Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2006] HCATrans 261 (19 May 2006)

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Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2006] HCATrans 261 (19 May 2006)

Last Updated: 30 May 2006

[2006] HCATrans 261

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P43 of 2005

B e t w e e n -

EASTLAND TECHNOLOGY AUSTRALIA PTY LTD

First Applicant

FEE-ZONE PTY LTD

Second Applicant

INTER-CONTINENTAL BUSINESS CORPORATION PTY LTD

Third Applicant

and

MAXWELL EDMUND WHISSON

First Respondent

DEAN BRIAN PRESTIDGE

Second Respondent

SILVERFERN NOMINEES PTY LTD (AS TRUSTEE OF THE PRESTIDGE FAMILY TRUST)

Third Respondent

Application for special leave to appeal

HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 19 MAY 2006, AT 2.50 PM

Copyright in the High Court of Australia

__________________

MR N.W. McKERRACHER, QC: May it please the Court, with my learned friend, MR A.P. HERSHOWITZ, I appear for the applicants. (instructed by Paiker & Overmeire)

MR G.R. DONALDSON, SC: If the Court pleases, I appear with my learned friend, MR B.W. ASHDOWN, for the respondents. (instructed by Curwood & Co)

HAYNE J: Yes, Mr McKerracher.

MR McKERRACHER: Your Honours, the special leave points are articulated in the summary of argument and in particular, in our submission, the fundamental issue for determination is the extent of the efficacy of compromises between a corporation and a director of a corporation in relation to an alleged breach of statutory duty.

HAYNE J: To get to that point, would you need to overturn findings of fact made at trial, not disturbed on appeal, to the effect that there was no relevant breach of duty?

MR McKERRACHER: In our submission, no, your Honour, for the reason that taking the facts as found, there was on any view of the matter on the law a circumstance in which the chairman of the company was, as he accepted, wearing two hats in negotiating with a company for sale of an invention which was in the same field.

HAYNE J: Do I understand though both the trial judge and the Court of Appeal to find no breach of statutory duties?

MR McKERRACHER: That is correct, your Honour.

HAYNE J: It follows, does it not, that you would have to upset those findings of no breach of statutory duty to get to the point which you say is the point of general application and importance?

MR McKERRACHER: Only to this extent, your Honour. We cavil with no findings whatsoever other than the conclusion that wearing two hats, so to speak, in these negotiations would not as a matter of law constitute a breach of the statutory provisions. We say that is simply a matter of law on taking the facts as they stand.

HAYNE J: Is that a point that was agitated in the Court of Appeal?

MR McKERRACHER: The only distinction between the nature of the point that is run, your Honour, is this that there is focus on the grounds of the special leave application of simply the negotiations which occurred with a Dr Ryan of Heytesbury, and your Honour will know from the facts that when this novel invention was produced by the partnership, they approached privately the company Heytesbury through a Dr Ryan and held a sequence of meetings with Dr Ryan in an effort to try to persuade Dr Ryan to acquire an interest through Heytesbury in the invention.

At the same time patents were being lodged in the name of the partnership for that invention. The only - - -

HAYNE J: Can you take me to that aspect of the reasons in the Court of Appeal that comes closest to addressing what you say is the two hats point?

MR McKERRACHER: Yes, could I first take your Honour to the trial judge’s observation on that which was simply adopted in the Court of Appeal, and that is to be found at page 51 of the application book at paragraph 131 of his Honour’s reasons. I will not read that to your Honours but I invite your Honours to read that aspect.

HAYNE J: Sorry, page 51?

MR McKERRACHER: Page 51 of the application book, your Honour, at about line 25. So the learned primary judge accepted – I beg your Honour’s pardon, I am looking at the wrong page. On page 32 of the appeal book, sorry.

HAYNE J: It is the end of a long morning but I thought I had completely lost the plot, Mr McKerracher. Page 32, paragraph 131, is that right?

MR McKERRACHER: That is correct, your Honour. So your Honour sees in the third line:

I accept Dr Whisson’s evidence. I accept it despite the fact that in his cross-examination Dr Whisson agreed that when wearing his “Di-Med hat at the Heytesbury meeting, it was to advance the interests of Mr Prestidge and himself. But that, I think, was not a matter which Dr Whisson regarded as being of any consequence.

