Georges v Wieland

[2010] NSWSC 1378

CITATION:	Georges & anor v Peter Wieland & ors [2010] NSWSC 1378
HEARING DATE(S):	29 July 2010
JUDGMENT DATE :	30 November 2010
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
DECISION:	Decree of specific performance rescinded to the extent that it remains unperformed. Held, in special circumstances of case and while decree of specific performance remained unperformed, alternative claim had not been finally disposed of. On alternative claim, held, breach of directors’ duties established, and plaintiff entitled to compensation. Plaintiff to bring in short minutes. See paras 56, 58.
CATCHWORDS:	PROCEDURE – Judgments and Orders – Finality – Liberty to apply – Further consideration - Decree for specific performance – Where defendant fails to perform – Where alternative claim against other defendants not decided - Whether proceedings against other defendants are finally disposed of when decree of specific performance remains unperformed – Whether open to further consider alternative claim upon rescission of decree – CORPORATIONS – Management and administration – Duties and liabilities of officers of corporation – Fiduciary and related statutory duties – Of good faith and proper purpose – To act in good faith in best interests of company – whether duties breached – Assessment of compensation
LEGISLATION CITED:	(CTH) Corporations Act 2001, s 79, s 181, s 182, s 471B, s 1317H, s 1317J (NSW) Civil Procedure Act 2005, s 56 (NSW) Uniform Civil Procedure Rules 2005, r 36.11, r 36.16
CATEGORY:	Consequential orders
CASES CITED:	Abigroup Ltd v Abignano (1992) 39 FCR 74 Australian Hardboards Ltd v Hudson Investment Group Ltd (2007) 70 NSWLR 201 Bailey v Marinoff (1971) 125 CLR 529 Bonnici v Kur-ring-gai Municipal Council [2001] NSWSC 1124 Buckman v Rose (1980) 1 BPR 9558 Georges v Wieland [2009] NSWSC 733 Haviland v McLeary (1894) 15 LR (NSW) Eq 22, (1894) 10 WN (NSW) 146 JAG Investment Pty Ltd v Strati [1981] 2 NSWLR 600 Johnson v Agnew [1980] AC 367 Ku-Ring-Gai Municipal Council v Bonnici [2002] NSWCA 313 Maritime Services Board (No 2) (1996) 14 BCL 375 Mordecai v Mordecai (1988) 12 NSWLR 58 Morrow v Tucker (No 2) [2006] NSWSC 1358 Muriti v Prendergast [2005] NSWSC 281 Phillips v Walsh (1990) 20 NSWLR 206 Pratt v Hawkins (1991) 32 NSWLR 319 Singh (Sudagar) v Nazeer [1979] Ch 474 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Zorbas v Titan Properties (Aust) Pty Ltd [2005] NSWSC 440
TEXTS CITED:	Edward Fry, A Treatise on the Specific Performance of Contracts, 6th ed (1921) Stevens & Sons Gareth Jones and William Goodhart, Specific Performance, 2nd ed (1996) Butterworths Ritchie’s NSW Supreme Court Practice
PARTIES:	Richard Georges (first plaintiff) Parra Power Tools Pty Ltd (second plaintiff) Peter Wieland (first defendant) Kristie Wieland (second defendant) Parramatta Tools Pty Ltd (third defendant) P R Wieland Investments Pty Ltd (fourth defendant) Grintara Pty Ltd (fifth defendant) Martin John Green (in his capacity as receiver of Parra Tools P/L) (sixth defendant)
FILE NUMBER(S):	SC 08/278303
COUNSEL:	R McKeand SC (plaintiffs) H Stowe (first & second defendants)
SOLICITORS:	Simon Diab & Associates (plaintiffs) Duncan Cotterill (first & second defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Tuesday, 30 November 2010

2008/278303 Richard Georges & Anor v Peter Wieland & 5 Ors

JUDGMENT

1 HIS HONOUR: This is a sequel to Georges v Wieland [2009] NSWSC 733, where the background is described. In short, prior to September 2005, the first plaintiff Mr Georges owned all the shares in the second plaintiff company Parra Power Tools Pty Ltd (“PPT”) which traded from premises in Granville, under sub-licence from Mr Georges who in turn was the tenant under a lease from one Mr Barbaro; PPT undertook to indemnify Mr Georges in respect of moneys payable under the lease, and to do all things necessary to enable a transfer of the lease into the company’s name. On 19 September 2005, by a share sale agreement of that date, Mr Georges agreed to sell to the fifth defendant Grintara Pty Ltd all the shares in PPT for $150,000; by a loan agreement between Grintara and PPT (“first loan agreement”), Grintara agreed to lend to PPT $250,000, of which $100,000 was to be applied in partial repayment of Mr Georges’ loan account in the company; and by a second loan agreement Grintara and the fourth defendant PR Wieland Investments Pty Limited (“PRWI”) agreed to lend to PPT $350,000, to be applied in repayment of the balance of Mr Georges’ loan account in the company. The first defendant Mr Wieland and the second defendant Mrs Wieland were directors of and shareholders in Grintara and PRWI. The practical effect of the three agreements was that the Wieland interests would acquire PPT from Mr Georges for a total of $600,000, of which $150,000 was attributable to equity and $450,000 to loan capital.

2 By May 2006, $500,000 of the $600,000 that Grintara and PRWI were obliged to lend under the loan agreements had been advanced, and PPT had repaid to Mr Georges $350,000 of the $450,000 that he had been owed on his loan account. However, $100,000 remained outstanding on his loan account, and the purchase price under the share sale agreement of $150,000 also remained unpaid. In May 2007, the Wielands took a number of steps, the effect of which was to remove control of the company’s business from PPT and to transfer its business to a new company Parramatta Tools Pty Ltd, of which they to the exclusion of Mr Georges were shareholders; to physically transfer the business from the Granville premises to premises at Parramatta from which the new company traded; and for the Wielands then to resign as directors of PPT, which they did on 11 July 2007.

