Coffee and a Case Note: Recent Episodes
James d'Apice
I’m Australian lawyer, James d’Apice. Coffee and a Case Note began as a video series where I sip a coffee and chat about recent legal cases. This is the audio version! I hope it brings you value.
“Our parents’ citrus farm is a partnership asset!”
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Two siblings in partnership, P and D, ran a citrus farming business, having received it from their parents in the 2000s: [1]
(P, the parents’ exec, sought access to the parents’ privileged documents after death. As exec, P could waive privilege, however doing so was for themselves and not in the interests of the estate or benefs. Noting an exec’s duty to avoid conflict, access was denied: [4] - [10])
In the 1990s the parents gifted D the “Lot”, a part of the citrus farm: [29] - [31], [45], [50], [268]
In 1999, P bought a nearby farm with the parents providing both deposit and guarantee. P rented the house on the nearby farm out and continued to live with the parents at the citrus farm: [54], [60]
The orchards on the nearby farm were deployed in the parents’ business but there was no suggestion P’s nearby farm was a partnership asset: [55], [149]
In 2001, the parents gifted P and D the citrus farm and the business: [61], [62]
The farm was transferred before the commencement of P and D’s partnership and, being a gift, was not paid for with partnership funds: [142]
From around 2018 relations between D and P soured: [104] - [107]
As P’s nearby farm was not providing fruit for the partnership (and even though P continued to work for the partnership) payments to P were reduced: [121], [122]
Valuations were obtained as part of a potentially unwinding process. During this, P’s lawyer shared comments on a Deed (apparently made on P’s instructions) acknowledging P’s ownership of the Lot: [123]
P said that, in 2022, they attended D’s home to demand their share of partnership profits and were rebuffed. Police became involved and an AVO was obtained: [125], [126]
From around this time P was not paid by the partnership and did no further work for it: [129]
Shortly after this, P’s lawyer asserted the farm, including the Lot, was an asset of the partnership: [131]
The Court found the partnership ended on the date of the altercation, noting that from that time, P did no work and received no payment: [140]
P sought a declaration that the citrus farm, including the Lot, was a partnership asset: [141]
Although the evidence was imperfect, the Court was not convinced by P’s argument that the citrus farm was a partnership asset. This was based in part on its tax treatment via instructions given by P and D to an accountant over the years: [153]
P was found to have an equitable interest in the farm, namely in the Lot: [155] - [223]
The Court declined to make an s66G order and instead made a Woodson order, requiring P to offer their remaining interest in the farm to D at market value. If D was not willing or able to buy, a sale should proceed: [249]
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Please give James d'Apice, Coffee and a Case Note and James' firm, Gravamen, a follow on your favourite platform!
www.gravamen.com.au
The most fun James has ever had guesting on another podcast!
There's laughter, James' advice for how to enjoy Drake, there's more laughter, and there's also some depth as James, Jordan and Nathan reflect on what it means to be progressive (and to question some of the central tenets of capitalism) while also doing financial and corporate work.
A wonderful chat - James just hopes he gets invited back!!!
In April 2024 James sat down with Roger Christie, MD of Propel, to talk about the use of LinkedIn for building a legal practice (but it's extremely interesting and includes James having to take a pause because Roge has said something pretty moving and insightful).
You can catch the Digital Reputation Podcast here: https://propelgroup.com.au/podcast/
Gaaaah! James got to be the first ever private practice lawyer on Mel Storey's incredible in-house counsel themed podcast, Counsel!
This pod was recorded IMMEDIATELY after James launched his firm Gravamen at the Happy Lawyer Happy Life retreat in November 2023.
Grab yourself a mimosa and enjoy this incredible chat.
A link to Mel's podcast is here: https://www.counselpodcast.com
“Give me back my job selling diamonds!”
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A Co that sold diamonds and jewellery had 4 shareholders, entities related to the Co’s directors who were P1, D2, D3, and D4: [1], [9]
P1 and their sibling, P2, were fired by the Co from their roles as CEO and sales director respectively: [3]
The Ps (including P1’s shareholding entity) sued alleging the Co’s conduct was oppressive to P1 and seeking inter alia P1 and P2’s reinstatement on the basis of s232 oppression: [4], [5]
A Terms Sheet and employment contract governed P1’s relationship with the Co and Dirs: [11], [12]
Following slackening performance the Dirs met in Nov 2023. They resolved to reduce P1’s salary by 11%. P1 mentioned that P1 and P2 may not be compatible with the Dirs into the future: [24], [25]
In December 2023 P1 offered to sell their and P2’s shares (on the basis P2’s option had vested) for $750K: [27], [28]
D2 responded that P1 could expect a response in January 2024: [29]
Apparently with no further word in the intervening period, in April 2024 P1 and P2 received letters purporting to terminate their employment immediately: [30], [31]
P1 and P2 sought reinstatement and were then prevented from entering the Co’s premises: [35]
The Co’s Sydney office was closed. An industry publication informed other jewellers of P1’s and P2’s departure. Allegations were made regarding P1’s use of their Co credit card: [37], [38], [40]
The Court had to consider (i) whether there was a serious question to be tried, and (ii) whether the balance of convenience weighed in favour of reinstatement: [41] - [43]
The Court accepted there was a serious question to be tried because - apparently in breach of the Terms Sheet - a resolution was reached to terminate P1 and P2, and to close the Sydney office, in the absence of P1: [48]
A complexity arose: P1’s employment contract gave the Co broad termination rights that, arguably, meant the Co’s approach was not oppressive: [50] - [52]
The Ps failed on their balance of convenience argument for four reasons: (i) the inconsistency between an interlocutory order for reinstatement and final order for a share buyout [54] - [56]; (ii) damages being adequate, noting any final share valuation will account for oppressive behaviour [57]; (iii) reinstatement would upset, not maintain, the status quo as new people were performing P1’s and P2’s roles [58]; and (iv) generally, the Court’s reluctance to make reinstatement orders over the wishes of majority business owners: [59] - [62]
The Court declined to order the interlocutory relief sought: [63]
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Please consider giving Coffee and a Case Note, James d'Apice and Gravamen a follow on your favourite platform!
auslaw #gravamen
James got to sit down for a chat about his progression through the world of legal practice with the legal Amogh Kadhe, of the ChatterMatters Podcast in early 2024.
Please enjoy!
You can find the ChatterMatters LinkedIn page here: https://www.linkedin.com/company/chattermatters-podcast/?originalSubdomain=au
“I’ve retired as a partner. I want market value with no discounts!”
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In 2018, 4 Cos entered into a partnership agreement. The business related to growing and selling tea: [1], [5]
P retired from the partnership. The agreement provided that the partnership would not be dissolved on a partner’s retirement: [2]
The question was: what value should P receive for its partnership stake?P argued for, in essence, a pro rata distribution according to its 19% stake: [3]
The Ds, who were the remaining partners, argued for a market value approach i.e. including discounts for P’s lack of control and the lack of marketability of P’s stake: [4]
The partnership agreement provided that the partners were entitled to the property and goodwill of the partnership in their respective shares: [8]
P sued, and initially applied for the appointment of a receiver to the partnership’s assets without pressing this application: [21]
By consent, the parties sought orders appointing a referee, a valuer, to value P’s interest in the partnership including goodwill at the date of retirement: [22] - [24]
The valuer sought further instruction on the basis of the valuation; fair value, market value, equitable value etc: [25]
Following an informal conference with the parties and the valuer the details of which were not in evidence, the valuer prepared their report on the market value basis: [27]
P’s view of what a market valuation entailed differed from the D’s views in that P resisted the suggestion that a discount ought to be applied for lack of control and a lack of marketability; or if those discounts were to be applied they ought to be reduced: [27]
The Ds said P had “agreed” to the more traditional market value approach: [28]
P said it was entitled to recover its share from the partnership as a debt due: [33]
The Ds denied P was entitled to an account and instead considered the valuation as a “stepping stone” to a potential transaction or (if their valuation position was accepted) grounds for a Syers order requiring P to sell to the Ds at the relevant value: [34]
The Court was receptive to P’s suggestion that if P were forced into a minority discount, and the Ds then sold the partnership’s business the Ds would enjoy a windfall: [50]
The Court accepted P’s entitlement to an account noting the parties could have agreed on a different outcome if they wished: [51]
The Court found the P did not “agree” to the minority discount as part of the market valuation process, having openly argued against it through the valuation process: [52] -[57]
The Court accepted P’s view on valuation of its interest and considered as a preliminary matter that legal costs be paid from the assets of the partnership: [65], [68]
The parties were invited to provide SMOs reflecting the outcome: [74]
___Please consider giving Coffee and a Case Note, James d'Apice and Gravamen a follow on your favourite platform!
www.gravamen.com.au #auslaw #gravamen
“You tried to kick me out of the law firm partnership!”
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A partnership operated a law firm. A deed governed the partners’ relationship. The partners were either fixed draw (“salaried”) partners or (often more lucrative) capital partners: [1], [2]
Each partner was a trustee of a separate trust: [2]
P was a capital partner, purportedly expelled from the partnership in November 2020: [5]
P said the purported expulsion was contrary to the deed; meaning P remained a partner or was entitled to damages: [6]
The Ds characterised the partnership as “easy in, easy out” - partners did not make a contribution to join, and were not “paid out” on their exit: [13]
When a capital partner exited, that exit was a “complete, forced, and absolute divorce from the firm”: [29]
The Ds proposed P’s expulsion by email with a “voting button” mechanism and also proposed that the technical requirements for expulsion (e.g. the giving of 7 days notice) be waived or abridged: [38] - [40]
Crucially, only one button was required to be pressed in order to vote on both proposed Extraordinary Resolutions (which the deed said needed 80% of the vote to pass): first (i) expulsion, and then (ii) waiver of technical requirements: [39]
P said this process was invalid because (i) the waiver of technical requirements (like notice) should come before the substantive expulsion vote, and (ii) the question of waiver and the substantive expulsion vote should have had separate voting buttons, allowing partners to vote separately on each resolution: [41]
The Court found the requirement of notice was for a purpose including, potentially, the marshalling of support by the capital partner at risk of expulsion: [48]
The Court found it undermined the seriousness of the consequences of expulsion for the question to be bundled up with the technical variation resolution (or, in the alternative) before it: [49]
The Court found what had taken place was a “plainly invalid process”: [50]
P’s expulsion from the partnership was, therefore, invalid: [51], [101] - [103]
This view was bolstered by the Court’s finding that the Extraordinary Resolution (as defined in the deed) required 80% of all partners to vote in its favour in order to be passed.This was by contrast to the Ds’ position, who asserted that only 80% of the voting partners were needed for such a resolution to pass: [52] - [57]
Noting the solemnity of the outcome of an Extraordinary Resolution, and based on the general tenets of commercial construction, the Court found 80% of the partnership was required to pass an extraordinary resolution, not merely 80% of partners engaging in the vote: [58], [59]
P therefore succeeded in their liability argument, with a cost order made in their favour: [122]
The argument about damages was saved for another day.
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If you get a moment please give Coffee and a Case Note, James d'Apice, and / or Gravamen a follow on your favourite platform.
In March 2024 James had a chat with Josh Lawlor and Monica Walmsley from the Personal Branding Unlocked podcast.
It's a wide-ranging chat that features James' views on his own branding journey with some lessons you can apply in your practice.
You can find the PBU pod here: https://www.personalbrandingunlocked.com.au/
“Compensate the company. Then pay that money to me!”
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P, a former shareholder, sought to bring a claim on behalf of the Co and then have the proceeds paid to themselves: [1] - [3]
s237(2)(a): the Co was not going to bring the claim itself: [8]
s237(2)(d): the Court considered (i) whether the pleaded case could be proved, and (ii) if so whether that would ground the relief sought: [12]
When practising, P was the sole shareholder of the Co and principal benef of the trust the Co operated. That way, P’s work earned income for the Co: [16]
P chose that structure, and form of income distribution, likely due to financial advantages P considered arose - and so was bound to the risks arising from that choice: [17]
P made an agreement with some the Ds that would see advisory work referred to the Co, and would see NewCo established to do additional work: [19]
From 2013 the relationship between P and the Ds deteriorated with the Ds allegedly not referring work to NewCo and otherwise breaching the agreement: [24]
The Ds purported to remove Co from controlling NewCo thereby displacing P NewCo and diverting NewCo’s business to themselves: [31]
In 2017 P was made bankrupt, and later removed as beneficiary of the trust with the Ds buying P’s shares in Co from P’s bankruptcy trustee: [37], [53]
Despite a contract claim being out of time, it appeared there was “apparent unlawfulness” and claims that the Ds breached their duties to NewCo: [32], [35]
Importantly, the relief P sought chiefly was for distribution to be made to them as former benef of the trust, requiring the Co to on-pay its compensation to the P: [36], [40]
P attempted to characterise the Co’s loss as P’s loss due to their benef status at the time: [44]
P was unable to show (i) the Co’s income would inevitably be distributed [45], (ii) that if distributed that it would go to P solely, noting she was not the sole beneficiary [47], or (iii) that all the money paid to the Co would be distributed and not otherwise applied to e.g. costs of administering the trust etc: [48]
The Court found there was no entitlement to the distribution relief sought by P: [49]
An argument that P’s bankruptcy trustee may have entitlement did not require determination: [51]
The Court found there was no serious question to be tried as to P’s final relief, leaving other prayers arguably intact. However the problems with the relief meant the s237(2)(c) best interests test was not met: [56[
s237(2)(c): P’s claim was only for P’s benefit and without regard for the Co’s other obligations or objectives. It was not in the best interests of the Co that it be brought: [58] - [65]
s237(2)(b): In seeking an unlitigated determination that the Co pay all compensation to her the Court found P was not coming in good faith: [82], [83]
Having failed to meet the s237(2) criteria, P’s application was dismissed: [90]
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Please follow, James d'Apice, Coffee and a Case Note and Gravamen whereever you can! (If you'd like!)
In early 2024 James sat down (remotely) with David Turner to chat about starting a law firm from scratch.
Even though James was only a matter of weeks (!) into his journey he did his best to share everything he could - warts and all.
Please enjoy this revealing and entertaining chat between James and David.
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You can find other episodes of Hearsay: The Legal Podcast here: https://hearsay.legalcpd.com.au/episodes/
In March 2024 James had the opportunity to talk with Communications and Law student and producer of the Hearsay Legal Podcast, Jacob Malby, about creativity, freestyle rap, and law.
This conversation traverses Coffee and a Case Note as well as other projects of James' with his Spooko co-creator, Thomas McMullan.
A link to Spooko is here: https://fbiradio.com/podcast/spooko/
A link to Hearsay is here: https://hearsay.legalcpd.com.au/
“Hey! Stop trying to work for our competitor!”
D was a consultant who, in 2022, left one large firm and joined another. D’s expertise was defence work: [2], [3]
The 2022 role included a 2 year restraint: [4]
The 2022 employer underwent a restructure following a scandal and D was then employed by P, or an entity related to it: [6], [9]
D’s contract with P included a 3 month notice period with a right for P to force D to take that time as “gardening leave” [11] and cascading restraints commencing at 12 months and Australia-wide: [12], [14]
In November 2023 D resigned indicating they planned to work at another firm.
Shortly afterwards P sent D a letter directing D to take gardening leave for 3 months and asserting the restraints: [16], [17]
D acknowledged gardening leave but resisted the restraints: [18]
By the end of D’s gardening leave, neither party had shifted from their position and P commenced proceedings seeking an urgent injunction: [19] - [24]
P had to show there was a “legitimate commercial interest” in enforcing the restraint and that it went no further than necessary to protect it: [28]
P said the restraint would protect P’s legitimate interest in (i) the relationships with P’s clients, or (ii) the confidentiality of P’s confidential information e.g. pricing: [32]
The Court spent some time considering the work done with P and the work to be done at the new entity (noting the evidence was “bedevilled with management jargon” [44]) concluding that the question was one of contractual construction to be set aside for final hearing: [47]
The Court accepted there was a prima facie case in respect of the information D had access to: [48], [49]
The Court noted D had previously accepted a 2 year restraint and so there was a prima facie case for a one year restraint: [51]
Generally, the Court considered P had a prima facie case and turned to the balance of convenience question: [52]
The Court noted D was well paid, had no evidence to show their asset position, had tax liability suggesting significant income in the past, and had their “eyes wide open” when accepting the restraints and then resigning: [53] - [64]
This weighed against D in a balance of convenience argument.
However, P’s delay was pivotal.P only brought the application at the conclusion of D’s gardening leave in February 2024 despite having first raised issues in November, and after various exchanges with D and D’s lawyers during leave: [65]
Delay can be a complete answer to an interlocutory application: [67]
The Court found it would be unreasonable now to restrain D from joining their new employer simply because P “has now belatedly discovered the urgency of the case” without P’s delay having been adequately explained: [80], [81]
This delay tipped “the scale the other way”. P’s application failed. Costs followed the event: [81]
“It’s my wind-up application, so surely I should get my choice of liquidator...?”
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The Ps brought an application to windup various entities on the s461(1)(k) just and equitable basis, and to appoint receivers to the assets of the associated trusts: [1], [2], [6]
The various entities were variously incorporated and settled to develop a marina. That development did not progress as hoped: [3], [13]
The relationship between Dir1 and Dir2, the 50-50 controlling minds and shareholders of the relevant entities, irrevocably broke down: [1], [4], [5]
The Court found it was just and equitable that the various companies be placed into liquidation on the just and equitable basis, and receivers appointed to the associated trusts: [10]
The sole area of dispute was the identity of the liquidator(s) to be appointed: [14]
Generally, a Court will appoint a plaintiff’s choice of liquidator, though will bear in mind partiality, fitness, qualification, cost, perceived independence etc. It is for a defendant to argue for a departure from that course: [15] - [18]
The different hourly rates of the parties proposed IPs were found to be likely to lead to significantly different cost outcomes: [19]
An argument that one IP had previous experience with marinas was “very thin” - especially noting that this venture did not proceed and that the Court was not provided with evidence of how this previous experience might assist: [20]
The difference in the price of flights from Sydney or from Brisbane (to the venture’s Bundaberg location) was a “minor consideration”, especially noting the Sydney IPs had offices in Brisbane staffed by employees who could assist: [21]
The Court was troubled by the perception (perception only - no finding or criticism was made) of possible conflict where the Ds’ proposed IP would likely use the advisory services of a firm who was the major shareholder in a proposed purchaser of the marina: [22]
The Cos were wound up on the J and E basis, and relevant trust assets placed in receivership, with the Ps’ preferred IPs appointed: [24], [25]
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auslaw #coffeeandacasenote #gravamen
Please follow James d'Apice, Coffee and a Case Note, and James' firm Gravamen wherever you can!www.gravamen.com.au
“We put all our shit in mum’s name…”
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P was the deceased’s spouse, and administrator and sole benef of the decd’s estate: [1]
The Ds were the decd’s parent, D1; sibling, D2; and some related entities: [2]
The decd and D2 - members of a motorcycle club and charged with drug offences years ago - used various entities to engage in business: [4], [5]
In 2002 the decd and D2 transferred substantial assets to D1: [7]
P said the arrangement was that D1 would hold those assets, and the income they generated, on trust in equal shares for the decd and D2. P said this scheme was to protect the assets from confiscation pursuant to the Proceeds of Crime Act: [8], [118] - [132], [248]
D2’s evidence that they had no such concerns was rejected, as was the Ds’ evidence that evidence that D1 had a role in the businesses beyond book-keeping: [117], [138]
The Court formed an unfavourable view of much of the Ds’ evidence, as “unsupported… and inherently unlikely”: [38]
In 2002 steps were taken to put the “asset protection” regime in place including incorporating a corporate trustee of which D1 was director and shareholder; settling a trust with D1, D2 and the decd as beneficiaries; and causing D2’s and the decd’s assets to be transferred without consideration constituting the corpus of that trust: [142] - [152]
The decd had described the arrangements as “we put all our shit in mum’s name”: [151]
After the transfer D2 took some role in various business ventures and property developments for the trust, as did D2 and the decd: [154] - [212]
Contemporaneous notes suggest the decd understood that their entitlement to 50% of the trust assets would pass to P (as their sole beneficiary) on death: [218]
P made various submissions in support of their asset protection or “warehousing” characterisation of the arrangement between the parties. P also said the Ds’ arguments (such as they were) failed to take into account the Proceeds of Crime Act protections that the decd and D2 were pursuing: [260] - [263]
The Ds said P’s characterisation was “Kafkaesque” and the assumptions underlying it unfounded: [269]
The Court accepted P’s characterisation: [271], [287] - [289]
That was because: (i) the Ds’ lack of evidence and explanation about how any debt arose to D1 or the “implausible” suggestion that the parties were unconcerned about the Crime Commission ([272] - [276]), and (ii) the P’s case was supported by contemporaneous evidence: [277] - [286]
The Court found the parties intended to create a trust relationship, including because of language used by the parties to characterise it: [306] - [309]
The relief P sought could be granted against the TCo (i.e. not just D1) on basis that the TCo would not have its discretion fettered but that it would be prevented from exercising power in respect of 50% of its assets: [387]
Costs followed the event: [459]
“We can’t order a share sale. Decide yourselves, or it’s getting wound up!”
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A number of plaintiffs applied for relief in relation to a shareholder dispute.
Through the litigation the issues in dispute narrowed.Both the plaintiffs and defendants preferred for the Ds to buy out the Ps. A winding up order was all parties’ second preference: [1] - [6], [19]
Commencing in 2014, the Ps and Ds incorporated Co1 and Co2 to (i) operate a GF bakery and (ii) own the land the bakery was situated on: [8] - [10]
Evidentiary wrinkles included one of the Ds seeking a higher salary, one of the Ps resisting, the Ds causing the salary to be paid, the P then causing the same amount to be paid to their entity, and the Ds causing that payment to be recorded as a loan: [11]
The Court exercised caution in relation to a winding up, noting the Cos likely had more value as a going concern, than as assets sold via liquidation: [25]
All parties accepted that the relationship between themselves had failed such that an order winding up the Cos on the just and equitable basis would be appropriate: [29]
The Court accepted that it would be appropriate for the Cos to be wound up on the just and equitable ground (and the appointment of a receiver to the Cos’ property held on trust: [30]) unless (noting s467) the Court was satisfied a buyout order could be made instead: [29]
s467(1) grants the Court the power to make various orders on the hearing of a winding up application.
The Court considered at length whether this power was broad enough to impose a forced share sale on litigants, eventually finding “with a degree of hesitation” it was not sufficiently broad: [37] - [51]
The Ds sought a buyout order on the s233 “oppression” basis: [52]
The Ds argued the Ps’ failure to agree to Co1 entering into a formal lease with Co2 was oppressive. Noting a lease had not previously been required, with no formal advice and with the risk of a conflict of interest arising, the Ds were not able to show a failure to enter into a lease was oppressive: [62], [63]
Taken together: whether pursuant to s467 or s233 there was no basis for the Court to make a buyout order.
Though not strictly necessary (as no buyout order was made) the Court considered the expert evidence placed before it in relation to the value of both Cos - the trading entity and the property owning entity: [64] - [78]
The Court ordered that the Cos be wound up, but stayed the order for 14 days to allow possible negotiation of a share sale: [80]
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auslaw #coffeeandacasenote #gravamen
Please follow James d'Apice, Coffee and a Case Note, and James' firm Gravamen wherever you can!
www.gravamen.com.au
In January 2024 James got to sit down and chew the fat with BB head honcho, Mike Bromley!
They spoke about the founding of Gravamen, the dreaded work / life balance, and why James finds TikTok boring.
You can find BB here: https://www.beyondbillables.com/blog
In December 2023 James caught up with Lara Quie from the Legal Genie Podcast to discuss social media, marketing, legal practice, horror films, battle rap, and everything inbetween!
You can find the Legal Genie podcast here: https://thelegalgeniepodcast.buzzsprout.com
“Yep! You can sue the author to get the company’s IP from them.”
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A Co’s Dir, P, sought to bring derivative proceedings against a Co’s majority shareholder, D.
P wanted declarations that the Co (and not D, who was also the book’s author) was the owner of all intellectual property rights in relation to a book: [1], [6]
P said that after D wrote the book, D and the Co entered into an agreement for the Co to acquire the IP in the book: [7]
Alternatively, P said D was estopped from asserting they owned the IP. Both D and the Co conducted themselves (including by the Co’s accounting and the collection of fees) as if D had assigned the IP. Indeed, in their capacity as co-director, D signed the relevant accounts reflecting this: [8], [10], [12]
Evidence showed D received a real financial benefit in their corporate loan account on the basis of the transfer of IP having been made: [24]
Evidence showed there had been negotiated of a written IP assignment agreement but that D had not signed it: [9]
P attempted to commercialise the IP with one childcare provider. Conflict arose as D tried to do something similar with a competing childcare provider: [11]
D did not lead evidence but said that, if leave was granted, they would defend the claim: [17]
The Co being solvent, the Court then turned its attention to the five criteria regarding whether leave to bring derivative proceedings ought to be granted pursuant to the Corporations Act.
(i) It was clear (from the deadlocked board and D’s refusal) that the Co was not going to bring the proceedings: [19]
(ii) The Court accepted P was coming in good faith, bringing a claim P believed was well-founded, with reasonable prospects, and likely to bring value to shareholders if successful: [20]
(iv) The Court accepted, on the basis of the material before it, that there was a serious question to be tried: [21]
(v) Notice of the application was given to D: [31]
This left the remaining criterion (iii) - whether it was in the best interests of the company for P to be granted leave to bring the application on behalf of the Co.
The Court noted it appeared the Co paid for but had not obtained the value of the IP. The inference arose that the IP might be put to productive use in future; an inference reinforced by the fact that the IP is at the core of the Co’s business purpose and - without it - it was not clear how the Co could pursue its business purposes: [25]
D’s suggestion that it was not in the Co’s best interests to be in dispute with its majority shareholder was acceptable on its face, but did not take the D’s argument very far noting this approach would serve only D’s interests, and not the Co’s: [26], [27]
The Court considered the Co was better off pursuing the IP rights it paid for than going without them: [30]
Noting the indemnity provided by the P for the Co’s costs (an indemnity obtained in part from a related trustee), leave was granted to P to bring the derivative suit: [32], [34]
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“Let’s appoint an IP to chase the group’s debts!”
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The Ps were 48% shareholders of a group of Cos that owned luxury car dealerships. The Ds were directors representing 52% of shareholders.
The 52% majority owed a judgment debt to the group. The Ps proposed a course for recovering the debt. The Ds used their votes at board level (including a casting vote) to vote down the Ps’ course and vote up their own: [2]
There was deep “anger” and “animosity” between the Ps and Ds and “very bitter and distrustful” feelings [58], [69]
The Ps argued the Ds had a conflict of interest. The Ds said the Ps did too: [3]
In previous litigation the Court found the Ds breached their duties to the group, pursuing litigation on the group’s behalf that benefitted them personally as part of a coordinated strategy to defeat the Ps: [12]
This led to the Ds’ $19.8m judgment debt, plus costs incurred by the group: [13]
To recover the debt the group needed to resolve: what were the group’s costs and how should they be pursued?: [14]
The Ds suggested an insolvency practitioner (IP) be appointed to by the group to recover the debt: [30]
The Ps proposed that they form a sub-committee to recover the debt: [31]
The Ds resisted on the basis the Ps were also conflicted: [32]
The Ds were critical of the Ps’ conduct in their dealings with the luxury car head franchisor, including providing them with Court documents and apparently paving the way for the Ps to take over the group’s operation of the dealerships: [44] - [48]
A reduced franchise term followed - from the usual 5 years to 1 year, apparently as a result of the Ps’ conduct: [48]
Despite the Ps’ conduct being “unwise” the Court found it was engaged in in an attempt to find a reasonable separation from the Ds. It was not found to be malicious: [49]
The franchisor later threatened perhaps reducing the term to 3 months or 6 months: [51]
The Ps accepted that if they were in charge of pursuing the judgment debt then negotiating that debt could be intermingled with negotiating the share price they wanted to pay for the Ds’ shares: [56], [57]
The Court had regard to the “ongoing bitterness, conflict, and lack of trust” as reasons not to appoint the Ps to pursue the debt: [64], [65]
The Court accepted the Ds’ submissions RE the appointment of an independent IP: [71]
The Ps’ oppression claim failed with the Court noting that more than disappointment in the minds of minority shareholders is required to show a company’s conduct is unfairly prejudicial: [77]
The Court dismissed the Ps’ claim and (noting the Ds were the majority and held the casting vote) was confident that the Ds’ resolution to appoint an insolvency practitioner would pass: [83]
___
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www.gravamen.com.au
On 3 November 2023 James gave a speech on marketing and branding for lawyers similar to one he had given a number of time before.However, this time, he gave the speech with a live case study: the lauch of his own law firm, Gravamen!Many thanks to Clarissa Rayward and the whole Happy Lawyer Happy Life and Retreat team for making this happen! https://www.happylawyerhappylife.com/___Please support James' new firm, Gravamen, on your favourite platforms.www.gravamen.com.au#auslaw #gravamen #auslaw #coffeeandacasenote
In November 2023 James d'Apice sat down to chat with Alex Nielsen of The Australian Law Student Podcast about his approach to practice, overcoming "fuck ups" including bad marks on exams, and the future of James' law firm Gravamen.
You can find the Australian Law Student here: https://www.theauslawstudent.com
“Your share of the sale proceeds gets reduced for us dealing with your complaints!”
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3 siblings co-owned real property. They disagreed on what use it ought to have been put to. 2 siblings, the Ps, applied to appoint s66G Tees, successfully.The Tees sold the land and distributed the Ps’ shares of the sale proceeds. The remaining sibling - the defendant, D - contested the Tees’ fees and criticised their management of the sale: [1] - [4]
The Tees applied to be paid further remuneration from the D’s share (based on those costs arising from the D’s conduct) and to retire as trustees: [5]
The Tees took the view that they should have distributed the net proceeds (after paying themselves 2/3 of their fees) proportionally to the Ps, and that the costs of any dispute with the D be borne solely from D’s share. The Court endorsed this approach: [11]
The Tees retained the D’s 1/3 share, and an amount on account of 1/3 of the remuneration they were entitled to: [12]
The D made various criticisms of the Tees' conduct of the sale including in lengthy correspondence, and then refused to attend meetings or provide bank details in order to accept a payment: [13] - [15]
The Tees instructed lawyers, and then so did the D. The D later withdrew his lawyers’ instructions, and then said they would accept the figure first offered by the Tees without deduction: [16] - [18]
The Tees reiterated they intended to make deductions and the D reiterated their claims. The Tees delayed approaching the Court and tried to negotiate, but eventually brought this application: [19]
The Court noted trustees for sale are entitled to be indemnified for their costs in the normal course, and that where litigation is threatened those costs may be higher than usual: [22]
The Tees’ claim for their own further remuneration was reasonable and “could even be characterised as modest” noting they did not claim for their time trying to negotiate with the D: [26]
The Tees claimed further costs for their engagement with solicitors and in bringing the relevant motion: [27]
The Court considered once the D raised their complaints the Tees needed legal advice on whether to negotiate with the D, or to consider making an application to the Court: [28]
Broadly D complained about the Tees time entries and professional conduct: [30] - [32]
After extensive consideration the Court found the Tees discharged their duties reasonably, diligently, and honestly: [33]
The Court found it appropriate, and permitted, that the D’s share of the sale proceeds bear the Tees' further remuneration and costs: [34] - [36]
The Tees originally attempted to pay $235K to the D as their share. The Court accepted the Tees costs and remuneration substantially exceeded $65K but accepted that figure as a compromise of the Tees’ remuneration and the fees to be charged by the Tees’ legal team: [40] - [42]
Having failed to accept payment of $235K, the Court ordered the D was to receive ~$172K: [45]
___
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“Those notes aren’t privileged! Hand them over.”
___
P sued D in relation to personal injuries P alleged at around the time they were giving birth. D, to oversimplify, was the hospital’s insurer: [7], [9]
D instructed an expert who produced a report.
P filed a NoM seeking access to a document produced by the expert in response to a subpoena, but over which D asserted legal professional privilege: [1], [9]
P said the document was not privileged or, if it was, privilege was waived: [6]
D had briefed the expert and invited the expert to initially provide a verbal opinion on 6 Qs. The expert gave evidence that during that conversation “(they) referred to.. 2 pages of handwritten notes (they) had prepared. (They) used them as the basis for expressing (their) verbal opinion to (D’s lawyer)”: [10] - [14]
These 2 pages constituted the document P sought and D asserted was privileged.
Privilege attaches to a communication not a document. D asserted the document was a communication: [20], [21]
Documents generated unilaterally by an expert in the course of forming an opinion do not attract privilege: [22]
Despite there being a “grey area”, privilege may be claimed in communication between the expert and solicitor if made for the confidential use in the litigation: [24]
A draft report, for example, is not a communication: [25]
It is for the party asserting privilege to prove privilege attaches to a document: [32]
Despite having prepared an affidavit on the topic there was no evidence that the document was intended to be a means of communication between expert and lawyer: [34]
Having so found, the Court did not need to consider the question of waiver. However - noting that disclosure of an expert’s report is an implied waiver of the instructions underpinning that report, and that there was no suggestion the document did not cover material that eventually formed part of the final report - the Court would have concluded privilege was waived: [34] - [37]
P was granted access to, and permitted to inspect, the document: [38]
___
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In November 2023 James gave a presentation for prominent CPD provider TEN about a developing area of trust law.
