Coffee and a Case Note

“Those unjust terms are void, but not the whole contract.”
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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!”
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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!”
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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?”
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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!”
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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!”
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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
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“Nope! The injunction stays and you’re still restrained.”
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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!”
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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.”