Illusory consideration and uncertain terms – arguments of last resort?

Kirralee Young has had a success in a shareholder dispute in the Court of Appeal regarding illusory consideration and uncertainty in respect to the interpretation of a shareholders agreement. 

The decision relates to a dispute between the parties relating to the meaning and operation of certain funding provisions in a shareholders agreement. The agreement regulated their rights as equal shareholders in a company. In broad terms, one shareholder provided the intellectual property and expertise for the business and the plaintiff was required to provide funding. Despite the agreement being in place for over 12 months, one shareholder contended that the agreement was void and uncertain because the funding provisions were illusory and uncertain in the sense that they did not impose a definitive obligation on the other party to provide such funding. i.e there was an unfettered discretion.

It cannot be doubted that promises with no substance, or that are ‘illusory’, are not good consideration. For example, A cannot promise to buy B’s goods in return for ‘whatever A feels like paying’. This type of consideration is discretionary and without substance and is therefore not good consideration.  Nor can it be doubted that a promise is not illusory because the promisor has some discretion in how its obligations are to be performed. It is only necessary that there be an obligation that the promise be performed and that the discretion is contained within the defined parameters. 

The question in this case was whether the discretion was completely unfettered. The plaintiff argued that it did not have a completely unfettered discretion as to the provision of funding because it was required to act in good faith under the agreement and pursuant to duties arising at common law and in equity.  The defendant argued these duties were not fetters on the discretion because they could not be specifically enforced.

The Court of Appeal found in favour of the plaintiff that the consideration was not illusory consideration nor were the provisions uncertain and ultimately that the shareholders agreement was valid. They further found that good faith obligations can act as a fetter and that they did not need to be specifically enforceable. It was enough that those obligations could sound in damages only.

Further details of the case can be found here .

Public Inquiry under the Charitable Fundraising Act 1991 into RSL Lifecare Limited, RSL NSW & Ors

Steven Cominos appeared on behalf of 2 former directors of RSL Lifecare Limited at the public inquiry under the Charitable Fundraising Act 1991 (NSW) (CFA). During the inquiry, various allegations were made against RSL Lifecare and a number of its former directors regarding the use of funds derived through fundraising activites, in relation to compliance with the CFA’s requirements and regarding the exercise of their fudicuary duties in receiving consultancy fees. Neither of the former directors for whom Mr Cominos appeared were referred to any regulatory body for investigation or further action.

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Baca v Union Standard International Group

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Steven Cominos appeared for the Respondent, a margin FX issuer, in an international arbitration involving a claim brought by a former client. The Respondent was successful in upholding its decision to confiscate the claimant’s profits relying on the terms of its product disclosure statement. Those terms permitted the confiscation of profits due to the claimant having engaged in price latency arbitrage trading and its failure to disclose its use of plug-in software when executing margin FX trades on the Respondent’s platform. All the claimant’s allegations of breaches of the Corporations Act by the Respondent and that the relevant contractual terms were ‘unfair terms’ under the ASIC Act were also rejected.

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Lever v Attorney General of NSW [2018] NSWSC 838 (29 May 2018)

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EQUITY – Charitable trusts — private international law — validity of testamentary gift to a foreign executor applying the gift to a charitable purpose in a foreign jurisdiction — how the foreign charitable purpose is to be assessed — Hague Convention — evidence of foreign law.   

Dr Christos Mantziaris represented the Attorney General (NSW).

Reasons for the decision can be found here. 

Commonwealth Bank of Australia v Daleport Pty Limited (in receivership) (No 4) [2018] NSWSC 842

COSTS – application for payment forthwith – consideration of relevant factors – protracted dispute as to discovery – where refusal to order payment forthwith would stultify defence of bank’s claim – whether defence of claim futile – whether payment forthwith should be refused on that basis.

Tim Castle represented the Plaintiff.

Reasons for the judgement can be found here.

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Gooley v NSW Rural Assistance Authority [2018] NSWSC 593

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EVIDENCE – opinion evidence – exceptions – expert opinion – advance rulings – whether expert opinion admissible – whether parts of lay evidence admissible.

PRACTICE AND PROCEDURE – pleadings – whether case propounded in affidavits beyond pleadings – whether pleadings embarrassing.

Tim Castle represented the Defendant.

Reasons for the judgement can be found here.