In this CLE, James explores:
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The corporate derivative action
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Some litigated examples of it
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The Court's decision in Gillespie v Gillespies Cranes Nominees Pty Ltd [2022] NSWSC 1184
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Practical suggestions for dealing with corporate derivative actions
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Practical suggestions for the evolving landscape arising from Gillespie
A link to TEN's website is here: http://www.tved.net.au
auslaw
coffeeandacasenote
On 30 October 2023 James was lucky enough to accept an invitation from Dr Madeline Taylor to give a lecture in Dr Taylor's commercial law course at Macquarie University.During this talk James discusses the "gap" between the theory learned at university and what happens when the rubber hits the road, in legal practice.In the discussion, James refers to cases including:Carpenter v Morris [2021] NSWSC 1700Campbell v Campbell [2022] NSWSC 554 SSC Super Pty Limited [2022] NSWSC 686Gillespie Cranes Nominees [2022] NSWSC 1184Australian Karting Association Ltd [2022] NSWCA 188M & L Richardson Pty Limited [2021] NSWSC 105#auslaw #coffeeandacasenote #macquarieuniversity
James was a guest of the Lawyers Weekly podcast hosted by the legendary Jerome Doraisamy in October 2023. The two discussed the process of finding your specialty, and the the importance (or otherwise!) of niches.
You can find a link to the Lawyers Weekly version of the podcast here: https://www.lawyersweekly.com.au/podcast/38383-choosing-your-niche-and-communicating-it-to-the-market
“You stole the Co’s koala client base! That’s not good faith.”
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P, one of 3 equal shareholders in a Co operating a vet surgery, sought to bring a derivative action on the Co’s behalf.
The other 2 shareholders were the Co’s Dirs. D1 was a vet, and P’s former spouse. D2 was an E’ee of the vet clinic.
The Co offered traditional vet services as well as “rehabilitation” services; chiropractic and acupuncture: [6]
In 2019 P and D1’s marriage deteriorated. In 2021, P sought family law property orders. In 2022 the marriage was dissolved: [7]
As part of the family law litigation, all parties contemplated P selling their shares to D1 and D2: [8], [9]
In 2021, P’s was dismissed by the Co for alleged serious misconduct. No payment was made for annual leave (the Co saying it had all been used) or in lieu of notice (due to the alleged serious misconduct): [12] - [14]
One of the Co’s leading clients was a local koala hospital. P sought to siphon off this koala work (to the detriment of the Co) while still a Dir of the Co. (P was indeed later employed by the koala hospital, with the Co losing that work): [16] - [34]
D1 and D2 incorporated a new company and diverted the Co’s “rehabilitation” services away to it: [48] - [59]
The Court found it was likely the family law proceedings would lead to orders that P sell his shares in the Co to D1 and D2: [63]
P threatened bringing a derivative suit regarding the new “rehabilitation” company being a breach of the Ds’ directors duties if his claimed employment entitlements were not paid. They remained unpaid. The proceedings were brought. The Court accepted the derivative suit was brought by P to apply pressure to seek his unpaid claimed employment entitlements: [73] - [76]
The Court (with respect, quickly) concluded leave to bring the derivative suit should not be granted: [77]
The Court accepted the Co would not bring the claim, that there was a serious question as to whether the Ds breached their duties, and that notice had been given: [78]
The Court found the derivative suit would not be in the best interests fo the Co and was not brought in good faith: [79]
The Court found the derivative suit unnecessary and “pointless” as the issues relation to the Co’s value and the new “rehabilitation” business were to be litigated in the family law proceedings: [84], [86]
A “parallel” between family law proceedings and a derivative suit will not always stand in the way of the latter succeeding: [84]
Regarding best interests, granting leave would distract D1 and D2 from continuing to build the Co: [87]
Regarding good faith, P did not come in good faith because the claim was pointless and unnecessary, and because it was brought to secure employment entitlements - an abuse of process: [88]
Leave was not granted.
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“Your Honour, would it be OK if I entered into this deed?”
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Long-running litigation was on foot relating to, among other things, land with a value of around $40m.
By NoM, a receiver appointed by the Court to the relevant Ds in the litigation sought the Court’s advice about whether they would be justified entering into a Deed settling all the pieces of litigation: [12], [15]
The receiver relied on evidence, including confidential advice from counsel on the nature of the settlement: [17]
Some earlier claims, being a portion of the matters in dispute, were settled in a deed 2019: [23]
Some orders in the proceedings were made in May 2023. The Ps filed a Notice of Appeal in respect of them: [30]
Various negotiations followed by correspondence leading to a proposed draft Deed: [31] - [36]
That was the question before the Court in this matter: whether the receiver would be justified in settling the dispute on the proposed terms.
There is settled law that a Court can give advice and direction to a Court-appointed receiver in a manner analogous to judicial advice given to a trustee: [37]
The law relating to judicial advice to trustees was relevant with the question of whether a claim can be settled on certain terms being a well-recognised area for the giving of advice: [41]
The Court noted the complexity of the dispute: originating in 1948, proceedings commenced in 2013, 4 years of mediation leading to only partial settlement in 2019, a valuable underlying asset: [43]
The Court said the giving of its advice required a comparison of the position if the deed was entered into versus the position if it was not: [47]
The draft Deed contemplated that all proceedings would be dismissed, mutual releases provided, and all parties bearing their own costs - a “walk away”: [48]
The 2019 deed included releases for costs related to the litigation, but not "additional costs": [49]
Considerable attention was paid to the implication of the releases if the draft Deed was entered into including a claim the “additional costs” outside the bounds of the 2019 Deed: [50] - [58]
The draft Deed would also see the receiver releasing any rights to enforce a damages undertaking made by the Ps in relation to a 2013 interoloctory injunction: [60] - [63]
Ultimately, providing releases of the “additional costs” claim and the damages undertaking were commercial considerations for the receiver: [59], [64]
If the Deed was rejected outstanding risks would remain, including the outcome of the impending appeal, and the difficulty recovering costs in the face of the 2019 Deed: [65] - [68]
The Court considered it would be reasonable for the receiver to enter into the Deed, giving the judicial advice sought: [69], [70]
___
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In July and August 2023 James d'Apice gave a series of one hour CLEs "live" on Facebook, Instagram, Linkedin and YouTube.
This one concerns s461(1)(k) of the Corporations Act 2001 (Cth) - the just and equitable winding up remedy - and has the following structure:
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The law
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Litigated examples
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Practical suggestions
Please give James and Coffee and a Case Note a follow on your favourite platform!
In July and August 2023 James d'Apice gave a series of one hour CLEs "live" on Facebook, Instagram, Linkedin and YouTube.
This one concerns s66G of the Conveyancing Act 1919 (NSW) and has the following structure:
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The law
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Litigated examples
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Practical suggestions
Please give James and Coffee and a Case Note a follow on your favourite platform!
“Hey! That was the Co’s opportunity to sell baby formula!”
___
A Co that made infant formula had two shareholders: P as to 51%, DCo as to 49%: [1], [2]
DCo was controlled by a married couple – D1 and D2 – who had roles including as the Co’s former director and former CEO: [3]
P alleged D1 and D2 breached their duties to the Co: [4]
P said D1 and D2 caused an opportunity for the Co to promote and distribute a certain brand of infant formula to be diverted away from the Co, and toward entities related to D1, D2 and members of their family: [5] – [10]
P said D1 and D2 caused the Co to transfer ownership of its trademarks to entities related to them: [11] – [15]
P said D1 and D2 caused the Co to make payments to entities related to them based on fraudulent invoices and otherwise improperly: [16]
P said the entities related to the Ds were aware of these breaches and knowingly took the benefit: [18], [19]
P sought leave to bring a derivative suit to agitate these claims, and also alleged s232 corporate oppression: [23], [24]
Interim freezing orders were made pending the outcome of this application: [24]
The Court considered the five s237(2) criteria in relation to the proposed derivative suit.
The 1st (the Co probably not commencing the proceedings), 2nd (the P coming in good faith on the basis that increasing the Co’s value would increase their shares’ value), 4th (the P showing there was a serious question to be tried) and 5th (the Ds had notice of the claim) were all met: [32] – [37]
This left the question of whether the granting of leave would be in the best interests of the Co.
P submitted that the nature of the claim, and its prospects, were so compelling in the context of the Co’s affairs that a grant of leave would be in the Co’s best interests even if supported by only a limited indemnity from P: [41], [42]
The proceedings were likely to be factually and legally complex with claims against multiple defendants and an estimated 16 days needed for the final hearing: [45]
The Court found that any grant of leave to P ought to include an indemnity from P to the Co for any adverse costs orders, but not to the extent pressed for by the Ds: [46]
Many of the relevant Ds were based in China. The cost of enforcing the judgment in China was uncertain (as were the prospects – with expert evidence suggesting no judgment of an Australian Court had been registered and enforced by a Chinese Court). The Court found it would only be in the best interests of the Co for leave to be granted if P indemnified the Co in respect of this cost: [47]
Leave was granted to P to bring the derivative suit, conditional upon the indemnities being provided: [78]
___
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In July and August 2023 James d'Apice gave a series of one hour CLEs "live" on Facebook, Instagram, Linkedin and YouTube.
This one concerns the law of partnership and the disputes that arise in that area and has the following structure:
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The law
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Litigated examples
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Practical suggestions
Please give James and Coffee and a Case Note a follow on your favourite platform!
“Restrain our (former?) partner from competing with us!”
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In 2020, the Ps entered into a partnership agreement with D1 to run an accounting practice: [3]
In 2022, D1 incorporated D2: [4]
Ps wanted the Court’s help to immediately stop D1 and D2 from chasing the Ps’ clients: [5] - [8]
The partnership agreement had various restrictions including on partners not trading as accountants for 2 years after the end of the agreement in the relevant area: [46]
RE whether the Ps had a prima facie case (the first of the two interloc injunction criteria) the Court gave a (respectfully) excellent summary of the applicable restraint of trade principles: [66]
This matter concerned restraining a partner, not an employee, however the Court held the same general principles apply: [70]
The Ps gave evidence saying in May 2022 D1 indicated a planned resignation: [72]
The Ps sent an internal email regarding the resignation saying it would be effective on 30 June 2022. D1 was CC’d and made no objection to the email at the time: [75], [77]
In December 2022, D1 ceased receiving partnership drawings and was “cut off” from IT systems, clients and staff without notice: [88]
In January 2023, D1 commenced employment apparently by a firm with a similar name to D2, but later continued to hold himself out as a partner of the partnership in some contexts: [92], [93]
In March 2023, an employee of the firm resigned, giving the reason they were following D1 to their new firm, D2: [94], [95]
At around that time, a client of the firm said they were approached by D1 and sought clarification. This galvanised the Ps into action: [96], [97]
A number of the firm’s clients indicated they were following D1 to give their work to D2: [100] - [105]
In May 2023, the Ps’ lawyers wrote to D1 asserting a breach of partnership obligations: [112]
There was contested evidence about the timing of D1’s resignation, or whether he resigned at all! D1 remained listed on the firm website in 2023 but for the purposes of the interloc application, the Court finds there is a prima facie case D1 has resigned: [114] - [129]
Following argument about whether a clause precluded D1 from soliciting the firm’s clients or (more broadly) competing with the firm at all - the Court accepted it was arguable that the covenant against competition (the broad one) was enforceable: [130] - [134]
Evidence showing clients of the firm withdrawing work on account of D1’s conduct was found to ground an arguable position that D1 had breached the partnership agreement: [148]
The Court accepted, too, that there was evidence of a prima facie case to restrain D2 noting a covenanter cannot evade a covenant simply by creating a new entity: [151], [160]
In relation to the balance of convenience the Court accepted there was evidence D1 would suffer financial hardship, and that there was evidence the Ps would suffer loss. On balance the Court considered injunctive relief appropriate and made the orders sought: [171]
___
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In July and August 2023 James d'Apice gave a series of one hour CLEs "live" on Facebook, Instagram, Linkedin and YouTube.
This one concerns s236 of the Corporations Act 2001 (Cth) and has the following structure:
-
The law
-
Litigated examples
-
Practical suggestions
Please give James and Coffee and a Case Note a follow on your favourite platform!
In July and August 2023 James d'Apice gave a series of 5 CLEs "live" on Instagram, Facebook, Linkedin and YouTube.
This one covers corporate oppression pursuant to s232 of the Corporations Act 2001 (Cth) using the structure:
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The law of corporate oppression
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Some litigated examples
-
Practical suggestions
Please send James or Coffee and a Case Note a follow on your favourite platform!
“You complied with the contract by paying someone else, but pay me too!”
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P and their (then) spouse, X, agreed to lend $1m to D. The money - which was actually P’s solely - was lent: [1]
X directed D to repay the money into one of X’s accounts. D did so. At this time P and X were separated. They later divorced: [2]
P sued X for the money and, X having been made bankrupt, expects receive under $20K from X on account of their claim: [4]
P went on to sue D alleging breach of the agreement and negligence: [5]
D said X had actual or ostensible authority to direct the payment. D also said that by suing X, P made an election to pursue X rather than P and so ratified X’s conduct: [6]
D was a developer. When P and X were introduced to D they were asked for a refundable for a development, and nominated a joint bank account for the refund if necessary: [8]
X agreed to buy a unit in the development and later added P’s name. There were subsequent EOIs for other units: [9], [10]
P and X entered into a note facility agreement with D: [17]
X provided D with $1m in bank cheques - the $1m being P’s money X held on trust: [18]
Interest was initially paid into a P and X joint account: [19]
X sought for refundable deposits to be repaid to an account of his choosing, which they were: [21]
P introduced herself to D and had various discussions about possible developments, the refunded deposits, and disclosed the marital difficulties between P and X: [23] - [28]
Ahead of the expiry of the notes facility, D asked X where the $1m should be repaid. X nominated an account that was solely X’s and it was paid there: [31], [32]
P pursued X for the $1m, and X was bankrupted on P’s application: [35], [36]
P now turned their attention to suing D.
Two questions arose. Did D discharge its obligations by paying X? By suing X did P make an election from which the couldn’t resile?: [37]
After giving the issue lengthy consideration, the Court found D was OK to make payment to an acct nominated by the “Lender”, and that X’s nomination met this: [52], [56], [68]
X did not have authority to nominate on P’s behalf BUT D nonetheless complied with the contract by making payment HOWEVER the question of whether P was still entitled to pursue D for the debt remained: [69]
An act done without authority can be ratified by the person on whose behalf the act was done: [72]
Once ratification happens, the principal cannot then exercise rights that are inconsistent with the ratification: [73]
P original claim against X proceeded on the basis that P had rights to bring the claim against X. By making that claim, and seeking to enforce that judgment P ratified the acts of X: [78]
P did not dispute this analysis specifically, but pursued D on the basis of a breach of contract. This claim failed. By repaying X, D had complied with their contractual obligations: [79]
The application was dismissed with P obliged to pay D’s legal costs: [90]
___
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“That’s my warehouse, or at least half of it is…”
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From its purchase in 2010 P and D were registered as 50-50 TiC co-owners of a warehouse. P was D’s parent.
P had borrowed the money to buy the property. D operated a business from the property until 2012 when it become non-viable: [4]
From 2017 the property was leased with all rental proceeds being paid to D: [7]
P commenced proceedings (not by tutor, but following some earlier litigation about P being able to represent P due to P’s Alzheimer’s) seeking orders that D holds their 50% interest for P, that s66G trustees be appointed, and that D account for 50% of rental proceeds: [8], [16]
D’s father - P’s former spouse - died in 1990. The estate passed unequally, and in large part to D’s siblings (with none to P). D said this unequal distribution was relevant background for P buying him at least part of the property: [25] - [33]
There was very little admissible evidence that D held their 50% share on trust for P: [42]
P’s child, who is D’s sibling, gave evidence in support of P’s application. The evidence suggested P wanted the property wanted the property sold from around 2012 but that was not conclusive in relation to the parties’ legal rights: [44] - [53]
D said that P had “always” said they would bequeath the property to D in their will: [54]
Over the years D brought various investment opportunities to P, which they sometimes invested in, including (unsuccessfully) a Kenyan gold mine: [61]
Various letters prepared by P were tendered. Ultimately these did not assist due to uncertainty about P’s mental capacity at the time they were prepared: [86]
P was unable to demonstrate D held their 50% share on trust for P: [87]
The Court considered, on the balance of probabilities, that it was more likely that P intended to assist D by the purchase of the property making him 50% owner: [88]
While other possibilities might arise, the Court considered that: “(t)here is simply a dearth of evidence and speculation does not assist”: [92]
D did not press their initial claim that they were in fact the 100% owner: [93] - [96]
D asserted that P gifted them the rental income from 2017 to 2022. This was not accepted. P was in a difficult financial position, suffering from Alzheimer’s, and a number of requests were made for P’s share of the rent. This stood in the way of the Court finding the rent was gifted to D: [108]
It was ordered that D pay to P 50% of the rent D had collected: [111]
P sought appointment of s66G trustees. D resisted on irrelevant bases. The Court noted hardship or unfairness was not a barrier to making of s66G orders: [117]
The Court appointed the s66G trustees.
Regarding costs - s66G costs are normally paid out of the trust corpus. However, noting P succeeded in their rental income claim and failed in their resulting trust claim, the Court ordered that only 50% of their costs be paid from the proceeds of the property’s sale: [126]
___
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“But you’re who’s stopping the Co from bringing the claim!?”
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The Ps (a parent and their child) were the dirs and only shareholders of the D. The D was trustee of an SMSF and the Ps were beneficiaries: [1], [2]
The Ps, proceeding without legal advice, sought leave to cause D to sue for some alleged trust property: shares.
The Ps said FormerTCo, a former Tee of the SMSF, owned shares in OtherCo, that FormerTCo became deregistered, and the shares (which the Ps said were trust property) were unlawfully bought back by OtherCo: [5]
The Ps sought leave to cause the D to sue OtherCo to get the shares back. (A claim against the Commonwealth was not pressed): [5], [6]
The Ps said they could not cause D to commence the proceedings as to do so would breach their fiduciary duties: [7]
The evidence regarding the alleged buy-back was unclear and included heavy redactions: [13] - [23]
In 2016 FormerTCo resigned and was later deregistered. The Ps appointed themselves trustees. In 2022 they retired as trustees and appointed the D: [25] - [27]
The Court was left to consider the s237 derivative action criteria: [30]
s237(2)(a): the Court found D would not bring the proceedings, but that was only because the Ps refused to cause it to do so: [33] - [38]
s237(2)(b): the Court found Ps’ application was not brought in good faith. It was the Ps’ conduct that prevented D from bringing the application. The purpose of the derivative action is the opposite - to allow people without control of a company to bring proceedings on its behalf: [39] - [43]
s237(2)(c): the Court considered it was not in D’s best interests that leave be granted as the Ps’ indemnity was insufficient, and the claim’s prospects were poor: [44] - [46]
s237(2)(d): the Court found there was “little more than bare assertion” to suggest the buyback was unlawful or improper, but the evidence did disclose a serious question to be tried: [48]
The facts were the subject of twelve (!) other related pieces of litigation over the years from 2013: [52]
The Ps’ heavily redacted evidence and failure to disclose apparently relevant matters traversed in the other litigation left the Court in a state of “considerable disquiet” about whether the entire position had been disclosed by the Ps: [53]
Questions of abuse of process and Anshun estoppel also arose, without sufficient evidence to make a definite finding: [54]
Noting a number of criteria for leave had not been satisfied, leave to bring the derivative action was refused: [60]
The Ps also sought a mandatory injunction requiring D to bring the proceedings but failed to show they would suffer grave damage if the injection were not granted, nor to indemnify D: [62]
The Ps’ application failed.
___
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www.linkedin.com/in/jamesdapice
"This motel ain't big enough for the both of us!"
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Two families operated a motel together until their relationship deteriorated.
2XD owned the land the motel was operated on and leased it to 1XD, a Co co-owned by 2XD: [2]
2XC had assisted 2XD over the years, and came to assist with the motel: [13] - [17]
The arrangements (for 2XC to help at the motel, and to eventually purchase it from 2XD having paid a deposit) were informal and legally unclear - an arrangement defined by “uncertainty, if not confusion”: [24]
1XC (who was in a domestic partnership with 2XC) ran a separate business providing accomodation among other things. After a time 1XC obtained an EFTPOS machine to accept payments: [37] - [41]
2XD stopped payments to the XCs for their work at the motel, apparently planning to set those “non payments” against an eventual purchase price: [42]
Sometimes the 2XC used the EFTPOS machine for motel payments: [44]
This diverted funds away from the XDs’ motel bank account: [46]
In early 2020, 2XD decided they did not want to proceed with the sale: [47]
In around July 2020, the XDs forcibly evicted the XCs and commenced legal proceedings: [48], [49]
The dispute crystallised into arguments which parties owed what money, and why: [51]
Complexity arose from the messiness of the legal relationship: [52]
The XCs were not employees, nor did they have an “equitable lease”, nor were they agents, nor did any equitable relationship arise: [54] - [65], [92]
The Court found the parties had a loose, consensual arrangement whose terms were implied: [66]
The XCs claimed their deposit and the unpaid “non payments” for motel work; a total of ~$105K. The Court found no reason existed for payment not to be made and the XCs succeeded in their claim: [86]
The XDs claimed (among other things) ~$240K of payments made through the EFTPOS machine. There was no conclusive evidence about which payments related to the motel and which related to 1XC’s other business (noting sometimes guests would stay at 1XD’s premises if the motel was full). The Court considered the most fair outcome was to award around half the amount claimed to the XDs: [95] - [102]
A number of other small claims brought by the XDs failed, including because no fiduciary obligations arose between the parties: [103] - [112]
Orders were made that the XCs pay the XDs $132K, and the XDs pay the XCs $105K - a difference of around $27K: [113]
The Court invited submissions on costs but suggested an appropriate order may be that each party bear their own costs.
Without wishing to be flippant or disrespectful, each party might also bear their own regrets about failing to document their arrangement.
___
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“Those unjust terms are void, but not the whole contract.”
___
A Co borrowed money. The Co’s dir and that dir’s spouse (together, “the Ps”) guaranteed the Co’s borrowing including by mortgage: [4]
The Ps said the contract was unjust pursuant to the Contracts Review Act 1980 (NSW): [6]
The Co borrowed ~$9m from the D on a 15 month term with ~$1m immediately payable to the D: [7]
On default a higher interest rate would be payable, even after the default was remedied: [15], [16]
A “hefty fee” - 5% of the ~$9m - could be charged by D in the case of potential default even for some circs the Ps and the Co could not control: [17], [18], [55]
A contract (unless it’s commercial, which this was not for the Ps) can be unjust due to its contractual operation (“substantive injustice”) or due to the way it was entered into (“procedural injustice”): [26], [33]
Through the prep of the contract, changes requested by the Ps were ignored: [38], [39]
The contract was not negotiated. The Ps’ 1st lawyer did not read it. The Ps’ 2nd lawyer was engaged so late they could only advise, not propose changes: [40]
This in part arose from D’s insistence at the last minute that the Ps change lawyers, having threatened not to continue with the deal if the 1st lawyers remained - an “unfair” tactic with “no good reason”: [42], [66]
The P who was a dir of the Co knew the D’s proposed term was likely too short for the development to be completed: [46]
The Ps had poor English skills and no experience with finance and property development. D was aware of this: [56] - [58], [71]
Independent legal advice was obtained, though in English with no interpreter: [60]
It is likely the Ps understood some of the legal impacts of the agreement, though likely not all of it without a translator: [62] - [65]
It was foreseeable that the Co would default (as the loan term was shorter than needed to finish building) and it was foreseeable that problems would emerge as a result: [68]
There was inequality in bargaining power between the Ps and D; and with the D’s added time pressure, no time to negotiate amendments or seek a translator’s help. D was aware of these issues: [69]
The Court did not find that the entire agreement itself was unjust; merely the “continuing” default interest rate and the “hefty fee”: [74]
The Court declared those terms void: [79]
favourite
“You can’t bring your derivative suit; an oppression claim does that job!”
___
Ps, shareholders in a Co that produced fire collars and similar products for the building industry, sought leave to bring derivative proceedings on behalf of the Co.
The relevant IP for the Co was held in a unit trust with TCo as trustee.
Each of the Ps and the Ds were shareholders in Co and TCo, and unitholders in the trust: [2]
The Ds were directors of Co and TCo.
The relationship between the parties began to deteriorate from around 2014, when P1’s employment by the Co was terminated. From around this time the Ps wanted to sell their shares: [3]
First, the Ps said the Ds caused an improper capital raising by TCo, who then purchased and licensed back some of the Co’s assets. The Ps said this arrangement was on uncommercial terms with the impact of diluting the Ps’ interests: [6]
Second, the Ps said the Ds founded NewCo, and caused the Co to supply NewCo with products NewCo would then sell overseas at a profit. The Ps say the Ds caused the Co to provide services to NewCo on terms not beneficial to the Co: [7]
The Ps wanted leave to bring a suit chasing the Ds including for breaching their contract with the Co and breaching their duties to the Co. They brought additional claims including pursuant to s233 of the CA: [8]
The Ps said their derivative claims were “strong”, and would be pursued at no cost to the Co as the Ps would fund and indemnify the Co for any costs order. The Court noted the oppression claim would be brought in any case: [14]
The real debate surrounded whether the derivative suit was in the best interests of the Co: [15]
For leave to be granted the Court must be satisfied it is in the Co’s best interests that leave be granted; not that it could be or is likely to be: [17]
The Court noted it needed to consider whether the Ps could obtain relief from means other than forcing the Co to litigate against its will: [19]
While not determinative the Ps’ Statement of Claim revealed the dispute was really one between shareholders, and another means of achieving a similar result to the derivative suit is the oppression proceedings: [20]
The Court noted authority that the alleged breaches of duty could be accounted for in the valuation of the Ps’ shares in any buyout relief that might be available in the oppression claim: [22]
The Court did not grant the Ps leave to bring a derivative suit: [24]
The Court considered it was not in the best interest of the Co for a derivative suit to be brought where similar relief could be obtained by Ps by other means, and without involving the Co in litigation. It was not shown by Ps that the oppression relief would be inadequate: [23]
___
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“You can have their shares, even though they’re worth nothing!”
___
P commenced oppression proceedings seeking buyout orders, or a windup.
Co1 was owned 50-50 between P and D2, and bought a site for $4.6m: [4]
Co2 was owned 50-50 between P and D2, and bought a site for $2.9m: [5]
P said they contributed $1.3m to finance and D1 and D2 ~$700K between themselves: [6] Further funds were also contributed to all Cos by both.
Co3 was owned 50-50 between P and D2, and agreed to buy a site for $6.1m in future: [7]
During the hearing P showed debts owed by Co1 needed urgent payment, revealing the Cos needed P to meet their debts: [24]
D1 said D2, their spouse, was little more than a figurehead. D1 said that they operated in the Cos day to day: [31]
D1 said P agreed to provide additional funding for the Cos’ projects without Ds needing to contribute: [33] - [37]
The Court did not accept D1’s evidence, and D2 did not give evidence; the inference arising that it would not have assisted the Ds: [47]
The parties did not record their arrangement: [48]
P said the parties agreed to share the Cos’ expenses and profits 50-50: [51]
Neither P nor D1 proved the agreement they said was made: [56], [60], [62]
In late 2022, D1 instructed the Cos’ builders to stop work on the Cos’ projects, and stopped a finance application: [67]
P said Ds’ failure to pay 50%, the purported termination of the alleged agreement, and the Ds instructing some construction and a finance application to cease were contrary to s232: [76]
The Court found the Ds failure to contribute their 50% was enough to support either a buyout order or a winding up: [77]
The breach of the alleged agreement was not seen as oppressive as the agreement was not proved as pleaded, nor was the ceasing of construction and finance: [77]
The Ds also said, unsuccessfully: P caused inaccurate books to be prepared, and that P breached their directors duties. The Ds also said the relationship had broken down. This was made out, but not a defence to P’s claim: [78]
The next issue was: should relief be a share sale or a winding up (noting that a buyout order can be made for no consideration)?: [79]
P made various submissions in support of a buyout order: [79] - [85]
The Ds accepted the relationship had broken down, but pressed for a winding up: [86]
On balance, the Court found a buyout order was appropriate for Co1, Co2 and Co3: [99], [102]
Noting the indebtedness of each of the Cos to P and the Ds, the value of each Co as nil making the value of the Ds shares in each Co nil: [80], [84], [104], [106]
Having found buyout orders were appropriate, the Court did not need to consider P’s claim for a winding up: [107]
Noting the nil value of the Ds’ shares, the Court ordered that P had to pay certain amounts into Court on account of the Cos’ debts to the Ds and, once paid, cause the transfer of the shares to P: [125]
___
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“Is the whole group a partnership, and can we dissolve it?”
___
In the 1950s 3 brothers started a business which became successful. It was run as a group of Cos and trusts that grew in value and complexity.
The group was run informally by the 3 brothers (and later their kids) and structured pursuant to tax advice: [20]
In 2018 P sued seeking to divide the business into 3 equal parts; each part passing to each brother’s family or estate.
The Court accepted the relationships broke down for “unclear and complicated” reasons including issues with a parcel of land allegedly owned by P and issues with the new generation running the group: [41] - [50], [126], [154]
P said the group was operated by an “overarching” partnership; saying the group had many of the attributes of a partnership (run by 3 bros, profit share etc.): [82], [101]
However, the group’s underlying assets were held on trust. A partnership can be a beneficiary of a trust, but not a legal owner of assets held on trust: [95]
Fatal to P’s claim: if a receiver was appointed to the “partnership” what could that receiver do about the assets held on trust? Nothing outside of the trust deeds’ bounds: [97]
P alleged parts of the group was a “sub-partnership” between the brothers’ spouses. However, the spouses were trustees, not partners: [98], [99]
The group was found to be an “overarching” partnership: [101]
P then said the group should be wound up on the just and equitable grounds: [103]
In 2017 one brother died, his child then representing his interests. Negotiations to divide the group were conducted and failed. This litigation was commenced. Together this showed the group could not return to its state when run by all 3 brothers: [115]
However the appropriate question re s461 is whether each company (many of which were trustees) should be wound up. Ps did not make submissions on each company: [119]
No suggestion was made that each Tee company was failing in its obligations with no suggestions trust assets were in jeopardy: [120], [121], [132]
In the absence of this evidence and submissions, it was not for the Court to try to find a basis for a s461 order: [124]
P sought the dissolution of the trusts in the group, but the only basis for that would be bringing forward each one’s vesting date. In the absence of hearing from the beneficiaries the falling out between the brothers was not a basis for the Court to direct the trustees to so exercise their powers: [139]
P was not itself a party to the partnerships in the group and so could not dissolve them: [146]
The Court considered its conclusions “could not be regarded as a satisfactory resolution of the case”: [154]
The Court found that the brothers, having chosen this structure in large part for tax effectiveness, must now live with the consequences and sought submissions on next steps: [155], [158]
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“It’s not unreasonable that I rejected your offer!”
___
A dispute arose about how much tax a Co should have to pay.
The dispute related to P’s alleged status as an employment agent: [22], [24]
As the matter progressed P made a partial payment in respect of the claimed tax debt and litigation was commenced.
In January 2021 D made a Calderbank offer (and not a UCPR offer) to accept about $3.4m for its claim (when it alleged $5.2m was owed): [9]
The matter did not settle.
In the end, in February 2023 P was ordered to pay P $4.2m: [10]
P enjoyed partial success at first instance. Due to P’s partial success, at first instance D was ordered to pay 50% of P’s legal costs: [3], [4]
D appealed including seeking to displace its costs obligation: [8]
D said that if the Jan 2021 offer had been accepted P would have been $800K better off, so rejecting that offer was unreasonable.
D further said P was unreasonable in not accepting the offer because: (1) it was made 3 weeks before the first instance hearing, (2) it was open for 14 days, (3) it involved a compromise of $1.8m, (4) it was clear, (5) an indemnity costs order was flagged, and (6) P had all the evidence needed to assess its position: [13]
Reasonableness is to be assessed at the date the offer is made, not with hindsight: [15]
P said a significant amount of the final sum it was ordered to pay was interest accruing due to matters outside its control including D’s conduct by appealing on the last possible day and amending its appeal grounds, and the appeal being partly heard with a subsequent 3 month delay for a second hearing day: [16]
The Court accepted the offer was not a compromise in primary tax, only interest - and that interest was largely due to D’s conduct of the appeal including raising of new grounds: [19]
Considering the reasonableness of P’s response to the offer should bear in mind each party’s exposure regarding interest i.e. while D might be owed interest if it won, P might have been owed interest on its pre-payment if it had won: [20]
D eventually won on appeal, but that victory was attributable to a point not given much attention at first instance, and not mentioned in the offer: [22] - [24]
It was not unreasonable for P not to accept the offer. The existing cost order was appropriate. D should pay P’s costs of the application to vary the costs orders: [25]
___
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“Money down; then you can sue me!”
