ResCom Lawyers Pty Ltd v Dangerfield
[2011] VSC 469
•21 September 2011 (Revised 26 September 2011)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
No. SCI 2010 05735
| RESCOM LAWYERS PTY LTD (ACN 133 519 892) | Plaintiff |
| v | |
| STEVEN PETER DANGERFIELD SIMON CHARLES EXLEY DANGERFIELD EXLEY LAWYERS PTY LTD (ACN 140 129 166) | Defendants |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 August 2011 | |
DATE OF JUDGMENT: | 21 September 2011 (Revised 26 September 2011) | |
CASE MAY BE CITED AS: | ResCom Lawyers Pty Ltd v Dangerfield & Ors | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 469 | |
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CORPORATIONS – Incorporated legal practice - Where two directors left practice and completed conveyancing files following their departure – ‘Exit’ proposal previously provided to third director – Applicant director seeking payment for his interest in the business – Proceedings alleging breach of directors’ duties and seeking compensation - Statutory derivative action – Leave required to commence proceedings – Whether Court has jurisdiction to grant leave nunc pro tunc – Whether applicant acting in good faith – Whether in best interests of Company that leave be granted – Whether there is a serious question to be tried - Corporations Act 2001 (Cth) ss 236, 237.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Styring | Robert James |
| For the Defendants | Mr J.D. Catlin | Harwood Andrews Lawyers |
TABLE OF CONTENTS
Introduction and parties................................................................................................................... 2
Requirements for leave..................................................................................................................... 2
The history of ResCom Lawyers and the dispute........................................................................ 3
What did Mr Matthews know about the conduct of Mr Dangerfield and Mr Exley?.......... 6
Is Mr Matthews acting in good faith?............................................................................................. 7
Is granting leave to Mr Matthews in the best interests of the Company?............................... 8
Is there a serious question to be tried?......................................................................................... 12
Conclusion......................................................................................................................................... 17
HER HONOUR:
Introduction and parties
The plaintiff, ResCom Lawyers Pty Ltd, (“the Company”) carried on business as an incorporated legal practice under the Legal Profession Act2004 (Vic). Bradley James Matthews and the first two defendants, Steven Peter Dangerfield and Simon Charles Exley, were and are directors and shareholders in the Company. Mr Matthews alleges that Mr Dangerfield and Mr Exley transferred the legal practice away from the Company, ultimately to the third defendant, Dangerfield Exley Lawyers Pty Ltd. Mr Matthews alleges that the transfer was without authority and without payment being made to the Company. Mr Matthews has applied under s 237 of the Corporations Act 2001 (Cth) for leave (with retrospective effect) to bring the proceeding on behalf of the Company.
Requirements for leave
As a shareholder and officer of the Company, Mr Matthews is entitled to bring a proceeding on its behalf if leave is granted under s 237 of the Corporations Act.[1] Section 237(2) provides that the Court must grant the application for leave if it is satisfied that:
[1]Section 236(1)(a) Corporations Act.
“(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings – there is a serious question to be tried; and
(e)either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though sub-paragraph (i) is not satisfied.”
The proceeding was commenced by writ filed on 22 October 2010. The writ, indorsed with the statement of claim, was inadvertently filed by the lawyers for Mr Matthews without first obtaining the leave of the Court. If the criteria in s 237(2) are satisfied, then the Court may grant leave with retrospective effect.[2] If any one of the grounds is not established, then leave will be refused.[3]
[2]South Johnstone Mill Ltd & Ors v Dennis & Ors (2007) 163 FCR 343 at 353, Re Brighter Directions Pty Ltd [2010] VSC 287 at [28].
[3]Re Brighter Directions Pty Ltd [2010] VSC 287 at [5].
It was common ground that paragraphs (a) and (e) of s 237(2) were satisfied. The contest was as to whether Mr Matthews is acting in good faith; whether it is in the best interests of the Company that Mr Matthews be granted leave and whether there is a serious question to be tried. For the reasons set out below, I am not satisfied that each of these elements is satisfied. As such, the application will be dismissed.
Before dealing in detail with the criteria in s 237(2)(b)-(d), I will first set out the facts, so far as is necessary for the purposes of the application.
The history of ResCom Lawyers and the dispute
Prior to the incorporation of the Company, Mr Matthews operated a mortgage broking and property finance business. He is not qualified or registered as a legal practitioner under the Legal Profession Act.
