FEDERAL COURT OF AUSTRALIA
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
Citation: Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 Appeal from: Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129 Parties: 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 2011Judges: 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 propertyEQUITY – 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 the Account of Profits – purpose and limits of an account of profits – breach of duty only one of several sources of profit – misuse of “trust moneys” in a fiduciary’s trade or business – applicable principles – the “just allowance” device
EQUITY – Account of Profits – accounting for the profits actually made – when parties may be jointly and severally liable for profits
EQUITY – Interest awards where trust moneys misused – presumption of profit made reflected in award of interest – award of compound interest and periodic rests
EQUITY – Remedies – against knowing recipients and knowing assistances – whether joint and several as between fiduciary/trustee and the third party participants
EQUITY – Remedies – for bribes and secret commissions – Lister & Co v Stubbs not followed – constructive trust of the property received an available remedy if appropriate in the circumstances
PRACTICE AND PROCEDURE – Appeals – application to amend – application to reopen decision to refuse amendment to Notice of Contention – application to reopen on grounds of legal error – Grimaldi v Chameleon Mining NL (No 1) [2011] FCAFC 95 reopened – Federal Court Rules 2011 r 39.04 – application to further amend notice of appeal
Legislation: Companies Act 1929 (UK) s 380
Companies Act 1961 s 5, s 9, s 124, s 229, Pt 5 Div 2
Companies Act 2006 (UK) s 155(1), s 250, s 251
Company Directors Disqualification Act 1986 (UK)
Corporate Law Economic Reform Program Act 1999 (Cth)
Corporations Act 2001 (Cth) s 9, s 79, s 82A, s 117, s 179, s 180, s 181, s 182, s 183, s 184, s 185, s 201B, s 206C, s 1317H, Pt 6D.2 Div 4
Federal Court of Australia Act 1976 (Cth) s 54AFederal Court Rules r 39.04, O 72A
Mining Act 1978 (WA)
Partnership Act 1892 (NSW) s 29Explanatory Memorandum to the Companies Bill 1980 [34]
Explanatory Memorandum, Corporate Law Economic Reform Program Bill 1998Cases cited: Aequitas v AEFC (2001) 19 ACLC 1,006 cited
Agip (Africa) Ltd v Jackson [1990] 1 Ch 265 cited
Aktas v Westpac Banking Corporation Ltd (No 2) (2010) 241 CLR 570 cited
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 considered
Ardlethan Options Ltd v Easdown (1915) 20 CLR 285 distinguished
Attorney-General for Hong Kong v Reid [1994] 1 AC 324 applied
Attorney-General v Alford (1855) 4 De G, M&G 843; 43 ER 737 cited
Attorney-General v Edmunds (1868) LR 6 Eq 381 cited
Austin & Partners Pty Ltd v Spencer, SC of NSW, 1 Dec 1998 cited
Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2010) 261 ALR 501 cited
Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 cited
Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 cited
Autodesk Inc v Dyason (No.2) (1993) 176 CLR 300 cited
Baden v Société Générale pour Favouriser le Développment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509 considered
Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 cited
Bank of New South Wales v Rogers (1941) 65 CLR 42 cited
Barnes v Addy (1874) LR 9 Ch App 244 applied
Barnett v South London Tramways Co (1887) 18 QBD 815 cited
Bass Brewers Ltd v Appleby [1997] 2 BCLC 700 cited
Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 applied
Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 cited
Beach Petroleum NL v Johnson (1993) 43 FCR 1 considered
Bell Group Ltd (in liq) v Westpac Banking Corporation (2008) 70 ACSR 1 cited
Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 cited
Belmont Finance, Houghton v Notard, Lowe and Wills [1928] AC 1 considered
Birmingham v Renfrew (1937) 57 CLR 666 cited
Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 applied
Black v S Freedman & Co (1910) 12 CLR 105 cited
Boardman v Phipps [1967] 2 AC 144 considered
Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1888) 39 ChD 339 cited
Boyns v Lackey (1958) 58 SR (NSW) 395 cited
Breen v Williams (1996) 186 CLR 71 cited
Bridgewater v Leahy (1998) 194 CLR 457 applied
Browne v Dunn (1894) 6 R 67 cited
Burdick v Garrick (1870) LR 5 Ch App 233 cited
Burland v Earle [1902] AC 83 cited
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109 cited
Cadogan Petroleum Plc v Tolley [2011] EWHC 2286 (Ch) cited
Canada Safety Ltd v Thompson [1951] 3 DLR 295 cited
Canadian Dredge & Dock Co Ltd v The Queen (1985) 19 DLR (4th) 314 cited
Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 followed
Chan v Zacharia (1984) 154 CLR 178 applied
Charter plc v City Index Ltd [2008] Ch 313 cited
Citadel General Assurance Co v Lloyds Bank Canada (1997) 152 DLR (4th) 411 cited
Clegg v Edmondson (1857) 8 De G M&G 787; 44 ER 593 cited
CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 cited
Colbeam Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 cited
Commissioner of Taxation v Macquarie Health Corporation Ltd (1998) 88 FCR 451 cited
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 followed
Cook v Deeks [1916] AC 554 cited
Corporate Affairs Commission (Vic) v Bracht [1989] VR 821 cited
Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 applied
Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700 cited
D’Amore v MacDonald (1973) 32 DLR (3d) 543 cited
Daly v Sydney Stock Exchange (1986) 160 CLR 371 distinguished
Daraydan Holdings Ltd v Solland International Ltd [2005] Ch 119 cited
Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101 applied
Davis v Insolvency and Trustee Service Australia (No.2) (2011) 190 FCR 437 cited
Dean v MacDowell (1878) 8 Ch D 345 cited
Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 considered
Docker v Somes (1834) 2 My & K 655; 39 ER 1095 cited
Donato v Legion Cabs (Trading) Cooperative Society Ltd [1966] 2 NSWR 583 cited
DPC Estates Pty Ltd v Grey and Consul Development Pty Ltd [1974] 1 NSWLR 443 cited
Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 cited
Eagle Trust plc v SBC Securities Ltd [1992] 4 All ER 488 cited
Eden v Ridsdale’s Railway Lamp & Lighting Co (1889) 23 QBD 368 considered
Eden v Ridsdales Railway Lamp and Lighting Co Ltd (1889) 23 QBD 368 followed
Elders Trustee and Executor Co Pty Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 cited
Emanuel Management Pty Ltd (in liq) v Foster’s Brewing Group Ltd (2003) 178 FLR 1 cited
Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 5 ACSR 424 cited
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 cited
Equiticorp Industries Group Ltd v The Crown [1998] 2 NZLR 481 cited
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 cited
Ernest v Vivian (1863) 33 LJ Ch 513 cited
Evans v European Bank Ltd (2004) 61 NSWLR 75 cited
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 applied
Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544 cited
Flockton v Bunning (1872) LR 8 Ch App 323 cited
Fodare Pty Ltd v Shearn [2011] NSWSC 479 cited
Foskett v McKeown [2001] 1 AC 102 cited
Fox v Percy (2003) 214 CLR 118 cited
Furs Ltd v Tomkies (1936) 54 CLR 583 applied
Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 cited
Giumelli v Giumelli (1999) 196 CLR 101 applied
Glandon v Tilmunda [2008] NSWSC 218 cited
Grant v Gold Exploration and Development Syndicate [1900] 1 QB 233 at 249 cited
Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 considered
Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 cited
Grimaldi v Chameleon Mining NL (No.1) [2011] FCA 936 cited
Hagan v Waterhouse (1991) 34 NSWLR 308 cited
Hancock Family Memorial Foundation Ltd v Porteus (2000) 22 WAR 193 cited
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 considered
Harris v S (1976) 2 ACLR 51 cited
Holloway v McFeeters (1956) 94 CLR 470 applied
Holpitt Pty Ltd v Swaab (1992) 33 FCR 474 cited
Horfman v M G Kailis Pty Ltd [2009] WASC 166 cited
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 applied
House v The King (1936) 55 CLR 499 cited
Hovenden & Sons v Millhoff (1900) 83 LT 41 cited
Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 applied
In re Diplock [1948] Ch 465 cited
In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 cited
In re Macadam; Dallow v Codd [1946] Ch 73 cited
In re Western Counties Steam Bakeries and Milling Co [1897] 1 Ch 617 cited
Industries & General Mortgage Co Ltd v Lewis [1949] 2 All ER 573 cited
Insurance Corporation of British Columbia v Lo (2006) 278 DLR (4th) 148 cited
International Cat Manufacturing Pty Ltd v Rodrick [2010] QSC 30 cited
J C Houghton & Co v Nothard, Lowe and Wills Ltd [1928] AC 1 cited
John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 applied
John v Dodwell & Co [1918] AC 563 cited
K&S Corporation Ltd v Sportingbet Australia (2003) 86 SASR 312 cited
Kalls Enterprise Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 cited
Keech v Sandford (1726) Sel Cas Ch 61; 25 ER 223 cited
Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 applied
Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] 3 VR 16 cited
Leotta v Public Transport Commission (1976) 9 ALR 437 cited
Linter Group Ltd v Goldberg (1992) 7 ACSR 580 cited
Lister & Co v Stubbs (1890) 45 Ch D 1 not followed
Logicrose Ltd v Southend United Football Club (No 2) [1988] 1 WLR 1256 cited
Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1 cited
Lord Provost of Edinburgh v Lord Advocate (1879) 4 App Cas 823 cited
Macdonald v Hauer (1976) 72 DLR (3d) 110 cited
