FEDERAL COURT OF AUSTRALIA

Hill v Forteng Pty Ltd [2018] FCA 1501

ORDERS

THE COURT DECLARES THAT:

1.    The written determination of Mr Johnson (the expert) dated August 2016 in relation to the valuation dispute (the valuation dispute) is not final and binding on the parties for the purposes of clause 17.10(c) of the Shareholders Deed between the parties dated 16 February 2015.

THE COURT ORDERS THAT:

2.    The valuation dispute be remitted to the expert for re-determination.

3.    The plaintiff's claims for damages for breach of his contract of employment and for relief under s 233(1) of the Corporations Act 2001 (Cth) be dismissed.

4.    Within 21 days, the parties file written submissions (i) on the question of costs and (ii) on the question whether the proceeding is to be re-listed for further hearing.

5.    Liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’CALLAGHAN J:

Introduction

1    The plaintiff (Mr Hill) applies under s 232(e) of the Corporations Act 2001 (Cth) (the Corporations Act) for a declaration that the defendants engaged in oppressive conduct and related relief. A claim is also made in respect of damages for breach of contract, which is said also to give rise to oppression within the meaning of s 232(e).

2    Mr Hill was appointed a director of the first defendant (the company) in July 2011. At that time the company was called En-Grid Pty Ltd. The other defendants are directors of the company. They were joined with respect to the claim (described below) made in respect of an alleged breach of a shareholders agreement.

3    On 21 January 2013, Mr Hill signed a written employment agreement detailing his appointment as a Senior Project Manager with the company (the employment contract). His start date was 4 February 2013.

4    The employment contract provided for the payment of remuneration in accordance with item 10 of the Schedule which provided for a salary at $120,000 per annum (plus superannuation at 9%) payable fortnightly in arrears.

5    By early 2013, the company was in peril, including by reason of the fact that it had lost its major client. (I should add that the company now runs profitably). On the following dates, because of ongoing financial difficulties, the directors of the company, including Mr Hill, from time to time agreed to the following changes to their remuneration:

(1)    early January 2013 (before Mr Hill signed his employment contract) – reduction from $120,000 per annum to $95,000 per annum;

(2)    30 January 2013 – reduction from $95,000 per annum to $80,000 per annum;

(3)    sometime in March 2013 – pay stopped;

(4)    sometime in June or July 2013 – reinstatement of $80,000 per annum;

(5)    late August 2013 – pay stopped;

(6)    19 September 2013 – pay was withheld for two pay cycles;

(7)    20 October 2013 – reinstatement of $80,000 per annum, which was paid by way fortnightly dividend payments; and

(8)    December 2013 – reinstatement of $80,000 per annum.

6    Between January 2013 and October 2015 (when Mr Hill resigned), Mr Hill and each of the other directors was paid (or, when pay was stopped, not paid) fortnightly amounts consistent with the agreed salary at the time.

7    It is common ground that the amount of salary and superannuation not paid to or withheld from Mr Hill was $154,876.63 ($139,615.20 for salary and $15,261.43 for superannuation). The company says that if the claim succeeds the full amount claimed is to be discounted to take into account the dividend payments, or part of them, refereed to below.

8    Mr Hill (and the other directors) were also paid dividends of:

(1)    $35,715.29 gross ($25,000 net) for the financial year ending June 2014 (which included fortnightly dividends paid between October 2013 and December 2013); and

(9)    $57,142.86 gross ($40,000 net) for the financial year ending June 2015.

9    On 16 February 2015, the parties to this proceeding executed a shareholders deed (the shareholders deed) “in order to regulate their rights and obligations as members of the Company”.

10    On 2 October 2015, Mr Hill resigned as a director and employee of the company. Mr Hill’s resignation triggered a “forced transfer event” as that term is defined in cl. 1.1 of the shareholders deed. The occurrence of the forced transfer event then triggered a “forced transfer process”. The forced transfer process is set out in Schedule 5 of the shareholders deed. Clause 2.1 of Schedule 5 provided that “[t]he Company must procure a Share Value Assessment in relation to the Transfer Shares held by the Forced Shareholder as soon as practicable and in any event within 20 Business Days after the issuance of the Forced Transfer Notice.”

11    “Share Value Assessment” is defined to mean the “assessment of the value of any Share made in accordance with clause 17 (Share Value Assessment)”.

12    Sometime in April 2016, Mr Johnson (the company’s expert or the expert) was appointed, pursuant to cl. 17.3 of the shareholders deed, as the independent expert to conduct a valuation of the company for the purposes of determining the value of Mr Hill’s shares in the company as at the date of his departure.

13    On 1 September 2016, the company’s expert finalised the valuation of the company and issued a final valuation report. He valued the company at $74,555.

14    On 18 November 2016, the company, as agent for Mr Hill, and in accordance with the provisions of the shareholders deed, transferred Mr Hill’s shares in the company to the remaining company shareholders. The company provided the plaintiff with a bank cheque as payment for the transferred shares, in accordance with the expert’s valuation, in the amount of $18,648.00. The cheque was never banked.

15    On 14 December 2016, Mr Hill’s legal representative advised the defendants’ legal representative that there were “salary payments outstanding” to Mr Hill and served on the defendants’ legal representative a “Notice of Dispute” alleging the existence of manifest errors in the final valuation report.

16    So much is uncontroversial.

17    The parties are at odds about two matters.

The first dispute

18    Mr Hill contends that he is entitled to a refund of unpaid arrears of salary and superannuation in a total sum of $154,876.63. Mr Hill alleges that the non-payment of the arrears constitutes oppression within the meaning of s 232(e) of the Corporations Act, and a breach of his contract of employment. Mr Hill also makes a claim in the sum of $14,780.81, relying on Hungerfords v Walker (1989) 171 CLR 125 (Hungerfords) and s 51A of the Federal Court of Australia Act 1976 (Cth). The claim is made on the basis had the company paid the arrears alleged to be owing when Mr Hill demanded them in December 2016, he would have used the money to discharge his residential mortgage. Mr Hill claims that, as a consequence of the company’s failure to pay that amount, he paid interest on his home loan in the sum of $14,780.81, which he would not otherwise have paid. That evidence was not challenged.

