Hill v Forteng Pty Ltd - sdadadasda PDF

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Hill v Forteng Pty Ltd [2019] FCAFC 105 (21 June 2019) KERR, BROMWICH and WHEELAHAN JJ THE COURT: 1. The appellant, Mr Andrew Hill, was a director, shareholder and employee of the first respondent, Forteng Pty Ltd. The other three respondents are directors of Forteng, s. Mr Hill became a director of Forteng in July 2011 and an employee on 21 January 2013. He resigned from both of those positions on 2 October 2015. 2. In the period between early January 2013 (prior to Mr Hill becoming an employee later that month) and December 2013, the directors of Forteng, including Mr Hill, agreed on s to receiving red ngoing financial difficulties that the company was experiencing. Well after Mr Hill left Forteng, and in circumstances in which there was no evidence of there ever having been any discussion or even contemplation of the amount of the reduced remuneration being paid, he brought a proceeding in the original jurisdiction of this Court. He claimed that the respondents had agreed to . This was said to constitute a breach of his contract of employment and oppressive conduct giving rise to an entitlement to relief under s 233(1) of the Corporations Act 2001 (Cth). Mr Hill also brought a claim disputing the expert valuation of the shares he had held in Forteng that were purchased from him when he resigned, as provided for in a shareholders deed. 3. Mr Hill’s employment contract and oppression claims failed, but his share That success resulted in an order that the expert redetermine the valuation, ultimately being in the sum of less than $5,000. Mr Hill was ordered to pay all of the respondents’ costs of the proceeding despite his success on the share valuation claim. In addition, Mr Hill was ordered to pay the respondents’

proceeding. He appeals from the primary judge’s orders dismissing his employment rom the order that he pay the respondents’ co l. Forteng relies upon a notice of contention, seeking to uphold his Honour’s decision on the employment contract claim upon alternative grounds of termination and a new contract of employment to encompass the reduced remuneration, estoppel, and mistake and set-off in relation to dividend payments, should Mr Hill’s appeal otherwise succeed. Before the primary judge Mr Hill’s employment contract claim failed because the primary judge found s, and instead there had been an oral variation of the employment contracts between each of the directors and Forteng, necessarily including Mr Hill, supported by consideration. 5. In finding that there was consideration to support the variation of Mr Hill’s employment contract, the primary judge applied the reasoning of Santow J in Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 746-749 to the effect that consideration for the variation of a contract could be found by the conferral of a “practical benefit”. Musumeci in turn discussed and in part applied Williams v RoffeyBros & Nicholls (Contractors) Ltd [1991] 1 QB 1. As discussed in some detail

below, Musumeci was cited with evident approval in the criminal assets forfeiture case of Director of Public Prosecutions for Victoria v Le [2007] HCA 52; 232 CLR 562 (DPP v Le) at [43] (per Gummow and Hayne JJ, in dissent as to the result). 6. The primary judge distinguished the decision of French J in Martech International Pty Ltd v Energy World Corp Ltd [2006] FCA 1004; 234 ALR 265 at [138]- [141] on the facts in that case. Mr Hill asserts that his Honour erred. 7. The primary judge and creditors would have on the value of his stake in the company as a shareholder, being something that he wanted to avoid. His Honour (at [55]-[56]) accepted the following characterisation of consideration advanced in oral submissions on behalf of the respondents, constituted by both practical benefit and avoidance of practical detriment (at [55]): (1) In the context of the financial circumstances of the company, it mpany was unable to pay its employees, its creditors, and the full director salaries and that, had the plaintiff and the other directors not s, 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 t. 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,

