Pastizzi Cafe Pty Ltd v Hossain

Judgment 1Before 1 September 2006, the plaintiffs claim that the second plaintiff, Deborah Anne Ross, the third plaintiff, Leonard Ross and the first defendant, Miraj Hossain had agreed that Mr Ross and Mr Hossain would conduct a pastizzi cafe business in partnership under the name M & L Maltese Cafe. 2On 1 September 2006, Mr Hossain executed a lease of premises at King Street, Newtown. Ms Ross was the guarantor. The plaintiffs claim that the lease was to be held for a company to be incorporated. They claim that because of Ms Ross's contribution to the costs of setting up the King Street premises as a pastizzi cafe, Mr Ross and Mr Hossain agreed that Ms Ross would become an equal partner in the business. 3The first plaintiff, Pastizzi Cafe Pty Ltd, was registered on 23 April 2007. One $1 share was issued to each of Ms Ross and Mr Hossain and they were listed in the ASIC records as the directors. 4The plaintiffs claim that Mr Ross did not execute the lease, and did not become a shareholder and director of Pastizzi because he wanted a two-year period from the breakdown of his relationship with another woman to elapse before he was registered as a director and obtained a share in the company. 5Pastizzi commenced trading from the King Street premises on 18 May 2007. 6The second defendant, Talukder Enterprises Pty Ltd, is a company controlled by Mr Hossain. The defendants claim that Mr Hossain and Ms Ross were to operate the business as equal partners; that Mr Ross would assist with the start up of the business but have no involvement as a partner or a director; that the lease would not be executed with the intention of holding it on trust for Mr Ross or any other person; that there was no understanding that Mr Ross would be issued a $1 share in Pastizzi nor that he would be appointed a director. 7Mr Ross claimed that he designed the fit-out for the King Street premises and it was constructed to his design. He worked on the fit-out. Mr Hossain claimed that it was his design and Mr Ross merely assisted him. 8Mr Hossain claimed that he was shut out of the management of Pastizzi and his role was limited to menial tasks not relevant to the running of the business. He claimed that his requests for financial information of Pastizzi were denied contrary to the Corporations Act 2001 (Cth), s 290(1). 9Ms Ross kept a ledger which, with the source documents, went to a book-keeper who wrote up the accounts. The plaintiffs claimed that they had weekly meetings that included Mr Hossain, usually on a Sunday at the King Street premises. They claimed that Mr Hossain participated in decision-making and had available to him at those meetings financial accounts of Pastizzi. 10Mr Hossain was able to gain access to Pastizzi's bank statements but he did not avail himself of that ability. 11Notwithstanding that he had solicitors acting for him at the time, Mr Hossain claimed that he typed up a notice dated 7 February 2011 in the following terms: "Dear Debbie Ross subject: Vacate 523 king street Newtown I Miraj Hossain giving Debbie Ross notice to vacate 523 king street Newtown - 2042, by the 1 st of April 2011. So I can move into the shop and operate my own business under my lease. If you have any problems or wish to contact me please contact my solicitor Wayne Condon of Condon Legal. His telephone no is - XXXXXX Signed: Name: Miraj Hossain Date: Delivered by hand." 12Ms Ross said she did not receive the notice. 13Notwithstanding that the notice said so, Mr Hossain denied that he intended to move in and conduct his own business from the King Street premises. He said he did not intend to cause Pastizzi to cease trading and render it incapable of paying its debts. He said he sent the notice merely to get Ms Ross's attention. 14On 18 April 2011 Mr Hossain caused security guards to lock the plaintiffs out of the King Street premises. A notice was affixed to the door that Mr Hossain was taking back the premises. 15On 19 April 2011 Mr Hossain caused Talukder to be incorporated and to list the King Street premises as its registered office. 16On 5 May 2011 the King Street business was renamed Pastizzi and Pasta Cafe with a new neon sign outside the premises in that name. 17On 6 May 2011 "Pastizzi and Pasta Cafe" was registered as a business name by Talukder and its business address was listed as the King Street premises. 18Since 6 May 2011 the defendants have conducted business from the King Street premises under the name Pastizzi and Pasta Cafe. 19On 11 April 2011 Mr Hossain withdrew $17,450 from bank accounts of Pastizzi to pay the legal fees of Mr Condon. Mr Hossain insisted that this was for the benefit of Pastizzi in seeking to recover the financial records of the company. But his counsel conceded in final address that the fees were generated in part for Mr Hossain personally. 