New South Wales Court of Appeal CITATION: Crawley v Short (No 2) [2010] NSWCA 97 HEARING DATE(S): 22 April 2010 JUDGMENT DATE: 7 May 2010 JUDGMENT OF: Allsop P at 1; Macfarlan JA at 2; Young JA at 18 The Court orders: (1) Order 1 made by the Court below on 12 September 2008 (as varied by Orders 1 and 2 made by the Court below on 26 November 2008) be varied as follows: a. in paragraph (a), subparagraph (i),'$5,068,362' be deleted and replaced with '$4,267,141'; and b. in paragraph (a), subparagraph (ii), '$6,374,772' be deleted and replaced with '$6,699,637'; (2) Order 1 made by the Court below on 26 November 2008 be varied by deleting '$11,443,134.00' and replacing it with '$10,966,778'; and (3) Within 21 days of the date of these Orders, by simultaneous exchange: DECISION: a. Mr Crawley make a payment to Nabatu for the increase in value of Nabatu's share in J & J O'Brien Pty Limited, together with interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; and b. Nabatu make a payment to Mr Crawley for the decrease in value of Nabatu's share in Marsico Holdings Pty Limited, together with interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; c. The parties may agree, in advance of the simultaneous exchange of payments in paragraphs 3(a) and 3(b) above, to the netting of payments due to each other in accordance with paragraph (4) below. The Court notes that: (4) On 15 December 2008, Mr Crawley paid to Nabatu the sum of $11,540,453.32 in satisfaction of Order 1 made by the Court below on 12 September 2008 as varied by Order 1 made by the Court below on 26 November 2008. Accordingly, in order for the parties to comply with Order 3 above: a. Mr Crawley is to pay to Nabatu the sum of $324,865 plus interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; and b. Nabatu is to pay to Mr Crawley the sum of $801,221 plus interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; and (5) There is to be no order as to the costs of the appeal and cross-appeal. CATCHWORDS: CORPORATIONS - oppression - compulsory purchase order - basis of valuation of hotels LEGISLATION CITED: Corporations Act 2001 (Cth) CATEGORY: Consequential orders CASES CITED: United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910; (2003) 47 ASCR 514 Christopher Crawley (First Appellant) Marsico Holdings Pty Limited (Second Appellant) J & J O'Brien Pty Limited (Third Appellant) Vensel Pty Limited (Fourth Appellant) Trudale Pty Limited (Fifth Appellant) PARTIES: Judith Kiralyhidi Crawley (Sixth Appellant) Aldonet Pty Ltd (Seventh Appellant) Springsley Holdings Pty Ltd (Eighth Appellant) Gladewood Enterprises Pty Ltd (Ninth Appellant) Roslyn Short as Executrix of the Estate of the late Warwick Gordon Short (First Respondent) Nabatu Pty Ltd (Second Respondent) FILE NUMBER(S): CA 40022/2008 COUNSEL: W G Muddle SC (Appellants) J Gleeson SC/T Thawley (Respondents) SOLICITORS: Bruce Stewart Dimarco (Appellants) Freehills (Respondents) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 2824/98 LOWER COURT JUDICIAL OFFICER: White J LOWER COURT DATE OF DECISION: 26/11/07; 5/9/08 LOWER COURT MEDIUM NEUTRAL CITATION: Short v Crawley (No 30) [2007] NSWSC 1322; Short v Crawley (No 38) [2008] NSWSC 917 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40022/2008 SC 2824/1998 ALLSOP P MACFARLAN JA YOUNG JA 7 MAY 2010 CRAWLEY v SHORT (NO 2) Judgment 1 ALLSOP P: I have read the reasons of Macfarlan JA. I agree with his Honour's reasons. To the extent that my approach in the principal judgment is described by his Honour, such description is correct. I also agree with the orders his Honour proposes. 2 MACFARLAN JA: The Court delivered judgment on this appeal on 16 December 2009 (the "Principal Judgment"). It stood the proceedings over to enable the parties to make submissions as to the orders that the Court should make to give effect to its judgment. Submissions were duly made. 3 The principal point now at issue between the parties is the appellant's contention that the share purchase order made by the primary judge on 19 December 2007 should be set aside and in lieu thereof an order made in the following terms: "Mr Crawley purchase Nabatu's share in J & J O'Brien and Marsico at a valuation of one-third of the value of each company, as a going concern, without discount for its being a minority parcel". 4 The share purchase order made by the primary judge was as follows: "Mr Crawley purchase Nabatu's share in J & J O'Brien and Marsico at a valuation of one third of the net assets of each company without discount for its being a minority parcel with each company's assets to be valued not on the basis of a forced sale, but on the basis of current market values assuming willing, but not anxious vendors and purchaser, or purchasers". 5 The appellant also seeks remittal of the matter for determination in the Court below of valuations in accordance with his proposed order. 6 The appellant's contention is based on the misconception that the observations which I made in [6] of the Principal Judgment (with the concurrence of Allsop P – see [3]) were intended to do more than deal with the specific issue as to deduction of selling costs and capital gains tax liability there under consideration. My comments were directed to the basis of the hotel valuations and were not intended to reflect upon the appropriateness of the share purchase order made by his Honour. 7 The appellant mistakenly asserts that the going concern basis of valuation of the Jacksons on George Hotel to which I referred in the Principal Judgment was different from the basis upon which the hotel valuations proceeded at first instance. The comment I made as to the appropriateness of valuing the hotel on a going concern basis was consistent with the adoption by both of the valuers called at first instance of a capitalised earnings basis of valuation in respect of the hotels. It was also consistent with the general approach of the primary judge. That a going concern basis was adopted at first instance was clearly recognised by the appellant in his submissions on the appeal. For example, in [90] of his submissions in reply he said that "each of the assets was an operating hotel and, apart from the Valad letter, the valuation of each was undertaken on a going concern basis by capitalising normalised revenue streams" and in [91] he said that "[a]part from the Valad letter, the primary Judge valued the businesses on a going concern basis, which was the methodology advanced in evidence by both sides". 