In the recent decision of Fuller v Albert [2021] NSWCA 88, the New South Wales Court of Appeal considered an example of the perils that fellow shareholders can face when they disagree on what their company should be doing.

F and A were directors and (along with their families) 60/40 shareholders in a company. The company owned a block of land. F and A discussed an arrangement where each would get – for themselves – a small parcel of land subdivided from the company’s larger block without having to pay for it.

A’s parcel of land was subdivided and transferred to A with a price of $175,000.00 recorded on the sale contract, but with no actual money changing hands.

F applied to subdivide their block but was unsuccessful.

Years later, after a curious meeting with F and a private investigator engaged by F, A paid the $175,000.00 to the company.

F later commenced proceedings seeking (among other things) specific performance of the agreement. F lost, including because the primary judge found no binding obligation to cause the subdivision and distribute F’s block. F appealed.

On appeal, the Court found that there was indeed a binding obligation in those terms. The Court of Appeal noted that the payment of $175,000.00 was curious as it was never demanded and was made after A felt “intimidated and confused” following the private investigator meeting.

A argued that even if there was a binding contract, F repudiated it by causing the private investigator to behave as they did. However, because F had already performed their obligation to drive the company to transfer the land to A, there were no obligations left for F to evince an intention not to be bound by. F had already done everything they needed to for A to get their land. As such, F did not repudiate.

This means that the net effect of the binding obligation, and A acting on it while F did not, is that F received nothing from the arrangement and A received their land. (A may have a remedy to recover the $175,000.00, but that was not raised in these proceedings.)

The Court found A repudiated by purporting to accept F’s would-be repudiation, so A themself had evinced an invention not bound by the agreement. There were difficulties with the order for specific performance sought, including identifying the land that would be the subject of any order and any planning or zoning issues that might prevent subdivision. The matter was referred back to the primary judge to consider specific performance versus damages.

What this complex decision shows is that disputes between co-owners can become confusing and expensive if there is no clear and binding agreement in place at the outset.

 

**Assisted by: James d’Apice**

 

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