Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd & 2 ors [2008] NSWSC 144 | Case summary

Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd & 2 ors [2008] NSWSC 144 | Case summary | Zoe

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 Alcock v Robb (1978) 2 BPR 9625 Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319 Banks v Gibson (1865) 34 Beav 566 Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 Burchell v Wilde [1900] 1 Ch 551 Chan v Zacharia (1984) 154 CLR 178 Chappell v Griffith (1885) 53 LT 459 Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670; (2002) 170 FLR 290 Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 Don King Productions Inc v Warren [2000] Ch 291 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 Gibson v Tyree (1900) 20 NZLR 278 Glassington v Thwaites (1822) 1 Sim & St 124; 57 ER 50 In re David and Matthews [1899] 1 Ch 378 James Shaffer v Findlay Durham & Brodie [1953] 1 WLR 106 CASES CITED : Johnson v Snaddon [2001] VSCA 91 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392 Metlej v Kavanagh [1981] 2 NSWLR 339 MMAL Rentals Pty Ltd (ACN 008 293 490) v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167 Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395; (2007) 25 ACLC 254 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 O'Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188; (2002) 122 FCR 455 Pathirana v Pathirana [1967] 1 AC 233 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Re a Company (No 00709 of 1992); O'Neill v Phillips [1999] 2 All ER 961 Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126 Scott v Bail [1914] VLR 270 Serrata Investments Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419 Shevill v Builders Licensing Board (1982) 149 CLR 620 Spettabile Consorzio Veneziano di Armamento e Navigazione v Northumberland Shipbuilding Co Ltd (1919) 121 LT 628 State of Western Australia v Bond Corporation Holdings Ltd (1991) 13 ATPR 41-081 Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294 Thompson's Trustee in Bankruptcy v Heaton [1974] 1 WLR 605, 613; [1974] 1 All ER 1239 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; (1985) 60 ALR 741

5 Until 2002, Lawfund had operated primarily as a mortgage aggregator, although it brokered a small amount of lease finance business. From 1997, Ms Ward and A-Ward carried on business as lease finance brokers. In 2002, Lawfund wished to expand its lease finance business. It was introduced to Ms Ward. 6 Between May and September 2002, there were discussions and negotiations between Ms Ward and representatives of Lawfund concerning a potential joint venture in lease finance. On 27 August 2002, Lawfund's Business Development Manager, Mr Carrero, wrote to Ms Ward, as follows: Re: Agreement for the Leasing Division It would seem from our recent discussions that both parties are enthusiastic about proceeding. Following is a summary of the proposed agreement. 1. That Deborah Ward (DW) and Lawfund Australia Pty Ltd (Lawfund) enter into an agreement for the provision of leasing services to the Lawfund members and others; 2. That Lawfund provide: the premises, reception services, phones, stationery etc; 3. That DW provide: any technology necessary, the leasing expertise, one sign up person on contract. It is agreed that DW will also use, where appropriate, Lawfund Lending Managers for sign ups and that they will be paid a fee. 4. That the expenses be paid by the moneys generated by the leasing services. Expenses would include: leasing costs of any technology as necessary, rent, stationery, etc. Rather than needing to account for every paperclip it is suggested that we deal with the larger and more easily quantified items such as the leasing of technology, rent and sign up contractor costs and then come to an agreement of a monthly flat fee to cover the administration costs such as reception, stationery etc. 5. Commissions for leasing from Lawfund members will be paid as follows: 40% to the Member, 40% to the Writer, 20% to the leasing Division. 6. Commissions for leasing from DW will be paid as follows: 50% to DW and 50% to the Leasing Division. 7. Commissions for any insurance will be split as follows: 50% to the Writer and 50% to the Leasing Division. 8. After the payment of the expenses in each quarter any profit will be split between DW and LF 50% each. 9. DW will also receive the benefits of Membership of Lawfund to refer mortgage finance to a Lawfund Lending Manager which will result in DW receiving 80% of the upfronts (less any Lending Manager's fee) and 80% of the trailer. 10. In the event that the agreement is terminated by either party it is agreed that DW, like any other Lawfund member, would retain ownership and control of the client base which she brought to the Leasing Division. As you know these arrangements are just for Sydney to start with but we are keen to grow the Leasing Division in Melbourne, Brisbane and Perth as soon as Sydney is well underway. I believe we have a bright future together and I look forward to your comments. 7 Ms Ward responded by email on or about 28 August, as follows: Thank you for the proposal. In principal I agree with the "heads of agreement", however I propose to address the following areas: Firstly, given the long term view, direction and envisaged growth of the business; I would prefer to work within an incorporated entity structure from the outset. In this regard I would be prepared to cover the cost involved to establish the company; Secondly, I would prefer to review the business trading on a monthly basis rather than quarterly. At this point I would envisage that profits from the venture be distributed; Thirdly, I would need to be assured of the availability of necessary office space from which to effectively operate the leasing division from. I suggest a self contained office for my own use in this way addressing the confidentiality aspect (of the trading venture entity and administration) as distinct form the day-to-day processing area; and Fourthly, given the nature of the business and level of processing involved I will require a full time assistant from the outset, the cost of which is would be bourne by the leasing division. This person is in addition to utilising Lawfund mortgage members for sign up as and when required. I await your comments on the points raised. 8 None of the Lawfund witnesses gave evidence of further consideration of that email or the issues in it, but Ms Ward says (and in this respect her evidence was not the subject of challenge) that she had a meeting with Mr Carrero on 30 August, in which Mr Carrero agreed that the business should be conducted through a company structure, to be called Lawfund Leasing, with a 50/50 shareholding, and observed that there was not space to provide a self-contained office at present, "but we are expanding our premises here and we will be able to accommodate you in the near future". 9 On 2 September 2002, Ms Ward sent Ms Fiander an email: Please advise of the date you wish me to commence Lawfund Leasing from your premises, as I need to give notice to my landlord, and also advise my introducer & client base of the appropriate changes. 10 On 6 September, Ms Ward sent Ms Fiander another email: The 30th of September for a start date would suit me fine. I would need to access the office ideally on the weekend prior to commencement. Please let me know if that is possible. I will start the process of transferring accreditations with current lenders to the new entity so all commission & leasing transactions transfer to the new entity by 1st of October. We will require the incorporation of the new company to enable this process. I would be happy to arrange the incorporation through my accountant if you prefer. The cost would be approx $1,000. 11 Ms Fiander responded on 9 September: 30th September it is then. It is not clear whether we will have the new office space ready for you by then or not (the landlord has to build an intertenancy wall first) but we will have somewhere for you and your assistant to get started. By all means proceed with the new shelf company. Lawfund would be happy to pay the cost of the company on behalf of the new entity and it can repay Lawfund later. I suggest yourself and Sal Carrero as the two Directors of the new company. … I will have John Barlow contact you to discuss what furniture and technology you are bringing with you and what will fit where. Looking forward to you starting. 12 On the same day, Ms Ward replied: Thank you for your reply. I will instruct my accountant to proceed with incorporation of the new entity. I anticipate that the documents will be ready for execution by Thursday of this week. I will then commence the transfer of accreditations, we will also need to advise your current lease lenders of the change in structure. This might also be a good opportunity for me to introduce myself to the relationship manager from these banks. If possible, I would like to briefly discuss the following while I am in your office tomorrow: * business cards * e-mail address * my website - this will need to be changed and linked to Lawfund - ( have a look at the site, please also note I am still upgrading some of the menu's ) … If I can arrange to have the above in place before commencement, I will then be in a position to start marketing to Lawfund members straight away. 13 Lawfund Leasing was incorporated as the joint venture vehicle on 12 September 2002, with Lawfund and Ms Ward each holding 50 shares, and Mr Carrero and Ms Ward as its directors. On 30 September 2002, Lawfund Leasing commenced trading, under the management of Ms Ward, from Lawfund's premises at Level 1, 55 Norton St, Leichhardt.

