Fletcher v Malcolm Field as liquidator of Ore Sorting International Pty Ltd - [2022] WASC 93

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   FLETCHER -v- MALCOLM FIELD as liquidator of ORE SORTING INTERNATIONAL PTY LTD [2022] WASC 93
CORAM:   MASTER SANDERSON
HEARD:   16 DECEMBER 2021
DELIVERED          :   16 MARCH 2022
PUBLISHED           :   16 MARCH 2022
FILE NO/S:   COR 117 of 2020
BETWEEN:   GAVIN JOHN FLETCHER
Applicant

ABACOT INVESTMENTS PTY LTD
Plaintiff

AND

MALCOLM FIELD as liquidator of ORE SORTING INTERNATIONAL PTY LTD
First Defendant

HENDERSON PARK PTY LTD
Second Defendant

MALCOLM FIELD as liquidator of ORE SORTING INTERNATIONAL PTY LTD
First Respondent

HENDERSON PARK PTY LTD
Second Respondent

Catchwords:

Corporation law - Appeal against rejection by liquidator of part of proof of debt - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Appeal allowed

Category: B

Representation:

Counsel:

Applicant	:	JA Robertson
Plaintiff	:	JA Robertson
First Defendant	:	No appearance
Second Defendant	:	A Willinge
First Respondent	:	JE Scovell
Second Respondent	:	A Willinge

Solicitors:

Applicant	:	Williams & Hughes
Plaintiff	:	Williams & Hughes
First Defendant	:	No appearance
Second Defendant	:	Armeli & Molony Lawyers
First Respondent	:	Tottle Partners
Second Respondent	:	Armeli & Molony Lawyers

Case(s) referred to in decision(s):

CGM Investments Pty Ltd v Chelliah (2003) 196 ALR 548
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

MASTER SANDERSON:

On 24 February 2021 Acting Master Strk wound up Ore Sorting International Pty Ltd on the grounds of insolvency. Malcolm Field was appointed as liquidator. By interlocutory process filed 1 September 2021, Gavin John Fletcher, who was designated the applicant, applied for an order reversing the liquidator's decision date 29 July 2021 to disallow the applicant's proof of debt in full. The application was supported by an affidavit of Mr Fletcher sworn 1 September 2021. Mr Field, in his capacity as liquidator of Ore Sorting International Pty Ltd filed a notice of appearance on 29 September 2021. Mr Field filed an affidavit sworn 13 October 20221. By this time, the originating process had in some mysterious way been regigged so that the title of the proceedings was as it presently stands. Henderson Park Pty Ltd became the second respondent. Abacot Investments and Henderson Park are the only two shareholders of Ore Sorting International Pty Ltd. They each hold 1,500 shares. In the event, it became clear that Mr Field had allowed Mr Fletcher's proof of debt in part. What Mr Fletcher was appealing against was the decision of Mr Field to reject part of his proof of debt. What Henderson Park was seeking, by way of an amended interlocutory process filed 6 December 2021, was an order that Mr Fletcher's proof of debt be rejected in its entirety. So the position in reality was this. Mr Field received Mr Fletcher's proof of debt and admitted part of that proof in the liquidation. Mr Fletcher wanted the whole of the proof of debt admitted. Henderson Park wanted the whole of the proof of debt of Mr Fletcher rejected. The situation brings to mind the children's nursery rhyme of Goldilocks and the Three Bears.
For the sake of completeness I should set out precisely what Henderson Park sought in its interlocutory process filed 6 December 2021. Relevantly it reads as follows:
1. An order reversing the liquidator’s decision dated 29 July 2021 to allow (in part) Gavin Fletcher’s proof of debt.
2. A declaration that Mr Gavin John Fletcher (Mr Fletcher), breached his fiduciary duties to Ore Sorting International Pty Ltd (the Company) in relation to the entry into, and by entering into, the employment agreement between Mr Fletcher and the Company dated 20 April 2018 (the Contract);
3. A declaration that Mr Fletcher breached section(s) 181 and/or 182 of the Corporations Act 2001 (Cth) (the Act) in relation to the entry into, and by entering into, the Contract;
4. An order that Mr Fletcher repay to the Company any sum received by him pursuant to the Contract;
5. Alternatively, an order that Mr Fletcher account to the company for any profit made by him pursuant to the Contract, or pay equitable compensation to the Company;
6. A declaration pursuant to s1317E of the Act that Mr Fletcher breached a civil penalty provision, namely s181 and/or s182 of the Act, in relation to the entry into, and by entering into the Contract.
7. An order that Mr Fletcher compensate the Company pursuant to s1317H of the Act.
8. A declaration that the Contract is void.
9. Alternatively, a declaration that the Contract is voidable, or should be disallowed pursuant to s588FE(6A) of the Corporations Act.
10.Such further or other orders as this Honourable Court sees fit.
11.Costs.

