Gerard Cassegrain & Co Pty Limited v Cassegrain [2011] NSWSC 1594

Supreme Court New South Wales

Medium Neutral Citation: Gerard Cassegrain & Co Pty Limited v Cassegrain [2011] NSWSC 1594 Hearing dates: 12, 13, 15 April 2011, 11 November 2011 Decision date: 20 December 2011 Jurisdiction: Equity Division - Corporations List Before: Barrett J Decision: See paragraph 25 Catchwords: PROCEDURE - orders - order for inquiry - whether allowances appropriate - other miscellaneous matters Legislation Cited: Companies (New South Wales) Code, s 78(1) Corporations Act 2001 (Cth), s 140(1) Corporations Law of New South Wales, s 180(1) Uniform Civil Procedure Rules 2005, Part 51, rules 51.2. 51.9(1)(b), 51.16(a) and (c) Cases Cited: Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 Hutton v West Cork Railway Co (1883) 23 ChD 654 McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 Re Richmond Gate Property Co Ltd [1965] 1 WLR 335 Category: Consequential orders Parties: Gerard Cassegrain & Co Pty Limited - Plaintiff Claude Cassegrain - First Defendant Felicity Cassegrain - Second Defendant Representation: M A Ashhurst SC/G B Colyer - Plaintiff G C Lindsay SC/P G Bolster - First Defendant F Gleeson SC - 2D McCabe Terrill Lawyers - Plaintiff Oliveri Lawyers - First Defendant Peter Condon & Associates - Second Defendant File Number(s): 2008/00280507

Judgment 1The question remaining in these proceedings concerns the appropriate form of the orders as between the first plaintiff ("GC & Co") and the first defendant ("Claude") to give effect to the decision of 29 September 2011: Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156. 2The position as between GC & Co as plaintiff and the second defendant (Felicity Cassegrain) was dealt with by orders as follows made on 11 November 2011: "1. Order that Denis Cassegrain, Catherine Dunn, Patrick Cassegrain and John Cassegrain be additional plaintiffs to these proceedings. 2. Order that the further amended statement of claim filed on 22 October 2010 as against the second defendant be dismissed. 3. Order that Denis Cassegrain, Catherine Dunn, Patrick Cassegrain and John Cassegrain pay Felicity Cassegrain her costs of the proceedings as agreed or assessed. 4. Order that Order 3 in New South Wales Supreme Court proceedings 6064 of 2007 dated 14 November 2008 be discharged. 5. Order that any claim by any party for compensation arising out of the undertaking as to damages given to the Court on behalf of Denis Cassegrain on 4 November 2008 in Supreme Court proceedings no. 6064 of 2007, be made by notice of motion filed on or before 16 December 2011. 6. Reserve such rights as the defendants might have against each of Catherine Dunn, Patrick Casssegrain and John Cassegrain in relation to the undertaking they each gave to the Court on 29 May 2009 as recorded in paragraph 1 of the letter from McCabe Terrill to Oliveri Lawyers dated 28 May 2009." 3Also on 11 November 2011, I heard submissions on the matter with which I am now dealing. 4The leading submission made by counsel for Claude is that the reasons of 29 September 2011 do not deal with some matters that it is necessary to decide before orders can be made. Attention must, it is said, be given to paragraph 35 of Claude's defence which says, in effect, that if it is found (as it now has been) that Claude must render equitable compensation to GC & Co, there must be taken into account just allowances in his favour. The allowances that should thus be made are said to include allowances for all or any of: (a) his application of skill and expertise, and his incurring of expense, in the service of GC & Co as an officer of GC & Co; (b) services provided by Claude or on his account for the benefit of GC & Co leading to the CSIRO settlement; (c) the covenants, releases and undertakings given by Claude to CSIRO in return for CSIRO's settlement with GC & Co; and (d) the value of the consideration passing from Claude under the CSIRO settlement deed in return for the payment of $8.835 million. 5The conduct of Claude at the centre of this case was his conduct as a director of GC & Co. Indeed, at the time of relevant events, he was the sole director. It has been found that Claude breached his fiduciary duty to GC & Co. 6The constitution of GC & Co provides in article 82 as follows: "Subject to Article 85B [which is irrelevant for present purposes] the remuneration of the Directors for their services as a Board of Directors shall from time to time be determined by the Company in general meeting to be divided amongst the Directors in such proportions as they may agree between themselves or in default of agreement equally. Any Director holding office for part of a year shall be entitled to a proportionate part of such remuneration. In case the Company be wound up for any reason or purpose whatsoever a Director shall not be entitled to any compensation in respect of the period which elapses between the date of the said winding up and the date at which if the Company had not been wound up he would have retired under these Articles. If a majority of the Directors shall by resolution agree to forego or postpone the receipt of their remuneration or any part thereof such resolution shall bind all the Directors and the remuneration shall accordingly be released abated or postponed as the case may be. A Director shall be repaid out of the funds of the Company any hotel travelling or other expenses properly and necessarily incurred by him in attending the meetings of the Directors or members or otherwise on the affairs or in connection with the business of the Company." 