Plaintiff v Firstnamed Defendant Secondnamed Defendant Thirdnamed Defendant Fourthnamed Defendant Fifthnamed Defendant

Plaintiff v Firstnamed Defendant Secondnamed Defendant Thirdnamed Defendant Fourthnamed Defendant Fifthnamed Defendant - [2011] VSC 288 - VSC 2011 case summary — Zoe

[71]

"[The Wedderburn tenement] was raised again the following year, I think it was in June, at the board meeting in June 2007, when Doug said, advised the board, that the

...

The board meeting would have been, well, it would be referred to in the minutes as to who was there, but I was there, and Ian Smith was there and Doug was there. John was there, John Cahill, I'm not sure whether any other directors were present. David Buchan would have been there as the company secretary. If there was another board member present at that time, I'm not sure.

...

Doug said the Wedderburn tenement was put into the company's tenement schedule by mistake, and that he wanted it transferred back. Those were his words.

...

Well, Doug said that he was under some pressure from his partners in the Wedderburn tenement that he was talking about who

... Doug said, "I'm under pressure from the Longs, from my partners the Longs, to have this tenement restored, and it has no value anyway, just transfer it back to me.

... Well, I said in response to this that, "It's not that simple, Doug, you can't transfer it. If this is a company asset, you're a director of the company, this is a related party transaction, we simply can't sign a piece of paper returning it to you. We have to understand if a mistake has occurred how that mistake arose", there needs to be a report, there needs to be a documentary paper trail explaining how this happened and what action the directors will take to rectify it". response - that was what I said to the meeting - in response to that Mr Smith on behalf of the meeting requested that Doug prepare a report with some information about the tenement, and - and how it came to be in the company's hands, and why it should be transferred back.

... There wasn't any further discussion at the meeting but after the meeting I did - Ian Smith asked me in my, sort of, capacity as - as said to be providing some legal advice for the board from time to time, what was the situation, and I said that if there was - if there had been a genuine mistake, if this was the same tenement and there had been - well, say that if there'd been a genuine mistake, then I was of the view that the company would suffer no loss by transferring the tenement to Mr Cahill, back to Mr Cahill because - and therefore it would not fall into a related party scenario, but we didn't have the report at that time, we're still awaiting that."

[77]

"45. In or around March or April 2008, I became aware that the Wedderburn tenement that Doug had referred to in the June 2007 directors' meeting did not belong to him and was not the MIN 5369 to which he referred in 2005/early 2006. I cannot now recall the context in which this matter was revealed to me, but I think it started with general discontent expressed from our management that the Board had given away a licence to Doug which they had put significant effort in to having granted to GBGM and which they thought had potentially significant prospects. Also Bendigo is a small town and information about the gold mining industry filters throughout it very quickly. I recall hearing that Terry Freryk, who once worked within GBGM's Inglewood operation, was employed by Doug to excavate a mine shaft at Wedderburn. I was curious upon hearing of the excavation works and so went out to have a look at the mine. I saw a mine with substantial development very quickly, apparently being a previous shaft dug back out. I was very surprised given what Doug had told me earlier. It was obvious to me that Doug, contrary to his assertions in 2005/early 2006, had knowledge of previous development on the Wedderburn tenement, knew of a prospective reef on the tenement and felt it was sufficiently prospective to immediately re-establish access to that known reef. I discussed this with John Cahill and made enquiries with other people in the industry, and discovered that there had been a shaft which had been filled many years ago, but was reasonably easy to re-establish and that Doug and his partners had immediately set out to re-excavate the old shaft. I also learned that Peter Tully was a descendant of persons who had previously worked the mine and that he and Doug felt there were strong prospects of a big gold deposit there.

46. Upon making further enquiries, I discovered that the mining licence for the Wedderburn area that had been transferred to Doug was MIN 5471, the new tenement that Diamond Hill had applied for and been granted in its own right in 2007 - not MIN 5369 which Doug had referred to as the Wedderburn tenement in 2005 or early 2006 and thereafter. Doug had transferred MIN 5471 to the First Defendant (Huang Jin), a company in which the Cahills and the Longs are shareholders. Attachment 11 is a copy of a current and historical ASIC search of Huang Jin (CB 95-101).

