Canberra Residential Developments Pty Limited v Brendas (No 5) - [2009] FCA 34

FEDERAL COURT OF AUSTRALIA
Canberra Residential Developments Pty Limited v Brendas (No 5) [2009] FCA 34
EQUITY – fiduciary duties owed by a director of a trustee company developing land on behalf of a syndicate of builders who formed a joint venture to do so – whether duties breached when the Joint Venture Deed precluded the acquisition of further land without the unanimous approval of all members of the joint venture and, in the absence of any such approval, a company in which the director was interested acquired other land
Held: there was no breach of fiduciary duty by the director
Corporations Act 2001 (Cth) ss 45A, 135, 249H(1) and (2), 250N, 286(1), 292(2), 293, 294, 295, 298 and 1317H

Partnership Act 1963 (ACT) s 7
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Consul Development Pty Limited v D.P.C. Estates Pty Limited (1975) 132 CLR 373
Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq. 461
Phipps v Boardman [1967] 2 AC 46
Hurley v BGH Nominees Pty Ltd (1982) 6 ACLR 791; (1984) 10 ACLR 197
Walker v Wimborne (1976) 137 CLR 1
Spies v The Queen (2000) 201 CLR 603
Cope v Butcher (1996) 20 ACSR 37
Moorgate Tobacco Co Limited v Philip Morris Limited (No. 2) (1984) 156 CLR 414
James Birtchnell v The Equity Trustees, Executors and Agency Company Limited (1929) 42 CLR 384
United Dominions Corporation Limited v Brian Proprietary Limited (1985) 157 CLR 1
In Plus Group Ltd v Pyke [2002] 2 BCLC 201
H.A. Stephenson & Son Limited (in liquidation) v Gillanders, Arbuthnot and Company (1931) 45 CLR 476
Re Tivoli Freeholds Ltd [1972] V.R. 445
Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89
Maguire v Makaronis (1997) 188 CLR 449
Japan Abrasive Materials Pty Ltd v Australian Fused Materials Pty Ltd (1998) 16 ACLC 1,172
Securities and Exchange Commission v Chenery Corporation (1943) 318 US 80
Pilmer v Duke Group Limited (in Liquidation) (2001) 207 CLR 165
Warman International Limited v Dwyer (1995) 182 CLR 544
Meyers v Casey (1913) 17 CLR 90

CANBERRA RESIDENTIAL DEVELOPMENTS PTY LIMITED ACN 098 326 375 v SPIROS BRENDAS, BEVERLEY ROSE BRENDAS, KENOSS PTY LIMITED ACN 008 544 232 AND CANBERRA LAND DEVELOPMENTS PTY LIMITED ACN 103 875 823
ACD 21 OF 2006
GRAHAM J
30 JANUARY 2009
CANBERRA

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY

ACD 21 OF 2006

BETWEEN:

CANBERRA RESIDENTIAL DEVELOPMENTS PTY LIMITED ACN 098 326 375
Applicant

AND:

SPIROS BRENDAS
First Respondent

BEVERLEY ROSE BRENDAS
Second Respondent

KENOSS PTY LIMITED ACN 008 544 232
Third Respondent

CANBERRA LAND DEVELOPMENTS PTY LIMITED ACN 103 875 823
Fourth Respondent

JUDGE:

GRAHAM J

DATE OF ORDER:

30 JANUARY 2009

WHERE MADE:

CANBERRA

THE COURT ORDERS THAT:
1.The Further Amended Application filed 19 November 2007 be dismissed.
2.The Applicant pay the Respondents’ costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The text of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2009] FCA 34
Decision Date: 30 January 2009

CaseChat Overview and Summary

In the case of Canberra Residential Developments Pty Limited v Brendas (No 5), the respondent alleged that the applicant company, which was involved in a joint venture to develop land, breached its fiduciary duties by acquiring additional land without unanimous approval from all members of the joint venture. The case was heard in the Federal Court of Australia. The primary issue before the court was whether the director of the applicant company had breached his fiduciary duties by acquiring additional land when the Joint Venture Deed stipulated that any acquisition of further land required unanimous approval from all joint venture members. The court was also required to determine whether the director's actions constituted a breach of fiduciary duty, considering the specific terms of the Joint Venture Deed and the director's interest in a company that acquired the land in question.

