The Food Improvers Pty Ltd v BGR Corporation Pty Ltd

REASONS FOR JUDGMENT 1 On 12 February 2007 I made orders by way of final relief and published my reasons for decision on the principal issues in the substantive proceedings: The Food Improvers Pty Ltd v BGR Corporation Pty Ltd (No 3) [2007] FCA 97. Order 9 required the parties to file and serve written submissions as to the form of relief to be granted in respect of the distribution among its shareholders of the assets of the first defendant, BGR Corporation Pty Ltd. Those shareholders were The Food Improvers Pty Ltd (the first plaintiff), The Triad Health Products Group of Companies Pty Ltd (the second defendant) and Cordato Partners Services Pty Ltd (the third defendant). 2 I heard argument on those questions on 14 and 19 February 2007 and made further orders on the latter day. I subsequently published my reasons for making those orders on 28 February 2007: The Food Improvers Pty Ltd v BGR Corporation Pty Ltd (No 4) (2007) 25 ACLC 177; [2007] FCA 220. 3 Triad has moved on an interlocutory application pursuant to O 35 r 7(2)(e) and (3) of the Federal Court Rules to vary order 6 as made on 19 February 2007. That order was entered on 28 February 2007. Order 6 provided that the Court : 'Declares that, other than as provided in these orders, the first plaintiff and the second defendant have no subsisting entitlement to consultancy fees from any of the first, fourth, fifth, sixth, seventh and eighth defendants.' 4 Triad seeks that order 6 be varied so as to read that the Court: '(a) Declares that other than as provided in these orders, the first plaintiff and the second defendant have no subsisting entitlement to consultancy fees from any of the first, fourth, fifth, sixth, seventh and eighth defendants (i) after 28 February 2006, and (ii) in an amount exceeding $15,000 (plus GST) per month in respect of the period 20 July 2005 to 28 February, 2006. (b) The Court orders that, subject to sub-paragraphs 1(i)(a) and 1(i)(b) above, and subject to the second defendant issuing to the first defendant proper tax invoices, the second defendant's entitlements to payment of consultancy fees of $20,833.33 per month (plus GST) for the period 1 July, 2000 to 20 July, 2005 (to the extent they are payable) are not otherwise [affected] by sub-paragraphs 1(i)(a) and 1(i)(b) herein.' 5 Order 6 was made as part of a series of orders designed to grant relief to the plaintiffs from conduct of the affairs of BGR, which I found to be oppressive. 6 Triad argued that order 6 did not reflect the true intention of the Court, objectively ascertained, to give relief. The basis of the argument was that in my principal judgment given on 12 February 2007 (Food Improvers (No 3) [2007] FCA 97 at [269]) I held that each of Food Improvers and Triad was entitled to render invoices so as to be paid over a million dollars each in consultancy fees which they had not then invoiced. That finding had been made in a context that I had described in some detail earlier in those reasons. Triad now argues that the effect of that finding in the principal judgment was that: · Triad was owed a debt of over a million dollars for consultancy fees by BGR; · all parties to the proceedings were bound by that finding; and · the finding limited the orders which could be made to provide relief to the plaintiffs. 7 At the same time as making order 6 I made other orders, including one for repayment of consultancy fees that I found had been overpaid to Triad by BGR. Following delivery of the principal judgment, the parties agreed the amount overpayment due by Triad to BGR was $311,550.86. No application was made at that time for any set-off between that overpayment and what Triad now claims it was owed. 8 However, Triad argued that I failed to make any further findings to justify order 6. And so, Triad contended that objectively, the orders cannot have been intended to negate my finding that Food Improvers and Triad were each owed by BGR over one million dollars in unrendered consultancy fees. Triad further contended that my related finding, that Triad and its principal, Mr Gulson, did not wish to receive consultancy fees, was insufficient to affect the existence of its legal entitlement to seek payment for the unrendered fees or its enforceability. In that context, it says that the formulation of order 6 cannot have truly reflected my intention, or the objective intention which must be imputed to the Court, when I made the orders. 9 Senior counsel for Triad recognised that a consequence of acceding to these arguments may be that other orders which I made to deal with the oppression I had found would also need to be varied. But, he said, that was a matter for other parties to raise. 10 In my opinion, the arguments advanced by Triad cannot be correct. If the consequence of 'correcting' one of a cognate series of discretionary orders produces the result that the balance of the orders would then operate in a manner substantively different to the objectively determined intention of the Court, then the correction cannot be made in isolation. That is so for the following reasons. 