Short v Macedoner Pty Ltd[2010] QSC 218

SUPREME COURT OF QUEENSLAND

ANN LYONS J:

The originating application

1. In September 2004 Victor Terrence Short and his partner, Rhae Margaret Walton, acquired 10 shares or the equivalent of an eight per cent interest in a company called Macedoner Pty Ltd. Macedoner carries on business as Raine and Horne Hervey Bay.

2. In September 2004 Mr Short was employed by that business. On 9 April 2009 Mr Short ceased to work for Macedoner and he commenced to work for a rival real estate agency and has now become involved in litigation with Macedoner.

3. The second respondent seeks to acquire the shares of the applicants in the first respondent company. Essentially, the applicants are of the view that the shares are worth $172,165.95 and the second respondent has offered $28,492.60.

4. On 15 December 2009 the second respondent offered to purchase the applicants’ interest in Macedoner pursuant to s 414 of the Corporations Act 2001 (Cth).  As the applicants are minority shareholders, the second respondent is able to do so pursuant to s 414 of the Corporations Act.  However, the applicants are able to apply to the court for an order under s 414(3) to contest the terms of the acquisition. 

5. An originating application was filed on 22 January 2010 whereby the applicants as minority shareholders sought orders pursuant to s 414(3) of the Corporations Act concerning the compulsory acquisition of their shares by dissenting shareholders and the mechanism for the valuation of those shares.  That application sought either that the second respondent pay the sum of $172,165.96 for the applicants’ shares or that the shares be valued, and that 14 days after the valuation was received “the transferee will be entitled and bound to acquire the applicants’ shares for the value determined by the selected valuer”.

Orders of Atkinson J on 9 February 2010

6. The originating application was listed for hearing on 9 February 2010. The parties had discussions about an expert and the applicants put forward a panel of three experts and the respondents chose one of those experts, namely Elia Lytras of Lytras and Benjamin Accountants.

7. On 9 February the parties entered into consent directions for the future conduct of the matter and Atkinson J made orders for the appointment of a joint expert under Ch 9 Pt 5 of the Uniform Civil Procedure Rules 1999 (Qld) to value the shares.  Further orders were made in relation to the settlement of the action.  The order was in the following terms:

“BY CONSENT, THE ORDER OF THE COURT IS THAT:

1. The Application be adjourned to a date to be fixed.

2. The shares in the First Respondent owned by the Applicants (‘the Applicants’ shares’) be valued by a valuer appointed in accordance with the following directions:

(a)by 4 pm on 19 February 2010, Elia Lytras, accountant, be instructed by the Applicants to prepare an expert valuation of the Applicants’ shares in accordance with Chapter 11, Part 5 of the Uniform Civil Procedure Rules 1999;

(b)Mr Lytras will be entitled to request such documents or other information from the parties as he thinks fit and shall be entitled to make such enquiries or investigations as he thinks fit;

(c)the parties will provide all assistance reasonably requested by Mr Lytras in a timely way;

(d)the parties will engage Mr Lytras on the basis that his fees are capped in the first instance at $3,000.00 plus GST;

(e)if Mr Lytras’ fee reaches $3,000.00 plus GST, the parties will confer with a view to authorising Mr Lytras to carry out further work and incur further fees on the preparation of the valuation;

(f)if either party does not, or both parties do not, consent to Mr Lytras incurring further fees beyond $3,000.00 the Application will be re-listed at the instance of either party for further directions on 3 days’ notice in writing or at such time as is convenient to the Court;

(g)the Applicants (together) and the Second Respondent will each pay, in the first instance, 50% of Mr Lytras’ fees; and

(h)as between the parties to this Application, such sums as are paid to Mr Lytras shall be treated as disbursements in the costs of the parties.

3. By 23 March 2010;

(a)the parties will arrange a time and place for the transfer of the Applicants’ shares (‘the settlement’) by 6 April 2010;

(b)at the settlement:

(i)the Respondents will provide to the Applicants a sum equal to the value given to the Applicants’ shares in the valuation; and

(ii)in exchange for that sum, the Applicants will provide to the Respondents an executed transfer of the Applicants’ shares to the Respondents or their nominee or nominees.

