[2005] VSCA 27
Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218
Fysh v Page (1956) 96 CLR 233
[1956] HCA 13
Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1
[2011] WASCA 17
Twigg v Twigg [2022] NSWCA 68
Source
Original judgment source is linked above.
Catchwords
(2009) 76 ACSR 286
Edmonds v Donovan (2005) 12 VR 513[2005] VSCA 27
Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218
Fysh v Page (1956) 96 CLR 233[1956] HCA 13
Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1[2011] WASCA 17
Twigg v Twigg [2022] NSWCA 68(2022) 402 ALR 119
Twigg v Twigg (No 4) [2020] NSWSC 1159(2020) 147 ACSR 389
Warman International Ltd v Dwyer (1995) 182 CLR 544
Judgment (16 paragraphs)
[1]
Background facts
The second appellant, Mamoun Nassif (also known as Steve Nassif), and the second respondent, Jianwei Sun (also known as David Sun), pursued a joint venture for the purchase of businesses involving the exercise of management and letting rights for three resorts in Cairns known as 'Cairns One', 'The Lakes' and 'The Keys'. Each did so through a company or companies controlled by him - Mr Nassif, initially through MC 0380 Pty Ltd (MC0380) and later MU, and Mr Sun, through Sunchen. SGA was the joint venture vehicle and each party was issued 50 shares in that company. By an agreement between MC0380 and Sunchen dated 25 April 2014, each agreed to contribute up to $1.5m to the acquisition of the Cairns businesses. However, because Mr Nassif and MC0380 did not have the means to fund their contribution, Mr Nassif involved Ms Jing Feng as an investor in MU, to which MC0380 transferred its 50 shares in SGA on 15 May 2014. By a second shareholders' agreement dated 23 June 2014, each of Mr Sun and Ms Feng, then a director of MU, agreed through MU and Sunchen respectively to contribute up to $1.35m to the purchase of the businesses.
As between Ms Feng and Mr Nassif, Ms Feng was to take an interest in MU's half-share in SGA and, in respect of MU's contribution, to advance the necessary funds by way of loan to SGA. In accordance with those arrangements, between 20 June and 8 July 2014 Ms Feng deposited $1.25m into the trust account of Mr Mirotsos (Omega Lawyers), who was acting for SGA and the joint venture parties in relation to the acquisition. The settlement of the purchase of the Cairns businesses did not proceed at the end of June 2014 as first proposed. In early August 2014, Ms Feng had a falling out with Mr Nassif and decided not to take an interest in the transaction. Her withdrawal required the arrangements between Mr Sun and Mr Nassif to be further amended.
In August 2014, Mr Sun and Sunchen agreed with Mr Nassif and MU to provide three quarters of the amount to be contributed by the joint venturers, and Mr Sun also agreed to be sole guarantor of a $3.59m loan to be obtained from Westpac Banking Corporation. In exchange for those agreements, Sunchen was to hold 75% of the shares in SGA, and MU and Mr Nassif remained liable to contribute $675,000 on settlement. Reflecting this change in the proportionate interest of Sunchen, in late August 2014 25 shares in SGA were transferred from MU to Sunchen, leaving MU with 25 shares. That transfer occurred pursuant to a share sale agreement executed on 26 August 2014 (but dated 26 June 2014). Clause 4 provided that Mr Nassif would pay $675,000 as his contribution to the funding of the acquisition. That amount was never paid and some of the moneys which had been paid into SGA's trust account by Ms Feng were paid to the vendors.
The purchase by SGA of the three business was completed by 2 September 2014 for a total payment of $5.8m plus costs and fees. On 3 September, Ms Feng commenced proceedings against Mr Mirotsos to obtain repayment of $1.25m paid into SGA's trust account. In response, Mr Mirotsos paid the balance remaining in the account ($199,090) into Court and on 8 September 2014, Mr Sun paid a further $675,000 into the account to be paid to Ms Feng. Of that amount, $593,466 was so paid, and $81,534 remained in the account. The primary judge found that amount was later paid away at the direction of Mr Nassif (J[68]).
Ms Feng was "still short by $650,000… and her proceedings continued" (J[64]). As Mr Nassif was unable to fund his remaining quarter-share of $675,000, Mr Mirotsos sought to obtain that money from Mr Sun, and proposed that he compulsorily acquire MU's remaining 25 shares in SGA in accordance with the provisions of cl 11 of the June 2014 shareholders' agreement. To reassure Mr Sun as to the soundness of that proposal, Mr Mirotsos obtained an opinion from counsel. Mr Sun agreed to proceed, and Mr Mirotsos drew up the "necessary documents" (J[65]).
On 21 October 2014, Sunchen made a further payment of $575,000, which permitted Ms Feng to be repaid in full. The proposal that money would be contributed by Sunchen and that Sunchen would acquire MU's remaining shares did not have the agreement of MU or Mr Nassif; and the procedures for determination of the sale price of the shares to be compulsorily acquired under cl 11 were not followed. Clause 9.12 of the June 2014 shareholders' agreement provided that if a defaulting shareholder failed to cooperate in a compulsory transfer of shares, the directors of SGA might do "anything on behalf of the selling Shareholder that it has failed to do".
According to SGA's minutes of directors' meetings, on 21 October 2014 there was a meeting of its directors, Mr Sun and Ms Deborah Brighton. The minutes record that the transfer form had been executed on behalf of MU by SGA's directors. However, the transfer in evidence is signed by Mr Sun for MU as transferor, and for Sunchen as transferee. In suggesting in her affidavit that she signed as or on behalf of the transferor, Ms Brighton appears to be mistaken. The transfer of MU's 25 shares was lodged with ASIC, whose register recorded that from 21 October 2014 Sunchen owned all 100 of the issued shares in SGA.
Mr Sun's evidence was that in mid-September 2014 Mr Mirotsos had advised him that he could compulsorily acquire MU's remaining 25 shares because MU had not complied with its funding obligation. Mr Mirotsos also provided the opinion from counsel dated 17 October 2014 which noted that if Sunchen did seek compulsorily to acquire MU's shares "it must be careful to follow the exact procedure laid down" in the shareholders' agreement. At the time that opinion was provided, Mr Mirotsos "reassured" Mr Sun that it was "safe" to proceed with the acquisition. Mr Sun's evidence also was that Mr Mirotsos "told us what to do at the meeting". The veracity of this evidence was not challenged in cross-examination and the primary judge recites these findings at J[64]-[66].
Mr Nassif became aware on 21 October 2014 that MU's remaining 25 shares had been transferred to Sunchen (J[174]). In cross-examination, he agreed that he knew that the transfer had not been authorised by him or MU, and that "as part of that transfer" Sunchen had repaid Ms Feng her money. It followed that in reality Sunchen had made the funding contribution which was due from Mr Nassif.
In late 2014, Mr Nassif, Mr Sun and a Mr Li were shareholders and directors of SSL Development Australia Pty Ltd (SSL). Mr Nassif's interest was held through MC0380, and that of Mr Sun through Sunchen (J[28]). In November 2013, SSL had acquired a development property at Mission Beach, also in North Queensland (J[26], [28]). By November 2014, there was a disagreement between SSL's directors as to whether that property should be sold, Messrs Sun and Li in favour of selling, and Mr Nassif against. On 18 November, the three directors received a letter from solicitors acting for the company indicating that its instructions were to offer the property for sale by public auction on 27 November 2014. Responding by letter dated 25 November, Mr Nassif objected to that course, maintaining that the sale should be "cancelled". The auction sale proceeded, and SGA was the successful bidder for $1.76m (J[102]-[107]).
There was an issue as to the extent to which Mr Nassif made complaint to Mr Sun following a conversation in late November 2014 concerning the sale of Mission Beach by SSL (J[120]). The primary judge concluded that it was "unclear whether Mr Nassif, or Mr Paul McMahon on his behalf, complained to Mr Sun about the SGA share transfer between December 2014 and March 2015" (J[175]). Mr Nassif's evidence included that in December 2014, he had retained a solicitor, Mr McMahon, following the sale of the Mission Beach property (J[108]); and that Mr McMahon had made a demand or demands on Mr Sun and Sunchen in respect of that sale and the transfer of the shares in SGA. There was evidence that Mr Sun on behalf of SSL and SGA had rejected as "false and without merit" a demand for money made by Mr Nassif in December 2014, which was referred to in Mr Sun's written response as a "corporate debit demand" (J[111]).