20In 2009 a factory was acquired to enable the business to expand. The name of that business was registered on 22 February 2010 as "GoGo Pastizzi". Initially premises at St Peters were held under lease but those premises were later purchased. The business name was registered to Mr Ross but the plaintiffs said that Mr Ross, Mr Hossain and Ms Ross each held a one third interest in the business. The lease of the St Peters premises was taken in the name of Mr Ross and Mr Hossain. 21In February 2010 Colin Paull, Pastizzi's accountant, granted Ms Ross the full right to use premises at Carss Park for "Pastizzi Deli" and that business name was registered to her on 26 March 2010. Again the plaintiffs claimed that this business was also conducted for the equal benefit of Ms Ross, Mr Ross and Mr Hossain. 22Mr Hossain wanted to sell his interest in the partnership he said he had with Ms Ross. Mr Condon telephoned Mr Paull seeking access to the financial records of Pastizzi. Mr Paull arranged a meeting at his home on 12 November 2010. Mr Ross and Mr Hossain were present. 23Mr Ross said he told Mr Hossain: "I am very upset. Why didn't you come and talk to me instead of getting lawyers involved". Mr Ross said that Mr Hossain replied: "It was not me it was my parents and I am sorry and I will sort this out in house and not use lawyers". 24Ms Ross arrived late. The meeting had almost ended. She said that the people were emotionally upset but Mr Paull was very calm. 25At the meeting Mr Paull advised the three to sort the matter out without lawyers and to get a true valuation of the business by appointing a quantum surveyor and a financial auditor. 26Ms Ross said that she said to Mr Hossain that the $400,000 at which he valued the business was very high. She said she took Mr Hossain out to his car and spoke to him for about half an hour. 27Ms Ross spoke to Mr Hossain the next day and on 14 November 2010 Mr Hossain went back to work. 28Mr Hossain said that when he arrived at Mr Paull's house Mr Ross and Ms Ross were already there. Mr Ross used foul language and threatened to finish Mr Hossain off. Mr Hossain said he feared for his life. Mr Ross leaned forward over the table and tried to hit Mr Hossain. Mr Hossain said Mr Paull was standing so as to prevent him leaving and said he had to agree that he had no share in the business and he wanted Mr Hossain to call his solicitor and have him send Mr Paull a facsimile that Mr Condon did not require the business documents any more. Mr Hossain said he tried to call Mr Condon but he had left for the evening. He said he was so scared he wrote a note there and then to Mr Paull in the following terms: "To Colliin Powel As at Friday 12 th of Nov 2010, I instruct my office my office not to hand over any information to this Solicitor Wyne Condon as I have requested a letter of withdraw to any further information. Wyne Condon does not representive me. Regards Miraj Hossain 12 -11- 2010" 29Ms Ross had no recollection of this document being written at the meeting and nor did Ms Ross. But Mr Paull did. Mr Hossain said that at this juncture Mr Ross threw a large ward of money onto the table and told him to take it and leave the country. Mr Hossain said he was crying by this time. He said Ms Ross then said she could come up with $80,000. Mr Hossain said Mr Ross said he did not want to see him near the cafe ever again and Mr Paull said he didn't want him working at his shop at Carss Park either. And Ms Ross said she didn't want him to come to the King Street premises. He said he left crying. 30Mr Paull corroborated Mr Ross's version of the meeting. He said he had a meeting with Mr Hossain first telling him he had received notice to produce documentation to his solicitor and Mr Paull needed Mr Hossain's written authority. Mr Paull said he told Mr Hossain that he had invited Mr Ross and Ms Ross to discuss Mr Hossain's leaving the business. Mr Hossain agreed to meet with them. Mr Paull said there was no duress and Mr Hossain said: "I don't want the solicitors involved. All I want is Debbie and Lenny to buy my share". Mr Paull said Mr Hossain then wrote the above note. Mr Paull said that at the conclusion of the meeting he said: "Miraj wants to sell his third share. Before we do anything else we need to appoint a quantum surveyer to do an assets check of the business". He then gave tasks to each. Mr Paull was leaving for Thailand in a few days. 31Mr Paull was an impressive witness. His recollection of conversations and the attitudes of those present at the meeting of 12 November 2010 was impressive. He said that the alleged statements by Mr Ross not only did not happen but also they were out of character. 