asing capital in the business and increasing the value of the [sic] Mr Hill’s investment. (5) Mr Hill also increased his like ncluding 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. 8. The primary judge (at [57]) found that Mr Hill His Honour observed that Mr Hill had proposed even more severe reductions because “if we make sacrifices now we will be better off in the long run”. Earlier, at [46], his Honour observed that if the amounts unpaid were to be repaid, it would be a “stretch” to describe the non-payment as a “sacrifice”, and if that had been intended, it would have been raised at the time. At [47] his Honour found that it was “not possible to conjure from the uncontroversial facts a term or agreement that arrears were payable” noting that counsel for Mr Hill at the trial ultimately “ ”. His Honour (at [60]) also rejected a submission that the variations to Mr Hill’s employment agreement were void for uncertainty. No ground of appeal directly sought to challenge those factual findings. It was faintly suggested at the appeal hearing that this was the import of appeal ground 7, taking issue with Martech being distinguished by his Honour. That suggestion must be rejected because ground 7 simply does not challenge any factual finding, either expressly or by any reasonable implication. 9. At the hearing of the appeal, Mr Hill sought l

erred to the extent that his Honour impliedly concluded at [46] that the parties intended that the s ary to the evidence that his Honour accepted at [23] and [24]. Leave was refused. The reasons for refusing leave may be shortly stated: quite apart from the substantial problem with the lack of notice, the inherent unfairness to the respondents, and the additional cost to be incurred in responding to this additional ground some time after the long-scheduled appeal hearing, which in themselves militate against a grant of leave, the proposed ground lacks any reasonable prospect of success because it does not rise higher than suggesting an alternative conclusion that his Honour could have reached, and therefore does not meet the considerable hurdle of establishing error. 10. Mr Hill also challenges the primary judge’s decision to award costs to the respondents, necessarily including the indemnity basis. Grounds 1-7: a

in finding consideration

11. It is convenient to commence by considering the authorities referred to by the primary judge on the topic of consideration, together with certain other relevant authorities. The key legal issue advanced by Mr Hill is whether “ ” as If it is good law, then the debate moves to the question of whether his Honour’s finding of consideration in this case was nevertheless in some way erroneous. 12. As noted above, Musumeci was cited with evident approval in the High Court criminal assets forfeiture case of DPP v Le. One of the issues in DPP v Le was whether a statutory test of “ ” for the acquisition of an interest nted property. That in turn involved determination of whether, and if so how, the ordinary concept of consideration contributed to the meaning to be given to that statutory test. Part of that deliberation was by Gummow and Hayne JJ at [43], 13. The High Court in DPP v Le, by majority (Gleeson CJ agreeing with Kirby and Crennan JJ), upheld the Court of Appeal in dismissing an appeal from the primary judge. That explicitly included judge’s finding that “ ” could constitute “ albeit with the reservation that it might not be sufficient for a commercial contract. The Court of Appeal had found that “ ” in the statutory test included the common law concepts of “ ” and r of Public Prosecutions (Vic) v Le [2007] VSCA 18; 15 VR 352 at [45]. 14. The plurality decision of Kirby and Crennan JJ in DPP v Le noted (at [107]) that prior decisions of the High Court had recognised that consideration may have dif ts, that it has . After analysing the differences further, their Honours concluded (at [122]) that given that natural love and affection was sufficient consideration for conveyancing purposes, and given the mutual obligation of support owed between spouses, the criminal assets forfeiture legislation would have had to be specific in preventing exclusion from forfeiture a joint interest of an innocent spouse, which it did not do.

