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Federal Court of Australia - Full Court |
Last Updated: 28 April 2008
FEDERAL COURT OF AUSTRALIA
Stewart v Biodiesel Producers Limited [2008] FCAFC 66
CORPORATIONS LAW – resolution of company board rescinded
– issue of performance shares set aside – subscription money only
paid
– whether primary Judge erred by not moulding equities of
relief.
PRACTICE AND PROCEDURE – leave to raise new argument
on appeal – inadvertence by party seeking leave – complexity and
inconvenience of
remittal – leave refused.
Corporations Act
2001 (Cth) chapter 2E
Biodiesel Producers Limited (ACN
099 165 876) v Stewart [2007] FCA 722 affirmed
H v Minister for
Immigration and Multicultural Affairs [2000] FCA 1348; (2000) 63 ALD 43 considered
M87
of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs
[2005] FCAFC 148
cited
ANTHONY
PAUL STEWART v BIODIESEL PRODUCERS LIMITED (ACN 099 165 876) AND DENNIS
BARRON
WAD 116 OF 2007
RYAN, MOORE AND TAMBERLIN
JJ
24 APRIL 2008
HEARD IN PERTH, DELIVERED IN
SYDNEY
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AND:
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DATE OF ORDER:
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WHERE MADE:
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THE COURT ORDERS THAT:
2. The appellant pay the costs of the
respondents.
Note: Settlement and
entry of orders is dealt with in Order 36 of the Federal Court Rules.
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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ANTHONY PAUL STEWART
Appellant |
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AND:
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BIODIESEL PRODUCERS LIMITED (ACN 099 165 876)
First Respondent DENNIS BARRON Second Respondent |
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JUDGES:
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RYAN, MOORE AND TAMBERLIN JJ
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DATE:
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24 APRIL 2008
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PLACE:
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HEARD IN PERTH, DELIVERED IN SYDNEY
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REASONS FOR JUDGMENT
THE COURT:
1 This is an appeal from a judgment of a Judge of the Court which: (i) ordered rescission of a resolution of the Board of directors of the first respondent ("Biodiesel") to issue performance shares to the appellant ("Mr Stewart") and the second respondent ("Mr Barron"); (ii) set aside the issue of the performance shares to Mr Stewart; and (iii) ordered a refund of the subscription money paid by Biodiesel to Mr Stewart in an amount of $55.00: see Biodiesel Producers Limited (ACN 099 165 876) v Stewart [2007] FCA 722. His Honour also made a further order that Biodiesel’s share register be altered to give effect to the rescission order.
2 On this appeal the principal error of law sought to be identified by Mr Stewart is that the primary Judge, in deciding to rescind the Board’s resolution to issue the performance shares and to set aside the issue of those shares, did not mould the relief or rescission in such a way as to make due allowance in favour of Mr Stewart for the work, time and skill exercised by him on behalf of Biodiesel. It is submitted that his Honour failed to have due regard to the requirement to adjust the equities as between the parties in making his orders. In oral submissions, counsel for Mr Stewart contended that the primary Judge failed to take into account the work done by Mr Stewart and the benefits which accrued to Biodiesel from that work, and thus failed to grant equitable relief which properly compensated Mr Stewart for his efforts.
3 Counsel for Mr Stewart concedes that no submission to this effect was advanced on behalf of Mr Stewart before the primary Judge. The case pleaded and the argument advanced before his Honour was only that the Board resolution and share issue should not be set aside because there was, having regard to all the circumstances, no basis for rescission of the resolution. There was no pleading or submission advanced by Mr Stewart as to the terms of any order which his Honour might make if the share issue was set aside or the Board resolution rescinded. Similarly, no submission was put to his Honour that any rescission should be on a conditional basis. In short, the argument put below by Biodiesel was that the making of the resolution and the issue of the performance shares were both in breach of statutory and fiduciary duties owed by Mr Stewart to Biodeisel, and therefore should be set aside. Against this, Mr Stewart contended that the resolution was not passed as a result of a breach of any statutory or fiduciary duty, and that any failure to obtain shareholder approval was either not a procedural irregularity invalidating the resolution, or, if it was such an irregularity, it was one which could be corrected by the Court. Therefore, it was submitted, the resolution and issue of the shares were valid and should not be set aside.
BACKGROUND
4 The background to this matter is comprehensively set out in his Honour’s judgment at [4]-[176]. We briefly summarise below some salient matters.
5 On 7 June 2002, Biodiesel was incorporated. On the same day Mr Stewart was appointed company secretary and Mr Barron began to act as managing director. The purpose for which Biodiesel was incorporated was to establish an operating plant in Albury/Wodonga to produce biodiesel fuel from tallow and waste oils for markets in New South Wales, Victoria and the Australian Capital Territory. It was proposed that the project should be financed, at least in part, by ANZ Infrastructure Services Limited by way of equity or debt or both.
