FEDERAL COURT OF AUSTRALIA
MHM Metals Ltd v Rogers [2014] FCA 1006
Citation: MHM Metals Ltd v Rogers [2014] FCA 1006 Parties: MHM METALS LTD (ACN 124 212 175) v FRANK ARTHUR ROGERS and ROGERS SOUTHERN PTY LTD (ACN 009 069 541) File number(s): VID 1272 of 2013 Judge(s): DAVIES J Date of judgment: 18 September 2014 Catchwords: CORPORATIONS – director’s duties – misappropriation of company funds by a director – ss 181, 182, 183 of the Corporations Act 2001 (Cth) contravened – second respondent knowingly participated in the misappropriations
REMEDIES – election for compensation under s 1317H of the Corporations Act 2001 (Cth) – relevant principles for determining compensable damage under this provision
Legislation: Corporations Act 2001 (Cth) ss 79(c), 181, 182, 183, 208, 1317H Cases cited: Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; [1992] HCA 66
Barnes v Addy (1874) LR 9 Ch App 244
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Rowland v Divall [1923] 2 KB 500
Baltic Shipping Co v Dillon (1993) 176 CLR 344
V-Flow Pty Limited v Holyoake Industries (Vic) Pty Limited [2013] FCAFC 16
Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129Date of hearing: 14, 15 and 16 May 2014 Date of last submissions: 27 May 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 128 Counsel for the Applicant: Mr J Catlin Solicitor for the Applicant: Logie Smith Lanyon Counsel for the Respondents: Mr D Williams QC with Mr P Griffits Solicitor for the Respondents: Griffits & Griffits
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 1272 of 2013
BETWEEN: MHM METALS LTD (ACN 124 212 175)
ApplicantAND: FRANK ARTHUR ROGERS
First RespondentROGERS SOUTHERN PTY LTD (ACN 009 069 541)
Second Respondent
JUDGE:
DAVIES J
DATE OF ORDER:
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The respondents pay the applicant compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) in the sum of $548,581 on the Ocean Voyager claim.
2.The respondents pay the applicant interest on the sum of $548,581 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), in the amount of $241,262.10.
3.The proceeding be otherwise dismissed.
4.The respondents pay 95% of the applicant’s costs of the proceeding.
5.Paragraph 2 of the Orders of Justice Gordon made 27 November 2013 be varied as follows:
This order has effect up to and including 4:00pm on Friday 17 October 2014 or further order of the Court.
6.Liberty to apply.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 1272 of 2013
BETWEEN: MHM METALS LTD (ACN 124 212 175)
ApplicantAND: FRANK ARTHUR ROGERS
First RespondentROGERS SOUTHERN PTY LTD (ACN 009 069 541)
Second Respondent
JUDGE:
DAVIES J
DATE:
PLACE:
MELBOURNE
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- MHM Metals Ltd v Rogers [2014] FCA 1006
- Case
- [2014] FCA 1006
- Decision Date
CaseChat Overview and Summary
In the case of MHM Metals Ltd v Rogers, the plaintiff, MHM Metals Ltd, sought compensation against the defendants, Rogers and Rogers Southern, for the misappropriation of company funds. The dispute arose from two transactions: the sale of a vessel, the Ocean Voyager, and the purchase of a tin jig mobile sampling plant. The court had to determine whether the defendants contravened their duties as directors under sections 181, 182, and 183 of the Corporations Act 2001 (Cth), and whether the plaintiff was entitled to compensation under section 1317H of the Act.
The court found that the defendants had contravened their duties as directors by misappropriating company funds. Specifically, the court found that the defendants had failed to transfer ownership of the Ocean Voyager to MHM as agreed, and that the vessel remained registered in the name of the former trustee of the trust. The court also found that the defendants had knowingly participated in the overcharging of MHM for the purchase of the tin jig mobile sampling plant. The court rejected the defendants' arguments that there was no binding contract for the sale of the Ocean Voyager and that the overcharging was due to a genuine mistake.
The court ordered the defendants to pay compensation to the plaintiff in the sum of $548,581, representing the value of the Ocean Voyager. The court also ordered the defendants to pay interest on the compensation sum, and 95% of the plaintiff's costs of the proceeding. The court dismissed the plaintiff's claims for total failure of consideration and misappropriation in respect of the purchase of the Taurus II. The court varied an earlier order to extend the time for the defendants to pay the compensation sum.
The court found that the defendants had contravened their duties as directors by misappropriating company funds. Specifically, the court found that the defendants had failed to transfer ownership of the Ocean Voyager to MHM as agreed, and that the vessel remained registered in the name of the former trustee of the trust. The court also found that the defendants had knowingly participated in the overcharging of MHM for the purchase of the tin jig mobile sampling plant. The court rejected the defendants' arguments that there was no binding contract for the sale of the Ocean Voyager and that the overcharging was due to a genuine mistake.