16 Over the weekend of 23 and 24 October 2004, Ms Ward - without informing Lawfund of her intentions - vacated Lawfund's premises and moved (with all the hardware and software associated with Lawfund Leasing's business, including filing cabinets, storage units, a facsimile machine, printer, photocopier, manuals, books, office trays, computer cabling, computers and a scanner) to premises at 270 Norton St, Leichhardt, which she caused Lawfund Leasing to occupy under a sublease from her company A-Ward. On Monday 25 October 2004, on arriving at work Lawfund directors found that Ms Ward had vacated the Lawfund premises. That day, Lawfund received a letter - dated 22 October, but deliberately not delivered until after Ms Ward had effected the removal over the preceding weekend - from Gilbert + Tobin, Ms Ward's then solicitors, asserting that the 28 September 2004 letter inappropriately threatened unilaterally to wind up Lawfund Leasing for no compensation in breach of the joint venture agreement, that this was no way to address a business partner, and that their instructions were to enforce the joint venture agreement. Lawfund contends that, if its letter of 28 September 2004 were a repudiation (which it denies), then the Gilbert + Tobin letter of 22 October was an election to affirm. 17 Lawfund commenced these proceedings by Originating Process filed on 23 December 2004, claiming relief that included the winding up of Lawfund Leasing on the just and equitable ground. Until August 2005, under Ms Ward's control, Lawfund Leasing continued to trade from 270 Norton Street; there was no Lawfund nominee on its board during this period. On 5 August 2005, Ms Ward filed her Cross-claim. On 16 August 2005, M J Woods & Co, who were by then acting for Ms Ward, wrote to Lawfund, as follows: We are instructed, as will be clear from the Cross Claim, that the letter to our client under the signature of Mr Barlow dated 28 September 2004 constituted a repudiation of the joint-venture agreement entered into by Ms Ward and Lawfund Australia on 28 August 2002. Our client accepts that repudiation and has elected to treat the contract as terminated. 18 Having thus purported to accept Lawfund's alleged repudiation, Ms Ward thereupon caused Lawfund Leasing to cease trading, and her own company A-Ward took over Lawfund Leasing's business undertaking, continuing to operate from 270 Norton Street.

