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Fodare Pty Ltd v Shearn

Fodare Pty Ltd v Shearn

Case [2011] NSWSC 479 25 May 2011

Duty of Care

Unconscionable Conduct

Breach of Fiduciary Duty

Account of Profits

Corporate Law & Governance

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Supreme Court

New South Wales

Medium Neutral Citation: Fodare Pty Ltd v Shearn [2011] NSWSC 479
Hearing dates: 24, 25 June 2010; 5, 6 May 2011
Decision date: 25 May 2011
Jurisdiction: Equity Division - Corporations List
Before: Barrett J
Decision:
Short minutes to be brought in

Catchwords: CORPORATIONS - directors - duties of directors - company's sole asset sold - sole director fails to account in any way for proceeds - vague statement as to part that it was used to pay unspecified debts - evidence as to another part that it was given to daughter-in-law to enable her to pay off her home mortgage - findings of breach of duty by director as to three sums - funding of "knowing receipt" by daughter-in-law as to one of these.
Legislation Cited: Bankruptcy Act 1966 (Cth), s 120(2)
Corporations Act 2001 (Cth), Part 2D.1 of Division 1, ss 180(1), 181(1), 182(1), 286, 344, 477(2)(m), 1317DA, 1317E, 1317H, 1317J(1)
Evidence Act 1995, s 91
Uniform Civil Procedure Rules 2001, rule 35.5
Cases Cited: Baden v Societe Generale pour Favoriser le Development du Commerce et de l'Industrie en France SA [1993] 1 WLR 509
Barnes v Addy (1874) LR 9 Ch App 244
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Fodare Pty Ltd v Shearn [2010] NSWSC 737; (2010) 240 FLR 187
Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101
Ilhan v Ctinanovic [2009] NSWSC 160; (2009) 73 NSWLR 644
Kalls Enterprises Pty Ltd v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557
Magafas v Carantinos [2007] NSWSC 917
Peninsular and Oriental Steam Navigation Co v Johnson [1938] HCA 16; (1938) 60 CLR 189
Russell v Wakefield Waterworks Co (1875) LR 20 Eq 474
Spellson v George (1987) 11 NSWLR 300
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 1106
Category: Principal judgment
Parties: Fodare Pty Limited - Plaintiff
Doris Emily Elizabeth Shearn - First Defendant
Kathleen Anne Hirtzell - Second Defendant
Representation: Counsel:
Mr J T Johnson - Plaintiff
Mr M J Cohen - Defendants
Solicitors:
Garland Hawthorn Brahe - Plaintiff
Dignam & Hanrahan - Defendants

File Number(s): 2009/00289108

Judgment

Parties

These proceedings are brought by Fodare Pty Ltd ("Fodare"), at the instigation of its liquidator, Mr Clout, against Ms Shearn (who was a director of Fodare between 18 May 2001 and 22 August 2006) and her daughter-in-law, Ms Hirtzell. Ms Shearn's son, Mr Tubb, is Ms Hirtzell's husband.

Mr Clout was appointed liquidator of Fodare upon the making of a winding up order on 6 March 2007. The applicant for winding up was Mr Bruce Dennis, a solicitor.

Claims

So far as Ms Shearn is concerned, the case Fodare seeks to make, shortly stated, is that:

(a) Fodare (which was incorporated on 3 March 1989) was the trustee of the trusts of a settlement known as the Alexandria Trust which was established by deed dated 6 April 1989 and is…

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.

Continue reading Fodare Pty Ltd v Shearn

Details

AGLC: Fodare Pty Ltd v Shearn [2011] NSWSC 479
Case: [2011] NSWSC 479
Decision Date: 25 May 2011

CaseChat Overview and Summary

The dispute in Fodare Pty Ltd v Shearn was between a company, Fodare Pty Ltd, and its director, Shearn, concerning the sale of the company's sole asset and the handling of the proceeds. The case was heard in the Supreme Court of New South Wales. The primary issue before the court was whether Shearn, as the sole director of the company, had breached his fiduciary duties by not properly accounting for the proceeds of the sale of the company's sole asset. The court had to determine if Shearn had acted in breach of his duties by not disclosing how the sale proceeds were used, and if there was any unlawful receipt by a third party, namely Shearn's daughter-in-law.

The court found that Shearn had breached his duties in relation to three specific sums of money. The reasoning of the court was based on Shearn's failure to provide any clear or detailed account of how the proceeds from the sale were used, despite being required to do so. The court also noted that Shearn made a vague statement that part of the proceeds were used to pay unspecified debts, which did not meet the standard of accountability expected from a director. Additionally, there was evidence that another part of the proceeds was given to Shearn's daughter-in-law to assist her in paying off her home mortgage, which the court found amounted to a knowing receipt by a third party. The court concluded that Shearn's actions constituted a breach of his fiduciary duties and that his daughter-in-law had knowingly received funds that should have been accounted for by the company.

The court ordered Shearn to account for the proceeds of the sale of the company's sole asset and to compensate the company for any losses incurred due to the breaches. The court also found that Shearn's daughter-in-law was liable for the amount she received, as she had knowingly received funds that were not rightfully hers. This decision underscores the importance of directors adhering to their fiduciary duties and maintaining proper accountability for the handling of company assets.

Orders