7The provisions of article 82 had, at all times after Claude became a director, contractual force as between GC & Co and Claude, he being an "officer" of GC & Co. This was the effect of s 78(1) of the Companies (New South Wales) Code , s 180(1) of the Corporations Law of New South Wales and s 140(1) of the Corporations Act 2001 (Cth). 8There was thus, in the constitution of GC & Co, an express contract regarding remuneration and reimbursement of Claude as a director. That contract displaced the general law rule that a director, as a fiduciary, has no right to be paid for the services he or she provides or the efforts he or she expends as a director: Hutton v West Cork Railway Co (1883) 23 ChD 654 at 674. At the same time, the existence of the contract ruled out any possibility of a quantum meruit claim on the director's part: Re Richmond Gate Property Co Ltd [1965] 1 WLR 335. 9It follows, in my view, that, in the absence of proof of a determination under article 82, it is not open to Claude to claim or receive reward for the services referred to at items (a) and (b) of paragraph [4] above. 10As to items (c) and (d) at paragraph [4] above, recognition of them, if consistent with Claude's fiduciary position (a matter I need not decide), is precluded by the findings at paragraphs [117] and [118] of the decision of 29 September 2011. 11Claude filed a notice of motion on 4 November 2011 to formalise the claim for allowances to which I have referred. To that point, he had been content to leave them as matters of defence (they were raised in paragraph 35 of his defence). The filing of the notice of motion was, of itself, an irregular course. Claude did not see fit to file any cross-claim in the proceedings so as to assert an entitlement to the sums that he now says should reflect in allowances in his favour upon the making of an inquiry as to the equitable compensation he must pay. He thus did not seek to sustain positive claims and, as I have said, merely put the relevant matters forward by way of defence. The notice of motion should be dismissed with costs. 12Submissions by counsel for Claude next say that orders cannot be made against Claude unless the court has addressed the question whether, upon an exercise of jurisdiction under s 241 of the Corporations Act , GC & Co should be permitted to depart from certain determinations of the Administrative Appeals Tribunal and the Federal Court in certain taxation proceedings to which GC & Co was a party. The answer is that the court is not exercising s 241 jurisdiction: it is merely formulating orders to give effect to general law rights found in favour of GC & Co in the derivative action; and, in any event, outcomes between GC & Co and the Commissioner of Taxation are, in the present context, irrelevant. 13The next matter of controversy is whether the court should now make an award of a particular sum of equitable compensation or whether it should order an inquiry to establish the amount of the equitable compensation to be given and order payment of the sum determined upon inquiry. 14Given the claims in prayers 5 and 6 of the further amended statement of claim and the findings at paragraphs [182] and [183] of the reasons of 29 September 2011, the latter course should be taken. However, there remains the question in the second part of paragraph [183] as to the appropriate method of calculation of compensation. 15In relation to the moneys applied to the dairy farm acquisition, GC & Co says that regard should be had to the value of the land, so that compensation is measured as the present value less any part of that value shown to have come from improvements paid for from funds that did not come from GC & Co. Claude's position is that the appropriate measure in relation to the dairy farm aspect is the sum of $1 million drawn from the loan account to finance the acquisition (plus appropriate interest), 16I accept Claude's submissions in that respect. The situation was not one in which Claude, in breach of fiduciary duty, took (or procured to be taken) the land and other farm property. What he took (or procured to be taken) in breach of duty was the $1 million drawn on the false loan account. The price of $1 million was not alleged to be an undervalue (see paragraph [106] of the judgment). The wrongful taking was thus of money, not of the dairy farm property. 17In these circumstances, the inquiry should be as to all sums drawn from the false loan account (including the $1 million for the dairy farm); and the order should be that equitable compensation be in the aggregate of the sums found to have been drawn, with interest on each component thereof from the date of its drawing to the date of the order. 18Interest on each component should be calculated in accordance with Practice Note SC Gen 16. 19I turn next to the matter of costs as between GC & Co and Claude, bearing in mind that these are derivative proceedings brought on behalf of GC & Co by Denis Cassegrain. 