HYJ Pty Ltd v Joen
[2010] NSWSC 854
•30 July 2010
CITATION: HYJ Pty Ltd v Joen [2010] NSWSC 854 HEARING DATE(S): 30/07/10
JUDGMENT DATE :
30 July 2010JURISDICTION: Equity Division
Corporations ListJUDGMENT OF: Barrett J EX TEMPORE JUDGMENT DATE: 30 July 2010 DECISION: (1) Order that the Statutory Demand dated 24 February 2010 served on the plaintiff by the defendant be set aside.
(2) Order that the defendant pay the plaintiff's costs of the proceedings.CATCHWORDS: CORPORATIONS - winding up - statutory demand - debt alleged by sole director to be due to him under loan agreement he alone caused the company to make with him - genuine dispute as to existence of such debt where no suggestion that making of agreement sanctioned by constitution or resolution of general meeting - alleged off-setting claim by company - where sole director caused company to enter into employment contract with him and to pay him salary thereunder - no suggestion that making of agreement sanctioned by constituition or resolution of general meeting LEGISLATION CITED: Corporations Act 2001 (Cth), ss 459G, 459H(1)(a), 459H(1)(b), 459H(2), 459H(3) CATEGORY: Principal judgment CASES CITED: Aberdeen Railway Co v Blaikie (1854) 1 Macq HL 461
George A Bond & Co Ltd v Bond (1929) 30 SR(NSW) 15
Winthrop Investments Pty Ltd v Winns Ltd (1975) 2 NSWLR 666PARTIES: HYJ Pty Ltd - Plaintiff
Hyon Jin Joen - DefendantFILE NUMBER(S): SC 2010/67278 COUNSEL: Mr D P O'Connor - Plaintiff
Mr J R Young - DefendantSOLICITORS: H.I.S. Lawyers - Plaintiff
Sean Kim Kim & Associates - Defendant
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST
BARRETT J
FRIDAY 30 JULY 2010
2010/67278 HYJ PTY LIMITED v HYO JIN JOEN
JUDGMENT
1 The plaintiff makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 24 February 2010 served on it by the defendant.
2 The plaintiff carries on a cleaning business. At the time of the relevant events, there were three shareholders, of whom one, being the defendant, was the sole director. In October 2009, however, the defendant ceased to be a director. The sole director is now Mr Heo, another shareholder, at whose instigation the plaintiff has brought these proceedings.
3 The debt or alleged debt to which the statutory demand relates is in the sum of $30,000 and is described in the schedule to the statutory demand as follows:
- “
| SCHEDULE | |
| Description of the debt | Amount of the debt |
The creditor had been the Managing Director of HYJ Pty Ltd until he had to resign his position from the company against his will on 2nd October 2009 due to the shareholder dispute. The creditor had advanced the loan money of total sum of $63,000 to the debtor company for the period of between February 2009 and April 2009. The repayment was due in one payment on 31 December 2009. The company failed to repay the creditor the loan money. $30,000 of the loan money’s transferred to the company’s bank account at Commonwealth Bank (BSB, XXX-XXX, Account No. XXXX-XXXX, Holder, HYJ Pty Ltd) on 27 February 2009. The creditor required repayment of the loan money when he issued the letter of resignation dated 2nd October 2009 with various outstanding issues. Upon the issue of the notice, $30,000 immediately became repayable to the creditor by the company. On 26 November 2009, Peter Kennedy, the creditor’s attorney sent the company a notice reconfirming the creditor is in possession of the Corolla vehicle until such time as all financial matters have been resolved. | $30,000.00 |
4 This description is not easy to follow, but the plaintiff has approached the matter on the footing that the defendant claims to have lent $30,000 to the plaintiff by depositing that sum in the plaintiff's bank account in February 2009 and says that an obligation to repay became due for performance by the plaintiff when the defendant resigned as a director of the plaintiff and demanded payment of $30,000.
5 The defendant's position seems to be that there was a loan repayable on demand, that demand was made and that the debt was then immediately due and payable by the plaintiff to the defendant.
6 The plaintiff challenges the statutory demand on a twofold basis: first, that there is a genuine dispute as to the existence of the debt; and, second, that the plaintiff has an offsetting claim. The plaintiff thus invokes both s 459H(1)(a) and s 459H(1)(b).
7 The allegation of genuine dispute is made on the basis that there is no reference in the plaintiff's records to any loan of the kind that the defendant alleges and that the defendant did not disclose any such loan to either of the other shareholders in the plaintiff. It is said by the defendant, in response, that he was the sole director and that there was no need for anyone else to be involved in the loan transaction.
8 Single director companies are commonplace today. Often, one individual is both sole director and sole shareholder. Here, there was one director, being the defendant, and three shareholders.