4. The parties will agree the costs of and incidental to this Application by 20 April 2010 or, failing such agreement, the costs will be determined by the Court.

5. There be liberty to apply.

6. Costs reserved.”

Subsequent Events

8. Mr Lytras subsequently sought and obtained information from both parties in order to finalise the valuation.

9. By letters exchanged on 24 and 26 March the parties agreed that they would extend time for the provision of Mr Lytras’ report. They agreed that they would organise a settlement within 24 hours of receiving the report and that the settlement was to occur no later than 15 days from the date of such receipt.

10. On 16 April 2010 Mr Lytras sent the following email to the solicitors for the respondents:

“Dear Travis.

Many thanks for your email.

I note Mr Short’s comments and can confirm that in relation to some of the items raised I have already made assumptions as to their accuracy in anticipation that there may be some dispute between the parties as to the appropriate figure.  These assumptions will be clearly detailed in Section 5.0 of my report and my opinion can be altered if the parties agree that those assumptions and the information disclosed to me should be changed.

I am able to confirm certain factual issues – for example, the amount paid to Ms Cockerill is far greater than the remuneration that would ordinarily be paid to a person completing her property management employment tasks however, I am not able to make a determination as to the appropriateness or otherwise of the payment as I am not aware of the circumstances or discussions between the parties in relation those payments.  That is, I can provide an accounting opinion but whether or not they are legitimate appears to be more of a legal issue based on the facts.

One way to deal with these separate views of the parties, is for each party to provide me with a set of specific instructions as to the appropriate numbers and then two (2) valuation scenarios can be prepared – one based on the Applicants’ position and another based on the Respondents’ position.  Mr Short has almost done this but there would need to be more specificity.  This approach is not uncommon in joint appointments as the parties invariably have differing views as to the appropriateness of the information and / or instructions provided to the expert.  Unfortunately, however it will result in a material increase in the scope of the work required to be undertaken with a consequential increase in costs.

Presently I will proceed on the basis outlined in the second paragraph above – that is, items are accepted via assumptions with the parties to discuss their validity post-completion of the single valuation – unless I hear otherwise from the parties I will proceed on this basis.

Regards

Elia.”

And……

“Dear Trent,

Can you please advise me the size of the office (in sqm) that is occupied by the sales, property management adjudication admin staff at Raine & Horne Hervey Bay?

I am not interested in vacant or largely unused area (if any exists).

Regards

Elia.

PS.  Trent and Travis – regarding my email earlier today in response to Mr Short’s comments – if I have not heard anything from you by close of business Monday 18 April 2010 I will assume that your instructions are to continue with the current approach with assumptions rather than two set of instructions from the parties.”

11. On 22 April 2010 Mr Lytras provided a report in relation to the assessment of the value of the applicants’ shares in Macedoner pursuant to an order of Atkinson J on 9 February 2010.

12. Mr Lytras reported that:

(a)the business was worth $1,889.000.00;

(b)the shares in the business were worth $633,319.00;

(c)it would follow that the applicants’ shareholding was worth $50,666.00;

(d)a discount would normally be applied (on the basis that minority shareholdings are difficult to sell because the purchaser does not gain control), but for various reasons Mr Lytras considered that such a discount was inappropriate in this case.

13. Accordingly, pursuant to the order of 9 February 2010 a transfer of the eight per cent shareholding in exchange for $50,666.00 was to occur on or before 7 May 2010.

14. By a letter dated 30 April 2010, however, the applicants wrote to the respondents:

“Pursuant to paragraph 6 of the order made by Justice Atkinson on 9 February 2010, we give notice on behalf of the Applicants that they do not accept the value of the Applicants’ shares in the valuation of Lytras and Benjamin.”

