FEDERAL COURT OF AUSTRALIA

Kijurina (as liquidator of ET Family Pty Limited) v Taouk [2015] FCA 424

THE COURT DECLARES THAT:

1.    Each of the transfers of the following properties from the third plaintiff to Claire Bachour Taouk was an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act 2001 (Cth).

(i)    The property known as 30/402 Chapel Road, Bankstown in the State of New South Wales being the whole of the land contained in Certificate of Title Folio Identifier 30/SP65391;

(ii)    the property known as 31/402 Chapel Road, Bankstown in the State of New South Wales being the whole of the land contained in Certificate of Title Folio Identifier 31/SP65391;

(iii)    the property known as 32/402 Chapel Road, Bankstown in the State of New South Wales being the whole of the land contained in Certificate of Title Folio Identifier 32/SP65391;

(collectively, “the ET Properties”).

2.    Each of the transfers of the ET Properties by the third plaintiff to Claire Bachour Taouk was an uncommercial transaction within the meaning of s 588FB of the Corporations Act 2001 (Cth).

3.    Each of the transfers of the ET Properties by the third plaintiff to Claire Bachour Taouk was an insolvent transaction within the meaning of s 588FC of the Corporations Act 2001 (Cth).

4.    By causing, permitting procuring and/or consenting to the transfers of the ET Properties to Claire Bachour Taouk and/or entering into the Financial Agreement with Claire Bachour Taouk pursuant to s 90C of the Family Law Act 1975 (Cth) and/or causing the payments in Schedule 1 of the Amended Statement of Claim to be made, the defendant in his capacity as a director of the third plaintiff:

(i)    Contravened each of the duties he owed to the third plaintiff pursuant to ss 180(1), 181, 182 and 183 of the Corporations Act 2001 (Cth); and

(ii)    breached his fiduciary obligations owed to the third plaintiff.

5.    The transfer of the property known as Shop 2, 74 Kendal Street, Cowra in the State of New South Wales being the whole of the land in Certificate of Title Folio Identifier 1/739481 (“the MEA Property”) from the fourth plaintiff to Claire Bachour Taouk was an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act 2001 (Cth).

6.    The transfer of the MEA Property by the fourth plaintiff to Claire Bachour Taouk was an uncommercial transaction within the meaning of s 588FB of the Corporations Act 2001 (Cth).

7.    The transfer of the MEA Property by the fourth plaintiff to Claire Bachour Taouk was an insolvent transaction within the meaning of s 588FC of the Corporations Act 2001 (Cth).

8.    By causing, permitting procuring and/or consenting to the transfers of the MEA Property to Claire Bachour Taouk and/or entering into the Financial Agreement with Claire Bachour Taouk pursuant to s 90C of the Family Law Act 1975 (Cth) and/or causing the payments in Schedule 2 of the Amended Statement of Claim to be made, the defendant in his capacity as a director of the fourth plaintiff:

(i)    Contravened each of the duties he owed to the fourth plaintiff pursuant to ss 180(1), 181, 182 and 183 of the Corporations Act 2001 (Cth); and

(ii)    breached his fiduciary obligations owed to the fourth plaintiff.

THE COURT ORDERS THAT:

9.    Pursuant to s 588FF(1)(c) of the Corporations Act 2001 (Cth) the defendant pay to the third plaintiff the sum of $910,000.

10.    Pursuant to s 588FF(1)(a) of the Corporations Act 2001 (Cth) the defendant pay to the third plaintiff the sum of $20,000.

11.    Pursuant to s 588FF(1)(c) of the Corporations Act 2001 (Cth) the defendant pay to the fourth plaintiff the sum of $2,250,000.

12.    Pursuant to s 588FF(1)(a) of the Corporations Act 2001 (Cth) the defendant pay to the fourth plaintiff the sum of $162,767.99.

13.    Pursuant to s 1317H of the Corporations Act 2001 (Cth) the defendant pay to the third plaintiff the sum of $930,000 less any amount recovered under orders 9 and 10.

14.    Pursuant to s 1317H of the Corporations Act 2001 (Cth) the defendant pay to the fourth plaintiff the sum of $2,408,769.98 less any amount recovered under orders 11 and 12.

