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Demetriou v Gusdote Pty Ltd

Demetriou v Gusdote Pty Ltd

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FEDERAL COURT OF AUSTRALIA
Demetriou v Gusdote Pty Limited [2010] FCA 581

Citation: Demetriou v Gusdote Pty Limited [2010] FCA 581

Parties: EMILIOS DEMETRIOU, JANETTE LINDA ASHLEY and GEORGINA DEMETRIOU v GUSDOTE PTY LIMITED (ACN 089 937 253), MADEAS PTY LIMITED (ACN 108 819 316), NORTH QUEENSLAND LAND DEVELOPMENT PTY LIMITED (ACN 125 265 358), DON MATHESON GOLF COURSE CONSTRUCTION PTY LIMITED (ACN 108 200 693), DONALD JOHN MATHESON and SUSAN ROSE MATHESON

File number: NSD 935 of 2009

Judge: COWDROY J

Date of judgment: 11 June 2010

Catchwords:
CORPORATIONS – Directors’ Duties – Failure to notify ASIC of additional directors and shareholders – Failure to record names of directors and shareholders on ASIC register – One director subsequently contracting on behalf of the company without authority – Whether declarations should be made requiring amendments to company records and of ASIC register – Held – Court should make declarations requiring amendments to company records and of the ASIC register.

CONTRACTS – Agreement to appoint additional directors and issue shares in exchange for substantial investment – Appointment of additional directors and issue of new shares never notified to ASIC – Whether Court should make declarations to correct records of company and of ASIC – Held – Court should make declarations regarding change in directors and issue of shares.

EQUITY – Fiduciary Duties – Single director contracting on behalf of a company without authorisation from other directors to sell land to another company of which he was the sole director and of which he and his wife owned all shares – Director acting in own interests rather than interests of company and without proper authorisation – Whether land should be held on constructive trust for the transferring company – Held – Land should be held on constructive trust resulting from breach of fiduciary duty.

COSTS – Indemnity Costs – Whether single director of company should be solely liable for costs on the basis that he was the corporate mind of company in circumstances where he did not consult other directors regarding sale of land – Whether unsuccessful respondent companies should be liable for costs in circumstances where such companies are substantially owned by the successful applicants – Whether respondent’s conduct in maintaining defences until the commencement of the hearing and then abandoning all defences at the hearing warranted granting of indemnity costs – Held – Single director was the corporate mind of the contracting companies and is personally liable for costs in circumstances where other directors were not consulted and transactions were made for the benefit of another company of which he was the sole director – Applicants should not be liable for costs in proceedings in which they were successful by virtue of their interests in unsuccessful respondent companies in circumstances where they were not consulted – Conduct of respondent in persisting with defences which were all abandoned at the hearing justified the grant of indemnity costs.

Legislation: Corporations Act 2001 (Cth) ss 175, 440D(1), 1322(4)
Federal Court of Australia…

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: [2010] FCA 581
Decision Date

CaseChat Overview and Summary

Demetriou v Gusdote Pty Ltd was a case where the applicants sought declarations and orders due to the fifth respondent, Mr Matheson, failing to fulfil his contractual obligations in relation to Gusdote Pty Ltd, a company he controlled. The applicants also claimed that Mr Matheson caused the transfer of Gusdote’s property to another company, NQLD, which he controlled. The court was required to determine whether the applicants were entitled to the declarations and orders sought as a result of Mr Matheson’s failure to fulfil his contractual obligations. The applicants argued that the initial agreement between the parties was binding and enforceable, despite it not being in writing. They claimed that Mr Matheson had failed to fulfil his obligations under the agreement, including the appointment of Mr Ashley and Mr Demetriou as directors of Gusdote, the increase in the share capital of Gusdote, and the lodgement of necessary documentation with ASIC.

The court considered whether the initial agreement was binding and enforceable despite not being in writing. The applicants argued that the agreement was binding and that Mr Matheson had breached it by failing to fulfil his obligations. The court held that the initial agreement was indeed binding and enforceable despite not being in writing. The court found that the agreement was supported by consideration and that the applicants had provided evidence of the agreement through affidavits. The court also found that Mr Matheson had breached the agreement by failing to fulfil his obligations, including the appointment of Mr Ashley and Mr Demetriou as directors of Gusdote, the increase in the share capital of Gusdote, and the lodgement of necessary documentation with ASIC. The court granted the declarations and orders sought by the applicants, including an order that Mr Matheson pay compensation to Gusdote for the breach of contract. The court also ordered that the transfer of Gusdote’s property to NQLD be set aside.