The court examined the terms of the Joint Venture Deed, particularly Clause 36.2, which established the agreement between the parties and stipulated that it could only be altered by a special majority. The court found that the Joint Venture Deed clearly precluded the acquisition of additional land without unanimous approval from all members. However, the court also considered the broader context of the joint venture agreement and the director's conduct. It was established that the director did not participate in the new joint venture as he was not permitted to do so. The court held that there was no evidence to suggest that the director's actions were in conflict with his fiduciary duties or that he gained any personal benefit from the acquisition of the additional land. The court concluded that there was no breach of fiduciary duty by the director.

As a result of the court's findings, the further amended application filed by the respondent was dismissed, and the applicant was ordered to pay the respondents' costs. The court's decision underscores the importance of adhering to the terms of joint venture agreements and the need for directors to act in the best interests of the company and its stakeholders.

Orders

Orders of the court

1. The Further Amended Application filed 19 November 2007 be dismissed.

2. The Applicant pay the Respondents’ costs.

Background

Background to the litigation

Clause 36.2 of the Joint Venture Deed provided:‘36.2This Deed supercedes all prior discussions and writings and constitutes the entire and only agreement between the parties and it may not be changed altered or amended other than by a Special Majority.’Further background to the joint venture agreement The events which preceded the acquisition by the applicant of Horse Park 1 were said by Mr Glavinic, in his affidavit sworn 16 April 2007, to have been as follows:‘5.Before the auction I and the other directors of CRD held a number of meetings with prospective syndicate members. Our objective was to form a syndicate made up of local builders to purchase and develop the land. The intention was that CRD would hold the land on behalf of the syndicate members and develop it as a residential subdivision. Once the development had reached the stage that the Government would issue leases for the residential blocks, they would be allocated among the syndicate members. The members would have to put up some money initially to be used as a deposit for the purchase of the land. The balance of the cost of the raw land, the cost of engineering services and civil works, financing costs and all other costs of developing the subdivision were intended to be paid using funds to be borrowed by CRD from the National Australia Bank. These loan funds would be repaid from funds to be provided by the syndicate members, in each case in proportion to their individual block allocations, when each of the three stages of the development reached practical completion. Later, when the government was ready to issue the leases for the individual blocks, each lease would be registered in the name of the syndicate member to whom the block had been allocated. The intention was that syndicate members would pay for the residential building blocks allocated to them at cost price (that is, at the cost to CRD of purchasing, developing and subdividing the land without paying a developer’s profit to CRD). That way, if syndicate members decided to sell their blocks as vacant land they would have the opportunity to make a developer’s profit on the sale. If they decided to sell their blocks as house and land packages, they would have the opportunity to make a developer’s profit on the sale of the land and a builder’s profit on the construction of the house.6.Before the auction I and the other CRD directors collected cheques from the syndicate members to pay for the deposit and members told us how many blocks they wanted to have allocated to them after the land had been subdivided.’Fiduciary Duties A person who occupies a fiduciary position may not use that position to gain a profit or advantage for himself, nor may he obtain a benefit by entering into a transaction in conflict with his fiduciary duty, without the informed consent of the person to whom he owes the duty (per Gibbs CJ in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 67). The rule that a person in a fiduciary position is not entitled to make a profit without the knowledge and assent of the person to whom the fiduciary duty is owed is not limited to cases where the profit arises from the use of the fiduciary position or of the opportunity or knowledge gained from it. The basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and interest conflict (per Gibbs J in Consul Development Pty Limited v D.P.C. Estates Pty Limited (1975) 132 CLR 373 (‘Consul’) at 393).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

