Burnes v Milltec Australia Pty Ltd [2004] NSWSC 151

New South Wales Supreme Court

CITATION : Burnes v Milltec Australia Pty Ltd [2004] NSWSC 151 HEARING DATE(S) : 02/02/04, 03/02/04, 04/02/04, 05/02/04, 06/02/04, 09/02/04 JUDGMENT DATE : 16 March 2004 JURISDICTION: Equity JUDGMENT OF : Cripps AJ DECISION : The defendant be removed as Trustee of the WHL Unit Trust and another appointed in its stead - Defendant to pay plaintiff's costs.

CATCHWORDS : Trustee - Removal - Fiduciary duties of a director PLAINTIFF Wayne Burnes DEFENDANT Milltec Australia Pty Ltd CROSS CLAIMANT PARTIES : Milltec Australia Pty Ltd FIRST CROSS DEFENDANT Wayne Burnes SECOND CROSS DEFENDANT Milling Process Services Pty Ltd

FILE NUMBER(S) : SC 4309/2001 PLAINTIFF Mr D A Smallbone COUNSEL : RESPONDENT Mr G B Colyer

PLAINTIFF SOLICITORS : Doherty Partners RESPONDENT McCabe Terrill

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

CRIPPS AJ

Tuesday 16 March 2004

4309/01 WAYNE BURNES (Plaintiff) MILLTEC AUSTRALIA PTY LTD (Defendant) MILLTEC AUSTRALIA PTY LTD (Cross-Claimant) WAYNE BURNES (First Cross-Defendant) MILLING PROCESS SERVICES PTY LTD (Second Cross- Defendant) JUDGMENT

1 HIS HONOUR: In 1997 the plaintiff Wayne Burnes and two business associates Leigh Anthony Barker and Hans Hefer established Milltec Australia Pty Ltd, the defendant, as a vehicle for carrying out the business of providing services to the milling industry being plant design, engineering, installation and servicing associated with their operations. 2 Upon incorporation shares were allotted to Mr Burnes (12,000 shares), Mr Barker (7,500 shares) and Silo Development Pty Ltd, a company controlled by Mr Hefer (10,500 shares). Mr Burnes and Mr Barker were directors of Milltec. Mr Burnes was the managing director and paid a salary. 3 Mr Hefer was not a director. He said that there had been some friction between him and a customer of Milltec and he preferred not to be listed as a director. 4 This was the state of affairs until 2000 when disagreements between Mr Hefer and Mr Burnes resulted in Mr Burnes being removed as managing director of Milltec and Mr Hefer becoming a director. The circumstances concerning these changes will be dealt with in due course. 5 In early 1999 and after Milltec had moved into premises at Moorebank, there were discussions between the parties (a reference to the parties is a reference to Mr Burnes, Mr Barker and Mr Hefer) concerning the acquisition of land at Narellan. They decided that the land would be acquired by Milltec and held in trust by it for the parties (or companies they controlled). 6 In furtherance of the agreement by Deed dated 21 May 1999 Milltec was constituted as trustee of the property of the WHL Unit Trust (the Trust). The unit holders were Mr Burnes, Hysian Pty Ltd (Mr Barker's company) and MAH Structural (Erection) Pty Ltd (Mr Hefer's company). The unit holders each subscribed for ten units at one dollar ($1) each. 7 On 9 June 1999 Milltec acting as trustee of the Trust entered into a contract to purchase the Narellan land. The monies provided to acquire the land came from the three parties (or companies under their control) and each contributed approximately $75,000. For present purposes it is sufficient to note that there is no dispute concerning the amount of money contributed by each. Mr Burnes contends, however, that although he was aware the money was to be used by Milltec in its capacity as trustee of the Trust the $75,000 contributed by him was in fact lent to Milltec and was repayable by Milltec on demand. The other two, Mr Hefer and Mr Barker, assert that all parties advanced money to Milltec as trustee for the purpose of acquiring the subject land and hence their contributions became part of the Trust Fund (as that term is defined in clause 1.1 of the Trust Deed). 8 The records of Milltec indicate that it used its own monies to pay the deposit under the contract of sale and that, in effect, it made a loan to itself as trustee. The balance of purchase monies (being the contribution of the parties) was made up by bank cheques drawn by the parties and payable to creditors of the vendor. 9 As I have said, in the early part of 2000 Mr Burnes and Mr Hefer had a falling out. Later Mr Barker sided with Mr Hefer. There is a dispute concerning when Mr Burnes ceased being the managing director and director of Milltec and the circumstances surrounding his removal will be dealt with in due course. But on any view of the matter Mr Hefer and Mr Burnes were directors of Milltec in August 2000 and thereafter Mr Burnes was effectively removed from having any say in the affairs of Milltec. The affairs of Milltec were controlled by Mr Hefer and Mr Barker and Mr Burnes was a minority shareholder in Milltec. 10 By August 2000 Mr Burnes on the one hand and Mr Hefer and Mr Barker on the other had consulted lawyers concerning the dispute which culminated in the removal of Mr Burnes as a director of Milltec and the obligations of each of the parties owed the others. However their dispute remained outside the area of litigation until 3 September 2001 when Mr Burnes commenced proceedings in the Equity Court for the recovery of what he claimed to be his loan to Milltec of $75,000 and for an order that Milltec be removed as a trustee of the Trust and another fit and proper person be appointed in its stead. 11 By its cross-claim Milltec alleged Mr Burnes had improperly used his position as a director of Milltec to advance the interests of his own company Milltec Pty Ltd. (Mr Burnes' company, incorporated before 2000, was Yasmar Design Pty Ltd. He changed its name to Milltec Pty Ltd on 2 June 2000.) It was alleged that Mr Burnes, in breach of his fiduciary duty commenced business in competition with Milltec and told clients that Milltec had ceased trading. It was alleged that he took the name Milltec improperly and used its logo with the intention of leading potential customers to believe that they remained dealing with Milltec. It was also alleged that he had misappropriated the sum of approximately $92,000. (But as far as I can see this claim has not been pursued.) Milltec also alleged that Mr Burnes had acquired property which he held in trust for Milltec and that the invoices produced by Mr Burnes establishing his ownership were forgeries. This claim was entirely without substance and will be dealt with later.