MacDonald v Richardson (1858) 1 Giff 81; 65 ER 833 cited
Maguire v Makaronis (1997) 188 CLR 449 cited
Manley v Sartori [1927] 1 Ch 157 cited
Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404 cited
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 cited
McKenzie v McDonald [1927] VLR 134 cited
Metropolitan Bank v Heiron (1880) 5 Ex D 319 not followed
Michael Wilson & Partners Ltd v Nicholls (2011) 282 ALR 685 applied
Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173 cited
Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (1999) 96 FCR 217 cited
Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 cited
Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 cited
Muschinski v Dodds (1985) 160 CLR 583 applied
My Kinda Town Ltd v Soll [1982] FSR 147 cited
Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120 cited
Nathan v Dollars & Sense Finance Ltd [2007] 2 NZLR 747 cited
News Limited v Australian Rugby Football League Ltd (1996) 64 FCR 410 cited
Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132 cited
O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 cited
O’Sullivan v Management Agency and Music Ltd [1985] QB 428 cited
Page v Rattiffe (1896) 75 LT 371 cited
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 cited
Parker v McKenna (1874) LR 10 Ch App 96 cited
Paul A Davies (Aust) Pty Ltd v Davies [1983] 1 NSWLR 440 cited
Peninsula and Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189 cited
Phipps v Boardman [1967] 2 AC 46 cited
Primeau v Granfield 184 F 480 (1911) considered
Queensland Mines Ltd v Hudson (1975-1976) ACLC 28, 658 cited
R v Drysdale (1978) 3 ACLR 680 cited
Re Cape Breton Co (1885) 29 Ch D 795 cited
Re Dawson (decd); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 applied
Re Jarvis; Edge v Jarvis [1958] 1 WLR 815 considered
Re Kaytech International plc [1999] 2 BCLC 351 cited
Re Montagu’s Settlement Trusts [1987] 1 Ch 264 considered
Re Parmalat Securities Litigation 659 F Supp 2d 504 (SDNY 2009) cited
Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 considered
Revenue and Customs Commissioners v Holland [2010] 1 WLR 2793 cited
Rhodes v Macalister (1923) 29 Com Cas 19 cited
Richard Brady Franks Ltd v Price (1937) 58 CLR 112 cited
Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286 considered
Royal British Bank v Turquand (1856) 6 EI&BI 327; 119 ER 886 cited
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 cited
Russell v Austwick (1826) 1 Sim 52 57 ER 498 cited
Scott v Scott (1963) 109 CLR 649 considered
Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333 cited
Shipway v Broadwood [1899] 1 QB 369 cited
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] 4 All ER 335 not followed
Soulos v Korkontzilas (1997) 146 DLR (4th) 214 cited
Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285 cited
Stone & Rolls Ltd (in liq) v Moore Stephens (2008) 2 BCLC 461 considered
Streeter v Western Areas Exploration Pty Ltd 82 ACSR 1 cited
Sumitomo Bank Ltd v Kartika Ratna Thahir [1993] 1 SLR 735 (Sing) applied
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 cited
Tailby v Official Receiver (1888) 13 App Cas 523 cited
Tara Shire Council v Garner [2003] 1 Qd R 556 cited
Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 cited
Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) cited
United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 considered
United States v Carter 217 US 286 (1910) followed
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 applied
Vyse v Foster (1872) LR 8 Ch App 309 applied
Warman International Ltd v Dwyer (1995) 182 CLR 544 applied
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Whisprun Pty Ltd v Dixon (2003) 200 ALR 447 cited
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Date of hearing: 8, 9, 10, 11, 12, 15, 16 and 17 August 2011 Date of last submissions: 19 October 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 783 In NSD 68 of 2011: Counsel for the Appellant: Mr A G Bell SC with Mr M Watts Solicitor for the Appellant: MJ Woods & Co Counsel for the First Respondent: Mr N Hutley SC, Mr M Bennett, Mr C H Withers, Dr B Kremer Solicitor for the First Respondent: Bennett & Co Counsel for the Second Respondent: Mr J Karkar QC with Mr S Penglis Solicitor for the Second Respondent: Freehills In NSD 73 of 2011: Counsel for the Appellant/Cross Respondent: Mr N Hutley SC, Mr M Bennett, Mr C H Withers, Dr B Kremer Solicitor for the Appellant/Cross Respondent: Bennett & Co Counsel for the First, Second and Third Respondents/First, Second and Third Cross-Appellants: Mr J Karkar QC with Mr S Penglis Solicitor for the First, Second and Third Respondents/First, Second and Third Cross-Appellants: Freehills
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 68 of 2011
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: PHILLIP FELICE GRIMALDI
AppellantAND: CHAMELEON MINING NL (ACN 098 773 785)
First RespondentMURCHISON METALS LIMITED (ACN 078 257 799)
Second Respondent
JUDGES:
FINN, STONE AND PERRAM JJ
DATE OF ORDER:
21 FEBRUARY 2012
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
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.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 73 of 2011
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: CHAMELEON MINING NL (ACN 098 773 785)
Appellant/Cross-RespondentAND: MURCHISON METALS LIMITED (ACN 078 257 799)
First Respondent/First Cross-AppellantCROSSLANDS RESOURCES LTD (ACN 061 262 397)
Second Respondent/Second Cross-AppellantJACK HILLS HOLDINGS PTY LTD (ACN 127 384 696)
Third Respondent/Third Cross-Appellant
JUDGES:
FINN, STONE AND PERRAM JJ
DATE OF ORDER:
21 FEBRUARY 2012
WHERE MADE:
SYDNEY
THE COURT ORDERS BY CONSENT THAT:
1.The Appellant (Chameleon Mining NL) do have leave to discontinue the appeal without liability as to costs and to file the Notice of Discontinuance attached as Annexure A to these orders.
2.The First Cross-Appellant (Murchison Metals Limited) and the Second Cross-Appellant (Crosslands Resources Ltd) do have leave to discontinue the cross-appeal without liability as to costs and to file the notice of discontinuance attached as Annexure B to these orders.
3.Any costs orders in the within proceedings made in favour of:
(a)Chameleon Mining NL, as against any or all of Murchison Metals Limited, Crosslands Resources Ltd or Jack Hills Holdings Pty Ltd; or
(b)any or all of the Murchison Metals Limited, Crosslands Resources Ltd or Jack Hills Holdings Pty Ltd, as against the Appellant,
in the proceedings be vacated.
4.The Court otherwise notes the parties’ agreement that upon such discontinuances neither party is required to pay the costs of the other parties such that the Appellant will not pay the Respondents’ costs in the appeal and the Cross-Appellants will not pay the costs of the Cross-Respondent in the cross-appeal.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
Notice of discontinuance of appeal
No. NSD 73 of 2011
Federal Court of Australia
District Registry: New South Wales
Division:General
On Appeal from a single Judge of the Federal Court of Australia
CHAMELEON MINING NL
Appellant/Cross-Respondent
MURCHISON METALS LIMITED
First Respondent/First Cross-Appellant
CROSSLANDS RESOURCES LTD
Second Respondent/Second Cross-Appellant
JACK HILLS HOLDINGS PTY LTD
Third Respondent/Third Cross-Appellant
Chameleon Mining NL, the Appellant, discontinues the whole of the appeal.
The Court on 21 February 2011 granted leave to the discontinuance.
ANNEXURE B
Notice of discontinuance of cross-appeal
No. NSD 73 of 2011
Federal Court of Australia
District Registry: New South Wales
Division:General
On Appeal from a single Judge of the Federal Court of Australia
CHAMELEON MINING NL
Appellant/Cross-Respondent
MURCHISON METALS LIMITED
First Respondent/First Cross-Appellant
CROSSLANDS RESOURCES LTD
Second Respondent/Second Cross-Appellant
JACK HILLS HOLDINGS PTY LTD
Third Respondent/Third Cross-Appellant
Murchison Metals Limited (the First Cross-Appellant) and Crosslands Resources Ltd (the Second Cross-Appellant) discontinue the whole of their cross-appeal.
The Court on 21 February 2011 granted leave to the discontinuance.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 68 of 2011
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: PHILLIP FELICE GRIMALDI
AppellantAND: CHAMELEON MINING NL (ACN 098 773 785)
First RespondentMURCHISON METALS LIMITED (ACN 078 257 799)
Second Respondent
GENERAL DIVISION
NSD 73 of 2011
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: CHAMELEON MINING NL (ACN 098 773 785)
Appellant/Cross-RespondentAND: MURCHISON METALS LIMITED (ACN 078 257 799)
First Respondent/First Cross-AppellantCROSSLANDS RESOURCES LTD (ACN 061 262 397)
Second Respondent/Second Cross-AppellantJACK HILLS HOLDINGS PTY LTD (ACN 127 384 696)
Third Respondent/Third Cross-Appellant
JUDGES:
FINN, STONE AND PERRAM JJ
DATE:
21 FEBRUARY 2012
PLACE:
SYDNEY
TABLE OF CONTENTS
I. OVERVIEW
[6]
(i) The “Cadetta Transaction”
[10]
(ii) The Winterfall/Iron Jack Agreement; the Murchison/Winterfall Agreement; and the Chameleon Share Placement
[13]
(iii) The Claims Made and the Conclusions Reached
[17]
II. THE CORPORATIONS ACT ISSUE: DE FACTO DIRECTOR OR OFFICER.
[28]
1. The Legislative Regime
[32]
2. The English Authorities
[51]
3. The Applicable Legal Principles
[62]
4. The Relevant Companies
[77]
5. The Trial Judge’s Findings and Mr Grimaldi’s Appeal
[82]
(1) Acquiring the Fijian properties: Mr Grimaldi’s negotiation for Chameleon’s acquisition of the Fijian mining interests.
