Coffee and a Case Note

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“We need the Court’s help to call a meeting of the company!”

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P sought s249G orders to call a members meeting of a Co, D1, to consider certain special resol’ns. D4 opposed the application. (D4 was a director of D1, D2, and D3.): [1]

D1, and the parties generally, were part of a larger corporate group: [2]

D2 held 599 of the 600 issues shares in D1. D3 held the other share in D1: [3]

P, D4, and another were the dirs of D2: [2]P and D4 were the dirs of D3: [3]

D1’s articles required 2 members to comprise a quorum for a general meeting. So: if either D2 or D3 was absent an EGM of D1 could not proceed: [3]

The parties litigated a dispute regarding P’s status as director of D3. D4 appealed. D4’s appeal was heard and judgment reserved at the time of these proceedings. (During which, it became common ground that the outcome of the appeal would have no moment in this application.) [8], [19], [22]

In January 2025, P convened a board meeting of D2 to consider causing an EGM of D1 to vote on causing the removal of D4 as a dir of D1: [9]

On 3 February 2025, D2’s board resolved to cause D2 to convene an EGM of D1, over D4’s objection: [10]

Later, P and D4 discussed causing D3 to attend the D1 EGM and disagreed, with D4 resisting: [11]

D4 resisted P’s causing of a D1 EGM on the basis it would “cut across” the appeal outcome: [12], [13]

On 26 February 2025 the would-be EGM of D1 was dissolved as inquorate: [14]

P commenced these proceedings, and D4 continued to resist allowing the D1 EGM to proceed before the appeal judgment was handed down: [15] - [18], [21]

(As noted: the parties came to accept the appeal would not have any bearing on the proposed EGM: [22])The P had to (i) show it was impracticable to call the meeting without the Court’s help and (ii) move the Court to exercise its discretion in favour of relief: [26] - [31]

The Court accepted that a deadlock existed in relation to P seeking to cause a quorate meeting to proceed and D4 being unwilling to cause D3 to attend the proposed EGM; and opposing the appointment of a representative of D3 to do so: [32] D4 maintained that they opposed the EGM and / or the appointment of a representative of D3 until the determination of the appeal: [33]

D4 argued holding the meeting “post-appeal” was a workable outcome: [35], [36]

The Court did not accept that its discretion ought to be exercised as D4 proposed because: (i) the appeal outcome had no moment on the EGM issue, (ii) the Court’s discretion ought to be exercised in the context of the current position and not what might happen in future, (iii) D4’s retained an ability to change their position after this litigation, and (iv) D4’s concerns could be addressed by other applications: [40]

The Court made orders largely in accordance with those sought by P, including costs: [48], [49]

“That loan was for a purpose. Pay it back!”

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P sued natural persons and Cos. D1 was not served and D2 was bankrupt, leaving P to pursue Cos only: [9]

P’s dad spoke with D1 and D2 about an investment. P later transferred $9.2m to one of the DCos: [3], [5]

There was no written agreement: [6]

In 2017, all agreed the $9.2m would be used for property investment, that if the property bought was then sold in a year 35% would be returned, and if unsold the funds would be returned: [6]

In 2018, when the principal was not returned, the parties made a loan agreement, requiring repayment and interest: [8], [61]

Repayments were not made. P sued: [9]

P said the money was advanced to buy a specific property; and so was held in a purposive “Quistclose” trust. P said the money transferred to the other Cos was done with knowledge and so was recoverable: [11]

The Ds denied a trust and said if there was one, then the loan agreement extinguished it: [12]The Ds served no evidence: [15]

P had to prove the 2017 agreement, WITH a mutual intention that the funds would be used for a specific purpose, to be held on trust and returned if the purpose was not achieved: [21]

P never discussed the proposed sum, proposed property or properties, location, or property size: [24]

P said some docs sent after P’s dad’s the discussion were a representation that the money would be used for specific land: [29] - [31]

There was no evidence of the purchase price being referable to specific properties or of any intention to purchase a specific property: [32] - [34]

In this case, there was no intention to create a trust: [36], [41], [48], [54]

That’s because: the creation of a JV vehicle did not prove a trust creation intention [49], the potential of co-mingled funds absent a “trust account” points away from a trust [50], absence of language like “solely” or “exclusively” [51], and the parties treated the funds as loaned rather than held in trust [53]

The Court then considered IF there was a trust, was it brought to an end by the loan agreement: [55]