Is Lawfund liable to pay damages for repudiation, and/or other breaches, of the joint venture agreement? 20 The Cross-claim pleads that by its 28 September 2004 letter, Lawfund (1) purported to terminate the joint venture agreement other than by agreement between the parties or on proper grounds, (2) purported to set out terms on which the joint venture agreement would be terminated which had not been the subject of negotiations and which were severely disadvantageous to Ms Ward, (3) required Ms Ward to vacate Lawfund's offices by 31 October 2004 in breach of Lawfund's duty to act in good faith being a period of notice which in the circumstances was unreasonable and highly detrimental to Ward, and (4) by such conduct, repudiated the joint venture agreement. Mr M B Evans, for Ms Ward and A-Ward, contends that Lawfund's 28 September 2004 letter was a repudiation of the joint venture agreement, which Ms Ward accepted by M J Woods' letter of 16 August 2005. He submits that the 28 September 2004 letter was inconsistent with the obligation of good faith that Lawfund as her joint venture partner owed her, and that Lawfund thereby repudiated the joint venture agreement. Mr L S Einstein, for Lawfund, submits that the 28 September 2004 letter was not repudiatory, but that if it was, Ms Ward elected, by the 22 October 2004 letter, to affirm the contract. 21 It is not in dispute that although the parties were joint shareholders in Lawfund Leasing, it was an incorporated joint venture, attracting equitable obligations of the kind described by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (at 379): The words ['just and equitable'] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act 1948 and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The "just and equitable" provision does not, as the respondents [the company] suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. 22 His Lordship identified three circumstances that would commonly be associated with the superimposition of equitable obligations on the relationships between shareholders in a corporation, namely (1) an association formed or continued on the basis of a personal relationship involving mutual confidence, (2) an understanding that all or some of the shareholders would participate in the conduct of the business, and/or (3) restrictions on the transfer of shares, so that a member could not take out his or her stake and go elsewhere.

23 Young J, as his Honour the Chief Judge then was, while indicating that courts should be hesitant to conclude that equitable obligations are superimposed upon company law rights and obligations, explained the basis of the decisions that do so in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, (at 707): It is, of course, clearly so that the cases such as Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 and Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 provide strong authority in this area. However the danger in this area of the law is projecting the principles which were enunciated in those cases with respect to special types of situations into all cases of privately held companies. The kernel of the two decisions referred to is that even though what is really a partnership has in law taken the form of an incorporated company, and even though the primary obligations which govern the parties are legal obligations arising out of the articles of association and the law of companies there may still be superimposition of equitable obligations between the parties: see the Westbourne Galleries case at 379. Lord Wilberforce at that page indicated that three elements would often be found in a case which would give rise to such equitable considerations. However merely because these three elements may exist in a particular case does not mean that the court will draw the inference that there were superimposed equitable obligations on the company law rights and duties, nor will the court assume that just because that once was the case, that it is so for all time because it is always competent for the parties to alter their relationship. 24 The same approach to the imposition of equitable obligations in the setting of a "corporate quasi-partnership" has been endorsed, in relatively recent times, in the context of the remedy for oppression, by the House of Lords in Re a Company (No 00709 of 1992); O'Neill v Phillips [1999] 2 All ER 961, and by the Court of Appeal in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; see also Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153, [41]-[55]; (2007) 61 ACSR 395; (2007) 25 ACLC 254. 25 The circumstances in which such obligations would be imposed in a commercial joint venture were explored by the High Court in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; (1985) 60 ALR 741, by Mason, Brennan and Deane JJ (at 10-11), with whom Gibbs CJ and Dawson J separately agreed: The term 'joint venture' is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, 'adventure') will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a 'joint venture' and what should more properly be seen as no more than a simple contractual relationship may, on occasion, be blurred. Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to the profits made by the other. One would need a more confined and precise notion of what constitutes a 'joint venture' than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one: (but cf per Cardozo CJ, Meinhard v Salmon (1928) 164 NE 545 at 546). The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship (see, generally, Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 407-9).