[90]
(2) The Chameleon Prospectus
[93]
(3) Raising capital for Chameleon
[97]
(4) Appointing a Zenith Director; (5) Correspondence with Ian Prider
[105]
(6) “Advice” to Mr McLennan
[119]
(7) The March 2004 Share Placement
[122]
(8) The Cadetta Transaction
[123]
(9) The Cerro Negro Copper Mine Acquisition
[124]
(10) The ASX Announcement of the July Share Placement; (11) The Proposed Further Share Placement
[126]
(12) “Acting as a Director”
[129]
(13) The Perception of Others
[130]
(14) A Functioning Board
[132]
(15) “Consultants”
[136]
5. Conclusion
[141]
III. AN EVIDENTIARY PRELUDE: ACQUIRING THE IRON JACK TENEMENTS
[144]
(i) Introduction
[145]
(ii) Winterfall and the Iron Jack Vendors
[149]
(iii) The Murchison/Winterfall Agreement
[153]
(iv) Failure to pay and the Addendum to the Murchison/Winterfall Heads of Agreement
[160]
(v) Murchison’s Financial Situation: February to June 2004
[165]
(vi) Winterfall was due to pay $385,000 to the Iron Jack Vendors on 1 July 2004.
[166]
IV. THE CADETTA TRANSACTION
[167]
1. The Grimaldi and Murchison Appeals and Chameleon’s Notice of Contention in relation to the Cadetta Transaction
[167]
2. Applicable Legal Principles
[173]
(i) The Fiduciary Idea: Setting Standards of Conduct and Ensuring Proper Fiduciary Decision Making
[174]
(ii) Standards of Conduct: Fiduciaries and Fiduciary Duties
[176]
(iii) “Bribes and Secret Commissions”
[188]
3. The Fiduciary Issue: Was Mr Grimaldi Chameleon’s Fiduciary?
[194]
4. Conclusion on the Grimaldi Appeal
[210]
5. Conclusion on Chameleon’s Appeal
[213]
6. Was the “commission case” either pleaded or actually in issue? Was leave properly given to amend the pleading to raise it explicitly?
[220]
V. CHAMELEON’S JULY 2004 PLACEMENT AND ITS PROVISION OF CHEQUES FOR $152,750 TO THE IRON JACK VENDORS
[238]
1. The Applicable Legal Principles
[242]
(i) Third Party Liability: A Digression
[242]
(ii) Barnes v Addy: The Liabilities for Knowing Receipt and Knowing Assistance
[249]
(iii) “Trust Property”, Void and Voidable Transactions and Breach of Fiduciary Duty
[271]
(iv) The Imputation of Knowledge to a Corporation
[282]
2. The Factual Setting and Findings in relation to the Liabilities of Mr Grimaldi and Murchison
[287]
(i) The Factual Setting
[288]
(ii) The Primary Judge’s Findings and Conclusions
[307]
3. The Grounds of Appeal: Contentions and Conclusions
[322]
(i) Was Mr Grimaldi a de facto director or an officer of Chameleon (Ground 1)?
[323]
(ii) Were the two payments by cheque payments on a loan account? (Grimaldi: Ground 3; Murchison: Notice of Contention, Ground 2)
[329]
4. The Liability of Winterfall: Factual Setting, Findings and the Appeal
[346]
(i) The Factual Setting
[350]
5. Winterfall Conclusions
[380]
6. Grounds of Appeal 4 and 5 and the Finding of “Dishonesty”
[400]
7. Grimaldi Ground 6; Murchison and Winterfall Ground 7: “But for” the Cheques the Acquisition of the Iron Jack Project would have Collapsed
[412]
8. Ground 8: The Breaches of s 181 and s 182 of the Corporations Act
[427]
9. Ground 9: Mr Grimaldi’s Separate Fiduciary Obligation to Chameleon
[435]
VI. RELIEF: GENERAL
[444]
1. Preliminary Matters
[444]
(i) The Murchison/Winterfall Agreement and Addendum and their Implementation
[445]
(ii) The 28 July 2004 Winterfall/Iron Jack Vendors Agreement
[453]
(iii) The Reverse Takeover, Pinnacle and Grimaldi
[466]
(iv) Mr Grimaldi’s Departure
[475]
(v) Murchison’s Knowledge of the Issue of 10 Million Winterfall Shares to Barnes and Grimaldi
[477]
(vi) The “Repayment” of the Cheque “Loans”
[481]
(vii) Changes in Murchison’s Shareholding, the Trading of its Shares and its Fundraising post-11 November 2004
[486]
(a) Murchison’s shareholding
[488]
(b) Murchison’s Investment in the Project and the Mitsubishi Joint Venture
[492]
(viii) A Question About “Mining Tenements”
[496]
2. Legal Principles Applicable to Relief
[503]
(i) “Practical Justice” and “An Appropriate Remedy”
[503]
(ii) The Liability to Account and the Account of Profits
[513]
(iii) Primeau v Granfield 184 F 480 (S.D.N.Y. 1911)
[541]
(iv) Interest Awards and Presumed Profits
[547]
(v) The Liabilities of Knowing Recipients and Assistants
[553]
(vi) Corporate Property, the Constructive Trust and “Tracing”
[560]
(vii) Relief: Bribes and Secret Commissions
[569]
VII. RELIEF: MR GRIMALDI
[585]
1. The Primary Judge’s Conclusions
[586]
2. The Constructive Trust and the Account
[591]
(i) Findings and Orders
[591]
(ii) The Appeal
[601]
3. The s 1317H Compensation Orders: Chameleon, Grounds 17 and 18 and Cross-Appeal Ground 1; Grimaldi, Grounds 18, 19 and 20; Murchison, Ground 3.
[620]
(i) The Section, its Provenance and its Curiosities
[621]
(ii) Chameleon’s Appeal and Cross-Appeal
[632]
(iii) Mr Grimaldi’s Appeal
[637]
(iv) The Murchison Appeal
[645]
4. Mr Grimaldi’s Indemnity Claim against Murchison: Grounds 21 and 22
[651]
5. Remaining Grounds
[657]
6. Conclusion
[660]
VIII. RELIEF: WINTERFALL
[662]
Winterfall
[662]
1. The Constructive Trust Claim
[665]
IX. RELIEF: MURCHISON AND THE “COMMON” LIABILITIES WITH WINTERFALL
[683]
The Constructive Trust
[686]
(i) The 10 Million Winterfall Shares and 12 Million Options
[686]
(ii) The “Traceable” Proceeds of the Cadetta and Two Cheques Transactions
[697]
(iii) The Claim to All, or a Portion of, the Winterfall Shares
[710]
2. The Account of Profits Ordered Against Murchison and Against Winterfall
[725]
(i) The Accounts Ordered
[725]
(ii) Chameleon’s Appeal
[737]
(iii) Chameleon’s Grounds 15 and 16
[745]
X. OTHER ISSUES
[750]
1. The Interest Award
[750]
2. Laches and Delay
[755]
3. Evidence Issues
[758]
4. Procedural Issues
[759]
(i) Whether Chameleon should be granted leave to file an amended Notice of Contention
[759]
(ii) Mr Grimaldi’s application to amend his notice of appeal
[778]
XI. CONCLUSION
[780]
Annexure 1 p 223
REASONS FOR JUDGMENT
THE COURT
In appeals and a cross-appeal which raise quite a number of issues, one is central : “What are the principles that determine the appropriate equitable relief to be awarded against a third party who knowingly participates in another’s trust or fiduciary wrongdoing?” The circumstances in which such a liability can arise are, for present purposes, to be determined by reference to what are known colloquially now as the “two limbs” of Barnes v Addy (1874) LR 9 Ch App 244. Those limbs have a certain certainty in Australian law: see Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89. The same cannot be said of the relief they mandate.
Characteristically, Barnes v Addy liability has been invoked by innocent trust and fiduciary beneficiaries so as to project liability to compensate for their losses onto third parties who have participated in the delinquency of the trustee or fiduciary. In the present matters in contrast, the liabilities sought to be imposed on the third parties are for gains made by either or both of the delinquent fiduciary and the third parties. The Western Australian mining boom and a potentially very profitable iron ore mine provide the context and subject matter for the claims made.
The proceedings arose out of steps taken in several junior mining exploration companies in putting together and then developing from faltering beginnings a significant mining project. What this project required were, first and foremost, potentially productive iron ore tenements; secondly, a publicly listed company as a vehicle for investment; thirdly, the progressive aggregation of risk capital; and, fourthly, experienced geologists. The central human actors in developing the project were either well known to each other or else fortuitous “co-venturers” sharing ambitions of individual gain. Unorthodox steps were taken with little or no regard for corporate forms or for the fiduciary responsibilities of company directors and officers. And there were winners and losers as the project evolved. These proceedings are, in substance, in the nature of a retrospective attempt to reallocate gains and losses in consequence of events occurring, and actions taken, for the most part in 2004.
