Australian Staging & Rigging Events P/L (Receivers Appointed to Assets) (in Liq) v Elite Systems Australia P/L - [2016] SASC 204

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
AUSTRALIAN STAGING & RIGGING – EVENTS P/L (RECEIVERS APPOINTED TO ASSETS) (IN LIQ) & ORS v ELITE SYSTEMS AUSTRALIA P/L
[2016] SASC 204
Judgment of The Honourable Justice Kelly
23 December 2016
EQUITY - GENERAL PRINCIPLES - FIDUCIARY OBLIGATIONS - FIDUCIARY DUTY - OTHER CASES
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - FIDUCIARY AND RELATED STATUTORY DUTIES - REMEDIES AND PENALTIES FOR BREACH OF DUTY - GENERALLY
TORTS - TROVER AND DETINUE - WHAT CONSTITUTES CONVERSION - GENERALLY
The first plaintiff, Australian Staging and Rigging – Events Pty Ltd, the second plaintiff, Alan Geoffrey Scott and the third plaintiff, Andrejs Janis Strazdins claim damages from the defendant Elite Systems Australia Pty Ltd, for conversion, accessorial liability for breach of statutory duties, restitution for civil wrongs and a number of statutory causes of action pursuant to the Corporations Act 2001 (Cth).
The plaintiffs allege that between 1 December 2013 and 22 December 2013 the defendant unlawfully disbursed $196,658.78 from two bank accounts held by the first plaintiff. Those disbursements were facilitated by the director of the first plaintiff making the general manager a signatory of the bank accounts and delivering up to him possession of a banking security token.
The plaintiffs seek judgment in the sum of $196,658.78, declarations that the director of the first plaintiff breached his fiduciary duties and the defendant was accessory to those breaches, and equitable compensation for all monies withdrawn by the defendant from the first plaintiff’s bank accounts.
There was no appearance for or by the defendant at trial.
Held:
1.       The plaintiffs succeed in their claim against the defendant on the basis of accessorial liability for breach of fiduciary duty under the second limb of Barnes v Addy.
2.       The first plaintiff is entitled to equitable compensation in the sum of $196,658.78 from the defendant for all monies withdrawn by the defendant from the first plaintiff’s bank accounts.
3.       The director of the first plaintiff breached his fiduciary duties to the first plaintiff.
4.       The defendant was accessorily liable for the breaches of fiduciary duties by the director of the first plaintiff.
Corporations Act 2001 (Cth) Part 5.7B, s 588FB, s 588FA, s 588FC, s 180, s 181, s 182, referred to.
Baden v Société Générale pour Favoriser le Développment du Commerce et de l'Industrie en France SA [1993] 1 WLR 509; Barnes v Addy (1874) LR 9 Ch App 244; Briginshaw v Briginshaw (1938) 60 CLR 336; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Ferguson v Eakin (Unreported, New South Wales Court of Appeal, Cole JA, 27 August 1997); Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; Lloyds Bank Ltd v Chartered Bank of India, Australia & China [1929] 1 KB 40; M’Leod v M’Ghie (1841) 133 ER 771; Nicholson v Morgan (No 3) [2013] WASC 110; Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204; Re Neal & Anor, Ex parte Neal & Anor v Duncan Properties Pty Ltd (1993) 114 ALR 659; Solloway v McLaughlin [1937] 4 All ER 328; Watson v McLean (1858) 120 ER 435; Westpac Banking Corporation v The Bell Group Ltd (In Liq) (No 3) (2012) 89 ACSR 1, applied.
Bavins v L & S W Bank [1900] 1 QB 270; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Hoath & Anor v Connect Internet Service Pty Ltd & Ors (2006) 229 ALR 566, considered.

AUSTRALIAN STAGING & RIGGING – EVENTS P/L (RECEIVERS APPOINTED TO ASSETS) (IN LIQ) & ORS v ELITE SYSTEMS AUSTRALIA P/L
[2016] SASC 204
Civil
KELLY J.
Introduction

The first plaintiff, Australian Staging and Rigging – Events Pty Ltd (ACN 138 016 323) (Receivers Appointed to Assets) (In Liquidation) (ASR Events) claims damages against the defendant, Elite Systems Australia Pty Ltd (ACN 159 540 860) (Elite Systems). On 23 December 2013 Robert Anthony Ferguson and Craig William Hannam (the Receivers) were appointed as joint and several receivers of ASR Events. On 18 March 2014 the second plaintiff, Alan Geoffrey Scott (Scott), and the third plaintiff, Andrejs Janis Strazdins (together the Liquidators), were appointed as Joint and Several Liquidators of ASR Events.
