PHILLIP FELICE GRIMALDI v CHAMELEON MINING NL (ACN 098 773 785) and MURCHISON METALS LIMITED (ACN 078 257 799)
CHAMELEON MINING NL (ACN 098 773 785) v MURCHISON METALS LIMITED (ACN 078 257 799) AND CROSSLANDS RESOURCES LTD (ACN 061 262 397) AND JACK HILLS HOLDINGS PTY LTD (ACN 127 384 696)
File numbers:
NSD 68 of 2011 NSD 73 of 2011
Judges:
FINN, STONE AND PERRAM JJ
Date of judgment:
21 February 2012
Catchwords:
CORPORATIONS – Corporations Act 2001 (Cth), s 9 – “director” – “officer” – de facto director – no single test for determining whether a person is such – assuming or performing the functions of a director of the company in question – directors or consultants or both – blurring of “de facto” and “shadow” – de facto officer – unnecessary to differentiate de facto director from de facto officers
CORPORATIONS – Corporations Act 2001 (Cth), ss 181 and 182 – director and de facto director misappropriating corporate funds – effecting a transaction in which they had a personal interest – using position in expectation of obtaining an introduction fee
CORPORATIONS – Corporations Act 2001 (Cth), s 1317H – construction of provision – inclusion of “profits” within “damage suffered” – whether profits can be sought without claim for, or proof of, loss
CORPORATIONS – knowledge of corporation – imputation of director’s knowledge to corporation – knowledge of own wrongdoing – “fraud on the company” exception – receipt of a secret commission
EQUITY – Fiduciary obligations – imposing standards of conduct – overlap of conflict of duty and interest and misuse of fiduciary position – defining the subject matter over which fiduciary obligations extend
EQUITY – Fiduciary obligations – receipt of civil law bribe or secret commission – characteristics of secret commission – third party payer’s position – assumption of risk of agent’s nondisclosure to its principal
EQUITY – Participation in the wrongdoing of a trustee or fiduciary – classes of case – Barnes v Addy – liabilities as a knowing recipient or a knowing assistant – fault based liabilities – the “knowledge” of wrongdoing required of a knowing recipient – present Australian law – unhelpful formulae
EQUITY – Corporate property as “trust property” for Barnes v Addy purposes – money paid or property transferred under a contract – breach of fiduciary duty – whether the transaction must be avoided before proprietary relief can be awarded – Daly v Sydney Stock Exchange – constructive trusts and tracing corporate property
EQUITY – Remedies – fashioning remedy to fit the nature of the case and its facts – doing what is “practically just” – awarding the remedy which is “appropriate” in the circumstances – the remedial constructive trust and appropriateness – discretionary considerations
EQUITY – Fiduciaries’ Liability to Account and…
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
AGLC
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
Case
[2012] FCAFC 6
Decision Date
CaseChat Overview and Summary
In the matter of Grimaldi v Chameleon Mining NL (No 2), the Federal Court of Australia addressed a dispute between the plaintiff, Grimaldi, and Chameleon Mining NL. Grimaldi alleged that he was wrongfully dismissed from his position as a director and sought compensation. Chameleon Mining NL contested the claims and counterclaimed for damages related to alleged breaches of fiduciary duty and misuse of corporate funds. The court was required to determine whether Grimaldi was a de facto director or an officer under the Corporations Act, assess the validity of claims regarding misappropriation of corporate funds, and examine the applicability of various equitable principles and remedies.
The primary issues before the court involved the interpretation of the Corporations Act, particularly the definitions of "director" and "officer," and the implications of these roles on fiduciary duties and potential liabilities. The court also had to consider whether Grimaldi's actions constituted a breach of fiduciary duty and if so, the appropriate remedy. Furthermore, the court needed to address the scope of equitable relief available for misuse of corporate funds and the imputation of knowledge regarding wrongdoing to the corporation.
The court held that Grimaldi was a de facto director under the Corporations Act and thus owed fiduciary duties to Chameleon. It found that Grimaldi and Barnes had misappropriated corporate funds for personal gain, violating their fiduciary obligations. The court concluded that Grimaldi was liable to account for the profits derived from the misuse of corporate funds and to pay compensation for the losses caused to Chameleon. The court further ruled on the equitable principles applicable to the case, emphasizing the need for a remedy that was practically just and appropriate given the circumstances.
