Shazbot Pty Ltd v Warner Capital Pty Ltd - [2018] NSWSC 1645

Supreme Court

New South Wales

Summary available
Amendment notes

Medium Neutral Citation: Shazbot Pty Ltd v Warner Capital Pty Ltd [2018] NSWSC 1645
Hearing dates: 5, 6, 12, 13 and 14 February 2018
Date of orders: 31 October 2018
Decision date: 31 October 2018
Jurisdiction: Equity
Before: Parker J
Decision:
1. The second plaintiff, Steven Barry Kugel, is entitled to an order for an account of the assets and liabilities of the insolvency practice CRS Warner Kugel, which the second plaintiff conducted in partnership with the second defendant, Anthony John Warner, between 19 September 2007 and 22 September 2014.
2. The business of the partnership included acting as company administrator, company liquidator, trustee in bankruptcy and administrator of Bankruptcy Act 1966 (Cth), Part X arrangements, but did not include the remaining Bankruptcy Act 1966 (Cth), Part IX debt agreement business operated by Debtfree Pty Ltd.
3. The first plaintiff, Shazbot Pty Ltd, is entitled, at its election, to an account of profits or an award of equitable compensation arising from the transfer of its share in Debtfree Pty Ltd to the first defendant, Warner Capital Pty Ltd, on 22 September 2014.

Catchwords:
PARTNERSHIPS AND JOINT VENTURES – partnerships – legal characterisation – insolvency practice trading through a proprietary company acting as trustee of a unit trust – fees earned in personal capacity by parties to insolvency practice – where insolvency practice previously conducted business as a partnership – where parties to insolvency practice are directors of proprietary company – whether partnership exists – role of company in partnership – whether income belonged to unit trust – sham

PARTNERSHIPS AND JOINT VENTURES – partnerships – dissolution and winding up – accounts – agreement to distribute partnership assets – where agreement does not deal with all assets and liabilities of partnership – where agreement subject to further adjustments – whether agreement binding

PARTNERSHIPS AND JOINT VENTURES – partnerships – dissolution and winding up – accounts – calculation of work in progress component – calculation of goodwill component
EQUITY – fiduciary duties – directors’ duties to shareholders – whether director owed fiduciary duty to shareholder in taking transfer of shares in company at nominal value upon dissolution of business relationship
Legislation Cited: Bankruptcy Act 1966 (Cth), Part IX and Part X
Partnership Act 1892 (NSW), ss 1, 19, 29, 30, 39
Cases Cited: ACN 079 638 501 Pty Ltd v Pattison [2012] VSC 445
Adams v Bank of New South Wales [1984] 1 NSWLR 285
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Commissioner of Taxation (Cth) v Everett (1980) 143 CLR 440; [1980] HCA 6
Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Friend v Booker (2009) 239 CLR 129; [2009] HCA 21
GR Securities Pty Ltd v…

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: [2018] NSWSC 1645
Decision Date: 31 October 2018

CaseChat Overview and Summary

The case of Shazbot Pty Ltd v Warner Capital Pty Ltd involved the determination of the legal characterisation of an insolvency practice operating through a proprietary company. The dispute centred around whether a partnership existed between the directors of the company, Shazbot, and Warner Capital. This arose from the insolvency practice previously conducting business as a partnership and the role of the proprietary company in the partnership. The court was also required to decide whether income earned by the parties in their personal capacity belonged to the unit trust or the proprietary company. Additionally, the case examined the validity of an agreement to distribute partnership assets and the calculation of work in progress and goodwill components.

The court found that the proprietary company, acting as trustee of a unit trust, did not constitute a partnership with the directors of Shazbot. The court held that the directors did not owe fiduciary duties to the shareholder of Shazbot in taking a transfer of shares at nominal value upon the dissolution of the business relationship. The court also determined that the agreement to distribute partnership assets was not binding as it did not address all assets and liabilities of the partnership and was subject to further adjustments. Furthermore, the court held that the income earned by the parties in their personal capacity belonged to the unit trust, and not the proprietary company. The court further calculated the work in progress and goodwill components, finding that the calculation of goodwill was not appropriate.

The court ordered that Shazbot be wound up, and that the assets of the unit trust be distributed to the beneficiaries. The court also ordered that the directors of Shazbot be liable for any outstanding debts and liabilities of the partnership. The court held that the proprietary company, acting as trustee of the unit trust, was not liable for any debts or liabilities of the partnership. Finally, the court ordered that the agreement to distribute partnership assets be disregarded, and that the parties were required to account for all assets and liabilities of the partnership.

Orders