In the second statement of claim filed the plaintiffs allege that during the period from on or about 1 December 2013 to on or about 22 December 2013, $196,658.78 was unlawfully disbursed from two Westpac Banking Limited (Westpac) bank accounts (the Westpac Accounts) in the name of ASR Events. It is alleged that those funds were disbursed either to, or at the direction of, Elite Systems to its employees, agents, servants, suppliers or contractors in respect of contracts which Elite Systems had, or expected to have the benefit of, and to which no benefit flowed, or will flow, to ASR Events.
The claim against Elite Systems is brought on a number of alternative bases, namely conversion, restitution for civil wrongs, accessorial liability for breach of fiduciary duty, and uncommercial transactions, unfair preference and voidable transactions pursuant to Part 5.7B of the Corporations Act 2001 (Cth) (the Act).
The plaintiffs seek: judgment in favour of ASR Events against Elite Systems in the sum disbursed from the Westpac Accounts; declarations that the director of ASR Events breached his fiduciary duties and that Elite Systems was an accessory to those breaches; and an order that Elite Systems pay equitable compensation to ASR Events for all monies withdrawn from the Westpac Accounts.
In the alternative the plaintiffs seek an order that the Elite Systems account for all profits and benefits gained from Elite System’s access to and use of the Westpac Accounts. In the further alternative, the plaintiffs seek a constructive trust over the monies withdrawn by Elite Systems from the Westpac Accounts, and various declarations and orders pursuant to the Act in respect of the statutory causes of action pleaded.
Elite Systems was represented in these proceedings until approximately one month before trial commenced. At trial, there was no appearance for or by Elite Systems and it tendered no evidence.
Background
At all material times ASR Events carried on the business of procuring and managing contracts as part of a group of companies, the core business of which was installing seating at large sporting events. ASR Events was the main contracting party whereby it would enter into contracts for the provision of equipment and services to its customers on behalf of the group of companies.
That group included Australian Staging & Rigging Pty Limited (ACN 056 686 607) (Receivers Appointed to Assets) (In Liquidation) (ASR), ASR Hire Pty Limited (ACN 074 739 343) (Receivers Appointed to Assets) (ASR Hire), and ASR Property Developments Pty Limited (ACN 108 030 664) (Agents for Mortgagee in Possession) (ASR Property). I shall refer to ASR Events, ASR, ASR Hire and ASR Property together as “the ASR Group”.
The sole director and secretary of all of the ASR Group companies was Peter Darren McColl (McColl).
The ASR Group collapsed in December 2013. ASR Events continued to trade until the Receivers were appointed on 23 December 2013. Receivers and liquidators were variously appointed to other members of the ASR Group from 3 December 2013. The Receivers were appointed as joint and several receivers of certain assets of ASR and ASR Hire on 4 December 2013 and 19 December 2013 respectively.
On or about 7 January 2014, Westpac provided the Receivers with bank statements in respect of the Westpac Accounts. These statements and subsequent tracing of disbursements indicate that during the period from on or about 1 December 2013 to on or about 22 December 2013, $196,658.78 was disbursed from the Westpac Accounts to Elite Systems. After reviewing ASR Events’ books and records, Scott in his capacity as liquidator was not able to detect any basis for the disbursements. ASR Events subsequently commenced proceedings against Elite Systems on 28 August 2014.
Evidence of McColl and Scott
ASR Events’ case at trial proceeded by way of pleadings and affidavits from Scott and McColl, both dated 24 June 2016. Scott and McColl were called as witnesses at trial and adopted their affidavits as their evidence in chief. As a consequence of there being no appearance by or for Elite Systems at trial, that evidence is uncontested.
The combined evidence of McColl and Scott was as follows.
ASR Group and Elite Systems
In about October or November 2013 McColl began discussions on behalf of the ASR Group with Mr Lea Adams (Adams) on behalf of Elite Systems, regarding Elite Systems purchasing the ASR Group’s plant and equipment, and potentially other assets. Adams initiated due diligence in respect of the ASR Group and its assets as a result of these discussions.
At about this time, McColl also had a discussion with Adams during which Adams indicated that Elite Systems could not take an assignment of ASR Events’ contracts for the completion of works relating to major sporting events across Australia (the Contracts).
