JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: EASTLAND TECHNOLOGY AUSTRALIA PTY LTD & ORS -v- WHISSON & ORS [2005] WASCA 144
CORAM: MALCOLM CJ
STEYTLER P
MCLURE JA
HEARD: 11 & 12 APRIL 2005
DELIVERED : 4 AUGUST 2005
FILE NO/S: FUL 104 of 2002
BETWEEN: EASTLAND TECHNOLOGY AUSTRALIA PTY LTD (059 479 391)
First appellant
FEE-ZONE PTY LTD
Second appellantINTER-CONTINENTAL CORPORATION PTY LTD
Third appellantAND
MAXWELL EDMUND WHISSON
First respondentDEAN BRIAN PRESTIDGE
Second respondentSILVERFERN NOMINEES PTY LTD as trustee of the Prestidge Family Trust (070 887 722)
Third respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :TEMPLEMAN J
Citation :EASTLAND TECHNOLOGY AUSTRALIA PTY LTD & ORS -v- WHISSON & ORS [2002] WASC 150
File No :COR 347 of 1999
Catchwords:
Corporations Law - Whether release in breach of s 241 of the Corporations Law - Scope of s 241 - Scope of director's duty - Whether breach of fiduciary duty - Nature and effect of a concession - Turns on own facts
Legislation:
Commercial Arbitration Act 1985 (WA), s 3(5), s 53
Companies Act 1981 (Cth), s 237
Corporations Law 1990 (Cth), s 79, s 232, s 241, s 1317DB, s 1317HD, s 1317JD, s 1318, s 1324
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
First appellant : Mr P I Jooste QC and Mr R J Price
Second appellant : Mr P I Jooste QC and Mr R J Price
Third appellant : Mr P I Jooste QC and Mr R J Price
First respondent : Mr C G Colvin SC and Mr B W Ashdown
Second respondent : Mr C G Colvin SC and Mr B W Ashdown
Third respondent : Mr C G Colvin SC and Mr B W Ashdown
Solicitors:
First appellant : Gadens Lawyers
Second appellant : Gadens Lawyers
Third appellant : Gadens Lawyers
First respondent : B W Ashdown
Second respondent : B W Ashdown
Third respondent : B W Ashdown
Case(s) referred to in judgment(s):
Angas Law Services Pty Ltd (In liq) v Carabelas (2005) 79 ALJR 993
Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261
Bell v Lever Bros Ltd [1932] AC 161
Bhullar v Bhullar [2003] EWCA Civ 424
Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371
Commonwealth Homes & Investment Co Ltd v MacKellar (1939) 63 CLR 351
Fine Industrial Commodities Ltd v Powling (1954) 71 RPC 253
Forge v Australian Securities and Investments Commission (2004) 213 ALR 574
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
London & Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165
Maguire v Makaronis (1997) 188 CLR 449
Marchesi v Barnes [1970] VR 434
Massey v Wales (2003) 57 NSWLR 718
Miller v Miller (1995) 16 ACSR 73
Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286
Pascoe Ltd (In liq) v Lucas (1998) 27 ACSR…
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- Case
- [2005] WASCA 144
- Decision Date
CaseChat Overview and Summary
The central legal issues the court had to address were whether a company could, by resolution of its board, release an officer from liability or the consequences of a breach of statutory duties as part of a bona fide compromise of a disputed claim, and if such a release could be considered outside the scope of section 241(1) of the Corporations Law. The court considered the precedent set by cases like Re Joint Stock Trust and Finance Corporation Ltd and Massey v Wales, which suggested that a company does have the power to compromise a disputed claim against a former officer for breach of the general law, including a release as part of the compromise.
The court's reasoning hinged on the principle that a bona fide compromise of a disputed claim can prevent a breach of statutory duty from arising. This was demonstrated through the case of Commonwealth Homes & Investment Co Ltd v MacKellar, where the High Court held that a company could reduce its share capital without complying with statutory requirements if there was a bona fide compromise of a claim that the allotment was void or had been lawfully avoided. The court found that such compromises were valid and could prevent breaches of statutory duties from being established.
The outcome of the case was that the company did have the power to release the former officer from liability or the consequences of a breach of statutory duties as part of a bona fide compromise of a disputed claim, and such a release could be outside the scope of section 241(1) of the Corporations Law. The court's decision was grounded in the authority that a company can compromise a disputed claim against a former officer, including releasing them from duties under section 232 of the Law or the right to relief under section 1317HD of the Law.
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Background
Background to the litigation
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Evidence Before The Court
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Ratio Decidendi
Legal Principle Established
The novel question for this Court is whether a release for valuable consideration in the compromise of a disputed claim is outside the scope of s 241(1) of the Law. However, the logically anterior question is whether a company (by resolution of its board) has the power to release an officer from liability or the consequence thereof as part of a bona fide compromise of a disputed claim. There is authority that, apart from s 241, a company does have the power to compromise a disputed claim against a former officer for breach of the general law on terms that include a release: Re Joint Stock Trust and Finance Corporation Ltd (1912) 56 SJ 272; Massey v Wales (2003) 57 NSWLR 718 at 730, 738. The next question is whether, apart from s 241, a company has the power to release an officer from his duties under s 232 of the Law or alternatively its right to relief under s 1317HD of the Law, as part of a bona fide compromise of a disputed claim. A bona fide compromise of a disputed claim can prevent a breach of statutory duty from arising as demonstrated in Commonwealth Homes & Investment Co Ltd v MacKellar (1939) 63 CLR 351. In that case, MacKellar, a Sydney architect, was approached by representatives of a South Australian company with a proposal that he join a local board of directors which it was intended to establish in Sydney. MacKellar was told the qualification for a director of the Sydney board was holding 1000 shares in the company, and he was invited to apply for shares. MacKellar, on the faith of an undertaking in express terms that he was to be the only architect on the Sydney Board, agreed to become a director and take shares in the company. He applied for, and was allotted, 1000 shares. MacKellar, having learnt that another architect had been appointed to the Sydney board, wrote to the company complaining of a breach of contract, notifying it that he had ceased to have any connection with the company and requesting a refund of moneys paid by him and cancellation of his application form. The company denied MacKellar's allegation of breach of contract, but a compromise was arrived at under which the company refunded a portion of the moneys paid by MacKellar in full satisfaction and termination of his contract with the company, as embodied in his proposal for shares in the allotment notice. Some time later the company went into liquidation and the liquidator claimed rectification of the register to include MacKellar's name as the holder of 1000 shares. The relevant provisions of the companies legislation at the time provided that a company could not reduce its capital without the leave of the Court. It was accepted that the return to a shareholder of money paid for shares is a reduction of capital. However, there would be no reduction of capital if the relevant transaction was void or voidable. The High Court further held that a company could reduce its share capital without complying with the statutory requirements if there was a bona fide compromise of a claim that the allotment was void or had been lawfully avoided.