City Garden Australia Pty Ltd (in administration) as trustee for the Ming Tian City Garden Unit Trust v Meng Dai [2023] NSWSC 1498

Supreme Court New South Wales

Medium Neutral Citation: City Garden Australia Pty Ltd (in administration) as trustee for the Ming Tian City Garden Unit Trust v Meng Dai [2023] NSWSC 1498 Hearing dates: 31 July, 1, 2, 3, 4, 7, 8, 9, 23, 24 August 2023 Date of orders: 5 December 2023 Decision date: 05 December 2023 Jurisdiction: Equity - Commercial List Before: Rees J Decision: Declare secretary not validly appointed; directions made to enable Court to specify amount in a compensation order against director under s1317H(1), Corporations Act 2001 (Cth) and judgment against solicitor for equitable compensation; summons and cross claims otherwise dismissed. Catchwords: CORPORATIONS — plaintiff undertakes property development with related company as builder — plaintiff has two directors, one of which is also director of builder — common director appoints wife as secretary of plaintiff, without other director's knowledge — common director obtains three loans for builder in the name of, or guaranteed by, plaintiff and secured over plaintiff's property — substantial purpose of loans was for builder's other property developments — finance documents executed by common director and wife. SECRETARY — constitution required directors to appoint secretary — meeting did not take place — whether directors passed informal resolution through 'meeting of the minds' — second defendant unaware of appointment until after first transaction — whether second director ratified appointment by inaction — no ratification in absence of full knowledge of material facts. DIRECTORS AND OFFICERS — authority —constitution and trust deed required resolution to borrow money — no written resolution — whether directors passed informal resolution through a 'meeting of the minds' — whether common director conferred with authority to borrow money without conferring with second director — no actual authority. STATUTORY ASSUMPTIONS – s129 Corporations Act — "dealings with a company" — whether lenders entitled to rely on assumptions — common director negotiating loans with lenders to the knowledge of second director, who took no steps —inaction conferred ostensible authority on common director — lenders entitled to rely on statutory assumptions that wife validly appointed — lenders did not actually know or suspect that assumptions were incorrect — knowledge of lenders' solicitor could not be imputed for purpose of s 128(4), Corporations Act — plaintiff not entitled to have transactions set aside. DIRECTORS' DUTIES — statutory and fiduciary duties — common director breached duties in obtaining — loans obtained without knowledge of second director — compensation order to follow under section 1317H of Corporations Act. LEGAL PROFESSION — fiduciary duties — plaintiff's solicitor proceeded to act for lenders — whether solicitor retained by plaintiff in respect of finance — whether solicitor in breach of duty to avoid conflicts between interests of clients — for first loan, solicitor had broad retainer including in respect of finance and was actively assisting the plaintiff to obtain finance — solicitor in a position of conflict by acting for lender on first loan — solicitor failed to obtain fully informed consent of plaintiff before acting for lender, where solicitor acting for corporation has a duty to ensure that their instructions are truly the instructions of the client — in breach of fiduciary duty to avoid conflicts with respect to first loan — solicitor aware of disconformity between borrower and recipient of the loan funds — solicitor made no enquiry of second director — breach of fiduciary duty. EQUITABLE COMPENSATION — causation — assessing compensation where 'conflict of duty and duty' — purpose of duty to avoid conflicts is to ensure that solicitor does not prefer one client's interests over the other — by acting in breach, solicitor disregarded plaintiff's best interests and focussed instead on lender's interests — had solicitor had regard for plaintiff's interests, solicitor would have taken steps to ascertain where plaintiff's interests lay — second director would have been notified of unauthorised loans, which would not have gone ahead — relevance of independent solicitor — solicitor liable to compensate plaintiff for indebtedness incurred as a result of entering and refinancing first loan. CIVIL LIABILITY ACT — equitable obligations —whether claim against solicitor apportionable under Part 4 of the Civil Liability Act 2002 (NSW) — s 34(1) of Civil Liability Act requires failure to take reasonable care to be an element of the plaintiff's cause of action — claim against solicitor was a claim for breach of 'no conflicts' duty — failure to take reasonable care not an element of claim — claim not apportionable. PROFESSIONAL STANDARDS SCHEME — whether solicitor's liability limited — scheme not in force when act or omission giving rise to cause of action occurred. Legislation Cited: Evidence Act 1995 (NSW), s 140(2)t Corporations Act 2001 (Cth), ss 126, 127, 128, 129, 180, 181, 182, 183, 198A, 204D, 204F, 1317H(1) Home Building Act 1989 (NSW), s 92(1) Civil Procedure Act 2005 (NSW), s 100 Civil Liability Act 2002 (NSW), ss 5A, 5O 34(1) Professional