___
P sued the Ds for $4m claiming it was an unpaid builders margin: [1]
The Ds sought security for their costs: [2]
In 2018 P worked on 2 projects for some Ds, with the Ds’ Dir expressing interest in buying shares in P despite a dropping margin: [7]
Later in 2018 some of the Ds entered into the shareholders deed. One of the Ds became a 50% shareholder in P and P was entitled to charge an 8% margin on costs for construction work done for the Ds: [8] - [10]
In 2019 P began construction work and issued D invoices for costs plus 8%: [12]
The Dirs of P and the Ds incorporated NewCo to do building work. There was some complexity as to whether NewCo charged a margin or was entitled to: [13] - [18]
The Dirs of P and the Ds incorporated NewerCo which, in a complicated arrangement, also purported to do building work for the Ds: [22] - [25]
In 2022, the Dirs of P and the Ds agreed to part ways: [26] - [30]
P then rendered an invoice to the Ds for 8% of the cost of works performed by P, NewCo, NewerCo and related entities: [31]
After settlement negotiations failed, and the making of SOPA payment claims, P commenced proceedings in August 2022: [32] - [39]
The Ds sought financial information from P: [44]
P provided a P and L and said on the assumption its invoices were paid, it was profitable: [44]
P represented that it had tendered successfully for a $20m job, but it appeared that may have been a party related to the P: [45]
The Ds sought security for their costs: [46]
P resisted the application. It said its prospects were strong based on credit findings it said would be made about the Ds’ business practices at final hearing: [50]
P said the Ds’ Dir sent emails requesting invoices be re-issued to refer to other developments, and that contracts were backdated: [51], [52]
The Court said these issues were peripheral to P’s central claim that came from the “complex and changeable” contractual environment: [53]
The Court found that even if the credit finding contended for were made, it was not clear how that would affect the parties’ contractual relationship: [54]
Regarding finances, P said it was $1.4m in deficit. If the $4m claimed was paid its position would stabilise: [56]
The Ds said the claims were claims of other entities related to P, and not P themselves. That meant that P’s prospects were not as strong as claimed and, even if the claims succeeded, the money would not necessarily revert to the P: [57] - [61]
The Court considered whether an order for security for costs would stifle the proceedings.
To prove this, P had to prove neither it, nor those who stood to benefit from the litigation, could provide security. Including due to insufficient evidence about the beneficiaries of a relevant trust, P failed to meet this test: [63] - [71]
The Court ordered that P should provide D with $250K security for their costs, and for it to have its costs of this application: [79]
James
Coffee
favourite
“Nope! The injunction stays and you’re still restrained.”
___
P was a member of an international group of leasing businesses. D was a former employee of P’s.
Commencing in 2016, over time D had been promoted, signing a number of new employment agreements: [4]
The most recent contract included a 3 month notice period and an extended restraint. D gave evidence they did not read the agreement before signing, instead relying on emails exchanged at the time: [7], [8]
In Feb 2023, D resigned purporting to give 4 weeks notice: [9]
After D left employment, P was granted an injunction restraining D from competing with P for a period: [2]
D entered into an employment agreement with a competing property business purporting to commence in March 2023: [12]
D’s resignation was a repudiation that P could accept and terminate, or otherwise keep on foot. P kept the contract on foot: [13]
The “garden leave” requirements that P said remained on foot were indeed restraints of trade: [13]
In early March P got an injunction preventing D from working for their new employer: [15]
D sought to discharge the injunction: [16]
P had to show the restraint was reasonably necessary to protect its legitimate interests, and otherwise compliant with the NSW legislation: [20] - [22]
D said they were not bound by the 3 month notice period as they had not read the document (legally immaterial where a person has signed a document known by them to include contractual terms): [25]
P said D had developed personal relationships, had access to confidential information like tenders and pricing, and may take 12 months to properly replace: [28]
D said head hunting was common among the small industry and the restraint was unnecessary: [30]
P established a serious question to be tried due to (i) D’s senior status and personal relationships, (ii) that (at least) 3 months might be needed to onboard a replacement for D, and (iii) P had a legitimate interest in protecting the confidential information D was aware of: [31] - [33]
Noting D’s role with P there was a risk damages were not an appropriate remedy: [35]
While D might face some financial risk, P undertook to continue paying their salary, nor was there evidence that D’s signon bonus was at risk: [36], [37]
That protected D’s position: [42]
D “was the author of (their) own misfortunes” by entering into an arrangement with a new employer in breach of their previous obligations: [40]
The balance of convenience favoured the maintenance of the injunction: [43]
The application to dismiss the injunction failed. D remained bound by it: [45]
“But our relationship hasn’t broken down!”
___
C1 and C2 did development work together.
Two natural persons, P and D, were inter alia (i) equal shareholders in C1 and C2, and (ii) dirs of C2. D was the sole dir of C1: [1]
P brought an application pursuant to s233 and s461 to wind up C1 and C2: [2]
Originally, D had borrowed money from P’s parent for the venture. P’s parent only agreed so P could learn the property development business in a quasi-partnership venture, built on trust: [4], [54]
Various loans between the entities, and P’s parent, were made for C2 to purchase properties for development: [9]
Over time, P’s spouse became involved: [11] - [15]
P took a passive role in the venture: [53]
P alleged D caused over $3m in improper transfers from C1’s accounts: [59] - [61]
D returned a significant amount of that sum: [62] - [64]
Evidence suggested D “parked” some of C1’s money in D’s own offset accounts to reduce D’s interest payments, and bought a car without permission: [66], [67], [70], [81]
D diverted funds of C1 that could have been used to pay its debts and made other payments with a lack of transparency; apparently a breach fo DDs, as well as sufficient to enliven both s461 and s232: [75]
The breakdown in relations was shown by increasingly toxic WeChat exchanges: [90] - [93]
The lack of trust stymied further development opportunities, but D said suggestions of a breakdown in relations were exaggerated: [98], [99]
C1 and C2 had not prepared financial statements from 2018 with no explanation: [107]
D blamed P’s spouse for not providing the supporting documents needed: [101] - [104]
Breaches of DDs and inadequate accounts can be sufficient to wind up a Co on the just and equitable basis: [109]
C1 and C2 also failed to comply with their tax obligations or pay their debts; likely a breach of D’s DDs and sufficient to ground an s461 order: [110], [116], [122]
The failure by C2 to resist a VCAT claim against it is further evidence of deadlock between the parties: [128]
The lack of records made it difficult for the Court to understand the Cos’ position. It appeared at least one insolvency test might be met: [129], [133]
To the extent that D raised transactions P engaged in that might have been improper, the Court considered a liquidator would be well placed to pursue these: [154]
The erosion of trust and confidence meant it would be just and equitable to wind the Cos up (s461) and that the Cos’ conduct was relevantly unfair (s232): [159] - [161]
The status quo was “wholly unsatisfactory” and the existing problems - tax debt, poor record keeping and governance - were likely to worsen. Independent liquidation was therefore attractive: [166]
There was no alternative remedy and so the Court ordered that C1 and C2 be liquidated: [167] - [177]
James had the chance to sit down with the wonderful Rose Inglis for her Rose Tinted Law podcast the other week!
James (me - I am just writing this and pretending we are a big team) probably revealed more personal stuff, and more TikTok beef stuff, here than ever before.
Enjoy!
And catch Rose here: https://rosetintedlaw.com.au/rtl-the-podcast
“Nope. You can’t stand in the company’s shoes.”
___
In a family dispute, P wanted the Court’s leave to pursue a $10m claim on behalf of Co. P said the $10m was owed by D1, trustee of a family trust, as a loan to be repaid: [2], [17]
P also sought leave to proceed against D2 and D3 for breaching their duties to Co: [3]
P said the loans were made where D1 had doubtful capacity to repay, and where interest was not charged: [4], [5]
At a 2021 meeting, the Co’s dirs (including an independent dir) considered the loan from D1 and resolved not to seek repayment at that time: [10], [21]
P gave an undertaking to pay Co’s costs if leave was granted, despite not having much money: [11]
A dispute regarding D3’s removal as trustee of a family trust lead to a far reaching settlement deed being entered into in 2019. That established Co’s corporate governance structure, including the independent director: [18]
There are a number of related pieces of litigation on foot between the parties: [24]
It was accepted by all that Co was not going to bring proceedings seeking repayment, or alleging breaches of duty: [27]
Whether P was acting in good faith in pressing a claim against D1 was considered in the context of P being a shareholder in Co, there being inconsistencies in P’s claim, and P’s offering of an indemnity of dubious value: [33], [34]
Whether P was acting in food faith in pressing the claims against D2 and D3 was assumed to be so but, later, found to be irrelevant as the claims raised no serious question to be tried: [39]
The Court was not satisfied that the claim was in the Co’s best interests. No financial evidence comparing alternatives was tendered, and the Court was reluctant to disturb the commercial judgement of the Co’s directors: [46], [47]
The Court noted the established corporate governance principle that directors could legitimately make decisions against the wishes of a majority of shareholders: [50]
It was found to be contrary to the Co’s best interests to “sidestep” or “outflank” the decision of Co’s board not to pursue the debt now, especially as no challenge was raised to the decision making process used: [53], [54]
Was it in the best interests of the Co for P to bring the claim? No, due to the existing family tensions and possible inability of P to separate P’s interests from his own, and the fact P did not propose instructing independent lawyers if leave was granted: [56]
As the claim was not brought in good faith or in the Co’s best interests, P was not granted leave to pursue Co’s claim against D1: [63]
Nor were the claims against D2 and D3 seriously arguable. P’s claim was poorly pleaded and contradictory in part - whether the loan would or would not be repaid, whether it was currently statute-barred or not: [64], [65], [71], [72]
P’s application was dismissed: [83]
"Cancel the meeting you've set to remove me!"
___
An association relating to the education of First Nations people, D, planned to convene a meeting to consider removing its president, P. P applied to the Court on an urgent basis to restrain D from doing so: [1]
The meeting was set for a Sunday, P having been provided with very little notice. P approached the Court for an urgent hearing on the Friday beforehand, and the Court made the orders sought: [2]
The president said (i) the meeting was not called in accordance with D’s constitution, and (ii) for it to proceed would be to deny procedural fairness i.e. the chance to respond to criticism: [6]
The president had been involved in education for 40 years, was a life member of D, and had been elected president in 2021: [15]
P said that if their role as president was to end, they may need to reapply for their existing job, with a risk they might fail: [16], [42]
D’s work includes seeking, and then applying, funding. The evidence suggested P would argue that they deserved credit for $20m in funding for the association: [26]
Evidence suggested a power struggle and the passing of a motion of no confidence in P in December 2022: [28] – [30]
In January 2023, lawyers for the 8 other members of the management committee wrote to P setting out complaints and seeking a response: [31]
The complaints included complaints of misusing D’s funds: [32]
P denied the complaints: [38]
P was sick in hospital at the time of the hearing and would not recover in time to attend the meeting in any case: [43]
P satisfied the criteria for an interlocutory injunction: proving (i) there was a serious question to be tried and (ii) the balance of convenience favoured an injunction: [47]
The obligation of the association to afford P procedural fairness arose by inference: [49] – [51]
For the meeting to proceed would offend that requirement due to: P’s illness, the lack of particulars of the claims made, and the lack of time given to respond to the claims: [52] – [55]
As such, the Court found that a serious question arose: [58]
The Ds could not show any prejudice arose from the delay, the risk of the president incurring costs that were not reasonably identifiable was not apparent: [61]
P would likely suffer serious reputational loss if the meeting was to go ahead: [63]
Indeed, the D may suffer loss of funding for removing its president in circumstances where procedural fairness appears that it may have been denied. The external funding D relies on may be put at risk: [64]
P would almost certainly suffer financial loss if the meeting went ahead, where D would be unlikely to suffer loss: [65]
The balance of convenience was met and the injunction granted: [68], [71]
___
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A partnership dispute (that I have previously summarised part of) was litigated in large part, then settled: [2]
Before final orders were made, deeds were signed that saw the D pay a sum, surrender their partnership assets, and the proceedings dismissed: [4]
P, a former partner of the partnership then sued D for the same breach: [5]
D said P (1) was bound by the deeds; (2) was estopped due to res judicata; and (3) was bringing a claim which was an abuse of process: [7]
The earlier litigation related to D taking an improper benefit in breach of partnership obligations. P was never joined to them or made aware of them: [15], [19], [118]
At the core of each of issues (1), (2) and (3) is the similarity of the old litigation, and the new: [45]
The doctrine of res judicata requires, in essence, two issues, to be dealt with.
Was the first litigation a final decision? Yes, the dismissal orders were final: [79] - [83]
Next: was P a “privy” of the parties to it?: [84]
P highlighted their absence from the earlier litigation, powerlessness to intervene, and lack of knowledge of it: [88]
P’s claim was for 9.8% of the value of the breach based on P’s partnership share. In fact the 9.8% was not a share as TiC, but an entitlement on dissolution not divisible into proportions as against D: [142] - [153]
The Court found a partnership interest is analogous to a trust. Like a trust, legal interests are subject to the equities of others. As trustees are privies then, following this analogy, so are partners: [137], [178]
As such, P was estopped from pursuing this element of the claim by the doctrine of res judicata: [70], [179]
RE (2): P joined the partnership pursuant to a 2006 deed which was in force at the time of the breach: [239]
The earlier proceedings were commenced by the partnership governed by a 2017 deed (which P did not sign, having previously left): [239], [240]
The breach was suffered by the partnership at the time of the breach (i.e. pursuant to the 2006 deed) and to be distributed pursuant to that partnership’s constitution: [243], [244], [246]
The 2017 deed appointed a representative of the (new) partnership. That representative and the (new) partners ran and settled the earlier litigation: [247]
As such, the deed did not release the Ds from P’s claim: [71], [257]
RE (3): D said P’s claim was an abuse of process due to (i) the prospect of inconsistent findings, and (ii) D’s prejudice suffered if forced to relitigate a claim D considered concluded: [279]
D failed to have the proceedings dismissed as an abuse of process. D could have joined P to the earlier proceedings, and didn’t. D could have sought to have P sign up to the settlement deed, and didn’t: [72], [280], [283]
D succeeded on (2), and lost on (1) and (3): [8]
P was prevented from bringing the claim.
___ If you'd like to contact me please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away! And please look out for my podcast, Coffee and a Case Note, wherever you get your podcasts. #coffeeandacasenote #auslaw
“Sell the land I own 1/56th of!”
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From the early 1980s a property was owned as tenants in common. Ownership was divided in sevenths: [6]
P owned one 40th of the 5/7th intersect - a 1/56th interest in the land. P sought the appointment of trustees to sell the property pursuant to s66G of the Conveyancing Act 1919 (NSW)
Each co-owner had “spheres of influence”. Some constructed residences: [9]
The use was contrary to zoning and no DAs were obtained: [11]
A 5 page “policy” document purported to deal with co-owners’ rights including a “no sale of land or transfer of shares unless all co owners agree” term: [16] - [26]
Copies of the policy were not made. The original was held by various owners over the years: [27]
The policy was only adhered to when convenient, and was contradicted at other times. New owners were not made aware of it before purchasing: [33] - [36]
To the extent the Ds were aware of the policy, that occurred after their respective purchases: [36] - [42]
In 2011, P purchased their 1/56th interest for $60K: [48]
The vendor - one of the Ds - did not get consent from other shareholders (as the policy apparently required) before effecting the transaction: [61]
P said they had not received the “policy” document before the purchase: [49] - [54]
Prior to XX, the Ds had put the “policy” as a central governing document of the property. This was shown to be untrue as it was regularly contradicted, include by vendor D: [58]
P had not returned to land since 2013, though remained owner of the land with her “sphere of influence” inaccessible except by vendor D’s driveway: [69]
From 2020 P began exploring selling her share. The Ds, particularly vendor D, were obstructive: [72] - [76]
The Ds argued appointing Tees would be an “extreme hardship” as all Ds would lose their homes: [84]
The Ds’ said P’s small proportion should militate against an order being made: [85], [86]
Unfairness and hardship are not enough to oppose a s66G order: [89]
The D’s argued that P’s application breached fiduciary obligations, gave rise to an estoppel, or was unconscionable. The Court rejected all: [98] - [101], [102] - [113]
Ds who had improved the land (despite low value due to non-compliance, no possibility for insurance, and elevated bushfire risk) could claim contributions from the sale proceeds: [116], [122]
The Court made the orders appointing Tees: [123], [130]
The Tees proposed by the Ds were appointed, as they were located closer to the property than the P’s proposed Tees: [127]
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Usually s66G legal costs are paid from sale proceeds: [1]
Unreasonable conduct may lead to a departure from this rule: [6]
P said the Ds should pay their own costs due to their unreasonable, failed defences; and that P’s fees should come from the sale. The Ds said all fees should be paid from sale: [7], [8]
The Court ordered that the Ds bear most of their own costs, save for those relating to the appointment of their preferred Tees: [9] - [16]
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James is sometimes invited to give presentations and talks for external legal training providers.
Please enjoy this talk James gives on the distinctions between corporate oppression and derivative actions.
And please don't forget to follow James and Coffee and a Case Note on your favourite platforms!
“You said our companies wouldn’t have to pay back those loans!”
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A group of entities controlled by P (“P”) was in business with a group of entities controlled by D (“D”). P and D did property development work together via various operating Cos (“OpCos”): [3]
P commenced oppression proceedings (s232) saying that D breached their duty to OpCos, and the ACL: [4]
P sought the Court’s leave to bring those derivative claims on behalf of OpCos (s236): [5]
P and D conducted their projects in quasi-partnership: [10]
In around 2019 D made loans to OpCos to support a development. P says D promised those loans would not be called in except for in certain circs which had not occurred: [15]
In late 2021 D, without notice, enforced their loans and appointed receivers to OpCos: [17]
P says this was a breach of D’s directors duties, and that all Ds had engaged in misleading or deceptive conduct by: giving assurances the loans would not be enforced, and then enforcing them: [18], [19]
There was a suggestion D did this to bring a specific development to an end: [22]
P sought leave to bring derivative actions on behalf of OpCos in relation to this conduct, having already commenced an oppression claim.
The Court worked through the s237(2) criteria:
(a) OpCos would not bring the claims as D would prevent that: [26]
(b) P came in good faith, pursuing a genuine claim for a missed opportunity for profit: [27]
(d) There was a serious issue to be tried, including because D provided no explanation: [28]
(e) The notice requirement was not met but the Court would waive it: [29]
This left s237(2)(c) for consideration: was in the best interests of OpCos for P to be granted leave?
It was “undoubted” that resolving the P and D conflict would be in OpCos’ best interests: [39]
Further, as OpCos were in receivership, litigation would not upset its day to day business: [40]
D suggested P’s claim was weak. This was rejected: [50]
The Ds suggested their worth was not proven (i.e. if leave was granted, would OpCos be suing parties with any assets?) Ds assets were within D’s knowledge and no evidence was put on it. Noting D’s ability to obtain big finance it was possible to infer D had substance: [51] - [53]
P provided $750K as security if OpCos faced an adverse costs order, which was sufficient: [64]
Extensive consideration was given to the contrast between the oppression remedy and a derivative action: [66] - [88]
Some of the Ds were found not to be proper parties to an oppression claim. This left s236 as the appropriate path to pursue them, not s233: [92] - [96]
Leave was granted to P to pursue the derivative actions against the Ds: [98]
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P lodged a caveat on a property owned by D in Darling Point, Sydney. D sought its removal.
P was the deceased’s son by an earlier marriage. After P’s birth, the deceased married D and they had another child together: [4] - [7]
The deceased operated a cattle and macadamia business on land owned by an entity the deceased and D themselves owned and controlled: [9], [10]
In 2011 the deceased made a will and a Memorandum of Wishes. D counter-signed the latter: [12] - [15]
By the Will the deceased bequeathed the property to D. By the MoW, D agreed to bequeath the property (or its replacement if the property was sold and a new property was bought) to P and the other child in equal shares. Until then the deceased acknowledged D may need to use the proceeds of sale of the property for their upkeep, or for the cattle and macadamia business: [17]
(Perhaps unhelpfully, the deceased wished for the MoW to remain confidential: [18])
P sued seeking a declaration D held half the property on trust for them and lodged a caveat on the basis of this alleged trust: [21], [22]
D sought the removal of the caveat, including to allow them to deal with the property (possibly by refinancing) to help manage the farm and its business in the wake of flooding: [29], [30]
P argued that their (and their half-sibling’s) interest in the property was held by D on trust created by the MoW: [32]
P accepted D was free to sell the property: [33], [35]
The Court found D accepted their obligation under the MoW to make a will bequeathing the property to the children equally. There was no suggestion D did not intend to do so: [36], [39]
D’s “floating” obligation to bequeath the property to the children will only crystallise into a trust on D’s death, not before: [38]
As such, P had no beneficial interest to support to caveat: [40]
Even if a caveatable interest had been found, it was accepted that the caveat caused D inconvenience. However, P had the onus to show convenience favoured maintenance of the caveat and P failed to show that: [45], [46]
P was ordered to remove the caveat and pay D’s legal costs: [47], [48]
___
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“We amended the contract, now give me my bonus!”
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P agreed to sell their shares in SubjectCo to D for: cash, shares in D, and (if further earnout conditions were met) further shares in D: [1]
P sued D for those shares and unpaid dividends, saying the conditions were met: [2]
SubjectCo made hazardous area electrical equipment for mining machinery: [11]
D was a listed business whose strategy included buying smaller mining equipment firms: [17]
D bought SubjectCo to complement its existing holdings: [22]
In 2014 SubjectCo was in a difficult financial position, possibly insolvent. Evidence suggested P’s were engineering and product design, not finance: [28], [30]
The sale went ahead after P fired their lawyers and proposed no changes to D’s proposed share sale documents: [36]
The contract included the earnout bonus based on profit, with oral variation prohibited: [38] - [40]
P became an employee of D and began operating SubjectCo as part of D’s business: [41]
In around 2015 the coal market slumped. D’s senior E’ees took paycuts. P continued to cause SubjectCo to charge “full freight” for SubjectCo’s work to other parts of D’s business: [50] - [54]
To manage this, the CEO discussed P’s earnout criteria being varied to revenue, from profit. There were subsequent emails reflecting this: [57], [61] - [65]
P was moved from a business role to a more ideas-focused innovation role; a “good deal” for P: [99]
The CEO P left D, and D’s new leaders were unaware of the purported “revenue earnout” change: [77] - [79]
On the anniversary of the purchase, D issued a statement based on profit, not revenue. This (due in large part to the mining downturn) was an unhappy figure that missed the earnout criteria: [80]
Written notices were exchanged by D and P putting their positions, with arguments about the attribution of a “new” business introduced to D after P joined: [81] - [87]
D resisted the suggestion that the profit / revenue amendment had been made; and said even if it had P would not have met them as the “new” business was not P’s: [90]
The Court agreed the CEO and P has effectively varied the agreement to $1m revenue from $250K profit: [103]
There was extensive consideration of the “new” business and whether indeed P had brought it in: [166] - [187]
P was unable to prove it undertook the “new” work before the sale and so it should form part of P’s earnout criteria: [185]
Noting the above, revenue was less than $1m, and the earnout criteria were not met: [197]
P succeeded in proving the agreement was varied - “a legal question on which the principles were clear”. This success “counted for nought” where the Ps did not meet the earnout criteria, which should have been apparent at the time. As a result, the Court ordered that P pay 80% of the Ds’ costs: [198]
"The vesting date is too early. Rectify the deed!"
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In 1976 a trust was established: [2]
P and P’s parent signed the deed for Tee: [3]
The trust assets included land in SW Sydney; likely “substantially” exceeding $100m: [5], [20]
The trust vested on the earlier of: a date in 2032, the date of death of a royal family member (“royal lives” clause), or a date determined by the Tee: [7]
The trust’s land might take years to develop, perhaps until 2046: [9], [54]
The deed was amended by Tee various times (in accordance with the deed) but there was no power to amend the vesting date: [9], [23] - [37]
Tee commenced proceedings to rectify the trust deed’s vesting date.
Tee was the sole party to the proceedings. No benef opposed them: [11]
The Court appointed a barrister as contradictor, with Tee to indemnify them for their costs: [12]
The contradictor said: the criteria for rectification were not met, and the Tee had been too slow to apply: [13]
The solic who drafted the deed had been involved in legal proceedings about a similar deed described as badly drafted, and criminal proceedings regarding a crime of dishonesty: [38] - [41], [43] - [46]
P swore an affidavit in support of Tee’s application: [47]
P’s evidence said they first turned their mind to the 2032 vesting date in 2016: [14] - [22]
P gave evidence they did not understand, or intend, that the trust vest in 2032: [48], [49]
Rectification requires proving: (i) what is in the deed is not what was intended, and (ii) what was actually intended: [74]
The deed was created when the “no perpetuities” required a reference to a life or lives for a trust to last beyond 21 years: [78], [79]
P said they thought the trust would last indefinitely, like a company; a legal impossibility. None of the criticisms of the solic come close to explaining why the solic would have given this wrong advice: [92]
46 years after the fact P’s evidence was of little assistance, possible more reconstruction than recollection: [93]
The deed was amended 9 times. It seemed inconceivable P had not been advised many times of the 2032 vesting date: [95] - [98]
Tee pressed that P’s intention was not 2032, and no instructions were given for 2032: [103]
In any case (presumably because it spoke in favour of an outcome not legally possible) P’s evidence did not support the application: [106]
Importantly: P’s parent executed the deed for the Tee too - there was no evidence about their intention; and no evidence at all about the 1985 and 2001 restatements of the deed: [110] - [114]
A defence based on laches - delay - was made out. The Tee was free to bring this claim from 1976 onwards. Relevant evidence had since been lost: [120 - [124]
The Court said it would be better if a party could have been nominated as defendant (with the power to conduct XX etc) rather than a barrister act as contradictor: [125] - [133]
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“I’m a director.” “No you aren’t.” “Yes, I am!”
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Two people, and their Cos, founded a Co to develop property on the NSW coast: [1]
P was a director. PCo and DCo were equal shareholders: [37]
Their records could “fairly be described as a mess” with “gaping holes” in the evidence: [3], [11]
The parties agreed that they would share the profits, but disagreed on sharing investment: [175]
The Court found that there was a 50 / 50 agreement, where the party whose “50” required the Co to take a bank loan would cause that bank loan to be paid: [181]
In 2016, P and D caused the Co to buy an incomplete tourist resort for $2.95m: [37]
P provided 1/2 the funding. D did not have the funds to contribute their 1/2. D and P caused the Co to borrow that money, and provided personal guarantees: [46] - [51]
PCo ceased being a shareholder as P thought if PCo remained a shareholder PCo would be responsible for the bank loans: [53]
P agreed to being removed as dir, leaving D as sole dir, so P didn’t have to provide a personal guarantee: [56]
In 2017 P lent D $100K for another project P thought never went ahead. (In fact it did but D concealed that from P): [79]
P loaned the Co a further $300K to finish some unfinished buildings: [84], [86]
Later in 2017 P lent a further $65K to the Co: [88]
In 2018 an investor offered to buy half of DCo’s holding - 25% of the Co - for $2.25m. D said no. In circs where the Co needed funding, P had no director role or shareholding, and only P was funding it, this frustrated P: [89], [90]
P wished to resume as director: [91], [182]
D engaged in “ham fisted” attempts to confer legitimacy on the Co’s money funnelled to their spouse after opening a secret bank account: [92]. [94], [95], [99]
By June 2018, P learnt P was not back as a director and caused this to be corrected. By now P had loaned the Co over $2m with only $3K repaid: [113]
In July 2018, D caused the removal of P as a director and the transfer of PCo’s shares to DCo - all without P’s knowledge: [116]
In November 2018 P discovered his removal as director and was re-instated; from then P kept being re-registered as a director and D kept removing them: [130], [184]
D listed the land for auction seeking $12.5m without P’s knowledge, and refused to postpone the auction once P was aware and had sought postponement: [155]
Unusually, P and PCo sought orders via s233 for it to conduct litigation in the name of the Co (usually this would be pursuant to s236): [165]
Oppression established. D’s actions excluded P from management of the Co in breach of their agreement and where P had loaned the Co substantial funds: [187]
The oppression findings meant it was appropriate to grant leave to PCo to bring claim on Co’s behalf: [195]
s461 just and equitable grounds were met: the lack of deadlock was due to D removing P as dir, and breakdown of trust and confidence: [209]
Liq appointed and leave granted to PCo to bring the derivative applications: [217]
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"Investigation isn't legal advice. You waived privilege!"
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D discovered ~29K documents in a piece of litigation, and claimed ~9K were privileged: [1] The Court considered 27 representative docs. The docs included docs about an ASIC investigation re “fees for no service” claims: [2]
D had to prove the docs were privileged. If privileged, P had to prove privilege had been waived: [6] D had self-reported the “fees for no service” issue, engaged various large law firms, and itself had a big in-house legal team: [17], [18]
In 2017 D engaged one firm to provide D called findings and advice, claiming privilege would attach to both: [24] – [27]
P argued the firm was engaged to investigate, rather than provide advice, meaning that firm’s work would not be privileged: [28]
The Court was also taken to an admission from the D during the Hayne RC that “it did not need to receive legal advice to know that [it] cannot charge somebody for services that [it is] not providing”: [28]
Importantly privilege is for legal advice rather than commercial or PR advice, though the concept of legal advice includes what a client should prudently or sensibly do, including in relation to an investigation: [34] – [37]
The dominant purpose is the thrust of the privilege. A document prepared for a number of reasons, with none dominant, is not privileged: [38], [39]
In relation to a report sent by external lawyers, to D’s in-house lawyers, and then to D’s senior executives, the Court found the dominant purpose of each email was legal advice to D. So they were privileged: [50]
Similarly, in relation to legal advice on the implications of the report, privilege attached: [53] D produced the report (but not the associated advice) to the ASIC without a claim for privilege: [94]
P claimed this was a waiver of privilege of all documents concerned with the firm’s engagement: [95]
Reference to existence of privileged material is not enough for waiver, the contents of the privileged material must be relied upon for privilege to be waived: [99], [100]
The Court found that by waiving privilege in the report, D did not waive privilege in the advice. Privilege can by waived over the factual investigation report, and maintained in the subsequent legal advice given based on that report: [106] The report could be understood without the help of the legal advice.: [106]
The Court found the sample documents were privileged with no waiver. P was ordered to pay D’s costs: [128], [129]
_
If you'd like to contact me please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away! #coffeeandacasenote #auslaw
On 31 October 2022 I gave a lecture at Macquarie Uni for Dr Madeline Taylor's commercial law course. We traversed some practical issues that were commercial, but not corporate (and you might recognise a few of them)!
If you would like a copy of the paper, please reach out to me and I can provide it to you. Jd'A #auslaw @Macquarie University #commerciallaw
"Stop competing with the business you sold me!"
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In 2018, P bought a business from the Ds by buying all shares in the Co, ObjectCo, that operated the business from D1 and D2 for $9.5m: [1], [10]
P is a local subsidiary of a multi-national group that sells and installs business software: [2], [3]
ObjectCo sold and installed similar but more complex, pricier software: [4]
ObjectCo’s business was therefore complimentary to, not competitive with, P’s business: [5], [69]
D1 was ObjectCo’s controlling mind. D2 was D1’s company: [8], [9]
The sale contract prevented D1 and D2 from competing with ObjectCo or poaching staff: [10]
After the sale, P integrated ObjectCo’s business into its own and employed D1 until D1’s resignation in July 2021: [11]
In Dec 2021, D1 returned to the software business using NewCo, almost wholly owned by D2: [13]
D1 also joined the board of NewerCo, which dealt in software potentially complementary to NewCo’s: [14]
P claims the businesses of NewCo and NewerCo are a breach of D1’s and D2’s non-compete restraints: [15]
D1 disagrees and says to the extent there’s competition, it’s legitimate: [15]
Interlocutory injunctions were granted. A final hearing followed: [17] - [20]
D1 agreed not to solicit customers or employees from ObjectCo: [22]
P sought further restraints: restricting D1’s involvement with NewCo and NewerCo, restricting D1’s dealings with suppliers, and extending the prevention on poaching employees: [23] - [25]
The question arises: are the restraints in the contract reasonable enough to be enforceable?: [27]
The background of the software environment and its marketing is (with respect) usefully set out at [34] - [53], [70] - [88]
An expert gave evidence that once a firm chooses software, the complexities involved with ending that relationship formed a “barrier to exit”. Clients are sticky: [86]
D1’s plan was to use NewCo and NewerCo to target the high end of “BC” clients and not the more valuable, more competitive “F&O” space where ObjectCo had operated. The issue was: did the restraints in the sale contract prevent this?: [108], [114]
(In considering the issue of whether the upgraded BC product with add-ins was competitive with F&O, an independent expert said this was “like arguing a ute, plus a trailer competes with a B-Double truck”: [81])
The issue then was: does the restraint apply to BC and, if so, was that reasonable?: [115]
Following extended and (with respect) precise analysis of the terms of the clause, the Court found the non-compete did not apply to BC: [149]
The Court found the business of NewCo was not indirectly competitive with ObjectCo: [158]
The injunction P sought to prevent dealings NewCo might have with the supplier of the software was not reasonable to protect P’s interests as the claimed restraint did not have a sufficient relationship with the goodwill P purchased: [182]
P’s claim for a final injunction was dismissed: [190]
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A was the national body responsible for go-karting in Australia and trustee of a related trust: [12]
R was responsible for go-karting in NSW and the ACT, and a member of A: [14]
A’s constitution obliged its members to pay on the fees they collected from go-kart drivers in races A approved: [15], [16]
A was Tee of a fund for the construction of new go-kart tracks: [17]
The trust deed empowered A to distribute trust capital and income to benefs, who were its members: [24], [25]
A, as trustee, would loan funds for track construction to the relevant state body. The loans were 5 for 10 years with interest not charged if terms were complied with. On default, the loan was repayable in full plus the interest: [20]
From 2014 R queried A’s management asked for return of funds held on trust for it: [28]
In 2019 the members of A voted to expel R as a member, a default event: [14]
The net assets of the trust were recorded in the annual financial statements of the trust as $1: [33]
The trust’s financial statements were audited and approved by A’s board (and A’s predecessor’s management committee) in the relevant years: [35], [38]
A sought repayment of its loan plus interest. R cross-claimed seeking unpaid distributions: [2]
A lost on both points and appealed.