26 Having regard to the indicia mentioned by their Honours in the passage just cited, and the three Ebrahimi factors, the joint venture between Lawfund and Ms Ward, though incorporated in form, was in substance a partnership. Their relationship was one 'requiring mutual co-operation and a level of trust' [cf MMAL Rentals Pty Ltd (ACN 008 293 490) v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167, [71] (Spigelman CJ)]. In those circumstances, the following obligations, described by Mason, Brennan and Deane JJ in United Dominion Corporation v Brian (at 13), are imposed: That being so, the proposed participants in each joint venture were under fiduciary obligations to one another in relation to the proposed project at the time when the first of the mortgages was given and accepted. In particular, each participant was under a fiduciary duty to refrain from pursuing, obtaining or retaining for itself or himself any collateral advantage in relation to the proposed project without the knowledge and informed assent of the other participants. "The subject matter over which the fiduciary obligations" extended must be "determined by the character of the venture or undertaking for which" the relationship between the prospective joint venturers existed (per Dixon J, Birtchnell , at p 408 in a partnership context, but equally applicable here). It included the land which was the subject of the proposed joint ventures and whose purchase had been funded by moneys contributed by the prospective participants or borrowed by SPL for the purposes of the proposed ventures. By that mortgage, SPL and UDC combined to apply the property, the subject of the proposed joint venture, to their own collateral purposes in a manner which involved the obtaining of a collateral advantage for themselves and which was, both potentially and in the event, destructive of the whole interest of the other joint venturers, including Brian. In combining to apply the property to their own collateral purposes and in giving and obtaining those collateral advantages without the knowledge or consent of Brian, SPL and UDC each acted in breach of its fiduciary duty to Brian. 27 In Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384, Dixon J explained a partner's fiduciary obligation in the following terms: The relation between partners is, of course, fiduciary. Indeed, it has been said that a "stronger case of fiduciary relationship" cannot be conceived 'than that which exists between partners. Their mutual confidence is the life blood of the concern. It is because they trust one another that they are partners in the first instance: it is because they continue to trust one another that the business goes on' - per Bacon, V-C., Helmore v Smith (No . 1), 35 Ch D 436 at p 444.

33 The gravamen of Ms Ward's complaint is that Lawfund decided it no longer wished to have a relationship with her, for no better reason than that she had not from Lawfund's perspective proved a suitable fit with Lawfund's culture. She contends that that was a breach of Lawfund's obligation of good faith. However, absent special provision, a partner is not required by the obligation of good faith to remain in partnership with another, with whom it no longer wishes to be associated. The words of Buchanan JA in Johnson v Snaddon [2001] VSCA 91, [27]-[28], are apposite: [27] I think that in large measure the difficulties encountered by the appellant in formulating breaches of duty were due to the facts that his real complaint was that the partners decided that they no longer wanted him to remain a partner and said so, and such conduct did not amount to a breach of any duty owed by the respondents to the appellant. Partners are required to be honest with each other and not to pursue their own interests to the detriment of the interests of the partnership. Partners must deal with each other in good faith. Judicial statements of partners' duties have been expressed in grand terms. In the first edition of his Treatise on the Law of Partnership , Lindley said that a partner's conduct was to be tried "by the highest standard of honour". Dixon J said that "a stronger case of fiduciary relationship cannot be conceived than that which exists between partners." Cardozo J referred to the duty owed by partners to each other as "the finest loyalty." It should not be supposed, however, that partners cannot fall out without breaking their duties to each other. While partners must be worthy of each other's trust and faith, they are not obliged to continue to trust and have faith in each other's abilities. Equally, they are not obliged to continue to respect each other and to wish to remain in partnership. Rectitude is demanded of a partner, but not good manners or sympathy. A partnership is a commercial undertaking, the principal object of which is to make profits, and the partners are entitled to pursue that objective robustly provided that they act honestly with each other and do not act in their own interests where to do so conflicts with the interests of the partnership.

