Stewart v Biodiesel Producers Limited

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FEDERAL COURT OF AUSTRALIA

Stewart v Biodiesel Producers Limited [2008] FCAFC 66

CORPORATIONS LAW – resolution of company board rescinded – issue of performance shares set aside – subscription money only paid – whether primary Judge erred by not moulding equities of relief.

PRACTICE AND PROCEDURE – leave to raise new argument on appeal – inadvertence by party seeking leave – complexity and inconvenience of remittal – leave refused.

Corporations Act 2001 (Cth) chapter 2E

Biodiesel Producers Limited (ACN 099 165 876) v Stewart [2007] FCA 722 affirmed
H v Minister for Immigration and Multicultural Affairs (2000) 63 ALD 43 considered
M87 of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] FCAFC 148 cited

ANTHONY PAUL STEWART v BIODIESEL PRODUCERS LIMITED (ACN 099 165 876) AND DENNIS BARRON
WAD 116 OF 2007

RYAN, MOORE AND TAMBERLIN JJ
24 APRIL 2008
HEARD IN PERTH, DELIVERED IN SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 116 OF 2007
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ANTHONY PAUL STEWART
Appellant

AND:

BIODIESEL PRODUCERS LIMITED (ACN 099 165 876)
First Respondent

DENNIS BARRON
Second Respondent

JUDGES:

RYAN, MOORE AND TAMBERLIN JJ

DATE OF ORDER:

24 APRIL 2008

WHERE MADE:

HEARD IN PERTH, DELIVERED IN SYDNEY

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The appellant pay the costs of the respondents.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 116 OF 2007
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ANTHONY PAUL STEWART
Appellant

AND:

BIODIESEL PRODUCERS LIMITED (ACN 099 165 876)
First Respondent

DENNIS BARRON
Second Respondent

JUDGES:

RYAN, MOORE AND TAMBERLIN JJ

DATE:

24 APRIL 2008

PLACE:

HEARD IN PERTH, DELIVERED IN SYDNEY

REASONS FOR JUDGMENT

THE COURT:

  1. This is an appeal from a judgment of a Judge of the Court which: (i) ordered rescission of a resolution of the Board of directors of the first respondent (“Biodiesel”) to issue performance shares to the appellant (“Mr Stewart”) and the second respondent (“Mr Barron”); (ii) set aside the issue of the performance shares to Mr Stewart; and (iii) ordered a refund of the subscription money paid by Biodiesel to Mr Stewart in an amount of $55.00: see Biodiesel Producers Limited (ACN 099 165 876) v Stewart [2007] FCA 722. His Honour also made a further order that Biodiesel’s share register be altered to give effect to the rescission order.

  2. On this appeal the principal error of law sought to be identified by Mr Stewart is that the primary Judge, in deciding to rescind the Board’s resolution to issue the performance shares and to set aside the issue of those shares, did not mould the relief or rescission in such a way as to make due allowance in favour of Mr Stewart for the work, time and skill exercised by him on behalf of Biodiesel.…

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Details
Case
[2008] FCAFC 66
Decision Date

CaseChat Overview and Summary

In the case of Stewart v Biodiesel Producers Limited, the dispute involved a challenge by Biodiesel Producers Limited to a resolution made by its Board, which led to the issuance of performance shares to Mr Stewart, one of the company's directors and secretary. The case was heard and determined by the court, which was tasked with deciding whether the resolution and the subsequent issuance of shares were valid or should be set aside due to alleged breaches of statutory and fiduciary duties by Mr Stewart.

The legal issues that the court had to decide included whether Mr Stewart had breached his statutory and fiduciary duties by failing to disclose certain advice to the Board, and whether this breach warranted the setting aside of the resolution and the shares issued. The court also needed to determine the appropriate remedy if the resolution was found to be invalid. The court's reasoning involved a detailed examination of the conduct of Mr Stewart, the advice he received, and the implications of that advice for the validity of the resolution and the share issuance. The court concluded that Mr Stewart had indeed breached his duties by not disclosing the advice, and that this breach justified setting aside the resolution and the issuance of shares, with an order for rectification of the register of members.

The outcome of the case was that the appeal by Mr Stewart was dismissed. The court upheld the primary judge's decision to set aside the Board resolution and the issuance of performance shares to Mr Stewart, and ordered that the resolution be rescinded, the share issuance be set aside, and the company's register of members be rectified. Furthermore, the court ordered that Mr Stewart pay the costs of the respondents, thereby affirming the validity of the respondents' position in the litigation.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the costs of the respondents.

