Wildorm Pty Ltd v Greg Hocking Altona Pty Ltd & Ors
[2024] VCC 96
•16 February 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-19-01532
| Wildorm Pty Ltd (ACN 103 814 606) as trustee of the Wildorm Trust | Plaintiff |
| v | |
| Greg Hocking Altona Pty Ltd (ACN 609 939 915) as trustee of the Greg Hocking Altona Unit Trust | First Defendant |
| Elly Partners Pty Ltd (ACN 151 579 074) as trustee of the Elly Partners Unit Trust (and in its own capacity) | Second Defendant |
| Wayne Elly | Third Defendant |
---
JUDGE: | Her Honour Judge Brimer | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12-18 July 2023, 20 October 2023 | |
DATE OF JUDGMENT: | 16 February 2024 | |
CASE MAY BE CITED AS: | Wildorm Pty Ltd v Greg Hocking Altona Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 96 | |
REASONS FOR JUDGMENT
---
Subject:CONTRACTS AND EQUITY
Catchwords: CONTRACTS – whether oral agreements made by directors about business operations of real estate agency franchise in Altona – where one director owned real estate agency franchises in Williamstown and Yarraville prior to establishment of real estate agency franchise in Altona – whether director agreed to direct all business conducted by him personally and commissions from properties he personally listed in the Altona territory to the Altona agency – whether directors agreed that agents from real estate agency franchise in Yarraville would act on behalf of real estate agency franchise in Altona – whether directors agreed that all fees and commissions for new properties under management in Altona territory would be split equally between agency franchises in Altona and Williamstown – credibility and reliability – Court not satisfied that alleged oral agreements made
EQUITY – fiduciary duties of corporate trustee of unit trust – where trustee company operated real estate agency franchise business – where director is alleged to have failed to direct business exclusively to trustee company – whether trustee failed to collect commissions for listings by such director – whether trustee failed to enforce rights under franchise agreement and franchise operations manual – whether trustee breached fiduciary duties – Court not satisfied of alleged impugned conduct
EQUITY – fiduciary duties of director – scope of fiduciary obligations where person is director of three real estate agencies under same franchise – where other directors aware of director’s role in separate real estate agency franchise businesses – where franchise agreement permitted agencies to operate in another franchisee’s territory – director not necessarily precluded from being director of another rival company – content of fiduciary duties moulded to character of particular relationship between director and company – necessary to identify functions or responsibilities of director – whether director had process to manage conflict – no fiduciary obligation requiring director to direct business exclusively to one company at the expense of another
CONTRACTS – whether various expenses properly incurred by company – where director signed off on company and trust financial statements – burden of proof for establishing claims – credibility and reliability – Court not satisfied claims established
FRANCHISE – contravention of provisions of franchise operations manual – where business practice contrary to franchise operations manual – whether directors permitted business practices contrary to operations manual
Legislation Cited: --
Cases Cited:Australasian Annuities Pty Ltd (in liq) (recs and mgrs apptd) v Rowley Super Fund Pty Ltd [2015] VSCA 9; Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 340 ALR 580; Bell v Lever Bros Ltd [1932] AC 16; Chan v Zacharia (1984) 154 CLR 178; Links Gulf Tasmania Pty Ltd v Sattler (2012) 292 ALR 382; London v Mashonaland Exploration Co Ltd [1891] WN 165; On the Street Pty Ltd v Cott (1990) 101 FLR 234; Re S & D International Pty Ltd (No 4) (2010) ACSR 595; Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; United Dominions Corporation Ltd (known as AMEV-UDC Finance Ltd) v Brian Pty Ltd (1985) 157 CLR 1
Judgment: For the defendants
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Christopher Hibbard | Aptum Legal |
| For the First Defendant | No appearance | No appearance |
| For the Second and Third Defendants | Mr Lachlan Molesworth | KCL Law |
HER HONOUR:
Introduction
1On 21 December 2015, the first defendant Greg Hocking Altona Pty Ltd was incorporated (Greg Hocking Altona). Between 17 March 2016 and around July 2018, Greg Hocking Altona operated a Greg Hocking franchise real estate agency in Altona (Altona Agency). Greg Hocking Altona was the trustee of the Greg Hocking Altona Unit Trust (Altona Trust).
2The unit holders of the Altona Trust were the plaintiff, Wildorm Pty Ltd[1] (Wildorm), associated with Borce Dymalovski[2] (Mr Dymalovski), Waynecorp Pty Ltd,[3] associated with Wayne Elly (Mr Elly), and Victian Pty Ltd,[4] (Victian) associated with Arthur Kokkinos (Mr Kokkinos).
[1] As trustee for the Wildorm Trust holding 40 units.
[2]Also known as Bob Dymalovski: T 73.3-4 (Dymalovski XN). On 10 December 2021, Mr Dymalovski became a director of Wildorm: CB 4995.
[3] As trustee for the Waynecorp Trust holding 40 units.
[4] As trustee for the Kokkinos Investment Trust holding 40 units.
3Mr Dymalovski was a real estate agent and worked as a registered builder from 2009.[5] Mr Elly is (and was at the time) the sole director and shareholder of the second defendant, Elly Partners Pty Ltd (Elly Partners). Elly Partners operated real estate agencies under the trading name “Greg Hocking Elly Partners” with offices in Williamstown (Williamstown Agency) and Yarraville (Yarraville Agency) from 2012.[6] Mr Kokkinos worked in real estate from around 2010, primarily in the northern suburbs of Melbourne.[7]
[5] T 73.8-14 (Dymalovski XN).
[6] T 351.16, T 352.2-5 (Elly XN).
[7] T 266.22-24, T 269.2-3 (Kokkinos XN).
4Mr Dymalovski, Mr Elly, and Mr Kokkinos were directors and equal shareholders of Greg Hocking Altona upon incorporation in 2015. Mr Kokkinos ceased to be a director on 5 June 2017 and ceased to be a shareholder on 15 June 2017.[8] Mr Dymalovski ceased to be a director and shareholder on 7 September 2018.[9] Mr Elly is the sole director and shareholder of Greg Hocking Altona.[10] How and when the Altona Agency ceased to operate is in dispute and is dealt with below in respect of each of the issues in dispute.
[8] CB 491, 1324-1325.
[9] CB 491.
[10] CB 491.
5Wildorm claims, in summary, that during the operation of the Altona Agency, Greg Hocking Altona breached fiduciary duties owed to Wildorm by the “Impugned Conduct.”[11] The “Impugned Conduct” includes an alleged failure on the part of Greg Hocking Altona to collect commissions to which it was entitled and conduct of Mr Elly and Elly Partners in recording expenses in the books and records of Greg Hocking Altona which were not properly incurred by Greg Hocking Altona or the Altona Agency.
[11] Further Amended Statement of Claim (FASOC) at [21]-[43].
6Wildorm further claims that:
(a) at some point after September 2018, Greg Hocking Altona breached its duties to the Altona Trust in causing or permitting the business of the Altona Agency to be transferred to Elly Partners and/or Mr Elly for no consideration;
(b) Mr Elly knowingly assisted in a fraudulent and dishonest design causing Greg Hocking Altona to breach its fiduciary duties; and
(c) Elly Partners knowingly received trust property of the Altona Trust.
7Wildorm seeks equitable compensation against Greg Hocking Altona, Elly Partners and Mr Elly. It further seeks an account of trust property against Elly Partners.
8Elly Partners and Mr Elly (the defendants) deny Wildorm’s claims. Greg Hocking Altona did not file a defence or participate in the proceeding.
Conclusion
9For the reasons set out below, I find for the defendants.
Background
10In late 2015, Mr Dymalovski contacted Mr Elly and Mr Kokkinos with a proposal to set up a real estate agency business in Altona under a Greg Hocking franchise.
11Mr Dymalovski, Mr Kokkinos, and Mr Elly met at a café in Albert Park, where Mr Dymalovski introduced Mr Kokkinos to Mr Elly. They discussed the proposed business and the establishment of the franchise.[12]
[12] T 83.18-24 (Dymalovski XN), T 267.28-268.7 (Kokkinos XN), T 353.8-16 (Elly XN).
12Approximately two or so weeks later, a second meeting was held during which Mr Dymalovski, Mr Kokkinos, and Mr Elly met with Greg Hocking (Mr Hocking), the owner of Greg Hocking Franchising Pty Ltd (Greg Hocking Franchising), and Bruce Warburton (Mr Warburton), the franchisee manager of Greg Hocking Franchising.[13] The parties discussed establishing a new franchise in Altona and the arrangements that would need to be put in place for the operation of the proposed franchise.[14]
[13] T 85.4-9 (Dymalovski XN), T 268.18-29 (Kokkinos XN), T 353.18-23 (Elly XN)..
[14] T 85.18-28 (Dymalovski XN).
13According to Mr Dymalovski, there were subsequent meetings with Mr Kokkinos and Mr Elly, where they discussed further the arrangements for the office and the franchise.[15]
[15] T 86.27-87.3 (Dymalovski XN)
14What was agreed at those meetings is in dispute and is dealt with below in respect of each of the issues in dispute.
15It was not disputed that:
(a) Mr Dymalovski, Mr Kokkinos, and Mr Elly would each put in $10,000 as capital for the Altona Agency;[16]
(b) the Altona Agency would operate on a low budget and would not employ additional staff to reduce expenses needed to run the office;[17] and
(c) staff at the Williamstown Agency would manage the administrative, bookkeeping, and property management affairs of the Altona Agency, until such time that the Altona Agency had grown to be able to financially support its own staff.[18]
[16] T 129.31-130.1 (Dymalovski XN); T 304.24, T 305.1-2 (Kokkinos XN); T 353.29-30 (Elly XN).
[17] T 77.13-16, T 84.19-20 (Dymalovski XN); T 269.23-29 (Kokkinos XN); T 354.5-10 (Elly XN).
[18]T 77.13-16, T 80.25-81.3, T 84.4-11 (Dymalovski XN); T 201.20-202.3 (Dymalovski XXN); T 270.4-7, T 270.16-22, T 274.13-14, T 277.27-31, T 278.10-16 (Kokkinos XN); T 354.5-12, T 356.9-14 (Elly XN);.
Franchise structure
16On 17 March 2016, Greg Hocking Altona entered into a franchise agreement (Franchise Agreement) with Greg Hocking Franchising which permitted Greg Hocking Altona to operate the Altona Agency under the Greg Hocking brand.[19]
[19] CB 855-938: clause 3 (at CB 872-873).
17Mr Elly, Mr Kokkinos, and Mr Dymalovski each guaranteed the performance of Greg Hocking Altona’s obligations as franchisee.[20]
[20]CB 858, 929.
18The operation of the franchise was governed by the Franchise Agreement and the Operations Manual.[21]
[21]CB 875-880: cl 6.2 [Territory] cl 6.3 [Conjunctional Sales], 6.4 [Referrals]; CB 862: cl 1.1.37 definition of “Franchise Manuals”; CB 861: cl 1.1.24 definition of “Conjunctional Sale”; CB 866: cl 1.1.73 definition of “Referrals”.
19Pursuant to the Franchise Agreement, Greg Hocking Altona was allocated non-exclusive territory for the operation of its business, which included:
(a) Altona;
(b) Altona North;
(c) Altona Meadows;
(d) Seabrook; and
(e) Brooklyn,
(collectively, the Altona Territory).[22]
[22] CB 932 – item 19; CB 935 - Appendix 1 Map.
