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Resource Equities v Carr Resource Equities v Garrett

Resource Equities v Carr Resource Equities v Garrett

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CITATION: Resource Equities v Carr Resource Equities v Garrett [2009] NSWSC 1385

HEARING DATE(S): 2/11/09, 3/11/09, 4/11/09, 5/11/09 and 6/11/09

JUDGMENT DATE :
15 December 2009

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: McDougall J at 1

DECISION: See paragraphs [386] to [392] of the judgment.

CATCHWORDS: COMPANIES – directors and other officers – directors’ duties – whether multiple breaches of ss 180, 181 and 182 Corporations Act and common law duties – directors’ fees – whether directors had performed work which warranted additional fees – whether directors personally liable for overpayments – dividends - whether a payment to shareholders properly characterised as a dividend or return of capital – whether dividend payable when no profit demonstrable – whether payment otherwise justified – voluntary administration – whether administrator appointed for a proper purpose – whether directors personally liable for resultant costs – loans – whether loan made by company improper – whether directors personally liable – whether directors can be sued when debtor has not been pursued to bankruptcy – issue of shares – whether shares improperly issued to allow directors to maintain control of company – whether resultant litigation defended when no prospects of success – whether directors personally liable for consequent legal costs – defences – whether business judgment rule available – whether to exercise discretion under s1318 Corporations Act – remedies – damages - quantum - CONTRACTS – construction – whether cross claimant indemnified by settlement deed - DAMAGES – whether liability apportionable under the Civil Liability Act – whether available for breaches of the Corporations law - PRACTICE – pleadings – whether issue arguable when not pleaded

LEGISLATION CITED: Civil Liability Act 2002
Corporations Act 2001
Pooled Development Funds Act 1992 (Cth) (the PDF Act)
Uniform Civil Procedure Rules

CATEGORY: Principal judgment

CASES CITED: Australasian Oil Exploration Limited v Lachberg (1958) 101 CLR 119
Australian Securities and Investments Commission v Vines (2005) 65 NSWLR 281
Bluebottle UK Limited v Deputy Commissioner of Taxation (2007) 232 CLR 598
Brambles Australia Ltd v Tatale Pty Ltd [2006] NSWSC 204
Carr and Purves v Thomas [2009] NSWCA 208
Commissioner of Taxation of the Commonwealth of Australia v Sun Alliance Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
Dartberg Pty Ltd v Wealthcare Financial Planning Pty Limited (2007) 164 FCR 450
Ingot Capital Investment Pty Ltd v Macquarie Equity Capital Markets Ltd (No.6) (2007) 63 ACSR 1
Investments Pty Limited (in liquidation) (2005) 225 CLR 488
QBE Insurance Group Ltd v Australian Securities Commission (1992) 38 FCR 270
Re Spanish Prospecting Co Ltd [1911] 1 Ch 92
Rood Investments (Vic) Pty Limited v Abeyratne [2009] VSC 278
Segenhoe Ltd v Akins (1990) 29 NSWLR 569
Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603
Vines v Australian Securities and Investment Commission (2007) 62 ACSR 1
Western Ventures Pty Limited v Resource Equities Limited (2005) 53 ACSR 568

PARTIES:
50214/07
Resource Equities Limited (subject to deed of comapny Agreement) (Plaintiff)
John Hiltion Garrett (First…

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: [2009] NSWSC 1385
Decision Date: 15 December 2009

CaseChat Overview and Summary

In Resource Equities v Carr and Resource Equities v Garrett, the dispute arose from actions by the directors of a company, who were accused of breaching their duties under the Corporations Act 2001 (Cth) and common law. The plaintiffs sought to hold the directors personally liable for various breaches, including improper payment of fees, misappropriation of dividends, and improper conduct in relation to loans and share issuances. The case was heard in the Supreme Court of Victoria.

The legal issues before the court involved determining whether the directors had breached their fiduciary duties by accepting fees for work they had not performed, whether they were liable for overpayments, and if dividends could be paid in the absence of demonstrable profits. The court also needed to decide if a voluntary administration was initiated for a proper purpose and whether the directors were personally liable for the associated costs. Furthermore, the court considered whether the directors could be held liable for loans made by the company and for issuing shares to maintain control, as well as whether litigation costs incurred were properly defended.

The court found that the directors had indeed breached their duties in several respects. They had improperly paid themselves additional fees and mischaracterised a payment to shareholders as a dividend. The court also ruled that the voluntary administration was not for a proper purpose and that the directors were personally liable for the costs associated with it. Regarding the loans, the court found that the directors had breached their duties by making an improper loan, and they could still be held liable even if the debtor had not been pursued to bankruptcy. Lastly, the court held that the directors were personally liable for the costs of defending litigation that had no prospects of success. The court determined that the business judgment rule did not apply and declined to exercise its discretion under s 1318 of the Corporations Act.

The court ordered the directors to compensate the company for the improper payments, costs of the voluntary administration, and litigation expenses. The court also determined that the cross-claimant was not indemnified by the settlement deed, and liability was apportionable under the Civil Liability Act. The court found that damages were available for breaches of the Corporations law. Finally, the court ruled that the issue of whether the defendants were indemnified by the settlement deed was not arguable as it had not been pleaded.

Orders