McColl also held discussions with Elite Systems’ directors and its General Manager, Michael Clarke (Clarke) at about this time. Clarke advised McColl that Elite Systems would need to renegotiate contracts with the various parties that had previously contracted with the ASR Group. McColl introduced Elite Systems’ directors as well as Adams and Clarke to relevant agents of the contracting parties for this purpose. On one occasion in early December 2013, Clarke attended at ASR’s offices and took a number of books and records relating to the ASR Group and its contracts. McColl understood that these records were to be used by Elite Systems in the negotiation of new contracts.
McColl was not a party to the renegotiations. However, he was aware from discussions with Clarke and the General Manager of ASR, Arcangelo “Arkie” Parisella (Parisella), that new contracts were entered into by Elite Systems in or about early December 2013. It was McColl’s evidence that there was never any agreement that Elite Systems would take a subcontract of the Contracts from the ASR Group, or perform the Contracts on behalf of the ASR Group.
McColl understood Elite Systems to be the ‘brainchild’ of Adams. After conducting further investigations he came to understand that Adams effectively acted as a shadow director of Elite Systems because he was an undischarged bankrupt in the United Kingdom.
The Asset Sale Agreement
After the collapse of the ASR Group, the Receivers continued the negotiations commenced by McColl for Elite Systems to buy certain assets from the ASR Group. On 20 December 2013, ASR, ASR Hire and Elite Systems executed an agreement (the Asset Sale Agreement) by which ASR Hire and ASR agreed to sell certain assets to Elite Systems for the sum of $1,250,000. That sale was subject to the consent of the Commonwealth Bank of Australia (CBA), which held a charge over assets of the ASR Group. ASR Events was not a party to the Asset Sale Agreement.
Of note, pursuant to the Asset Sale Agreement, Elite Systems did not purchase any goodwill, was not entitled to the benefit of any contracts in the name of ASR Events, or any of the ASR Group companies and did not purchase or take assignment of the business of the ASR Group.
I note that the Asset Sale Agreement specifically excluded book debts and stated that ASR and ASR Hire remained the legal and beneficial owners of, and were entitled to, book debts (as defined in the Asset Sale Agreement). It also placed obligations on Elite Systems regarding the recovery of book debts and payment of monies recovered under book debts to ASR and ASR Hire.
The Asset Sale Agreement was conditional upon and subject to Elite Systems, ASR Hire, and ASR entering into a Deed of Bailment. That agreement was subsequently entered into and granted Elite Systems possession and use of plant (as defined in that Deed of Bailment) until the completion of the Asset Sale Agreement.
The Westpac Accounts
On or about 28 November 2013, McColl attended a meeting at CBA’s head office in Adelaide to discuss the sale of the ASR Group’s assets to Elite Systems. Also present were Adams, Clarke and Mr Alan Astle (Astle), a director of Elite Systems.
The same day, directly following that meeting, McColl was instructed by Adams to go to a particular Westpac branch to open a new bank account in the name of ASR Events. McColl was further instructed that Clarke needed to be a signatory of the bank account. McColl attended at the Hindmarsh Westpac branch with Parisella to begin opening the Westpac Accounts. McColl completed paperwork and was instructed by Westpac staff to return with Clarke the next day to complete more paperwork.
McColl and Clarke returned to Westpac the next day and completed that paperwork, becoming the signatories of the Westpac Accounts. By post at a later date Westpac provided McColl and Clarke each with a security token. Both tokens and a personal identification number (PIN), were required to access the Westpac Accounts.
When the security tokens were received, Clarke demanded that McColl provide him with the security token that had been sent to McColl. McColl did so. He never received his token back from Clarke and never had access to the Westpac Accounts. Regarding future dealing with the accounts, Clarke told McColl words to the effect of “keep out of it”.
McColl’s employment and financial circumstances
In late 2013 and shortly before the Asset Sale Agreement was executed, McColl had formed the view there was no future in the ASR Group and he needed to sell all of the ASR Group’s assets, pay down its debts and, on a personal level, find employment elsewhere.
During the negotiation of the sale of the ASR Group’s plant and equipment to Elite Systems, Adams and Clarke on behalf of Elite Systems offered McColl employment. Broadly, the terms of the offer were that McColl would receive a $120,000 per annum salary and take a 30 per cent share of a new start-up operating company.
In addition, Adams and Clarke offered to assist McColl with any bankruptcy he might face from the collapse of the ASR Group by purchasing McColl’s home and holding it for McColl to purchase back post-bankruptcy. At this time McColl considered it very likely that he would be made bankrupt from the collapse of the ASR Group as a result of personal guarantees he had provided.