The Court held the loan extinguished the trust rights (if any) because (i) the loan came after and was inconsistent with a trust, (ii) the loan showed the parties abandoning the earlier agreement, and (iii) the loan’s operation saw existing rights surrendered in exchange for additional terms secured under the loan: [65]

The Court then considered the position if (a) there was a trust, and (b) that trust survived the loan: [68]

Even if both criteria were met, the Court found no basis to order recovery against the DCos: [69] - [109]

P’s claim failed. Costs followed the event: [110]

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This is probably my favourite podcast to appear on as a guest! Another great discussion with Jordan and Nathan about life, branding, Drake v Kendrick, hourly rates, touch football results, and how to chart a principled path in professional services.

Enjoy!

You can find Jordan's and Nathan's pod here: https://podcasts.apple.com/au/podcast/challenge-the-standard-in-financial-advice/id1725733771

Nathan's site: https://www.nathanfradley.com.au/

Jordan's site: https://www.planningsolo.com.au/

www.gravamen.com.au

As part of a series of three talks together, James d'Apice recently joined eminent senior junior barrister Jonathon Dooley of Greenway Chambers to discuss the law of Corporate Oppression.

This is Jonathon's and James' first talk about the big ticket items when advising your shareholder clients whether they want to *stay* or whether they want to *go*.

The three talks they gave on this topic were:

1. Corporate oppression (this talk!)

2. Derivative actions (to be released in future)

3. Just and equitable winding up (to be released in future)

Hope this one brings you some value. As you may be able to tell, James and Jonathon had good fun presenting!

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Jonathon's profile can be found here: https://www.greenway.com.au/jonathon-dooley/

BenchmarkTV's website is here for all of your CLE needs: https://benchtv.com.au/

And of course, James' firm Gravamen has its website is here: www.gravamen.com.au

"You need to show good faith to sue on the Co's behalf!"

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A sought to bring a derivative suit on behalf of TCo. TCo was trustee of a trust. A was a principal benef of the trust: [3]

Pursuant to the trust deed, absent a resol from TCo the trust’s income would be paid to the trust’s principal benefs: [3]

From 1988 to 1994 A was a director of TCo: [3]

Broadly, as former director A sought to bring a claim on TCo’s behalf re a 2005 transaction that saw the Rs (or entities related to them) acquire valuable land. A claimed the opportunity to acquire that land was TCo’s and the Rs breached their duties to TCo by directing that away from TCo: [4]

At first instance A was denied leave on the basis the application was not brought in good faith: [5]

A appealed.The Rs resisted on the basis of a previous judgment of the CoA, relevant real property law, and a statute bar: [23]

A said that the previous judgment (which required a link between the status an applicant relies on, and the loss they seek to vindicate for the company) added a gloss on the s237 criteria. A also said the evidence weighed in their favour: [24]

What amounts to “good faith” is context dependent: [29]

The right to bring a derivative action is granted to vindicate a right of the company. An application made for another reason it is not made in good faith: [31]

If there is no connection between an applicant’s capacity and the loss alleged, it is difficult to find an application was brought in good faith: [32]

The greater the lapse in time between an applicant occupying the relevant role, and the application, the more difficult it is to prove good faith: [32]

Crucially, if an applicant, relying on their status as director, seeks to bring an action on behalf of trustee company where they are beneficiaries of the trust they will need to prove they are attempting to advance the interests of the company itself, and not merely their interests as a benef: [35]

Unexplained delay may suggest ulterior purpose. A genuine application to vindicate the company’s rights might be expected to be brought as soon as the applicant is aware of a claim: [36]

The CoA found A was attempting to advance their interests as benef, and not TCo’s interests because: (i) A took no steps at the time of the relevant transaction, (ii) A did not adequately explain their delay, (iii) A has separately commenced proceedings in their capacity as benef suggesting A is more interested in their rights than TCo’s, and (iv) A has had no connection with TCo for many years providing a “compelling” reason to find the application was not brought to vindicate TCo’s interests: [38]

The Court dismissed A’s appeal. Costs followed the event: [39] - [41]

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Thanks for reading!