8 The response of the appellant's senior counsel when confronted in argument with these passages from his client's written submissions was to say that the going concern basis of valuation adopted below was a modified one because adjustments were made to "normalise" expenses. This does not assist the appellant. Whether or not it is appropriate to describe that step as a modification of the going concern basis of valuation, the underlying basis of the hotel valuations remained a going concern one. 9 In exercising powers under provisions analogous to s 233 of the Corporations Act 2001 (Cth) to make appropriate orders where it has found oppressive conduct to have occurred the Court is not bound to apply any particular principles as to valuation. As was said by Campbell J (as his Honour then was) in United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910; (2003) 47 ASCR 514 in relation to the price at which a share purchase order may be made under s 233, "[t]he only legal restriction on the way in which the price may be calculated is that it be a proper exercise of a judicial discretion" (at [36]). For the reasons given by myself and the President in the Principal Judgment it was not, in the circumstances of this case, appropriate that a deduction should be made in respect of selling costs and capital gains tax liability referable to the Jacksons on George Hotel. The decision on this specific point did not change the underlying basis of the valuation. It was simply a decision on a discrete point. Neither party suggested on the appeal that the decision on the point would have any wider ramifications. Nor does it. 10 I should say in conclusion on this issue that the parties sought to read affidavits as to what occurred at first instance and as to other matters. I have considered them but have not found them of any assistance in resolving the issue raised as the relevant circumstances appear sufficiently from the primary judge's judgments and the submissions that were made by the parties on the appeal. 11 The other issue dividing the parties is as to the costs of the appeal and cross-appeal. 12 The appellant succeeded in resisting the cross-appeal on the Spingsley share purchase and Aldonet loan issue (Principal Judgment [74] – [185]) and succeeded on his appeal concerning the Valad offer ([188] – [241]). These were both substantial issues. 13 On the other hand, the respondents succeeded in resisting the appeal on the "just allowances" issue ([2], [58] – [73]), succeeded in resisting the appeal on capitalisation rates ([242] – [251]) and succeeded in their cross-appeal on the selling costs and capital gains tax issue ([3], [6] – [7]). In addition, they have succeeded on the point with which I have dealt at the commencement of this Judgment. 14 In my view the appellant and respondents had broadly equivalent degrees of success when the issues argued on the appeal, cross-appeal and the present application are looked at in globo. Relevant also is the fact that just prior to the commencement of the hearing of the appeal, the respondents abandoned a significant part of their cross-appeal. On the other hand, the appellant had earlier abandoned significant parts of his appeal. These abandonments balance each other out. 15 In these circumstances, it is my view that the appropriate outcome as to costs is that there be no order as to the costs of the appeal and cross-appeal. 16 The appellant accepted that if (as has occurred) the Court rejected his principal argument as to the form of orders, the orders for which the respondents contended (other than those in relation to costs) were appropriate to be made. Accordingly, I propose that the orders set out below, which reflect the respondents' short minutes of order, be made. I have deleted the orders in respect of costs from the form of orders proposed by the respondents. Consistently with the reasons I have given above, I have provided for the Court to note that there is to be no order as to the costs of the appeal and cross-appeal. 17 The Court orders: (1) Order 1 made by the Court below on 12 September 2008 (as varied by Orders 1 and 2 made by the Court below on 26 November 2008) be varied as follows: a. in paragraph (a), subparagraph (i), '$5,068,362' be deleted and replaced with '$4,267,141'; and b. in paragraph (a), subparagraph (ii), '$6,374,772' be deleted and replaced with '$6,699,637'; (2) Order 1 made by the Court below on 26 November 2008 be varied by deleting '$11,443,134.00' and replacing it with '$10,966,778'; and (3) Within 21 days of the date of these Orders, by simultaneous exchange: a. Mr Crawley make a payment to Nabatu for the increase in value of Nabatu's share in J & J O'Brien Pty Limited, together with interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; b. Nabatu make a payment to Mr Crawley for the decrease in value of Nabatu's share in Marsico Holdings Pty Limited, together with interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; and c. The parties may agree, in advance of the simultaneous exchange of payments in paragraphs 3(a) and 3(b) above, to the netting of payments due to each other in accordance with paragraph (4) below. The Court notes that: (4) On 15 December 2008, Mr Crawley paid to Nabatu the sum of $11,540,453.32 in satisfaction of Order 1 made by the Court below on 12 September 2008 as varied by Order 1 made by the Court below on 26 November 2008. Accordingly, in order for the parties to comply with Order 3 above: a. Mr Crawley is to pay to Nabatu the sum of $324,865 plus interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; and b. Nabatu is to pay to Mr Crawley the sum of $801,221 plus interest at rates prescribed in Schedule 5 of the UCPR from 15 December 2008 up to the date of payment; and (5) There is to be no order as to the costs of the appeal and cross-appeal. 18 YOUNG JA: I also agree with Macfarlan JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.