McColl’s evidence was that from the time Elite Systems offered him employment and to assist him during any bankruptcy, he effectively did as instructed by Clarke and the directors of Elite Systems to ensure that he had a future with Elite Systems.
McColl did not know why the Westpac Accounts were opened, but suspected that it was to stop CBA from freezing funds paid into ASR Group accounts. He followed Adams and Clarke’s instructions without being told why the accounts needed to be opened because they had offered to help him with employment and assistance if he was declared bankrupt.
Transfer of funds to and from the Westpac Accounts
In late November 2013 the ASR Group had a number of contracts at various stages of completion. Monies were due to be received by the ASR Group in respect of some of them. McColl was aware that Elite Systems was, in effect, running ASR Events. However, he was not aware that Elite Systems provided the Westpac Accounts details to the ASR Group’s customers or that funds were being paid under the ASR Group’s contracts into the Westpac Accounts before then being transferred out of the Westpac Accounts.
McColl was, at least in part, unaware of this money transfer because he had no access to the Westpac Account after Clarke took possession of both security tokens. He did not authorise Elite Systems, its directors or employees to remove the monies from the Westpac Accounts. No work was performed by Elite Systems on behalf of the ASR Group in respect of the contracts for which monies were paid into and then removed from the Westpac Accounts.
On about 7 January 2014, Westpac provided the Receivers with bank statements for the Westpac Accounts. Those statements record the following:
·As at 3 December 2013 the credit balance of the Westpac Accounts was $100.00;
·>From or about 1 December 2013 to 23 December 2013, debtor payments totalling $203,491.70 were received into the Westpac Accounts;
·On 9 December 2013 the sum of $1,366.00 was credited to the Westpac Accounts;
·Interest in the sum of $1.75 was credited to the Westpac Accounts for the period 1 December 2013 to 31 December 2013; and
·Elite Systems paid into the Westpac Accounts the sum of $34,000 during the period 1 December 2013 and 23 December 2013.
Also recorded are two deposits made in the sums of $103,092.97 (on 6 December 2013) and $100,398.73 (on 19 December 2013) made pursuant to contracts for work performed by the ASR Group in October and December 2013 respectively.
In effect, the Westpac Accounts statements indicate that $196,658.78 was disbursed from the Westpac Accounts to Elite Systems during the period 1 December 2013 to 23 December 2016. Those disbursements included the following payments: on 9 December 2013, the sum of $64,166.30; on 18 December 2013, the sum of $3,000; and on 20 December 2013, the total sum of $92,289.30 comprised of four different payments. Tracing of each of those disbursements indicated that each payment to Elite Systems was made care of various branches of different banks.
A review of ASR Group’s books and records did not reveal to Scott any basis on which Elite Systems was entitled to withdraw $196,658.78.
There was an agreement entered into between the Receivers and Elite Systems in or about late December 2013, whereby Elite Systems would complete a contract held by the ASR Group, and be paid by the Receivers for those services. However, that agreement between the Receivers and Elite Systems does not provide any basis for the disbursements from the Westpac Accounts.
On 23 December 2013, the Westpac Accounts were placed on a Post Credits only status. The Receivers were subsequently provided with the credit balance of the Westpac Accounts, being $8,300.67.
The Receivers demanded by letter dated 17 January 2014 that Elite Systems disgorge to ASR Events the sum of $196,658.78 said to have been unlawfully expended from the Westpac Accounts. A further demand was sent on 13 March 2014, in accordance with Rule 33 of the Supreme Court Civil Rules 2006.
Causes of action
I turn now to consider the causes of action relied upon by the plaintiffs.
Conversion
The plaintiffs allege that Elite Systems has converted the security tokens issued by Westpac, being property to which ASR was the legal owner and immediately entitled to possession. Elite Systems’ conduct was said to be as though it held better title to the security tokens than ASR Events, and its use of the tokens was conduct repugnant to ASR Events’ title and had the effect of denying ASR Events its right to possession of the tokens.
Accessorial liability for breach of fiduciary duties
The plaintiffs alternatively allege that Elite Systems knowingly assisted McColl in breaches of his fiduciary duties owed as director of ASR Events, and as such is liable as an accessory for breach of fiduciary duties, pursuant to the second limb of Barnes v Addy.[1]
[1] (1874) LR 9 Ch App 244 at 251.
Other causes of action
The plaintiffs also rely on restitution for civil wrongs, uncommercial transactions pursuant to s 588FB of the Act, unfair preferences pursuant to s 588FA of the Act, and voidable transactions pursuant to s 588FC of the Act.

