Coffee and a Case Note

By James d'ApiceEducation

Coffee and a Case Note episodes

June 21, 2022 Worthington v Hallissy [2022] NSWSC 753
“I submit to orders that I have to repay Dad. Or do I…?”
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Mum and dad - elderly and unwell - sued two of their kids, and their son-in-law.

First, the fascinating procedural issues.

One child and the son-in-law filed submitting appearances. Another child (who we won’t discuss further here) resisted Mum and Dad’s claim and made a cross claim: [1]

During the final hearing, the submitting daughter later sought to withdraw her submitting appearance and actively contest the proceedings: [12]

That daughter had been legally represented at the time of her submission, and had taken advice on the implications: [16]

She said she had not thought any orders would bite against them and their spouse at the time, despite a letter sent at the time suggesting otherwise: [17]

Her own evidence showed she had been aware money orders were being sought against her months before the hearing and she did not seek to contest Mum and Dad’s claim. She still wanted leave to appear at the hearing so a “mutually beneficial settlement” could be explored at hearing: [18]

The Court found the issues the daughter sought to agitate should have been raised earlier and been subject to an application to withdraw her submitting appearance earlier: [25]

The daughter had not fully responded to a notice to produce issued in the proceedings: [27]

The daughter had in the week before the hearing indicated being prepared to pay the amount sought and said she had the money to do so, raising no resistance to the relief: [28]

The daughter made a choice to submit with the benefit of legal advice and only sought to depart from that position at final hearing, implausibly claiming that was when she realised she had a right to be heard: [29]

The Court concluded justice could not allow the daughter to be relieved of her forensic decision to submit in order for her to bring a case she had previously given no notice of: [31]

And so, what were the facts the Court was considering?

In 2011, the daughter and son-in-law purchased a property for a little over $1m: [34]

In 2013, Dad entered into a deed with daughter and son-in-law by which it was agreed Dad would be 50% beneficial owner of the property. Daughter and son-in-law held Dad’s interest on trust. Dad paid $600K: [35]

Dad also paid for other improvements to the property: [35]

In 2016, daughter and son-in-law sold the property for $2.15m. That was not paid to Dad or kept separate from their other funds: [37]

In mid-2020 Dad began to ask for his share of the money. He was unsuccessful: [39]

Various steps were taken - mediations, family discussions and the like. Daughter’s offer to pay Dad some unspecified amounts if he signed a mediation agreement were not consistent with her duties as trustee: [40]

Two payments daughter purported to make were in the form of dishonoured cheques: [41]

The Court ordered half the sale proceeds had to be repaid to Dad: [45]
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7 min
June 15, 2022 SCS Super Pty Limited [2022] NSWSC 686
"Can we charge a fee for administering the trust?"
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A trustee sought judicial advice from the Court that it would be justified in amending a super fund trust deed. The proposed change would allow it to charge a fee to be paid from the fund: [38], [44], [67]

(The T’ee sought and was granted non-publication orders in respect of some of its commercial evidence because if it became public it could be exploited by competitors: [14], [55], [56])

The fund, which originally related to educators associated with a specific religion, had around 80K members and $10.5bn under management: [68], [69]

The T’ee had never been paid for administering the fund, and held nominal capital of $6 beneficially: [77], [80], [104]

Managing a fund of this size, the T’ee had to do complex work, which it did not outsource. As such it bore the associated risk: [82], [83], [96], [97]

Pursuant to the trust deed, the T’ee enjoyed an indemnity from the fund in relation to the costs it incurred: [101]

Recently, following the Hayne RC, the law changed.

The change effectively meant that the T’ee and its directors could not be indemnified for statutory liabilities from the fund: [114]

Thus, the T’ee risked being made insolvent if a penalty ended up being applied: [118]

(That said, the T’ee was not aware of an allegation of a breach of trust or imminent penalty: [120])

If made insolvent, the T’ee would be removed, administrators likely appointed, and a new trustee appointed - all at substantial cost, which would be visited on the fund’s members: [121], [124]

The T’ee considered various alternatives like raising capital and obtaining different insurance; while noting it also had no access to an indemnity from a third party because it did no outsourcing: [122]

The T’ee sought advice from barristers on the proposed deed amendments, and engaged with the regulator on the proposed change to the trust deed: [128]

At [130] the Court (respectfully) usefully summarises all the relevant issues which include: (i) the T’ee’s risks have increased with the change in the law; (ii) the T’ee’s work has a high degree of responsibility, range, volume and complexity; (iii) historically the T’ee has accumulated reserves in the fund which it now cannot access for the purpose of indemnifying for penalties; (iv) the T’ee has limited ability to generate its own funds; (v) regulators have indicated increased regulatory action is likely in future; and (vi) if the amendment is made the fees will be placed in a reserve with strict conditions as to its maangement.