The court ordered the defendants to pay compensation to the plaintiff in the sum of $548,581, representing the value of the Ocean Voyager. The court also ordered the defendants to pay interest on the compensation sum, and 95% of the plaintiff's costs of the proceeding. The court dismissed the plaintiff's claims for total failure of consideration and misappropriation in respect of the purchase of the Taurus II. The court varied an earlier order to extend the time for the defendants to pay the compensation sum.
Orders
Orders of the court
1. The respondents pay the applicant compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) in the sum of $548,581 on the Ocean Voyager claim.
2. The respondents pay the applicant interest on the sum of $548,581 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), in the amount of $241,262.10.
3. The proceeding be otherwise dismissed.
4. The respondents pay 95% of the applicant’s costs of the proceeding.
5. Paragraph 2 of the Orders of Justice Gordon made 27 November 2013 be varied as follows:
This order has effect up to and including 4:00pm on Friday 17 October 2014 or further order of the Court.
6. Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
The vessel was written-off in the company’s accounts in the 2012/2013 financial year.Facts and Evidence The evidence was furnished by way of affidavit (with some additional examination-in-chief) and cross-examination. The credit of the respondents’ witnesses was raised as an issue and the Court was asked to make adverse credit findings against Messrs Rogers, Psereckis and Jones. For the reasons that follow, I have not accepted either Messrs Rogers or Psereckis as witnesses of truth and formed the view that Mr Jones’ evidence on some key factual issues was implausible and unreliable.The purchase of the Ocean Voyager by the Trust in 2003 It was uncontroversial that Mr Rogers’ family trust purchased a wooden ketch called the Ocean Voyager in or around August 2003 for use as a pleasure craft. The asking price was $120,000 but Mr Rogers was able to negotiate the boat’s purchase for $50,000. At the time the boat was located at Coffs Harbour and it was Mr Rogers’ intention to sail it down to Tasmania and do a major refit. Following sea trials in 2005 to prepare the vessel to be sailed to Tasmania, the plan to sail to Tasmania was aborted because of problems with the fuel tank and Mr Roger decided to keep the boat at Coffs Harbour and do the repairs and refit there. The boat was lifted out of the water and left at a boat yard owned by Mr Wait and between 2004 and 2007, Mr Rogers, his son, Mark Rogers, and Mr Psereckis worked on the boat from time to time.The evidence about the transfer of ownership to Mr Psereckis in 2007 In 2007, the boat was still at Mr Wait’s boat yard undergoing a refit when, on Mr Rogers’ evidence, Mr Psereckis approached him to ask if he was interested in selling the boat to him. Mr Rogers said in evidence that he was “content to agree” to sell the vessel to Mr Psereckis as he was in the process of establishing MHM and was quite busy at the time, provided the Trust “got back what it had expended in terms of time and cost to improve her”. Mr Roger’s evidence was that he wanted $150,000 for the vessel but that “to assist and encourage” Mr Psereckis he “offered to wait for payment and let him pay for a smaller boat” when Mr Rogers had chosen one. On Mr Rogers’ evidence, they “shook … on a deal” and “from that point on [Mr Psereckis] owned the vessel” and that Mr Rogers “went looking for a smaller boat”. Mr Psereckis gave similar evidence. His evidence was that he was thinking about buying a boat to go cruising around Tasmania “as a sort of floating holiday home” and that he was familiar with the Ocean Voyager as he had done some work on the boat and “was aware of its potential as a charter yacht or one that [he] could live on”. He stated that in 2007 he asked Mr Rogers whether his family trust would consider selling the boat to him and that the deal that they negotiated was that the price would be $150,000, but that instead of him paying that amount immediately, he would pay for a replacement boat that Mr Rogers would choose up to a value of $150,000. Mr Psereckis described the deal as a “gentlemen’s agreement” and said that it was his understanding that “from that time” the Ocean Voyager was his boat.