15. The applicants stated that they did not agree with the methodology adopted by Mr Lytras, nor the information upon which the report was based.  The applicants outlined a number of grounds of challenge;

16. On 4 May 2010, the respondents sent the applicants a Rule 444 letter, requesting that the applicants participate in a transfer at the agreed valuation figure on 3.00 pm on 7 May 2010;

17. The applicants have continued in their refusal to transfer the shares for the amount set out in the valuation.

This Application

18. By this application filed on 18 May 2010 the respondents in the original application (the respondents) seek orders that the applicants in the originating application be directed to comply with para 3 of the 9 February orders by providing the respondents with an executed transfer in exchange for $50,666.

Can the respondents compel the applicants to comply with orders?

19. The applicants contend that the time and circumstances for compliance to the order of Atkinson J have not arrived and that this application is misconceived.

20. The respondents argue that the joint expert accountant is not an expert per se, but is also the trier of the facts of the case and the decider of the ultimate outcome of the case. The respondents contend that the applicants must accept the accountant’s conclusion and that it is binding on them. They submit that the order of Atkinson J of 9 February 2010 means that they cannot challenge the correctness of his report.

21. The applicants argue, however, that the accountant is just an expert, whose report, like every other expert, is subject to the accuracy of the assumptions he has made and the facts upon which he has relied. The applicants also argue that they are entitled to challenge the factual substratum of the report, just as they would be able to challenge the facts and assumptions underpinning any expert report.

22. The applicants state that Mr Lytras advised that his report was subject to the accuracy of the assumptions and the factual information upon which it was based on three occasions. The first occasion was the 16 April email. The second occasion was in his report of 22 April where, at para 2.7, he states, “If any of these assumptions are determined to be incorrect or inappropriate then my opinions would require alteration”. In the report at para 5.3 he says, “If any of these assumptions are determined to be incorrect or inappropriate then my opinion would require alteration”. At para 11.3 he also states, “My analysis and conclusions are based upon the information that I have identified as being relied on in this report. Unless otherwise stated I have proceeded on the basis that this information is reliable, complete and not misleading. In the event that further information becomes available or the information is found to be incomplete, inaccurate or misleading, I reserve the right to amend my analysis and conclusion.”

23. The applicants also argue that the further report, requested by them on 6 May 2010, states that the report had been prepared on the basis that the assumptions relied upon are appropriate and correct and the information relied upon is reliable, complete and not misleading.  He also stated:

“2.3If such reliance is deemed to be incorrect or inappropriate then my valuation opinion would require reconsideration and possibly amendment.

2.4This position is supported by statements made at paragraphs 2.7, 5.3, 8.7, 9.26 and 11.3 of my report.

2.5On this basis I regard the report as being final subject to the accuracy of the assumptions made and the information relied upon.

2.6In the event that the assumptions made and/or information relied upon is/are deemed inaccurate, not complete, reliable and/or misleading then, to the extent that they affect the valuation opinion, in order to properly execute my duty to the Court, it would be necessary to revise the valuation opinion accordingly.

2.7The subsequent report prepared would then be regarded as the final opinion on the matter subject to the same provisos.

…

3.4Having said that, if more compelling data indicating that the information I have relied upon in my report is deficient or in some way incomplete, inaccurate, unreliable and/or misleading then I reserve the right to amend my opinion as outlined in paragraph 11.3 of my report.”

24. The applicants, therefore, argue that Mr Lytras has performed the valuation on the basis that he is not the decider of the facts upon which it is based and that as an expert appointed pursuant to Ch 9 Pt 5 of the Uniform Civil Procedure Rules 1999, he is not permitted to act as a decider of fact.^[1]  In Hobbs v Oildrive it was held that an expert’s report was objectionable on a number of bases, one of which was “the report expressed conclusions of law and fact which were in the auspice of the court to determine”.  Reliance was also placed upon Makita (Australia) Pty Ltd v Sprowles^[2] where Heydon JA (as he then was) commented that:

“85.In short, if evidence tendered as expert opinion evidence is to be admissible … so far as the opinion is based on ‘assumed’ or ‘accepted’ facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; …”

25. In my view, the order of 9 February was clear. That order was not obtained by mistake or misrepresentation but rather was arrived at with the close involvement of solicitors and counsel on both sides, and formalised when counsel appeared in Court.