The Court may provide judicial advice in the best interests of the trust and if the trustee acts in accordance with the advice it is deemed to have behaved in accordance with its duties: [138], [139]

The Court was satisfied the proposed amendment was proper and lawful and ordered that the T’ee would be justified in proceeding as planned: [145], [157]

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8 min
May 24, 2022 Campbell v Campbell [2022] NSWSC 554
“Does the trustee really own the farm, or it still in mum’s estate?”

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In the 1970s, Dad - a farm owner - planned to transfer his farm into a trust with TCo as trustee and his family as beneficiaries.

If it worked, his wife and 4 kids could take the benefit of the farm without paying death duties: [78]

At this time, rural families often faced death duties at “confiscatory levels” when farms passed to the next generation: [51]

Dad died in 1976. Mum died in 2017. A number of disputes arose between the siblings and executors. Sadly, the legal fees associated with those eventually required the sale of the farm: [3], [5], [6]

(For the child who worked the farm and hoped to go on, this loss was - understandably - sharply felt: [19], [20])

Mum’s executors, and the son who would inherit the farm from her estate [123], said the farm was held by TCo on a bare trust for Mum: [13]

The farm had been acquired by Dad, from his father, in the 1950s. Over time, various parcels were added to it and it was operated by various different partnerships: [25] - [29]

After Dad’s 1976 death, Mum and the kids continued to work the farm: [34]

Over the decades, Mum tried to discuss succession planning with the family, unsuccessfully: [40]

Mum died in 2017 with her estate valued at $12.5m - crucially, that valuation was based on the assumption she (and not beneficiaries of the 1975 trust) owned the farm: [43]

The Court’s understanding of the 1975 transaction was helped by the contemporaneous notes made by a young lawyer who was a family member (and who would go to the bar and take silk decades later): [44] - [46]

Their notes included a notation that it was likely that the scheme to avoid death duty would succeed. They were surprised to hear, decades later, that the effect of the transfer was in question: [56]

Various documents were executed and resolutions of TCo and related entities passed. Ownership of the farm passed to TCo: [82] - [103]

After Dad’s death, his executors entered into various transactions on the basis Dad’s beneficial interest in the land had been validly transferred: [104]

This conduct included a “well crafted, detailed and thoughtful” letter from Mum whose contents would not make sense unless Mum believed the transfer was effective: [110], [111]

In the following decades the parties proceeded as if the transaction had been effective including: Mum and others making a stat dec [113], swearing an affidavit [118], receiving legal and restructuring advice [115], [116] TCo giving guarantees [114], and TCo’s repeated mortgaging of the farm over decades [140]

The Court found TCo paid Dad valuable consideration for the transfer of the farm, and so the farm was part of the assets of the trust: [124]

The scheme was effective, in accordance with how it had been treated by all relevant parties until 2020: [128], [143]
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9 min
May 15, 2022 Goo v Sim [2022] NSWSC 420
"That money's for the business, not for you!"
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Ps claimed they paid $160K cash to D in connection with an online payment business: [3]

D said the $110K was appropriately spent on business expenses and D’s salary, and the $50K was for some units in a unit trust: [5]

The parties’ dealings were informal: a lack of documents, cash only payments, few bank records etc: [6]

One of the Ps facilitated currency exchanges and money transfers between Australia and Korea: [12]

A plan was hatched to expand that business to include online payments, with that work to be done by D: [19], [20], [32]

There was heavily contested evidence about the dealings before the venture kicked off: [34] - [45]

D gave the Ps advice on the Korean requirements for the venture, advising around 100 million Korean Won (~AUD$100K) would be needed: [46] - [49], [50], [53]

D was given $109K in cash from one of the P’s: [61]