15.    The defendant pay the third plaintiff equitable damages in the sum of $930,000 less any amount recovered under orders 9, 10 and 13.

16.    The defendant pay the fourth plaintiff equitable damages in the sum of $2,408,769.98 less any amount recovered under orders 11, 12 and 14.

17.    Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) the defendant pay the third plaintiff interest in respect of the sum of $910,000 from 26 September 2013 at the rate of 6.75% up to and including 31 December 2013 and thereafter at the rate of 6.5%; and in respect of the sum of $20,000 from 4 April 2014 at the rate of 6.5%.

18.    Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) the defendant pay the third plaintiff interest in respect of the sum of $2,250,000 from 26 September 2013 at the rate of 6.75% up to and including 31 December 2013 and thereafter at the rate of 6.5%; and in respect of the sum of $162,767.99 from 4 April 2014 at the rate of 6.5%.

19.    The defendant pay the plaintiffs costs as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    By further amended originating process filed with the leave of the Court granted on 14 April 2015, the plaintiffs seek various forms of relief in relation to the third (“ET Family”) and fourth (“MEA Group”) plaintiffs, including declaratory relief; orders requiring the defendant (“Mr Taouk”) to pay moneys to ET Family and MEA Group; and orders for statutory damages, statutory compensation and equitable damages.

2    More specifically, the plaintiffs seek declarations that each of the transfers of three parcels of real estate at Bankstown, New South Wales (“the Bankstown properties”) from ET Family to Claire Bachour Taouk (“Mrs Taouk”) and the transfer of another parcel of real estate at Cowra, New South Wales (“the Cowra property”) from MEA Group to Mrs Taouk were unreasonable director-related transactions within the meaning of s 588FDA of the Corporations Act 2001 (Cth) (“CA”); were uncommercial transactions within the meaning of s 588FB CA; were insolvent transactions within the meaning of s 588FC CA; that Mr Taouk in his capacity as a director of ET Family and as a director of MEA Group contravened the duties he owed to each of ET Family and MEA Group pursuant to ss 180, 181, 182 and 183 CA and breached his fiduciary obligations owed to each of ET Family and MEA Group; orders pursuant to s 588FF CA requiring Mr Taouk to pay ET Family and MEA Group amounts that fairly represent some or all of the benefits that Mr Taouk has received because of the transfer of the Bankstown properties and the Cowra property to Mrs Taouk; orders pursuant to s 588FF(1)(a) or (b) CA requiring Mr Taouk to pay to ET Family and MEA Group the moneys paid by each as itemised in Schedules 1 and 2 respectively of the Amended Statement of Claim; and orders for statutory damages pursuant to s 1324(10) CA, statutory compensation pursuant to s 1317H CA and equitable damages.

3    The Defence of Mr Taouk to the Amended Statement of Claim does not put in issue that the transfers of the Bankstown properties by ET Family to Mrs Taouk, the transfer of the Cowra property by MEA Group to Mrs Taouk, nor the payment of moneys by ET Family and MEA Group referred to in Schedules 1 and 2 respectively of the Amended Statement of Claim, in fact occurred.

4    By the time of the hearing of the further amended originating application on 14 April 2015, the proceedings against Mrs Taouk and the third defendant (“NAB”) had settled and been discontinued. Only the proceeding against Mr Taouk remained on foot. Mr Taouk did not appear on the hearing and was not represented. He had previously informed my chambers by email from Lebanon that he would not be returning to Australia to appear and that, owing to his financial circumstances, he would not be legally represented. He inquired whether he could view the hearing of the proceeding on skype but was informed that such a facility was not available. Parts of his affidavit sworn 15 December 2014 were read into evidence by counsel for the plaintiffs.

Factual Background

Dramatis Personae

5    As at the date of commencement of these proceedings, Mr and Mrs Taouk were married, although separated. They had several children, including their son Justin Taouk.

6    ET Family was incorporated on 30 April 2010. At all material times, Mr Taouk has been the sole director, secretary and shareholder of ET Family.

