MG Corrosion Consultants Pty Ltd v Gilmour - [2014] FCA 990

FEDERAL COURT OF AUSTRALIA
MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990

Citation: MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990

Parties: MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177 v MALCOLM STEWART GILMOUR and MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ); MALCOLM STEWART GILMOUR and MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ); MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177 and ALBERTO CESARIO VINCIGUERRA

File number: WAD 256 of 2010

Judge: BARKER J

Date of judgment: 12 September 2014

Catchwords:
CORPORATIONS – fiduciary and statutory directors’ duties – alleged breaches of ss 181, 182, 183 Corporations Act 2001 (Cth) and fiduciary duties – whether certain expenses incurred by company were unnecessary to be incurred or excessive – whether first defendant breached directors’ duties in relation to expenses – whether second defendant involved in contraventions – whether second defendant entitled to a set-off for amounts in cross-claim

PRACTICE AND PROCEDURE – whether any claims or cross-claims statute-barred under Limitation Act 1935 (WA) or Limitation Act 2005 (WA)

Legislation:
Corporations Act 2001 (Cth) s 79, s 180, s 180(1), s 180(2), s 180(3), s 181, s 181(1), s 181(2), s 182, s 182(1), s 182(2), s 183, s 183(1), s 183(2), s1305, s 1317E, s 1317H, s 1317H(2), s 1317K
Judiciary Act 1903 (Cth) s 79

Limitation Act 2005 (WA) s 13
Limitation Act 1935 (WA) s 38, s 38(1)(c)(v)

Cases cited: Ardeshirian v Robe River Iron Associates (1993) 43 FCR 475
Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1
Chew v R (1991) 4 WAR 21
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50
Marchesi v Barnes [1970] VR 434
Maronis Holdings Limited v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; (2001) 38 ACSR 404
MG Corrosion Consultants Pty Ltd v Vinciguerra (No 2) [2011] FCAFC 48; (2011) 276 ALR 319
MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367
R v Byrnes [1995] HCA 1; (1995) 183 CLR 501
Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1
Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293
Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; (2007) 61 ACSR 583
Westpac Banking Corporation v Bell Group Limited (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1

Date of hearing: 14-17 October 2013

Date of last submissions: 31 October 2013

Place: Perth

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 592

Counsel for the Plaintiff: Mr DH Solomon, Mr CS Williams

Solicitor for the Plaintiff: Solomon Brothers

Counsel for the Defendants: Mr KA Dundo

Solicitor for the Defendants: HopgoodGanim

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 256 of 2010

BETWEEN:
MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177
Plaintiff

MALCOLM STEWART GILMOUR
First Cross-Claimant

MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ)
Second Cross-Claimant

AND:
MALCOLM STEWART GILMOUR
First Defendant

MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ)
Second Defendant

MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177
First Cross-Respondent

ALBERTO CESARIO VINCIGUERRA
Second Cross-Respondent

JUDGE:

BARKER J

DATE OF ORDER:

12 SEPTEMBER 2014

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The plaintiff to bring forward a minute of final orders to reflect the findings made.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 256 of 2010

BETWEEN:
MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177
Plaintiff

MALCOLM STEWART GILMOUR
First Cross-Claimant

MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ)
Second Cross-Claimant

AND:
MALCOLM STEWART GILMOUR
First Defendant

MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ)
Second Defendant

MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177
First Cross-Respondent

ALBERTO CESARIO VINCIGUERRA
Second Cross-Respondent

JUDGE:

BARKER J

DATE:

12 SEPTEMBER 2014

PLACE:

PERTH

REASONS FOR JUDGMENT

Prior to about July 2000, Mr Vinciguerra and Mr Gilmour had known each other through business for a number of years. In 2000 they decided to go into business together through a company known as MG Corrosion Consultants Pty Ltd (or MGCC). The circumstances in which the men went into business together are as follows.
For many years prior to 2000, Mr Gilmour had owned and managed Sola‑Kleen Pty Ltd (since re‑named Magil Nominees Pty Ltd), which operated a business manufacturing and supplying solar hot water systems, as well as supplying chemicals for water treatment in cooling towers and heat exchangers and descaling treatments for the mining and processing industries. The water treatment business was operated under the business name “MG Corrosion Consultants”, which was first registered in December 1981.
For a number of years prior to about 1998, Mr Vinciguerra had been the operations manager of the chemical cleaning division of a business known as Maxwell Chemicals and in that capacity had done business with MG Corrosion Consultants.
After Mr Vinciguerra ceased his employment with Maxwell Chemicals in about 1998, and following discussions with Mr Gilmour, he accepted an invitation from Mr Gilmour to advance the water treatment business of MG Corrosion Consultants.
On 12 October 1998, Mr Gilmour caused MG Corrosion Consultants to be incorporated.
It would appear that from about that time, the newly incorporated entity, MGCC, assumed the water treatment side of the business previously carried on by Sola‑Kleen.
It also appears that when Mr Vinciguerra was first engaged by Mr Gilmour it was as an employee of MGCC.
In any event, in 2000, after Mr Vinciguerra had been working on the water treatment side of the business for a period, Mr Gilmour offered him the opportunity to become an equity owner in MGCC. He was offered the opportunity, without payment, of taking 30 fully paid shares in MGCC, the other 70 fully paid shares to be held by Sola‑Kleen (for the Gilmour Family Trust). Mr Vinciguerra accepted the offer and became a shareholder and director of MGCC in July 2000.
As it transpires, Mr Gilmour’s accountant at the time, Mr Trevor John Harradine, expressed to Mr Gilmour some caution about this business development, fearing that the capital gains free status of Sola‑Kleen’s business on the water treatment side, might be put at risk by the assumption by MGCC of that business. Nonetheless the business development proceeded.
From that point on, MGCC conducted its water treatment business at the same premises at which Sola‑Kleen had been conducting its business for many years, in Bassendean Road, Bayswater.
Mr Vinciguerra remained a director of MGCC until 22 April 2004, when he resigned that office. He then continued, however, as an employee of MGCC until 29 July 2006, when he ceased his association with MGCC altogether.
Mr Gilmour was a director of MGCC together with Mr Vinciguerra at all material times until Mr Vinciguerra’s resignation from that office. Thereafter, Mr Gilmour remained the sole director of MGCC until 15 January 2008.
As a result of financial concerns harboured by Mr Vinciguerra following the cessation of his employment with MGCC, he successfully took proceedings in the Federal Court of Australia pursuant to the Corporations Act 2001 (Cth), for orders first to inspect MGCC’s books and later to obtain the leave of the court to pursue a derivative action in the name of MGCC against Mr Gilmour and Sola-Kleen. As to the inspection orders, see Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; (2007) 61 ACSR 583. As to the grant of leave to pursue the derivative action, see Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293; and MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367. Mr Vinciguerra was also successful in obtaining a costs order in his favour in the Full Court. See MG Corrosion Consultants Pty Ltd v Vinciguerra(No 2) [2011] FCAFC 48; (2011) 276 ALR 319.
This proceeding is conducted pursuant to the leave granted to Mr Vinciguerra to pursue the derivative action in the name of MGCC against Mr Gilmour and Sola-Kleen.
MGCC – effectively Mr Vinciguerra – claims that, in breach of his duty as a director under the CorporationsAct and under the general law as a fiduciary, Mr Gilmour, with Sola‑Kleen’s involvement, authorised the payment of monies to Sola-Kleen that should not have been paid or were excessive, and incurred legal expenses in defending the various Federal Court proceedings commenced by Mr Vinciguerra to gain access to the records of MGCC and for leave to commence the derivative action. The sum of expenses in issue, as initially estimated in the expert report of Mr Trevor Gorey, chartered accountant, dated 3 April 2013, and filed on behalf of MGCC, was $1,653,889.
By the time the trial commenced, the defendants, having regard to advice they had received from Mr George Lopez, chartered accountant and by then liquidator of MGCC, conceded, without any admission as to any breach of duty by Mr Gilmour, that for the period 1 July 2002 to 30 June 2007, there were expenses of $97,166 charged by Sola-Kleen to MGCC or incurred by MGCC which may not be capable of substantiation. Otherwise they denied the claims made against them.
The defendants say that any claims in respect of amounts prior to 13 September 2004, that is to say six years prior to the commencement of the derivative action, are, in any event, statute-barred pursuant to s 38 of the Limitation Act 1935 (WA).
Sola-Kleen also claims that it is entitled to set off against any sum that it might be found liable to pay, the amount of its cross-claim against MGCC.
Sola-Kleen cross-claims, with the leave of the liquidator (who had been appointed prior to trial), alleging that MGCC owes it a total of $330,613, being management fees due for the period ending 30 June 2001 of $167,316.66 and for the period ending 30 June 2002 of $163,296.37, based on the calculations referred to in Annexure E of Mr Lopez’ expert report dated 13 September 2013.
Sola-Kleen also cross‑claims a further $118,500 in respect of rent that it claims was undercharged for the years 2000 to 2004, based on opinions expressed by Mr Gorey in his 3 April 2013 report at pp 15 and 16.
As a result, Sola‑Kleen’s cross-claim is in the total sum of $449,113.
In turn, MGCC denies any liability in respect of the cross‑claims, denying the existence of any obligation to pay management fees for the years ending 30 June 2001 and 30 June 2002, and submitting that the claim for payment of management fees for those years was, in any event, barred by the Limitation Act 1935, s 38(1)(c)(v).
In relation to the claimed underpayment of rent, MGCC pleads that insofar as it arose from occupation of premises by MGCC prior to 30 March 2005, alternatively 13 September 2004, it is barred either by s 38 of the Limitation Act 1935, or s 13 of the Limitation Act 2005 (WA) respectively.
It also denies that Sola-Kleen is entitled to any set-off in respect of its cross‑claim and observes it has not pleaded set-off as a defence in respect of the underpayment of rent claim.
By the end of the trial the defendants had made a number of concessions of unnecessary or excessive expenses, additional to the $97,166 referred to above, totalling $188,942. Liability in respect of those expenses, however, continued to be denied.
MGCC by that time had also conceded that a number of expenses referred to in Mr Gorey’s expert report, totalling $228,771 were no longer the subject of claim.
As a result the only expenses in issue towards the end of the trial appeared to be the following:
(1)debt factoring expenses (para 6 particular A of the amended statement of claim (or ASOC))         $ 205,922
(2)expenses related to Mr Thuy (para 6 particular C ASOC)   $    60,840
(3)the legal expenses (para 6 particular L ASOC)   $    77,810
(4)“management fees” (para 8 particular A ASOC)  $ 917,065
(5)Directors’ fees (para 8 particular B ASOC)   $ 198,546
(6)rates expenses (para 8 particular N ASOC)   $   13,226
This list of expenses in issue may be reconciled with the summary at p 30 of Mr Gorey’s April 2013 report.