Please head to www.gravamen.com.au to learn about my firm, and look for James d'Apice, Gravamen, and Coffee and a Case Note on your favourite platform!#gravamen #auslaw #coffeeandacasenote

“Repay that tax refund into the trust!”___P was a Unit TeeCo incorporated by D1. D3 (whose sole dir and s/holder was D1) was the sole unitholder. D2 was D1’s spouse: [1] - [3]D1 incorporated P to buy a valuable piece of land (“Property”). P borrowed the funds from Lender for that: [4]After completion, D1 caused P to lodge a BAS. The resultant refund of ~$2.6m was paid to P: [5]P sued seeking repayment: [8], [10]The Ds said $1.1m of it was a “Success/Performance Fee” for D1 and $1.5m was a “Management/Performance Fee” for D1: [13]D1 was an experienced property developer whose usual practice was to incorporate SPVs (similarly to P) to exploit development opportunities: [14] - [16]Typically, as with P, the SPVs would have no funds of their own and would get third party finance: [17]Sometimes, as with P, D1 would not create a new bank account for a new SPV and would instead use D1’s own: [16], [36]In around 2022 D1 identified the Property and began speaking to the Lender: [22] - [24]A loan agreement followed and in 2023 the purchase of the Property for ~$30m completed: [25] - [30], [61]After completion the Lender realised any profit calculations were absent GST tax refunds: [59]In October 2023 the ~$2.6m GST refund was paid into D1’s account (remembering P did not have its own account): [64]Shortly after, $9m (which included the ~$2.6m) was transferred from D1’s account to the D1/D2 joint account: [66], [67]These funds were then applied to buy a $22m Bronte property in D2’s name: [69] - [71]The Lender chased D1 in relation to the GST refund position. D1 was evasive; at time dishonestly so: [72] - [83]The Lender appointed receiver managers demanding repayment of the BAS Refund to P. D1 did not comply: [87]The parties agreed D1 held the BAS Refund on trust for P: [89]D1 said the BAS Refund was then paid to D1 as fees “determined” by D1 as sole dir of P; but not pursuant to any written or oral agreement: [93]There was no evidence of an invoice, agreement, accounting entry etc. describing a fee to be paid to D1. Nor was there evidence for two types of fee: [97] - [100]There was written contemporaneous evidence against D1’s case seeing D1: (i) declaring there were no related party transactions [112] and failing to declare the purported fees in the relevant BAS: [114]The only evidence supporting the Ds’ view was D1’s affidavit. D1’s credibility was damaged by D1’s dishonesty in dealing with Lender regarding the BAS Refund: [115] - [118]The Ds failed to establish a basis for fees, those transfers therefore being a breach of trust and of DDs: [119], [120], [155]Separate claims against D2 and D3 were not successful: [145], [148]The question of costs had complexity (P’s success against D1, and failure against D2 and D3) and was saved for another day: [156], [157]

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“You can’t run that claim. You’ll expose the Co to a cross-claim!”

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P sought, among other things, s236 leave to sue D on the Co’s behalf for $110k: [2], [3]

P held 70% of the shares in the Co, and an entity related to D held 10%. The Co was no longer active: [4], [10], [25]

The issue was: D caused $110K to be transferred from the Co to one of D’s entities and P said there was no authorisation for the transfer: [4]

D argued the transfer was authorised by way of WeChat message: [4]

The parties led “voluminous” evidence which, with respect, was of only middling assistance to the Court: [6] - [12]

The heart of the dispute concerned the meaning of the WeChat exchange (which was translated to English). D proposed that an invoice be issued to their entity so that a VAT (which we infer was a reference to GST) of $10K could be recouped. P responded with an “okay” emoji: [13]

D argued this was authorisation for the $110K transfer to D’s entity - that sum being $100K plus the 10% “VAT” that would apply to it: [14]

The Court was then left to consider the s237(2) statutory criteria in relation to granting leave to bring derivative suits.

Re s237(2)(a): noting a board deadlock, the Court found the Co was not likely to bring the proceedings: [18]

Re s237(2)(b): D raised a likely quantum meruit cross-claim that would be raised if the claim was pressed [22] saying the claim was not brought in good faith. The Court assumed, without finding, P came in good faith with a genuine belief the WeChat exchange did not authorise the payment: [23]

Re 237(2)(c): P failed to convince the Court it was in the Co’s best interests for leave to be granted: [34]

The Court considered the likelihood that D would bring a cross-claim in quantum merit for the work D’s entity had actually done to benefit the Co: [28]

