Lily & Ruby Holdings Pty Ltd v Aulich Civil Law Pty Ltd (In Liquidation)

[2024] ACTSC 412

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:

Lily & Ruby Holdings Pty Ltd v Aulich Civil Law Pty Ltd (In Liquidation)

Citation: 

[2024] ACTSC 412

Hearing Date: 

19 December 2024

Decision Date: 

19 December 2024

Before:

McCallum CJ

Decision: 

See [24].

Catchwords: 

CIVIL LAW – JURISDICTION, PRACTICE AND PROCEDURE – ex parte application for freezing orders – whether evidence establishes a good arguable case – whether evidence establishes a risk that the defendants will dissipate assets – whether balance of convenience justifies the freezing orders

Legislation Cited: 

Corporations Act 2001 (Cth) s 233

Parties: 

Lily & Ruby Holdings Pty Ltd ( First Plaintiff)

Erin Brooke Taylor ( Second Plaintiff)

Aulich Civil Law Pty Ltd (In Liquidation) (First Defendant)

Peter William Woodhouse (Second Defendant)

Angiesal Pty Ltd (In Liquidation) (Third Defendant)

Benjamin Joseph Aulich (Fourth Defendant)

Gracie Gill Pty Ltd (Fifth Defendant)

Representation: 

Counsel

A Opas ( First and Second Plaintiff)

Solicitors

Bradley Allen Love Lawyers ( First and Second Plaintiff)

File Number:

SC 260 of 2024

McCALLUM CJ:       

EX TEMPORE REASONS (REVISED)

1․Before the Court is an application brought by Lily & Ruby Holdings Pty Ltd and Ms Erin Brooke Taylor against Aulich Civil Law Pty Ltd (in liqudation) as first defendant; Peter William Woodhouse as second defendant; Angiesal Pty Ltd (in liquidation) as third defendant; Benjamin Joseph Aulich as fourth defendant; and Gracie Gill Pty Ltd as fifth defendant.  The first and third defendants being in liquidation, the proceedings can only continue against the individual defendants, Mr Woodhouse, Mr Aulich and the fifth defendant, Gracie Gill Pty Ltd. 

2․The application has been brought after the end of the law term on an urgent basis to seek interlocutory freezing orders.  I note as a preliminary matter that the application would ordinarily have come before the duty judge.  This week, that is Taylor J.  However, her Honour is unable to sit in any matter involving Mr Aulich by reason of prior associations with him.  In that context, I note that I heard an application last week in unrelated proceedings against Mr Aulich.  However, I do not see any conflict of interest between my presiding over those proceedings and my hearing the present application.  Indeed, if anything, my awareness of both proceedings is a matter that operates in Mr Aulich’s favour, as I am aware, by reason of my involvement in the unrelated proceedings, of his need for access to funds to meet his legal costs in those proceedings.

3․The present application is brought ex parte.  The application is supported by two affidavits sworn by Ms Erin Brooke Taylor.  On the strength of that material, the circumstances in which the application is brought may be summarised as follows. 

4․Ms Taylor commenced working for Aulich Civil Law Pty Ltd (ACL) some time before 2019.  There were discussions about her becoming a partner of the firm and that was expected to occur in 2018.  However, at around the same time, Ms Taylor commenced a romantic relationship with Mr Aulich and it was decided for that reason to defer her joining the partnership. 

5․On 14 February 2019, Ms Taylor received a letter under the hand of Mr Aulich and Mr Woodhouse, each describing himself as “partner” on the letterhead of Aulich Criminal Law, Aulich Civil Law and Aulich Property Law.  The letter was addressed from Peter Woodhouse in his role as director of Aulich Civil Law and Benjamin Aulich in his capacity as director of ACL.  It offered Ms Taylor the role of partner to commence on 1 July 2019.  Plainly from the context, the offer was for her to become a partner of ACL.