In March 2015, Mr McMahon prepared a deed of release and settlement with respect to claims which included the "lodgement of allegedly false documents with ASIC in relation to the share transfer" and "unspecified breaches" by Mr Sun and Ms Brighton of their duties as directors of SGA (J[114]). The operative clauses proposed that 50% of the issued capital of SGA would be transferred to Mr Nassif or his nominee in return for a payment of $50 (J[116]); and one of the recitals suggested that Mr Nassif had transferred the benefit of his claims against Mr Sun to Immohold Pty Ltd, a company associated with Mr McMahon (J[115]). Finally, Mr Nassif gave evidence that in April 2015 Mr Sun had rejected such a proposal on behalf of himself and Sunchen (J[122]). Mr Sun's position remained that these conversations had never occurred (J[123]).
It is not controversial that Mr Nassif took no action to challenge the transfer of MU's shares to Sunchen until November 2018. The underlying proceedings were commenced at that time, making two claims, one against SSL and Mr Sun in respect of the Mission Beach property, and the other against SGA, Sunchen and Mr Sun in respect of the transfer of the 25 shares. The relief sought by the first claim included that 40% of the Mission Beach property was held on trust for MC0380. The only relief sought against Sunchen by the second claim was for the rectification of SGA's share register.
The purchase of the Mission Beach property, and the costs relating to its purchase, ongoing ownership and development, were funded by loans made by Sunchen to SGA (J[69]). The making of those loans was not pursuant to any funding obligation under the June 2014 shareholders' agreement. The acquisition of property for development was not within the business identified in cl 3.1 and Schedule 1 of the June 2014 shareholders' agreement as the "primary object" of SGA. That object was the management and caretaking of commercial and residential properties and the conduct of letting agencies of such properties.
In March 2018, Mr Nassif learned that an offer had been made for the Mission Beach property which valued it at $7.7m (J[73]). In the light of that evidence and the fact that the proceedings which had been commenced six months later were directed principally to securing an interest in the Mission Beach property, the primary judge inferred that Mr Nassif's motivation for doing so was to secure a share of the capital gain from any sale or redevelopment of Mission Beach (J[168]). That finding is not challenged.
In April 2018, Mr Sun caused SGA to acquire a further property at Atherton in northern Queensland for $1.1m. The acquisition of that land and the costs relating to its purchase, ongoing ownership and proposed development were also funded by loans from Sunchen (J[72]).
[2]
The underlying proceedings
The proceedings were commenced in November 2018 and eventually heard over five days in May 2021. The amended statement of claim was filed on 28 April 2021, following a directions hearing on 23 April 2021.
[3]
Directions hearing on 23 April 2021
On 18 March 2021, the primary judge directed the plaintiffs to serve any amended statement of claim by 1 April 2021. The notified amendments were not consented to, resulting in an application for leave to file an amended pleading. In support of that application, the appellants' solicitor gave an explanation for why there had been delay in proposing the amended pleading. His client had not deposited any funds to meet the expected costs and disbursements of the hearing, and the solicitor had agreed to continue to act, notwithstanding the absence of funds. The proposed amended pleading was said to raise "no new matters of fact not already in evidence". It was also said that the plaintiffs "do not propose to serve any further evidence (other than, possibly, evidence which corrects matters or explains ambiguities in the existing evidence)".
At the commencement of the directions hearing, the appellants' counsel announced that he had reached a "final position on the proposed amended pleading". There followed exchanges with respect to the relief sought, in which the primary judge referred to an earlier occasion when the appellants had sought "some sort of separation of quantum from the liability". The discussion which followed took place by reference to the current draft of the proposed amended statement of claim. A copy of that pleading was made available to this Court.
That pleading sought the following relief in relation to the share transfer:
Declarations
1. [Oppressive conduct]
2. A declaration that:
a. the transfer of 25 shares in SGA from Macquarie Units to Sunchen is void and of no effect; and
b. Sunchen holds 25 shares in SGA on a constructive trust for Macquarie Units.
Payment of shares' value
3. [Payment of fair market value of 25% of the shares by reason of oppressive conduct]
4. In the alternative to Orders 1 to 3 an order that Sunchen pay Macquarie Units equitable compensation equivalent to the value of 25% of SGA's shares.
Rectification of share register
5. Alternatively to Order 2, an order, pursuant to s 23 of the Supreme Court Act 1970, the Court's general equitable jurisdiction or ss 175 or 1324 of the Corporations Act that SGA rectify its register of members by restoring 25 shares to Macquarie Units.
6. [An order with respect to the rectification of ASIC's register]
Damages
7. Further in the alternative, damages for:
a. breach of the SGA Shareholders' Agreement; or
b. interference in contractual relations [not pressed at hearing].
Consequential orders
8. In the event of an order pursuant to Orders 3, 4 or 7, consequential orders for an assessment of loss or damage by single expert, reference out or as the Court thinks fit.
The draft pleading did not allege against Mr Sun or Sunchen any breaches of fiduciary duty or trust or of any other purely equitable obligation. Nor did it allege fraud or deceit on the part of Mr Sun or Sunchen. Accordingly, there was no pleaded basis for an award of equitable compensation in equity's exclusive or concurrent jurisdiction; and the relief sought in respect of the share register was sought in equity's auxiliary jurisdiction. The pleading did, however, allege that the unauthorised transfer of the shares involved the breach of Sunchen's duty to act in good faith under cl 3.2 of the June 2014 shareholders' agreement. It was also alleged that, in circumstances where the transfer had not been signed by or on behalf of MU, Sunchen held the transferred shares on "constructive" trust for MU.
That claim to a 'constructive trust' over the shares was justifiable to the extent that MU sought to recover title to the shares by its application for rectification of the company's register. That was an application made in aid of MU's rights at law, and alternatively under Corporations Act 2001 (Cth), s 175, which does not broaden the scope of the equitable jurisdiction to rectify a mistake in the register (see Cayenne Coal Pty Ltd as Trustee for Boardwalk Resources Trust v Whitehaven Coal Limited (No 2) [2022] NSWSC 1242 at [57] and the cases cited there by Ball J). Section 175(1) relevantly provides that a "person aggrieved" may apply to the Court to have a register kept by the company corrected. Section 175(2) enables the Court to make orders that the company compensate a party to the application for loss or damage. No such claim was made here.
MU's claim to rectification of the register was subject to equitable defences. If that remedy was refused, Sunchen would remain the owner of the shares, and, there being no relief sought in equity's exclusive or concurrent jurisdiction, MU and Mr Nassif would be left to any remedies at law or under the statute. Those remedies included for breach of contract and for restitution. The former was pleaded, the latter was not.
The principal relief sought by the proposed amended pleading was equitable compensation equivalent to 25% of the value of SGA's shares. The time at which the "the value of the shares" is to be determined was not stated. However, it was addressed and made clear during the directions hearing. The claim to equitable compensation was made in the alternative to the claim to rectification of the register, and was for loss of the current value of the shares.
In respect of any separate assessment of compensation, the primary judge asked the appellants to "let [the Court] have a copy of the order" sought. Counsel directed the primary judge to the consequential orders in para 8 of the relief sought. In response, the primary judged said "I think it has to be done as an order for separate hearing".
In its terms, para 8 provides for a consequential order in relation to the relief sought in para 4 if there is "an order that Sunchen pay Macquarie Units" equitable compensation. An order in those terms could not have been made unless the Court had been satisfied that the plaintiff had suffered some loss for which equitable compensation was payable. That interpretation of para 8 is wholly consistent with the established practice in equity that an inquiry as to the quantum of loss will only be ordered if the Court is satisfied that some loss has been suffered, and accordingly that there is some utility in doing so (see, for example, Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16 at [154] per Campbell J, who described it as "necessary" that some loss be established before it would be appropriate to order an inquiry as to the amount of that loss).
Returning to the directions hearing, the appellants' counsel then referred to orders 5 and 6, which sought the rectification of the register and a "handing back of the shares". He indicated that the appellants' "preferable case" was a "monetary case where you just get the value of the shares". That value was the "now" value of the shares, and the appellants claimed "equitable compensation" based on that value of 25% of SGA's shares. It was also indicated that the appellants would prefer that "quantification exercise" to be deferred. It could not have been controversial by this time, having regard to the increase in value of the Mission Beach property, that by May 2021 the value of the SGA shares had increased significantly; with the result that there could be no question as to whether the appellants had suffered some loss measured at that time.
