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Chickabo Pty Ltd v Zphere Pty Ltd

Chickabo Pty Ltd v Zphere Pty Ltd

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Case Copied 22 February 2019 74 min read

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S ECI 2018 00084

CHICKABO PTY LTD (ACN 074 576 186) AND OTHERS	Plaintiffs
v
ZPHERE PTY LTD (ACN 114 716 773) AND OTHERS	Defendants

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JUDGE:	Sifris J
WHERE HELD:	Melbourne
DATE OF HEARING:	12-15 and 19-20 November 2018
DATE OF JUDGMENT:	22 February 2019
CASE MAY BE CITED AS:	Chickabo Pty Ltd & Ors v Zphere Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2019] VSC 73 (First Revision 26 September 2019)

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EQUITY – Fiduciary duties – Whether fourth defendant owed fiduciary duties to the partners and principals of a partnership – Clauses of partnership deed required fourth defendant to act in the interests of all partners – Obligations of trust, confidence, loyalty and fidelity arise out of the relationship of the parties, conduct of its business and the partnership deed – Fourth defendant owed fiduciary duties – First and fourth defendants also owed fiduciary duties as partners of the partnership.

EQUITY – Fiduciary Duties – Duty to avoid conflict of duty and interest – Duty to avoid deriving an unauthorised profit from fiduciary position – Whether first and fourth defendants breached their duties – Fourth defendant procured a related company to invest in shares of a client of the partnership - Duty to disclose and offer opportunity to the partnership – Fourth defendant under conflicting confidentiality obligations to client - Fourth defendant did not disclose the opportunity and caused a related company to make a substantial profit – First defendant in position of conflict of duty and interest - First and fourth defendants breached their fiduciary duties.

EQUITY – Accessorial liability – Whether fourth defendant knowingly induced or procured the first defendant’s breach of fiduciary duty – Fourth defendant induced or procured the breach and had knowledge of it as the directing mind and will of first defendant - Whether second and third defendants received property derived from fourth defendant’s breach of fiduciary duty – Fourth defendant is directing mind and will of second and third defendant – Knowledge of fourth defendant imputed to second and third defendants – Second and third defendant received benefits of the breach of fiduciary duty and are liable as accessories.

CONTRACT – Execution and signature – Fourth defendant signed partnership deed in capacity of director of first defendant – Whether fourth defendant personally bound by partnership deed – Provisions of partnership deed impose personal obligations – Evidence of objective intention of signatories to be personally bound – Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160.

CONTRACT – Interpretation – Whether fourth defendant is a partner of a partnership of corporations – Definition of ‘Partners’ refers to a schedule which includes the fourth defendant – Definition of ‘Partners’ includes fourth defendant ‘where relevant to actions required from individuals’ – Partnership deed imposes obligations on fourth defendant by labelling him a ‘Partner’ – Fourth defendant is a partner.

PARTNERSHIP – Partners and fiduciaries…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] VSC 73
Decision Date: 22 February 2019

CaseChat Overview and Summary

Chickabo Pty Ltd brought an action against Zphere Pty Ltd and three individuals, alleging breaches of fiduciary duty, accessory liability, and breaches of contract. The dispute centred on the fiduciary obligations owed by the defendants to the partners and principals of a partnership, as well as the interpretation and personal liability under the partnership deed. The court was required to determine whether the fourth defendant owed fiduciary duties to the partnership and its members, whether the first and fourth defendants breached their fiduciary duties, and if the second and third defendants were liable as accessories to the breach of fiduciary duty.

The court found that the fourth defendant, by virtue of clauses in the partnership deed and the nature of the partnership, owed fiduciary duties to the partners and principals. The court held that the first and fourth defendants breached these duties by procuring a related company to invest in shares of a client, without disclosing the opportunity to the partnership. This action resulted in the related company making a substantial profit, while the partnership missed out on potential benefits. The court also found that the second and third defendants were liable as accessories, as the fourth defendant was the directing mind and will of the partnership, and their knowledge of the breach was imputed to them. Furthermore, the court determined that the fourth defendant, as a signatory to the partnership deed, was personally bound by its terms and was a partner within the meaning of the deed.

The court's reasoning and outcome were grounded in established legal principles regarding fiduciary duties, accessory liability, and the interpretation of contracts. The court found that the fourth defendant's actions constituted a breach of fiduciary duty, and the first defendant's conflict of interest compounded the breach. The court also held that the second and third defendants were liable as accessories, as they received benefits from the breach of fiduciary duty. The court's interpretation of the partnership deed found that the fourth defendant was a partner and personally bound by its terms.

The court ordered that the first, second and third defendants compensate Chickabo Pty Ltd for the losses incurred as a result of the breaches of fiduciary duty and accessory liability. The court also ordered the fourth defendant to compensate Chickabo Pty Ltd for the losses caused by their actions. The court's decision emphasised the importance of fiduciary duties in partnership arrangements and the consequences of failing to adhere to those duties.

Orders