In summary, the court dismissed Grimaldi's appeal and the cross-appeal by Chameleon, with costs awarded against both parties. The final orders mandated that Grimaldi account for the profits obtained from his breaches of fiduciary duty and compensate Chameleon for the associated losses.
Orders
Orders of the court
1. The appeal be dismissed with costs.
2. The cross-appeal be dismissed with costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
In these circumstances we do not consider it necessary to express a view on whether laches would constitute a defence to the proprietary claim against Winterfall. 3. Evidence Issues Chameleon has objected to Mr Grimaldi’s referring in his appeal to 82 documents which were in the joint bundle tendered at trial but which were not referred to. The basis of the objection is that they were being used to raise a new point on the appeal: see Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631. We need not deal with this particular brushfire. Notwithstanding the large volume of documentary evidence to which we have referred, we have not had regard to even one of the “offending” documents. 4. Procedural Issues(i) Whether Chameleon should be granted leave to file an amended Notice of Contention During the first day of the hearing of this appeal the Court granted leave to the first respondent (‘Chameleon’) to file an amended Notice of Contention raising two new grounds 4 and 5. These were in the following terms:De facto director – officer4.If it be found that Mr Grimaldi was not a de facto director of Chameleon then the trial judge should have found that by reason of the terms of the definition of ‘officer’ in the Corporation Act and in particular paragraphs (b)(i) and (b)(ii) at all material times Mr Grimaldi was an officer of Chameleon [212] and thereby a fiduciary and accordingly liable to account to Chameleon.Knowingly concerned5.If it is found that Mr Grimaldi was not a de facto director of Chameleon and not an officer of Chameleon then the trial judge should have found that by reason of the findings of the facts properly found by the trial judge [667]-[694] Mr Grimaldi was knowingly concerned in the breach of fiduciary duty by Mr Barnes and accordingly liable to account to Chameleon. The circumstances in which that leave was granted were unusual in that an earlier application by Chameleon for leave to file the amended Notice of Contention had been refused by Perram J on the Monday before the appeal commenced, that is, 1 August 2011: Grimaldi v Chameleon Mining NL (No.1) [2011] FCA 936. The application to this Court took the form not of a fresh application to amend the Notice of Contention, but rather as an application to revoke the order made by Perram J dismissing Chameleon’s original application to amend. That application was initiated within a few hours of the orders which dismissed Chameleon’s notice of motion seeking leave to amend. It came before Perram J on 2 August 2011 and his Honour directed that the application be put before this Full Court (which, it should be noted, includes Perram J). Justice Perram refused the application to amend the Notice of Contention because it appeared to his Honour that the matters sought to be added to the Notice of Contention – allegations that Mr Grimaldi was an ‘officer’ within the meaning of s 9 of the Corporations Act 2001 (Cth) or that he was knowingly involved in Mr Barnes’ breach of fiduciary duty – were matters which could rationally have been raised after the appellant (‘Mr Grimaldi’) first filed his notice of appeal which challenged the trial judge’s conclusion that he was a de facto director. Chameleon had pursued these allegations as alternate arguments before the trial judge. It was, therefore, possible for Chameleon to have put on a Notice of Contention raising them as soon as it received Mr Grimaldi’s notice of appeal.
