Coffee and a Case Note James d'Apice

“You changed the business I sold you so you could underpay me!”

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By deed P sold their shares in an online retail business to D.P was to receive $20M, some shares in D, and the Earn Out Amount (“EOM”): [3]

According to the deed, the EOM was the Base EOM of $10M plus the Additional EOM: [6]

The Additional EOM was the rounded difference between the Base EOM (I.e. $10M) and “Earnings”: [7]

“Earnings” meant EBITDA over the relevant year. The deed contained a mechanism for D send a proposed Earnings calculation (as part of a P and L), for P to make a reply including setting out “Contested Matters”, for the parties to negotiate the contested matters in good faith, and for the matter to be referred to an expert if negotiations failed: [10] - [14]

D sent a P and L suggesting Earnings were ~$6M (making the Additional EOM zero): [16]

P sent a reply calculating Earnings at ~$15M (taking the Additional EOM to its maximum possible figure) and raising Contested Matters: [17]

Following unsuccessful good faith negotiations, the matter was referred to an expert: [18]

How was the expert to calculate Earnings?: [19]

Cll 2.1 and 2.2 of the deed required Earnings to be calc’d disregarding revenues or expenses not part of the Co’s ordinary business including: costs relating to the share sale, restructure costs, certain related party transactions, and the costs of kicking off any new business: [21]

Cl 2.3 of the deed noted the parties’ agreement that Earnings were to be calc’d as if the Co’s business were run the same way post-purchase as it had been pre-purchase; and that D would not make big changes to the Co’s business (or, if D did make big changes, the EOM would be normalised to exclude those changes’ impact): [21]

P sued, seeking declarations that the expert determine Earnings in accordance with all of the above. D resisted: [25] - [27]

The Court found for the P: [28]

The well-known principles regarding contractual interpretation were (respectfully) helpfully restated at [29] - [33]

The Court noted the parties’ explicit agreement on the mandatory language in Cl 2.3; that Earnings *must* be calculated that way: [48] - [50]

The proper construction was found to be on that basis: [54]

P’s pressed for their Contested Matters to be referred to the expert.P said Earnings had to be adjusted due to D failing to implement a new website, leading to lower website traffic. The Court accepted this Contested Matter was appropriately dealt with by the expert: [63] - [77]

Similarly: P’s complaint regarding D’s failure to implement P’s logistics proposal was to be properly dealt with by the expert: [78] - [82]

Again similarly: P’s complaint that D’s marketing efforts wrongly focussed on conversion rather than branding was properly dealt with by the expert: [83] - [86]

The expert was required to value Earnings as P proposed, and to deal with P’s Contested Matters: [87]

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“Our parents’ citrus farm is a partnership asset!”

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Two siblings in partnership, P and D, ran a citrus farming business, having received it from their parents in the 2000s: [1]

(P, the parents’ exec, sought access to the parents’ privileged documents after death. As exec, P could waive privilege, however doing so was for themselves and not in the interests of the estate or benefs. Noting an exec’s duty to avoid conflict, access was denied: [4] - [10])

In the 1990s the parents gifted D the “Lot”, a part of the citrus farm: [29] - [31], [45], [50], [268]

In 1999, P bought a nearby farm with the parents providing both deposit and guarantee. P rented the house on the nearby farm out and continued to live with the parents at the citrus farm: [54], [60]

The orchards on the nearby farm were deployed in the parents’ business but there was no suggestion P’s nearby farm was a partnership asset: [55], [149]

In 2001, the parents gifted P and D the citrus farm and the business: [61], [62]

The farm was transferred before the commencement of P and D’s partnership and, being a gift, was not paid for with partnership funds: [142]

From around 2018 relations between D and P soured: [104] - [107]

As P’s nearby farm was not providing fruit for the partnership (and even though P continued to work for the partnership) payments to P were reduced: [121], [122]

Valuations were obtained as part of a potentially unwinding process. During this, P’s lawyer shared comments on a Deed (apparently made on P’s instructions) acknowledging P’s ownership of the Lot: [123]

