Burnes v Milltec Australia Pty Ltd

[2004] NSWSC 151

CITATION:	Burnes v Milltec Australia Pty Ltd [2004] NSWSC 151
HEARING DATE(S):	02/02/04, 03/02/04, 04/02/04, 05/02/04, 06/02/04, 09/02/04
JUDGMENT DATE:	16 March 2004
JURISDICTION:	Equity
JUDGMENT OF:	Cripps AJ
DECISION:	The defendant be removed as Trustee of the WHL Unit Trust and another appointed in its stead - Defendant to pay plaintiff's costs.
CATCHWORDS:	Trustee - Removal - Fiduciary duties of a director
PARTIES :	PLAINTIFF Wayne Burnes DEFENDANT Milltec Australia Pty Ltd CROSS CLAIMANT Milltec Australia Pty Ltd FIRST CROSS DEFENDANT Wayne Burnes SECOND CROSS DEFENDANT Milling Process Services Pty Ltd
FILE NUMBER(S):	SC 4309/2001
COUNSEL:	PLAINTIFF Mr D A Smallbone RESPONDENT Mr G B Colyer
SOLICITORS:	PLAINTIFF Doherty Partners RESPONDENT McCabe Terrill

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CRIPPS AJ

Tuesday 16 March 2004

MILLTEC AUSTRALIA PTY LTD (Defendant)

Defendant)

JUDGMENT

1 HIS HONOUR: In 1997 the plaintiff Wayne Burnes and two business associates Leigh Anthony Barker and Hans Hefer established Milltec Australia Pty Ltd, the defendant, as a vehicle for carrying out the business of providing services to the milling industry being plant design, engineering, installation and servicing associated with their operations.

2 Upon incorporation shares were allotted to Mr Burnes (12,000 shares), Mr Barker (7,500 shares) and Silo Development Pty Ltd, a company controlled by Mr Hefer (10,500 shares). Mr Burnes and Mr Barker were directors of Milltec. Mr Burnes was the managing director and paid a salary.

3 Mr Hefer was not a director. He said that there had been some friction between him and a customer of Milltec and he preferred not to be listed as a director.

4 This was the state of affairs until 2000 when disagreements between Mr Hefer and Mr Burnes resulted in Mr Burnes being removed as managing director of Milltec and Mr Hefer becoming a director. The circumstances concerning these changes will be dealt with in due course.

5 In early 1999 and after Milltec had moved into premises at Moorebank, there were discussions between the parties (a reference to the parties is a reference to Mr Burnes, Mr Barker and Mr Hefer) concerning the acquisition of land at Narellan. They decided that the land would be acquired by Milltec and held in trust by it for the parties (or companies they controlled).

6 In furtherance of the agreement by Deed dated 21 May 1999 Milltec was constituted as trustee of the property of the WHL Unit Trust (the Trust). The unit holders were Mr Burnes, Hysian Pty Ltd (Mr Barker’s company) and MAH Structural (Erection) Pty Ltd (Mr Hefer’s company). The unit holders each subscribed for ten units at one dollar ($1) each.

7 On 9 June 1999 Milltec acting as trustee of the Trust entered into a contract to purchase the Narellan land. The monies provided to acquire the land came from the three parties (or companies under their control) and each contributed approximately $75,000. For present purposes it is sufficient to note that there is no dispute concerning the amount of money contributed by each. Mr Burnes contends, however, that although he was aware the money was to be used by Milltec in its capacity as trustee of the Trust the $75,000 contributed by him was in fact lent to Milltec and was repayable by Milltec on demand. The other two, Mr Hefer and Mr Barker, assert that all parties advanced money to Milltec as trustee for the purpose of acquiring the subject land and hence their contributions became part of the Trust Fund (as that term is defined in clause 1.1 of the Trust Deed).

8 The records of Milltec indicate that it used its own monies to pay the deposit under the contract of sale and that, in effect, it made a loan to itself as trustee. The balance of purchase monies (being the contribution of the parties) was made up by bank cheques drawn by the parties and payable to creditors of the vendor.