On collection of the funds the D signed a “loan agreement” which they understood would later be destroyed: [64], [65], [67]

The funds were transferred to the Korean entity under D’s control, which was created to operate the venture: [69] - [72]

One of the Ps said they paid a further $50K from their safe to D to, the relevant P said, finish the venture: [80]

D denied receiving the $50K payment on that basis: [83], [84]

The venture never traded: [115], [116]

The Ps said D had breached various duties and sought the return of the $160K: [125], [127]

The Court found purpose of the payment of the $110K from the Ps to D was for the venture, and that D accepted the funds on behalf of the venture: [169], [170]

The Court found some, but not all, of the funds were used by D for the venture. Other funds were used for their own benefit e.g. to pay off personal credit cards: [191], [194]

No fiduciary obligations arose between the parties. The Ps had no special vulnerability giving rise to any: [201]

The Court considered no purposive Quistclose trust arose because the evidence showed the parties intended for the $110K to become part of the working capital of the Korean venture: [225]

Crucially, the Ps did not allege that the recipient of the $110K, the Korean entity, owed any obligations to repay any money: [228]

The evidence did not suggest D had stolen the money, meaning a Black v Freedman trust (where a third party who takes the benefit of stolen money must repay it) does not arise: [258]

Further, the D was not obliged to repay the $50K sum. This payment was found to be consideration for D transferring their units in a unit trust (which was done), not a payment made for the venture: [286]

The Ps’ claim was dismissed: [291]
7 min
April 24, 2022 Calacoci v Calacoci [2020] NSWSC 476
5 partners - 3 Ps and 2 Ds - from the same extended family carried on a partnership. There was no written agreement: [1], [2]

D2 was married to D1: [3]

The partnership business was owning rental property (shops and units) and collecting rent. D1 took a leading role and was a paid a management fee. All partners were paid drawings, controlled by D1: [4] - [6]

Drawings were paid 1/4 to each P, and 1/8 each to D1 and D2: [12]

The partnership was dissolved in 2019. Issues regarding public auction versus “buyout” of the partnership property arose: [13], [14], [17], [18]

The central issue: what was each partner’s entitlement?: [19]

The shops were owned 1/4 by each P with the Ds jointly the remaining 1/4. The units were owned with each partner having a 1/5 interest: [20]

The Ps contended for a “four quarters” approach to the units, and the Ds for a “five fifths” approach: [22]

D1 historically signed off on partnership financials on the “four quarters” basis but later claimed to have done so without inquiry: [31]

The Ds leant on s24 of the Partnership Act 1892 (NSW) asserting that all partners share equally in profits and losses absent other agreement: [33]

The Ps relied on s21 to argue assets bought with the partnership funds (as the units were) are partnership assets: [35]

The Ps said they had no knowledge of the units being purchased in “five fifths” and did not look closely at the sale contracts and letters received in relation to the sale - an error “on par” with D1’s ignorance of the financial documents he signed: [37]

The financial records of the partnership had similar discrepancies; sometimes “four quarters”, sometimes “five fifths” and sometimes another basis: [61] - [66]

The Ps were unsophisticated and relied on D1 to manage the partnership’s affairs: [79], [80]

The solicitor who acted for the partners on purchasing the units gave basic conveyancing advice, not partnership “structure” advice: [81] - [89]

In favour of “five fifths”: the Ps signed contracts, accepted payments, and managed their tax affairs on this basis: [93]

In favour of “four quarters”: the units were bought with partnership money, drawings were paid on this basis, D1 was paid a management fee, there was no agreement to vary the partnership proportion, and successive financial statements were prepared on this basis: [94]