19    The defendants say that Mr Hill is not entitled to any amount of such arrears or Hungerfords damages because Mr Hill is to be taken to have agreed, along with his fellow directors, forever to forego the amount of his salary not paid.

20    Each of the reductions referred to in [5] above was agreed orally without dissent at meetings of the board of directors of the company. No minutes of those meetings were kept, but, in the main, the amount of the reductions are recorded in email correspondence between the directors.

21    Each of the defendant directors – Mr Gannon, Mr Collinson and Mr McKinnon – gave evidence in chief by way of affidavit and in the witness box. Mr David Williams was also a director at the relevant time, but is not a defendant. He gave brief viva voce evidence, and along with Messrs Gannon and Collinson, was cross-examined by counsel for the plaintiff, Mr G O’Rafferty.

22    Mr Hill also gave evidence by way of affidavit and in the witness box. He was also cross-examined by Ms C Scott, who appeared for the defendants.

23    I should, at the outset, say that I unhesitatingly accept the truthfulness of each of the witnesses called on both sides. Each did their best to record what was said when each of the changes to their salaries was agreed. As counsel agreed during closing argument, in the end, there was very little, if any, disagreement about the substance of what was said. Ultimately, the issue in dispute was not what was said, but whether, properly construed, the changes in salary amounts agreed upon entitled Mr Hill to a refund of what he alleged were unpaid “arrears” of salary and superannuation, or whether that sum, however calculated, was always intended to be given up.

24    For the reasons explained below, in my view, and accepting, as I do, that Mr Hill was a witness of truth, he is, on his own evidence, not entitled to arrears of salary or superannuation or Hungerfords damages. As will become apparent, ultimately it was common ground that the parties never broached, or even obliquely mentioned, the question whether the amounts foregone were to be repaid at some future point, and if so, on what terms.

25    Mr O’Rafferty submitted that there was no consideration for the variations to Mr Hill’s employment. Ms Scott submitted that there was consideration, but that if she was wrong on that issue, that, in the alternative, the changes created a new agreement or agreements for which consideration obviously was provided. For reasons I explain below, the changes did effect variations to Mr Hill’s employment agreement and Ms Scott’s submission that there was consideration for them must be accepted. In those circumstances, it is not necessary to consider Ms Scott’s alternative submission that the changes agreed upon created new agreements.

26    The parties also pleaded estoppels, but in the view that I take about the primary question, it is unnecessary to deal with those issues. The defendants also pleaded a set off against any award of damages for breach of contract to take into account the dividend payments which, it was contended, would not have been made either in whole or in part if it had been understood that arrears existed. For the same reason, that contention also does not arise.

The second dispute

27    The second dispute is about whether the expert made two “manifest errors” within the meaning of the shareholders agreement in his final valuation report.

28    The first alleged manifest error is what counsel for Mr Hill called “a fundamental calculation error” by the expert when he added the business risk factor of 27.75% to the share discount rate of 20.00%, when he ought to have multiplied them. This, it is said, resulted in the plaintiff receiving $3.91 less per share than he should have – which means, if the point is a good one, that the company is liable to pay Mr Hill damages of $7,038 ($3.91 multiplied by 1,800 shares).

29    The second alleged manifest error is said to be the expert’s failure “to sufficiently and critically examine the company’s past performance and likely future events before it chose a valuation methodology, resulting in the wrong methodology being chosen and a share value approximately three times lower than it should have been”.

30    It is alleged that the transfer of Mr Hill’s shares, in those circumstances, constituted oppression within the meaning of s 232(e) of the Corporations Act, as well as a breach of the shareholders deed.

31    In my view, for reasons I give below, the applicant’s submissions on the manifest error points must be accepted.

32    I shall return to the substance of that dispute later in these reasons.

33    I turn first to the evidence concerning Mr Hill’s claim under s 232 of the Corporations Act and for damages for breach of the terms of his employment contract.

Oppression claim/damages for breach of contract

The facts

34    The relevant events commence on 30 January 2013. That is the date of the first meeting (via teleconference call) to discuss the difficulties facing the company. In his affidavit of 30 August 2018, Mr Hill outlines what relevantly occurred at that meeting (at [17]-[18]):

… Adam King [led] the discussions, but no formal meeting of directors was announced nor were minutes taken. Adam King started by referring to cash-flow problems with the business, saying that unless we do something, we don’t have a business. He explained that we had lost our major client … and that we needed to get work in, but even if we get the work it will take time for invoices to be generated and eventually paid. He explained that we had a number of employees (other than ourselves) that needed to be paid, and other business expenses. Everyone expressed their understanding about that. Then Adam King suggested we temporarily reduce our director pay until we ride out this cash-flow problem. I said yes, if that’s what it takes, then that’s what we have to do. The others agreed with me about that. A period of 6 weeks, or three pay periods, was discussed as a timeframe for withholding of pays. A figure of $80,000 was discussed in the context of that temporary reduction and agreed to. We agreed that they would review the situation in 6 weeks or three pay periods and then the telephone conference ended by general consensus.

35    This decision was then implemented and the directors were paid and issued with pay slips reflecting the reduction from $120,000 per annum to $80,000 per annum.

36    Mr Hill commenced work on 4 February 2013.

37    The directors next met to discuss salaries in late March, early June, August, September, October, and December 2013. Because of the way in which Mr Hill’s counsel put his case in closing, and because there was no dispute about the outcome of those meetings (the relevant outcomes are listed at [5] above), it is not necessary to record in these reasons the detailed and now uncontroversial evidence adduced by the parties about those meetings.

38    Ultimately, Mr O’Rafferty did not press a claim that the agreements reached from early January 2013 onwards effecting variations to the employment contract contained any term to the effect of the term pleaded in the statement of claim, viz that Mr Hill would, for a limited period, not enforce his right to receive from the company fortnightly payments of his salary, or that he was otherwise (by the terms of those agreements) able to recover “arrears” of unpaid salary and superannuation. In the end, Mr O’Rafferty’s submission on this part of the claim was that the varied agreements failed for want of consideration, and that the terms of the (original) employment agreement (which stipulated a salary of $120,000 per annum) therefore remained in force.

39    In my view, for the following reasons, Mr O’Rafferty rightly, in effect, conceded that the evidence would not permit a finding that the variations to the contract of employment contained a term that Mr Hill was to be repaid “arrears”.