For the reasons I set out below, I consider that the plaintiffs should succeed in their claim on the basis of accessorial liability for breach of fiduciary duty. The primary cause of action relied upon by the plaintiffs was conversion. However, for the reasons I give I am not satisfied that success on that cause of action would sound in more than a nominal sum. I turn first to consider the issue of conversion before dealing with the plaintiffs’ arguments on accessorial liability for breach of fiduciary duty. As I am of the view that the plaintiffs’ claim succeeds on the latter cause of action, it is not necessary for me to consider the other bases on which the plaintiffs contend they should succeed.
Analysis
Notwithstanding that significant sums were transferred out of the Westpac Accounts, it is well established that an action for conversion cannot be brought with respect to choses in action, including monies held in a bank account.[2] The plaintiffs therefore properly bring their claim for conversion with respect to the security tokens.
[2] Ferguson v Eakin (Unreported, New South Wales Court of Appeal, Cole JA, 27 August 1997) at 9.
Conversion occurs when a chattel is dealt with: [3]
… in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel … An intent to do that which would deprive “the true owner” of his immediate right to possession or impair it may be said to form the essential ground of the tort.
[3] Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 229.
Correspondence dated 29 November 2013 from Westpac to McColl and Clarke was exhibited to the affidavit of McColl. That correspondence relates to McColl and Clarke’s access to online banking for the Westpac Accounts and indicates that the security tokens would be provided to McColl and Clarke, care of ASR Events, for the purpose of accessing the Westpac Accounts online. It is clear that the security tokens were issued to ASR Events to allow the Westpac Accounts to be administered on its behalf. Although the tokens were sent by post to McColl and Clarke, ASR Events as the owner of the Westpac Accounts had a right to possession of the tokens to allow the Westpac Accounts to be administered on its behalf.
The plaintiffs pointed to three pieces of conduct that they say had the effect of depriving ASR Events of its immediate right to possession of the security tokens. First, the demand made by Adams, an agent of Elite Systems, that Clarke be named as a joint signatory to the Westpac Accounts. Secondly, the demand by Clarke that McColl deliver up possession of his security tokens to Clarke, and the statement to McColl that he should “keep out of it”. Thirdly, Elite Systems’ subsequent unauthorised use of the security tokens to withdraw monies from the Westpac Accounts. It was contended that the above conduct by Elite Systems caused ASR Events loss and damage for the benefit of Elite Systems in the sum of $196,658.78.
Taken together, I consider that the conduct of Elite Systems through Clarke and Adams deprived ASR Events of its immediate right to possession of the security tokens. While the demand that Clarke be named as a joint signatory to the Westpac Accounts did not have the effect of interfering with the chattels themselves, namely the security tokens, Clarke taking possession of a token on behalf of ASR Events and later demanding and receiving the second token from McColl was conduct which deprived ASR Events of its right to possession of the tokens. On one view of the matter, Clarke simply asked McColl for the token, and McColl complied with that request. In those circumstances, without more, mere possession of the token by Clarke would not necessarily constitute conversion, particularly as McColl did not attempt to regain possession of the token.[4] However, I consider that even in the absence of an express demand for the return of McColl’s token, the circumstances of the dealings between Clarke and McColl including Clarke’s instruction that McColl “keep out of it” are sufficient to have indicated to McColl that any demand, if made, would have been refused, which is sufficient.[5]
[4] Caroline Sappideen and Prue Vines (eds), Fleming’s The Law of Torts (Thomson Reuters, 10^th ed, 2011) at 71.
[5] Ibid.
In any event, the final acts relied on by the plaintiff and said to constitute conversion, using the tokens to transfer monies out of the Westpac Accounts, are clearly repugnant to ASR Events’ right to possession of the security tokens. By their nature, security tokens are provided to account holders to allow access to and control of bank accounts. It is difficult to see how any use of those tokens to access bank accounts or, as in the present case disburse funds from bank accounts without authorisation, can fall short of constituting dealing with the tokens in a manner which deprives the true owner of the tokens of their possessory rights.
Prima facie, damages for conversion are measured by the full value of the chattel converted, which in this case would be the value of the security tokens.[6]
[6] Lloyds Bank Ltd v Chartered Bank of India, Australia & China [1929] 1 KB 40.
