Weaver v Harburn

Case [2014] WASCA 227

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   WEAVER -v- HARBURN [2014] WASCA 227

CORAM:   McLURE P

BUSS JA
MURPHY JA

HEARD:   10 SEPTEMBER 2014

DELIVERED          :   11 DECEMBER 2014

FILE NO/S:   CACV 6 of 2014

BETWEEN:   DARREN GORDON WEAVER as liquidator of HARBURN GROUP AUSTRALIA PTY LTD

First-named First Appellant

MARTIN BRUCE JONES as liquidator of HARBURN GROUP AUSTRALIA PTY LTD
Second-named First Appellant

HARBURN GROUP AUSTRALIA PTY LTD (in liq)
Second Appellant

AND

PETER JOHN HARBURN
First Respondent

JULIE-ANN CHIVERS
Second Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER SANDERSON

Citation  :WEAVER & JONES -v- HARBURN [2013] WASC 441

File No  :COR 89 of 2013

Catchwords:

Corporations law - Director used company funds to purchase boat for a close associate - Company in uncertain financial and commercial circumstances - Whether an unreasonable director-related transaction - Scope of orders under s 588FF, Corporations Act 2001 (Cth) - Scope of defence in s 588FG, Corporations Act 2001 (Cth) - Director's duties

Legislation:

Bankruptcy Act 1966 (Cth), s 120, s 121, s 122
Companies (South Australia) Code, s 229
Corporate Law Reform Act 1992 (Cth)
Corporations Act 2001 (Cth), s 9, s 181, s 182, s 254T, s 254U, s 588FA, s 588FB, s 588FC, s 588FD, s 588FDA, s 588FE, s 588FF, s 588FG, s 1317H
Corporations Amendment (Corporate Reporting Reform) Act 2010 (Cth), s 7
Corporations Amendment (Repayment of Directors' Bonuses) Act 2003 (Cth)
Corporations Law (Cth), s 565
Supreme Court Act 1935 (WA), s 32(1)

Result:

Appeal allowed

Category:    A

Representation:

Counsel:

First-named First Appellant     :    Mr M D Howard SC & Mr M Sims

Second-named First Appellant   :    Mr M D Howard SC & Mr M Sims

Second Appellant          :    Mr M D Howard SC & Mr M Sims

First Respondent          :    Mr J C Vaughan SC

Second Respondent          :    Mr J C Vaughan SC

Solicitors:

First-named First Appellant     :    Chew & Matthews

Second-named First Appellant   :    Chew & Matthews

Second Appellant          :    Chew & Matthews

First Respondent          :    Thompson Downey Cooper

Second Respondent          :    Thompson Downey Cooper

Case(s) referred to in judgment(s):

Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507

Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189

Ferrier and Knight v Civil Aviation Authority (1994) 55 FCR 28

Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 25 ACLC 1094

Kazar v Kargarian (2011) 197 FCR 113

New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 192 ALR 601

Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651

Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48

Slaven v Menegazzo [2009] ACTSC 94

The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1

Wardley Australia Ltd v The State of Western Australia…

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Weaver v Harburn [2014] WASCA 227
Case
[2014] WASCA 227
Decision Date

CaseChat Overview and Summary

The case of Weaver v Harburn involved a dispute in the Federal Court of Australia regarding the misuse of corporate funds by a director for personal gain. The company, in uncertain financial and commercial circumstances, had its funds used to purchase a boat for a close associate of the director. The central issue before the court was whether this transaction constituted an unreasonable director-related transaction under the Corporations Act 2001 (Cth). Further, the court needed to determine the scope of orders permissible under s 588FF of the Act and the applicability of the defence in s 588FG.

The court began by identifying the nature of the voidable transaction in question, focusing on whether the transaction was an unreasonable director-related transaction as defined by s 588FDA of the Act. The court held that for a transaction to be considered unreasonable, it must involve the company as a party and a person to whom a payment, disposition, or issue is made. The evidence indicated that only the second respondent, not the first, entered into the boat contract, making the first respondent not a party to the transaction. Additionally, the court found that the first respondent did not receive a benefit from the transaction, as per the definition of 'benefit' in s 9 of the Act. Therefore, even if the scope of s 588FF(1) permitted relief against the first respondent, the defence in s 588FG(1)(a) would apply, making it unnecessary to determine the full scope of s 588FF(1).

Finally, the court addressed the respondents' arguments regarding the scope and effect of s 588FF(4) of the Act, which outlines the permissible orders for recovering benefits for the company's creditors when a transaction is voidable due to being an unreasonable director-related transaction. The court concluded that any order under s 588FF(1) must be for the purpose of recovering the difference between the total value of benefits provided by the company and the value that a reasonable person would have provided in the company's circumstances. The court's findings resulted in the appellants' claims against the first respondent being dismissed.

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

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The starting point must be to identify the type of voidable transaction in issue. For an unreasonable director‑related transaction, the transaction and the parties thereto are identified in s 588FDA(1)(a) and (b) of the Act. Under par (a), the company must be a party. Under par (b), the other party is the person(s) to whom the payment, disposition or issue is, or is to be, made. That construction is consistent with authority: Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189 [140] ‑ [143]; Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 [82]. Accordingly, the fact that the first respondent was the directing mind of the company in relation to the payments does not make him a party to the transactions. Such an outcome would also be at odds with the restitutionary nature of the relief in s 588FF(1). If both respondents had entered into the boat contract, the company payments (transactions) would be to both respondents as parties. If the boat contract was entered into by the second respondent only, the first respondent would not be a party to the transaction. The first respondent's evidence was that he purchased the boat. The second respondent's evidence was that the first respondent purchased the boat for her. Although the boat contract named both respondents as purchasers, only the second respondent signed it. The balance of the evidence is that only the second respondent entered into the boat contract, the intention being that it be solely owned by the second respondent. The effect of the payments made by the company was to discharge the second respondent's liability under the boat contract to pay the purchase price. Thus, the first respondent was not a party to the transactions. It was not contended by the appellants that the first respondent had received a 'benefit' because of the transactions. The term 'benefit' is defined in s 9 of the Act as 'any benefit, whether by payment of cash or otherwise'. See also, Re Employ (No 96) [85] ‑ [89]. It follows that even if s 588FF(1) is wide enough to permit relief against the first respondent (a non‑party who received no benefit because of the transaction), the defence in s 588FG(1)(a) would apply. In those circumstances it is unnecessary to determine the scope of s 588FF(1). However, it is arguable that the purpose of s 588FG(1)(a) is to prevent the making of an order against a party to the transaction which has the effect of materially prejudicing rights and interests of a person who is a non‑party to the transaction and who has received no benefit because of the transaction. So for example, the court could not make an order declaring an agreement void ab initio if that would materially prejudice a non‑party to the transaction who had received no benefit because of it. Otherwise, it is difficult to envisage circumstances in which the court could make an order under s 588FF(1) directly against a non‑party who has received no relevant benefit. The respondents raise two matters as to the scope and effect of s 588FF(4) of the Act, which relevantly provides:If the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between: (a)the total value of the benefits provided by the company under the transaction; and (b)the value (if any) that it may be expected that a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c). (emphasis added)