The mining project in question was developed by Murchison Metals Ltd. To put the matter inexactly, in 2004 through a series of transactions later to be examined it acquired control of what for convenience we will call the “Iron Jack Tenements”. These were located in the Jack Hills region of Western Australia which lies inland about halfway between Perth and Port Headland. The nearest available port is Geraldton. From the 1960’s mapping and prospecting for iron ore had been undertaken in the area. Though iron ore was detected, the area was not developed primarily because of the then low ore price and its ready availability from the Pilbara region. With the growth of the Chinese market by 2005 the previously deemed marginal iron ore resources of Jack Hills became viable. Murchison now exports that ore to China. We note in passing that the trial judge indicated that, at the time of the trial, the Iron Jack Tenements were thought to be worth in the order of $1 billion.
There is one matter we should emphasise at the outset. Save for Chameleon Mining NL, the principal corporate actors have changed their names on one or more occasions. For ease in exposition, we have given each company a single name in these reasons. Annexure 1 to the reasons lists the principal corporate actors and their relevant directors/officers for present purposes and identifies the various corporate name changes.
I. OVERVIEW
The companies at the centre of the matter are Chameleon (the appellant in the proceedings), Murchison and Winterfall (the name we will give to Crosslands Resources Ltd, the second respondent and second cross-appellant). The acquisition of the Iron Jack Tenements was effected through Winterfall which was in turn the subject of a reverse takeover by Murchison.
Chameleon’s primary claims were that three of its former appointed directors were guilty both of breaches of their fiduciary duties to the company and of contraventions of sections 180, 181 and 182 of the Corporations Act 2001. We need only refer to two of them, Mr Barnes and Mr Roberts. Mr Barnes alone was sued by Chameleon. The claims made against him, as also those against Pinnacle (a company he owned and controlled) were settled without admission of liability on terms requiring them to pay $6 million to Chameleon.
Chameleon also made claims for breach of fiduciary duty and for contraventions of the Corporations Act against Phillip Grimaldi who was alleged (a) to have been a de facto director of Chameleon for the purposes of s 9(b)(i) of the Act or else an “officer” of the company and/or (b) to have been, relevantly, in a fiduciary relationship with it for some purposes. It should be emphasised in passing that Mr Grimaldi was as well a director of, and at all relevant times the controlling mind of, and moving force in, Murchison. Further complicating matters, he was also a director of several of Chameleon’s subsidiary companies, one of which was said to have been a consultant for Chameleon. The trial judge’s findings favourable to Chameleon on its claims are at the forefront of Mr Grimaldi’s appeal. Not only his own liability but also, as the case has been fought, that of Murchison turn on those findings. To anticipate our own conclusions, we are satisfied that (i) Mr Grimaldi was both a director and an officer of Chameleon for Corporations Act purposes; (ii) he was guilty of contraventions of ss 181 and 182 of the Act; (iii) he was in any event in a fiduciary relationship with Chameleon for certain purposes; and (iv) he breached the fiduciary duty he so owed Chameleon.
While there was a range of transactions and dealings in which breaches of duty were alleged against Barnes and Grimaldi, only two are of present moment. Though discrete, they converged in their consequences. The proper characterisation of these dealings and of their significance is central both to Grimaldi’s appeal and Murchison’s cross-appeal and Notice of Contention.
(i) The “Cadetta Transaction”
This involved the acquisition by Chameleon of gold mining tenements in consideration for an issue of its shares. The purchase was negotiated by Mr Barnes and Mr Grimaldi for Chameleon. The share issue included 5 million shares for Murchison for no consideration. It was characterised by the trial judge as a “commission” payable to Mr Grimaldi (or at his direction). It was a benefit obtained by him by reason of his fiduciary position with Chameleon but without the informed consent of the company.
His Honour’s “commission” finding is challenged in both the Grimaldi appeal and the Murchison cross-appeal. We agree with the trial judge’s finding of breach of fiduciary duty.
What connects the Cadetta transaction to the second set of dealings to be considered is that immediately after the allotment of the shares to Murchison, Grimaldi arranged for their sale. The proceeds were then provided by Murchison to Winterfall. Murchison had previously entered into an agreement with Winterfall to pay it $350,000 which Winterfall required to meet its obligations to the vendors of the Iron Jack Tenements which it had previously contracted to buy. It is important to notice that at this time both Winterfall and Murchison had a desperate need of funds to meet their respective obligations.
(ii) The Winterfall/Iron Jack Agreement; the Murchison/Winterfall Agreement; and the Chameleon Share Placement
These were sequential transactions. In February 2004 Winterfall entered into an agreement with a number of persons and companies to buy the Iron Jack Tenements. The purchase price was to be paid in instalments. Neither the company nor its principal shareholder and director, a Mr Zuks, had the money to pay the second instalment. Mr Barnes and Mr Grimaldi then approached Zuks (a person known to both of them) about the possibility of Murchison acquiring an interest in the Iron Jack Project. In May 2004 the two companies signed Heads of Agreement under which (a) Murchison agreed to pay Winterfall $350,000 (which both parties knew was required to pay the Iron Jack Vendors); and (b) Murchison was later to effect a “reverse takeover” of Winterfall with Mr Zuks and his partners receiving 40 per cent of the issued capital of Murchison. Murchison failed to pay the sum due on 30 May 2004. In early June an Addendum to the Heads of Agreement was executed. By this time Mr Grimaldi and Mr Barnes had raised the question of a spotter’s fee in the form of shares in Winterfall. Zuks agreed to this. As the primary judge indicated, there were no benefits in any of this for Chameleon.
In late June 2004 Grimaldi suggested Chameleon make a share placement for a capital raising of $360,000. Its stated purpose was for exploration at a gold mine. At this time Chameleon had little cash. In early July Mr Barnes and/or Mr Grimaldi told Mr Zuks that some of the payments due to the Iron Jack Vendors were going to be made by Chameleon. During July Mr Barnes drew cheques on Chameleon’s bank account for $56,250 and $96,500. Each was payable to an Iron Jack Vendor. As the trial judge held, having regard to Chameleon’s financial position, the only possible source of funds was from the capital raising which Mr Grimaldi was arranging on Chameleon’s behalf.
Ultimately, Murchison succeeded in meeting its obligations under its agreement with Winterfall. It did so by raising funds from various sources but the two cheques totalling $152,750 obtained from Chameleon comprised more than 40 per cent of the funding it needed to meet the crucial instalment.
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.
Chameleon’s second group of claims – the Barnes v Addy claims – allege the accessorial liabilities of Murchison and of Winterfall for their respective participations in breaches of fiduciary duty and/or breaches of trust by Mr Barnes and Mr Grimaldi. Of the two “limbs” of Barnes v Addy, the first makes a third party liable for “knowing receipt” of trust property (or of property held or controlled by another in a fiduciary capacity) if he or she receives it with knowledge that the trustee (or fiduciary) has given or disposed of it to him or her in breach of trust (or of fiduciary duty). The second, the “knowing assistance” limb, renders a third party liable who assists with knowledge in a dishonest or fraudulent design on the part of a trustee (or a fiduciary).
Liability was alleged – and found – against Murchison in respect both of the Cadetta transaction in which it was said to be both a knowing recipient and a knowing assistant in relation to the 5 million shares issued to it. It equally was alleged, and was found, to be liable as a knowing recipient and a knowing assistant in relation to the two Chameleon cheques drawn by Mr Barnes. Additionally Murchison was held liable for aiding and abetting the contraventions of ss 181 and 182 of the Corporations Act committed by Mr Barnes. Murchison accepted that Grimaldi was at the relevant times its controlling mind and that his knowledge was to be attributed to it, save where that knowledge was of his own fraud on it. It claimed at trial and has reiterated in its Notice of Contention that the 10 million Murchison shares received by Barnes and Grimaldi on the reverse take-over were a fraud on it.
The claim against Winterfall was that it was the “knowing recipient” of the Chameleon cheque moneys. His Honour found Mr Zuks knew that Barnes was a director of Chameleon and that Grimaldi was a director of Murchison and he knew in particular of Barnes’ conflict of duty and interest (arising from the “spotter’s fee” arrangement). The knowledge he had in the circumstances was sufficient to attract recipient liability. This conclusion is one of the grounds of Winterfall’s cross-appeal.
To anticipate matters, we agree with his Honour’s findings and his liability conclusions.
Much the most contentious part of the trial judge’s conclusion – and this is reflected most prominently in Chameleon’s grounds of appeal – were his Honour’s reasons and orders in relation to remedy. First, relief against Murchison and Winterfall. Rejecting Chameleon’s primary claim, the trial judge refused to impose a constructive trust over the entirety of, or any percentage of Murchison’s shareholding in Winterfall arising out of its use of the Chameleon cheques and the Cadetta 5 million shares. He likewise did not hold it liable as a constructive trustee of the 10 million shares Grimaldi and Barnes received as a spotter’s fee and which Murchison obtained in the reverse takeover. His Honour appears not to have considered separately Chameleon’s claim to proprietary relief against Winterfall arising from its use of the Chameleon cheques in the purchase of the Iron Jack Tenements. Also rejected was Chameleon’s claim that, as a knowing assistant, Murchison was jointly liable with Grimaldi to account to Chameleon for any profits made by Grimaldi in breach of fiduciary duty. All of these matters are in issue in Chameleon’s appeal.
The relief actually ordered against Murchison was personal in nature. It was cast in the alternative, and was so designed as to preclude double recovery. It was in essence that Murchison account for the moneys it received from the Chameleon cheques ($152,750) and the Cadetta shares ($125,090) and for the profits it obtained from the use of those funds. Alternatively, at Chameleon’s election, it was to pay equitable compensation to Chameleon in the amount of $152,750 plus compound interest at mercantile rates. An order for compensation under s 1317H of the Corporations Act was made in respect of Murchison’s participation in contraventions of the Act by the directors but so as not to include double recovery for profits made. Chameleon appeals against aspects of all of these orders. Similar alternative orders were made against Winterfall though only in respect of the Chameleon cheque moneys.