26. It is also apparent that the order in fact reflects the relief sought in the applicants’ originating application where they stipulated in para 2(d) that the shares be valued and that the transferee then be “entitled and bound” to acquire the shares at a price equivalent to the valuation.  The order also nominates an expert put forward by the applicants.

27. Whilst the respondents contend that the order “contemplated” that, after the valuation was completed, the parties could discuss the validity of the assumptions, this is not supported by the terms of the order and is inconsistent with the surrounding circumstances. An earlier draft of the order circulated by the applicants on the previous day specifically provided that upon receipt of the valuation, the parties might indicate whether they accepted or rejected it, however, that paragraph was specifically removed in the two subsequent drafts and the final version that went to the Court.

28. It is also apparent that the valuation and subsequent transfer were to happen over a short period. Furthermore, the process agreed upon ensured that, in relation to a relatively small enterprise (namely a regional real estate agency), the dispute over an eight per cent shareholding did not become elongated.

29. I also consider that the parties were confident that Mr Lytras, as a very experienced forensic accountant, was entitled to make such enquiries as he saw fit and they had both shown that they had confidence in him. His curriculum vitae shows that he is a very well-qualified forensic accountant and there is no allegation that Mr Lytras has acted improperly. Mr Lytras charged $9,000.00 for his time after applying a 40 per cent discount. The 240 page report is very comprehensive.

30. The applicants seek to attack, inter alia, the multiplier applied to the yield to ascertain the capital value of the rent roll.  Mr Lytras considers this matter at great length in his report before finally making a determination.  His deliberations commence on page 15 in para 7.29 and they continue to page 29 in para 7.83.  In para 7.78, he explains that, in addition to “desk research” he approached various industry figures.  The forensic accountant did the job he was asked to do and he reached the view that the appropriate multiplier was 2.36 and that, accordingly, with annual property management fees of $740,000.00, the rent roll was worth $1,739,000.00.  Whilst the applicants argue that Mr Lytras is not an expert on rent rolls, it is apparent that the consent order contemplated that he was the only expert to be appointed and that this task was a task he was expected to complete.  The approach he took was well-considered and his conclusion was available to him on the evidence.

31. Whilst the order might have provided that once the expert valuation was received, there was to be a trial where the evidence was tested, it did not do so. The order might also have provided that there was to be an agreed determination of facts and that the expert would then work from those determinations. But it did not do so. In my view, the parties bound themselves to Mr Lytras’ finding.

32. It would seem also that one of the main issues challenged by the applicants goes to Ms Cockerill’s remuneration.  The records show that she has been paid various amounts per annum from 2004 to the present time.  The applicants maintain that the wages are not commensurate with her duties.  Mr Lytras does not make a final determination in that regard.

33. Mr Lytras notes in para 2.7 that he had adopted certain assumptions in his report and that if the assumptions are determined to be incorrect or inappropriate, his opinions would require alteration. One of his assumptions is that:

“There is no requirement to amend for that proportion of the salary paid to Ms Cockerill which exceeds reasonable requirements for effort on the basis that the practice has been in place for some time and presumably accepted by the minority shareholders during this time.”

34. The Macedoner accountants have confirmed that the amount of the wages was in fact paid and that it had been paid for a number of years. It was present, moreover, on the management records. Mr Lytras operated on the assumption that the wages were appropriate. It has not been determined that they are inappropriate, despite the fact that the applicants were apprised of the wage levels in advance of Mr Lytras arriving at his valuation.

35. I consider that Mr Lytras was expected to make a valuation based on assumptions available to him on the material he was provided with by both parties and on the basis of his own enquiries. He has done what the parties agreed to in the consent order.

36. I also note that in the initial letter challenging the valuation dated 29 April 2010, the applicants’ solicitor wrote:

“Pursuant to paragraph 6 of the Order made by Justice Atkinson on 9 February 2010, we give notice on behalf of the Applicants that they do not accept the value of the Applicants’ shares in the valuation of Lytras & Benjamin”.

It is clear, however, that there is no paragraph in the order which gives a power to reject the valuation.  Whilst there is at para 5 “liberty to apply”, I do not consider that para 5 qualifies the fact that the parties are bound by the valuation.