6 By July 2004, there was a proposal on foot that Biodiesel would issue performance shares to Mr Stewart and Mr Barron, subject to their satisfaction of certain performance criteria.
7 On 1 July 2004, Mr Stewart received advice from the solicitor acting for Biodiesel, Mr Paterson, as to the legal procedure necessary to enable the issue of the performance shares. Mr Paterson refers in his letter to the procedure to be followed for varying rights attaching to classes of shares and the need for approval by shareholders in certain circumstances. In particular, he referred to Chapter 2E of the Corporations Act 2001 (Cth) ("the Act") to the effect that shareholder approval was not required before giving a financial benefit to "a related party" on terms that would be reasonable in the circumstances, provided that Biodiesel, as a public company, and the related party were dealing at arms length. Finally, the letter of advice makes it clear that Mr Paterson’s advice did not extend to advising in respect of "disclosure requirements for the issue of shares", and that he was willing to provide such advice if required.
8 Neither the existence of Mr Paterson’s letter nor any part of its contents was made known by Mr Stewart to the directors, shareholders or any other members of Biodiesel.
9 On 8 November 2004, Mr Stewart sent to Mr Paterson a copy of a proposed circular resolution to enable Mr Paterson to give advice in relation to a meeting to be held the next day. Mr Paterson gave written advice to Mr Stewart by email on 9 November 2004, and referred to various information and approvals required to effect a variation of rights in respect of a class of shares. Again, this advice was not made known by Mr Stewart to the directors, shareholders or any other members of Biodiesel.
10 On 30 November 2004, Mr Paterson prepared a circular resolution which was presented by Mr Stewart to the directors of Biodiesel and signed by each of them. The resolution provided, among other matters, for the issue of 5,500 performance shares to Mr Stewart. When presenting the resolution to the directors, Mr Stewart made no reference to the advice or caution given by Mr Paterson as to variation of rights. Nor are there any minutes of any meeting of the Board on that day, or the Annual General Meeting. This resolution was the Board resolution which was ultimately set aside by the primary Judge’s orders, and referred to above at [1]-[2].
THE DECISION BELOW
11 In relation to Mr Stewart’s non-disclosure to the Board of Mr Paterson’s advice, his Honour made the following important findings:
‘There can be no doubt, on my findings, that the first respondent [that is, Mr Stewart] has acted improperly and in breach of his statutory and fiduciary duties. He consciously failed to bring to the attention of the Board material information which would have impacted upon the Board’s decision to pass a resolution to issue shares to him. In my opinion, the first respondent did what he did because he knew that if Mr Paterson’s advice were given to the Board the resolution would not pass because the directors would either seek further legal advice or, alternatively, require that the matter be put to the shareholders generally. He preferred his interests to that of the applicant. He placed himself in a position of conflict.
...
In those circumstances, the only beneficiary of the circular resolution is the first respondent. There seems to me to be no reason why he should enjoy the benefits of that resolution and the issue of the performance shares in circumstances where he has consciously failed to bring to the Board’s attention advice which would have meant that the circular resolution was not passed.
In those circumstances, there should be an order rescinding the resolution of 30 November 2004 contained in the circular resolution; subject to the repayment of the subscription money of $55.00 an order setting aside the issue of the performances shares; and an order rectifying the applicant’s register of members pursuant to s 175 of the Corporations Act.’
(Emphasis added)
12 His Honour also made at [181]-[184] strong adverse credibility findings against Mr Stewart and did not accept his evidence as to the hours he claimed to have worked for Biodiesel. Having regard to the way in which the case was advanced before the primary Judge, his Honour decided that it was not necessary to address the issue of how many hours Mr Stewart in fact worked. His Honour was only prepared to accept the evidence of Mr Stewart where that evidence was consistent with that of other witnesses.
13 In relation to the expert witnesses called by both sides to value the work done by Mr Stewart, his Honour observed that, if it were necessary, the evidence of Mr Costello, who was called for Biodiesel, should be preferred. Mr Costello had determined that the rate of remuneration appropriate for the work done by Mr Stewart was $39,000 per annum over a three year period. The other expert witnesses, in his Honour’s view, disclosed errors in their valuation techniques. However, despite expressing a preference for Mr Costello’s evidence, his Honour found that there was no need to make findings on this issue.
THE APPEAL
14 The Notice of Appeal from the primary Judge’s decision, in broad terms, pleads that his Honour erred because he made no attempt to assess the equities of the case by weighing certain considerations relating to the amount, value and effect of work done by Mr Stewart, the worth of which was unfairly taken advantage of by Biodiesel. These considerations are said to have given rise to an equity in favour of Mr Stewart which was not taken into account. Mr Stewart claims that he carried out extensive work on behalf of Biodiesel for which he is entitled both to remuneration and to an equity which should have been taken into account by the primary Judge when considering whether to set aside the resolution issuing performance shares. In advancing his claim, Mr Stewart alleges that he sent a great number of emails, made a great number of telephone calls, was involved in five interstate trips, forewent consulting fees amounting to $20,000, and a series of other matters. It is this work and expenditure in respect of which expert evidence was called by both parties in an attempt to ascribe it a value.