47. I realised that Doug had mislead [sic] me and the Board both by saying in 2007 that the Wedderburn tenement belonged to him and in 2005 or early 2006 and 2007 that it had no value."

[79]

47 Mr Smith raised the matter with Mr Douglass Cahill at the Greater Bendigo Gold Mines Ltd's Board meeting on 29 April 2008. A transcript of the relevant part of that meeting was prepared by Mr David Buchan, the company secretary, and attached to the minutes of that meeting. Mr Marriott's evidence was that he took time to listen to the recording of the meeting, compared it with the transcript and confirmed that the transcript was an accurate record. Consistently with Mr Smith's evidence and the transcript of the meeting, Mr Marriott said that from the outset, Mr Douglass Cahill appeared to be very agitated and angry, and said that the mining licence was intended for him, rather than Diamond Hill. Mr Smith said that he said to Mr Douglass Cahill that he had misled the Board by falsely claiming that the Wedderburn tenement transferred was his and that it was the same tenement discussed in 2005 or early 2006, that the tenement was of little value and that he knew of no development or prospectivity on the land the subject of that licence. Mr Smith said that he said to Mr Douglass Cahill that his actions were "a gross breach of his duties as a director, a breach of his duties as an employee and of his duties as a solicitor to the company".[14] Mr Smith said that Mr Douglass Cahill responded by saying that he had done nothing wrong and that the Board had agreed to the transfer. Mr Marriott said that he had a discussion with Mr Douglass Cahill during a brief adjournment of the 28 April 2008 Board meeting and said, or used words to the effect of, "Directors cannot be seen to end up with property owned by the company". He said that he added, "A compromise might be reached if you return the licence on the basis that the company would then enter into a joint venture with you and the Longs to effectively allow you to mine it, and if you agree to this I will try to persuade the Board". Mr Marriott said that he certainly said that the "bottom line" was that the tenement passing out of the company's ownership was wrong and that it had to be returned to the company. He said that Mr Douglass Cahill responded by saying that he would think about it. However, Mr Marriott said that when Mr Douglass Cahill rejoined the meeting, he said, or words to the effect, that "The Wedderburn licence is ours, there's no reason we should transfer it back".

[111]

68 I accept Diamond Hill's submission that Mr Buchan should be believed and his evidence accepted. He did, as submitted, give dispassionate evidence and gave direct answers to questions. He has not been an employee of the Greater Bendigo Gold Mines Ltd group for almost two years, and when he did not know something, he did not hesitate to say so. Mr Buchan was company secretary and did not participate at Greater Bendigo Gold Mines Ltd Board meetings. They were recorded and many matters were outside his sphere of responsibility. In any event, he prepared Board notes from the tape recordings of those meetings. When he prepared minutes of these meetings, he was the person who inserted the "MIN" details in relation to mining licences, which were commonly referred to by location at these meetings. It is clear from his evidence that he thought that the Board had authorised him to execute the transfer of mining licence, MIN 5471, and the two transfers of the Blocks that made up the land as a result of the matters recorded in the 26 June 2007 Board meeting minutes. In my view, it was clear from his evidence that he believed that the authorisation for the transfer of mining licence, MIN 5471, extended to authorisation to transfer the land. His evidence was that when the two land transfers were signed, Mr John Cahill was not present, and that when signing the transfer of mining licence, MIN 5471, and the two land transfers, Mr Douglass Cahill simply said that he should "sign these". This evidence was not challenged and, in any event, Mr Douglass Cahill gave similar evidence. Mr Buchan's evidence was also that he did not make any of the amendments to the land transfer as ultimately lodged. Nor, he said, did he receive the letter from Mr Douglass Cahill dated 25 June 2007 to which reference has been made[37] until he found a document which was apparently such a letter - on the law firm, Cahills', letterhead, unsigned and marked "copy" - in Mr Douglass Cahill's filing on 21 May 2008. His evidence was that he endorsed that copy letter with the note, "Found in Doug Cahill's filing on 21 May 2008. Original never received. Check corporate filing. Checked tenement filing".[38] Mr Buchan's evidence in this respect was not challenged.

[116]

"Mr Marriott, at the end of the board meeting which you just described in 2007, it was clear, wasn't it, to you, that Mr Doug Cahill would proceed with transferring the mining licence to himself at the conclusion of that meeting?

