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Schmierer v Taouk

Schmierer v Taouk

Case [2004] NSWSC 345 7 May 2004

Breach of Fiduciary Duty

Unjust Enrichment

Restitution

Statutory Interpretation

Director's Duties

Corporate Law & Governance

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CITATION: Schmierer & Anor v Taouk [2004] NSWSC 345

HEARING DATE(S): 27/04/04, 28/04/04

JUDGMENT DATE:
7 May 2004

JUDGMENT OF: White J

DECISION: See Conclusion Page 29

CATCHWORDS: CORPORATIONS - Winding-up - Plaintiff liquidator seeking recovery of two payments to director under s 598(2) and (4) of Corporations Act 2001 (Cth) - Alleged negligence, default and breach of fiduciary duty - Whether duty of director not to prefer personal interest to company's interests - Whether money recoverable on other basis - Whether sum recoverable as loan - Plaintiff's onus of proof in showing nature of money advanced to defendant - Nature of loan - Nature of restitutionary obligation to repay - Whether and from when interest payable - Whether withdrawal of funds from bank constituted breach of defendant's director's duties - Whether amount consequently recoverable by liquidator under s 598(2) of Corporations Act - Whether shareholders can ratify director's breach where latter leads to company's insolvency - Whether defendant entitled to relief under s 1318 Corporations Act. - (CTH) Corporations Act 2001 ss 598, 1318.

LEGISLATION CITED: Corporations Law s 233, s 461 (k)
Corporations Act 2001, s 598 (2), s 1318
Supreme Court Act, s 92

CASES CITED: Walker v Wimborne (1976) 137 CLR 1 at 37
Re New World Alliance Pty Ltd
Sycotex Pty Ltd v Baseler (1994) 51 FCR 425 at 444-445
Ferguson v O'Neill [1943] VLR 30 at 32
Pannam, The Law of Moneylenders Australia & New Zealand (1965)
Heydon v Perpetual Executors Trustees and Agency Co (WA) Ltd (1930) 45 CLR 111 at 113
Oubert v Walsh (1812) 4 Taunt. 294
128 E.R. 342
Joaquin v Hall [1976] VR 788
Jenkins v Wynen [1992] 1 QdR 40 at 43-44
Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647 at 660
Coshott v Sakic (1998) 667 at 671-672
Mason & Carter, Restitution Law in Australia
Seldon v Davidson (1968) 2 All ER 755 at 757, 759.
Cary v Gerrish (1801) 4 ESP. 9
170 E.R. 624
Welsh v Seabourne (1816) 1 Stark. 474
171 E.R. 534
Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 356-357
Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at 525, 540, 550-551
Bullen & Leake, Precedents of Pleadings, 3 Ed
Moses v McFerlan 2 Burr. 1005, 1110
97 E.R. 676
Halsbury's Laws of England, 4 Ed, Para 672
Star v O'Brien (1996) 40 NSWLR 695 at 701
Goff & Jones, The Law of Restitution, 5 Ed p 848
Baker v Courage [1910] 1 KB 56
Maskell v Horner [1915] 3 KB 106
Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581

PARTIES :
Trevor John Schmierer & Anor
v
Fahd Taouk

FILE NUMBER(S): SC 005721/2001

COUNSEL: Plaintiff: Mark Ashhurst
Defendant: Robert Tregenza

SOLICITORS: Plaintiff: Levitt Robinson Solicitors
Defendant: Malouf Solicitors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

WHITE J

Friday, 7 May 2004

005721/01 TREVOR JOHN SCHMIERER v FAHD TAOUK

JUDGMENT

1 HIS HONOUR: In these…

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

AGLC: Schmierer v Taouk [2004] NSWSC 345
Case: [2004] NSWSC 345
Decision Date: 7 May 2004

CaseChat Overview and Summary

In the Federal Court of Australia, the plaintiff, acting as liquidator of a company, brought an action against a director, the defendant, to recover two payments made by the company to the director. The dispute arose under sections 598(2) and (4) of the Corporations Act 2001 (Cth), with the plaintiff seeking to reclaim payments made to the director on the grounds of negligence, default, and breach of fiduciary duty. The central issue was whether the director had breached their duty by preferring their personal interests over those of the company, and if so, whether the payments could be recovered on other grounds, such as if they were loans. Additionally, the court needed to determine the nature of the money advanced, whether it constituted a loan, and if so, the nature of the restitutionary obligation to repay. The court also considered whether interest was payable on the sums and if the director's withdrawal of funds from the company's bank account constituted a breach of their director's duties. Another issue was whether the shareholders could ratify the director's breach of duty, particularly when such a breach led to the company's insolvency. Finally, the court examined whether the director was entitled to relief under section 1318 of the Corporations Act.

The Federal Court held that the director had indeed breached their fiduciary duties by preferring their personal interests over those of the company, leading to the recovery of the payments under section 598(2) of the Corporations Act. The court found that the payments could also be recovered as loans. The plaintiff bore the onus of proving the nature of the money advanced to the director, and the court concluded that it constituted a loan, thus creating a restitutionary obligation to repay. Interest was found to be payable from the date of the payments. The withdrawal of funds by the director from the company's bank account was deemed a breach of the director's duties. The shareholders' ratification of the director's breach of duty was ineffective, particularly as it contributed to the company's insolvency. The director was not entitled to relief under section 1318 of the Corporations Act. The court ordered the director to repay the amounts with interest, from the date of the payments, to the liquidator as the representative of the company.

Orders