There was no real dispute between the parties as to what might be called the broad background of facts. There was no dispute at all as to the relevant law. Beginning with the facts, they can be summarised as follows. Mr Fletcher incorporated Ore Sorting International Pty Ltd (OSI) on or around 17 November 2017. In early March 2018, Mr Fletcher contacted Mr Wyatt, who was the director and sole shareholder of Henderson Park. Mr Fletcher asked Mr Wyatt whether he would agree to become a director and shareholder of OSI and assist in the conduct of the business. Mr Fletcher expressed the views that his and Mr Wyatt's skills were complimentary and he was of the view, Mr Wyatt could engineer solutions to any problems the company might have at a lower cost than might be available in the market. Agreement was reached and on 15 March 2018, Mr Wyatt was appointed a director of OSI, and Abacot (Mr Fletcher's corporate vehicle) transferred 1,500 shares in OSI to Henderson Park. Clause 16.1 of the OSI constitution reads as follows:
16.1Appointment of Managing Director
(a)The directors may from time to time appoint one or more of their number to the office of managing director for such period and on such terms as they think fit, and subject to the terms of any agreement entered into in a particular case, may revoke any such appointment.
(b)…
16.2Renumeration of Managing Directors
A managing director will, subject to the terms of any agreement entered into in a particular case, receive such renumeration (whether by way of salary, commission or participation profits, or partly in one way or partly in another), as directors determine.
On 20 April 2018, Mr Fletcher entered into an employment agreement with OSI by which he was appointed the managing director of OSI. Mr Fletcher was the one who put the proposal to the board - that is to say, Mr Fletcher engaged in a discussion with Mr Wyatt - for him to be employed as managing director. Henderson Park maintains it was Mr Fletcher who drove the transaction and who drafted cl 14 of the OSI employment agreement. Mr Fletcher disputes that was the case but for present purposes I am prepared to accept Mr Wyatt's evidence on that point. Clause 14 of the OSI employment agreement says that the only way that agreement could be terminated was 'if there is a unanimous vote of the OSI board of directors to do so'.
It is the position of Henderson Park there was no discussion at all in relation to cl 14 of the OSI agreement between the directors. In an affidavit of Mr Fletcher sworn 15 November 2021 he says that on 20 April 2018, prior to signing the employment agreement, he attended Mr Wyatt's office where he had a lengthy discussion 'regarding OSI matters'. It was Henderson Park's position there was no discussion in relation to cl 14. As I say, I am prepared to accept that was the case.
From approximately January 2020, Mr Wyatt asserted in various emails that Mr Fletcher had under performed in his role as managing director and therefore was not entitled to be paid any salary. On 14 April 2021, after OSI had gone into liquidation, Mr Fletcher served on the liquidator his formal proof of debt or claim being the total amount claimed for 'salary not paid for period 5 January 2020 until winding up on 24 February 2021'. Mr Fletcher claims the sum of $412,217.50. Sofar as Henderson Park is concerned, three points are emphasised. First, Mr Wyatt did not read the OSI agreement before he signed it. He believed it was in the same form as an earlier agreement and he assumed there was no clause preventing Mr Fletcher's employment being terminated. Second, because the agreement was very much in Mr Fletcher's interests, he was in a position of conflict which gave rise to certain fiduciary duties and duties under the corporations law which Mr Fletcher breached. Third, had Mr Wyatt been aware of the terms of the employment agreement he would not have signed it. This last point can be accepted. The evidence of Mr Wyatt makes it plain that he was of the view the termination provision was too favourable to Mr Fletcher and was not something he could countenance.
Apart from Mr Fletcher's affidavit of 1 September 2021, which might be referred to as the founding affidavit, he filed a further affidavit sworn 15 November 2021. Mr Fletcher's first affidavit really did no more than set up the employment agreement and deal in a rather cursory way with the duties Mr Fletcher undertook pursuant to that agreement.
In opposition to Mr Fletcher's application, Mr Field swore an affidavit of 13 October 2021. In that affidavit, Mr Field acknowledges the existence of the employment agreement and details Mr Fletcher's responsibilities under that agreement. Relevantly, he says (at pars 14 and 15):
14.While my investigations are ongoing, my investigations into the affairs of OSI to date, and the information gathered by SV during the liquidation, have failed to satisfy my that Mr Fletcher performed any work under the Employment Agreement, including duties under clause 4 and the Responsibilities, after about 10 January 2020.
15.I am satisfied, based on my investigations into the affairs of OSI to date, the information gathered by SV during the liquidation, and legal advice provided to me by Tottle Partners (and I maintain privilege over this advice), that the Employment Agreement was abandoned on about 10 January 2020.
In support of Henderson Park's position, Mr Wyatt swore an affidavit on 27 October 2021. In that affidavit he outlines the circumstances in which he says the employment agreement was signed. He also deals with Mr Fletcher's performance under the employment agreement. Relevantly, he says (pars 14 to 16):
