McNally v Harris

The case of McNally v Harris involved a dispute concerning a breach of trust by a trustee company, where the liability of directors was in question. The plaintiff, McNally, sought compensation for the loss caused by the intentional breach of trust by the defendant, Harris, who was a director of the trustee company. The dispute was heard in the Supreme Court of New South Wales. The legal issues centred around the liability of directors under the principles established in Barnes v Addy, specifically whether a director who was the controlling mind of the trustee company could be held liable for both limbs of the test, and whether a sleeping director who was unaware of the breach could also be held liable under the first limb of Barnes v Addy.

The court determined that the controlling director was liable under both limbs of Barnes v Addy, as they were the controlling mind of the trustee company and had intentionally breached the trust. For the sleeping director, the court held that they were not liable under the first limb of Barnes v Addy because they did not have knowledge of the trust when they received the trust property. The court clarified that for liability under the first limb, the director must be aware of the receipt of trust property with knowledge of the trust or be put on inquiry. The court found that signing the share transfer without inquiry did not put the sleeping director on notice of the trust. Furthermore, the court held that the mere receipt of trust property into the trustee company's account was not sufficient to establish liability under the first limb. The court also addressed the issue of exemplary damages, concluding that while the actions were conscious and wrongful, they were not contumelious, and thus compensatory damages were sufficient.

In summary, the court ruled that the controlling director was liable under both limbs of Barnes v Addy, while the sleeping director was not liable under the first limb due to lack of knowledge. The court further held that compensatory damages were sufficient, and no exemplary damages were awarded. The final orders of the court included the granting of compensatory damages to the plaintiff and the dismissal of the plaintiff's claim for exemplary damages against the defendants.