However, as counsel for the plaintiffs at trial correctly identified, there is an established line of authority which provides that in the case of cheques the damage is measured as the loss flowing from the unauthorised use of the cheque, being the face value of the cheque. As outlined in Lloyds Bank Ltd v Chartered Bank of India, Australia & China:[7]
Conversion primarily is conversion of chattels, and the relation of bank to customer is that of debtor and creditor. As no specific coins in a bank are the property of any specific customer there might appear to be some difficulty in holding that a bank, which paid part of what it owed its customer to some other person not authorized to receive it, had converted its customer's chattels; but a series of decisions binding on this Court, culminating in Morison's case and Underwood's case, have surmounted the difficulty by treating the conversion as of the chattel, the piece of paper, the cheque under which the money was collected, and the value of the chattel converted as the money received under it: see the explanation of Phillimore L.J. in Morison's case.
(footnotes omitted)
[7] [1929] 1 KB 40 at 55-56.
Notwithstanding that the case before me does not relate to conversion by a bank, counsel has asked that I treat the conversion of the security token in a similar manner, with the sum of damages being equal to the monies transferred out of the Westpac Accounts.
There are, of course, significant differences between a cheque and the security tokens. It is well-established that a cheque is a negotiable instrument evidencing a chose in action, and allowing rights to the chose in action to be transferred.[8] For the purposes of conversion, life insurance policies,[9] guarantees,[10] and share certificates[11] have been treated in the same was as cheques. The question arises whether the security tokens can similarly be treated as evidencing the balance of the Westpac Accounts.
[8] Re Neal & Anor, Ex parte Neal & Anor v Duncan Properties Pty Ltd (1993) 114 ALR 659.
[9] Watson v McLean (1858) 120 ER 435.
[10] M’Leod v M’Ghie (1841) 133 ER 771.
[11] Solloway v McLaughlin [1937] 4 All ER 328.
Bavins Jnr & Sims v London & South Western Bank Ltd[12] considered but ultimately did not conclude whether a plaintiff was entitled to recover the amount stated on a written order as damages for conversion of that order. The order in that case was conditional and therefore not a negotiable instrument.
[12] [1900] 1 QB 270 at 275-276.
As noted by White J in Hoath & Anor v Connect Internet Service Pty Ltd & Ors[13] it is not clear to what extent the “legal fiction applicable to the interference with choses in action by wrongful dealing with documents” applies to non-negotiable instruments.[14] His Honour referred to circumstances in which courts had found that a cheque that had been materially altered by fraud (and no longer represented a chose in action)[15] and also Balkin and Davis,[16] which states:
It would seem that whenever a particular intangible right is represented in the ordinary course of business by a special written instrument, even though not negotiable, the value of the right is recoverable in an action for conversion of the instrument; so, a life insurance policy or guarantee might be converted … similarly, shares may be converted …
[13] (2006) 229 ALR 566.
[14] (2006) 229 ALR 566 at 596.
[15] (2006) 229 ALR 566 at 596.
[16] R P Balkin and J L R Davis, Law of Torts (Butterworths, 3rd ed, 2004) at 76.
In Hoath, his Honour was also not required to answer that question. In that case, the conversion alleged by the plaintiff related to the right to use a domain name, IP address and AS number. As there was no identifiable chattel (such as a hard disk, server or other piece of computer equipment) on which the plaintiff’s right to possession was stored, there could be no conversion.[17]
[17] (2006) 229 ALR 566 at 597.
In all of the circumstances, I also do not consider that it is necessary to determine this question, given that the plaintiff pleads a number of causes of action by which it seeks to recover the monies disbursed from the Westpac Accounts. I hold reservations about the extent to which the security tokens, which facilitate the signatories to the Westpac Accounts accessing and dealing with the monies in those accounts, can be placed in the same category as cheques, promissory notes and other documents which themselves cause money to be payable. In addition, I note that I have not had the benefit of any argument contrary to that put by the plaintiffs, at any stage in these proceedings.
Accessorial liability for breach of fiduciary duty
To succeed in its action for accessorial liability for breach of fiduciary duty the plaintiff must prove that McColl owed a fiduciary duty to ASR Events, that McColl breached that fiduciary duty in a manner which was dishonest and fraudulent, and that the breach was knowingly assisted by Elite Systems.[18]
[18] Barnes v Addy (1874) LR 9 Ch App 244 at 251.
This cause of action arises from the second limb of the test in Barnes v Addy:[19]
Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.
[19] (1874) LR 9 Ch App 244 at 251.
The seriousness of the allegations requires that I be satisfied on the basis of the standard of proof enunciated in Briginshaw v Briginshaw.[20]
[20] (1938) 60 CLR 336.