6․As stated in the letter, ACL is a law firm run by a corporate entity.  The role was accordingly offered to Ms Taylor on the following basis:

1.     Appointment of you as Director of ACL;

2.     You purchase 25% of the shares in ACL for the sum of $500,000. We understand the     purchase of the shares may be made and ownership held by a corporate entity      controlled by you, which may also act as a corporate trustee;

3.     You are entitled to 6 weeks’ holiday per annum;

4.     You are entitled to a Director’s salary in the sum of no less than $220,000 (inclusive of       superannuation) – to be reviewed per annum;

5.     Should you leave the partnership (for whatever reason) within the first 5 years, the         existing shareholders or ACL will purchase your shares in ACL for the sum of $500,000;

6.     Should you leave the Partnership (for whatever reason) after 5 years the existing shareholders or ACL may purchase your shares in ACL for market value; and

7.     You will NOT be required to personally guarantee any of the existing, debt, loans or       overdraft facilities available to ACL.

7․The offer may be taken to have been accepted by Ms Taylor by her paying the sum of $500,000, acquiring the 25 per cent shareholding (which, as it turned out, was 25 shares) and commencing work as a partner on the date indicated, 1 July 2025.

8․Ms Taylor’s romantic relationship with Mr Aulich came to an end.  Not long after that, she left the partnership.  There does not appear to be any dispute that she did so within five years after 1 July 2019.  Accordingly, if the letter of offer and its acceptance by Ms Taylor brought about a partnership agreement, as would appear to be the case on the face of the material to which I have referred, she was, upon leaving the partnership, entitled to have the existing shareholders or ACL purchase her shares in ACL for the sum of $500,000.

9․I note that there may be a typographical error in par 5 of the letter of offer in that it may have been intended to refer to the existing shareholders of ACL (rather than “or ACL”).  I say that because the company could not fund the purchase of shares in itself in a way that did not breach the Corporations Act 2001 (Cth). In any event, it is clear enough that the shareholders, who included the companies associated with the two directors, Mr Woodhouse and Mr Aulich, were obliged to buy back Ms Taylor’s shares at that time for the sum indicated.

10․Ms Taylor’s steps to recover the money she claimed she was owed were met with a stoney silence on the part of Mr Aulich and Mr Woodhouse.  It is not necessary to recite the details of the correspondence that was exchanged during that period, save to say that, ultimately, Ms Taylor commenced proceedings.  That appears to have attracted their attention.

11․In a letter dated 29 July 2024, Mr Woodhouse set out the reasons he contends Ms Taylor is not entitled to the amount of $500,000.  Probably the principal factor referred to by Mr Woodhouse in that letter is the contention that the letter of offer did not give rise to a binding agreement and was rather an agreement to agree.  Mr Woodhouse further wrote:

We did not understand the word “will'” at item 5 of the Letter to impose an obligation to purchase the shares.  The use of “will” was a reference to the future, but not to create an obligation on the existing shareholders.

12․Mr Woodhouse’s letter proceeded to explain potential difficulties and ambiguities with the phrase “the existing shareholders”, noting that there were others beyond those identified in the letter of 14 February 2019.  Those are matters which may be agitated in the proceedings in due course.  However, I am satisfied that there is, prima facie, a good argument that the letter gave rise to immediately binding legal obligations.  Most legal obligations recorded in a written agreement are obligations that are to be performed in the future.  In that context, Mr Woodhouse’s assertion that the word “will” did not give rise to any legal obligation is difficult to understand. 

13․In any event, further events have happened, as a result of which Ms Taylor now apprehends a risk of dissipation of assets to defeat her claim. 

14․Ms Taylor’s claim is not without complexity. Originally it was commenced by an originating process. Ainslie-Wallace AJ subsequently ordered Ms Taylor and Lily & Ruby Holdings to file a statement of claim. That was done on 8 November 2024. At the time that statement of claim was filed, ACL was in liquidation. It is not clear from the material before me whether the author of the pleading was aware of that fact when the pleading was filed. What is clear is that that event gives rise to some difficulties with one or more of the causes of action pleaded. In particular, the pleading asserts “oppressive conduct” on the part of each of Woodhouse and Aulich, invoking the provisions of s 233 of the Corporations Act.  As I understand those provisions, they create remedies for the members of a company on the premise that the company continues to exist. 

15․Without having had any real opportunity to research this issue, I would have thought that the claims against the individual directors based on alleged oppressive conduct in respect of the affairs of ACL are no longer maintainable now that the company is in liquidation.  On that basis, I am not satisfied that it would be appropriate to grant interlocutory relief against Mr Aulich on the foundation of those parts of the pleading. 

