JD HANNES v MJH PTY LTD [1992] NSWCA 17

JD HANNES v MJH PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

SAMUELS, CLARKE and SHELLER JJA 20 February 1992, 19 March 1992

[1992] NSWCA 17

JD Hannes, the first appellant, was Governing director of, and held all the Governors' shares in Hanset Pty Ltd, the second appellant. The powers conferred on the Governing director were wide and included the right to "the whole management government and control of the Company" and control over any necessary majority of votes at shareholders' meetings.

On 27 April 1988, at a directors' meeting at which JD Hannes was present, 18,999 shares of Hanset were allotted to Jamar Pty Ltd, a company in which JD Hannes and his second wife were the only shareholders. On 10 May 1988 JD Hannes and Hanset executed a service agreement which provided for JD Hannes to be paid a substantial salary and to receive other benefits.

The respondents, who were the other shareholders in Hanset, contended firstly that both

the share allotment and the service agreement constituted breaches by JD Hannes of his fiduciary duty to the company. Secondly, they contended that there was such conduct or such oppressive unfairly prejudicial or unfairly discriminatory acts or omissions as would entitle the Court to make orders under s320 Companies (NSW) Code.

The appellants argued that the powers conferred upon JD Hannes as a director and shareholder allowed him to act in a way that might otherwise be a breach of fiduciary duty, even capriciously, without giving rise to any justifiable cause for complaint.

McLelland J held that there was a breach of fiduciary duty and acts and conduct entitling him to exercise his discretion under s320.

Held, on appeal:

1. The allotments and the service agreement constituted a breach of fiduciary duty by JD Hannes and were correctly set aside.