A Thousand Miles from Care 2 – redacted

Litigation can be gruelling.

I have previously written about the ongoing dispute between Mr and Mrs McLaughlin and those who control the home unit company in Manly in which as far as I know the McLaughlins still own shares.

Out of the blue that post attracted a comment alerting me to a hearing on Friday afternoon before Justice Pembroke.

I almost went. It was up at Hospital Road. The court building, originally (at least in my memory) occupied by the District Court, has been done up a bit but mercifully not too much. Tucked in behind Sydney Hospital, the Hyde Park Barracks and the Old Mint, the precinct has a an oddly demi-mondaine charm and a more human scale than the main court building.

In cases where the the critical evidence is documentary, seeing justice done or even (abandoning the picturesque phrase in favour of a more realistic description) seeing law done can be pretty boring stuff. I let it pass.

Some time ago I started a follow-up post to my first post on this topic but the project has stalled. There is simply too much detail. Instead, I’ll just collect the primary sources, such as they are, here. I’m not including the various Land and Environment Court applications which I touched on in my first post – I’m confining the list to the various reported episodes of the litigation between the McLaughlins and the company.

McLaughlin v Dungowan Manly Pty Ltd [2006] NSWSC 1001

I have dealt with this in my first post. Justice Barrett knocked back the McLaughlins’ first attempt to stop the company acting on various amendments to its constitution which, oddly, both sides thought were essential to the company proceeding with its redevelopment plans, but which Justice Barrett thought were not. Justice Barrett thought that the construction of extensions to the building as part of the proposed renovations was an entirely separate question to the proposal to sell shares for the new apartments which were to be built, even though that was an essential aspect of the proposal’s financial viability.

McLaughlin v Dungowan Manly Pty Ltd [2007] NSWSC 197

Justice Barrett knocked back a second application by the McLaughlins to prevent the company forfeiting (in effect, confiscating and selling) the McLaughlins’ share if the McLaughlins failed to pay a special levy which the company had struck in order to meet the risk that the company would be broke because the directors had failed to obtain bank finance before they embarked on the project and the bank required the rift with the McLaughlins to be settled or the McLaughlins to be departing as shareholders before the Bank would advance the money. Justice Barrett thought that the company had power to strike the levy and there would be no irreversible harm to the McLaughlins because the company would sell the share and return the surplus value of it to the McLaughlins anyway.

After that, the McLaughlins paid the levy under protest. They were in fact the only ones threatened with forfeiture of their share in that way, even though other shareholders had not paid the levy either and were paying their amounts in dribs and drabs. After that, it seems that the bank came through with the finance anyway, and the company decided that only half the levy needed to be paid. The McLaughlins, who were the only ones who had paid the full levy, asked for a refund of half but were refused.

There were doubtless various interlocutory stoushes which have not led to any judgment published on the internet.

In September and October 2009, the matter came on for hearing over six or so days before Justice Ward with final submissions in November.

In the meantime, undisclosed by the company in the course of the proceedings, the company was facing a winding up application by its unpaid builders. The tax office was also a creditor. The company took steps to complete the project in a way which would enable it to meet these demands by completing the conversion of the title of the property to strata title and selling off the new apartments which had been added to the top of the building. It looked possible that the company would, at the end of this, not own the building at all. There was a real risk that if the McLaughlins were successful, they would be left with remedies against a company which owned nothing other than, presumably, their own apartment.

In February 2010, when Justice Ward was yet to deliver her decision, the McLaughlins applied to the court to reopen their case to add evidence about these further developments, and also to seek orders stopping the company going any further with steps which they said would be to their prejudice in this way. The application was strenuously resisted. Justice Ward’s decision is McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 89. She allowed the additional evidence in but did not grant an injunction. She said that the best course would be delivery of her judgment within a short period.

McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 187 is Justice Ward’s judgment, which she handed down in March 2010.

Justice Ward did dot uphold all of the McLaughlins’ claims but did uphold some. She also gave the McLaughlins leave to bring a claim on behalf of the company against the directors for breach of their duties, in particular in embarking on such a project without lining up the finance first. That has yet to be heard.

McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306 is Justice Ward’s decision on costs, argued and determined in April 2010. She ordered that the company pay the McLaughlins’ cost.