Wright v Stevens [2018] NSWSC 548 (3 May 2018)

TRUSTS and TRUSTEES - Trust created by Will - Whether private discretionary trust or charitable trust - Powers, duties of trustee of Trust - Potential object of exercise of discretionary power of appointment - Whether has a right to seek information, seek inspection of documents in the possession of the Trustee and accounts - Approach the Court should take to application by a potential object of exercise of discretionary power for an order directing trustee to disclose information and permit inspection of documents relating to the Trust – Whether duty to account to potential object of exercise of discretionary power of appointment - Trustee resisted claim for information, inspection of documents and accounts.

Dr Christos Mantziaris represented the Attorney General (NSW).

Reasons for the decision can be found here. 

Rekrut and Scott v Champion Homes Sales Pty Ltd; Champion Homes Sales Pty Ltd v Rekrut and Scott [2018] NSWCATAP 97

From the New South Wales Civil & Administrative Tribunal Appeal Panel:

COSTS – NCAT Internal appeal – amount in issue in excess of $30,000 – r 38A of the Civil and Administrative Tribunal Rules 2014 (NSW) and cl 20(4) of the Consumer, Trader and Tenancy Tribunal Regulation 2009 (NSW) – no issue of principle

COSTS – general rule that costs follow the event – application of the rule and discretion – no issue of principle

Michelle McMahon appeared for Adam Rekrut and Sandra Scott.

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QBE Underwriting Ltd as Managing Agent for Lloyds Syndicate 386 v Southern Colliery Maintenance Pty Ltd (2018) 97 NSWLR 459

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INSURANCE— Liability insurance — Exclusions — Where insured entered agreement with third party containing warranties and agreement to indemnify — Whether insured would have been liable in absence of such agreement.

INSURANCE —  Insurance Contracts Act 1984 (Cth) — Duty of disclosure — Scope and duration — Where insurer disclosed to insured letter warning of possible obligations to indemnify third parties —  Insurance Contracts Act 1984  (Cth), s 21.

CONTRACTS — Construction — Interpretation — “‘For’” — “‘In respect of’” — Whether contract of insurance extended to indemnity for adverse costs order.

Tim Castle represented the Respondent.

Reasons for the judgement can be found here.

Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors [2018] NSWSC 314

CONTRACT – construction – whether the Court can have regard to prior negotiations which indicate parties’ subjective intention in construing contract – implied terms – whether term is necessary for business efficacy or so obvious that it goes without saying – whether term is to be implied into the contract.

CONTRACT – repudiation – whether party has indicated a refusal to perform the contract – whether acceptance of repudiation was communicated to the promisor.

CORPORATIONS – management and administration – duties and liabilities of officers of corporation – claim for breach of statutory duties under Corporations Act 2001 (Cth) ss 180, 181, 182 and 183 – duty of care and diligence – duty to act in good faith in the company's best interests – duty to not improperly use position to gain advantage or cause detriment to company – duty to avoid improper use of information – where several expenses not apportioned between group companies in inter-company loan account – whether expenses paid by company in breach of duty – whether conduct of Defendants amounted to breach of statutory duties.

EQUITY – general principles – fiduciary obligations – where business venture has been consensually terminated – whether parties to venture owe fiduciary duties to one another – where several expenses not apportioned between group companies in inter-company loan account – whether expenses paid by company in breach of duty – whether director of company breached no conflict and no profit duties – whether director of company breached best interests and proper purposes duties – whether director of company breached equitable duty of confidentiality.

TRADE PRACTICES – application of Restraints of Trade Act 1976 (NSW) s 4 – where contractual restraint of trade in broad terms – whether restraint of trade is void for breach of public policy.

TRADE PRACTICES – misleading or deceptive conduct claim under s 18 of the Australian Consumer Law – whether representations made are misleading or deceptive – whether representations among directors of a company are made in trade or commerce.

Jennifer Mee was one of the counsel representing the Defendants.

Reasons for the decision can be found here.

Stojic v Stojic [2018] NSWCA 28

In the New South Wales Court of Appeal:

SUCCESSION – wills, probate and administration – probate and letters of administration – validity of will – whether the deceased knew and approved the contents of the will – where suspicious circumstances exist - where testator has read the will – where findings of fact insufficient to determine testator’s knowledge and approval of the will - more findings necessary to resolve disputed questions of fact – new trial ordered

David Smallbone appeared with David Rayment for the Appellant.

Global Constructions Australia Pty Ltd (in liq) v AIG Australia Limited [2018] FCA 98

INSURANCE — construction of policy — claim for direct financial loss — theft or fraudulent acts by a shareholder — limit of liability — set-off of shareholder's loan account against direct financial loss — set-off to be applied prior to applying limit of liability.

Tim Castle represented the Applicant.

Reasons for the judgement can be found here.