---That he would by himself proceed to transfer the tenement to himself?

Yes?---Certainly not.

Anyone else, was anyone else going to transfer the tenement to him?---Not without - not without the board's approval, certainly not.

So, your evidence is that at the end of that board meeting, the board didn't express a concluded view about Mr Doug Cahill transferring the mining licence to himself?---No, in fact the opposite the case; we were trying to behave responsibly as a board and make sure that there was a proper paper trail in place.

The board didn't consider that or you didn't consider that paper trail to be a mere formality?---No.

No?---No, I take these responsibilities quite seriously.

Based on your understanding of what happened at that board meeting, was anyone authorised by the end of it to execute any documents in relation to the transfer of mining licence?---At the June 2006 - the 2007 board meeting?

Yes?---No.

...

HIS HONOUR: In summary, the board's position was if Doug Cahill said there had been a mistake, you were happy to transfer the mining licence back to him, but you required a report from him in relation to the nature of the mistake, and the basis of the mistake?---Absolutely, Your Honour.

You are still waiting for that report?---Absolutely.

You actually never received that report?---We never received anything.

MR DRAGOJLOVIC: Do you accept that, if you had any questions in relation to the proposal that Doug Cahill had put forward to the board at that time, orally, you could have asked those questions or had the opportunity to ask those questions at that board meeting?---We didn't really have any information at all, like we didn't even though of the - I didn't know of the existence of land, it was never mentioned. We knew nothing about this.

My question is, there was an opportunity there for you to ask some of those questions, wasn't there?---You have to have some kind of basis for asking questions before we ask them, that is why we asked Doug to prepare a full report, so that it could be open for the scrutiny of the board."

[142]

"Section 180 of the Act

[70] In Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; 168 FLR 253; [2002] NSWSC 171 (Re HIH), Santow J set out a series of summary propositions and principles applicable to the duty of care and diligence as enacted in s 180 of the Act. So far as is relevant to the issues in this case, his Honour stated at [372]:

(1) directors owe a duty of care and skill at common law and in equity; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109; Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607;

(2) however, the equitable duty to exercise reasonable care and skill is not properly classified as a fiduciary duty; Permanent Building Society (in liq) above, per Ipp J (at WAR 238-9; ACSR 158);

(3) the statutory duty of care and diligence, s 180, is framed in similar terms to its predecessor s 232(4). It has been said of the latter that the duties imposed upon directors by it are essentially the same as the duties of directors under the common law: Sheahan v Verco (2001) 79 SASR 109; 37 ACSR 117; [2001] SASC 91 per Mullighan J (at [952]); Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607 per Powell JA at NSWLR 603; ACSR 660; se also Lockhart J in Australian Innovation Ltd v Petrovsky (1996) 21 ACSR 218 at 222;

(4) in determining whether a director has exercised reasonable care and diligence one must ask what an ordinary person, with the knowledge and experience of the defendant might be expected to have done in the circumstances if he or she was acting on their own behalf: Permanent Building Society v Wheeler, above, per Ipp J (at WAR 239-49; ACSR 159); Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43;

(5) ...

(6) ... the standard of reasonable care is generally said to be that of an ordinary prudent person (Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 per Romer J) ...

(7) in determining whether a director has breached the statutory standard of care and diligence (s 180(1)), the court will have regard to the company's circumstances and the director's position and responsibilities within the company; see also explanatory memorandum to the CLERP Bill 1999 (para 6.75);

...

(14) where there is a transaction involving the potential for conflict between interest and duty, as here arose, the duty of care and diligence falls to be exercised in a context requiring special vigilance, calling for scrupulous concern on the part of those officers who become aware of that transaction to ensure that any necessary corporate approvals are obtained and safeguards put in place ...;

...