Mr Exley and Mr Dangerfield are both registered legal practitioners. Prior to the Company’s incorporation, they conducted a legal conveyancing practice known as SP Dangerfield & Associates.
In 2008, there was a change in the law the effect of which was to require conveyancing practices to be licensed. Excluded from the licensing requirements were Australian legal practitioners and incorporated legal practices. As a result, Mr Matthews, Mr Exley and Mr Dangerfield joined forces and the Company was incorporated and carried on legal practice from 1 October 2009. Until the commencement of this proceeding, it appears to have been common ground between the parties that the Company carried on the practice as a nominee for ResCom Lawyers, which was a partnership of trusts between Dangerfield RL Pty Ltd as trustee for the Dangerfield (ResCom Lawyers) Trust, Exley RL Pty Ltd as trustee for the Exley (ResCom Lawyers) Trust and Matthews RL Pty Ltd as trustee for the Matthews (ResCom Lawyers) Trust.
Mr Dangerfield and Mr Exley decided to leave the new practice less than a year after it began. In late September 2009, Mr Dangerfield sent a document which he described as an “exit proposal” to Mr Matthews’ solicitors. Part of that document referred to their proposed departure on 9 October 2009 and to how the existing client work would be completed and the profit from that work shared between the three of them. Mr Matthews’ solicitor responded by letter of 30 September 2009. The letter was not in evidence. Mr Dangerfield responded to Mr Matthews’ solicitor on 2 October 2009 setting out his position and that of Mr Exley in relation to a number of points connected with their move from the practice, including the amount that they would pay Mr Matthews in respect of each conveyancing file that they would take with them and complete following their departure. Their proposal was that one third of the profit from the completed files would be paid to Mr Matthews. Mr Matthews responded on a point-by-point basis by a memorandum of 7 October 2009. He did not oppose the departure of Mr Exley and Mr Dangerfield. Rather, his memorandum was directed to the detail of the administrative and financial arrangements for separation. The memorandum makes it clear that the separation was to take place on 9 October 2009. For example, Mr Matthews’ memorandum recorded the following:
Any incoming calls will:
(a)Be forwarded to you if it is an existing file of the ResCom Lawyers Partnership to the 9th October 2009.
(b)Be forwarded to you if it is one of your Dangerfield/Exley clients.
(c)Be retained by the “new ResCom Lawyers” firm if it is a ResCom Property & Finance or a ResCom Conveyancing client or Introducer.
…
The partnership is … responsible for staff entitlements up to the 9th October 2009. Your new firm will be responsible for the payment of their entitlements after the 9th October 2009.
There were then emails passing between Mr Dangerfield and Mr Exley on the one hand and Mr Matthews, his lawyers and those associated with him on the other, relating to use of the name “ResCom Lawyers” and certain financial matters. This all occurred by 12 October 2009. At about this time, Mr Dangerfield and Mr Exley left the practice and began operating from new premises. They took with them a number of conveyancing files which they completed. Dangerfield Exley Lawyers was incorporated on 21 October 2009 and, at some stage, Mr Dangerfield and Mr Exley began operating their legal practice through that company.
The parties engaged in further correspondence between October and December 2009 but did not resolve their dispute. On 11 December 2009, Mr Matthews’ lawyers wrote to Mr Dangerfield stating that Mr Matthews remained as a director of the Company and expressing the view that he was entitled to a share of the profits of the partnership business. For the first time, an alternative claim of breach of the fiduciary duty owed by partners to one another was alleged. However, there was no mention of breach of directors’ duties.
There then followed an exchange of correspondence between the lawyers for Mr Exley and Mr Dangerfield and the lawyers for Mr Matthews. In a letter of 23 December 2009, Mr Matthews’ lawyers wrote:
“The stated intention of the parties throughout this matter has been that [Mr Dangerfield and Mr Exley] would purchase [Mr Matthews’] interest in ResCom Lawyers and continue operating the business as a going concern.”