Background

Background to the litigation

Counsel for Mr Stewart concedes that no submission to this effect was advanced on behalf of Mr Stewart before the primary Judge. The case pleaded and the argument advanced before his Honour was only that the Board resolution and share issue should not be set aside because there was, having regard to all the circumstances, no basis for rescission of the resolution. There was no pleading or submission advanced by Mr Stewart as to the terms of any order which his Honour might make if the share issue was set aside or the Board resolution rescinded. Similarly, no submission was put to his Honour that any rescission should be on a conditional basis. In short, the argument put below by Biodiesel was that the making of the resolution and the issue of the performance shares were both in breach of statutory and fiduciary duties owed by Mr Stewart to Biodeisel, and therefore should be set aside. Against this, Mr Stewart contended that the resolution was not passed as a result of a breach of any statutory or fiduciary duty, and that any failure to obtain shareholder approval was either not a procedural irregularity invalidating the resolution, or, if it was such an irregularity, it was one which could be corrected by the Court. Therefore, it was submitted, the resolution and issue of the shares were valid and should not be set aside.BACKGROUND The background to this matter is comprehensively set out in his Honour’s judgment at [4]-[176]. We briefly summarise below some salient matters. On 7 June 2002, Biodiesel was incorporated. On the same day Mr Stewart was appointed company secretary and Mr Barron began to act as managing director. The purpose for which Biodiesel was incorporated was to establish an operating plant in Albury/Wodonga to produce biodiesel fuel from tallow and waste oils for markets in New South Wales, Victoria and the Australian Capital Territory. It was proposed that the project should be financed, at least in part, by ANZ Infrastructure Services Limited by way of equity or debt or both. By July 2004, there was a proposal on foot that Biodiesel would issue performance shares to Mr Stewart and Mr Barron, subject to their satisfaction of certain performance criteria. On 1 July 2004, Mr Stewart received advice from the solicitor acting for Biodiesel, Mr Paterson, as to the legal procedure necessary to enable the issue of the performance shares. Mr Paterson refers in his letter to the procedure to be followed for varying rights attaching to classes of shares and the need for approval by shareholders in certain circumstances. In particular, he referred to Chapter 2E of the Corporations Act 2001 (Cth) (“the Act”) to the effect that shareholder approval was not required before giving a financial benefit to “a related party” on terms that would be reasonable in the circumstances, provided that Biodiesel, as a public company, and the related party were dealing at arms length. Finally, the letter of advice makes it clear that Mr Paterson’s advice did not extend to advising in respect of “disclosure requirements for the issue of shares”, and that he was willing to provide such advice if required.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

RYAN, MOORE AND TAMBERLIN JJ
On 30 November 2004, Mr Paterson prepared a circular resolution which was presented by Mr Stewart to the directors of Biodiesel and signed by each of them. The resolution provided, among other matters, for the issue of 5,500 performance shares to Mr Stewart. When presenting the resolution to the directors, Mr Stewart made no reference to the advice or caution given by Mr Paterson as to variation of rights. Nor are there any minutes of any meeting of the Board on that day, or the Annual General Meeting. This resolution was the Board resolution which was ultimately set aside by the primary Judge’s orders, and referred to above at [1]-[2].THE DECISION BELOW In relation to Mr Stewart’s non-disclosure to the Board of Mr Paterson’s advice, his Honour made the following important findings:‘There can be no doubt, on my findings, that the first respondent [that is, Mr Stewart] has acted improperly and in breach of his statutory and fiduciary duties. He consciously failed to bring to the attention of the Board material information which would have impacted upon the Board’s decision to pass a resolution to issue shares to him. In my opinion, the first respondent did what he did because he knew that if Mr Paterson’s advice were given to the Board the resolution would not pass because the directors would either seek further legal advice or, alternatively, require that the matter be put to the shareholders generally. He preferred his interests to that of the applicant. He placed himself in a position of conflict.…In those circumstances, the only beneficiary of the circular resolution is the first respondent. There seems to me to be no reason why he should enjoy the benefits of that resolution and the issue of the performance shares in circumstances where he has consciously failed to bring to the Board’s attention advice which would have meant that the circular resolution was not passed.In those circumstances, there should be an order rescinding the resolution of 30 November 2004 contained in the circular resolution; subject to the repayment of the subscription money of $55.00 an order setting aside the issue of the performances shares; and an order rectifying the applicant’s register of members pursuant to s 175 of the Corporations Act.’ (Emphasis added) His Honour also made at [181]-[184] strong adverse credibility findings against Mr Stewart and did not accept his evidence as to the hours he claimed to have worked for Biodiesel. Having regard to the way in which the case was advanced before the primary Judge, his Honour decided that it was not necessary to address the issue of how many hours Mr Stewart in fact worked. His Honour was only prepared to accept the evidence of Mr Stewart where that evidence was consistent with that of other witnesses. In relation to the expert witnesses called by both sides to value the work done by Mr Stewart, his Honour observed that, if it were necessary, the evidence of Mr Costello, who was called for Biodiesel, should be preferred. Mr Costello had determined that the rate of remuneration appropriate for the work done by Mr Stewart was $39,000 per annum over a three year period. The other expert witnesses, in his Honour’s view, disclosed errors in their valuation techniques. However, despite expressing a preference for Mr Costello’s evidence, his Honour found that there was no need to make findings on this issue.THE APPEAL

Ratio Decidendi

Legal Principle Established

Established by: RYAN, MOORE AND TAMBERLIN JJ

Full text does not contain this section.