Paragraph
Amount

Status

4 Management fees $917,065 Disputed

5

Expenses considered excessive (directors’ fees)

$198,546

Disputed

6

Expenses not incurred by MGCC

$80,631

Conceded by the

Defendants:

$11,000 for accounting expenses;

$16,914 for motor vehicle fuel expenses ;

$2,695 for postage expenses ;

$16,240 for printing and stationery expenses;

$4,500 for staff amenity

expenses

Conceded by MGCC:

$16,056 for motor vehicle repair expenses

Disputed :

$13,226 for rates

7

Expenses not related to MGCC's business

$304,922

Disputed:

$205,324 for debt factoring expenses

Conceded by the Defendants:

$66,939- Debra Stedman

Disputed - being the balance related to Mr Thuy

8 Expenses not considered MGCC's $27,000 Conceded by the Defendants

9

Excessive expenses

$47,915

Conceded by MGCC

10

Legal expenses

$77,810

Disputed

The defendants say that the analysis in the table in the preceding paragraph confirms there is no separate head of claim supported by Mr Gorey’s report for an overpayment of Mr Gilmour’s wages in the sum of $144,064, or excessive telephone expenses of $21,000; and say the issues in relation to Mr Gilmour’s wages and the telephone expenses both relate to the calculation of the so-called management fee.
In that regard MGCC agrees that there is no claim concerning wages paid to Mr Gilmour, other than the “M Gilmour” component of the management fees (although there is a claim regarding the payment of directors’ fees by MGCC to Mr Gilmour in para 8 particular B ASOC).
MGCC also notes there are separate claims regarding telephone expenses incurred directly by MGCC (para 8 particular I ASOC) and telephone expenses incurred by Sola-Kleen and on‑charged as a component of the management fees. It points out that in analysing the telephone expenses Mr Gorey aggregated the total telephone expenses paid by MGCC and expressed his opinion as to the aggregate amount that MGCC was overcharged for telephone expenses.
I note that following conferral between Mr Gorey and Mr Lopez, confirmed at trial, Mr Lopez agreed with Mr Gorey’s analysis of the telephone expenses.
In these circumstances, I accept that, given the circumstances of Sola‑Kleen and MGCC and particularly the level of telephone expenses incurred by MGCC in the latter years, a 50/50 split of these expenses is reasonable, as the experts agree, and so this expense issue should be considered resolved on that basis.
The specific issues requiring determination in this proceeding at the end of the trial may therefore be stated as follows:
(1)whether the claimed expenses were unnecessary or excessive;
(2)whether Mr Gilmour breached his duty as a director under the Corporations Act or the fiduciary duties he owed to MGCC in relation to the those expenses found to be unnecessary or excessive; and if so, whether Sola-Kleen is also liable as an accessory;
(3)whether any of the claims made against Mr Gilmour are statute-barred;
(4)whether MGCC is liable to Sola-Kleen in respect of management fees for the financial years ending 30 June 2001 and 30 June 2002; and in respect of an underpayment of rent by MGCC for the Bayswater premises for the financial years ending 30 June 2000 to 30 June 2004; and, if so, whether Sola‑Kleen may be entitled to a set‑off in respect of them;
(5)whether MGCC has a limitation defence under either the Limitation Act 1935 in respect of the claim for management of fees for the years 2001 and 2002, and under the Limitation Act 1935 or the Limitations Act 2005 in respect of the cross‑claim for underpayment of rent.
MGCC also raised an issue as to Sola-Kleen’s ability to proceed with its cross‑claim as, at the time of trial, it was in voluntary liquidation and required leave of the Court to proceed with its cross‑claim. The Court however gave its leave in this regard at the commencement of the trial.
WERE THE CLAIMED EXPENSES UNNECESSARY OR EXCESSIVE?
As explained above, MGCC no longer presses its claims in respect of some expenses initially claimed to be either unnecessary to be incurred or excessive. Additionally, the defendants now concede that some expenses the subject of MGCC’s claim cannot be justified, but deny that the fact that they were incurred results in Mr Gilmour being in breach of any duty to MGCC. Some other expenses, however, remain in issue between the parties both as to their justification and whether their payment resulted in any breach of duty by Mr Gilmour.
In order to deal with the expenses that remain in issue, the evidence of the expert witnesses will first be considered, followed by a consideration of the evidence of the other witnesses.
The expert evidence
Mr Gorey and Mr Lopez were called, as expert witnesses, to give their opinion evidence concurrently.
Mr Gorey provided his expert report of 3 April 2013 (exhibit 11) in which he was asked to address the following issues:
(1)Whether any of the expenses set out in the particulars to paras 7 and 8 of the statement of claim were:
·additional to the expenses that MGCC incurred in carrying on its business;
·unnecessary to be incurred by MGCC;
·not properly related to MGCC’s business;
·otherwise ought not to have been incurred by MGCC; and/or
·for the purposes of MGCC’s business, but were incurred in excessive amounts and exceeded the amount by which the expense related to, or was incurred for the purpose of MGCC’s business.
(2)Whether there were any other expenses of MGCC that can be so characterised.
(3)In relation to any expenses which related to and were for the purposes of MGCC’s business but were incurred in an excessive amount or exceeded the amount by which the expense related to, or was incurred for the purpose of MGCC’s business, the amount by which the expense exceeded what related to or was incurred for the purpose of MGCC’s business, or the amount by which the expense exceeded the reasonable amount of such expense.
In his report, Mr Gorey set out the factual assumptions he had made at the time of signing his report, which included those drawn from documents and information identified in his report as well as from previous reports he had prepared in relation to earlier proceedings and which were dated 7 September 2007 and 11 March 2008.
He also noted some accounting difficulties of an audit nature, and that he had earlier received information from Mr Vinciguerra by way of written answers to a list of questions provided.
Mr Gorey also made the point that material he saw did not include accounting and other records of Sola‑Kleen that he considered were necessary to enable a full examination by him of the operations of that company in order to establish the validity of the management fees and other costs charged by that company to MGCC; and he noted the documents he would have expected to have seen in that regard including general ledgers, bank statements, payroll records, invoices of various types and financial statements for the years ended 30 June 2006 and 2007. He said that in the absence of such materials, he had had to rely on other information and in some instances had made assumptions without the ability to verify them.

