| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : MARKET CAPITAL GROUP PTY LTD -v- HITEC ENERGY LTD [2005] WADC 116 CORAM : FENBURY DCJ HEARD : 17-18 NOVEMBER & 7 DECEMBER 2004 DELIVERED : 17 JUNE 2005 FILE NO/S : CIV 710 of 2003 BETWEEN : MARKET CAPITAL GROUP PTY LTD (ACN 099 259 702) Plaintiff
AND
HITEC ENERGY LTD (ACN 009 113 160)
Defendant
Catchwords: Damages for breach of contract - Contract terminated for alleged breach of fiduciary duty - Company director - Whether had material conflict of interest - Whether failed to disclose conflict of interest - Effect of failure to disclose conflict - Turns on own facts
Legislation: Nil
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Result:
Claim dismissed Representation:
Counsel:
Plaintiff : Mr C R Coulson
Defendant : Mr P N Bevilacqua
Solicitors:
Plaintiff : Coulsons
Defendant : Fearis Salter Power Shervington
Case(s) referred to in judgment(s):
Camelot Resources Ltd v MacDonald (1994) 14 ACSR 437
Jones v Dunkel (1959) 101 CLR 298
Woolworths Ltd v Kelly (1991) 22 NSWLR 189
Case(s) also cited:
Nil
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1 FENBURY DCJ: This is an action by a company for damages for breach of a contract for services.
2 By an agreement in writing dated 1 February 2002 the defendant ("Hitec") appointed the plaintiff ("Market Capital") to provide certain services for a period of 12 months subject to certain terms and conditions. 3 The services were provided for approximately four months until Hitec terminated the agreement. This gave rise to Market Capital bringing this action for damages quantified in essence by the amount of unpaid sums for the balance of the term of the agreement. 4 Hitec denies any obligation to pay Market Capital as claimed asserting that Mr Mark Hansen, who was a director of both Market Capital and Hitec at all material times, breached his fiduciary duty to Hitec. In short, it is alleged that Mr Hansen failed to disclose to Hitec that the person who performed the services on behalf of Market Capital the subject of the contract, Ms Elissa Samuel, was a person with whom he had a personal relationship at all material times. Further he did not advise Hitec that he was a director of Market Capital. Alternatively Hitec alleges that there has been a representation in trade or commerce within the meaning of the Trade Practices Act, s 52. In its counterclaim Hitec asserts that the agreement should be set aside "in equity or pursuant to s 87 of the Trade Practices Act"and also seeks compensation and/or damages. 5 The parties prepared a formal statement of agreed facts which it is convenient to set out in full hereunder. "Statement of Agreed Facts The parties agree the following facts: Plaintiff 1. The plaintiff (MCG) is, and was at all material times, a proprietary company registered under the Corporations Act 2001 (Cth). It was registered on 14 January 2002. 2. Elissa Samuel and Mark Hansen are, and were at all material times, the directors and the shareholders of MCG. Both of them were appointed directors on 14 January 2002. The issued share capital of MCG is 100
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ordinary shares. Ms Samuel holds 50 shares. Mr Hansen holds the other 50 shares. Defendant 3. The defendant (Hitec) is, and was at all material times, a public company registered under the Corporations Act 2001 (C'th). It is listed on the Australian Stock Exchange.
4. By an agreement in writing dated 1 February 2002 (the Agreement) and made between MCG, Hitec and Elissa Samuel: 5. Annexed hereto and marked "A" is a true copy of the Agreement. 6. The Agreement was signed for Hitec by Rod Harris, a director of Hitec, and Greg Ledger, Hitec's company secretary. 7. The Agreement was signed for MCG by Mark Hansen and Elissa Samuel. 8. Pursuant to the agreement; 9. Hitec terminated the Agreement by letter dated 6 June 2002 to MCG and Elissa Samuel.