3 In the substantive proceedings, Mr Georges sought to enforce the share sale agreement, in respect of which the purchase price remained unpaid and the shares untransferred. The company (which had returned to the control of Mr Georges) sought to enforce the second loan agreement, in respect of which $100,000 remained unlent. Grintara and PRWI cross-claimed for repayment of the moneys advanced under the two loan agreements. In the Amended Statement of Claim, Mr Georges and PPT also alleged that the Wielands had, in breach of their duties as directors of the company, and oppressively to Mr Georges, conducted the affairs of the company in a manner contrary to the interests of the members as a whole, by transferring its business, lease and goodwill to the new company, and executing a deed of fixed and floating charge in favour of Grintara and PRWI (and appointing a receiver pursuant to it) – which charge was subsequently rescinded by the company when it ultimately returned to Mr Georges’ control.

4 In the judgment given on 18 June 2009 [Georges v Wieland [2009] NSWSC 733], I held that, insofar as they remained unperformed, the agreements of 19 September 2005 should be specifically performed and carried into execution, and made orders to that effect, as follows:

(1) Order that insofar as they remain unperformed, the following agreements be specifically performed and carried into execution.


1.1 Share Sale Agreement dated 19 September 2005 between Richard Georges as seller, Grintara Pty Limited as buyer and P R W Investments Pty Limited as nominee;

1.2 Loan agreement dated September 2005 between Grintara Pty Ltd as lender and Parra Power Tools Pty Ltd as borrower; and

1.3 Loan agreement dated 20 September 2005 between Grintara Pty Limited and P R W Investment Pty Limited as lender and Parra Power Tools Pty Limited as borrower.

(2) In order to give effect to order (1), order that


2.1 Grintara Pty Limited pay to Richard Georges the sum of $150,000, being the balance purchase price under the Share Sale Agreement together with interest at the rate of 12% per annum on the sum of $37,500 being the deposit from 19 September 2005 until payment and $112,500 being the balance purchase price from 22 April 2006 until completion.

2.2 Grintara Pty Limited and PR Wieland Investments Pty Ltd pay to Mr Georges by direction of Parra Power Tools Pty Ltd the sum of $100,000 together with interest at the rate of 8%per annum from 26 April 2006 until payment.

2.3 Upon tender of the payments referred to in 2.1 and 2.2 Richard Georges transfer to Grintara Pty Limited the 12 shares held by him in Parra Power Tools Pty Ltd.


(3) Grant liberty to the parties to apply in the event of any difficulty arising in the implementation of the foregoing orders.

(4) Give judgment that Parra Power Tools Pty Limited pay to Grintara the sum of $141,490.

(5) Give judgment that Parra Power Tools Pty Limited pay to Grintara Pty Limited and PR Wieland Investments Pty Limited the sum of $203,700.

(6) Declare that upon performance by Grintara Pty Limited and/or PR Wieland Investments Pty Limited of its obligations under order 2.2 above, Parra Power Tools Pty Limited will be indebted to them for a further $100,000 upon the terms of the Grintara/PRWI loan agreement.

(7) These orders are made on the basis that it is not intended that the obligation of Grintara and PRWI under order 2.2 may be set off against the judgment under orders (4) and (5).

5 The practical effect of this was to require Grintara to pay Mr Georges the outstanding purchase price of $150,000 (and interest), to require Grintara and PRWI to pay to Mr Georges, by way of loan to PPT, a further $100,000 (being the balance under the second loan agreement); to require Mr Georges thereupon to transfer the shares in PPT to Grintara; and to oblige PPT to repay to Grintara and PRWI their loans. I ordered that the defendants pay the plaintiffs’ costs, to be assessed on an indemnity basis from 7 August 2008 (a relevant offer having been made).

6 At no time during the hearing was any discretionary defence to the claim for specific performance raised. In particular, it was not suggested that the agreements were impossible of performance, or that specific performance would occasion undue hardship. There was no suggestion that Grintara or PRWI would be unable to perform the agreements if ordered to do so.

7 In light of that outcome, it was unnecessary to deal with the breach of directors’ duties case. However, I made the following observations:

41 Many other issues were agitated in the pleadings and the evidence. The conclusions to which I have so far come relieve me of the necessity to examine them in any detail, it being sufficient to record the following. Had Mr Georges not succeeded in his claim for specific performance, then the case he mounted of breach of directors’ duties and oppression by the Wielands, in the sense that the affairs of the Company had been conducted in a manner contrary to the interests of the members as a whole, would seem formidable in light of the concessions made in cross-examination by both Mr and Mrs Wieland: they could not explain any benefit to the Company in transfer of its Business, lease and goodwill to Parramatta Tools; nor could they explain any benefit to the Company in the [creation] of the deed of fixed and floating charge. However, those conclusions are, in the light of the way the case has ultimately fallen for decision, unnecessary for my decision.

8 The matter returned to Court some weeks later, on 4 August 2009, in circumstances where the decree for specific performance had not been performed. The following further orders were then made:

1. Order that on 18 August 2009 at 11:00 am the defendants Grintara Pty Ltd and PR Wieland Investments Pty Ltd attend at the Law Society settlement rooms at 170 Phillip Street, Sydney to do all things necessary to complete the contract referred to in orders 1 and 2 made on 18 June 2009.

2. Order that the payments referred to in orders 2.1 and 2.2 be made on settlement.

3. If the defendants Grintara Pty Ltd and PR Wieland Investments Pty Ltd fail to do the things required by orders 1 and 2, then upon the plaintiffs depositing the executed share transfer referred to in order 2.3 made on 18 June 2009 with the Registrar in Equity, the defendant Grintara Pty Ltd forthwith make the payment referred to in order 2.1 of 18 June 2009 and the defendants PR Wieland Pty Ltd and Grintara Pty Ltd forthwith make the payment in order 2.2 of that day.