32Mr Condon returned Mr Hossain's call the next day. He was aware of the meeting the previous night. Mr Hossain told him everything was OK and he wanted to withdraw from taking any further action with respect to the books of Pastizzi. Mr Hossain said he told Mr Condon these things: "Yeah, because I was threatened. I was scared. I was scared for my life." 33It was put to Mr Paull that it was never said in Mr Hossain's presence that there were three directors of Pastizzi. Mr Paull denied that and said that at a meeting at the King Street premises in late August 2009 or early September 2009 Mr Hossain was introduced to him as one of the directors and Mr Hossain told him that Ms Ross, Mr Ross and he were directors of the company. 34Mr Hossain maintained that he told Mr Condon that there were two partners and directors of Pastizzi. Mr Condon's tax invoice was in evidence. It contained the following: "Initial conference with yourself at our office where you indicated that you were a Director of Pastizzi Cafe Pty Ltd and that there were two other directors." 35Mr Hossain maintained that Mr Condon must have misunderstood and written it down wrongly. 36There was a degree of informality in the way in which the business was conducted. When two-year period of concern to Mr Ross came to an end no step was taken to have him registered as a director or to have a share in Pastizzi issued to him. Ms Ross said they should have done so but did not. They were working so hard in the business. 37And instead of Pastizzi or some other company acquiring the warehouse and GoGo Pastizzi as a business name, it was put in Mr Ross's name. And the lease of the St Peters premises was in the names of Mr Ross and Mr Hossain. 38So, too, with Pastizzi Deli. It was put in Ms Ross's name. 39There is an air of unreality about Mr Hossain's claim that while he was in business with Ms Ross on an equal basis, the lease was his alone. I find it inconceivable that Ms Ross would guarantee Mr Hossain's obligations under the lease if she had no interest in it. 40I find Mr Hossain's version of the meeting of 12 November 2010 incredible. If he feared for his life he would contact the police, or at least advise his solicitor Mr Condon of what had happened when Mr Condon returned his call the next morning. Instead he told Mr Condon that everything was all right. If he was fearful for his life he would not have returned to work on 14 November 2010 and continue to work until 18 April 2011. 41And withstanding his denial that he intended to set up his own business at the King Street premises after he locked the plaintiffs out, that is precisely what he did and is what he stated he would do in the notice he typed. 42The relationship between Mr Ross and his former partner ended in November 2005. The two-year period of which Mr Ross was concerned would end in November 2007. 43But on 2 March 2007 a District Court judgment was made against Mr Ross in favour of his former partner under the Property (Relationships) Act 1984. Mr Ross and Ms Ross said that was a surprise and they did not know of the judgment. 44If Mr Ross was aware of the judgment there would be no need to await the expiration of the two year period. And his failure to become a director and shareholder in Pastizzi would go unexplained. 45When the relationship broke down, Mr Ross moved to Melbourne and did not move back to Sydney until July 2006. It may be that the District Court proceedings were the subject of substituted service that did not come to the attention of Mr Ross. 46I do not regard this aberration as sufficient to doubt the evidence of Ms Ross and Mr Ross. The problems associated with Mr Hossain far outweigh that aberration. 47I reject Mr Hossain's evidence except where it accords with that of Ms Ross, Mr Ross or Mr Paull. 48I find that it was the agreement of the parties that they would conduct the business in its original and expanded form as one-third partners and that they would become equal directors and shareholders of Pastizzi. 49I find that Mr Hossain held the lease of the King Street premised on trust for Pastizzi. 50As a partner of Ms Ross and Mr Ross, as a trustee of the lease of the King Street premises and as a director of Pastizzi, Mr Hossain owed fiduciary duties to Ms Ross, to Mr Ross and to Pastizzi, which included the duty not to benefit himself at the expense of his co-partners, beneficiary and corporation. 51I find that Mr Hossain was in breach of his fiduciary duty to Pastizzi in locking it out of the King Street premises. 52It was submitted on behalf the defendants that Mr Ross was seeking the assistance of the court to perpetrate a fraud against his former partner. But there was no fraud as the partner had obtained a judgment against Mr Ross and, in any event, the legislation does not bring after-acquired property into account. 