16․However, from par 68 of the statement of claim, there is pleaded an alternative cause of action against Mr Aulich and Mr Woodhouse based on fiduciary obligations allegedly owed to each other as partners under the partnership agreement. 

17․In my opinion, albeit preliminary, even though the partners acquired their shares in the company through their respective controlled corporate entities, the partners in a law firm would owe each other fiduciary obligations in accordance with conventional partnership principles.  Accordingly, I am satisfied that there is a good, arguable claim that Ms Taylor has against Mr Aulich, in particular, in respect of steps he has taken between the time when she left the firm and the time of the bringing of this application, evidently to place ACL in liquidation and divest himself of personal assets.  In case it is not clear from what I just said, I indicate that there seems to me, on the pleading, to be a good, arguable claim for equitable compensation payable by Mr Aulich to Ms Taylor.

18․The plaintiffs provided a written outline of submissions in support of the application today, which I will mark for identification MFI 1 and place with the court file (in circumstances where the application is brought ex parte).  Those submissions set out in uncontroversial terms the principles to be applied in determining whether to grant a freezing order.

19․I have already explained my reasons for being satisfied that there is a good, arguable case, at least at the suit of Ms Taylor, and possibly also at the suit of Lily & Ruby Holdings Pty Ltd, against Mr Aulich for breach of fiduciary duty.  The evidence establishes that there is a risk that Mr Aulich will dispose of assets in a way that would render any judgment against him valueless or of a diminished value.  That conclusion is reached on the strength of Ms Taylor’s December affidavit which explains the matters she has observed which have prompted her to bring the present application.  They include the sale of a property at Tomakin (addressed in pars 11 to 15 of the affidavit) and the proposed sale of a property at Ainslie (addressed from par 34 of the affidavit).

20․As already indicated, I am mindful of the fact that Mr Aulich has a need for access to funds for legal representation in the unrelated proceedings and, evidently, also in other proceedings involving other shareholders or former shareholders in ACL, Mr Pappas and Ms Scott.  However, the orders sought today have been carefully crafted to take those needs into account.

21․Finally, as to the balance of convenience, in my assessment the balance of convenience favours the granting of the freezing order, particularly having regard to the careful crafting of the orders sought, which entails no measure of overreach, and the willingness of the personal plaintiff, Ms Taylor, to give the usual undertaking as to damages.  I note, in particular, that the orders do not seek to prevent the completion of any sale of the Ainslie property.

22․For the reasons I have explained, the orders can be made only against Mr Aulich, as I am not satisfied as to the existence of a cause of action against Gracie Gill Pty Ltd, against which the principal claim arises from the oppression suit which, in my assessment, is now ill-fated, as is any enforcement of the partnership agreement insofar as it involves the corporate entities in liquidation.  However, I note that Mr Aulich, according to the information available to the representatives of the plaintiffs, is the sole shareholder in both Gracie Gill Pty Ltd and Ollie Grace Holdings, an entity to which that company’s shares in the civil arm of Aulich have recently been transferred.

23․Accordingly, Mr Opas indicated his preparedness to proceed on the basis that the orders would be made only against Mr Aulich. 

Orders

24․For those reasons I make the following orders:

(1)         (a)       The Application seeking this order is made returnable immediately.

(b)The time for service of the Application and supporting affidavits is abridged and service is to be effected by 2:00pm on Thursday 19 December 2024.

(2)Subject to the next paragraph, this order has effect up to and including close of business on 28 January 2025 (‘the Return Date’). On the Return Date at 11:00am there will be a further hearing in respect of this order before Chief Justice McCallum

(2A)     Benjamin Aulich has leave to apply to the duty judge during the term break if                   earlier hearing is sought.

(3)Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified.

(4)       In this order:

(a)‘you’, where there is more than one of you, includes all of you and includes you if you are a corporation;

(b)       ‘third party’ means a person other than you and the Plaintiffs;

‘unencumbered value’ means value free of mortgages, charges, liens or (c)         other encumbrances.

(5)(a)       If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions.

(b)If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way.

(6)(a)       You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (‘Australian assets’) up to the unencumbered value of AUD$500,000.00 (‘the Relevant Amount’).

(b)       If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.

