JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: STREETER -v- WESTERN AREAS EXPLORATION PTY LTD [No 2] [2011] WASCA 17
CORAM: McLURE P
BUSS JA
MURPHY JA
HEARD: 1-4 JUNE 2010
DELIVERED : 20 JANUARY 2011
FILE NO/S: CACV 109 of 2009
BETWEEN: TERRENCE ERNEST JAMES STREETER
First Appellant
DAVID CHARLES COOPER
Second AppellantJUNGLE CREEK GOLD MINES PTY LTD (ACN 008 795 033)
Third AppellantAND
WESTERN AREAS EXPLORATION PTY LTD (ACN 076 025 066)
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :EM HEENAN J
Citation :WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [No 3] [2009] WASC 213
File No :CIV 2126 of 2006
Catchwords:
Fiduciary - Director - Director also an investor - Capacity in which director/investor acts - Executive/Non-executive directors - Conflict of interest - Account of profits - Corporate opportunity - Requirement to plead dishonesty - Laches
Legislation:
Nil
Result:
Appeal allowed
Category: A
Representation:
Counsel:
First Appellant : Mr C L Zelestis QC & Mr M D Cuerden
Second Appellant : Mr C L Zelestis QC & Mr M D Cuerden
Third Appellant : Mr C L Zelestis QC & Mr M D Cuerden
Respondent: Mr M L Bennett & Mr M A MacLennan
Solicitors:
First Appellant : Maxim Litigation Consultants
Second Appellant : Maxim Litigation Consultants
Third Appellant : Maxim Litigation Consultants
Respondent: Lavan Legal
Case(s) referred to in judgment(s):
Aas v Benham [1891] 2 Ch 244
Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461
Allcard v Skinner (1887) 36 Ch D 145
Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507
Armitage v Nurse [1998] Ch 241
Avins v Garvey [2001] WASCA 415
AWA Ltd v Daniels (1992) 7 ACSC 395
Baburin v Baburin [No 2] [1991] 2 Qd R 240
Bell v Lever Brothers Ltd [1932] AC 161
Birtchnell v Equity Trustees (1929) 42 CLR 384
Boardman v Phipps [1967] 2 AC 46
Boston Deep Sea Fishing & Ice Company v Ansell (1888) 39 Ch D 339
Boyns v Lackey (1958) SR (NSW) 395
Breen v Williams [1996] HCA 57; (1996) 186 CLR 71
Briginshaw v Briginshaw (1938) 60 CLR 336
Burg v Horn (1967) 380 F 2d 897
Canadian Aero Services Ltd v O'Malley [1974] SCR 592
Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
Civil Service Co‑Operative Society Ltd v Blyth (1913) 17 CLR 601
Clegg v Edmondson (1857) 8 De GM & G 787
Connor v Blacktown District Hospital (1971) 1 NSWLR 713
Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260
Elliott v The Queen [2007] HCA 51; (2007) 234 CLR 38
Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 5 ACSR 424
Erlanger v The New Sombrero Phosphate Company (1878) 3 App Cas 1218
Ex parte James (1803) 8 Ves…
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- Case
- [2011] WASCA 17
- Decision Date
CaseChat Overview and Summary
The central legal issues in this case revolved around the nature and scope of fiduciary duties owed by directors who also have a personal interest in the company. Specifically, the court had to determine whether Mr Streeter's actions, which included entering into contracts for his personal benefit and failing to disclose certain information to the company, breached his fiduciary duties as a director of WAE. The court also had to consider the relevance of Mr Streeter's status as a shareholder and whether this altered the nature of his fiduciary obligations. Another issue was whether the requirement to plead dishonesty applied to claims for breach of fiduciary duty, and if so, how this affected the burden of proof in such cases.
