Hanel v O'Neill

The appeal is from an order made on an application for summary judgment. The respondent, Mr John O’Neill, owns a shopping centre on Belair Road, Kingswood. Daroko Pty Ltd, a tenant in the shopping centre, was owned by the appellant, Mr Kerry Hanel. The lease held by Daroko was to expire on 30 September 2003. By letter dated 15 March 2001, Hanel gave notice on behalf of Daroko that Daroko intended to vacate the premises on 30 June 2001, two years and three months before the expiry of the lease. On 30 June 2001, Daroko vacated the premises. On 30 July 2002, O’Neill obtained judgment in the Adelaide Magistrates Court in the sum of $23,132.62, being the costs associated with obtaining a tenant to replace Daroko, which had acted in breach of the lease arrangement.

The appeal concerns the legal issues arising from the application for summary judgment and the interpretation of s 197 of the Corporations Act 2001. Specifically, the court needed to determine whether Mr Hanel, as the sole director of Daroko, was personally liable for the judgment debt incurred by Daroko when it failed to discharge its liability to Mr O’Neill. The primary issue was whether Daroko was entitled to be fully indemnified against the liability out of the assets of the Daroko Unit Trust, as provided in Clause 21 of the trust deed. The court had to consider whether the appellant was liable for the debt under s 197(1) of the Corporations Act 2001, given that the trust had no assets due to the appellant's actions.

The court found that the first three conditions for personal liability under s 197(1) were clearly established. The appellant was a director of Daroko when it incurred the liability and it did so while acting as trustee for the Daroko Unit Trust. The liability was not discharged, and the issue centred on whether Daroko was entitled to be fully indemnified against the liability out of the assets of the Daroko Unit Trust. Clause 21 of the trust deed provided a legal basis for the indemnity, but the undisputed facts showed that the trust was without funds due to the appellant's conduct. The court held that it would be a strange result if s 197(1)(b) was interpreted to allow a director to escape personal liability by ensuring that a provision, such as Clause 21, was contained in the trust deed and could operate as a shield against personal liability, even though the director caused the trust to be without funds to avoid paying the debt. Consequently, the court found that the appellant was personally liable for the debt under s 197(1) of the Corporations Act 2001.

The appeal was dismissed, and the order of the magistrate was affirmed.