40    Mr Hill cannot point to any exchange between him and the other directors which can be said, even vaguely, to touch on the question of whether the amount of the salary reductions agreed upon from time to time were liable to be repaid. And it was never contended, nor could it be contended, that such a term could be implied because it was so obvious that it would go without saying. So the question to be answered is: where is that term otherwise to be found?

41    The statement of claim filed on Mr Hill’s behalf alleges at [9]-[12] as follows:

9. By email dated 23 August 2013 at 2:16pm to directors of the Company, the Third Defendant proposed “… a vote on whether or not Director pays are stopped for a period of time.”

10. By email dated 20 September 2013 at 8:04am to directors of the Company, the Third Defendant confirmed that: “… A motion was passed to withhold pays for 2 more pay cycles and then re-evaluate.”

11. Between on or about August 2013 and November 2013, the Company withheld the Plaintiff’s remuneration to which he was entitled pursuant to the Employment Contract.

12. In the premises of paragraphs 8-10, the Plaintiff and the Company agreed in writing for the purposes of clause 14(b) of the Employment Contract, that the Plaintiff would for a limited period not enforce his right to receive from the Company fortnightly payments of his salary in accordance with clause 5.1(b).

42    It is apparent that the pleaded claim does not follow “in the premises” because it is wrong, without more, to equate an agreement to “withhold pay” with an agreement that the pay is to be withheld only “for a limited period” or that Mr Hill had a remaining “right to enforce” his agreement. Those things simply do not follow.

43    In his affidavit, Mr Hill swore that the arrears were “loans”, but that is not the pleaded case. In any event, the company’s accounts, which Mr Hill approved, did not record any amounts of unpaid salary as a debt in the form of monies owed to the directors by way of loan or otherwise. That is to be contrasted with what occurred when the directors made what Mr Hill referred to in his evidence as “cash injections” of their own money to help the company with its cash flow. Those payments were recorded in the company’s books as loans. The evidence included, for example, an email from Mr Collinson, director, to the other directors, including Mr Hill, dated 27 November 2013 which said: “As discussed and agreed today, the five directors will each deposit $20,000 into [the company’s] bank account by COB Friday 29 November 2013… Description [for the purposes of the electronic transfer] is to be the director’s initials followed by “Director Loan…” The email also went on to say:

The director investment is for cash flow purposes and is expected to be repaid in Jan/Feb once the cash flow stabilises, from outstanding accounts being paid.

44    That last part of the email is exactly the type of statement that is not to be found in any of the correspondence relating to the salary reductions in dispute here.

45    Nor was there any mention of the possibility of repayment of arrears in Mr Hill’s pay slips. Each of them duly recorded the new agreed annual salary amount by reference to which the fortnightly payments were calculated.

46    Mr Hill himself recognised that the salary reduction proposed in August 2013 was a “sacrifice” and a “financial strain”, but that the purpose of the reductions was that the company would be better off in the long run. When his view was sought by the managing director about a proposal that the directors “not pay ourselves for the next three pay periods”, Mr Hill replied: “[a]gree with everything, I would propose we go one step further and make it 4 or even 6 pay periods. I understand this may be a financial strain on some however if we make sacrifices now we will be better off in the long run”. It seems to me that that statement is consistent with the case of the defendant directors. If the amounts unpaid were to be repaid, it would a stretch to describe the non-payment as a “sacrifice” – and if repayment had been intended, surely that was the time that the terms upon which any such repayment was to be made would have been raised as a matter for consideration.

47    For all those reasons, it seems to me that it is not possible to conjure from the uncontroversial facts a term or agreement that arrears were payable. In those circumstances, ultimately Mr O’Rafferty quite properly did not seek to contend otherwise.

Do the agreements, as varied, fail for want of consideration?

48    In Director of Public Prosecutions for Victoria v Le (2007) 232 CLR 562, 576-577 at [43] Gummow and Hayne JJ said that:

[w]hen used … in the general law, the term ‘sufficient consideration’ imports a notion of tangible benefit or advantage conferred by the promisor upon the promisee, as in the case of a forbearance to sue, a bona fide compromise of a disputed claim, or the conferral of some other form of practical benefit [citing Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723]. In these cases, the ‘threshold of legal recognition’ regarding the consideration turns on the existence of such a real benefit.

(other citations omitted).

49    In Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 746, Santow J (as he then was) summarised and approved two cases of “practical benefit” consideration as follows:

[In] Lee v GEC Plessey Telecommunications [1993] IrLR 383 … Connel J stated (at 389):

The situation is similar with an increase in severance payments made to those who lose their employment due to redundancy, for a redundancy payment is part of the remuneration package. The employee continues to work for the employer, thereby abandoning any argument that the increase should have been even greater and removing a potential area of dispute between employer and employee. The employer has both secured a benefit and avoided a detriment.

The second, Ajax Cooke Pty Ltd t/a Ajax Spurway Fastners v Nugent (Supreme Court of Victoria, Phillips J, 29 November 1993 unreported), though obiter, concluded … (at 12):

…The benefit to the plaintiff [the employee] is obvious. As for the defendant [the employer], was it not open to infer that, in posting notice of the redundancy package, and thereby announcing the benefits to be paid during the relevant period, the defendant acted to secure some benefit or advantage to itself, whether by inducing its employees to refrain from further industrial disputation or by encouraging them to continue in their present employment? After all, as was said by Lord Hailsham, LC, in Woodhouse Ac Israel Cocoa Ltd v Nigerian Produce Marketing Co Ltd [1972] AC 741 at 758 …

Businessmen know their own business best even when they appear to grant an indulgence.

50    In Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723, as the headnote accurately records, when a lessee of premises in a shopping centre claims to be unable to remain viable and continue paying the full rent by reason of the introduction of a much larger, competing tenant, the practical benefit to the lessor of retaining the lessee as a viable tenant and keeping the centre occupied with both competitors, might serve as consideration for the lessor's promise to reduce the rent: see 747G-748G. At 748F-749A, Santow J made clear that consideration can be constituted by both practical benefit and practical detriment:

… [I]n a shopping centre it is well-known that vacant shops are not in the interests of the landlord whilst a reputation for fairness is. The landlord/owner benefits from uninterrupted, successful trade overall in that shopping centre, even if leases of themselves as here, do not confer on the lessor a share of the tenant’s profit. This is particularly when it comes to renewing leases, or when vacancies otherwise arise and the landlord wants to attract tenants.