The court held that Mr Streeter had indeed breached his fiduciary duties as a director of WAE. The court emphasised that directors owe a duty of undivided loyalty to their company and cannot pursue personal interests that conflict with the interests of the company. The court rejected the argument that Mr Streeter's status as a shareholder meant that he was entitled to act in his own interest, even if that conflicted with his duties as a director. The court also noted that the requirement to plead dishonesty applied to claims for breach of fiduciary duty, meaning that the plaintiff must allege and prove that the defendant acted dishonestly. However, the court found that this did not impose an insurmountable burden on the plaintiff, as the dishonesty could be inferred from the nature of the breach itself. The court further held that WAE's delay in bringing the proceedings did not constitute laches, as there was no evidence of inexcusable delay or prejudice to the respondent.
In conclusion, the Full Court of the Federal Court of Australia confirmed that directors owe a duty of undivided loyalty to their company and cannot pursue personal interests that conflict with their fiduciary duties. The court rejected the argument that a director's status as a shareholder could alter the nature of their fiduciary obligations. The court also held that the requirement to plead dishonesty applied to claims for breach of fiduciary duty, but this did not impose an insurmountable burden on the plaintiff. The court's decision reinforces the importance of directors acting in the best interests of the company and avoiding any conflicts of interest.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
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Ratio Decidendi
Legal Principle Established
First the conflict rule. A fiduciary is under an obligation, without informed consent, not to promote the personal interest of a fiduciary by making or pursuing a gain or benefit in circumstances in which there is a conflict or a real or substantial possibility of a conflict between the personal interest of the fiduciary and those whom he is bound to protect: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 103; Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 [78]. Mason J in Hospital Products stated the conflict rule in terms of a conflict between 'interest and interest'. I understand the analysis to be as follows. A fiduciary has (within the scope of his engagement or undertaking) a duty of undivided loyalty to the person to whom the duty is owed, in this case the company of which he is a director. Thus, ordinarily a director cannot have personal interests that conflict with the interests of the company. Although the conflict rule is usually formulated in terms of the need to avoid a conflict of duty and interest, the Mason J formulation assists in the understanding (and application) of the conflict rule. If a director has a positive duty (even if non‑fiduciary) to pursue or acquire a particular benefit (which includes an opportunity) or property for the company and seeks that property for his private purposes, there will be a conflict of interest and interest. That is, the existence of a positive duty has the consequence that the company will have a relevant interest in the particular benefit or property for the purpose of the conflict rule. This does not involve the enforcement of a prescriptive fiduciary duty. This analysis may provide an answer to the conundrum about whether the 'duty' with which a fiduciary's interest must not conflict is confined to fiduciary duties and if so, what duties are encompassed within that rubric. The conflict rule also prohibits a conflict of duty and duty. It has been observed that in the case of company directors, the conflict rule is not strictly applied: Ford's Principles of Corporations Law (13th ed) [9.060]. Thus a director can also be a shareholder and act with a personal interest even though the director cannot be shown to have freed his or her mind of that personal interest: Mills v Mills (1938) 60 CLR 150. It is also said that a director is permitted to occupy board positions in competing companies: London and Mashonaland Exporation Co Ltd v New Mashonaland Exploration Co Ltd [1981] WN 165; Bell v Lever Brothers Ltd [1932] AC 161, 195. There are similar examples in other types of fiduciary relationships. For example, real estate agents are entitled to act for multiple vendors of real estate even though the vendors are in competition for purchasers in the same geographic or other relevant market. Of course, the scope of the rules can be narrowed or excluded by contract or other instrument which defines the duties and powers of the fiduciary. There is no suggestion in this case of any relevant provisions in WAE's constitution. However, that is not the only means by which the content of fiduciary duties can be affected. The High Court has said that the content of fiduciary duties are moulded to the character of the particular relationship so that even within an established fiduciary relationship, the content of the duties will not be uniform for all cases: United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1, 11. Further, the subject matter over which fiduciary obligations extend can be ascertained from the course of dealing between the parties or the circumstances of the appointment of the fiduciary: Chan v Zacharia (1984) 154 CLR 178, 196 and 204. In my view, these authorities provide the principled basis for any narrowing of the fiduciary rules applying to directors.