53Where a vendor delays in giving a purchaser possession, the purchaser is entitled to damages for the non-use of the land until the purchaser actually obtains possession. Thus in Jaques v Millar (1877) 6 Ch D 153 the plaintiff agreed to take a lease of the defendant's premises for the purpose, as the defendant knew, of carrying on a trade that the plaintiff was about to commence. In consequence of the defendant's wilful refusal to fulfil the agreement the plaintiff was unable for 15 weeks to commence his trade. Fry J held that in addition to specific performance the plaintiff was entitled to damages. At 160 his Lordship said: "But I am entitled to have regard to damages which may be reasonably said to have naturally arisen from the delay, or which may be reasonably supposed to have been in the contemplation of the parties as likely to arise from the partial breach of the contract." 54In Jones v Gardiner [1902] 1 Ch 191 at 196, Byrne J said that Jaques v Miller (sic) is a distinct authority for giving damages against a vendor, in addition to specific performance and his Honour repeated what had been said in that case. That passage was cited with approval by Croom-Johnson J in Phillips v Lamdin [1949] 2 KB 33 at 43. 55In my view, this principle applies whether the loss of use arises from the delay of a vendor or the wrongful exclusion from possession as in this case. Since Mr Hossain was in breach of fiduciary duty in excluding Pastizzi from possession, Pastizzi is entitled to equitable compensation to make good its loss. Thus Pastizzi is entitled to loss of the profits it might have earned in the period it has been denied possession of the King Street premises. 56In a suitable case, a plaintiff may be entitled to compensation for damage to its goodwill in addition to lost profits. 57Thus in Ductline Pty Ltd v Arcric Investments Pty Ltd (1995) 32 IPR 419 at 427-428, Finn J in a misleading conduct case where the respondent manufactured, named and advertised an evaporative cooler pump similar to the design and name of the applicant's like evaporative cooler pump said this: "It is important in cases of this variety, where loss of business profits and damage to goodwill are claimed, to ensure that double compensation is not awarded: see S M Waddams, The Law of Damages , 358. That recognised, this is an appropriate case in which damages should be awarded (i) in respect of loss of business profits resulting from the contravening conduct; and (ii) for such damage to the applicant's goodwill as resulted from the respondent's initial vending of a product of a quality which produced customer dissatisfaction: Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 6 IPR 431; 65 ALR 500; cf Star Micronics Pty Ltd v Five Star Computers Pty Ltd (1991) 22 IPR 473." 58That decision was cited with approval by Olsson AJ in Territory Sheet Metal Pty Ltd v Australia and New Zealand Banking Group Ltd [2010] NTSC 03; (2010) 237 FLR 197 at [132]; 218. That was a case in which the bank was held to have breached implied terms of its contract as bank for the manner in which it processed two cheques, failing to credit them to a relevant TSM account. At [133]; 218 his Honour said: "In this case both logic and justice dictate that TSM ought to recover both its capital loss, in terms of the dissipation of the value of the business and its goodwill, and also an appropriate sum in recognition of its loss of opportunity to trade on, develop its business and earn profits, both components being losses that should have been in the reasonable contemplation of ANZ at the time of its breaches." 59In my judgment this is such a case. Not only did the wrongful lockout of Pastizzi cause it to loose profits, but also Pastizzi has lost the goodwill attached to the King Street premises. 60A claim under the Retail Leases Act 1994 was not pressed in final submissions. 61By their cross-claim, the defendants seek an order that an account and inquiry be taken of Pastizzi by an Associate Justice. But I think it preferable to finalise the matters in dispute between the parties. 62It was submitted that no expert evidence was called to justify $400,000 to $450,000 as the value of good will. 63The evidence as to the value of lost profits and goodwill is very sparse but a value can be assigned to both. As Barwick CJ said in Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625 at [10]; 636: "It is perhaps not a very satisfying answer to say that damages are not in every case a perfect compensation but in many cases no more than an approximation lacking in mathematical or economic accuracy or sufficiency. But, however unsatisfying, that answer, in my opinion, must be accepted." 64Finn J faced a similar problem in Ductline but, nonetheless, arrived at a figure for damages for lost profits and goodwill. 65I accept the evidence that Pastizzi's cafe business turned over approximately $95,000 per month on average. It had a weekly operating profit of over $3,500 and, more specifically, an average surplus per day of $547.10 in the period 1 July 2010 to 17 April 2011. There are 101 days from 18 April 2011 to today, 28 July 2011, giving a net profit figure of $55,257.10. 