Sorak Thai Pty Ltd v Sopharak

Medium Neutral Citation: Sorak Thai Pty Ltd v Sopharak [2025] NSWSC 753

Hearing dates: 19-20 May 2025

Date of orders: 15 July 2025

Decision date: 15 July 2025

Jurisdiction: Equity

Before: Richmond J

Decision: Parties to bring in short minutes of order to give effect to judgment within 14 days

Catchwords: CORPORATIONS ­­— Director’s duties ­­— Where sole director of first company sells company to second company, being alter ego of the director, for minimal consideration — Whether sole director has breached duties under Corporations Act 2001 (Cth), ss 180, 181, 182
CORPORATIONS ­­— Constitution and replaceable rules ­­— Construction of company’s constitution ­­— Whether company’s constitution operated to retrospectively ratify breach of fiduciary duty
CORPORATIONS — Director’s duties — Whether director should be relieved of liability under s 1318 of the Corporations Act 2001 (Cth)
EQUITY — Fiduciary duties — Rule in Barnes v Addy — Whether second company liable for knowing receipt — Whether remedy of constructive trust is in the circumstances appropriate

Legislation Cited: Corporations Act 2001 (Cth)

Cases Cited: Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347
Barnes v Addy (1874) LR 9 Ch App 244
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
K & A Laird (NSW) Pty Ltd (In Liq) v Aidzan Pty Ltd [2023] NSWSC 603
R v Byrnes (1995) 183 CLR 501
Re Colorado Products Pty Ltd [2014] NSWSC 789
Re IW4U Pty Ltd (in liq) [2014] NSWSC 40
Short v Crawley (No 30) [2007] NSWSC 1322
Sunnya Pty Ltd v He [2025] NSWCA 79
Woolworths Ltd v Kelly (1991) 22 NSWLR 189

Texts Cited: RP Austin and I Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (LexisNexis, 17th Edition, 2018)

Category: Principal judgment

Parties: Sorak Thai Pty Ltd (Plaintiff)
Ratcharin Sopharak (Defendant)

Representation: Counsel:
A Rizk (Plaintiff)
Solicitors:
EXC Law (Plaintiff)
Self-Represented (Defendant)

File Number(s): 2022/334419

Publication restriction: Nil

JUDGMENT

1. The plaintiff, Sorak Thai Pty Ltd (the Company) seeks various relief against the first defendant, Ms Ratcharin Sopharak (Ms Sopharak) and the second defendant, Sorak & Co Pty Ltd (Sorak & Co) in relation to the sale by the Company to Sorak & Co of the restaurant business operated by the Company under the name ‘Benjamas Thai by Chin’ (Business) from leased premises located at 100 Darby Street, Newcastle, New South Wales (Premises).

2. The sale of the Business occurred pursuant to a contract dated 6 July 2022 by which the Company agreed to sell the Business to Sorak & Co for $2, apportioned as to $1 for goodwill and $1 for equipment (Sale Contract). Ms Sopharak, who was the sole director of both the Company and Sorak & Co on that date, signed the Sale Contract on behalf of both of them. The completion date was stated to be the date of the contract. As part of the transfer of the Business, the lease of the Premises was also transferred to Sorak & Co.

3. The plaintiff contends that the transfer of the Business by Ms Sopharak was in breach of the fiduciary, equitable and statutory duties she owed to the Company, and that further, Sorak & Co is liable as being involved in those breaches or as the recipient of property in breach of her fiduciary duties.

4. The plaintiff was represented at the hearing by A Rizk of counsel and the first defendant was self-represented.

Evidence

5. The evidence for the plaintiff comprised two affidavits affirmed by its sole director Xuming Du (Mr Du), two affidavits affirmed by Siwei Wang, the Company’s taxation accountant since March 2023, and one affidavit affirmed by Sheng Yang Ho the Company’s solicitor. None of the plaintiff’s witnesses were cross-examined. The principal witness for the plaintiff is Mr Du who is a businessman with interests in a number of hospitality related businesses in regional New South Wales. He graduated with a Master of International Business from the University of Newcastle in 2007.

6. The evidence for the defendants comprised two affidavits affirmed by Ms Sopharak, and she was cross-examined. Ms Sopharak migrated to Australia from Thailand when she was 16 years of age. She completed a bachelor’s degree in Architecture and Design at the University of Newcastle in 2015. In 2017, after working for a year as an intern in an architecture practice in Sydney, she met Mr Du and began working for him in the Business which was then operating at the Premises under the name ‘Benjamas Thai’.

Background

7. On 25 May 2011, Mr Du and a business associate, Mr Xiaohui Yuan incorporated Darbythai Pty Ltd (Darbythai), for the purpose of purchasing the Business, which was already operating from the Premises. The purchase price for the Business was $200,000. The funds for the purchase were provided by loans of $140,000 by Mr Du and $60,000 by Mr Yuan, reflecting their proportionate shareholdings in the company.

8. On or about 4 March 2014, Mr Du bought out Mr Yuan’s interest in Darbythai (which by this point had increased to a 50% shareholding) for the sum of $175,000 and Mr Du became the sole shareholder and director of the Company.

9. On 1 November 2015, Darbythai entered into a new lease with the lessor of the Premises for a term of 5 years (with an option to renew for a further 5 years) and Mr Du gave a guarantee of the obligations of Darbythai under the lease.

10. In March 2017, Darbythai hired Ms Sopharak as a restaurant manager for the Business and from early 2018 she was also a chef in the restaurant.

11. On 24 September 2019, Mr Du and Ms Sopharak entered into a handwritten agreement described as ‘Darbythai Pty Ltd trading as Benjamas Thai Restaurant sublease agreement’ (Handwritten Agreement). The Handwritten Agreement, which refers to Mr Du as ‘Party A’ and Ms Sopharak as ‘Party B’, provided relevantly:

“1. Darby Thai Pty Ltd change the director Xuming Du to Ratcharin Sopharak on 1st October 2019 and Xuming Du transferred 20% share to Party B before 31st/12/2019.