20The nature of the proceedings, coupled with certain undertakings and indemnities given with respect to costs, means that Denis Cassegrain, Catherine Dunn, Patrick Cassegrain and John Cassegrain should be included in costs orders, but in a general context where Claude is to pay GC & Co's costs except as they relate exclusively to claims against Felicity Cassegrain not replicated in the claims against Claude: see reasons of 19 September 2011, paragraph [249]. Claude should also indemnify GC & Co for its costs liability to Denis pursuant to a costs order in the s 237 application. 21It was submitted on behalf of Claude that no order for costs should be made against Claude until completion of the inquiry. The submission is made on the basis that there may be a balance in his favour. Since that possibility does not arise in view of paragraphs [9] to [11] above, no deferral is warranted. 22It was also submitted on behalf of Claude that if orders by way of declaratory or injunctive relief or for the making of an inquiry are made, "consideration should be given to whether it is necessary or appropriate to make an order under Uniform Civil Procedure Rules 2005 Part 51 for an extension (pending completion of any inquiry or the taking of accounts) of the time within which GC & Co and/or Claude might appeal against the court's final orders". 23Relevant provisions within Part 51 of the Uniform Civil Procedure Rules dealing with extension of time are rules 51.9(1)(b) and 5.16(a) and (c). Each, however, allows "the Court" to extend time; and, having regard to the definition of "Court" in rule 51.2, the power is exercisable only by the Court of Appeal. It would therefore be inappropriate for me to make any order extending time, even if a case for such an order had been made out (something that I need not decide). 24Finally, there is a matter not raised by the parties. The inquiry will appropriately be committed to an associate judge. Because it is arguably undesirable that a judge undertake the inquiry if an associate judge cannot be made available (see McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [196] and [197]), I will make provision for the question of referral to a person other than an associate judge to be brought before the court for decision should either party so wish. 25The court now makes the following orders, which are in addition to those previously made and set out at paragraph [2] above: 1. Declare that the first defendant (Claude Cassegrain) breached his fiduciary duty to the first plaintiff (Gerard Cassegrain & Co Pty Ltd) by: (a) asserting against the first plaintiff that he was personally entitled to payment of $4.25 million in consequence of the CSIRO settlement; (b) ensuring that the first plaintiff acknowledged the existence of a corresponding current liability (in the form of a loan account) to pay him $4.5 million; and (c) relying on that acknowledgement to obtain value and money from the first plaintiff. 2. Order that the first defendant be permanently restrained from resorting to or dealing with the loan account created in his name in the books of the first plaintiff upon the basis that he is personally entitled to any part of the CSIRO settlement moneys. 3. Order that inquiry be made as to each and every amount obtained by the first defendant from the first plaintiff by resort to and drawing upon the said loan account and the date of the obtaining thereof. 4. Order that the said inquiry be made by the Associate Judge in the Equity Division, but reserving to each of the first plaintiff and the first defendant liberty to apply for an order that the making of the inquiry be referred instead to some other person. 5. Order that the first defendant pay to the first plaintiff as equitable compensation a sum equal to the aggregate of the several amounts found upon inquiry to have been so obtained by the first defendant, together with interest upon each such amount from the date on which the amount was obtained to the date of this order and on the footing that: (a) for the period from the date on which the amount was obtained to the next succeeding 30 June or 31 December (whichever first occurred), interest is at the rate that is 4% above the cash rate published by the Reserve Bank of Australia most recently before the date on which the amount was obtained; (b) for each succeeding period of six complete months (up to and including the period ending 30 June 2011), interest is at the rate that is 4% above the cash rate published by the Reserve Bank of Australia most recently before the period commenced; (c) for the period from 1 July 2011 to the date of this order, interest is at the rate that is 4% above the cash rate published by the Reserve Bank of Australia most recently before 1 July 2011; and (d) no amount of interest shall itself bear interest. 6. Order that the first plaintiff's costs of these proceedings (except as they relate to the aspects of the claims against the second defendant not replicated in the claims against the first defendant), including costs of the notice of motion filed on 4 November 2011, as agreed or assessed in each case, be borne by the first defendant and that he pay the same to Denis Cassegrain, Catherine Dunn, Patrick Cassegrain and John Cassegrain. 7. Order that order 2 in New South Wales Supreme Court proceedings 6064 of 2007 dated 14 November 2008 be vacated. 8. Order that the first defendant indemnify the first plaintiff for its liability to Denis Cassegrain pursuant to order 1 made in New South Wales Supreme Court proceedings 6064 of 2007 dated 14 November 2008.