The respondents' position was that they opposed the amended pleading to the extent that it "presupposes that there will be two events but… does not come or is not supported by the application or even articulation of the question which is sought to be determined separately and early". Counsel added:
we are content to consent to the amendment, if there is an amendment which is for a claim which has been fixed for all issues and the plaintiff would take its chances as to whether its claim… within the pleading, for in effect a carving out of the relief, will be ultimately accepted as an appropriate order to be made after obviously hearing from the defendant on that question… So we do have an issue about that matter.
Towards the conclusion of the argument and exchanges, the primary judge said:
[This is] … one of those cases where there's both equitable and common law relief and in such a case generally my view is that the equitable practice should prevail, that is, that quantum will be determined in a case requiring it by inquiries and accounts, and if that's going to be done then there's no point in trying to assess common law damages at the same time. The convenient course is to do it all at the same time. So, in principle, I'm disposed to allow the plaintiff to make the amendments to the pleadings and I haven't heard any more opposition to any of the details of it. However, having said that, there are some loose ends. One of them is that I think the plaintiff ought to have a crack at saying just what the nature of the inquiry as to what the quantum ought to be. It ought to be clear from what the plaintiff is saying, or, rather, the pleading should reflect what I've been told today, namely, that the plaintiff's principal case is a case in equity which involves the assessment of quantum according to the now value of the shares but making some allowance for contributions to the now value which may have resulted from activities of the defendants after the purported transfer took place.
I also think that something needs to be done about formulating the separate hearing order to accommodate that and particularly I'm not quite sure how it can be done but dealing with the tort claim, if it's going to stay in.
I suppose the defendant might be prepared to agree that some damage has been suffered if it is shown there's been wrongful conduct, then the loss of the shares has resulted in some damage to the plaintiff and, if the defendants were prepared to agree that, then it would be possible for the quantum of that agreed damage to be dealt with if that issue arose at a separate hearing.
(Emphasis added.)
Responding to a further suggestion of the appellants' counsel that the order for separate determination might more conveniently be dealt with in the pleading, the primary judge noted:
No, it shouldn't be in the pleading because it sort of stands outside the pleading. The pleading is a statement of all of the relief that you seek.
The order [for the assessment of quantum] should be separate but I don't want to hold things up for the order because it could be a bit tricky. I think if you can't agree on something which you're confident is going to pass muster, then I will deal with it just at the trial. As a matter of principle that that approach is agreed, no-one is going to waste any more money from here on in bringing on evidence about quantum.
(Emphasis added.)
At least the following matters were clear from these exchanges. First, equitable compensation was sought for loss of the current value of the SGA shares, no doubt making some allowances for the financial and other contributions made by the respondents to the value of SGA since the transfer. Secondly, the appellants were to prepare a draft order providing for an assessment of such compensation. Thirdly, if it was agreed that some damage had been suffered, then its quantum could be dealt with at a separate hearing. Fourthly, if the parties could not or did not agree on the terms of that order, the primary judge would have to "deal with it… at the trial", and do so consistently with the prevailing equitable practice when ordering inquiries as to compensation or damages.
No such order was subsequently proffered or made in relation to the assessment of equitable compensation or common law damages.
[4]
The pleaded claims and defences
On 28 April 2021, the amended statement of claim was filed. The relief sought included:
Declarations
1. A declaration that:
a. the transfer of 25 shares in SGA from Macquarie Units to Sunchen is void and of no effect; and
b. the transfer of 25 shares in SGA is liable to be rescinded.
Payment of shares' value
2. An order that Sunchen pay Macquarie Units equitable compensation.
Rectification of share registers
3. Alternatively to Order 2, an order, pursuant to s 23 of the Supreme Court Act 1970, the Court's equitable jurisdiction or ss 175 or 1324 of the Corporations Act that SGA rectify its register of members by restoring 25 shares to Macquarie Units.
…
Damages
5. Further in the alternative, damages for:
a. Breach of the SGA Shareholders' Agreements; or
b. Interference in the contractual relations.
Consequential orders
6. An inquiry into:
a. the equitable compensation payable by Sunchen pursuant to Order 2; and
b. damages payable by Sunchen or Sun pursuant to Order 5.
The tortious claim for interference with contractual relations between Mr Nassif and Ms Feng was brought against Mr Sun and abandoned at the hearing (J[15]). That left only the common law claim to damages which were to be assessed at the time of breach, being the transfer. Otherwise, the primary judge described the appellants' claims as finally made at J[16]:
The plaintiffs seek declarations that the purported transfer of the twenty-five shares in SGA from MU to Sunchen is void and of no effect, and that the transaction is liable to be rescinded in equity. Alternatively they seek an order that Sunchen pay MU equitable compensation in an amount equal to the value of the shares. If they are unable to obtain relief in equity, they seek to recover the value of the shares by way of restitution or damages for breach of contract.
His Honour's description of the transaction as liable to be "rescinded" in equity is, taking account of the words which precede it, to be understood as to the application for the order rectifying the register of members of SGA. The term 'rescission' is used in a number of different senses (as to which, see Heydon, Leeming and Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) at [25-005]ff; and Heydon, Heydon on Contract (2019, LawBook Company) at [31.20]-[31.70]). However, none of those senses describes the rectification of a company's register of members.
Although the executed transfer purports to evidence an agreement to transfer the shares for a consideration of $25, it was not contended by either party that there was in fact such an agreement. The position was that as an instrument of transfer the document was void and of no effect. It had not been signed by or on behalf of the transferor, MU. Nor had the act of signing been subsequently ratified. That being the position gave rise to an equity entitling MU to a mandatory injunction requiring SGA to amend its share register so that it accurately recorded the name of the person entitled to be registered as owner of 25 shares (see Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1; [1950] HCA 54; and Savage v Lunn [1998] NSWCA 203 at pp 24-25 (Sheppard AJA, Handley and Sheller JJA). As to the nature of the mandatory injunction, see Burns Philp Trust Co Pty Ltd v Kwikasair Freightliners Ltd (1963) 63 SR (NSW) 492 at 497-498 (Sugerman, Hardie and Collins JJ)).
As Fullagar J explained in Grant v John Grant & Sons at 51-52:
The power to order rectification of the register must clearly, I think, be in all cases discretionary. The person claiming rectification must show that he has some equity which the court will protect. If he is a shareholder, then prima facie he shows such an equity if he establishes that a name is wrongly included in or omitted from the register of his company. Some definite reason must be shown, I would think, for refusing rectification before rectification will be refused. But there may be circumstances which justify, or even compel, refusal… But the power of a court of equity to order rectification is no more and no less than a part of its general jurisdiction to "act in personam" in aid of a legal right, and it must be subject to the same principles which apply generally to equitable remedies… But the position cannot be different if it is the general equitable jurisdiction of the court that is invoked. Equitable remedies are not, generally speaking, granted unless the court is "satisfied of the justice of the case".
Thus, in a case such as the present, there are three necessary parties, the company, the party claiming the legal entitlement under the company's constitution to be registered as a shareholder, and the party whose name is said to be wrongly registered. The onus is then upon the person asserting the right to be on the register to prove that entitlement in respect of the shares, as is made clear in the passage from Lindley, The Law of Companies (6th ed, 1902, Sweet and Maxwell) at 78-9, which is extracted in Savage v Lunn at 24-25.
At this point, two further observations should be made. First, the prayers for relief make clear that the claim to equitable compensation is in the alternative to the claim to rectification of the share register. The basis on which that claim in equity's exclusive jurisdiction was made remained unclear and unstated. Secondly, the appellants' remaining claim was for breach of contract. His Honour's reference to a claim to recover the value of the shares by way of restitution is not to any pleaded claim. Nor is it to a claim which was raised or formulated by the appellants' counsel. It was ultimately addressed by the primary judge at J[186].
By their defence to the amended statement of claim, the respondents pleaded that the claims to rectification of the share register and to equitable compensation should be refused on grounds that included that the appellants had delayed in bringing the proceedings in circumstances where that delay and acquiescence had resulted in prejudice (paras 31 and 29); and that the appellants had not made any sufficient offer to do equity (para 33). In relation to the claim to damages for breach of the June 2014 shareholders' agreement, the respondents denied any such breach (para 26). There was no express denial of any liability for damages caused by that breach, there being no express allegation that damages had been suffered.
[5]
The closing written and oral arguments
The appellants' closing written outline of argument did not address the subject of remedies.
