Platypus Impact Housing Australia Ltd v Elsegood

Judgment (7 paragraphs)

[1]

Solicitors: McLachlan Thorpe Partners (Plaintiff/Cross-Defendant/Respondent) Legacy Legal Group (Defendants/Cross-Claimants/Applicants) File Number(s): 2024/241570

[2]

JUDGMENT

The plaintiff, Platypus Impact Housing Australia Limited, brings these proceedings against the first defendant, Mr Jack Elsegood, and his associated company, Elsegood Holdings Pty Ltd. The proceedings were commenced on 1 July 2024.
In its Commercial List Statement, Platypus summarises the "Nature of the Dispute" as follows: "1. The First Defendant (Mr Elsegood) is a former director of [Platypus]. [Platypus's] business includes pursuing and undertaking property developments opportunities for housing in New South Wales and Queensland. 2. During the course of his directorship of [Platypus], Mr Elsegood was introduced to a development opportunity which [Platypus] had identified and was pursuing in Queensland. Mr Elsegood undertook work in his capacity as a director of [Platypus] in respect of investigating and seeking to advance and secure [Platypus's] interest in that development. 3. Mr Elsegood resigned [as] a director of [Platypus]. [Platypus] then lost the development opportunity following termination by the vendor of the relevant agreements that were in place with [Platypus]. The development was then taken up and purchased by an unrelated special purpose entity controlled by persons with whom Mr Elsegood had previously developed a business relationship when working for [Platypus] and in connection with the pursuit of the development for [Platypus]. Mr Elsegood was thereafter provided with benefits from that entity as a reward for his previous work in respect of the development (that is, his work for [Platypus]) and for introducing the development opportunity to the persons in control of the entity while he was a director of [Platypus]. The benefits which Mr Elsegood obtained included (at least) shares acquired by the Second Defendant (Elsegood Holdings, a company of which he is the sole shareholder and director), cash, and an agency agreement. The total value of the benefits which Mr Elsegood obtained in this way is not presently known to [Platypus], but is estimated to be not less than $400,000 (the amount of at least one cash payment received by Mr Elsegood) plus the value of the shares obtained by the Second Defendant, which may be valued in excess of $670,000. 4. [Platypus] contends that Mr Elsegood obtained these benefits in breach of his fiduciary and directors' duties owed to [Platypus], namely the 'no profit' rule and section 183 of the Corporations Act 2001 (Cth). [Platypus] seeks relief to disgorge from Mr Elsegood these unlawful gains, including a declaration of trust and alternative orders for an account or equitable compensation, and compensation pursuant to section 1317H of the Corporations Act 2001. Mr Elsegood's conduct is analogous to that of a rogue fiduciary or director who obtains a secret commission in connection with the work done for his principal; the fact that he resigned as a director of [Platypus] prior to taking the benefits in question does not absolve him from liability." (Italicised and bolded emphasis in original.)

A defensive claim?

Platypus resists Mr Elsegood's claim for security primarily upon the basis that, in substance, its claim is defensive in nature and that Platypus "is effectively in the position of a defendant". [2]
Mr Ball put the matter this way: "By issuing the statutory demand on [Platypus], Mr Elsegood put [Platypus] in the position of having to 'choose' between either paying money to a former director who it considered wrongfully took a corporate opportunity for himself, facing the presumption of insolvency that follows from not paying, or litigating in order to have the statutory demand set aside. What the cases show is that such a 'choice' is not a really free one - it is more illusory if anything else; a 'choice' thrown upon [Platypus] by Mr Elsegood, who in substance forced [Platypus] into commencing the Statutory Demand Proceedings. Importantly, Mr Elsegood has once again, in substance, forced [Platypus] into commencing the present proceedings by successfully seeking and obtaining, as part of the case he ran in the Statutory Demand Proceedings, a condition under section 459M of the Corporations Act that [Platypus] commence the present proceedings, or else the statutory demand would not be set aside. So, just as before the commencement of the Statutory Demand Proceedings [Platypus] was faced with an illusory 'choice' caused by Mr Elsegood's actions (pay, face winding-up, or litigate), [Platypus] was afterwards faced with the same illusory 'choice': pay, face winding-up, or litigate. [Platypus] should not have to pay security for costs by reason of choosing the third option (litigation) precisely because it has been required to do so in order to defend itself against Mr Elsegood's action in issuing the statutory demand."
These proceedings were, no doubt, commenced because of the condition that McGrath J imposed.
But I do not see them as being defensive of Mr Elsegood's claim for the $200,000. Platypus does not seek to impugn Mr Elsegood's claim to be a creditor of Platypus in that amount.
Rather, Platypus brings an entirely separate claim, albeit one also arising from the Queensland development referred to in Platypus's Commercial List Statement.
As Ms Dyon put in her submissions in reply: "… it is not correct that the claim and the cross claim arise from the same factual matrix in any event. Although there is some overlap in the background facts because both claims relate to the [Queensland] development, the parties' pleaded cases are distinct. As for the cross-claim (which is brought by [Mr Elsegood] only), this is directed to the narrow question of whether [Platypus] is required to repay [Mr Elsegood] the amount of $200,000, which [Platypus] admits (a) was paid to it by [Mr Elsegood] via an intermediary; and (b) has not been repaid to [Mr Elsegood] by [Platypus]. … The cross claim will be resolved based on limited factual material and by reference to ordinary principles of debt and/or restitution."
I do not see Platypus's claim as being defensive in nature in the relevant sense.
Subject to what follows, I propose to order that security be provided.

Quantum

As to the quantum of security, Mr Elsegood and Elsegood Holdings seek security in the sum of some $308,000. Mr Elsegood has not adduced evidence from a costs assessor. Each party relies upon the competing contentions of their solicitors in these proceedings.
The principal matter in contention is the extent to which Mr Elsegood's estimate of costs takes into account the work already done, investigating the same factual circumstances, in the statutory demand proceedings.
In that regard, Mr Elsegood's solicitor, Mr Tan, deposed: "I do not agree with this statement with respect to the work to be undertaken by the Defendants in their defence of the Plaintiff's Claim. I have prepared the estimate of the Defendants' future costs by reference to the work that will be required, having regard to the fact that the Statutory Demand proceedings have been heard by the Court. One of the reasons why the First Defendant's evidence in the Statutory Demand proceedings cannot be simply repurposed by the Defendants for the present proceedings is because the Statutory Demand proceedings related only [to] the establishment of a relatively undemanding 'genuine offsetting claim' standard. The preparation of the First Defendant's evidence was all done on this standard and will need to be revisited by the Defendants in light of the [Commercial List Statement] and the allegations contained therein."
The parties have exchanged detailed submissions directed to matters of granular detail concerning the appropriate quantum of an order for security for costs, including a table that goes into a considerable amount of detail concerning individual items.
A necessarily broad brush approach is, however, required, and my conclusion is that the amount of security to be provided, once the costs order is satisfied, should be $185,000.

At a glance

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Judgment (7 paragraphs)

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Legislation Cited (5)

Cases Cited (4)