A said the money it recorded as held in a loan account for R showed what was to be paid to R (and other benefs in R’s position) when he trust vested, and so was not a distribution: [43]
The question or not it was a distribution was pivotal. If it was, it would have to be paid to R on demand: [44], [49]
The primary judge had found that the recording of the loans in R’s favour were distributions, held by A on bare trust and not as part of the track construction trust: [46]
Importantly, no estoppel by convention claim was raised at first instance, and so was not available on appeal: [56]
On appeal, A argued the loan were a liability contingent on the vesting of the trust, though this new argument was no available on appeal: [58], [64]
In any case, the audited accounts recorded the loans as actual liabilities, not contingent liabilities: [68], [69]
There was no evidence that the benefs intended to make a loan to A, and the financial records acknowledged debt to the benefs in the amount of the unpaid distributions: [70]
A’s argument that it intended to accumulate income was unfounded because of what the financial statements showed: (i) the P and L reflected income as distributed to benefs; (ii) the accounts reflected a corresponding liability; and (iii) the trust assets remained $1.00 rather than increasing: [108]
The resolution of A’s directors to approve the accounts in the relevant years gives rise to an inference A resolved to make distributions to the benefs (including R): [138]
There was no error by the primary judge. A’s appeal was dismissed. Costs followed the event: [144], [147]
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If you'd like to contact me please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away!
coffeeandacasenote #auslaw
In September 2022 I had an opportunity to appear on the excellent Zeiler Floyd Zadkovich podcast, Case by Case.
Luke, Calum and I dicussed Gillespie v Gillespies Cranes Nominees Pty Ltd [2022] NSWSC 1184 and the possibility of a derivative action being brought by the beneficiary of a trust.
You can also enjoy the chat to its fullest on the Case by Case YouTube channel: https://www.youtube.com/channel/UCvVvoTu3CZlLPE24ovBREkw
You can check out ZFZ here: https://www.zeilerfloydzad.com
coffeeandacasenote #zfz #zeilerfloydzad #derivativeaction
“A trust law derivative action, or a common law one?”
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In the early 80s, a trust was established. Its assets came to be worth around $55m: [5]
A parent established the trust for the principal benefit of their spouse and 4 children, with TCo as trustee: [6], [10]
TCo’s shareholders were 2 of the kids - the Ds: [7]
The trust deed gave TCo a wide discretion to make resolutions on the distribution of income. If there was no resolution, the income was to go to the principal beneficiaries. From 2009 to 2020, TCo made no distributions to principal beneficiaries, but to entities related to the Ds: [12], [13]
P alleges there were no resolutions appropriately passed in some years, or no resolutions passed in good faith and for proper purpose, meaning that the income should have been paid to principal beneficiaries - a breach of trust: [14]
P claimed one fifth of the distributions made, plus interest, and that TCo “make good” the trust fund: [16]
TCo purported to amend its trust deed and distribute ~$58m received on compulsory acquisition of some real estate on an unequal basis between the beneficiaries (including 44% to each of the Ds (!) and 3% to P): [18]
P attacked this on two grounds: saying TCo breached a restriction on amending the substratum of the trust, and that the amendment and later distribution was not for good faith or proper purpose: [19]
P made various other claims, including for the removal of TCo as trustee and that their 3% had still not been paid: [21] - [24]
P also complained about the Ds causing TCo to transfer TCo’s crane business to an entity associated with them: [22]
Importantly, claims other than P’s claims for their own money were derivative - they were claims of TCo’s which P was seeking leave to bring: [26]
The Ds and TCo suggested the right to bring this application had been abolished by s236(2): [31]
The Court was forced to consider whether the derivative application was available in respect of the beneficiary of a trust, or an estate - the “derivative action in equity” - and found it was available in special circumstances: [32] - [41]
The power of the Court to grant leave for this type of derivative action arises from its jurisdiction over the administration of trusts, which the Court considered at length: [45] - [54]
The resemblances between company law and trust law derivative actions does not make them the same: [62]
The s236(2) abolishment of common law derivative actions does not abolish trust law derivative actions. The Court has the power to grant leave to the P: [69], [71]
There was extended consideration of the crafting of P’s claim. Some claims would not be repaid into the corpus of the trust: [106] - [108]
A further e.g. a question of whether equitable compensation would be available if leave to bring the derivative application is granted to P arose: [115]
The Court ordered an urgent hearing about whether P should be granted leave to bring the derivative actions: [129]
_
If you'd like to contact me please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away! #coffeeandacasenote #auslaw
“Freeze those assets. You’ll need them to pay me when I win!”
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D1, D2, P2 - all natural persons - agreed to incorporate a company to sell aluminium-framed glazing products, PCo, and did in fact do so with D2 and P2 holding equal shareholdings: [5]
P2, the active plaintiff, wanted interlocutory freezing orders ahead of final s232 relief and s236 leave to pursue D2 for a breach of their DDs: [7]
Let’s discuss the freezing orders.
The Ps issued substantial NTPs for PCo’s records. The Ds produced no documents. The Ps elected to proceed nonetheless. This meant the Ps did not have balance sheets, BAS, tax returns and like documents they sought: [18], [19]
To get a freezing order, P2 had to prove they had a good claim for final relief, and there was a danger of assets being dissipated or moved out of the jurisdiction: [23], [24]
The Ds accepted P2 had an arguable claim, but said that it would fail at final hearing: [43]
P2’s role in the venture was to provide $1m funding and accounting services while D1 and D2 had experience in the industry. Over time P2 claimed they were “shut out” and D1 and D2 secretly directed business away from PCo to a Co they incorporated where PCo could have done that business: [44], [46]
D1 and D2 said the parties had agreed to go their separate ways, that P2’s loan was repaid, that in any case P2 caused themselves to be repaid, that P2 lost interest and disengaged from PCo, and that D1 and D2 directed business away to their Co because PCo did not supply the relevant product: [45], [88]
There was some evidence suggesting the Ds’ view of the diverted business held water, with PCo accepting some payments as subcontractor of one of D1 and D2’s entities: [90]
P2 was seeking freezing orders in the sum of $10m. It was not clear PCo would get this amount if successful, or that the Ds had it: [50]
The uncertainty about the value of the money diverted away from PCo, and the absence of financial documents, made it impossible to value PCo: [65]
P2 failed to show PCo’s loss in the sum of $10m. Shortcomings included making estimates assuming the 2019 profit margin of ~40% would have continued through COVID: [76] - [78]
There was a real contest about P2’s ceasing to participate in PCo’s business. D1 and D2’s suggestions were not unmerited: [93]
There was no “solid evidence” of the Ds being likely to dissipate their assets: [95]
The position was further clouded by both P2, and D1 and D2 continue to use the Pro branding after agreeing to part ways - including the perverse situation where two “PCo” entities were tendering for the same work: [102], [103]
The Court was persuaded to make orders to preserve the relevant businesses, but not the extensive freezing orders sought by P2: [106]
The Ds were further ordered to prepare accounts and to ensure the profits of the businesses were not dissipated: [109], [110]
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"You made the company pay too much money for that boat!"
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R owned 55% and A owned 45% of shares in a Co that operated a leisure boat business on Sydney Harbour: [2]
R was the “bank”, contributing funds to the venture. A was to contribute sweat equity, earning a wage while running the Co’s business: [3]
A caused the Co to buy a boat from an entity related to A’s spouse for $315K “as is” with no warranties and no commercial configuration: [4]
A also caused $220K to be transferred out of a Co’s bank account and, responding to a demand on behalf of the Co, repaid $204K. A did not account for the $16K difference: [5]
A made payments from the Co to him and his spouse for purported wages, and used the Co’s money to pay for legal fees relating to A’s dispute with R: [6]
The primary judge ordered: A breached duties in causing the Co to make the payments to themselves, their spouse, and the lawyer; the loss in relation to the boat was $205K, being the difference between the purchase price and present realisable value; the spouse was involved in and aware of the breaches: [8]
R’s claim was made out, the order being for judgment against A for the cash amounts, A’s removal as director, and A transferring their shares to R - interestingly - for no payment: [9]
A appealed.
A’s valuation expert was a boat broker who relied on two photographs in relation to the condition of the boat. R relied on a certified valuer with expertise in marine vessels.
After carefully considering the primary judge’s reasons, and the transcript, the CoA found HH had not erred in their finding about the boat’s (under)value: [37]
Regarding the payments A caused to be made to lawyers, A made no response to a subpoena requiring the production of the retainer, cost agreement, and other related documents that would have been produced by the law firm in the course of acting on the matter: [41]
The primary judge found the payments were made where A had a conflict between their duties to the Co and his and A’s spouse’s interest in the litigation A was making the Co fund: [45]
Regardless of whether A was authorised to instruct lawyers, for A to do so was a breach of their duties to the Co: [47]
A appealed on the basis the primary judged ordered transfer of shares for no payment (so not at “fair value”) was erroneous; those orders having been made as A brought no skill or goodwill to the business, and did not make any financial contribution: [70], [73]
The CoA found s233 allows a wide range of possible relief, and no error was made by HH, including where A made no submissions about alternative orders (including a “fair value” transfer): [77]. [78]
The appeal was dismissed: [91], [93], [94]
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“Get us out, and get a prov liq in!”
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P, A director and 70% shareholder of a Co sought to have it wound up and a provisional liquidator appointed: [1] - [3]
P brought this application shortly after D1 (P’s former spouse, a Dir, and a 20% shareholder) commenced family law litigation: [20]
D2, D1’s sibling who owned the remaining 10% of the Co’s issued shares, commenced their own shareholder oppression proceedings: [4], [5]
The Co sold car parts, both wholesale and retail: [6]
Appointing a prov liq is a drastic step. It requires the Court to consider the prospects of P getting a final winding up order, and whether the balance of convenience favours appointment of a prov liq (including if the Co’s assets are in jeopardy): [12] and [13]
Relations between the parties had broken down leaving the Co in deadlock, with police having been called to the Co’s premises a number of times: [16], [18]
The Co’s financial position was contested. It appeared to be profitable, though was heavily indebted to its landlord with “precarious” tenure. The Co had very little cash, but it appears P directed the Co’s money into one of its accounts: [20] - [25]
The two Ds (in the P’s absence) purported to resolve to increase their salaries slightly. There were also payments of bonuses of $10K per 6 months. The parties were in dispute about the appropriateness of these payments: [26] - [50]
Allegations were made of all parties mishandling cash which was properly the Co’s: [51] - [57]
The P caused money earned from one of the Co’s eBay stores to be paid into an account under his control, alleging the Ds had previously taken funds without a proper basis, pointing in favour of placing the hands of an independent party: [58] - [69]
Further evidence showed P using an account in his own name to pay Co expenses; removing Ds’ oversight from this aspect of the Co’s business: [74]
Neither D opposed the winding up of the Co: [83]
The Court was satisfied a prov liq should be appointed: [88]
The Co was in deadlock, with insecure premises, no sensible basis upon which it might continue to trade, and a real prospect that the Co will be wound up on a final basis pursuant to s461: [89]
All this formed a basis for the P’s application succeeding and a prov liq being appointed.
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“The new deal you all made breaches the old deal we made!”
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In 2001, some Cos came together to incorporate a new Co. NewCo was incorporated to contract with a big client. The client’s work would then be shared between the shareholders: [3]
NewCo would invoice the big client, and each shareholder would then invoice NewCo such that NewCo never made a profit: [39], [68]
A dispute arose: did that 2001 agreement establish a partnership?: [3], [43] - [45]
The 2001 agreement did not create a partnership including because no profit was shared: [58], [373] - [407]
NewCo did the work for the big client from 2001 to 2012: [65]
Through this time there was discontent about the allocation of the work between the shareholders: [92]
In 2012 the big client made a direction that NewCo was to ensure its trucks were speed-limited: [103]
There were heated exchanges between NewCo’s shareholders about the certification of the speed limiters installed on relevant trucks: [117]
The Ps said the speed-limiter issue was a pretext manufactured to remove the Ps from the business: [123]
The Court disagreed, finding: the big client had a legitimate concern about speed limiters: [126]
After an August 2012 meeting, the content of which was subject to heavy dispute, Newer Co was founded without the Ps involved: [227]
The Ps claimed the pivot from NewCo to NewerCo was a breach of the 2001 agreement, or the relevant fiduciary duties owed: [5]
The Ps said the Ds had caused NewCo’s work with big client to cease in order for NewerCo to do that work: [239]
There was a “troubling inconsistency” in relation to some of the Ps’ evidence of the 2012 meeting: [279]
The Court found it was not implausible that the Ps attempted to take their own “shot” of working with the big client after the 2012 breakdown in the relationship, rather than sit with a deal they considered unfair: [319], [340 - [342]
The Ps claims were made for their own benefit and not for the benefit of NewCo: [369]
After a heavy and lengthy analysis of the evidence, the Ps failed in all of their claims: [408]
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“Oi! Let me manage the company I said I didn’t want to manage!”
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One brother, P, tried to wind up a Co, Tee, he owned with his elderly mum and two other brothers. Tee was trustee of a family trust whose ~$5.8m corpus included some real estate related to a family auto repair business formerly operated by Tee: [8], [12]
(There was also a s66G issue that we will ignore.)
P had left the auto repair business in 2012: [22] - [26]
In a 2012 letter, P’s lawyers wrote a letter confirming P intentionally “walked out” of the family business: [28]
P did not attend any meetings of the Tee from 2012 though received and signed some occasional documents: [29]
One of the D brother’s auto repair business later operated from the Tee’s real estate rent free from around 2013: [19]
P claimed he was oppressed as a shareholder of Tee by: having been excluded from management [50], having not received dividends or the benefit of a loan account [51], Tee failing to charge the D brother’s business rent [52], the Tee losing money on a failed transaction [53], and the other brothers having rent-free benefit of the Tee’s holiday apartment [54]
P tendered accounting evidence based on the incorrect assumption that the value of the shares in a trustee Co was proportionate to the assets of the trust: [67]
P pressed for a windup, and no other remedy.
P was unwilling to meaningfully re-engage, apparently believing he would have to work for D brother free to do that. P complaint about rent free use of the Tee’s premises range hollow when he did the same thing with his race cars: [75]
In relation to P’s oppression claims, the Court found: it was not oppressive for P not to be involved day-to-day management of the Tee where he had expressed a wish to cut ties [229] and if that was wrong then the remedy is for P to be provided with notices of future meetings and company documents, not a winding up: [230]
While a failure to pay dividends may be oppressive, here no dividends were paid to any shareholder and drawings were made as part of a regime P absented himself from including for elderly mum’s benefit: [232]
D brother’s business occupying the Tee property rent free could be oppressive, but the remedy would not be wind up the Tee, but to direct it to charge rent: [234]
The directors of the Tee falling victim to a financial fraud was not oppressive: [235], [193]
The use of the holiday unit rent free is not prohibited nor oppressive: [236]
P failed in all of his oppression claims: [237]
If oppression had been made out, the windup sought by P would not have been the appropriate relief: [245]
P’s also failed in seeking a windup on the just and equitable basis: [258]
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“I submit to orders that I have to repay Dad. Or do I…?”
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Mum and dad - elderly and unwell - sued two of their kids, and their son-in-law.
First, the fascinating procedural issues.
One child and the son-in-law filed submitting appearances. Another child (who we won’t discuss further here) resisted Mum and Dad’s claim and made a cross claim: [1]
During the final hearing, the submitting daughter later sought to withdraw her submitting appearance and actively contest the proceedings: [12]
That daughter had been legally represented at the time of her submission, and had taken advice on the implications: [16]
She said she had not thought any orders would bite against them and their spouse at the time, despite a letter sent at the time suggesting otherwise: [17]
Her own evidence showed she had been aware money orders were being sought against her months before the hearing and she did not seek to contest Mum and Dad’s claim. She still wanted leave to appear at the hearing so a “mutually beneficial settlement” could be explored at hearing: [18]
The Court found the issues the daughter sought to agitate should have been raised earlier and been subject to an application to withdraw her submitting appearance earlier: [25]
The daughter had not fully responded to a notice to produce issued in the proceedings: [27]
The daughter had in the week before the hearing indicated being prepared to pay the amount sought and said she had the money to do so, raising no resistance to the relief: [28]
The daughter made a choice to submit with the benefit of legal advice and only sought to depart from that position at final hearing, implausibly claiming that was when she realised she had a right to be heard: [29]
The Court concluded justice could not allow the daughter to be relieved of her forensic decision to submit in order for her to bring a case she had previously given no notice of: [31]
And so, what were the facts the Court was considering?
In 2011, the daughter and son-in-law purchased a property for a little over $1m: [34]
In 2013, Dad entered into a deed with daughter and son-in-law by which it was agreed Dad would be 50% beneficial owner of the property. Daughter and son-in-law held Dad’s interest on trust. Dad paid $600K: [35]
Dad also paid for other improvements to the property: [35]
In 2016, daughter and son-in-law sold the property for $2.15m. That was not paid to Dad or kept separate from their other funds: [37]
In mid-2020 Dad began to ask for his share of the money. He was unsuccessful: [39]
Various steps were taken - mediations, family discussions and the like. Daughter’s offer to pay Dad some unspecified amounts if he signed a mediation agreement were not consistent with her duties as trustee: [40]
Two payments daughter purported to make were in the form of dishonoured cheques: [41]
The Court ordered half the sale proceeds had to be repaid to Dad: [45]
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"Can we charge a fee for administering the trust?"
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A trustee sought judicial advice from the Court that it would be justified in amending a super fund trust deed. The proposed change would allow it to charge a fee to be paid from the fund: [38], [44], [67]
(The T’ee sought and was granted non-publication orders in respect of some of its commercial evidence because if it became public it could be exploited by competitors: [14], [55], [56])
The fund, which originally related to educators associated with a specific religion, had around 80K members and $10.5bn under management: [68], [69]
The T’ee had never been paid for administering the fund, and held nominal capital of $6 beneficially: [77], [80], [104]
Managing a fund of this size, the T’ee had to do complex work, which it did not outsource. As such it bore the associated risk: [82], [83], [96], [97]
Pursuant to the trust deed, the T’ee enjoyed an indemnity from the fund in relation to the costs it incurred: [101]
Recently, following the Hayne RC, the law changed.
The change effectively meant that the T’ee and its directors could not be indemnified for statutory liabilities from the fund: [114]
Thus, the T’ee risked being made insolvent if a penalty ended up being applied: [118]
(That said, the T’ee was not aware of an allegation of a breach of trust or imminent penalty: [120])
If made insolvent, the T’ee would be removed, administrators likely appointed, and a new trustee appointed - all at substantial cost, which would be visited on the fund’s members: [121], [124]
The T’ee considered various alternatives like raising capital and obtaining different insurance; while noting it also had no access to an indemnity from a third party because it did no outsourcing: [122]
The T’ee sought advice from barristers on the proposed deed amendments, and engaged with the regulator on the proposed change to the trust deed: [128]
At [130] the Court (respectfully) usefully summarises all the relevant issues which include: (i) the T’ee’s risks have increased with the change in the law; (ii) the T’ee’s work has a high degree of responsibility, range, volume and complexity; (iii) historically the T’ee has accumulated reserves in the fund which it now cannot access for the purpose of indemnifying for penalties; (iv) the T’ee has limited ability to generate its own funds; (v) regulators have indicated increased regulatory action is likely in future; and (vi) if the amendment is made the fees will be placed in a reserve with strict conditions as to its maangement.
The Court may provide judicial advice in the best interests of the trust and if the trustee acts in accordance with the advice it is deemed to have behaved in accordance with its duties: [138], [139]
The Court was satisfied the proposed amendment was proper and lawful and ordered that the T’ee would be justified in proceeding as planned: [145], [157]
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“Does the trustee really own the farm, or it still in mum’s estate?”
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In the 1970s, Dad - a farm owner - planned to transfer his farm into a trust with TCo as trustee and his family as beneficiaries.
If it worked, his wife and 4 kids could take the benefit of the farm without paying death duties: [78]
At this time, rural families often faced death duties at “confiscatory levels” when farms passed to the next generation: [51]
Dad died in 1976. Mum died in 2017. A number of disputes arose between the siblings and executors. Sadly, the legal fees associated with those eventually required the sale of the farm: [3], [5], [6]
(For the child who worked the farm and hoped to go on, this loss was - understandably - sharply felt: [19], [20])
Mum’s executors, and the son who would inherit the farm from her estate [123], said the farm was held by TCo on a bare trust for Mum: [13]
The farm had been acquired by Dad, from his father, in the 1950s. Over time, various parcels were added to it and it was operated by various different partnerships: [25] - [29]
After Dad’s 1976 death, Mum and the kids continued to work the farm: [34]
Over the decades, Mum tried to discuss succession planning with the family, unsuccessfully: [40]
Mum died in 2017 with her estate valued at $12.5m - crucially, that valuation was based on the assumption she (and not beneficiaries of the 1975 trust) owned the farm: [43]
The Court’s understanding of the 1975 transaction was helped by the contemporaneous notes made by a young lawyer who was a family member (and who would go to the bar and take silk decades later): [44] - [46]
Their notes included a notation that it was likely that the scheme to avoid death duty would succeed. They were surprised to hear, decades later, that the effect of the transfer was in question: [56]
Various documents were executed and resolutions of TCo and related entities passed. Ownership of the farm passed to TCo: [82] - [103]
After Dad’s death, his executors entered into various transactions on the basis Dad’s beneficial interest in the land had been validly transferred: [104]
This conduct included a “well crafted, detailed and thoughtful” letter from Mum whose contents would not make sense unless Mum believed the transfer was effective: [110], [111]
In the following decades the parties proceeded as if the transaction had been effective including: Mum and others making a stat dec [113], swearing an affidavit [118], receiving legal and restructuring advice [115], [116] TCo giving guarantees [114], and TCo’s repeated mortgaging of the farm over decades [140]
The Court found TCo paid Dad valuable consideration for the transfer of the farm, and so the farm was part of the assets of the trust: [124]
The scheme was effective, in accordance with how it had been treated by all relevant parties until 2020: [128], [143]
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"That money's for the business, not for you!"
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Ps claimed they paid $160K cash to D in connection with an online payment business: [3]
D said the $110K was appropriately spent on business expenses and D’s salary, and the $50K was for some units in a unit trust: [5]
The parties’ dealings were informal: a lack of documents, cash only payments, few bank records etc: [6]
One of the Ps facilitated currency exchanges and money transfers between Australia and Korea: [12]
A plan was hatched to expand that business to include online payments, with that work to be done by D: [19], [20], [32]
There was heavily contested evidence about the dealings before the venture kicked off: [34] - [45]
D gave the Ps advice on the Korean requirements for the venture, advising around 100 million Korean Won (~AUD$100K) would be needed: [46] - [49], [50], [53]
D was given $109K in cash from one of the P’s: [61]
On collection of the funds the D signed a “loan agreement” which they understood would later be destroyed: [64], [65], [67]
The funds were transferred to the Korean entity under D’s control, which was created to operate the venture: [69] - [72]
One of the Ps said they paid a further $50K from their safe to D to, the relevant P said, finish the venture: [80]
D denied receiving the $50K payment on that basis: [83], [84]
The venture never traded: [115], [116]
The Ps said D had breached various duties and sought the return of the $160K: [125], [127]
The Court found purpose of the payment of the $110K from the Ps to D was for the venture, and that D accepted the funds on behalf of the venture: [169], [170]
The Court found some, but not all, of the funds were used by D for the venture. Other funds were used for their own benefit e.g. to pay off personal credit cards: [191], [194]
No fiduciary obligations arose between the parties. The Ps had no special vulnerability giving rise to any: [201]
The Court considered no purposive Quistclose trust arose because the evidence showed the parties intended for the $110K to become part of the working capital of the Korean venture: [225]
Crucially, the Ps did not allege that the recipient of the $110K, the Korean entity, owed any obligations to repay any money: [228]
The evidence did not suggest D had stolen the money, meaning a Black v Freedman trust (where a third party who takes the benefit of stolen money must repay it) does not arise: [258]
Further, the D was not obliged to repay the $50K sum. This payment was found to be consideration for D transferring their units in a unit trust (which was done), not a payment made for the venture: [286]
The Ps’ claim was dismissed: [291]
5 partners - 3 Ps and 2 Ds - from the same extended family carried on a partnership. There was no written agreement: [1], [2]
D2 was married to D1: [3]
The partnership business was owning rental property (shops and units) and collecting rent. D1 took a leading role and was a paid a management fee. All partners were paid drawings, controlled by D1: [4] - [6]
Drawings were paid 1/4 to each P, and 1/8 each to D1 and D2: [12]
The partnership was dissolved in 2019. Issues regarding public auction versus “buyout” of the partnership property arose: [13], [14], [17], [18]
The central issue: what was each partner’s entitlement?: [19]
The shops were owned 1/4 by each P with the Ds jointly the remaining 1/4. The units were owned with each partner having a 1/5 interest: [20]
The Ps contended for a “four quarters” approach to the units, and the Ds for a “five fifths” approach: [22]
D1 historically signed off on partnership financials on the “four quarters” basis but later claimed to have done so without inquiry: [31]
The Ds leant on s24 of the Partnership Act 1892 (NSW) asserting that all partners share equally in profits and losses absent other agreement: [33]
The Ps relied on s21 to argue assets bought with the partnership funds (as the units were) are partnership assets: [35]
The Ps said they had no knowledge of the units being purchased in “five fifths” and did not look closely at the sale contracts and letters received in relation to the sale - an error “on par” with D1’s ignorance of the financial documents he signed: [37]
The financial records of the partnership had similar discrepancies; sometimes “four quarters”, sometimes “five fifths” and sometimes another basis: [61] - [66]
The Ps were unsophisticated and relied on D1 to manage the partnership’s affairs: [79], [80]
The solicitor who acted for the partners on purchasing the units gave basic conveyancing advice, not partnership “structure” advice: [81] - [89]
In favour of “five fifths”: the Ps signed contracts, accepted payments, and managed their tax affairs on this basis: [93]
In favour of “four quarters”: the units were bought with partnership money, drawings were paid on this basis, D1 was paid a management fee, there was no agreement to vary the partnership proportion, and successive financial statements were prepared on this basis: [94]
The Court found, on balance, “four quarters”: [95]
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I so enjoyed this interview with Nicole Davidson, a gun mediator and host of the Negotiation in Real Life podcast.
Please check it out here: https://podcasts.apple.com/gb/podcast/negotiation-in-real-life/id1590259533
(A couple of goofs in my delivery of this one this week - apologies!)
R and 7 As were in partnership operating various diagnostic medical imaging businesses pursuant to a partnership agreement. R and 5 of the As were “full” partners each entitled to 1/7; 2 As were “half” partners entitled to 1/14 each: [3], [31]
The As entered into an agreement with a purchaser to sell the partnership’s assets, with R to receive $3m as part of the purchase: [4]
Clause 32 of the Partnership Agreement dealt with the voting process granting a special majority power to approve on acquisition of the partnership assets by a purchaser (including that a partner who didn’t vote on an acquisition was taken to vote against): [5], [43]
An external offer was made to acquire the partnership’s business. The As passed a resolution causing the partnership to accept it (R didn’t vote and was taken to vote against: Cl 32) and the As agreed to work for the purchaser for a number of years with a non-compete: [7], [58]
R was to receive $3m from the offer, with each of the other 1/7th As to receive ~$6.7m plus shares worth $2.4m: [8]
R sued, claiming an entitlement to 1/7th of the net sale proceeds saying they had not varied their partnership interests, and the purchase payment was partnership property: [9], [33]
The As resisted; arguing that the amounts to be paid were pursuant to resolution that had passed, and that the shares were consideration for the As continuing to work for the purchaser: [10]
The As failed, and appealed. The CoA accepted that, in order for it to have any commercial utility, Cl 32 granted a special majority power to bind all partners to a transaction: [12]
The question was then: did that clause have the power to bind all partners to the distribution of funds following that transaction? The CoA found it did not: [14]
The persons bound by any Cl 32 resolution to go ahead with the transaction were “the partnership”, the firm itself rather than constituent partners. The partners’ rights and obligations between themselves were undisturbed: [15] - [17], [24]
The sale proceeds were partnership property to be allocated between the partners in proportion absent any other agreement between the partners: [19], [51]
The character of these rights and obligations justified the Court’s reluctance to find the partners varied them in Cl32: [25], [105]
This left a remaining question: did the As’ continuing service to the purchaser justify them receiving their additional consideration?: [27], [95]
No, the CoA found. This was based on the consideration being described in the purchase documents as payment for “the transfer of assets and the assumption of… liabilities” I.e. the money was for partnership stuff and not, the Court found, for the employment and non-competes of the As: [28], [110]
The appeal was dismissed with costs: [30], [112]
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(I don’t know why these short lost trust deed cases appeal to me so much. Perhaps it is the intersection of the capital “L” Law with all its tradition and solemnity, with the very human problem of losing a few old pieces of paper.)
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A trustee administered a trust in accordance with an unexecuted (or unsigned) trust deed. When the original was needed, no one could find it.
The trustee sought the Court’s advice that it would be justified in administering the trust in accordance with the unexecuted copy: [2]
To give this advice the Court will require (i) evidence that the executed deed actually existed, and (ii) evidence of the deed’s terms: [4]
The Court had evidence from the service provider engaged to settle the trust that it did indeed establish the trust. The Court also heard the service provider’s practice was not to keep executed copies of deeds once trusts are settled. It only kept copies: [5], [8]
The Court heard evidence of a bank operating an account in the trust’s name. The Court accepted the bank would not have permitted this had it not seen an executed deed, or a copy, at some time. (And would have taken judicial notice of this had it not been proved.) Sadly, the bank did not itself have a copy of the deed: [6]
There was evidence of extensive searches conducted of the records of 3 accounting firms that had previously acted for the trust. All to no avail: [7]
Based on the above the Court accepted the original had been searched for and could be located, finding (i) the trust had been established, and (ii) the terms were as set out in the unexecuted copy: [9]
The Court advised the trustee would be justified in administering the trust based on the copy: [10]
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“Hey that money belongs to the partnership. Give it back!”
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C and S, verbally agreed to (i) try to buy some adjoining properties, (ii) sell them at a profit, (iii) share the costs and expenses of doing so equally, and (iv) share the profit equally: [9]
Speaking broadly, S took responsibility for financing and buying the properties, while C looked for purchasers: [14], [55]
S argued the agreement included a Sunset Date, that C would have no interest in the venture if a buyer was not found by a that date: [23]
The properties (or most of them) were bought in the name of TCo, a company controlled by S.
In March 2015 the properties were sold for $37m. After payment of the financiers, $9m of the sale price was in the hands of TCo and the remaining $2m was in the hands of a company TCo was 50% shareholders of: [20]
C later sought half the money paid to TCo and, on the basis there was no written agreement, S resisted and wished him (ironically) “good luck” enforcing the obligation: [22]
The first instance judge found there was no Sunset Date, following a review of conduct S engaged in after the relevant date which was “impossible to reconcile” with a Sunset Date: [37], [39]
The first instance judge found S and C and / or their corporate entities had indeed entered into partnership: [40]
The first instance judge found S was an accessory to breaches of fiduciary obligations owed to C and a related company, entitling them both to equitable compensation: [1]
S appealed the decision including in relation to accessorial liability, and C cross-appealed to clarify the parties to the partnership.
C said the partnership was between S and C and any funds paid to TCo were held on trust for that partnership: [49]
The Court of Appeal held the partnership was between S and C: [55]
The presence of some related companies did not alter that position: [56], [57]
Having been found to be in partnership with C, S breached his fiduciary obligations in failing to cause TCo to account to the partnership (i.e. to C) for the money it received on sale of the properties: [59]
This, speaking broadly, also dealt with the issues raised by S on appeal. If it had not and the issue of S’s “knowing participation” accessorial liability claim required consideration, an order for new trial might have been considered but would not have been made, as setting the matter at large again would do greater injustice: [71]
TCo and S were ordered to pay the unpaid sale proceeds to C, with any proceeds paid by one offsetting the obligation of the other to pay: [72] - [74]
S was ordered to pay 80% of C’s costs of the appeal; this was because S enjoyed some limited success in that the first instance judge did not completely deal with the accessorial liability issue: [76]
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If you'd like to contact me my please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away! (TikTok is one of my strongest suits these days!) #coffeeandacasenote #auslaw
P, a school, bought a bus from D. It was old stock sold at a substantial discount.
The Court found D had engaged in misleading and deceptive conduct by silence (as to the build year of the bus) when selling the bus to P. But - crucially - the Court found P did not rely on that misrepresentation: [13]
That meant P lost its claim, despite D’s conduct: [1]
This left open the question of legal costs.
Often “costs follow the event” in litigation: the winner will benefit from an order that the loser pays their legal fees, or some of them on the “ordinary” basis. The alternate costs order is a more generous “indemnity” costs order.
Here the Court had to consider the position where D had done the wrong thing but P’s claim failed.
D sought to have P pay its legal costs on the basis P did not accept their offer to refund the P’s purchase price of $135K. The offer was made both pursuant to the UCPR and by way of Calderbank offer: [2]
P replied offering to accept $136.5K plus D paying 85% of P’s legal costs: [3]
The outcome of the litigation was clearly more favourable to D than the offer they made: [4]
In relation to the UCPR offer, D said that it was unreasonable for P not to have accepted it and so an indemnity costs order should follow, this not being an exceptional case where a different order was appropriate.