11 First, O 35 r 7(2)(e) does not authorise a correction which has the effect of distorting the intention of the Court in other, but cognate, orders. If a correction be needed, and is authorised, by O 35 r 7(2)(e), it must be to make a correction that effects, rather than eschews or distorts, the actual expression of the Court's intention in all relevant respects. By proposing only a change to order 6, Triad has ignored the overall intention of the final orders made in February 2007. That intention was to provide relief to Food Improvers and Mr Bax from the oppression which I had found and to resolve finally the disputes between the parties. 12 Secondly, it would be unjust to distort the operation and effect of the final orders by changing one part of them and not making the necessary changes to others. It is essential that the whole of the orders, when perfected by the process under O 35 r 7 or any inherent power the Court may have, truly reflect the intention of the Court to do justice between the parties in the proceedings. 13 One consequence of acceding to the application to amend order 6 in the form set out in Triad's interlocutory application would be to negate the scheme for resolving the oppression and disputes which I found. That scheme reflected the position adopted in negotiations between the protagonists from about September 2005 until early in 2006. They were then consensually (but not enforceably) proceeding in accordance with what was described as Option B. Option B had been proposed by Food Improvers and Mr Bax as a means of distributing BGR's net assets to each of its shareholders by paying them, in substance, their entitlements in a de facto winding up of their partnership. BGR's principal asset was Main Camp Station, which all three shareholders agreed in September 2005 should be sold. Once Main Camp Station was sold, BGR would have no ongoing business or operations except as a holding company. 14 A substantial issue at the trial had been whether the entitlement of each of Food Improvers, Triad and Karcor Holdings Pty Ltd (Mr Reece's company) to be paid consultancy fees from about March 2001 had been suspended until the fortunes of the BGR group improved rather than cancelled altogether. In the proceedings, Food Improvers had claimed payment of those fees from March 2001. Triad and Mr Gulson, on the other hand, with the support of Cordato Partners Services and Mr Cordato, argued that no such resolution had been made and that the right to claim consultancy fees for past services from the time of their suspension in March 2001 was lost forever, though the partners could agree that consultancy fees were to be payable again in the future. The effect of that latter contention would have been that Mr Reece (while he was still working as a partner) and Mr Bax would have been working, in effect, for nothing while improving Mr Gulson's company's equity in their joint enterprise disproportionately to their own, given Triad's larger shareholding. 15 Options A and B were presented by Mr Bax to the meeting with Mr Lombardo to which I referred to in my principal judgment (Food Improvers [2007] FCA 97 at [162]-[180]). The scheme of Options A and B was to distribute BGR's net assets after receipt of the proceeds of sale of Main Camp Station. Each first provided for the payment of external creditors of BGR. Option A was designed to reflect what Food Improvers and Mr Bax were asserting was the legal position, namely that each of Food Improvers and Triad were entitled to claim all of the consultancy fees under their consultancy agreements for the period in which payments had been suspended. The plaintiffs had claimed over a million dollars for consultancy fees in the proceedings well before the meeting with Mr Lombardo. Triad and Mr Gulson were asserting, with Cordato Partners Services' and Mr Cordado's support at that time, that no consultancy fees were payable during that period. 16 Option A provided that each of Food Improvers and Triad would be paid $1,040,849 in unpaid consultancy fees together with $276,001 interest and then the balance of BGR's cash would be paid to the three shareholders as fully franked dividends. The consultancy fees would be taxable in the hands of the payees. Next, each shareholder would use the cash received to repay its shareholder's loan accounts. BGR would then have further cash and it would pay that to the shareholders as a fully franked dividend, thus distributing practically all its assets. 17 In contrast, Option B followed the same steps but provided only for a $500,000 consultancy fee payment to Food Improvers alone. I explained in Food Improvers (No 3) [2007] FCA 97 at [170]-[174], that under Options A and B the after tax case position of the shareholders, assuming $6,345,000 was available in cash from the sale of Main Camp Station, cattle and stock, following payment of BGR's external liabilities, was as follows: Shareholding Option A Option B ([2007] FCA 97 at [3]) Food Improvers 24% $ 1.4m (25%) $ 1.35m (22%) Triad 68% $ 3.6m (65%) $ 4.1m (67%) Cordato Partners Services 8% $ 0.515m ( 9%) $ 0.7m (11%)