not occur. Among the assumptions thus directed are an assumption that a contract with BlueLink was not terminated and an assumption that the Momentum Energy service was not moved from the Gold Coast to Adelaide. In fact, both events (termination of the BlueLink contract and relocation of the Momentum Energy service) did occur, so that the agreed direction is, in effect, a direction to proceed on a premise known and acknowledged by the parties to be entirely at odds with reality. 15 The documents to which the additional instruction sought by the defendant would require Mr Halligan to have regard are documents that have already been forwarded to Mr Halligan, being written submissions of Mr Tawfik and of the plaintiffs' solicitors (which submissions refer to both BlueLink and Momentum Energy) and certain letters from BlueLink. 16 The process envisaged by the engagement letter allows a measure of input by the parties to Mr Halligan's deliberations. For example, one of the standard terms states that Mr Halligan may issue a draft report to the parties "so that you can make us aware of any errors, omissions or misrepresentations of fact or any other relevant matters". 17 The effect of the order now sought by the defendants would be to vary Mr Halligan's existing instructions and to require him to "have regard to" specific documents going to factual matters which might tend to contradict or undermine the assumptions that Mr Halligan is expressly required to make (regardless of the fact that, as everyone knows, the assumptions do not accord with actual events). The parties' agreement, as it stands, does not have the consequence that Mr Halligan is positively required to have regard to the particular documents to which the present application relates. Mr Halligan, in performing his allotted task, will no doubt have regard to everything he considers it necessary or desirable to take into account in reaching a conclusion in accordance with his instructions, including his instructions as to assumptions to be made. At the end of the day, the central question in relation to his determination will be whether it conforms to the parties' agreement so as to be caught by their mutual consent to abide by it: see, for example, Firedam Civil Engineering Pty Ltd v Shoalhaven City Council [2010] NSWCA 59. An aspect of that question will be whether Mr Halligan gave effect to the instruction to make the stated assumptions. 18 The threshold question in relation to the present application is, in effect, how the court can intervene to re-write or compel modification of the parties' agreement. It is clear that, in relation to the first three numbered items in the short minutes of 21 December 2009, the court did no more than to note, in the first and second cases, that "the parties have agreed" and, in the third case, that "the Defendants have agreed". The court made, in relation to those matters, no order, whether by consent or otherwise. 19 The defendants do not say that the plaintiffs are in breach of the agreement. They simply ask that the court compel the plaintiffs to join them in varying or supplementing Mr Halligan's instructions and, to that extent and in that way, to consent to an alteration of the agreement. 20 In the absence of some applicable power created by statute (see, for example s 87 of the Trade Practices Act 1974 (Cth), s 16 of the Independent Contractors Act 2006 (Cth) and s 106 of the Industrial Relations Act 1996), the court cannot amend or re-write parties' agreements. It may, in the exercise of equitable jurisdiction, rectify instruments but, generally speaking, rectification is available only where the instrument does not reflect what the court finds to have been the parties' common intention at the time the instrument was created. None of these established heads of jurisdiction is (or could be) relied on here. 21 Counsel for the defendants referred to the decision of the Privy Council in Cameron v Cuddy [1914] AC 651, acknowledging, however, that it is not directly concerned with a situation such as the present. Particular emphasis was placed on this passage (at 656): "When an arbitration for any reason becomes abortive, it is the duty of a Court of law, in working out a contract of which such an arbitration is part of the practical machinery, to supply the defect which has occurred. It is the privilege of a Court in such circumstances and it is its duty to come to the assistance of parties by the removal of the impasse and the extrication of their rights. This rule is in truth founded upon the soundest principle, it is practical in its character, and it furnishes by an appeal to a Court of justice the means of working out and of preventing the defeat of bargains between parties." 22 Cameron v Cuddy was a case in which the seller of the whole of the issued share capital of a company sued for the unpaid balance of the purchase price. The contract made provision for calculation and adjustment of the price according to a number of factors. It was provided that "if upon investigation and examination it turns out that the said assets or any of them are not forthcoming and cannot be delivered, the value of the said deficiency shall be estimated by three arbitrators [chosen in a stated way] and the amount of the award of the said arbitrators shall in manner hereinbefore mentioned be deducted from the said purchase money still owing and unpaid under this agreement". 23 The machinery for which the parties had thus provided broke down. Both sides accepted that some deficiency existed but no effective award of the arbitrators was made. The judgment at first instance (upheld at the first two levels of appeal) was that, since the agreed process had not quantified the deficiency, there should be no deduction and the unadjusted balance should be paid in full. The Privy Council held, however, that, in the circumstances, the contract should be read as if the agreed quantification mechanism "dropped out", so that there was simply a provision that "the value of the said deficiency shall be … deducted from the said purchase money". It was therefore for the court to determine the amount of the deficiency. 