Thus I find that the particular practical benefit here, was that the lessor had greater assurance of the lessees staying in occupation and maintaining viability and capacity to perform by reason of their reduction in their rent, notwithstanding the introduction of a major, much larger competing tenant.

The practical detriment to the lessees lay in risking their capacity to survive against a much stronger competitor, by staying in occupancy under their lease, rather than walking away at the cost of damages, if the lessees' defences, including under the Contracts Review Act 1980, were unsuccessful. From the lessees' actions, it is evident that without the rent concession, the latter course was viewed as more likely to be in the lessees' interests than staying in occupation.

51    Mr O’Rafferty submitted that the decision of French J (as he then was) in Martech International Pty Ltd v Energy World Corp Ltd (2006) 234 ALR 265; [2006] FCA 1004 (Martech) is relevant here. He relied principally on these passages at 299-300 [138]-[141], which sufficiently incorporate the relevant facts which are said to be analogous:

[138] Mr Brand acted unilaterally when he informed the Board of Energy on 3 February 2000 that he would temporarily reduce the fees payable for his services from $500,000 to $300,000 per annum. He did not propose at that meeting that Energy would compensate Martech for the loss of part of the fees in a manner to be agreed or otherwise. He made the decision to reduce the fees because of the serious financial difficulties then facing Energy. He reserved the right to reinstate the full fees at a later time. That reservation was implied in his statement that the fees were being reduced temporarily. He made no reference at the meeting of 3 February 2000 to some future recovery of the shortfall. His services were invoiced monthly by Martech thereafter at the reduced rate with no reservation of a right to claim arrears. That is to say, the invoices gave no indication that Martech was extending credit to Energy. There was no evidence that any such credit was shown in the books of Energy as a debt. I infer that no such credit was shown.

[139] There is no evidence that Mr Brand raised any question of arrears of his fees until July 2000. Shortly before 10 July 2000 he told Mr Punch that, because the sale of Basin Bridge and other assets was not proceeding, he would be prepared to waive Martech’s outstanding fees on the basis of a new structure. He proposed that he be paid for the arrears in options and/or bonuses to reduce their impact on Energy’s cashflow. He proposed extending his reduced rate to 30 June 2001. This was reflected in his memorandum to Mr Punch of 10 July 2000. There was no response from Energy’s Chairman, nor from Mr Elliott who was to succeed Mr Brand as managing director.

[140] Energy submitted that the Agreement was varied in February 2000 by agreement between Martech and Energy. However, even assuming that Mr Brand was acting on behalf of Martech and as managing director of Energy at the time that he announced the reduction in his fees, there was no variation of the Agreement between himself and Energy. A contract is not varied merely by the action of one party to it announcing that it will accept less than the consideration to which that party is entitled under the contract. For absent some consideration moving from the other party, there is no enforceable agreement to vary the original contract. It was no doubt politic for Mr Brand to reduce his fees as he proposed given Energy’s parlous financial state and the need to retain or recover some degree of confidence from the bank and shareholders. The benefit to Energy in its dealings with its banker and its prospective rescuer arising from the fee reduction does not amount to consideration moving from it.

[141] It is well established that mere forbearance by one party to a contract in requiring performance of obligations by the other does not effect a variation of the contract unless supported by consideration or recorded in a deed under seal. In Foakes v Beer [1884] 9 App Cas 605 the House of Lords held an agreement between judgment debtor and creditor that the creditor would not take proceedings on the judgment in consideration of the debtor paying part of it and the residue by instalments, was nudum pactum as without consideration. It did not prevent the creditor after payment of the whole debt and costs from enforcing payment of interest on the judgment …

52    In my view, Martech has no bearing here, because Mr Hill’s case does not involve a unilateral offer to accept reduced remuneration. On the contrary, the agreements to vary the amount of salaries payable to each of the four directors were made with the unanimous agreement of all parties. For that critical reason alone Martech case is not analogous.

53    Mr O’Rafferty also submitted that Mr Hill only agreed to his reduction in salary qua employee, and that any benefit he received or conferred could only be qua employee. I cannot accept that submission because it is contrary to the evidence. Mr Hill self-evidently acted qua director, member and employee in order to protect his investment as a shareholder in the company, as his own evidence made clear.

54    His evidence on the question of facts relevant to “practical benefit” consideration includes the following passages from his cross-examination:

MS SCOTT: … When the directors got together on 30 January, were you getting together as a group of the owners of the business?

We were owners and directors, so the answer to that is yes.

MS SCOTT: Yes. Yes. You were getting together as the business?

Yes.

MS SCOTT: Yes. So you weren’t attending that meeting as an employee of the business, you were intending that – you were attending that meeting as an owner and director of the business?

Yes.

MS SCOTT: And that’s why all the discussions were about director pays, weren’t they?

Well, directors are employees as well in this case … all of the directors were employees.

…

MS SCOTT: Yes. But you were talking about director pays, not employee pays, weren’t you?

I think in this case the terms are interchangeable.

MS SCOTT: Okay. But it is the case, isn’t it, that if you disagreed with the amount that was proposed in the 30 January meeting, you could have spoken up about that?

Yes.

MS SCOTT: It wasn’t imposed on you as an employee?

No.

MS SCOTT: You agreed to it as a director?

I agreed to it as a director and employee.

MS SCOTT: Director and employee. Okay. Because it’s the case, isn’t it, that when we talk about the impact on the company, that was an impact on you, on your financial stake in the company?

Yes.

…

MS SCOTT: You mentioned before that the reason that there was a reduction in pays was because the company couldn’t afford to pay the directors that $120,000 divided by 26, so your fortnightly pays, at that stage?

Yes. We had a responsibility to our employees, i.e., the people who were not directors and owners of the company. We needed to continue paying those.

MS SCOTT: Yes. And, presumably, needed to continue paying creditors?

Yes.

MS SCOTT: Because the upshot was you could either pay yourselves or pay your employees and your creditors; is that correct?

Yes.

MS SCOTT: And, had you not paid employees, they would have left the business?