In relation to the Calderbank offer, D alternatively sought an indemnity costs order on the basis it was unreasonable for P not to have accepted D’s offer: [5]
P said they should take the benefit of a costs order as the Court found D had indeed engaged in misconduct, noting the Court can depart from “costs following the event” where the unsuccessful party succeeds on significant issues: [6], [7]
The D certainly did better than their offer, especially noting P had had the bus for 2 years at the time the offer was made: [9]
At the time the offers were exchanged, the matter had been set for hearing and evidence was largely complete: [10]
P’s claim required proof that there was a misrepresentation (which P proved), that they relied on that misrepresentation (which P failed to prove), and that they suffered loss (which they also failed to prove): [13]
Absent any offer, the Court found D would have its costs on the ordinary basis. Having made the UCPR offer, which it was unreasonable for P not to accept, D got a costs order on the more generous indemnity basis from the date of that offer: [14]
D’s misrepresentation was not misconduct sufficient to disturb this position: [12]
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If you'd like to contact me my please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away! (TikTok is one of my strongest suits these days!)
“The deal’s off. Now give me back my $6m!”
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P, a Chinese frozen meat company, and D, an Australian feedlot and abattoir company, found themselves in dispute.
A 2015 contractual arrangement required P to pay a $6m “advance payment” to D to acquire 45% of the shares in D: [7]
P made that payment.
The 45% stake was valued ~$140m: [17]
The deal between D and P included unusual conditional terms. The price was $140m, but subject to further negotiation after an investigation procedure including D providing P with audited accounts, P’s board and shareholders approving etc: [19] - [23]
There were some delays with the audited accounts and the deadline was extended by later agreement: [27]
After reviewing the accounts P’s advisers valued D as less than half of the initial value: [33]
P wrote to D on 30 June 2016 purporting to terminate. This was on the basis of D failing to meet the condition terms, and being late with the audited accounts: [34]
D responded saying P had no right to terminate that the letter was a repudiation which D accepted: [35]
The delay in the provision of audited accounts was considered in depth. Speaking loosely, the audited accounts were finalised save for issues related to external financing. There were some tensions between the auditors and the parties: [41] - [65]
The unqualified audit report was eventually sent at 11.57pm (China time) on 20 May 2016 and received at 12.12am (China time) on 21 May 2016: [66]
The parties had a contractual obligation of good faith to obtain the finalised audit reports by the deadline: [67], [68]
P complained that D’s failure to explicitly instruct the auditor to issue a report by 5.30pm on 20 May 2016 was a breach of this clause: [73]
It was accepted that the auditor could not be validly instructed to issue an opinion they did not hold: [73]
Regarding good faith and the 5.30pm deadline, P’s allegation that D’s good faith obligation required it to have reminded the auditor about the 5.30pm deadline cuts both ways. P could have also issued that reminder!: [82]
The Court found a more fundamental issue with this argument. It was not satisfied that the (unsent) “5.30pm reminder email” would have made any difference noting the auditor’s internal processes for issuing accounts etc: [85]
D’s good faith defence failed: [91]
D argued that P had no entitlement to issue the 30 June 2016 notice of termination.
After carefully considering the wording of the contract and associated law of commercial construction of contracts, the Court found P indeed had a right to issue the relevant notice arising from the delayed audited accounts: [124]
The Court found P complied with its good faith negotiations and had validly terminated. As such P was entitled to recover its $6m plus interest: [132], [133]
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If you'd like to contact me my please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away! (TikTok is one of my strongest suits these days!)
If you'd like to contact me my please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away! (TikTok is one of my strongest suits these days!)
___
Two partners P2 and D4 - both companies - were in partnership from 1996 to 2003. The Ps said that D1 had been paid partnership money and sought an order for the taking of partnership accounts: [2]
The Ps made other claims in relation to alleged subsequent agreements. (But we won’t engage with those.)
The partnership related to a quarry founded in the 1960s and to gabbro, a shiny black rock sometimes called “granite”: [6] Importantly, both first grade gabbro and second grade were quarried: [7]
P2 continued to do quarrying work at the quarry after the partnership ended: [13]
During quarrying activities material disturbed or displaced during quarrying was placed in stockpiles in the quarry: [18]
The Court worked through the complex background to the mining and leasing arrangements: [23] - [48]
The partnership paid out some of its proceeds by way of monthly payments to D1: [52]
The Ps objected to the payments made to D1: [58] (Interestingly, D1 could not recall what the payments were for: [105])
The Ds resisted the other claims on the basis that the partnership ended in 2003, a Limitations Act defence, and the defence of settled accounts: [62], [63]
D1 accepted that accounts had to be settled for the settled accounts defence to apply, and says the right to mine was not an asset of the partnership, and the stockpiled material was no longer separate from the land (or alternatively was not possible to value or quantity): [66]
The stockpile was the subject of heavy consideration including:
-
whether it had come to be a fixture, a part of the land: [120]
-
the difficulty sorting out the stockpile created in 1996 - 2003 from other material in the stockpile: [121]
-
expert evidence that the stockpile was “impossible” to quantify: [122]
-
the fact that further material was added to the stockpile from 2003 to 2014: [174], [179]
-
the Ds’ failure to substantiate their estimate of how much was in the stockpile: [185]
The right to mine or quarry was not an asset of the partnership, as it was a separate parcel of rights that that partners had to procure: [227]
The Court found the business of the partnership included the sale of granite (not just quarrying) meaning the monies paid to D1 were partnership monies: [233]
However, the Ps did not plead constructive trust by way of “knowing receipt” by D1 [237] nor a claim against D4 for breach of fiduciary duties as partner: [239]
As such the Ps raised no good basis for D1 to repay the money. The application seeking an account was rejected because: (i) the right to mine or quarry was not an asset of the partnership, and (ii) it was impossible to quantify the stockpile attributable to the 1996 - 2003 partnership: [243] - [247]
All the Ps’ claims failed. Proceedings dismissed: [262] ___
“Victory with no word from the misbehaving NZ director? No problem.”
___
Ps, liquidators of a holding Co whose subsidiaries provided cloud-based SMSF software and support, sued three of the Co’s directors, and settled the claims against two of them: [2]
They pursued the remaining director, D.
D was served with the originating process (the document that kicked off the litigation) in NZ, but did not appear (or participate) in the litigation: [4]
The Ps sought summary judgment against D i.e. victory in D’s absence: [5]
The bar for summary judgment is high. The Court must be satisfied there is no underlying defence to the claim (even if the D has failed to raise it): [7]
The claim was that D allowed the Co to incur debts when it was insolvent: [12]
The Ps were appointed liqs on 8 October 2019: [21]
The Ps alleged the Co was insolvent from 1 October 2018: [22]
The Ps claimed D allowed the Co to incur around $3m in debts while insolvent, to 18 creditors: [23]
The liqs gave detailed evidence about the debts: [27]
The Court when through the forensic process of analysing each debt and forming a view as to whether it was incurred before or after 1 October 2018. It found some were, and some were not: [29] - [45]
Of course, a Co is solvent only if it is able to pay all of its debts as and when they become due and payable: [46]
The Court considers, and accepted, expert evidence regarding indicia of the Co’s insolvency including: insufficient cash at bank to meet current liabilities [51], a large negative net profit margin [52], a negative ROI margin [53], a lack of income aside from R and D grants [54], and a liquidity ratio below 1 [56].
Failed attempts at refinancing and a net indebtedness to other companies in the group were also in evidence: [68], [70]
The Court found this was “no finely balanced case” and the evidence “overwhelmingly” pointed to Co being insolvent from at least 1 October 2018: [74]
The Court found it difficult to conceive evidence to cast doubt on this: [82]
Defences D could have raised, but did not, would be within D’s control and knowledge (like reliance on info from others, a good reason precluding D from taking part in the Co’s mgmt, or a course D pursued likely to leave to a better outcome) did not preclude the entry of summary judgment: [82]
Victory, then, for Ps in the D's absence: [86]
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“We’re liquidating the trustee Co, but we also need to be made receivers of the trust assets!”
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A Co was incorporated to be a trustee and, in that capacity, developed an apartment complex in Lindfield: [12]
The trust deed provided that the Co was to be indemnified for all liabilities incurred in its capacity as trustee, and that it would cease to be trustee upon its liquidation: [11]
Following completion of the development 35 apartments were sold. 5 remained in the hands of the Co as trust property: [13]
The Co - in its own capacity and as trustee - entered into a loan with a lender for ~$2.8m to pay off another loan: [14]
The lender put the Co into VA and, following the liqs’ recommendation (in their capacity as administrators), into liquidation: [15]
(From this time, of course, pursuant to the trust deed the Co ceased to be a trustee due to the disqualification clause. That meant from the time of its liquidation the Co held the properties as bare trustee.)
The liqs intended to sell the 5 apartments [16] and so sought urgent orders for appointment as receivers of the trust’s assets: [1]
The Court (respectfully, usefully) reviewed the authorities relating to liquidators of corporate trustees that can be summarised as: (i) a corporate trustee can be indemnified from trust assets for trustee work, (ii) if a corporate trustee is removed by a disqualification clause (like in this case) it becomes a bare trustee and the right to indemnity remains, (iii) to enforce that indemnity a Court order or receivership is needed, and (iv) the common course in those circs is to appoint the liqs as receivers of the trust assets.
Aside from its functions as trustee, the Co did not carry on any other business: [21]
The Co had debts of around ~15m; around ~$10m of which were owed to the Co’s former director and majority shareholder: [23]
By operation of the deed, the Co became a bare trustee when the liqs were appointed and so entitled to an indemnity from trust assets for liabilities incurred as trustee. That right can only be enforced by receiver or judicial sale: [24]
The Court accepted the liqs should be appointed as receivers in order to enforce the Co’s indemnity and so ordered: [25], [26]
Earlier this year I had the chance to chat with David Turner of Hearsay: The Legal Podcast.
It was (honestly) one of the most enjoyable chats I have ever had about technical legal practice.
You can find other episodes on the fabulous Hearsay podcast here: https://htlp.com.au
“You got the money, now get me my luxury goods!”
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A commenced proceedings against R1, a father, and R2, a son who was a minor at the relevant time, to recover payments made for luxury brand name furniture and accessories that were never delivered: [45]
At first instance, A succeeded against R1, but lost against R2: [46]
A and R1 had an established commercial relationship: [48]
There was some complexity in this case, though, as both R1 and R2 - arguably - held themselves out as agents of each other and a Co that did not then exist and was not a party: [50]
Further, the payments were not actually made by A, but by a Co they were a former director of and which was under external administration: [12], [62]
(If it had been necessary to decide the question, the Court may have found A had not established they were the proper plaintiff to bring the claim: [40])
The first two payments were made into a New York account with the name of the non-existent Co: [3], [56]
Further payments were made into an account with R2’s name (but at the time when R2 was a minor): [58]
Evidence suggested R1 who had previously been imprisoned for drug offences was “very controlling” and treated R2’s bank account as his own: [69]
R2 tendered bank records which showed the money in his accounts was used almost entirely by R1 and for the business: [70]
R1 was not legally represented at the primary hearing and did not participate in the appeal: [74]
At first instance the Court found R1 was liable to repay the amounts A had caused to be paid, and that R2 was not liable due in part to being a minor: [80], [81]
A appealed.
There were complexities in A’s appeal that the CoA had to grapple with including whether R1 and R2 were agents of each other, “in business together” or agents of the non-existent Co: [83] - [92]
At first instance, R2’s evidence was accepted and the appeal made no effective challenge to that position: [102], [103]
R1 had made many admissions in his defence and (though not in the form of admissible evidence) said during the hearing that he took “full responsibility”: [105], [108]
A failed to mount an effective challenge to the finding that the business was R1’s and R2 merely acted at R1’s direction: [111]
Relevantly, as both were sued, the COA noted that R1 did not cross-examine R2: [115]
A’s appeal on the basis R2 received a benefit of the payments failed. He was a “mere conduit” for funds paid for R1’s benefit: [127], [132]
A’s appeal was dismissed with costs: [145]
“Give that $30m back to the Co and wind it up!”
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Some Ps were executors of a shareholder’s estate: [2]
The Co conducted a retirement village business which was sold in 2017 for $25m: [3]
Over time money was dissipated to a director, WH, and WH’s related entity, HHC, who used some money for buying a Balinese property: [4]
The litigation was complex but, crucially, the Ps sought repayment of the Co’s money, and for the Co to be wound up pursuant to s461(k) or s233: [5]
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In 1997 the Co entered into an agreement with HHC that would cause the Co to pay management fees to HHC: [82]
Over time WH caused the Co to pay millions in management fees to HHC though, after a time, not pursuant to the 1997 agreement. The Ps alleged this was a breach of duty: [83]
The Court accepted the fees were not reasonably based: [95]
In causing the Co to pay above market fees to a related entity, WH breached their duty of care and diligence and the “no conflict” rule: [96]
In 2016 a further agreement was reached for the Co to pay HHC higher fees in the sum of $70K per month: [97]
Causing the Co to enter into this agreement was a further breach of WH’s duties: [101]
WH causing the Co to continue to pay management fees after the sale of the business was a further breach: [106], [107]
From 2012 to 2019 the Co lent large sums to WH and HHC on apparently uncommercial terms without all loans being in writing: [110]
The Court found there was a breach of WH’s “no conflict” duty as there was a conflict of interest between the Co’s interest in keeping the money, and WH’s and HHC’s interests in having the benefit of the loans: [129]
WH racked up $1.8m on the Co credit card for personal expenses. This was rightly treated as a loan to be repaid: [142], [143]
WH caused payments to be made to HHC and related entities relating to a scooter business venture with no adequate agreement in place: [146]
These debts were being chased by a prov liq appointed in 2019. Any shortfall would be payable by WH: [147]
The Court considered “knowing receipt” and accessorial liability in the context of money WH caused the Co to pay to HHC: [151], [152]
The Court found HHC liable as WH’s alter ego and had full knowledge of WH’s breach of duty from which it profited: [155]
In respect of all debts including overpaid fees and loans no board resolution or shareholder resolution was sought or made that might have cured the “no conflict” rule.
The Court found that the history of the matter, and the litigation between the parties, justified a winding up order: [167]
WH had to repay the Co $17m plus interest. HHC had to pay the Co $15m plus interest. The Co was wound up: [173]
On 5 November 2021 I spoke (remotely) at 'The Retreat' by Clarissa Rayward, the Happy Family Lawyer.
It's a fantastic event and I was delighted to be a part of it. (And am hoping for an invite back next year!)
This is my presentation which I hope brings you value.
A link to just some of Clarissa's fabulous content is here: https://www.thehappyfamilylawyer.com
A link to my appearance on Clarissa's podcast is here: https://www.thehappyfamilylawyer.com/podcast/episode-179-james-dapice/
“There’s no deadlock, so there’s no windup!”
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P, a director, applied to wind up a Co that was Tee of a unit trust: [2]
P’s fellow directors were S and D. P said there was a deadlock and relations had broken down: [4]
P and S were builders. D was a property developer. The 3 agreed to found the Co to develop a site together with P and S to share 50% of the profits and D to take the remaining half as unit holders: [13]
There was no written agreement: [12]
In 2013 the Co was established and the unit trust settled: [16]
Even though it was intended an entity of P and S would do the building work, a new cheaper contractor was found: [26]
In 2016 the building was completed: [37]
In 2016 P, S and D agreed to take unsold apartments as profit share with S also taking $500K cash: [38]
In 2017 the CO declared profit of ~$8m: [40]
The parties agreed on notional values of units for the purpose of profit distribution: [41], [42]
The OC commenced building defect proceedings against the Co and the contractor: [45]
In 2018 P and S received their apartments, though D did not: [52]
In 2019 the Co, as part of the defect proceedings, was obliged to pay $15K for expert fees. D did not agree to contribute and the Co was then out of money. P paid on the Co’s behalf: [57]
P suggested a deadlock had arisen about paying the expert: [58], [59]
P lodged caveats over the Co’s properties which were to be transferred to D: [61]
P took the approach that while P and S should retain their profits (via apartment ownership), the apartments to be transferred to D ought to be retained for any liability the Co might have pursuant to the defect proceedings: [64]
D sued seeking (among other things) to remove the caveats and restore the 50:25:25 distribution: [66] - [71]
P suggested the profit calcs had a $156K shortfall for which P blamed D: [74]
D denied any deadlock and proposed an audit: [76], [77]
The Court found the suggestion of a breakdown of the relationship artificial. From 2013 to 2019 P was happy to leave admin and accounting in D’s hands, the venture made $8m in profit, and all agreed on its distribution: [102]
The court considered this windup application, which might thwart the caveat proceedings and defect proceedings, was “infused with self interest”: [107]
While a liquidator could investigate defending claims and seeking an account, the cost may be disproportionate noting P was chasing an estimated $156K. Nor did P undertake to fund the liquidator: [108]
Winding up would affect the OC adversely. Winding up is a last resort and alternative, less drastic remedies are available: [110]
The application was dismissed. Costs followed the event: [111]
“The Co paid too much for that helicopter!”
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W and B were 50/50 shareholders in a Co that bought a helicopter for $1.6m. They were also the Co’s sole directors.
$1.12m of the purchase price was borrowed. W and some related entities gave a guarantee in respect of that loan.
The Co couldn’t make the payments. The lender caused the helicopter to be sold for a shortfall of ~$457K.
The lender sued W and their related entities for the shortfall.
Interestingly, the purchaser of the helicopter was a Co wholly owned and controlled by B, who had not given a guarantee.
W says B used his position with the Co to negotiate a lower price for the helicopter, breaching his directors duties. W sought to bring derivative proceedings to pursue this claim: [2]B applied to wind up the Co on the just and equitable basis: [3]
B claimed that W excluded them, treated the Co as their own, breached duties in buying the helicopter for an inflated price and failing to maintain it, and failed to manage the Co’s obligations to the Co’s lender: [5]
W said B’s claim was an attempt by B to protect themselves from the derivative claim and, as there was no money, a liquidator would not chase B for B’s breach of DDs: [8]
The Co had no ongoing business. Its sole assets were claims against B, W, and the lender: [9]
The Court considered it would be just and equitable to wind up the Co because: (i) it is being sued by a secured creditor, (ii) the dirs’ relationship has broken down, (iii) each dir alleges the other has breached DDs with evidence from both showing neither’s claim is frivolous: [11]
The Court considered preferable course was for an independent liquidator to be appointed to investigate all claims and noted “liquidators commonly find a way to obtain funding if there is a potentially good cause of action available to the company”: [12]
The Co was wound up on the just and equitable ground: [13]
Earlier this year, James sat down with Legalsites' founder and law grad turned legal firm marketer, Brendan Kelso. Hope you enjoy their conversation!
A link to the Legalsites website is here: https://legalsites.com.au/social-media-101-w-james-dapice-facebook-instagram-linkedin-tiktok-and-twitter-which-is-best-for-law-firms/
“Wind up the company that runs this pub!”
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An uncle, and his Co, (“P” or “the Ps”) sued a nephew and his Co (“D” or “the Ds”) to wind up a Co that operated a pub and the T’ee that owned the land it was on: [1]
Uncle and nephew were the directors of both the Co and the T’ee: [2]
All parties accepted the relationship had broken down. Each blamed the other: [3]
The grandfather - P’s dad - assisted P and D in setting up the business. Later, grandad would swear an affidavit supporting D: [4]
In 2010 grandad and P identified a site in Wagga on which to construct a pub for and P and D to operate: [31]
In 2013 the pub opened with D as general manager. D had never managed a hotel: [79]
From 2015 grandad, a guiding figure in the family, started to recede and a shareholders agreement between the Ds and Ps was discussed: [88], [89]
Pursuant to the shareholders agreement, P would transfer 10% of his shares and pay $1m in consideration for D managing the pub for 5 years: [103]
In 2017, D bought a nearby block to develop a hotel. D did not tell P: [128]
P issued a buy out notice. D resisted: [137] - [140], [246]
D cut the pub’s CCTV cable preventing P from inspecting the pub via remote means: [159] - [161]
D relied on data from the pub to progress his new venture: [165]
D used his pub email address to further his new venture: [167]
D allowed a consultant helping with his new venture to stay at the pub for free, and was then evasive about it in XX: [169], [170]
D stopped keeping P informed of the pub’s business. P often stayed in other nearby hotels due to the pair’s animosity: [180]
In April 2020 P came to the pub, logged into D’s computer, and took photographs of the screen. An “undignified struggle” over the computer mouse ensued: [203]
Despite P and D still being directors, they were unable to conduct a conversation or agree on management arrangements: [215]
In buying the new property and concealing it from P, using his role as general manager to lend credibility to his new venture, using information about the pub - D put his own interests and the pubs and T’ee’s in conflict and was oppressive: [243]
D obstructed P’s means of seeing what was happening at the pub, and obstructed attempts to sell the land and business - all while furthering his own project: [246]
P pressed for just and equitable wind-up but the Court had to firstly consider whether alternative relief was appropriate: [265]
There was no valuation evidence before the Court that might found a buyout order: [271]
D, when pressed, was only prepared to buy out the shares in the pub, not the T’ee. A sale of the pub shares only would not cure the oppression: [272]
The Court found it would be just and equitable wind up the pub and the T’ee: long standing deadlock, broken relationships and oppressive conduct - and D will likely frustrate any action he does not agree with: [287], [288]
A receiver was also appointed to the trust’s assets: [302]
James had a chance to chat with the legend, Mike Bromley, from Team BB earlier this year.
You can catch what the Beyond Billables team are up to here: https://www.beyondbillables.com
In September 2021 James d'Apice spoke with Susanna Lobez from TVED about one of James' pet topics: derivative actions.
You can find TVED's content here: https://www.tved.net.au
"No trust? No confidence? No company."
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B and G founded the Co and entered into a shareholders agreement.
The Co provided in-car cameras for race cars to be used in TV broadcasts.
In 2015 the Co agreed to provide cameras for 5 years: 2016 - 2020: [6]
B transferred valuable camera equipment (and later loaned other equipment) to the Co for the Co to use: [9], [60]
At the end of 2020 B wanted to terminate, and G wanted to keep it going: [15]
On termination, B and G had rights to buy back equipment from the Co: [16]
B commenced proceedings seeking to wind up the Co on the just and equitable basis, s461(k): [17]
The broadcaster sought EOIs for the next 5 year period and the Co didn’t respond (though B’s parent company did): [63], [64]
After the last race in October 2020 B came to take back its equipment, but G prevented that: [81] - [84]
B’s later requests for info about its equipment were met with no response: [88], [96]
Later in 2020, the broadcaster, having not named anyone else, asked the Co to provide its services for 2021: [89]
G pressed for the Co to do it. B refused: [91] - [102]
B sought confirmation G would not use B’s equipment. Instead, G sent it to racing venues in January 2021 without B’s knowledge or consent: [105] - [112], [122], [208]
B wanted to buyback the camera equipment from the Co to meet its other contractual commitments: [128]
B said the substratum of the Co’s business had failed and so it should be wound up: [187]
G disagreed, saying the Co’s substratum was not limited to 2016-2020, but that it could continue (with an offer on the table): [188]
The Court found the Co couldn’t do what it was meant to do because of the war between the shareholders, meaning the Co’s substratum failed: [192]
Reasons’s included: broadcaster’s offer was a mere agreement to agree, with terms to be worked out later; the loss of trust and confidence meant the prospects of successfully continuing the Co were “so remote as to be fanciful”: [195], [196]
The Court found B had justifiably lost confidence in G: [198]
The Co was solvent, and there was no prejudice to creditors of employees (there were none) if it was wound up: [139], [228]
Due to (i) breakdown in cooperation and trust, (ii) B’s justified loss of confidence in G, (iii) G’s improper deployment of B’s equipment, the Co’s substratum failed meaning it would be just and equitable to wind up the Co in the absence of an alternative remedy: [232]
There being no appropriate alternative remedy (including by way of dispute resolution clauses in the shareholder agreement), the winding up orders were made: [233], [244]
___
If you'd like to contact me my please look for James d'Apice or Coffee and a Case Note on your favourite social media spot - I should pop up right away!
“You moved the Co’s money, so let’s wind it up!”
___
The As, spouses and owners of 45% of the shares in a Co, came to Court to try to wind up the Co including pursuant to s461 of the Corporations Act 2001 (Cth).
One of the Rs owned the balance of the Co’s shares, being 55%: [4]
The As, as shareholders, had standing to bring the claim: [10]
They had the consent of a liquidator willing to accept an appointment: [8]
The Co was in the business of finding buyers for new property developments: [13]
The As (one of whom was a director) and one of the Rs participated in the business and took a commission: [14]
In December 2017, one of the Rs orally indicated (though never formalised in writing or with ASIC) that they would “quit” and created a new entity, NewCo: [15]
By Feb 2018, the Rs had ceased to work in the Co’s business: [16], [17]
Through 2018 the As continued to work on the Co’s business, and there were some talks about deregistering: [18], [19]
By the end of 2018, the Co had ceased taking on new business and had no current activities at the time of the hearing. Its bank account remained open to accept any further commissions that might be payable: [20]
In May 2020 one of the Rs represented that they “will quit”. That R’s shares were transferred, but their resignation as director was not registered with ASIC: [21]
In June 2020 the Co received a significant commission, paid into its bank account: [22]
The Rs purportedly (“purportedly” because arguably they had resigned as directors by this time by their earlier “quit” representations) resolved to commence proceedings against the As and remove them as bank account signatories: [23]
Rs in their (purported) capacity as directors met with the relevant A and resolved to pay the commission into NewCo’s bank account: [29]
In fact, the money had already been transferred to NewCo’s account a few days earlier: [30]
A provisional liquidator was appointed at the As’ application: [34]
The Co was ordered to pay the relevant funds into Court: [35]
The Court briefly retraced some fo the law relating to a “just and equitable” windup, noting that circumstances amounting to corporate oppression were not necessary: [41]
The Court was satisfied it was just and equitable to windup the Co including because: (i) complete breakdown in shareholder relations, (ii) majority shareholder transferring Co funds over objection of other shareholders thereby frustrating the Co’s operation, and (iii) the As having tried an alternative less drastic remedy of having funds paid into Court and the Co not complying: [42]
The Court ordered that the Co be wound up: [44]
James had the chance to sit down with Jerome Doraisamy in September 2021 to have a fantastic chat about James' views on the profession and his suggestions for other practitioners.
Please check out Laywers Weekly here: https://www.lawyersweekly.com.au/podcast/32455-blending-contemporary-branding-with-traditional-practice-approaches
James had a great chat with Anvita Nair of Monash University's Monash Future Thinkers podcast.
Why not check out what Monash Future Thinkers are up to by heading here: https://www.futurethinkers.org.au
"I didn't agree to sell you shares. I agreed to sell you other stuff!"
___
A successful Co was founded by D and their spouse in the 1970s. At all relevant times, they were its sole shareholders.
Two Ps worked for the Co, and were later appointed directors with D.
In 2005 there was an oral agreement between D and the Ps. Each had a different version what it meant.
The Ps said they paid $150K to each take an 8.33% share in the Co: [5]
D said the Ps paid for 8.33% of the Co’s “plant and equipment” and that, after 10 years, D would make the Ps shareholders in the Co: [6]
(The Court acknowledged the conceptual difficulty of owning a proportion of a Co’s plant and equipment: [45])
There were some failed attempts to negotiate a shareholders agreement over a number of years: [36] - [62]
Later, there were increasingly formal meetings to finalise and record the arrangement: [63] - [81]
(This included a tense meeting where the parties could not agree on the use of a tape recorder: [70])
One of the Ps commenced proceedings in 2014: [11]
In 2015 a big entity offered D $80m for their shares in the Co. D did not disclose this offer to the Ps: [85] - [88]
After negotiations, the parties agreed to settle all the Ps’ claims in exchange for D and the Co paying ~$2m to each to the Ps: [89] - [92]
The D went ahead with the sale of their (and their spouse’s) shares to the big entity for $90m: [95]
The P’s said that D (i) owed them a duty to disclose the offer, and (ii) held their 8.33% stakes on trust and breached trust by buying their shares at an undervalue: [18]
In addition to paying their money, the Ps gave personal guarantees for the Co’s benefit, served as directors, and undertook the Co’s work for some years away from their home state: [80], [100]
The Court found that if the Ps were shareholders, then an inference arises that $2m was an undervalue: [97]
The Court considered the well-known principle that where a party seeks to rely on spoken words to found their claim, the Court must feel actual persuasion of those words having been spoken: [108]
The Court felt actual persuasion of D’s version: [112], [113]
The Court considered the Ps’ evidence was plainly coloured by resentment at being excluded from knowledge of the sale: [114]
The value of 8.33% of the plant and equipment as at 2005 was about $150K. The Court found D was too shrewd to have given away a full equity stake for just the plant and equipment cost, ignoring goodwill: [115]
The Ps failed to establish the agreement they contended for, meaning the proceedings were dismissed: [133]
On 2 September 2021, James sat down on a TikTok Live and spoke with the legendary Jahan Kalantar.
To learn more about Jahan, head here: https://www.jahankalantar.com
“Just transfer the shares to me!”
___
Years ago, mum and dad incorporated a Co and, among other things, became shareholders of the Co’s Class “A” voting shares: [10]
The Co held assets in its own capacity and as trustee of the family trust: [13]
Mum and dad’s two sons, S1 and S2, eventually became directors of the Co: [12]
In 2011, Mum retired leaving S1 and S2 as sole directors. In the same year the family trust deed was amended effectively placing the Co in complete control of the trust, as both trustee and appointor: [16]
In 2018 S2 ceased being a director, leaving S1 as sole director: [17]
In 2019 mum died.
In 2020 an administrator was appointed to mum’s estate: [19]
The administrator found the Co then had 11 Class “A” shares in the Co - 9 owned by mum, and one each owned by S1 and S2: [20]
The administrator served on S1 an application to transfer mum’s shares to him: [22]
If the application was registered, the administrator would hold 9 voting shares, allowing him to instal new directors and take control of the Co: [26]
The administrator chased S1 a number of times to seek to become registered, and threatened Court proceedings and an indemnity costs order if the matter was litigated: [28] - [34]
S2, in 2021, then transferred mum’s Class “A” shares to himself and alloted more shares of other classes to himself: [36]
In May 2021 the administrator commenced the proceedings seeking to rectify the Co’s share register to reflect his ownership (as administrator) of Mum’s shares and to reverse the allotment: [43]
The Court found there was no just cause for S2 to fail to register the share transfer and made orders causing it to be registered: [55]
S2 did not have power to allot himself extra shares as the Co required two directors and, from 2018, S2 was its sole director: [65]
The transfer of mum’s shares and S2's purported allotment of further shares to himself were both made without power and had no effect: [66]
Due to S2’s intransigence, the administrator pressed for an indemnity costs order: [69]
An indemnity costs order arises from the unreasonable conduct of the litigation itself, not the conduct that led to the litigation: [73]
S2's intransigence and attempt to seize control as “majority shareholder” came before the litigation : [74]
However the administrator warned heavily of the possibility of an indemnity costs order in the correspondence sent before litigation was commenced, S2’s defence was hopeless, and the Court found the estate should not be depleted by S2’s unreasonable refusal to agree to the orders sought: [75]
The administrator got essentially what he came for, including the indemnity costs order: [77]
“You fired me just to get my Co’s shares at a discount!”
___
Y owned and controlled a Co, P.
P was a shareholder in the Cos in a group that operated a national business. Y was a director of the Cos: [1]
Y was terminated as a director of each Co in the group and, and by operation of the shareholders agreements, P’s shares in those Cos were transferred to the other shareholders at a discount which P accepted under protest: [6], [325]
P relied on s232 of the Corporations Act to challenge the discount; alleging termination of Y was unfair: [11], [28]
Separately P claimed the discount was a breach of the shareholders agreements: [12]
The Ds said the termination was appropriate due to Y’s behaviour, and was not motivated by the share discount: [13], [14]
In 2017 Y, and the other directors, had fallen into serious dispute: [31]
The disputes concerned possible share dilutions to let in new shareholders, pay for senior staff, governance, and the future direction of the business: [36] - [38], [46], [111]
There was evidence Y bullied staff: [97], [104] - [106]
Y sought to renege on a more recent shareholder purchasing a departing “legacy shareholder”’s shares: [109]
This led to a mediation process: [115], [116]
Following mediation, the group’s board sent a letter to Y proposing resolutions that Y be terminated as a director at a board meeting a month later: [143]
The next day, Y purported to resign giving 3 months notice: [145]
Roughly a month later (and before the 3 month resignation notice period expired) the resolutions terminating Y passed: [149]
The Court found the group’s board had good reason for terminating Y; to bring to an end the problems Y was causing. It was not a mere share discount manouver: [192], [198]
The Court noted the terms of the shareholders agreement had been accepted by Y and P, so being held to them was not inappropriate: [212]
P’s primary oppression claim failed: [216]
(Interestingly, the Court raised the issue of whether unitholders in a unit trust could bring an oppression suit, suggesting it may be an open question: [222])
P also complained the discount was a breach of the various Cos’ shareholders agreements and constitutions: [263]
Whether the discount applied depended on whether termination or resignation took effect first: [270]
P argued that Y’s resignation took immediate effect, despite a 3 month notice period: [271]
The resignation would take effect 3 months after notice was given, so the termination resolutions passed in the intervening time took precedence: [298], [301]
P did not show that applying the discount was a breach of the agreements: [363]
The Court was taken to evidence about a “senior junior” colleague of Y’s valuer, whose work was about 70% of the invoices issued in preparing the report, was not independent: [372] - [435]
The Court dealt with the valuation at length: [436] - [553]
Speaking broadly, Ds’ valuer was preferred: [554]
The discount was found to be OK: [555]
“Just keep those assets frozen a little longer…”
___
P was an owners corporation that owned the common property in a building.