Orders

Orders of the court

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Background

Background to the litigation

By Amended Application filed on 25 February 2010 the applicants seek declarations and orders resulting from the failure of the fifth respondent (Donald John Matheson, hereafter referred to as ‘Mr Matheson’) to fulfil certain contractual obligations in respect of a company controlled by him, namely Gusdote Pty Limited (‘Gusdote’). As a result of such failures Mr Matheson caused property of Gusdote to be transferred to an associated company controlled by him, namely North Queensland Land Development Pty Limited (‘NQLD’). Ancillary relief is also claimed as appears in the facts. The Facts The relevant facts are set out below. They are contained in the affidavits of Emilios Demetriou sworn 25 January 2010, Janette Linda Ashley sworn 22 January 2010 and Stephen Brian Swaine sworn on 11 February 2010. Prior to 2003 Gusdote was the registered proprietor of land located at Townsville. Such land was primarily used for the purpose of a golf course, known as ‘Willows Golf Course’ with the remainder being a portion of land which was undeveloped (‘the 5.02 hectares’). Prior to August 2003, the sole Director of Gusdote was Mr Matheson. The sole shareholder of Gusdote was the sixth respondent, namely Susan Rose Matheson (‘Mrs Matheson’) to whom one share was allocated. A meeting took place in Townsville on 29 August 2003 at the offices of Mr Jeffrey Dickens (‘Mr Dickens’), the solicitor of Mr Matheson. It was attended by the first applicant (‘Mr Demetriou’), the second applicant (‘Mrs Ashley’), her husband the late Robert Ashley (‘Mr Ashley’), Mr Matheson, Mr Dickens and Mr Stephen Swaine, accountant to Mr Demetriou. At such meeting an agreement was concluded by Messrs Ashley and Demetriou with Mr Matheson (‘the initial agreement’). The initial agreement was intended to provide Gusdote with sufficient capital to subdivide and develop the 5.02 hectares of land. Pursuant to the initial agreement, Mr Demetriou and Mr Ashley were to pay an amount of $250,000 each to Gusdote by way of loan. In addition, they were to guarantee an outstanding debt of Gusdote to the National Australia Bank (‘the NAB’) of approximately $960,000. In consideration of such payments and guarantee, Mr Matheson was to arrange for the appointment of Mr Ashley and Mr Demetriou as directors of Gusdote. Further, Mr Matheson was to arrange for the share capital of Gusdote to be increased by the issue of one share each to Mrs Demetriou, Mrs Ashley and Mrs Matheson. By virtue of this share allocation Mrs Ashley and Mrs Demetriou would each hold 25% of the issued capital of Gusdote with Mrs Matheson holding the remaining 50%. It was also a term of the initial agreement that Mr Matheson would attend to the lodgement of all documentation with the Australian Securities and Investments Commission (‘ASIC’) necessary to record the change in directors, the increase in the share capital of Gusdote and the allocation of shares to Mrs Ashley, Mrs Demetriou and Mrs Matheson. The initial agreement was not recorded in writing.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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Citation:		Demetriou v Gusdote Pty Limited [2010] FCA 581
Parties:		EMILIOS DEMETRIOU, JANETTE LINDA ASHLEY and GEORGINA DEMETRIOU v GUSDOTE PTY LIMITED (ACN 089 937 253), MADEAS PTY LIMITED (ACN 108 819 316), NORTH QUEENSLAND LAND DEVELOPMENT PTY LIMITED (ACN 125 265 358), DON MATHESON GOLF COURSE CONSTRUCTION PTY LIMITED (ACN 108 200 693), DONALD JOHN MATHESON and SUSAN ROSE MATHESON
File number:		NSD 935 of 2009
Judge:		COWDROY J
Date of judgment:		11 June 2010
Catchwords:		CORPORATIONS – Directors’ Duties – Failure to notify ASIC of additional directors and shareholders – Failure to record names of directors and shareholders on ASIC register – One director subsequently contracting on behalf of the company without authority – Whether declarations should be made requiring amendments to company records and of ASIC register – Held – Court should make declarations requiring amendments to company records and of the ASIC register. CONTRACTS – Agreement to appoint additional directors and issue shares in exchange for substantial investment – Appointment of additional directors and issue of new shares never notified to ASIC – Whether Court should make declarations to correct records of company and of ASIC – Held – Court should make declarations regarding change in directors and issue of shares. EQUITY – Fiduciary Duties – Single director contracting on behalf of a company without authorisation from other directors to sell land to another company of which he was the sole director and of which he and his wife owned all shares – Director acting in own interests rather than interests of company and without proper authorisation – Whether land should be held on constructive trust for the transferring company – Held – Land should be held on constructive trust resulting from breach of fiduciary duty. COSTS – Indemnity Costs – Whether single director of company should be solely liable for costs on the basis that he was the corporate mind of company in circumstances where he did not consult other directors regarding sale of land – Whether unsuccessful respondent companies should be liable for costs in circumstances where such companies are substantially owned by the successful applicants – Whether respondent’s conduct in maintaining defences until the commencement of the hearing and then abandoning all defences at the hearing warranted granting of indemnity costs – Held – Single director was the corporate mind of the contracting companies and is personally liable for costs in circumstances where other directors were not consulted and transactions were made for the benefit of another company of which he was the sole director – Applicants should not be liable for costs in proceedings in which they were successful by virtue of their interests in unsuccessful respondent companies in circumstances where they were not consulted – Conduct of respondent in persisting with defences which were all abandoned at the hearing justified the grant of indemnity costs.
Legislation:		Corporations Act 2001 (Cth) ss 175, 440D(1), 1322(4) Federal Court of Australia…