The company appealed Justice Ward’s judgment. The McLaughlins also cross-appealed. The appeal took its own tortuous path and was set down for hearing early in 2011. By this stage the McLaughlins and one other shareholder were, on one view, the only shareholders in the company because the building had been converted to strata title and under share surrender agreements the other shareholders had exchanged their shares for strata title in the new body corporate which had been set up. The McLaughlins called a meeting of the two shareholders which voted to replace the directors of the company (who as they were said by the McLaughlins to be no longer shareholders were on tht view not permitted to be directors anyway) and install new directors who promptly engaged fresh solicitors who consented to the dismissal of the the company’s appeal against Justice Ward’s judgment. This might seem like sharp practice, but it was in fact quite consistent with threats that had previously been made by the company to the McLaughlins that they would indeed end up as the only shareholders in the company.

One reason why the McLaughlins were still just shareholders rather than the owners of a strata title over their flat was that the company had refused to transfer the title in the unit to them. It said it could not do this until the various amounts owing between the McLaughlins and the company could be determined, and that this could not be determined until the hearing of the appeal.

This brought everyone back to court again. The hearing of the appeal was vacated whilst this issue could be determined. The company said that the other shareholders were still shareholders and that the previous directors were therefore still the directors and the meeting replacing them was ineffective. The McLaughlins made fresh claims of oppression against the company in relation to its stance towards them.

McLaughlin v Dungowan Manly Pty Ltd [2011] NSWSC 215 is Justice Pembroke’s judgment about this, delivered on 25 March 2011 after a hearing on 2 March. Justice Pembroke held that the other shareholders were still shareholders as to find otherwise would lead to a capricious and unintended result from the share surrender agreements. However, he also held that the company was wrong in saying, in particular, that it did not need to pay the McLaughlins what was owing under the judgment in their favour by Justice Ward. Just because there is an appeal does not mean, unless the losing party at first instance obtains a stay of judgment, that the judgment appealed against is not binding and effective. It seemed an elegant baby-down-the-middlish solution, though because the McLaughlins lost on the interpretation of the share surrender agreements, they were ordered to pay 75% of the company’s costs.

The McLaughlins said that Justice Pembroke had not dealt properly with all of their claim. They went back to him and applied to have the judgment set aside and for leave to re-open their case for a rehearing of certain aspects of it. McLaughlin v Dungowan Manly Pty Ltd (No 2) [2011] NSWSC 384 is Justice Pembroke’s decision, handed down on 10 May 2011 after argument on 28 April. It is a little difficult to follow but in essence it seems to be that the McLaughlins’ complaint was that although his Honour had decided that they were not, after all, the only shareholders (along with one other) of the company, he had not determined what the entitlements of the other shareholders were, when their case was (I surmise) that in the circumstances of the share surrender there must be some limitations on those powers. Given the history of the use of the majority’s voting power to their prejudice, there could well be something in that, and reason for the McLaughlins to seek some rulings from the court about it. Somewhat reluctantly (he called it a marginal case), but perhaps enlightened by the retrospective light that Justice Ward’s decision and his own first decision cast over Justice Barrett’s refusal to grant interlocutory relief at the start of this controversy, Justice Pembroke acceded to the application:

“This is a marginal case for the exercise of the exceptional power to re-open a judgment and grant a re-hearing. I am exercising my discretion to do so partly because the unfortunate litigious history between the plaintiffs and the Company, suggests that, ultimately, it will be in the interests of justice if I do so; because it may limit the opportunities for further disputation if I go further than what I have so far done. I do not therefore think that I should limit myself to rejecting the specific declarations and orders which the plaintiffs seek. I should go further and do what I can to facilitate the resolution of the real issues. If necessary, I should give such further judgment or order, or provide such further reasons, as the nature of this particular case requires.”

Friday’s listing was presumably a further chapter. There has yet to be another judgment by Justice Pembroke. Who knows what is happening in the appeal.

2 Responses to “A Thousand Miles from Care 2 – redacted”

  1. A Thousand Miles from Care – 3 « Stumbling on melons Says:

    […] latest episode of McLaughlin v Manly Dungowan, referred to in my previous post on this topic, has resulted in a decision against the McLaughlins, handed down by Justice Pembroke […]

  2. A thousand miles from care – 4 « Stumbling on melons Says:

    […] to the dispute is set out in my first post on this topic, and the bulk of the litigation in my second.  A subsidiary dispute, in which the McLaughlins were unsuccessful was the subject of my third […]

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