Woods v T&F.S. Woods Pty Ltd

Woods v T&F.S. Woods Pty Ltd - [2023] FCA 1108 - FCA 2023 case summary — Zoe

[8]

The FCA proceeding 11 As the primary judge summarised, TFS was founded by DW's father, Mr Terence Woods (TW). When TW died in 2017, he left his shares to DW and his brother, Mr Allan Woods (AW). A dispute subsequently arose between DW and AW as to the class of shares that was left to them under the will. This dispute was the subject of proceedings in the Supreme Court of New South Wales. 12 At that time, DW and AW were both directors and shareholders of TFS. 13 The brothers carried on running the company, with AW responsible for the management, control and financial administration of TFS and DW responsible for running the workshop, the service and maintenance of vehicles and equipment, and some long-distance driving. 14 DW eventually developed suspicions that AW and his wife, Mrs Julieanne Woods (JW) (an employee and former director of TFS), were misappropriating funds from TFS. 15 On 24 July 2019, DW commenced the FCA proceeding, in his capacity as director and shareholder of TFS, against AW and JW. TFS was the second named plaintiff in the proceeding. 16 By the FCA proceeding, DW sought the following relief: (a) a declaration that AW and JW knowingly misappropriated funds owned by TFS; (b) a declaration that by the misappropriation, AW and JW breached their fiduciary duties to TFS and that AW breached his director's duties under the Corporations Act 2001 (Cth) (the Act); (c) an order that DW have leave pursuant to s 237 of the Act to commence derivative proceedings on behalf of TFS to recover the misappropriated monies; (d) an order that a firm be appointed to investigate and report to the Court on the financial affairs of TFS; (e) damages for AW and JW's breaches of the Act; and (f) alternatively, an order that TFS be wound up and liquidators be appointed. 17 On 25 July 2019, one day after the proceeding was commenced, DW filed an interlocutory application seeking the appointment of provisional liquidators to TFS until the making of a winding up order. 18 As mentioned above, the FCA proceeding was compromised on 27 November 2019 by the parties' entry into the Deed.

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The Deed of Settlement 19 All parties to the FCA proceeding were parties to the Deed, that is, DW, TFS, AW and JW. Another company that was not party to the FCA proceeding, Woods Transport Pty Ltd, was also party to the Deed. 20 The "BACKGROUND" section of the Deed contained the following recitals: A. [DW] and [AW] are currently directors of TFS. B. [JW] is a former director of TFS and a current employee. [AW] and [JW] are husband and wife. C. [DW] and [AW] are shareholders of TFS, holding 10 ordinary shares each (14%). D. The Estate holds the balance of the shares in TFS comprising of 10 ordinary shares and 40 class A shares on trust pursuant to the will of [TW], [AW] and [DW's] deceased father. [AW] and [DW] dispute the will which is subject to proceedings filed in the Supreme Court of NSW under proceeding number 2019/00305500. E. TFS conducts the business of a transport and logistics company in Moree. F. The Parties are in dispute. The various documents filed in the Federal Court of Australia under proceeding number QUD441/19 set out the nature of the dispute (the Proceedings). G. The Parties wish to settle all disputes between them arising out of the issues of the Proceedings and all disputes that have or may have arisen as a consequence of the entire dealings between [AW] and [DW] as directors and shareholders of TFS, and [JW] as director and employee of TFS, howsoever arising (the Disputes). H. The Parties have reached an agreement in the terms set out in the operative part of this Deed. (emphasis in original) 21 The two key operative terms of the Deed were cll 2 and 3. Clause 2 provided that, in exchange for various obligations listed in cl 2.2 (including the payment of cash by AW to DW and the transfer of certain assets), the following matters were agreed: (a) [DW] will transfer to [AW] his shares held in TFS within 7 days of receiving payment of the sums in 2.2(a)(1) and (2) ($200,000 and $600,000 respectively); (b) [DW] will execute such documents as may be required to transfer his shares in TFS to [AW]; (c) [DW] will resign as director and secretary from TFS within 7 days of the date of this Deed; (d) [DW] will execute any further documents as and when may be necessary to give, authorise or consent to [AW] to taking control, management and authority wholly over TFS within 7 days of receiving such request from [AW]; (e) Upon receiving payment of the sums in 2.2(a)(1) and (2) ($200,000 and $600,000 respectively) [DW] will abandon any claim or entitlement to the TFS shares held by the Estate, whether ordinary or management shares, and compromise the Estate Proceedings; (f) [DW] will execute any further documents necessary to transfer to [AW] TFS shares presently held by the Estate; (g) The parties will enter into a Deed of Arrangement to resolve the Estate Proceedings; (h) TFS forgives any loan owing by [DW] to TFS and release him from any obligations in relation thereto; (i) [AW] will take all steps to procure [DW's] release from any personal guarantees provided in securing the obligations of TFS and indemnify [DW] in relation to any liability arising from them. 22 Clause 3.1 provided a release in the following terms: In consideration of the Parties entering into this Deed, each party hereby releases and forever discharges each other party and Mary Hawker from all Claims which, but for the execution of this Deed, they might have had against each other in the Proceedings or otherwise. … (emphasis added) 23 "Claim" was defined at cl 1.1 as encompassing: any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, offsets, recoupments, controversies, judgments, orders, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including, without limitation, all legal fees and costs) of every kind and nature, whatsoever, in law or equity, direct or contingent, liquidated or unliquidated, known or unknown and whether present or which may occur at any time in the future arising from the Proceedings (emphasis added) 24 Clause 1.2 also provided that: … (c) The Parties agree that the Recitals are accurate, that they shall abide by the Recitals, and that this Deed shall, if necessary, be construed by reference to the Recitals.