We have affirmed in part, and have disagreed in part, with his Honour’s conclusions on the relief which ought be awarded. Our reasons vary considerably from his Honour’s. We agree that proprietary relief against Murchison by way of the imposition of constructive trusts on some or all of the Winterfall shares it derived as a result of its reverse takeover of Winterfall, was properly refused. We also consider that proprietary relief against Winterfall by way of a proportionate interest in the Iron Jack Tenements, on account of the use of Chameleon’s moneys in their acquisition, ought be refused but on discretionary grounds. We would set aside the orders his Honour made for an account of profits against Murchison and Winterfall respectively and remit that matter to his Honour for reconsideration of the orders that should be made. We otherwise affirm the orders made by way of relief, save in relation to the interest awards granted which we would vary so as to require monthly, not annual, rests.
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”.
We have needed to emphasise this because of the use Chameleon made of corporate “consultants” (which were the separate corporate vehicles of some of its directors) in the conduct and management of its affairs.
The current definitions of “director” and “officer” have a provenance in Australia’s corporation’s legislation which illuminates how these terms should be interpreted. Two related themes are evident for present purposes. The first is the definitions of “director” and “officer” have been contrived so as to enlarge the classes of persons concerned in the management and affairs of a corporation, upon whom legislative standards and liabilities ought be imposed. The second is the progressive integration of the standards and liabilities of “officers” with those of directors. The legislative policy of protection of corporations and of those who deal with them from the consequences of the conduct of those who participate significantly in a corporation’s affairs is clearly evident in these developments, even if the desirable scope of that protection remains contentious: see Corporations and Markets Advisory Committee Report, Corporate Duties Below Board Level (2006).
The State legislation – the Companies Act 1961 – was both a catalyst to, and a precursor of, the above developments. It was notable for its s 5 definitions of “director” and “officer” and for its early partial integration of the liabilities of “directors” and “officers” in s 124. First, the definitions. “Director” was defined as including:
… any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act.
The second part of this definition refers to what are known as “shadow directors”. Such a shadow director provision subsists to this day. Its terms will not be repeated hereafter as it has no particular significance in the appeals. What is of present interest is the first part of the definition. Until the decision of the High Court in Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 (“Drysdale”), the view taken of it was that it referred to persons who occupied a position to which were attached the powers and obligations the Companies Act attached to a “director”, but who were differently described under the company’s constitution or governing law: eg Harris v S (1976) 2 ACLR 51 at 54 and 71; Corporate Affairs Commission v Drysdale at 243 and 248. So, to be guilty of an offence under the director’s duty provision in s 124 of the Act, the person in question had to hold the “office” of director: R v Drysdale (1978) 3 ACLR 680 at 684-685.
While the High Court’s decision in Drysdale (reversing that of the New South Wales Court of Criminal Appeal) was not, in the event, concerned directly with the s 5 “director” definition, it altered significantly contemporary understanding of who could be said to be a director for the purposes of director’s duties provisions. It was held that “de facto directors” were directors.
At issue in Drysdale was whether a person whose appointment as director was terminated, but who thereafter continued both to occupy the office (albeit without lawful authority) and to discharge its duties, could be prosecuted for breach of the duties of honesty and diligence imposed on a “director” by s 124(1) of the Act. The judges held that the provision applied not only to persons lawfully in office but also to persons (a) whose appointment was defective or otherwise invalid but who nonetheless exercised the office; (b) who held over after their appointment came to an end; or (c) seemingly, who occupied the office as a usurper (or director de son tort): see further on usurpers Revenue and Customs Commissioners v Holland [2010] 1 WLR 2793 at [82] and Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109 at [219]-[222]. Such were de facto directors. In reaching this conclusion, it is apparent that the concept of an “office” was integral to the judges’ reasoning. A de facto director was a person who did not have, or no longer had, lawful authority so to do, but who nonetheless occupied the office of director and discharged the duties attaching to that office: see esp at 242-243 per Mason J; 245 per Murphy J. Observations of Mason J illustrate this and have had enduring significance on the definition of a de facto officer. Having referred to Lindley LJ’s observation in In re Western Counties Steam Bakeries & Milling Co [1897] 1 Ch 617 at 627 that “to be an officer there must be an office” – ie a recognised position with rights and duties attached to it – Mason J continued (at 242):
The words of s 124(1) assume that the person in question occupies an office (“his office”) and that there are functions (“duties”) attaching to that office which he is discharging. I say “occupies” rather than “holds” because the first part of the definition of “director” makes it clear that a director is a person who occupies rather than holds an office … To say that a person occupies a position or office is to say something more than that he holds the position or office. The first statement denotes one who acts in the position, with or without lawful authority; the second denotes one who is the lawful holder of the office.
(Emphasis added.)
To be noted because of its relevance in this appeal is that the High Court did not address directly whether a person performing some only of the functions of a director could be said to occupy the position of director.
The remaining comments to be made about the 1961 Act are, first, that it defined “officer” as an omnibus term to include for present purposes “any director, secretary and employee”; secondly, while still differentiating between “directors” and “officers” for certain purposes, s 124 adopted the expedient of making certain liabilities and duties those of “officers” as such (so including directors): see eg s 124(2) (the misuse of information provision); see generally on the provenance of s 124, Wallace and Young, Australian Company Law and Practice, 393-394 (1965).
Turning to the 1981 Companies Act, there were changes and additions made to the definition of “director” and “officer”. Reference has already been made to the limited view taken by the NSW Court of Criminal Appeal of the s 5 definition of “director”. In R v Drysdale, Street CJ in responding (at 684-685) to the submission by the Crown that it would be “most unfortunate” to construe s 5 so as to permit the appellant to go free given his actions, observed:
… if the legislature wishes to bring within its purview persons who act as directors as well as those who hold office as such, then the relevant sections should be framed to this effect.
The legislative response, as revealed by the Explanatory Memorandum to the Companies Bill 1980 (at [34]), took the Court of Criminal Appeal’s decision into account. The new s 5 definition, insofar as presently relevant, continued the existing shadow director provision, but modified the old definition as follows:
(a)any person occupying or acting in the position of director of the corporation, by whatever name called and whether or not validly appointed to occupy or duly authorized to act in the position.
(Emphasis added.)
This draws upon, and is an obvious elaboration of, the language and concepts used by Mason J in the extract from Drysdale which is quoted above. As will later be seen, while the definition of director has subsequently been disaggregated and its language simplified, the essential meaning of it as it relates to de facto directors has not been altered since 1981.
Section 5 retained an amended definition of “officer”. It now referred, for present purposes, to “a director, secretary, executive officer or employee of the corporation”. A new definition, that of “executive officer”, was added. The term meant, in relation to a corporation:
… any person, by whatever name called and whether or not he is a director of the corporation, who is concerned, or takes part, in the management of the corporation.
This addition heralded a new concern with senior officers in companies beyond directors.
Part V Division 2 of the 1981 Act (“Directors and other Officers”) accelerated the process of conflating the duties and liabilities of directors and of significant senior officers for some purposes. Section 229 (“Duty and liability of officers”) as now cast, imposed its standards and prohibitions on “an officer” or “an officer or employee”. But “officer” for the purposes of this section meant “a director, secretary or executive officer of the corporation”: s 229(5). As Professor Ford noted, by making the statutory standards for executive officers the same as for directors, the Act accommodated the managerial revolution, ie the phenomenon that many companies were managed not by, but under the direction of, the board: Company Law, [1541] (4th ed, 1986). The one matter to note in passing because of its significance to what was to come was that the definition of “executive officer” gave rise in first instance decisions to what have been described as “wide”: Corporate Affairs Commission (Vic) v Bracht [1989] VR 821; and “narrow”: Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; views of the compass of the definition: see Ford’s Principles of Corporations Law, vol 1, 8073-8074; see also CAMAC, Corporate Duties Below Board Level, Appendix 1.
The Corporations Law regime introduced in 1991 continued both the previous s 5 definitions of “executive officer” and “officer”: see s 9; and the 1981 modified definition of “director”: see s 60. Section 232 of the Corporations Law, likewise continued the conflation of the duties and liabilities of directors and officers evidenced in s 229 of the 1981 Act.
In 1999 a new definition of “officer”, but not of “executive officer”, was enacted in the Corporate Law Economic Reform Program Act 1999 (Cth) (“the CLERP Act”). It provided that, for present purposes, an “officer” meant:
(a) a director or secretary of the corporation; or
(b) a person:
(i)who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii)who has the capacity to affect significantly the corporation’s financial standing; or
(iii)in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation).
It is on the provision in these terms, now replicated in the Corporations Act 2001, that Chameleon’s Notice of Contention relies. What is notable in the definition is that the focus of subpara (b) is essentially functional in character, its concern being with the stipulated quality of a person’s actions or capacity and their effects. The contemporary view was that the difference between the criteria now specified in subpara (b) and that earlier adopted in the definition of “executive officer” was not intended to change the class of persons regulated by the new definition: see CAMAC Report, Corporate Duties Below Board Level, 29-30. However, the Court of Appeal of New South Wales has rightly warned in relation to these very provisions that “cases on differently expressed predecessor provisions must be approached with care”: Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 at [887]. It also should be emphasised that in subpara (b)(iii) provision is made for a “shadow-officer”, so paralleling the shadow director provision in the definition of “director”.