P said that, in 2022, they attended D’s home to demand their share of partnership profits and were rebuffed. Police became involved and an AVO was obtained: [125], [126]

From around this time P was not paid by the partnership and did no further work for it: [129]

Shortly after this, P’s lawyer asserted the farm, including the Lot, was an asset of the partnership: [131]

The Court found the partnership ended on the date of the altercation, noting that from that time, P did no work and received no payment: [140]

P sought a declaration that the citrus farm, including the Lot, was a partnership asset: [141]

Although the evidence was imperfect, the Court was not convinced by P’s argument that the citrus farm was a partnership asset. This was based in part on its tax treatment via instructions given by P and D to an accountant over the years: [153]

P was found to have an equitable interest in the farm, namely in the Lot: [155] - [223]

The Court declined to make an s66G order and instead made a Woodson order, requiring P to offer their remaining interest in the farm to D at market value. If D was not willing or able to buy, a sale should proceed: [249]

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The most fun James has ever had guesting on another podcast!

There's laughter, James' advice for how to enjoy Drake, there's more laughter, and there's also some depth as James, Jordan and Nathan reflect on what it means to be progressive (and to question some of the central tenets of capitalism) while also doing financial and corporate work.

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In April 2024 James sat down with Roger Christie, MD of Propel, to talk about the use of LinkedIn for building a legal practice (but it's extremely interesting and includes James having to take a pause because Roge has said something pretty moving and insightful).

You can catch the Digital Reputation Podcast here: https://propelgroup.com.au/podcast/

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This pod was recorded IMMEDIATELY after James launched his firm Gravamen at the Happy Lawyer Happy Life retreat in November 2023.

Grab yourself a mimosa and enjoy this incredible chat.

A link to Mel's podcast is here: https://www.counselpodcast.com

“Give me back my job selling diamonds!”

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A Co that sold diamonds and jewellery had 4 shareholders, entities related to the Co’s directors who were P1, D2, D3, and D4: [1], [9]

P1 and their sibling, P2, were fired by the Co from their roles as CEO and sales director respectively: [3]

The Ps (including P1’s shareholding entity) sued alleging the Co’s conduct was oppressive to P1 and seeking inter alia P1 and P2’s reinstatement on the basis of s232 oppression: [4], [5]

A Terms Sheet and employment contract governed P1’s relationship with the Co and Dirs: [11], [12]

Following slackening performance the Dirs met in Nov 2023. They resolved to reduce P1’s salary by 11%. P1 mentioned that P1 and P2 may not be compatible with the Dirs into the future: [24], [25]

In December 2023 P1 offered to sell their and P2’s shares (on the basis P2’s option had vested) for $750K: [27], [28]

D2 responded that P1 could expect a response in January 2024: [29]

Apparently with no further word in the intervening period, in April 2024 P1 and P2 received letters purporting to terminate their employment immediately: [30], [31]

P1 and P2 sought reinstatement and were then prevented from entering the Co’s premises: [35]

The Co’s Sydney office was closed. An industry publication informed other jewellers of P1’s and P2’s departure. Allegations were made regarding P1’s use of their Co credit card: [37], [38], [40]

The Court had to consider (i) whether there was a serious question to be tried, and (ii) whether the balance of convenience weighed in favour of reinstatement: [41] - [43]

The Court accepted there was a serious question to be tried because - apparently in breach of the Terms Sheet - a resolution was reached to terminate P1 and P2, and to close the Sydney office, in the absence of P1: [48]

A complexity arose: P1’s employment contract gave the Co broad termination rights that, arguably, meant the Co’s approach was not oppressive: [50] - [52]

The Ps failed on their balance of convenience argument for four reasons: (i) the inconsistency between an interlocutory order for reinstatement and final order for a share buyout [54] - [56]; (ii) damages being adequate, noting any final share valuation will account for oppressive behaviour [57]; (iii) reinstatement would upset, not maintain, the status quo as new people were performing P1’s and P2’s roles [58]; and (iv) generally, the Court’s reluctance to make reinstatement orders over the wishes of majority business owners: [59] - [62]

The Court declined to order the interlocutory relief sought: [63]

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