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6 It can be seen from the above that it is common ground that at all material times Mark Hansen was a director of both Market Capital Group Pty Ltd and Hitec Energy Ltd. 7 Ms Elissa Samuel, who was a party to the consultancy agreement, and who was the "consultant" in investor relations who provided or performed the relevant services, was employed by Hitec in May 2001. It was Mr Hansen who engaged Ms Samuel. He signed Ms Samuel's contract of employment (exhibit 14) on about 7 May 2001. He obviously did so on behalf of Hitec but he expressed himself, in his evidence-in-chief at T6, in the first person. This gave some insight into his perception of his role with Hitec. Mr Hansen said that Ms Samuel reported to him. He said that the services she provided were excellent. She was very professional in her work. She was a credit to the company. 8 According to Mr Hansen by November 2001, (that is within about six months from when she commenced to work for Hitec), Ms Samuel came to him because she was getting bored with her work and wanted greater professional challenge. Mr Hansen put it like this in his evidence-in-chief:
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"T6 et seq. And do you recall having discussions with Ms Samuel at around about November 2002 (sic 2001)?---I do indeed. She was actually getting bored and came to me – this was probably understandable. The reason that she'd come back to Perth was because her father had cancer, which is why she wanted to be here, but I think her heart would have really been back in Sydney with a large company. Well, she was doing a good job and I took that on board she was also attracted by some job offers she had had. She had been head hunted. She had had five, I think, including one for substantially more than she was being paid at Hitec from Orient Capital, and she had a third reason, which was a lesser reason, I guess. She was concerned about perpetual delays to the development of the company's project and what that would do to her credibility with her market contacts. And do you recall having discussions with her about those matters in December?---Yes. I thought it was important for Hitec to keep her. She came back in December on more than one occasion and basically I thought – well, she was going to leave. I mean, she really didn't have an interest. You could see her heart just wasn't in it. I said, 'well, what if I constructed something for you where you can perhaps act for other clients and perhaps act as a consultant, provided you still work for Hitec Energy. Would that interest you?" And what was her response to that?---Wasn't that enthusiastic. She said that she – said she'd think about it, and I think she went away to ask other people including her father – what he thought. And did you express to her anything about you having a role in the consultancy?---Well I did – there was several – we discussed it two or three times and the latter of those times I suggested the possibility that we could form a company – her and I could form a company. I would look after it because one of her concerns was she didn't know anything about running a company and didn't really want to be a consultant. I said, 'well, look, I'll do all of that. I'll look after the company. I'll form it. I'll finance it. All you'll need to do is you'll need to act as an investor relations consultant', and further than that during December I'd had some discussions with a potential client –
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someone that did become a client, and said 'well, look, I've already got someone else. If Hitec wants to go ahead, that's great, and I've also got someone else who you can work for.' And did Ms Samuel respond to your proposal further to that?---Yes, she did. After she had discussed with her father and others, she came back and said 'Yes', on the basis that I would do what I said, in terms of running the company. She would be interested in pursuing that, and I said 'Well, okay. In that case I'll need to take that to Hitec and see what they think." 9 And later, at T9: "Do you know a Mr Greg Ledger?---Yes, I do. He was and I believe still is the company secretary for Hitec Energy. Who did Mr Ledger report to in Hitec?---He reported to me. Do you recall discussing your proposal with Ms Samuel with him at any time?---Absolutely. That discussion was in late December before Christmas with Elissa and then after the break in early January I called him into my office and basically outlined the situation. I said that Elissa was very good; she wanted to leave, was going to leave. I suggested a consulting basis on which she would be prepared to continue working for the company. I said there were two issues that came out of that, though, for me. The first one was that as I was going to be involved I couldn't deal with it. I said, 'you're going to have to deal with it with Rod,' who was the other executive director, approach the rest of the Board if you need to, the issue, it's clear – I've been in corporate life well over a decade, the other issue that I was more concerned about at the time was that the interests of Hitec were not only best served but seem to be well served so that meant the actual consulting rate had to be conservative and we discussed that and he thought, 'Yes, $65 an hour, that's probably about reasonable, notwithstanding that a normal rate for PR consultants would be about $120 an hour'." 10 Mr Hansen then explained how he had discussed with Mr Ledger the requirement that a company be formed and then he was asked this question at T10: "When you first had this discussion, you've said with Mr Ledger in your office, I think you said in early January, did you ask
