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Schmidt v AHRKalimpa Pty Ltd

Schmidt v AHRKalimpa Pty Ltd

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SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2019 0049

ALAN HESSEL SCHMIDT	First Applicant
and
OTWAY LIVESTOCK EXPORTS PTY LTD (ACN 070 299 302)	Second Applicant
v
AHRKALIMPA PTY LTD (receiver appointed) (ACN 164 529 533)	First Respondent
and
KALIMPA PTY LTD (ACN 152 484 056)	Second Respondent

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JUDGES:	KYROU, HARGRAVE and EMERTON JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	18 May 2020
DATE OF JUDGMENT:	31 July 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 193
JUDGMENT APPEALED FROM:	[2017] VSC 701 (Elliott J) (Liability); [2019] VSC 197 (Elliott J) (Quantum)

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FIDUCIARY DUTY – Negotiations for joint venture for business of exporting live cattle – First respondent proposed joint venture vehicle – First applicant a director of first respondent – Second applicant first respondent’s private company – Some transactions undertaken whilst joint venture documents being negotiated – After negotiations broke down, business undertaken by second applicant to exclusion of first respondent – Whether judge erred in concluding applicants breached fiduciary duties and first applicant breached duties as director – Whether judge erred in finding that fiduciary duties continued after fiduciary relationship ended when first applicant resigned as director of first respondent – Application for leave to appeal granted – Appeal dismissed.

EQUITABLE COMPENSATION – Whether loss suffered by first respondent was loss of opportunity to engage in import business or loss of existing export business misappropriated by applicants – Value of business – Relevant date of valuation – Whether judge erred in quantifying respondents’ loss – Application for leave to appeal granted – Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr J P Moore QC with Mr C R Northrop and Mr J McComish	Harwood Andrews
For the First Respondent	Mr J W S Peters QC with Ms K A Brazenor	Mills Oakley
For the Second Respondent	Mr D Ruschin (with leave of the Court)

KYROU JA
HARGRAVE JA
EMERTON JA:

Introduction and summary

Since 1995, the first applicant, Alan Schmidt, has been involved in the export of live cattle to Japan through his family company, the second applicant, Otway Livestock Exports Pty Ltd (‘Otway’).[1] In 2008, Danny Ruschin and Haim Bzezinski commenced developing a business plan for the export of live cattle to Israel. In 2011, they incorporated Kalimpa Pty Ltd (‘Kalimpa’) to further their business plan. Bzezinski is the sole director of Kalimpa and its equal shareholders are Bzezinski and Ruschin’s wife.
[1]Otway was originally known as AH&R Schmidt Pty Ltd. The references to Otway in these reasons include periods during which it was known as AH&R Schmidt Pty Ltd.

In September 2012, Ruschin and Bzezinski invited Schmidt to join their proposed joint venture for the export of live cattle to Israel. On 27 June 2013, the first respondent, AHRKalimpa Pty Ltd (‘AHRKalimpa’), was incorporated as the corporate vehicle for the proposed joint venture.

From 27 August 2013, the directors of AHRKalimpa were Schmidt and Bzezinski. From around 9 July 2013, its nine shares were owned as follows:

(a)Three shares were owned…

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] VSCA 193
Decision Date: 31 July 2020

CaseChat Overview and Summary

Schmidt v AHRKalimpa Pty Ltd involved a dispute between Schmidt and AHRKalimpa Pty Ltd, along with another party, regarding negotiations for a joint venture intended for the business of exporting live cattle. The first respondent proposed the joint venture vehicle, with the first applicant acting as a director of the first respondent and the second applicant operating as the first respondent’s private company. Some transactions were carried out while the joint venture documents were being negotiated. After the negotiations fell through, the business was undertaken by the second applicant to the exclusion of the first respondent. The primary issues before the court were whether the judge was correct in concluding that the applicants had breached their fiduciary duties and whether the first applicant breached his duties as a director. The court also needed to determine if the judge was correct in finding that fiduciary duties continued after the fiduciary relationship ended when the first applicant resigned as a director.

The court reasoned that the applicants had indeed breached their fiduciary duties by pursuing their own interests after the breakdown of the negotiations. It was found that the first applicant had breached his duties as a director by participating in the misappropriation of business opportunities that should have belonged to the first respondent. The court further held that fiduciary duties persisted even after the fiduciary relationship concluded when the first applicant resigned as a director, as the breach occurred while the relationship was still in effect. The applicants' appeal was dismissed, and the judge's findings were upheld. Regarding the equitable compensation, the court determined that the loss suffered by the first respondent was the loss of the opportunity to engage in the import business, rather than the loss of the existing export business misappropriated by the applicants. The court found no error in the judge's quantification of the respondents' loss.

The final orders of the court included granting the applicants leave to appeal but ultimately dismissing the appeal. The court confirmed the original findings regarding the breach of fiduciary duties and the equitable compensation awarded to the respondents.

Orders