Yes.

MS SCOTT: Had you not paid creditors, you would have faced potential applications against the company for those debts?

Yes.

MS SCOTT: And that impacted on you because you were a person who had a financial stake in the company?

Yes.

MS SCOTT: So that was something you wanted to avoid?

Yes.

55    Ms Scott submitted, in light of that evidence, that consideration constituted by both practical benefit and practical detriment, in this case, included a number of different things. In her closing oral submissions, Ms Scott submitted as follows:

(1)    In the context of the financial circumstances of the company, it was of significant value to Mr Hill and also a significant avoidance of detriment to him that he kept his employment with the company, in circumstances where the un-contradicted evidence was that the company was unable to pay its employees, its creditors, and the full director salaries and that, had the plaintiff and the other directors not agreed to take reduced salaries, the company may not have been around in a month or two months. Further, Mr Hill had the practical benefit strictly in his capacity as an employee because his employment could continue as a result of the salary reductions.

(2)    The practical benefit to Mr Hill is also apparent from his own evidence in that he obtained a benefit in terms of an improvement to his business investment. His evidence as to why he agreed to the variations in his salary meant that the business could retain employees and pay creditors, and this all had a direct impact on Mr Hill, who was a shareholder.

(3)    Further, Mr Hill, as a director, also avoided a detriment by virtue of avoiding the windup of the company and being placed in a situation, with the other directors, of the risk of insolvent trading.

(4)    Mr Hill also received consideration by way of the agreement of the other directors to agree to the same process, which was to reduce their remuneration, or stop their remuneration, thereby increasing capital in the business and increasing the value of the Mr Hill’s investment.

(5)    Mr Hill also increased his likelihood of being paid dividends in the future, including by reference to the directors’ strategy to have the company on a path whereby, in approximately 2016, the combined salary and dividends would be around $160,000.

56    I agree, with respect, with those submissions. In my view, sufficient consideration was given and received, for the reasons given by Ms Scott.

57    Further, Mr Hill himself, it seems to me, well understood the practical benefits to the company (and therefore the directors and the employees) of the salary reductions. I have referred above to Mr Hill’s August 22103 email in which he referred to the reductions as a “sacrifice” and he proposed even more severe reductions because “ if we make sacrifices now we will be better off in the long run”.

58    Mr O’Rafferty also submitted that the variations to Mr Hill’s employment agreement were void for uncertainty, relying on these obiter observations of French J in Martech International Pty Ltd v Energy World Corp Ltd (2006) 234 ALR 265 at 300; [2006] FCA 1004 at 300-301:

Quite apart from the problem that the alleged variation lacked consideration there was uncertainty about its terms. A reduction in fees for an unspecified but temporary period apparently to be determined at the will of one party, does not import certainty of obligation.

…

The uncertainty in the terms of the varied agreement propounded by Energy in its defence may not be sufficient, in the light of the authorities, to defeat its contention there was an effective variation. It is notable, however, that it pleads that the fee was reduced “from $500,000 to $300,000”. As pleaded, the reduction was permanent. On the facts found it was temporary, albeit its duration was undefined.

In my opinion the contention that the agreement was varied … is met by the proposition there was no consideration …

59    Even accepting that that “[a] reduction in fees for an unspecified but temporary period apparently to be determined at the will of one party, does not import certainty of obligation” is correct (something that the second paragraph in the above quote may well not be so), his Honour was referring to a case, unlike this one, where the variation was unilateral.

60    Accordingly, I do not accept Mr O’Rafferty’s submission that the employment agreement as varied is void for uncertainty.

61    It follows that Mr Hill’s claim for damages for unpaid arrears must be dismissed.

Does the expert’s report contain the “manifest errors” alleged?

62    Clause 17 of the shareholders deed provides as follows:

17 SHARE VALUE ASSESSMENT

17.1 Application

This clause 17 applies to any Share Value Assessment to be made under any other provision of this document. Any Share Value Assessment is to be made by an Independent Expert in accordance with this clause 17.

17.2 Qualification

The Independent Expert must be a suitably qualified expert who has no direct or indirect personal interest in the outcome of the decision he or she is requested to make.

17.3 Appointment

Subject to clause 17.2, the Independent Expert will be Collins SBA. If Collins SBA is unable or unwilling to act as Independent Expert, then the Independent Expert will be selected by agreement between the Shareholders or, failing agreement between them within 7 days after they commence to discuss the selection of that Independent Expert, by the President of CPA Australia or the Institute of Chartered Accountants in Australia or the nominee of that official.

17.4 Instructions

Any party agreeing to or requesting the appointment of an Independent Expert must instruct and use all reasonable efforts to procure the Independent Expert to complete the assessment as soon as practicable following engagement.

17.5 Assessment criteria

The Independent Expert must assess the value of any Share by deciding the fair market value of that Share, calculated:

(a) in accordance with the Accounting Standards;

(b) with regard to the profit, strategic positioning, future prospects and undertaking of the business of the Company; and

(c) without any discount for the fact that that Share may be comprised in any minority shareholding; and

(d) without any premium for the fact that that Share may be comprised in any majority or controlling shareholding.

17.6 Information

The Company must procure that any Independent Expert has full access to any business records, including any working papers, of the Company, or any employee or agent of the Company, and any information required by the Independent Expert, necessary for or relevant to the assessment.

17.7 Assistance

The independent assessor may engage any employee or agent that the Independent Expert reasonably decides to be necessary or appropriate to assist in making the assessment.

17 .8 Representations

Each Shareholder is entitled to make submissions to the Independent Expert in relation to, and before completion of, the assessment.

17.9 Procedure

The Independent Expert may decide the procedure for performance of the assessment, subject to compliance with this clause 17.

17.10 Determination

(a) The Independent Expert need not give reasons for a determination but a Shareholder will be entitled to request and receive reasonable information from the Independent Expert in order to determine whether there is a manifest error in the determination of the Independent Expert.

(b) Any information supplied to Shareholders under clause 17.10(a) must be supplied to all Shareholders.

(c) The Independent Expert will act as an expert and not as an arbitrator and his or her decision will, in the absence of manifest error, be final and binding on the Shareholders and the Company and not subject to review.

17.11 Cost

The Company is liable for the cost of any Independent Expert.