The respondents' outline referred to MU's case as seeking "compensation calculated by reference to assets which were acquired by SGA without MU or Mr Nassif having contributed any money, loan security or other contribution to those acquisitions". It then addressed the various equitable defences to the claim to rectification of the register. Having done so, the respondents submitted:
75. Any equitable compensation payable to MU for Sunchen receiving title to the remaining 25 SGA shares on 21 October 2014… cannot equitably exceed the value of those shares as at 4.00pm on 27 June 2014. As at that valuation date, the bundle of rights and obligations comprising those 25 shares included the obligation to fund (proportionately) the capital requirements of SGA, the relevant proportion being $675,000 (50% of the $1.35 million amount specified in the Shareholders Agreement).
76. Alternatively, any equitable compensation payable to MU needs to take into account clause 3.0 of the 26 August Agreement [CB408] which in effect quarantined the 25 shares. And given that MU did not pay the $675,000 clear funds, the net value of the 25 SGA shares pursuant to clause 3.0 of the 26 August Agreement is zero.
(Emphasis added.)
With respect to the claim for breach of contract, the respondents submitted in relation to damages:
81. In any event, MU has failed to establish that it suffered any loss as a result of any such breach of contract. Sunchen was entitled to receive those shares either by operation of the Side Agreement (without payment) or pursuant to clause 11 of the Shareholders Agreement (but with the machinery in clause 11 followed, being at a price equal to the value of the shares at 4pm on 27 June 2014). The Plaintiffs' have not established nor is there any basis for inferring, that such value is anything other than nominal. Shares are a bundle of rights and obligations. The relevant SGA shares included the obligation to fund a proportionate share of SGA's capital requirements, an obligation which remained completely undischarged by MU. It would also be necessary for MU to give credit for the benefit received by MU as a result of the unauthorised transfer of the 25 shares, namely the $575,000 which Sunchen paid on 21 October 2014.
In their oral argument, the respondents submitted that laches was made out and was a "complete defence to equitable relief", the primary judge responding "It's an answer to everything". This further exchange followed:
HIS HONOUR: It's perhaps less easy to see why that should prevent the Court from awarding equitable compensation. However, as I've said to you, I understand the defence, and I'll hear if there's any response from Mr Kirby on this. I understand the defence to be a defence to any equitable relief at all… and I understand it to apply whether one seeks rescissionary style relief or pecuniary.
KIDD: Yes. Now, we certainly rely upon it in that way. It certainly applies with very significant force in relation to the claim for reinstatement - return of the shares.
Counsel for the respondents then made submissions concerning the question of equitable compensation and whether the appellants had suffered any loss:
Just in relation to equitable compensation, our position is that, I think we've tried to say this in para 75 and 76, we've got alternative arguments. One is that any compensation shouldn't exceed the value of the shares as at 27 June 2014, because that was the date when the offer was made, and entitlement to buy the shares valued as at that date arose. The correct procedures weren't followed, but that's the relevant loss, but, as I think I've said earlier, that value would be a value which would need to take into account the obligation to pay the $675,000 amount, and para 76, based upon the terms of the 26 August agreement, which, effectively, quarantined the shares, but, of course, involved a payment of $675,000, which Macquarie Units did not make, then under that contract your Honour could conclude on the evidence before your Honour that the net value of those shares is zero. Our submission is the evidence indicates there's no loss, but even if we're wrong about that, the evidence doesn't enable your Honour to quantify loss otherwise, and no order for separate determination has been sought or made in circumstances where the proceedings were commenced some two and a half years ago were fixed for hearing on all issues, I think, in the middle of last year, nine months ago, and here we are hearing all issues and the plaintiffs just haven't put on evidence to establish any loss.
(Emphasis added.)
As to the relief sought, counsel for the appellants submitted as follows. The shares were taken on 21 October 2014 and the equity is either to restore them or to pay equitable compensation for their true value. If the appellants are "entitled to relief then that [being the $81,534 apparently paid away to Mr Nassif] is a matter which can and no doubt should be followed up in an accounting" for equitable compensation. The primary judge asked what form of accounting, emphasising that account and compensation were different things. Counsel responded, agreeing that if the Court was not satisfied that "restitution" (meaning rectification of the register) was possible, his client should receive equitable compensation. There was again reference to the amount of $81,534 as relevant to the equitable compensation otherwise payable, at which point the primary judge commented "so it'd be sorted out in due course", with which counsel agreed. The primary judge then inquired whether the Court could "fix the amount of the compensation in this hearing", to which the appellants' counsel responded "yes". There was no submission made in this Court addressed to whether this transcript correctly recorded counsel's response.
It is significant that there was no response by the appellants' counsel to the respondents' submission (see [47] above) as to the absence of any order for a separate inquiry as to damages and as to the appellants not having suffered or proved any compensable loss measured at the date of the transfer. The absence of such a response is consistent with the appellants having taken the position that they could not establish loss as at that date, which might explain why, as appears immediately below, their claim to common law damages measured at the time of transfer was abandoned.
The following exchanges occurred at the very close of the oral argument:
HIS HONOUR: Where are you on whether you're asking me to decree rescission as distinct from order equitable compensation?
…
KIRBY: By rescissionary relief, your Honour means real restitution, that is -
HIS HONOUR: A declaration that the transfer was void and order that your client Macquarie Units be restored to the register as an owner of 25 of the units subject to compliance with whatever I might find is necessary to do equity.
…
HIS HONOUR: … I wouldn't make the declaration that it's void without then making a consequential order so as to ensure that the legal position reflected the state of affairs declared in them.
KIRBY: Yes, well, my clients press… rescission.
The primary judge inquired as to the conditions to which the appellants would submit if the register were to be rectified as sought. They were: (1) the payment to Sunchen of $675,000 together with interest from 26 August 2018; and (2) the transfer of the Atherton property to a "freshly established company". There was no condition proffered in relation to the Mission Beach property, which was to remain an asset of SGA and accordingly to be taken into account in an assessment of equitable compensation for loss of the value of the shares.
Finally, his Honour commented and asked counsel: "Now, you didn't mention anything about damages for breach of the duty of good faith. I assume that's dropped out of the case." The transcript then records his Honour saying: "All right. Thank you. So, that means I don't need to hear you in reply on that issue, Mr Kidd."
[6]
Decision of the primary judge
With respect to the pleaded defences outlined at [43] above, the primary judge upheld the laches defence (J[169]-[175]). It followed that the claim to rectification of the register, referred to in the reasons as MU's claim to "rescission", was dismissed.
There remains the question whether his Honour also upheld that defence in relation to MU's claim to equitable compensation. The primary judge said at J[179]-[180]:
But the argument before me took place on the assumption that if the defence of laches were established, it would prevent the grant not only of relief in the nature of rescission, but also the grant of any other equitable relief, including equitable compensation. At the end of the argument I expressly reminded the parties of this, and there was no demur from counsel for the plaintiffs.
On reflection, there may be room to debate this as a matter of principle. It is one thing to say that a delay can cost a plaintiff the right to obtain rescission of a transaction, and recovery of an asset transferred in the transaction, if other dealings affecting the nature and value of the asset have intervened. It is less clear why that delay should prevent a later claim being made for compensation, at least if that claim is confined to the value of the asset at the date of the transaction.
(Emphasis added.)
The exchange at "the end of the argument" is extracted at [47] above. The primary judge correctly records that there was no submission from the appellants' counsel that the laches defence would not apply equally to his client's 'alternative' claim to equitable compensation for loss of the current value of the shares. No claim to equitable compensation by reference to the value of the shares at the date of transfer was made.
His Honour found, as was submitted by counsel for the respondents, that the laches defence also prevented the granting of equitable compensation for the loss of the current value of the shares. As his Honour observed at J[180], that claim would necessarily take into account any "dealings affecting the nature and value" of the company and its shares between the date of transfer and the date of the hearing, reflecting the financial and other contributions by Mr Sun and Sunchen during the period of delay. There was no basis in principle why the laches defence should not equally apply to that claim. If it had not been barred by laches, the primary judge would have had to consider whether the appellants had proved some loss. He did not do so in relation to this claim.
His Honour addressed instead a claim to equitable compensation for loss of value of the shares at the time of transfer. In their written outline, the respondents contended that at this time the shares had "zero" value, although they supported this contention by a different analysis to that adopted by the primary judge (see [46] above). Leaving open the question whether laches provided a defence to such a claim, the primary judge addressed and accepted the submission that there was no loss suffered or proved. The $5.8m price for the three Cairns assets represented the fair market value of those assets at the time of their acquisition. As they were SGA's only assets and the acquisition was 100% funded by borrowings from Westpac and Sunchen, SGA's net value at the date of transfer (and thus the value of the shares so transferred) was no more than nil.