20The Franchise Agreement contained the following provisions:
(a) Clause 6.2 of the Franchise Agreement relevantly provided as follows:
“6.2 Territory
… 6.2.2 If Item 9 of the Schedule provides the right to the Franchisee to operate a Residential Estate Agency Business, then the following clauses of this 6.22 shall apply:
(a) The Franchisee acknowledges and agrees that:
(i)the rights granted under this Agreement are non-exclusive in that they do not give the Franchisee any exclusive area or territory in which the Franchised Business may operate;
(ii)…
(iii)…
(b) The Franchisee acknowledges and agrees that:
(i)other franchisees within the Group that operate Residential Estate Agency Businesses may, within the Territory, provide Services in respect of Residential Property subject to compliance with clause 6.2.2(d);
(ii)…
(iii)…
(c) ...
(d) The parties acknowledge and agree that the Franchisee may with the Franchisor's prior written approval:
(i)provide the Services in respect of Residential Property outside the Territory;
(ii)…
(iii)…
however, these rights shall not be exclusive and where the Franchisee provides Services in respect of Residential Property… and the Client or the relevant real estate is within the territory of another franchisee within the Group that operates a Residential Estate Agency Business, the Franchisee must comply with the rules and provisions in the Franchise Manuals regarding:
(i)listing, advertising and selling;
(ii)the apportionment or sharing of commissions; and
(iii)Conjunctional Sales and Referrals set out in clauses 6.3 and 6.4 and in the Franchise Manuals…”[23]
[23] CB 875-880.
(b) Clause 6.3 of the Franchise Agreement provided:
“6.3 Conjunctional Sales
The Franchisee may from time to time be involved in Conjunctional Sales. If such Conjunctional Sales occur then the Franchisee must comply with the Franchise Manuals in relation to the Conjunctional Sales and pay and share the commission arising from the Conjunctional Sales in the amount and manner specified in the Franchise Manuals.”[24]
[24] CB 880.
21Relevant provisions of the Operations Manual include:
(a) Clause 5.8 of the Operations Manual:
“5.8 Advertising Overspends
If advertising exceeds the amount authorised by the vendor in an inter-office conjunctional sale the territory office who places the advertising must obtain written consent from the referring office that the additional marketing costs will be borne equally between the two offices. If no such written agreement is obtained the territory office will be liable for the full cost of the additional marketing overspend.
Where the 80/20 or the 20/80 rule has been applied the office entitled to the 20% gross commission will receive same without any deductions for advertising overspends.”[25]
[25] CB 757.
(b) Clause 5.11 of the Operations Manual (the 20/80 Rule):
“5.11 Referral of a listing lead (20/80 Rule)
If a franchisee referrers [sic] a potential vendor to another territory office and is not involved in the listing process whatsoever then the referring territory office is entitled to 20% of the gross commission. The details of the referral must be emailed to the director of that territory office immediately. Any advertising responsibility and liability is borne by the listing territory office. The entire gross commission entitlement is recorded against the listing agent for the purpose of Greg Hocking documentation, agent and office ranking and company awards…”[26]
[26] CB 758.
(c) Clause 5.12 of the Operations Manual (the 80/20 Rule):
“5.12 Listing in another franchise territory (80/20 Rule)
If a franchisee lists a property in another franchisee’s territory and that territory has not been involved in the listing process whatsoever then the territory franchisee is entitled to 20% of the gross commission. Any advertising responsibility and liability is borne by the listing territory. The entire gross commission entitlement is recorded against the listing agent for the purpose of Greg Hocking documentation, agent and office ranking Clause 5.13 of the Operations Manual:
“If two territory offices jointly list a property, regardless of the location, this would be deemed a full conjunctional sale.
The gross commission entitlement is split 50/50 for the purpose of Greg Hocking documentation, agent and office ranking and company awards.”[27]
[27] CB 758-759.
Operations of the Altona Agency
22In or around 2 February 2016, Mr Dymalovski and Mr Kokkinos began working from the office of the Williamstown Agency, with a view to sourcing an office location and generating business.[28]
[28] T 77.21-30 (Dymalovski XN); T 273.7-9 (Kokkinos XN).
23On 17 March 2016, the parties executed the Franchise Agreement.[29] Although they commenced operating the Altona Agency after the execution of the Franchise Agreement, Greg Hocking Altona was not granted an estate agent’s licence by the Business Licensing Authority until 9 June 2016.[30]
[29] CB 855-938.
[30]Mr Dymalovski gave evidence the opening date was around April or May 2016: T 78.26-28 (Dymalovski XN). Mr Kokkinos did not recall the date but believed it was in the first quarter of 2016: T 273.10-15 (Kokkinos XN). CB 4704 (STB 137).
24An office was located at 74 Pier Street Altona[31] and Greg Hocking Altona signed a lease agreement for the office premises.[32] Mr Dymalovski and Mr Kokkinos renovated the premises.[33]
[31] T 95.18-20 (Dymalovski XN).
[32] T 78.30-31 (Dymalovski XN).
[33] T 79.14-22 (Dymalovski XN).
25From February 2016 to 2018, the real estate agents of the Williamstown Agency and the Altona Agency participated in conjunctional sales.[34]
[34] CB 4915-4920: Joint Chronology dated 10 July 2023.
26What occurred during relevant meetings, discussions and events during the operation of the Altona Agency is dealt with in respect of each of the issues in dispute below.
Exit of Mr Kokkinos from the business
27In or about February 2017, Mr Dymalovski and Mr Kokkinos met with Marguerite Foxall (Ms Foxall), the Franchise Development Manager of Greg Hocking Franchising at Pier 71, a café in Altona, to express their concerns about the business.[35] In summary:
(a) according to Mr Kokkinos, he raised issues with how Mr Elly had been allocating commissions and advertising expenses between the agencies, and the lack of sales listings by Mr Elly for the Altona Agency;[36]
(b) according to Ms Foxall, the discussions centred around the underperformance and lack of gross commission income generated by the Altona Agency,[37] allocation of commissions,[38] and allocation of incoming calls and appraisals.[39]
[35] T 282.16-23 (Kokkinos XN); T 492.19-23 (Foxall XN). .
[36] T 282.30-283.5, T 284.11-25 (Kokkinos XN).
[37] T 492.29-493.8 (Foxall XN).
[38] T 492.24-28 (Foxall XN).
[39] T 501.6-11 (Foxall XXN).
28On 23 February 2017 at 9.40am, Ms Foxall sent an email to Mr Kokkinos and Mr Dymalovski:
“… Thanks for catching up with me last Friday to discuss your current partnership with Wayne and the way things are operating. Greg and I would like to organise a meeting with both of you and we will invite Wayne as well. We would like to get to the bottom of the issues at hand and to create a plan to improve the business moving forward…”[40]
[40] CB 1211.
29On 24 February 2017 at 4.49pm, MPT Group Accountants & Advisors Pty Ltd (MPT Group) emailed a letter to the directors of Greg Hocking Altona enclosing a 2016 financial package for the Altona Trust comprising financial statements, tax reconciliation, and income tax return.[41] In summary:
(a) the Income Statement for the Altona Trust for the year ended 30 June 2016 showed a loss of $54,164;[42] and
(b) the Balance Sheet for the Altona Trust for the year ended 30 June 2016 showed liabilities totalling $93,206 (with a negative equity position of $54,044).[43]
[41]CB 1212-1241.
[42] CB 1223.
[43] CB 1224.
30On 16 March 2017 at 1.34pm, Joanne Elly, Elly Partners’ bookkeeper (Ms Elly)[44] sent an email to Mr Kokkinos, forwarding the email from George Pakis of MPT Group (Mr Pakis)[45] to the directors in relation to the financial statements and income tax return for the Altona Trust for the 2016 financial year.[46] At 2.26pm, Mr Kokkinos forwarded the email from Ms Elly to Mr Dymalovski, attaching the financial statements and income tax return.[47]
[44] Mr Elly’s sister.
[45] The external accountants.
[46] CB 1291.
[47] CB 1291.
31In or around March 2017, Mr Dymalovski signed the financial statements for the Altona Trust for the 2015/2016 financial year.[48]
[48] T 122.29-123.14 (Dymalovski XN); CB 1135.
32In or around March 2017, Mr Kokkinos and Mr Dymalovski met with Ms Foxall, Mr Hocking, and Mr Elly at the Greg Hocking head office in Albert Park.[49] Recollections of the meeting varied. [50] In summary:
[49]T 283.28-284.9 (Kokkinos XN); T 519.21-27 (Hocking XXN).
[50]Mr Hocking had little recollection of the meeting: T 511.5-15 (Hocking XN) .
(a) according to Mr Kokkinos:
(i)he told Mr Hocking that commissions and advertising overspend were being allocated in a manner contrary to the provisions of the Franchise Agreement and the Operations Manual;[51] and
(ii)Mr Hocking responded with words to the effect that Mr Kokkinos and Mr Dymalovski were not “working hard enough” and needed to generate more sales.[52]
(b) according to Ms Foxall:
(i)they discussed the performance of the Altona Agency, and in particular the underperformance of Mr Dymalovski and Mr Kokkinos “from a director’s perspective”;[53] and
(ii)“one of the meetings was around… the allocation of commissions.”[54]
[51] T 284.11-22 (Kokkinos XN).
[52] T 284.11-285.1 (Kokkinos XN).
[53] T 493.24-494.2 (Foxall XN).
[54] T 492.27-28 (Foxall XN).
33On 26 May 2017 at 10.00am, Ms Elly sent an email to Mr Kokkinos and Mr Dymalovski requesting that they sign an attached trustee declaration for the Altona Trust for the 2016 financial year.[55]
[55]CB 1319. Mr Kokkinos says he received this email but doesn’t believe he was working at the time of receiving it: T 303.1-10 (Kokkinos XXN).
34On 5 June 2017, Mr Kokkinos resigned as a director of Greg Hocking Altona.[56]
[56]CB 1324. Although he had not been actively working in the business since March 2017: T 283.27-28 (Kokkinos XN), T 321.26 (Kokkinos XXN).
35On 15 June 2017, Mr Kokkinos ceased to be a shareholder of Greg Hocking Altona.[57] A further share was issued such that Mr Dymalovski and Mr Elly both held two shares each.[58] Whether Mr Kokkinos caused Victian to dispose of its units in the Altona Trust was the subject of evidence and is dealt with below.
[57] CB 1324-1325; T 290.1-5 (Kokkinos XN).
[58] CB 1324-1325.
36On 9 August 2017, Mr Kokkinos signed a Deed of Variation of Franchise Agreement, under which he was released from his obligations as a guarantor under the Franchise Agreement.[59] Mr Dymalovski and Mr Elly remained guarantors under the Franchise Agreement.[60]
[59] CB 1435-1446; CB 1447-1458.
[60] CB 1435-1446; CB 1447-1458.
Yarraville Agents
37In or around June or July 2017, three real estate agents, Terence Charles Fitzpatrick, Anna Grech, and Nathan Gleeson (Yarraville Agents) joined the Yarraville Agency as employees of Elly Partners.[61] The Yarraville Agents worked from the office of the Altona Agency from time to time for the period between July 2017 to December 2017 or early 2018.[62]
[61] T 114.21-115.3 (Dymalovski XN); T 333.4-334.3 (Elly XN).
[62] T 114.30-115.3, T 115.28-30 (Dymalovski XN); T 333.23-334.3 (Elly XN).
38Mr Dymalovski and Mr Elly discussed how the Altona Agency would be compensated for the Yarraville Agents’ presence.[63] What was agreed is in dispute and is dealt with below.
[63] T 115.22-116.2 (Dymalovski XN); T 334.18-28 (Elly XN).
39On 29 September 2017, MPT Group sent a letter addressed to the directors of Greg Hocking Altona enclosing a 2017 financial package for the Altona Trust comprising financial statements, tax reconciliation, and trust tax return.[64] In summary:
(a) the Income Statement for the Altona Trust for the year ended 30 June 2017 showed a profit of $35,198;[65] and
(b) the Balance Sheet for the Altona Trust for the year ended 30 June 2017 showed liabilities totalling $50,688 (with a negative equity position of $18,846).[66]
[64]CB 1459-1498.