In his report, Mr Gorey then set out background in relation to both MGCC and Sola‑Kleen, in which he confirmed his understanding that MGCC at material times had two business components. The main business was the sale of chemicals used in the mining industry, with its major market being in Kalgoorlie, but also South Australia. Sales from this source in 2006 totalled $1,558,000. It also operated a division that serviced and cleaned air conditioning units, concentrated in Perth, with sales in 2006 of $445,000.
Mr Gorey also confirmed his understanding that the Gilmour Family Trust operated a business trading as Sola‑Kleen Pty Ltd as trustee for the Gilmour Family Trust which manufactured and installed solar panel heating devices.
He also confirmed his understanding that that the two companies operated from the same premises in Bayswater, although as noted, the majority of MGCC’s operations, at material times, was located in Kalgoorlie.
He further confirmed his understanding that Sola‑Kleen had subsequently changed its name to Magil Nominees Pty Ltd. However, as it operated under its former name for the whole of the period covered by his report he continued to refer to it as Sola‑Kleen in his report (as indeed the parties and the Court has done).
Mr Gorey set out in his report MGCC’s operating results for the years 2003‑2007, including all relevant expenses.
He also set out the financial position of MGCC as disclosed by the company’s annual financial statements which itemised the asset and liability position at 30 June in respect of the years 2003 to 2007. They disclosed small losses in the years 2003, 2004 and 2005 with a profit of $42,785 being made in 2006 and $97,375 being made in 2007.
Mr Gorey considered, in response to the questions put to him, that there were several categories of expense that fell within the description of expenses put to him, that were:
·additional to the expenses that MGCC incurred in carrying on its business;
·unnecessary to be incurred by MGCC;
·not properly related to MGCC’s business;
·otherwise ought not to have been incurred by MGCC; and/or
·for the purposes of MGCC’s business but were incurred in excessive amounts and exceeded the amount by which the expense related to, or was incurred for the purpose of MGCC’s business.
Mr Gorey said the categories fell within the broad descriptions of:
·Management fees charged annually from 2003 to 2007.
·Directors’ fees charged by Mr Gilmour.
·Expenses incurred by Sola‑Kleen for the benefit of Sola‑Kleen that were paid for and expensed in the books of MGCC.
Mr Lopez, as liquidator of MGCC, also provided a report (exhibit 12). In preparing his report he had regard to a number of materials including what he described as the Graham Ruthven work papers. In the course of the proceeding I ruled that the late Mr Ruthven’s work papers and report were not admissible in the proceeding.
In the result, Mr Lopez summarised his findings in respect of the claims made by MGCC in the proceeding as follows:
·From the information made available to him (which it should be noted included the Ruthven report which I ruled to be inadmissible), a significant part of the claim cannot be sustained.
·A number of claims, especially those in relation to what is claimed to be excessive expenditure have not been supported by any documentation and the claim appears to have largely been based on Mr Gorey’s report of 10 September 2007, which itself was based on statements made to Mr Gorey by Mr Vinciguerra, a review of the external accountant’s work papers and the use of comparative analysis to identify variances in annual expenditure. He had seen no evidence of efforts made to objectively determine the cause of that increased expenditure.
·Even if the expenditure was excessive, there was no explanation as to why it should have been claimed against the defendants personally.
·Further, the statement of claim has not explained why the alleged “excessive” expenditure should have been claimed against the defendants only, when Mr Vinciguerra himself may have been the beneficiary of some of that “excessive” expenditure.
On those significant parts of the claim related to management fees, debt factoring costs and directors’ fees, in decreasing order of significance, Mr Lopez considered:
·Except for a portion relating to wages for Mr Gilmour, the management fees charged were not so much for the management of the company and more in the nature of reimbursement of expenses incurred on behalf of the company by Sola-Kleen. The main issue was the extent of mark‑ups used and in that regard he was satisfied that the mark-ups were reasonable and had judicial support in the Philips case.
·In respect of the mark‑ups for labour, he recommended that the mark-ups be 40% instead of 50%, but the end result is of little significance overall.
·Part of the management fee related to Mr Gilmour’s notional wage and, in his view, that is the only part of the management fee that truly relates to management. That portion of the fee is not based on an actual wage; only a nominal salary. The notional wage is based on what a reasonable wage would have been for a management position and he was satisfied that that is a reasonable wage, although, due to the lack of any written agreement as to salary increases, he restricted the increases to the consumer price index (CPI) rises for the period in question.
·With regard to the debt factoring costs, while he acknowledged that debt factoring was an expensive finance and should be avoided if possible, to enter into such an agreement was a decision which appeared to have been made by both directors. On that basis, he failed to see why the costs of debt factoring should be claimed against either of the defendants.
·The matter of directors’ fees was perhaps the most arguable issue. He accepted that given the responsibilities that directors face, a directors’ fee should be anticipated. It is the level of that fee which may be argued.
·Based on the information provided to him, he was of the view that the total claim can be sustained to the extent of $97,166 based on the Court allowing directors’ fees of $28,000 indexed to CPI, $255,014 if the directors’ fees are only allowed at $10,000 indexed, or $345,712 if no directors’ fees are allowed at all.
Mr Lopez provided a table summarising his various calculations, noting that:
·Even if the Court were to determine that no mark‑ups should be allowed in respect of the management fees, then the claim would be increased by a further $79,137 which probably, in the worst case scenario, would result in a total claim of $425,849.
·This claim was insufficient to eliminate the debts he considered were currently owed by MGCC to the defendants.
·Taking into account the evidence that had been provided to him, to the extent that the claims made against the director could be justified, the claims are insufficient to eliminate the amounts owed to the defendants by the company. Accordingly, a successful claim would not result in an inflow of funds to the company, but is only likely to reduce the overall debts owed to the defendants.
·Given that no dividend is likely to be paid to the company’s creditors, a reduction in claims against the company by reducing the debts owed to the defendants would provide no benefit to the company or its creditors by continuing the legal action and would worsen its position by incurring further, unrecoverable legal costs.
·Accordingly, he was of the view, from the liquidator’s viewpoint, that continuing the action could not be justified on commercial grounds.
It was appreciated by Mr Lopez, and should be made explicit here, that the general comments made by Mr Lopez, as liquidator, concerning the cross‑claims and the viability of MGCC’s claim are not relevant to the assessment of the legal issues raised by MGCC in its claim and by the defendants in their cross‑claims and so should be disregarded. What is useful, however, are the detailed calculations, based on various assumptions, that Mr Lopez puts forward in his report.
It will be appreciated from this brief background that Mr Gorey and Mr Lopez came to the primary accounting questions in issue from different vantage points. Mr Gorey had been brought into the dispute between the parties at a much earlier stage, and had conducted earlier financial investigations, although, as he said, on the basis of limited information. There was a time at which Mr Ruthven, before he passed away, had also been involved from the defendants’ side. At trial, I was not prepared for his report effectively to be put in evidence and assumed to be correct. Mr Lopez’ vantage point, as noted, was primarily as a liquidator of MGCC, having earlier been appointed an administrator. His expert report reflected that perspective, as he acknowledged. Nonetheless, the two witnesses qualified as experts and did address a range of common accounting issues. Their different perspectives or the different bases upon which they expressed opinions were clear, and, to some extent, were resolved both through the process of a conference before trial and in the course of giving concurrent evidence at trial.
The record of the conference that they held before trial became exhibit 13. They noted in it the different approaches they had taken. For example, it was noted that the approaches to the report prepared by Mr Gorey of 3 April 2013 and the report prepared by Mr Lopez of 13 September 2013 were different. Mr Gorey prepared his report in response to specific instructions whereas Mr Lopez prepared his as liquidator considering the possible recovery of funds. Further, Mr Lopez’ report was prepared without access to Mr Gorey’s report of 3 April 2013, which Mr Gorey indicated had changed since his 2007 report. A further basic difference was that the Gorey report was confined to the years 2003-2007, whereas the Lopez report covered 2001-2010.
Mr Lopez commented in his report that he found Mr Gorey’s attitude, in not assisting with his investigation, surprising given that the action was being taken by the company and that Mr Gorey conducted his review on behalf of the company. Mr Gorey explained that he was engaged by a shareholder, not by the company itself and therefore was constricted by professional requirements from disclosing confidential information.
The experts noted that prior to discussing the matters raised by Mr Lopez in detail in para 5 of his report, the solicitors for MGCC had informed Mr Gorey that the solicitors for the defendants had accepted the claims covered in Mr Lopez’ report under paragraphs:
·5.5 (contract payments to Sola-Kleen of $14,712);
·5.6 (motor vehicle expenses on Mr Gilmour’s vehicle of $6,040);
·5.7 (printing and stationery costs of $898);
·5.12 (freight expenses of $10,000);
·5.13 (insurance expenses of $6,000);
·5.14 (motor vehicle registration expenses of $6,000);
·5.16 (printing and stationery expenses of $9,000); and
·5.17 (staff amenity expenses of $3,500).
What, therefore, apparently remained in issue were the following paragraphs and matters in Mr Lopez’ report:
·5.1 - debt factoring;
·5.2 and 5.3 – Ms Stedman and Mr Thuy’s salary on‑charge;
·5.4 - consultant’s fee for Phil Reed;
·5.8 - rent charges;
·5.9 - reduction in stock value;
·5.10 - management fees;
·5.11 - directors’ fees;
·5.15 - motor vehicle repair expenses;
·5.18 - telephone expenses; and
·5.19 - travel expenses.
Mr Lopez did not address rates expenses which were addressed in Mr Gorey’s report and apparently remained in issue.
In their conference the experts noted: the claims not covered by Mr Lopez’ report; that Mr Lopez did not have access to Mr Gorey’s report of 3 April 2013 including the accounting fees set out at p 21 of Mr Gorey’s report of 3 April 2013; rates discussed at p 24 of Mr Gorey’s earlier report; and legal expenses discussed at p 29 of Mr Gorey’s earlier report.
Following the concessions of the parties referred to above, only those matters in 5.1, 5.2, 5.3, 5.8, 5.10 and 5.11 remained in issue between the experts so far as the expenses being unnecessary or excessive.
In relation to debt factoring the experts noted that the Lopez report had taken into account comments by Mr Ruthven that in 2001 the company had suffered operating losses even without the management fees being taken into account and external funding was required. Mr Gorey commented that as far as he could determine from the reported results that was not the case and that the company would not have required funding had Mr Gilmour not taken a substantial loan from the company.
Mr Lopez also commented that Mr Vinciguerra had signed the factoring agreement and therefore they were jointly responsible for the borrowing. From a subsequent review, Mr Lopez also noted that while Mr Gilmour had borrowed funds, a substantial portion of his debt had been repaid by 30 June 2003. In addition, Mr Vinciguerra was also indebted to the company from 2003 onwards, and in 2006 his debt exceeded that of Mr Gilmour.
Mr Lopez also commented that traditional funding was not possible because Mr Vinciguerra refused to provide security for a bank loan. Mr Gorey indicated that he had no knowledge of that refusal. No agreement was reached on the matter.
In concurrent oral evidence, Mr Gorey said that the difference between him and Mr Lopez, in his view, was that the need for the debt factoring was caused by a loan taken up by Mr Gilmour from the company, which then required cash funding. If it had not been for that, there would have been no need for debt factoring. It was as simple as that. Mr Gorey identified the loan as the $136,229 loan made to the Gilmour Family Trust in 2002, referred to at p 27 of his report.
Mr Lopez considered that this transaction was significant, but thought there were other issues that had to be considered as well.
He accepted, however, he was not addressing Mr Gorey’s primary point but addressing another issue concerning the appropriateness of refinancing by the debt factoring agreement.
He accepted that the terms of the loan account in the balance sheet showed an amount outstanding by Mr Gilmour and his related entities and that there was a significant loan at that point in time.
He said, however, that the history of the company showed that loans had been taken out by both directors at various times and the balance sheets only show loan accounts outstanding at a point in time when there will also be changes right throughout the history of the company, and they will show that Mr Vinciguerra’s debt was actually higher than Mr Gilmour’s debt at other times. He said that was one issue.
The other point he wished to make was that the company had not drawn management fees in the first years of 2001 and 2002. He said that, had a proper management fee been drawn up, it would have been seen that it was not really a management fee but more a reimbursement of costs and so the situation may have been quite different.
His final point was that, something he understood Mr Gorey did not agree with, the company records showed that it had made a loss in the year 2001 and had a management fee been properly charged then it would have made losses in 2001 and 2002 and would have had a working capital deficiency in those circumstances.
Mr Gorey responded first by reference to Mr Lopez’ point about the loans by Mr Vinciguerra. He referred to p 6 of his report which set out the financial position of MGCC from 2003 to 2007. He noted that, under the heading of current assets, there was a loan of $11,000 to Mr Vinciguerra and then $16,000 and so on. At the same time there were loans to the Gilmour Family Trust of $16,000 and $14,000 and so on.
Mr Gorey emphasised that the loan figure on Mr Gilmour’s side reached the point of $257,000 before a management fee was eventually charged. His point was that Mr Gilmour had taken a significant amount of money out of the company in the earlier stages, requiring the funding through debt factoring.
In response to Mr Lopez’ broader point that assuming there was some understanding in 2001 especially 2002 that there might have been management fees charged, and if they had been then there would have been a significant draw in the same way on the expenses and the capacity of the company to operate, Mr Gorey said he had not examined the potential for those management fees in 2001 and 2002 and there were certainly no charges made for those years. He said he had no ability to make any assumptions on that.
Mr Lopez, in response to the proposition that, taking the figures as they appeared, which were on the basis that management fees were not being charged, the factoring only came about because of the loan position, responded by going back to Mr Gorey’s point about the growth of the loan account to $257,000 in 2003. He made the point that all of the entries supporting that were journal entries and there was no supporting documentation. The debits and credits were all dated the same day, so if those entries had been reversed and the credits had gone through first before the debits, you would not have had that overdraft. So he thought, because there was a whole series of entries created or posted on the same day, that one could not read anything into the progressive balance. He said one can only look at the balance at the end of that day.
Mr Gorey responded by pointing to the position at the end of 30 June 2004, where he considered the same kind of scene developed and where the balance grew to $250,000. He said the significant thing was that it was not just year-end adjustments, there were entries in March. In his view, it was not just an end of year adjustment.
Mr Lopez, when asked, agreed that those points made by Mr Gorey affected the points that he had been making.
Mr Gorey concluded his comments by saying that he had no knowledge in expressing his opinion about there having been some other negotiations about borrowings. The Court noted that it did not have such knowledge (from the evidence) either.
In relation to Ms Stedman and Mr Thuy’s salary, the experts agreed that they had no means of verifying a reasonable allocation of the times spent on MGCC business by either of these employees of Sola-Kleen, Ms Debra Stedman or Mr Thuy Xuan Huynh.
Their comments (obviously prior to and without the benefit of the evidence that the Court received) included:
·No one really knows how much time was spent by Ms Stedman and Mr Thuy on MGCC’s affairs. As far as is known, no timesheets were kept.
·Mr Gorey indicated that his calculations were based on instructions received from Mr Vinciguerra in the questionnaire.
·There were no means of determining what a reasonable wage for either person was.
·A complicating issue was that both were paid by both companies in each year.
·Even Ms Stedman’s affidavit (which the Court should note did not go into evidence) did not assist them.
·The issue of wages on-costs was yet to be resolved.
Upon subsequent review, Mr Lopez contended that Ms Stedman’s wages for 2001 and 2002 had not been charged to MGCC and that Mr Thuy’s wages for 2002 had not been charged either. He considered when those and other on-costs are taken into account, it would have a significant effect on the claim.
Both experts agreed that they could not allocate those on-costs and the matter is for the Court to decide.
As to Mr Lopez’ contentions upon subsequent review, in the concurrent evidence session, Mr Gorey said he saw no evidence of those matters and they were not available to him.