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Principles concerning the discretion to grant summary judgment 28 The power to summarily dismiss a proceeding in the FCFCOA exists under s 143 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) and r 13.13 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth). 29 The question for the Court is that contained in the statute, that is, whether the party has "no reasonable prospect" of successfully prosecuting the proceeding: see Spencer v The Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28 (Spencer) at [56]-[60] (per Hayne, Crennan, Kiefel (as her Honour then was) and Bell JJ). 30 The power to dismiss proceedings summarily must be exercised with caution: Spencer at [24] (per French CJ and Gummow J). As was stated by McKerracher J in Prior v South West Aboriginal Land and Sea Council Aboriginal Corporation [2020] FCA 808 (Prior) at [29(d)] (in relation to the analogous s 31A of the FCA Act): … as a general principle, the moving party on an application for summary dismissal is likely to succeed if it is able to demonstrate to the Court that the applicant's success in the principal proceedings relies upon a question of law that is straightforward and confined, or is trite in the sense that it is well settled on authority, such that the question can be resolved summarily without the necessity for a full trial … 31 The power to grant summary judgment is discretionary: see Kowalski v MMAL Staff Superannuation Fund Pty Ltd (2009) 178 FCR 401; [2009] FCAFC 117 at [28] (per Spender, Graham and Gilmour JJ). In the exercise of that discretion, it must be kept in mind that the section is concerned with substance, not just with form: see White Industries Aust Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298; [2007] FCA 511 at [50] (per Lindgren J). 32 If a prima facie case in support of summary judgment is established, the onus shifts to the opposing party to demonstrate that a trial is necessary: Prior at [29(f)]. 33 Importantly, a court should not shy away from granting summary judgment merely because there may exist some complexity in the underlying issues if, after a consideration of the facts and law, the outcome of the disputation is clear: ThoughtWare Australia Pty Limited v IonMy Pty Ltd [2023] FCA 906 at [53] (per Derrington J).

