In the matter of Mulberry Capital Management Pty Ltd v Shen [2022] NSWSC 1220

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Mulberry Capital Management Pty Ltd v Shen [2022] NSWSC 1220 Hearing dates: 22, 23, 24, 25, 26 August 2022 Decision date: 12 September 2022 Jurisdiction: Equity - Corporations List Before: Hammerschlag CJ in Eq Decision: The defendant is ordered to pay the first plaintiff $45,000 plus interest thereon from the date the bonus was paid by the first plaintiff to his wife. The claims of the first plaintiff are otherwise dismissed. The claims of the fourth plaintiff are dismissed. Catchwords: CORPORATIONS – Director's fiduciary duties – a Chinese corporation (China Kingho) owned and controlled by Mr Huo agreed to employ the defendant as investment director (or chief investment officer), appoint him as managing director of its Australian subsidiary (Mulberry) and pay him in US Dollars. China Kingho could not pay him in US Dollars due to Chinese government regulations, so a Hong Kong subsidiary (Northshore) entered into a consultancy agreement with the director's personal entity under which it paid his entity the amount which the holding company was to pay him. Some months after the defendant's employment commenced, at Mr Huo's direction, the shares in the Hong Kong subsidiary were transferred to a company the shares of which were held by his daughter, who was also appointed a director together with his wife. Northshore continued to pay the defendant. Northshore alleged that after the change in shareholding the defendant breach his fiduciary duty by continuing the arrangement because there was a substantial possibility that his personal interests were in conflict with those of Northshore and it sued the defendant for equitable compensation – HELD – the defendant did not breach any fiduciary duty – additionally, what he did was permissible under Northshore's articles of association – additionally, all the shareholders (formal and de facto) acquiesced in Northshore continuing to pay the defendant CORPORATIONS – Director's fiduciary duties – the defendant also procured the employment of his wife by Mulberry and the payment to her of a bonus. The defendant arranged for his salary to be reduced by an amount equivalent to the salary paid to his wife – HELD – the defendant breached his fiduciary duty in procuring the employment of his wife but Northshore suffered no harm because of the reduction in his salary and it was not contested that she performed services for the benefit of Northshore – HELD – the defendant breached his fiduciary duty to Mulberry by arranging the payment of the bonus and he is liable to compensate Mulberry accordingly. Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 357 Breen v Williams (1996) 186 CLR 71 Furs Ltd v Tomkies (1936) 54 CLR 583 Howard v Federal Commissioner of Taxation (2014) 253 CLR 83 Mulberry Capital Management Pty Ltd v Shen – AVL Application [2022] NSWSC 1023 Pilmer v The Duke Group Ltd (2001) 207 CLR 165 United Dominion Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Category: Principal judgment Parties: Mulberry Capital Management Pty Ltd - First Plaintiff Wealth Resources Pty Ltd - Second Plaintiff Wealth Mining Pty Ltd - Third Plaintiff Northshore Investment (HK) Ltd - Fourth Plaintiff Peng Shen - Defendant Representation: Counsel: M Karam with S Gaussen - Plaintiffs A Munro with M Parker - Defendant