Reported Decision : (2001) 19 ACLC 1117 New South Wales Court of Appeal CITATION : Natcomp Technology Australia Pty Limited v Graiche [2001] NSWCA 120 FILE NUMBER(S) : CA 40063/00 HEARING DATE(S) : 30 March 2001 JUDGMENT DATE : 30 April 2001 PARTIES : Natcomp Technology Australia Pty Limited (Appellant) Joseph Graiche (Respondent) JUDGMENT OF : Spigelman CJ at 1; Stein JA at 2; Heydon JA at 16 LOWER COURT JURISDICTION : District Court LOWER COURT DC 3626/97 FILE NUMBER(S) : LOWER COURT Hogan ADCJ JUDICIAL OFFICER : COUNSEL : B A J Coles QC/T D Blackburn (Appellant) R B S MacFarlan QC/M Wigney (Respondent) SOLICITORS : Gray & Perkins (Appellant) P A Somerset & Co (Respondent) CATCHWORDS : COMMERCIAL LAW - director's duties - s 60(1) The Corporations Law - whether a de facto director or a shadow director - extent of involvement in business necessary to be deemed a director - ND LEGISLATION CITED : The Corporations Law (NSW) Fair Trading Act 1987 (NSW) CASES CITED: Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 Re Valleys Rugby League Footbal Club Ltd [1997] 2 Qd R 645 DECISION : Appeal dismissed with costs IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40063/00 DC 3626/97 SPIGELMAN CJ STEIN JA HEYDON JA Monday, 30 April 2001 NATCOMP TECHNOLOGY AUSTRALIA PTY LIMITED v Joseph GRAICHE Facts: The appellant company supplied computer equipment to Amtech Industries Pty Ltd (Amtech), a company that went into liquidation in late 1996. At first instance, the appellant obtained default judgment against the appointed directors of Amtech, Messrs Le Gentil and Serra. The respondent, who was not an appointed director of Amtech, had made a series of statements, and permitted statements to be made in his presence, which suggested a close connection between himself and Amtech. The appellant appeals the decision of Hogan ADCJ that the respondent was neither a 'de facto' or a 'shadow' director under s60(1) of the Corporations Law . Held: Per Spigelman CJ, Stein JA and Heydon JA: That the evidence placed before the trial judge was inadequate to establish that the respondent was either a de facto or a shadow director of Amtech. Accordingly, his Honour was correct to dismiss the proceedings against the respondent. Orders: Appeal dismissed with costs. oOo IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40063/00 DC 3626/97 SPIGELMAN CJ STEIN JA HEYDON JA Monday, 30 April 2001 NATCOMP TECHNOLOGY AUSTRALIA PTY LIMITED v Joseph GRAICHE JUDGMENT 1 SPIGELMAN CJ: I agree with Stein JA. 2 STEIN JA: This is an appeal from a decision of Hogan ADCJ. At first instance it was alleged that the respondent, Dr Joseph Graiche, was a 'de facto' or 'shadow' director of Amtech Industries Pty Ltd (Amtech) under s 60(1) of the Corporations Law. The evidence failed to satisfy his Honour on either basis. The appellant (Natcomp Technology Australia Pty Ltd) seeks to recover the price of goods sold and delivered by it in 1996 to Amtech, from the respondent personally. Amtech went into liquidation in late 1996. In the subject proceedings, the appellant obtained default judgment against the appointed directors of Amtech, Mr Patrick Le Gentil and Mr Jose Bernardino Lopes Serra. The appellant unsuccessfully sought relief against the respondent under the Fair Trading Act 1987 (NSW). However, no appeal has been brought from this part of his Honour's judgment. 3 In the District Court Acting Judge Hogan accepted, for the most part, the evidence adduced on behalf of the appellant company, and rejected that of the respondent. Nevertheless, his Honour found that the case under the Corporations Law was not proven. Firstly, his Honour found that there was no evidence that the directors of Amtech were accustomed to act in accordance with the respondent's advice, directions or instructions. Accordingly, the claim that Dr Graiche was a shadow director under s 60(1)(b) failed. Secondly, when considering the limited nature of the respondent's involvement in Amtech, the lack of authorisation for representations made in his absence, and the absence of evidence that Dr Graiche ever asserted that he was a director, the claim that the respondent was a de facto director pursuant to s 60(1)(a) also failed. Finally, even if the respondent was to be deemed a director, his Honour was not satisfied that he, or a reasonable person in a like position, would have grounds for suspecting insolvency. Section 588G(2) of the Corporations Law was therefore not found to have been contravened. 4 The respondent is a medical practitioner with an active interest in computer technology. His association with Amtech dated back to the early 1990's, at which time he purchased computer technology from it for use in his medical practice. The appellant asserts that the respondent's involvement in Amtech was in fact so great that, as a result of the operation of s 60(1)(a) or s 60(1)(b) of the Corporations Law, he was effectively acting as a director of that company and accordingly liable by virtue of s 588G of the Corporations Law. 5 The grounds of appeal claim error on the part of the trial judge for failing to hold that the respondent was a director of Amtech, or that he acted as a director at the time that the relevant debts were incurred. By an amendment to the Notice of Appeal permitted at the hearing, it was claimed that there was error in the failure of his Honour to hold that the statements made by the director (Mr Le Gentil) in the absence of the respondent, as to the respondent's involvement in the company, were authorised by the respondent. It was also maintained that his Honour should have found that the respondent personally, or a reasonable person in like position, would be aware of reasonable grounds to suspect that Amtech was insolvent. 