[65] CB 1468.
[66] CB 1469.
Peter de Vries, Consultant
40Between February 2018 and May 2018, Peter de Vries (Mr de Vries) joined the Altona Agency as a new sales agent.[67] Whether expenses associated with Mr de Vries were properly allocated to Greg Hocking Altona is in dispute and is dealt with below.
[67] CB 4982-4983; T 364.18-23 (Elly XN).
Exit of Mr Dymalovski from the business
41On 13 April 2018, Mr Dymalovski, Mr Elly, Mr Hocking, and Ms Foxall attended a meeting at the Greg Hocking head office.[68] During the meeting, the parties had discussions to the following effect:
(a) from the franchisor’s perspective, the Altona Agency was underperforming and it was untenable to continue business as the revenue could not cover the office’s expenses;[69]
(b) from the franchisor’s perspective, Mr Dymalovski should no longer be a director of the Altona Agency;[70]
(c) Mr Dymalovski wanted to take over the Altona Agency and make changes to give the Altona Agency its own identity;[71] and
(d) the parties explored three options for the future of the Altona Agency, namely:
(i)the Altona Agency to close;
(ii)Mr Dymalovski to assume the liabilities of the Altona Agency and manage it under a different brand to the Greg Hocking franchise; or
(iii)Mr Dymalovski to leave the Altona Agency.[72]
[68] T 105.12-13 (Dymalovski XN); T 512.4-8 (Foxall XN).
[69] T 494.21-495.1 (Foxall XN); T 511.28-512.1 (Hocking XN).
[70] T 105.14-18 (Dymalovski XN); T 495.3-8, T 496.12-31 (Foxall XN); T 511.28-512.1 (Hocking XN).
[71] T 105.28-106.5 (Dymalovski XN).
[72] T 370.5-16 (Elly XN); T 495.3-8 (Foxall XN).
42On 17 April 2018 at 1.02pm, Mr Dymalovski emailed Ms Foxall attaching a document titled “GH_Corp Meeting_13042018.docx” which proposed two options in response to the discussions of the meeting on 13 April 2018, in summary:
(a) that Mr Dymalovski resign as a director of Greg Hocking Altona on the condition that he receive a payout sum of $100,000 by 20 April 2018; or
(b) that Mr Dymalovski remain as OIEC of the Altona Agency and implement a range of changes for the Altona Agency to allow it to operate as a separate entity and for its best interests moving ahead.[73]
[73] CB 1837-1842.
43On 20 April 2018 at 11.37am, Mr Elly sent an email to Mr Dymalovski stating:
“… My thoughts are at this stage if you are not prepared to take a step back and prove yourself and write $400,000-$500,000 over the next 12 months which is what is expected of a director, certainly after three years of trading.
I feel it will be better that we draw a line in the sand as of the 30th June 2018 and go our own ways.
This will give us time to close off all accounts at the Altona office and balance up all costs and revenue.
This is by no reflection of you as a person, because I do enjoy your company but I can’t have a director of an office involved with my entities writing annual commissions below most of our sales team…”[74]
[74] CB 1852.
44On 20 April 2018 at 2.18pm, Mr Dymalovski sent Mr Elly an email stating:
“… Ideally I would like to bring this discussion to a close as quickly and amicably as possible so that we can both move on… Personally I also like spending time with you, I would like to think the relationship can be maintained.
As you stated, you can’t have a director involved in one of your entities writing annual commission below most of your sales team and I am of the same opinion. I also can’t have a director involved in one of my entities not bringing in commission or serving in the best interests of that entity.”[75]
[75] CB 1854.
45On 27 April 2018 at 2.57pm, Mr Dymalovski sent an email stating:
“… I had a meeting with Wayne yesterday and he stated that he is willing to forgo his interest in the Altona office. Please advise the required steps moving forward if any…”[76]
[76] CB 1857; T 241.19-243.11 (Dymalovski XXN).
46On 2 May 2018 at 12.15pm, Mr Dymalovski sent an email to Mr Elly, Mr Hocking, and Ms Foxall, stating:
“During our meeting, Wayne offered to step down as director of the Altona office which we both agreed would be the best move forward for the office. This situation would be similar to the exit strategy we adopted with Arthur Kokkinos, last year, whereby all shares in the current company be transferred to me/my entity and Wayne is removed from all other associated items (ie lease commitments, accounts, etc), to ensure an efficient and effective transition.
We resolved to have all this take effect as at the 30th of June, to allow us both to start afresh in the new financial year. As the existing entity is currently linked to the Williamstown office (as care taker of trusts/rent roll), I will need to set up an independent structure, including, separate trust accounts, rent-roll etc, as advised in my previous email. If corporate has a checklist that I can follow to ensure a smooth transition, it would be greatly appreciated, to ensure everything is in place for a start date from the 1 July 2018.
Further I would request Joanne send me all relevant financial information regarding the existing operations, from the date of commencement to provide me with more detail as to our current position.”[77]
[77] CB 1861.
47On 4 May 2018 at 12.47pm, Greg Hocking Franchising sent a letter to Mr Dymalovski and Mr Elly by way of email, stating, inter alia:
“… As stated above, the email from Bob dated 2 May 2018 indicates that he wishes to purchase all of Wayne’s interest in the Franchisee and become the sole principal of the Franchised Business. Whilst we do not consider the email to be a formal request from the Franchisee to the Franchisor for consent to the transfer of the Altona Business to Bob, we consider it necessary to provide you with an indication as to the likelihood of the Franchisor consenting to the transfer of the Franchised Business to Bob.
Consistent with the discussions at our meetings, we wish to advise that Bob would be unlikely to meet the selection criteria for our franchisees and accordingly, there is a reasonable prospect that the Franchisor will not consent to the transfer of the Franchised Business to him.
Our advise does not preclude Bob from making a formal application for the grant of a Greg Hocking franchise, however we wish to be transparent at all stages of the process and do not want you to embark upon restructuring the ownership of the Franchised Business in a manner that has no reasonable prospect of gaining consent from the Franchisor.”[78]
[78] CB 1861-1864.
48On 22 May 2018 at 12.31pm, Mr Dymalovski emailed Ms Elly, seeking detailed information and a breakdown of the income and expenses for the financial years of 2017 and 2018, as well as information on the loan to the Williamstown Agency stated in the balance sheet.[79] At 2.41pm, Ms Elly replied to Mr Dymalovski, stating that the loan to Elly Partners is a “direct result of loss to date”, given that it had been funding the Altona Agency since the beginning.[80]
[79] CB 1958-1959.
[80] CB 1958.
49Mr Dymalovski and Ms Elly had several meetings between May 2018 to August 2018 regarding the financials of the Altona Agency.[81]
[81] T 109.4-13 (Dymalovski XN).
50On 24 July 2018 at 11.38am, Ms Elly emailed Mr Dymalovski:
“… See the adjusted attached worksheet.
At this stage it is still a bit rough in that we need Wayne and yourself to come to some agreements.
The spreadsheet at this stage shows an adjustment to Revenue of about $152k. In saying this we then need to add an extra 8% of costs for both Royalties and Marketing levies that would have been paid by Greg Hocking Williamstown.
I now need to update the P & L to include both May and June. I will try and get this done by Thursday COB.”[82]
[82] CB 2461.
51On 24 July 2018 at 1.01pm, Mr Dymalovski sent an email to Ms Elly, stating:
“Actually looking at it again… I don’t get it… what does the 152k represent… just give me a total figure with the info you have now without finalizing it with Wayne. As for what we discussed last week about token of good faith can we sort something out in the meanwhile I have mentioned whats happening and it hasn’t changed….”[83]
[83] CB 2460-2461.
52On 24 July 2018 at 1.04pm, Ms Elly replied to Mr Dymalovski, stating:
“That represents extra income that I have not accounted for.
You will need to speak to Wayne about “token of good faith”. That is certainly not up to me and out of my control.”[84]
[84] CB 2460.
53On 9 August 2018 at 3.25pm, Mr Dymalovski sent an email to Mr Elly, Mr Hocking, and Ms Foxall:
“… As per previous discussions and today’s meeting, I confirm that I have agreed to stand down as a Director of Greg Hocking Altona (as requested/instigated by GH Corporate and Wayne Elly), effective immediately.
The following points were discussed/agreed today.
1. Release from franchise agreement
Action. Marguerite to email relevant documents today
2. Removal from company records as director (Greg Hocking Altona Pty Ltd)
Action :Wayne to co ordinate relevant person to draw documents ASAP (effective immediately)
3. Release from any obligations as a director (ie guarantees etc…)
Action: Wayne/Joanne to co ordinate relevant documents for execution ASAP (effective immediately)
4. Release as OIEC from Greg Hocking Altona with the BLA ASAP (effective immediately)
Action: Joanne to co ordinate through BLA online…”[85]
[85] CB 2494.
54On 7 September 2018, Mr Dymalovski resigned as a director of Greg Hocking Altona and ceased to be a shareholder in Greg Hocking Altona.[86]
[86] CB 2567-2570.
55On 10 October 2018, Mr Dymalovski signed a Deed of Variation of Franchise Agreement with Greg Hocking Franchising, resigning as a guarantor of the Altona Agency.[87] Under this deed, Mr Dymalovski was released as a guarantor under the Franchise Agreement.
[87] CB 2580-2687.
56Mr Dymalovski also signed a deed of variation to the lease.[88]
[88] T 249.9 (Dymalovski XXN).
Cessation of the Altona Agency
57Sometime between 1 July 2018 and September 2018, the Altona Agency ceased to operate. The date and manner of cessation is disputed and addressed below.
58No final set of accounts were prepared for Greg Hocking Altona or the Altona Trust.[89]
[89] T 469.27-29 (J Elly XN).
Evidence at trial
59The plaintiff called the following witnesses at trial:
(a) Mr Dymalovski;
(b) Mr Kokkinos; and
(c) Ross Hedditch, the plaintiff’s expert witness.
60The defendants called the following witnesses at trial:
(a) Mr Elly;
(b) Ms Elly;
(c) Ms Foxall;
(d) Mr Hocking; and
(e) David Ferrier, the second and third defendants’ expert witness.
Issues for determination
61The parties agreed the following issues for determination (statement of issues filed 7 August 2023 is annexed to this judgment):
(a) Mr Elly’s personal listings:
1.Did Mr Elly cause and/or direct all business conducted by him personally, and commissions related to that business, to the Williamstown Agency irrespective of whether the properties involved were located in the Altona Territory or the Williamstown Territory?
2.What, if any obligation was Mr Elly under to direct commission from properties that he personally listed in the Altona Territory to be paid to Greg Hocking Altona?
3.Did Greg Hocking Altona fail to collect commissions in respect of listings in the Altona Territory by Mr Elly that should have been paid to Greg Hocking Altona?
4.If the answer to 3 is “yes”, did that failure constitute a failure by Greg Hocking Altona to enforce its rights under the Altona Franchise Agreement and the Operations Manual?
(b) Yarraville Agents:
5.Did Greg Hocking Altona and Elly Partners agree that the Yarraville Agents would act as residential real estate agents on behalf of the Altona Agency and all commissions paid by clients of the Yarraville Agents which were not payable to the Yarraville Agents personally would be paid to Greg Hocking Altona as though Altona was the listing office and subject to the terms of the Operations Manual?
(c) Incorrect allocation of advertising overspend:
6.In relation to advertising overspend, was Greg Hocking Altona and Elly Partners bound to follow the requirements of clause 5.12 of the Operations Manual in the case of conjunctional commissions or was it agreed that if there was overspend on these expenses, the amount of the overspend would be deducted from the net commission figure payable to Greg Hocking Altona and Elly Partners?
