Hanwood Pastoral Co Pty Limited v Kelly

1. The further amended originating process be dismissed.
2. If the parties are unable to agree orders by 18 August 2022 with respect to the payment by the first defendant of fixed sums in respect of the plaintiff's costs of the case management hearings on 6 November 2020 and 19 November 2021, the costs thrown away by the vacation of the hearing of the strike out application on 11 June 2021, on an indemnity basis, and the first defendant's application to reopen his case after the exchange of closing written submissions, each party should by no later than that date file and serve a copy of their proposed orders as to the payment of fixed sum costs, together with an outline of written submissions in support not exceeding four pages in length and any evidence by way of affidavit in support of the fixed sum orders sought.
3. Fixed sum costs orders will then be determined on the papers and without a further oral hearing. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 By a further amended originating process filed on 25 October 2021, the plaintiff, Hanwood Pastoral Co Pty Limited ACN 003 985 797 (Hanwood) seeks declarations and compensation against the first defendant, Mr Frederick Norman Kelly, for alleged breaches of his duties as a director of Hanwood and an order for reinstatement of Mr Frederick William Renton as a director of Hanwood against the second defendant (formerly the sixth defendant), the Australian Securities and Investments Commission (ASIC), in relation to alleged acts done by Mr Kelly in contravention of the Corporations Act 2001 (Cth) (Corporations Act). The proceedings were dismissed by consent and without admissions as between Hanwood and the former second to fifth defendants on 14 May 2021. 2 Hanwood alleges that Mr Kelly caused Hanwood to suffer detriment by causing it to enter into an uncommercial and onerous property consultancy agreement (Consultancy Agreement) that provided for the payment of fees grossly in excess of the value of the services to be provided by Mr Kerry Nichols and Mr Matthew Somers (together, Consultants) in connection with the sale of an undeveloped property owned by Hanwood in the Hunter Valley (Property), unlawfully removed Mr Renton as a director of Hanwood and improperly caused Hanwood to make payments to his own company, Stintari Pty Limited (Stintari) and other associates out of the sale proceeds of the Property (Impugned Payments). 3 Mr Kelly contends that the entry by Hanwood into the Consultancy Agreement was justified and agreed by Mr Renton, Mr Renton resigned as a director of Hanwood on his own initiative and the Impugned Payments were made to discharge properly recorded and approved commercial liabilities of Hanwood. 4 Hanwood alleges that Mr Kelly: (a) contravened s 182(1)(b) of the Corporations Act by causing or allowing Hanwood to enter into the Consultancy Agreement (Uncommercial Contract Contravention); (b) contravened s 182(1)(a) of the Corporations Act by unlawfully removing Mr Renton as a director of Hanwood (Removal Contravention); and (c) contravened ss 181(1) and 182(1)(b) of the Corporations Act by authorising or allowing payments totalling $2,425,350 to be made, causing detriment to Hanwood in an amount equal to the Impugned Payments (Payments Contravention). 5 The proceedings had a lengthy and acrimonious history in the period leading up to the final hearing of the claims advanced in the amended statement of claim and the relief sought in the further amended originating process. 6 Mr Kelly was not able to secure legal representation after 10 June 2021 and from that time appeared for himself. Mr Farrar of Farrar Lawyers appeared for Hanwood at all times in the proceedings from 10 June 2021. 7 The only relief sought against ASIC was an order for the reinstatement of Mr Renton as a director of Hanwood. ASIC informed the Court that it did not seek to be heard on that issue and it did not appear at the hearing of the proceedings. 8 The determination of the claims made by Hanwood in the proceedings was made significantly more difficult by three matters. First, an intractable dispute as to the location and existence of the historical financial and other corporate records of Hanwood that might evidence the specific liabilities of Hanwood the subject of the Impugned Payments and the basis on which funds might have been advanced by way of unsecured loans to Hanwood to enable such liabilities to be discharged. Second, Mr Kelly's hearing difficulties and medical issues that presented formidable challenges to his effective participation in the proceedings as a self-represented litigant following the withdrawal of his legal representation in June 2021. Third, the extent to which Mr Renton left the development and realisation of the Property exclusively to Mr Kelly and, as the sole director of Hanwood's only shareholder, refused to advance any funds to Hanwood to enable it to develop and realise the Property. 9 In the circumstances, it has been necessary to make factual findings by reference to an incomplete documentary record and to the apparent logic of events, particularly given the effluxion of time since most of the material events and the advanced age of both of the principal protagonists, Mr Renton and Mr Kelly. 10 For the reasons that follow I have concluded that: (a) the evidence given by Mr Kelly can generally be accepted, notwithstanding the credit challenges made by Hanwood and Mr Kelly's at times confrontational approach to the proceedings and giving evidence; (b) Mr Kelly has produced all relevant books and records of Hanwood in his possession and he otherwise gave Mr Renton the historical books and records of Hanwood, including minute books evidencing, among other matters, the liabilities of Hanwood incurred with respect to the development and realisation of the Property and the means by which those liabilities were discharged; (c) the payments made to the consultants under the Consultancy Agreement did not constitute a gross overpayment, and Mr Kelly's conduct in causing Hanwood to enter into the Consultancy Agreement when viewed objectively and by reference to the standards of conduct expected from a person in Mr Kelly's position did not confer significant benefits on the Consultants to the detriment of Hanwood; (d) Mr Renton resigned as a director of Hanwood of his own volition and Mr Kelly did not unlawfully remove Mr Renton as a director of the company; (e) Mr Renton left to Mr Kelly the exclusive responsibility of managing the development and realisation of the Property; (f) Mr Renton had made it clear to Mr Kelly that he was not prepared to advance any funds to Hanwood to fund the development and realisation of the Property, notwithstanding he was the only shareholder in Hanwood through his private company Dinomyte Pty Ltd (Dinomyte); (g) the discovery of critically endangered Persoonia pauciflora plants on the Property, the refusal of the Cessnock City Council to grant development approval, the proceedings in the Land and Environment Court, the length of time that Hanwood had sought to develop the Property and the time it took to find a purchaser inevitably led to the incurring of significant liabilities that Mr Kelly was obliged to make arrangements to discharge; (h) the financial statements of Hanwood prepared by Mr Kelly, in the context of other financial records and bank statements admitted into evidence, can be relied upon, and are sufficiently probative of the facts asserted in them, to permit Mr Kelly to satisfy any evidential onus that he might have been under to establish that he was justified in making the Impugned Payments; and (i) Hanwood has not succeeded in establishing the Uncommercial Contract Contravention, the Removal Contravention nor the Payment Contravention.