9 The defendant, as sole director, stood in a fiduciary relationship to the plaintiff company. He was therefore bound in all things to subordinate his personal interests to those of the plaintiff. His position was as described by Lord Cranworth LC as long ago as 1854 in Aberdeen Railway Co v Blaikie (1854) 1 Macq HL 461:
- “A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect ... So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into".
10 A director may, of course, avoid breach of duty by obtaining the fully informed consent of the company to the transaction in the form of a resolution of the company in general meeting: see, for example, Winthrop Investments Pty Ltd v Winns Ltd (1975) 2 NSWLR 666. Alternatively, dispensation from the rigours of equity is sometimes given by the company's constitution, for example, through a provision allowing a director to contract with the company subject to his or her giving appropriate notice to the other directors. There is no suggestion in this case that any dispensation was provided by the constitution; and the matter of which the plaintiff particularly complains, that is, that there was no disclosure of the loan agreement to the other shareholders (something that I do not understand the defendant to dispute) makes it clear that no dispensation was given by resolution of the company in general meeting.
11 The consequence of a breach by a director of the rule of equity to which I have referred was stated by Harvey CJ in Eq in George A Bond & Co Ltd v Bond (1929) 30 SR(NSW) 15 as follows
- “There is no doubt the judgments in some of these cases do state the law in that positive way, that directors, like other fiduciary agents, cannot make a contract with the board of directors, that trustees for sale cannot sell to themselves, and so forth, but those statements must be looked at in conjunction with the circumstance under which the point had arisen for decision. These statement of the law do not in my opinion mean that any contract so made is absolutely void in the sense that the contract is waste paper; all this principle means is that contracts so made are voidable at the mere option of the cestui que trust , irrespective of how fair they may be, how full the consideration given by the trustee may be".
12 On the face of things, therefore, the loan agreement on which the defendant relied in issuing the statutory demand was, in the words of Harvey CJ in Eq, "voidable at the mere option of" the plaintiff; and this was so irrespective of how fair it may have been and how full the consideration given by the defendant may have been. The conclusion that, on the face of things, the loan agreement is voidable at the option of the plaintiff clearly means that there exists a genuine dispute as to the existence of the debt on the plaintiff's part said to arise from the voidable contract.
13 This is sufficient to dispose of these proceedings. I nevertheless deal briefly with the offsetting claim aspect.
14 The plaintiff, in fact, alleges two offsetting claims, one for $68,000 and the other for $23,250. The $23,250 represents the cost price of a Toyota car acquired by the plaintiff for the use of the defendant. The defendant retained the car when he left the plaintiff in October 2009. The plaintiff, however, did not own the car. The purchase price of $23,250 was paid to the dealer by a financier which purchased the car and then leased it to the plaintiff. The plaintiff alleges wrongful detention of the car by the defendant. I did not understand the defendant to allege any right of possession. His attitude is simply the practical one that he intends to hold on to the car until matters between himself and the plaintiff have been resolved.
15 In these circumstances, it may be that the plaintiff has a cause of action against the defendant for wrongful detention and wrongful interference with possession. But it by no means follows, I think, that the proper quantification of the claim is the cost price of the vehicle. Indeed, no cogent explanation was given of how that cost price would properly be regarded as an “amount” of the alleged offsetting claim for s 459H purposes.
16 The second alleged offsetting relates to an amount of $68,000 which the defendant, as sole director of the plaintiff, caused the plaintiff to pay to him in August 2009 and which he says he used as to one half to pay industry creditors and as to one half to pay his own wages. He says that he is entitled to wages or salary under a written contract dated 1 January 2008 between the plaintiff and himself, being a contract that he caused the plaintiff to make with him, again at a time when he was the sole director.
17 This employment contract raises the issues of self-dealing already discussed. If, as the defendant says, he caused the plaintiff to enter into an employment contract with him and to pay him salary and wages under it without any authority sourced in the constitution or a resolution of a general meeting, there is a plainly arguable claim of the plaintiff to recover the moneys paid. This is because of the fiduciary considerations to which I have already referred. It may be that some quantum meruit counter-claim by the defendant would be found to have substance assuming he in fact did work, but that does not displace the conclusion that the defendant has a plainly arguable claim to recover the one half of the $68,000 which the defendant says was salary or wages paid to him under a contract that he alone caused the plaintiff to enter into with him.
18 Given these conclusions with respect to both genuine dispute and offsetting claim (or, at least, the second aspect of the offsetting claim part of the case), the substantiated amount of the statutory demand in terms of the s 459H(2) is zero and the result dictated by s 459H(3) is that the statutory demand must be set aside.
19 I make the following orders:
- (1) Order that the Statutory Demand dated 24 February 2010 served on the plaintiff by the defendant be set aside.
- (2) Order that the defendant pay the plaintiff's costs of the proceedings.
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