The letter went on to state that Mr Dangerfield and Mr Exley continued to operate the business and use its assets and goodwill or alternatively had transferred the assets and/or business of ResCom Lawyers to a new entity without their client’s knowledge or consent, for no consideration, and in breach of their fiduciary duties. The correspondence went on to state that Mr Matthews was amenable to a valuer being appointed (which had been suggested by the lawyers for Mr Exley and Mr Dangerfield). Mr Matthews’ lawyers then stated that they were instructed to issue Court proceedings unless agreement could be reached promptly upon the terms of appointment for a valuer. There then emerged a difference of views between the parties as to whether or not any amount should be allowed by the valuer for goodwill.
On 30 June 2010, Mr Matthews’ lawyers gave notice of his intention to make application for leave to bring these proceedings on behalf of the Company. This was the first time that Mr Matthews made any allegation of breach of directors’ duties against Mr Dangerfield and Mr Exley.
Mr Exley and Mr Dangerfield commissioned a valuation of the ResCom Lawyers business. Their lawyers sent that valuation to Mr Matthews’ lawyers with a settlement offer on 19 July 2010. The dispute did not resolve.
The writ and statement of claim were served on 25 October 2010. On the same day, Mr Matthews’ solicitors wrote to the solicitors for Mr Dangerfield and Mr Exley noting that the writ and statement of claim were intended to be filed as part of an affidavit in support of an application for leave under s 237 of the Corporations Act. They stated that they were instructed to withdraw the writ and statement of claim and confirmed that no action was required by the defendants. The claims pleaded relate to alleged breach of statutory and common law directors duties by Mr Dangerfield and Mr Exley and to both limbs of Barnes v Addy:[4] knowing receipt by Dangerfield Exley Lawyers of the Company’s practice and knowing assistance by it in a dishonest and fraudulent design to transfer or divert the Company’s practice.[5]
[4](1874) LR 9 Ch App 244.
[5]They pleaded claims are set out in more detail in [36] – [40] below.
The application for leave under s 237 was filed on 20 May 2011. The delay in making the application was not explained.
What did Mr Matthews know about the conduct of Mr Dangerfield and Mr Exley?
Underpinning Mr Matthews’ application is a contention that he did not know or consent to what Mr Dangerfield and Mr Exley did when they left the practice. In this regard, Mr Matthews has deposed that Mr Dangerfield or Mr Exley or both of them transferred or diverted all of the Company’s legal practice, including clients, work in progress and goodwill ultimately into Dangerfield Exley Lawyers Pty Ltd without the consent or authority of the Company, without his consent or knowledge and without any consideration from Mr Dangerfield, Mr Exley or Dangerfield Exley Lawyers to the Company.
However, various contemporaneous emails and documents (including the exit proposal and Mr Matthews’ memorandum of 7 October 2009) make the proposition that he was unaware of what was occurring untenable. The emails and documents make it clear that Mr Matthews knew that Mr Dangerfield and Mr Exley were leaving to conduct a practice that did not involve him and which would be operated from different premises; that they would be leaving on 9 October 2009; and they would be taking existing files to complete them with a view to sharing the profits from those files with him. He did not oppose this, other than in respect of the financial arrangements.
I have formed the view that the contemporaneous documents and emails are not consistent with a lack of knowledge or consent on the part of Mr Matthews.
Is Mr Matthews acting in good faith?
When considering whether an applicant is acting in good faith, the Court has regard to at least two interrelated factors:[6]
(a)whether the applicant has an honest belief that the company has a good cause of action with reasonable prospects of success; and
(b)whether the applicant has a collateral purpose in seeking to have the proceedings instituted that would amount to an abuse of process.
[6]Swansson v RA Pratt Properties Pty Ltd & Anor (2002) 42 ACSR 313 at 320.
Mr Matthews has deposed that there is a serious question to be tried and that he makes the application and seeks the orders of the Court in good faith and without any collateral purpose. These statements are nothing more than bald, unsupported assertions. They do not withstand scrutiny when regard is had to the objective facts. As set out below at [35] and following, I am not satisfied that there is a serious question to be tried. Given Mr Matthews’ knowledge of and acquiescence in the proposed conduct of Mr Dangerfield and Mr Exley in conducting a practice that did not involve him and completing the existing matters on the basis of a payment to him, I am not persuaded that Mr Matthews holds an honest belief that the Company has a good cause of action. Further, in my opinion, the contemporaneous correspondence and negotiations between the parties make it clear that Mr Matthews is seeking to benefit himself rather than the Company by extracting payment from Mr Dangerfield and Mr Exley under a veiled threat of litigation against them for alleged breach of directors duties. Such allegations are extremely serious, particularly in circumstances where there are also allegations of dishonest and fraudulent design. These allegations appear to have been an afterthought many months after the wrongful conduct is said to have occurred.