4. Order that the fourth and fifth defendants pay the plaintiffs’ costs of today on an indemnity basis.

5. Reserve liberty to the parties to apply on three days notice by arrangement with the Associate to Justice Brereton.

9 Representatives of the parties attended at the Law Society settlement rooms on 18 August 2009 at 11:00 am, but the defendants’ representative did not tender any payment, and the settlement therefore did not proceed. On the same day, the plaintiffs lodged with the Registrar in Equity an executed share transfer of the remaining shares in the company.

10 On 31 August 2009, Mr Georges served creditors’ statutory demands on Grintara (for $339,132.88, being principal of $250,000 plus interest, the principal reflecting the balance purchase price due under order 2.1, and the amount due under order 2.2), and on PRWI (for $126,564.38, being principal of $100,000 plus interest, the principal reflecting the amount due under order 2.2). On 20 November 2009, Mr Georges instituted winding up proceedings against Grintara and PRWI. On 12 February 2010, the court made an order winding up Grintara. The proceedings against PRWI were adjourned, the parties having entered into an arrangement pursuant to which, on or about 30 April 2010, PRWI made payment in accordance with order 2.2. In the meantime, on 21 December 2009, each of Grintara and PRWI had served creditors statutory demands on the company, claiming the debts referred to in orders 4 and 5 of 4 August 2009; these demands were subsequently withdrawn.

11 Thus, in terms of performance of the September 2005 agreements, and of the court’s orders, in substance there remains outstanding:

• First, the payment by Grintara to Mr Georges of the purchase price under the share sale agreement of $150,000 plus interest;
• Secondly, and reciprocally, the conveyance to Grintara of Mr Georges’ shareholding in PPT, representing the whole of the beneficial shareholding; and
• Thirdly, the repayment by PPT to Grintara of $141,490 outstanding on the first loan, and to Grintara and PRWI of $303,700 outstanding on the second loan (the amount having increased by reason of the payment of $100,000 made by PRWI on 30 April 2010).

12 However:

• Grintara being in liquidation, it now appears that there is no prospect of its performing the first of those obligations;
• In those circumstances, the interdependent and reciprocal second obligation on the part of Mr Georges to complete the transfer of his shareholding will not be performed, and Mr Georges will retain his shareholding and with it control of PPT, contrary to the assumption inherent in the principal judgment that, pursuant to the specific performance order, PPT would be owned and controlled by the Wielands;
• The evidence before the court discloses that, in its present condition, PPT has no capacity to repay the loans referred to in the third of those obligations.

13 It was in those circumstances that, on 4 May 2010, I adjourned for hearing on 25 June 2010 an amended Notice of Motion filed by the plaintiffs, and directed service of it on Grintara’s liquidator, by which the plaintiffs claim leave to proceed against Grintara (in liquidation), a stay of the judgments in favour of Grintara and PRWI against PPT, and an injunction restraining them from making any application to wind up PPT; vacation of orders 1.1, 2.1 and 2.3 of the orders made on 18 June 2009, and of orders 1, 2 and 3 made on 4 August 2009; and resumption of the proceedings for further consideration, in the event that the orders for specific performance had not been performed by Grintara and PRWI.

14 On 21 May 2010, a costs assessor assessed the costs payable by the defendants to the plaintiffs in the sum of $345,844.49, plus costs of the assessment amounting to $5,335.33. They remain unpaid. On 23 June 2010, Mr Barbaro commenced proceedings in the Administrative Decisions Tribunal against Mr Georges, claiming outstanding rent under the Granville lease of $70,000, outgoings of $3,891.13, repair costs of $21,631.50, and interest.

15 On 24 June 2010, Grintara’s liquidator wrote to the plaintiffs’ solicitor, advising that he neither objected nor consented to the orders sought by the plaintiffs, and that other than repayments due to Grintara from PPT it had no assets; he asked to be advised of the outcome in due course.

16 On 25 June 2010, there was no appearance for any of the defendants. I adjourned the proceedings to 29 July 2010 for two days provisionally, for the resumed hearing of the plaintiffs’ claim against Mr and Mrs Wieland, and directed that the plaintiffs notify the first, second, fourth and fifth defendants (and its liquidator) of the directions. I continued until 29 July a stay previously granted of the judgment in favour of Grintara and PRWI, and directed that the plaintiffs serve and lodge by 21 July 2010 any further evidence on which they proposed to rely on the adjourned hearing, and an outline of their submissions.

17 On 27 July 2010, Grintara’s liquidator again wrote to the plaintiffs’ solicitor, indicating that he would not be appearing at the hearing, but this time referring specifically to the application for a permanent stay of orders 4 and 5 of 18 June 2009, and for an injunction restraining Grintara and PRWI from taking action in reliance on the declaration in order 6, and stating:

As discussed, I confirm that I do not consent to the said orders being made and request that a copy of this correspondence be presented to the Court at the proceedings due to commence 29 July 2010.

18 On 28 July 2010, my chambers were notified by counsel and solicitors for the defendants that they were preparing a summons, seeking leave to appeal against my decision to set the matter down for “resumed hearing” of the plaintiffs’ claim against the first and second defendants, and to apply for a stay pending the hearing of that application, including an adjournment of the hearing on 29 July. When the proceedings came on for hearing on 29 July, I suggested that the proposed application for leave to appeal was at least premature; that to the extent necessary – as the order adjourning the proceedings “for resumed hearing” was made in the defendants’ absence – they could apply to have it set aside at first instance; but that in any event, the only operative decision was the adjournment, and it remained open to the defendants to argue before me that it was not open to further consider the claim against the defendants. Mr Stowe, who appeared for the defendants, accepted that suggestion, and provided to the court the very helpful and articulate written submissions that had been prepared in support of the application for leave, which he amplified orally. Mr Stowe however announced that he appeared only for the purpose of arguing that issue, and not on the substantive further hearing if it proceeded.

