Gordon v Winning Appliances Pty Ltd

Between 2014 and 2020, the plaintiff, Mr Gordon, was the chairman of the advisory board of the defendant, Winning Appliances Pty Ltd (“Winning”), and provided advisory services to it.

Mr Gordon claims that, in August 2017, he entered into an agreement with Winning as to his remuneration. Mr Gordon contends that it was a term of the agreement that he have an option to purchase shares having a value of 5% of Winning, and of its related company Winning Online Group Pty Ltd. The strike rate of that option was to be calculated by reference to the market value of the two Winning companies as a whole.

The agreement was allegedly made during a conversation or conversations between Mr Gordon and Mr John Winning.

There is a dispute about the value of Winning. Each party will adduce expert accounting evidence on that question: Mr Ross for Mr Gordon and Mr Samuel for Winning.

The proceedings have reached the stage where evidence on liability has been exchanged and discovery on liability is all but complete. There are a number of outstanding issues on the discovery in relation to quantum. Mr Gordon has filed a notice of motion in relation to that issue which, with the parties’ consent, I have stood over for directions in the Motions List on 12 March 2021. Discussions in relation to that issue are ongoing.

By notice of motion filed on 18 December 2020, Winning seeks an order that the question of liability be determined separately, and in advance of the question of quantum.

I have concluded that, although the question is finely balanced, I should not make the order that Winning seeks.

For the purpose of discussion, I will refer to a hypothetical “liability hearing” and “quantum hearing”.

Winning submits that a separate “liability hearing” will avoid, at least for the moment, the parties incurring the substantial cost and delay of dealing with the question of the valuation of the two Winning companies. As set out above at [2], determination of this valuation is necessary to determine the “strike rate”; the subject of the agreement for which Mr Gordon contends.

Mr Withers SC, who appeared with Ms Hall for Winning, pointed to evidence adduced on behalf of Winning estimating that the cost of the valuation discovery, together with the costs of preparing expert valuation evidence, would be many hundreds of thousands of dollars.

Mr Newlinds SC, who appeared with Mr Bender for Mr Gordon, submitted that this was an unduly bleak estimate but did not dispute that such costs would be significant.

Mr Withers also submitted that it will be many months, perhaps nine months, before the currently disputed categories of a valuation discovery are resolved, the documents produced, and expert reports finalised.

There was some dispute about that, but it does appear clear that:

On the question of liability, a critical question will be the terms of the conversation or conversations that took place between Mr Gordon and Mr Winning.

Mr Newlinds submitted that there was a real possibility that he would wish to direct his cross-examination of Mr Winning, not only to the terms of that conversation, but also to the financial affairs of the Winning companies, and thus to the question of quantum. In those circumstances, Mr Newlinds submitted that Mr Gordon would suffer incurable forensic prejudice were liability to be separated from quantum.

In response to this submission, Mr Withers said:

That undertaking provides an answer to Mr Newlinds’ submission up to a point but leaves open the possibility that, assuming liability were determined separately, there would then be a dispute about whether Mr Gordon could point to “relevant evidence” that Mr Winning could give at the “quantum hearing”. It is hard to see how the Court could resolve any such dispute.

Mr Newlinds also raised the possibility of the trial judge making unfavourable findings about Mr Winning at a “liability hearing” and that, in those circumstances, Winning would submit that the trial judge should recuse himself or herself from presiding over the “quantum hearing”.

In response to that, Mr Withers stated, assuming that I were to preside over the hearing:

That proposal does not address the possibility that the trial judge may make favourable findings about Mr Winning such that Mr Gordon may ask the trial judge to recuse himself or herself on that basis.

Mr Withers submitted that, in that hypothetical circumstance, Winning’s likely success in the “liability hearing” would render the possibility of a recusal application less likely. That may be so, but the foreshadowed possibility remains.

The potential inefficiencies concerning the appeal process are also relevant to this application. Ordering a separate “liability hearing” is likely to result in the saving of time and costs if Winning succeeds at the “liability hearing” and either there is no appeal or an appeal is unsuccessful.

It is by no means clear to me that, were Winning to succeed at the “liability hearing” and Mr Gordon seek leave to appeal, the Court of Appeal would grant such leave.

However, if such leave were granted and Mr Gordon was successful on appeal, the “quantum hearing” would then have to take place; no doubt much later than if a full hearing were allocated in the usual course.

Were Winning to be unsuccessful on the “liability case” it would undertake not to seek leave to appeal until the quantum case was determined.

Thus, Mr Withers and I had this exchange:

These matters show the uncertainties that may arise were the issues of liability severed from quantum.

A further, more nuanced, point arises.

In their written submissions, Mr Withers and Ms Hall submitted that:

On the other hand, Mr Newlinds submitted that there was no such “bright line” and that there was rather a “grey area” between liability and quantum issues.

Mr Newlinds submitted that this arose from Mr Gordon’s contention that there were implied terms of the agreement that he alleges he reached with Mr Winning that:

Mr Newlinds submitted that at a “liability hearing”, and assuming that such terms were found to be part of the agreement, it may not be possible to determine what a “reasonable time” and “reasonable period” were without expert valuation opinion.

Thus, Mr Newlinds submitted:

The Court is always cautious about ordering the separate determination of issues, including the separate determination of liability and quantum. Very often it causes more problems than it solves.

In my opinion, taking into account the matters to which I have referred, I am not persuaded that this is a case where separate determination of liability and quantum should be ordered.

The defendant’s notice of motion of 18 December 2020 is dismissed with costs.