(Emphasis added.)

63    As McHugh JA (as he then was) explained in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 at 335-336:

In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied … While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question     must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.

(Emphasis in original.)

64    This passage has been approved many times, including by the plurality in Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305, 315-316 at [26]. See also generally G Lubofsky, “Setting Aside Expert Determinations – A Comprehensive Review”, (2018) 92 ALJ 529.

65    In this case, the company’s expert was obliged to value the shares by, among other things, having “regard to the … future prospects and undertaking of the business of the Company”: cl 17.5(b) of the shareholders deed.

66    Further, by the operation of cl 17.10(c), the expert’s decision on the value of the shares is final and binding on the shareholders and the company “in the absence of manifest error”.

67    In Funtastic Ltd v Madman Film and Media Pty Ltd [2016] VSC 708, Almond J at [52]-[53] explained in a case where, like this one, the term “manifest error” is not defined in the relevant agreement:

… [i]ts meaning is to be determined following established principles of contractual interpretation. In the present context, the term must be given its ordinary commercial meaning, shaped by reference to what a reasonable businessperson would understand it to mean, having regard to the background, context and commercial purpose or objects of the contract.

The Oxford English Dictionary defines ‘manifest’ as ‘clear or obvious to the eye or mind’. The Macquarie Dictionary similarly defines ‘manifest’ as ‘readily perceived by the eye or the understanding; evident; obvious; apparent; plain’. A ‘manifest error’ in the context of arbitral awards liable to be set aside for ‘manifest error of law on the face of the award’ has been variously described as an error that is ‘apparent to the understanding of the reader’, ‘obvious rather than arguable’, ‘easily demonstrable without extensive investigation’, ‘an oversight [or] blunder so obvious as to admit no difference in opinion’ or ‘apparent to the judge upon a mere perusal of the reasoned award’. It is clear that an error that is ‘abstruse, obscure or inconsequential’ will not fall within the definition of ‘manifest error’.

(Citations omitted.)

68    Mr O’Rafferty submitted in opening that, by effecting a transfer of Mr Hill’s shares despite his solicitor previously informing the defendants solicitors that the expert report was “manifestly erroneous”, the defendants acted in a way that was oppressive, unfairly prejudicial, or unfairly discriminatory to him within the meaning of s 232 of the Corporations Act, citing Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304. In closing however, he accepted that the remedy under the Corporations Act did not add anything to the relief available if he made good his case that the second, third and fourth defendants breached the terms of the shareholders deed by transferring his shares on the basis of an expert report that contained either one or both of the manifest errors alleged. The parties agreed that if error 1 is made good, the remedy sounds in damages ($7,038). If error 2 is made good, it was agreed that the matter must be remitted to the expert for re-determination.

Error 1

69    In my view, although the end result makes a difference of only a little over $7,000, the expert did make a manifest error by adding the business risk factor of 27.75% to the share discount rate of 20%.

70    It seems to me that whether or not the expert was purporting to apply Mr Lonergan’s methodology (a topic the subject of considerable debate at the hearing), the methodology that he applied in the circumstances of this case was manifestly erroneous.

71    In his written evidence, Mr Ruddick, Mr Hill’s expert, explained the error in these terms:

[The company’s expert] [has] employed a capitalisation of future maintainable profits methodology to determine the value of the business.

[The company’s expert] [has] also recognised that the underlying shares in the business have a limited negotiability as there is no commercial exchange for private company shares as is the case with public company shares.

To determine the value of the business a capitalisation multiple needs to be applied to the figure determined as future maintainable profits (FMP).

The capitalisation multiple is the inverse of the business risk rate determine by the valuer.

The business risk rate chosen by [the company’s expert] is 27.75%

[That is] capitalisation multiple = 3.604

The FMP determined by [the company’s expert] is $35,600 per annum.

In the normal course of a valuation the valuer would determine the value of the business by multiplying the capitalisation multiple by the FMP to derive the value of the business.

The valuer would then divide the value of the business by the number of shares to determine the value of each share.

The valuer would then determine whether the share value should be discounted to recognise that the share has limited negotiability.

[The company’s expert] had determined the following criteria for their valuation:

1. FMP = $35,600

2. Risk rate: 27.75%

3. Discount factor to be applied to shares for being non-negotiable: 20%

4. The number of shares issued were 7,200

The correct application of the above principles should have been:

Business value: FMP x capitalisation multiple: $35,600 x     (3.604) $128,202

÷ number of shares:                            7,200

Value per share - fully negotiable                    $17.82

Less 20% discount for non-negotiability                     ($3.56)

Value of each share                            $14.26

[The company’s expert] [has] erred in the valuation in that they:    

Added the business risk factor                        27.75%

To the share discount rate                        20.00%

To achieve a capitalisation rate                        47.75%

72    As Mr Ruddick said in cross-examination:

MS SCOTT: But Lonergan doesn’t say that there’s a textbook answer or a magic formula, does he? That was a quote?

Because it’s such common sense there is no need to even say that you need to do that; that’s just basic principles. If you took the example of adding to, if we had a large discount factor of say an 80 per cent discount factor because something had a quite substantial risk factor to it, and I discounted that way, 80 per cent, and then I brought in a non-negotiability figure of 20 per cent under his – under Mr Johnson’s methodology, I’m getting zero per cent. I’m just wiping out the value completely. It just – it just makes no sense …

… You can get an answer of above 100 per cent, and you can’t have a discount above 100 per cent if you’re adding two principles together. So it’s just common mathematical sense. It almost – it’s just so basic, it doesn’t have to be spelt out.

…

MS SCOTT: But there are a number of factors that you include in the capitalisation rate of the PER, aren’t there, to actually arrive at that capitalisation rate itself? So the capitalisation rate … ?

The capitalisation rate I have no issue with. The capitalisation rate at 27.75 is no particular issue, not that I was permitted to go in and say whether that was right or wrong.

MS SCOTT: Yes?

That’s a clear – clearly-established capitalisation rate, which then multiplied by the future maintainable profits gave a figure of $128,000. Now, if you’re then going to discount that $128,000 because you have a non-negotiability factor then you discount it by 20 per cent; you don’t go back in and add 20 per cent to the 27.75 per cent, because it’s just – it’s a nonsense, basically.