I am not persuaded that Mr Matthews is acting in good faith.
Having determined that the criteria of good faith in s 237(2)(b) has not been satisfied, the application must fail. Nevertheless, I will consider the other criteria as they overlap, at least to some extent, with the issue of good faith.
Is granting leave to Mr Matthews in the best interests of the Company?
What is in the best interests of the Company necessitates a consideration of the interests of the shareholders.[7] The fact that Mr Matthews may have a personal interest in the outcome of the action or even personal animosity towards his co-shareholders is not significant.[8] Pursuit of an action by or on behalf of a company against a director for recovery of compensation for damage done to the company by the director’s breach of duty will generally be in the “best interests of the company”.[9]
[7]Cassegrain v Jarrod Cassegrain & Co Pty Ltd & Anor (2008) 68 ACSR 132 at 145.
[8]Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 at [45].
[9]Vigliaroni v Concrete Precast Systems Pty Ltd [2009] VSC 253 at [29].
Nevertheless, the onus of proof is on Mr Matthews and he must satisfy the Court that the derivative action is in the best interests of the Company. In this regard, Palmer J in Swansson v RA Pratt Properties Pty Ltd & Anor[10] stated:
[55] At the outset, it is important to note that s237(2)(c) requires the Court to be satisfied, not that the proposed derivative action may be, appears to be, or is likely to be, in the best interests of the company but, rather, that it is in its best interests….
[56] The requirement of s237(2)(c) that the applicant satisfy the Court that the proposed action is in the best interests of the company is a far higher threshold for an applicant to cross. It requires the applicant to establish, on the balance of probabilities, a fact which can only be determined by taking into account all of the relevant circumstances. Accordingly, the enquiry will normally require the applicant to adduce evidence at least as to the following matters.
[57] First, there should be evidence as to the character of the company: different considerations may well apply depending on whether the company is a small, private company whose few shareholders are the members of a family or whether it is a large public listed company. If the company is a closely held family company, it may be relevant to take into account the effect of the proposed litigation on the purpose for which the company was established and on the family members who are the shareholders. If the company is a public listed company, such considerations will be irrelevant. Again, the company may be a joint venture company in which the venturers are deadlocked so that the proposed derivative action is seen as being for the purpose of vindicating one side's position rather than the other’s in a way which will not achieve a useful result: see eg Talisman Technologies Inc v Queensland Electronic Switching Pty Ltd [2001] QSC 324.
[58] Second, there should be evidence of the business, if any, of the company so that the effects of the proposed litigation on its proper conduct may be appreciated.
[59] Third, there should be evidence enabling the court to form a conclusion whether the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will. So, for example, if the applicant can achieve the desired result in proceedings in his or her own name it is not in the best interests of the company to be involved in litigation at all. This was the case in Talisman Technologies in which it appeared from the evidence that the most desirable outcome for the applicant was to obtain an order for specific performance of a contract, which it could do in a suit in which the company did not need to be a party.
[60] Fourth, there should be evidence as to the ability of the defendant to meet at least a substantial part of any judgment in favour of the company in the proposed derivative action so that the Court may ascertain whether the action would be of any practical benefit to the company.[11]
[10](2002) 42 ACSR 313.
[11]Ibid at 324.
In respect of the third matter mentioned by his Honour, it was submitted by Mr Dangerfield and Mr Exley that an oppression proceeding was available to Mr Matthews. However, the availability of oppression proceedings does not necessarily mean that the current proceeding is not in the interests of the Company.[12]
[12]MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31 at [60].
Mr Dangerfield and Mr Exley also submitted that the redress effectively sought by Mr Matthews need not be sought through the Company but could be sought by him in a proceeding under the Partnership Act 1958 (Vic). This avenue was said to be available because ResCom Lawyers operated as a partnership of trusts with the Company as its nominee. It was submitted that the partnership dispute could proceed in the Magistrates’ Court and that the proceedings in this Court are wasteful, pointless and unnecessary and therefore not in the best interests of the Company.