7    On 14 September 2010, ET Family acquired the Bankstown properties known as:

(a)    30/402 Chapel Road, Bankstown in the State of New South Wales being the whole of the and contained in Certificate of Title Folio Identifier 30/SP65391;

(b)    31/402 Chapel Road, Bankstown in the State of New South Wales being the whole of the land contained in Certificate of Title Folio Identifier 31/SP65391;

(c)    32/402 Chapel Road, Bankstown in the State of New South Wales being the whole of the land contained in Certificate of Title Folio Identifier 32/SP65391;

for $600,000.

8    MEA Group was incorporated on 7 August, 2012. At all material times, Mr Taouk has been the sole director, secretary and shareholder.

9    On 21 September 2012, the MEA Group acquired the property known as Shop 2, 74 Kendal Street, Cowra in the State of New South Wales being the whole of the land in Certificate of Title Folio Identifier 1/739481 by Transfer (undated) for $2,350,000.

10    Australian Business Directory – ABD Pty Limited (“ABD”) was incorporated on 20 September 2001. Mr Taouk was the sole director and secretary of ABD between 20 September 2001 and 10 September, 2013. Justin Taouk was appointed a director on 10 September 2013 and remains the sole director. Justin Taouk is presently the sole shareholder (having replaced Mr Taouk as the sole shareholder).

11    The first and second plaintiffs were the appointed liquidators of both ET Family and MEA Group pursuant to a voluntary winding up of both companies on 11 October 2013, and are hereinafter referred to in both capacities as “Messrs Kijurina and Albarran” or as “the liquidators”).

Financial Agreement

12    On or around 3 September 2013 Mr and Mrs Taouk entered into a Financial Agreement (“BFA” – otherwise known as a Binding Financial Agreement) pursuant to s 90C of the Family Law Act 1975 (Cth) (“FLA”).

13    Before I deal with the terms of the BFA, it is important to outline the relevant provisions of the FLA. First, s 90C FLA provides.

Financial agreements during marriage

(1)    If:

(a)    the parties to a marriage make a written agreement with respect to any of the matters mentioned in subsection (2); and

(aa)    at the time of the making of the agreement, the parties to the marriage are not the spouse parties to any other binding agreement (whether made under this section or section 90B or 90D) with respect to any of those matters; and

(b)    the agreement is expressed to be made under this section;

the agreement is a financial agreement. The parties to the marriage may make the financial agreement with one or more other people.

(2)    The matters referred to in paragraph (1)(a) are the following:

(a)    how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and during the marriage, is to be dealt with;

(b)    the maintenance of either of the spouse parties:

(i)    during the marriage; or

(ii)    after divorce; or

(iii)    both during the marriage and after divorce.

(2A)    For the avoidance of doubt, a financial agreement under this section may be made before or after the marriage has broken down.

(3)    A financial agreement made as mentioned in subsection (1) may also contain:

(a)    matters incidental or ancillary to those mentioned in subsection (2); and

(b)    other matters.

(4)    A financial agreement (the new agreement) made as mentioned in subsection (1) may terminate a previous financial agreement (however made) if all of the parties to the previous agreement are parties to the new agreement.

14    Section 90D FLA is in identical terms, save that it applies after a divorce order is made.

15    Section 90G FLA deals with the legal effect of entry into a financial agreement:

When financial agreements are binding

(1)    Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:

(a)    the agreement is signed by all parties; and

(b)    before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and

(c)    either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and

(ca)    a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and

(d)    the agreement has not been terminated and has not been set aside by a court.

Note:    For the manner in which the contents of a financial agreement may be proved, see section 48 of the Evidence Act 1995.

(1A)    A financial agreement is binding on the parties to the agreement if:

(a)    the agreement is signed by all parties; and

(b)    one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and

(c)    a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and

(d)    the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and

(e)    the agreement has not been terminated and has not been set aside by a court.

(1B)    For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application) by a spouse party seeking to enforce the agreement.

(1C)    To avoid doubt, section 90KA applies in relation to the enforcement application.

(2)    A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.

16    Annexure “A” to the BFA lists the assets and liabilities of Mr & Mrs Taouk (although it included assets owned by ET Family and MEA Group). What is relevant is that Mr Taouk listed the tax debts owed to the ATO by ET Family and MEA Croup under the heading “liabilities”. He was clearly aware in September 2013 that a total of $672,000 in tax was owed. Further, Mr Taouk was aware that he was discharging his personal financial obligations with assets of ET Family and MEA Group (noting that the handwritten Transfers referred to at [18] and [19] below named the correct corporate registered proprietors). In fact, Mr Taouk freely admits that there were tax liabilities at para [5] of his Affidavit sworn 15 December 2014.