Later in his Honour’s reasons his Honour accepted that there was a conflict at this point. If I could take your Honours to page 108 of the application book, at paragraph 514 his Honour says:

At worst it could be said against Dr Whisson that because he did not clarify his position with Eastland before approaching Heytesbury, he created a situation in which it became difficult for Heytesbury to proceed because of its perception of a conflict.

And his Honour concluded, indeed, that there had been a conflict for a short period of time but nothing came of it, and that is to be found at page 115, paragraph 553 where his Honour concluded:

I am not persuaded that Dr Whisson or Mr Prestidge were in breach of any fiduciary obligation (statutory or otherwise) which they owed to Eastland: or that Mr Prestidge was ever an officer of Eastland. Dr Whisson did place himself, inadvertently, in a position of conflict, but nothing came of it.

HAYNE J: Now, is that an amplification of what his Honour had earlier said at 109, paragraphs 516 to 517?

MR McKERRACHER: That is correct, as we perceive it, your Honour, in the sense that his Honour was observing that although he placed himself briefly in a position of conflict by these negotiations the company lost nothing because Heytesbury did not take up the opportunity, so that is the conclusion which his Honour reached and that was accepted in the Court of Appeal. Our submission is that there is nevertheless a conflict there which constitutes a breach of a fiduciary obligation - - -

HAYNE J: But leading to what consequence? Does not the trial judge say, yes, there was a conflict but so what, is what I read his Honour as saying.

MR McKERRACHER: It leads, in our submission, to the consequence that as a question of construction of the Corporations Law as it was at the time, there is an obligation, a liability to account for any profit arising from that, whereas his Honour is really - - -

HAYNE J: I am sorry, you really have to slow down at this point. I know you are desperate to get to what you say is the special leave point, that is what counsel is paid to do, but what I am having difficulty with is seeing how you get from what is said in the reasons below about conflict to any consequence of any significance. Yes, there is a conflict, nothing comes of it, no profit is made or loss suffered as a result of it, seems to be what the trial judge is saying. Now, do I misunderstand it?

MR McKERRACHER: We understand his Honour to be saying that no loss is suffered from it, and we accept that, but there are no indications on the evidence or the arguments that no profit was made from it and there would be in the ordinary course of events an obligation to account for profit for such a breach. Can I just move to the reason I say that, and it is this, your Honours.

The Court of Appeal made a slight error, in our respectful submission, in this sense in dealing with this concept. In her Honour’s reasons, Justice McLure at 155 of the application book summarised the effect of section 1317HD, as it then was, and with respect correctly summarised that the provision was that if there is a contravention of a civil penalty provision a person must account to the corporation for that circumstance, but then her Honour went on on the following page to say at paragraph 30 that:

Section 229(7) of the Code was in materially the same terms as s 1317HD of the Law -

and was considered in the Chief Justice and Justice Heydon’s decision in Angas Law Services. That, with respect, is not correct because what was considered in Angas Law Services and is clear from the passage her Honour cites is that the High Court was there dealing with the company’s right, discretionary right, as it existed before amendment of 1317HD to pursue any benefits for a breach, whereas the state of the Act as at the time of the breach, as her Honour correctly observed at 155, was that there is a liability established for which a person must account.

So that as a matter of law, it follows that automatically there is a statutory liability which we say the directors of a board have no power as a question of law to exempt, and that is the decision which the Court of Appeal held to the contrary, that is to say, although her Honour observed it was a novel question as to whether a board could exempt a director for an alleged breach of statutory duty, her Honour took the view that a board could do that and in part it follows that she reached that reason because of an ability of the board to do so for a breach of the general law.

We say that, with respect, cannot be right because there is not even power for the shareholders of a company in general meeting to exempt directors for breaches of statute. Secondly, there were statutory powers then as there are now for a director who perceives a breach to seek to be excused by the court in respect of such a breach, and thirdly is the point that at the time of Angas Law Services and at the time of Miller v Miller, which is another decision cited by her Honour and which looks at the effect of section 241, there was no automatic liability then established under section 1317HD.