Mr Lopez said that he was basing his observations on information in the (inadmissible) Ruthven report - not his own analysis. He said he had been unable to pick up any primary records himself.
In relation to management fees, in conference the experts agreed that the nature of the management fees, being effectively a form of reimbursement of costs incurred by Sola-Kleen rather than a fee for managing MGCC, was noted. From their perspective as accountants, the question came down to whether or not the charges were reasonable.
Mr Gorey drew attention to p 12 of his 3 April 2013 report which records a summary of the operating costs of Sola-Kleen and the total management fees on-charged to MGCC which indicated that, in some years, the management fees exceeded the total Sola‑Kleen expenses for those years.
Mr Lopez commented that the fees appeared to be arbitrarily determined based on how much money was available.
In summary, Mr Gorey considered that the following were excessive management fee charges:
Printing and stationery:  $ 11,693
Salaries:  $607,003
Wages Gilmour:  $256,564
Staff amenities:  $   6,042
Telephone:  $ 35,763
Total  $917,065
For the cost items making up the management fees, Mr Gorey’s 2013 report concluded that there was no issue with the charges regarding electricity, postage, rates and taxes and rental charges.
Further, on the advice of MGCC’s solicitors, the defendants’ solicitors had conceded that the claims for staff amenities and telephone had been accepted.
As to telephone charges, a 50/50 offset, as discussed above, should be applied and so the overcharge of $35,763 assessed by Mr Gorey above should be accepted.
The items to be considered, therefore, were printing and stationery, salaries, Mr Gilmour’s wages and staff amenities.
As to Mr Gilmour’s wages, Mr Lopez considered that when an allowance was made for managing the business, the overall on-charge was reasonable.
Mr Gorey, at p 18 of his 2013 report, considered that Mr Gilmour was entitled to a wage equivalent to Mr Vinciguerra and calculated a salary of $49,500 inclusive of employee on-costs.
Mr Lopez suggested there should be an allowance to recognise the management of the business of, say, $45,000 a year.
Mr Gorey initially accepted that concept and conceded that, in that event, the Gilmour wage charge was reasonable.
However, on further thought, he considered that the $45,000 allowance should be spread between MGCC and Sola-Kleen. On that basis, the annual salary would be $49,500 as stated in his 3 April 2013 report plus a management component of $22,500 giving a total of $72,000 a year. That would equate to $360,000 for the period and so represented a $144,064 overpayment.
In the concurrent evidence session Mr Gorey agreed that the issue of “management fees” was a misnomer and it was particularly about recovery of costs and to do with Mr Gilmour’s and staff wages.
Mr Gorey said it was difficult to make assessments as he had no idea of the duties performed by Mr Gilmour in either company. From information he had been provided with, Mr Gilmour, in MGCC, fundamentally managed a section of the business, the other to do with sale of chemicals into the mining industry being managed by Mr Vinciguerra. He initially thought that it might be reasonable to allow similar amounts to be paid to the two men but in discussions with Mr Lopez, as noted above, he recognised that that did not recognise that Mr Gilmour was also managing the company and allowance should be made for that level of responsibility.
He initially agreed and then had second thoughts that there should be a $45,000 a year allowance on top of the $49,500 that he considered appropriate for the wage on‑cost. He said that on second thoughts, he thought $45,000 for that segment was a little too much and concluded that half of that should be allowed, giving a total salary to Mr Gilmour of $72,000 a year. Mr Gorey said that he considered that if $72,000 a year was received by Mr Gilmour in both companies, he would be getting about $140,000 to $150,000 a year, which would be a reasonably good salary, given the nature of the businesses involved. Mr Gorey made it clear that the question of directors’ fees (considered below) was approached as an entirely separate topic.
Mr Lopez considered that he and Mr Gorey agreed in principle on the approach to the wages question. He said that he had a problem with an arbitrary assignment of 50% of the $45,000 to MGCC and Sola-Kleen and that was the crux of their disagreement. He, too, did not know what time Mr Gilmour had spent in MGCC as opposed to Sola-Kleen. He noted Mr Ruthven had determined 90% but he had no idea where that information came from. Mr Lopez said, in principle, the question was how much time or how much effort was expended in relation to the two companies by Mr Gilmour and the experts had no records about that. Mr Gorey agreed.
Mr Lopez said that if the Court were to take the view that half of Mr Gilmour’s time was spent in each company, then Mr Gorey’s calculations would be correct for the years 2003 to 2007, but it would still be necessary to take into account 2000 to 2002 and an allocation would also need to be made to that. He noted that if you presume that 50% allocation is correct and Mr Gilmour’s salary should have been $72,000 over the seven years, it works out almost exactly to what has, in fact, been charged in management fees.
In relation to staff wages, the experts in their conference notes recorded that Mr Gorey’s approach was that MGCC had its own employees which appeared to be sufficient to operate the business and therefore there should be no charge for staff wages.
Mr Lopez considered the matter further. He had considered the staff wages on-charge as somewhat related to the salary matter, which was still unresolved at that point. Mr Gorey said it was difficult to assume that Ms Stedman spent 10% of her time in MGCC but it would not affect his analysis and he worked on the basis that she looked after the accounting and he allowed a $10,000 a year fee for that as reasonable. So he was focusing in his report on other people. He did not know exactly who they were. Mr Lopez agreed with Mr Gorey that there were difficulties in determining the issue of staff wages.
In relation to directors’ fees, the experts recorded, as a result of their conference before trial, that Mr Lopez considered a directors’ fee of $10,000 per year, as suggested in Mr Gorey’s report of 3 April 2013, would be reasonable, but that the fee should be payable from 2001 for Mr Gilmour. Similarly, he contended that Mr Vinciguerra should be entitled to directors’ fees of $40,000 for the four years he was a director.
In the concurrent evidence session, Mr Lopez said, when asked whether what was recorded in the conference notes indicated a common approach, that that was perhaps a little misleading because he considers directors’ fees is one of those “nebulous things” and it could be anything or nothing. He said that in most proprietary limited companies, where all the shareholders are also the directors, directors’ fees are really a non-issue, because what you take out in directors’ fees you do not get as a dividend. But where you have a situation where the directors are not shareholders and where you have got directors and shareholders in different proportions, it becomes more critical. You then need to try and identify the remuneration for the effort made. And neither of the experts knows about the amount of participation that Mr Vinciguerra or Mr Gilmour made as directors, as opposed to employees or managers.
Mr Lopez said that based on his own experience where he has been a non-working director of a company of MGCC’s size, his fee has been in the region of $35,000. He also agrees to the $10,000 as reasonable. But he agreed that the issue becomes one of the commercial relationship of the directors.
Mr Gorey said that his view was that a directors’ fee of $10,000 would be reasonable and an issue that perhaps had influenced him, but not greatly, was that there was some suggestion (not mentioned in his report) that the directors did not do a lot in terms of corporate management. They did not hold an annual general meeting and the like. There was little evidence of corporate governance from his reading of the materials.
Mr Gorey also accepted that if one director was to receive a directors’ fee, then it would follow that the other should receive a similar amount.
In relation to rates expenses, as noted above, Mr Lopez did not address Mr Gorey’s expression of opinion. This issue is dealt with below.
The experts’ evidence is considered below, together with the lay evidence in relation to the questions of breach of duty.
Evidence of other witnesses
Mr Vinciguerra’s evidence: Mr Vinciguerra was the first witness called by MGCC. He explained that he held 30 of the 100 ordinary shares in MGCC.
He explained how it came about that he acquired those shares. He said he had worked in the chemical industry for over 30 years. In about 1998, he was working as the operations manager and manager of the chemical cleaning division of a business known as Maxwell Chemicals. In the course of that work he came to know Mr Gilmour and the business MG Corrosion Consultants.
In 1998, he resigned from Maxwell Chemicals and then began discussing with Mr Gilmour, whom he had known for about 15 years, the prospects of joining MG Corrosion Consultants.
Mr Vinciguerra said that, at that time, the only operation of the MG Corrosion Consultants business he was aware of was the supply of labour for chemical cleaning. From his discussions with Mr Gilmour he understood that if he joined MG Corrosion Consultants, he would start up a water treatment side of the business.
Mr Vinciguerra said that at that time he did not know the structure of Mr Gilmour’s business but when he joined, the business name was changed from MG Corrosion Consultants to MGCC.
Then in July 2000, he was issued with 30 of 100 shares in MGCC. He said that Sola‑Kleen was issued the remaining 70 shares. He was then also appointed a director of MGCC along with Mr Gilmour.
Mr Vinciguerra said that he also knew that Mr Gilmour was involved with a business known as Sola‑Kleen, which manufactured and sold hot water systems. Although he did not know the precise arrangements at the time, he now knows that the Sola‑Kleen business was carried on by Sola-Kleen, the second defendant controlled by Mr Gilmour.
Nonetheless, he said that when he started at MGCC, the MGCC business and the Sola‑Kleen business were both operated from the premises at 24 Bassendean Road, Bayswater, which were owned by Mr Gilmour.
Mr Vinciguerra gave evidence about how those premises were set up, including about a workshop, an external shed and external car parking and storage areas.
Mr Vinciguerra said that when he started working for MGCC he was the only person working full-time and that Mr Gilmour primarily worked for Sola‑Kleen. Ms Stedman undertook administrative work for both Sola‑Kleen and MGCC and there were some other people who worked for Sola‑Kleen – David Stannard, Ross Gilmour (brother of Mr Gilmour) and Mr Thuy, who apparently worked in the workshop. Other than these workshop staff doing some unloading of deliveries of chemicals for MGCC, he considered they worked exclusively for Sola‑Kleen.
Mr Vinciguerra said that only a small part of the premises was used by MGCC and that the reception area was shared between MGCC and Sola‑Kleen. He said some of the office space was used by MGCC and the storage area was used for storage of chemicals used by MGCC. Also the lunchroom, toilet, computer area and stationery cupboard facilities were used by both businesses. The balance of the office space (areas 3, 4 and 6 on a rough plan of the layout of the premises that he produced) was used by Sola‑Kleen as was the workshop (areas 8, 9 and 10 on that rough plan). Mr Vinciguerra said that, over time, MGCC’s business expanded so that in about 2000 it employed Mr James Anthony McCarthy to work full‑time. Mr McCarthy focussed on commercial water treatment and Mr Vinciguerra dealt with all aspects of the business, but he (Mr Vinciguerra) was the only person who focussed on industrial chemical cleaning.
He said that from 2000, Mr Gilmour continued to work primarily for Sola‑Kleen, although he did do some work for MGCC on an ad hoc basis when required (for example, on one occasion on a cleaning job in Kalgoorlie that required three men for a week). But Mr Gilmour’s day to day activities were for Sola‑Kleen. MGCC’s day to day operations, he said, were undertaken by him and Mr McCarthy (in relation to commercial water treatment).
Mr Vinciguerra said that in about 2003, MGCC employed Ms Michelle Dalton to perform administrative work for the MGCC business, being that previously done by Ms Stedman. He said that prior to Ms Dalton’s employment, the extent to which Ms Stedman’s time was spent undertaking work for MGCC, as opposed to undertaking work for Sola‑Kleen, had gradually increased. He estimated that when he was working from the premises, at the time Ms Dalton was engaged, Ms Stedman was spending less than half of her time doing work for MGCC.
Once Ms Dalton was employed he estimates that Ms Stedman did MGCC’s banking and made payments on behalf of the company and prepared financial and other reports and budgets for MGCC, but otherwise Ms Dalton undertook the administrative work such as preparing and sending out quotations and invoices and filing.
Mr Vinciguerra said MGCC provided vehicles to him, Mr McCarthy and sales people. Mr Gilmour also had a vehicle for personal and/or Sola‑Kleen purposes.
He said that a couple of years after he was initially employed, MGCC established an operation in Adelaide which was staffed by one full‑time employee, John Mitchelmore. Any chemicals used or sold in South Australia were sent direct to customers from Western Australia.
He said that as MGCC’s business expanded it started utilising more of the premises and by 2000 it used all of the office space in the area marked “2” on the rough plan and came to use much of the area marked “12” for storage of its products.
He said MGCC and Sola‑Kleen had separate telephone numbers but stationery and other sundry items were used by both.
MGCC also had operations in Kalgoorlie involving both chemical sales and industrial chemical cleaning. Mr Vinciguerra said that in the early 2000s he was on average spending every second week in Kalgoorlie and regularly drove there from Perth on a Sunday night and drove home on a Friday night.
He also said that although he became a director of MGCC in July 2000, Mr Gilmour routinely made decisions for MGCC without any reference to him. For example, he said Mr Gilmour made decisions about procurement of supplies without discussing the issues with him, and Ms Stedman would report to Mr Gilmour and not to him. He said he had no input or involvement in MGCC’s finances (supplier payments and customer receipts) which was undertaken by Ms Stedman at Mr Gilmour’s direction.
He said he never had the opportunity to inspect MGCC’s books during his time as a director and was only ever provided with a few financial statements, balance sheets, tax returns, management reports and customer summaries – which he identified.
He further said that he did not fully understand how the figures in the management reports had been derived and recalls one particular matter he was concerned about, being the inclusion of “Management Fees’’ as an expense recorded in management reports.
In that regard he said he tried to discuss his concerns with Mr Gilmour during the period of around 2004 – 2006. He said that on several occasions he said to Mr Gilmour words to the effect that the numbers in the reports did not make sense and needed to be justified and at least on one occasion said to Mr Gilmour that the books were being “cooked”. He said that on each occasion, Mr Gilmour got angry with him and said words to the effect that he was “accusing” him.
Mr Vinciguerra said that after a few such occasions, he considered the exercise of receiving reports and discussing their content with Mr Gilmour to be futile and did not continue raising his concerns.
He also said that he often asked to look at Sola-Kleen’s books but Mr Gilmour said that they had nothing to do with Mr Vinciguerra. In September 2003, Mr Vinciguerra said Mr Gilmour offered to sell his shares in MGCC to him for $2 million, but he did not accept Mr Gilmour’s offer.
Mr Vinciguerra said that by about 2004, MGCC had enough business in Kalgoorlie to warrant him dealing with that business full‑time and he then relocated to Kalgoorlie on a full‑time basis and rented a unit there and resided in and worked from the unit.
Mr Vinciguerra said he remained in Kalgoorlie until he resigned as a director of MGCC on 22 April 2004. He said he resigned because of the way that Mr Gilmour and Ms Stedman, under Mr Gilmour’s direction, made decisions about MGCC’s affairs without involving him. He said he was concerned about the potential for him as a director to incur personal liability for decisions he was not party to.
Mr Vinciguerra said he ultimately resigned his employment with MGCC on 29 July 2006.
After that, he took legal proceedings in this Court to obtain access to MGCC’s books.
He referred to a report that Mr Gorey prepared for him, which he considered identified expenses which were unnecessarily or not genuinely incurred for the purpose of MGCC’s business, and which included but were not limited to management fees which it appeared Mr Gilmour had caused MGCC to pay to Sola‑Kleen.
He said he never agreed to the payment of such management fees or to otherwise incurring expenses which were not necessary for, and genuinely for the purposes of MGCC’s business.
He also referred to a notice of Extraordinary General Meeting of members of MGCC dated 20 March 2008 that he had received, which gave notice of resolutions for a rights issue under which 200,000 ordinary shares at a price of $1 per share were to be issued on a pro rata basis to members of MGCC.
Mr Vinciguerra was cross‑examined about his knowledge of the financial arrangements between MGCC and Sola‑Kleen and Mr Gilmour.
He said he did not ask Mr Gilmour what the rental arrangements were for the premises when he became a shareholder and director of MGCC in July 2000. He said he did not make any assumptions about the financial records of the two companies and the question of whether MGCC would be using the premises at no cost to it was something that “never entered into the consciousness”.
When asked why he accepted the 30 shares in MGCC, he said that it was 18 months or two years into establishing the water treatment division and he considered that was a fair thing for the effort that he had put in.
He said he would have expected a dividend from the profits of MGCC.
He was then asked whether it would not have been important for him to know what the funding of the MGCC business was, how it was paying its rent, how it was paying its employees and so on. He said that at that point in time he did not think of that.
From his point of view he was there “to give them [the] water treatment business”.
He continued to insist that at that point in time he did not consider what made up the costs for MGCC.
He said that for 18 months to two years the costs were negligible in the sense that he was providing labour free of charge and was providing a vehicle free of charge and there was “basically myself there for the business to be established”. So there were not any costs of significance.
He also said he did not receive any wages in the first 12 months between July 2000 to July 2001.
Mr Vinciguerra was also cross‑examined about the roles that Ms Stedman and Ms Dalton played. He said that Ms Dalton started off working part-time and that he may have told Mr Gorey that when he was preparing his initial report.