Standards Act 1994 (NSW), ss 4(1), 28 Cases Cited: 183 Eastwood Pty Ltd v Dragon Property Development & Investment Pty Ltd [2023] NSWCA 72 A v New South Wales [2007] HCA 10; (2007) 230 CLR 500 ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2015) 224 FCR 1 Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102 Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 Atanaskovic Hartnell v Birketu Pty Ltd [2021] NSWCA 201 Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd (2013) 282 FLR 351; [2013] NSWCA 459 Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; [2011] FCAFC 151 Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC1229 BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227 Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 Blatch v Archer (1774) 1 Cowp 63; (1774) 98 ER 969 Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362 Bristol & West Building Society v Mothew [1998] Ch 1 Canson Enterprises Ltd V Boughton & Co (1991) 85 DLR (4th) 129 Caratti v Mammoth Investments Pty Ltd (2016) 50 WAR 84; 113 ACSR 31; [2016] WASCA 84 CEO of Customs v Liang [2004] NSWSC 1240 (conviction); CEO of Customs v Liang [2005] NSWSC 591 Chan v Zacharia (1984) 154 CLR 178 Chappell v Hart (1998) 195 CLR 232; [1998] HCA 55 Clay v Clay (2001) 202 CLR 410; [2001] HCA 9 CLGC Pty Ltd v Zhang [2021] NSWSC 946 Correa v Whittingham [2013] NSWCA 263 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 Dragon Property Development & Investment Pty Ltd v 183 Eastwood Pty Ltd [2022] NSWSC 910 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [1988] 14 NSWLR 523 Errichetti Holdings Pty Ltd v Western Plaza Hotel Corporation Pty Ltd [2006] WASC 113; (2006) 201 FLR 192 Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375 Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964] 2 QB 480 Furs Ltd v Tomkies (1936) 54 CLR 583 Gales Holdings Pty Ltd v Tweedy Shire Council [2011] NSWSC 1128 Gallop Reserve Pty Ltd v Matton Developments Pty Ltd [2019] QSC 113 George v Webb [2011] NSWSC 1608 Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 Hill v Rose [1990] VR 129 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Hudson Investments Group Ltd v Atanaskovic [2010] NSWSC 1055 In Perpetual Trustee Co Ltd v CTC Group Ltd (No 2) [2013] NSWCA 58 In the matter of Hot Frog Pty Ltd [2022] NSWSC 6 In the matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) [2007] NSWSC 124; (2007) 63 ACSR 1 Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 Kuligowski v Metrobus (2004) 220 CLR 363; [2004] HCA 34 Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 Maguire and Another v Makaronis and Another [1997] HCA 23; (1997) 188 CLR 449 Minkin v Landsberg [2016] 1 WLR 1489 Motor Yacht Sales Australia Pty Ltd v Cheng [2021] NSWSC 1141 Neville v Lam (No 3) [2014] NSWSC 607 Nocton v Lord Ashburton [1914] AC 932 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Parker v McKenna (1874) LR 10 Ch App 96 Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311 Payne v Parker [1976] 1 NSWLR 191 Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1996) 115 CLR 266 Queensland Mines Ltd v Hudson (1978) 18 ALR 1 Rahme v Benjamin Khoury Pty Ltd [2019] NSWCA 211; (2019) 100 NSWLR 550 Rama v Millar [1996] 1 NZLR 257 Re Earth Civil Australia Pty Ltd (in liq) [2021] NSWSC 966 Re Matlic Pty Ltd (in liq) [2014] NSWSC 1342; (2014) 102 ACSR 602 Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 Richtoll Pty Ltd v WW Lawyers Pty Ltd (in liq) [2016] NSWCA 308 Richtoll Pty Ltd v WW Lawyers Pty Ltd (in liq) [2016] NSWSC 438 Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 Roden v International Gas Applications (1995) 18 ACSR 454 Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068 Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 Swindle v Harrison (1997) 4 All ER 705 Target Holdings Ltd v Redferns [1996] AC 421 Vrisakis v Australian Securities Commission (1993) 9 WAR 395 Yee v Robert [1997] 3 LRC 138 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 Texts Cited: A Abadee et al., Professional Liability in Australia (Thomson Reuters, 4th ed, 2023) Matthew Conaglen, Fiduciary Loyalty (Hary Publishing, 1st ed, 2010) Patrick Parkinson, The Principles of Equity (Thomson Lawbook Co, 2nd ed 2003) Paul Finn, Fiduciary Obligations (Federation Press, 2nd ed, 2016) PW Young QC, Declaratory Orders (Butterworths, Second Edition, 1984) Solicitors Manual (LexisNexis Butterworths, last updated November 2023) Category: Principal judgment Parties: City Garden Australia Pty Ltd (Plaintiff) Meng Dai (First Defendant) Gerrard Toltz Pty Ltd (Second Defendant) Gemi 130 Pty Ltd (Third Defendant) Bridge Street Capital No 2 Pty Ltd (Fourth Defendant) Wallis Island Pty Ltd (Sixth Defendant) Maxmara Trinity Pty Ltd (Seventh Defendant) Lin Zhu (Eighth Defendant) Gemi Investments Pty Ltd (Ninth Defendant) Weriton Finance No 2 Pty Ltd (Tenth Defendant) Saddleback Mountain Estates No 2 Pty Ltd (Eleventh Defendant) Maxmara and JA International Pty Ltd (Fifteenth Defendant) Representation: Counsel: Mr P A Clarke (Plaintiff) Mr M Dai (First Defendant self-represented, Sixth, Seventh, Fifteenth Defendants) Ms M Hall (Second Defendant) Mr H Somerville/Mr J McEnaney (Third, Ninth Defendants) Mr MW Young SC (Fourth, Tenth, Eleventh Defendants) Ms L Zhu (Eighth Defendant self-represented)