D said exposing the Co to that cross-claim could not be in the Co’s best interests.The Court considered the Co contemplating proceedings would rationally contemplate the pros and cons of running the claim, including the risk of the cross-claim: [29]

If the cross-claim exceeded the claim, then a rational company would not commence: [30]

P did not undertake this economic benefit analysis, nor did they provide the Court with enough evidence to allow the Court to do so: [31], [32]

The Court found that the $250K indemnity P offered to provide did not assist where the above analysis had not been undertaken, and where there appeared a real possibility that litigating the claim and cross-claim might expose the Co to costs orders exceeding that amount: [33]

Re ss237(2)(d) and (e): both serious question and notice criteria were uncontroversial: [35], [36]

The Court was not persuaded that it was (rather than *might be*) in the Co’s best interests that leave be granted: [37]Leave was not granted. The application failed.

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"Pay the trust's funds to the estate!"

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A Tee was the trustee of a trust with about $2.8m in assets. The trust had two beneficiaries, Spouse 1 and Spouse 2: [2], [8]

Spouse 1 died in 2014 bequeathing their estate entirely to Spouse 2: [2], [11]

The Tee lost the trust deed: [2]

While general law dictated some of the terms of the trust, having lost the trust deed the Tee has no certainty about the beneficiaries of the trust (aside from Spouse 1 and Spouse 2): [3]

The Tee was incorporated in 1982 and some evidence suggesting a deed settling the trust was entered into at or around that time: [5], [6]

ATO records showed the trust was used for investment activity and that it distributed income to Spouse 1 and Spouse 2, and no one else: [10]

Spouse 2 died in 2022 and an interim administrator of their estate was appointed: [12]

At the time of their death, Spouse 2 was sole dir and shareholder in the Tee, which was also trust of the Spouses’ SMSF: [13]

An independent IP was appointed director of the Tee: [14]

The IP gave evidence of numerous searches and enquiries conducted in relation to the trust deed, which did not lead to its being found: [15]

This case was distinguished from usual trust deed cases (which sometimes deal with a photocopied deed, an unsigned deed, or a deed relied upon in relation to a very similar trust) noting that there was no evidence of any deed at all. Nor was there any evidence of the deed’s terms: [16]

The Court found that without the deed, the trust’s benefs could not be identified meaning (without certainty of object) the trust failed. A resulting trust arose in favour of Spouse 1. Spouse 2, as Spouse 1’s benef, stood to take in those circs: [17]

The Court accepted as common knowledge of the general practice that a trust deed for a “family” trust will inevitably include more members of that family than the “main beneficiaries”, typically the relevant spouses: [20, [21]

Having taken judicial notice of this, the Court considered that there would be more beneficiaries of the trust than Spouse 1 and Spouse 2 but - due to the absence of the deed - there could be no certainty as to who those beneficiaries might be.Whether due to their status as (likely) settlor of the trust or the conclusion that Spouse 1 did not intend to divest themselves of the assets in the corpus of the trust then - the trust having failed for uncertainty - a resulting trust arises in favour of Spouse 1: [25] - [27]

The Court advised that (Spouse 1 having died, and Spouse 2 being sole benef of Spouse 1’s estate) the Tee would be justified in paying the corpus of the trust into Spouse 2’s estate: [30]

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“Hey! You can’t transfer your shopping centre stake to them!”

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Two contracts governed the relationship between co-owners of a large, suburban shopping centre: [1]

In 2012 the co-owners were P as to 50%, and two other entities in the same group for 25% each: [2]

The arrangement contained rights regarding share transfers; the breach of which allowed the non-breaching party to automatically buyout the breaching party’s stake: [5]

In 2014, after some compliant share transfers, the ownership structure became 50/50: [7], [8]

In 2022, following a restructure of middling complexity (to this humble litigator!), P’s co-owner transferred its shares to another entity in that group: [10], [25] - [34]

Crucially the transferee (who was one of the Ds) did not fall within the relevant definition “Related Corporation”: [35]

P said this transfer was a breach and triggered P’s rights to buy their co-owners out of the property: [11]

The operation of the clauses dealing with transfers of interests were considered closely: [13] - [24]

P and the Ds exchanged (chiefly by emails between their solicitors) corro with the Ps asserting the transfer was a Prohibited Disposal (as defined) and pressing for a sale at $830m: [40] - [54]

The sale did not proceed. P commenced proceedings: [55]