17    The agreed estimated values of the real property and companies listed totalled $4,450,000 and, under cl 3(a) of the BFA, Mrs Taouk received the assets in bold:

Transfers of the Bankstown properties and the Cowra property

18    On or around 26 September, 2013, the Bankstown properties were transferred to Mrs Taouk by undated Transfers, for consideration “pursuant to s 90C Family Law Act 1975”. As at the date of transfer, the reasonable market value of the Bankstown properties was between $910,000 and $1,045,000.

19    On 26 September, 2013, the Cowra property was transferred to Mrs Taouk by undated Transfer, for consideration “pursuant to s 90C Family Law Act 1975”. As at the date of transfer, the reasonable market value of the Cowra property was between $2,250,000 and $2,350,000.

Liquidation of ET Family and MEA Group

20    A special resolution passed at an Extraordinary General Meeting of ET Family on 11 October, 2013 appointed Messrs Kijurina and Albarran as liquidators of ET Family.

21    A Report as to Affairs was tabled during that meeting containing a certification by Mr Taouk that creditors of ET Family totalled not less than $643,497:

(a)    ATO – $633,997;

(b)    Harwood Accountants – $7,000;

(c)    Mr Taouk – $2,500;

(d)    Sydney Tax Advisory – TBA.

22    The current creditors of ET Family total $645,524.27.

23    A special resolution passed at an Extraordinary General Meeting of MEA Group on 11 October, 2013 appointed Messrs Kijurina and Albarran as liquidators of MEA Group.

24    A Report as to Affairs was tabled during that meeting containing a certification by Mr Taouk that creditors of MEA Group totalled not less than $72,090:

(a)    ATO – $55,000;

(b)    Harwood Accountants – $7,000;

(c)    Mr Taouk – $2,500;

(d)    New South Wales Office of State Revenue – $7,590;

(e)    Sydney Tax Advisory – TBA.

25    The current creditors of MEA Group total $65,808.70.

Mortgaging of the Bankstown properties and the Cowra property

26    On 13 November, 2013, the NAB offered Mrs Taouk, as trustee for the NSW County Investments No 2 Trust, two loans of $750,000 and $150,000 respectively.

27    Mrs Taouk drew down $427,000 and $120,000 respectively under both facilities. Bank cheques were drawn by the NAB as follows on 5 December, 2013:

(1)    A cheque in favour of Mr Taouk for $348,435 deposited into his Westpac account;

(2)    a cheque drawn in favour of Mr & Mrs Taouk in the sum of $120,000 which was deposited into a Westpac account held by Mr Taouk; and

(3)    a cheque in favour of Mr Taouk in the sum of $80,000 and deposited into a Westpac Bank Account held by Mr Taouk.

28    Mr Taouk, therefore, received a total of $548,435.

29    The facilities advanced provided by the NAB were secured by a mortgage over the Cowra property and the Bankstown properties. The liquidators did not become aware of this until 25 March, 2014, as the mortgages were unregistered at the date of commencement of these proceedings.

Liquidators attempt to get information on the transfers of the Bankstown properties and the Cowra property

30    Between 29 November 2013 and 31 March 2014, numerous correspondence passed between either the liquidators or Nelson McKinnon (on behalf of the plaintiffs) and Mr Taouk or his lawyer, Mr Majed Kheir, and Mrs Taouk seeking information as to the basis of the transfer of the Cowra property and Bankstown properties.

31    A review of the correspondence reveals that the response by and on behalf of both Mr and Mrs Taouk was entirely unsatisfactory. Accordingly, these proceedings were instituted ex parte on 4 April 2014 when Jacobson J made several restraining orders against Mrs Taouk dealing with the Bankstown properties and the Cowra property other than on certain terms.

Transfers of money by ET Family

32    ET Family operated Commonwealth Bank of Australia Business Transaction Account Number 2000-13873704 (“Commonwealth Bank Account”).