6 The appellant began trading with Amtech in late 1995 and it was asserted that Mr Le Gentil, a director of Amtech, made representations to Mr Grassia, the managing director of the appellant, to the effect that Dr Graiche was an integral aspect of the running of Amtech. These representations were made as to the financial support of the respondent for the company. 7 The respondent accompanied the directors of Amtech and Mr Grassia to a trade fair in Taiwan in June 1996. During the fair the respondent, in conversations with Mr Grassia, made frequent use of the term 'we at Amtech', when discussing the potential of Amtech to build a strong trading relationship with the appellant. At a dinner held during the fair the respondent distributed a business card which carried a logo of 'Amtec', the company's address, and described Dr Graiche as the 'CEO' of the company, no doubt intended to mean 'Chief Executive Officer'. The respondent informed Mr Grassia that he was present at the trade fair as a representative of Amtech. The respondent, in evidence, sought to justify his distribution of the business card as necessary to obtain technical information at trade fairs for his own purposes, as his medical cards would not be useful in dealing with exhibitors. He claimed that he never intended to use the cards, nor did use them, to present himself as a representative of Amtech for commercial purposes. 8 During the trade fair the respondent and Mr Le Gentil met with a Mr Shentzer, whose evidence that the respondent was introduced as the financial backer of Amtech was accepted by the trial judge. The respondent stated at this time that he was partners with Mr Le Gentil. In a later conversation with Mr Shentzer the respondent said that he was the person who made the decisions at Amtech. Evidence of a similar conversation was given by a Mr Sul, now the managing director of a Korean computer company. 9 In addition to the oral representations made by the respondent, or in the respondent's presence, as to his involvement in Amtech, on one occasion Dr Graiche collected computer equipment ordered by Amtech and paid for it in cash. During this transaction, the respondent stated to a Mr Agamalis that he had a financial interest in Amtech. 10 The respondent was also involved in the conduct of a television advertising campaign for Amtech. A meeting occurred between Mr Gagliardi, the account manager of the relevant advertising agency, the directors of Amtech, and the respondent at an office above the respondent's medical practice. The respondent was introduced as the company's business adviser, who, in addition to providing business advice, had contributed financially to Amtech. The respondent confirmed at the meeting that this description of his role was correct. Dr Graiche played an active role in the meeting with respect to the acquisition and marketing of a new product, the Smartphone. At a later meeting between Mr Gagliardi, the respondent, and a potential business contact, Dr Graiche was introduced as 'the brains behind Amtech', a representation which the respondent again orally confirmed. 11 The financial records of Amtech demonstrate that on 9 June 1995 Amtech drew a cheque in favour of the respondent for $18,100. His Honour found that, when the transaction was viewed in light of his relationship with Mr Le Gentil, the respondent may well have lent such a sum to Amtech for a short period. 12 There were a number of statements by Mr Le Gentil with respect to the respondent's involvement in the affairs of Amtech, made in the respondent's absence. The judge found that the respondent had not in any way authorised Mr Le Gentil to say such things about the respondent's role in the company. As mentioned earlier, this matter was at issue by reason of the amended Notice of Appeal. However, on an examination of the evidence it seems to me that the trial judge was entitled to draw such a conclusion. It was plainly open to him and there is no reason why the court should intervene. 