The Ds resisted, including on the basis of the operation of technical parts of the documents, the structure of the transactions, and the service requirements in relation to the relevant notices: [61]

The Court briefly restated the principles that applied to commercial contractual construction; congruence, the avoidance of commercial inconvenience, avoiding a capricious outcome etc: [70]

The Court found that the a co-owner performing a Prohibited Disposal, and thereby being in default, exposed the entirety of its interest (and not merely, say, a severable proportion) to being bought out: [95]

Regarding notice, notice in writing including email was sufficient - with no additional formal or ceremonial requirement: [103], [106]

From the time the Ds received the notice from their lawyers, compliant notice was provided to the Ds: [109]

Further in relation to the notice question, the Court found that an estoppel contended for by P did not arise whereby giving notice to the Ds’ lawyers was sufficient to comply with the contract was not made out: [115], [116]

(However, as mentioned, relevant notice requirements were complied with.)

The Court found P was entitled to specific performance of the contract for P’s purchase of the relevant D’s interest in the shopping centre: [117]

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“The partnership’s book is a liability, not an asset!”

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A and R operated an insolvency practice in partnership. Like many such businesses, it would build up “WIP” in a matter and that WIP would be paid (or not) over time: [3], [4], [6]

The business was profitable: [49]

In September 2014, A ended the partnership electing to go out on their own with most of the business’s book of work: [7] - [10]

A number of pieces of litigation followed. Some led to orders for an account of the partnership to be taken: [5], [14]

This process included the valuation of the partnership’s book *after* the September 2014 dissolution: [12]

A relied on two experts: [19]

The primary judge took little value from A’s experts’ evidence: [20]

Further: the experts gave no evidence of market transactions [22]; it was unlikely that a purchasing IP could demand a “discount” for purchasing the book [23]; and it was unlikely an outgoing IP would pay a purchaser a “discount” sum for taking on the administrations when the outgoing IP could simply resign: [24], [25]

A appealed.

A did so on 5 grounds: (i) a “discount” payment might be available and so should be borne in mind in a valuation [27]; (ii) the nature of the valuation - a hypothetical sale on complicated terms - meant a criticism for a lack of evidence of similar market transactions was inappropriate [28], [29]; (iii) the judge erred in not accepting the evidence of A’s experts [30], [31]; (iv) the judge erred in finding the Court’s power to appoint a replacement IP meant a discount would never be payable [32]; (v) and a failure on the part of the judge to evaluate individually each administration to then determine whether a discount would arise: [36]

The dispute put another way might be that A argued the book was a liability, where R argued it was an asset: [38]

RE (i): After reviewing IPs’s professional obligations, the CoA concluded no hypothetical purchaser of the book could require or accept a “discount” payment without breaching them: [61]

RE (ii): Similarly, this ground was not sufficient to disturb the primary judge’s finding: [66]

RE (iii) and (iv): A’s experts failed to grapple with an IP’s ability to resign from unfunded administrations. Elaborate analysis of the evidence was not required due to this failure to address the real issues: [68], [79], [80]

RE (v): a vendor would not pay a “discount” to a purchaser for buying the IP business, first, because it would be a breach of their professional obligations and, second, (noting the opportunity they have to retire) it would make no financial sense as it would be cheaper to just resign from unwanted administrations: [73]

The position was similar in relation to the bankruptcy trustee appointments: [77], [78]

A’s appeal was dismissed: [1], [81], [82]

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"Is it the tree that's held in trust, or just the fruit?"

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The Ps came to Court arguing that one D - a trustee, DTee - held shares in the other D, a Co, on trust for the Ps: [1], [3], [4]

The Ps further sough for the shares be transferred to the Ps: [2]The Co’s defence essentially put the Ps to proof - a “non admission”: [5]

DTee took a more expansive approach: [5] - [8]

After particulars of its defence were sought, DTee asserted that if the Ps were benefs of a trust including shares in the Co, the Ps were entitled only to the “benefit” of those shares (e.g. dividends and franking credits) rather than the shares themselves: [9], [14], [15]

The assets underpinning the structure related to property development: [10]

Evidence suggested the Ps had made some financial contribution, despite opacity as to the structure of the transaction: [11]

In 2023, the parties entered into Declarations of Trust: [20]

DTee pointed to evidence suggesting that a unit trust was contemplated by the parties abrogating the need for trust decs. The Court found that even if the trust decs were illogical or unnecessary, they bound the parties and would need to be considered: [18]