However, Mr Matthews says that what is relevant is the Company, not the partnership of trusts and the Corporations Act and obligations on the directors are critical. It was submitted that there is nothing in the Legal Profession Act that engages any expression such as a partnership of trusts. It was submitted that the Company carried on the legal practice as a principal, not as an agent or nominee and therefore it is the Company’s action. However, that submission is not consistent with the contemporaneous evidence which is that the company acted as a nominee for the partnership of trusts. Whether that is a business structure accommodated by the Legal Profession Act is not to the point. What is relevant is that it is the business structure that all the parties accepted as operating until recent times. Therefore, whilst it is true that a claim for breach of directors’ duties is the Company’s claim, the submissions on behalf of Mr Matthews fail to recognise that what he really seeks is the payment to him of what he believes is his entitlement for his interest in the partnership.
A further submission on behalf of Mr Matthews was that if the Company were to be successful in the proceeding, it would get back either the practice or some compensation which must be to its benefit and ultimately to the benefit of its shareholders. However, the first limb of this submission ignores the fact that Mr Dangerfield and Mr Exley are not willing to continue providing their legal services through the Company and the fact that there is no evidence that Mr Matthews has any intention of continuing to operate through the Company.
As to the second limb of the submission, Mr Matthews contended that if the action is successful, it is foreseeable that there is a potential benefit to the Company by the defendants meeting any judgment ordered against them, thus telling of a practical benefit to the Company. It was submitted that, in the course of the proceeding, there will ultimately be a disclosure process whereby the files that were taken will be delivered up and a proper process for valuation could be arrived at, inclusive of goodwill, with a sum ultimately to come back into the hands of the Company such that the shareholders might thereafter reach agreement. However, whilst the precise amount of compensation that might be awarded may not be known, there is no evidence at all as to the quantum of compensation that could successfully be sought. In circumstances where Mr Dangerfield and Mr Exley have offered to pay Mr Matthews one third of the profit from the files that they completed after they left the practice, more than a bland, unparticularised claim for damages is required.
Mr Matthews also submitted that the asserted benefit to the Company is even more evident because he has offered an indemnity in relation to any costs incurred or ordered by the Court in the event that leave is granted. In this regard, he has deposed that his personal assets are sufficient to satisfy any such indemnity and include property that he owns which he estimates to be worth in excess of $650,000. This undertaking does afford the Company some protection. However that, of itself, is not sufficient.
I accept the submissions of the defendants that the litigation is unnecessary and that the dispute between Mr Matthews, Mr Dangerfield and Mr Exley could effectively be resolved through partnership proceedings. Such proceedings would not need to involve the Company and, in this regard, are in a different category to oppression proceedings brought under ss 232 and 233 of the Corporations Act, which necessarily concern the affairs of the Company. I am mindful that, as I noted above, until recent times, it was common ground between the parties that the dispute was a partnership dispute. I am also mindful that the Company is not carrying on a legal practice any longer and that there is no evidence that Mr Matthews wishes to continue operating through the Company. In those circumstances, the cost of litigation to obtain compensation that presumably would then be distributed to the three shareholders (because there is no ongoing business to be conducted by it) would be wasteful and is unwarranted. This is even more the case in circumstances where there is no evidence that any compensation that might be awarded to the Company and distributed to each shareholder might result in each shareholder receiving more than what has already been offered to Mr Matthews.
It follows that I am not persuaded that it is in the best interests of the Company that Mr Matthews be granted leave under s 237.
Is there a serious question to be tried?
When considering for the purposes of s 237(2)(d) of the Corporations Act whether there is a serious question to be tried, the Court’s task is not to determine the merits of the proposed derivative action to any great degree. Rather, the task is similar to that which the Court faces in relation to an application for an interlocutory injunction.[13] In this regard, it is for the applicant to put on sufficient evidence to satisfy the relatively low threshold of a serious question to be tried.[14]
[13]Swansson v RA Pratt Properties Pty Ltd & Anor (2002) 42 ACSR 313 at 318.
[14]Re Brighter Directions Pty Ltd [2010] VSC 287 at [5].
Before considering the evidence, I will set out a summary of the claims that are pleaded. The statement of claim pleads that Mr Dangerfield and Mr Exley owed fiduciary duties to the Company under:
(a)section 180 of the Corporations Act, and at law, to exercise their powers and discharge their duties with due care, [skill] and diligence;
(b)section 181(1) of the Corporations Act, and at law, to exercise their powers and discharge their duties in good faith in the best interests of the Company and for a proper purpose;
(c)section 182(1) of the Corporations Act, and at law, not improperly to use their position to gain an advantage for themselves or someone else or cause detriment to the Company.