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The primary judgment 36 The primary judge identified that the "real question" to be determined on the application for summary dismissal was (Woods at [22]): … whether the present proceeding is a matter that fits the definition of "Claim" in the Deed. If it fits that definition, then there is a bar to [DW] proceeding with the present application. If it does not fit that definition, then the matter should continue according to law. 37 The primary judge approached the construction of the Deed by, first, examining the issues in the FCA proceeding and, secondly, considering whether the issues in the FCC proceeding were ones "arising from" the FCA proceeding. 38 The primary judge observed that the "genesis" of the FCA proceeding was a claim by DW that AW had misappropriated money from TFS. The primary judge found that, arising from that central claim, was a "request by [DW] for liquidators to assume control of all operations of [TFS] and to carry on [TFS'] business": Woods at [23]. 39 The primary judge concluded that the "correct and proper payment to be made to any employee of [TFS] was a part of the day-to-day running of the business" and that any employee claims or rights against TFS were "certainly part of carrying on the business" of TFS. Accordingly, the primary judge considered it necessary to decide whether those claims or rights were matters that "arose from the proceedings": Woods at [24]. 40 The primary judge held that the issues in the FCC proceeding "arose from" the FCA proceeding such that the FCC proceeding was barred by the Deed. The primary judge reached that conclusion as a result of the following reasoning: (a) "The Deed goes much farther than the allegation of misappropriation. All of the disputes between [DW] and [AW] (including their dispute over their late father's will) arose out of the proceedings": Woods at [30]-[31]. (b) It could be inferred that Woods Transport Pty Ltd became part of the Deed so that AW and DW "could sever their relationship and that they (and their corporate identities) would never need to darken each other's doorstep again": Woods at [32]. (c) This meant that "the whole issue of how the corporate entities, owned and directed by [AW] and [DW], were being operated on a day-to-day basis was an issue that 'arose from the proceedings' and therefore became the subject of the Deed": Woods at [33]. (d) Given "the way that the Deed has been executed", it would be an "absurdity" if any litigation that AW may wish to instigate against Woods Transport Pty Ltd would not be barred by the Deed because it would not arise from an allegation of misappropriation by AW of money owned by TFS: Woods at [34]. (e) In the FCA proceeding, DW requested TFS' wage records and ledger accounts showing all payments made to directors, having regard to wages, dividends and payment of personal expenses. DW also wanted the scope of audit to include "all payments made by [TFS]…to any person with the surname Woods (including but not limited to wage records, entitlements and superannuation)" (italics omitted): Woods at [35]. (f) This led "inexorably to the conclusion that the [FCA proceeding] involved the payment of wages, entitlements and superannuation to [DW] and the records thereof": Woods at [36]. (g) The property claimed in the FCC proceeding was "part and parcel" of the transfer of property and assets between [DW], [AW] and their respective corporate entities under the Deed. The claim to property made in the FCC proceeding was therefore clearly a matter that arose from the FCA proceeding: Woods at [37]-[38].

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Whether leave should be granted 43 While the summary dismissal of a proceeding is properly described as interlocutory in nature, in a practical sense, it is likely to be dipositive of the plaintiff's legal rights: Khoury at [8] (per Basten JA). 44 A "tight rein" should be kept on appeals from interlocutory decisions. However, leave will more readily be granted where the judgment has the practical operation of finally determining the rights of the parties: Decor at 400; and Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572 at [43] (per French J (as his Honour then was), with whom Beaumont and Finkelstein JJ agreed). See also Waters v Commonwealth of Australia (Australian Taxation Office) [2017] FCA 1199 at [11] (per Markovic J); and Shockthorap v Electricity Network Corporation [2019] FCA 619 at [11] (per Banks-Smith J). 45 Because the primary judge's order here is, in a practical sense, determinative of the legal rights of DW, it is apt to work a substantial injustice to him supposing it is wrong. 46 I am of the view that the decision is attended by sufficient doubt such that it warrants reconsideration by this Court. 47 This turns upon an assessment of whether the ultimate conclusion reached by the primary judge was sufficiently supported by the language of the Deed. 48 For example, as set out above, the primary judge found that the Deed went beyond the claims of misappropriation, and that all of the disputes between DW and AW were claims arising out of the FCA proceeding: Woods at [31]. However, it is not clear how the Deed, on its face, leads to this conclusion. Further, there is no justification as to how the issues in the FCC proceeding, which relate to breaches of the FWA by TFS, wrongful detention of property, and a claim for breach of the Deed, are issues "arising from" the FCA proceeding, which concerned the misappropriation of company funds. 49 The primary judge's consideration of the construction of the Deed included a number of factual findings or general assertions of a conclusory nature (see, for example, Woods at [30]-[32], [37]-[38], as set out above). These findings were either not supported by the evidence, concerned factual matters which were capable of being disputed, or were not necessary in the context of the application. 50 DW should be granted leave to appeal.