19 The first question, then, is whether it is open to the court, in the events that have happened, to further consider the plaintiffs’ claim for relief against the first and second defendants.

20 In their Amended Statement of Claim, the plaintiffs sought, inter alia, declarations and compensation – pursuant to (CTH) Corporations Act 2001 and also in equity – against the first and second defendants, founded on allegations that they had breached their statutory and fiduciary duties as directors of the company. Although, as explained above, I expressed the view that the plaintiffs’ case in that respect appeared formidable, I did not need formally to decide that question, because specific performance was to be granted. However, the orders made did not, at least expressly, dismiss those claims for relief. On the other hand, although there was a reservation of “liberty to apply in the event of any difficulty arising in the implementation of the foregoing orders”, there was no (at least express) reservation for further consideration. Subsequently, specific performance having become apparently impossible (due to the winding up of Grintara), the plaintiffs wish to have the decree for specific performance rescinded, at least in part, and the claim against the first and second defendants further considered in that light.

21 As a general rule, “once an order disposing of a proceeding has been perfected by being drawn up as the record of a court, that proceeding apart from any specific and relevant statutory provision is at an end in that court and is in its substance, in my opinion, beyond recall by that court” [Bailey v Marinoff (1971) 125 CLR 529, 530]. That rule is subject to a number of recognised qualifications and exceptions, including (NSW) Uniform Civil Procedure Rules 2005 r 36.16, reservation of liberty to apply, and reservation of further consideration.

22 The power conferred by UCPR, r 36.16, to reopen and vary orders is not applicable here, because it can only be exercised on an application made within fourteen days of the entry of judgment. As the defendants contended, the orders of 18 June 2009 are deemed to have been entered [UCPR, r 36.11]. I accept that the power of reopening and variation contained in UCPR, r 36.16 is not available, the fourteen day period referred to in r 36.16 (3A) and (3B) having elapsed.

23 Nor would the reserved liberty to apply, in respect of the “working out” of the substantive orders, of itself avail the plaintiffs. “Liberty to apply” does not authorise the grant of different relief against different parties. I accept that further consideration of the claims against the first and second defendants could not be supported by reason only of the “liberty to apply” reserved in paragraph 3 of the substantive orders, because such liberty related only to the “working out” of the substantive orders for specific performance, and not to relief in relation to some other cause of action; such liberty does not extend to an application made for the purpose of obtaining substantive relief that is substantially different from that given by the original order [Morrow v Tucker(No 2) [2006] NSWSC 1358; Abigroup Ltd v Abignano (1992) 39 FCR 74, 88; Australian Hardboards Ltd v Hudson Investment Group Ltd (2007) 70 NSWLR 201, [35], [51] (Campbell JA); Muriti v Prendergast [2005] NSWSC 281, [158]; Phillips v Walsh (1990) 20 NSWLR 206, 209-10].

24 That leaves the possibility of “further consideration”, which would be authorised here, in the absence of an express reservation, only if it were implicitly reserved. Resolution of this question involves consideration of the particular circumstances of these proceedings, and the particular relief granted, overlaid upon the usual approach of the court to orders for specific performance.

25 First, when a decree for specific performance is made, the court may grant further relief, including – where, despite the decree, the defendant fails or refuses to complete the contract – by rescinding the order and substituting alternative relief [see Edward Fry, Fry on Specific Performance, 6th ed (1921) Stevens & Sons at 546-7, [1170]-[1173]; Gareth Jones and William Goodhart, Specific Performance, 2nd ed (1996) Butterworths at 258-9; Morrow v Tucker (No 2), [8]-[9]]. So in Johnson v Agnew [1980] AC 367, Lord Wilberforce explained (at 393-4) that where an order for specific performance is not complied with by a purchaser, the vendor may either apply to the court for enforcement of the order, or apply to dissolve the order and ask the court to put an end to the contract. And as Campbell J (as his Honour then was) said in Zorbas v Titan Properties (Aust) Pty Ltd [2005] NSWSC 440, (at [12]), it is a general principle concerning orders for specific performance that once such an order has been made, the contractual rights of the parties are not superseded but their future exercise is under the control of the court, so that the working out of the order for specific performance is under the court’s control [see Singh (Sudagar) v Nazeer [1979] Ch 474, 481-2; Buckman v Rose (1980) 1 BPR 9558; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, 259-60]. Similarly, in Morrow v Tucker, Biscoe AJ said (at 21) that where an order for specific performance has been made, the rights and obligations of the parties come under the control of the court, and the working out of the order of specific performance is under the control of the court; reference was made to Pratt v Hawkins (1991) 32 NSWLR 319. Counsel for the defendants accepted that if, on such an application, the court allowed the contract to be discharged, it could substitute an award of damages; although I have not found a case that goes so far, the concession appears in principle to be necessarily correct. Thus, in the case of a decree for specific performance, it remains open to the court, in the event of continued non-performance, to substitute different relief.