15 It is common ground on this appeal that Mr Stewart elected not to make any claim before the primary Judge for remuneration on a quantum meruit basis in respect of work done by him. Despite this, Mr Stewart now seeks relief in the form of a share issue based on the remuneration which he claims he should have received. He contends that a share issue is appropriate because such relief would link his remuneration to Biodiesel’s future, a result which he says was the original intent behind the issue of the performance shares.
16 Given that Mr Stewart was seeking to raise an issue which was not put before the primary Judge, the Court made several requests at the hearing that counsel for Mr Stewart indicate precisely what orders were now being sought. After some delay, orders were proposed in the following terms:
‘1 The Order of the Learned Trial Judge in paragraph 2 is modified so as to be subject to the following:
2 The value of the Appellant’s services as Company Secretary and Chief Financial Officer and his reasonable expenses incurred for the period March 2002 to May 2005 be determined:
2.1 by agreement between the parties;
2.2 failing agreement[,] by an inquiry conducted by a Registrar of this Honourable Court.
3 The First Respondent issue to the Appellant fully paid ordinary shares in the First Respondent to the value of the remuneration so determined where the issue price is 20 cents.
Dated the 13th day of November 2007’
(Footnote removed.)
17 It will be noted that proposed Order 2 contemplates, in the likely absence of agreement between the parties, a further hearing to be conducted by a Registrar of the Court as to Mr Stewart’s reasonable remuneration and expenses over the three year period. In addition, Order 3 contemplates the Court requiring Biodiesel to issue to Mr Stewart fully paid ordinary shares to the value of his remuneration at the issue price of 20 cents. It is not difficult to discern that both of these exercises, as well as the appropriateness of the remedies more generally, would be heavily contested by both parties.
REASONING
18 At the outset of this appeal, it is necessary to decide whether Mr Stewart should at this late stage be granted leave to raise an argument not advanced before the primary Judge.
19 The submission that the primary Judge ought to mould equitable relief to suit the circumstances of the case clearly ought to have been raised before the primary Judge when his Honour was asked to decide whether or not to set aside the resolution. No satisfactory explanation has been given by counsel for Mr Stewart as to why this did not occur. Rather, counsel for Mr Stewart rested his case before the primary Judge on the unsuccessful arguments that the Board resolution was not passed as a result of a breach of a statutory or fiduciary duty, and that the failure to obtain shareholder approval was either not a procedural irregularity or, if it was, could be corrected by the Court. Accordingly, the primary Judge did not address and did not make findings relevant to the issue of moulding equitable relief, with the consequence that, if we accept that the issue should be ventilated, it would be necessary for the matter to be remitted for further hearing.
20 Counsel for Biodiesel contends that the issue should not be allowed to be raised on this appeal because the primary Judge had no opportunity to consider it. It was not submitted to his Honour that any equities were claimed in favour of Mr Stewart in relation to the order setting aside the issue of shares. In the complete absence of such submissions, it is said, it is difficult to see how any error can be imputed to his Honour.
21 Mr Stewart now seeks to have the litigation substantially re-opened in order for the Court to determine and make orders involving a final consideration of the amount of work which he had completed and the proper remuneration which he should be paid. As a means to progress such litigation, Mr Stewart proposes that, if the parties cannot agree, a Registrar of the Court should conduct an investigation into the value of Mr Stewart’s efforts. Having regard to the history of the matter to date and the observations of his Honour in his reasons for judgment, it seems, in our view, highly likely that the parties will not be able to agree on the amount of remuneration which should be paid. Reinvestigating the hours worked and the appropriate remuneration would require a far-reaching inquiry. It would also introduce complex questions of valuation which, on the submissions before the primary Judge, have until now been unnecessary to consider. Clearly, the proposed orders, in addition to granting leave to litigate an issue which was not put before his Honour at the appropriate time, will give rise to an additional costly and time-consuming inquiry. It is likely that further evidence will need to be adduced and considered, and that such an inquiry will quickly extend beyond the capacity of a Registrar.