Dividend statements suggesting dividends and franking credits passed to the Ps were referred to, absent an explanation as to how this was possible noting the Ps were not shareholders: [19]

The trust decs and the Co’s conduct were consistent with the shares, and not merely the “benefit” of the shares, being held on trust for the Ps: [21] - [23]

That is: the corpus of the trust included the tree, and not merely the fruit of the tree: [20]

The Ps said the trust decs unambiguously referred to the shares, and now called for their transfer whether pursuant to Saunders v Vautier or the terms of the decs themselves: [25], [26]

After considering the application principles of construction, the Court founds the trust decs were clear and that (i) they extend to a trust over the shares themselves (not merely the “benefit” of them); and (ii) create a covenant to transfer the shares on demand: [29]

DTee queried whether the corpus of the trust was sufficiently certain, noting DTee held a “pool” of shares and that none of the shares in the pool could be attributed precisely to an individual P: [30], [34]

The Court disagreed, finding that a beneficiary could have a beneficial interest in a specified number of a larger parcel of shares: [31] - [34]

Having so found, the Court considered orders transferring the shares back to the Ps (whether pursuant to Saunders v Vautier or the terms of the trust decs) were appropriate: [35]

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“We need to *wind up* the trust and sell the farms!”

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The Ps and the Ds each owned 50% of the units in a unit trust: [1]

TCo owned substantial real property - farms. The Ps sought to have the trust ended and distribute the assets. The Ds took the opposite view: [5]

The Ps said: 1. there was an agreement or estoppel that if one party wanted to exit, the assets would be sold; 2. the trust deed allowed a unit holder to terminate; 3. the TCo’s conduct was oppressive; and 4. a receiver should be appointed to trust assets: [7]

The Ps and Ds were bankers who, after a time, resolved to add valuable farmland to their portfolio: [15] - [18]

They sought advice on structuring: [19] - [30]

TCo was incorporated and established as trustee, with Ps and Ds funding TCo’s purchase of the land: [31], [32]

A unit holders agreement was considered but not signed: [33] - [36]

Once commenced, the parties considered: which farm management services Co was best, the possible acquisition of further properties by TCo, the Ds frustration with the Ps’ acquisition of a farm themselves and not for TCo, and the looming threat of drought: [39] - [53]

As the drought intensified, arguments arose about: (i) whether to de-stock or borrow to buy feed: [54] - [65], (ii) the Ps stretching their finances to make their own acquisitions thereby depriving TCo of a source of funds to buy land, and (iii) the Ps standing in the way of the Ds buying some land for themselves: [54] - [72]

The relationship deteriorated.In 2021 and 2022 the Ps put purchase offers to the Ds. The Ds accepted neither: [87] - [89]

Later in 2022, the Ps served a notice purporting to “wind up” the trust: [90]

Re 1., the Ps said there was an agreement, or representations founding an estoppel, that each party could unilaterally terminate the JV on notice: [107], [109]

The Court found no evidence of a “one out / all out” arrangement: [122]

Re 2., the unit holders has a present entitlement to trust capital; a position adopted for land tax purposes: [126], [136]

The Ps failed on this point; incl because the Deed did not give rise to a present entitlement for *each unit holder separately* rather than the unit holders together: [168], [184]

Re 3., the Court accepted oppression can occur with a trustee Co, with the relevant member protecting their family’s beneficiary interest: [202] - [204]

None of the pleaded oppression bases was made out: [209] - [255]

Ps’ complaints arose from disagreements re management of the farms through drought, and the lack of an exit strategy - neither proved commercial unfairness: [256] - [258]

Re 4., the trust property was not in jeopardy and TCo appeared to be performing satisfactorily: [266]

The Court was not moved by the Ps’ analogies to partnerships or s461 applications, leaving no basis for the appointment of a receiver: [267] - [283]

The Ps’ application was dismissed: [286]

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In August 2024 James was invited to appear on Glover Lane's ESG podcast, 'What Keeps You Up At Night?'

This interview traverses Gravamen's journey to becoming a firm that tries to live its values by donating $1,000.00 per month to charity; and reflects on what the future might hold.

It's also a great primer for anyone hoping to understand ESG a little better.

You can find Rebecca Barry's firm Glover Lan here: https://www.gloverlaneconsulting.com.au/

“Bring the company back from the dead so we can go to Court!”