66I find that damages continue to accrue at $547.10 per day until Pastizzi is put back in possession of the King Street premises. 67I accept the evidence that the goodwill of Pastizzi's cafe business is negligible, the business attaching to the King Street premises having been destroyed. I accept the evidence that if the cafe business was returned to the King Street premises it would have a value between $400,000 and $450,000. I would award Pastizzi $400,000 for its loss of goodwill. 68In their cross-claim, the defendants sought an order that Pastizzi be wound up. I do not think that is the proper relief in the circumstances of this case. The plaintiffs are entitled to a declaration that Mr Hossain was in breach of s 182(1) of the Corporations Act in that he, being a director of Pastizzi, improperly used his position to gain an advantage for himself or for Talukder. 69Mr Hossain's conduct in locking Pastizzi out of possession of the King Street premises and starting up his own business on the site created a loss in Pastizzi. 70The Corporations Act, s 232(a) provides that the court may make an order under s 233 if the conduct of a company's affairs is contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. 71The generation of losses in Pastizzi by the diversion of its business to Mr Hossain or Talukder was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Ms Ross. 72The Corporations Act , s 53(a) provides that for the purposes of s 232 and s 233 the affairs of a body corporate include losses. In my judgment, therefore, s 232 was enlivened and Ms Ross, being a member of Pastizzi, was entitled to make an application in terms of s 234(a). 73The Corporations Act s 233(1)(d) provides that the court may make any order that it considers appropriate including an order for the purchase of any shares by any member. 74What is appropriate, in my view, is that I should make an order that Ms Ross purchase Mr Hossain's share in Pastizzi. 75Pastizzi was a quasi-partnership of the kind recognised in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. I find that the interests in Pastizzi were held as to a one third interest by each of Ms Ross, Mr Ross and Mr Hossain. That means that Mr Hossain held a one third interest in the goodwill of Pastizzi before it was locked out of possession of the King Street premises and the appropriate figure that Ms Ross should pay to Mr Hossain for the purchase of his share in Pastizzi is $133,333. 76The plaintiffs sought an order that this amount be set off against the damages to be paid to Pastizzi. I do not think they can. The liabilities are not owed by the same parties. Pastizzi is entitled to an order that Mr Hossain and Talukder pay it damages in the amount of $455,257.10 together with $547.10 per day until Pastizzi is put back in possession of the King Street premises. 77The plaintiffs seek a declaration that Mr Ross was and is a director of Pastizzi. Mr Hossain and Talukder seek a declaration that he is not a director. 78In my view a declaration should be made that Mr Ross was and is a director of Pastizzi. He exercised exactly the same functions as Ms Ross and Mr Hossain in the conduct of the affairs of Pastizzi. The definition of the term "director" in the Corporations Act , s 9 includes, unless the contrary intention appears, a person who is not validly appointed as a director if they act in the position of a director. That is what Mr Ross did and there is nothing in the legislation that suggests a contrary intention. 79A declaration that Mr Ross was a shareholder of Pastizzi raises difficulties. The issued shares were held in trust for Mr Ross, Ms Ross and Mr Hossain. But that did not constitute him a shareholder. He was not listed in the register of shareholders. 80In my view Mr Hossain and Talukder are entitled to a declaration that Mr Ross was not a shareholder of Pastizzi. Otherwise they are not entitled to any other relief under the cross-claim and cross-summons and they should be dismissed. 81I will make an order that the defendants restore, and do all things necessary to restore Pastizzi to possession of the King Street premises. I will make orders that they be restrained from taking any steps or doing anything to interfere with Pastizzi's possession of the King Street premises and they be restrained from entering and conducting any business from the King Street premises. I will make a declaration that Mr Hossain holds the leasehold of the King Street premises on trust for Pastizzi and I will make an order that Mr Hossain seek the approval of the landlord to the assignment of the leasehold of the King Street premises to Pastizzi and if such consent is obtained to assign the leasehold accordingly. 82I will hear the parties on the appropriate terms of the orders and declarations and I will hear the parties on costs.