15. Gleeson CJ, while agreeing with Kirby and Crennan JJ, made additional comments on the topic of sufficient consideration. The Chief Justice observed (at [6]) that relating “ ”, without any further statutory definition, to conveyancing and contract law concepts of “valuable” and “good” consideration was not easy. Valuable consideration at least excluded nominal consideration, but was not restricted to commercial transactions supported by payment in money or money’s worth. Transfers to relatives, however, could be motivated by factors that did not reflect any form of obligation. The Chief Justice concluded that the consideration was “sufficient consideration” in that case, but expressly stated that the Court of Appeal decision should not be taken to be saying that natural love and affection would always satisfy the statutory test. 16. T tural love and affection did not meet the statutory test of “ ”, did so after surveying the character given by the general law to a conveyance expressed to be made for such consideration. Good consideration pertained to motive, which would operate to defeat a resulting trust, but would not be effective against creditors or purchasers. Valuable consideration would attract the intervention of equity. Applied to a statutory setting in which third party interests were involved, their Honours concluded that it was unlikely that the statutory term “sufficient consideration” extended to a limited species of consideration such as natural love and affection. It was in this context that their Honours (at [43]) made the following observations (footnotes inserted), relied upon by the primary judge in this case (at [48]): When used elsewhere 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 [Crears v Hunter (1887) 19 QBD 341; Combe v Combe [1952] EWCA Civ 7; [1951] 2 KB 215], a bona fide compromise of a disputed claim [Wigan v Edwards(1973) 47 ALJR 586], or the conferral of some other form of practical benefit [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 [cf Carter and Harland, Contract Law in Australia, 4th ed (2002), p 112 [323]]. However, natural love and affection imports no such benefit. 17. Gummow and Hayne JJ were therefore identifying what was required to constitute “ ” in the general law, so as to demonstrate why their Honour’s considered natural love and affection fell short of what was required to al law, and therefore fell short of the statutory test expressed in the same way. Their Honour’s pithy summary is a useful statement of the general law, if not binding authority in its own right. It indicates that Musumeci has some authoritative weight in assessing the presence or absence of consideration for general law purposes. It may be observed that, unlike in DPP v Le, a finding in this appeal that there was consideration for the variation of the contract would not have the effect of depriving a third party of an interest in property. However, failing to find such consideration would result in Mr Hill being able to claw back a benefit that he had so clearly agreed to forgo on the unchallenged factual findings of the primary judge, unless estoppel applied. 18. Martech was overturned on appeal, but on a point that did not affect the aspect of French J’s reasons relevant here: Martech International Pty Ltd v Energy World Corp Ltd [2007] FCAFC 35; 248 ALR 353. Martech has been cited relatively recently as being part of a line of authority for the proposition that consideration “can be found in the mutual abandonment of existing rights, the conferment of new benefits by each party on the other, or the incurring of liability to an increased detriment”: see Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd [2018] NSWCA 213 at [232]. 19. Martech via Cellarit also lends support to the notion of a practical benefit as constituting consideration for a contract variation, as applied in Musemeci. That is not

surprising when further consideration is given to the reasoning of French J in Martech. A part of the decision in Martech that was not reproduced in the primary judge’s reasons was in the balance of [141], where French J observed as follows: Vanbergen v St Edmunds Properties Ltd [1933] 2 KB 223 (Vanbergen) involved an indulgence solely for the benefit of one party to a creditor/debtor relationship. Lord Hanworth MR, after citing Foakes, quoted from Smith’s Leading Cases, and said (at 232): ... a creditor cannot bind himself by a simple agreement to accept a smaller sum in lieu of an ascertained debt of larger amount, such an agreement being nudum pactum. But if there be any benefit, or even any legal possibility of benefit to the creditor thrown in, that additional weight will turn the scale and render the consideration sufficient to support the agreement. 20. In Martech, the first part of the passage quoted from Vanbergen v St Edmunds Properties Ltd [1933] 2 KB 233 applied because the unilateral reduction in the fees charged by the employee, Mr Brand, was found by French J to be mere f n. There was no suggestion in Martech of “any benefit, or even any legal possibility of benefit ... thrown in”, in Mr Brand’s favour, to “turn the scale and render the consideration sufficient to support the agreement”. 21. Lord Hanworth MR in Vanbergen, after the passage quoted by French J in Martech reproduced above, observed that the phrase “any benefit, or even any legal possibility of benefit” had earlier been considered in the House of Lords case of Foakes v Beer [1884] UKHL 1; (1884) 9 App Cas 605. Lord Selborne said towards the end of his speech in Foakes v Beer (at 613): What is called “any benefit, or even any legal possibility of benefit,” in Mr. Smith's notes to Cumber v. Wane [1 Sm. L. C. 8th ed. 366], is not (as I conceive) that sort of benefit which a creditor may derive from getting payment of part of the money due to him from a debtor who might otherwise keep him at arm’s length, or possibly become insolvent, but is some independent benefit, actual or contingent, of a kind which might in law be a good and valuable consideration for any other sort of agreement not under seal. 22. The concept of “any benefit, or even any legal possibility of benefit” may be regarded as similar in nature to a “ ” of the kind identified and applied , and “ found by Gummow and Hayne JJ to be lacking in DPP v Le. Looked at in this way, what must be found for consideration to render a contract variation binding is something more than one party to the existing contract simply forgoing an existing contractual right. This can be seen to accord with the accepted “modern” conceptualisation of consideration stated in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1; [1915] AC 847 at 855 as an “act or forbearance of the one party, or the promise thereof is the price for which the promise is bought”. As it was put in Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; (1954) 92 CLR 424 at 456-457, what is needed on top of the offer capable of acceptance, and the act put forward as consideration for that offer, is the existence of a quid pro quo. 23. The difference between finding, or not finding, such consideration, can turn on subtle variations in the facts. In Australian Woollen Mills, the example was given (at 457) of A saying to B “ will pay you £1,000 on your arrival in Sydney”. Without more, there is n . But if A had earlier told B that it was of vital importance to him (A) that B should come to Sydney, and B objected because it might cause him a financial loss unrelated to anything to do with A, then B’s acceptance of the offer of payment might 24. It follows from the above analysis that, if a benefit can be found accruing to Mr Hill in return for him accepting a lower payment for the performance of substantially the same duties (assuming that to be an accurate characterisation of his ongoing role, which is disputed t. The notion of something akin to practical