I turn first to consider McColl’s fiduciary duties to ASR Events and whether he dishonestly and fraudulently breached those duties.
The director and company relationship is an established category of relationship giving rise to fiduciary duties.[21] McColl, as its sole director, plainly owed fiduciary duties to ASR Events. Relevantly, these duties included acting in good faith in the best interests of ASR Events, not improperly using his position to gain, directly or indirectly, any advantage for himself or others, and not improperly using his position to cause detriment to ASR Events either directly or indirectly.
[21] Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 96.
In addition to those fiduciary duties, McColl owed statutory directors duties to ASR Events, arising from ss 180, 181 and 182 of the Act.
By his affidavit, McColl admits that he breached his fiduciary and directors duties by:
1. Improperly using his position as director of ASR Events to gain an advantage for Elite Systems. This occurred when he provided Elite Systems with access to the Westpac Accounts by making Clarke a signatory and handing over his security token; and
2. Failing to act with care and diligence or in the best interests of ASR Events (or its creditors) by not making any further enquiries about the operation of the Westpac Accounts after Clarke’s instruction that McColl “keep out of it”.
McColl’s actions were both to the detriment of ASR Events and to the advantage of Elite Systems in that they granted to Elite Systems unfettered access and control of the Westpac Accounts, providing Elite Systems and its agents with the ability to deal with the monies in the Westpac Accounts without authorisation or excuse. I find that McColl breached his fiduciary duties by this conduct.
I also find that McColl’s conduct subsequent to granting Elite Systems access to the Westpac Accounts breached his fiduciary duties. His failure to make enquiries into Elite Systems’ use of the Westpac Accounts or attempt to regain control of the accounts, to monitor the payment of monies paid to ASR Events under the ASR Group contracts and, on his own evidence, simply doing whatever was asked of him to ensure he had a future with Elite Systems had the effect of making ASR Events’ interests submissive to his personal interests and those of Elite Systems. I note that in his evidence McColl did not put forward any commercial justification for his actions; they are entirely contrary to the commercial interests of ASR Events. To the contrary, McColl frankly conceded in his evidence that he prioritised his future with Elite Systems over his obligations to ASR Events.
A mere breach of duties by a fiduciary will not always be sufficient to attach liability for knowing assistance to a third party. As the High Court made clear in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[22] for the purpose of the second limb of Barnes v Addy “any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent.”[23] The meaning of “dishonest and fraudulent” is not settled law in Australia, and it is not clear that the conduct of a fiduciary need be morally reprehensible to meet that description.[24] However, it appears that something more than a trivial breach is required before liability for a fiduciary’s breaches can attach to a third party.[25]
[22] (2007) 230 CLR 89.
[23] (2007) 230 CLR 89 at 164.
[24] See Nicholson v Morgan (No 3) [2013] WASC 110 at [56] and Westpac Banking Corporation v The Bell Group Ltd (In Liq) (No 3) (2012) 89 ACSR 1 at [2119].
[25] Barnes v Addy (1874) LR 9 Ch App 244 at 251.
I consider that on any view of it, McColl’s conduct was dishonest and fraudulent. At a time when McColl believed that ASR Events was in financial difficulty, needed to realise its assets and pay down debts, and was effectively already controlled by Elite Systems, McColl provided an Elite Systems officer with unsupervised access to bank accounts in ASR Events’ name. He followed instructions, including opening the Westpac Accounts and not enquiring into Clarke’s use of the account after being told to “keep out of it”. I do not consider the fact that McColl did not realise that Elite Systems was arranging for payments in respect of ASR Group contracts to be paid into that account makes his breaches any less dishonest or fraudulent. In my view his actions in providing access to the bank accounts and subsequent demonstrated knowledge of and disregard for the fact that Elite Systems, a company with which the ASR Group companies was contracting, had at least some measure of financial control over ASR Events, and evidenced a deliberate choice to ignore the interests of ASR Events in favour of his own. Adams instructing McColl to make Clarke a signatory, Clarke demanding the security token and Clarke’s order to “keep out of it” were all pieces of conduct which must have alerted McColl to the fact that Elite Systems intended to use the Westpac Accounts for some purpose without McColl’s authorisation. However, McColl closed his eyes to those facts because they were not in his personal interest. When McColl’s duties to ASR Events are considered, such breaches of his duties are clearly dishonest and fraudulent.
Upon my being satisfied that McColl has breached his fiduciary duties to ASR Events in a dishonest and fraudulent manner, the plaintiffs must establish two further propositions to succeed in the claim for accessorial liability for breach of fiduciary duty. The first is that Elite Systems, through its officers, had a requisite level of knowledge.