9 As I have said, in the early part of 2000 Mr Burnes and Mr Hefer had a falling out. Later Mr Barker sided with Mr Hefer. There is a dispute concerning when Mr Burnes ceased being the managing director and director of Milltec and the circumstances surrounding his removal will be dealt with in due course. But on any view of the matter Mr Hefer and Mr Burnes were directors of Milltec in August 2000 and thereafter Mr Burnes was effectively removed from having any say in the affairs of Milltec. The affairs of Milltec were controlled by Mr Hefer and Mr Barker and Mr Burnes was a minority shareholder in Milltec.

10 By August 2000 Mr Burnes on the one hand and Mr Hefer and Mr Barker on the other had consulted lawyers concerning the dispute which culminated in the removal of Mr Burnes as a director of Milltec and the obligations of each of the parties owed the others. However their dispute remained outside the area of litigation until 3 September 2001 when Mr Burnes commenced proceedings in the Equity Court for the recovery of what he claimed to be his loan to Milltec of $75,000 and for an order that Milltec be removed as a trustee of the Trust and another fit and proper person be appointed in its stead.

11 By its cross-claim Milltec alleged Mr Burnes had improperly used his position as a director of Milltec to advance the interests of his own company Milltec Pty Ltd. (Mr Burnes’ company, incorporated before 2000, was Yasmar Design Pty Ltd. He changed its name to Milltec Pty Ltd on 2 June 2000.) It was alleged that Mr Burnes, in breach of his fiduciary duty commenced business in competition with Milltec and told clients that Milltec had ceased trading. It was alleged that he took the name Milltec improperly and used its logo with the intention of leading potential customers to believe that they remained dealing with Milltec. It was also alleged that he had misappropriated the sum of approximately $92,000. (But as far as I can see this claim has not been pursued.) Milltec also alleged that Mr Burnes had acquired property which he held in trust for Milltec and that the invoices produced by Mr Burnes establishing his ownership were forgeries. This claim was entirely without substance and will be dealt with later.

12 In an Amended Statement of Claim Mr Burnes alleged that since mid-2000 the directors of Milltec (Mr Barker and Mr Hefer) had been improperly channelling profits made by Milltec into fees for consultation services provided by them. He alleged they refused to allow him to inspect the records of Milltec and failed to provide an independent audited statement of the financial affairs of Milltec which he required them to undertake pursuant to the provisions of the Corporation Law. Mr Burnes alleged no dividends were declared, because profits were channelled to Mr Hefer and Mr Barker as consultancy fees and that generally speaking, Mr Hefer and Mr Barker conducted the affairs of Milltec for the advantage of themselves and to the detriment of Mr Burnes.

13 The essence of the case sought to be made out by Mr Burnes is that Milltec was controlled at all relevant times by Mr Hefer and Mr Barker and that they caused Milltec to attempt to invest trust funds in its own operations. It is submitted that by reason of their conduct and because neither have resiled from the possibility of investing the trust fund in the operation of Milltec, Milltec should be removed as trustee.

14 What brought matters to a head was the sale of the Narellan land in February 2001. The directors of Milltec (Mr Hefer and Mr Barker) wrote to Mr Burnes advising that consideration would be given by Milltec as trustee to investing the proceeds of sale into Milltec’s own business. Mr Burnes strenuously opposed the suggestion and alleged that investing the Trust Fund into the operations of Milltec would place the Trust Fund at risk bearing in mind what he claimed was the parlous financial state of Milltec at the time. For their part Mr Hefer and Mr Barker as directors of Milltec maintained that the Trust Fund was never put in jeopardy and that all they were doing as directors was canvassing options which were said to be open under the Trust Deed.

The Events of May 2000 to August 2000

15 I need not set out in detail the circumstances which led to the meeting of Milltec on 24 May 2000. By that time there had been a falling out between Mr Hefer and Mr Burnes. The minutes of the meeting record that Mr Hefer advised shareholders he did not wish to continue participating in Milltec because of problems he was having with Mr Burnes. Mr Hefer raised the possibility of the other two buying him out and the Minutes then record that Mr Hefer said that because there had been no reasonable offer he preferred Milltec to close down. Mr Hefer moved and Mr Barker seconded a motion that Milltec be closed down. The motion was carried over the opposition of Mr Burnes. The Minutes then record what was to happen to work in progress that needed to be completed and it was agreed that Mr Barker would take over the lease of one of the four motor vans and Mr Burnes the other three.