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Matters relevant to assessment of prospects of success 56 It is a well-accepted rule of construction that general words in a release are confined to the matters raised in the recitals: Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112 (Grant) at 123 (per Dixon CJ, Fullagar, Kitto and Taylor JJ)). Clause 1.2 of the Deed is also to this general effect. 57 The core principle that governs the interpretation of any agreement is that the meaning of the terms are to be determined by what a reasonable person would have understood them to mean: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (per French CJ, Hayne, Crennan and Kiefel JJ); Toll (FCGT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52 at [40] (per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); and Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22] (per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). 58 This process involves a consideration of the whole of the agreement. 59 The scope of the release in cl 3.1 of the Deed is confined to "Claims", as defined. Whilst the definition of "Claims" is described in broad terms, for example, claim, charge, complaint and so on, it is limited by the words "arising from the Proceedings". 60 It follows that DW is only barred from commencing claims which arise from the FCA proceeding. The coverage of the Deed therefore turned on whether the claims were ones "arising from" the FCA proceeding. 61 DW submitted that, on the proper construction of the Deed, the expression "arising from the Proceedings" requires that the claims made by DW result, or proceed or originate from, or out of, and thus "arise from", the FCA proceeding. In this way, it was submitted that a causal relationship is required. 62 Applying this construction, DW asserted that the primary judge ought to have concluded that the claims in the FCC proceeding are not "Claims" as defined in the Deed, because there is an insufficient nexus between them and the FCA proceeding. 63 This is a reasonable argument which supports the conclusion that DW's claims were not clearly barred by the Deed. 64 The expression "arising from" or "arising out of", in an ordinary context, is usually given a wide meaning: Walker v University of Sydney [2013] NSWSC 104 at [33] (per Harrison J), citing Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165; and Shepherds Producers Co-operative Ltd v John Scott Lamont & Ors [2009] NSWSC 294 at [13]-[19]. 65 It has been said that the words "arising from" or "arising out of" require some form of causal or consequential relationship, although the relationship is less than that required by words such as "caused by" or "as a result of": Butler v St John of God Health Care Inc [2008] WASCA 174 at [39] (per Newnes AJA, with whom McLure JA and Buss JA agreed). 66 The definition of "arise" offered by the Macquarie Dictionary (8th ed, Macquarie Dictionary Publishers, 2020) Vol 1, 75 includes: "to result or proceed from." Definitions offered by the Oxford English Dictionary (2nd ed, Oxford University Press, 1989) Vol 1, 629 include "to spring up … into existence". 67 However, the meaning of such an expression must depend on its context. In Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170, in relation to the meaning of phrases such as "arising under", "out of", "arising out of", "in relation to" and "in connection with", Allsop CJ, Besanko and O'Callaghan JJ observed at [193] that: Context will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character. None of the phrases is linguistically stable or fixed. 68 As mentioned above, the primary judge found that the FCA proceeding was one involving an unconstrained inquiry into the day-to-day operations of the business of TFS: Woods at [33]. The primary judge considered that: (a) given "the way that the Deed has been executed", it would be an "absurdity" if any litigation that AW may wish to instigate against Woods Transport Pty Ltd would not be barred by the Deed because it would not arise from an allegation of misappropriation by AW of money owned by TFS: Woods at [34]; and (b) the parties intended to never "darken each other's doorstep again": Woods at [32]. 69 Whilst no evidence was referred to, these appear to be findings of fact. The reference to the "way" seems to be referring to the circumstances in which the Deed was executed. No reasons are provided in support of these conclusions. 70 DW submitted that this was a mischaracterisation of the FCA proceeding. 71 The relief sought in the FCA proceeding dealt largely with an allegation that AW and JW knowingly misappropriated funds owned by TFS. Orders were sought that a firm be appointed to investigate the financial affairs of TFS; that AW and JW be ordered to pay damages; or, alternatively, that an order be made that TFS be wound up and liquidators appointed. 72 There is a reasonable argument that the FCA proceeding was confined to the alleged misappropriation of company funds, alleged breaches of fiduciary and director's duties, and whether TFS should be wound up, as set out on the face of the proceedings. 73 The claims in the FCC proceeding are personal claims by DW against TFS in respect of three distinct matters: (a) breaches of the FWA by TFS; (b) wrongful detention of property; and (c) damages for breach of the Deed. 74 It was argued that none of these matters was raised in the FCA proceeding. 75 The claims made under the FWA and as to property, and damages for breach of the Deed, have some connection with the parties to the Deed, but it is arguably not clear that they arise from the FCA proceeding and thus fall within the release. 76 The primary judge pointed to the fact that, in the documents filed in the FCA proceeding, DW requested documents relating to "all payments made by [TFS] … to any person with the surname Woods" and wage records. It is not known why this request was made. Evidence would need to be called about this issue. It could have been for the purpose of proving the alleged misappropriation and breaches of duty. In any event, there is a reasonable argument that the making of such a request does not, of itself, necessarily expand the scope of the proceeding. It is arguable that it would not make TFS' compliance with the FWA an issue in the FCA proceeding. 77 No relief was sought against TFS in relation to the FWA in the FCA proceeding. Such relief was not necessarily associated with the matters in issue in the FCA proceeding. Characterising the FCA proceeding as one which included claims relating to employee entitlements under the FWA arguably overlooks the parties to the proceeding: DW (in his capacity as director and shareholder) and TFS being the plaintiffs, and AW and JW being the defendants. 78 Based on such considerations, there was at least an arguable claim that the Deed did not bar the FCC proceeding. 79 It was submitted before the primary judge that the parties could have, but did not, utilise wider language when drafting the release. It is generally accepted that words such as "relating to" or "in any way connected with" have a broader compass than "arising from". The subject of the release could also have been expressed in other ways. For example, the release could have released claims in any way connected with the business, or the relationship between the parties, and not made referable to the FCA proceeding. 80 It was also submitted below that, if the parties had intended to surrender any rights or causes of action concerning DW and TFS' dealings as employee and employer, clear words would have been used. That is particularly the case where the parties have engaged solicitors to prepare the deed of release. 81 It is arguable that the interpretation advanced by DW is supported by the following language used in the recitals: (a) in paragraphs A and C, DW and AW are described in their capacities of directors and shareholders of TFS; (b) in contrast, in paragraph B, JW is described as an employee of TFS; (c) in paragraph G, it is stated that the parties wish to settle all disputes between them arising out of the issues of the Proceedings and all disputes that have or may have arisen as a consequence of the entire dealings between AW and DW as directors and shareholders of TFS, and JW as director and employee of TFS. 82 It is arguable that the language used in the recitals tends to confine the ambit of the release to the parties in their capacities as directors and shareholders of TFS. 83 Recital G, in particular, describes the intention of the parties to settle all disputes between them: (a) arising out of the issues of the Proceedings; and (b) that have or may have arisen as a consequence of the entire dealings between AW and DW as directors and shareholders of TFS, and JW as director and employee of TFS. 84 It is arguable that this recital limits the release, insofar as DW is concerned, to the relationship "as directors and shareholders" in contrast to JW, where the intention is to encompass her role as employee. 85 As stated above, general words in a release will always be confined to the subject matter of the disputes stated in the recitals: Grant at 123. 86 In light of the above, it was, at the least, arguable that DW's claims in the FCC proceeding were not barred by the Deed. The primary judge erred in granting summary judgment and the appeal should be allowed. 87 Due to this conclusion, there is no need to consider DW's remaining grounds of appeal.