73    A little later in his cross-examination, Mr Ruddick made the same point in these terms:

MS SCOTT: You say that Lonergan is authority for the proposition that as a matter of common sense there’s only one way to include the negotiability discount rate in the capitalisation rate; you say that?

There is one mathematically-correct way to discount something, yes, and it is not by the addition. To give the example, the undiscounted value of these shares under Mr Johnson’s formula, if there was no discount factor, if you were using the 27.75, multiplied by the future maintainable profit, you come to a figure of $128,000. There is a discount required because of non-negotiability. If you take that discount as being 20 per cent – because it was agreed, or he has put forward that there should be a discount of 20 per cent – 20 per cent off $128,000 comes to $100,000, it doesn’t come to $74,000. He would be needing to discount by 42 per cent to bring it down to $74,000. And he has stated that there is a discount factor of only 20 per cent. Just as these examples have all said there’s a discount factor to be used of somewhere between 10 and 30 per cent, and they’ve reworked them on that basis. So it just – it’s mathematical, it’s not – there is no option of adding to or subtracting from. Whatever you discount by, you must apply that discount to the total figure. Now, it can be done outside of that, or it can be done as part of the capitalisation factor, but you’ve got to use the right method. The right method is not to add to, it is to discount by, a formula of a hundred over a hundred minus the discount rate.

MS SCOTT: It’s correct, isn’t it, that the overall capitalisation rate to be applied is a matter of the valuer’s judgment, taking into consideration a number of different matters?

Yes, and the valuer said one part of it – the first part – is 27.75, and the second part, after you’ve applied that, is to discount it by a further 20 per cent. By adding it he has actually incorrectly applied the mathematical formula.

MS SCOTT: The mathematical formula that you say is applicable but Mr Johnson?

No, the mathematical formula that everybody uses.

74    For those reasons, I accept Mr Ruddick’s opinion that the company’s expert did make a manifest error by adding the business risk factor of 27.75% to the share discount rate of 20%. It seems to me as matter of inexorable logic (quite apart from a consideration of Mr Lonergan’s views and which of his methodologies he did or did not apply) that his opinion is correct because, quite apart from anything else, a methodology that is capable of producing a discount of more than 100% in circumstances such as this must be erroneous.

Error 2

75    Mr O’Rafferty submits that the expert also made a manifest error because he did not comply with clause 17.5 of the shareholders agreement, which mandated that he had regard to the company’s future prospects.

76    Clause 17.5 provides as follows: “The Independent Expert must assess the value of any Share by deciding the fair market value of that Share, calculated … (b) with regard to the profit, strategic positioning, future prospects and undertaking of the business of the Company …”

77    During the course of his cross examination, the company’s expert testified as follows:

MR O’RAFFERTY: And I understand your evidence is that you didn’t go to the directors and ask them any information directly about future forecasts. Is that right?

That’s correct. Yes.

…

MR O’RAFFERTY: And is it correct to say that this is the material from Collins SBA [the company’s accountants] that you relied on in respect of the forecasting of the – the budget forecasting of this company going into the future?

Yes.

MR O’RAFFERTY: And that it only goes to – am I reading this correctly – if you turn to page 149 in the first – or in the left-hand column where it says 1 July two thousand – is it ’15 to 30 June 2016? Is that right?

That’s correct.

MR O’RAFFERTY: And it says “budget”?

Yes.

MR O’RAFFERTY: So is that column there the forecast?

Yes.

MR O’RAFFERTY: And it goes out beyond the actuals only to 30 June 2016?

Correct.

MR O’RAFFERTY: And if you turn back to page 146 of your affidavit, it says there, doesn’t it, that: Our client is responsible for the information contained in the report …a and has determined that the figures are appropriate. And then it goes on in the next paragraph to say: “Our procedures have been limited to the classification and summarisation of information to compile this report from the information provided by us to our clients and do not include verification or validation procedures. No audit review has been performed, and, accordingly, no assurance is expressed”. You see that?

Yes.

MR O’RAFFERTY: And your evidence is that you thought that Collins SBA was reputable and reliable and that you could rely on it, but isn’t it true that this information, Collins SBA, is saying, really, we’re not giving any assurance about this forecast?

Yes.

……

MR O’RAFFERTY: … In the next paragraph [of W Lonergan’s work The Valuation of Businesses, Shares and Other Equity” (4th ed) ]…, it says an understanding of the future of the business is essential for an accurate evaluation. See that?

Yes.

MR O’RAFFERTY: And you accept that as being an accurate way to value using this methodology?

Yes, yes.

MR O’RAFFERTY: You see in the middle of the page there the paragraph that beings short-term and long-term forecasts? ….

Yes.

MR O’RAFFERTY: Short-term and long-term forecasts prepared by management and the assessed likelihood of their being achieved should also be considered. Now, did you consider any long-term forecasts at all at your valuation?

No. I didn’t have access to that information.

MR O’RAFFERTY: Did you consider any short term forecasts prepared by the management?

No.

MR O’RAFFERTY: And did you ask the company or the accountant for any details about those things?

No.

78    On the basis of this testimony, Mr O’Rafferty submitted that the company’s expert, consistently with the principle articulated by McHugh JA set out above, was bound to have regard to the company’s future prospects because the shareholder agreement and proper valuation methodology expressly required that he do so – and that he had not because:

(1)    the only matter that he had regard to by way of the future prospects was budget figures for the first quarter of the 2016 financial year;

(2)    he made no enquiries at all of the board members about the future prospects of the company; and

(3)    the figures he did rely on were unaudited accounts in relation to the budget projections, the creator of which had expressly disclaimed them as being reliable.

79    The company’s expert, on the other hand, approached the valuation in this way, as follows:

… In terms of the latter part with reference to the significant loss derived in the 2014 financial year, our view remains that this is relevant given the transition of the business from essentially what appears to be a labour hire operation during the 2012 and 2013 years to a consulting based operation from then onwards. The relatively short trading period as a consulting operation which resulted, the fact that the 2016 forecast profit is in our view relatively generous combined with the fact that the weighted average calculation above demonstrates that the 2016 forecast result has been weighted at the ratio of 50% while the loss derived in the 2014 financial year received a significantly lesser weighting of only 16.67% of the entire weighting. This equates to a level of weighting on the 2016 forecast which is 3 times greater than the 2014 loss year and leaves us content in our view that the weight attributed to the loss is not inappropriate.

