Harris v Milfull

Case [2002] FCAFC 442

FEDERAL COURT OF AUSTRALIA

Harris v Milfull [2002] FCAFC 442

PRACTICE AND PROCEDURE – appeals – leave to appeal against interlocutory orders – whether decision attended by sufficient doubt to warrant consideration of point by Full Court – whether substantial injustice would result if leave refused – whether other considerations arose which would militate for or against granting leave to appeal

CORPORATIONS – shareholders – derivative actions – whether shareholder and company can sue third party concurrently – where shareholder has suffered personal loss – whether shareholder can sue for personal loss where that loss is reflective of a loss suffered by the company

Trade Practices Act 1974 (Cth) s 82

Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 considered
Prudential Assurance Co Ltd v Newman Industries Ltd(No 2) [1982] 1 Ch 204 considered
Gould v Vaggelas (1983-1985) 157 CLR 215 considered
Christensen v Scott [1996] 1 NZLR 273 considered
Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 considered

ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE AND COOPERS & LYBRAND (A Partnership) v TERRENCE JOHN MILFULL

Q 58 OF 2002

DRUMMOND, COOPER & DOWSETT JJ
23 DECEMBER 2002
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

Q 58 OF 2002

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE
FIRST APPELLANTS

COOPERS & LYBRAND (A Partnership)
SECOND APPELLANTS

AND:

TERRENCE JOHN MILFULL
RESPONDENT

JUDGES:

DRUMMOND, COOPER & DOWSETT JJ

DATE OF ORDER:

23 DECEMBER 2002

WHERE MADE:

BRISBANE

THE COURT ORDERS THAT:

1.        The application be dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

Q 58 OF 2002

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE
FIRST APPELLANTS

COOPERS & LYBRAND (A Partnership)
SECOND APPELLANTS

AND:

TERRENCE JOHN MILFULL
RESPONDENT

JUDGES:

DRUMMOND, COOPER & DOWSETT JJ

DATE:

23 DECEMBER 2002

PLACE:

BRISBANE

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

  1. This is an application for leave to appeal from orders made by Kiefel J on 30 April 2002, giving effect to reasons delivered on 1 March 2002.  On an application for leave to amend the statement of claim, her Honour refused to allow certain amendments but allowed others.  Those amendments are reflected in a draft which is exhibit PGB 1 to the affidavit of Paul George Anthony Betros filed on 26 April 2002.  The present appeal is brought by the second and fifth respondents in the proceedings before Kiefel J.  The second respondents are partners in the fifth respondent firm.  They are sued for actions allegedly taken by them as receivers of Terranora Leisuretime Resort Management Ltd (“Management”).  The fifth respondent is allegedly also liable for those actions.  The second and fifth respondents seek to set aside her Honour’s order granting leave to file the amended statement of claim…

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AGLC
Harris v Milfull [2002] FCAFC 442
Case
[2002] FCAFC 442
Decision Date

CaseChat Overview and Summary

The case of Harris v Milfull involved the collapse of a time-share resort investment scheme. The dispute centered on the actions of the respondents, including the winding up of the company that managed the resort, which led to the termination of the lease and the alleged misrepresentation of the financial status of the scheme to the redeemable preference shareholders. The matter was heard in the Supreme Court of New South Wales. The applicants sought to challenge the decisions made by the respondents that led to the financial downfall of the investment scheme and the loss of their investments.

The legal issues that the court had to decide included whether the respondents were liable for the losses suffered by the applicants due to their actions in winding up the management company, terminating the lease, and allegedly misrepresenting the financial situation of the scheme. The court also had to consider whether the applicants were entitled to pursue their claims against the respondents. The central issue was whether the respondents had acted in breach of their fiduciary duties and whether their actions had caused the applicants' losses.

The court found that the applicants were not entitled to pursue their claims against the respondents as they had not suffered any loss due to the actions of the respondents. The court held that the applicants had not demonstrated that they had suffered any direct loss as a result of the winding up of the management company or the termination of the lease. The court also found that the applicants had not provided sufficient evidence to support their allegations of misrepresentation by the respondents. The court held that the applicants' claims were speculative and based on assumptions that were not supported by the evidence. The court dismissed the application with costs.

In conclusion, the court held that the applicants were not entitled to pursue their claims against the respondents and dismissed the application with costs. The court found that the applicants had not suffered any loss due to the actions of the respondents and had not provided sufficient evidence to support their allegations. The decision of the court provides guidance on the requirements for establishing liability in cases involving the collapse of investment schemes and the duties owed by those involved in the management of such schemes.

Orders

Orders of the court

1. The application be dismissed with costs.

Background

Background to the litigation

The decision under appeal did not finally determine any rights in the sense used in Decor. Her Honour merely held that the applicant should not be summarily excluded from pursuing his claim.BACKGROUND CIRCUMSTANCES These proceedings concern the collapse of a time-share resort investment scheme. The essential components of the scheme were:·A resort was constructed at Terranora Lakes by Terranora Timeshare Developments Pty Ltd (“Developments”).·The land was owned by Terranora Lakes Country Club Ltd (“Club”).·The resort was leased by Club to, and managed by Management. The lease was for forty years but would come to an end if Management were wound up. ·The articles of association of Management provided that its board was not competent to deal with the lease other than pursuant to a special resolution of RP shareholders who are identified below.·Club held 54 per cent of the shares in Developments and 74 per cent of the shares in Management.·Redeemable Preference Shares (“RP shares”) were issued by Management pursuant to prospectuses. They conferred certain rights of accommodation on a “time-share” basis, which rights could be “sub-let” or exchanged for accommodation at other resorts participating in the scheme. RP shares were issued at a premium, the quantum of such premium depending upon the time-share rights to be acquired. Management guaranteed the repayment of funds advanced to Developments and accordingly gave a bill of sale, equitable mortgage and floating charge over its assets. On 25 July 1988, it granted a mortgage over its interest in the lease. This was done without a special resolution of RP shareholders. Club also guaranteed Developments’ debt. The scheme apparently fell into financial difficulties and, in July 1991, Club sought advice from the fifth respondent. In its advice, the fifth respondent identified three options said to be available to Club. They were:·to wind-up Management, terminate the lease and take over the resort, free from time-share rights;·to re-finance and take over management of the scheme; and·to sell the resort in a way which preserved the rights of existing RP shareholders. At about this time, an offer was received for the resort in the amount of $3.5 million, together with a 25 per cent interest in a new project. This offer was rejected on the basis that it was insufficient to pay out debts. The applicants allege that the fifth respondent recommended that Club adopt the first of the three options. It is alleged that the value of the resort business was then $3.5 million. In August 1992, Club paid out approximately $4.5 million of the amount owed by Developments to the bank and claimed to be subrogated to the bank’s rights under the securities granted by Management. On 24 August 1992, Club appointed the second respondents as receivers of Management. It is alleged that the second respondents advised RP shareholders that the amount required to pay out the secured debt was in excess of $5 million and sought their views as to whether they could raise that amount in order to protect their rights. The RP shareholders concluded that they could not do so. It is alleged that the true amount of the debt was only $566,368.59 and that such amount could have been raised. Management was wound up on 16 March 1994 on the application of Club. The lease was accordingly terminated.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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