[28] Counsel for the appellant relied upon the duties of partners to be loyal and faithful to each other and to act with the utmost good faith and contended that those duties were breached by the respondent's conduct in pursuit of the aim of reducing the number of partners. The duties so stated are general descriptions of a number of particular duties, such as the duty not to derive a personal profit from partnership property, the duty to make business opportunities available to the partnership and the duty to reveal to partners matters that affect the affairs of the partnership. The faithfulness and loyalty required of a partner is not uncritical devotion. Partners are fiduciaries in that trust and confidence are reposed in them by their fellow partners. They must act accordingly. That is not to say that partners are obliged to continue to trust and have confidence in the abilities of their fellow partners and the value of their work for the partnership. If the partners determine that one of their number is no longer an asset to the partnership, so that they consider it is in the best interests of the partnership that the partner leave, they may embark upon negotiations for his departure without breaking any fiduciary obligation owed to him. That is essentially what the trial judge found occurred in the present case. 34 Put in terms of Ebrahimi, the equitable obligations between the parties did not oblige either to maintain the relationship notwithstanding a loss of trust and confidence in the other. Either was entitled to terminate the joint venture on reasonable notice, if not at will, and it was not a breach of the obligation of good faith for Lawfund to do so. 35 Insofar as reasonable notice was required, I am satisfied that the time allowed - in excess of one month, to 31 October 2004 - was reasonable. There are two significant indicia. First, when Ms Ward joined Lawfund Leasing, she required less than a month - from 9 September to 30 September 2002 - to make the necessary arrangements to relocate, re-structure and re-badge her business. Secondly, she was in fact able to relocate and re-establish elsewhere a week before 31 October, by which date Lawfund had proposed she vacate. 36 So far I have proceeded on the footing that the 28 September 2004 letter was a termination, or at least an attempted termination, of the joint venture. However, that is far from clear. While Mr Evans submits that it was an outright (purported) notice of termination, Mr Einstein submits that it was an offer to agree to terminate upon the terms it contained. An alternative is that it was a notice of termination, which included a without prejudice offer as to the terms on which the termination might be implemented - with the consequence that if not accepted, there would still have been a termination, but the consequences would remain to be worked out according to law, rather than by agreement. 37 As Mr Einstein, for the plaintiff, submitted, repudiation of a contract is a serious matter, not lightly to be inferred [Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 32; and see Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319, [74] and the cases there cited]. It involves the manifestation, by words or conduct, of a party's intention no longer to be bound by the contract, or to fulfil it only in a manner substantially inconsistent with his obligations [Shevill v Builders Licensing Board (1982) 149 CLR 620, 625-6]. As Atkin LJ said in Spettabile Consorzio Veneziano di Armamento e Navigazione v Northumberland Shipbuilding Co Ltd (1919) 121 LT 628 (at 634) (in a passage that was approved by Singleton LJ in James Shaffer v Findlay Durham & Brodie [1953] 1 WLR 106 (at 116-117), which was in turn referred to with approval by Walsh JA in Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126, (at 140)): A repudiation has been defined in different terms - by Lord Selborne as an absolute refusal to perform a contract; by Lord Esher as a total refusal to perform it; by Bowen, L.J. in Johnstone v Milling as a declaration of an intention not to carry out a contract when the time arrives, and by Lord Haldane in Bradley v H. Newsom, Sons, & Co. Limited as an intention to treat the obligation as altogether at an end. They all come to the same thing, and they all amount, at any rate to this, that it must be shown that the party to the contract made quite plain his own intention not to perform the contract. 38 Mere uncommunicated intention to repudiate - however firm - is not repudiation; the conduct must be such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it [Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 658]. 39 In the 28 September 2004 letter, after the opening remarks (which occupy the first page and a quarter), Lawfund wrote (emphasis added): Accordingly after weeks of difficult consideration of the history of our relationship so far and our assessment of the likely shape of it in the future, Lawfund Australia Pty Ltd has concluded that it is desirable -- we think from the point of view, probably, of both shareholders -- to end the relationship between the shareholders of Lawfund Leasing Pty Limited and wind up the company. In order to make the transition as friendly as possible and to minimise interruption to revenue streams we offer the following. This proposal is made on a without prejudice basis, with the intent that we can manage everything that needs doing without acrimony. 40 The letter then sets out the proposal under a series of enumerated headings, including: Winding up Lawfund Leasing Pty Ltd and Distributing Assets 5. We propose that Lawfund Leasing Pty Ltd cease trading on 31 October 2004 and its assets dealt with as follows: … 5.7 We would ask that you vacate the office premises by 31 October 2004. 41 The letter concludes: Whilst appreciating that I have taken a long time to come back to you … I would be grateful to hear from you as soon as possible. Again my intention is to minimise disruption, of whatever kind, to both businesses. 42 It is true that some aspects of the letter suggest that termination is a fait accompli: the statement "In order to make the transition as friendly as possible and to minimise interruption to revenue streams …" apparently assumes that there will be a termination, as does "and to help you see that this is not necessarily the end of the world", and the concluding sentence "Again my intention is to minimise disruption, of whatever kind, to both businesses". But there are other, contrary indications. Most importantly, the letter does not contain an express statement that the relationship is terminated. It is couched as an offer. Many - although not all - of its terms are expressed conditionally - "you would …". And as it invited a response, it did not purport to be the last word on the topic. The proposal that Ms Ward vacate was one of the terms of the proposal contained in clause 5; it was expressed as a conditional request and was not, as Ms Ward asserted, an eviction notice. 43 In substance, the letter conveys a strong view that the joint venture agreement should be terminated, coupled with a 'without prejudice' proposal for achieving that end and a request that Ms Ward respond as soon as possible. But it was not an absolute or total refusal to perform the joint venture agreement, nor a declaration of an intention not to carry it out, or of an intention to treat Lawfund's obligations as altogether at an end. It was not a termination, but an offer to negotiate an exit strategy. Accordingly, even if Lawfund were not entitled to terminate, the 28 September 2004 letter was not repudiatory. 44 Gilbert + Tobin replied, on behalf of Ms Ward, by letter dated 22 October 2004, which Ms Ward instructed not be delivered before 25 October - after she had removed the business from Lawfund's premises to 270 Norton Street. The reply was relevantly as follows: We have been provided with a letter from Lawfund Australia to our client dated 28 September 2004 which outlines some of Lawfund Australia's issues with our client. The letter inappropriately threatens, for no compensation and in breach of the agreement between the parties, to unilaterally wind up the Company on 31 October 2004. …