2. Party B pay Xuming Du $2,000.00 per week as sub-lease fees, the $2,000.00 is as after tax.

3. Party B pay all the shop cost and outgoing, rent, elect, water, council fees.

4. The sub-lease period is from 1st Oct 2019 to 30th Sep 2021 for 2 years.

5. Party B has to pay all the cost on time and all the responsibility for the business of Bejamas Thai Restaurant.

6. Party B pay $2,000.00 per week to Xuming Du on every Monday, if Party B doesn’t pay on time, delayed or pay less than $2,000.00, Xuming Du will transfer to 20% share back and changed the director back to Xuming Du or the person who Party A authorized.

7. Party A should help Party B in the business of tax, staff, lease of the property.

8. The contract is for the temporary until the sub lease contract be done by the lawyer.”

12. Mr Du deposed that the genesis of the Handwritten Agreement was that he was spending increasingly lengthy periods overseas and wanted Ms Sopharak to manage the Business and also to incentivise her to grow the profitability of the Business. The evidence is unclear as to whether Ms Sopharak did become a director of Darbythai, but it is not in dispute that Mr Du did not transfer to her a 20% shareholding in Darbythai as contemplated by para 1. While para 8 contemplated that the agreement would be superseded by a formal agreement, this did not occur. Although not expressly stated, Mr Du and Ms Sopharak proceeded on the basis that the arrangement embodied in their agreement was that subject to the payment of the ‘sublease fees’ of $2,000 per week and the expenses of the Business in accordance with paras 2 and 3, Ms Sopharak was entitled to retain all the profits of the Business for the ‘sublease period’ of 1 October 2019 to 30 September 2021.

13. Mr Du deposed that between 6 October 2019 and 18 March 2020 Ms Sopharak paid him the amounts of $2,000 per week in accordance with the Handwritten Agreement. However, with the onset of the Covid-19 pandemic, the weekly turnover of the Business reduced and Ms Sopharak asked Mr Du in WeChat messages to reduce or defer the weekly payments. Ultimately, in June 2020, Mr Du and Ms Sopharak agreed in WeChat messages to incorporate a new company to take over the Business, with Mr Du holding 75% of the shares and Ms Sopharak the remaining 25% and Ms Sopharak being appointed as the sole director of the new company. Mr Du also deposed that around this time he and Ms Sopharak agreed in the WeChat messages that the arrangement in the Handwritten Agreement would continue despite the incorporation of the new company, but on the basis that he would waive 8 weeks of payments (amounting to $16,000). This appears not to be in dispute.

14. In accordance with that agreement, on 1 July 2020, the Company was incorporated, with Ms Sopharak as sole director and the shareholders being Mr Du with 75 shares with a paid-up value of $10 per share and Ms Sopharak with 25 shares with a paid-up value of $10 per share.

15. On 1 November 2020, the Company entered into a new lease with the lessor of the Premises for a term of 5 years commencing on 1 November 2020 with an option to renew for a further 5 year term. The copy of the lease in evidence shows that both Mr Du and Ms Sopharak signed the lease as guarantors of the lessee’s obligations. From around that time, the Company took over operating the Business and Darbythai ceased trading. There was no formal agreement for the transfer of the Business and it is apparent from the accounts of the Company for the year ended 30 June 2021 that no consideration was paid to Darbythai for the acquisition of the Business. Darbythai was deregistered on 1 April 2022.

16. It is also apparent from the accounts of the Company for the year ended 30 June 2021 that the Handwritten Agreement was no longer being followed after the transfer of the Business to the Company because for that financial year Ms Sopharak received a salary and no amounts were paid to Mr Du by way of ‘sub lease fees’.

“We are instructed as follows:

1. On or about 1 October 2019 you entered into an agreement with our client that she would pay you $200,000 over a period of two years and that in consideration you would transfer to her your interest in the restaurant business ‘Benjamas Thai by Chin’ trading from the premises 100 Derby Street, Cooks Hill, NSW.

2. There was a variation to the agreement whereby you and our client agreed to discount the consideration payable by an amount of $16,000 as a consequence of Covid 19 lockdowns.

3. The agreement was further varied and a new company, Sorak Thai Pty Ltd ACN 642 241 236 was incorporated on 1 July 2020. Of the issued shares you hold 75% and our client holds 25%. Our client is the sole director and secretary of the company.

4. It was a term and condition of the agreement as varied that upon payment of the total sum of $184,000 you would transfer to our client your shares in Sorak Thai Pty Ltd such that she would then be the sole owner of all issued shares.

5. Sorak Thai Pty Ltd has entered into a new lease of the premises 100 Derby Street, Cooks Hill, NSW.

6. Our client has paid you a total of $176,000.

7. Since at least 1 October 2019 our client has solely conducted and has had sole responsibility for the conduct of the business.

8. You then advised our client that you required her to pay you a further amount of $300,000 before you will transfer your shares to her.

9. You subsequently advised our client that instead of the amount of $300,000 you required the further amount of $150,000 before you would transfer your shares to her.

It is not open to you to unilaterally vary the terms of a legal and enforceable agreement. Our client requires you to perform your obligations under the contract in the terms agreed.

We require by 12-00 noon Thursday 10 March 2022 your written undertaking that you will upon payment of the final balance of $8,000 transfer to our client your shares in the company Sorak Thai Pty Ltd.”

20. The ‘agreement’ referred to in para 1 is the Handwritten Agreement. However, it does not include a term to the effect stated. There is nothing in the WeChat messages in evidence to support the assertion of an agreement of the kind alleged in paras 1 to 4 of the letter and those messages are inconsistent with there being such an agreement. Mr Du responded by email to Mr Spencer, denying any agreement was reached in the terms stated in the letter, and asked him to provide evidence of it. No response was forthcoming. I find that there was no agreement on the terms alleged in paras 1 to 4 of the letter.

