A thousand miles from care – 4

This is the latest in a series of posts I have written concerning the long-running dispute between the McLaughlins and those controlling the (previously) company-title home-unit building Dungowan Manly.

The background 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 largely unsuccessful, was the subject of my third post.

To cut a long story short, the dispute involved plans to redevelop a home unit block in Manly (Dungowan Manly) which were opposed by the McLaughlins but which were pushed through by the majority, led by one Mr Garratt QC, a Melbourne barrister, who at all times rather forcefully maintained that the redevelopment did not require the McLaughlins’ consent.  This proved to be wrong – subject, that is, to any further appeal – which in the circumstances cannot be ruled out.

I have only alluded to it indirectly in my first post, but there is also something rather odd about how Mr Garratt became the owner of multiple units in the building (or rather, the shares representing the right to occupy those units) without the true beneficial ownership of those shares being disclosed.

Whilst the McLaughlins’ opposition might seem to have been obstinate and pig-headed, the approach adopted by the company towards them was likewise so, conditioned by Mr Garratt’s view which was adopted by the majority.  And the McLaughlins’ obstinacy should be viewed in the light of their offer to sell their shares which, because of Mr Garratt’s view, was not taken up, even though the company had obtained finance which would have enabled it to do so.

In the main dispute, Justice Ward awarded the McLaughlins relatively modest damages of $200,000 for breach of the statutory contract under section 140 of the Corporations Act and about $14,000 for oppression, and ordered that the company pay the McLaughlins’ costs.  The damages were relatively modest because her honour discounted them by “about two thirds” because she said the buy-back of their shares at $950,000 which was mooted at the beginning of the distpute might not have occurred and that the McLaughlins had seemed not to have mitigated their damages by agreeing to sell their shares to the company at a price determined by an independent valuer.  As far as I can work out, this meant that they should have given in to the majority, because the value an independent valuer would have ascribed to the shares would presumably have been the value of the shares following the course of conduct (in breach of their contract with the company) that the company had adopted.  This seems a bit rich.

The company appealed both orders and the McLaughlins cross-appealed the amount of damages for breach of the statutory contract.

The appeal was originally set down for early 2011 but ultimately was not heard until April-May 2012.  This was partly owing to the unsuccessful stratagem adopted by the McLaughlins to attempt to  prevent the company proceeding with the appeal which was the subject of the intervening round of proceedings before Pembroke J in 2011.

Yesterday the Court of Appeal handed down judgment which was unanimously in the McLaughlins’ favour: the appeal was dismissed and the cross-appeal upheld by increasing the damages under the statutory contract from $200,000 to $513,129.45 as at March 2010, plus interest.

It’s not clear to me right now how the McLaughlins will extract this money, given that the building has in the meantime been converted to strata title, but I think there was something in the fine print of that conversion which protected the McLaughlins in relation to that.

3 Responses to “A thousand miles from care – 4”

  1. Case follower Says:

    And so it still continues, very much to the detriment of the McLaughlins. The company has gone into liquidation, with Mr Garratt claiming the company is the beneficial owner of the McLaughlin’s unit. He and his fellow directors delayed and obfuscated yet again, and refused to allow the McLaughlin’s to surrender their shares in exchange for the strata title to their unit prior to placing the company into voluntary administration just before christmas 2012. They managed to transfer the title of the other remaining unit in the company just days before, according to ASIC records. This is a disgrace. Will anyone stop the injustice? Should they really have to fight for their title and pay for liquidators to chase the debts which Garratt and his directors undertook to ensure were paid, as mentioned in Ward J’s Notice of Motion judgment of early 2010. I am outraged at the apparent technicalities that allow this behaviour and the benefit of the doubt afforded to someone who has behaved in this way with, it would appear, complete impunity. Apparently the liquidators have even tried to seize the McLaughlin’s rent, and no doubt their lawyers want paying as well. What next?

    • marcellous Says:

      I suppose you mean this judgment of Ward J? Can you identify the formal undertaking in that judgment? From your account it certainly seems that the fears of the McLaughlins have been amply realised and Justice Ward’s decision seems as blind to reality as the first knockback by Justice Barrett was way back in whenever.

      Mr Garratt certainly seems to have had a good run, hasn’t he? I can’t tell if the McLaughlins are just unreasonably stubborn but Mr Garratt strikes me as neither a nice person or in any way an open dealer (I’m thinking especially of his dummy shareholder Ms Ashford right at the beginning of all of this).

      • Case follower Says:

        Yes, that judgment of 18 Feb 2010. Para 26 appears to be such an undertaking, and paragraphs 123 and 124 make it clear what was expected of the directors and shareholders with regards to their liability for judgment debt and costs. “It is incumbent….on the company and its directors, to ensure that all shareholders entering into the share surrender agreements understand that this is the position and are bound to accept responsibility for any share of any judgment debt/costs attributable to their proportionate share of the company’s shareholding which they held before the surrender of their shares.

        The shareholders all signed agreements that they were liable (although, interestingly, Mr Garratt apparently signed on behalf of his undisclosed agents,whereas for the bank guarantee his undisclosed agents signed.) yet they will not pay. Garratt did not even attempt to raise a levy to pay the debt and costs before placing the company into VA. Will ASIC ever be interested?

        Mr Garratt has indeed had a good run,it is difficult to disagree with your comments. The court has given him the benefit of the doubt all along, and cast the McLaughlins as the villains, even though they appear to be the injured party.

        Justice Ward assumed that she would fix everything and net the 2010 levy with the damages so that the McLaughlins could go away with their title and who knows what would have happened with the costs recovery. Unfortunately, Garratt messed up her plans by appealing and although the appeal judges found strongly in the McLaughlins’ favour he has been allowed to escape his day of reckoning and has not paid a cent.. They are in almost as bad a position as if they had lost.

        Why would the McLaughlins be considered to be unreasonably stubborn when they were trying to stand up for their rights and subsequently enforce a judgment? Perhaps strong and principled would be a better description. Their lives (and those of their 3 young children) have been irreparably damaged by both the actions of the board and the lack of action of the courts, A tragic failure of our legal system and a big win for a bully.

        Watching now for the court listings to see the next installment- what will happen with the liquidation??

        Feel free to contact me directly should you wish to discuss it further.

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