GRAHAM J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: GRAHAM J

It is clear from Mr Cobanov’s note of the meeting on 19 March 2003 that the priority list so far as those members of the former syndicate/joint venture, who wished to become involved in a new joint venture together with others, were concerned was (i) Horse Park 2(ii) Condor(ii) DunlopConsideration of purchasing Horse Park 2 An agenda for a ‘Directors Meeting’ called for 28 January 2003 at the Croatia Deakin Soccer Club showed the anticipated attendees, who were the actual attendees, as Messrs Mihailidis, Glavinic, Robert Cobanov, Frank Porreca and Brendas. The last item on the agenda was ‘Land Release Report’. Mr Glavinic’s notes on his copy of the agenda are not easy to follow. It may be that apart from the misspelling of a number of English words, he has used words in the Croatian language. His note reads:‘Deni (sic) [referring to Mr Mihailidis] [unreadable] oction (sic) end of March olso (sic) land octon (sic) [unreadable] push fowurd (sic)’ Mr Glavinic’s file note of the 28 January 2003 meeting included, after translation and transcription:‘6We talked about Gangalen [Gunghalin (sic)] auction, it will be at the end of March. We have to get prepared for auction, together with our members.’ Mr Cobanov’s note of the same meeting included:‘LAND RELEASE End of March … Land Auction brought forward from → May’ Mr Frank Porreca’s note of the ‘Committee Meeting’ concluded with:‘• Auction – end of March – Combined May & March.’ Mr Glavinic’s note of a ‘Committee Meeting’ on 11 February 2003, attended by Messrs Mihailidis, Frank Porreca, Robert Cobanov and himself but ‘without Spiro, because Spiro was not invited’ when translated and transcribed included:‘Deni [Danny] suggested to apply for bidding at the auction for Andro … perhaps Frank’s father’ The applicant concedes that Mr Brendas ‘was not permitted to participate’ in a new joint venture with other interested syndicate or joint venture members from joint venture no. 1. As previously indicated such an application for the right to bid in respect of Condor 4 Estate, Horse Park II Estate, Dunlop 4 West Estate and Block 6 Section 157 Belconnen was signed by Mr Glavinic on 27 February 2003. On 4 March 2003 an internal memo was sent from the manager of ‘Property Development & Investment Group 2’ to ‘Property Finance Manager & SCB, PD & IG’ within National Australia Bank Limited in relation to the possible involvement of Canberra Residential Developments Pty Limited and others in the purchase of Condor 4, Dunlop 4 or Horse Park 2. The memorandum included:‘Re: Canberra Residential Developments Pty Ltd (CRD) & Others (To form a new entity)NOTE AS A NEW ENTITY IS BEING FORMED AND LEND WILL BE 70% OF MARKET VALUE THIS APPLICATION IS NOT AGGREGATED WITH EXISTING CRD EXPOSURE.AUCTION 27/3/03Comments PFI & Then Peter Mitchell SCB URGENT ACTION 27/3/03Further to our support material of 4/3 we provide the following information to support the issuance of a indicative letter of offer …Please note Stage 1 horsepark estate was settled 1/3/03 ( $ 9 Million) Stage 2 anticipated 4/03 Stage 3 &3b 6/03The strength of the group is that 100 % presales occurs as the individual members must purchase and pay for their blocks prior to receipt of the title. This is done to reduce stamp duty costs and all members are aware of this requirement to pay prior to titles issuing. With stage 1 we made the call and all funds were received within 5 days of call. Our call for the funds is made once each stage achieves practical completion.This is a very strong group…Purpose – The Majority of the members of CRD plus a number of other quality builders who wish to join the group now wish to purchase further land to develop as they will be finished the current project in a few months time. They perceive that shareholders will number between 30 & 40 and require indicative approval to go to Auction to bid for 2 of the 3 englobo Land auctions that will occur this month. It is important to note that there is only a couple of land releases each year.A/ Condor 4 126 Blocks …B/ Dunlop 4 130 Blocks …C/ Gungahlin 317 dwellings … (stage 2 Horsepark estate)…RECOMMENDATION-The strength of this group is their number & financial position & if there was a issue the risk is spread between 30-45 guarantors.…The groups main aim is to produce stock to their members at a base price.…’

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY	ACD 21 OF 2006

JUDGE:	GRAHAM J
DATE OF ORDER:	30 JANUARY 2009
WHERE MADE:	CANBERRA