Coffee and a Case Note

“It’s not certain I would have lost in the end, so I shouldn’t have to pay costs!”  

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Often, if a piece of litigation gets to final hearing ‘costs follow the event’: UCPR r42.1.

Put another way: at the end, the loser pays the legal costs incurred by the winner.  

But what if a matter finishes before a final hearing?  

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A party sought orders including replacing an administrator.   

They said an administrator had been slow to sell some land. The delays were due to other litigation. The land was eventually sold.  

The administrator could not have gone ahead with the sale until the other litigation was finalised: [3]  

The applicant accepted that once the sale was completed, the basis for replacing the administrator fell away: [4]  That was the end of the application and the parties then turned their attention to costs…  

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The Court said the administrator was always trying to make a good sale of the property, only delayed by the other litigation. That other litigation had to be finalised for a sale to go ahead. It’s not obvious any other administrator would have done better or moved faster: [6]  

For these reasons, the applicant would have very likely lost at final hearing, meaning it had to pay the administrator’s and the company’s costs: [7]

“Are we partners or are our companies partners? 😬😬😬"

Various Cos entered into a partnership deed. Each was the corporate vehicle of a natural person (“Principal”). 

The deed was signed by the Principals on behalf of their Cos.  The firm operated an accounting business, holding the Principals out as partners.  

One Principal was appointed to the board of one of the firm’s big clients.  

He took advantage of an investment opportunity relating to that client without telling any partners.  

The yield? $11M.  Another entity under his control received a gift of $4.861M from another client.  

The corporate partners sued, saying the Principal owed fiduciary duties to the corporate partners and also that he – in his personal capacity – was himself a partner.  

The deed itself caused confusion: [74] The term “partner” or “partners” referred to the Cos in some clauses and the Principals in others: [86]  

Some clauses (e.g. relating to death, illness, bankruptcy, or age) were nonsensical if they referred to the Cos: [105]  

The deed would lack commercial utility if the Principals were not bound to it: [106]  

The court found the deed contemplated the Principals and Cos having rights and obligations *as partners*: [120]

“If you’re making me buy the shares, tell me how much they’re worth!”  

In a recent judgment, s232 commercial unfairness was made out.  The proceedings concerned a company with a significant value.  

HH put it best: “large payments (were) made by (the defendant) without consultation, unsupported by contemporaneous records and at odds with basic accounting principles or, on occasion, common sense” : [44]  

There were also findings of commercial unfairness on the basis of: withheld information ([212]), “self-interested and unfair” transactions supported by “hazy memories and old grudges” ([250]), and on “financially disastrous” risks taken over the objection of the other shareholder ([276])  

With s232 unfairness found, the Court elected to exercise its s233 discretion and order a share sale: [286]  

Aaaaaaaaaaaaaaaaaand then there’s >50 paragraphs of valuation material for our forensic accounting friends to work through: [297] – [350]  In the end, the buyout ordered exceeded $50M: [351]

“Hey! You were meant to give me 10 days before terminating the contract!”  

Two property owners entered into a contract with a builder to construct two duplex buildings.  The builder moved slower than the owners hoped. 

They ended up terminating the contract because the builder didn’t  complete the work, rectify defects, or get a construction certificate in time.  

Nor did the builder obtain a construction certificate at all: [13]  The builder appealed, saying the contract required the owners to give 10 days’ notice before terminating, and they failed to do that.  The builder went down on appeal.  

The Court found that there was a requirement to give 10 days’ notice before termination but – crucially – that only applied if the default was capable of remedy within that period: [31]  

The Court went on to find that even if termination was not valid, the owners should get a damages payment because of the builder’s failure to get a CC before construction or at all. 

The entitlement to damages was not dependent on the termination being improper: [5]

“I wanted YOU to do that cleaning!”  

Two parties entered into a contract: a cleaner and a client. The job was to clean a number of large retail stores.  

The cleaner agreed not to subcontract or assign its cleaning duties to anyone else without the client’s permission. If it did, the client had a right to immediately terminate and did not have to pay for any unauthorised subcontract work: [23].  

As it happened: the cleaner did about 10% of the work. The cleaner’s subcontractors (who the client did not authorise) did about 90%.   The cleaner sought payment. The client resisted.   

The cleaner litigated, lost, and appealed.  

Among the cleaner’s arguments on appeal were that if the client took the benefit of 100% of the cleaning work and only paid for the 10% then that would see the client enjoy a windfall: [41].  

The client said the contract was not a mere contract to produce a result. 