Next, his Honour considered MU's claim to damages for breach of contract, as well as a common law restitutionary claim for 'wrongful appropriation' of the shares. In relation to the latter cause of action, his Honour said at J[186]:
In my view, the most straightforward common law remedy available in the present case would be an action for restitution of the value of the shares as at the date they were acquired without authority (together with interest at statutory rates from that date). If instead of transferring the shares a payment of MU's money had been made without its authority, there would clearly be an action for money had and received. Historically there was no action for "property had and received" but as a result of the abolition of the restrictions inherent in the old forms of action, that should not be an obstacle to the bringing of a restitutionary cause of action. I set out my reasons for these views in Akierman Holdings Pty Ltd v Akerman (No 2) [2020] NSWSC 970 at [78]-[82].
Strictly speaking, it was not necessary for the primary judge to consider either of these claims, one of which was abandoned, and the other not made (see [52] above). However, addressing the respondents' submission that there was no loss and implicitly acknowledging that a restitutionary claim had not been made, the primary judge continued at J[187]-[188]:
… Even if no restitutionary cause of action were available, however, that would make no difference. The acquisition of the shares without properly going through the procedure laid down in the shareholders' agreement would appear to have been a breach of contract, with the same consequence.
On my findings, MU would be entitled to recover the value of the shares when they were wrongly appropriated by Sunchen, if it could be proved that the shares had substantial value. But for reasons I have already given, this has not been proved. MU's claim in restitution (or for damages for breach of contract) fails.
In the result, the primary judge dismissed the claim to rectification of the register and the alternative claim to equitable compensation by reference to the current value of the shares, in each case as barred by laches. The remaining claim to common law damages measured at the time of breach was abandoned, and also dismissed on the basis that the shares had only no more than a nominal value at that time.
[7]
Grounds of appeal and contention
There are four substantive grounds of appeal.
Ground 1 challenges the finding that the claim to rectification of the register was barred by laches. It assumes that the primary judge did not find that laches was also a defence to the appellants' claim to equitable compensation for loss of the current value of the shares. Contention 7 of the respondents' amended notice of contention proceeds on the same basis, submitting that the primary judge should have made such a finding.
Ground 2 is that the primary judge erred in dismissing the claim to equitable compensation because the appellants had failed to establish that the shares had some value at the time of their transfer. The immediate difficulty for this ground is obvious in the light of the foregoing analysis. It does not recognise that the appellants' claim to equitable compensation was to compensation measured at the time of the hearing rather than at the time of transfer, and that only the latter was dealt with by his Honour at J[180]-[184]. Furthermore, it does not proceed on the basis that the primary judge has found at J[178] and [179] that the equitable compensation claim made was also barred by laches.
Assuming the primary judge has held that the laches defence applied to the appellants' equitable compensation claim, this ground is not dispositive of that claim unless his Honour erred in doing so. If his Honour erred in upholding the laches defence, there would arise on the appellants' alternative claim to relief questions as to whether there was any entitlement to equitable compensation, and if there was, as to the assessment of that compensation; but only if for some reason discretionary relief by way of rectification was not granted. All of this suggests that there is little or no utility in addressing this ground. Nevertheless, I will do so shortly because of the suggestion that the appellants were denied procedural fairness.
Ground 3 is that the primary judge erred in finding that a sum of $81,534 was paid out of the SGA trust account to Mr Nassif or at his direction (J[68], [159]). This ground could only have significance if the appellants succeed on ground 1, in which case the proceedings would be remitted for the determination of the grounds on which equitable relief might be granted. The respondents contended that Sunchen had paid moneys into the trust account in order to enable Ms Feng to be repaid, and that this amount, representing the balance after those moneys were paid, should have been reimbursed to Sunchen. Whether or not the $81,534 was paid out of the trust account on Mr Nassif's instructions was not decided as an essential step in the primary judge's reasons for dismissing the appellants' claims as barred by laches. It follows that the finding as to the payment out of this money did not give rise to an issue estoppel which could be relied on in any subsequent hearing in the event that ground 1 is successful. For that reason ground 3 does not arise.
Ground 4 is that the primary judge erred in finding that in the event MU was entitled to rectification of SGA's share register a condition of that relief should be that Sunchen be paid one-quarter of the current value of SGA (J[167]). This question only arises if ground 1 is upheld. In that event, there would be no issue estoppel in respect of the imposition of this condition because, as his Honour makes clear at J[168], he made no finding to that effect as part of his reasons for rejecting the claim to rectification of the register (J[168]). Accordingly, ground 4 also does not arise.
There are six grounds of contention. Contention 1 is not pressed. Contention 7 falls to be considered with ground of appeal 1.
Contentions 2, 3, 4, 5 and 6 only arise if the appeal is upheld on ground 1.
It is convenient first to address ground of appeal 2, and then to consider ground 1 with contention 7.
[8]
Disposition of ground 2 (denial of procedural fairness and failure to prove some loss)
[9]
Procedural fairness
The appellants contend as follows. First, it is said to be apparent "from the transcript and [their] submissions below" that the appellants were conducting their case on the understanding that the Court was not going to determine the quantum of any loss suffered as part of the hearing. Secondly, it is said that the pleading as amended "expressly specified" that such an inquiry was sought. Thirdly, it is said that there was no concession by the appellants that the hearing below was dealing with "all issues including quantum". Finally, it is said that the appellants were seeking inconsistent remedies and ought not to have been required to make an election between those remedies until the giving of judgment on liability issues.
The principal difficulty for this argument is that the primary judge did not dismiss the appellants' claim to equitable compensation for loss of the value of the shares at the time of the hearing on the basis that they had failed to prove some loss. The claim rejected on that basis was a claim to compensation measured at the date of transfer. Such a claim was not made by the appellants or referred to during the directions hearing on 23 April 2021. Rather, counsel for the appellants confirmed that their "equity" was to be satisfied either by restoring them as registered owners of the shares or awarding compensation by reference to the "now" value of the shares. There could be little or no controversy as to the appellants being able to establish some loss measured on that basis. The evidence suggested that the value of the Mission Beach property had increased from $1.76m to $7.7m (J[69], [73]).
The appellants' argument is not assisted by reference to the final form of the pleading and its claim to "Consequential orders". First, at the directions hearing, the Court made plain that the nature of any separate inquiry or hearing as to damages should not be dealt with in the pleading. His Honour also made clear if that did not occur that he would deal with that matter and in accordance with established equitable practice. Secondly, the relief sought as framed adopted that practice. The consequential orders were for inquiries as to any equitable compensation or damages "payable" by Sunchen, thereby presupposing that some compensation was payable, and requiring that be established so as to engage the consequential orders.
Whilst no formal concession was made that the appellants were dealing with all issues, the transcript of the directions hearing and pleadings are wholly consistent with the appellants proceeding on the basis that they had to prove some loss to justify any inquiry as to compensation or damages. The pleadings provided that some loss had to be established to engage the consequential orders; and the primary judge had made clear that in the absence of any orders he would apply the equity practice.
Most significantly, the appellants' counsel made no response to the respondents' submissions in final address as to the absence of any order for a separate inquiry and as to the appellants not having proved any compensable loss measured at the time of the transfer (see [48] above). The absence of any response should be taken as acknowledging that the hearing was proceeding on that basis. That did not present any difficulties for the appellants in the way their "now" value equitable compensation claim was made. Finally, that the appellants abandoned their claim to damages for breach of contract was consistent with an appreciation of the difficulties which that claim presented in proving any loss at the date of transfer.
For these reasons, there was no denial of procedural fairness or prejudice to the appellants in the way the primary judge dealt with their claims to equitable compensation and damages for breach of contract.
[10]
Findings that appellants had not proved loss
The primary judge was not satisfied that, at the time of their transfer, the shares had some value, the onus of proving that being upon the appellants. At J[184], his Honour's reference to the shares having "substantial value" is to be understood in the sense of the shares having some value as distinct from a nominal value. The question was whether his Honour was satisfied that the company, and thus the shares in it, had some value as at October 2014 when the transfer occurred.