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Sabharwal v Minister for Immigration and Border Protection [2018] FCA 10

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From the Federal Court of Australia:

MIGRATION – application for judicial review of a decision of the Minister to refuse a visa under s 501(1) of the Migration Act 1958 (Cth) – whether Minister misconstrued or misapplied s 501(6)(d)(i) of the Act – whether Minister required to give consideration to a psychologist’s report

Dr Stephen Tully appeared pro bono for the applicant.

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Wickham & Arnett [2018] FCCA 80

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From the Federal Circuit Court of Australia:

FAMILY LAW – Parenting – Twins aged 7 – one twin currently spending three hours per fortnight with the father; the other refusing to do so – father seeking orders for the children to spend time with him each alternate weekend and for half of the school holidays – mother seeking a no time order – where the mother alleges that the father perpetrated severe coercive and controlling family violence during and after the parties relationship which included hitting and pushing her, grabbing her by the throat, spitting on her, verbally abusing and threatening to kill her, damaging property, and taking or threatening to take the children in order to coerce her into agreeing to his demands including a demand to drop an ADVO application – where the mother agreed to the father spending time with the children for three years after the final separation but ended time soon after the children told her that the father had assaulted his current partner – where the father denies assaulting his current partner – where the father made some limited admissions about being violent to the mother but otherwise denied the mother’s allegations – where the father blamed his behaviour on the mother allegedly having mental health issues – where the court accepts the mother’s evidence and considers that there is an unacceptable risk of the children being exposed to family violence in the father’s unsupervised care - Independent Children’s Lawyer agreeing but proposing an order for long term supervised time – no benefit to the children in such an order – order made that the children spend no time with and have no communication with the father.

Michelle McMahon appeared for the Independent Children's Lawyer.

Sydney Tools Pty Ltd v Robert Bosch (Australia) Pty Ltd [2017] NSWSC 1709

From the Supreme Court of New South Wales:

CONTRACTS - existence of a contract - “postal rule” - whether Trading Agreement contained obligation to supply absent acceptance of an order - - HELD: no executed contract - no obligation to supply - PRACTICE AND PROCEDURE - Practice Notice SC Eq 3 para 50 - “stop-watch” method of trial

David Rayment appeared for the Defendant.

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Virk Pty Ltd (in liq) v YUM! Restaurants Australia Pty Ltd [2017] FCAFC 190

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CONTRACT — implied terms — implication of duty or obligation of good faith and reasonableness — franchise agreement — where franchisor had discretionary power to set maximum prices for products — where parties accepted that power subject to duty of good faith — scope of duty of good faith and reasonableness — whether franchisor was obliged to act reasonably in an objective sense

NEGLIGENCE — franchise agreement — whether franchisor owed duty of care to franchisees in exercising power to set maximum prices for products — where franchisee alleged that franchisor owed franchisees a duty to exercise power so that franchisees could make, maintain or increase profits

CONSUMER LAW— unconscionable conduct — franchise agreement — where franchisee alleged that franchisor had engaged in unconscionable conduct in setting maximum prices for products

Tim Castle, James Arnott and Simona Gory represented the Appellant.

Reasons for the judgement can be found here.

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Elias v Alloha Formwork & Construction Pty Ltd [2017] NSWSC 1546

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From the Supreme Court of New South Wales:

BUILDING AND CONSTRUCTION – Home Building Act 1989 – Statutory warranties – Breach – Calculation of damages for cost of rectification of defects – Calculation of delay costs
CONSUMER LAW – Australian Consumer Law s 18 – Misleading or deceptive conduct – Whether defendants made representations – Whether representations were misleading or deceptive – Whether plaintiffs relied on representations
CONTRACTS – Breach of contract – Consequences of breach – Right to damages – Whether plaintiff entitled to costs of rectifying defects in building or cost of demolition and rebuild
CONTRACTS – Building and construction – Formation – Whether first defendant entered into contract with plaintiffs – Whether contract varied by agreement
CONTRACTS – Remedies – Damages – Remoteness of damage – Whether plaintiff’s impecuniosity must be taken into account in determining what loss is reasonably foreseeable
CONTRACTS – Termination of contract – Repudiation – Whether first defendant repudiated contract – Whether plaintiffs accepted repudiation
NEGLIGENCE – Duty of care – Breach – Whether third defendant breached duty of care in issuing construction certificates – Whether plaintiffs suffered loss as consequence of defendants’ breach

Michelle McMahon was led by Andrew Pickles SC for the plaintiffs.

Liability limited by a scheme approved under Professional Standards Legislation.