16 It was recorded that the parties should repay Milltec monies paid by it on behalf of the parties for the Narellan land. This was, clearly enough, a reference to the deposit that had been paid by Milltec.

17 Of relevance to the allegations made against Mr Burnes is the circumstance that at the meeting he made it clear that he wished to use the name Milltec Mechanical Installation and Mr Barker said he wished to use the name Milltec Services. The Minutes record there was no opposition from the shareholders to this happening and the parties agreed that any mechanical work that came into the office would be carried out by Milltec Mechanical Installation, any bin work by Milltec Services and any structural work by Silo Developments Pty Ltd (Mr Hefer’s company).

18 A further meeting of the defendant was held on 26 May 2000 in which the minutes of the previous meeting were recorded as correct. There was discussion concerning the disposal of property and a disclosure by Mr Burnes that he signed a lease for Milltec Engineering Pty Ltd and that the staff would be transferred to Mr Burnes’ company.

19 In a document headed “Milltec Meeting” it is recorded that on 6 June 2000 the parties met again. It was moved by Mr Hefer and seconded by Mr Barker that Mr Burnes be removed as managing director and an employee of Milltec. The motion was carried – Mr Burnes voting against it. Mr Burnes pointed out that Milltec would be winding down in a few weeks. Mr Hefer is recorded as saying that Mr Burnes’ refusal to answer certain outstanding questions had the result that “the deal be put indefinitely on hold”.

20 On 23 August 2000 Milltec held an extraordinary general meeting. By this time the parties’ lawyers had become involved.

21 Allegations and counter-allegations were made and it was recorded:

“On a poll, the resolution to remove Burnes as director was passed on the votes of Silo Developments (10,500 shares) and Leigh Barker (7,500) with Burnes opposing (12,000).”

Apparently there was a dispute concerning whether sufficient notice was given of the attempt to remove Mr Burnes as director at the meeting of 6 June 2000.

22 Mr Hefer was made a director. The Minutes said:

“The resolution to appoint Hefer as a director was passed on votes of Silo Developments Pty Ltd (10,500 shares) and Barker (7,500 shares) with Burnes opposing (12,500).”

23 In the presence of lawyers (Mr Donovan on behalf of Mr Burnes and Mr McCabe on behalf of Mr Hefer) the acquisition of the Narellan land was discussed. The lawyers thought that the situation “was a mess” because of the intermingling of monies. Reference was made to the deposit of $25,000 that had been paid by Milltec and the following was recorded:

“McCabe advised as to his understanding of the transaction namely that at times the parties intended that Milltec purchase the property as trustee for WHL Unit Trust. Milltec was a bare trustee of this trust. Milltec had lent money to the trust for the deposit, legal fees and architectural fees on the basis that these monies would be treated as a loan from Milltec to the Unit Trust. These loan monies were to be repaid by equal one-third share by each of the beneficiaries of the Unit Trust. The balance of the purchase monies were to be obtained from the personal loan funds of each beneficiary of the Unit Trust and were paid by equal one third shares. Hefer and Barker had reimbursed Milltec in respect to their respective one-third shares of the funds advanced by Milltec but Burnes had not done this. These funds were to be reimbursed by the end of the 1999/2000 financial year.

Donovan asked if there was any written agreement setting out the above arrangement. McCabe advised that he was not aware of any written agreement but the matters had been discussed on many occasions between the beneficiaries of the Unit Trust. Donovan advised that he would seek to clarify issues with Quinn Accountants and Hefer advised that he had no objection to this course.”

24 There was a discussion concerning whether the Narellan land should be sold. Before Mr Donovan moved that the Narellan land be sold he was recorded as asking what was the proper basis of the accounting transaction between Milltec and the Unit Trust and “the financial statements for Milltec for the year ended 30 June 1999 appeared to have no debit loan balance for monies owed by the Trust, if that were the case”. Mr Donovan’s motion that that the Narellan land be sold was opposed by Silo Developments and Leigh Barker and was defeated.