As to who paid for any stock that the business required in the early period, Mr Vinciguerra said that he assumed, because Mr Gilmour held 70% of the shareholding, that Mr Gilmour covered any costs, but added that they were talking about “low numbers”.
When pressed about his knowledge of costs incurred in the period 1 July 2000 to 30 June 2001 and between 1 July 2001 and 30 June 2002, Mr Vinciguerra evinced little knowledge of how they were met.
Mr Vinciguerra was then asked questions about Mr Harradine, who, on 23 November 2010, had made an affidavit (that was shown to Mr Vinciguerra), stating that he was during the period 1 July 2000 to January 2003, the accountant for Sola‑Kleen.
Mr Vinciguerra said he was not aware of that and said he had not, not that he recalled, met Mr Harradine before July 2000. Indeed, he considered there was only one occasion on which he had met him, either him or another accountant, Mr Tony Armenti, and that was to talk about the arrangement for his living‑away‑from‑home allowance when he was living and working in Kalgoorlie. He thought this meeting must have been about that time, in 2004 or 2005, at an office in Victoria Park. He recalls meeting in an office but not the person or exactly the time of the year it was.
He specifically said he did not recall having the meeting with Mr Harradine referred to in [5] of Mr Harradine’s affidavit, in or about November 2002, in the company of Mr Gilmour at the offices of Sola‑Kleen.
When asked whether the meeting could have happened, he said that it may have happened, but also said, before that, that he did not recall having the meeting.
It was then put to Mr Vinciguerra that, in accordance with what was said in [6] of Mr Harradine’s affidavit, at such a meeting there was discussion about the fact that Sola‑Kleen had paid expenses on behalf of MGCC and had provided management services for which it was entitled to be reimbursed and paid by MGCC, but at that point in time MGCC was not in a financial position to do so. Mr Vinciguerra said he did not recall that discussion or a discussion about that between himself, Mr Gilmour and Mr Harradine.
When further asked whether he did not recall it, Mr Vinciguerra said:
It was never had. About management fees, was never had.
When counsel said he was not asking that question and was asking was it a meeting in relation to expenses paid by Sola‑Kleen for the benefit of MGCC in November 2002, Mr Vinciguerra said he did not recall it “because I wasn’t present at that meeting”, if it in fact took place.
When it was put to him that he had previously indicated that the meeting in November 2002 “may have happened”, he answered that he was never involved in discussions with the finances. He added that the recovery of expenses “was never discussed with me”. He added that his focus was on getting business.
He was further asked whether he recalled Mr Harradine saying words to the effect that since MGCC conducted its accounts on a cash basis, not accruals, management fees should be paid and expenses recouped at such time as MGCC had sufficient funds, and that when paid, they would be entered into the accounts. He said that he could not recall that.
He clarified that his position was that he was never present at any such meeting where such a discussion was had. He added that he did not recall being in a meeting with the three of them being there and added that it “didn’t happen”.
Counsel made clear that Mr Harradine and Mr Gilmour would give evidence that there was such a meeting and such a discussion. To that Mr Vinciguerra responded, “That’s fine”.
Mr Vinciguerra was then asked whether at about that time in 2001, 2002, the situation was such that if Mr Gilmour had caused Sola‑Kleen to demand immediate repayment of all costs that it had incurred on behalf of MGCC, it was likely the company would have folded. Mr Vinciguerra said that he would have assumed that MGCC had funds to pay its own way.
When Mr Gorey’s report was put to him that MGCC had a working capital deficiency from 2003 to 2006 and that MGCC did not have funds to pay, he again said he was not sure and did not know and did not recall exactly what things were like and assumed that “It was still reasonably amicable”.
When counsel further pressed Mr Vinciguerra to, in effect, agree that MGCC did not have the funds to cover expenses being incurred by Sola‑Kleen on its behalf, and that it would, in effect, be appropriate for MGCC to agree to make payment of those expenses at a later date when it was in a position to do so, Mr Vinciguerra said that he was always under the belief that the sales that MGCC had made, once it established itself, were covering the costs.
He said it was never made clear to him that at some point it would be required to pay costs to Sola‑Kleen. He added that he had worked there for two years running his own vehicle and there was never any mention made of covering those costs.
He further added that he never thought of the proposition that Sola‑Kleen and Mr Gilmour were providing support and would have to be compensated at some point.
He said he had never had a discussion with Mr Gilmour about it and never had a discussion with Mr Harradine about it, nor anyone else.
Thus, Mr Vinciguerra expressly denied having had a discussion with Mr Harradine and Mr Gilmour regarding the preparation of the MGCC accounts to the effect that, with Mr Gilmour, he directed Mr Harradine to finalise the accounts on such a basis.
When he was continually pressed about whether it would be fair and reasonable in a start‑up situation to receive financial support of the type suggested but then to repay it later, Mr Vinciguerra said it was never discussed and never thought of.
Mr Vinciguerra confirmed, by reference to the financial statements for the years ending 30 June 2001 and 30 June 2002, that no rent was paid by MGCC in respect of the premises. He said he never thought about when rent was going to be paid. He said his brief was to get business in.
Mr Vinciguerra was then asked about expenses covered by Sola‑Kleen including Ms Stedman and computers being used by MGCC. He accepted when a second computer was introduced that that was so but said the first computer was in fact his. He accepted that Ms Stedman used a Sola‑Kleen computer but said he did not recall how much time it would have been used for MGCC’s work. He also accepted that there may have been some “basic software programs” that came with the computer but nothing special. He also accepted some small amount of furniture would fit into that category. He was also pressed about telephone handsets; he said the handset was shared.
When asked about the financial position of the company in July 2006, and whether by then it had the extra funds to pay for the expenses earlier incurred, Mr Vinciguerra said that the financial position then should have been very good, although he said in July 2006 he had left.
When asked when he considered the company commenced making profits, he said that he looked after KCGM at Kalgoorlie from about 2004 and the sales were quite extraordinary, they were very good. So he considered 2005/2006 was an extremely good year and he assumed it was trading profitably for two years or three years before that. In his view it should have been trading quite profitably.
Mr Vinciguerra was also asked about the work that Ms Dalton did for MGCC and whether she did any work at all for Sola‑Kleen; which he did not recall her doing.
There were also questions about the extent to which Ms Dalton was part-time or full‑time and he said that she eventually went full-time.
He was also questioned about the extent of Ms Stedman’s role.
There was also some questioning about whether Mr Thuy did any work for MGCC. Mr Vinciguerra said he was in the fabrication area for Sola‑Kleen and whatever he (Mr Vinciguerra) told Mr Gorey for the purposes of preparing his initial report was meant to communicate that fact. Mr Thuy was not involved in MGCC in terms of administration or servicing although he conceded Mr Thuy may, on a rare occasion in the early days, have helped unload some chemicals at the premises.
He also accepted that Ms Stedman before Ms Dalton arrived may have been involved in ordering chemicals, but not later on.
There was also questioning about the extent to which Ms Stedman, and later Ms Dalton, organised travel plans. He conceded that they possibly could have.
All this questioning was to try and establish that persons who were on the Sola‑Kleen payroll actually performed significant roles for MGCC.
Mr Vinciguerra accepted that Ms Stedman was the person who dealt with payment of wages. Similarly, she dealt with reimbursement of expenses.
Mr Vinciguerra had earlier told Mr Gorey that he estimated that over the period 2001 to 2007, Ms Stedman would have spent 30% of her time on MGCC business. He was asked whether in light of the evidence he had just given he maintained that view, which he said he did. He confirmed that she did not do everything in the administrative area but she did do the accounts. That is to say the financial side of accounts, but not the reports, checking reports, or quotes.
He then said that once Ms Dalton started, Ms Stedman’s contributions would have been less than 30%.
Mr Vinciguerra was also challenged about his statement that he had never had an opportunity to inspect MGCC’s books in his time as a director and was only ever provided with a few financial statements. He was then shown a management report from May 2003 which showed the profit and loss at a glance and budget forecast. He assumed that he had received the document. He was then shown a document headed “Expenses” which included an item for “management fees”. This showed estimated management fees in February of $5,000, in March of $625, $625 in April, $625 in May and $625 in June, showing a total of $7,500. When asked if he raised those with Mr Gilmour, he said he did not recall if he mentioned those specifically but did recall mentioning management fees to him, but not the time when he did so.
When pressed, he thought that was when he was in Kalgoorlie and came down to Perth and mentioned it, but could not say precisely when, did not take notes and did not write down the date.
He insisted that he asked Mr Gilmour, “What are management fees?”. He said that that is when the whole relationship soured and he was told that he did not understand business and so from that point it did not really get anywhere.
As to the 2003 financial statements which included management fees, Mr Vinciguerra said he had no idea what management fees were about. They just appeared in the reports. He did not have an opportunity to question any of the dollars in there. The couple of times that he did, he said, “The reaction wasn’t particularly good”.
He was asked why the management report of May 2003 was provided to him. He said it was as a summary of how the business was going, which he asked for. He said he asked for the directors to meet but that never eventuated. He said that when he kept getting the management reports he did not go through any of them in detail.
He confirmed this was in the period he was busily working in Kalgoorlie.
While he said he did not understand what management fees were at that time, he now believes that MGCC was being charged for services provided by Sola‑Kleen and for a management fee on top of that.
When pressed about what the particular management fees shown in the 2003 report were for, such as the $5,000, he was not able to say how it was calculated.
Questions were also asked of Mr Vinciguerra about the extent to which Mr Gilmour did work for MGCC. He indicated, very little. While he was working in Kalgoorlie, Mr McCarthy managed the water treatment in Perth and reported to Mr Gilmour.
He accepted there was one occasion when Mr Gilmour and two others attended in Kalgoorlie for about two weeks to do a chemical cleaning job. He was pressed about the extent of his knowledge concerning administration on behalf of MGCC while he was based in Kalgoorlie. He accepted that Mr Gilmour had “top end responsibility” for MGCC’s operations but he did not, so far as day to day involvement was concerned.
Mr Vinciguerra was then asked questions about a factoring agreement dated 16 August 2001 between Benchmark Debtor Finance and MGCC.
He said he was not in total agreement with it and thought there were other options. He considered Ms Stedman, who was handling debt recovery, was not doing a good job and believed that it could be done better and, if it had been, the factoring agreement would not have been required.
He said he was not particularly convinced that “the person doing the job” was doing it effectively and efficiently and that was an option that he put forward.
He indicated that this was one occasion when he did become involved with the finances of the company. He had a discussion with Mr Gilmour about it.
He was then asked whether he was happy for the company to enter into the debt factoring facility and he said that he signed it although he was not happy with it. He considered it was one option though not necessarily the best option, but he accepted that it was an option “he had to take” even though it was not the best option in his view. When asked whether it was in the best interests of the company or not to do it, he said that in terms of managing cashflow it was an option, although he did not think it was the best option.
It was pointed out to him that he not only signed the facility as a director of the company but also as a guarantor and must have given some serious thought to it before he signed it. He finished up responding by saying:
I will say it’s in the best interests of the company as long as it’s accepted that I didn’t think that it was the only option, but it was the option that I was given, so I had to take it. As a minority shareholder, I had no say in it. Ultimately, what happened, I had to go – I had to go with it.
After further questioning regarding the debt factoring arrangement, he accepted that it provided cashflow benefits at a time when the company had a capital deficiency. Nonetheless he considered that he had to fall in line with the proposal. But he also said that he was not convinced it was in the best interests of the company as the inefficiencies in the existing debt collection system remained. Only one big client did not fall into the category of not being a prompt payer.
Ultimately, Mr Vinciguerra accepted that the debt factoring facility was “an option which worked for the business” and he essentially agreed that because it did work for the business he agreed to sign as a director and a guarantor.
In re-examination Mr Vinciguerra again indicated he had a limited knowledge of financial matters in MGCC and did not know what money came in from the factoring arrangement.
Similarly, he said he did not know that the loan apparently made to the Gilmour Family Trust had increased from $30,429 to $89,783 in the financial year ending 30 June 2002; that is to say, after the factoring agreement was made.
He also said he did not know about the overdraft indicated of $79,838.
As to the relevance of Mr Vinciguerra’s evidence, and the weight it should be given in the light of competing evidence, I will deal with key aspects of it below.
Mr McCarthy’s evidence: Mr McCarthy then gave evidence called by MGCC. He confirmed he was employed by MGCC from about 1 March 2000 to work in commercial water treatment.
He then understood that Mr Gilmour and Mr Vinciguerra owned MGCC with Mr Gilmour as the majority owner, and that Sola-Kleen also operated from the same premises.
He gave evidence about the layout of the premises and the areas used by MGCC and Sola‑Kleen, which generally corroborated the evidence that Mr Vinciguerra had given.
He confirmed that Mr Gilmour was the person who gave directions to Ms Stedman and the person to whom Ms Stedman reported and that she worked as Mr Gilmour’s secretary and undertook MGCC’s banking and administrative work such as issuing quotations and invoices and doing filing when he was first there.
He also confirmed that Mr Stannard worked in the workshop and that on occasions Mr Gilmour and other employees of Sola‑Kleen, apart from Ms Stedman, would assist unloading deliveries for MGCC.
He said that when Ms Dalton commenced she took over the administrative work of MGCC issuing quotations and invoices and doing filing, but Ms Stedman continued to do the banking.
He gave evidence of Mr Gilmour in conversations with Mr Vinciguerra, which, involved Mr Gilmour telling Mr Vinciguerra about the direction the company would take.
He also said that when Mr Vinciguerra was located in Kalgoorlie, he visited the premises occasionally. He heard Mr Gilmour telling Mr Vinciguerra that he would make a particular decision notwithstanding Mr Vinciguerra was opposed to it.
He observed their relationship deteriorate over time.
After Mr Vinciguerra left in about 2006, his relationship with Mr Gilmour also deteriorated and then he resigned and obtained alternative employment.
In cross‑examination Mr McCarthy indicated that he and Mr Vinciguerra set up a diary to administer the service work and service reports were given on a laptop. He explained the way that system worked.
When pressed for information about the extent to which Ms Stedman was involved in all of this, he indicated that she helped out at times, or followed up in areas but that they had the diary and ran the system. He said she also helped out a lot with the invoicing. He did not have a clear recollection of what happened after Ms Dalton arrived but “imagined” that Ms Stedman did a lot of handling of the invoicing.
Job cards and other parts of the administration, however, were handled by Ms Dalton. He confirmed that Ms Dalton started off part‑time. He confirmed that Ms Stedman filled the gap on occasions when Ms Dalton was not at work but he also had people ring him direct.
He confirmed that earlier on Ms Stedman would order chemicals.
He confirmed that Ms Stedman would have arranged airfares and travel arrangements when he travelled to places such as Kalgoorlie or Darwin.
He thought that Ms Stedman may have been involved in getting trucking companies to take chemicals from Perth to Kalgoorlie, because he did not have any direct involvement in that area.
He was less clear about chemical signage responsibilities.
He confirmed that Ms Dalton took over on the administration side when she arrived.
He confirmed that if there was a question of him having expenses reimbursed, he would deal with Ms Stedman about that.
He was asked a number of other questions by which counsel sought to elucidate the sharing of responsibilities between Ms Stedman and Ms Dalton.
He was also asked about the extent to which Mr Gilmour was involved in MGCC work.
Mr McCarthy’s evidence about most of these matters was quite general, reflective of the fact that: prior to Ms Dalton’s arrival, Ms Stedman had much to do by way of assisting in administration and the like with MGCC, but that largely changed after Ms Dalton arrived, although Ms Stedman remained in charge of financial matters such as banking; that Mr Gilmour was involved in some matters but not a lot of hands‑on matters in the MGCC operation; that other employees in the storage area may have assisted MGCC but only in a minimal way. His evidence was useful to that extent.
Mr Thuy’s evidence: Mr Thuy said he worked for MGCC and Magil Nominees, which was previously known as Sola‑Kleen, from 2002 to 2011 and still works a day a week for the new owner of Sola‑Kleen.
He said he undertook work for MGCC that involved cleaning chemical drums and as a forklift driver unloading trucks. He said he was storeman for both MGCC and Sola‑Kleen.
He considered that he worked an average of three to four hours each day for MGCC throughout his employment in the period 2002 to 2007.
In cross‑examination he said he was paid by both companies, but agreed he did not know how much each company paid him.