Ward : 'I am looking at sustainability. I don't always want to be doing leasing by myself. Aligning myself with one of the big mortgage aggregators would give me sustainability. I also live at the Italian Forum which as you know is only about 100 meters from you. Perhaps we can take this further.' Carrero : 'Yes, sure. Why don't you put together a model for Lawfund leasing that you think would work? The issue is how the commission would be broken up. We can use the 50%/50% model as there are….' 57 No such representation as alleged is conveyed by that conversation. Mr Carrero's acknowledgment of Ms Ward's expressed desire for a long term and sustainable relationship is not a representation that there will be such a relationship. 58 Lawfund admits having made the second alleged representation - that it was looking for someone to build the leasing business nationally, starting in Sydney. But, as a representation as to Lawfund's then state of mind, there is not the slightest reason to doubt that it was true: all the evidence points to that being exactly what Lawfund was looking for, and that it did not eventuate does not falsify the representation as one of Lawfund's existing state of mind when it was made. (Neither in pleadings nor in submissions did Ms Ward invoke Trade Practices Act, s 51A). 59 Lawfund denies having made the third alleged representation - that Lawfund would enter into and comply with the terms and conditions of the joint venture agreement. If intended as an allegation that, at the time of entry into the joint venture agreement, Lawfund thereby represented that it then had the intention of performing its obligations under that agreement - a representation as to Lawfund's then state of mind - there is nothing to suggest that Lawfund did not then entertain such an intention. If intended to convert each of the alleged contractual promises into a representation that Lawfund would comply with them in the future, so as to be a representation as to a future matter, then neither in pleadings nor in submissions was Trade Practices Act, s 51A, invoked. The better view is that if reliance is to be placed on s 51A, it must be pleaded, or at least the applicant must indicate an intention to rely on the section [State of Western Australia v Bond Corporation Holdings Ltd (1991) 13 ATPR ¶41-081, 52,279 (French J); O'Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188; (2002) 122 FCR 455]. But assuming that it was intended to rely on s 51A, nonetheless it does not follow that every contractual promise can be treated as an implied representation of the kind referred to in s 51A, as has been explained by Ormiston J in Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217, 238: If a promissory statement is to be the subject of complaint, it is also necessary to ask how did it amount to misleading or deceptive conduct. It is wrong to view every contractual obligation as an unqualified promise to perform the stipulated act. Indeed it is rare that a contractual promise is not in some way qualified by some reciprocal obligation to be performed by the promisee or by some other circumstances. If the promise induced the other party to enter into an agreement, as one can readily accept it would, then it is that promise and the circumstances then surrounding it which must be examined. The promise can only be said to be misleading or deceptive if it was in some way inaccurate; otherwise every unfulfilled mutual contractual promise will constitute misleading or deceptive conduct, a consequence which I cannot believe those who drafted the Act intended. If intention be relevant, the promise may be misleading if the promisor had no intention to fulfil that at the time it was made and accepted. If intention be irrelevant, then the promise may be misleading if the promisor had no ability to perform it at the time. If one were to go to the breach to determine whether there has been misleading or deceptive conduct, the breach may, but only may, provide some evidence from which one could infer that the promisor never intended or never had the ability to fulfill the obligation. Otherwise, if one combines promise and breach, the question must arise: in what way has the plaintiff been deceived or led into error? If it is said that he was misled into entering into the contract, then the breach is irrelevant, for that breach could have played no part in misleading him.

62 Finally, as to the alleged representation relied on in Ms Ward's submissions - that the lease finance business to be operated by Lawfund Leasing would commence in New South Wales but was to be developed into a nationwide business - it is true that the 27 August 2002 letter contains the following: As you know these arrangements are just for Sydney to start with but we are keen to grow the Leasing Division in Melbourne, Brisbane and Perth as soon as Sydney is well underway. 63 But not everything in the 27 August letter (or the subsequent communications) is a contractual term, and that paragraph - which expresses a desire to grow the business in other capitals once the business in Sydney is well underway - contains no contractual promise by either party to the other; it is an expression of Lawfund's aspiration, not of a promise. There is no basis for concluding that Lawfund did not then have that aspiration. 64 Ms Ward's misleading and deceptive conduct case is misconceived, fundamentally because it would treat expressions of aspiration and intent as promises. What were the rights and obligations of the parties upon termination of the joint venture to the name, the database and the clientele? 65 In the derivative action brought by Lawfund on behalf of Lawfund Leasing against Ms Ward, pursuant to Corporations Act, ss 236 and 237, Lawfund claims compensation (pursuant to Corporations Act, s 1317H(1)) and/or an account of profits against Ms Ward and A-Ward, for alleged contraventions by Ms Ward of Corporations Act, ss 181, 182 and 183 - in which A-Ward is said to have been a person involved in those contravention - each of those sections being a civil penalty provision [Corporations Act, s 1317E(1)]; and for breaches of Ms Ward's fiduciary duty as a director of Lawfund Leasing, in respect of which A-Ward is said to have been a knowing recipient, so as to attract accessorial liability. The contraventions alleged pertain to Ms Ward's conduct of the business of Lawfund Leasing from October 2004, culminating in the effective transfer of the business to A-Ward in August 2005. Against that, Ms Ward contends that, by carrying on the business of Probitas Leasing in competition with Lawfund Leasing after the termination in late 2005 of the joint venture, Lawfund was in breach of its fiduciary duties in relation to the joint venture, is disentitled to any equitable relief by unclean hands, and/or in any taking of accounts must bring to account the amount that has been earned by Lawfund as a result of that leasing business. These competing contentions require consideration of the fiduciary obligations of the joint venture partners in the context of an incorporated joint venture following termination and before final settlement of accounts.