The Court found, on balance, “four quarters”: [95]
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11 min
April 21, 2022 James d'Apice interview with Nicole Davidson - Negotiation in Real Life, April 2022
I so enjoyed this interview with Nicole Davidson, a gun mediator and host of the Negotiation in Real Life podcast.
Please check it out here: https://podcasts.apple.com/gb/podcast/negotiation-in-real-life/id1590259533
42 min
April 10, 2022 Cappe v Tsung [2018] NSWCA 86
(A couple of goofs in my delivery of this one this week - apologies!)
R and 7 As were in partnership operating various diagnostic medical imaging businesses pursuant to a partnership agreement. R and 5 of the As were “full” partners each entitled to 1/7; 2 As were “half” partners entitled to 1/14 each: [3], [31]
The As entered into an agreement with a purchaser to sell the partnership’s assets, with R to receive $3m as part of the purchase: [4]
Clause 32 of the Partnership Agreement dealt with the voting process granting a special majority power to approve on acquisition of the partnership assets by a purchaser (including that a partner who didn’t vote on an acquisition was taken to vote against): [5], [43]
An external offer was made to acquire the partnership’s business. The As passed a resolution causing the partnership to accept it (R didn’t vote and was taken to vote against: Cl 32) and the As agreed to work for the purchaser for a number of years with a non-compete: [7], [58]
R was to receive $3m from the offer, with each of the other 1/7th As to receive ~$6.7m plus shares worth $2.4m: [8]
R sued, claiming an entitlement to 1/7th of the net sale proceeds saying they had not varied their partnership interests, and the purchase payment was partnership property: [9], [33]
The As resisted; arguing that the amounts to be paid were pursuant to resolution that had passed, and that the shares were consideration for the As continuing to work for the purchaser: [10]
The As failed, and appealed. The CoA accepted that, in order for it to have any commercial utility, Cl 32 granted a special majority power to bind all partners to a transaction: [12]
The question was then: did that clause have the power to bind all partners to the *distribution of funds* following that transaction? The CoA found it did not: [14]
The persons bound by any Cl 32 resolution to go ahead with the transaction were “the partnership”, the firm itself rather than constituent partners. The partners’ rights and obligations between themselves were undisturbed: [15] - [17], [24]
The sale proceeds were partnership property to be allocated between the partners in proportion absent any other agreement between the partners: [19], [51]
The character of these rights and obligations justified the Court’s reluctance to find the partners varied them in Cl32: [25], [105]
This left a remaining question: did the As’ continuing service to the purchaser justify them receiving their additional consideration?: [27], [95]
No, the CoA found. This was based on the consideration being described in the purchase documents as payment for “the transfer of assets and the assumption of… liabilities” I.e. the money was for partnership stuff and not, the Court found, for the employment and non-competes of the As: [28], [110]
The appeal was dismissed with costs: [30], [112]
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6 min
March 24, 2022 M & L Richardson Pty Limited [2021] NSWSC 105
(I don’t know why these short lost trust deed cases appeal to me so much. Perhaps it is the intersection of the capital “L” Law with all its tradition and solemnity, with the very human problem of losing a few old pieces of paper.)

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A trustee administered a trust in accordance with an unexecuted (or unsigned) trust deed. When the original was needed, no one could find it.

The trustee sought the Court’s advice that it would be justified in administering the trust in accordance with the unexecuted copy: [2]

To give this advice the Court will require (i) evidence that the executed deed actually existed, and (ii) evidence of the deed’s terms: [4]

The Court had evidence from the service provider engaged to settle the trust that it did indeed establish the trust. The Court also heard the service provider’s practice was not to keep executed copies of deeds once trusts are settled. It only kept copies: [5], [8]

The Court heard evidence of a bank operating an account in the trust’s name. The Court accepted the bank would not have permitted this had it not seen an executed deed, or a copy, at some time. (And would have taken judicial notice of this had it not been proved.) Sadly, the bank did not itself have a copy of the deed: [6]

There was evidence of extensive searches conducted of the records of 3 accounting firms that had previously acted for the trust. All to no avail: [7]

Based on the above the Court accepted the original had been searched for and could be located, finding (i) the trust had been established, and (ii) the terms were as set out in the unexecuted copy: [9]

The Court advised the trustee would be justified in administering the trust based on the copy: [10]
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5 min
February 28, 2022 Scrivener v Cappello [2021] NSWCA 330
“Hey that money belongs to the partnership. Give it back!”

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C and S, verbally agreed to (i) try to buy some adjoining properties, (ii) sell them at a profit, (iii) share the costs and expenses of doing so equally, and (iv) share the profit equally: [9]

Speaking broadly, S took responsibility for financing and buying the properties, while C looked for purchasers: [14], [55]

S argued the agreement included a Sunset Date, that C would have no interest in the venture if a buyer was not found by a that date: [23]

The properties (or most of them) were bought in the name of TCo, a company controlled by S.