Sections 181 and 182 of the Act

[72] Section 181 of the Act is concerned with self-dealing. In Re HIH, after noting that some of the principles in so far as dealing with impropriety, or lack of good faith, are common to ss 181 and 182, Santow J (at [735]) summarised the principles applicable to s 181 of the Act in the following terms:

(1) a director (as a fiduciary) is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances where there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the company: Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41; 55 ALR 417; 4 IPR 291 per Mason J at CLR 103; ALR 459; IPR 334. This is both at general law and by statute (s 181 and as applicable ss 182 and 183). Such promotion would not be to act in good faith in the best interests of the corporation, or for proper purposes: s 181. If the director has improperly used his position or information to gain such advantage ss 182 and 183 respectively are breached;

(2) in order to assess whether or not there is a real sensible possibility of conflict one must adopt the position of the reasonable person looking at the relevant facts and circumstances of the particular case: Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46; [1966] 3 All ER 721 per Lord Upjohn (at AC 124 All ER 756); Queensland Mines Ltd v Hudson (1978) 18 ALR 1; 3 ACLR 176;

(3) nonetheless, a director may act with a personal interest even though the director has not freed his or her mind of that personal interest when acting provided that this personal interest was not the actuating motive rather than some bona fide concern for the benefit of the company as a whole or for fairness as between members: Mills v Mills [1938] HCA 4; (1938) 60 CLR 150 per Latham CJ (at 164-5);

[73] Where no reasonable board could consider a decision to be within the interests of the company, the making of the decision will be a breach of duty: HAJ Ford, RP Austin and IM Ramsay, Ford's Principles of Corporations Law, 14th ed, LexisNexis Butterworths, New South Wales, 2009, at [8.060]; see also Re HIH at [739]. Whether a director has acted for a proper purpose, namely for the benefit of the company, is to be objectively determined: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109 at 137 per Ipp J; see also HAJ Ford et al, 2009, at [8.200]. Applying those principles to the conduct of Tucker Senior, I have concluded that Tucker Senior failed to act in good faith. His decisions were for an improper purpose. His decisions were not for the benefit of Purcom but himself. The conduct was deliberate and calculated to achieve one objective - to benefit himself to the detriment of Purcom.

[74] To establish liability under s 182(1) of the Act, it is sufficient to establish that the conduct of the director was carried out in order to gain advantage; it is not necessary to establish that advantage was actually achieved: Chew v R [1992] HCA 18; (1992) 173 CLR 626 at 633; [1992] HCA 18; 107 ALR 171; 7 ACSR 481. I have concluded that the conduct of Tucker Senior (see [71]-[72] above) breached ss 181 and 182 of the Act. The conduct was carried out in order to gain an advantage for himself - to end the Franchise Agreement and, at the same time, to enable him to carry on a tyre outlet through another entity using the assets and undertakings of Purcom."

[178]

109 The next point that arose in relation to the plaintiff's claims, based on the, so-called, ownership representation made by Mr Douglass Cahill, that Huang Jin engaged in misleading conduct under s 52 of the Trade Practices Act 1974 [104] and that the transferees (the second, third, fourth and fifth defendants) engaged in misleading conduct in breach of s 9 of the Fair Trading Act 1999[105] it was claimed that, in addition to the defendants' previous submissions in relation to the lack of any relevant misleading conduct, the ownership representation was not made on behalf of these third parties. It was submitted that, in order to establish that Mr Douglass Cahill made the ownership representation on behalf of Huang Jin, the plaintiff must prove that the ownership representation was made by Mr Douglass Cahill within the scope of the actual or apparent authority conferred on him by Huang Jin[106] or at the direction, or with the consent or agreement of Huang Jin.[107] It was submitted that there is no evidence to suggest that any of the members of the Board of Diamond Hill, other than Mr Douglass Cahill, were aware of the existence of Huang Jin, let alone that there was any discussion regarding Huang Jin, at any time prior to August 2007, which was the time of the transfer of mining licence, MIN 5471, and well after the ownership representation. The plaintiff submitted in response that it is irrelevant whether the board were aware of Huang Jin, but what is important is whether Mr Douglass Cahill was acting for Huang Jin in respect of the transfer. It was admitted on the pleadings that Mr Douglass Cahill was a director of Huang Jin, and I accept the further proposition advanced by the plaintiff to the effect that it is implausible to suppose that anything he was doing that would result in Huang Jin ultimately receiving a mining licence was not done by him on behalf of that company. This results in the operation of the deeming provisions of s 84(2) of the Trade Practices Act. The result of the application of these provisions is that Mr Douglass Cahill's conduct on behalf of Huang Jin is deemed to be conduct engaged in by that corporation.

At a glance

Court

Decision date

Before

Source

Judgment (261 paragraphs)

Parties

Legislation Cited (32)

Cases Cited (26)