P sued the developer, D, in relation to alleged defects P afflicting the building - a breach of the HBA statutory warranties: [9]
P tried to organise site inspections of various experts to investigate and hopefully quantify the defects but COVID restrictions frustrated that: [12]
P’s pre-inspection estimate of damage was ~$1m and, P said, that was likely to increase after inspection: [13]
D owned Lot 2 in the building: [18]
P’s lawyers became concerned that D might sell Lot 2 and P’s lawyers raised this issue with D’s lawyers: [21]
Without P’s knowledge, D transferred Lot 2 to Q (a person who had a relationship with D) for a recorded price fo $3.78m, but with no money changing hands: [25], [26]
This left D with around $900K to pay any judgment P might get in the defect proceedings: [29]
P applied for, and got, a “freezing order” preventing Q from selling Lot 2, unless in an arm’s length transaction with the price paid to be held on terms both agreed: [37]
At the time the order was made, D had around $635K: [38]
The Court accepted there was a good, arguable case that the transfer of Lot 2 to Q was voidable, a transaction to defraud D’s creditors - s37A, Conveyancing Act: [41]
At the time of the hearing Q was already restrained by freezing orders. Today’s discussion is P’s application to extend them.
P sought an extension of the freezing orders to get its defect evidence on: [46]
D and Q did not oppose an extension but sought a reduction from the full value of Lot 2 to $800K, following a deposit of $200K into a trust account, and after giving an undertaking not to deal with Lot 2 without P’s knowledge: [48]
The Court accepted a freezing order is a drastic remedy, not to be used improperly as additional security: [50]
Because P undertook to bring s37A proceedings, with the potential to void the transfer of Lot 2 from D to Q, the Court extended the freezing order for Lot 2 (or its sale proceeds) by 4 months: [53]
“Our agreement was for a bigger easement!”
___
In 2008 and then 2010, a developer, N, entered into agreements with adjoining landowners including V to develop some land: [2]
N commenced development and lodged caveats over land including V’s securing obligations purportedly pursuant to the 2010 agreement: [6], [7]
By 2018 the caveats were replaced by new caveats and V applied to the Court to have them removed: [9]
In December 2018 the parties attended a mediation and negotiated a Heads of Agreement settling all disputes arising out of the agreement: [10]
Things again stalled, however.
Each party sought specific performance of the HoA by executing certain document, but they disagreed on what precisely was to be done: [11]
The Court at first instance made various orders for the performance of the HoA: [12]
N appealed.
The Court at first instance found the HoA to be a Class 2 Masters v Cameron document: a complete record of an agreement conditional on the execution of a later formal document: [21]
The parties agreed he execution of further documents were consideration for, not replacement of, the HoA: [25]
The CoA considered the practical impact of N’s challenge on this point (i.e. that there should be some new document replacing the HoA) was obscure: even if N was correct and a new document replacing the HoA was required, little would change practically save for the form of the specific performance orders: [30]
There was extensive argument about whether the width of the easement was to be 16m or 21.6m, with the material such as the DA being unambiguously 16m: [37]
N referred to possible use of buses on the road to be built, and suggested that 21.6m was required. Noting that the 16m width of road could deal with garbage trucks and the like, and that only up to 19 lots were proposed, this was not found to be necessary. None of the further evidence founded an inference for departing from the 16m requirement implied in the HoA: [38] - [52]
N argued it was an implied term of the HoA that a construction easement be granted: [54]
The main purpose of the HoA was to terminate the tripartite agreement and it was not necessary that a construction easement be implied: [57], [60]
N’s argument for an easement for a roundabout was rejected: [64]
The costs order from the earlier proceedings was clarified to make clear it did not relate to “pre-mediation” legal costs, only costs after the HoA was entered into: [70]
N’s appeal was dismissed: [73]
“The proceedings were dismissed, so pay my costs!”
___
P commenced legal proceedings seeking specific performance of a deed that saw D grant P a drainage easement.
Shortly afterwards, the proceedings were dismissed by agreement.
When proceedings are dismissed the plaintiff ought to pay the defendant’s costs, unless the Court says otherwise: UCPR r42.20
P said D had engaged in unreasonable delay in relation to the deed, forcing P to commence proceedings: [4]
D said the deed had not been entered into properly before the proceedings were commenced: [5]
There was a degree of delay of delay and disorganisation about entering into the deed, and confusion about when the counterparts were executed: [6]
There was some suggestion that D might have engaged in unreasonable delay, but there was also a complaint that it took P the best part of a year to pay an $800 invoice required by the deed: [7]
Due to the delay in progressing the matter, the Court found it was not unreasonable for P to have commenced proceedings: [8]
However, the Court ordered each party to pay its own costs: [9]
This judgment confirms that a plaintiff may stand disappointed if it relies too heavily on r42.20 to carry the day.
James sat down to speak with Dean Cosgrove of Griffith University Law Society (GULS) in June and had a great chat about how the life of a commercial litigator works.
You can find GULS on LinkedIn here: https://www.linkedin.com/company/griffith-university-law-society
And you can find the GULS Law Student podcast wherever you get your podcasts!
"We settled those other debts, but you still owe me this one!"
___
A joint venture of some complexity fell apart, as they sometimes do.
The relevant parties entered into a “Termination Agreement” dealing with the fallout.
P sued D for a debt of £500K. D said that debt was discharged by operation of the Termination Agreement: accord and satisfaction.
P and D’s commercial relationship was somewhat colourful. P and P’s spouse invested substantial sums with the D - over US$15m - over a number of years: [2] - [23]
The sole issue was: was the £500K debt among the debts released via the Termination Agreement, or did D still have to repay it?
The Termination Agreement included that assets were to be transferred to P “… in full and final satisfaction of all rights, claims or interests [P] may have in respect of the Joint Venture and all payment obligations which any [other relevant entities] may have to [P] and/or to any person not party to this Agreement and associated with [P].”: [24]
The Court found the purpose of the £500K loan was personal, and did not relate to the joint venture: [46]
Over subsequent years the £500K loan was referred to as the “personal loan” in correspondence between the parties: [47] - [58]
P said the Termination Agreement related to the joint venture and, as the £500K loan was not part of that venture, the agreement had no effect on it: [70]
D, perhaps unsurprisingly, took the opposite view: [72]
The court considered the clause’s two limbs. The first limb (the above extract up to the word “and”) was found to relate to the joint venture: [82]
The second limb had no such restriction: [84]
P submitted that various email exchanges showed the parties’ true intent in entering into the Termination Agreement was to deal solely with joint venture issues. The Court identified these exchanges as negotiation rather than binding terms and said the common objectives are best taken from the Termination Agreement itself, not earlier emails: [109]
The Court found that on a proper construction the £500K loan fit within the description of a “payment obligation” under the Termination Agreement (the second limb) meaning the D had no obligation to pay: [115]
“Stop that Co from selling shares. Right now!”
___
P (who, incidentally, was the Australian corporations regulator, ASIC) commenced proceedings against a Co, and others, seeking to wind up the Co and - in the meantime - freeze the Co’s assets.
P’s evidence showed the Co had significant debts and minimal funds. The Co’s MD alleged they held funds for the Co in trust, out of reach of the Co’s creditors: [2]
The Co attracted shareholders, in part, by offering price guarantees to incoming shareholders - their shares would be bought back if they did not reach a certain price: [3]
The Co had no trading income. Its income came from issuing share capital (with buyback guarantees): [4]
The Co owned a patent portfolio and software, whose value not be realised without listing on the US stock market or being bought by a US entity: [5]
Clearly, the Co did not have the cash to support the guarantees.
Noting this, and despite the existing assets of the Co being minimal, the Court considered immediate freezing orders were needed to avoid them being further eroded: [7]
If the orders were made it would prevent the Co from conducting further fundraising activities, severing its source of funds and rendering it insolvent: [8]
The Co’s conduct in fundraising without disclosing (i) its inadequate assets to fund guarantees, or (ii) the need for a US buyer to realise its assets, were false and misleading: [6], [10]
The Court was not persuaded that it should restrain itself from making a freezing order when that would allow the Co to continue to mislead; even if the the outcome of that misleading conduct was the only source of income for the Co: [10]
Injunction granted.
“Let’s get our company to buy a block of land. I’ll take some and you can have… none?”
___
F and A were directors and (with their families) 60/40 shareholders in a Co. The Co owned a block of land.
F and A discussed an arrangement where each would get - for themselves - a small parcel of land subdivided from the Co’s larger block without paying: [7]
A’s parcel was subdivided and transferred to A with a price of $175K recorded on the sale contract, but nothing paid: [8], [9]
F applied to subdivide their block but was unsuccessful: [8], [10]
Years later, after a curious meeting with F and a private investigator engaged by F, A paid the $175K to the Co: [11] - [17]
F commenced proceedings seeking (among other things) specific performance of the agreement: [20]
F lost, including because the primary judge found there was no binding obligation to cause the subdivision and distribute F's block: [26]
On appeal, the Court found that there was indeed a binding obligation in those terms: [37]
The CoA noted the payment of $175K was curious as it was never demanded and was made after A felt “intimidated and confused” following the private investigator meeting: [44]
A argued that even if there was a binding contract, F repudiated it by causing the private investigator to behave as they did and demanding the $175K: [39]
However as F had already performed their obligation to cause the Co to transfer the land to A; there were no obligations left for F to evince an intention not to be bound by. F did not repudiate: [46]
The net effect of the binding obligation, and A acting on it while F did not, is F received nothing from the arrangement and A received their land: [61]
(A may have a remedy to recover the $175K but that was not raised in these proceedings: [62])
A repudiated by purporting to accept F’s alleged repudiation, so evincing invention not the be bound b the Agreement: [63]
There were difficulties with the order for specific performance sought, including identifying the land that would be the subject of any order, and any planning or zoning issues that might prevent subdivision: [64]
The matter was referred back to the primary judge to consider specific performance versus damages: [66]
Appeal allowed.
James spoke with Lucy in 2021 and they had a wide-ranging chat about James' approach to leveraging social media to build a legal practice, and how he feels like the term "innovative" may not necessarily suit him!
We hope you enjoy this fun chat!
You can catch Lucy's podcast everywhere you get your pods and her website is here: https://www.lucydickens.com.au/doing-law-differently/
“Nope! It’s not convenient for the Court to stop that meeting.”
____
A dispute arose about (i) rights to units in a unit trust, (ii) whether a Co that purported to be the unit trustee was indeed the trustee, and (iii) who owned the shares in the Co.
St sought an injunction to stop the Co having a meeting of the unit holders.
To get the injunction St had to show likelihood of success, and that the balance of convenience was satisfied.
St held 82 units in the trust; Pn the other 18 units: [11], [12]
Pn owned 80% of the shares in the Co; St the other 20%: [14]
The chief asset of the trust was valuable land ripe for multi-storey development: [15]
Pn lent St $3m for the purpose of the development: [24]
The trust bought the property for $20m - $13m was from Pn (including the $3m loan to St) and $7m was financed: [29]
Pn demanded repayment of the $3m plus interest and St did not repay: [32], [34]
In the absence of payment, and pursuant to the loan agreement, Pn’s director transferred St’s shares in the Co, units in the trust, and authorised the Co to borrow $30m for development: [35] - [37]
Pn went on to assert that St was no longer a shareholder or unitholder: [40]
Following some meetings, a number of caveats over the Property were lodged by St: [41] - [46]
In resisting the injunction, Pn relied on evidence that commercially attractive loan terms were currently available but might not be for long: [59]
The Court accepted on an interlocutory basis that there was a serious question to be tried about some clauses of the agreement: [76], [77]
The Court found other claims arose in St’s favour, though they were weak e.g. contractual penalty, invalidity of share transfer, corporate oppression: [82], [88], [95], [102]
Re balance of convenience: Pn relied on the commercially attractive loan terms that Pn said an injunction would put at risk: [113]
The thrust of St’s application was to “have a say” in the development, but the evidence did not reflect a desire of St or its appointed director to be involved in the best interests of the Co and the trust: [116]
St’s director did not, for example, agree to the Co issuing lapsing notices: [117]
There was a lack of evidence of what prejudice would flow from the meeting going ahead and the finance being obtained: [119]
The risk of injury to the company if the injunction was granted outweighed the risk to St if it was not: [122]
The undertaking as to damages offered by St was inadequate, noting St had previously failed to pay $3m: [123]
The Court did not grant the injunction due to the above and (while not determinative) the fact St only made the injunction application by cross-claim in response to Pn’s claim rather than taking steps of its own: [125] - [127]
“I sued and got what I wanted, so pay my legal costs!”
___
The Ps enjoyed an easement over the Ds’ land.
The parties were neighbouring farmers. The easement related to irrigation water and included rights to access the land to maintain pumping apparatus.
The Ds installed locks and fences that interfered with the Ps’ access.
The Ps commenced proceedings.
After that the Ds took steps to resolve the Ps’ complaints by removing padlocks, moving fences, and installing culverts. The Ps accepted all the impediments were then gone: [7]
The Ps were granted leave to discontinue the proceedings having achieved what they set out to: [9]
So what about legal costs?
Normally the discontinuing party (i.e. the Ps in this case) would pay: [11]
The Ps said the Ds acted unreasonably in defending and should pay: [12]
There was some possibility for legal argument (about the precise scope of the easement) and factual argument (about the precise impediments themselves) if the matter went to hearing: [17]
The Court found the Ps were justified in commencing and noted the Ds’ changes obviated the need for them to continue. The Ps would have almost certainly succeeded. The Ds could have acted more quickly: [20]
Noting this, the Court ordered the Ds to pay half of the Ps’ costs: [21]
“Get me out, and value my units properly!”
___
Two dentists worked together using a unit trust in which D1’s and D2’s entities held units. The relationship between all was governed by an agreement.
The agreement contemplated a unitholder exit for “fair market value”.
D1 sought to exit. The T'ee sought judicial advice regarding a valuer. D1 applied for a stay and failed. The T'ee got the advice that instructing a valuer would be OK and did so: [5]
D1 commenced further proceedings, and the parties asked the Court to separately determine the meaning of Cl 7.8 of the agreement: [5]
D1 appealed the determination that Cl 7.8 did not apply to the valuation.
Cl 7.8 prevented the T'ee from effecting decisions on “Major Policy” issues (like dealing with assets worth >$50K) without unanimous unitholder approval: [16], [17]
D1 said that a Major Policy decision made without unanimous approval was void pursuant to Cl 7.8, and so should not be part of a valuation: [19] - [21]
The Court disagreed, finding Cl 7.8 renders void the T'ee’s decision but not the resulting transaction: [26]
There may be a later dispute about the valuation, or breach of the T'ee's duties, but those issues were not raised in this litigation: [32], [33]
Appeal dismissed: [1], [10], [44]
“Can we liquidators defend this appeal, and use someone else’s lawyers?”
___
A dispute between two Dirs and equal shareholders of a mining Co led to it being wound up.
Before the windup SH1 brought a derivative action on behalf of the Co against SH2 and related entities.
The claim succeeded re revenue from one mine which SH2 diverted away from the Co to their own interests, and failed in relation to redirected revenue from another mine.
SH2 appealed.
SH1 applied to lodge a cross-appeal on behalf of the Co.
The liquidators came before the Court to seek s 90-15 advice including that they would be justified in:
(i) causing the Co to defend SH2’s appeal
(ii) not opposing SH1’s cross-appeal
(iii) instructing the same lawyers SH1 used for the derivative action
Advice was given.
Re (i) the liqs were justified in defending the appeal: [40]
Re (iii) the liqs were justified as it would be in the best interests of the Co to making use of the earlier lawyers’ case specific knowledge: [46], [47], [56]
Re (ii) the liqs were justified in not opposing as SH1 bore many of the risks (including of an adverse costs order) and there was potential significant upside for the Co: [65]
The liqs’ costs of the proceedings were to be costs of the winding up: [68]
“My product is not toxic. That’s defamatory!”
___
A honey-making Co and its CEO kicked off injurious falsehood and defamation proceedings.
They wanted damages and orders restraining the D from making further publications.
The Ps complained about D saying:
-
The Ps’ honey was toxic: [14]
-
The Ps conspired with the judiciary and a consumer advocate magazine: [15], [20]
-
There exists a “sex tape” showing the CEO discussing a sex act performed with an employee: [16]
The publications were made on the D’s website, Facebook and Twitter: [59]
The defendant put no evidence before the Court that the honey was indeed “toxic” or harmful: [11], [149]
The D (who was not represented by lawyers) did not raise usual defences, including truth, and indeed made a number of admissions in their defence: [53]
Working through the publication-identification-reputation matrix, the Court found the CEO had been defamed awarding $150K in damages: [135], [142]
The Co’s claim was in injurious falsehood, not defamation, meaning the Co had to prove the falsity of what was said: [146]
The Co did so, and proved malice, obtaining a “cautious” $25K in damages: [164]
The orders restraining further publication were made.
James spoke to the wonderful Susanna Lobez from TVED for this partnership disputes CLE.
Hope you enjoy!
You can find great offerings from TVED here: https://www.tved.net.au
“Don’t steal my confidential information!”
___
A, a former shareholder in and employee of R, ceased being a shareholder, quit, and set up a competing business in the same industry.
A lost a set of proceedings at first, and appealed.
Before leaving:
-
A arranged for another employee of R to send A R’s client lists: [26]
-
On the day A gave notice they were intending to set up a competing business, a person using A’s password-protected username altered 905 contacts in R’s database by altering a digit or digits for each phone number: [27]
At first instance, each was found to be a breach of confidence attributable to A.
The inference was available that A was responsible for the sabotage, especially as A did not cross-examine R’s witness or give evidence: [68]
A sought to appeal this finding, but failed: [71]
The client lists were confidential and not part of A’s knowhow (as shown by A causing them to be emailed to their personal address). The conduct was restrained by contract and also by equity: [132]
The fact that R put the confidential information into affidavit evidence did not place it in the public domain, and so did not release A from duties of confidence: [134], [139]
The appeal failed. (Apart from some issues like the form of declarations: [145])
“Hey! Give me those shares!”
___
P, executor and sole beneficiary of an estate, pressed D to register the transmission of shares to them.
P did this by sending 2 letters in January. When the letters didn’t bear fruit, P commenced proceedings in mid-February: [2]
Later in February solicitors for D’s directors (but not for D) indicated instructions had been or would shortly be given for the transmission to be registered: [3]
The transmission happened, and P successfully applied to have the proceedings dismissed save as to costs: [6]
P argued that D should pay P’s costs because D had capitulated, and that it was reasonable to commence proceedings because that outcome was only achieved after the Court got involved: [8]
The Court did not find D’s failure to transmit earlier to be unreasonable.
P had not made clear in P’s first January letter whether they sought the share transfer as beneficiary or as executor: [11]
P’s second January letter was clearer but it was not unreasonable for D to take some time to consider: [12]
The Court found it was not unreasonable for P to commence proceedings so quickly, but that it would have been preferable for P to give further notice before doing so: [14]
The Court held each party ought to pay their own costs: [15] - [17]
P's shareholding was diluted from 70% to ~15%.
P sued the Co and its Dirs for causing the Co to issue over 3m shares to 2 Dirs: [3], [5]
P asked the Court to reverse the share issue, and replace the Dirs: [2]
Oddly, as the hearing approached all the Dir defendants consented to the P’s application, and most Ds withdrew instructions from their lawyers: [8], [10], [44]
However, P still had to prove its case!: [14]
ASIC docs suggested the >3m shares were issued at $4 per share, however there was no evidence of any payment: [21] - [25]
The share issue was found to be oppressive. Orders were made to reverse it: [40], [47]
The Court also removed the Dirs (a rare step) on the basis that they previously consented to the P’s orders and, in the circumstances, third parties would take comfort from Dirs being removed by Court order: [42], [43]
(The background of this dispute was a loan to P’s (former) parent company, ParCo. ParCo stumped up its shares in P as security. Interest on the loan went unpaid. It was suggested that the share issue was to defeat the lender’s power over the Co because P would no longer be majority shareholder of the Co when the lender came to own P. Get it?): [16], [17], [26], [30])
“Whoever’s sending those mean letters must stop!”
___
Someone sent >20 anonymous letters about the Ps to many recipients: [34] - [74]
The writer (or writers) made allegations including that the Ps (or some of them) - who ran an aged care facility - breached their duties, overlooked medical misconduct, engaged in extra-marital affairs and nepotism, stole funds, claimed expertise they did not have, and were evil and ungrateful.
The Court found each letter was defamatory: [69]
D denied writing and sending the letters.
D was a former director of nursing at the aged care facility: [75]
Relations between D and the Ps became strained following D’s alleged conduct while employed, and D’s resignation: [90]
Despite D’s denial the Court found D was extremely angry with the Ps: [96], [97]
As there was no evidence D published the letters, the Court was left to draw an inference as to who wrote them: [99], [100]
Having found D had engaged in forgeries when sending some letters [124], otherwise finding D’s evidence “wholly unsatisfactory” [125], and working through a detailed chronology [108], the Court drew the inference that each letter was sent by D: [140]
D was ordered to pay $635K in damages and restrained from publishing similar material in future: [193]
P, a managed person, brought a claim in the Supreme Court to eject D from P’s apartment.
D had already commenced Family Court proceedings against P seeking $4.2m, approximately the value of the apartment: [10], [11], [25]
D applied to the Supreme Court to either (i) transfer P’s "ejection" claim to the Family Court, or (ii) pause it until the Family Court claim was over: [8]
P was bedridden and required constant, costly care: [31], [36]
P’s manager had to sell assets to pay for it, while D occupied the apartment rent free: [37]
P’s assets were ~$6m. Mainly the ~$4.2m apartment and one share valued ~$1.36m: [33]
P’s manager said the only realisable asset of P’s was the apartment [39] while D said P could sell the share: [40]
The Court held the share could not be easily sold as the Co would have to sell the boarding house to realise any funds: [43], [44], [87]
This process would be almost comically complex, requiring sequential replacements of directors in 4 different companies: [54]
The were other complexities including building defects which would affect the sale: [58], [59]
The Supreme Court did not make the transfer or order a stay: [90]
James spoke with Damon Laffin at the Young Lawyer podcast earlier this year and there traversed many topics: James' failures and recoveries, dealing with poisonous partners, his approach to law, and everything in-between.
You can find Damon on LinkedIn here: https://www.linkedin.com/in/damon-laffin-01789942/?originalSubdomain=au
"Fair value! No minority discount."
___
When valuing a minority shareholding - especially a “market” valuation (rather than “fair”) - it is often said a “minority discount” applies. This discount reflects a minority’s lack of power to influence the company.
Recently, a minority shareholder, P, tried to cause the majority, D, to purchase their shares. All agreed a share purchase was best. The value was not agreed. D sought a minority discount.
Crucially, if there has been oppressive conduct, no minority discount: [4]
D got their holding from Dir in a 2015 transfer. Over the years Dir had caused the Co to pay Dir and D substantial amounts, and for travel. P, for their part, made no contribution and sought no info about the Co at all from 2011 until 2018 (shortly after the conclusion of P’s family law proceedings).
Aside from a period in 2009 to 2012 where Dir applied substantial effort, the remuneration of Dir and payments to Dir and D were oppressive: [131], [170]
The payment of travel expenses was oppressive: [178]
The “most egregious” appointment of administrators after the start of proceedings was oppressive: [223]
Noting the oppression, and despite P’s “absence” from 2011 to 2018, the Court ordered no minority discount for the share sale: [224]
Please join me to discuss this interesting decision.
"No new claims, no new claims. (No new claims. No, no new.)"
__
A created an invention and R wanted to help commercialise it.
R made a loan of $335K to A, and then a further $3m loan. The two also became involved in property development together, with R providing some finance: [10], [11]
A lender sued A for failing to keep up with finance payments. A cross-claimed against R alleging a number of agreements.
A said R was contractually obliged to pay A (i) the money A had to pay the lender, (ii) $39m for breaching an agreement to commercialise the invention, and (iii) some property management fees: [18]
(R also cross-claimed against A seeking repayment of the loans, and declarations of resulting trusts for some properties: [19], [20])
A's cross-claim failed on all counts: [22]
Crucially, A explicitly said he was not pursuing any claims arising from the law of partnership nor any equitable remedies: [52], [53]
A appealed, saying the judge should have found there was a partnership and equitable relief should flow: [41]
The CoA said A's appeal could only be about claims he brought at first and could not raise a partnership claim on appeal, having failed to do so at first: [61]
A's appeal was dismissed.
___
If you'd like to keep in contact with me my socials are:
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In April 2020 I had an opportunity to have an incredible chat with The Happy Family Lawyer herself, Clarissa Rayward.
We did battle with the very early professional impacts of COVID-19 and some nearby renovations and emerged with a conversation I look back on with great fondness and gratitude.
You can check out Clarissa's fabulous projects, and the community she has built, here: https://www.thehappyfamilylawyer.com
In November 2020 I sat down for a great chat with Brendan Kelso of Legalsites.
We got into the nitty gritty of my approach, and what steps you might consider using in adopting a similar strategy.
And it was great fun!
You can access Brendan's podcast, and lots of great resources, here: https://legalsites.com.au/podcast/
“No oppression? No relief.”
___
A Co had 5 shareholders, all brothers, and owned some property.
Two brothers, the Ps, said the conduct of the Co was oppressive and sought relief.
They had a number of complaints. One was about about dividends not being paid.
In fact, dividends (in the form of reduced loans) were paid. But even if they were not it would not be oppressive: the Co held substantial property expected to increase in value, and in any case an absence of dividends would be evenly shared across all shareholders: [41]
The narrowness of the company’s affairs (merely owning a property) meant the lack of trust between parties was not oppressive: [46], [47]
The plaintiffs valued the Co with all loans including those owed by the Ps (thus increasing its value). The Co claimed those loans in an XC. The Ps said that was oppressive.
Where the Ps used the loans to increase the value of the Co, it was not oppressive for the Co to seek payment: [50]
Even if there had been oppression, the Court considered the “property relief” was not appropriate: [52], [53]
Not all the shareholders were joined to the claim meaning while the Court might have the power to wind up, it shouldn’t as a matter of procedural fairness: [54]
The oppression claim failed.
If you'd like to contact me my socials are: https://www.linkedin.com/company/coff... https://www.youtube.com/channel/UCzo6... https://www.instagram.com/coffeeandac... https://www.facebook.com/CoffeeandaCa... https://podcasts.apple.com/au/podcast... https://twitter.com/coffeeandacase1?l...
I had a great time having an expansive chat with Grant Williams about all things podcasting (and life!) for his new podcast Not Just Another Podcast launched January 2021!
“Tell ‘em about the legal fees!”
___
A joint venture kicked off by two natural persons, P and D, and involving a number of Cos, fell apart.
A deed was entered into to deal with the wind down.
The deed was between the natural persons and the relevant Cos. It dealt with the appointment of new independent directors to take an arm’s length approach to realising the JV’s assets.
The deed included a provision apparently granting the new directors an indemnity for their costs, paid from the venture’s funds: [3]
One venturer, P, sued: the Cos, the D and the new directors.
Over time, it became apparent the new directors were having the legal costs of their defence paid by the relevant Cos.
P sought an injunction stopping the Cos from paying the new directors’ legal costs.
The new directors said the terms of deed protected them whether by its operation or estoppel, allowing them an indemnity for their legal costs: [4]
Based on the evidence before it, the Court found it unnecessary and undesirable to rule on a fiddly construction or estoppel point on an interlocutory basis: [5], [7]
Instead, the Court required the new directors to disclose their lawyers’ fees to the P and his related entities on a regular basis: [8], [11]
___
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coffeeandacasenote #auslaw
“Can I just pay the Australian beneficiaries?”
___
In 1973 a trust was settled. The corpus included residential property: [3]
Changes to the Land Tax Act and Duties Act mean surcharge tax won’t be charged if a trust whose corpus includes residential property has no potential or existing foreign beneficiaries: [7] - [9]
i.e. Foreign beneficiaries mean a bigger tax bill.
The trustee asked the Court for judicial advice (s63) and for orders (s81) releasing it from having to pay foreign benefs.
There were 3 bits to the Court’s s63 response.
-
The trustee would not be justified surrendering the foreign benef trusts as the trust deed gives no power to do that: [14], [18]
-
Possibility of “issue” class benefs in future means potential for further foreign benefs in future, meaning tax requirements not satisfied: [27]
-
Power to revoke trusts granted to certain people by the trust deed does not pass on to their executors: [32]
However, s81 allows the Court to grant trustees power to undertake transactions which are expedient for the trust: [34]
The tax advantage (to the tune of $100K per year) was expedient: [41]
Using s81, the Court granted the trustee the power to surrender trusts which might benefit a foreign person, and so take the tax advantage: [43]
Please consider following me on IG: https://www.instagram.com/coffeeandacasenote/
“I should’ve accepted that offer…”
___
P sued 4 Ds for money, and for possession of some land. He failed.
But before P’s failure, D3 and D4 had made an offer to settle.
P having “lost” in his claim, was in a worse position than he would have been had he accepted the offer: [11]
The Court said P had to pay D3’s and D4’s legal costs up to the date of the offer on the “ordinary” basis.
The Court then considered whether P should have to pay D3’s and D4’s costs on the more generous “indemnity” basis from the date of the offer.
The offer was made in accordance with “the Rules” (UCPR r42.15A) entitling D3 and D4 to costs on the indemnity basis unless the Court orders otherwise which it will only do in an exceptional case: [21]
The P’s claim failed because D3 and D4 were the owners of the land but D2 (their son) had forged their signatures on powers of attorney and then mortgages: [23] - [25]
D3 and D4 served evidence showing they were in Australia when the forged documents were allegedly signed by them in China: [26]
The Court accepted that P could continue despite that evidence but to do so did not render this an “exceptional case” in a way that would work around the normal r42.15A consequences: [31], [33]
D3 and D4 got their indemnity costs: [38]
“I don’t have to do what the deed I signed says. It’s unjust!”
___
An accountant resigned after suffering bullying and harassment: [14]
A dispute arose after the former employer made an aggressive threat about the accountant’s conduct, including threatening criminal prosecution: [23]
The parties settled their dispute in a wide-ranging deed.
At the time the deed was signed the accountant said he was “completely worn out, stressed and distressed by” the former employer’s behaviour: [26]
He did not obtain legal advice: [29]
The deed required the accountant to pay the former employer 100% of fees he charged to any the clients whose details he had taken, 50% of that in advance: [37] - [41]
Payment of his employment entitlements, and the release, relied on these payments being made: [42], [43]
The accountant did not pay. The former employer sued.
At first instance, the deed was found to be unjust pursuant to s7 of the Contracts Review Act 1980 (NSW) as the employee argued the deed was procedurally unjust (i.e. the difficult circumstances in which it was entered into) and substantively unjust (i.e. in its terms, such as withholding statutory entitlements or potentially 100% of any fee): [45]
The former employer appealed, and failed: [1], [149], [150]
"Are we partners, or what?"
___
P and D were former friends who worked together on software they used to place bets on horse-racing.
They shared the profits, in the form of gambling returns, in various proportions over time.
The relationship broke down. P sought to recover from D $870K he said he was entitled to as a partner.
A partnership is relevantly defined as a relationship between "persons carrying on a business in common with a view of profit”: [105]
Noting the venture relied on "chance… as a predominant ingredient", the Court considered it was not a "business", and so not a partnership: [114]
However, if the venture was a business, it was not a partnership for a number of reasons: [115]
Those reasons included: (i) an important part of the software was used by D with no intention of sharing with any other, aside from the discrete way he shared it with P, (ii) P undertook work at D's request and was paid, (iii) there was no legal obligation for P or D to continue the work they were doing, (iv) there was a power imbalance between P and D such that D controlled access to software, servers, and the relevant bank account, and (v) despite saying he was unpaid, P actually received $428K over the venture: [116]
P's application failed: [129]
“Let me get the company its share of the money!”
___
~$100m was paid following the sale of a site in Sydney.
The Co stood to receive some of the proceeds.
P - a former director of the Co - had the benefit of a “side deed” which might see a related entity of his take a benefit if the Co received a greater share of the proceeds.
It was contemplated that some of the sale proceeds would be distributed in a manner that concerned P.
P brought a derivative action - tried to “stand in the company’s shoes” - to bring a claim that the Co should take a greater share of the funds: [59]
It was uncontroversial that the Co was not going to bring the claim itself: [72]
The Court found the application was brought in good faith, with the P’s motive being to seek a proper distribution of funds for the benefit of the Co, or info that would aid that pursuit: [89], [92]
The “relatively low” threshold of a serious question to be tried was met: [94], [113]
The purpose of P bringing the proceedings - for the Co to take a greater share of funds, or get info that would enable that - was found to be in the Co’s best interests, despite uncertainties about prospects and recoverability: [130]
P was granted leave, notwithstanding the absence of notice: [132], [135]
"It’s not clear that I have to pay your fees – and you drafted the contract!"
___
A client appointed an investment banker to advise on takeovers and mergers.
The contract was formed by an engagement letter from the banker being accepted by the client: [3] The engagement letter entitled the banker to various fees based on different events, offers and payments.
Following a "bidding war" the client became a wholly owned subsidiary of a purchaser: [24]
The banker issued an invoice for $50m. The client objected to it and paid only $20m. The banker sued for the balance, lost, and appealed.
Critical was whether payment for a pre-bid stake in the client was "in connection with" the eventually accepted offer: [50]
If it was, the banker was entitled to a higher fee than if it was not.
The Court found that matters "in connection with" an offer in these circumstances could only arise after the offer, and not before: [52]
The Court took some support for this view from the doctrine of contra proferentem. The banker drafted the term, it gave rise to a large fee, and if it was ambiguous then the banker had no claim to have those doubts resolved in its favour: [54]
The banker's appeal (and the client's contention) were dismissed with no order as to costs: [121], [123]
"I'll repay the funds you invested. Trust me?!"
___
Two Ps invested money with D1. D1 didn’t repay it.
The Ps said D1 held the funds on trust.