(d) Property management income:
7.Did Greg Hocking Altona and Elly Partners agree that, when the Altona Agency was established fees and commissions for all new properties under management in the Altona Territory would be split 50/50 between Elly Partners and Greg Hocking Altona?
(e) Expenses:
8.Were the “Computer costs” recorded in the books and records of Greg Hocking Altona not properly incurred by Greg Hocking Altona or the Altona Agency?
9.Were the “Management costs” recorded in the books and records of Greg Hocking Altona not properly incurred by Greg Hocking Altona or the Altona Agency?
10.Were the costs concerning “Consulting PDV” recorded in the books and records of Greg Hocking Altona not properly incurred by Greg Hocking Altona or the Altona Agency?
(f) Transfer of business:
11.Did Greg Hocking Altona transfer or permit the transfer of the Greg Hocking Altona business to Elly Partners?
12.If yes, was Elly Partners under an obligation to pay Greg Hocking Altona for the transfer of the Greg Hocking Altona business?
13.If yes, what should Elly Partners have paid to Greg Hocking Altona on the transfer of the Greg Hocking business to Elly Partners?
14.Did Wildorm suffer loss and damage as a result of the alleged transfer of the Greg Hocking Altona business to Elly Partners?
(g) Equitable relief:
15.Did Wildorm dispose of its units in the Altona Unit Trust?
16.What was the scope of the fiduciary duties owed by Greg Hocking Altona to the beneficiaries of the Altona Unit Trust?
17.Having regard to the scope of those fiduciary duties owed, did Greg Hocking Altona breach those fiduciary duties owed to Wildorm by any of the conduct set out in sections A to F above (Alleged Conduct)?
18.Did Greg Hocking Altona and/or Wildorm acquiesce to, or ratify, any alleged breach of fiduciary duty by their knowledge of the matters pleaded at [19] of the Amended Defence?
19.Did Mr Elly knowingly assist in any of the Alleged Conduct with the intention of, and/or effect of, preventing and/or hindering the ability of the other directors of Greg Hocking Altona from taking steps to prevent the Alleged Conduct, and neglected, failed or refused to inform the Plaintiff?
20.Did Elly Partners know of the Alleged Conduct?
21.Did Elly Partners know that it received funds as a result of the Alleged Conduct, as a consequence of Elly and/or Greg Hocking Altona’s alleged fraudulent and dishonest design, and if so which funds?
22.What relief, if any, is Wildorm entitled to?
Issue A – Mr Elly’s personal listings
Issue 1
62Issue 1 in the statement of issues is:
“Did Mr Elly cause and/or direct all business conducted by him personally, and commissions related to that business, to the Williamstown Agency irrespective of whether the properties involved were located in the Altona Territory or the Williamstown Territory?”
Plaintiff’s submissions
63Mr Hibbard submitted that Mr Elly had a “habit” of directing all listings that came through to him to the Williamstown Agency, and not the Altona Agency.[90]
[90] Plaintiff’s outline of closing submissions, at [12]-[14].
64He referred to several examples of property listings and their corresponding sales advices which, he contended, evidence Mr Elly’s habit of listing properties in the Altona Territory for which he was the listing agent through the Williamstown Agency.[91]
[91]The plaintiff referred to the following examples of property listings and their corresponding sales advices: 11 Beevers Street, Altona (CB 3117); 12 Craig Court, Altona North (CB 3120); 1 Seaholme Avenue, Seaholme (CB 3109); 12 Paw Paw Road, Brooklyn (CB 3123); 151 Chambers Road, Altona North (CB 3126), 2/15 Conifer Avenue, Brooklyn (CB 3132), 2/28 Grieve Road, Altona (CB 3137); 23 Fifth Avenue, Altona North (CB 3139); 26 Stenhouse Avenue, Brooklyn (CB 3142); 29 Rose Street, Altona (CB 3144).
65Mr Hibbard articulated what was encompassed by the expression “all business conducted by him personally” as follows:
(a) In written opening submissions:
“Issue 1: Mr Elly, when acting personally as a real estate agent, allocated commissions from sales of properties in Altona Territory to Elly Partners as listing office, and not Greg Hocking Altona, which deprived the Altona Trust of commissions.”[92]
(b) In final written submissions:
(i)“Mr Elly’s habit was to direct all listings that came to him to the Williamstown office.”[93]
(ii)“[E]very time Mr Elly was the listing agent for a property in the Altona Territory, he listed that property through the Williamstown office and not through the Altona office.”[94]
(iii)“These listings reveal a habit of Mr Elly always to list properties in the Altona Territory through the Williamstown office and not the Altona office.”[95]
[92] Plaintiff’s opening submissions, at [11(a)].
[93] Plaintiff’s outline of closing submissions, at [12].
[94] Plaintiff’s outline of closing submissions, at [12].
[95] Plaintiff’s outline of closing submissions, at [13].
(c) In written submissions in reply, Mr Hibbard confined the business conducted by Mr Elly the subject of the question to instances in which Mr Elly was the listing agent on the sales authority.[96]
[96] Plaintiff’s outline of closing submissions in reply, at [3].
Defendants’ submissions
66Mr Molesworth submitted that Mr Elly did not direct “all business” conducted by him to the Williamstown Agency:[97]
(a) Mr Dymalovski accepted in cross-examination, that there were instances where Mr Elly was the listing agent for a sale of a property in the Altona Territory and the commission was allocated to the Altona Agency.[98]
(b) Supporting documents for the sale of a property at 219 Civic Parade, Altona, show Mr Elly signed off on a sales authority and allocated 100 per cent of the office commission to the Altona Agency.[99]
[97] Second and third defendants’ closing submissions, at [9].
[98] Second and third defendants’ closing submissions, at [9].
[99]Second and third defendants’ closing submissions [10], referring to CB 3281-3282.
67There were several other examples of property listings where Mr Elly signed the relevant authorisations and business commission income was allocated to the Altona Agency.[100]
[100]Second and third defendants’ closing submissions [11], referring to CB 3142-3, 3153-4, 3510-1, 3519- 10, 3435-6, 3477-8, 3173-4, 3167-8, 3109-10, 3117-8, 3588-9, 3432-3, 3600-1, 3120-1, 3156-7, 3474-5, 3147-8, 3132-3, 3112-3, 3513-4, 3126-7, 3165-6, 3492-3, 3170-1, 3139-10, 3161-2, 3498-9, 3537-8.
Conclusion and analysis
68I am not satisfied that Mr Elly caused and/or directed all business conducted by him personally, and commissions related to that business, to the Williamstown Agency, irrespective of whether the properties were located in the Altona Territory or the Williamstown Territory:
(a) In respect of a property at 219 Civic Parade, Altona, Mr Elly obtained the business by signing up the client through the exclusive auction authority.[101] The fact that Mr Elly signed the client up but recorded Mr Dymalovski and Mr Kokkinos as the listing and selling agents jointly resulted in commission being allocated to them as the listing agents and to the Altona Agency and the listing office.
(b) Mr Dymalovski accepted there were “many examples” where Mr Elly allocated commission to the Altona Agency where Mr Elly listed the property:
“…do you accept that there are many other examples where 100 per cent of the copy [sic], the office commission went to Altona where Mr Elly was the agent?---As they should be.
So you do accept that, don’t you?---For Wayne’s listings, where he’s listed the property, 100 percent should go to the Altona office, yes.
And you agree that there are many examples of where that’s occurred?---Yes.”[102]
[101] CB 3281-3282.
[102] T 150.15-23 (Dymalovski XXN).
69The absence of sales authorities in the Court Book showing Mr Elly as the listing agent with Altona as the listing office, is consistent with the following arrangements:
(a) Mr Dymalovski was the officer in effective control of the Altona Agency “on a formal level”.[103] Mr Elly would be based in and remain the officer in effective control (OIEC) of the Williamstown Agency;[104]
(b) Mr Dymalovski and Mr Kokkinos were responsible for “listing and selling and bringing in income”[105] to the Altona Agency:
(i)According to Mr Dymalovski, he and Mr Kokkinos were the agents based in Altona, generating leads in Altona. That was their “primary role”.[106]
(ii)Mr Elly would “pop in occasionally”[107] to the Altona Agency. There was no need for Mr Dymalovski to ask Mr Elly to work from the Altona Agency because according to Mr Dymalovski, “I had no need to. I had fully under control.”[108] [sic]
[103]“…I was the officer in effective control of the office, um, to make sure that, um, everything, you know, didn’t go wrong.” T 178.5-6, T 255.27-256.1 (Dymalovski XXN).
[104] T 164.31-165.1 (Dymalovski XXN), T 353.31-354.3 (Elly XN).
[105] T 354.3-5 (Elly XN).
[106] T 165.8-10 (Dymalovski XXN).
[107] T 165.2-4 (Dymalovski XXN).
[108] T 165.5-7 (Dymalovski XXN).
(c) Mr Elly provided the commercial and financial support for the Altona Agency including providing the office functions.[109] He agreed to fund the Altona Agency outside of the $10,000 originally contributed by the three of them.[110]
[109] T 509.9-14 (Hocking XN).
[110] T 79.29-80.7 (Dymalovski XN).
70In my view, recognition that the evidence does not support the proposition that Mr Elly directed all business conducted by him personally and commissions related to that business to the Williamstown Agency, is reflected in the shift between Wildorm’s pleaded case and the final submissions. The pleaded case was that “Elly did not, at any time, cause and/or direct that any business conducted by him personally, or commissions which were to be paid in relation to that business, be recorded as business of the Altona Agency.” [111] The final submissions were framed as an allegation that Mr Elly had a “habit” of directing all listings that came through to him to the Williamstown Agency, rather than the Altona Agency.[112]
[111]FASOC at [21].
[112] Plaintiff’s outline of closing submissions, at [12]-[13].
Issue 2
71Issue 2 in the statement of issues is:
“What, if any obligation was Mr Elly under to direct commission from properties that he personally listed in the Altona Territory to be paid to Greg Hocking Altona?”
Plaintiff’s submissions
72Mr Hibbard submitted that Mr Elly had two obligations to direct commissions from his personal listings in the Altona Territory to Greg Hocking Altona, namely:
(a) obligations pursuant to his position as a director of Greg Hocking Altona, the corporate trustee of the Altona Trust; and
(b) obligations pursuant to an oral agreement he made with Mr Dymalovski and Mr Kokkinos.[113]
[113] Plaintiff’s outline of closing submissions [15], [16], [20]
Obligations as a director
73Mr Hibbard submitted that as a director of Greg Hocking Altona, Mr Elly had personal obligations to ensure that Greg Hocking Altona exercised its powers honestly and in the best interests of the unitholders of the Altona Trust.[114] He relied on a passage in the judgment of Robson J in Re S & D International Pty Ltd (No 4)[115] in which his Honour stated:
“The basic common law duty of a director is that he or she must act bona fide in what he or she believes is in the best interests of the company as a whole. This duty is encompassed in s 181. In this instance, S&D acted as a trustee of the Unit Trust and the best interests of the company were clearly to act properly in accordance with the Trust Deed and in the interests of the Unit Trust. In other words to ensure that the trustee exercised its powers honestly and in the best interests of the beneficiaries of the trust.” [116]
[114] Plaintiff’s outline of closing submissions [16].
[115] (2010) ACSR 595.
[116]Referred to in Australasian Annuities Pty Ltd (in liq) (recs and mgrs apptd) v Rowley Super Fund Pty Ltd [2015] VSCA 9 at [57]-[59] (Warren CJ), [226]-[229] (Garde AJA).