The identity of the producing party was important: [42] – [44].  

The Court found the cleaner’s obligation could not be discharged by using unapproved subcontractors, meaning it was not entitled to be paid: [87], [93], [94].  

In so finding, the Court considered that the contract made it clear that the identity of the provider of the services was important: [65] – [75], [94].

[First, an apology: this awful audio is the result of my own poor microphone management. Sorry!]

“OK. We sold these units. Now what do we do with the money?”   

Trustees for sale were appointed to sell a Bondi block of units.   

In 2018 the defendant, who was one of the two co-owners/beneficiaries, offered to purchase the property for >$6M. 

The sale did not complete.   

In 2019 following a sale at $5.8M and payment of various expenses, the trustees held ~$5.3M. The plaintiff – the other co-owner/beneficiary (or, the P having passed away, his executors) – said the amount to be paid to the D should be adjusted due 2018 failed sale: [5]   

Any claim against the D for the failed sale is a claim the trustees have, not the P. And any such adjustment would amount to a summary determination of that claim.   

The P’s proposed adjustments were not made: [28]   

The trustees sought s63 judicial advice on retaining a sum to defend a claim the D hinted at which at the time of the hearing, was not “clearly formulated”: [31]   

Having considered matters like legal costs, the amount to be paid if the D succeeded, and the trustees’ right to an indemnity the court gave advice that the trustees would be justified in retaining the sum of $500K: [42]

“The company acted unfairly! But I don’t know what I want the Court to do about it…”  

A board dispute arose. The issues raised were complex.  

They revolved around an app to be used by car dealers, and the sale of the IP in that app.   

The app was developed by a company with three directors, each of whom were also shareholders.  

One director was “virtually impossible to work with”: [232] The other two secured a sale of the company’s IP in the app for $2M as compared to a book value of $300K: [128]  

The “virtually impossible” director sued claiming the conduct of the other two was oppressive.  

A big problem was: the plaintiff was unclear about he wanted.   

He didn’t dispute the share sale: [236] He agreed the company ought to be wound up: [194] - [196]  

The Court was satisfied that the conduct was not commercially unfair or, if it was, it would decline to exercise its discretion to order a remedy: [240]  

The difficult director, having caused the breakdown of the relationships, was found to be the author of his own misfortune: [235]

“Is it OK if I sell this property?”  

A liquidator of a Co sought Court directions relating to a possible property sale.  

In 2002, an ABN was obtained for Trust 1. It appeared there was no trust deed for Trust 1.   

In 2014, Trust 2 was settled. Our Co was trustee. Bank accounts were opened. High value transactions followed.  

In 2015, property was purchased in the name of the “the Co as trustee for Trust 1” i.e. the 2002 trust, not the 2014 trust: [7].  

It appeared likely the money to fund the purchase came from the Co’s Trust 2 bank account. 

The Co kept inadequate financial records: [14].  It was unclear whether the Co bought the property in its own capacity, for Trust 1, or Trust 2: [15].  

There was a chance of there being a trust deed for Trust 1 with an ipso facto clause; removing the Co in the case of a liquidator being appointed. With no deed found, it was appropriate for the Court to give directions to the liquidator: [20].  

With no trust deed (and no ipso facto clause) the Co’s liquidation does not affect its trustee status: [23].  

The Court worked through the evidence and declared the Co trustee of Trust 1, paving the way for a sale: [24], [25].

“Hey, bank, you should have stopped that share sale!”  

Spouse A invited Spouse B to become a trustee of a SMSF that was previously solely Spouse A’s. The SMSF and the spouses had a number of *joint* bank accounts and *joint* stock trading accounts.  

Spouse B caused a sale of shares from the joint stock trading account ([39]) and a transfer of the proceeds from the joint account into an account of Spouse B’s: [84].  

The marriage didn’t last.  

Family law proceedings led to an outcome.   

However, Spouse A also pursued the bank in the Supreme Court claiming: it was negligent in (i) allowing the share sale, (ii) failing to seek Spouse A’s consent before allowing the share sale, and (iii) failing to prevent the withdrawal of the sale proceeds: [86]  

The relationship between the spouses and the bank was purely commercial, with no duty of care attaching to it: [90].   

As part of that relationship, the bank was contractually entitled to accept instructions from both spouses.  

The effect of Spouse A’s argument was that the bank could not accept Spouse B’s instructions, a direct conflict to the terms of the contract that allowed joint use: [95].  

Any duty owed by the bank to the spouses was contractual and not breached.  

The claim in negligence failed: [96] and [97].