21. On 8 March 2022, Mr Du sent a letter to Ms Sopharak giving notice of a meeting of shareholders of the Company for 15 March 2022 to pass resolutions to appoint a director and secretary. Mr Spencer responded by letter on 14 March 2022 that the notice was defective and Ms Sopharak would not attend the proposed meeting,

22. On 2 May 2022, Mr Spencer sent an email to Mr Du attaching a notice of meeting signed by Ms Sopharak, in her capacity as sole director and secretary of the Company, calling a general meeting of the Company on 10 June 2022 at 3pm at the Premises. One of the items of business was that she be removed as sole director and secretary of the company and Mr Du be appointed to those positions in her place. There appears to be no dispute that this was a valid notice of meeting. Mr Du’s proxy attended the Premises at the appointed time but Ms Sopharak did not and due to the absence of a quorum the meeting did not take place. Ms Sopharak accepted in cross-examination that she knew that the purpose of the meeting was to remove her as a director.

23. On 1 July 2022, Sorak & Co registered the business name ‘Benjamas Thai by Chin’. Ms Sopharak accepted in cross-examination that ‘Chin’ is her nickname. The Minutes referred to in the next paragraph record that this was the trading name of the restaurant conducted by the Company at the Premises at that time.

24. On 4 July 2022, Ms Sopharak signed a document entitled ‘Minutes of a Director Meeting’ of the Company (Minutes) as the sole director and resolved to sell the Business under the Sale Contract, including the benefit of the lease of the premises, to Sorak & Co (ie. her company), for $2, comprised of $1 for equipment and $1 for goodwill.

25. The Minutes record that the Sale Contract was before her at the time she signed the Minutes. The Sale Contract annexed financial statements for the Company for the year ended 30 June 2021 and for the period from July 2021 to 26 May 2022. The former showed that the Company suffered a small loss of $7,274 for the 2021 year and had a deficiency in net assets of $6,274 as at 30 June 2021. The latter recorded that the Company made a loss of $42,988 for the year to 26 May 2022 and had a deficiency in net assets of $49,262 as at 26 May 2022. The assets of the Company at that date were stated to be cash of $33,834 and fixed assets (comprising plant and equipment and furniture and fixtures) of $10,174, and the Company’s only liability was an amount owing to the Australian Taxation Office () totalling $93,270 in respect of GST, PAYG withholding and superannuation payments due to the ATO.

“The sole director considered carefully her duties owed to the Company as a director. Relevant to these matters the sole director observed:

- there was a fundamental lack of confidence between the shareholders of the Company, making a negotiated resolution to the Company’s problems unlikely;

- the lack of confidence in her co-shareholder meant that the sole director was distracted from concentrating on running and dis-incentivised from growing the Business;

- the prospect of the Business trading out of its current situation was unlikely;

- it was unlikely that other offers would be made for the Business;

- if the situation continued unchanged it was expected the accumulated losses of the [Business] would increase;

- the Company had not sought legal advice in relation to Sorak Thai’s entry into the Sale Agreement and relied on the business skill and judgment of the sole director;

- in that respect the Sale Agreement included terms to protect both the Company and Sorak & Co, and was not unfavourable to the Company;

- the sole director would potentially gain a benefit from the sale of the Business in her capacity as a director of Sorak & Co, but that benefit was subject to Sorak & Co actually generating a trading profit from the Business.”

29. On 6 July 2022, Ms Sopharak signed the Sale Contract for the sale of the Business to Sorak & Co, as sole director of both the vendor and the purchaser, and pursuant to the terms of the contract, completion occurred on the same day. Various debits were made to the Company’s bank account on 6 July including a transfer of $7,800 to another account with the same bank which Ms Sopharak could not explain in her evidence, which reduced the balance to a credit of only $9.05. Since then, Ms Sopharak has been operating the Business through Sorak & Co. The transfer of the lease of the Premises to Sorak & Co was registered on 28 July 2022.

30. Ms Sopharak said in cross-examination that she prepared both the Minutes and the Sale Contract. She then changed her evidence, when it was pointed out to her that the Sale Contract stated that the purchaser’s solicitor was Mr Spencer, and accepted that the Sale Contract was prepared by him. However, she continued to maintain that the Minutes were prepared by her using ChatGPT. When it was pointed out to her that ChatGPT was not released until 30 November 2022, she said that the Minutes were prepared by her and she had ‘checked it all with the Internet’ (T55). Her evidence on this aspect was entirely unsatisfactory and I do not accept it. It is highly likely that the Minutes were also prepared by Mr Spencer given their content, that he prepared the Sale Contract and the earlier letter of 4 March 2022 on her behalf and my observation of Ms Sopharak’s relatively poor proficiency with the English language. I infer that she continued to maintain that she was the author of the Minutes because they state that the Company did not receive legal advice in relation to the sale.

31. Ms Sopharak accepted in cross-examination that she sold the Business for $2 without obtaining a valuation of the Business from the Company’s accountant or an independent valuer, or making any attempt to see if a third party was prepared to pay more than $2 for the Business, or telling Mr Du beforehand about the sale. In particular, no attempt was made by her to discuss the Company’s financial position with Mr Du and alternative ways in which it might be addressed.

32. Ms Sopharak stated in her first affidavit that despite her relationship with Mr Du deteriorating, she was passionate about the restaurant and believed that, if she ran it ‘without Mr Du’s involvement’, she could make it profitable. She also said in cross-examination that she believed the restaurant could be profitable ‘under my management alone’. She did not explain in her evidence in what way Mr Du’s ‘involvement’ in the Business affected its profitability. To the contrary, the evidence suggests clearly that Mr Du had no involvement in the operation of the Business and certainly not one that affected its profitability. This evidence does not support the position she adopted, as sole director of the Company, that the value of the Business was only $2 or that she genuinely thought at the time of the sale that this was the value of the Business.