The evidence indicated that the $5.8m sale price was struck following an 'expressions of interest' campaign, assisted by a comprehensive information memorandum for the three resorts, each sold as a going concern. On the face of it, that price represented the fair market value for the assets at the time of acquisition, notwithstanding that they were being sold in circumstances where the vendors had receivers and managers appointed and were in liquidation. In the absence of any other evidence as to the value of those assets, there being no suggestion that there were any assets at that time other than the three Cairns businesses, the primary judge is not shown to have erred in not being satisfied that the appellants had discharged their onus.
Ground 2 should be dismissed.
[11]
Disposition of ground 1 and contention 7 (laches and application to claim to equitable compensation)
[12]
Relevant principles
Equitable defences are available to a claim to rectification of a company's register, whether sought in the Court's equitable jurisdiction or under statute (Savage v Lunn at 24, 27). Such relief will be refused on the ground of laches in any circumstances where the plaintiff's delay would make it unjust to grant the relief sought.
In the words of Lord Selborne LC in Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 239-40:
Now the doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material… Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.
(Emphasis added.)
As Lord Selborne LC makes clear, this doctrine comprehends two themes as noted by Murphy JA (McLure P and Buss JA agreeing) in Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291; [2011] WASCA 17 at [635]: "One is delay implying not just quiescence, but rather acquiescence and assent, and the other is delay involving prejudicial change of circumstances".
The present case is of the latter kind, as the primary judge's analysis at J[169] makes clear:
Counsel for the defendants pointed out that, on the evidence, Mr Nassif was aware of the acquisition of MU's shares in SGA, and that this had been done without his authorisation or consent, since almost immediately after it had happened. Yet he delayed for more than four years in bringing proceedings, and in the meantime allowed Mr Sun to bear all of the risk and do all the work required to build up the value of SGA.
In order to make out that defence it is not sufficient for a defendant to establish that a plaintiff has delayed in prosecuting its claim. It must also be established that the delay has allowed a situation to arise which it would be unjust to disturb.
[13]
Delay
The notion of "delay" in commencing proceedings presupposes that a diligent plaintiff sufficiently apprised of the facts and their rights would have commenced proceedings at some earlier stage. As Brereton JA observed in Twigg v Twigg [2022] NSWCA 68; (2022) 402 ALR 119 at [86], "for laches to bar an equitable claim, the plaintiff must first possess 'sufficient knowledge of the facts constituting the title to relief'".
Here, it was accepted that Mr Nassif had such knowledge from the outset. The primary judge found that he became aware of the unauthorised transfer of MU's shares to Sunchen on the date that occurred, 21 October 2014 (J[174]).
Before the transfer MU held 25% of the shares in SGA, notwithstanding that neither the company nor Mr Nassif had made any contribution by way of loan to SGA's acquisition of the Cairns businesses. Under the share sale agreement executed on 26 August 2014, Mr Nassif and MU were liable to contribute $675,000 to the funding of the purchase. They did not do so. Nor did they make any payments to Mr Sun and Sunchen for their further contribution of $575,000, most of which was applied to enable repayment to Ms Feng, some of whose funds were used on completion of the purchase.
In the result, Mr Nassif had made no contribution by way of loan or otherwise to SGA's acquisition of the businesses. Mr Sun had also received advice from counsel that in this state of affairs it was "safe" for Sunchen to proceed with a compulsory acquisition of MU's remaining 25 shares.
[14]
Prejudice
Whilst mere delay is not itself a bar to equitable relief, equity assists the diligent, not the tardy. As Lord Blackburn said in Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1279:
… a Court of Equity requires that those who come to it to ask its active interposition to give them relief, should use due diligence, after there has been such notice or knowledge as to make it inequitable to lie by.
That case involved a claim to rescission of a contract for the sale of a mining property made in breach of fiduciary duty. Applying that doctrine, Lord Blackburn also said (at 1281):
If I thought the shareholders had been waiting to see how the market ruled it might have made a difference in my opinion. If no steps to repudiate a purchase of a lottery ticket were taken till after the ticket came up a blank, so that the purchaser, if it came up a prize, might have kept it, it would surely be inequitable to set aside the contract then. And though not nearly so strong a case, such delay seems to be somewhat of that nature.
The same doctrine was applied in Fysh v Page (1956) 96 CLR 233; [1956] HCA 13, which involved the transfer of farming land to a fiduciary where the value of the land had more than doubled before proceedings were commenced 13 years later. At 243, Dixon CJ, Webb and Kitto JJ, citing the same above observation of Lord Blackburn in Erlanger, said:
If a plaintiff establishes prima-facie grounds for relief the question whether he is defeated by delay must itself be governed by the kind of considerations upon which the principles of equity proceed. If the delay means that to grant relief would place the party whose title might otherwise be voidable on equitable grounds in an unreasonable situation, or if, because of change of circumstances, it would give the party claiming relief an unjust advantage or would impose an unfair prejudice on the opposite party, these are matters which may suffice to answer the prima-facie grounds for relief.
As is noted in Meagher, Gummow and Lehane's Equity: Doctrine and Remedies (5th ed) at [38-045], mining cases have traditionally been treated as calling for promptitude in the making and prosecuting of equitable claims. Another example is Clegg v Edmondson (1857) 8 De GM & G 787 [44 ER 593], where the plaintiffs were excluded from participating in a mining lease and took no active steps to enforce their right to do so for nine years. With respect to that claim, Knight Bruce LJ observed in a much-cited passage:
A mine which a man works is in the nature of a trade carried on by him. It requires his time, care, attention and skill to be bestowed on it, besides the possible expenditure and risk of capital, nor can any degree of science, foresight and examination afford a sure guarantee against sudden losses, disappointments and reverses. In such cases a man having an adverse claim in equity on the ground of constructive trust should pursue it promptly, and not by empty words merely. He should shew himself in good time willing to participate in possible loss as well as profit, not play a game in which he alone risks nothing.
In Rowe v Oades (1903) 3 CLR 73, the plaintiff had executed a transfer of shares in a goldmining lease on the basis that the defendant would transfer the shares back if requested to do so at a certain price. Four years after the plaintiff unsuccessfully requested the retransfer of the shares, he sought a declaration that they were held on his behalf. The plaintiff's action failed, Barton J observing at 79-80:
Even if he had established, as he has not done, a constructive trust, then he would have been rightly met by reasoning similar to that with which the plaintiff was met in [Clegg v Edmondson].
The defendant fiduciary in Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18 diverted part of an agency business which involved the distribution in Australia of gearboxes manufactured in Italy. A claim to an account of profits was made and the defendant raised defences of estoppel, laches, acquiescence and delay. In considering the application of those defences, the Court adopted the distinction drawn by Upjohn J in In re Jarvis [1958] 1 WLR 815 at 821 between delay in pursuing a remedy in a case where a "specific asset is acquired" and one in which a "business is acquired and operated".
In In re Jarvis, an executor continued to carry on a business from leased premises in circumstances where the business and leasehold interest had belonged to her deceased father and had been left to her and her sister. The sister stood by and observed her sibling running the business and incurring debts and liabilities for six years before commencing proceedings. At 821, in addressing a laches, acquiescence and delay defence, Upjohn J said in the passage referred to above:
In dealing with the business, the principles applying are quite different from those in the case of a specific asset, such as a renewed lease. The principle was stated in Clegg v Edmondson by Knight Bruce LJ… (citations omitted.)
Before referring to and relying on the doctrine applied by Knight Bruce LJ and Upjohn J, in Warman International v Dwyer the Court (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ) said at 559-561:
Although an account of profits, like other equitable remedies, is said to be discretionary, it is granted or withheld according to settled principles. It will be defeated by equitable defences such as estoppel, laches, acquiescence and delay…
The conduct of the plaintiff may be such as to make it inequitable to order an account. Thus a plaintiff may not stand by and permit the defendant to make profits and then claim entitlement to those profits.
…
But a distinction should be drawn between cases in which a specific asset is acquired and cases in which a business is acquired and operated. Such a distinction was drawn by Upjohn J in In re Jarvis (dec'd) in the context of considering a defence of laches, acquiescence and delay. However, in our view, the distinction is also relevant in the context of the fiduciary's liability to account for profits…
(Citations omitted.)
In Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27, there was a joint venture between six parties, two of whom later undertook a separate venture which the remaining four parties claimed involved the use of a business opportunity of the original venture. Proceedings were brought for an account of the profits nearly two years after the conduct complained of, which involved the purchase of golf course. Phillips JA (Winneke P and Charles JA agreeing) said of that claim and the laches defence at [76]:
First, there was the matter of delay; for there was no reason for the respondents to have waited so long before attempting to intervene in the appellants' exploitation of what they now say was "stolen". Such delay smacks of their "waiting to see" and then, when the venture proved profitable, acting opportunistically to grasp the benefit. In short, I consider that too much time had passed to justify a simple accounting: the respondents had waited too long before asserting an overriding interest in the appellants' pursuit of the common enterprise.