The Corporations Act 2001 (Cth), while continuing the themes noted of maintaining an expanded definition of “director” and of isolating a group of “officers” who were to be treated similarly to directors for certain duty and liability purposes, made its own modifications.
The s 9(b)(i) definition of “director”, which relates to de facto directors, was simplified but without making any operative change to the 1981 definition. A “director” for present purposes means:
unless the contrary intention appears, a person who is not validly appointed as a director if:
(i)they act in the position of a director.
(Emphasis added.)
The definition of “officer” in s 9 is, for present purposes, in the same terms as were used in the CLERP Act and encompassed both directors and certain other officers. Though a separate definition of “officer” reflecting that in s 5 of the 1981 Act was retained until its repeal in 2004: see the 2001 Act, s 82A; it is the s 9 definition which is the operative one for the purposes of Chapter 2D (“Officers and Employees”) of the Act and in particular for the duties “of a director or other officer” contained in ss 180, 181 and 182: see s 179(2). These are the provisions Chameleon alleges were contravened by Grimaldi and Barnes. The final section requiring mention is s 185. Mirroring the approach of precursor legislation, it provides that ss 180-184 have effect in addition to any rule of law relating to the duty or liability of a person because of their office or employment in relation to a corporation. Importantly any fiduciary liability to Chameleon that Grimaldi may have as a director or officer is saved by this section.
One very obvious conclusion emerges from this sketch of Corporations Law history. In this case, given the contraventions of the Act that have been pleaded, no great purpose will be served in determining whether Mr Grimaldi was a director rather than just an officer. We emphasise this as much attention was given in Mr Grimaldi’s submissions to what makes a person a “director” for the purposes of the s 9 definition.
Before turning to the meaning of the s 9 formula in its context, it is necessary to make a brief digression into English law because of the manner in which Mr Grimaldi’s case has been presented.
2. The English Authorities
It would seem that, at trial, there was very little dispute as to the legal principles as they applied to any of the matters in issue. His Honour in consequence drew heavily upon Chameleon’s written submissions though taking account of observations in the respondents’ submissions. On the issue of de facto directors he thus relied upon contemporary Australian authority and in particular the decision of Madgwick J in Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 (“Austin”) which is considered below. Though Mr Grimaldi’s Notice of Appeal alleged the trial judge misapplied the test and/or applied the wrong test for deciding whether a person was a de facto director, it was only in Mr Grimaldi’s reply submissions that the dimensions of the errors ascribed his Honour became apparent. Referring there almost exclusively to English authority – and most notably to the decision of the Supreme Court in Revenue and Customs Commissioners v Holland – four propositions were advanced by which it was said that the correctness of the trial judge’s conclusions should be tested. These were said to flow primarily from Holland’s case.
They were:
(1)to conclude that a person has acted in the position of a director of a corporation, it is necessary to establish that the person has assumed the rights and powers of the position of a director in that corporation to the extent that the person must be taken to have also assumed the duties and responsibilities of that position.
(2)having regard to the definitions of “director” and “officer” in s 9 CA, it is necessary to find that the person has undertaken functions in relation to the corporation which could properly be discharged only by a director.
(3)if the person is also appointed to another position in relation to a transaction, it is necessary to conclude that the relevant acts are not within the ambit of the discharge of his or her duty in that other position before it can be concluded that the person was acting in the position of a director of the corporation in relation to the transaction.
(4)the perception of outsiders who deal with the corporation is only relevant to the extent to which the corporation has held out the person as having acted in the position of director.
It was this change of course (ultimately acquiesced in by Chameleon) which accounts for this digression into English law.
We preface what we have to say with the observation that while persuasive authority of another jurisdiction is to be treated with the respect it deserves, we necessarily must adhere to the course of our own legal development. This last is of quite some present significance. It is clear that the statutory environment in which the de facto director issue is played out in the UK differs in important respects from our own. We would mark three matters in particular. First, because it is essential in understanding Holland’s case, UK law permits a company to be a director although, since the Companies Act 2006 (UK), there must now be at least one director who is a natural person: s 155(1). In contrast, as already noted, only a natural person can be a company director in Australia: Corporations Act, s 201B(1). The central issue in Holland, which could not arise in Australia but which accounted for the 3-2 split in the Supreme Court, was whether the natural person director of a corporate director when acting entirely within the scope of his duties to that company, could be found because of his actions to be a de facto director of the company of which the corporate director was the sole director. It was held he could not.
Secondly, the long standing UK definition of a “director” is that the term “director” “includes any person occupying the position of director, by whatever name called”: Companies Act 2006, s 250; see also eg Companies Act 1929 (UK) s 380. “Shadow director” is separately defined: Companies Act 2006, s 251. Unlike in Australia, the definitions of “director” and, importantly, “officer” have not been the subject of regular legislative attention over the last 30 years.
Thirdly, the director’s duties provisions of UK companies legislation, unlike Australia’s “Officer’s duties” provisions, drew a sharp distinction between directors (to whom express general provisions apply) and other “officers” for whom only limited, specific provisions seem to have been made: see Mortimore QC, Company Directors, 3.58-3.62 (2009); Gower and Davies, Principles of Modern Company Law, 16-9 (8th ed, 2008). There were not, and are not, “director or other officer” provisions similar to ss 180-183 of the Corporations Act. For the purposes of attracting statutory liabilities on account of a person’s involvement in the management of the affairs of a company, a much sharper distinction has to be drawn in the UK between directors and other officers than is the case in Australia and this, as will be seen below, because of the availability in Australia but not in the UK of the “other officer” provisions in circumstances like the present: see esp In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 at 183.
A similar difference is apparent when one compares the provisions of the Company Directors Disqualification Act 1986 (UK) with the provisions of Part 2D.6 (“Disqualification from Managing Corporations”) of the Corporations Act. The principal, and apparently most utilised: see Gower at 10-2; provision of the former (s 6) applies only to “directors” and “shadow directors”: see generally, Mortimore QC, 28.112 ff. Automatic disqualification apart, the centrepiece of Australia’s disqualification provisions is s 206C which empowers a court to disqualify a person against whom a declaration has been made that that person has contravened a corporation/scheme civil penalty provision. Such provisions include the “director or other officer” duties and liabilities of ss 180-183 of the Act: see generally Ford’s Principles of Corporations Law, vol 1, 7209-7216.
The significance of the above is evident in comments made by Lord Collins in Holland (at [54]):
For almost 150 years de facto directors in English law were persons who had been appointed as directors, but whose appointment was defective, or had come to an end, but who acted or continued to act as directors. There was a striking judicial innovation in In re Lo-Line Electric Motors Ltd [1988] Ch 477 and In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 (endorsed by the Court of Appeal in In re Kaytech International plc [1999] 2 BCLC 351) by which (at the risk of over-simplification) persons who were held to be part of the corporate governance of a company, even though not directors, could be treated as directors for the purposes of statutory provisions relating to such matters as wrongful trading by, and disqualification of, directors.
(Emphasis added.)Fourthly, a distinct matter of emphasis in some of the English cases is the concern for whether the alleged de facto director has assumed such a role (or “responsibility”) in a company and in its governance structure as to justify the imposition on him or her of the particular duty (statutory or fiduciary), liability, or disqualification which would be applicable to a director in the particular circumstances: see eg Holland, at [121].
We mean no disrespect in commenting that the legislative context of the English decisions on de facto directors so differs from Australia’s, that they should be treated with some reserve. Because of the view we have concerning the present state of Australian law in any event, we do not consider it necessary or profitable to engage upon an extended analysis of the English cases despite the urging of counsel for Mr Grimaldi. Nonetheless we do acknowledge that there are a number of useful lessons to be derived from those cases which for the most part are confirmatory of what is immanent in our own jurisprudence. We note two in particular.
The first – and it has been reiterated regularly – is that there is not one single decisive test of when a person will be found to be a de facto director and judges have, for the most part, cautioned against attempting to formulate one: see Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333 at 343-345; Re Kaytech International plc [1999] 2 BCLC 351 at 423; Holland, at [39]. The cases equally demonstrate that generalisations in this area can often require subsequent qualification: see the comments on In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 in Holland, at [90] and [106]-[108].
Secondly, once the concept of directors had been taken beyond that of persons who have been appointed (albeit ineffectively) to the position of director, or who have held over after their appointment has terminated – the traditional conception of a de facto director: cf Corporate Affairs Commission v Drysdale above – and was applied to persons who performed the functions of directors without any appointment whether or not they were held out as directors, several very obvious difficulties arose, as Lord Collins acknowledged in Holland at [91]. The distinction between shadow and de facto directors became impossible to maintain as in both instances their real influence in the affairs of a company may be a measure of the actual role they have in it: cf Re Kaytech International plc, at 424. Distinctly, to quote Lord Collins (at [91]):
… the courts were confronted with the very difficult problem of identifying what functions were in essence the sole responsibility of a director or board of directors.
We will return to this latter observation below.
3. The Applicable Legal Principles
In Drysdale the High Court found a de facto director could be guilty of a breach of the duty imposed on a “director” by s 124 of the 1961 Act without need to resort to the statutory definition of “director” in s 5 of that Act. While such may well remain the case in relation to contraventions of ss 180-182 of the 2001 Act: Emanuel Management Pty Ltd (in liq) v Foster’s Brewing Group Ltd (2003) 178 FLR 1 at [248]-[249]; we will confine what we have to say to the statutory definitions of “director” and “officer” in s 9 of the Act. Section 179(2) makes it abundantly clear the legislative intent was that those definitions were to inform the meaning of those terms as used in ss 180-182.
