Coffee and a Case Note James d'Apice

“You tried to kick me out of the law firm partnership!”

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A partnership operated a law firm. A deed governed the partners’ relationship. The partners were either fixed draw (“salaried”) partners or (often more lucrative) capital partners: [1], [2]

Each partner was a trustee of a separate trust: [2]

P was a capital partner, purportedly expelled from the partnership in November 2020: [5]

P said the purported expulsion was contrary to the deed; meaning P remained a partner or was entitled to damages: [6]

The Ds characterised the partnership as “easy in, easy out” - partners did not make a contribution to join, and were not “paid out” on their exit: [13]

When a capital partner exited, that exit was a “complete, forced, and absolute divorce from the firm”: [29]

The Ds proposed P’s expulsion by email with a “voting button” mechanism and also proposed that the technical requirements for expulsion (e.g. the giving of 7 days notice) be waived or abridged: [38] - [40]

Crucially, only one button was required to be pressed in order to vote on both proposed Extraordinary Resolutions (which the deed said needed 80% of the vote to pass): first (i) expulsion, and then (ii) waiver of technical requirements: [39]

P said this process was invalid because (i) the waiver of technical requirements (like notice) should come before the substantive expulsion vote, and (ii) the question of waiver and the substantive expulsion vote should have had separate voting buttons, allowing partners to vote separately on each resolution: [41]

The Court found the requirement of notice was for a purpose including, potentially, the marshalling of support by the capital partner at risk of expulsion: [48]

The Court found it undermined the seriousness of the consequences of expulsion for the question to be bundled up with the technical variation resolution (or, in the alternative) before it: [49]

The Court found what had taken place was a “plainly invalid process”: [50]

P’s expulsion from the partnership was, therefore, invalid: [51], [101] - [103]

This view was bolstered by the Court’s finding that the Extraordinary Resolution (as defined in the deed) required 80% of all partners to vote in its favour in order to be passed.This was by contrast to the Ds’ position, who asserted that only 80% of the *voting* partners were needed for such a resolution to pass: [52] - [57]

Noting the solemnity of the outcome of an Extraordinary Resolution, and based on the general tenets of commercial construction, the Court found 80% of the partnership was required to pass an extraordinary resolution, not merely 80% of partners engaging in the vote: [58], [59]

P therefore succeeded in their liability argument, with a cost order made in their favour: [122]

The argument about damages was saved for another day.

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“Compensate the company. Then pay that money to me!”



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P, a former shareholder, sought to bring a claim on behalf of the Co and then have the proceeds paid to themselves: [1] - [3]



s237(2)(a): the Co was not going to bring the claim itself: [8]



s237(2)(d): the Court considered (i) whether the pleaded case could be proved, and (ii) if so whether that would ground the relief sought: [12]



When practising, P was the sole shareholder of the Co and principal benef of the trust the Co operated. That way, P’s work earned income for the Co: [16]



P chose that structure, and form of income distribution, likely due to financial advantages P considered arose - and so was bound to the risks arising from that choice: [17]



P made an agreement with some the Ds that would see advisory work referred to the Co, and would see NewCo established to do additional work: [19]



From 2013 the relationship between P and the Ds deteriorated with the Ds allegedly not referring work to NewCo and otherwise breaching the agreement: [24]



The Ds purported to remove Co from controlling NewCo thereby displacing P NewCo and diverting NewCo’s business to themselves: [31]



In 2017 P was made bankrupt, and later removed as beneficiary of the trust with the Ds buying P’s shares in Co from P’s bankruptcy trustee: [37], [53]



Despite a contract claim being out of time, it appeared there was “apparent unlawfulness” and claims that the Ds breached their duties to NewCo: [32], [35]



Importantly, the relief P sought chiefly was for distribution to be made to them as former benef of the trust, requiring the Co to on-pay its compensation to the P: [36], [40]



P attempted to characterise the Co’s loss as P’s loss due to their benef status at the time: [44]



P was unable to show (i) the Co’s income would inevitably be distributed [45], (ii) that if distributed that it would go to P solely, noting she was not the sole beneficiary [47], or (iii) that all the money paid to the Co would be distributed and not otherwise applied to e.g. costs of administering the trust etc: [48]



The Court found there was no entitlement to the distribution relief sought by P: [49]



An argument that P’s bankruptcy trustee may have entitlement did not require determination: [51]



The Court found there was no serious question to be tried as to P’s final relief, leaving other prayers arguably intact. However the problems with the relief meant the s237(2)(c) best interests test was not met: [56[



s237(2)(c): P’s claim was only for P’s benefit and without regard for the Co’s other obligations or objectives. It was not in the best interests of the Co that it be brought: [58] - [65]



s237(2)(b): In seeking an unlitigated determination that the Co pay all compensation to her the Court found P was not coming in good faith: [82], [83]



Having failed to meet the s237(2) criteria, P’s application was dismissed: [90]



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“Hey! Stop trying to work for our competitor!”

D was a consultant who, in 2022, left one large firm and joined another. D’s expertise was defence work: [2], [3]

The 2022 role included a 2 year restraint: [4]

The 2022 employer underwent a restructure following a scandal and D was then employed by P, or an entity related to it: [6], [9]

D’s contract with P included a 3 month notice period with a right for P to force D to take that time as “gardening leave” [11] and cascading restraints commencing at 12 months and Australia-wide: [12], [14]

In November 2023 D resigned indicating they planned to work at another firm.

Shortly afterwards P sent D a letter directing D to take gardening leave for 3 months and asserting the restraints: [16], [17]

D acknowledged gardening leave but resisted the restraints: [18]

By the end of D’s gardening leave, neither party had shifted from their position and P commenced proceedings seeking an urgent injunction: [19] - [24]

P had to show there was a “legitimate commercial interest” in enforcing the restraint and that it went no further than necessary to protect it: [28]

P said the restraint would protect P’s legitimate interest in (i) the relationships with P’s clients, or (ii) the confidentiality of P’s confidential information e.g. pricing: [32]

The Court spent some time considering the work done with P and the work to be done at the new entity (noting the evidence was “bedevilled with management jargon” [44]) concluding that the question was one of contractual construction to be set aside for final hearing: [47]

The Court accepted there was a prima facie case in respect of the information D had access to: [48], [49]

The Court noted D had previously accepted a 2 year restraint and so there was a prima facie case for a one year restraint: [51]

Generally, the Court considered P had a prima facie case and turned to the balance of convenience question: [52]

The Court noted D was well paid, had no evidence to show their asset position, had tax liability suggesting significant income in the past, and had their “eyes wide open” when accepting the restraints and then resigning: [53] - [64]

This weighed against D in a balance of convenience argument.

However, P’s delay was pivotal.P only brought the application at the conclusion of D’s gardening leave in February 2024 despite having first raised issues in November, and after various exchanges with D and D’s lawyers during leave: [65]

Delay can be a complete answer to an interlocutory application: [67]

The Court found it would be unreasonable now to restrain D from joining their new employer simply because P “has now belatedly discovered the urgency of the case” without P’s delay having been adequately explained: [80], [81]

This delay tipped “the scale the other way”. P’s application failed. Costs followed the event: [81]