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NOTICE OF CONTENTION 88 By ground 1 of its notice of contention, TFS contended that the primary judgment should be affirmed on the basis that the FCC proceeding was barred by the Deed as it: (a) purported to resolve all disputes between the named parties in the Deed regardless of the subject matter; or (b) purported to resolve all disputes between the named parties in the Deed relating to the matters concerning the operation of TFS. 89 For the same reasons as above, ground 1 of TFS' notice of contention must be dismissed. 90 By ground 2 of its notice of contention, TFS contended that the FCC proceeding was an abuse of process and/or subject to an estoppel. 91 In reliance on [44]-[51] of its submissions before the primary judge, TFS submitted that DW was prevented from advancing his employment-related claims on account of an Anshun estoppel. 92 As the majority of the High Court described in Tomlinson v Ramsey Food Processing Pty Limited (2015) 256 CLR 507; [2015] HCA 28 at [22] (per French CJ, Bell, Gageler and Keane JJ), this form of estoppel: … operates to preclude the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding. (emphasis added; footnotes omitted) 93 TFS says DW ought reasonably to have agitated his purported underpayment claim as a part of the FCA proceeding and that his failure to do so was unreasonable and enlivens an estoppel against the subsequent pursuit of the claim. 94 It says there was "no impediment to the agitation of the underpayment allegations within the context of those proceedings". DW could have commenced his employment-related claim at an earlier point in time, but decided not to do so. 95 This argument again overlooks the nature of the FCA proceeding and the parties to it. It was not unreasonable for DW not to bring a claim regarding his employee entitlements in a proceeding concerning the alleged misappropriation of company moneys by two individuals. 96 There can be no detriment to TFS because DW did not raise this separate claim in the FCA proceeding. 97 I cannot infer that DW "rested on his rights to unconscionably obtain a benefit of a higher valuation of his share in [TFS]" on the sole basis that the FCA proceeding "would have been substantially different if the liability for wages equal to 45% of the business' value was known by the parties" as TFS sought. 98 Ground 2 of TFS' notice of contention must be dismissed.

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Cases Cited (35)

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