13 In Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 Madgwick J in the Federal Court discusses the conduct and circumstances which may be considered when determining whether a person's actions fall within s 60(1)(a) or (b) of the Corporations Law. His Honour said: Thus it seems to be a necessary condition of acting as a director, whether properly appointed or not, that one exercises what might be called the actual (and statutorily extended) top level of management functions. However, that is not necessarily a sufficient condition for such a conclusion, nor is it the same as saying that one must do things which only a director can do. [at 569] Further, If, in the case of a small company, a person has, with full discretion, "acted as the company" in relation to matters of great importance to the company, and other than as an arms' length expert engaged for a limited purpose, the conclusion that that person has acted in the capacity of a director may well be justified. The extent to which and the circumstances in which the person has so acted will nevertheless be of importance. The variety of commercial and corporate life is such that it seems to me unprofitable to attempt a general statement as to what is meant by "acting as a director". Whether a person does so act will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned. I have, for example, referred to the circumstance of the size of the company. In a large and diversified company, great discretion to deal with very important matters must be reposed in employees. In the case of a supermarket chain… it would hardly occur to anyone to suggest that a managerial employee held to have 'acted as the company' in breaking a consumer protection law at a particular store was acting as a director of the vast company concerned. As suggested above, in the case of a single person making decisions for a company the business of which was confined to the operation of a corner store, a different view might be taken… Another relevant factor may be how the person who is claimed to have acted as a director was reasonably perceived by outsiders who deal with the company. This may aid a conclusion that the supposed director has held himself or herself out as such. Express holding-out was treated as a relevant factor in the Re Valleys case [Re Valleys Rugby League Football Club Ltd [1997] 2 Qd R 645] and, with respect, this appears obviously correct. However, an express claim to be a director may, in some cases, be carefully not made. That would not prevent a conclusion, nevertheless, that a person's dealings with third parties point to his or her having acted as a director. [at 570] 14 The involvement of Dr Graiche in the affairs of Amtech must be examined in the context of the overall nature of the company's business, see for example Austin at 570. The trial judge found that Amtech 'was not a large public corporation… [but] was effectively a two-man company, run, not very efficiently … by Le Gentil and Serra.' His Honour concluded that even when such considerations were taken into account, the respondent's conduct 'did not amount to his being involved in the affairs of Amtech generally'. 15 Amtech was heavily involved in the retail of computer packages, with approximately $474,000 worth of computer sales being made between July 1995 and April 1996. Indeed, the company had approximately $300,000 worth of deposits or fully paid orders which were still waiting to be filled as at 25 October 1996, being the date of the appointment of Mr Sutherland as administrator The sale of such computer packages was plainly its principal business activity. There is no evidence that the respondent was involved in any fashion in this principal aspect of the company's business, nor in its day- to-day operations. Dr Graiche's involvement with Amtech was, it appears, limited to an interest in the development and marketing of possible new products. The evidence placed before his Honour was insufficient to attract s 60(1)(a) or (b) or the Corporations Law. It was inadequate to establish that the respondent was either a de facto or shadow director. The appellant carries the onus of proof and the evidence fails to meet the requirements of the provision. Accordingly, his Honour was correct to dismiss the proceedings against the respondent and the appeal should be dismissed with costs. 16 HEYDON JA: The evidence received by the trial judge, particularly the evidence which the respondent medical practitioner gave in cross-examination, reveals that his approach to his legal and ethical responsibilities as a person involved in trade, as a litigant preparing answers to interrogatories, and as a witness, was entirely unsatisfactory. The trial judge in effect so found. His findings were close to unchallengeable, and in any event were not challenged by the respondent. Indeed, for one purpose they were accepted by counsel for the respondent. The trial judge found that, despite the respondent's sworn denials, he made a series of out-of-court statements suggesting a close connection between himself and Amtech Industries Pty Ltd. The trial judge also found that in large measure those statements were false. So far as they were false, they must have been false to his knowledge. Counsel for the respondent made a virtue out of necessity by advancing as his very first submission on the appeal the proposition that the trial judge's "conclusion on the question as to the veracity of [the respondent's] assertions out of court" was beyond challenge. Whether or not that is so, for the reasons given by Stein JA, there was in fact no evidence that the trial judge's conclusions were wrong. I agree with the orders proposed by Stein JA and the reasons he has advanced for them. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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