For present purposes a director is a person who is not validly appointed as such if that person “act[s] in the position of a director”: s 9 “director” (b)(i). The following emerges clearly enough from the wording of the definition in its context and from Australian case law.
(i) A person may be a director even without any purported appointment of that person to that position at any time. The definition applies as much to a person who is a true usurper of the functions of a director in a company: see eg Re Valleys Rugby League Football Club Ltd [1997] 2 QdR 645 at 654; as to a person who takes “an active part in directing the affairs of [a] company” with the acquiescence of de jure directors: eg Austin & Partners Pty Ltd v Spencer, SC of NSW, 1 Dec 1998, Windeyer J; see also International Cat Manufacturing Pty Ltd v Rodrick [2010] QSC 30.
At the end of the appeal hearing we were, in effect, invited by the parties – albeit for differing reasons – to exercise our own judgment in the matter.
The issue of the incidence of rests is not one of comity. The question is what by the use of compound interest and rests is likely to provide a crude approximation of the profits considered likely to have been earned from the money misused. His Honour’s own appreciation, having had the advantage both of hearing the matter and of long reflection on it, was that monthly rests were appropriate. We consider this likely to be far closer to the mark than annual rests.
We will allow this appeal and order that Order 3(b), 5(b) and 13 be varied by deleting the word “annual” and by substituting the word “monthly”.
2. Laches and Delay
The primary judge denied Chameleon proprietary relief on the basis of laches and in so doing paid particular regard to the rights of third parties including shareholders in publicly listed companies.
We have considered the claims for proprietary relief on their merits. Only in relation to the claim against Winterfall for a proportionate interest in the tenements did the appropriateness of proprietary relief arise as a serious issue. We refused the claim on discretionary grounds most, but not all, of which related to events occurring after the wrongdoing founding the claim and to the interposition of, and effects upon, third party rights and interests.
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 – officer
4.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 concerned
5.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.
The application to amend the Notice of Contention was made by a notice of motion dated 28 July 2011. Mr Grimaldi’s notice of appeal which challenged the finding that he was a de facto director was filed on 25 February 2011. There was, therefore, a period of several months before the application to amend was made. Before Perram J (and again before us), there was evidence that the raising of the two grounds in the proposed Notice of Contention so close to the appeal was apt to place some pressure and inconvenience upon Mr Grimaldi and his representatives.
On the amendment application before Perram J, Senior Counsel for Mr Grimaldi placed reliance on a well-known passage in the joint reasons in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at 215 [103]:
Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 [of the Court Procedure Rules 2006 (ACT)] to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court’s attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case.
There was no affidavit evidence from Chameleon at the hearing of the application going to the issue generated by this paragraph (although it filed affidavits relating to other issues). This moved Senior Counsel for Mr Grimaldi to make this submission:
…Now, your Honour, there is no affidavit. There are two affidavits from Ms Lusty, but there is not a single word in those affidavits to explain the delay. Your Honour has been told from the Bar Table – and we object to this – that these matters are raised responsive to the amended notice of appeal and to the reply submissions that were recently filed.
Now, your Honour, there is no evidence to support that and thus no means by which I was able to test that proposition or to explore the question of when these matters were first given consideration to and whether they were, in fact, given consideration at the proper time. …
At the same hearing, Junior Counsel for Chameleon argued that the amendments to the Notice of Contention were responsive to amendments which had been made to the notice of appeal by Mr Grimaldi only the week before on 26 July 2011. Those amendments sought to articulate the challenge to the trial judge’s conclusions on the de facto director issue somewhat differently but they did not raise that challenge for the first time. At the time that Chameleon consented to those amendments its Senior Counsel, Mr Hutley SC, made clear that this would bring forth from its side of the bar table amendments to the Notice of Contention.
Justice Perram reasoned this way (at [14]):
I do not see that what Mr Hutley SC said on the transcript on the last occasion is capable of detracting from that proposition and I cannot, therefore, see a way in which the force of paragraph [103] of Aon may be avoided. For those reasons, it seems to me that it would be inappropriate to grant leave to amend the Notice of Contention in the fashion which is foreshadowed.
The basis of the application to re-open the orders is that Perram J was not taken to the recent decision of the Full Court of this Court in Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 at 277 [55] where the Court, having set out paragraph [103] and [106] in Aon, said:
It is apparent from these passages that their Honours were more concerned that there be an explanation as to how the late application comes to be made, than the form in which the explanation was proffered.
In light of this authority it was said to be wrong as a matter of law to proceed on the basis that the absence of any affidavit explaining the reasons for the delay in making the application meant that the application had to be refused. It was sufficient, on this view of things, that Junior Counsel for Chameleon had explained on the amendment application that the amendment had been raised as a result of Mr Grimaldi’s amendments to his notice of appeal; further, this was essentially what Mr Hutley SC had foreshadowed on 26 July 2011 when Chameleon had consented to Mr Grimaldi’s amendments to his notice of appeal.
This submission assumed that the basis upon which Perram J had concluded that the amendment should be refused was the absence of an affidavit explaining the delay. It was at the correctness of this assumption that Mr Bell SC, who appeared for Mr Grimaldi, then launched his attack. The paragraph in which his Honour reached the conclusion that leave should be refused was [14] and at no time in the reasons for judgment prior to that paragraph was the absence of an affidavit referred to as the motivating difficulty. His Honour had been actuated, therefore, not by the absence of an affidavit but by the absence of an explanation.
That submission is to be tested against a context which includes paragraph [18] of the reasons:
At the conclusion of my reasons, Mr Bennett applied for a short adjournment, possibly till tomorrow morning, to put on an affidavit of explanation of the kind contemplated by paragraph [103] of Aon. During the course of argument on the principle application Mr Bell SC made quite plain the submission he was putting on this matter. That is, that he was relying upon paragraph [103]. During the course of further discussion between myself and Mr Bennett the difficulty with paragraph [103] and the need for an affidavit was ventilated. It seems to me that it was at that point that Mr Bennett should have made his application for a brief adjournment to put on such an affidavit. It seems to me that it is not appropriate that that application be made after I have considered the evidence, heard the arguments and decided to dismiss the application.
(Emphasis added.)
The emphasised portion suggests that the default detected was the absence of an affidavit rather than the absence of an explanation. That reading of the reasons is consistent with the passage set out above from the submissions made by Mr Bell SC on 1 August 2011 in which his specific complaint was the absence of an affidavit. Four matters are then apparent: first, the Court was invited to dismiss the application on the basis that there was no affidavit of explanation; secondly, specific reference was made to [103] of Aon; thirdly, no reference was made by counsel for either side to the Full Court’s consideration of what that paragraph meant in Cement; fourthly, the reasons for judgment then proceeded to apply [103] of Aon to dismiss the application without being aware of the Full Court’s statement that an affidavit was not necessarily what [103] required.
One has, therefore, the appearance of an error of principle in the approach taken by Perram J generated by the failure of either party to take his Honour to the decision in Cement. The orders made by his Honour dismissing Chameleon’s notice of motion have not been taken out. The Court, therefore, has jurisdiction in principle to revoke or vary the orders which have been made: ‘The Court may vary or set aside a judgment or order before it has been entered.’ (Federal Court Rules 2011 r 39.04). There is no doubt, as Mr Bell SC correctly stressed, that the jurisdiction to re-open orders is sparingly to be used. Citing the reasons for judgment of Mason CJ in Autodesk Inc v Dyason (No.2) (1993) 176 CLR 300 at 303 the Full Court of this Court recently observed that ‘[b]ecause of the importance of the public interest in the finality of litigation, it is a jurisdiction “to be exercised with great caution”’: Davis v Insolvency and Trustee Service Australia (No.2) (2011) 190 FCR 437 at 439 [6]. The procedure contemplated by r 39.04 (and indeed the undoubted inherent power of a superior court of record to do the same thing) must not be permitted to become an avenue whereby disappointed litigants (or their advisers) are permitted, in effect, a second chance before the trial judge. This is not only because it is contrary to the principle of finality of litigation; not only because it causes the successful party to incur costs which it has some expectation it ought not to have to incur having regard to its success in the suit; and not only because it ties up valuable court resources. It is also for the good reason that the civil litigation system does generally afford the class of disappointed litigants a second chance in the form of an appeal. The principles governing such appeals are highly formalised and, to an extent, constrained. It would be to put at nought those arrangements if there were to be permitted a form of de facto appeal on each occasion that a party alleged error in a trial judge’s processes of reasoning.
For that reason, mere error is not a sufficient touchstone of the jurisdiction at the instance of a disappointed party. ‘What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing.’ (Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 303 per Mason CJ). That statement is not the same as the notion that re-opening will be permitted only to a party who is blameless. That stricter standard was rejected by Mason CJ in Autodesk (at 301-302): ‘The exercise of the jurisdiction to reopen a judgment and to grant a rehearing is not confined to circumstances in which the applicant can show that, by accident and without fault on the applicant’s part, he or she has not been heard’. Although Mason CJ was in dissent, the correctness of that statement has been accepted by a majority of the High Court in Aktas v Westpac Banking Corporation Ltd (No 2) (2010) 241 CLR 570 at [6].