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Mr Ledger what he thought of your proposal?---Yes I did. He couldn't see any problems. He didn't think there was any material interest in the sense that I wasn't going to get any money as it were out of it, and that the rate would be fine but he was going to go away and discuss it but his initial reaction was, 'I don't see a problem with that.' Did you ask him to discuss the matter with any body else?---Yes with Rod Harris. Who was Mr Harris?---He is, or was, I believe he still is the other executive director of Hitec Energy. He sat in an office next door to Greg. We were the two – Rod and I were the two executive directors so clearly I couldn't deal with it; he could. If they felt that it was significant enough it was up to them to go to the Board or at least that was my instruction. Did he ever express any view to you about a conflict of interest, that you had a conflict of interest?---I told him that I may have; he didn't think that it was an issue." 11 And later at T12: Did you mention to Mr Harris anything about the structure or the proposed structure of Market Capital?---I told him specifically what I planned. That was the whole reason for calling him into my office. What did you tell him?---I told him that it was proposed that Elissa and I would be directors and we would be equal shareholders that I would fund the company; I told him that I had another potential client; I also told him that it didn't really matter to me one way or the other whether this contractual arrangement happened within Market Capital or whether it happened direct between Hitec and Elissa but it would be beneficial to me in a small way if it all were tied up into one entity and he – I said, 'I've got obvious conflict of interest; you're going to need to deal with this with Greg and consult as you consider is appropriate with the remainder of the Board'. If that is so why did you ask Mr Leger to start incorporating the company when no decision had been made?---Because I wanted to form it anyway."
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12 And later at T13:
"When you discussed with Mr Harris did you ever raise the issue of your position as Managing Director of Hitec?---Yes. That's why I was talking about it with him as I couldn't be – normally this would be a matter that I would deal with but because I had the potential for conflict he was going to need to deal with it instead of me. Did you give Mr Harris any instructions as to how he should deal with it?---Yes. I said he should discuss it with Greg in the first instance and they should make the decision. To me it wasn't particularly material whether I did it that way or not but if they had any problems they should go to Titley and Fussell. Do you know if Mr Harris did that?---I have no idea. What I do know is that Harris came – or Greg in the first instance came back and said they discussed it and they didn't see a problem with it, but I don't know whether they actually discussed it… When did they tell you that?---Late January Did you discuss with Mr Harris anything about having a conflict of interest?---Yes. What were the terms of the discussion?---The basis for that was that because I was a director of Hitec Energy, if I were to enter into an agreement through Market Capital and be a director thereof, I could have potential for a material conflict of interest and that's why I wanted him to deal with the matter and advise. So what, you just left it to him?---To he and Greg. What transpired after the discussion with Mr Harris?---Shortly thereafter I believe Greg Ledger came back and said to them they didn't see a problem and they thought it would be fine to go ahead." 13 It is notable from the above excerpts, putting aside issues of credibility and reliability, that Mr Hansen was alive to the possibility of his having a conflict of interest. 14 Mr Hansen seems to be saying that he asked Mr Ledger and Mr Harris whether they thought he had a conflict. His view was that if
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they had thought so, he would have taken action but, given they did not, he did nothing. 15 I think it is significant the issue of a conflict occurred to Mr Hansen. In my view there was obvious potential for conflict of interest. It occurred to Mr Hansen there might be. The question arises whether, accepting his evidence at face value for the purposes of the discussion, he fulfilled his obligations as a director of Hitec to deal with the problem and declare it to the Board. 16 The evidence established that Market Capital Group Pty Ltd was registered on 14 January 2002. Mr Hansen and Ms Samuel were directors and shareholders. 17 As I have already mentioned the consultancy agreement was executed on 1 February 2002. In his evidence Mr Hansen denied that he had a close personal relationship with Ms Samuel at the time of the execution of the consultancy agreement. 18 However, he also said that by the middle of February, about two weeks later, he had left his wife and he and Ms Samuel had commenced cohabitation. 19 The proximity of the date of birth of the proposal to employ Ms Samuel on a contract basis (being about November/December 2001) with the date of registration of the company Market Capital Group Pty Ltd on 14 January 2002, the date of execution of the agreement on 1 February 2002 and the date of commencement of cohabitation of Mr Hansen and Ms Samuel in the middle of February 2002 seems to me to be of some significance in this matter. Although human relations do not run to any particular timetable, and romance has been known occasionally to bloom suddenly, I have the strong feeling from the evidence that underlying all of Mr Hansen's conduct in respect of this matter from November 2001 until February 2002 is his personal involvement with Ms Samuel. 20 Mr Hansen's explanations about these matters, bearing in mind what I am sure was the situation of his personal life, smack of some disingenuousness. His denial that he had any close personal relationship with Ms Samuel on 1 February, yet commenced to live with her two weeks later, is simply not believable. Ms Samuel may not have wanted to stay in Western Australia for professional reasons. I think it probable Mr Hansen wanted to keep her in Western Australia for personal reasons.