26 Secondly, there is no problem with further consideration unless the proceedings have been disposed of by a final order, which may be influenced by the particular circumstances of a case. Thus, in Bonnici v Kur-ring-gai Municipal Council [2001] NSWSC 1124 orders were made on 11 November 1986 and entered on 6 February 1987 restraining the defendant from permitting or causing the flow of water from a street and footpath onto the plaintiffs’ land so as to create a nuisance, ordering the defendant to carry out specified abatement work, and reserving liberty to apply (at 8 [38], 9 [45]). Although the abatement work was performed, the plaintiffs asserted that it did not prevent the water nuisance from continuing, and they filed an application, in purported exercise of the liberty to apply seeking a declaration that there was a continuing nuisance, an order that the defendant cease it, an order for specified new drainage work to be performed, a declaration that water flowing in and over a drainage line situated on uphill neighbouring properties was causing a nuisance, and other relief, including special and general damages. The defendant sought summary dismissal of this application, but Sperling J held that it was within the scope of the liberty to apply. His Honour acknowledged the authorities as to the usual effect and scope of liberty to apply, adding a reference to Ritchie’s NSW Supreme Court Practice [42.12.2]:

Where liberty to apply is granted in relation to a final order, it is limited to matters concerning the implementation of the earlier order: Dowdle v Hillier (1949) 66 WN (NSW) 155; Cristel v Cristel [1951] 2 KB 725 at 730; Re Porteous [1949] VLR 383. It does not extend to the variation or amendment of the judgment or orders in respect of which the liberty to apply was granted ( Wentworth v Woollahra Municipal Council (CA,(NSW), 31 March 1983, unreported)).

27 However, his Honour continued:

[168] The statements of principle in these cases and in Ritchie's should be read as applicable to the ordinary case. The context may show that a more liberal meaning was intended in a particular case.

[169] As appears from the judgment of McLelland J in Phillips , the usual limitation on the scope of liberty to apply arises from the proceedings ‘[having] been disposed of by a final order’. That, speaking generally, forecloses further proceedings in the same cause. Exceptions do not extend to ‘an application made for the purpose of giving substantive relief not sought in the statement of claim or which is substantially different to that given by the final order’.
[170] In the present case, the proceedings have not been disposed of and the present claims are not outside the scope of the earlier process or substantially different from the orders previously made. In 1984, the plaintiffs sought relief against nuisance by the defendant. The consent orders of 11 November 1986 did not determine the issue as to whether any nuisance was being committed. In particular, the injunction in para1 of the orders left open whether the flow of water from St Johns Avenue onto the plaintiffs' land constituted a nuisance. Any attempt by the plaintiffs to enforce the injunction would have required proof that the situation in that regard constituted a nuisance. The order in para 3 was a mandatory injunction limited to the stormwater which would be carried within the upgraded IADL [inter allotment drainage line]. It did not relate at all to overland flow of stormwater. The core of the plaintiffs' case that the defendant was guilty of nuisance by discharging stormwater onto the plaintiffs' land, which would not naturally have flowed onto it, was not determined by those orders.
[171] For an order to be made now declaring that there has been a nuisance in that regard since the commencement of these proceedings would be to determine a claim made by the plaintiffs in the proceedings which was not determined by the orders made on 11 November 1986; and such an order made now would not be inconsistent with those orders.
[172] In the circumstances of the present case, such an order can be made within the ambit of the reservation of ‘liberty to apply’ construed in that context.

28 His Honour then described an alternative route to the same result:

[179] There is an alternative route to the same result. It is important to recognise that the hearing of these proceedings in November 1986 was not concluded by a determination of the court. The hearing was discontinued pursuant to an agreement. The parties agreed to discontinue the hearing on the basis of certain orders to be made concerning things to be done and not done, and a supplementary recorded agreement concerning further things to be done, without the proceedings being otherwise expressly dismissed or terminated. The agreed orders included an injunction in terms which left unresolved whether a continuation of the existing conditions would be in breach of the injunction.

[180] It must have been contemplated, in these circumstances, that, if it became necessary to resolve that question, the parties would have to come back to the court. Liberty to apply was reserved.

[181] Can it have been intended that, in that eventuality, the plaintiffs would have to commence fresh proceedings? It cannot. To so intend would serve no purpose. It would be absurd. Contractually, liberty to apply in this case included the right to move for a determination that the conditions existing at the commencement of the proceedings and continuing thereafter constituted a nuisance. The defendant is estopped by contract from opposing an application for that purpose.

29 The defendant appealed unsuccessfully from that decision [Ku-Ring-Gai Municipal Council v Bonnici [2002] NSWCA 313]. Meagher JA, with whom Sheller and Santow JJA agreed, in dismissing the appeal, said:

[18] …. At the time each order was made it is quite clear that neither party, nor the Court, thought that the orders would necessarily terminate the plaintiffs' complaints of flooding. Hence the attempts by both parties to revive the litigation after the first set of orders. In my respectful view, Sperling J applied the right principles.

30 Meagher JA referred (at [18]) to Sperling J’s reference to Phillips v Walsh, including the observation that the usual limitation on the scope of liberty to apply arose from the proceedings having been disposed of by a final order, and added:

In the present case, at no stage did anybody imagine that any orders were disposing of the case on a final basis.

31 In Australian Hardboards v Hudson, Campbell JA (with whom Tobias JA agreed; Young CJ in Eq dissenting) reviewed the above authorities and then observed (at [69]) that a reservation of liberty to apply by a 21st century judge of the New South Wales Supreme Court had to be understood in the context of the court’s practice and procedure and in particular (NSW) Civil Procedure Act 2005, s 56. Acknowledging (at [72]) that where the orders reserved further consideration, matters not disposed of by the orders made thus far could be dealt with on a later occasion, his Honour added (at [74]) that neither liberty to apply nor reservation of further consideration could be used to obtain an order that was outside the scope of those sought in the initiating process [Haviland v McLeary (1894) 15 LR (NSW) Eq 22; (1894) 10 WN (NSW) 146]. Noting that both parties to a contract had rights under a decree for specific performance [JAG Investment Pty Ltd v Strati [1981] 2 NSWLR 600, (603-604)], his Honour said (at [77]) that there was no reason in principle why issues decided pursuant to a reservation of liberty to apply and/or a reservation of further consideration were restricted to questions that the party that had obtained the order in question wished to raise; in other words, the other party could also raise such issues for consideration.

