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Mudgee Dolomite & Lime Pty Ltd v Murdoch

Mudgee Dolomite & Lime Pty Ltd v Murdoch

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Case Copied 28 October 2020 79 min read

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Supreme Court

New South Wales

Medium Neutral Citation: Mudgee Dolomite & Lime Pty Ltd v Robert Francis Murdoch; In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510
Hearing dates: 18-21, 25-28 August 2020; 2 September 2020; 8 September 2020; 11 September 2020; 15-16 September 2020
Decision date: 28 October 2020
Jurisdiction: Equity - Corporations List
Before: Black J
Decision:
Certain claims in relation to work done at mine site were established. Plaintiff to have opportunity to elect between account of profits and compensation under s 1317H of the Corporations Act as against Third and Fourth Defendants to Further Amended Statement of Claim. Compensation under s 1317H of the Corporations Act to be ordered against First and Second Defendants where no account of profits was sought. Mudgee Dolomite & Lime Pty Ltd wound up on the just and equitable ground. Several other claims either not established or not necessary to decide.

Catchwords:
CORPORATIONS — Directors and officers — Fiduciary duties — Conflict of duty and interest — Conflict of duty and duty — Diversion of corporate opportunity— Whether corporate opportunity within scope of company’s activities — Where other companies associated with directors took up profitable work — Where diversion occurred after shareholders intended to split up company — Split up not implemented at time of diversion — Directors’ duties where intention or understanding to split up company in future but no present implementation
CORPORATIONS — Directors and officers — Fiduciary duties — Fully informed consent — Whether sufficient disclosure to constitute fully informed consent
CORPORATIONS — Directors and officers — Liability for breach of directors’ duties — Knowing involvement — Where companies associated with directors were alter egos of the directors
CORPORATIONS — Winding up — Grounds for winding up — Just and equitable ground — Relationship between shareholders and directors irretrievably broken down — One of two directors unwilling to attend board meetings or sign financial statements — Whether less extreme remedy available — Evidence that shareholder cannot afford to buy out the other shareholder’s shares — Oppression
EQUITY — Equitable remedies — Account of profits — Whether allowance made for Defendants’ skill and effort — Discretionary nature of remedy — Where conduct involved lack of honesty

Legislation Cited:
- Evidence Act 1995 (NSW), ss 136, 140
- Corporations Act 2001 (Cth), ss 180, 181, 182, 183, 461(1)(k), 467 1317H, 1322

Cases Cited:
- Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325
- Aequitas Ltd v Sparad (No 100) Ltd (formerly Australian European Finance Corp Ltd) (2001) 19 ACLC 1006; [2001] NSWSC 14
- Ancient Order of Foresters In Victoria Friendly Society Ltd v Life Plan Australia Friendly Society Ltd (2018) 360 ALR 1; (2018) 130 ACSR 359; [2018] HCA 43
- Ashrafinia v Ashrafinia [2013] NSWSC 1442
- Asia Pacific Joint Mining v Always Resources Holdings Pty Ltd (2018) 125 ACSR 227; [2018] QCA 048
- Australian Careers Institute Pty Ltd v Australian Institute of Fitness…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NSWSC 1510
Decision Date: 28 October 2020

CaseChat Overview and Summary

Mudgee Dolomite & Lime Pty Ltd sued Murdoch and two other directors, alleging breaches of fiduciary duties, diversion of corporate opportunities, and seeking relief on grounds of oppression and unjust and equitable winding up. The company's shareholders intended to split the company but had not yet implemented this plan when the directors allegedly diverted opportunities to other companies associated with them. The shareholders further alleged that one director's refusal to attend board meetings or sign financial statements irretrievably broke down the relationship between the shareholders and directors.

The court had to determine whether the directors breached their fiduciary duties by diverting corporate opportunities to other companies, whether the disclosure made to the shareholders constituted fully informed consent, and if the directors were knowingly involved in the breaches given that the associated companies were their alter egos. The court also needed to decide if the relationship between the shareholders and directors had irretrievably broken down, and if so, whether less extreme remedies were available. Additionally, the court had to consider if the company could be wound up on the just and equitable ground and whether an account of profits was appropriate, taking into account the discretionary nature of the remedy.

The court found that the directors breached their fiduciary duties by diverting corporate opportunities to other companies, which were essentially their alter egos. The disclosure made to the shareholders did not constitute fully informed consent because it did not adequately inform them of the directors' involvement in the associated companies. The directors were knowingly involved in the breaches, and the relationship between the shareholders and directors had indeed irretrievably broken down. The court found that less extreme remedies were not available, and the shareholders could not afford to buy out the other shareholder's shares. Consequently, the company could be wound up on the just and equitable ground, and the directors were liable for an account of profits. The court did not allow for the defendants' skill and effort in calculating the profits, considering the lack of honesty in their conduct.

The court ordered the winding up of the company on the just and equitable ground and held the directors liable for an account of profits, less any allowance for their skill and effort. The directors were also ordered to pay costs.

Orders