The High Court has clearly stated that knowledge within the first four categories of knowledge identified in Baden v Société Générale pour Favoriser le Développment du Commerce et de l'Industrie en France SA[26] is sufficient for the purpose of a claim of knowing assistance.[27] Therefore, it will be enough that Elite Systems had “knowledge of circumstances which would indicate the facts to an honest and reasonable man”,[28] being the fourth category of knowledge identified in Baden; I am not required to find that Elite Systems specifically turned its mind to whether McColl’s conduct amounted to a breach of his fiduciary duties.[29]
[26] [1993] 1 WLR 509.
[27] Farah Constructions v Say-Dee Pty Ltd (2007) 230 CLR 89 at 163.
[28] Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 at 575-576, 582.
[29] Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 398.
Secondly, I must be satisfied that Elite Systems’ conduct in participating in McColl’s breach of his duties was intentional.
The plaintiffs allege that Elite Systems knowingly assisted McColl in those breaches by the following conduct:
1.   Demanding that McColl provide Elite Systems with direct access to the Westpac Accounts by making Clarke a signatory of the accounts and delivering up his security token to Clarke;
2.   Assuming complete control of the Westpac Accounts to the exclusion of McColl; and
3.   Offering McColl incentives to provide Elite Systems with complete control of the Westpac Accounts, namely salaried employment, a share in a business, and an offer to protect his home in the event of his bankruptcy.
I am satisfied that the plaintiffs have made out the first proposition. Clarke was plainly aware that McColl had granted Elite Systems, through Clarke, access to the Westpac Accounts. Clarke himself facilitated McColl’s breaches in this respect by becoming a signatory to the Westpac Accounts and by demanding and receiving McColl’s security token. Adams was also aware of McColl’s conduct, having instructed McColl to open the Westpac Accounts and name Clarke as a signatory. In addition he knew of the financial incentives that had been made to McColl which, at the very least, must have put Adams on notice of a significant conflict of interest between ASR Events and McColl personally.
More obviously, Elite Systems also had actual knowledge, through its officers, that Clarke was a signatory to the Westpac Accounts and had possession of both security tokens. It is not clear from the evidence before me whether Clarke alone or other Elite Systems officers were directly responsible for transferring funds out of the Westpac Accounts. However, from the fact that $196,658.78 was able to be disbursed out of ASR Events’ accounts, it is clear that Elite Systems was aware of and exercised its control over the Westpac Accounts.
I am therefore satisfied that, at the very least, Elite Systems had knowledge of sufficient facts that would indicate to an honest and reasonable man that McColl had dishonestly and fraudulently breached his fiduciary duties. The more likely scenario is that Elite Systems, through at least Clarke and Adams, had actual knowledge that McColl had breached, and continued to breach his fiduciary duties. Being a corporate entity, Elite Systems (through its officers) necessarily knew of the fiduciary duties McColl owed to ASR Events and that, by actions induced by Elite Systems, he had breached those duties.

In light of the above, I find that Elite Systems’ assistance was plainly intentional. I find that it went further than simply knowingly assisting McColl in his dishonest and fraudulent conduct. Elite Systems, through Adams and Clarke procured McColl’s breaches of his fiduciary duties through effectively incentivising and threatening McColl and taking advantage of his personal circumstances. Indeed, although no evidence was put forward by Elite Systems, it was conceded in its second defence that Elite Systems had deliberately made withdrawals from the Westpac Accounts.
I consider that the plaintiffs succeed in this cause of action, and I find Elite Systems accessorily liable for McColl’s breaches of his fiduciary duties to ASR Events.
Remedies
Arising from this cause of action, the plaintiffs seek a declaration that Elite Systems was an accessory to McColl’s breaches of his fiduciary duties, and equitable compensation for all monies withdrawn by Elite Systems from the Westpac Accounts, in the sum of $196,658.78. The plaintiffs further seek interest and costs.
I consider that the plaintiffs are entitled to the remedies sought. I make the following orders and declarations:
1.   I award judgment in favour of the first plaintiff against the defendant in the sum of $196,658.78.
2.   I declare that Peter Darren McColl breached his fiduciary duties owed to the first plaintiff.
3.   I declare that the defendant was accessory to McColl’s breaches of fiduciary duties owed to the first plaintiff.
4.   I order that the defendant pay equitable compensation to the first plaintiff for all monies withdrawn by the defendant from the Westpac Accounts.
I will hear the parties as to interest and costs.