22 The authorities on the question whether leave should be granted to raise an argument on appeal which was not raised below point to the caution that should be exercised when determining whether the interests of justice require that the leave be granted in a particular case. The Full Court in H v Minister for Immigration and Multicultural Affairs [2000] FCA 1348; (2000) 63 ALD 43 at 44-45 expressed the principles in the following way:
‘An appeal to this court from a decision of a judge of the court is an appeal in the strict sense and not an appeal by way of rehearing: Dynasty Pty Ltd v Coombs [1995] FCA 1447; (1995) 59 FCR 122; White v Minister for Immigration and Multicultural Affairs [2000] FCA 232; (2000) 96 FCR 511. The appeal power is thus to be exercised for the correction of errors: Coal and Allied Operations Pty Ltd v The Full Bench of the Australian Industrial Relations Commission (2000) 174 ALR 565 per Gleeson CJ, Gaudron and Hayne JJ at [21]. This does not mean that an issue can never be argued on appeal that was not argued at the hearing at first instance. In a case where, had the issue been raised before the primary judge evidence could have been given which might have prevented the point from succeeding, the issue will not be allowed to be raised on appeal: Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7-8 per Gibbs CJ, Wilson, Brennan and Dawson JJ. In other cases, it will be for the Full Court to determine whether it is expedient in the interests of justice that the issue should be argued and decided ....
As Gibbs CJ, Wilson, Brennan and Dawson JJ observed in Coulton v Holcombe at CLR 7:
It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.
In our view, the readiness with which appeal courts have in the past been satisfied that it is expedient in the interests of justice to allow a fresh point to be argued and determined on appeal is unlikely to continue into the future. The volume and complexity of the cases presently required to be heard and determined by the intermediate appellate courts of Australia is such that it is increasingly important that such courts are able to devote their time to the genuine review of first instance decisions. It is becoming increasingly difficult, in our view, to establish that it is expedient in the interests of justice that the time of three or more judges should be spent giving original consideration to issues that ought to have been raised before the primary judge. The interests of justice in this sense extend beyond the interests of the parties to the appeal to encompass the interests of other litigants whose appeals require hearing and determination, and the broad public interest in efficient judicial administration.’
(Emphasis added; excess citations removed)
23 It should be noted that their Honours emphasised that, where the party seeking leave to raise a new point on appeal had a full opportunity to adduce evidence below to substantiate that point but failed to do so, leave should not be granted. As the passage in Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7 indicates, it is not the proper role of an appellate court to resolve substantial issues on which evidence was not adduced and fully tested below. Rather, its jurisdiction should be exercised chiefly in the review of first instance decisions, with the proviso that the interests of justice may, in some limited circumstances and subject to the convenience of the Court, warrant the ventilation of a new ground on which the original application may have been based: see also M87 of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] FCAFC 148 at [23].
24 In our view, having regard to the history of the matter, the consequences of making the orders sought, and the authorities on this point, this is not a case in which leave should be granted to Mr Stewart to raise the new issue relating to the moulding of equitable relief.
25 In this case, Mr Stewart had a full opportunity to make submissions in relation to the issue of moulding equitable relief before the primary Judge. His decision not to advance such submissions was taken in the context of an express inquiry by the primary Judge as to whether relief on a quantum meruit basis was being sought. This, in our view and on the basis of the principles expressed in H v Minister 63 ALD at 44-45, is sufficient to warrant refusing the leave sought. Furthermore, if the present matter were remitted to a Registrar of the Court, it would be necessary for the Registrar to ascertain an appropriate approach to the issue of valuation in order to determine the relevant equities between the parties, calculate the quantum of remuneration which would be allowed to Mr Stewart, and determine whether such remuneration should be paid in the form of fully paid ordinary shares. Although these observations by no means exhaustively list the matters which would have to be dealt with, they do reflect the complexity and problematic nature of the issues which would be likely to arise from the proposed remittal.
26 It is important to emphasise that, in the present case, the argument which Mr Stewart seeks leave now to advance was overlooked by him during the trial, where it would have been appropriate for him to ventilate it before the primary Judge. Accordingly, there can be no suggestion of any denial of procedural fairness because Mr Stewart had ample opportunity to place before his Honour all the submissions which he wished to make on the law and the evidence. The hearing began in August 2005 and was heard over ten days after extensive pre-trial directions. Perhaps the argument now sought to be raised is a result of no more than a fresh consideration of the merits of the case in light of his Honour’s judgment.
27 In these circumstances, we conclude that to allow the new point to be raised – and with it an increase in the costs of this litigation, the likelihood of further delays, and a need for further evidence to be adduced and for time to be spent in consideration of additional submissions – would subvert the appeal process and prolong the litigation without justification.
28 Accordingly, leave to raise the foreshadowed argument should not be granted on this appeal.
29 In the light of the refusal of leave to raise the new ground on appeal, it is not necessary for the Court to consider the other grounds of appeal in this matter, or the matters which arise as a consequence the Amended Notice of Contention filed by Biodiesel.
30 Accordingly, for the above reasons, the appeal is dismissed with
costs.
Associate:
Dated: 24
April 2008
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Solicitor for the Appellant:
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Counsel for the Respondent:
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Solicitor for the Respondent:
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Date of Hearing:
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Date of Judgment:
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