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21 I will briefly refer to the constitution of Hitec. Clause 17 relevantly provides, in its definition of "material interest" as meaning:
22 Clause 17.2 is in the following terms: "A director who has a material interest must; (a) make the declarations and disclosures to the Board required by the law and if the company is listed by the listing rule; (b) in any case, declare to the Board the fact of the material interest and its nature, character and extent. This must be done at the first meeting of the Board after – (c) the director becomes a director; or (d) the director becomes aware of the facts which give rise to that material interest, whichever is the later." 23 Given the circumstances of this case it is difficult to suggest Mr Hansen did not have a material interest as defined. Mr Hansen did not make any relevant declaration or disclosure to the Board at the meeting on 24 January. He must have had knowledge of potential conflict as at that date. What he says is that he raised the matter with another member and left it to him. He should have done more than that. 24 Apart from various aspects of Mr Hansen's evidence to which I have already made reference, a consideration of the contemporaneous documents/emails, is quite revealing on the questions of whether Mr Hansen felt he had a material conflict of interest and whether he should disclose it and to whom. 25 As has been noted above Mr Hansen and Elissa Samuel became directors of the plaintiff company, Market Capital Group Pty Ltd, on 14 January 2002.
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26 Exhibit 1 is a copy of an email sent from Peta Wright, an employee of Hitec, to Mr Greg Ledger, who was the company secretary with a copy being sent to Mr Hansen. The subject was "Consultancy Agreement". Given the terms of the consultancy agreement it seems to me that Mr Hansen must have started to become aware of the potential of a conflict on 17 January 2002.
27 Exhibit 3 is another email dated 23 January 2002 from Mr Ledger to Mr Hansen which says: It is to be noted that clause 9.12 in the Consultancy Agreement in its final form, dated 1 February does indeed deal with matters concerning the GST. It seems to me that the agreement was highly likely to have been in its final form by that date, being 23 January 2002. 28 Then, and perhaps more significantly, I note exhibit 13 which is a copy of the minutes of the meeting of the Board of Directors of Hitec on 24 January 2002 commencing at 2.00 pm. Mr Hansen was present at that meeting. There is no mention whatsoever of the consultancy agreement. The meeting concluded at 3.30 pm. 29 Exhibit 4 is an email dated 24 January 2002 which was sent by Mr Hansen immediately the meeting concluded. That is it was sent at 3.31 pm. The email is to other staff members including Greg Ledger and Rod Harris of the defendant company Hitec both of whom were at the meeting. The email is sufficiently significant to be set out in full: Subject: Elissa Samuel – engagement as consultant. "Dear all, Elissa Samuel has been employed by Hitec Energy since May 2001 and during this time has received five job offers, all for substantially more remuneration and responsibility that (sic than) she has with Hitec Energy. The most recent offer at the end of last year was to manage an overseas office for one of Australia's leading IR companies.