In March 2015 the properties were sold for $37m. After payment of the financiers, $9m of the sale price was in the hands of TCo and the remaining $2m was in the hands of a company TCo was 50% shareholders of: [20]

C later sought half the money paid to TCo and, on the basis there was no written agreement, S resisted and wished him (ironically) “good luck” enforcing the obligation: [22]

The first instance judge found there was no Sunset Date, following a review of conduct S engaged in after the relevant date which was “impossible to reconcile” with a Sunset Date: [37], [39]

The first instance judge found S and C and / or their corporate entities had indeed entered into partnership: [40]

The first instance judge found S was an accessory to breaches of fiduciary obligations owed to C and a related company, entitling them both to equitable compensation: [1]

S appealed the decision including in relation to accessorial liability, and C cross-appealed to clarify the parties to the partnership.

C said the partnership was between S and C and any funds paid to TCo were held on trust for that partnership: [49]

The Court of Appeal held the partnership was between S and C: [55]

The presence of some related companies did not alter that position: [56], [57]

Having been found to be in partnership with C, S breached his fiduciary obligations in failing to cause TCo to account to the partnership (i.e. to C) for the money it received on sale of the properties: [59]

This, speaking broadly, also dealt with the issues raised by S on appeal. If it had not and the issue of S’s “knowing participation” accessorial liability claim required consideration, an order for new trial might have been considered but would not have been made, as setting the matter at large again would do greater injustice: [71]

TCo and S were ordered to pay the unpaid sale proceeds to C, with any proceeds paid by one offsetting the obligation of the other to pay: [72] - [74]

S was ordered to pay 80% of C’s costs of the appeal; this was because S enjoyed some limited success in that the first instance judge did not completely deal with the accessorial liability issue: [76]
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9 min
February 22, 2022 Snowy Mountains Grammar School v Adventurer AWD [2022] NSWSC 53
P, a school, bought a bus from D. It was old stock sold at a substantial discount.

The Court found D had engaged in misleading and deceptive conduct by silence (as to the build year of the bus) when selling the bus to P. But - crucially - the Court found P did not rely on that misrepresentation: [13]

That meant P lost its claim, despite D’s conduct: [1]

This left open the question of legal costs.

Often “costs follow the event” in litigation: the winner will benefit from an order that the loser pays their legal fees, or some of them on the “ordinary” basis. The alternate costs order is a more generous “indemnity” costs order.

Here the Court had to consider the position where D had done the wrong thing but P’s claim failed.

D sought to have P pay its legal costs on the basis P did not accept their offer to refund the P’s purchase price of $135K. The offer was made both pursuant to the UCPR and by way of Calderbank offer: [2]

P replied offering to accept $136.5K plus D paying 85% of P’s legal costs: [3]

The outcome of the litigation was clearly more favourable to D than the offer they made: [4]

In relation to the UCPR offer, D said that it was unreasonable for P not to have accepted it and so an indemnity costs order should follow, this not being an exceptional case where a different order was appropriate.

In relation to the Calderbank offer, D alternatively sought an indemnity costs order on the basis it was unreasonable for P not to have accepted D’s offer: [5]

P said they should take the benefit of a costs order as the Court found D had indeed engaged in misconduct, noting the Court can depart from “costs following the event” where the unsuccessful party succeeds on significant issues: [6], [7]

The D certainly did better than their offer, especially noting P had had the bus for 2 years at the time the offer was made: [9]

At the time the offers were exchanged, the matter had been set for hearing and evidence was largely complete: [10]

P’s claim required proof that there was a misrepresentation (which P proved), that they relied on that misrepresentation (which P failed to prove), and that they suffered loss (which they also failed to prove): [13]

Absent any offer, the Court found D would have its costs on the ordinary basis. Having made the UCPR offer, which it was unreasonable for P not to accept, D got a costs order on the more generous indemnity basis from the date of that offer: [14]

D’s misrepresentation was not misconduct sufficient to disturb this position: [12]
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6 min

About Coffee and a Case Note

From the publisher's feed

I’m Australian lawyer, James d’Apice. Coffee and a Case Note began as a video series where I sip a coffee and chat about recent legal cases. This is the audio version! I hope it brings you value.