Rozenblit v Vainer

Rozenblit sued Vainer and another defendant, alleging that the first defendant had engaged in misleading or deceptive conduct, unconscionable conduct, and breach of fiduciary duty. The plaintiff also alleged that the second defendant had engaged in misleading or deceptive and unconscionable conduct. The Federal Court of Australia was asked to determine whether the defendants had contravened the Australian Consumer Law and, if so, what remedies should be awarded.

The court first considered whether the first defendant had engaged in misleading or deceptive conduct. The first defendant proposed that the plaintiff transfer shares to the second defendant as consideration for the second defendant providing security for a loan. The first defendant did not disclose that the second defendant was entitled to retain the shares if he did not provide security. The court found that this conduct amounted to misleading or deceptive conduct under section 18 of the Australian Consumer Law. The second defendant was not involved in this contravention. The court next considered whether the defendants had engaged in unconscionable conduct. The court found that the first and second defendants had engaged in unconscionable conduct by expropriating or retaining the plaintiff’s shares for no consideration. The court held that the plaintiff was not under a special disadvantage or disability, and therefore the defendants did not engage in unconscionable conduct within the meaning of the unwritten law. Finally, the court considered whether the first defendant had breached fiduciary obligations owed to the plaintiff. The court found that the first defendant did not owe fiduciary obligations to the plaintiff, as the parties were not in a ‘quasi-partnership’ and the first defendant had not assumed responsibility for the plaintiff’s interests.

The court awarded the plaintiff nominal damages for the retention of the shares by the second defendant, as the shares were worthless due to the winding up of the company. The court found that the plaintiff had transferred the shares under a mistake of fact, and there was a total failure of consideration. The retention of the shares by the second defendant was unjust in all of the circumstances. The court did not award any other remedies, as the parties had entered into a series of agreements governing the operation, management and structure of the company’s business, and there was no breach of contract. The court found that the subsequent agreement superseded the earlier agreements, and therefore there was no breach of contract.