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30 It is to be noted that Mr Hansen makes no mention whatsoever of the fact that he was the managing director of the company through which Ms Samuels would be providing consultancy services to Hitec. I think it was quite misleading of Mr Hansen to have omitted to reveal this fact in that email, given the circumstances. 31 The consultancy agreement was signed a week later on 1 February 2002. 32 A fellow director of Hitec to whom Mr Hansen maintained he had made some form of disclosure, thereby purporting to fulfil his obligations under the law, was Mr Rod Harris. 33 Mr Harris said that he first heard of the proposal that Elissa Samuel was to become a consultant for Hitec when he received Mark Hansen's email at 3.31 pm on 24 January 2002 – exhibit 4 above described. 34 Mr Harris said that he first became aware of Market Capital Group Pty Ltd, the plaintiff, when he was shown the proposed consultancy agreement on 27 January 2002. This was the occasion when he was asked to sign the contract. It was put on his desk by Greg Ledger the company secretary. As he said in his evidence at T78:
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What did you do then?---Well I had a look at it for a start and realised it was an employment document. It was very similar to the one that Mark has with us through Rafen with the company so I've sort of recognised the context of it. I said 'Why did Mark want me to sign this why didn't he sign it himself' and I, you know, told Greg that I wouldn't sign it and then I spoke to Mark…' How soon after that meeting with Greg? Mr Ledger---Well I think Greg went and saw Mark and said 'Rob wants to talk to you' and he came down to my office and he sat on the opposite side of the desk and we spoke about it. What did you say to Mark?---I said 'Why do you want me to sign it why can't you sign it?' And what did he say?---Well he said 'I've negotiated this contract with Elissa and I want you to review it and sign it…'" Mr Harris said that he could not see anything untoward in the matter at that time. He felt he was just being asked to review the arrangement that Mr Hansen had reached with Elissa Samuel. He decided to sign it. Mr Harris said that nobody else had signed it at that stage. Certainly Mr Hansen had not signed it on behalf of Market Capital. All the document bore were the seals of the two companies involved. 35 There seems no doubt that at the time Mr Hansen got Mr Ledger to give the contract to Mr Harris for signature, that Mr Hansen had not signed it on behalf of Market Capital. Mr Hansen agreed with that in his own evidence at T17. He said he said he was the last person to sign the document after Messrs Harris, Ledger and Ms Samuel. 36 Mr Harris' evidence was that Mr Hansen made no mention of his being a director of Market Capital at this time. Mr Harris said he was ignorant of the fact and I believe his evidence about that. 37 Mr Harris' evidence was that there was no discussion with Mark Hansen about the question of conflict concerning Market Capital. This is contrary to the evidence of Mr Hansen. Mr Harris said he did not become aware of Mr Hansen being a director and shareholder of Market Capital until June 2002 when he was told of that by Alan Scott who was Mr Hansen's successor at Hitec Energy Ltd.
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38 In cross-examination at T96 Mr Harris was pressed by counsel about his knowledge at the time he signed the consultancy agreement and he firmly expressed his views as follows:
"No, the reality of you signing an agreement with a company that you have no idea about. You're a director?---Sorry, I do know what its about. Its supplying Elissa, and that's all the company - all we needed to know, given that the managing director's saying he was happy and he wanted to sign it – wanted me to sign it. What we're arguing about - or, sorry, discussing is whether he was a director or not, and that's what I don't know. If I'd known he was a director, it wouldn't have been put up. I wouldn't have signed it." 39 I accept Mr Harris' evidence that he did not know Mark Hansen was a director of Market Capital at the time that the consultancy agreement was signed. 40 The company secretary, Mr Ross Ledger, is a chartered accountant in his own practice. However, he provided secretarial services to Hitec. Mr Ledger said in his evidence that Mr Hansen controlled the affairs of Hitec, and that he was a forceful and domineering type of person. Having observed Mr Hansen in the witness box I agree with that description. Mr Ledger said that he was told by Mr Hansen on 14 January 2002 to set up a new company. He was told that Mark Hansen and Elissa Samuel would be the directors of that company. Mr Ledger carried out his instructions. This was something he did on numerous occasions in his practice. He thought little of it. 41 Mr Ledger said that Mr Hansen had not given him instructions to tell other members of the company about this matter. He said at T107 that Mr Hansen did talk to him about the proposed consultancy agreement and he reached the view that "on the surface there didn't seem to be anything untoward about the idea". 