25 During the latter part of 2000 Mr Burnes complained that there was an attempt by Mr Hefer and Mr Barker to dilute the share allotment of Mr Burnes. That issue was touched upon in the proceedings but as far as I can see Mr Burnes was not materially prejudiced in the manner of the allotment of shares.

26 On 20 September 2001 the Narellan land was sold for the sum of $362,661. Prior to the settlement of the sale Milltec wrote to the Unit Holders of the Trust:

“As you are aware Milltec Australia Pty Ltd as Trustee of the WHL Trust is currently arranging the sale of the property and agents have been instructed in respect of the sale.
The Trustee has been considering the most effective use of sale proceeds when they are ultimately received.
In view of the purpose of the Unit Trust when established one option currently being considered is an investment of the net proceeds after mortgage discharge into the operations of Milltec Pty Ltd by means of a secured loan at commercial rates to finance and assist the future growth and expansion of the company.
The Trustee will keep Unit holders informed in relation to this proposal.”

27 On 22 May 2001 Mr Burnes through his solicitor objected to the proposed investment of the trust fund in the operations of Milltec. He referred to what he described as the “alarming apparent cash burn rate” since 23 August 2000. Milltec was told “the purpose of the Trust was to buy land at Narellan not to prop up its insolvent or under-capitalised trustee.”

28 He also expressed some alarm at the reference in the letter to the discharge of a mortgage as it was his client’s understanding (correct as it turned out) that there was no mortgage.

29 On 1 August 2001 Milltec’s lawyers responded to the allegations made by Mr Burnes. Milltec reaffirmed that consideration was “being given by Milltec as Trustee for WHL Unit Trust of application of the proceeds of sale of the Narellan property to the operations of Milltec by way of secured loan at commercial rates.” Insolvency was denied. It was asserted that Milltec required further funding for its operations and the letter concluded:

“When the Trust was established Milltec was appointed as Trustee so it could purchase assets to build wealth for the unit holders over a period of time by means of providing assistance to the working operation of Milltec in the manner that the company as Trustee considered appropriate and prudent. Milltec was given very wide powers in the Trust Deed to enable it to fulfil this purpose. We have commented on the clear understanding of your client of the close relations between Milltec and the Trust to the extent that your client considered the Trust assets were beneficially owned by Milltec.”

30 Mr Burnes caused a caveat to be lodged over Milltec’s property at Narellan which was objected to by Milltec’s lawyers. After proceedings were commenced the Trust Fund was paid into an authorised trust account where it awaits further disposition.

31 It would seem to me there are three issues for determination in these proceedings. The first is whether as claimed by Mr Burnes his $75,000 contribution to the acquisition of the Narellan land was in fact a loan to Milltec repayable on demand or whether as submitted on behalf of Milltec it was a contribution to the Trust Fund. The second is whether it has been established by Mr Burnes that the Court should remove Milltec as the Trustee of the Trust Fund and appoint in its stead a fit and proper person. (It was not made clear during the hearing whether, assuming Mr Burnes was successful in his first claim he persisted in his second. I have, however, assumed he does). The third is whether the conduct of Mr Burnes between May 2000 and August 2000 amounted to conduct in breach of the fiduciary obligation he owed Milltec and whether Milltec is entitled to equitable compensation (I note the claim for an account of profits was abandoned).

32 I should also mention that Mr Burnes has claimed that an account should be taken of all monies received and disbursed by Milltec by reason of its “wilful default”. I have passed over this matter because, as it seems to me, that case has not been made out. As will be seen I have come to the conclusion that I am far from satisfied that I have been presented with a correct picture of the financial affairs of Milltec during the relevant period but, as it would seem to me, the evidence falls short of establishing “wilful default”.

The First Question.

33 At the time the Trust was established the parties were in harmony. Later allegations and counter-allegations were made in the context of mutual hostilities.

34 For example although Mr Hefer and Mr Burnes claim that each settled an equal amount of money on the fund in October 2000 their lawyer was asserting that Milltec had advanced the money for the deposit and that “the balance of the purchase monies were obtained from the personal loan fund of each beneficiary of the Unit Trust and were paid by equal one third shares.”