74Clause 8.1 of the Franchise Agreement, requires a principal to carry on all business activities “in compliance with all laws, regulations and codes of conduct and… in accordance with the highest standards of ethics and business practice”.[117] The practical effect of these obligations required Mr Elly, as the Principal of the Altona Agency, to direct listings to the Altona Agency when he was personally presented with a potential listing in the Altona Territory, to further the best interests of Greg Hocking Altona.[118]
[117] Plaintiff’s outline of closing submissions [17]; CB 887.
[118] Plaintiff’s outline of closing submissions [19].
75The Franchise Agreement and Operations Manual do not deal with how a person should manage their affairs when such person has direct interests in multiple franchises. In the absence of a means of resolving the conflict, Mr Elly acted contrary to his duty to Greg Hocking Altona when he directed listings to Elly Partners. A notable feature of that conflict of interest was that Mr Elly had a greater interest in listings going to Elly Partners than he did in Greg Hocking Altona.[119]
[119] Plaintiff’s outline of closing submissions in reply [7].
Obligations under the oral agreement
76Mr Hibbard submitted that the “second obligation” binding on Mr Elly was an oral agreement between Mr Dymalovski, Mr Kokkinos, and Mr Elly, which gave rise to binding obligations to allocate Mr Elly’s personal listings in the Altona Territory to the Altona Agency (personal listings agreement).[120]
[120] Plaintiff’s outline of closing submissions [20].
77Mr Hibbard relied on the following evidence in support of the personal listings agreement:
(a) evidence of Mr Dymalovski and Mr Kokkinos, that at meetings in late 2015, all directors agreed they would each bring in listings and commission to the Altona Agency;[121]
(b) evidence of Mr Kokkinos, that in a discussion in mid-2016, all directors agreed to a target $300,000 of commissions for the 2016/2017 financial year;[122]
(c) an email sent by Mr Kokkinos to Mr Elly and Mr Dymalovski with the subject “Sales Target Projections 2017” and attaching a spreadsheet;[123] and
(d) acceptance by Mr Elly, that he received the spreadsheet but could not explain the contents.[124]
[121] Plaintiff’s outline of closing submissions [20], referring to T 110.9 (Dymalovski XN).
[122] Plaintiff’s outline of closing submissions [20], referring to T 275.14-23 (Kokkinos XN).
[123] Plaintiff’s outline of closing submissions [21], referring to CB 1155-1156.
[124] Plaintiff’s outline of closing submissions [22], referring to T 453.26-455.13 (Elly XXN).
78Mr Hibbard contended that the evidence of Mr Dymalovski and Mr Kokkinos should be preferred as:
(a) Mr Kokkinos was an honest witness who does not have an interest in the outcome of the proceeding; and
(b) it was more inherently probable that the other directors would have expected, and Mr Elly would have agreed, that Mr Elly contribute to listings, as Mr Elly was a business partner with an established name in the area.[125]
[125] Plaintiff’s outline of closing submissions [23].
Conflict of interest
79Mr Hibbard submitted that by reason of the obligations Mr Elly was under, he was in a position of conflict, had no rules in place to deal with the conflict, and was wilfully ignorant or reckless as to his obligations owed to Greg Hocking Altona:[126]
(a) Mr Elly had a “discretion” in choosing whether to direct business to the Williamstown Agency over the Altona Agency.[127]
(b) Mr Elly routinely made decisions which had the effect of reducing the income of Greg Hocking Altona, without consulting Mr Dymalovski.[128]
(c) Mr Elly routinely allocated listings to the Williamstown Agency, even though such listings concerned properties in the Altona Territory despite the personal listings agreement.[129] Mr Elly’s mindset was that he did not owe any freestanding obligation to Greg Hocking Altona to list properties there. His personal 100 per cent interest in Elly Partners gave rise to a fundamental conflict of interest in his role as director of Greg Hocking Altona, in which he had either a one third or half beneficial interest and one which he failed to properly manage.[130]
[126] Plaintiff’s outline of closing submissions [24], [35].
[127] Plaintiff’s outline of closing submissions [26]-[27].
[128] Plaintiff’s outline of closing submissions [31].
[129] Plaintiff’s outline of closing submissions [32].
[130] Plaintiff’s outline of closing submissions [13].
80Mr Hibbard relied on the statement of Bathurst CJ in Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd:
“[3] It is well established that the fiduciary duties owed by a person to a company of which he or she is a director include an obligation not to place himself (or herself) in a position of conflict where there is a real or substantial possibility of conflict between the director’s interests and the director’s duty to the company.
[4] However, as was pointed out by the majority in Pilmer at [79] and by Hayne and Crennan JJ in Howard, different minds may reach different conclusions as to the presence or absence of a real possibility of conflict between duty and interest or duty and duty and the doctrine cannot be inexorably applied without regard to the particular circumstances of the relationship. Thus, it is not inevitably the case that a director who occupies board positions in competing companies is in breach of his or her fiduciary obligations to one or the other of them merely by reason of that fact.
[5] As was made clear in Howard, it is necessary to give close attention to the duties, interests and alleged manner of conflict said to arise in any case. As Gageler J pointed out in Howard, the identification of the subject matter over which the fiduciary obligation extends requires identification of the undertaking in which the company of which the fiduciary is a director is involved.”[131] (emphasis added)
[131] (2016) 340 ALR 580 (Australian Careers Institute), at [3]-[5] (Bathurst CJ).
Defendants’ submissions
81In summary, Mr Molesworth submitted that:
(a) obligations as to the allocation of commissions on Mr Elly’s listings are governed by the Franchise Agreement and Operations Manual;
(b) there was no oral agreement which obligated Mr Elly to direct commissions for properties in the Altona Territory exclusively to Greg Hocking Altona; and
(c) there are no separate duties or equitable obligations which obligated Mr Elly to allocate commissions exclusively to Greg Hocking Altona. Mr Dymalovski and Mr Kokkinos were aware of Mr Elly’s role as a director and OIEC of Elly Partners.[132]
[132] Second and third defendants’ closing submissions [13].
Franchise Agreement and Operations Manual
82As a director of two separate and independently incorporated franchises, Mr Elly was free to list properties in the Altona Territory through Elly Partners as he had done prior to the establishment of the Altona Agency.[133]
[133] Second and third defendants’ closing submissions [14]-[15].
83The Franchise Agreement:
(a) governs the arrangements between Greg Hocking Altona, Greg Hocking Franchising, as well as other franchises;[134] and
(b) expressly contemplates and permits a franchise agency to operate in territory belonging in another franchise:[135]
(i)“territory” is non-exclusive;[136]
(ii)clause 6.3 of the Franchise Agreement[137] provides for the sharing of commissions in any conjunctional sales;[138] and
(iii)clause 5.12 of the Operations Manual[139] sets out the 80/20 Rule.[140]
[134] Second and third defendants’ closing submissions [16].
[135] Second and third defendants’ closing submissions [17].
[136]Second and third defendants’ closing submissions [17]; Clause 1.1.91 of the Franchise Agreement CB 868.
[137] CB 880.
[138] Second and third defendants’ closing submissions [17].
[139] CB 758.
[140] Second and third defendants’ closing submissions [19].
84The arrangements for the allocation of commission provided for in the Franchise Agreement and Operations Manual in the case of conjunctional sales are unsurprising and commercial. The office that does the work receives the bulk of the commission and the territory office (in circumstances where it is not required to expend any resources) receives the lower percentage of the commission.[141]
[141] Second and third defendants’ closing submissions [20].
85The proposition that the Altona Agency should receive 100 per cent of the commission is uncommercial in circumstances where Elly Partners traditionally received 100 per cent of the commission on properties listed in the Altona Territory through the Williamstown Agency and where the individual agents were employed by Elly Partners and not Greg Hocking Altona.[142]
[142] Second and third defendants’ closing submissions [20].
Oral agreement
86Mr Molesworth submitted there was no personal listings agreement between the directors:
(a) such personal listings agreement was not identified in any version of the statements of claim, the outline of Mr Dymalovski’s evidence, or in any written or oral opening submissions;
(b) Mr Dymalovski’s evidence is fanciful and should not be accepted by the Court as his genuinely held belief; and
(c) the Court should prefer Mr Elly’s evidence that no such agreement ever existed.[143]
[143] Second and third defendants’ closing submissions [21], referring to T 361.2-9 (Elly XN).
87Had there been a personal listings agreement, Mr Dymalovski would have expressed concerns about a spreadsheet prepared by Mr Kokkinos which recorded the sales listings of the Altona Agency and showed no listings by Mr Elly through Greg Hocking Altona.[144] There is no such evidence. The Court should infer there was no personal listings agreement. [145]
[144]Second and third defendants’ closing submissions [23], referring to “Office appraisals 2016.Exl” file.
[145] Second and third defendants’ closing submissions [23].
88Mr Molesworth contended that as the OIEC of the Altona Agency and a director of Greg Hocking Altona who signed off on the entity’s accounts, Mr Dymalovski ought to have been aware of the manner in which commissions were allocated and accounted for.[146] Commissions were not in fact allocated in accordance with the purported personal listings agreement. It is not believable that there was an agreement that Mr Dymalovski himself did not comply with for years. This reflects Mr Dymalovski’s lack of belief as to any obligation by Mr Elly to exclusively allocate listings in the Altona Territory to Greg Hocking Altona.[147]
[146] Second and third defendants’ closing submissions [24].
[147] Second and third defendants’ closing submissions [26].
Equitable obligations
89There is no pleaded allegation of non-disclosure on the part of Mr Elly in his role as an officer of Elly Partners or that he had an equitable duty that required him to allocate 100 per cent of Altona Territory listings to Greg Hocking Altona.[148]
[148]Second and third defendants’ closing submissions [27]. Mr Molesworth relied on the principle articulated by Bathurst CJ in Australian Careers Institute at [3]-[4]; See also On the Street Pty Ltd v Cott (1990) 101 FLR 234; Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1 and the proposition that there is no breach of duty by being a director of a rival company, so long as there is no disclosure of confidential information. See London v Mashonaland Exploration Co Ltd [1891] WN 165; Bell v Lever Bros Ltd [1932] AC 16.
90Further, Mr Dymalovski, was at the relevant time, a director of Greg Hocking Altona and was aware of Mr Elly’s dual responsibilities (i.e. as a director of Greg Hocking Altona, and as a director of Elly Partners and OIEC of the WiIliamstown Agency).
91Greg Hocking Altona acquiesced to the existing arrangements, whereby Mr Elly had dual responsibilities in his roles.[149]
[149] Second and third defendants’ closing submissions [27],
Legal principles
92A director is not necessarily precluded from being a director of another rival company:
“…the mere fact of being the director of a company will not preclude the director from engaging in a competing business on his or her own account. But it leaves open any issues of actual conflict, or of conflict reasonably perceived to be within the range of sensible possibilities arising on the facts of a particular case.”[150]
[150]Australian Careers Institute at [135], citing Links Gulf Tasmania Pty Ltd v Sattler (2012) 292 ALR 382 at [564] (Jessup J).
93In Australian Careers Institute, the test for whether there is a conflict was formulated as follows:
“In determining whether there is a conflict between the personal interests of a director of a company and the director’s duties to the company, it is necessary to identify the functions or responsibilities the director has undertaken in that capacity… the precise scope of the functions or responsibilities in a particular case is a question of fact. Thus, the content of fiduciary duties are moulded to the character of the particular relationship between the director and the company.”[151]
[151]Ibid, at [136], citing Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17 at [70], citing United Dominions Corporation Ltd (known as AMEV-UDC Finance Ltd) v Brian Pty Ltd (1985) 157 CLR 1 at 11; 60 ALR 741 at 747 per Mason, Brennan and Deane JJ.