Finally, in Crawley v Short [2009] NSWCA 410; (2009) 76 ACSR 286, this Court upheld the primary judge's holding that the plaintiff's claim was barred by laches. Young JA (Allsop P and Macfarlan JA agreeing) at [177]-[180], having referred to most of the decisions cited above and others, confirmed the need for promptitude in the making and prosecution of equitable claims in respect of subject matter involving commercial risks. In that context, his Honour observed at [179] that "in other cases, where there was no volatile commercial property involved, equity has been more tolerant of delay", citing Hatch v Hatch (1804) 9 Ves 292 [32 ER 615].
The primary judge, having correctly observed that the "the authorities clearly show that the length of the delay required to establish the defence of laches depends on the nature of the claim, and where the claim is to a speculative asset the margin for permissible delay is short" (J[172]), referred to the shares in SGA as being equivalent to "volatile commercial property" of the kind described by Young JA in Crawley v Short at [179].
His Honour also found that Mr Nassif's motivation for bringing the proceedings was so that he and MU could share in the significant capital gain which the evidence suggested had been made in the four years since the Mission Beach property was purchased (J[168]). That gain was up to $6m (J[69], [73]).
The length of the delay on the part of the appellants was four years. During that period, Mr Sun and Sunchen oversaw the operation of the three related Cairns businesses. Those businesses carried the risk of profit or loss, and whilst the evidence does not suggest that there were any significant losses, Mr Sun and Sunchen took that risk on the understanding that they were the sole owner of SGA. Mr Sun's evidence was that during the period of four years he acted on the basis that Mr Nassif and MU were not entitled to make, and were not pursuing, any claim to an interest in the share capital of SGA; as was confirmed by Mr Nassif's conduct from at least March 2015 (J[175]).
The Mission Beach property was purchased less than a month after the transfer of MU's shares to Sunchen. The acquisition of that property was outside the primary business to be carried on by SGA under its earlier shareholders' agreement. Mr Sun's evidence was that had he been aware of any claim of MU or Mr Nassif to an interest in the shares, he would not have acquired the Mission Beach property in the name of SGA and would not have caused Sunchen to make loans to fund the holding and development of that property. In 2016, Mr Sun lodged a development application for the Mission Beach property, and spent "hundreds of hours" and over $350,000 pursuing that development application, which was ultimately withdrawn in May 2018. By June 2020, the total costs which had been incurred by SGA in relation to the Mission Beach property were $894,356. His evidence was that he would have pursued that development in another company if there had been any suggestion that Mr Nassif was pursuing any claim to a 25% interest in SGA.
The Atherton land was purchased in April 2018 with funds advanced by Sunchen. Again, Mr Sun's evidence was that he would not have used SGA as the corporate vehicle to purchase that land, and would not have caused Sunchen to advance funds to enable that purchase, if there had been any suggestion that Mr Nassif was pursuing any interest in the shares. As at 30 June 2020, the total costs incurred in relation to the design of a proposed development of the Atherton land were in excess of $148,000.
The appellants challenge the correctness of the primary judge's description of the shares in SGA as equivalent to "volatile commercial property" so as to attract the principles requiring promptitude on the part of any claimant to equitable relief in respect of an interest in such property. First, it is said that the assets in question were not so "speculative" or "volatile" that those principles should be applied. Secondly, it is said that there was only one such property acquired, namely the Mission Beach property, and that the delay in respect of that property was only four years. Thirdly, it is said that any questions of prejudice were to be assessed taking into account conditions which might be imposed on any grant of relief. In particular, it is suggested that the Atherton property and "potentially" the Mission Beach property could in some way have been transferred out of SGA as a condition of the rectification of the share register. How that might be achieved without any or any significant detriment to the financial positions of Sunchen and Mr Sun was not explored. Finally, it is said that Mr Sun was always going to be the guarantor of the Westpac loan with the likely result that he would have undertaken the work that he did in any event.
The assets of SGA are the three related management and letting rights businesses, and the Mission Beach and Atherton properties, acquired with a view to development and possible sale. Each of these enterprises or activities involved financial and other risks of the kind treated in Warman International v Dwyer as requiring the need for promptitude in bringing and prosecuting a claim to equitable relief. The resort management and letting businesses included real property assets, and the businesses of their nature were exposed to fluctuations in economic conditions, both regional and national, as well as to the other uncertainties inherent in the conduct of such businesses. The two property assets were acquired for development and exposed to similar risks presenting opportunities for significant losses as well as gains. In respect of those assets, the evidence shows that Mr Sun and Sunchen expended substantial moneys, skills and time in pursuing their development, and that in the face of any suggestion that Mr Nassif proposed to pursue his claim, they would have pursued those development opportunities in a different company.
In making a claim four years after the acquisition of that property, Mr Nassif and MU seek to secure a 25% share in the capital gain resulting from SGA's pursuit of that opportunity; and they do so in circumstances where they contributed no money either to the acquisition of the Cairns businesses or to the purchase of Mission Beach and Atherton properties. The present case is one in which to allow Mr Nassif and MU to take advantage of their delay would be to give them an unjust advantage in respect of the significant increase in the value of the SGA shares. At the same time, it would impose an unfair prejudice on Mr Sun and Sunchen, who have funded SGA's acquisition and early development of the Mission Beach and Atherton properties in circumstances where they would not have done so if Mr Nassif and MU had promptly brought their claim.
That prejudice could not be cured by the 'removal' of one or other or both of those properties as assets of SGA. The evidence does not suggest that that could be achieved easily or without financial prejudice to Mr Sun and Sunchen. More fundamentally, the appellants did not offer as a condition of any relief that they disclaim any direct or indirect interest in the Mission Beach property, thereby confirming that the chance of sharing in the capital gain on that property was and remained the motivation for bringing the underlying proceedings, as his Honour found at J[168].
The present case is one in which the plaintiffs have stood by and permitted the defendants to make a substantial capital gain and now claim an entitlement to a share in that gain in circumstances where they made no contribution, financial or otherwise to its acquisition and development over the intervening four years. Their conduct in delaying the making of that claim made it inequitable to order that the share register of SGA be rectified. Had they been entitled to make an alternative claim to equitable compensation for the loss of the shares, it would have been inequitable to grant that relief for the same reason. Accordingly, the primary judge did not err in concluding that the claim to rectification was barred by laches.
Ground 1 should be dismissed and contention 7 upheld to the extent that there was otherwise to a claim to equitable compensation. It follows that it is unnecessary to consider contentions 2, 3, 4, 5 or 6.
[15]
Orders
In the result, I propose the following orders:
1. Extend the time for the filing of the notice of appeal to 10 December 2021.
2. Dismiss the appeal.
3. The appellants pay the respondents' costs of the appeal.
WHITE JA: The facts giving rise to this appeal are set out in the judgment of Meagher JA, which I have had the advantage of reading in draft. I agree with the orders Meagher JA proposes, and with his Honour's reasons.
In deference to the submissions of Mr Sulan SC, who appeared with Mr Entwistle for the appellants, I would add the following observations in relation to the appellants' challenge to the primary judge's finding that the appellants' claim for rectification of the register was barred on the ground of laches.
In their written submissions, the appellants contended that "…where a claim is concerned with the recovery of property from a constructive trustee, ordinarily it is difficult to envisage circumstances, falling short of waiver, release, election or estoppel, in which laches would operate" (referring to Orr v Ford (1989) 167 CLR 316 at 341; [1989] HCA 4; Twigg v Twigg (No 4) [2020] NSWSC 1159 at [189]; (2020) 147 ACSR 389 (Ball J)).
In Orr v Ford, Deane J said (at 341):
"Ordinarily, it is difficult to envisage circumstances, falling short of waiver, release, election or estoppel, in which the laches of a beneficiary would produce a situation in which it was inequitable and unreasonable to grant relief in proceedings for the enforcement of an express trust in relation to trust property which remained in the possession of the trustee (or his personal representative)."
Deane J's observations do not apply to the circumstances of the present case.
In Twigg v Twigg [2022] NSWCA 68; (2022) 402 ALR 119 on appeal, the defence of laches was rejected on a more fundamental ground in that the defrauded beneficiary did not have sufficient knowledge of the facts, nor ought she reasonably to have known of the wrong until a reasonable time before she commenced proceedings (at [106]-[107]).