33    ET Family made the following payments from the Commonwealth Bank Account (“ET Family Monetary Transfers”) and which are not denied in Mr Taouk’s affidavit sworn 15 December 2014:

Transfer of money by MEA Group

34    MEA Group operated Bank of Sydney Account Number 908087 (“Bank of Sydney Account”).

35    MEA Group made each of the following payments from the Bank of Sydney Account (‘MEA Group Monetary Transfers’) and which are not denied in Mr Taouk’s Affidavit sworn 15 December 2014:

Unreasonable Director-Related Transactions

Statutory framework

36    Section 588FDA CA provides:

Unreasonable director-related transactions

(1)    A transaction of a company is an unreasonable director-related transaction of the company if, and only if:

(a)    the transaction is:

(i)    a payment made by the company; or

(ii)    a conveyance, transfer or other disposition by the company of property of the company; or

(iii)    the issue of securities by the company; or

(iv)    the incurring by the company of an obligation to make such a payment, disposition or issue;

and

(b)    the payment, disposition or issue is, or is to be, made to:

(i)    a director of the company; or

(ii)    a close associate of a director of the company; or

(iii)    a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii);

and

(c)    it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:

(i)    the benefits (if any) to the company of entering into the transaction; and

(ii)    the detriment to the company of entering into the transaction; and

(iii)    the respective benefits to other parties to the transaction of entering into it; and

(iv)    any other relevant matter.

The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.

Note: Subparagraph (a)(iv) -- This would include, for example, granting options over shares in the company.

(2)    To avoid doubt, if:

(a)    the transaction is a payment, disposition or issue; and

(b)    the transaction is entered into for the purpose of meeting an obligation the company has incurred;

the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).

(3)    A transaction may be an unreasonable director-related transaction because of subsection (1):

(a)    whether or not a creditor of the company is a party to the transaction; and

(b)    even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

37    Section 9 CA relevantly provides:

‘close associate’ of a director means:

(a)    a relative of the director; or

(b)    a relative of a spouse of the director.

…

‘Relative’, in relation to a person, means the spouse, parent or remoter lineal ancestor, child or remoter issue, or brother or sister of the person.

…

‘on behalf of’ includes on the instructions of; and

…

‘benefit’:

(a)    means any benefit, whether by way of payment of cash or otherwise; and

(b)    when used in Division 2 of Part 2D.2 (sections 200 to 200J) – has the meaning given by section 200AB.

38    Section 588FE(6A) CA sets out the circumstances under which an unreasonable director-related transaction is a voidable transaction:

(6A)    The transaction is voidable if:

(a)    it is an unreasonable director-related transaction of the company; and

(b)    it was entered into, or an act was done for the purposes of giving effect to it:

(i)    during the 4 years ending on the relation-back day; or

(ii)    after that day but on or before the day when the winding up began.

39    Section 588FF(1) CA sets out the relief that a Court may make in respect of a voidable transaction:

(1)    Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:

(a)    an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;

…

(c)    an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;

40    Section 588FF(3) CA sets out when an application under subs (1) may be made:

(3)    An application under subsection (1) may only be made during the period beginning on the relation-back day and ending:

(i)    3 years after the relation-back day; or

(ii)    12 months after the first appointment of a liquidator in relation to the winding up of the company;

whichever is the later …

41    Section 588FF(4) CA relevantly sets out the purpose for which orders may be made under subs (1):

(4)    If the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between:

(a)    the total value of the benefits provided by the company under the transaction;

and

(b)    the value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c).

42    The right to apply for an order under s 588FF CA is a statutory right of the liquidator, not a proprietary right of the company, and any money recovered is held by the person holding the office of liquidator for the benefit of the company’s creditors and contributories: Harris Scarfe Ltd (in liq) & Anor (2006) 203 FLR 46 at [26]–[29] per Debelle J (affirmed on appeal: Gazal Apparel Pty Ltd v Davies [2007] SASC 91).

43     In Hall & Anor as Liquidators of New Tel Ltd v Ledge Finance Ltd [2005] NSWSC 645, Barrett J considered that despite the use of the word “voidable” in Pt 5.7B, “the statutory provisions are not concerned with undoing transactions or re-arranging the financial relationships of parties to transactions, vis-à-vis those transactions themselves” (at [12]). That is, the liquidator is not affected by the nature of the contractual rights between the company and the transferee (unless the nature of those rights is able to prove that no transaction occurred).