Company’s constitution

36. The constitution of the Company provides that it replaces the replaceable rules under the C**orporations A**ct. Relevantly, articles 24 to 27 provide:

“Conflict of interests

24. A director is entitled to hold another office with the company, or to be remunerated for other work (including professional work) by the company, despite being a director. This does not apply in relation to the office or work of auditor.

A director is not disqualified from office by reason of entering into a contract or arrangement with the company or having an interest in a contract or arrangement with the company, nor is any such contract or arrangement void or liable to be avoided.

A director does not have to account to the company for any profit arising from a contract or arrangement with the company merely because of being a director and having a fiduciary duty to the company.

Disclosure of an interest

25. A director must disclose an interest in any contract or arrangement with the company as required by the Corporations Act.

General notice of an interest

26. A director may give a general notice to the company at its registered office that he or she is an officer or member of a specified corporation or firm, or has an interest in it in some other way. The notice must set out the nature and extent of the director’s interest. The notice is effective on all subsequent occasions as a disclosure of the director’s interest in a matter involving the company and that corporation or firm, but only if the director’s interest at the time of first consideration of the matter is no greater than as stated in the general notice.

Effect of disclosure by a director

27. If a director complies with the law and this Constitution in relation to disclosing an interest:

• the director may vote on whether the company enters into the contract or arrangement;

• the contract or arrangement may be entered into;

• the director may participate in the execution of the contract; and

• the director may vote on matters involving the contract.”

Claim and relief sought

37. The plaintiff pleads that the Sale Contract involved a breach by Ms Sopharak of her fiduciary duties as a director of the Company and her statutory duties under ss 180, 181 and 182 of the Corporations Act. The principal relief sought by the plaintiff is:

38. declarations that Ms Sopharak breached her fiduciary duty to the plaintiff; the second defendant knowingly received property transferred in breach of her fiduciary duty; Ms Sopharak breached ss 180, 181 and 182 to the Corporations Act and the second defendant was involved in those contraventions;

39. rescission of the Sale Contract;

40. an injunction ordering defendants to do all things necessary to return the Business to the plaintiff, including to have the lease of the Premises reassigned to the plaintiff;

41. an account of profits as against the defendants for the period from 1 July 2022 to the date of judgment.

42. In the defence, the defendants deny that Ms Sopharak breached her fiduciary duties or statutory duties to the plaintiff, pleading that at the time the sale transaction occurred, the Business was making a loss and had negative assets, the plaintiff had no source of income other than the Business and the plaintiff’s constitution did not require the consent of the shareholders prior to sale of the Business. The defendants also rely on articles 24-27 of the plaintiff’s constitution. In reply to the allegations of negligence, default, and breach of duty made against the first defendant in her capacity as a director of the plaintiff, Ms Sopharak says that if any findings are made against her as to any negligence, default or breach then she ought fairly to be excused from liability under s 1318 of the Corporations Act.

Principles

39. A director is in a fiduciary relationship with the company of which he or she is a director and this attracts the proscriptive duties known as the ‘conflict rule’ and the ‘profit rule’. Black J summarised the relevant principles in Re Colorado Products Pty Ltd [2014] NSWSC 789 at [351]-[357]:

“****[351] The relevant principles are well-established. Broadly, the no conflict rule prohibits conduct where a fiduciary has a personal interest or duty owed to a third party which gives rise to a real and sensible possibility of a conflict. That rule and the no profit rule, which provides that a fiduciary cannot obtain a profit from its fiduciary position without the principal’s consent, may overlap.

[352] In Boardman v Phipps [1967] 2 AC 46 at 123; [1966] 3 All ER 721; [1966] 3 WLR 1009, Lord Upjohn (dissenting) observed (in a statement that may require clarification as noted in para 353 below) that the:

relevant rule for the decision of this case is the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict.

His Lordship also there formulated (at 124) the test for whether a conflict exists as whether a:

reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.

[353] In Chan v Zacharia above at 198, Deane J (with whom Brennan and Dawson JJ agreed) referred to an observation of Sir Frederick Jordan in Chapters in Equity in New South Wales (6th ed 1947) at 115 that:

It has often been said that a person who occupies a fiduciary position ought to avoid placing himself in a position in which his duty and his interest, or two different fiduciary duties, conflict.

This is rather a counsel of prudence than a rule of equity; the rule being that a fiduciary must not take advantage of such a conflict if it arises.

His Honour noted (at 198) that that formulation, even as an unqualified counsel of prudence, may be inappropriate in some circumstances and that:

The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement “in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect“ (per Lord Cranworth L C, Aberdeen Railway Co v Blaikie Brothers [1854] 1 Macq 461 at p 471 or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed.

[354] In Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at 103, Mason J also referred to Sir Frederick Jordan’s observation and noted that:

[t]he fiduciary’s duty may be more accurately expressed by saying that he is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or real or substantial possibility of conflict between his personal interests and those of the persons whom he is bound to protect.

That formulation places emphasis upon the fiduciary’s conduct in making or pursuing a gain, and not merely upon his or her occupying a position where a conflict or potential conflict exists.

[355] Deane J in Chan v Zacharia above also observed (at 198–199) that the equitable rule involved two themes and that:

The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the “use of fiduciary position“ doctrine is but an illustration or part of a wider “conflict of interest and duty“ doctrine (see, eg, Boardman v Phipps at p 123; NZ Netherlands Society “Oranje“ Inc v Kuys at p 1229), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain; or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it.

[356] In Warman International Ltd v Dwyer above at 557–558, the High Court similarly observed that:

A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves “at a level higher than that trodden by the crowd“. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.

[357] In Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 at 199, McHugh, Gummow, Hayne and Callinan JJ formulated the no conflict rule as follows:

… [t]he fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is ’a conflict or a real or substantial possibility of a conflict’ between personal interests of the fiduciary and those to whom the duty is owed.”