At first instance in Twigg v Twigg, Ball J referred to the defendant's having taken the risk of treating trust assets as his own. That may be a relevant consideration in considering whether a defence of laches has been established, but it is not determinative. In Crawley v Short [2009] NSWCA 410; (2009) 76 ACSR 286, the defendant acted dishonestly in obtaining a transfer of shares in companies that owned hotels that gave him a majority interest, and took the risk that the transfer would later be challenged. Nonetheless, the extensive delay after knowledge of the wrong, where the wrongdoer over a period of seven years borrowed moneys on his own security to refurbish hotels and acquire poker machine entitlements, meant that the plaintiff was barred on the ground of laches from challenging the share transfer that gave the wrongdoer majority control of the companies (at [147]-[148], [179]-[180], [182], [184]). It would be wrong to read Ball J's reasons in Twigg v Twigg as asserting that a defence of laches is only available in the case of an innocent breach of trust or breach of fiduciary duty.
The appellants had knowledge of the facts and of their rights from the outset, but opportunistically waited until Mr Nassif learned that the acquisition by SGA of the Mission Beach property had resulted in a capital gain in which he would benefit if he could restore his shareholding in SGA. The shareholding was in a company that carried on a business with the risk of loss as well as prospect of profit.
The defence of laches was also a defence to a claim for equitable compensation assessed at the date of trial. Compensation assessed at the date of trial, on the basis of the value of the shares at that date, would reflect all of the profits that SGA had made as a result of the efforts of Mr Sun when he had no knowledge of a claim. He had caused his company to provide all of the funds for alternative developments that he would not have made through SGA, but through other corporate vehicles, had he apprehended that a claim might be made against SGA.
In this case, the facts relevant to the defence of laches arose almost immediately after the wrongful transfer of the shares with the acquisition of the Mission Beach property funded by debt from Sunchen and Mr Sun. The pre-trial directions hearing did not relieve the appellants from establishing that they had suffered some loss for which equitable compensation would be payable, so as to justify an enquiry. No such evidence was adduced if equitable compensation were to be assessed at the date of the transaction. A claim for equitable compensation to be assessed at any later date was barred by the defence of laches.
The primary judge was right for the reasons he gave. For these reasons, and for those of Meagher JA, I would dismiss the appeal with costs.
BRERETON JA: I agree with Meagher JA.
[16]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 26 May 2023
Solicitors:
Eden King Lawyers (Appellants)
Lawside Lawyers (Respondents)
File Number(s): 2021/252548
Publication restriction: Nil
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity
Citation: [2021] NSWSC 990
Date of Decision: 9 August 2021
Before: Parker J
File Number(s): 2018/338916
HEADNOTE
[This headnote is not to be read as part of the judgment]
The first appellant owned shares in the third respondent company, which was a vehicle used by the first appellant and first respondent to acquire management and letting rights businesses in relation to resorts in North Queensland. On 21 October 2014, those shares were transferred to the first respondent without the first appellant's authority or consent and the first respondent became registered owner of the shares. The company proceeded to operate the management and letting rights businesses and also purchased two development properties.
Four years after the transfer, the appellants commenced proceedings, seeking rectification of the third respondent's share register, and alternatively equitable compensation for loss of the value of the shares at the time of the hearing. They also claimed damages for wrongful transfer of the shares.
The primary judge dismissed the appellants' claims, finding that the claim to equitable compensation was barred by laches and that the claim to damages failed because they had not proved they had suffered any loss.
On appeal, the appellants challenge the primary judge's findings that the claim to rectification of the share register was barred by laches and that they had failed to prove they had suffered any loss in relation to their claim for equitable compensation. The principal issues before the Court of Appeal were:
(i) whether the primary judge erred in finding that the claim to rectification of the share register was barred by laches; and
(ii) whether the primary judge denied the appellants procedural fairness in dismissing their claim to equitable compensation on the basis that they had not proved any loss at the time of transfer of the shares.
The Court (Meagher JA, White and Brereton JJA agreeing) dismissed the appeal, holding:
As to issue (i):
Equitable relief may be refused on the ground of laches in circumstances where there has been delay in bringing proceedings by a plaintiff which has allowed a situation to arise such that if it were disturbed, it would be unjust or prejudicial to the defendant: Meagher JA at [80]-[84]; White JA at [121]; Brereton JA at [122].
Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1; [1950] HCA 54; Savage v Lunn [1998] NSWCA 203; Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221; Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291; [2011] WASCA 17, considered.
In this context, "delay" presupposes that a diligent plaintiff sufficiently apprised of the facts and their rights would have commenced proceedings at some earlier stage. Here, the appellants knew about the unauthorised transfer on the day that it occurred and waited four years to bring proceedings: Meagher JA at [85]-[86]; White JA at [111], [118]; Brereton JA at [122].
Twigg v Twigg [2022] NSWCA 68; (2022) 402 ALR 119, considered.
Relevant to the question of "prejudice" is the nature of the claim and whether it involves the acquisition of a specific asset or a business that is then operated. In such cases, equity is less tolerant of delay because of the prejudice which is likely to result. The present case involved the acquisition of business and the development of real property, and promptitude was required in the bringing and prosecuting of the appellants' claims: Meagher JA at [89]-[99], [104]-[105]; White JA at [111]; Brereton JA at [122].
Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218; Fysh v Page (1956) 96 CLR 233; [1956] HCA 13; Clegg v Edmondson (1857) 8 De GM & G 787 [44 ER 593]; Rowe v Oades (1903) 3 CLR 73; Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18; In re Jarvis [1958] 1 WLR 815; Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27; Crawley v Short [2009] NSWCA 410; (2009) 76 ACSR 286; Hatch v Hatch (1804) 9 Ves 292 [32 ER 615], considered.
The respondents oversaw the operation of three resort-related businesses for four years after the transfer and before the bringing of the claims, during which period they were exposed to the risk of significant losses and gains. They also acquired and expended considerable resources in developing or preparing to develop the Queensland properties, where those acquisitions and developments were funded by loans made by the first respondent on the understanding that the appellants did not claim any interest in the shares of the third respondent. The respondents would have used a different corporate vehicle to make those acquisitions and developments if they had been aware of the appellants' claims. Accordingly, it would impose an unfair prejudice upon the respondents if the appellants were allowed to stand by and to permit the respondents to make a substantial capital gain due to their own exertions and exposure to risk, and now to claim an entitlement to a share in that gain where they had made no contribution to the acquisitions and developments over the intervening four years: Meagher JA at [100]-[103], [105]-[108]; White JA at [111], [118]-[119]; Brereton at [122].
As to issue (ii):
The appellants' claim to equitable compensation was for the value of the shares measured at the time of the hearing rather than at the time of their transfer. The primary judge found that this claim was also barred by laches because the current value of the shares reflected the respondents' management of the businesses and development of the properties over the four years. Accordingly, any award of compensation taking account of that value would result in prejudice to the respondents by reason of the appellants' delay. For the reasons given above, his Honour did not err in so finding: Meagher JA at [64]-[65], [72]; White JA at [111]; Brereton JA at [122].
The primary judge also addressed a claim to equitable compensation for loss of the value of the shares measured at the time of their transfer. Querying whether that claim would be barred by laches, he considered whether the appellants had suffered any loss which would justify any inquiry as to the amount of that loss. He concluded that the appellants had not established they had suffered any loss. In doing so, his Honour did not deny the appellants procedural fairness. Their pleading assumed that there would be such an inquiry only in the event that they had suffered some loss. That was consistent with the established equity practice in relation to the ordering of inquiries as to damages. It also reflected what the primary judge had conveyed in a directions hearing before the final hearing commenced, namely that the equitable practice in relation to inquiries and accounts would prevail: Meagher JA at [29]-[35], [73]-[76]; White JA at [111]; Brereton JA at [122].
Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16, considered.
The primary judge did not err in finding that the appellants had not discharged their onus of proving some loss measured at the time of the transfer. The assets of the third respondent at that time were the three resort businesses, the purchase of which had been wholly funded by borrowings. The primary judge found the purchase price reflected the fair market value of those assets, following an open selling campaign. Thus the third respondent's net value at the date of transfer (and the value of the transferred shares) was no more than nil: Meagher JA at [58], [77]-[78]; White JA at [111], [119]-[120]; Brereton JA at [122].