44    The court may make an order under s 588FF CA even if creditors generally would not benefit from the order: Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651.

45    Relief under s 588FF(1) is intended to be restitutionary in nature, and the provision is not concerned with compensation for loss or damage suffered by the company: Weaver (as liquidator of Harburn Group Australia Pty Ltd) & Ors v Harburn & Anor (2014) 103 ACSR 416 at [114].

ET Family Bankstown properties

46    There can be no dispute that the elements of section 588FDA(1)(a) and (b) CA are met – that is, the Transfers of the Bankstown properties constituted a transfer or disposition of the land to a close associate (Mrs Taouk). The “transaction” included:

(1)    Each of the Transfers of the Bankstown Properties (at [18] above) which were registered; and

(2)    the BFA.

47    The question is whether a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the matters in section 588FDA(1)(c). The plaintiffs submit that a reasonable person would not have entered into the transaction because as at the date of the Transfers of the Bankstown properties:

(1)    The reasonable market value of the Bankstown properties was between $910,000 and $1,045,000 (noting that no evidence has been served in opposition to the affidavit of Jason Shore sworn 5 December 2014 (Ex 4);

(2)    ET Family owed approximately $633,997 to the ATO – Mr Taouk was aware of this liability as it was recorded in both the BFA and in the Report as to Affairs certified by Mr Taouk;

(3)    there were other creditors;

(4)    the Report as to Affairs also recorded that ET Family had no assets;

(5)    after the transfer, ET Family would have no assets to pay the creditors, including a substantial tax liability;

(6)    the transfer was to a close associate of Mr Taouk;

(7)    ET Family has received no consideration for assets worth approximately $1,000,000;

(8)    the Bankstown properties were being used to discharge a personal debt of Mr Taouk;

(9)    Mr Taouk received, after transfer of the Bankstown properties, payments totalling $548,435, obtained from a mortgage of the same properties;

(10)    the transaction was an attempt by Mr Taouk to avoid payment of the ATO liability by seeking to quarantine the assets with Mrs Taouk.

48    As Mansfield J held in a similar case in Michael Edward Slaven v Clinton John Menegazzo [2009] ACTSC 94 at [44]:

In my judgment, it is clear that a reasonable person in the company’s circumstances would not have entered into the transaction having regard to those matters. That is because, a reasonable person in the position of the company at the time of the transaction, would not have agreed to dispose of the property upon the terms upon which the company did so.

49    For the same reasons, the liquidators submitted that a reasonable person would not have made the Transfers of the Bankstown properties having regard to the matters set out in [47] above and the financial position in which ET Family would be left with substantial debts and no assets to realise to pay such debts. I accept that submission.

50    The next question is the quantum of relief under s 588FF(1)(a)–(c). The benefit that Mr Taouk has received is the use of the Bankstown properties and their value to enter into a property settlement with Mrs Taouk – i.e., to discharge his personal obligation. Thus, the starting point is the value of the Bankstown properties at the date of transfer which is between $910,000 and $1,045,000. Section 588FF(4) requires deduction of the “value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c)”. It was submitted that this value, in the circumstances of this case, is nil. I accept that submission. Thus, the net amount claimed is in the range of $910,000 to $1,045,000.

ET Family monetary transfers

51    The transfer of moneys totalling $20,000 are not in dispute.

52    There can be no dispute that the elements of section 588FDA(1)(a) and (b) CA are met – that is, each of the payments of moneys constituted a payment by ET Family to either a close associate (being Justin Taouk) or MEA Group and ABD (being persons “on behalf of or for the benefit of” Mr Taouk). MEA was controlled by Mr Taouk and ABD by Justin Taouk.

53    The question is whether a reasonable person in the company’s circumstances would not have entered into the transaction (i.e., have made the payments) having regard to the matters in section 588FDA(1)(c). The plaintiffs submit that a reasonable person would not have made each payment because:

(1)    They were payments to related persons;

(2)    there was no consideration or value received by ET Family for the payments;

(3)    they were not bona fide debts or business expenses of ET Family;

(4)    Mr Taouk freely concedes on page 8 of his affidavit sworn 15 December 2014 that the expenses were personal expenses;

(5)    Mr Taouk was using the Commonwealth Bank Account as if it was his personal account.