40. In Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347; (2016) 340 ALR 580 Sackville AJA (Bathurst CJ and Meagher JA agreeing) said at [136] (footnotes omitted):

“In determining whether there is a conflict between the personal interests of a director of a company, and the director’s duties to the company, it is necessary to identify the functions or responsibilities the director has undertaken in that capacity. As was said by the Full Federal Court in Grimaldi v Chameleon Mining NL (No 2), the actual functions or responsibilities assumed by the fiduciary determine the subject matter over which his or her obligations extend, at least for the purposes of deciding whether there is a conflict of interest and duty or a conflict between duties. While the functions or responsibilities of a director are generally framed in broad terms, the precise scope of the functions or responsibilities in a particular case is a question of fact. Thus, the content of fiduciary duties are moulded to the character of the particular relationship between the director and the company.”

41. Sections 180, 181 and 182 of the Corporations Act provide relevantly:

180 Care and diligence**—**civil obligation only

Care and diligence—directors and other officers

(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a) were a director or officer of a corporation in the corporation’s circumstances; and

(b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Note: This subsection is a civil penalty provision (see section 1317E).

Business judgment rule

(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a) make the judgment in good faith for a proper purpose; and

(b) do not have a material personal interest in the subject matter of the judgment; and

(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d) rationally believe that the judgment is in the best interests of the corporation.

The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—it does not operate in relation to duties under any other provision of this Act or under any other laws.

(3) In this section:

business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

181 Good faith—civil obligations

Good faith—directors and other officers

(1) A director or other officer of a corporation must exercise their powers and discharge their duties:

(a) in good faith in the best interests of the corporation; and

(b) for a proper purpose.

Note 1: This subsection is a civil penalty provision (see section 1317E).

Note 2: Section 187 deals with the situation of directors of wholly‑owned subsidiaries.

(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.

Note 1: Section 79 defines involved.

Note 2: This subsection is a civil penalty provision (see section 1317E).

182 Use of position**—civil obligations**

Use of position—directors, other officers and employees

(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a) gain an advantage for themselves or someone else; or

(b) cause detriment to the corporation.

Note: This subsection is a civil penalty provision (see section 1317E).

(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.

Note 1: Section 79 defines involved.

Note 2: This subsection is a civil penalty provision (see section 1317E).

42. Sections 180, 181 and 182 are civil penalty provisions for which the relief in s 1317H of the Corporations Act is available to the company.

43. In summary, under these provisions of the Corporations Act a director of a company: (a) is required to exercise his or her powers and discharge his or her duties (i) with the care and diligence which a reasonable person in their position would exercise (s 180), and (ii) in good faith in the best interests of the company and for a proper purpose (s 181); and (b) is prohibited from improperly using his or her position to gain an advantage for themselves or someone else or cause detriment to the company (s 182).

44. In relation to s 181, in Sunnya Pty Ltd v He [2025] NSWCA 79 Basten AJA (Bell CJ and Leeming JA agreeing) said at [24] (footnote omitted):

“This provision imposes an affirmative obligation on company directors and other officers. To act in good faith must be understood as to act in honest pursuit of those best interests. Usually, the “proper purpose” will also involve pursuit of the best interests of the company, but will be subject to constraints imposed on fiduciaries, such as avoidance of conflicts of interest. Both par (a) and par (b) have a subjective element, namely either acting honestly, or the existence of a purpose being pursued by the director. Often that element will be derived from surrounding circumstances. Those circumstances may contradict a director’s statement as to his or her subjective intentions.”

45. Later at [34] Basten AJA noted that at ‘a director may act in the firm belief that particular conduct is in the best interests of the company, but be pursuing a purpose for which the power was not intended’ and then quoted with approval from observations of Gleeson J (sitting in the Equity Division) in Re IW4U Pty Ltd (in liq) [2021] NSWSC 40 at [30]-[34] which are set out in full below because of their relevance to the circumstances of the present case:

“[30] Sections 181(1)(a) and (b) are the statutory expression of two separate duties owed at general law. Putting to one side the debate as to whether these duties are objective or subjective, the standards imposed are those that “would be expected of a person in that position by reasonable persons with knowledge of the duties, power and authority of the position”: Downer EDI Ltd v Gillies [2012] NSWCA 333; (2012) 92 ACSR 373 at [76] (Allsop P). In Chew v R (1991) 4 WAR 21; (1991) 5 ACSR 473 at 499, Malcolm CJ said that the duty of honesty or good faith has a number of aspects under the general law, being that directors (1) must exercise their powers in the interests of the company; (2) must avoid conflict between their personal interests and those of the company; (3) should not take advantage of their position to make secret profits; and (4) should not misappropriate the company’s assets for themselves.

[31] In the context of insolvency or near insolvency, which includes a real and not remote risk that creditors will be prejudiced by the dealing in question (Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 at [162]), the standard under s 181(1) entails an obligation on the directors to take into account the interests of creditors, which has been described by Gummow J, as an “imperfect obligation” because the creditors cannot enforce it “save to the extent that the company acts on its own motion or through a liquidator”: Sycotex Pty Ltd v Baseler (1994) 122 ALR 53; 13 ACSR 766 at 785; see also Spies v R (2000) 201 CLR 603;[2000] HCA 43; (2000) 35 ACSR 500 at 525–526; Termite Resources NL (in liq) v Meadows, Re Termite Resources NL (in liq) (No 2) [2019] FCA 354; 370 ALR 191; 135 ACSR 45 at [197]–[209].

[32] No detailed submissions were addressed to the question of whether any part of the duty under s 181(1) is objective or subjective, or a combination of the two: see Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 at [421]; Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75; 118 ACSR 184; 117 ACSR 408 at [494]; Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659; 117 ACSR 408 at [75]; Australian Securities and Investments Commission v Flugge [2016] VSC 779; (2016) 342 ALR 1 at [1976]–[1991]; Termite Resources (No 2) at [193]–[194].