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P approached the Court to seek the reinstatement of a deregistered Co: [1]

In 2010 the Co was incorporated. Shortly afterwards P and D1 - who were siblings - were the 2 Dirs and 2 equal shareholders: [4], [5]

P said that at about this time P and D1 agreed the Co would purchase some property, each funding 50% of the purchase, each owning a 50% share, and each entitled to 50% of the rent. The property was tenanted by D1: [7]

Shortly after this, the Co became the registered proprietor of the property: [8]

In 2012 (leaving aside the parties’ confusion as to whether the Co was a trustee) forms were lodged with ASIC recording P’s retirement as director. (P could not recall consenting or not.) From this time D1 managed the property for the Co: [9], [10]

In 2021 terse emails were exchanged between P and D1. P sought information. D threatened to “transfer out” some of the Co’s assets: [11]

In 2022 the Co transferred the property to OtherCo with nil consideration recorded on the transfer. OtherCo’s directors and shareholders were D1 and their spouse: [12], [13]

Shortly after, in 2022, D1 paid to P half the purported net proceeds of a sale of the property which D1 said was sold for $1.7m: [14], [15]

Some evidence showed that in August 2021 D1 had emailed P a valuation for the property at ~$2.4m and then attempted to recall that email; re-sending it with a valuation of $1.7m to $2.0m: [16]

In August 2022 D1 caused the de-registration of the Co, with P alleging P had no knowledge of D1 doing so: [17], [18]

P alleged the Co ought to have received around $1.6m in rental income over the period the Co owned the property. P said P had seen only $91K of this: [19]

All Ds consented to the Co’s reinstatement pursuant to s601AH: [20], [21]

The Court considered the relevant principles relating to an application brought by a “person aggrieved” by reregistration: [23], [24]

Where reinstatement is sought to bring legal proceedings, the Court need not forensically scrutinise the claim. There must be “some level of arguability” by the threshold is “very low”: [26]

P said they met this threshold as the Co’s deregistration prevented both an oppression claim and a derivative suit against D1 in the name of the Co: [28]

The Court agreed: [29]

In the normal course, D1 would be Dir upon reinstatement. D1 agreed to immediately retire on reinstatement: [31]

The parties consented to P and P’s nephew being appointed Dirs on reinstatement: [33] - [35]

The Co was reinstated, P and nephew were appointed Dirs, and the costs of the application were reserved to the contemplated oppression and / or derivative action proceedings: [39]

___

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“Valuation is art not science; so let the partnership’s receiver sell it.”

___

10 partners - 5 family members and their spouses - planned to run a blueberry farming and forestry business on land owned by the partnership: [2], [5]

8 partners, the Ps, sued the other 2, the Ds: [3]

In 2007 the partners purchased the Property and entered into a deed: [4], [6]

The deed required that forestry profits and losses be shared equally; but that each partner would take berry farming profits and bear losses in relation to their own plots on the Property: [12]

It was agreed partners would contribute equally to a partnership bank account for mortgage payments, rates, water, bills etc. Each partner agreed to pay for their own stock and machinery: [15]

Over time, the partners did not contribute equally to this account: [16]

Disputes began early about plot allocation, apparently excessive use of water by some partners etc: [17]

The partnership did not sell blueberries (each partner did, with those blueberries having been grown on their own plot). No forestry business was ever operated: [18], [19]

In 2020 the relevant regulator found the dams on the Property to be unlawfully large. Remediation works reducing dam capacity were done. From this time the Ps gave up farming the Property. The Ds continued: [22]

The Ps commenced proceedings seeking the dissolution of the partnership and the appointment of a receiver. The Ds cross-claimed seeking to buyout the Ps for $1.5m, but later resiled from this position: [23], [24], [29]

The Ps amended their claim their claim to propose two Ps buy the partnership assets for $2m: [26]

There was no dispute that the partnership should be dissolved, that the Property was a partnership asset, or that the final distribution ought to account for the unequal contributions of each partner to the bank account: [32] - [34]

The principal issue was: should the Ps’ $2m buyout order be made?: [45]

The Property was valued at ~$1.85m and the timber on it valued at ~$150K, those figures underpinning the Ps’ proposal: [47] - [51]

The Ps emphasised the saving in agent’s fees that would be made, and the “purchasing Ps” longstanding relationship with the Property: [52]

The Court noted its broad discretion on how a sale of partnership property should be effected: [54]

The Court did not make the Ps’ requested buyout: [56]

The valuation evidence before the Court was 15 months old. Neither valuer was required for XX, but the Court was not bound to accept the evidence: [61]

The Court had no evidence about property or timber prices in the ensuing 15 months meaning it could have no real confidence that the $2m sale price was beneficial to all partners: [62], [63]

(The Court noted “valuation is an art, not a science”: [62])

The Court appointed a receiver who would be best placed to realise the full value of the partnership assets: [66], [75]

___

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“You changed the business I sold you so you could underpay me!”

