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Southern Real Estate Pty Ltd v Dellow

Southern Real Estate Pty Ltd v Dellow

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Case Copied 10 September 2003 31 min read

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SOUTHERN REAL ESTATE PTY LTD v VALERIE DELLOW & WAYNE ARNOLD
[2003] SASC 318
Full Court: Debelle, Nyland and Lander JJ

DEBELLE J This appeal from the District Court of South Australia is an example of a director of a company placing self-interest above the interests of the company of which she was a director.
A rent roll is the list of clients whose rental properties are managed by a real estate business. In NP Generations Pty Ltd v Feneley (2002) 80 SASR 151, this Court held that a former employee of a real estate business was liable for damages for wrongfully using confidential information relating to the rent roll of the business. The issues in this appeal concern the reduction in the numbers of clients on a rent roll owned by a company operating a real estate business where that reduction is caused by a director preparing a list of clients on the company’s rent roll and then resigning her directorship and immediately establishing a business in competition.
A Real Estate Business
The appellant, Southern Real Estate Pty Ltd (“Southern Real Estate”), carries on business as a real estate agent. It was incorporated in 1993. The company was formed by five employees who had all left a real estate firm. They were Messrs Robertson, Whitlock, and Sanderson, the respondent, Mrs Dellow and a Mrs Smout. The initial directors of the company were Messrs Robertson, Whitlock and Sanderson. Ms Dellow, was one of the initial shareholders in the company. From 1993 she was employed by the company together with Mrs Smout. On 14 December 1999 Ms Dellow and Mrs Smout were appointed directors.
Ms Dellow’s appointment as a director did not result in any change in remuneration. From time to time, after payment of salary or performance related salaries and commission to each Ms Dellow, Mrs Smout and the directors, any surplus would be paid as a bonus equally to the shareholders.
Ms Dellow’s duties at Southern Real Estate required her to manage rental properties on behalf of clients of the firm. She managed the rent roll. At all relevant times, Mrs Dellow was employed on a full time basis. She took part in the management of Southern Real Estate. She attended board meetings. She was an executive director of Southern Real Estate.
Article 12 of the Articles of Association of Southern Real Estate provides that, if a member resigns, notice may be given inviting the others to buy the departing member’s share. The other members are under no obligation to buy the departing member’s share. If they do not, the share may be valued and sold. In practice, a sale to an outsider would be difficult without the support of the other members. In 1994, Mr Whitlock left the business. His share was bought by the remaining four shareholders including Ms Dellow. Those four continued as equal shareholders.
In 1996 Ms Dellow became dissatisfied with her position. She decided to leave. The other members were unwilling to purchase…

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: [2003] SASC 318
Decision Date: 10 September 2003

CaseChat Overview and Summary

Southern Real Estate Pty Ltd, a real estate business, appealed against the District Court's decision that Valerie Dellow, a former director, was not liable for damages for breaching her fiduciary duties as a director. Dellow had resigned from the company and immediately set up a business in competition, taking with her a significant number of clients from Southern Real Estate's rent roll. The appeal was against the amount of damages awarded and the basis upon which they were assessed. Dellow cross-appealed against the finding that she had breached her duties as a director.

The Full Court held that Dellow had breached her fiduciary duties as a director by preparing a list of clients from the rent roll while she was still a director and then using that list after her resignation to solicit those clients to transfer their business to her own company. Dellow had not acted in good faith or in the best interests of Southern Real Estate and had used her position as a director improperly to gain an advantage for herself and Mr Arnold. The Full Court held that the damages should be assessed on an equitable basis and set aside the damages awarded by the District Court. The Full Court assessed the loss to Southern Real Estate at $40,500 together with interest of $4,250 and ordered that Dellow pay the costs of the action. The cross appeal was dismissed.

Orders