[33] Counsel for the liquidators referred to the remarks of Windeyer AJ in Australian Securities and Investments Commission v Somerville (2009) 77 NSWLR 110; [2009] NSWSC 934 at [36]–[37], where after referring to the conflicting authorities, his Honour observed at [37]:

Whatever the position, I consider it clear first that unless the interests of the creditors are taken into account where objective circumstances require this, then if those interests are disregarded and only the interests of shareholders considered, the directors cannot be acting in good faith; and second, this really does not matter because it is clear the requirement to exercise powers for a proper purpose is an objective test: Chew v R (1992) 173 CLR 626; Linton v Telnet Pty Ltd (1999) 30 ACSR 465 at 471; Re HIH Insurance Ltd *(*in prov liq); ASIC v Adler (2002) 42 ACSR 80 at [738]–[740].

[34] Those remarks are apposite here where the objective circumstances required the interests of creditors of IW4U to be taken into account. A director will be acting in breach of duty if he or she incorporates a new entity for the purpose of continuing to trade the business of the company without the new entity acquiring the business of the first company in an arm’s length transaction for value: see, for example, the remarks of the Supreme Court of New Zealand in Madsen-Ries and Levin as Liquidators of Debut Homes Ltd (in liq) v Cooper [2020] NZSC 100 at [174]–[188]. Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose: Permanent Building Society Pty Ltd *(*in liq) v Wheeler (1994) 11 WAR 187 at 218;(1994) 14 ACSR 109 at 137 (Ipp J, Malcolm CJ and Seaman J agreeing).”

46. A person who is ‘involved’ in a contravention of s 181(1) or s 182(1) contravenes s 181(2) or s 182(2) respectively. The term ‘involved’ is defined in s 79 of the Corporations Act. In Re IW4U Pty Ltd Gleeson J made the following observations about the meaning of this expression:

“[38] The concept of being “involved” in a contravention is defined in s 79 of the Corporations Act which provides that a person is involved in a contravention if, and only if, the person, among other things, has aided, abetted, counselled or procured the contravention (subpara (a)), or has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention (subpara (c)).

[39] The principal authorities dealing with accessorial liability of persons involved in a statutory contravention are Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307 (Yorke); Giorgianni v R (1985) 156 CLR 473; 58 ALR 641; 2 MVR 97 (Giorgianni); and Pereira v Director of Public Prosecutions (1988) 82 ALR 217 (Pereira). It is well-established that actual knowledge of the essential facts constituting the contravention is necessary: Yorke at CLR 669–70, 676; ALR 312, 317; Giorgianni at CLR 506–7; ALR 664; MVR 120; and Pereira at 220. See also Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1; 120 ACSR 421; [2017] FCAFC 74 at [104].

[40] Proof of actual knowledge may be inferred from the person’s actual exposure to the obvious that they had knowledge of the essential elements of the contravention, however mere constructive knowledge is not sufficient: Re HIH Insurance Ltd (in prov liq*) and HIH Casualty and General Insurance Ltd (in prov* liq) (2002) 41 ACSR 72; [2002] NSWSC 171 at [209].”

47. Ms Sopharak relies in her defence on s 1318(1) of the Corporations Act which provides:

If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.

48. Under subsection (4), the section applies to a person who is an officer or employee of a corporation and therefore applies to Ms Sopharak. A person seeking relief under the section bears the onus of proving the existence of facts to justify the granting of relief.

49. In K & A L**aird *(*NSW) Pty Ltd (In Liq) v Aidz**an Pty Ltd [2023] NSWSC 603, Black J summarised the principles relevant to the application by a director for relief from liability under s 1318 at [209]-[214] (which observations were not disturbed on appeal: [2024] NSWCA 185):

“[209] ... Section 1318 allows a court to relieve, relevantly, an officer of a corporation from liability in civil proceedings for negligence, default, breach of duty or breach of trust, if that person establishes that they acted honestly, and that they ought fairly to be excused for the negligence, default, breach of duty or breach of trust having regard to all of the circumstances of the case including those connected with their appointment.

[210] Mr Studdy refers to Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 at 295, where Olsson J considered the approach that the Court should take to the application of the exoneration power in s 365(1) of the then Companies Act 1962 (SA) and observed that:

… the jurisdiction is, from its very width, one which must be exercised with great caution, but the court, in balancing the competing interests which, necessarily, are ventilated before it, ought not to shrink from giving effect to its sense of fairness and justice. It should not hesitate, in a proper case, to relieve a person from what, having regard to particular facts and circumstances — particularly where the person concerned has acted honourably, fairly, in good faith and in a commonsense manner as judged by the standards of others of a similar professional background — from what might otherwise be seen to be a harsh and oppressive consequence of the strict application of the law, if applied in absence of the considerations identified by the section.

Those observations were cited with apparent approval by Austin J in Australian Securities & Investments Commission v Vines (2005) 65 NSWLR 281.

[211] In Daniels at 525, Clarke and Sheller JJA observed that a corresponding section allows the Court:

to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are businessmen and women who act in an environment involving risk in commercial decision-making.

[212] In Hall v Poolman (2007) 215 FLR 243, Palmer J observed (at 318) that:

In my view, when considering whether a person has acted honestly for the purposes of a defence under the [Corporations Act], s 1317S(2)(b)(i) or s 1318, the Court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, ie whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the [Corporations Act] or the general law.

His Honour also there noted (at 318) that the concept of “honesty” in this context means “without moral turpitude”.