___

By deed P sold their shares in an online retail business to D.P was to receive $20M, some shares in D, and the Earn Out Amount (“EOM”): [3]

According to the deed, the EOM was the Base EOM of $10M plus the Additional EOM: [6]

The Additional EOM was the rounded difference between the Base EOM (I.e. $10M) and “Earnings”: [7]

“Earnings” meant EBITDA over the relevant year. The deed contained a mechanism for D send a proposed Earnings calculation (as part of a P and L), for P to make a reply including setting out “Contested Matters”, for the parties to negotiate the contested matters in good faith, and for the matter to be referred to an expert if negotiations failed: [10] - [14]

D sent a P and L suggesting Earnings were ~$6M (making the Additional EOM zero): [16]

P sent a reply calculating Earnings at ~$15M (taking the Additional EOM to its maximum possible figure) and raising Contested Matters: [17]

Following unsuccessful good faith negotiations, the matter was referred to an expert: [18]

How was the expert to calculate Earnings?: [19]

Cll 2.1 and 2.2 of the deed required Earnings to be calc’d disregarding revenues or expenses not part of the Co’s ordinary business including: costs relating to the share sale, restructure costs, certain related party transactions, and the costs of kicking off any new business: [21]

Cl 2.3 of the deed noted the parties’ agreement that Earnings were to be calc’d as if the Co’s business were run the same way post-purchase as it had been pre-purchase; and that D would not make big changes to the Co’s business (or, if D did make big changes, the EOM would be normalised to exclude those changes’ impact): [21]

P sued, seeking declarations that the expert determine Earnings in accordance with all of the above. D resisted: [25] - [27]

The Court found for the P: [28]

The well-known principles regarding contractual interpretation were (respectfully) helpfully restated at [29] - [33]

The Court noted the parties’ explicit agreement on the mandatory language in Cl 2.3; that Earnings *must* be calculated that way: [48] - [50]

The proper construction was found to be on that basis: [54]

P’s pressed for their Contested Matters to be referred to the expert.P said Earnings had to be adjusted due to D failing to implement a new website, leading to lower website traffic. The Court accepted this Contested Matter was appropriately dealt with by the expert: [63] - [77]

Similarly: P’s complaint regarding D’s failure to implement P’s logistics proposal was to be properly dealt with by the expert: [78] - [82]

Again similarly: P’s complaint that D’s marketing efforts wrongly focussed on conversion rather than branding was properly dealt with by the expert: [83] - [86]

The expert was required to value Earnings as P proposed, and to deal with P’s Contested Matters: [87]

___

Please head to www.gravamen.com.au - that's my law firm!

“Our parents’ citrus farm is a partnership asset!”

___

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]

___

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!”

___

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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#auslaw #gravamen

“You tried to kick me out of the law firm partnership!”

___

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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“Compensate the company. Then pay that money to me!”

___

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]

___

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.

___

You can find other episodes of Hearsay: The Legal Podcast here: https://hearsay.legalcpd.com.au/episodes/

“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...?”
___
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]

___

#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…”
___

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!”

___

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]

___

#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.”
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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:

1. The corporate derivative action

2. Some litigated examples of it

3. The Court's decision in Gillespie v Gillespies Cranes Nominees Pty Ltd [2022] NSWSC 1184

4. Practical suggestions for dealing with corporate derivative actions

5. 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 1700 Campbell v Campbell [2022] NSWSC 554 SSC Super Pty Limited [2022] NSWSC 686 Gillespie Cranes Nominees [2022] NSWSC 1184 Australian Karting Association Ltd [2022] NSWCA 188 M & 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

“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:

1. The law

2. Litigated examples

3. 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:

1. The law

2. Litigated examples

3. 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:

1. The law

2. Litigated examples

3. Practical suggestions

Please give James and Coffee and a Case Note a follow on your favourite platform!