(7)       For the purposes of this order:

(1)       your assets include:

(a)       all your assets, whether or not they are in your name and whether they are solely or co-owned; 

(b)       any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and

(c)       the following assets in particular:

(i)the property known as Block 55, Section 92 (also known as 79 Hannan Crescent) in Ainslie in the Australian Capital Territory (79 Hannan Crescent Property) or any net proceeds of the sale thereof;

(ii)any shares held by you in the company Olliegracie Holdings Pty Ltd;

(iii)      any money in bank accounts held in your name.

(2)the value of your assets is the value of the interest you have individually in your assets.

(8)       Subject to paragraph 9, you must:

(a)at or before the further hearing on the Return Date (or within such further time as the Court may allow) to the best of your ability inform the Plaintiffs in writing of:

(i)all the assets of Gracie Gill Pty Ltd in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; and

(ii)all consideration received by Gracie Gill Pty Ltd for the transfer of its shares in Aulich Criminal Law Pty Ltd being transferred to Olliegracie Holdings Pty Ltd on or about either 25 August 2024 or 20 September 2024;

(iii)any consideration or benefits received by you in relation to the sale of land located at 64 Kingston Place, Tomakin in New South Wales;

(b)within 20 working days after being served with this order, swear and serve on the Plaintiffs an affidavit setting out the above information.

(9)(a)       This paragraph (9) applies if you are not a corporation and you wish to object on the basis that compliance with paragraph (8) may tend to incriminate you or make you liable to a civil penalty.

(b)       This paragraph (9) also applies if you are a corporation and all of the persons who are able to comply with paragraph (8) on your behalf and with whom you have been able to communicate, wish to object on the basis that compliance may tend to incriminate them respectively or make them respectively liable to a civil penalty.

(c)       You must, at or before the further hearing on the Return Date (or within such further time as the Court may allow), notify the Plaintiffs in writing that you or all the persons referred to in (b) wish to take such objection and identify the extent of the objection.

(d)       If you give such notice, you need comply with paragraph (8) only to the extent, if any, that it is possible to do so without disclosure of the material in respect of which the objection is taken.

(e)       If you give such notice, the Court may give directions as to the filing and service of affidavits setting out such matters as you or the persons referred to in (b) wish to place before the Court in support of the objection.

(10)     This order does not prohibit you from:

(a)       paying your ordinary living expenses;

(b)paying your contribution towards reasonable legal expenses of the Defendants in this proceeding SC 260 of 2024;

(c)paying reasonable legal expenses in prosecution proceedings SCC 0275 of 2024, and Federal Court proceedings QUD 393 of 2022, not otherwise subject to pre-existing pro bono and conditional payment arrangements in place prior to the entering of these orders; 

(d)dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred

(e)completing on any sale of the 79 Hannan Crescent Property, provided the net proceeds of the sale thereof are not thereafter dissipated in a way which would frustrate order 6(a) of these orders;

(f)using the net proceeds of sale from the 79 Hannan Crescent Property to buy other real property, provided such property is registered in your name; and

(g)in relation to matters not falling within (a), (b), (c), (d), (e) or (f), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the Plaintiffs, if possible, at least two working days written notice of the particulars of the obligation.

(11)You and the Plaintiffs may agree in writing that the exceptions in the preceding paragraph are to be varied.  In that case the Plaintiffs or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the Plaintiffs and you, and the Court may order that the exceptions are varied accordingly.

(12)     (a)       This order will cease to have effect if you:

(i)        pay the sum of AUD$500,000.00 into Court; or

(ii)pay that sum into the trust account of your solicitors in this proceeding, to be invested in a controlled monies interest bearing account and to be held on trust and only disbursed by court order or with authority of both you and the Plaintiffs; or

(iii)provide security in that sum by a method agreed in writing with the Plaintiffs to be held subject to the order of the Court.

(b)Any such payment and any such security will not provide the Plaintiffs with any priority over your other creditors in the event of your insolvency.

(c)If this order ceases to have effect pursuant (a), you must as soon as practicable file with the Court and serve on the Plaintiffs notice of that fact.

(13)The costs of this Application are reserved to the judge hearing the Application on the Return Date.

(14)Set off by banks.

This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order.

(15)     Bank withdrawals by the respondent

No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order.

I certify that the preceding twenty-four [24] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Chief Justice McCallum

Associate:

Date: