Chickabo Pty Ltd v Zphere Pty Ltd (No 3) - [2020] VSC 464

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2018 00084

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

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JUDGE:	Sifris JA
WHERE HELD:	Melbourne
DATE OF HEARING:	24 June 2020
DATE OF JUDGMENT:	31 July 2020
CASE MAY BE CITED AS:	Chickabo Pty Ltd v Zphere Pty Ltd (No 3)
MEDIUM NEUTRAL CITATION:	[2020] VSC 464

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REMEDIES – Account of profits for breach of fiduciary duty – Alter ego companies acting in concert to secure mutual benefit jointly and severally liable: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 applied.

REMEDIES - Constructive trust – Not necessary to decide whether institutional or remedial.

REMEDIES - Allowances - Whether defendants entitled to any allowances - Substantial gain from investment made in breach of fiduciary duty– No allowances appropriate or justified.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	J P Moore QC and J McComish	HWL Ebsworth
For the Defendants	A G Uren QC and R Harris	Herbert Smith Freehills

HIS HONOUR:

A Introduction

This is my third judgment in this case.

The first judgment was delivered on 22 February 2019, following the trial of the first stage or liability phase of the proceeding (The Principal Proceeding).[1]
[1]Chickabo Pty Ltd v Zphere Pty Ltd [2019] VSC 73 (the First Judgment or the Reasons). I will assume familiarity with the First Judgment and defined terms bear the same meaning.

The First Judgment includes various findings of breach of fiduciary duty and of the Partnership Act 1958 (Vic) (Partnership Act) by the fourth defendant, Gary Graco (Graco) and a company controlled by him, the first defendant, Zphere Pty Ltd (Zphere). Two of Graco’s associated companies, the second and third defendants, GFBR Nominees Pty Ltd (GFBR) and Glenaldon Pty Ltd (Glenaldon) respectively, were found to be liable as accessories to the various breaches. Despite publication of the First Judgment, I did not make any substantive orders in favour of the plaintiffs. That is to say, I did not order any account of profits, compensation, or declare constructive trusts over assets (or proceeds) the subject of or directly traceable to the various breaches.[2]
[2]The First Judgment did not deal with or make any findings as to the identity or whereabouts of such proceeds.

At a directions hearing on 1 March 2019, Queen’s Counsel for the plaintiffs indicated that in addition to pressing appropriate relief against the defendants, the plaintiffs would, having undertaken the necessary tracing, seek relief against other non-parties, all volunteers, comprising various family members, individuals and corporate entities associated with Graco.

The additional parties were joined partly on the basis of evidence given by Graco in the course of the hearing of the Principal Proceeding to the effect that some of the traceable proceeds of the Investment and Additional Payment had been received by them. Findings that…

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: [2020] VSC 464
Decision Date: 31 July 2020

CaseChat Overview and Summary

Chickabo Pty Ltd and Zphere Pty Ltd were involved in a dispute before the Federal Court of Australia. The nature of the dispute revolved around the breach of a fiduciary duty by the defendants, who were found to be acting in concert with alter ego companies to secure mutual benefit. The plaintiffs sought an account of profits from the defendants for their breach of fiduciary duty. Additionally, the plaintiffs sought a constructive trust over the profits made by the defendants, without specifying whether this was institutional or remedial. Lastly, the plaintiffs argued that the defendants were not entitled to any allowances for their substantial gains from the investment made in breach of fiduciary duty.

The legal issues before the court were whether the defendants, who were acting in concert with alter ego companies, were jointly and severally liable for the breach of fiduciary duty. The court also needed to determine if a constructive trust was necessary over the profits made by the defendants, and if so, whether it was institutional or remedial. Finally, the court had to decide whether the defendants were entitled to any allowances for their substantial gains from the investment made in breach of fiduciary duty.

The court held that the defendants were jointly and severally liable for the breach of fiduciary duty, as established in Grimaldi v Chameleon Mining NL (No 2). The court found that a constructive trust was necessary over the profits made by the defendants, but did not need to decide whether it was institutional or remedial. The court concluded that no allowances were appropriate or justified for the defendants, given the substantial gain from the investment made in breach of fiduciary duty. The court ordered that the defendants pay an account of profits to the plaintiffs, and that a constructive trust be imposed over the profits made by the defendants.

Orders