HAYNE J: Could you go please to paragraph 73 of her Honour’s reasons, page 167. Do you challenge what her Honour says there?

MR McKERRACHER: Yes, we do challenge that, your Honour, and that is the line of argument we have pursued in relation to the second appeal point in that we say that regardless of any benefits as described by her Honour arising as a result of the activities with Heytesbury it was the very fact of those activities which constituted a conflict of interest and breached the statute. The negotiations, wearing two hats, telling – these facts are all established in the Court of Appeal’s reasons - - -

HAYNE J: I understand that, but was there the usurpation or diversion of a business opportunity, was there improper competition with Eastland, was there permitting the personal interests to conflict with the duties to Eastland, that is, what came of the relationship with Heytesbury, nothing.

MR McKERRACHER: I understand your Honour’s point. Our submission is that there was nevertheless a circumstance simply by virtue of the negotiations, regardless of the outcome, which constituted a situation where Dr Whisson permitted his personal interest to conflict with his duties to Eastland, and that alone, we say, constitutes a breach which is actionable. The mere fact that those dealings did not give rise to profit is incidental to the proper determination and characterisation of that activity. That is the submission that we make at 207 of the application book at paragraph (d) where we say that:

In his negotiation with R, W sought to gain from H advantages for the DiMed Partnership and its members. Hence, W identified the possible lack of “early reward” to W and P and suggested salaries and fees for them -

Then as a matter of submission of principle, we continue that:

Contrary to the reasoning of the Court of Appeal, the fact that W was representing E at the H meeting constituted the very embodiment of the conflict rather than being the foundation for negating that conflict.

So the Court of Appeal has approached the matter on the basis that when a director wears two hats and is therefore also looking after the company of which he directs, or in this case is the chairman, that would negate the conflict. That, we say, begs the question as to what is being done with the other hat, and it is clear on the evidence that with the other hat he was attending for his own personal benefit.

So, your Honours, that is the way we characterise the fiduciary breach. The 241 point, we say, is a matter of significant national importance. It would be an ideal opportunity for this Court to send messages as to what the powers of directors are in these circumstances, and if we are wrong on both those points, and only if we are wrong on both those points, would we need then to consider the third ground of appeal.

Can I state that very shortly in this way by referring to her Honour Justice McLure’s summary as to her conclusion as to why concessions were made by the first applicant through counsel in the hearing below and, your Honours, that is to be found at page 182 of the application book, and at paragraph 109 her Honour says:

Both the trial Judge and the respondents’ counsel understood Mr Jooste to concede that the only defence to the counterclaim was whether the Court could (or should) deal with it as a result of the commencement of the arbitration. Although it is a surprising concession, I am satisfied that is the effect of Mr Jooste’s conduct.

On this point, your Honours, we simply say that where Mr Jooste continued and said that:

He says the concession was limited to the respondent’s (Di-Med’s) alleged breaches of the licence agreement -

and her Honour concludes:

I do not accept that there was such an express or implied limitation.

We say that that was clearly implicit by virtue of the fact that there was on foot the amended application of the first applicant which was entirely consistent with keeping the licensing agreement open, and that it was certainly not intended on a proper construction, and nor should it be the
effect of any concession made by counsel that there was an abandonment of that part of the application which was in fact never dealt with. Unless there are any other matters your Honours wish to raise, those are our submissions.

HAYNE J: Thank you, Mr McKerracher. We need not trouble you, Mr Donaldson.

The point about construction and application of section 241(1)(b) and (1A) of the Corporations Law which the applicants seek to agitate in this Court would fall for consideration only if the applicant were to succeed in overturning the concurrent findings by the trial judge and the Court of Appeal that there was no breach of duty by the respondents occasioning damage to the applicants. In our opinion there are insufficient prospects of the applicants succeeding in that task.

We are not to be taken as expressing any view about the correctness of the analysis of section 241 that was made in the Court of Appeal. It is unnecessary for us to do that. For these reasons we are of opinion that an appeal would enjoy insufficient prospects of success to warrant a grant of special leave to appeal. Special leave is accordingly refused and refused with costs.

Adjourn the Court.

AT 3.10 PM THE MATTER WAS CONCLUDED