It is undoubtedly true that Chameleon did not bring the Cement decision to the attention of the Court on 1 August 2011 but is also just as true that Mr Grimaldi did not do so either. In that circumstance, it is not correct to say that the position arrived at by the Court was caused by a misapprehension for which Chameleon can be said solely to be responsible; it was caused by both parties. In principle, the jurisdiction should, therefore, be exercised.
Accordingly, it is appropriate to re-open the orders made by Perram J in dismissing the application to amend. His Honour was not bound, in light of the remarks made by the Full Court in Cement, to dismiss the application merely because there had been no affidavit. How then should the application be dealt with? Before us, but not before Perram J, Mr Hutley SC submitted that Aon had nothing to do with the present application because there was no delay which called for an explanation. The argument proceeded as follows:
1.It was true that Mr Grimaldi had challenged the correctness of the trial judge’s conclusion on the de facto director point in February 2011; it was also true that it would have been logically possible for Chameleon to have put on a Notice of Contention at that time.
2.To say, however, that it was possible for Chameleon to put on such a Notice of Contention at that time did not mean that Chameleon was bound to do so. The Court has made consistently clear that it expects parties to be discerning about the issues which are to be raised and not unnecessarily to proliferate them.
3.The trial judge’s reasoning on this issue was based on 11 particular factual matters none of which was challenged in Mr Grimaldi’s notice of appeal. When Mr Grimaldi delivered his written submissions in chief he did not seek to challenge those matters either. Chameleon was entitled to form the view that this aspect of Mr Grimaldi’s appeal had little in the way of prospects and that it would be wasteful to introduce the added complexity of the officer question or the alleged involvement by Mr Grimaldi in Mr Barnes’ breach of fiduciary duty.
4.Mr Grimaldi’s written submissions in reply, however, raised – for the first time – challenges to those findings. Chameleon consented to the amendment to Mr Grimaldi’s notice of appeal to allow the actual issues to be ventilated and because it was able to meet the case.
5.Doing so, however, meant that Mr Grimaldi’s appeal on the de facto director point was no longer to be regarded as de minimis and it was necessary for Chameleon now to put on a Notice of Contention in relation to the officer and Barnes v Addy (1874) LR 9 Ch App 344 points.
6.So viewed, the amendments to the Notice of Contention were responsive to the amendments Mr Grimaldi made to the notice of appeal and there was, in that circumstance, no question of delay.
Mr Bell SC submitted, in response, that there was no affidavit to this effect put forward by Chameleon and that there was, therefore, unexplained delay since February 2011. For reasons already given we do not think that an affidavit was required. Mr Hutley SC proffered the explanation above and indicated that the tactical decisions in question had been his. Further, it is apparent to us – having now been taken to Mr Grimaldi’s written submissions in chief and in reply – that what Chameleon submits about Mr Grimaldi’s appeal is correct. Mr Grimaldi’s original notice of appeal and submissions in chief in support thereof disclose an attack on the trial judge’s conclusions on the de facto director’s point which is lacking in content. The first time anything of substance was said was in the submissions in reply and in the amended notice of appeal. It was quite proper that Chameleon elected not to burden the Court with unnecessary debate on the officer and Barnes v Addy issues when it must have been apparent to it that Mr Grimaldi’s case was not going anywhere. So viewed, the amended Notice of Contention was responsive and not in any way late. We accept the submission therefore that no Aon issue arose.
It was for those reasons that we vacated Perram J’s dismissal of Chameleon’s application to amend its Notice of Contention and permitted that amendment with costs in the cause.
(ii) Mr Grimaldi’s application to amend his notice of appeal
On the second day of the appeal Mr Grimaldi applied for leave further to amend his notice of appeal to contend that the trial judge had gone outside the pleadings in deciding the de facto director case. That point was raised for the first time on the first day of the appeal at which time Chameleon objected to its ventilation without the notice of appeal being amended. Chameleon’s point was that it was quite apparent that the 11 matters which had been relied on by the trial judge were the subject of express submissions by both parties at trial. It was true that Mr Grimaldi’s submissions at trial had commenced with a statement that Mr Grimaldi expected the case to be conducted on the pleadings but it was just as apparent that that was not how the trial was, in fact, conducted. In particular, the parties had joined in an agreed chronology in which the matters the subject of the trial judge’s findings appeared.
It is obvious that if this ground were now to be permitted it would require a close analysis of the relationship between the way the case was pleaded and the way it was run. This appeal, which is complex, was originally set down for seven days; at the parties’ instigation that listing has been extended to eight days. All counsel were on strict time limits on identified topics. Now to permit such a case to be put would disrupt the hearing of the appeal in a way which does not commend itself to us. For that reason we refused the application.
XI. CONCLUSION
Mr Grimaldi not having been successful in any of his grounds of appeal in NSD 68 of 2011, we will order that his appeal be dismissed with costs. Murchison in its cross-appeal in that matter adopted designated grounds of Mr Grimaldi’s appeal as its own. Those grounds being unsuccessful, we will order that the Murchison cross-appeal in NSD 68 of 2011 be dismissed with costs.
The joint and several appeals of Murchison and Crosslands (Winterfall) in NSD 73 of 2011 have been wholly unsuccessful save in relation to Ground 3 of Murchison’s Notice of Contention. While the orders for an account of profits made against each of them respectively have been set aside, this was not for the reasons they advanced. We have remitted this matter to the primary judge for reconsideration. We will order that the cross-appeals of Murchison and Crosslands be dismissed.
Chameleon has enjoyed a certain measure of success in its appeal in NSD 73 of 2011 notably in relation to (a) some of the various challenges it made to the account of profits ordered against Murchison and Crosslands respectively; (b) the benefit Winterfall was found to have received in using Chameleon’s two cheques in purchasing the Iron Jack Tenements; and (c) the annual rests ordered as part of the interest award made. However, we have dismissed the majority of its grounds of appeal and, in particular, its constructive trust claims and we have had no need to consider several other of its grounds. In these circumstances we consider that the appropriate order to be made in relation to costs in NSD 73 of 2011 is that Murchison and Crosslands pay 30 per cent of Chameleon’s costs of the appeal.
Finally, as we have concluded that Chameleon’s appeal must be allowed in part and that the matter be remitted in part, we direct Chameleon to prepare and file draft minutes of order to give effect to our reasons in NSD 73 of 2011 within 21 days of the date of publication of these reasons. Consent orders having been provided to the Court when judgment in this matter was to be pronounced, in lieu of the above direction we make orders in terms of those orders.
I certify that the preceding seven hundred and eighty-three (783) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Stone and Perram.
Associate:
Dated: 21 February 2012
Annexure 1
Principal Corporations and Their Relevant Directors
Company Name Name used in Judgment Relationship to other Companies Relevant Directors Chameleon Mining NL Chameleon 100% holding in Tembo Gold Holdings Landan Roberts
16/11/2001 – 11/1/2006Gregory Bennet Barnes
16/11/2001 – 11/1/2006Manuel Nicholas Dondas
15/11/2002 – 11/1/2006Chameleon Ventures Limited Chameleon Ventures Management consultant to Chameleon Phillip Felice Grimaldi 31/10/2003 – 26/6/2005
Landan Roberts 7/12/2001 – 26/6/2005
Crosslands Resources Ltd
Former Names:
Iron Jack Ltd
10/2004 – 9/2007Winterfall Ltd
9/2004 – 10/2004Winterfall Pty Ltd
8/1993 – 9/2004Winterfall Purchased the Iron Jack Tenements from the Iron Jack Vendors
Subject to a reverse takeover by Murchison on 11/11/2004
50% share subsequently sold to Mitsubishi
Murchison’s remaining 50% share transferred to Jack Hills, a wholly-owned subsidiary
Paul Kopejtka
23/9/2004 – 15/7/2011Nikoljas Zuks
23/12/1993 – 18/4/2006Iron Jack Vendors Iron Jack Vendors Vendors of the Iron Jack Tenements to Winterfall Jack Hills Holdings Pty Ltd Jack Hills Wholly-owned subsidiary of Murchison
50% shareholding in Winterfall
Paul Kopejtka
4/9/2007 – presentMitsubishi Development Pty Ltd Mitsubishi Purchased 50% share in Crosslands Murchison Metals Ltd
Former Names:
Nicu Metals Limited
27/1/2004 – 7/10/2004Weboz Limited 16/10/2000 – 26/1/2004
Murchison Made a reverse takeover of Winterfall on 11/11/2004
Holds 50% of Winterfall through Jack Hill Holdings
Remaining 50% of Winterfall sold to Mitsubishi
Phillip Felice Grimaldi 18/4/1997 – 12/11/2004
Landan Roberts
1/7/2003 – 27/2/2004Paul Kopejtka 10/11/2004 – present
Pinnacle Nominees Pty Ltd Pinnacle Owned and controlled by Barnes
Recipient of 10m shares in Winterfall
10m Winterfall shares subsequently exchanged for 10m Murchison shares and options which were allocated to other companies
Gregory Bennet Barnes (all relevant times) Tembo Gold Holdings Pty Ltd Tembo Holdings Wholly-owned subsidiary of Chameleon Phillip Felice Grimaldi 5/6/2002 – 15/1/2006
Landan Roberts 5/6/2002 – 15/1/2006
- AGLC
- Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
- Case
- [2012] FCAFC 6
- Decision Date
CaseChat Overview and Summary
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
Decision
Reasons for decision
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”.