The Ds didn’t go to the hearing but the Court found it was OK to go ahead in their absence: [12]
D1 made representations about an investment being “100% safe and secure”: [24]
The Ps then made a number of investments with D1. As they did, D1 would send a document titled “Declaration of Trust” for the relevant P to sign: [27], [31]
The Ps invested around $2.4m in this way: [35]
In considering whether a trust arose the Court had to consider whether there was certainty of intention, subject matter and object: [40]
The test of certainty of subject matter (the money) and object (investing with the hope of a return) were comfortably met: [41]
But did the parties intend that the money be held on trust?
Yes.
The Court found: (i) the documents referred to the sums being held “in trust”; (ii) the use of the word “trust” was purposeful; (iii) the surrounding circumstances suggest a trust purpose; and (iv) even if the relationship was debtor/creditor, that does not exclude the obligations of a trust arising: [47] - [51]
The Court declared D1 held the sums on trust. Costs followed the event: [59]
“Worth the ‘powder and shot’?”
___
P sued D1 and D2 claiming statements made in a meeting were defamatory.
P succeeded against D1 and failed against D2.
Damages against D1 were modest - the sum of $11K: [6]
Thought P raised the issue of delay, the Court found P should pay D2’s costs, costs following the event: [15]
The P’s failure to accept an offer made jointly on behalf of D1 and D2 did not elevate D2’s costs order to costs on the indemnity basis: [17]
Having been successful against D1, P pressed for costs against her on the indemnity basis.
P failed. An offer, which D1 did not accept, required a wide-ranging apology and did not provide for a “clean exit” from the litigation: [19]
The Court found D1 should only pay a proportion of the successful P’s costs because: (i) the very modest claim raised a proportionality issue, (ii) the P was only partially successful, having lost on more of the claim than he won, and (iii) D1 ought to be quarantined from paying legal costs relation to P’s unsuccessful pursuit of D2: [25]
The Court queried whether the proceedings were worth “powder and shot” (i.e. whether the small claim justified the legal costs) and considered it appropriate that D1 pay only two thirds of P’s costs: [29]
OK! The final one of these Instagram Live sessions. This one was a little loose with a lot of questions, but hopefully a lot of value too.
It's basically my approach to marketing online as a lawyer, and some suggestions for you.
Hope it brings you value!
And if you could sling this pod a review, I'd be really grateful. Cheers!
Another great session of legal rigour and tonal lightheartedness. Please join in this fun and informative chat about ss232 and 233 of the Corporations Act.
And please consider heading to instagram.com/coffeeandacasenote if you'd be so kind.
"Stop telling everyone you own my patents!"
___
Some Ps asked the Court for an interlocutory injunction – an immediate stop – preventing some Ds from saying they owned, or had a licence to use, some patents.
The Ds accepted they didn’t own them: [37]
But the Ds' website said they had an exclusive licence to use them and that one of the Ds owned or exclusively controlled them: [108], [111]
The Ps said this was misleading and deceptive, and that an interlocutory injunction should be granted: [31], [33]
The Court had to direct its attention to (i) whether there was a serious question to be tried and (ii) whether the balance of convenience favoured an injunction: [41]
There was back-and-forth about various versions of patent licence deeds: [55] to [97]
The Ds argued for the validity of a certain deed; such validity meaning the website was not misleading. The Court found it was seriously arguable that the deed was not valid, meaning the representations would be misleading: [139]
There was also a serious question – if the licence was valid – as to whether the liquidator's s568(1) disclaimer of it as an "unprofitable contract" was effective: [147]
The Court found the balance of convenience favoured relief: [163]
Injunction granted: [207]
The latest in my series of Wednesday night Instagram CLE sessions. Please join me next Wednesday 8.00pm (Sydney time) for the next.
This week we talked trustees for sale and, while it got a little messy, we had some good times too.
Hope it brings you value!
In another edition of the tonally loose and legally rigorous Instagram Live series we discussed ss236 and 237 of the Corporations Act 2001 (Cth) as well as the Court's inherent jurisdiction.
The comments were great, and I managed to stumble in my pronunciation of "derivative" a few times, so perhaps not cask strength whisk(e)y next time...
Nonetheless, I hope this episode brings you value!
Please join use next Wednesday at 8.00pm (Sydney time) at www.instagram.com/coffeeandacasenote
"That person doesn't speak for the company!"
___
In 2012, Landlord Co and Tenant Co entered into a 5 year lease with a renewal option.
Following a flood, a dispute arose about whether a new lease had been struck.
In 2016 TCo's CEO told its solicitors to accept LCo's offer of a new lease. The first instance judge found the CEO didn't have authority to do that. So: no new lease.
LCo appealed.
LCo accepted that the CEO didn't have actual authority: [62]
LCo said the CEO had implied actual authority, as (i) TCo agreed to a new lease, and (ii) TCo gave the CEO authority to communicate that: [68]
LCo said TCo had agreed to the new lease as it (i) had done some building works, (ii) published material on its website, (iii) paid a lower rate of rent consistent with the 2016 emails, and (iv) made an "admission" recorded in board minutes: [71]
Each of those was rejected, TCo never having agreed to a new lease. As such, it never gave authority to the CEO to communicate that: [87], [88]
In relation to the estoppel-flavoured question of ostensible authority, the Court found that the CEO (despite a 2012 goof signing the 1st lease as a director when she was not) was not held out as a director and so did not have ostensible authority: [109]
LCo's appeal failed. Costs followed.
Each Wednesday at 8.00pm (Sydney time) for the next few weeks I will "Go live" on my Instagram account to deliver a CLE.
The account is: www.instagram.com/coffeeandacasenote
I'd love it if you could follow me there and join the future sessions!
In this talk, we discussed:
-
The "why" of exclusion clauses
-
The law of exclusion clauses
-
Some litigated examples of what happens when exclusion clauses come to court
-
Practical suggestions
-
An aside about warning signs
The tone was light and the law was heavy. Hope it brings you value!
-Jd'A
coffeeandacasenote
"Should we wind it up, or nah?"
___
A Co ran a chiropractic business in Melbourne: [1]
The P owned half the Co’s shares. One of the P's directors was a director of the Co.
One the Ds owned the other half of the Co’s shares. Another of the Ds was the Co’s other director, D Dir: [2]
The Dirs fell into a wide-ranging dispute. D Dir accused the P Dir of operating a competing business. P Dir accused D Dir of directing P Dir’s clients away: [6]
The Ps sought orders for the Ds to buy their shares. In the alternative, they sought a windup: [7]
The Court noted the disharmony between the parties and considered whether it would be just and equitable to wind the Co up: [11]
The Ps pressed for a windup. The Ds resisted: [12]
P Dir was no longer participating in the Co’s business, instead focusing on a competing business: [33]
D Dir continued to work and derive and income from the Co meaning a windup would weigh heavier on the D Dir: [42] There was doubt as to whether the P Dir came to Court with “clean hands”: [51]
The Court did not wind up the Co on the “just and equitable” basis: [64] Further noting that any “other remedy” may well stand in the way: [66]
The parties were directed to propose a timetable for progressing the oppression proceedings on an expedited basis: [74]
Please join me for a recorded discussion conducted for CLE provider TVED at 1.00pm on 10 August 2020.
In this talk I cover:
-
The law of partnership
-
Some litigated examples of partnership disputes
-
Some practical suggestions for approaches you can take in practice
I hope it brings you value!
“Stop the company paying a dividend. Right now!”
An alleged shareholder, P, sought an immediate injunction to stop a Co declaring a dividend or reducing its share capital: [1]
P’s alleged status a shareholder, P said, gave rise to an entitlement to $700K in dividends. Failure to pay those dividends was a breach of the Co’s constitution – which was, P said, a breach of duty and oppressive: [2]
In the substantive claim, P was seeking orders requiring the Ds to purchase P’s shares: [3]
The Court was satisfied there was a serious question (whether P was indeed a shareholder in the Co) to be tried: [6], [7]
However, The Court rejected P’s argument that damages would not be adequate compensation, a necessary step to get an interlocutory injunction.
In the substantive claim, P was seeking was a declaration that it owned shares and an order that the Ds buy those shares i.e. P wanted money. Clearly P considered the payment of money to be adequate: [8]
The Court characterised the relief as a “freezing order” in essence. As the planned dividend would not see the Co divesting itself of a unique, irrecoverable asset the balance of convenience did not favour the making of an injunction: [11]
P’s application failed. Costs followed: [13]
Two shareholders, P and D, sued each other; both trying to get the Court’s help to buy the other’s shares. Both failed: [2]
P also sought to wind the Co up. That failed too, leaving the parties in their existing relationship: [3]
Normally, as we know, costs follow the event – broadly, the “loser” in a piece of litigation pays (some of) the “winner’s” legal costs.
But what was the appropriate cost order in this case, when no one got what they were after?
D pressed for costs. P’s position was each party should pay its own.
D successfully resisted P’s wind up application because of a change in the facts after proceedings were commenced: [16] Without that change, P would have got its wind up.
Further, while D’s cross-claim for a share sale was on a defensive basis [17] that XC failed on its own (lack of) merits, rather than the fact P’s claim that it was defending against failed: [18]
D made a settlement offer but the outcome P enjoyed was no less favourable than what D offered, meaning there was no special costs order: [22], [24]
No order as to costs was made, leaving both P and D to pay their own: [26]
“We’ve lost the trust deed!”
___
A trust was settled in 1972 with 3 trustees, all brothers. The trustees’ dad was settlor: [4] – [6]
The trust was dormant until 2007 when, after the sale of a business, it was reactivated: [7]
Around this time each brother was replaced by a separate Co as trustee, leaving 3 corporate trustees: [8]
The trust assets were substantial and generated significant income: [10] The trust had been administered based on a photocopy. No one knew where the original was!
A bank used by the trust required production of the original deed as part of its “know your customer” program (the interpretation of which the Court left as an open question): [11], [12]
Searches were conducted for the original deed, including of the records of the father’s solicitor. Only a photocopy, identical to the photocopy that was already being relied on, was found: [14], [15]
One of the brothers sought a declaration that the photocopy was a true copy of the original. However, the Court found that a declaration like this was not appropriate: [20] – [22]
Instead, the Court provided s63 judicial advice to the trustees that they would be justified in continuing to administer the trust on the basis of the photocopy: [25]
As the trustees might agree: phew!
“Let me make the company chase the directors!”
___
P, a minority shareholder in a tantalum producing Co, sought the Court’s leave to sue the Co’s directors for breach of duties.
P said that in 2016 the Co’s directors sold an asset of the Co’s for $60m when it was worth somewhere between $245m and $900m: [4]
P asserted that the Co’s directors made the decision without enough info and without carefully thinking about it: [6]
In 2018, some of the assets the Co sold in 2016 were sold by that 2016 purchaser for $1.15B.
P tried to rely on this but the Court considered this suggestion had a “hindsight problem” - how could a 2018 sale shed light on a 2016 valuation?: [55]
In considering whether to allow the derivative action, the Court found (i) the Co was not likely to bring the claim [98], (ii) the application was in good faith because P, as a shareholder, would benefit from any success the Co enjoyed: [105], and (iii) there was a serious question to be tried: [117].
However, crucially, the Court found it would not be in the Co’s best interests to grant leave [146] including because of the distraction to the management of the Co, the likely increase in D and O insurance premiums, and the availability of external finance: [121] – [144]
Leave was not granted.
"The directors aren't paying any rent!"
___
P, a shareholder, applied to the Court for leave to sue a Co’s directors on behalf of the Co – a “derivative suit”.
The Co was the owner of farming property, and this dispute was one limb of a broader estate and succession dispute within a family: [3]
P said the directors were occupying the Co’s land without paying rent, and so benefiting themselves at the Co’s expense: [12], [23]
In relation to each of the s237 criteria “derivative suit” criteria:
(i) The Court found it was unlikely the directors would cause the Co to commence proceedings against themselves: [40]
(ii) Notwithstanding any personal animosity, and other litigation commenced by the P, the application was made in good faith: [57]
(iii) The Co would stand to benefit from the proceedings as it would receive money from the directors if successful (and conditional upon an indemnity from the P): [64]
(iv) There was a serious question to be tried in relation to the directors’ liability to the Co: [83]
(v) The required notice was provided: [86]
Conditional upon the plaintiff providing an indemnity to the Co, the Court granted leave for the plaintiff to cause the Co to pursue to the directors: [89]
“I want indemnity costs for the whole thing because your claim was so bad!”
___
In a case we have previously discussed (Cao v Zhu [2020] NSWSC 321) P enjoyed complete success over D.
P made a settlement offer that was rejected. (Interestingly) The parties agreed that P should have its costs on an indemnity basis from the date of that offer: [2]
The P said (i) the D ought to have known its defences were hopeless and untenable, (ii) that a certain defence and cross-claim that led to a transfer to a different Court was disingenuous, and (iii) that the D knew the defences he was advancing were untrue: [17]
Further, the P said the D’s defence of the claim was an abuse of process designed to generate delay: [18]
The Court did not find the D lied: [20]
The Court considered it was easy to say a claim was doomed to fail in hindsight when in fact – as was the case in this decision – the outcome depended on disputed evidence being accepted, which it might not have been: [22]
Among other things: nor was the suggestion of an abuse of process accepted [23] nor was the D warned about potential indemnity costs [26]
The P got his costs on the ordinary basis up to the date of the offer, and indemnity basis from that time: [4], [28]
“You’re too poor to stand in their shoes!”
___
A shareholder sought leave to bring derivative proceedings; to “stand in the shoes” of 4 companies and litigate on their behalf: [1]
The shareholder said that each Co was a “farmer” and enforcement action was taken against them in breach of the Farm Debt Mediation Act 1994 (NSW): [2]
The shareholder said that meant the lender’s actions were void, allowing the Cos to recover some $50m: [6]
3 of the Cos were in liquidation. All were in receivership.
The Court had to consider whether to grant leave, to let the shareholder sue the lender and others in the name of each company.
The shareholder – strikingly! – owned $6.2K in assets, had $250K credit card debt, had given personal guarantees of $45m, had a judgment against him >$11m, and a personal debt to the lender of $23m: [76]
Regarding the 3 Cos in liq: only one Co had a claim with “solid foundation”: [44], [89], [109]
In relation to the other, there was no serious question to be tried: [130]
In relation to all 4, the fact that the shareholder’s financial position meant he could provide no “meaningful indemnity” was fatal the applications: [78], [93], [113], [125]
The applications were dismissed. Costs followed.
“Can we get permission to appeal?”
___
A Co was placed into liquidation. A member was granted leave to commence a derivative action: [1]
He did, and the Co lost: [4]
He then purported to cause the Co to appeal: [5]
He sought a declaration that the original leave extended to running the appeal; or, alternatively, that fresh leave should be granted: [6]
A company in liq can’t rely on the Corporations Act for a derivative action. It must rely on the Court’s inherent jurisdiction: [9]
The Court found the original leave did not extend to an appeal: [17], [18]
There being no existing leave, the Court considered whether leave to appeal ought to be granted; noting the CA could be of no assistance as the Co was in liq.
The Court had to consider (i) whether the appeal was well founded, (ii) the liquidator’s attitude, and (iii) practical issues for the liquidator and Co, like security: [34]
On (i) the member did not provide enough evidence to convince the Court: [48]
On (ii) the member’s failure to pay a $62K debt and adjourned bankruptcy proceedings added doubt to the value of his indemnity: [53]
On (iii) the points considered at (ii) were again relevant: [59]
The member’s application failed. Costs followed.
“So are we in partnership, or not?”
___
A claimed to own property and was in financial trouble. It agreed with R that A would sell the properties to R and A would help develop them and share profits: [3], [4], [143]
This arrangement fell apart because A didn’t own the properties: [6]
R did buy the properties from the mortgagee in possession and – speaking broadly – discussions progressed further on the basis A would still play a role: [8], [43]
The parties couldn’t agree on how to proceed and relations broke down: [9], [49]
A claimed to be in partnership with R, and that R breached its partnership duties to the tune of $6M: [13], [143]
A said that, among other things, the “general tenor” of the agreement and the profit share element meant it was a partnership agreement: [146]
The Court disagreed.
There was no express term that R would own the properties on behalf of the partners, or provision of liability of one partner for a co-partner’s dealings; references to “the project” were not indicia of partnership; and references to “partners” in early drafts of the document had been removed in the final version: [164 – 170]
“So we’re dissolving the partnership. What next?”
___
One group. 6 pharmacies.
3 are run by partnerships between 3 pharmacists. The 4th is run by a partnership between those 3 pharmacists, and one other. The 5th and 6th are run by companies owned by companies controlled by the 3 pharmacists.
The parties were unable to work together: [18] Negotiations with a view to an exit lead nowhere: [19]
Further, the threat of the financier – who had become aware of the disputes – calling in its loans loomed: [20]
The Court was satisfied all 6 businesses ought to be wound up on the just and equitable basis: [21], [29]
All parties agreed, in substance: [62]
Extensive consideration was given to the question of costs. Without ventilating rights and wrongs, the Ps had submitted the owners couldn’t work together and dissolution would be just and equitable: [58]
The Ds agreed.
As the Ps bore the cost of preparing the necessary evidence, the Court ordered that those costs were to borne from partnership or company assets as the case may be, with the Ds to bear their own: [61], [66]
"The liquidator personally, or the company?"
___
Judgment was handed down confirming Co A was a secured creditor of Co B (in liq): [1]
The next question was: who pays Co A’s legal costs? Co A sought to have Co B’s liquidator, in his personal capacity, pay.
A liquidator will be personally liable for costs in “exceptional circumstances” due to unreasonable conduct: [8]
The Court considered the facts to form a view about reasonableness.
Early in the liquidation, the liquidator behaved as if Co A was a secured creditor including sending an email Co A described as an ‘undertaking’ to that effect: [21], [22]
Later, the liquidator pivoted from this position (apart from admitting that a nominal sum was secured): [24]
Land, which was Co B’s chief asset, was sold. The proceeds were applied to, among other things, the liquidator’s remuneration: [25]
The liquidator’s change from first accepting Co A was secured creditor and then bitterly [36] resisting that suggestion was self-interested: [46]
It was also unreasonable and unnecessary, meaning the litigation was provoked by the liquidator, such that Co A’s legal costs ought to be personal visited on him: [46]
"Stop that! Or I'll get the Court to stop you."
___
The granting of an interlocutory injunction - a binding Court order that immediately stops a party doing something - is often complex.
Speaking broadly and loosely, to get an interlocutory injunction you have to (i) convince the Court your claim is strong; (ii) convince the Court an injunction is more appropriate than an order for the payment of money; and (iii) give an undertaking to pay damages if the Court orders it.
___
P and D entered into an agreement where D promised not to make disparaging comments about various parties.
Despite the agreement, D went ahead and made disparaging comments: [3] P sought an interlocutory injunction to stop him.
With admirable economy, the Court found P had an strong case and that damages would not be an adequate remedy for P: [7]
The injunction was granted.
“Sue a liquidator? First, get through us.”
___
The liquidators of 2 Cos entered into a deed with a 3rd party. The deed assigned trade marks the liquidators thought the Cos owned: [38], [39]
The Ps said the liquidated Cos did not own the marks, having previously abandoned them: [64]
Common law rights in the abandoned marks arose, meaning other parties owned them: [74]
The Ps sued the liquidators alleging loss from the Cos assigning marks they didn’t own. To sue a liquidator, you need the Court’s consent: [81]
The negligence claim failed as the Ps were found not to be vulnerable. It was in their power to clarify the ownership position for the liquidators, but chose not to: [104]
The misleading and deceptive conduct claim failed as the sale was not entered into by the liquidators “in trade and commerce”: [121]
Nor did the Ps establish their own reliance on the representations in the deed, instead “relying” on the 3rd party’s reliance; an intriguing proposition: [125] Further: the Dirs of the liquidated Cos, who were also Dirs of the Ps (!) breached their duties to assist the liquidators, provided inadequate information, and engaged in “phoenix-like” conduct: [129]
For the above reasons, the claim failed. Costs followed: [130]
“Yeah, I promise to pay. Unconditionally!”
___
P was a property developer. D was a real estate agent. D’s connect was developing a property. D was to be the selling agent.
D angled for P to invest in his connect’s development. As an incentive, he offered to pay P $500K if he did. That amount was calculated based on D’s speculation on what commissions he might expect to receive, and what an appropriate referral fee might be: [64]
D’s connect did not go ahead with the development, selling it to another developer before completion (meaning, obviously, D was not appointed selling agent).
Without D taking a role as selling agent, the D received no benefit of any kind: [57]
P sought payment of the $500K. D resisted on the basis his promise was conditional on being appointed selling agent.
D had entered into two written documents (one of which he prepared) that included his unconditional obligation to pay $500K in terms so clear it was “difficult to imagine clearer”: [83]
D failed to prove the agreement was unconscionable [158] or that there was no common intention such that the agreement ought to be the subject of rectification: [151]
P succeeded. D was obliged to $500K.
“My offer is: you lose.”
___
Parties in a legal dispute often exchange settlement offers.
Speaking loosely, many of those offers might be characterised as: “I am claiming $X + Y, but I’ll go away if you pay me $X.”
Sometimes an offer is made that could be described as: “Let’s agree that you lose, but I won’t chase you for my legal costs. We will each pay our own.”
Generally, when a party “loses” in Court proceedings, they will pay the “winner’s” legal fees.
That way, an offer of “you lose, but I won’t seek costs” can be seen as a compromise.
The Court considered this recently.
A D made an offer that the D would get judgment - or “win” - but wouldn’t seek costs: [7]
The offer was not accepted. The matter went to final hearing, and the D got judgment - the D “won”: [1]
The D said that the P’s failure to accept the offer was unreasonably, meaning the P should have to pay the D’s legal costs at a high level, on the “indemnity” basis: [3]
To succeed the D had to argue the offer was a genuine compromise. The D failed to convince the Court of that. This is because there is no evidence of the D disclosing the amount of costs at the time of the offer, and because while the P’s claim was weak, there was still some doubt about how a Court might have ultimately received the evidence: [11], [12]
The original “ordinary” cost order remained.
makdap
“You’re excluding me from the company, competing with the company, and taking money from the company?”
___
3 brothers started an enterprise building houses on vacant land and selling them.
2 brothers, P and D, might be thought of as “active” taking a large stake; for our purposes Brother 3 was silent.
D removed P from the enterprise: appointing a general manager over P’s objection, excluding the P from meetings, moving the enterprise to a new location inconvenient to the P, changing the enterprise’s bank accounts to exclude P, unilaterally causing payments to be made to entities associated with him, and – perhaps incredibly – using funds from the enterprise to set up a new competing enterprise and retaining the profits from that: [42]
P sought a share sale: [44]
D’s conduct constituted oppression: [70], [74], and [84]
A share sale at fair value was appropriate: [88]
The valuation was to be undertaken on the basis of what the sale would have been if the oppression has never happened: [92] and [95]
P and D agreed to cause a Co (“I Need A Massage Pty Limited”) to purchase a massage business.
P and D made equal contributions to the Co for expenses.
P and D’s relationship broke down. D excluded P from the business. D removed P as a director without P’s consent or proper authority: [39], [43]. D altered P’s shareholding on the share register – reducing it to nil – without P’s consent or proper authority: [39], [44]
D caused the Co to sell the business and retained the proceeds: [57]
P sought to wind up the Co on the basis of corporate oppression.
The Court found D’s conduct in removing P as a director without P’s consent, reducing P’s shareholding to nil, and preventing P from participating in the Co was commercially unfair: [52]
The next question: should the Court exercise its discretion to make the wind up order – an “extreme step”: [55]
There was no other remedy for P meaning a wind up order was made: [57], [58]
“You’re not even saying I did anything wrong!”
Ps brought claims against various Ds for corporate oppression and breach of directors duties. The second defendant, D2 (a former spouse of D1), was mentioned only twice in the Ps’ evidence; once by mistake: [3]
The Ps’ proposed Statement of Claim repeated the mistaken reference: [6]
The Ps asserted 2D was involved in the former spouse’s improper conduct or received profits or benefits as a result of it: [7], [9]
2D said the evidence was on, it did not support any claim against 2D, and so the claim against 2D should be dismissed immediately or “summarily”: [10]
The Court considered it could not conclude the Ps had no possibility of success against 2D, [17], but was satisfied the existing Statement of Claim did not properly plead a case against 2D: [17], [18]
Despite the fact leave to replead was granted, 2D enjoyed a “substantial success” and so a costs order was made in 2D’s favour: [23]
On Saturday 7 March 2020 I spoke at the Young Lawyers Property 1 Day Property CPD event.
I was lucky enough to be able to chat about s66G of the Conveyancing Act and the appointment of trustees for sale pursuant to that section and s36A.
I tried to do a bit of nifty time management, too, to make sure we all enjoyed a full lunch!
The discussion covers:
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The law relating to s66G;
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A number of judicially considered examples of what happens when s66G matters are litigated; and
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Some practical suggestions.
I hope you take some value from it!
“OK, so we’re beneficiaries, but how much do we get? "
___
Two former lovers jointly owned a piece of land.
The relationship ended with one co-owner moving away. After a time the other co-owner did too, though not voluntarily. (He was imprisoned.)
The co-owner who left first applied for s66G orders appointing trustees to sell the property and divide the proceeds between the co-owners. A properly prepared application like this will almost always succeed.
The imprisoned respondent co-owner said the orders would be unfair. Sadly for him, unfairness is not a basis to reject a s66G application: [33]
Trustees for sale were appointed.
Our applicant wanted more than a 50/50 share of the sale proceeds. She said that she’d paid the mortgage and council rates and so should get more: [19]
The respondent said he’d made improvements and so should get more: [28]
As it happened, neither party presented a full and adequate case for their allowances.
Making orders about that issue without more evidence would do a disservice to both of them: [60]
A sale was ordered, with the issue of allowances to wait for another day: [64]
“Forget assessment. Just pay me a fixed amount of costs!”
___
The plaintiff was trustee of a bankrupt estate that included a co-ownership interest in some land: [6]
After some back and forth about selling it, the plaintiff commenced s66G proceedings and got the Court to appoint trustees for sale: [14]
The orders made included an order that the other co-owner pay the legal costs of the plaintiff. The property was sold, yielding a modest sum: [15]
The plaintiff’s lawyer itemised the legal costs incurred in the s66G proceedings, discounted them, and sought the other co-owner’s approval that they be paid from the trust funds: [16]
The other co-owner’s solicitor was, to put it politely, effectively unresponsive over a period: [17] – [25]
Rather than getting the legal costs assessed, the plaintiff sought a fixed sum costs order. The Court agreed a fixed sum costs order was appropriate, due largely to the conduct of the defendant who failed to engage with the “relatively simple” matter of costs: [41]
The eventual costs order was more or less the sum sought: [43], [44]
DadCo sold its rent roll to P. P got to work collecting rent, employing DadCo’s former property manager, PM.
P later made PM redundant. PM planned to take up employment with another estate agent, CousCo, 1.8km away performing the same role: [59]
To add spice: PM’s dad was a director of DadCo and PM’s cousin was the sole director of CousCo. The relevant family name carried weight: [114]
The employment contract between P and PM included restraints on her post-employment conduct: [13] P sought an injunction preventing PM from working for CousCo: [12]
The Court had to consider (i) whether there was a serious question to be tried, and (ii) whether the balance of convenience favoured an injunction.
As PM was the “human face” of P, it was seriously arguable that a 4 month restraint would be too short and that a non-compete was legitimate protection for P: [102], [119]
On balance of convenience, despite the hardship of being prevented from working within 5km PM was only paid a salary, meaning damages – rather than an injunction – would be fine: [131]
P got up on balance of convenience and serious question to be tried. Injunctions granted: [141] to [143]
Dundeon Pty Limited v Richard Wills [2020] NSWSC 15
"Transfer the shares so we can solve this the Chinese way!"
___
Without telling the rest of the board, and without payment beforehand, 2 of a Co’s directors transferred some of the Co’s shares to an entity owned by an influential person in China.
The idea was to allow the Co to solve its problems “the Chinese way”: [96]
The transfer gave the "optics" that the influential person had control: [258]
The problems included Chinese State Authorities getting judgments against the Co, with any appeal “futile”: [344], [360]
Ultimately, the judgments led the influential person to agree to a price of $2m (having previously entertained $13m): [350]
The $2m saw some funds returned to shareholders and to meet the Co’s obligations, with no benefit to the 2 directors: [441] The directors did not breach their duties: [466] and [545] The transfer of shares was not beneficial; not a gift: [484] to [487], [508]
The transfer was for appearances, to allow the influential person to exert her influence and not improperly benefit her: [520], [530]
The directors’ failure to consult the board was a breach of duty, but not severe enough to impose liability: [528]
Mum died and relationships between her children eroded.
Some (but not all) children were executors. Some (but not all) were directors of a Co, the shares in which were the chief asset of the estate.
The Co had a substantial landholding which was being subdivided. Disputes arose. The plaintiffs commenced oppression proceedings seeking new directors.
They failed entirely.
Without proving a “permanent director” power was misused, an irregular appointment was not oppressive: [52]
One child (who controlled one P) was bankrupt when shares were to be transferred. He said that he couldn’t hold shares as trustee; a position which “may or may not be correct”: [60]
The shares were eventually transferred and no harm was done. This irregularity (esp when he had not told the executors he was bankrupt) was not oppressive: [61].
Refusal to give access to books can be oppressive [69] but not in this case: [74]
The Ps (until a late, rejected amendment application) did not seek a wind up and pressed for the appointment of their preferred directors: [90] and [95]
The Court considered this relief may create a “reverse oppression”, as the new directors would exclude the interests of the former directors: [91] and [94]
Heading out the door on holidays, team. But don’t worry! Apart from the one further episode I have scheduled to come out in a few days, there’ll be a bit of a break and then more to come from then.
“It’s not certain I would have lost in the end, so I shouldn’t have to pay costs!”
___
Often, if a piece of litigation gets to final hearing ‘costs follow the event’: UCPR r42.1.
Put another way: at the end, the loser pays the legal costs incurred by the winner.
But what if a matter finishes before a final hearing?
___
A party sought orders including replacing an administrator.
They said an administrator had been slow to sell some land. The delays were due to other litigation. The land was eventually sold.
The administrator could not have gone ahead with the sale until the other litigation was finalised: [3]
The applicant accepted that once the sale was completed, the basis for replacing the administrator fell away: [4] That was the end of the application and the parties then turned their attention to costs…
___
The Court said the administrator was always trying to make a good sale of the property, only delayed by the other litigation. That other litigation had to be finalised for a sale to go ahead. It’s not obvious any other administrator would have done better or moved faster: [6]
For these reasons, the applicant would have very likely lost at final hearing, meaning it had to pay the administrator’s and the company’s costs: [7]
“Are we partners or are our companies partners? 😬😬😬"
Various Cos entered into a partnership deed. Each was the corporate vehicle of a natural person (“Principal”).
The deed was signed by the Principals on behalf of their Cos. The firm operated an accounting business, holding the Principals out as partners.
One Principal was appointed to the board of one of the firm’s big clients.
He took advantage of an investment opportunity relating to that client without telling any partners.
The yield? $11M. Another entity under his control received a gift of $4.861M from another client.
The corporate partners sued, saying the Principal owed fiduciary duties to the corporate partners and also that he – in his personal capacity – was himself a partner.
The deed itself caused confusion: [74] The term “partner” or “partners” referred to the Cos in some clauses and the Principals in others: [86]
Some clauses (e.g. relating to death, illness, bankruptcy, or age) were nonsensical if they referred to the Cos: [105]
The deed would lack commercial utility if the Principals were not bound to it: [106]
The court found the deed contemplated the Principals and Cos having rights and obligations as partners: [120]
“If you’re making me buy the shares, tell me how much they’re worth!”
In a recent judgment, s232 commercial unfairness was made out. The proceedings concerned a company with a significant value.
HH put it best: “large payments (were) made by (the defendant) without consultation, unsupported by contemporaneous records and at odds with basic accounting principles or, on occasion, common sense” : [44]
There were also findings of commercial unfairness on the basis of: withheld information ([212]), “self-interested and unfair” transactions supported by “hazy memories and old grudges” ([250]), and on “financially disastrous” risks taken over the objection of the other shareholder ([276])
With s232 unfairness found, the Court elected to exercise its s233 discretion and order a share sale: [286]
Aaaaaaaaaaaaaaaaaand then there’s >50 paragraphs of valuation material for our forensic accounting friends to work through: [297] – [350] In the end, the buyout ordered exceeded $50M: [351]
“Hey! You were meant to give me 10 days before terminating the contract!”
Two property owners entered into a contract with a builder to construct two duplex buildings. The builder moved slower than the owners hoped.
They ended up terminating the contract because the builder didn’t complete the work, rectify defects, or get a construction certificate in time.
Nor did the builder obtain a construction certificate at all: [13] The builder appealed, saying the contract required the owners to give 10 days’ notice before terminating, and they failed to do that. The builder went down on appeal.
The Court found that there was a requirement to give 10 days’ notice before termination but – crucially – that only applied if the default was capable of remedy within that period: [31]
The Court went on to find that even if termination was not valid, the owners should get a damages payment because of the builder’s failure to get a CC before construction or at all.
The entitlement to damages was not dependent on the termination being improper: [5]
“I wanted YOU to do that cleaning!”
Two parties entered into a contract: a cleaner and a client. The job was to clean a number of large retail stores.
The cleaner agreed not to subcontract or assign its cleaning duties to anyone else without the client’s permission. If it did, the client had a right to immediately terminate and did not have to pay for any unauthorised subcontract work: [23].