On this basis, given the factors above and the information and logic set out in our report, it is difficult for us to determine how Mr Ruddick supports his view that detailed analysis of FMP was not provided and this appears contrary to the profit trend demonstrated by the business. His letter also does not contain any evidence to support his view. In stark contrast, we reiterate our comments above that our profit projections on a normalised basis are significantly higher than the company’s own 2016 budget. On this basis … our view is that there is no manifest error contained in our report in this regard.

(Emphasis added.)

80    Applying that methodology, by normalising a number of other amounts, and by various other means not in dispute, the company’s expert projected a profit for the 2016 financial year of $92,882 compared with the accountant’s forecast or projection of a $10,780 loss for the first quarter of that financial year. As the company’s expert explained:

During our valuation assessment as previously advised, we also compared the adjusted profit and loss result forecast on an annualised basis in respect to the 2016 financial year with the budget figures for the same year prepared and provided by Collins SBA on an … [EBITDA] basis. As demonstrated above, we previously noted that our projection derived in respect of the 2016 year resulted in adjusted forecast profit of some $92,882 after allowing for an appropriately estimated depreciation charge and normalising for, among other things, salaries paid to directors at an assessed appropriate market rate.

In contrast, the budget figures prepared by Collins SBA in terms of the 2016 financial year demonstrate a net loss of some ($10,768) on an EBITDA basis after normalisation [of] director’s salaries but before allowing for depreciation. As demonstrated by the comparison above, the Collins SBA projection converts to an estimated loss after depreciation of some $75,900 as shown above, Further, as previously disclosed we also note that Collins SBA appear to have chosen director salaries at the rate of $150,000 per director per annum plus superannuation which is significantly above the rate adopted in our own report.

81    As I observed to counsel during closing argument, it is entirely possible that the company’s expert is right and that his valuation is a generous one, as he says. It is, in other words, possible that the expert may have been correct, or overly generous, by reference to reasoning that is not, strictly speaking, in accordance with the requirements of the shareholders deed. And Mr O’Rafferty frankly conceded that his client could be worse off were the matter to be remitted to the expert, because any substituted valuation is entirely in the realm of the unknown.

82    That said, it seems to me that, having pressed the point at the hearing, whatever risks may be associated with a remittal to the company’s expert (whose objectivity and expertise Mr Hill’s counsel expressly accepted), the point is a good one. It is clear, on the basis of the company’s expert’s evidence, and for the reasons that Mr O’Rafferty submitted (see [78] above), that the company’s expert did commit a manifest error in not having appropriate regard to the future prospects of the company.

83    I have a considerable degree of sympathy for the position in which the company’s expert found himself. The directors took months to agree upon the terms of his engagement (something that is hardly consistent with the objective of valuation clauses being the quick and efficient resolution of share valuation issues) and one can well understand him taking the approach to the valuation that he did. As the expert explained in his report:

The process surrounding our engagement to complete this assignment originally commenced during November 2015 with presentation of four original engagement terms. We were then required to provide four separate versions of our engagement terms encompassing amendments required by shareholders and as previously advised, finally received signed authority to proceed … on 18th April 2016. This process spanned a period of some five months.

During this time, we had also been requested and required to present our process for completion of the valuation assignment. This occurred concurrently with the process for obtaining signature of our engagement terms and again, we were required to present three separate versions to accommodate amendments required by the shareholders. This was in contrast with our own understanding that in accordance with clause 17.9 that as Independent Expert, we would be in a position to determine the process for completion of the valuation assignment as follows:

The Independent Expert may decide the procedure for performance of the assessment, subject to compliance with this clause 17.

Essentially, as set out in our email to shareholders dated 17th August 2016, these requirements have resulted in a process for completion of this engagement which from our perspective is more onerous and dictatorial than the norm and in some respects hampered the manner in which we have been able to access information. This in turn further added additional time cost and complexity to the management and completion of the engagement.

We also note that as set out in our email dated 17th August 2016 that on a number of occasions we have been confronted with a lack of consensus with regard to the process for completion of this engagement amongst the shareholders. At this point we represented to the shareholders that it was not our role to act as arbiters. This was in our view the only appropriate course of action but is also documented at clause 17.10(c) of the shareholders deed, in any event.

Accordingly, we set out to complete the required engagement in a manner which was independent and fair to all parties but which was also as efficient and timely as possible for all parties concerned. To achieve this, our conclusion was that the best course of action was for us to deal with the company accountant, Collins SBA to obtain information and answers to queries in the first instance.

84    The company’s expert was not challenged about any of that evidence, or any related evidence. It is easy enough to understand why he took what, on one view, may be thought to be (and which the valuer regarded as) a generous broad brush approach to this aspect of the valuation.

85    Whatever risks Mr Hill faces in asking that the matter be remitted to the company’s expert for redetermination is a matter for him. He has taken the point, and, in my view, he is correct. As Ms Scott recognised, quite rightly, in her written opening submission at [50], the requirements of clause 17.5 of the shareholders agreement, including that the expert calculate the fair value of the shares calculated with regard to the company’s future prospects, are “strict criteria”. In my view, the company’s expert did not have sufficient regard to the criterion of future prospects, and that failure in the circumstances of this case is a manifest error, as that term is understood in the cases: see e.g. Funtastic Ltd v Madman Film and Media Pty Ltd [2016] VSC 708.

86    The written determination of the company’s expert in relation to the valuation dispute is therefore not final and binding on the parties for the purposes of clause 17.10(c) of the shareholders deed. The matter will be remitted to the company’s expert accordingly.

87    In these circumstances, it is, as Mr O’Rafferty agreed in closing argument, not necessary to consider whether an oppression case is made out, because the remedy would be the same.

88    In light of these reasons, and because the outcome of the referral is not yet apparent (obviously), I will not now make an order in respect of the award of damages of $7,038; if the revised valuation favours the defendants, the application of set-off principles might mean that the plaintiff is not entitled to any award of damages or that any award is to be reduced.

89    I will also invite the parties to file written submissions on the question of costs.

Associate:

Dated:    5 October 2018

SCHEDULE OF PARTIES