JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [No 3] [2009] WASC 213
CORAM: EM HEENAN J
HEARD: 23-27 MARCH, 30-31 MARCH, 1-3, 6-9, 14‑16 APRIL 2009
DELIVERED : 31 JULY 2009
FILE NO/S: CIV 2126 of 2006
BETWEEN: WESTERN AREAS EXPLORATION PTY LTD (ACN 076 025 066)
Plaintiff
AND
TERRENCE ERNEST JAMES STREETER
First DefendantDAVID CHARLES COOPER
Second DefendantJUNGLE CREEK GOLD MINES PTY LTD (ACN 008 795 033)
Third Defendant
Catchwords:
Corporations - Directors - Fiduciary duties - Breach - Diversion of corporate opportunities - Directors of plaintiff also directors of another corporation - Other corporation obtaining via the plaintiff and promoting a development for flotation of a mining company for nickel exploration - Remedies - Constructive trust - Scope for directors of competing company to promote their own interests or that of the other company - Mining tenements of plaintiff company sold by directors to the new company in return for allotment of shares to plaintiff and to a company associated with one of the directors - Opportunity to acquire balance of interest in joint venture by the plaintiff in certain mining tenements diverted by director to his private company - Measure of relief - Claims for apportionment of profits and/or just allowances for efforts of errant fiduciaries in successfully promoting new company - Shares and options taken by directors personally or in a private company - Interest or other allowances for money paid on subscriptions for shares taken and options exercised - Value of shares in new company substantially enhanced by subsequent acquisition of very successful nickel mine - Joint and several liability of defaulting fiduciaries
Legislation:
Nil
Result:
A. If the plaintiff so elects:
1. Declaration that the third defendant holds 10,675,000 shares in WANL upon constructive trust for the plaintiff subject to a charge upon those shares to secure payment to the third defendant by the plaintiff of $1,590,000 plus interest thereon for the capital advanced by the first and third defendants for the acquisition of those shares.
2. Order that upon satisfaction by the plaintiff by payment of the amount charged upon those shares the third defendant take all necessary steps to transfer 10,675,000 shares in WANL to the plaintiff.
3. Declaration that the second defendant is bound to deliver 400,000 shares in WANL to the plaintiff subject to payment to the second defendant by the plaintiff of $160,000 plus interest thereon for the capital advanced by the second defendant for the acquisition of those shares.
4. Order that upon satisfaction by the plaintiff by payment of $160,000 plus interest the second defendant take all necessary steps to transfer 400,000 shares in WANL to the plaintiff.
5. There be liberty to all parties to apply to determine the amounts of interest payable under pars 1 and 3.
B. Alternatively to 1 to 5 (inclusive) above, but only if the plaintiff so elects:
6. The first, second and third defendants do pay to the…
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- Case
- [2009] WASC 213
- Decision Date
CaseChat Overview and Summary
The legal issues before the court included whether the directors breached their fiduciary duties by diverting corporate opportunities to another company, and if so, what remedies were available to the plaintiff. The court had to determine whether the conflict of duty or conflict of interest rules had been breached, and if the directors were entitled to compete for financial benefit with a company of which they were directors. The court also considered the appropriate measure of relief, including claims for apportionment of profits and just allowances for efforts of the errant fiduciaries in successfully promoting the new company.
The court held that the directors breached their fiduciary duties by diverting corporate opportunities to another company, leading to the establishment of a constructive trust over the shares and options held by the directors. The court found that the conflict between the directors' duties to the plaintiff and their self-interest was real and sensible, rather than purely hypothetical. The court also determined that the directors were jointly and severally liable for the breach of fiduciary duties. The plaintiff was awarded disgorgement of the alleged improper gains arising from the breach of fiduciary duties, and the defendants were ordered to account for the profits they made from the promotion and development of the nickel mining and exploration venture.
In summary, the court found that the directors breached their fiduciary duties by diverting corporate opportunities to another company, and awarded the plaintiff disgorgement of the alleged improper gains arising from the breach of fiduciary duties. The court also established a constructive trust over the shares and options held by the directors and ordered them to account for the profits they made from the promotion and development of the nickel mining and exploration venture. The defendants were held jointly and severally liable for the breach of fiduciary duties.
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
Where the alleged breach of fiduciary duty entails a director of a company diverting a commercial opportunity to some other vehicle, or placing himself in a situation where there is a conflict between the performance of the director's duties to the primary company and the performance of his duties or the extent of its interest in some other company or enterprise, a question arises as to whether or not the fiduciary is entitled to compete for financial benefit with a company of which he is a director. For there to be a breach of the conflict of duty or conflict of interest rules it is necessary for the given conflict to be 'real and sensible' and more than purely hypothetical: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 103 (Mason J); Chan v Zacharia (1984) 154 CLR 195, 205 (Deane J); Queensland Mines Ltd v Hudson (1978) 18 ALR 1, 3; and Consul Development Pty Ltd v DPC Estates Pty Ltd. The need for a real and sensible conflict to exist is supported by the judgment of Dixon and McTiernan JJ in Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66, 81 ‑ 82 notwithstanding that the question in that case was whether or not an employee was in breach of a fiduciary duty because of conduct alleged to be incompatible, in conflict with, or an impediment to, the fulfilment of his duty to the employer. The core of the plaintiff's claim against the defendants is for disgorgement of alleged improper gains arising from breach of fiduciary duties by the first and second defendants, and for disgorgement of alleged improper gains made by the third defendant as a knowing participant and beneficiary of the breaches of the alleged fiduciary duties. The claim relies upon the established doctrine that a fiduciary must not derive a profit from, or by reason of or through the use of his fiduciary office without fully informed consent of the principal and also upon the rule that a fiduciary must not place himself in a position where there is a conflict of interests between his duty to his principal and his self‑interest or an associated third party interest. The plaintiffs say that the defendants wrongly misused an opportunity to engage in the promotion, development and exploitation of the nickel mining and exploration venture. They submit that the duties of the first and second defendants, as directors, required them to promote the interests of the plaintiff with respect to the opportunity or, at least, not to profit personally by wrongful participation in the promotion of the opportunity for the interests of third parties and themselves. In his celebrated essay 'Fiduciary Accountability For Business Opportunities' the then Professor R P Austin (now Austin J) (in Finn's 'Equity And Commercial Relationships') Law Book Company (1994) 141, at 147, posed questions which loom large in this case when he wrote:In company law cases, for example, we need to know whether there are any profit‑making activities which a director is free to pursue for his own benefit. What if one of the directors in, say, the Regal (Hastings) case [1967] 2 AC 134 discovered a supermarket for lease nearby while searching for a cinema on the company's behalf, and took the lease himself? The solution to such a problem, as we shall see, depends more on the profit rule and the business opportunity doctrine than on the conflict rule. But for the minute, consider the problem solely in terms of the conflict rule. The company director's personal interest is clearly at stake but what is the duty with which his interest may come into conflict? There is surely no positive duty to report every business opportunity to the company, however remote it is, from the company's existing and probable future activities.