I am not satisfied that any relevant evidence has been led, and certainly no sufficient evidence has been led, to convince me otherwise on the balance of probabilities.
I also accept there is no quality or characteristic of the financial accounts that causes me to doubt any of the matters stated within them. They are not, for example, described as drafts and there is nothing internally inconsistent about them.
To the extent that it is suggested by the defendants, particularly Mr Gilmour, that he was not paid any sum that the financial statements indicated that he was paid, I do not accept that the prima facie position described by the financial statements should be doubted in that regard.
In respect of many matters, the evidence of Mr Gilmour lacked certainty, cogency and was vague and sometimes evasive.
To the extent that Mr Gilmour said he relied upon his accountants and advisers in respect of financial matters and preparation of financial records, I do not accept that provides any basis for either doubting the authenticity of the financial records that MGCC has tendered in evidence and relies upon or that the prima facie financial position indicated by them, including that the various expenses of the company the subject of this proceeding were in fact incurred.
There was also a question whether or not the accounts had been prepared on an accruals basis. This was a matter discussed with Mr Harradine, who suggested that they were not. Against that the financial statements indicated that they were prepared on an accruals basis. While the explanation from Mr Harradine, to the effect that was simply an error produced by the computer software, is an error which is repeated, I consider that the explanation provided by Mr Harradine is reasonably glib.
In all the circumstances, I accept the submission made on behalf of MGCC that the financial statements prove that all of the expenses which it complains about were incurred and paid by MGCC during the relevant years and that the accounts were prepared on an accruals basis.
DID MR GILMOUR BREACH THE DUTIES HE OWED TO MGCC AND, IF SO, IS SOLA‑KLEEN LIABLE AS AN ACCESSORY?
The Corporations Act imposes a number of general duties on a director. MGCC claims Mr Gilmour, in authorising a number of expenses, has breached three of them – those imposed by ss 181, 182 and 183.
Section 181 is headed “Good faith – civil obligations” and by subs (1) requires a director to exercise their powers and discharge their duties:
(a)in good faith in the best interests of the corporation; and
(b)for a proper purpose.
Section 182 is headed “Use of position – civil obligations” and by subs (1) provides that a director must not improperly use their position to:
(a)gain an advantage for themselves or someone else; or
(b)cause detriment to the corporation.
Section 183 is headed “Use of information – civil obligations” and by subs (1) provides that a person who obtains information because they are, or have been, a director of a corporation must not improperly use the information to:
(a)gain an advantage for themselves or someone else; or
(b)cause detriment to the corporation.
It may be seen that each of these three provisions is capable of applying to a given set of facts, and that ss 182 and 183 may well overlap in any given situation.
It is provided by subs (2) of each of ss 181, 182 and 183 that a person involved in a contravention of the provision also contravenes the provision.
MGCC relies on subs (2) in each case in its claims against Sola-Kleen.
In that regard, s 79(c) of the Corporations Act provides that a person has been involved in a contravention if the person has been in any way knowingly concerned in, or party to, the contravention – whether by act or omission or directly or indirectly.
Given that Mr Gilmour was the sole director and shareholder of Sola‑Kleen at material times, MGCC submits that his knowledge was the knowledge of Sola‑Kleen and is to be imputed to Sola‑Kleen, and so Sola‑Kleen should be found to have been involved in any contravention proved against Mr Gilmour. I accept that particular submission.
So far as remedies for breaches of the Corporations Act are concerned, MGCC notes that by s 1317E, each of ss 181, 182 and 183 are civil penalty provisions and so the Court has the power, under s 1317H, to order the defendants to compensate MGCC for damage suffered as a result of breach, which it contends includes any profits made by the defendants as provided for by s 1317H(2). I also accept that submission.
MGCC also submits that any misappropriation by a director of a company’s funds to benefit the director or another company of which the director is the sole director and shareholder is a clear example of a breach by a director of the fiduciary duty they owe the company more generally, not to put themselves in a position where there was a real, sensible possibility of conflict between their own interests and those of MGCC; and not to make any benefit or gain by reason of or use of their position as director of MGCC.
So far as Sola‑Kleen is concerned, MGCC says that Sola‑Kleen participated in Mr Gilmour’s breach of fiduciary duties as it knew the director was acting in breach of duty and/or knowingly assisted the director in transactions that were a breach of duty, and so any property it received should be found to be held on trust for MGCC by them or they should otherwise be held liable.
The defendants say Mr Gilmour has not contravened ss 181, 182 or 183 or breached his fiduciary duty to MGCC and, in any event, that MGCC has not suffered any loss.
Any consideration of the nature of the duties imposed by ss 181‑183 and assessment as to whether or not they have been complied with should perhaps commence with some regard for the civil obligation of care and diligence imposed by s 180. By s 180(1) it is provided that:
(1)A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
(a)were a director or officer of a corporation in the corporation’s circumstances; and
(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
The business judgment rule, if met, has the result that the requirements of s 180(1) will be met. In this regard, subss 180(2) and (3) provide:
(2)A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
(a)make the judgment in good faith for a proper purpose; and
(b)do not have a material personal interest in the subject matter of the judgment; and
(c)inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d)rationally believe that the judgment is in the best interests of the corporation.
The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
NoteThis subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—it does not operate in relation to duties under any other provision of this Act or under any other laws.
(3)In this section:
business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.
In many respects the defendants contend that all of the expenses the subject of the claim by MGCC have a valid business explanation such that s 180(1) is not contravened, nor any of the duties imposed by ss 181‑183.
In that regard, the defendants submit that in assessing whether there has been a breach of ss 180-183 one must consider:
(1)The surrounding circumstances. See Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50; Maronis Holdings Limited v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; (2001) 38 ACSR 404.
(2)Whether the director deliberately engaged in conduct knowing that it was not in the company’s best interests or for a proper purpose. See Marchesi v Barnes [1970] VR 434 at 438.
(3)Whether the conduct of the director was a deliberate act or combination of acts with the knowledge of what was being done was not for the purpose of furthering the interest of the company but to achieve a collateral purpose. See R v Byrnes [1995] HCA 1; (1995) 183 CLR 501.
So far as s 180(1) is concerned, I accept that consideration should also be given to the type of company involved, the size and nature of its business, the provisions of its constitution, the composition of the board and the distribution of the work between the board and other officers. See Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 at [7201] (Austin J); Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1 at [75] (Black J).
In Ledir, Black J at [77] observed in respect of the statutory duty under s 181 that it reflects directors’ duties under the general law to act in good faith in the interests of and for the benefit of the company as a whole, noting that in Chew v R (1991) 4 WAR 21, Malcolm CJ summarised the requirements of that duty as including that directors must exercise their powers in the interests of the company, and must not misuse or abuse their power and must not misappropriate the company’s assets for themselves.
Black J also considered that in Westpac Banking Corporation v Bell Group Limited(in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1, the Court of Appeal of the Supreme Court of Western Australia unanimously held that the first element of that duty, the duty to act in good faith in the company’s best interests, was subjective and would be complied with if directors honestly believed they acted in the company’s best interests. See Lee AJA at [923], Drummond AJA at [1988], [2027] and Carr AJA at [2772], [2795].
His Honour further noted that the authors of Austin, Ford and Ramsay, Company Directors: Principles of Law and Corporate Governance (2005) observe at [7.4] that a failure to comply with that duty can tend to arise relevantly when circumstances induce directors to believe that the company’s interests correspond with their own interests and making that unreflective assumption, they act in the company’s affairs without considering its interests as a separate entity with its own shareholders and creditors.
His Honour further noted, at [79], that the second limb of s 181(1) requires that directors’ powers may be exercised only for the purpose for which they were conferred and not for any improper purpose. His Honour noted that there is authority that whether a director acted for a proper purpose is to be determined objectively, referring to Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [738]‑[739].
His Honour also noted that in Westpac Banking Corporation v Bell Group Limited (in liq) (No 3), the majority held that whether a director acts for an improper purpose is determined objectively, including an assessment by the Court of what was reasonable in the circumstances. See Lee AJA at [933] and Drummond AJA at [1988], [2027] and [2073]. His Honour noted that Carr AJA held that the test whether directors had acted for an improper purpose was primarily subjective.
I am satisfied, following Westpac Banking Corporation v Bell Group Limited (in liq) (No 3), that the question whether or not a director acts for a proper purpose (s 181) or for an improper purpose (ss 182 and 183) is primarily determined objectively involving an assessment by the Court of the relevant circumstances.
In any event, that approach is, or is likely to be, not materially different from making an assessment about the circumstances in which directors unreflectively assume that the company’s interests correspond with their own without making any closer analysis of that assumption.
In this particular case, I am satisfied that whether one applies an objective test or not in respect of the proper purpose, Mr Gilmour did not relevantly distinguish between what was in his interests (and Sola‑Kleen’s interests) and what was in the interests of MGCC when the various conceded unnecessary or excessive payments listed above were authorised by him.
I am satisfied that, at all material times, Mr Vinciguerra was not aware of the management fee arrangement and when he did question Mr Gilmour he was put off by Mr Gilmour in the way he described in his evidence above.
The simple fact of the matters is undisputed that Mr Gilmour ran the financial side of the company, albeit with the assistance of the bookkeeper, Mr Stedman, as to those administrative or clerical duties.
It is quite clear from the evidence of Mr Harradine, that from early on Mr Harradine advised Mr Gilmour that there should be some management fee arrangement put in place between Sola‑Kleen and MGCC.
I reject below the cross‑claims and the claims made in respect of management fees that there was an understanding as a result of a meeting in November 2002 that management fees would be charged and paid when the company could afford to pay them. I do not consider that the evidence of Mr Harradine and Mr Gilmour goes anywhere near establishing that fact.
In short, I consider that, Mr Gilmour effectively ran the financial side of MGCC as if the company was his own and as if Mr Vinciguerra was effectively an employee without any say on the financial side.
The evidence of the expert witnesses shows how, one way or the other, Mr Gilmour considered he was entitled to be refunded for expenses that he through Sola‑Kleen considered they had borne in respect of the operations of MGCC.
In my view, in so acting, Mr Gilmour breached the good faith obligation created by s 181 of the Corporations Act, and also breached s 182 of the Corporations Act in gaining an advantage for himself or someone else and caused detriment to the corporation. He also breached his fiduciary duty owed to the company not to put his interests and those interests associated with him in conflict with the interests of the company.
Given that Mr Gilmour effectively controlled Sola‑Kleen, his knowledge and his actions can be treated as the knowledge and actions of Sola‑Kleen and Sola‑Kleen may relevantly be seen to have been involved in the contravention of the Corporations Act provisions and complicit in the breach of the fiduciary duty owed by Mr Gilmour to the company.
ARE ANY OF THE CLAIMS MADE AGAINST MR GILMOUR STATUTE-BARRED?
The defendants plead that the claims in respect of any amounts prior to 13 September 2004 are statute-barred, pursuant to s 38 of the Limitation Act 1935 (WA).
MGCC submits that s 38 provides no defence as:
1.Section 38 could only apply to the claims advanced by MGCC under the Corporations Act if picked up by s 79 of the Judiciary Act 1903 (Cth): see Ardeshirian v Robe River Iron Associates (1993) 43 FCR 475 at 487 (French J).
2.As s 1317K of the Corporations Act imposes a limitation period for claims for compensation, under s 1317H of the Act, s 79 of the Judiciary Act does not apply as the applicable limitation period is “otherwise provided … by the laws of the Commonwealth”; and
3.Section 38 has no application to the equitable claims for breach of fiduciary duties and Barnes v Addy liability.
I accept the submissions made on behalf of MGCC. Even if the s 1317K six year limitation period applies (which is not contended for by the defendants), MGCC would be entitled to compensation for breaches post 13 September 2004 and for all breaches of fiduciary duty.
The defendants’ limitation plea as made therefore fails and there is no bar to MGCC’s right to recovery.
IS MGCC LIABLE TO SOLA‑KLEEN FOR MANAGEMENT FEES AND RENT ON THE CROSS‑CLAIM AND, IF SO, IS SOLA‑KLEEN ENTITLED TO A SET‑OFF IN RESPECT OF THE SUM FOR WHICH IT IS LIABLE TO MGCC?
The defendants claim that there was an agreement between MGCC, Sola‑Kleen, Mr Gilmour and Mr Vinciguerra that the expenses paid by Sola‑Kleen on behalf of MGCC (including fees for management services) would be repaid to Sola‑Kleen when MGCC had sufficient funds to pay such amounts.
Based on Annexure E to Mr Lopez’ report, the defendants cross‑claim a management fee for the period ending 30 June 2001 of $167,316.66 and management fees for the period ending 30 June 2002 of $163,296.37, making a total of $330,613.
The defendants submit no limitation period applies as the sum concerned is not loan funds payable on demand, but expenses incurred and to be recouped in accordance with the agreement, which provided for a contingent event and MGCC has only been able to meet that contingency from and after 2006.
Sola‑Kleen also submits it is entitled to set off the amounts for which it may be found liable to MGCC.
The defendants refer to a service agreement, dated 28 February 2000 entered into between Sola‑Kleen and MGCC which was signed by Mr Gilmour on behalf of both companies. Mr Harradine gave evidence that he arranged for this to be prepared by solicitors he instructed.
The defendants also say Mr Vinciguerra gave evidence that upon receiving shares in MGCC, he accepted those shares on the basis that he would have received a dividend on those shares and that costs incurred by the company were important to him. He also confirmed that someone had to initially meet the costs and fund those initial requirements. He also confirmed that any loss incurred by MGCC had to be funded and that he had never thought about whether the funding provided by Mr Gilmour or Sola‑Kleen would be compensated in the future, notwithstanding he knew the company was not paying rent for the premises.
The defendants also say that notwithstanding this evidence and Mr Vinciguerra agreeing that the meeting in November 2002 that Mr Gilmour and Mr Harradine said occurred, may have happened, he nonetheless did not accept what is said to have occurred at that meeting.
Mr Gilmour confirmed the agreement set out in his witness statement and affidavit of 23 November 2010 and Mr Harradine also confirmed the meeting as deposed to in his affidavit of 23 November 2010. In cross-examination he further confirmed the background to the meeting and indicated he had an independent recollection of it. He also confirmed he had prepared 2001 and 2002 accounts on a cash basis.
The defendants submit Mr Vinciguerra’s evidence should be rejected and the evidence of Mr Gilmour and Mr Harradine accepted in respect of the meeting in November 2002.
The defendants say that Mr Gorey in his expert report at pp 15 and 16 confirms that the overall charge for rental was reasonable, noting that the rental charge for 2005, 2006 and 2007 was $26,500 per year. Therefore it is submitted that a similar amount each year should have been charged for the years 2000 to 2004, being a total of $132,500 (being 5 x $26,500), where only $14,000 was charged as set out at p 15 of Mr Gorey’s report, resulting in an undercharge of rent to MGCC of $118,500. Sola‑Kleen also seeks to set that amount off against any sum for which it is found liable to MGCC.
In relation to the alleged agreement for payment or deferred payment of management fees, MGCC submits that the only agreement asserted by the defendants is that pleaded in para 8 of the amended defence, particularised as having been reached in the meeting in November 2002 attended by Mr Gilmour, Mr Harradine and Mr Vinciguerra. MGCC notes that both Mr Gilmour and Mr Harradine gave evidence in chief about a meeting held in November 2002 attended by all three but Mr Gilmour and Mr Harradine said that the meeting took place at Sola‑Kleen’s/MGCC’s premises.