14.Schedule A of the employment agreement between the applicant and the first respondent (see page 25 of Mr Fletcher's affidavit sworn 1 September 2021) sets out the applicant's duties and responsibilities. During this time as the 'managing director' I was not aware that he carried out any those duties past December 2019.
15.From or about December 2019, I observed that the applicant did not attend the first respondent's office, nor was I aware that he was attending any mine site of any of the first respondent's clients.
16.On 10 January 2020, I emailed the applicant to let him know that I was in receipt of his timesheets for the period 23 December 2019 to 17 January 2020, and to let him know that give that he had not worked or attended work, I refused to approve any further timesheets past 22 December 2019. Attached and marked 'SLW-7' is a true copy of my email of 10 January 2020 to the applicant.
Mr Fletcher's second affidavit was filed in response to the affidavits of Mr Field and Mr Wyatt. In effect, Mr Fletcher disputes that he 'abandoned' the employment contract and maintains that he undertook duties for and on behalf of the company in sofar as he was able to do so pursuant to the terms of the contract. These duties are detailed in pars 15 and 16 of Mr Fletcher's second affidavit. Apart from acknowledging that there is a dispute between Mr Fletcher on the one hand and Mr Wyatt and Mr Field on the other, I have not found it necessary to resolve the extent to which Mr Fletcher did undertake duties for and on behalf of OSI. The reasons for that approach are as follows.
Dealing first with the position of Mr Field, in his written submissions counsel for Mr Field concluded as follows:
18.After 10 January 2020, the applicant did not show up for work and the Employment Agreement was abandoned. What the applicant did after that date (such as it was) was referable only to the applicant’s extant capacity as a director of OSI. There was no work being performed under the Employment Agreement and accordingly nothing to enliven an obligation of OSI to pay wages to the applicant.
On behalf of Mr Field it was not alleged that Mr Fletcher had, by his conduct, repudiated the employment contract and that OSI had accepted that repudiation. Rather, it was submitted, the contract had been 'abandoned'. There is no doubt it is possible to terminate a contract by abandonment. If both parties treat the contract as at an end, it must be regarded as discharged even if no contract to discharge it can be spelt out: see DTR Nominees Pty Ltd v Mona Homes Pty Ltd.[1] In CGM Investments Pty Ltd v Chelliah,[2] Finklestein J, after reviewing the authorities, concluded that whether an agreement had been abandoned did not depend on whether the parties had an intention of abandoning it, but rather whether their conduct, when objectively viewed, manifested that intention.
[1] DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 [178].
[2] CGM Investments Pty Ltd v Chelliah (2003) 196 ALR 548.
In the light of Mr Fletcher's evidence, it is difficult to ascertain an intention by both parties to abandon the employment agreement. The authorities generally seem to deal with fact situations where there had been a lengthy delay in the parties doing anything in relation to the contract. Of course delay is not the only indicator of abandonment. But abandonment is different from repudiation. Repudiation requires an act by one party which demonstrates an intention not to be bound by the contract. To bring the contract to an end, that repudiation has to be accepted by the other party to the contract. Abandonment rather seems to apply when both parties to the contract lose interest and look elsewhere. Neither party shows any interest in fulfilling their side of the bargain and the contract can be seen to be at an end.
The facts in this case do not support termination of the contract by abandonment. It is not to the point that on a subjective basis, Mr Fletcher did not intend the contract to come to an end. It may well be that Mr Fletcher did not attend to his duties as managing director with the diligence or the skill and competence which might have been expected of him. But he did not abandon his position. On that basis, Mr Field was not justified in rejecting the proof of debt.
Insofar as the contract itself is concerned, the constitution of OSI does not provide any impediment to Mr Fletcher and OSI entering into a contract in the terms of the employment agreement. To take that step is not in any way to breach either the terms of the constitution or the directors' duties - fiduciary or statutory - both Mr Fletcher and Mr Wyatt owed to OSI. I am not satisfied there was a positive duty on Mr Fletcher to bring the terms of the employment agreement - be it cl 14 or otherwise - to the attention of Mr Wyatt. Rather it was for Mr Wyatt to read the contract and raise with Mr Fletcher any concerns he might have had. After all, Mr Wyatt was given the opportunity to review the terms of the employment agreement and if he did not take that opportunity he cannot now be heard to complain.
In the circumstances, I am satisfied Mr Fletcher has made good his claim and his proof of debt should be admitted in full. On publication of these reasons the parties should confer in an attempt to agree a minute. My preliminary view is that the liquidator's costs and Mr Fletcher's costs ought be paid out of the assets of OSI with Henderson Park bearing its own costs. Any party who has different views in relation to costs should file short submissions on that issue within seven days of the publication of these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AH
Associate to Master Sanderson
16 MARCH 2022