benefit has stronger support in long-standing authority than just Musumeci, without any need to adopt or endorse the detail of Santow J’s reasons. It is, in essence, a fact-finding exercise, albeit requiring legal characterisation. 25. The reasoning in the preceding paragraph means that the real question underpinning this aspect of the appeal is not whether or not Martech was or was not correctly distinguished on the facts, nor whether the detail of the reasoning in Musemeci is good law. Rather, what matters is whether or not the primary judge’s characterisation of factors as being sufficient to amount to consideration, such that the agreements to vary remuneration were binding, was infected by any error. That is, has Mr Hill demonstrated that his Honour erred in finding that he obtained a sufficient benefit in return for accepting a lower payment; or to use the language accepted since 1884 in Foakes v Beer, was there “any benefit, or even any legal possibility of benefit” flowing to him, to amount to consideration? 26. Mr Hill contends that the primary judge erred in finding consideration because the notion of practical benefits did not apply, given that: (1) he agreed to perform an existing contractual duty; (2) he claimed a liquidated sum from Forteng, which he contends placed him in a situation analogous to Foakes v Beer; and (3) the practical benefits were at best hypothetical, uncertain and merely incidental to the employment contract. 27. The uncertainty aspect of the last of the above points is the basis for ground 8, which is the convenient point at which to address that topic. 28. The respondents dispute that Mr Hill had agreed to perform an existing contractual duty, pointing to differences in his duties arising from the departure of a major client. While there appears to be some force to this argument, it is in substance a trial and fact-finding point that is neither necessary nor desirable to decide by way of re-hearing on appeal. It need only be dealt with if Mr Hill’s argument as to there being a want of consideration succeeds. 29. As to the liquidated sum point, the respondents submit that, in substance, Mr Hill’s reliance on Foakes v Beer is misplaced. That is because, they assert, the factual foundation for this argument is absent. The factual position they contend for is that, at the time the contract remuneration variations were agreed to, the amount claimed by Mr Hill was not (and is not) a liquidated debt that was due and owing to him at that time, unlike the debtor/creditor situation in Foakes v Beer. Rather, his claim for damages was calculated over the period from January 2013 to October 2015, and therefore the alleged obligation on Forteng to pay that amount had not crystallised at the time those variations were agreed to, even if the amount could be calculated. The respondents’ argument should prevail. Mr Hill’s characterisation of a liquidated debt could not be correct, other than by suggesting that the fortnightly difference between the original contractual sum payable and the lesser amount paid by agreement was a known amount. However, that is not the relevant contractual concept by which an agreed amount is owing and it is agree...