It further notes that in cross‑examination Mr Harradine said that the meeting was a 10 minute meeting at which he had Mr Gilmour and Mr Vinciguerra sign the 2001 accounts. However, upon being referred to the resolution approving the 2001 accounts, Mr Harradine stated that the meeting could have been held in October 2002, and despite the resolution stating that it was made at his office, insisted that it was at Sola‑Kleen’s/MGCC’s premises in Bayswater. MGCC submits that, critically, Mr Harradine then said during cross‑examination that at the meeting, there was no agreement reached concerning management fees – instead he had simply provided an explanation.
MGCC submits that the evidence of Mr Harradine in cross‑examination is fatal to the defendants’ contention that an agreement was reached at a meeting in about November 2002 in the terms alleged.
It also notes that Mr Gilmour’s evidence of an agreement should be rejected, given Mr Vinciguerra’s denial of any such agreement, Mr Harradine’s evidence in cross‑examination that there was no such agreement, the absence of accounts prepared on a cash basis as both Mr Gilmour and Mr Harradine asserted was discussed at the meeting and the fact that MGCC’s accounts that were prepared on an accrual basis, did not include a liability for accrued, but unpaid, management fees, as would be the case if such an agreement had been reached.
Further, MGCC submits, the defendants’ closing submissions ignore Mr Vinciguerra’s evidence that in the early years of MGCC’s operations, he worked without remuneration and so it is not implausible that both he and Mr Gilmour would make contributions without being remunerated for doing so.
There is some force in the submissions made on behalf of the defendants as to the nature of the evidence given by the parties, and Mr Vinciguerra, about the basis upon which MGCC was conducted, so far as its expenses were concerned, in the early days.
While the evidence shows that Mr Vinciguerra took no active interest or had no active involvement in the financial side of MGCC’s operations, at the same time, as MGCC points out, he also said – and I accept – that he did a lot of work without payment in the early period; it would seem up to the time the shares were allotted in 2000 and probably for a period thereafter.
Notwithstanding that evidence, the pleading made by the defendants is that there was an agreement concerning the payment and deferral of management fees in November 2002, by Mr Vinciguerra and Mr Gilmour in the presence of Mr Harradine.
For all the reasons advanced above on behalf of MGCC, I am not satisfied there was any such agreement.
Mr Gilmour’s evidence concerning the agreement was unreliable, to say the least. When pressed about what was actually said, he, in effect, relied upon the fact that Mr Harradine had made an affidavit saying that was the agreement made. I place little weight on Mr Gilmour’s evidence in this regard.
Mr Harradine’s evidence in the end was not much better. While an affidavit had been made in the past, setting out what he had to say about the agreement, what was said and where it was made, when pressed in Court in cross‑examination, Mr Harradine’s evidence became quite unclear. I have set out above, a passage from the transcript. When asked about the meeting whether “that’s actually when the agreement was made to pay the management fees at some time in the future”, Mr Harradine said that “No, that was around the explanations, the management fees were made, not the agreement”. When pressed whether no agreement was made at that time, Mr Harradine answered “No”, indicating that there was no agreement made at that time.
The evidence of Mr Harradine in cross‑examination about an agreement in the terms specified in his affidavit is entirely unreliable and I do not rely on it.
In my view, while there may have been some general discussion about expenses, I am not satisfied that there was any agreement about management fees and the like and their deferral.
While it may well be that the accountant, Mr Harradine, had certain matters in mind, and indeed probably did because he also explained how he was initially concerned about the business development that involved shares in MGCC being allocated, I am not satisfied that any such agreement as that pleaded was made.
In these circumstances, I do not consider there is any basis to the claim in respect of management fees for those lost years.
As to the cross‑claim in respect of rental, MGCC submits that Mr Gorey did not conclude that it was reasonable for MGCC to pay rent of $26,500 per year, as the submissions of the defendants suggest. Rather what he concluded was that he considered “that the overall average charge for rental to be reasonable”, which he set out on p 16 of his report. Thus, it is submitted that conclusion relates to the total rent charged for the period of 2003 to 2007. Mr Gorey’s report does not provide any evidence of what would have been a reasonable rental for the years 2000 to 2002.
MGCC further submits that there is no pleading or evidence of any agreement for MGCC to pay a reasonable rental, in the absence of which identifying the quantum of a reasonable rental is irrelevant.
I accept the submissions made on behalf of MGCC. While an accountant may think that in the ordinary course of business rental would be paid, at least for accounting and tax purposes, there is simply no evidence of any such agreement having been made.
I do not consider in the circumstances that the cross‑claim in respect of rental has been made out.
Accordingly, the entire cross‑claim should be dismissed and the issue of set‑off does not arise for consideration.
ARE ANY OF THE CROSS‑CLAIMS STATUTE‑BARRED?
MGCC submits that as a starting point if the November 2002 agreement is not made out, then the limitation defence of the cross‑claim must necessarily succeed as there is no reason why time would not have started running in 2001 and 2002 and the cross‑claim was not commenced until more than six years after that.
I accept that submission.
In those circumstances, I need not deal with a further plea made by MGCC that the claim for payment of management fees for 2001 and 2002 is barred by s 38(1)(c)(v) of the Limitation Act 1935 on the basis that the alleged term that MGCC would pay fees when it had sufficient funds is void for uncertainty, which means that time started to run when the services were provided.
I would, however, if it had been required accept the further submission made on behalf of MGCC that so far as the claim for underpayment of rent is concerned, in so far as it arises from MGCC being in occupation of premises of Sola‑Kleen prior to 30 March 2005, alternatively 13 September 2004, it is barred in relation to any occupation prior to 15 November 2005 under s 38 of the Limitation Act 1935 and in respect of any occupation on and after 15 November 2005 under s 13 of the Limitation Act 2005.
CONCLUSION AND ORDERS
MGCC succeeds on its claim of breach of duties on the bases set out above. MGCC should bring forward a minute of final orders to reflect the findings made. I will then hear from the parties as to the final orders to be made.
The cross‑claim of the defendants should be dismissed.
I will hear from the parties as to costs.