Decision
Reasons for decision
Winterfall in turn was able to meet its obligations to the Iron Jack Vendors. It later acquired the tenements. Murchison’s reverse takeover of Winterfall was effected on 11 November 2004. The shareholders of Winterfall received a total of 80 million shares and more than 30 million options in Murchison in exchange for their shares in Winterfall. Ten million of those shares and 12 million options were issued for the benefit of Mr Barnes and Mr Grimaldi in exchange for the 10 million shares which had been allotted to them in Winterfall, as their “spotter’s fee”. (iii) The Claims Made and the Conclusions Reached There was much controversy at the trial and on the appeals as to the true character and significance of the payments made by Chameleon. They clearly were made for the benefit of Murchison. The trial judge found that but for the receipt of $277,840 (the cheques and the “Cadetta” share sale moneys) which Murchison obtained through Grimaldi’s and Barnes’ breaches of fiduciary duty, Murchison would not have been able to pay Winterfall; Winterfall’s acquisition of the Iron Jack Tenements would not have been made; and the reverse takeover would not have happened. Murchison and Winterfall contest these matters in their cross-appeal. His Honour rejected the contention that the two cheque payments were loans to Murchison and found they were diversions of Chameleon’s funds to Murchison for the purpose of enabling, or at least assisting, it to acquire for its own benefit and not for Chameleon’s benefit, an interest in the Iron Jack Project through the acquisition of Winterfall. The two advances were procured by Grimaldi and Barnes in circumstances in which they had a direct conflict of duty and interest (by way of the success fee) in the consummation of the acquisition of Winterfall. His Honour found Grimaldi and Barnes both to be in breach of their fiduciary duties to Chameleon and to have contravened s 181(1)(a) and s 181(1)(b) of the Corporations Act. Grimaldi, additionally, was found to have been knowingly concerned in Barnes’ contraventions of ss 181 and 182 of the Corporations Act. It was also found that Mr Grimaldi would have been liable as a fiduciary for procuring the use of Chameleon’s funds for his own benefit even if he was not a director. We agree with the primary judge’s characterisation of the two cheque payments. They were not loans to Murchison but were misappropriations of Chameleon’s funds. We also agree with his Honour’s liability finding against Mr Grimaldi. We likewise agree with the relief granted against Mr Grimaldi although our reasons for doing so are more elaborate than his Honour’s. We have concluded that, in respect of the “spotter’s fee”, he and Mr Barnes obtained, Mr Grimaldi is liable to account in specie for such of the 10 million Murchison shares and options (or the product of their exercise) as he continues to hold or to have under his control for his own benefit. He is likewise liable to account for all of the value of, or the profits derived from, the balance of those shares and options. Further, he is liable to pay compensation to Chameleon pursuant to s 1317H of the Corporations Act for the amount of profits he obtained resulting from his contraventions of s 181 and s 182 of the Corporations Act. A number of additional and supplementary orders were also made which it is unnecessary to refer to here.
Ratio Decidendi
Legal Principle Established
Such is the number of grounds of appeal and of contention that, to facilitate exposition, they will be dealt with synoptically in what follows commencing, as in the “Overview”, with the questions whether Grimaldi was a director or officer of Chameleon for Corporations Act purposes and/or a fiduciary of Chameleon who misused his position for his own benefit.II. THE CORPORATIONS ACT ISSUE: DE FACTO DIRECTOR OR OFFICER In its pleading Chameleon has claimed in the alternative that Mr Grimaldi acted in one or more of the capacities of director, officer or fiduciary in relation to it from at least January 2004 until about 12 November 2004. The primary judge concluded Grimaldi was a de facto director for the purposes of the Corporations Act’s s 9(b)(i) definition of “director”. His Honour did not, in consequence, need to answer whether he was a shadow director within the s 9(b)(ii) definition of a director, or was an “officer” within the s 9(b)(i) and (ii) definition of that term. It was nonetheless indicated that there was “substantial force” in the proposition that he was an “officer”. On the first day of the hearing leave was given to Chameleon to amend its Notice of Contention so as to assert that if Mr Grimaldi was not found to be a de facto director, then the trial judge should have found he was an “officer” and was liable thereby. Our reasons for giving leave are set out below: “Procedural and Pleading Matters”. As will later become apparent, the raising of the “officer” question brings more sharply into focus the policy and purposes of the Corporations Act in holding directors and officers liable in a case such as the present. We should also indicate that on the second day of the appeal Mr Grimaldi unsuccessfully applied for leave further to amend his Notice of Appeal to include the ground that the trial judge had gone outside the pleadings in deciding the de facto director case. Our reasons for refusing leave are also to be found below: “Procedural and Pleading Matters”. Grounds 1 and 2 of the Grimaldi appeal challenge the conclusion that he was a de facto director of Chameleon. 1. The Legislative Regime Unlike s 155(1) of the UK Companies Act 2006, s 201B(1) of the Corporations Act provides that “[o]nly an individual … may be appointed as a director”. While this legislative language focuses immediately and understandably on the usual process by which a person becomes a director, ie appointment: but cf s 117(2)(d); we consider that the subsection should be construed to apply to a director howsoever that person becomes a director. The manifest purpose of the section is to prevent a corporation from being a director – a prohibition to be found in some number of jurisdictions: see Mortimore QC ed, Company Directors, 3.02. The Act’s definition of “director”, as will be seen, extends to a person who, though not appointed as a director, nonetheless assumes to act in the position of a director. Accordingly we consider the words “be appointed as” were not intended to be words of limitation but rather having regard to the purpose of the provision in its context, they signify no more than would have been the case had only the word “be” been used, ie only an individual “may be a director”.