42 In essence Mr Ledger's evidence was to the effect that he was the uncritical unquerying functionary of the company and of Mark Hansen. He agreed that he knew that Mark Hansen was a director of Market Capital when he caused, on Mark Hansen's instructions, the consultancy agreement to be drawn up by solicitors. However, his view was that it was not for him to activate the matter. His evidence was that he did not know for certain at the time of signing the consultancy agreement that
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Mark Hansen and Elissa Samuel were personally involved with each other, but he had his suspicions. 43 Mr Ledger agreed that he was at the meeting of the Board of Hitec on 24 January 2002. However, he said nothing about the matter. He said he did not feel it was his place to do so. He said that Mr Hansen did not raise the matter of concern about a conflict at that meeting. Mr Ledger explained his situation by saying that Mr Hansen knew about it and he assumed that Mr Hansen was "in control of it". Mr Ledger agreed that there was no consultancy agreement executed as at the date of the meeting but it appears that the agreement had been drafted and was in the hands of solicitors. It had also been discussed with Mr Hansen and with Mr Harris. In essence Mr Ledger's view was that he did not feel that he should raise the matter. Not unreasonably in my view, he thought Mark Hansen, who had a good rapport with the other directors and especially the Chairman of the Board Mr Fussell, would inform them all himself. 44 Although it might be said that Mr Ledger should have spoken up the fact that he did not is of no moment in this case in my view. Mr Hansen seems to suggest that he discharged his obligations by telling Ross Ledger and he assumed Ross Ledger would have spoken up and advised others about the matter. I cannot not see how Mr Hansen can be said to have fulfilled his obligations to disclose his potential for conflict in that way. 45 In my view, in light of the above analysis, Mr Hansen had a material conflict of interest at relevant times and he failed to disclose it to the Board of Hitec. I do not accept Mr Hansen's evidence to the contrary. 46 Having made these findings I shall now consider the legal implications. I have received considerable assistance in the task from the submissions prepared by counsel. 47 In par 8 of the defence it is pleaded as follows:
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(d) prior to entering into the agreement Ms Samuel was an employee of the defendant; (e) Mr Hansen and Ms Samuel were involved in a close personal relationship; (f) Mr Hansen had a material personal interest in the agreement and had a personal interest in Ms Samuel receiving a material personal interest in the agreement." 48 Paragraphs 9-13 of the defence are as follows: "9. Further, at all material times the Board of Directors of the defendant were unaware of the matters pleaded in the preceding paragraph and were never informed by Mr Hansen or Ms Samuel of the matters therein pleaded." 10. At the time that the agreement was entered into, by reason of his position as a director of the defendant and by reason of her position as an employee of the defendant Mr Hansen and Ms Samuel owed fiduciary duties and duties of fidelity and loyalty to the defendant. 11. In breach of the duties pleaded in the preceding paragraph Mr Hansen and Ms Samuel failed to disclose to the defendant the matters pleaded in paragraph 8 above. 12. Mr Hansen improperly used his position as a director of the defendant to gain an advantage for a company of which he was also a director by causing the defendant to enter into the agreement without disclosing to the Board or the defendant the matters pleaded in paragraphs 8(a), (b), (d) and (e) herein. 13. By reason of the matters pleaded in paragraphs 10, 11 and 12 herein Mr Hansen and Ms Samuel breached their duties to the defendant and the plaintiff was aware of such breaches of duty and was a beneficiary of such breaches of duty." 49 Putting aside those references in the defence to Ms Samuel owing fiduciary duty Hitec has made out the allegations it makes in the abovenamed paragraphs of the defence.
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50 In the counterclaim Hitec asserts that it is entitled to set aside the contract "either in equity or pursuant to s 87 of the Trade Practices Act.