70 Thus if, after termination, one partner carries on the partnership business using the capital of the other, that partner is liable to account to the partnership [Pathirana v Pathirana [1967] 1 AC 233, 240; Lindley & Banks on Partnership, 18th Edition, [16-27]], and any opportunities such as renewals of leases or contracts which arise must be exploited, if at all, for the benefit of the partnership [Chan v Zacharia; Pathirana v Pathirana; Don King Productions Inc v Warren [2000] Ch 291], although a partner may after termination set up his or her own business and develop new business in competition with the former partnership, exploiting new clients and contracts, as opposed to renewing those of the former partnership [In re David and Matthews [1899] 1 Ch 378; Don King Productions, 339, [37]]). These cases illustrate the principle that, generally speaking, on the breakdown of a partnership - and, by analogy, on the breakdown of a joint venture short of partnership, but in which there are fiduciary obligations - one partner or joint venturer is not entitled to take for itself the assets of the joint venture, including the name, the business and the goodwill [Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392, [41]]. 71 In the absence of agreement, undivided assets of a partnership that are not sold after dissolution belong to the partners in common, and neither is entitled to prevent the other from using them; this includes the firm name, so long as its continued use is not misleading [Banks v Gibson (1865) 34 Beav 566; Chappell v Griffith (1885) 53 LT 459; Burchell v Wilde [1900] 1 Ch 551; Scott v Bail [1914] VLR 270]. Whether after termination a former partner can exploit existing clientele of the partnership for his or her own separate benefit depends on whether or not the goodwill is to be sold (to a third party or to one of the partners), as explained by Bowen CJ in Eq in Alcock v Robb (1978) 2 BPR 9625 (at 9627): The right to use a partnership name is an element in goodwill. On dissolution, in the absence of express provision in the partnership agreement covering the matter, the prima facie right of the partners is to have the partnership assets, including goodwill, sold, and the proceeds applied first in discharging liabilities of the partnership and then by way of distribution to the partners. In the case where goodwill is sold following dissolution, the purchaser will be entitled not only to represent himself as the successor of those who formerly carried it on, but also to use the name, and to restrain others from using it. ... If goodwill including the firm name is to be sold, no previous partner will be entitled thereafter to use the firm name. Such a right would be inconsistent with the right of the other partners to have the goodwill sold for the common benefit of all.