32 In Rosser v Maritime Services Board (No 2) (1996) 14 BCL 375, Young J addressed the scope of “further consideration” as follows:

However when one actually reads the authorities, one can see that the practice set out above is really a discretionary rather than an absolute rule. Especially is this so after the time when equity could itself try questions of fact instead of referring such issues to be tried by a jury at law; …

In almost every one of the old cases I have examined, it would seem that the real principle is that there must be a fair trial. If a matter has been determined at one stage of the proceedings, it is determined forever and cannot be reopened. If a point has been abandoned at an early stage of litigation, it has been abandoned forever. However, on due notice, where the significance of a matter was not appreciated at an early stage, or facts were not found which bear on the question of damages, there is no procedural problem which prevents the court from so doing. Even in 1863, the court took the view that it would not allow any technical rule to defeat substantial justice; see Howard v Chaffers (1863) 11 WR 585, 586. Of course, this is assuming that the court is not functus and due notice is given. The court will not be functus where the order has not been taken out or where further consideration has been reserved either generally or in such a way as to cover the point in question. On the present case, no-one took out any formal order, so the court is not inhibited from revisiting any matter if it considers it appropriate to do so.

33 In the present case, there was in my view an implied reservation of further consideration. I entirely accept that mere reservation of liberty to apply was insufficient to achieve that. I also accept that merely not making orders in respect of the personal claims against Mr and Mrs Wieland would have been insufficient to have that effect. However, in this case a number of circumstances combined to show that further consideration was reserved, at least so long as the decree for specific performance remained unimplemented. First, there was a specific performance order carrying with it implicitly the notion that that order would remain under the control of the court, and that if the parties bound by it did not perform it, the court might substitute some different order. Secondly, there is the circumstance that a manifestly strong case against Mr and Mrs Wieland did not result in orders against them, expressly because a specific performance order was to be made. Thirdly, there is the relationship between Mr and Mrs Wieland on the one hand, and Grintara and PRWI on the other, and the circumstance that no defence of impossibility or hardship was raised in the substantive proceedings to the claim for specific performance, nor any suggestion advanced that the decree could not be performed. Fourthly, there is the fact that the personal claims against the Wielands were not expressly dismissed. While final orders had been made in the proceedings in respect of most of the claims, no order had been made in respect of those claims; in light of the observations then made in respect of them (set out above), and the reasons given for not resolving them, it could not be said that they had been implicitly dismissed; the possibility that they might be pursued remained alive, at least so long as the order for specific performance remained unperformed. Fifthly, the relief now sought in substitution for the decree for specific performance was sought in the statement of claim as amended at the time of hearing.

34 In my view, therefore, at least so long as the decree for specific performance remained unperformed, there had not been a final disposal of the personal claims against Mr and Mrs Wieland such as to attract the doctrine of res judicata, and it remained open, in the event that the contract was not specifically performed, to rescind the specific performance decree and substitute other orders, not limited to orders against Grintara, but extending to orders on the personal claims against Mr and Mrs Wieland. As in Bonnici, so in this case, the context shows that a more liberal than ordinary meaning was intended by the reservation of liberty to apply, and - to borrow the language of Meagher JA (at [18]), nobody – least of all Mr and Mrs Wieland – could have imagined that if their company Grintara did not perform the obligations imposed on it by the decree of specific performance, but instead went into liquidation, then the personal claims against them, which had been said to be apparently formidable, had nonetheless been disposed of on a final basis.

35 As orders 1.1, 2.1 and 2.3 of 18 June 2009 have not and will not be performed, due to continuing default on the part of Grintara, I will to that extent rescind the specific performance decree. However, the first loan agreement (order 1.2) has been fully performed. The second loan agreement (orders 1.3 and 2.2) has been fully performed ($250,000 having been advanced in April 2006, and $100,000 pursuant to the decree). Mr Georges has received $450,000, being repayment of his loan capital. While $150,000 remains outstanding to him in respect of his equity payment, although he has deposited a transfer of his shares with the registrar, he retains an unpaid vendor’s lien over his shareholding. As what was decreed was specific performance of three agreements forming related parts of one transaction, I have considered whether, if the decree for specific performance were rescinded, it should be rescinded in respect of the whole transaction, including the loan agreements, and whether Mr Georges and/or the company should have to give restitution of what they have received under the transaction to this point. However, rescission of a decree for specific performance is not equivalent to rescission ab initio of the underlying contract, with some concomitant requirement for restitutio in integrum: the more appropriate analogy is with termination for breach, whereupon no obligation to give restitution arises. Moreover, restitution would in any event produce practically the same result as obtains in the circumstance of performance to date of the loan agreements, as reflected in paragraphs 4, 5 and 6 of the 18 June 2009 orders. It is therefore neither appropriate nor necessary to rescind so much of the decree as has been performed.

36 As to what relief should be substituted, the starting point would ordinarily be an award of damages in lieu of specific performance against Grintara – but Grintara is no more able to pay damages than to perform its obligation to pay the purchase price. As it is in liquidation that course would be illusory, and for that reason would not negate the requirement to consider the personal claims against Mr and Mrs Wieland, which were superfluous when it was apprehended that Grintara, if ordered to do so, would perform its obligations.

37 For the reasons given briefly in the principal judgment (at [41]) and repeated above, the plaintiffs’ claims for breach of directors’ duties by the Wielands must succeed. It is sufficient to conclude that Mr and Mrs Wieland, in executing the deed of charge as directors of the company on 28 May 2007, as security for the two loans, used their powers as directors not in good faith for the best interests of the company, and improperly to gain an advantage directly for Grintara and PRWI and indirectly for themselves, to the detriment of the company. Likewise, in abandoning the Granville premises while the sub-licence remained on foot and taking a sub-lease of the Victoria Road premises, in preparation for appropriating to Parramatta Tools Pty Limited the business of the company and the lease of the Victoria Road premises, they used their powers as directors not in good faith for the best interests of the company, and improperly to gain an advantage directly for the third defendant Parramatta Tools Pty Limited, to the detriment of the company. In those respects, they contravened Corporations Act, s 181(1) and s 182(1).