94Their Honours emphasised the protective rationale behind fiduciary duties when determining the circumstances and the scope of any such duties:
“In assessing the circumstances of a case, it is important to bear in mind the protective rationale for the imposition of fiduciary duties. In Chan v Zacharia, Deane J discerned two distinct themes in the “fundamental rule” that a fiduciary is not permitted to put himself or herself in a position where duty and interest conflict:
‘The first [theme] is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage.’”[152]
[152] Ibid, at [137] (Sackville AJA), citing Chan v Zacharia (1984) 154 CLR 178 at 198-9.
Conclusion and analysis
95I am not satisfied that Mr Elly was obliged to direct commission from all properties that he personally listed in the Altona Territory to be paid to Greg Hocking Altona.[153]
[153] The source of the alleged obligation on the part of Mr Elly was not pleaded, rather the allegation that
the obligation arose out of Mr Elly’s directorship of Greg Hocking Altona and as “Principal” under the
Franchise Agreement emerged in submissions.
Franchise Agreement & Operations Manual
96The starting point for the analysis is that under the Franchise Agreement, the Altona Territory is a non-exclusive territory.[154] As such, there is no obligation under the Franchise Agreement for a property in the Altona Territory to be allocated to the Altona Agency as the listing office by virtue of it being located in the Altona Territory. The Franchise Agreement provides explicitly for a franchise agency to work and sell property in another franchisee’s non-exclusive territory.[155]
[154]Clause 1.1.91 of the Franchise Agreement (CB 868); Clause 6.2 of the Franchise Agreement (CB 875-880).
[155] Clause 6.3 of the Franchise Agreement (CB 880).
97The obligations on franchisees in respect of the allocation of commissions where a property is listed for sale in another franchisee’s territory is set out in clause 5.12 of the Operations Manual (being the 80/20 Rule).
Obligations as a director
98Mr Hibbard submitted that Mr Elly acted contrary to his duty to act in the best interests of Greg Hocking Altona when he directed listings to Elly Partners.[156] Mr Elly was “hopelessly conflicted”[157] and “in the absence of a means of resolving the conflict, the fact remains that Mr Elly acted contrary to his duty to Greg Hocking Altona when he directed listings to Elly Partners.”[158]
[156]Plaintiff’s outline of closing submissions [16], [19] and [27]. Mr Hibbard’s submissions went beyond Wildorm’s pleaded case. Wildorm alleged a breach of fiduciary duty against Greg Hocking Altona: FASOC at [44]-[48E]. The allegation of breach of fiduciary duty at [44] of the FASOC is an alleged breach of fiduciary duty by Greg Hocking Altona for failing “to ensure that Elly properly conducted the management functions of Greg Hocking Altona and/or cause the management functions of Greg Hocking Altona to be properly conducted”, failing to “get in the proper income of the Altona Trust” and failing to “distribute the proper income of the Altona Trust to the unitholders in the trust.” This was reflected in Mr Hibbard’s opening submission: “The effect of [the Alleged Conduct, including the issue of Mr Elly’s listings] is that Greg Hocking Altona, of which Mr Elly was a director, breached its duty to Wildorm as trustee”: see Plaintiff’s written opening submissions [12].
[157] Plaintiff’s outline of closing submissions [33].
[158] Plaintiff’s outline of closing submissions in reply [7].
99To the extent Mr Hibbard’s submission raises the scope of any duty owed by Mr Elly as a director of Greg Hocking Altona, in my view, having regard to the particular circumstances of the relationship,[159] I am not satisfied his directorship of Greg Hocking Altona gave rise to an “obligation” to direct commission from all properties that he personally listed in the Altona Territory to be paid to Greg Hocking Altona:
(a) Mr Dymalovski and Mr Kokkinos both knew Mr Elly was a director of Elly Partners with established businesses in Williamstown and Yarraville (which had listings in Altona) and owed duties to both Elly Partners and Greg Hocking Altona:
(i)Mr Hibbard submitted that “everyone knew that Mr Elly was in control of the Williamstown entity. Everyone knew that he had a half a stake or third stake in the Altona entity.”[160]
(ii)It was Mr Elly’s established businesses that Mr Dymalovski was hoping to take advantage of.[161] As Mr Hibbard put to Mr Elly in cross-examination, Greg Hocking Elly Partners was an established brand in the inner west and was on the door of each of the Williamstown, Yarraville, and Altona Agencies.[162] So much is apparent from the photographs taken on the day the Altona Agency opened advertising the Altona Agency as part of the Greg Hocking Elly Partners brand with Mr Elly front and centre.[163] Mr Dymalovski recognised the risks associated with taking advantage of an existing brand. He said, “I was aware of the risks involved by having [Mr Elly’s] name on the door. In terms of Greg Hocking Elly Partners splattered everywhere.”[164]
(b) Equity ownership in multiple franchisees is not unusual in the real estate industry. According to Ms Foxall, there are “different equity set ups that happen in real estate” and “to have equity ownership in other offices” is not unusual or would necessarily create any conflict:[165]
“…ideally, it depends on how they’ve structured the rules at the start…you have the operations manuals, but how they’re gonna – and then they’ll have their way of operating with listings, so it depends on the – the client, and circumstance and, um, how long they have been a client, and what not and how – how the client was sourced as well.”[166]
[159]Australian Careers Institute at [4]-[5] (Bathurst CJ): “[T]he doctrine cannot be inexorably applied without regard to the particular circumstances of the relationship… As Gageler J pointed out in Howard, the identification of the subject matter over which the fiduciary obligation extends requires identification of the undertaking in which the company of which the fiduciary is a director is involved.”
[160]T 624.25-28. Mr Hibbard’s submission that what they didn’t know was what properties Mr Elly was listing through the Williamstown Agency is addressed below.
[161] T 75.5-7 (Dymalovski XN); T 237.22-27, 239.16-17 (Dymalovski XXN).
[162] T 386.6-7 (Elly XXN).
[163] CB 4911-4912.
[164] T 163.12-15 (Dymalovski XXN).
[165] T 498.2-16 (Foxall XXN).
[166] T 499.5-12 (Foxall XXN).
(c) Although Mr Elly was the named “Principal” in the Franchise Agreement, there was no issue on the evidence that Mr Dymalovski was the OIEC of the Altona Agency.[167] Mr Dymalovski himself gave evidence that he was the OIEC on “a formal level” and “to make sure that, um, everything, you know, didn’t go wrong”[168] and that he and Mr Kokkinos (for the time he was a director) had the day-to-day running of the Altona Agency.[169] Mr Elly would provide the commercial and financial support including providing the office functions.[170]
[167]In his opening submissions, Mr Hibbard said, “Mr Elly has been the officer in effective control at all times of Williamstown. Mr Dymalovski was the officer in effective control of Altona during the period he was a director.” T 53.18-20.
[168] T 255.27-256.1 (Dymalovski RE-XN).
[169] T 89.14-29 (Dymalovski XN); T 273.18-23 (Kokkinos XN); T 509.9-14 (Hocking XN).
[170] T 509.9-14 (Hocking XN); CB 4984-4985.
100Mr Hibbard submitted that it was “incumbent on [Mr Elly] to have some sort of process or way of determining how to deal with that conflict… discretion.”[171]
[171] T 622.18-22.
101I am satisfied that Mr Elly had a “process or way” of managing his directorship of Elly Partners on the one hand, and Greg Hocking Altona on the other:
(a) Mr Elly’s process was based on the source of the connection or relationship. It is “the authority [that] dictates which office listed the property.”[172] Mr Elly was already working within the Williamstown market and had existing clients in the Altona Territory.[173]
(b) If he had a personal contact, for example, a property in the Altona Territory that was on the Williamstown Agency rent roll, if the owners wanted it listed for sale, “it would belong to the Williamstown office.”[174] Mr Elly denied he was hopelessly conflicted because he “knew where the source came from.”[175]
(c) Mr Elly said, “[A]ll those properties there[176]… have an association with the Elly Partners business… I could name every single person on that list.”[177]
[172] T 362.9-10 (Elly XN).
[173] T 355.24-29 (Elly XN).
[174] T 387.7-9 (Elly XXN), T 405.20-406.4 (Elly XXN).
[175] T 406.9-11 (Elly XXN).
[176]Referring to properties the subject of sales advices where Mr Elly is noted as the “listing agent” as put by Mr Hibbard to Mr Elly during cross-examination: CB 3117 (11 Beaver Street, Altona North), CB 3120 (12 Craig Court, Altona North), CB 3123 (12 Paw Paw Road, Brooklyn), CB 3126 (151 Chambers Road, Altona North), CB 3132 (2/15 Conifer Avenue, Brooklyn), CB 3137 (2/28 Grieve Parade, Altona), CB 3139 (23 Fifth Avenue, Altona North), CB 3142 (26 Stenhouse Avenue, Brooklyn), CB 3144 (29 Rose Street, Altona).
[177] T 405.20-29 (Elly XXN).
102I am not satisfied that Mr Elly was “hopelessly conflicted”, had a “lack of appreciation of having any duty to Greg Hocking Altona”,[178] or that there was an “absence of a means of resolving” any conflict:
[178] Plaintiff’s outline of closing submissions [28].
(a) Mr Elly’s process or way of managing his dual role was consistent with the evidence of Ms Foxall regarding the way these issues are managed in the industry. It would depend on the client and circumstances, including “how long have they been with the client” and “how the client was sourced”.[179]
[179] T 499.4-12 (Foxall XXN).
(b) Mr Hibbard accepted that decisions as to which office a property sale ought to be listed through was informed by relationships.[180]
[180] T 623.13-19. Although Mr Hibbard contended that did not justify Mr Elly “funnelling the work” directly to
the company over which he had 100 per cent control: T 623.8-12.
(c) Mr Hocking rejected the proposition that the situation of Mr Elly having a beneficial interest in two real estate agencies created a conflict of interest:[181]
[181]Although he was unaware how they were “running it day to day”: T 522.13-17 (Hocking XXN).
(i)He accepted that it would be open to Mr Elly to list a property in the Altona Territory with the Williamstown Agency where Mr Elly was approached by the seller, subject to payment of the territory fee.[182]
(ii)He also accepted that in such situations, Mr Elly could list the property with the Altona Agency, subject to a payment of the referral fee.[183]
(d) Mr Elly’s evidence that the source of the listings was relationship-based, was consistent with Mr Dymalovski’s evidence:
(i)of the general process that would occur where a vendor who was based in Altona wanted to list a property with Greg Hocking:
“What that person would typically do would, um, contact us in some way, shape or form. Um, it would really depend on the relationship, I guess, ah, with – with the office or the individual…they would either phone the office, um, or, um, phone – if they had a contact with that person directly, um, and make an arrangement…”[184]
(ii)describing how vendors would approach an agent:
“…vendors in particular, um, that were thinking of selling their properties would choose an agent based on a number of things, (1) either a personal connection…”[185]
[182] T 520.29-521.7 (Hocking XXN).
[183] T 521.11-17, T 522.6-9 (Hocking XXN).
[184] T 99.10-31 (Dymalovski XN)
[185] T 103.17-23 (Dymalovski XN).
103In final oral submissions, Mr Hibbard focused the allegation on the proposition that Mr Elly ought to have disclosed his process but did not.[186] Having regard to the above and given Mr Dymalovski’s appreciation of how relationships worked in a general sense, I do not accept that Mr Dymalovski was not aware that Mr Elly would make those decisions in the way that he did and in the context of his directorship of Elly Partners and his existing relationships.
[186] T 623.30-31.
Alleged oral agreement
104I am not satisfied Mr Elly, Mr Dymalovski and Mr Kokkinos entered into the personal listings agreement.