35 Mr Smallbone on behalf of Mr Burnes has submitted that Mr Burnes lent $75,000 to Milltec which in turn lent the money to itself as trustee of the Trust Fund. As I have said on behalf of Milltec Mr Colyer has submitted that what in effect happened was that each party settled $75,000 on the Fund and there was no loan to Milltec as alleged by Mr Burnes. It would seem to me with respect to Mr Smallbone’s argument that the money advanced by the parties for the acquisition of Milltec amounted to a contribution to the Trust Fund and was not a loan to Milltec. As I have said, the cheques were not made out to Milltec at all but were made out to the creditors of the vendor. No documents have been produced evidencing a loan indicating, for example, whether the loan was interest free or for what term etc. Such documents as do appear make it clear that although Milltec paid the deposit it was looked to the three beneficiaries to settle monies to allow that deposit to be repaid. Nowhere is it mentioned in the records that have been presented to me that Milltec had borrowed $225,000 as asserted by Mr Burnes. I have not overlooked the submission of Mr Smallbone that at the meeting on 23 August 2000 reference was made (which has been referred to above) to the balance of purchase monies for Narellan being obtained from “the personal loan funding of each beneficiary of the Unit Trust and were paid by equal one-third shares” as evidence that Milltec borrowed money from each of the beneficiaries. However that recorded remark was made when the parties were at arms length and hostile to each other and more than one year after the acquisition of the Narellan land. Moreover it is somewhat ambiguous because it is capable of referring to the fact that (as happened) the parties borrowed money to acquire the Narellan land.

36 Accordingly I find that Mr Burnes’ claim that he is entitled to be paid the sum of $75,000 by Milltec fails.

Has Mr Burnes made out a case for the removal of Milltec as Trustee?

37 As I would understand Mr Smallbone’s argument it is not disputed that Milltec had the power (provided it was exercised bona fide and for the benefit of all beneficiaries) to invest in Milltec by reason of the terms of the Trust Deed. However, as he submits, the discretion must be exercised in good faith and for the benefit of all beneficiaries. I accept that it is not the law that a trustee can be removed simply because beneficiaries are dissatisfied with the trustee’s performance if otherwise the trustee is performing those duties according to law. The circumstance that the trust instrument permits the Trust Fund to be invested in the operations of Milltec and the provision in the Trust Deed to the effect that the trustee is not liable otherwise than for wilful fraudulent behaviour does not, in my opinion, authorise conduct that would imperil the Trust assets or improperly favour two beneficiaries over a third.

38 Before turning to this question I should mention the submission of Mr Colyer to the effect that Mr Burnes’ real motive in this litigation is to recover the $75,000 he advanced towards the acquisition of the Narellan property and that had that money been paid to him earlier this litigation would not have commenced. He characterises Mr Burnes as a “capricious” beneficiary and submits that he commenced the present proceedings because he was not repaid $75,000 in circumstances where he had no legal entitlement to it. It would seem to me, however, with respect to Mr Colyer’s argument that Mr Burnes’ motives have very little to do with the issue I have to determine. I accept it is probable that Mr Burnes would not have pursued this litigation had he received the $75,000 he demanded. But that of itself does not demonstrate that his case against the trustee is, for that reason, to be dismissed. Mr Burnes has either established that Milltec is not a fit and proper person to be the trustee or he has not. His motives, unless they in some way reflect on his creditability, really have nothing to do with the issues concerning the fitness of Milltec. Mr Colyer has submitted that the Court should not lose sight of the fact that it is Milltec that is the trustee and not Mr Hefer or Mr Barker. However the fitness of Milltec can only be judged by the conduct of Mr Hefer and Mr Barker after August 2000. I accept Milltec, clearly enough, is an independent legal entity but its actions were controlled by Mr Hefer and Mr Barker.

39 I make it clear that in determining the issue of Milltec’s fitness to remain a trustee I have not paid a great deal of attention to the matters in dispute between the parties prior to August 2000. As I have earlier mentioned allegations and counter-allegations were made which resulted in Mr Burnes being removed as managing director and paid employee and his position as director being taken by Mr Hefer. As it would seem to me the conduct I should look to for the purpose of determining Milltec’s fitness to continue as trustee is its conduct post August 2000.