38 This course of conduct was calculated to enable the Wielands and their entities to gain control of the assets of PPT. The plaintiffs contend that Grintara and PRWI were “involved”, within the meaning of Corporations Act, s 79, in the contraventions. Although it does not necessarily follow, from the circumstance that the persons who were directors of Grintara and PRWI knew of and participated in the contraventions, that those companies were “knowingly concerned” and thereby “involved” in the contraventions, in this case Grintara and PRWI were participants in and beneficiaries of the contraventions, by reason of the fact that not only did they know of the contraventions (through their directors, who committed them), but also they participated in them, by taking the charges, with a view to appointing receivers and thereby gaining control of the assets of PPT. I would therefore accept that Grintara and PRWI were relevantly involved in the contraventions, and thereby committed contraventions of Corporations Act, ss 181(2) and 182(2).

39 As under Corporations Act, s 1317J(1), only ASIC has standing to seek a declaration of contravention, it is inappropriate in my view to grant declaratory relief. However, under s 1317J(2), PPT has standing to claim compensation under s 1317H.

40 The plaintiffs relied on a report of John Dickie, chartered accountant, who concluded that PPT’s business was worth $600,000 as at 16 September 2005, but nil after the events of 28 May 2007 (which involved the appropriation, to the interests of the Wielands and/or their entities, of the assets), a decrease of $600,000. The plaintiffs submit that this decrease in value of $600,000 (plus interest) is the amount of PPT’s loss by reason of the Wielands’ breaches of duty, as a result of the conversion of its business to their new company, and by analogy with Mordecai v Mordecai (1988) 12 NSWLR 58, in which Hope JA (with whom Samuels and Priestley JJA agreed) said (at 71) that where the directors had appropriated the company’s business to themselves, damages were measured by reference to the value of the goodwill of the business determined on the basis of what they would have had to pay had they obtained it lawfully, being the value of the business misappropriated.

41 At first sight, it might appear curious that non-performance of an obligation to pay $150,000 should lead to a judgment for $600,000. However, ultimately I accept that $600,000 accurately comprehends the loss suffered by PPT (as distinct from Mr Georges, whose loss is $150,000 approximately). This is so, because:

a. the $150,000 was payable to Mr Georges, as consideration for the share capital, not to the company;

b. when valuing the company and its business, the loan capital is not an arm’s length liability, and has to be added to the value of the shares in order to arrive at the value of the business (Dickie, paragraph 6.3);

c. in fact, compensation of $600,000 would result in the company having an equity of about $150,000, after provision for the loan accounts, and the Wieland interests will remain entitled to retrieve about $450,000 on the loan accounts.

42 As has been mentioned, the plaintiffs sought a permanent stay of the judgments against PPT in favour of Grintara and PRWI under paragraphs 4 and 5 of the 18 June 2009 orders, and a restraint on any action under the declaration contained in paragraph 6 of those orders. However, I do not see why there should be a permanent stay. The Wielands will be obliged to pay PPT $600,000 approximately. However, PPT is liable to pay Mr Georges only $150,000, and will be obliged to repay approximately $450,000 to Grintara and PRWI. The judgments in favour of Grintara and PRWI recognise that obligation. In a practical sense, the Wielands’ obligation to pay PPT $600,000 could be satisfied by paying $141,900 (plus interest) to Grintara, and $303,700 (plus interest) to Grintara and PRWI, with the remaining $150,000 approximately to PPT. It would therefore not be right permanently to stay the operation of paragraphs 4, 5 and 6 of the original orders; to do so would confer on the plaintiffs benefits in excess of their proper entitlement. However, in order to ensure that the Wielands do not prefer their own interests, a temporary stay, until PPT has been paid, would be appropriate.

43 As has been mentioned, PPT agreed to indemnify Mr Georges in respect of moneys payable to Mr Barbaro under the lease of the Granville premises. While under the control of the Wielands, PPT’s business was, on 1 May 2007, relocated from the Granville premises to the Victoria Road Parramatta premises, while the Granville lease and sub-licence remained on foot. Thus while it remained liable in respect of the Granville premises, which it effectively abandoned, it also assumed liability in respect of the Victoria Road premises. There is no apparent explanation as to why or how it could have been bona fide in the interests of the company to be exposed to liability in respect of two premises concurrently.

44 On 21 April 2008, Mr Barbaro initiated proceedings against Mr Georges to recover arrears in respect of Granville; the claim remains unresolved. Under the Granville sub-licence, PPT is liable to indemnify Mr Georges in respect of any liability he might have to Mr Barbaro under the head lease. Any such liability of PPT will have been incurred as a result of the removal of the business from Granville to Parramatta, the assumption by PPT of responsibility for the Victoria Road premises, and the appropriation to Parramatta Tools of the business of the company (with the result that it was unable to service the Granville lease). Thus, the Wielands’ breaches of their duties to the company have caused it to incur that liability to Mr Georges. They are therefore liable to compensate PPT in respect of that liability. As the liability of PPT to indemnify Mr Georges, while current, has not yet been ascertained, that outcome may be achieved by ordering the Wielands to indemnify PPT in that respect, reserving liberty to apply if necessary in respect of the implementation of the order.

45 At the resumed hearing, Mr Stowe of counsel – who appeared for the Wielands and argued the matter with great ability and courtesy – announced that he appeared only on the reopening application, and not in the substantive proceedings. At the conclusion of the hearing of argument on the reopening application, I asked whether the Wielands had any submissions to make on the substantive claim, if I were to find that there was jurisdiction to conduct the resumed hearing; Mr Stowe informed the court that he was not instructed in relation to those matters and had no submissions to make. Accordingly, I received the submissions of Mr McKeand for the plaintiffs, and reserved judgment.

