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Klein v Mochkin

Klein v Mochkin

Case [2024] VSCA 174 8 August 2024

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SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2022 0115

YECHIEL KLEIN & ORS (ACCORDING TO THE ATTACHED SCHEDULE)	Applicants
v
YOSEF MOCHKIN & ANOR (ACCORDING TO THE ATTACHED SCHEDULE)	Respondents

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JUDGES:	KENNEDY, WALKER and MACAULAY JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	6 May 2024
DATE OF JUDGMENT:	8 August 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 174
JUDGMENTS APPEALED FROM:	[2022] VCC 1385 (Judge Burchell); [2022] VCC 1835 (Judge Burchell).

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EQUITY – Account of profits – Where former partners had breached fiduciary duties by use of partnership property in new business – Where judge ordered errant fiduciaries to account for profits of new business – Where profits accounted for to diminish over time – Appropriate calculation of diminution – Diminution did not adequately reflect exertions of errant fiduciaries and change in nature of business – Account of profits re-calculated.

EQUITY – Account of profits – Where judge ordered errant fiduciaries to account for capital value of new business in addition to profits – Whether order to account for capital value appropriate – Order to account for ‘benefit’ under s 33(1) of Partnership Act1958 can include capital value – No error in judge’s conclusion that new business would not exist ‘but for’ breach of fiduciary duty – Whether share of capital value ordered appropriate – Share of capital value would result in ‘windfall’ to party seeking relief – Account of profits re-calculated.

EQUITY – Unclean hands – Whether party seeking relief had engaged in misconduct with ‘immediate and necessary relation’ to relief sought – Whether party who had engaged in disentitling conduct has ‘washed’ unclean hands – Relevance of misconduct of other party to exercise of discretion to refuse relief – Unclean hands defence not made out.

Partnership Act 1958, s 33.

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; Warman International Ltd v Dwyer (1995) 182 CLR 544; Meyers v Casey (1913) 17 CLR 90, applied; Sang Lee Investment Co Ltd v Wing Kwai Investment Co Limited [1983] HKLR 197 (PC); Black Uhlans Incorporated v Crime Commission (NSW) [2002] NSWSC 1060; Zphere Pty Ltd v Pakis (2022) 69 VR 338; Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour (2004) 49 ACSR 612, discussed.

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Counsel
Applicants:		Mr AL Ounapuu
Respondents:		Mr MI Ravech with Mr N Ainsworth
Solicitors
Applicants:	Rosendorff Lawyers
Respondents:	Rotman & Morris

TABLE OF CONTENTS

Introduction and summary of conclusions

Summary of key facts

Legislation and relevant legal principles

Ground 1 and the notice of contention: The unclean hands defence

The parties’ submissions on the unclean hands issue

Consideration of the unclean hands issue

Ground 2: The diminution of Mochkin’s share of the William Klein profits

The judge’s reasons

The parties’ submissions on ground 2

Consideration of ground 2

Ground 3: Whether Klein and Segman must account for the capital value of the William Klein business

The judge’s reasons

The parties’ submissions on…

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.

Continue reading Klein v Mochkin

Details

AGLC: Klein v Mochkin [2024] VSCA 174
Case: [2024] VSCA 174
Decision Date: 8 August 2024

CaseChat Overview and Summary

In the case of Klein v Mochkin, the matter before the court was a dispute between former partners, Klein and Mochkin, who had breached their fiduciary duties by using partnership property in a new business venture. The primary legal issues addressed by the court were the appropriate calculation of the profits made by Mochkin from the new business, the fairness of an order for Mochkin to account for the capital value of the new business, and whether Klein was precluded from relief due to the doctrine of unclean hands. The court was required to determine if the profits and capital value Mochkin was ordered to account for were a fair reflection of the gains derived from the breach of fiduciary duty, and whether Klein’s past misconduct disqualified them from receiving equitable relief.

The court examined the diminishing profits over time and found that the original calculation did not adequately reflect the efforts and changes in the business nature post-breach. It was concluded that the profits should be re-calculated to more accurately reflect the benefits derived from the breach. Regarding the capital value of the new business, the court held that the order for Mochkin to account for it was appropriate, as it was a benefit obtained due to the breach under section 33(1) of the Partnership Act 1958. However, the share of the capital value ordered resulted in an undue windfall to Klein, and therefore, the court adjusted this aspect of the account of profits. Finally, the court considered whether Klein’s past misconduct under the doctrine of unclean hands precluded them from relief. The court found that Klein’s misconduct did not sufficiently relate to the relief sought and did not establish the defence of unclean hands.

The court ordered Mochkin to account for the profits of the new business based on a re-calculated figure, and adjusted the share of the capital value to avoid an unfair windfall to Klein. The court determined that Klein’s misconduct did not bar them from obtaining equitable relief, and thus, the order for Mochkin to account for profits and capital value was upheld with modifications.

Orders