40 A considerable amount of time was spent during the proceedings investigating the commercial viability of Milltec in the years 2000 to 2003 against what Mr Barker asserted was an attempt by Milltec to invest the trust monies in itself. Mr Burnes served a notice under the Corporations Law on Milltec requiring it to produce audited accounts for the years 2000 to 2003. The directors of Milltec (Mr Hefer and Mr Barker) ignored the statutory demand and no acceptable reason has been given to me why they were entitled to do so. Mr Colyer has submitted that Mr Burnes was not entitled to interpret the representations concerning the use of the Trust Fund in the operations of Milltec as a threat. He submits that a reasonably minded person in Mr Burnes’ position would have regarded it as merely a proposed option. I do not accept this submission. Taking account of the circumstances surrounding the sale of Narellan I have formed the opinion that had Mr Burnes not taken proceedings as he did the Trust Fund would have been invested in Milltec. On the information before me I conclude that that investment would not have been adequately safeguarded and that it would have been undertaken for the purpose of advancing the interests of Mr Hefer and Mr Barker and to the disadvantage of Mr Burnes.

41 When I asked Mr Colyer how it was possible for Milltec to invest the trust funds in itself at commercial rates and to ensure it would be properly secured his response was “I am not suggesting that it is going to be done or I don’t need to suggest that it could have been done”. That, however, was what, in my opinion, was threatened.

42 Mr Smallbone has pointed to circumstances that establish that during the time consideration was being given by Milltec to investing in itself it declared no dividends and any profits it might have made, (so far as I am able to determine them) went to Mr Hefer or to Mr Barker or companies they controlled as consultancy fees. He makes criticism, justifiably in my opinion, of claims by Mr Hefer for work allegedly undertaken and for which he was paid. It would have been a great deal easier for me to have determined the issue raised by these allegations had the audit referred to above taken place. In the circumstances of this case I think I am entitled to infer that both Mr Hefer and Mr Barker knew that having an audit of the accounts for the years 2002 and 2003 was, more likely than not, not going to advance their case – that case being the financial soundness of Milltec and the bona fide exercise of investment discretion. In my opinion and properly understood the conduct of Milltec went beyond that of merely asserting a possible option for investment.

43 However as has been pointed out by Mr Colyer that does not conclude the matter against Milltec because, as I have mentioned, the Trust Fund was not invested in Milltec and now is in an appropriate investment. Mr Colyer submits that even if there had been a threat there is now no longer one and that no case has been made out for the removal of Milltec as trustee.

44 As I have said I was not impressed with the evidence of Mr Hefer concerning the work he was charging for and I was not impressed with his explanation as to why he did not undertake the audit he was compelled by law to undertake. Mr Burnes is a minority shareholder in Milltec. I have difficulty in accepting how, bearing in mind the hostility that now exists between Mr Burnes on the one hand and Mr Hefer and Mr Barker on the other, Milltec can maintain that in the future it will exercise its function and discretion bona fide and in the interest of all beneficiaries. An illustration of what I am saying can be seen in the statement to the effect that no dividend was to be paid by Milltec to Mr Burnes because that would have given him funds to advance his claim against Milltec. A further cause for concern is that although previously Milltec was paying modest amounts in rent of premises it is now paying $100,000 per year to Mr Hefer’s company Silo Developments Pty Ltd which company sub-contracts work to Milltec.

45 There is one other matter I should mention. In 2000 Mr Barker agreed to buy the Si Clean shares from Milltec at cost. Sometime later Milltec said it was not insisting on the contract being performed. What happened was this – Milltec paid $26,000 for the Silo Clean shares. After the contract between Mr Barker and Milltec was entered into, and at a time when Milltec was controlled by Mr Hefer and Mr Barker, it became apparent for a reason not here relevant that Silo Clean shares became devalued to the point of being almost worthless. That circumstance, on the material before me would not in law have prevented the arrangement from being consummated i.e. by Mr Barker buying the shares. It may be that Milltec was entitled not to insist on performance of the contract. However bearing in mind the decision of Milltec favoured Mr Barker in circumstances where it disadvantaged Mr Burnes it is another illustration of the problem of Milltec remaining trustee.

