February 22, 2023

Zphere Pty Ltd v Pakis [2022] VSC 496

11 minutes

A partnership dispute (that I have previously summarised part of) was litigated in large part, then settled: [2]

Before final orders were made, deeds were signed that saw the D pay a sum, surrender their partnership assets, and the proceedings dismissed: [4]

P, a former partner of the partnership then sued D for the same breach: [5]

D said P (1) was bound by the deeds; (2) was estopped due to res judicata; and (3) was bringing a claim which was an abuse of process: [7]

The earlier litigation related to D taking an improper benefit in breach of partnership obligations. P was never joined to them or made aware of them: [15], [19], [118]

At the core of each of issues (1), (2) and (3) is the similarity of the old litigation, and the new: [45]

The doctrine of res judicata requires, in essence, two issues, to be dealt with.

Was the first litigation a final decision? Yes, the dismissal orders were final: [79] - [83]

Next: was P a “privy” of the parties to it?: [84]

P highlighted their absence from the earlier litigation, powerlessness to intervene, and lack of knowledge of it: [88]

P’s claim was for 9.8% of the value of the breach based on P’s partnership share. In fact the 9.8% was not a share as TiC, but an entitlement on dissolution not divisible into proportions as against D: [142] - [153]

The Court found a partnership interest is analogous to a trust. Like a trust, legal interests are subject to the equities of others. As trustees are privies then, following this analogy, so are partners: [137], [178]

As such, P was estopped from pursuing this element of the claim by the doctrine of res judicata: [70], [179]

RE (2): P joined the partnership pursuant to a 2006 deed which was in force at the time of the breach: [239]

The earlier proceedings were commenced by the partnership governed by a 2017 deed (which P did not sign, having previously left): [239], [240]

The breach was suffered by the partnership at the time of the breach (i.e. pursuant to the 2006 deed) and to be distributed pursuant to that partnership’s constitution: [243], [244], [246]

The 2017 deed appointed a representative of the (new) partnership. That representative and the (new) partners ran and settled the earlier litigation: [247]

As such, the deed did not release the Ds from P’s claim: [71], [257]

RE (3): D said P’s claim was an abuse of process due to (i) the prospect of inconsistent findings, and (ii) D’s prejudice suffered if forced to relitigate a claim D considered concluded: [279]

D failed to have the proceedings dismissed as an abuse of process. D could have joined P to the earlier proceedings, and didn’t. D could have sought to have P sign up to the settlement deed, and didn’t: [72], [280], [283]

D succeeded on (2), and lost on (1) and (3): [8]

P was prevented from bringing the claim.

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By James d'Apice

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