Evidence
Evidence Before The Court
At the time the boat was located at Coffs Harbour and it was Mr Rogers’ intention to sail it down to Tasmania and do a major refit. Following sea trials in 2005 to prepare the vessel to be sailed to Tasmania, the plan to sail to Tasmania was aborted because of problems with the fuel tank and Mr Roger decided to keep the boat at Coffs Harbour and do the repairs and refit there. The boat was lifted out of the water and left at a boat yard owned by Mr Wait and between 2004 and 2007, Mr Rogers, his son, Mark Rogers, and Mr Psereckis worked on the boat from time to time.The evidence about the transfer of ownership to Mr Psereckis in 2007 In 2007, the boat was still at Mr Wait’s boat yard undergoing a refit when, on Mr Rogers’ evidence, Mr Psereckis approached him to ask if he was interested in selling the boat to him. Mr Rogers said in evidence that he was “content to agree” to sell the vessel to Mr Psereckis as he was in the process of establishing MHM and was quite busy at the time, provided the Trust “got back what it had expended in terms of time and cost to improve her”. Mr Roger’s evidence was that he wanted $150,000 for the vessel but that “to assist and encourage” Mr Psereckis he “offered to wait for payment and let him pay for a smaller boat” when Mr Rogers had chosen one. On Mr Rogers’ evidence, they “shook … on a deal” and “from that point on [Mr Psereckis] owned the vessel” and that Mr Rogers “went looking for a smaller boat”. Mr Psereckis gave similar evidence. His evidence was that he was thinking about buying a boat to go cruising around Tasmania “as a sort of floating holiday home” and that he was familiar with the Ocean Voyager as he had done some work on the boat and “was aware of its potential as a charter yacht or one that [he] could live on”. He stated that in 2007 he asked Mr Rogers whether his family trust would consider selling the boat to him and that the deal that they negotiated was that the price would be $150,000, but that instead of him paying that amount immediately, he would pay for a replacement boat that Mr Rogers would choose up to a value of $150,000. Mr Psereckis described the deal as a “gentlemen’s agreement” and said that it was his understanding that “from that time” the Ocean Voyager was his boat. The only evidence about the change in ownership was the testimony of Messrs Rogers and Psereckis. There are no documents at all evidencing any change in ownership and it emerged from the evidence that registration of the Ocean Voyager still remained in the name of Graeme Rogers, the former trustee of the trust. Although registration was in Graeme Rogers’ name, it was his evidence that when he resigned as trustee of the trust and Rogers Southern became the new trustee in 2004, he “presumed that the change of trustee would change ownership of the boat automatically” and that as far as he “was concerned, the boat still belonged to the Trust after [he] resigned as trustee” and that he did not give any thought to whether a change in trustee was needed. Be that as it may, what is relevant is that registration was not transferred to Mr Psereckis. Mr Psereckis stated he was “too busy” to register the boat in his name and that “it slipped [his] mind”. Mr Psereckis also admitted that he did not take delivery of the vessel, but stated that he knew it was on the blocks at Coffs Harbour. Mr Psereckis agreed that he did not take over payment of the storage costs for the boat but deposed that he was not being charged rent by Mr Wait, and agreed that he did not pay for the insurance on the boat but deposed that he did not bother about insuring the boat because he “felt it was too expensive” and “figured that the risk of real damage … was extremely small” because the boat was in the boat yard. He also agreed that he did not pay for any other expenses on the boat and admitted that he never sailed the boat.
Decision
Reasons for decision
I should also refer to two other matters for the sake of completeness. The first matter is that it is unnecessary to consider the claim by MHM that there was a total failure of consideration because the Ocean Voyager was valueless, given the finding that ownership never passed to MHM. Secondly, the separate claim of misappropriation in respect of the purchase of the Taurus II is not a separate head of loss given that the payment for the Taurus II was made out of the monies that MHM paid to TAC. CONCLUSION MHM is entitled to compensation under s 1317H of the Act in the sum of $548,581. THE TIN JIG CLAIM The Tin Jig transaction concerned the purchase, by MHM from Rogers Engineering on 31 January 2008, of a tin gig mobile sampling plan for $183,500. MHM alleged that the true value of the tin gig was approximately $55,000 or $60,000 and that MHM had been overcharged for the equipment and sought compensation in the sum of approximately $130,000. A claim of “knowing assistance” is made against Rogers Southern also in relation to this claim.Facts and evidence On 25 January 2008, the purchase of a tin jig mobile sampling plant was put to the Board of the company. The Board minutes record that:(a)Mr Mead tabled a letter from Rogers Engineering detailing an offer for them to build the tin jig with a final quotation to be provided.(b)Mr Rogers declared his interest in Rogers Engineering.(c)Mr Mead advised that RCR Tomlinson had agreed to provide a quote but were yet to respond and that he was having difficulties obtaining quotes from other companies that had been contacted.(d)It was agreed that the final quotations would be provided to all directors so that a decision could be made “as soon as possible”. Six days later Rogers Engineering provided a quote (dated 31 January 2008) for $183,500, which was accepted and paid by MHM on the same date. Mr Rogers deposed in an affidavit that:The Board of [MHM] agreed to seek expressions of interest from several companies who it was thought at the time had the capability of designing and constructing a mobile sampling plant to the specifications provided by me as Managing Director. Mr Ben Mead Executive Director approached several companies with the specification and found that only two companies had the ability to design and build the plan. A deadline of the 31st January 2008 was given as the date for expressions of interest and only one company, Rogers Engineering Services Pty Ltd met that timeframe. I declared my interest in Rogers Engineering Services to the Board in the Board meeting of the 25th January 2008.In the interests of ensuring that Macquarie Harbour Mining was obtaining a competitive quote I insisted that another company be found that could provide a plant to the specification. Rogers Engineering Services provided a quote of $183,500 for a plant that met the requirements of Macquarie Harbour Mining by the due date and it was agreed by the Board that the contract be awarded to them. Subsequently a quote was received by the then General Manager of Rogers Engineering Services from Gekko Systems (Victoria) for a plant that could process the bulk samples but was not mobile as required under the specifications. Their quote was for $342,394.
Ratio Decidendi
Legal Principle Established
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