[213] Matters relevant to relief under these sections include whether the defendant acted honestly; a value judgment whether, having regard to all the circumstances of the case, the defendant ought fairly to be excused for the contravention; and whether, as a matter of discretion, the court should exercise its power to relieve the defendant from any liability: Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209; [2006] NSWSC 376 at [10]; Australian Securities and Investments Commission v Healey (No 2) (2011) 85 ACSR 654; [2011] FCA 1003 at [83]–[84]; Great Southern Finance Pty Ltd *(*in liq) v Rhodes [2014] WASC 431 at [60]; Re Swan Services Pty Ltd *(*in liq) [2016] NSWSC 1724 at [236] –[237]. There are three stages in an inquiry under s 1318 of the Corporations Act, namely whether the applicant for relief has demonstrated that he or she acted honestly; whether, having regard to all the circumstances of the case, that person ought fairly be excused; and whether relief from liability should be ordered wholly or partly and, if partly, to what extent: Australian Securities and Investments Commission v Healey (No 2) (2011) 85 ACSR 654; [2011] FCA 1003 at [84].

[214] I accept that whether a person is acting honestly will depend on whether he or she acted without moral turpitude, deceit or conscious impropriety, or without an intent to gain an improper benefit or advantage: Australian Securities and Investments Commission v MacDonald (No 12) (2009) 73 ACSR 638; [2009] NSWSC 714 at [22]. The case law establishes that person may fail to act honestly within the meaning of this section although they did not have a subjective intention to deceive: Australian Securities and Investments Commission v MacDonald (No 12) above at [18]–[19]; Australian Securities and Investments Commission v Healey (No 2) above at [88]. Whether relief from liability should be granted under these sections depends not only on subjective honesty but also on the degree to which the relevant conduct fell short of the required standard, the seriousness of the contravention and its actual or potential consequences, any element of impropriety such as deception and personal gain and any contrition of the applicant and the need for general deterrence is also relevant: Morley v Australian Securities and Investments Commission (No 2) above; Ashrafinia v Ashrafinia [2013] NSWSC 1442 at [252].”

Consideration

50. I am satisfied that Ms Sopharak breached her fiduciary duty to the Company when, as a director, she authorised and implemented the Sale Contract. As the sole director her functions and responsibilities were to manage the business of the Company for the benefit of the Company. As the sole shareholder and director of the purchaser, there was a real or substantial possibility of conflict between her personal interest (that of sole shareholder and director of the purchaser) and the interests of the Company. She had a personal interest in securing the Business for the purchaser at the cheapest price because she would thereby through her shareholdings in the two companies effectively acquiring 100% interest in the Business rather than her existing 25% interest. She also had a personal interest in ensuring that the Business continued to be operated by her rather than another purchaser (or by the Company with a different restaurant manager), particularly as she was aware that Mr Du was seeking to remove her as a director and potentially deny her operational control over the Business.

51. In authorising and implementing the Sale Contract Ms Sopharak allowed her personal interest to take precedence over the interests of the Company. This is because it was not appropriate on 4 July 2022 to sell the Business to Sorak & Co for $2 absent at the very least a valuation or other independent financial advice that this reflected the market value of the Business, in circumstances where (a) the book value of its assets recorded in its accounts attached to the sale agreement was $44,008, including cash on hand of $33,834; (b) the bank statement for the Company shows a credit to its bank account on 4 July 2022 of $7,813; (c) there was no attempt to explore whether an independent third party would be prepared to purchase the Business for an amount greater than $2, and (d) the sale transaction deprived the company the ability to generate further revenue which would assist it to meet its outstanding liabilities to the ATO shown in the accounts at $93,270.

52. The question arises whether this conclusion is affected by articles 24 to 27 of the Company’s constitution set out earlier in these reasons. The extent of a director’s fiduciary duties to the company can be ameliorated by the provisions of its constitution: Short v Crawley *(*No 30) [2007] NSWSC 1322 at [1004]. Articles 24 to 27 are similar to the typical provisions found in the constitution of a company to achieve this outcome: RP Austin and I Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (LexisNexis, 17th Edition, 2018), [9.120]. I note the following regarding these articles:

53. The effect of article 24, read with article 27, is that a contract or arrangement entered into by the company which is one in which a director has an interest is not liable to be avoided, and the director has no obligation to account for any profit made under it, ‘merely because of’ that directorship or his fiduciary duty to the company.

“Unless the articles of the company otherwise provide, a contract made in breach of this fiduciary duty will be voidable at the option of the company unless the director makes a full disclosure of the nature of his interest in the contract to the members of the company in general meeting, who must approve the contract by ordinary resolution: George A Bond & Co Ltd v Bond (1929) 30 SR (NSW) 15 at 19; 46 WN (NSW) 199 at 201; Furs Ltd v Tomkies (1936) 54 CLR 583 at 592; Re James; Bagot's Executor & Trustee Co Ltd v McGregor [1949] SASR 143 at 145 and Regal (at 150). Disclosure to the company's directors, even if the interested director does not attend the board meeting or vote on the contract, will be ineffective to validate the contract at general law since the company has a right to the unbiased views and advice of all its directors: Benson v Heathorn (1842) 1 Y & C CC 326 at 341-342; 62 ER 909 at 916, per Knight-Bruce V-C and Imperial Mercantile Credit Association v Coleman (1871) LR 6 Ch App 558 at 567-568 per Hatherley LC (CA). A provision in the articles may validate a contract which would otherwise be voidable under the general law, but to obtain its protection the director must strictly comply with any conditions laid down in the provision: Imperial Mercantile Credit Association (Liquidators) v J Coleman (1873) LR 6 HL 189 at 205 per Lord Cairns (on appeal to the House of Lords); Toms v Cinema Trust Co, Ltd [1915] WN 29. The director bears the onus of proving that he has complied with the provision: Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 14.”

See also Mahoney JA at 228-229.

55. Hence, while as noted by Samuels JA in the above passage the constitution of a company can ameliorate the requirement of the general law for notice to the shareholders and the obtaining of their approval, the Constitution in the present case has not done so due to the qualification in the chapeau to article 27. That outcome makes sense in the context of a single director company, because it serves to protect the interests of the shareholders where there is no independent board of directors.

56. Accordingly, as notice of the sale transaction was not given to all the shareholders, article 27 does not apply. Nor does article 24 apply because the mischief in the entry into and implementation of the sale transaction was not merely that Ms Sopharak was a director and had a fiduciary duty to the company; it was her exercise of her powers as sole director, including the power to vote, in a manner which was not in the best interests of the company, and without the fully informed consent of all shareholders.