I certify that the preceding five hundred and ninety-two (592) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.
Associate:
Dated: 12 September 2014

Citation:		MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990
Parties:		MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177 v MALCOLM STEWART GILMOUR and MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ); MALCOLM STEWART GILMOUR and MAGIL NOMINEES PTY LTD ACN 009 059 607 (IN LIQ); MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177 and ALBERTO CESARIO VINCIGUERRA
File number:		WAD 256 of 2010
Judge:		BARKER J
Date of judgment:		12 September 2014
Catchwords:		CORPORATIONS – fiduciary and statutory directors’ duties – alleged breaches of ss 181, 182, 183 Corporations Act 2001 (Cth) and fiduciary duties – whether certain expenses incurred by company were unnecessary to be incurred or excessive – whether first defendant breached directors’ duties in relation to expenses – whether second defendant involved in contraventions – whether second defendant entitled to a set-off for amounts in cross-claim PRACTICE AND PROCEDURE – whether any claims or cross-claims statute-barred under Limitation Act 1935 (WA) or Limitation Act 2005 (WA)
Legislation:		Corporations Act 2001 (Cth) s 79, s 180, s 180(1), s 180(2), s 180(3), s 181, s 181(1), s 181(2), s 182, s 182(1), s 182(2), s 183, s 183(1), s 183(2), s1305, s 1317E, s 1317H, s 1317H(2), s 1317K Judiciary Act 1903 (Cth) s 79 Limitation Act 2005 (WA) s 13 Limitation Act 1935 (WA) s 38, s 38(1)(c)(v)
Cases cited:		Ardeshirian v Robe River Iron Associates (1993) 43 FCR 475 Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 Chew v R (1991) 4 WAR 21 Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 Marchesi v Barnes [1970] VR 434 Maronis Holdings Limited v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; (2001) 38 ACSR 404 MG Corrosion Consultants Pty Ltd v Vinciguerra (No 2) [2011] FCAFC 48; (2011) 276 ALR 319 MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367 R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1 Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; (2007) 61 ACSR 583 Westpac Banking Corporation v Bell Group Limited (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1
Date of hearing:	14-17 October 2013
Date of last submissions:	31 October 2013
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	592
Counsel for the Plaintiff:	Mr DH Solomon, Mr CS Williams
Solicitor for the Plaintiff:	Solomon Brothers
Counsel for the Defendants:	Mr KA Dundo
Solicitor for the Defendants:	HopgoodGanim

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 256 of 2010

JUDGE:	BARKER J
DATE OF ORDER:	12 SEPTEMBER 2014
WHERE MADE:	PERTH

JUDGE:	BARKER J
DATE:	12 SEPTEMBER 2014
PLACE:	PERTH

Paragraph	Amount	Status
4	Management fees	$917,065	Disputed
5	Expenses considered excessive (directors’ fees)	$198,546	Disputed
6	Expenses not incurred by MGCC	$80,631	Conceded by the Defendants: $11,000 for accounting expenses; $16,914 for motor vehicle fuel expenses ; $2,695 for postage expenses ; $16,240 for printing and stationery expenses; $4,500 for staff amenity expenses Conceded by MGCC: $16,056 for motor vehicle repair expenses Disputed : $13,226 for rates
7	Expenses not related to MGCC's business	$304,922	Disputed: $205,324 for debt factoring expenses Conceded by the Defendants: $66,939- Debra Stedman Disputed - being the balance related to Mr Thuy
8	Expenses not considered MGCC's	$27,000	Conceded by the Defendants
9	Excessive expenses	$47,915	Conceded by MGCC
10	Legal expenses	$77,810	Disputed