It is pleaded that in breach of those duties, by about 9 October 2009, Mr Dangerfield and Mr Exley transferred or diverted the entirety of the Company’s practice to new premises and that by about 21 October 2009, they transferred or diverted the business of the Company, including clients, work in progress and goodwill of the practice, to Dangerfield Exley Lawyers.
It is pleaded that the transfer of the practice was made without the authority of the Company and without any consideration from Dangerfield Exley Lawyers to the Company.
It is also pleaded that Dangerfield Exley Lawyers is accountable in equity or alternatively as constructive trustee because it was in receipt of the Company’s practice, including clients, work in progress and goodwill, with notice of the breach of duties which are alleged against Mr Dangerfield and Mr Exley.[15]
[15]Barnes v Addy (1874) LR 9 Ch App 244.
Finally, it is pleaded that Mr Dangerfield and Mr Exley breached their duties in a dishonest and fraudulent design to transfer or divert the Company’s practice to Dangerfield Exley Lawyers and that Dangerfield Exley Lawyers assisted with knowledge of that design. [16]
[16]Ibid.
It was submitted by Mr Exley and Mr Dangerfield that the claim under s 180 of the Corporations Act (for failure to exercise their powers with due care, skill and diligence) would fail because the test is objective and involves balancing the foreseeable risk of harm against the potential benefits to the Company.[17] It was submitted that failing to complete the conveyancing files by leaving them would have been negligent. Counsel developed this submission by noting that from the very beginning Mr Matthews, not being a lawyer, could not complete the conveyancing files. Therefore, after Mr Exley and Mr Dangerfield left the practice, the only solution was for them to complete the conveyancing transactions to avoid any claim for negligence. It was submitted that the only point of dispute is how much Mr Dangerfield and Mr Exley are to be paid for that work. The exit proposal prepared by Mr Dangerfield included a proposal for one third of the profits from the files to be paid to Mr Matthews. The exit proposal also specified that they would complete the work on the files that were current as at 9 October 2009 from separate premises. Counsel pointed to the memorandum of 7 October 2009 from Mr Matthews, which was in terms that he was entitled to one third of the income of the practice and that this could be met by agreeing on a figure. There is no suggestion by Mr Matthews in that memorandum that the files should not be taken and completed by Mr Dangerfield and Mr Exley. It was submitted that Mr Matthews was effectively agreeing to that course.
[17]Permanent Building Society (in liq) v Wheeler & Ors (1994) 11 WAR 187.
It was also submitted that the claim under s 180 would fail in any event unless the Court held that Mr Dangerfield and Mr Exley were bound not to dissolve the partnership except on terms agreeable to Mr Matthews.
The defendants also submitted that the claims under s 181 (lack of good faith) and s 182 (improper gaining of advantage), along with the s 180 claim are misconceived because they misconstrue the arrangements. It was submitted that the arrangement was a partnership of trusts with ResCom Lawyers as agent and bare trustee for the partnership of trusts. It was said that the trust arrangements and associated duties significantly modify the duties of directors under the Corporations Act.[18] Mr Dangerfield and Mr Exley relied on the following passage from Hurley v BGH Nominees Pty Ltd(No 2): [19]
A director must not disregard the interests of members of his company or the interests of beneficiaries who are not shareholders but who are entitled to receive a benefit from the company’s activities as a trustee of the relevant trust.
…
And I do not think it can rightly be said that the fiduciary responsibility of a director is owed simply to the company by virtue of his status as a director and that it does not extend to responsibility to shareholders, or, indeed, to beneficiaries of a trust of which the company was trustee.
[18]Hurley v BGH Nominees Pty Ltd (No 2) (1984) 37 SASR 499 at 510, approved by O’Bryan J in Inge & Anor v Inge & Anor (1990) 3 ASCR 63 at pp 69 - 70.
[19]Ibid.
However, the difficulty with this submission is that there is no evidence on this application that the Company is the trustee of a trust. Rather, the only evidence (as it stands) is that the Company is said to be a “nominee” for a partnership of trusts (each with their own trustee). Use of the nomenclature “nominee” does not necessarily mean that the Company was a trustee, although further evidence may establish this to be the case.
