Two solicitors behind a wound-up civil law firm were ordered to compensate a shareholder whose stake was dramatically slashed as a result of their souring relationship with a barrister.
Benjamin Aulich
Benjamin Aulich and Peter Woodhouse, the solicitors behind Aulich Civil Law (ACL) and Aulich Property Trading (APT), were ordered to compensate barristers’ clerk Joanna Scott, whose shares in the law firms were sensationally and vindictively cut between 2020 and 2021.
The decision was linked to the downfall of the relationship between Aulich and Scott’s husband, barrister John (Jack) Pappas.
ACL was wound up late last year, and it is likely that APT – which ceased trading in 2021 – would soon be placed into external administration, Woodhouse told the Federal Court.
The demise of ACL was linked to the ACT Law Society’s refusal to renew Aulich’s practising certificate in 2024, which meant he could no longer continue as principal solicitor. This also impacted criminal practice, Aulich Criminal Law Co – formerly Ben Aulich & Associates.
According to Justice Angus Stewart’s recent judgment, Aulich and Woodhouse had been working together at the criminal law firm when they began discussions to open a civil law practice.
They approached Pappas, who was an expert in civil law. By 2012, the two solicitors and Scott had contributed $10,000 each in capital.
Concerned Scott’s shareholding could become public and hurt Pappas’ relationship with other Canberra law firms, Scott’s stake was held in trust by Woodhouse’s company, Angiesal.
Six years later, trouble between Aulich and Pappas was brewing.
Likely due to the breakdown of their relationship, Pappas wrote to Aulich in March 2020 to suggest the “best way forward” would be for other ACL and APT shareholders to buy Scott out.
In an email exchange between Aulich, Woodhouse and a third solicitor – who settled her matter with Scott – phrases like “start of the war” and “the gloves are off” were tossed around. Given the grim economic position due to the COVID-19 pandemic, there was also talk about how shareholders may not be able to afford to buy Scott out.
Less than two weeks after Pappas’ suggestion, Aulich emailed Woodhouse again with a claim that it was necessary to issue 24,975 more shares valued at $1.00 each. If Scott did not buy in, Aulich said it would mean she received just $25 for every $100,000 distributed.
Aulich went on to say Woodhouse may need to tell Pappas that Angiesal was “no longer prepared” to hold the shares on trust for Scott, and ASIC documents would need to be filed.
In response to Woodhouse’s reply that Pappas would “have a fit”, Aulich wrote: “If you’d rather hold them that’s OK too but f--k that – I would throw him out and make her be on ASIC for everyone to see.”
When Woodhouse said he did not want to hold the shares and suggested someone else might be able to, Aulich then replied: “I know you haven’t, just thought about it today and thought – don’t anymore. There’s no requirement making you do it.”
“F--k him and f--k her,” Aulich added.
In a reply to Aulich sent at the end of March, Pappas reiterated Scott’s decision to depart the company but pressed that she would not require payment until the firm was back on its feet post-COVID.
Pappas also offered to lend ACL money on an interest-free basis on the condition he was “happy and assured” Scott’s shares would be redeemed fairly and after they had reached an agreement on a figure and a “rough mechanism for payment down the track”.
Aulich refused, a directors’ meeting was held, and a circulating resolution of ACL was adopted. This allotted an additional 99,000 shares at a cost of $1.00 per share and an offer for the new shares to the shareholders in proportion to each of their current holdings.
Scott told the Federal Court her shares in ACL were consequently diluted from 25 per cent to 0.25 per cent. If measured on 30 June, prior to the share issue, her stake decreased from $710,000 to $711; if on the valuation as at 1 April, it decreased from $493,845 to $494.
The APT share issues occurred nearly a year later for reasons that were “not apparent from the evidence” before the court.
Scott said her shares in APT diluted from 25 per cent to 0.0623 per cent, which had the effect of her shareholdings having decreased in value from approximately $33,860 to only $84.
While there was “genuine concern” among Aulich and Woodhouse about the financial outlook in view of the COVID-19 pandemic, Justice Stewart said there was “no reasonable justification” for the decision to raise capital in ACL only because it was in the “best position”.
ACL also held a cash reserve of over $2 million and did not need funding.
Even if it were to be established that new capital in ACL was important “in view of future distribution” to the other companies, Justice Stewart said the capital was not introduced to the others.
Instead of using the capital to improve the cash flow of the group, it was taken from those other companies. This meant the raising of capital in ACL “only recirculated existing funds within the group”.
“In this way, the transaction did not align with the stated objective of responding to the additional capital requirements brought on by the COVID-19-related crisis,” Justice Stewart said.
“Neither did the refusal of Aulich and his partners to accept Pappas’ offer of an interest-free loan conform comfortably with the previous representations of needing an immediate working capital injection to tide the Aulich group over the crisis.”
The “prejudicial scheme and intent” behind the ACL share allotment was made apparent in Aulich’s email exchanges, including the statement that he would “throw Pappas out” and the “out of hand” dismissal of alternative funding options.
Justice Stewart noted the value of the company by net asset value was close to $2 million at the time. With 100 shares valued at around $20,000, the $1.00 per share was “at a significant undervalue”.
“Turning now to the oppressive effect of the share issue, it is clear that it diluted Scott’s interest in a devastating way.
“This is a case where the purpose of the capital raisings was not to raise capital but to inflict prejudice on a minority shareholder, and that purpose was achieved,” Justice Stewart said.
Drawing on common ground reached by the parties, Justice Stewart said Scott should be compensated $500,000 less dividends prior to dilution for ACL and $33,860 less dividends prior to dilution for APT.
The ultimate quantification is a matter for calculation and agreement by the parties. If they are unable to agree, the court will step in.
The case: Scott v Aulich, in the matter of Aulich Civil Law Pty Ltd (in liq) [2025] FCA 1329.
Naomi Neilson is a senior journalist with a focus on court reporting for Lawyers Weekly.
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