57. In relation to the claim for breach by Ms Sopharak of her statutory duties, it is sufficient to address s 181. I am satisfied that, for the same reasons given above, in entering into and implementing the sale transaction Ms Sopharak did not exercise her powers as a director in the best interests of the Company and for a proper purpose. The sale transaction was not in the best interests of the Company because it was not an arm’s length transaction for value and the Company was left without any assets from which to meet its significant liabilities to the ATO. It was not for a proper purpose because it was a transaction in which the purchaser was an entity in which she had a 100% shareholding interest and did not make an adequate disclosure of her interest to Company: R v Byrnes (1995) 183 CLR 501 at 517. Further, the objective circumstances required that the interests of the creditors of the Company, relevantly the ATO, should be taken into account and she clearly failed to do so: see Re IW4U Pty Ltd at [33]-[34].

Defence under s 1318

58. I do not accept that Ms Sopharak acted honestly in relation to the sale of the Business to the second defendant. The explanation for the sale transaction was that she believed if she ran the restaurant without Mr Du’s involvement she could make it profitable. However, the evidence establishes that he had little or no involvement in the running of the Business. She made no attempt to establish whether the Business was worth more than $2 and it seems highly likely that it was given that the transfer occurred without the burden of the liabilities of the Business which were left behind with the Company. I infer that she knew that she was likely to benefit personally from the sale, as the sole director and shareholder of the second defendant. She also acted in a manner which was designed to effect the sale behind Mr Du’s back and to his detriment because, as the majority shareholder, he would be left with the major burden of the Company’s significant liabilities to the ATO without the benefit of any assets from which to derive income to meet those liabilities.

59. I am also not satisfied in all the circumstances that Ms Sopharak ought fairly to be excused. She states in her affidavit the explanation for why the price was only $2 is that the business was not making any profit and had negative net assets. In relation to lack of profitability, she fails to acknowledge the impact of external factors on the Business, in particular the Covid-19 pandemic, in the relevant period, and her evidence is that she thought at the time of the sale that the Business could be made profitable. While the Company had negative net assets recorded in its balance sheet, this does not assist because the Business was sold without the burden of the liabilities, and those assets clearly had a value in excess of $2.

Position of Sorak & Co

60. I accept the plaintiff’s submission that, at all relevant times, the second defendant was the alter ego of Ms Sopharak as she was the sole shareholder and director of the company and has at all material times been the controlling mind of the company.

61. In light of those circumstances, the second defendant has participated in Ms Sopharak’s breach of fiduciary duty and is accountable in equity as a constructive trustee under the first limb of Barnes v Addy (1874) LR 9 Ch App 244. The relevant principle is stated in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [243] (where the Full Federal Court addresses the first of four circumstances in which third party’s participation in another’s breach of fiduciary duty will render that person accountable in equity as a constructive trustee):

“The first, is where the third party is the corporate creature, vehicle, or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or to inflict the losses by, their breach of fiduciary duty: see for example Cook v Deeks [1916] 1 AC 554 at 565 (Cook); Queensland Mines Ltd v Hudson (1975–1976) ACLC 28,658 at 27,709, revised on other grounds (1978) 18 ALR 1; Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 at [11] (Timber Engineering); Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 (Green); Gencor ACP Ltd v Dalby [2000] All ER (D) 1067; [2000] 2 BCLC 734 at [26]; CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 at [97]–[105] (CMS Dolphin). In these cases the corporate vehicle is fully liable for the profits made from, and the losses inflicted by, the fiduciary’s wrong. The liability itself is explained commonly on the basis that “company had full knowledge of all of the facts”: Cookat 565 ; it is the alter ego of the fiduciary with a “transmitted fiduciary obligation”: Timber Engineeringat [11] ; or that it “jointly participated” in the breach: CMS Dolphinat [103] . Liability does not turn on the need to show “dishonesty”, although it often provides the reason for the interposition of the company. Proof of a breach of fiduciary duty will suffice; Green at 40. And, as was said in CMS Dolphinat [104] , it is “rather artificial” to use Barnes v Addy to explain this liability.”

62. Accordingly, the plaintiff is entitled to equitable relief against the second defendant by way of a declaration of a constructive trust over the Business acquired by the second defendant from the plaintiff and ancillary orders for the transfer of the Business back to the plaintiff. In light of the evidence as to the financial performance of the Business, an account of profits or equitable compensation would be unlikely to do justice between the parties. However, I will give the plaintiff the opportunity to make further submissions on the appropriate form of the relief.

63. I also accept that the second defendant was involved in Ms Sopharak’s breach of s 181 of the Corporations Act, because it had actual knowledge of the essential facts constituting the contravention, through her knowledge which is to be attributed to it because she was acting in her capacity as its sole director. Hence, I accept the plaintiff’s submission that it is open to the court to grant relief against the second defendant pursuant to s 1317H and s 1324 of the Corporations Act, to the extent that the necessary relief is not available or granted in equity.

Conclusion

64. For the above reasons, the plaintiff has succeeded in its claim that Ms Sopharak breached her fiduciary duty to the plaintiff in entering into and implementing the Sale Contract, and that the second defendant holds the Business on constructive trust for the plaintiff. The plaintiff has also succeeded in its alternative claim that Ms Sopharak breached s 181 of the Corporations Act, and that the second defendant has accessorial liability in respect of that breach under s 181(2). Ms Sopharak has failed in her defence under s 1318 of the Corporations Act*.* The plaintiff is entitled to its costs of the proceedings.

65. I direct the parties to bring in agreed short minutes to give effect to this judgment and as to costs within 14 days or, if there is no agreement, their respective short minutes of order and short submissions in support not exceeding 5 pages.

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Amendments

15 July 2025

Fixing some formatting and typographical errors.