Further, it was submitted by Mr Dangerfield and Mr Exley that s 181 of the Corporations Act requires consideration of what a comparable person would have done. There has been no suggestion that Mr Dangerfield and Mr Exley should not have completed the conveyancing work.
As to the allegation of dishonesty and fraudulent design, counsel for Mr Dangerfield and Mr Exley pointed to the exit proposal and subsequent exchanges about it between the parties. Counsel submitted that the suggestion that anything dishonest occurred in relation to the transfer of the files is a nonsense. It was submitted that it has been done knowingly with the constructive consent, if not the actual consent, of Mr Matthews.
Counsel for Mr Dangerfield and Mr Exley also criticised the lack of particulars in the statement of claim. For example, when the pleading refers to the transfer of the business, it says that the particulars of the extent of the transfer would be given after discovery. Counsel submitted that because the three men have worked together for a year, Mr Matthews must have some idea of what has been transferred, particularly in circumstances where the allegation is one of fraudulent design.
Counsel for Mr Dangerfield and Mr Exley also submitted that the claim rests on the premise that the whole of the practice has been transferred out, but that there is no evidence whatsoever of what the practice is, apart from the files. In October 2009, Mr Dangerfield and Mr Exley provided a list of the files to be completed upon their departure and offered to return a one third share of the profits from those files to Mr Matthews.
Counsel for Mr Dangerfield and Mr Exley submitted that there was substantial delay between when the claim crystallised in October 2009 (on Mr Matthews’ case) and when the application for leave was made in May 2011. Counsel urged me to draw an inference that there was a reason for the delay, being that there is very little in dispute and the claim is really devoid of substance.
In summary, counsel for Mr Dangerfield and Mr Exley submitted that there is no claim for breach of the statutory and common law duties owed by them as directors because what has been done has been done with the consent of Mr Matthews and, similarly, there is no Barnes v Addy claim and there is no fraudulent design.[20] Counsel pointed to the minutiae of the separation in the negotiations between Mr Matthews on the one hand and Mr Dangerfield and Mr Exley on the other which descended to the level of expenses for telephones, postage and the like.
[20]See [39] and [40] above.
Mr Matthews submitted that when he was negotiating with Mr Dangerfield and Mr Exley about their “exit”, they simply appropriated the Company’s practice and established a business elsewhere. Mr Matthews submitted that, at the least, the conduct of Mr Dangerfield and Mr Exley was such as to be recklessly indifferent to the consequences.
It was also submitted on behalf of Mr Matthews that there were negotiations between the parties, but that there was no agreement reached and it was in those circumstances that the business was transferred. It was submitted that it was for Mr Dangerfield and Mr Exley to come to agreement or to leave without taking anything if agreement could not be reached. It was submitted that it was dishonest for Mr Dangerfield and Mr Exley to take the Company’s assets away from the Company without the consent of the Company and without any consideration. It was also submitted on behalf of Mr Matthews that he might have procured the support of legal practitioners to carry out the work the subject of the practice.
There is an air of unreality about the case contended for by Mr Matthews. As noted above, from the contemporaneous correspondence, it appears that all parties knew that the legal practice was to be transferred and that what was in dispute was not that transfer, but rather how much Mr Matthews should be paid. In those circumstances, no prima facie case is made out by Mr Matthews. Tellingly, no complaint of breach of directors duties was made by Mr Matthews at the time the alleged conduct occurred. It was only when his dispute with Mr Dangerfield and Mr Exley could not be resolved, that the claim was first raised. This was many months after the events said to give rise to the breach of duties. Before that time, Mr Matthews was content to treat the dispute as a partnership dispute only.
There could be no obligation on Mr Dangerfield and Mr Exley to continue to work in the practice. The submission that, in the absence of agreement, Mr Dangerfield and Mr Exley should have left the practice with nothing ignores the potentially damaging impact that this course might have had on the Company. It may well have given rise to claims for negligence arising out of a failure to complete the work on the current files. In this regard, I accept the submission that Mr Dangerfield and Mr Exley acted to protect the Company. The submission that, after they left, Mr Matthews might have employed qualified lawyers to complete the work is not supported by any evidence.
I am not satisfied that there is a serious question to be tried.
Conclusion
The application by Mr Matthews to bring this proceeding on behalf of the Company will be dismissed.
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