51 As expressed by Hitec in par 18 of its submissions: "A contract will be voidable at the option of a company unless a director makes full disclosure of the nature of his or her interest in the contract to the members of the company in general meeting or in accordance with any relevant provisions of the company's Constitution." – And reference is made to Woolworths Ltd v Kelly (1991) 22 NSWLR 189 and Camelot Resources Ltd v MacDonald (1994) 14 ACSR 437." 52 With respect to cl 17 it seems to me that there is little doubt that Mark Hansen did not comply with cl 17 of the Constitution of Hitec. Indeed, in his submissions at par 35, counsel for the plaintiff concedes the point. Mr Hansen was aware before the meeting of the Board of Directors of Hitec on 24 January 2002, of the facts that gave rise to his having a material interest. He knew he was a director of Hitec and of Market Capital. He knew Elissa Samuel was to benefit from the consultancy agreement between Hitec and Market Capital. He knew he had a personal relationship with Elissa Samuel such that he would benefit or may benefit from Market Capital's contract with Hitec. 53 In my view Mr Hansen had a material interest as contemplated by cl 17 in the Constitution and he failed to declare that interest and disclose it to the Board as required by cl 17. He did not tell Mr Harris but even if he had I doubt whether that would be sufficient disclosure as contemplated by cl 17. Mr Hansen's discussion with Mr Ledger, who was the company's secretary, is not sufficient disclosure. In Camelot Resources Ltd v MacDonald at p 442 Santow J distilled the following principles from Woolworths Ltd v Kelly: "…the following principles can be summarised… 1. A director in the position of the defendant in that case (as indeed the defendant in this case) owed a fiduciary duty to the company to avoid placing himself in a position of actual or possible conflict between his duty to the company and his own interests. 2. Subject to the Articles of the company not otherwise providing, a contract made in breach of this fiduciary will be voidable at the option of the company. This is unless
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the director makes a full disclosure of the nature of his interests in the contract to the members of the company in general meeting, he must approve the contract by ordinary resolution. 3. A provision in the Articles may validate a contract which would otherwise be voidable under the general law. But to obtain its protection, the director must strictly comply with any provisions laid down in the Articles, with the director bearing the onus of providing that he or she has complied with the provision." 54 Put shortly, in my view, Mr Hansen had a clear conflict of interest that required disclosure, but there was no or no sufficient disclosure. Mr Hansen being a director and shareholder of Market Capital, fixes Market Capital with knowledge of breach of fiduciary duty and in the result the consultancy agreement is voidable at the instance of Hitec. In submissions filed on behalf of Hitec counsel asserts that the consultancy agreement was validly terminated in the circumstances. I think that is an accurate observation. I am unclear, given that no declaration is sought, about what are the orders that should be made. 55 It was asserted on behalf of Market Capital that the fact that Hitec did not call Mr Fussell or Mr Titley, who were other directors of the defendant company, to give evidence, was of considerable significance and should result in adverse inferences being drawn about the merits of the defence case. The basis for the assertion was that the Court should conclude that those directors had knowledge of the agreement. Reliance is placed upon Jones v Dunkel (1959) 101 CLR 298. 56 I do not think it was incumbent upon Hitec to call the abovenamed gentlemen who appear to have figured very little in the proceedings at material times although, after Mr Hansen left Hitec and was replaced by Mr Scott, it may be that Mr Fussell had some greater involvement. 57 It follows from my acceptance of the evidence of Mr Harris, that I reject the evidence of Mr Hansen and Ms Samuel where it differs. I also observe that Ms Samuel's evidence suffered from the fact that she was present in court during the evidence of Mr Hansen. 58 In short it was Mr Hansen's case that all of Hitec's directors knew that he was a director of Market Capital. I think the onus was on him to prove that in the circumstances. He has failed to do so. In my view the plaintiff's claims should be dismissed.
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59 The defendant counterclaims for compensation or damages seeking the refund of amounts paid to Market Capital prior to the termination of the agreement. No submissions were made about this and there is simply a brief assertion in the summary of submissions that "the counterclaim is made out". There was no suggestion that Ms Samuels had not performed her duties under the agreement in a satisfactory manner. The agreement was not void but voidable. I am not convinced, in the absence of further submissions, that an order for reimbursement of moneys paid by Hitec to Market Capital for Ms Samuel's services is warranted. However as no submissions were made I am prepared to hear the parties further.
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