24 The case was thus one about the correct construction of the contract. It does not stand as authority for the proposition that the court can, as it thinks fit, add to, subtract from or otherwise meddle with the parties' contract. 25 Counsel for the defendants next referred to s 61 of the Civil Procedure Act 2005. It is sufficient to quote sub-sections (1) and (2) of s 61: "(1) The court may, by order, give such directions as it thinks fit (whether or not inconsistent with rules of court) for the speedy determination of the real issues between the parties to the proceedings. (2) In particular, the court may, by order, do any one or more of the following: (a) it may direct any party to proceedings to take specified steps in relation to the proceedings, (b) it may direct the parties to proceedings as to the time within which specified steps in the proceedings must be completed, (c) it may give such other directions with respect to the conduct of proceedings as it considers appropriate." 26 The outer boundaries of s 61 are perhaps uncertain. There was a difference of opinion in McGuirk v University of New South Wales [2010] NSWCA 104 as to the capacity of the section to support a direction that a party to proceedings not harass certain persons connected with the proceedings (and see Jenolan Caves Resort Pty Ltd v Field [2007] NSWSC 1117). What is clear, however, is that the purpose of the section is to facilitate progress of a case to trial in such a way that there is efficient delineation of, and articulation of the respective positions on, the "real issues between the parties to the proceedings". 27 A limit to the scope of s 61 was noted by White J in Power v Ekstein [2010] NSWSC 472 in relation to the proposition that there should be an interim order or direction for the taking of an account. His Honour said (at [24]): "Counsel for the plaintiff also submitted that the order could be made pursuant to the power conferred by s 61 of the Civil Procedure Act 2005 (NSW) for the court to give such directions as it thinks fit for the speedy determination of the real issues between the parties to the proceedings, including by directing a party to take specified steps in relation to the proceedings. I do not consider that that power supports the orders sought. Whether the defendant should be ordered to account is one of the " real issues between the parties to the proceedings ". The court's power to give directions for the speedy determination of the real issues under s 61 does not extend to making an order which would determine that issue without a hearing on the merits. I accept that if the order were made, it would be likely to assist the speedy determination of other issues in the proceedings. But that does not justify my granting the relief sought without there being a determination of the defences." 28 These, as I have said, are oppression proceedings. The plaintiffs invoke the statutory jurisdiction created by s 232 of the Corporations Act to make orders under s 233. There is subsidiary reliance on the winding up jurisdiction created by s 461 with specific reference to the just and equitable ground. In broad concept, the issues in the proceedings, if and when they are tried, will go to whether there was, as against the plaintiffs, conduct that was "burdensome, harsh and wrongful" (Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 342 per Viscount Simonds) and whether there has been an irretrievable breakdown in relationships. There will also be issues about the remedy to be awarded if the plaintiffs are successful in their substantive claims. Performance, implementation, review, revision and enforcement of the agreements noted by the court at the parties' request on 21 December 2009 do not, in this case, form part of the "real issues between the parties to the proceedings". 29 It is well established that, if proceedings are disposed of by consent order by way of settlement, the jurisdiction to set aside the consent order on a ground that would suffice to make a contract void or voidable should be invoked by a new action brought for that purpose and not by a motion in the original proceedings: Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691. This emphasises the distinction between, on the one hand, the proceeding itself and the issues in the proceeding and, on the other, an agreement the parties make in order to prevent the issues in it progressing to trial. The same distinction is relevant to the present case. 30 Section 61 of the Civil Procedure Act does not enable the court to make the order sought by the defendants as set out at paragraph [10] above. Nor is it to the point that the orders of 26 May 2010 (paragraph [8] above) were made by consent. 31 In the result, no power of the court to make the order sought has been identified by the defendants who apply for the order. Their application in that respect must therefore be dismissed. 32 The interlocutory process filed on 19 July 2010 claims other orders in the alternative but those claims have not at this stage been pressed. For the moment, therefore, I make only the following order: Order that the claim in item 1 of the interlocutory process filed on 19 July 2010 be dismissed. 33 I will hear the parties on costs (given that some claims in the interlocutory process remain for future determination) and on what should be directed with respect to the balance of the application. **********

Tawfik v Bill

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