As it happened: the cleaner did about 10% of the work. The cleaner’s subcontractors (who the client did not authorise) did about 90%. The cleaner sought payment. The client resisted.
The cleaner litigated, lost, and appealed.
Among the cleaner’s arguments on appeal were that if the client took the benefit of 100% of the cleaning work and only paid for the 10% then that would see the client enjoy a windfall: [41].
The client said the contract was not a mere contract to produce a result.
The identity of the producing party was important: [42] – [44].
The Court found the cleaner’s obligation could not be discharged by using unapproved subcontractors, meaning it was not entitled to be paid: [87], [93], [94].
In so finding, the Court considered that the contract made it clear that the identity of the provider of the services was important: [65] – [75], [94].
[First, an apology: this awful audio is the result of my own poor microphone management. Sorry!]
“OK. We sold these units. Now what do we do with the money?”
Trustees for sale were appointed to sell a Bondi block of units.
In 2018 the defendant, who was one of the two co-owners/beneficiaries, offered to purchase the property for >$6M.
The sale did not complete.
In 2019 following a sale at $5.8M and payment of various expenses, the trustees held ~$5.3M. The plaintiff – the other co-owner/beneficiary (or, the P having passed away, his executors) – said the amount to be paid to the D should be adjusted due 2018 failed sale: [5]
Any claim against the D for the failed sale is a claim the trustees have, not the P. And any such adjustment would amount to a summary determination of that claim.
The P’s proposed adjustments were not made: [28]
The trustees sought s63 judicial advice on retaining a sum to defend a claim the D hinted at which at the time of the hearing, was not “clearly formulated”: [31]
Having considered matters like legal costs, the amount to be paid if the D succeeded, and the trustees’ right to an indemnity the court gave advice that the trustees would be justified in retaining the sum of $500K: [42]
“The company acted unfairly! But I don’t know what I want the Court to do about it…”
A board dispute arose. The issues raised were complex.
They revolved around an app to be used by car dealers, and the sale of the IP in that app.
The app was developed by a company with three directors, each of whom were also shareholders.
One director was “virtually impossible to work with”: [232] The other two secured a sale of the company’s IP in the app for $2M as compared to a book value of $300K: [128]
The “virtually impossible” director sued claiming the conduct of the other two was oppressive.
A big problem was: the plaintiff was unclear about he wanted.
He didn’t dispute the share sale: [236] He agreed the company ought to be wound up: [194] - [196]
The Court was satisfied that the conduct was not commercially unfair or, if it was, it would decline to exercise its discretion to order a remedy: [240]
The difficult director, having caused the breakdown of the relationships, was found to be the author of his own misfortune: [235]
“Is it OK if I sell this property?”
A liquidator of a Co sought Court directions relating to a possible property sale.
In 2002, an ABN was obtained for Trust 1. It appeared there was no trust deed for Trust 1.
In 2014, Trust 2 was settled. Our Co was trustee. Bank accounts were opened. High value transactions followed.
In 2015, property was purchased in the name of the “the Co as trustee for Trust 1” i.e. the 2002 trust, not the 2014 trust: [7].
It appeared likely the money to fund the purchase came from the Co’s Trust 2 bank account.
The Co kept inadequate financial records: [14]. It was unclear whether the Co bought the property in its own capacity, for Trust 1, or Trust 2: [15].
There was a chance of there being a trust deed for Trust 1 with an ipso facto clause; removing the Co in the case of a liquidator being appointed. With no deed found, it was appropriate for the Court to give directions to the liquidator: [20].
With no trust deed (and no ipso facto clause) the Co’s liquidation does not affect its trustee status: [23].
The Court worked through the evidence and declared the Co trustee of Trust 1, paving the way for a sale: [24], [25].
“Hey, bank, you should have stopped that share sale!”
Spouse A invited Spouse B to become a trustee of a SMSF that was previously solely Spouse A’s. The SMSF and the spouses had a number of joint bank accounts and joint stock trading accounts.
Spouse B caused a sale of shares from the joint stock trading account ([39]) and a transfer of the proceeds from the joint account into an account of Spouse B’s: [84].
The marriage didn’t last.
Family law proceedings led to an outcome.
However, Spouse A also pursued the bank in the Supreme Court claiming: it was negligent in (i) allowing the share sale, (ii) failing to seek Spouse A’s consent before allowing the share sale, and (iii) failing to prevent the withdrawal of the sale proceeds: [86]
The relationship between the spouses and the bank was purely commercial, with no duty of care attaching to it: [90].
As part of that relationship, the bank was contractually entitled to accept instructions from both spouses.
The effect of Spouse A’s argument was that the bank could not accept Spouse B’s instructions, a direct conflict to the terms of the contract that allowed joint use: [95].
Any duty owed by the bank to the spouses was contractual and not breached.
The claim in negligence failed: [96] and [97].
On 15 November 2019 I was lucky enough to have the opportunity to present to the Chartered Accountants Australia New Zealand forensic accounting stream on corporate oppression.
We worked through the legislation, the case law, some practical suggestions and - somehow - managed to have a little fun along the way.
There were great questions along the way, and the whole session was brilliantly put together by Adam Giliberti with assistance from Jade Baena.
I hope to be invited back one day in future!
I hope there is some value in this session for you.
- Jd'A
“I (genuinely) dispute that!”
A dispute between family members and various related Cos arose. The dispute was complicated.
It included a son making 8 stat demands on “family” Cos. Earlier proceedings were settled on bases including that a property be sold, and $950K be paid to the son. The property was not sold and the $950K not paid.
The son demanded that the Cos pay the money.
If a Co receives a stat demand and fails to (i) pay, or (ii) get the Court to set it aside, it can be wound up.
So the 8 Cos sought to set aside the stat demands.
The Court considered whether there was a genuine dispute such that the stat demands ought to be set aside.
There was: [63].
The Cos had used their best endeavours to sell the property and failed (in part because of the son). The Court accepted there was “rational controversy” about whether the obligation to pay the son arose: [62].
The demands were set aside: [75].
Can a director run legal proceedings on behalf of a company without lawyers?
A company sought leave to appeal a decision of the NSW Supreme Court.
A director sought to run the application on the company’s behalf. If a company wants to start and run Supreme Court litigation by a director, without a lawyer, then that director must also be a party to the proceedings: UCRP r7.1(3).
The director and the company were both parties seeking leave to appeal. The Court of Appeal has the power to dispense with the requirement to comply with r7.1(3) in special or particular circumstances: [5] and [6].
A number of factors weighed in the director’s favour: (i) she had a 25% shareholding, appeared to be the CEO, and there had been no previous challenge to her authority, (ii) it was alleged the corporation was too poor to afford solicitors, so preventing it from proceeding without them would effectively decide the case, (iii) the dispute is about a small quantum and a straightforward issue ($40K for security for costs), and (iv) the matter is ready to run; if the Court failed to dispense with the rule it would frustrate that process: [7] – [10].
The Court dispensed with the requirement for compliance with r7.1(3) allowing the director to proceed: [11], [15], and [16]
On 29 October 2019 I was invited to present at the TEN Network Commercial Drafting Masterclass, speaking about exclusion clauses.
Due to my exuberant hand gestures, I disconnected my mic and failed to record the session.
This pod is a "do over" of that talk recorded in my offices the next day and I hope it brings you value.
We discuss:
- The "why" of exclusion clauses
- The law relating to exclusion clauses
- Some exclusion clause case studies
- A brief aside regarding warning signs
- Some practical suggestions
A trade mark owner registered and – for a time – used a slogan.
After it stopped using the slogan, another party sought the owner’s consent to register it as a trade mark, threatening deregistration for non-use if consent was not provided. The owner consented.
The other party became the new owner of the mark and the owner cancelled its own registration: [6].
Following this – surprisingly – the new owner sued the former owner for trade mark infringement in relation to the slogan.
A person does not infringe another’s trade mark if the person exercises a right granted by the Trade Marks Act i.e. the rights the former owner had while it was the owner: s122(1)(e) of the TMA.
The Court found, with little difficulty, that the former owner was entitled to use the mark in the period in which it owned it: [20]. The document the new owner used to sue was struck out for being "embarrassing" in the legal sense.
The Court made orders setting out a regime allowing the new owner to propose a new document. In coming to its decision the Court noted the suggestion that expungement of a trade mark is not retrospective: [16].
So, if you’re the owner of a trade mark, you’re allowed to do the things that owners do!
As you know, we three are Novocastrian optometrists.
We operated a business through a unit trust.
We were the directors of the trustee. Entities associated with, or controlled by, us were the unit holders. One of us became worried about the behaviour of the other two.
The concerned one appointed a new trustee, a Co controlled by him and his wife. Eventually, over resistance from the other two (and the trust’s accountant whose conduct was “egregious”: [58]), the new trustee took control.
Litigation followed.
The Court considered (i) whether the appointment was valid and (ii) whether a receiver should be appointed to the trust: [17].
The appointment was in writing ([41]) and in good faith: [61]. There is no rule preventing our appointor appointing a company he controlled: [65]. The appointment was valid: [68].
The Court refused to appoint a receiver noting it has no power to “wind up” of a trust on the basis proposed: [75]. Though there are powers to order the existing trustee to do certain things: [77].
The wisdom of 20/20 hindsight!
[Sorry for the awful audio this week!]
“Why don’t we pay everybody’s legal fees from the trust funds?”
A council caused a property to be sold following non-payment of rates levied on it. Once council was satisfied, the balance was paid into Court. Fine. So who gets it?
A dispute erupts between two parties (in their capacity as LPR of two separate deceased estates) claiming an entitlement.
Once that’s decided, there’s a dispute about – you guessed it! – legal costs. s93(3) of the Trustee Act 1923 (NSW) includes a provision that the Court may order that – when there’s litigation about the management or admin of a trust – the parties’ legal costs can be paid from the trust funds.
If a trustee applies to the Court for resolving an uncertainty and joins a beneficiary as a contradictor, it’s not unusual (even if the beneficiary fails) for all parties’ legal costs to be paid from the trust funds.
However, truly adversarial litigation may well bring different cost consequences: [3]. Here the parties were in dispute as to whether the trust funds fell into the respective estates they represented.
The Court found that the dispute was adversarial in nature meaning that orders were made for the payment of one party’ costs by the other party – rather than from the trust funds: [8].
In this episode I flesh out the reasoning and the tactical angle on my approach to lawyers and branding.
It's - in no small part - my response to having to answer similar questions about this project over and over. From that perspective: I hope it helps you!
In this session I (passionately) recommend Gary Vaynerchuck: https://www.garyvaynerchuk.com/the-ga... In the session I recommend Chris Hargreaves' podcast: https://www.stitcher.com/podcast/the-... In this session I recommend Mitch Jackson's book: https://www.stitcher.com/podcast/the-...
Have a great day!
A coffee Co and a delivery firm, yes?
Our delivery firm collects coffee-laden pallets from coffee Co and returns the equivalent number of empties the following week. Cool.
Now, coffee Co does its sums and realises it’s short >1,000 pallets over a 3 year period.
The delivery firm was “almost continually (in) breach” ([48]) of the agreement. Coffee Co complains. Importantly, the delivery firm had increased the number of pallets it was returning in the months immediately before the complaint, apparently to address the shortfall: [39], [40]
An exclusion clause on every one of the delivery firm’s pallet dockets is: “NO CLAIM FOR PALLETS OWING BY (the delivery firm) WILL BE ACCEPTED AFTER 90 DAYS.” Both sides accepted that the clause was binding: [13]
The issue became: can a claim be pressed for (i) the entire three year period or (ii) just the 90 days and after?
The answer is (ii). Coffee Co could only pursue for shortages in the period from 90 days prior to the complaint, up to the end of the relationship: [26]
The next issue was maths: how to apply the pallets returned in the 90 day period? At [45] and [46]: First, to the previous week’s obligation. Next, the earliest breaches in the 90 day period. Finally, to past breaches from before the 90 day period.
“Do I really have to sell that flour mill?”
A bread researching NFP went through a restructure. Its subsidiaries held IP and physical assets the plaintffs alleged were held by way of chartiable trust. The assets included a significant landholding (~$62M) which had a “pilot mill” on it; for flour experimentation.
The plaintiffs claimed the assets were held on charitable trust.
A receiver was appointed in respect of the assets and granted leave to approach the Court for guidance. Those overarching charitable trust proceedings settled: [15].
But the Receiver approached the Court to seek confirmation it would be justified in not selling the property.
It’s a tricky issue.
The property might be worth up to $62M, with the potential for that value to fall. Also – if sold – the pilot mill may be demolished (against the spirit of the charitable trust): [19], [20] and [21].
The Court considered the dominant consideration was the preservation of the pilot mill: [23]; especially as the pilot mill charitable trust would likely be upheld, meaning – if destroyed – the pilot mill would have to be rebuilt.
The Court gave a direction that the Receiver would be justified in not selling: [24].
“I’m not paying you if that grain catches fire!”
An ethanol manufacturer stored grain at a refinery. An insurance policy obliged the insurer to indemnify the manufacturer.
The policy had exclusions for “spontaneous combustion… spontaneous fermentation or heating or any process involving the direct application of heat”: [4]
One morning, smoke was detected in one of the refinery’s bays. Emergency services attended, found a “burnt smell” in one bay, and significant damage in two others. These discoveries led to destruction of the relevant stockpiles.
The manufacturer made a claim.
An expert concluded the damage was caused by “self-heating”: [11].
This turned the parties’ attention to the exclusions. There had been negotiation between the parties before they entered into the policy, including re the exclusions: [20].
The Court counselled caution when applying the contra preferentum rule as there had been negotiations: [32]. The manufacturer noted the referee could not point to the cause of the self-heating, which might (or might not) have been rain.
The Court found the lack of precision about the cause of self-heating was not doubt that self-heating occurred: [36] to [38]. The manufacturer’s appeal was dismissed. The insurer did not have to pay out.
Pretty lit!
Take a syndicate of lottery winners, most of whom work at the same factory. They're up $40M.
Take a disappointed member of a former, different syndicate also chiefly made up of workers from the same factory.
Our disappointed former member sues, seeking some of $40M, and loses. Having lost, a cost order is made against him.
The lottery winners (who also "won" the litigation) made a number of offers during the litigation, suggesting that they pay a small sum of money to settle the claim.
Having made offers to pay, and having to pay nothing after judgment is handed down, they sought their costs on the indemnity or solicitor / client basis.
They had to confront the Court's position that the offers might have been derisory.
Today’s plaintiff was a shareholder, not a director (but the wife of one of the directors) and the financial controller of a Co.
The Co enjoyed some success and embarked on a restructure. The company would “run bare” and pay profits in the form of licence fees to a third party.
That third party would distribute those fees to the trustees of discretionary family trusts.
Crucially: our plaintiff's right to a distribution from the discretionary trust was as a secondary beneficiary of the family trust for so long as she remained married.
Got it?
Formerly, the plaintiff held shares in an asset-owning company. Following the restructure, the value of her shares were vastly reduced as the company "ran bare" and her rights to share in profits were discretionary and dependent on marriage.
Sadly, during the restructure, our plaintiff’s marriage broke down. She sued alleging commercial unfairness; corporate oppression. At first instance she failed.
On appeal, she failed too.
Crucially, the matters raised on appeal - her reduced entitlement to profits following a restructure - were not evidence of actual conduct, but were “resultant”: [40] and [41] Oppression is concerned with conduct, not outcomes. The plaintiff was unable to take the Court to any relevantly unfair conduct.
So what does the exclusion clause exclude?
A lender relied on valuations in advancing money. The loans were defaulted on. The lender tried, and failed, to sell the property to satisfy the outstanding sum.
The lender then sued the valuers. The valuers cross-claimed against their insurer. The insurer attempted to rely on an exclusion clause set out at [6].
The clause excused the insurer from paying out to the valuers if the loss was caused by a valuation being given lender who was not an ADTI supervised by APRA and if the valuation agreement did not include a certain “prudent lender” clause.
The issue was: the lender was not an ADTI supervised by APRA, and the agreement did not include the prudent lender clause, but the absence of the clause did not cause the loss!
The insurer said: the mere absence of the clause means we don’t have to pay: [12].
The insureds said: the absence of the clause did not cause the loss. It was caused by something else. So you do have to pay: [13]
The Court agreed with the insureds: [23]. An element of its reasoning was that the policy had retrospective effect, reaching back to a time before APRA even existed: [33].
And so: what did this exclusion clause exclude? Not this particular claim.
Corporate oppression and wine in a can! Hooray!
(Lots in this one. Broad brushstrokes only, I’m afraid.)
An Australian co, ACo, sells wine in a can. A Japanese co, JCo, produces cans.
One of JCo’s subsidiaries, JSub, competes with ACo, especially in China and Japan. In 2012, JCo bought 60% of the shares in ACo. JCo entered into an agreement with the other ACo shareholders including a good faith term. JSub continued to compete with ACo. ACo asserted JSub was required to pay it licence fees for its wine tech. ACo’s financial performance slackened. Tensions rose. Relationships broke down. A deadlock emerged. JCo commenced proceedings seeking to wind up ACo.
The other shareholders in ACo commenced a s232 oppression suit seeking a share sale.
First instance: oppression suit dismissed, including on the basis that the good faith term was not breached.
On appeal the oppression point was pressed. Held: a majority shareholder can be found to have acted oppressively, even if it does not breach any agreement: [142].
However, the Court distinguished the facts from an analogous 1950s decision about rayon manufacturing: [147]. On foundations including that above, the conduct was found not to be commercial unfair; not oppressive: [154]. The appeal was dismissed.
In 2005 Dad and his wife, D1, established a super fund.
They were the trustees and beneficiaries of the fund. Before Dad’s death his son from a previous marriage, P, was appointed as trustee in his place. P was also Dad’s financial manager and guardian, and held his Power of Attorney.
In 2015 Dad died. His executor was D2.
In 2018 D1 and D2 entered into a deed apparently confirming D2’s replacement of P as trustee of the fund with retrospective and apparently automatic effect from the date of Dad’s death: [28].
The Court had to consider (i) whether P was appointed trustee in his personal capacity or as Dad’s attorney, (ii) whether P’s appointment ceased on Dad’s death, and (iii) whether D2 was validly appointed as P’s replacement trustee: [6].
Re (i) and (ii): P was appointed in his personal capacity, not pursuant to the PoA meaning his appointment did not end on Dad’s death: [75]. Re (iii): the appointment and removal of a trustee must be in accordance with the trust deed.
In this case P’s purported removal and D2’s purported appointment was not: [105].
The judgment considered other juicy issues such as s17A of the SIS Act and quia timet injunctions, but hopefully the above is enough to get your day started.
I say that we are not moving online. We have already moved. So have our clients.
This is the audio from a CLE video I delivered for the fine folks at the University of New South Wales in 2019.
It is a bit of a "deep dive" into three problems lawyers who advise creators and others with an online presence face, and some solutions to those problems.
It might all sound a little technical and fiddly, but I pride myself on being able to discuss this sort of stuff in an approachable way. I hope you leave with that impression.
Using my loose terminology (which I invented for this talk) we cover:
(a) The “torrent” problem, and the possibility of seeking “site-blocking orders”, whether in respect of the service provider or the search engine;
(b) The "mystery misfeasor" problem, and how Norwich orders and UCPR r5.2 might have a role to play; and
(c) The social media (mis)management problem, the danger of comments and the possible safety (or otherwise) of likes.
I hope there's some value here for you with this talk!
An indemnity costs order – for costs beyond the ordinary “party / party” order – sometimes feels like the pot of gold at the end of a rainbow: enticing but, too often, elusive.
Today we deal with the tail end of a larger dispute. The second defendant was successful and the beneficiary of an ordinary costs order against the plaintiff.
Today’s application sees the second defendant seeking a variation of that order to become an indemnity costs order. The second defendant asserted that the plaintiff’s conduct of the litigation was so unusually unreasonable it should ground an indemnity cost order: [8].
The Court accepted that: [15]. In so finding it noted: the failure to comply with a guillotine order, leading new evidence in a “reply” affidavit: [16], failing to cause expert evidence to comply with the Code: [17], and the failure of the plaintiff’s solicitor to make himself available for his “crucial” cross-examination, leading to two adjournments: [18].
At [24] attributed the plaintiff’s “plainly unreasonable” to the lawyers, though on instructions.
While not making cost orders against the lawyers, the Court commented ominously: “who should ultimately be liable is a matter of determination between the plaintiff and her legal advisers.”
Today, James takes us through the method he employs when sharing content, with an appropriately huge nod to Gary Vaynerchuck along the way. Hope there's some value here for you!
Our plaintiff, P, is an irrigation company. It owns pipes.
One pipe is on D’s property. P is the beneficiary of an easement for it.
D wanted to develop the site, including putting a driveway over the pipe. P’s engineer assessed the risk of the driveway damaging the pipe to be high: [14]. P demanded that all works cease and received no substantive reply.
P sought an interlocutory injunction to prevent D performing works on the land. D, essentially, consented.
The outstanding issue? Costs. UCPR 42.19 says, usually, a plaintiff who discontinues must pay the defendant’s costs.
P sought its costs arguing (i) it had no choice but to commence proceedings, (ii) D had acted unreasonably, and (iii) P had been substantially successful: [26]. The Court found it was unreasonable for D not to respond to P’s demand: [58].
If D had said it was prepared to change the DA then the costs would have been avoided: [59]. This was so unreasonable as to merit a costs order in P’s favour.
What if a party needs more documents to decide whether to kick off litigation?
UCPR 5.3 can assist.
Here, we have a sale of a restaurant and grocery business to the plaintiff. Prior to the sale the plaintiff was given payroll reports, staff rosters, and P&Ls.
Each defendant gave representations about the accuracy of that info: [4]. The plaintiff said turnover following the sale was substantially less, and payroll was substantially more, than the info suggested.
The plaintiff said it might be inferred that revenue was overstated and staff underpaid: [5] So the plaintiff sought material to help it decide whether to commence proceedings.
The Court worked through the UCPR 5.3 issues to determine the documents sought were “reasonably necessary” to decide whether to commence proceedings.
The plaintiff sought discovery of documents including documents relating to a food truck business not subject to the sale. This part of the application was rejected.
The balance, regarding employee and financial data, was allowed leaving the plaintiff in a position to consider where it should commence its claim.
Costs followed the event.
With thanks to the Television Education Network's Sound Education in Law project, I'm delighted to share this discussion with Susanna Lobez first published in April 2019.
If you're interested in this content, TEN's website is here: www.tved.net.au
I am really happy with how this discussion turned out with thanks to the guiding hands and minds at TEN. Hopefully there's some real value in this CLE for anyone looking to come to grips with ss232 and 233 of the Corporations Act 2001 or - basically - anyone who advises corporate clients.
Enjoy!
“With $1 mill, we can make $5 mill a year easy and safely.”
___
Easy, safe ways to generate a 500% p.a. ROI? Sign me up!
This representation, and other similar ones, recently came before the Court. The plaintiffs – a natural person resident in the US, two impecunious Australian corporations, and two Canadian companies – pursued the defendant, a natural person.
The plaintiffs transferred USD$2.24M to the defendant for him to invest. The defendant returned USD$1.33M. In the difference lies the claim. Our defendant wanted the plaintiffs to provide more security (having already provided $60K) for his costs if he won and obtained a costs order.
The defendant already had enough to pay the costs of enforcing his costs order (if he got one) in the foreign jurisdictions: [22]. That of itself was reason to refuse the application.
The application was made “late in the day” and after working through the various limbs of the claim the court concluded at [82]: the defendant’s prospects of getting a costs order are so low that they do not justify an order for security.
___
“We won’t lose it,” the defendant advised: “we are totally risk free.”: [46] Not true, at least for this application.
Here, a liquidator chased directors for debts incurred by a company.
The liquidator said the debts were incurred while the company was insolvent. The Court accepted that: [64].
The directors were a father and son. Dad retired as a director more or less simultaneously with son’s appointment. The debts were incurred while Dad was a director, and before the son’s appointment.
The quantum of the debts increased over time as interest accrued on both. This gave rise to the question: should Dad be liable for interest accrued after his retirement?: [68]. While there was a suggestion that Dad should be liable for post-retirement interest because the ‘die was cast’ when he incurred the debts ([70]) the Court took the alternative approach.
First, it found the continuing day-to-day failure to pay the debt rather than the debt itself gave rise to the accruing interest: [71]. Second, holding the son solely liable was consistent with an incoming director’s duty to immediately familiarise themselves with the company’s position and act to stop insolvent trading: [72] and [73].
Good fun!
[Forgive the audio - this one recorded in the bad old days before Rode came along]
A plaintiff brought a defamation suit.
The defendants succeeded in having it summarily dismissed at first instance and the Court ordered that no further claim be made on the basis of the publications complained of without leave. The plaintiff sought leave to appeal (leave being necessary if you’re appealing an interlocutary decision) and got it. The defendants/respondents then sought security for their costs of the appeal.
Please join me to discuss whether the facts in this case (including the appellant’s/plaintiff’s bankruptcy and a number of outstanding costs orders!) met the “special circumstances” test for granting security for costs on appeal.
This might all sound a little dense, but we’ll get there I’m sure!
Hello there!
This episode is a little different. Today I'm making use of the Gary Vaynerchuck metaphor of "Jab, Jab, Jab, Right Hook" that I am so fond of and am having a chat about a blog post.
It's something I put up on Linkedin earlier in the year that I know a few people have got some value from.
The post is here: https://www.linkedin.com/pulse/jabs-right-hooks-james-d-apice/
Hopefully - whether in writing or on the podcast - it brings you some value too. Cheers!
Does an expert have to make her or his determination “according to law”?
Not as silly a question as you might think. A landowner and builder entered into a contract.
The contract included a dispute resolution clause. The effect was that any dispute about the contract must be referred to an expert for determination “according to law”. A dispute arose and an expert was appointed. The expert made a determination in favour of the builder.
The landowner commenced Court proceedings disputing the determination. It said the expert goofed in finding there was an implied term: [30]. It also said that when an expert makes a determination where a question of law becomes material, the Court can intervene if the expert makes a mistake of law: [31].
The Court disagreed about the implied term. It then found the landowner’s submission works commercial inconvenience: if the landowner was right, then every expert determination would be open to appeal on every legal question determined if the question could be seen differently: [50].
Expert determination is a contractual mechanism, not a judicial process; it is not subject to judicial correction if it includes a mistake of law as long as the determination was made in accordance with the contract: [60].
[Please forgive the audio quality - this one was recorded before I got my microphone house in order]
This is the first Coffee and a Case Note I ever recorded.
Rather than give you a summary I thought I would let you know how strange it is that a legal decision about Canberran eye doctors I've never met, represented by lawyers I've never worked with, came to be important to me.
The journey has been, and continues to be, wonderful and important to me.
Thank you so much for being a part of it.
P.S. If you're in the mood for a summary I have a blog post about the decision here: https://www.makdap.com.au/publications/corporate-oppression-pox-both-houses
[Forgive the poor audio on this one - I was yet to invest in my current microphone!]
“I’m not being oppressive. You are!”
A and B were directors and shareholders in a company that owned an orthotics business.
A brought a claim against B in oppression. A succeeded on bases including: B was paid as a consultant but caused the company to record a debt to him for unpaid annual leave: [116], B raised invoices without a proper basis: [139], B recording poorly debts owed by the company to entities associated with him under the description “sundry creditors”: [161]; all of which had the reduced the value of the company.
B brought a counter claim against A and was partially successful on bases including: A ran his own business, using similar techniques to the company, which competed with the company: [180]. (This is, of course, also a breach of his directors duties.)
So! 2 bad guys. A was oppressive and B was oppressive. What’s the Court to do? At [224] the relief ordered was for B buy out A’s shares, following an exchange of valuation evidence.
A share purchase is seen by some as the Court’s preferred outcome to an oppression suit. It allows the company to keep trading. Here the Court anticipated a valuation dispute and set up an architecture to deal with it. What do you think happened with costs? (Trick question FYI.)
Your client is sued by a corporation. Your client’s defence succeeds. The Court orders the corporation to pay your client’s legal fees.
But – heartbreak! – the corporation has no money. Your client is left with its pyrrhic victory and its legal bills. To manage this the Court has the power to order security for the costs of a person in your client’s position. Today: a corporation commenced proceedings and incurred the costs of preparing all its evidence. Save for an expert report, the defendant had done the same: [6].
Mediation had been tried, and had failed. All parties agreed the corporation was impecunious. The defendant sought security for its costs. The corporation served evidence showing that its directors were not in strong financial positions and argued security for cost would stifle the proceedings. The Court worked through the evidence and was not satisfied an order for security would stifle the proceedings: [21]. As such, it ordered that security be set in the amount of $40K: [29].
In fixing that amount, the Court noted the financial difficulties of the plaintiff’s directors and so elected to fix security at 2/3 of the amount sought. This was, despite the finding at [21] in order to further manage any risk of potentially stifling the proceedings: [30].
On 17 April 2019 Corrs Chambers Westgarth hosted the annual NSW Young Lawyers great debate between solicitors and barristers.
I spoke second for the solicitors team; after the excellent Sarah Dickins and before the amazing Thomas Spohr.
I'm delighted to say that we won! Perhaps more delightful, though, was the even itself. Playful, but conducted in the right spirit. I hope you agree!
Sure, corporate oppression is fun but what about reasonable notice for board meetings?!
A director (or former director) applied for immediate interlocutory relief. The relevant Co found mining tenements and on-sold them. Its strength was its speed: [9]. Perhaps naturally, the board often met on short notice: [21]
In August 2018 the directors declared our applicant was no longer a director, having been absent from board meetings for the previous 6 months. The proceedings were, in essence, the applicant seeking to reverse that declaration.
Our applicant was not the easiest to contact. He lived in China and did not speak English. He was only contactable by way of his translator and may not have had an email address. He was absent from the 6 meetings preceding the August 2018 “declaration meeting”.
The applicant said the directors failed to give him reasonable notice of those six months of meetings, meaning the August 2018 declaration was oppressive: [56] At [81] to [111] the Court worked through the correspondence relating to each meeting.
Having done so, the Court found our applicant did not establish an absence of reasonable notice: [112] The application failed. Costs followed the event. Now, who said board meeting litigation was boring?
I hope you take some value from this one hour (or so) CLE where I sketch out the Australian privacy regime as it currently stands including a consideration of notifiable data breaches.
This talk covers four areas:
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What is the legislative privacy framework?
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How does privacy work in practice? Both "macro" statistics and "micro" examples.
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How do you avoid a data breach?
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What do you do if a data breach occurs?
I hope there's some value here for anyone advising APP entities.
“Get it in writing!”
Relying on a conversation to vary a contract has its challenges, especially after you’ve gone down at first instance. Party A provided services to Party B – a company – pursuant to a contract. Party C guaranteed Party B’s contractual obligations.
Party B failed to pay the fees owed pursuant to the contract. Party A sued for the fees and won. But by the time of that victory, Party B had gone into liquidation. This left Party C and another guarantor “on the hook” for the judgment debt.
Party C appealed, saying the judge erred in her finding of what was said in a meeting, and the effect of it. Party C argued that a conversation had changed the contract despite the “entire agreement” clause. To get up, Party C would need to show that the findings made by the judge were “glaringly improbable”: [44]. He failed.
On Appeal the Court found that the first instance judge was “entirely correct”: [47]. Party C’s suggestion of what happened was “inherently implausible” ([48]). Perhaps clearly, the Appeal Court was not satisfied that the finding of the first instance judge were “glaringly improbable”: [51] and [69]. Victory for Party A then.
And, pursuant to a clause in the (unamended) contract, legal costs on the more generous solicitor/client basis.
So, when is your loan agreement void for uncertainty? When are a contract's terms so vague that the Court can't find any real agreement between the parties? The NSW Supreme Court considered a loan agreement obliging the borrower to pay interest "at such times, for such periods and at such rate or rates as shall be determined by the lender from time to time": [6]. Generally, when confronted with a knotty term, Courts the Court will try to preserve the contract if possible: [9]. The term above put the "times" and "periods" when interest was to be paid - as well as the rate itself - completely in the control of the lender. Seemingly: there's no interest unless the lender says so! Despite this obscurity, the Court found (bearing in mind the agreement related to unsecured loans in a family trust context) the term was sufficiently certain to be enforceable: [14]. In coming to that conclusion the Court - in my respectful view, wisely - noted the likelihood that parties to a contract of this sort might "sit down with (their) accountant" to work out the interest payments on the basis of reasonableness. We find, perhaps as always: accountants to the rescue!
Hope you get some value from this episode!
“Mr X, in the company of a young female acquaintance, lost control when driving the vehicle for purposes unrelated to his possession of the vehicle.”: [4].
Has a saucier sentence even been written?
Anyway, here a car owner gave possession of his 2006 F430 Spider Ferrari (which is a type of car, I’m told)* to a company for the company to rent it out.
The owner said he did so because a person, the representor, said the company had insurance. It did not. Car detailer, Mr X, came into the possession of the car and… see the quote above. The car was written off.
The owner sued the company and the representor, and won. The judgment was “several”, to be paid separately by the company and the representor. The company then went into liquidation. The representor appealed. The car owner also appealed re the “several” judgment, saying it should have been “joint and several” meaning he could pursue the representor for the entire judgment noting the company was in liquidation.
Leave to appeal and pursue the company was granted to both because, at [17]: the dispute was genuine, about not insignificant amounts, and – due to dispute being a challenge to an earlier judgment – litigation was preferable to a proof of debt.
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- who cares about cars?
I’m Australian lawyer, James d’Apice. I host a video series called “Coffee and a Case Note” where I try to give some value by summarising a recent legal case while sipping a coffee. This podcast is the audio version of that series. I hope you’ll join me!