46 I have formed the opinion that Milltec is no longer a fit and proper person to be a trustee and that another should be appointed in its stead.

The Cross-Claim

47 The remaining question is whether a case has been made out against Mr Burnes that he acted in breach of the fiduciary duty he owed Milltec as a director by reason of his conduct between May 2000 and August 2000.

48 Mr Burnes’ conduct during this period must be determined in the context of the arrangements entered into by the parties at the time. It is clear that by the end of May Mr Barker and Mr Hefer had decided that Mr Burnes was no longer to be managing director and they had resolved to remove him as a director. This was made known to him. It was also made clear by Mr Burnes to Mr Hefer and Mr Barker that, bearing in mind they wished to wind down Milltec, he would undertake work using the name Milltec. I have already referred to the minutes of the meeting where both Mr Burnes and Mr Barker were authorised to use the name Milltec. Mr Burnes believed that after May he was simply a “paper director” until he was formally removed after sufficient notice was given. Accordingly I do not accept the submission that contrary to his duty during this period he was endeavouring to pass off his company as that of Milltec to the disadvantage of Milltec. I have not overlooked the submission made on behalf of Milltec that in June Mr Hefer said that he thought the deal (the winding down of Milltec) should be “put on hold”. There was no resolution to that effect and in any event so far as I can see Mr Burnes was doing nothing that was not contemplated by the agreement in May. Moreover although Mr Hefer might have wanted the deal to be “put on hold” in fact leases were taken over cars after 6 June and work in hand was completed as contemplated in the earlier May minutes.

49 When I raised with Mr Colyer what activities Mr Burnes had engaged in that had relevantly harmed Milltec and that I thought there was no evidence suggesting that Milltec lost any work by reason of Mr Burnes’ conduct (not at least any that was beyond the contemplation of the parties) Mr Colyer submitted that once a breach of fiduciary duty had been established an inquiry automatically followed and that if it turns out that the breach of duty led to no equitable compensation and that should have been evident at the beginning the matter would be reflected in costs. I do not think that is the law. As I have said I do not think Mr Burnes did anything that was not approved of by Mr Hefer or Mr Barker with respect to changing the name of his company and using the word Milltec. There were other aspects of his conduct that Mr Hefer was in dispute about but I am concerned with Mr Burnes’ conduct as a director between May and August 2000.

50 I have already referred to the allegations against Mr Burnes that he converted to his own use two items of property owned by Milltec and that he forged invoices to establish that he and not Milltec acquired the property. He established at the hearing that he paid for one of the items (the Buhler separator) and that another had been given to him. For self-evident reasons the claim in conversion was withdrawn. However in address it was claimed that he was guilty of obtaining a secret commission with respect to both items. Contrary to Mr Colyer’s submission Mr Burnes did not admit he acquired the equipment in his capacity as managing director. The circumstances of the acquisition were not really investigated in the proceedings otherwise than by Mr Burnes establishing that in fact he paid money of his own for the Buhler separator. All that was established in the questioning was that he happened to purchase or otherwise acquire equipment at a time when he was the managing director of Milltec. The circumstances of his purchase and/or acquisition were simply not investigated. That was because it was always Milltec’s case that Mr Burnes had converted Milltec’s property to his own use and had forged documents to support it. It was not put to Mr Burnes for example that he had taken a secret commission.

51 Accordingly I have come to the conclusion that:

1. The plaintiff’s claim fails regarding the loan.

2. The plaintiff’s claim that Milltec be removed as Trustee of the WHL Unit Trust and another appointed in its stead upheld.

3. The cross-claim is dismissed.

4. It would seem to me that the defendant should pay the plaintiff’s costs. It is true the defendant succeeded on the issue of no loan to it by Mr Burnes. However most of the evidence and time taken was directed to the alleged impropriety of Mr Burnes’ conduct between May and August 2000 and into an investigation (such as it was) of the financial affairs of Milltec at a time when, as I have found, it was proposing to invest the Trust Fund in itself and that that investment not only favoured two beneficiaries over a third but also was on the face of it and on the information before me a risky investment.

5. Parties to bring in short minutes giving effect to the above-mentioned findings and to nominate the new Trustee to be appointed.

**********

Last Modified: 03/23/2004