105In my view, Mr Dymalovski’s evidence that he “was very clear and very… staunch on that particular topic that all sales leads produced by all directors will be for the Altona office”[187] is recent invention. Had a discussion taken place in which Mr Elly agreed that “[a]ll commissions in the patch in our territory between the three of [the directors] where listed will be Altona office listings… So regardless of the connection and/or relationship prior to the commencement of the Altona office, any properties that were listed by either through one of [them] were deemed to be Altona properties”:[188]
[187] T 76.18-30 (Dymalovski XN), T 165.17-21 (Dymalovski XXN).
[188] T 159.30-160.1, T 160.20-24 (Dymalovski XXN).
(a) the allegation would have been pleaded and opened by Mr Hibbard:
(i)The FASOC did not plead the alleged oral agreement as a source of the “obligation” on the part of Mr Elly to direct commissions from properties in the Altona Territory personally listed by him to the Altona Agency in circumstances where other alleged oral agreements are pleaded.[189]
[189] For example, in respect of the Yarraville Agents: FASOC at [26].
(ii)No mention was made of any alleged oral agreement in Mr Hibbard’s opening written or oral submissions. The source of the alleged obligation was identified in written opening submissions as Mr Elly’s directorship of Greg Hocking Altona, that he was the Principal of the Altona franchise and as such, he should have directed those commissions to Greg Hocking Altona.[190] In oral opening, Mr Hibbard said, “Now, issue 1 for the plaintiff is that each of these sales advices should have recorded Altona as being the relevant office, given Mr Elly’s role vis-à-vis the Altona Agency.”[191] No mention was made of any alleged oral agreement.
[190] Plaintiff’s opening submissions at [14].
[191] T 35.18-21.
(b) it would have been apparent soon after the business commenced that Mr Elly was not listing properties in accordance with the alleged personal listings agreement:
(i)at the weekly meetings at the Williamstown Agency.[192] The purpose of the meetings was to discuss any new listings, properties that were coming up for auction, any campaigns that were running and how they were running.[193] According to Mr Kokkinos, the discussion at the weekly meetings was “so everybody had a really good understanding of – of what sort of both offices were doing, and what they were up to, and any new listings that were coming on.”[194] In cross-examination, Mr Kokkinos said they discussed “[n]ew business that was coming into the business. How current listings were running”;[195]
[192] T 278.22-25 (Kokkinos XN).
[193] T 279.2-6 (Kokkinos XN).
[194] T 279.6-9 (Kokkinos XN).
[195] T 309.9-11 (Kokkinos XXN).
(ii)at the corporate meetings, which were held monthly. According to Mr Kokkinos:
“The corporate meetings were effectively all of the businesses coming into the meeting and we would – we would basically discuss, um, we would discuss, you know, the sales and the revenue in those businesses, yeah.”[196]
[454] T 440.11-18 (Elly XXN). Had it been necessary to determine, I would have preferred Mr Ferrier’s approach, methodology and opinion for the reasons set out in the defendants’ closing submissions: at [78] and [79].
Remaining issues in dispute for determination
210Wildorm has failed to prove the alleged impugned conduct. Had it been necessary to determine, I would have found that Wildorm is not entitled to any relief.[455]
[455]I would have accepted the defendants’ submission that "the Court should not be satisfied that the calculations involved in Wildorm’s claims are capable of satisfying the relevant burden of proof in civil proceedings” such as to underpin an order for relief: see Second and third defendants’ closing submissions at [5], [7](a)-(b); Second and third defendants’ aide memoire: summary of changes to plaintiff’s claims.
211In my view, the claim is largely motivated by unhappiness in the way Mr Dymalovski exited the business rather than relief validly arising from the legal arrangements agreed between the parties:[456]
[456] And Mr Kokkinos for the time he was there.
(a) In early 2017, Mr Dymalovski and Mr Kokkinos were underperforming “especially from a director’s perspective.”[457]
(b) Greg Hocking Franchising formed the view that Mr Dymalovski was not writing the threshold gross commission income to sustain a business.[458] This was accepted by Mr Dymalovski at the time when he emailed Mr Elly, copying in Ms Foxall and Mr Hocking on 20 April 2018:
“…as you stated, you can’t have a director involved in one of your entities writing annual commission below most of you sales team and I am of the same opinion…”[459]
(c) The meeting in 2018 was called to address the underperformance of the Altona Agency.[460]
(d) Mr Hocking formed the view that if the Altona Agency was going to be restructured, “it was best that [Mr Dymalovski] wasn’t in charge”:
“…any formal application that he may wish to lodge we would have reviewed, but again on the performance of the office and his role there, it was highly unlikely that we would have granted him the franchise.”[461]
[457] T 493.24-28 (Foxall XN).
[458] T 496.19-30 (Foxall XN).
[459] CB 1854.
[460] T 512.11-13 (Hocking XN).
[461] T 513.22-28 (Hocking XN).
212Although Mr Dymalovski denied that he resigned as a director and relinquished his interest in Greg Hocking Altona in exchange for being released from obligations, and for no monetary payment, in my view, the evidence supports that he did:
(a) Had Mr Dymalovski considered himself to be entitled to a monetary payment, one would have expected him to have persisted with his attempt to obtain a payment and to not have resigned as a director and transferred his shares in Greg Hocking Altona until he had an agreement as to a payment.[462] Rather, on 24 July 2018, he emailed Ms Elly as follows:
“As for what we discussed last week about token of good faith can we sort something out in the meanwhile I have mentioned whats happening and it hasn’t changed….”[463]
(b) In his email to Mr Elly, Mr Hocking, and Ms Foxall on 9 August 2018, Mr Dymalovski confirmed that he “agreed to stand down as a Director of Greg Hocking Altona (as requested/instigated by GH Corporate and Wayne Elly)”, as per previous discussions and the meeting on the same day.[464] Mr Dymalovski’s email also states that the points discussed and agreed at such meeting included “release from franchise agreement”, “removal from company records as director”, “release from any obligations as a director (ie guarantees etc…)”, and “release as OIEC from Greg Hocking Altona with the [Business Licensing Authority]”.[465]
(c) That Mr Dymalovski relinquished his interest in the Greg Hocking Altona business in exchange for being released from his obligations is supported by:
(i)the exit strategy he proposed for Mr Elly when he suggested that Mr Elly resign as a director and relinquish his interest and he, Mr Dymalovski continue running the business:
“…This situation would be similar to the exit strategy we adopted with Arthur Kokkinos, last year, whereby all shares in the current company be transferred to me/my entity and Wayne is removed from all other associated items (ie lease commitments, accounts, etc), to ensure an efficient and effective transition…”[466]
(ii)his email on 27 April 2018:
“Hi further to our previous correspondence I had a meeting with Wayne yesterday and he stated that he is willing to forgo his interest in the Altona office. Please advise the required steps moving forward if any.”[467]
[462] T 246.5-7 (Dymalovski XXN).
[463] CB 2460-2461.
[464] CB 2494.
[465] CB 2494.
[466] CB 1861.
[467]CB 1856-1857. Although Mr Molesworth put to Mr Dymalovski that by this email, he was “not proposing to pay Mr Elly or Elly Partners anything for taking [over the Altona Agency business]”, Mr Dymalovski denied that he implied it in that sense: “Forgo, um, you know, I’m not a wordsmith”. See T 241.19-243.11 (Dymalovski XXN). I reject Mr Dymalovski’s evidence because it is inconsistent with this and his other emails.
(d) There was no suggestion in Mr Dymalovski’s email on 2 May 2018[468] that Mr Elly be paid any money for relinquishing his interest in Greg Hocking Altona and the business.
[468] CB 1861.
213Consistent with Mr Dymalovski’s position, in respect of Wildorm’s units in the Altona Trust, in my view, the better inference to be drawn is that Wildorm relinquished its units in the Altona Trust as part of Mr Dymalovski’s exit:
(a) Mr Dymalovski agreed that:
(i)he understood in leaving, he would be “giving up [his] share and the units”;[469]
(ii)he transferred his share and resigned as a director without receiving any money;[470] and
(iii)at the time of leaving, he executed the deed of variation to the franchise agreement and a deed for the release for the lease, which released him from his personal obligations.[471]
[469] T 246.8-9 (Dymalovski XXN).
[470] T 246.5-7 (Dymalovski XXN).
[471] T 246.13-18 (Dymalovski XXN).
(b) Wildorm’s pleaded case was that Victian’s units in the Altona Trust were transferred to Waynecorp and Wildorm in equal proportions when Mr Kokkinos left.[472] That Wildorm relinquished its units is largely consistent with Mr Kokkinos’s evidence that Victian was prepared to forfeit those units for nominal consideration: “It was nominal… there was no money transferred. It was such a small amount of money it wasn’t transferred. It was dollars, from what I remember.”[473] It is also consistent with Mr Elly’s evidence that there was no documentation but he believed that the units were transferred to himself and Mr Dymalovski (via their respective entities).[474] Mr Dymalovski agreed that they acquired Mr Kokkinos’s units but was unsure as to whether any sum was paid to Mr Kokkinos.[475] It is also consistent with Wildorm being released from its obligations with respect to the debt owed by the Altona Trust to Elly Partners.[476]
[472] FASOC [10.3].
[473] T 299.12-26 (Kokkinos XXN).
[474] T 359.25-29 (Elly XN).
[475] T 243.27-245.7 (Dymalovski XXN).
[476] T 371.26-372.5 (Elly XN).
214That Mr Dymalovski resigned and “walked away” or “stood down” in exchange for being released from financial liabilities is supported by the existence of a substantial loan owed by Greg Hocking Altona to Elly Partners:
(a) Although there was no written loan agreement, Ms Elly’s evidence that Elly Partners was paying for the expenses of Greg Hocking Altona is consistent with Elly Partners funding Greg Hocking Altona:
(i)Ms Elly gave evidence that “the funds were exhausted from [Greg Hocking Altona’s bank account]” in about June or July 2016 and she started to use the Williamstown Agency’s account to pay the bills for the Altona Agency.[477] Elly Partners would “pay the bills for the Altona agency”, which “would be processed to a loan account”.[478] The loan account “would be called ‘owed by Altona’, and then the transactions would have to be processed in the MYOB system for the Altona company.”[479] Ms Elly discussed the existence of the loan account with the three directors.[480]
[477] T 464.19-25 (J Elly XXN).
[478] T 464.21-28 (J Elly XN).
[479] T 464.29-465.1 (J Elly XN).
[480] T 465.2-3 (J Elly XN). CB 939.
(ii)On 14 April 2016, Ms Elly emailed the directors of Greg Hocking Altona that “Greg Hocking Elly Partners Expenses to be charged to Altona” totalled $15,329.68 and the available funds in Greg Hocking Altona’s bank account totalled $1,667.62.[481] The expenses were processed through the Williamstown Agency because “[they] didn’t have funds to pay them out of the Altona account.”[482]
[481] CB 939.
[482] T 465.18-20 (J Elly XN).
(iii)By 30 June 2018, the loan amount increased to $163,271.23 as “a direct result of all the expenses that Williamstown office had paid for in relation to the Altona office.”[483]
[483] T 475.3-13 (J Elly XXN); CB 2477.
(b) The existence of the loan is consistent with the evidence of Mr Hocking and Ms Foxall in respect of their knowledge of the arrangement whereby Elly Partners financially supported Greg Hocking Altona:
(i)Mr Hocking gave evidence that Mr Elly would provide “financial support” for the Greg Hocking Altona business.[484] This is supported by an internal Greg Hocking corporate email from Mr Warburton stating that “[Mr Elly] will be funding most of the working capital” and querying whether a loan agreement would be appropriate.[485]
[484] T 509.11-12 (Hocking XN).
[485] CB 4984-4985.
(ii)Ms Foxall gave evidence that “the office was being funded by [Mr Elly]… the income coming through with the gross commission income from the office or the agents within the business wasn’t covering the costs”.[486] In a separate context, when talking about Mr Elly wanting to exit the business, Ms Foxall said, “[Mr Elly] couldn’t continue on… ‘cause the business was costing too much, he couldn’t afford it.”[487]
[486] T 493.3-6 (Foxall XN).