On the other hand, if the goodwill is not to be sold, either because the partnership agreement contains a contrary provision, or because the partners agree on terms of dissolution which preclude its sale, or because they act in such a way, as, for example, by dividing the clients between them, as to render the sale of goodwill impracticable, then each partner may continue in business in competition with his former partners; each may represent himself as 'late of' the old firm; and each may use the old firm name, provided he does not hold out that the other members of the old firm are still in partnership with him, and does not use the name in such a way as to expose his former partners to the risk of liability: Banks v Gibson (1865) 34 Beav 566; Burchell v Wilde [1900] 1 Ch 551; Chappell v Griffith (1885) 53 LT 459; and Scott v Bail [1914] VLR 270; cf Hill v Fearis [1905] 1 Ch 466 and In re David and Matthews [1899] 1 Ch 378; and see Lindley on Partnership , 13th Ed, pp 469-70; Halsbury's Laws of England 3rd Ed vol 28 pp 560, 580, 582. 72 A case will be in the second category - that is, where the goodwill is not to be sold - if the partnership agreement provides for the goodwill to revert to the several partners on termination, as was the case in Chan v Zacharia (where cl 26 made just such provision), but not in Don King, in which Morritt LJ cited (at 333, [20]), with apparent approval, the following passage from the first instance judgment of Lightman J (emphasis added): The obligation under clause 7.2 is that the [management and promotion] agreements shall be held to the benefit of the partnership 'absolutely'. Under ordinary partnership principles, a partnership acquires an absolute interest in assets purchased or acquired or held by a partner or other fiduciary for its benefit. There is no hint, still less any clear manifestation of intention, in the second agreement that the interest of the partnership is determinable, or that there is any right of reverter in favour of Mr. Warren, on dissolution. 73 It will also be in the second category if the partners subsequently agree - upon termination - on a division of clientele between them, rather than sale [cf Metlej v Kavanagh [1981] 2 NSWLR 339, in which following the dissolution of their firm, the former partners agreed to divide the office space and carry on their separate legal practices in different parts of the premises]. 74 In the present case, clause 10 of the 27 August 2002 letter contained an indication of the parties' agreement as to what was to happen with clients upon termination - Ms Ward was to be entitled to retain the clients she brought to the joint venture, and Lawfund's members were to retain the clients they brought. The parties intended that, in the event of termination, each party be at liberty to carry on business and service that party's referral base; to establish its own business, not only to build up a new client base, but also to service existing clients. This was the type of "reverter" that was referred to but absent in the case of Don King. To that extent, the case was one of the second category referred to by Bowen CJ in Eq in Alcock v Robb. Accordingly, upon termination of the joint venture, Lawfund was entitled to establish a business under the name "Probitas", and Ms Ward would have been entitled to establish a business under the name of A-Ward, operating in the field of lease finance broking, and to exploit in Ms Ward's case the clients she had introduced, and in Lawfund's case those referred by its members, to the joint venture. But neither was entitled to carry on a business using the name, logo, goodwill and capital of the joint venture, without accounting for it, nor to appropriate the business of the joint venture for its or her own benefit. 75 The "firm name" was Lawfund Leasing. Whatever might be said of that combination, the word "Lawfund" was, of course, the name of the plaintiff, which it had used for years in connection with its mortgage aggregation business, which it continued to use during the subsistence of the joint venture, and which no doubt had goodwill attached to it. The parties obviously did not intend that Lawfund be no longer entitled to use that name - it continued to use it without objection during the period of the joint venture to October 2004 and thereafter - and cannot have intended that upon termination of the joint venture Lawfund would no longer be entitled to use it. For Ms Ward to claim it exclusively for Lawfund Leasing was entirely unjustified. The parties have reached agreement that Ms Ward should assign the registered trademark "Lawfund" to Lawfund. Although the trademark is registered not in the name of Ms Ward, but in that of Lawfund Leasing, nonetheless, in circumstances where the persons beneficially interested in Lawfund Leasing are before the Court, as is the company itself, and I am satisfied that Lawfund Leasing was not entitled to appropriate to itself the name "Lawfund" as a registered trademark. I am prepared to declare that Lawfund Leasing holds the mark upon trust for Lawfund, and to order that Lawfund Leasing assign it to Lawfund, and that Ms Ward do all things necessary on her part to produce that result.

88 Having found liability on the basis of the Corporations Act, it is unnecessary to consider whether liability in respect of the same conduct might also be supported on the basis of breach of fiduciary duty. Should Lawfund Leasing be wound up on the just and equitable ground? Or has Lawfund engaged in oppressive conduct so as to be amenable to relief under Corporations Act, s 232, and to make a winding up inappropriate? 89 Where, in a company which is in substance an incorporated partnership, in which mutual confidence has been the essence of the relationship, that confidence fails so that the "partners" can no longer work together in the way originally contemplated, then it is appropriate - and just and equitable - that the relationship be ended and the company wound up [Ebrahimi v Westbourne Galleries Ltd]. In Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294, Owen J observed (at 300-301): Where there is a breakdown in a relationship of mutual trust and confidence which was the foundation of an understanding by which the operations of the company were to be governed the court can order that the company be wound up. These have become known as the quasi-partnership cases. The reference to partnership can be misleading. The company is just that, a corporate structure. It is not necessary to show that any partnership agreement or deed was entered into before the principle can be invoked. However there are circumstances in which the relationships between the company members cannot be accurately resolved by the application of strict principles of company law. In those cases it may be appropriate to superimpose equitable considerations on legal principles to give effect to the agreement or understanding which exists between the parties. 90 I have already concluded that Lawfund Leasing is a "quasi-partnership" corporation to which the principles in Ebrahimi apply. It is manifest that the relationship of trust and confidence between Lawfund and Ms Ward, on which Lawfund Leasing was based, has broken down. Ordinarily it would follow that it would be just and equitable that the company be wound up. However, Ms Ward submitted that it would be unfair to her to make such an order, and that instead Lawfund should be required to purchase her shares at valuation. 91 Ms Ward contends that by terminating the joint venture in the manner and circumstances in which it did, and bringing winding up proceedings, Lawfund has acted in a manner prejudicial and discriminatory, and commercially unfairly, to Ms Ward. In particular, it is said that the joint venture was profitable; that Ms Ward had effectively abandoned her previous business structure and concentrated on building up Lawfund Leasing; that Lawfund had not acted fairly in presenting its genuine concerns - if it really had any - to her; that the directors of Lawfund had not acted "properly" with respect to the joint venture vehicle and Ms Ward; and that Lawfund's actions were intended to destroy the business of Lawfund Leasing and deprive Ms Ward without commercial justification, and to poison her relationship with Lawfund members. On that basis she claims, pursuant to Corporations Act, s 232, an order that Lawfund purchase her shares.

Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd & 2 ors

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Judgment (90 paragraphs)

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Cases Cited (24)

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