37. The relief that the applicants now seek is a set of directions which are quite different to the terms of the consent order.

38. In construing a consent order, the Court may have regard to the surrounding circumstances but not to direct evidence of the parties’ intention: Agricultural & Rural Finance v Atkinson.^[3]  Furthermore, a consent order operates as a contract between the parties.  In Bakir v Douehi^[4] Atkinson J stated:

“A consent order operates not only as an order of the court but also as a contract between the parties who therefore have an implied positive obligation to do all that is necessary to secure performance of the contract.  There is also a negative obligation not to do anything to prevent the contract operating according to its terms.  To do otherwise would put the party in breach of contract and therefore in breach of the order.” (footnotes removed) 

39. Where a consent order records a compromise between the parties, the Courts will usually only set aside the order where grounds exist which would justify the setting aside of the underlying contract. The authorities were recently considered by Applegarth J in Fairmont Suites and Hotels Pty Ltd v Duck Holes Creek Investments Pty Ltd^[5] where his Honour noted:

“In Fylas Pty Ltd v Vynal Pty Ltd, McPherson SPJ (as his Honour then was) made the following observations in respect of consent orders or undertakings given in consequence of an agreement between the parties or as an element in such an agreement.

‘For a long time the rule has been that “the contract of the parties is not the less a contract, and subject to the incidents of a contract, because there is superadded the command of a Judge”.  See Wentworth v. Bullen (1829) 9 B. & C. 841, 850 [1829] Eng R 253, per Parke J., which was adopted and applied by Chitty J. in Conolan v. Leyland (1884) 17 Ch D 632, 638.  Such an order is capable of being set aside or varied, but essentially only on grounds or for reasons, such as mistake or misrepresentation, that would enable a contract to be invalidated or varied: cf. Mullins v. Howell (1879 (11) Ch D 763, Harvey v. Phillips [1956] HCA 27, (1956) 95 CLR 235, 243-244; Rayner v. Rayner [1968] QWN 42; Purcell v. F.C. Trigell ltd [1971] Q.B. 358; General Credits Limited v. Ebsworth [1986] 2 Qd R 162’

In Rockett v The Proprietors – ‘The Sands’ BUP 82, McPherson JA (with whom Williams JA and Wilson J agreed) stated:

‘Courts have only limited powers to set aside their orders, and the power to do so is even more restricted when the order in question has been made by consent of the parties to it; at least that is so when a compromise is involved, as it plainly was here … In Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235, 243-244, the High Court said that the question whether a compromise embodied in a consent order is to be set aside “depends on the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it”.’

In H&G Group Pty Ltd v Pilot Developments Pty Ltd, Austin J reviewed leading authorities on the power to set aside a judgment or order, including a consent order.  His Honour concluded that there was some authority for the view that the Court has a discretion to vary a consent order in ways going beyond an extension of time, in an exceptional case, even thought eh facts of the case provide no ground for varying or setting aside the underlying contract.  Austin J regarded the point as doubtful in light of the restrictive language used by the High Court in Harvey v Phillips and in the absence of any more recent authoritative pronouncement by the High Court.  I respectfully adopt his Honour’s analysis of the authorities.  If, which is questionable, such a power exists in the absence of grounds to invalidate or vary the underlying agreement, then exceptional circumstances would need to exist in order to set aside or vary a consent order of the kind in this case.”

See also Chavez v Moreton Bay Regional Council [2009] QCA 348 and General Credits v Ebsworth [1986] 2 Qd R 146.

40. I consider that the consent order of 9 February 2010 is clear and that the parties agreed to submit to Mr Lytras. He was to arrive at a value for the subject business and the applicants’ interest was then to be transferred at a price equivalent to that value. Furthermore, the consent order effects a compromise between the parties because there was a dispute as to the proper value of the applicants’ shares. It was then specifically agreed that Mr Lytras would determine the value and that the parties would then complete a settlement in accordance with his valuation.

41. The applicants should, therefore, comply with para 3 of the consent order of 9 February 2010.

42. I will hear from counsel as to the form of the order and as to costs.