[487] T 495.22-24 (Foxall XN).
(c) Mr Dymalovski’s evidence on this topic lacked credibility, ignoring the reality of the circumstances at the time:
(i)Mr Dymalovski initially denied that there was any outstanding loan or a loan between Elly Partners and the Altona Trust.[488] When pressed, in contradiction to his previous answers that Greg Hocking Altona was “fairly self-sufficient… virtually immediately”,[489] Mr Dymalovski responded, “There may have been [a loan between the two entities] at times. Particularly, at the start.”[490]
(ii)Mr Dymalovski then denied the loans shown in the accounts were correct.[491] When asked about the basis for his statement that the loans were incorrect, Mr Dymalovski explained, “The basis is, if they followed the agreement that we had in place, particularly with Wayne Elly’s listings that should have been 100 per cent Altona office, then these figures wouldn’t exist.”[492] Mr Dymalovski then stated he accepted there was a debt but it “should not be there had the books been accurately recorded”.[493] When asked to clarify his position about the existence of the debt, Mr Dymalovski explained, “There may have been a debt for a short period of time when we initially opened the office until settlement started flowing through, because we hit the ground running and we had… income… [W]e had obtained listings… that were attributable to the… Altona office… [T]hose properties had… all sold within a… reasonable and timely manner and that income should have been… allocated towards… the Altona office as income.”[494]
(d) Mr Dymalovski signed the 2016 and 2017 financial statements of Greg Hocking Altona and the Altona Trust showing the loan amounts owing to Elly Partners, and was made aware of the existence of the loan to Elly Partners as reflected in the 2018 balance sheet:
(i)The external accountants, MPT Group, prepared balance sheets for the Altona Trust for the financial years ending 30 June 2016 and 30 June 2017, which recorded loans of $62,411 and $42,563 to “Elly Partners Unit Trust” for the respective years.[495] In cross-examination, Mr Dymalovski agreed he signed financial statements for the financial years ended 30 June 2016 and 30 June 2017 “[o]n the basis that they were true and correct from the information that [Ms Elly] put to [them]”.[496]
(ii)Ms Elly prepared the balance sheet of Greg Hocking Elly Altona as at 30 June 2018 which recorded a loan of $163,271.23 to “Greg Hocking Williamstown”.[497] Ms Elly gave evidence that she described and explained the amount to Mr Dymalovski.[498] When questioned about emails sent from Ms Elly to him in July 2018 with spreadsheets detailing financial figures,[499] Mr Dymalovski said, “I don’t believe at that stage I’ve actually had a really close – um, I can't recall the exact date that I started having a really close look at all of the numbers.”[500]
(iii)Ms Elly paid the expenses.[501]
[488] T 225.25-31 (Dymalovski XXN).
[489] T 221.22-23 (Dymalovski XXN).
[490] T 226.1-3 (Dymalovski XXN).
[491] T 226.4-7 (Dymalovski XXN).
[492] T 226.15-25 (Dymalovski XXN).
[493] T 228.30-229.5 (Dymalovski XXN).
[494] T 229.6-19 (Dymalovski XXN).
[495]CB 1141, 1394.
[496] T 224.1-11 (Dymalovski XXN).
[497] CB 2477; T 474.2-4 (J Elly XXN).
[498] T 475.6-13 (J Elly XXN).
[499] CB 2460; T 259.22-260.1 (Dymalovski RE-XN).
[500] T 260.7-10 (Dymalovski RE-XN).
[501] T 475.14-16 (J Elly XXN), CB 2431.
215The circumstances now complained of by Mr Dymalovski are, in my view, of his own making:
(a) In relation to the 2016 accounts, which he signed, when asked if he paid attention to them, Mr Dymalovski replied, “I glanced at it… I didn’t pay close attention.”[502]
(b) In relation to the accounts, he said, “I’m not sure what the accounts do. The accounts are all over the place.”[503]
(c) The entire time he was a director until September 2018, Mr Dymalovski did not interrogate how the rental commission income was allocated to Greg Hocking Altona.[504]
(d) Even at trial, Mr Dymalovski had not closely “done a review to see how the rental income for properties sourced through Altona have been allocated”.[505]
(e) Somewhat ironically, when pressed, he accepted that:
(i)the buck stopped with him as a director of Greg Hocking Altona: “I understand that, and I’ll accept that responsibility”;[506] and
(ii)as the OIEC of the Altona Agency, any misallocation of expenses was his responsibility.[507]
[502] T 192.1-3 (Dymalovski XXN).
[503] T 185.6-8 (Dymalovski XXN).
[504] T 186.8-18 (Dymalovski XXN).
[505] T 185.17-20; 186.14-18 (Dymalovski XXN).
[506] T 192.12-14 (Dymalovski XXN).
[507] T 192.12-193.5 (Dymalovski XXN).
216In my view, the proceeding is an attempt by Mr Dymalovski, through Wildorm, to obtain a payment for what he considers to be a “reward for [his] effort”[508] because he did not receive a payment when he resigned as a director of Greg Hocking Altona and left the business. Mr Dymalovski accepted as much in cross-examination. Having given evidence that he was “still looking for compensation at the time” he resigned, Mr Dymalovski responded as follows:[509]
“Had Mr Elly agreed to give you compensation, or you were still just discussing it with him?---Well, that’s why we’re here.
So Mr Elly hadn’t agreed to give you any compensation?---We hadn’t come up with any figure. That’s why we’re here.”[510]
[508] T 252.26-28 (Dymalovski XXN).
[509] T 246.20-21 (Dymalovski XXN).
[510] T 246.22-26 (Dymalovski XXN).
Conclusion and Orders
217There be judgment for the defendants.
218Subject to any matters that the parties bring to my attention on the question of costs, I propose to order that the plaintiff pay the defendants’ costs of the proceeding (including reserved costs) on the standard basis, in default of agreement.
219I invite the parties to prepare draft orders to give effect to these reasons.
- - -
Certificate
I certify that these 219 paragraphs are a true copy of the judgment of her Honour Judge Brimer delivered on 16 February 2024.
Dated: 16 February 2024
Sue Ye
Associate to her Honour Judge Brimer
IN THE COUNTY COURT OF VICTORIA CI-19-01532
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL LIST
BETWEEN
WILDORM PTY LTD AS TRUSTEE OF THE WILDORM TRUST
Plaintiff
and
GREG HOCKING ALTONA PTY LTD AS TRUSTEE OF THE GREG HOCKING ALTONA UNIT TRUST
Defendants
STATEMENT OF ISSUES
This document adopts definitions contained in the further amended statement of claim and amended defence filed by the parties.
| No. | Issue | Reference |
| A | Mr Elly’s personal listings | ASOC Part C.2 |
| 1. | Did Mr Elly cause and/or direct all business conducted by him personally, and commissions related to that business, to the Williamstown Agency irrespective of whether the properties involved were located in the Altona Territory or the Williamstown Territory? | ASOC [20] / [20.3] Amended Defence [20] |
| 2. | What, if any obligation was Mr Elly under to direct commission from properties that he personally listed in the Altona Territory to be paid to Greg Hocking Altona? | ASOC [21] Amended Defence [21] |
| 3. | Did Greg Hocking Altona fail to collect commissions in respect of listings in the Altona Territory by Mr Elly that should have been paid to Greg Hocking Altona? | ASOC [23] Amended Defence [23] |
| 4. | If the answer to 3 is “yes”, did that failure constitute a failure by Greg Hocking Altona to enforce its rights under the Altona Franchise Agreement and the Operations Manual? | ASOC [23] Amended Defence [23] |
| B | Yarraville Agents | ASOC Part C.3 |
| 5. | Did Greg Hocking Altona and Elly Partners agree that the Yarraville Agents would act as residential real estate agents on behalf of the Altona Agency and all commissions paid by clients of the Yarraville Agents which were not payable to the Yarraville Agents personally would be paid to Greg Hocking Altona as though Altona was the listing office and subject to the terms of the Operations Manual? | ASOC [26] Amended Defence [26] |
| C | Incorrect allocation of advertising overspend | ASOC Part C.4 |
| 6. | In relation to advertising overspend, was Greg Hocking Altona and Elly Partners bound to follow the requirements of clause 5.12 of the Operations Manual in the case of conjunctional commissions or was it agreed that if there was overspend on these expenses, the amount of the overspend would be deducted from the net commission figure payable to Greg Hocking Altona and Elly Partners? | ASOC [34] Amended Defence [31] |
| D | Property management income | ASOC Part C.5 |
| 7. | Did Greg Hocking Altona and Elly Partners agree that, when the Altona Agency was established fees and commissions for all new properties under management in the Altona Territory would be split 50/50 between Elly Partners and Greg Hocking Altona? | ASOC [35] Amended Defence [35] |
| E | Expenses | ASOC Part C.6 |
| 8. | Were the “Computer costs” recorded in the books and records of Greg Hocking Altona not properly incurred by Greg Hocking Altona or the Altona Agency? | ASOC [42] Amended Defence [42] |
| 9. | Were the “Management costs” recorded in the books and records of Greg Hocking Altona not properly incurred by Greg Hocking Altona or the Altona Agency? | ASOC [42] Amended Defence [42] |
| 10. | Were the costs concerning “Consulting PDV” recorded in the books and records of Greg Hocking Altona not properly incurred by Greg Hocking Altona or the Altona Agency? | ASOC [42] Amended Defence [42] |
| F | Transfer of business | ASOC Part CA |
| 11. | Did Greg Hocking Altona transfer or permit the transfer of the Greg Hocking Altona business to Elly Partners? | ASOC [48B] Amended Defence [48B] |
| 12. | If yes, was Elly Partners under and obligation to pay Greg Hocking Altona for the transfer of the Greg Hocking Altona business? | ASOC [48C] Amended Defence [48C] |
| 13. | If yes, what should Elly Partners have paid to Greg Hocking Altona on the transfer of the Greg Hocking business to Elly Partners? | ASOC [48C] Amended Defence [48C] |
| 14. | Did Wildorm suffer loss and damage as a result of the alleged transfer of the Greg Hocking Altona business to Elly Partners? | ASOC [48E] Amended Defence [48E] |
| G | Equitable relief | |
| 15. | Did Wildorm dispose of its units in the Altona Unit Trust? | |
| 16. | What was the scope of the fiduciary duties owed by Greg Hocking Altona to the beneficiaries of the Altona Unit Trust? | ASOC [18] – [19] Amended Defence [18] – [19] |
| 17. | Having regard to the scope of those fiduciary duties owed, did Greg Hocking Altona breach those fiduciary duties owed to Wildorm by any of the conduct set out in sections A to F above (Alleged Conduct)? | ASOC [18] – [19] Amended Defence [18] – [19] |
| 18. | Did Greg Hocking Altona and/or Wildorm acquiesce to, or ratify, any alleged breach of fiduciary duty by their knowledge of the matters pleaded at [19] of the Amended Defence? | Amended Defence [19] |
| 19. | Did Mr Elly knowingly assist in any of the Alleged Conduct with the intention of, and/or effect of, preventing and/or hindering the ability of the other directors of Greg Hocking Altona from taking steps to prevent the Alleged Conduct, and neglected, failed or refused to inform the Plaintiff? | ASOC [49] |
| 20. | Did Elly Partners know of the Alleged Conduct? | |
| 21. | Did Elly Partners know that it received funds as a result of the Alleged Conduct, as a consequence of Elly and/or Greg Hocking Altona’s alleged fraudulent and dishonest design, and if so which funds? | ASOC [52] |
| 22. | What relief, if any, is Wildorm entitled to? |
DATED: 7 August 2023
0
10
0