46 On 2 August 2010, a communication was received in my chambers from the Wielands’ solicitors, advising that they had since received instructions on the substantive question, had sought unsuccessfully to reach agreement with the plaintiffs on directions to accommodate an opportunity to address them, and therefore sought to have the matter relisted for further directions before I gave any judgment on the substantive claim.

47 I deprecate the practice of instructing counsel to appear on a limited basis (such as to seek an adjournment or, in this case, to argue only the application for further consideration) and not to address the substantive matter if the initial application fails, but then belatedly to seek a further opportunity to be heard on the substantive matter. The decision to appear on a limited basis is a calculated forensic position, and by adopting it a party assumes the risk that it will be not heard on the substantive issue. While I am reluctant to deny a party every reasonable opportunity to be heard, in this case the defendants had their opportunity to be heard, and in effect made a calculated forensic decision not to take advantage of it, but to present only a limited case. In my view it would be quite wrong now to permit them to resile from that calculated position, belatedly to argue the substantive question.

Conclusion

48 For the foregoing reasons, I have reached the following conclusions:

49 At least so long as the decree for specific performance remained unperformed, there had not been a final disposal of the personal claims against Mr and Mrs Wieland such as to attract the doctrine of res judicata, and it remained open, in the event that the contract was not specifically performed, to rescind the specific performance decree and substitute other orders, not limited to orders against Grintara, but extending to orders on the personal claims against Mr and Mrs Wieland.

50 As orders 1.1, 2.1 and 2.3 of 18 June 2009 have not and will not be performed, due to continuing default on the part of Grintara, the specific performance decree should to that extent be rescinded.

51 The Wielands, in contravention of Corporations Act 2001, s 181(1) and s 182(1), and in breach of their fiduciary duties owed to PPT as its directors, exercised their powers as directors of PPT otherwise than in good faith in the best interests of PPT for a proper purpose, and used their position to gain an advantage for themselves and their company Parramatta Tools Pty Limited and to cause detriment to PPT by:

• on 28 May 2007 executing a deed of fixed and floating charge over the assets and undertaking of PPT in favour of Grintara and PRWI;
• between 29 May and 14 June 2007 procuring the transfer of the business of PPT to Parramatta Tools Pty Limited;

• relocating the business of PPT from Granville to Parramatta and causing it to make default under the licence of the Granville premises and thereby to incur a contingent liability to Mr Georges pursuant to its agreement to indemnify him in respect of any moneys payable under the lease from Mr Barbaro.

52 PRWI and Grintara were involved within the meaning of Corporations Act, s 79 in the said contraventions, and thereby contravened Corporations Act, s 181(2) and s 182(2).

53 PPT has suffered damage amounting to $600,000, being the value of its business, as a result of those contraventions.

54 PPT remains indebted for approximately $450,000 to Grintara and PRWI. The judgments and declaration in favour of Grintara and PRWI in paragraphs 4, 5 and 6 of the 18 June 2009 orders recognise that obligation, and it would therefore not be right permanently to stay their operation; however, a temporary stay, until PPT has been paid, is appropriate.

55 PPT is liable to indemnify Mr Georges in respect of any liability he may have to Mr Barbaro in respect of the Granville premises. That liability has been incurred as a result of the Wielands’ breaches of their duties to PPT by appropriating PPT’s business and removing it from Granville to Parramatta. They are therefore liable to compensate PPT in respect of that liability.

56 I propose to make orders to the following effect, but – inter alia because it is conceivable that greater mathematical precision may be attainable, to permit interest to be calculated, and because it may be considered that further detail in at least some of the orders is desirable – I shall afford the parties an opportunity to bring in short minutes, to give effect to this judgment:

1. Grant leave to the plaintiffs, pursuant to Corporations Act, s 471B, to proceed with this proceeding against the fifth defendant Grintara Pty Limited (in liquidation), upon terms that any judgment not be executed against the assets of Grintara Pty Limited without the further leave of the court.

2. Set aside:

2.1 Orders 1.1, 2.1 and 2.3 made on 18 June 2009; and

2.2 Orders 1, 2 and 3 made on 4 August 2009.

3. Order that the share transfer deposited with the Registrar in Equity by the plaintiffs on 18 August 2009 be returned to the plaintiffs.
4. Order pursuant to Corporations Act, s 1317H, that the first, second, fourth and fifth defendants pay the second plaintiff compensation in the sum of $600,000 (plus interest).

5. Declare that payment to the fifth defendant to the extent of $141,900 (plus interest), and to the fourth and fifth defendants to the extent of $303,700 (plus interest), in satisfaction of the judgments referred to in paragraphs (4) and (5) and the declaration in paragraph (6) of the orders of 18 June 2009, shall pro tanto be satisfaction of the above order.

6. Order that execution of the judgments in paragraphs 4 and 5 of the orders made on 18 June 2009 be stayed until further order.

7. Reserve liberty to the fourth and fifth defendants to apply to vacate the above stay upon having paid to the second plaintiff the difference between the amount payable under order 4 and the amounts referred to in paragraph 5.

8. Order that the first, second, fourth and fifth defendants indemnify and keep indemnified the second plaintiff in respect of all its liability to indemnify the first plaintiff in respect of all and any liability he may be held to have to Mr Barbaro under or in respect of the lease of the Granville premises.

9. Reserve liberty to the plaintiffs to apply in respect of the implementation of order 8.

57 The costs order made on 18 June 2009, that the defendants pay the plaintiffs’ costs, to be assessed on an indemnity basis from 7 August 2008, in the absence of any other order, covers the proceedings on further consideration, and I intend that it apply.

58 I direct that the plaintiffs bring in short minutes to give effect to this judgment.

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