Again, I accept that submission.

54    The next question is the quantum of relief under section 558FF(1)(a)–(c). The benefit that Mr Taouk has received is the use of the Commonwealth Bank Account as if it were his own. That, he has used company money to discharge someone else’s debts or for personal expenses. Thus, the starting point is the amount of the transfers being $20,000. Section 588FF(4) requires deduction of the “value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c)”. It is submitted that this value, in the circumstances of this case, is nil. I agree. Thus, the net amount claimed is $20,000.

MEA Group Cowra property

55    There can be no dispute that the elements of s 588FDA(1)(a) and (b) CA are met – that is, the Transfer of the Cowra property constituted a transfer of disposition of the land to a close associate (Mrs Taouk). The “transaction” is either or both of the following:

(1)    The Transfer of the Cowra property (at [19] above) which was registered; and

(2)    the BFA.

56    The question is whether a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the matters in s 588FDA(1)(c). The plaintiffs submit that a reasonable person would not have entered into the transaction because as at the date of transfer of the Cowra property:

(1)    The reasonable market value of the Cowra property was between $2,250,000 and $2,350,000 (noting that no evidence has been served in opposition to Ex 4);

(2)    MEA Group owed approximately $55,000 to the ATO – Mr Taouk was aware of this liability as it was recorded in both the BFA and in the Report as to Affairs certified by Mr Taouk;

(3)    there were other creditors;

(4)    the Report as to Affairs also recorded that MEA Group had no assets;

(5)    after the transfer, MEA Group would have no assets to pay the creditors, including a tax liability;

(6)    the transfer was to a close associate of Mr Taouk;

(7)    MEA Group received no consideration for assets worth in excess of $2,000,000;

(8)    the Cowra property was being used to discharge a personal debt of Mr Taouk;

(9)    Mr Taouk received, after transfer of the Cowra property, payments totalling $548,435, which he obtained from a mortgage of the same properties;

(10)    the transaction was an attempt by Mr Taouk to avoid payment of the ATO liability by seeking to quarantine the asset with Mrs Taouk.

Again, I accept that submission.

57    For the same reasons as Mansfield J expressed in Michael Edward Slaven v Clinton John Menegazzo (see [48] above), it is submitted that a reasonable person would not have made the transfer of the Cowra property having regard to the matters set out in [56] above and the financial position in which MEA Group would be left with debts and no asset to realise to pay such debts.

58    The next question is the quantum of relief under s 588FF(1)(a)–(c). The benefit that Mr Taouk has received is the use of the Cowra property and its value to enter into a property settlement with Mrs Taouk – i.e., to discharge his personal obligation. Thus, the starting point is the value of the Cowra property at the date of transfer which is either $2,250,000 or $2,350,000. Section 588FF(4) requires deduction of the “value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c)”. It is submitted that this value, in the circumstances of this case, is nil. I agree. Thus, the net amount claimed is in the range of $2,250,000 to $2,350,000.

MEA Group monetary transfers

59    The transfer of moneys totalling $165,187.99 do not appear to be in dispute.

60    There can be no dispute that the elements of s 588FDA(1)(a) and (b) CA are met – that is, each of the payments of moneys constituted a payment by ET Family to:

(1)    Mr Taouk;

(2)    a close associate (Mrs Taouk);

(3)    ABD (being persons “on behalf of or for the benefit of” Mr Taouk. MEA was controlled by Mr Taouk and ABD by Justin Taouk).

(4)    Macquarie Accountants and Kheir Lawyers (being persons “on behalf of or for the benefit of” Mr Taouk. These businesses were the accountants and lawyers respectively for Mr Taouk and his related entities).

61    The question is whether a reasonable person in the company’s circumstances would not have entered into the transaction (i.e., have made the payments) having regard to the matters in s 588FDA(1)(c). The plaintiffs submit that a reasonable person would not have made each payment because:

(1)    They were payments to related persons and for the debts of related persons;

(2)    it is a significant amount of money;

(3)    there was no consideration or value received by MEA Group for the payments, unless the Macquarie Accountants or the Kheir Lawyers debt was in respect of work for the MEA Group. It appears that the payment to Kheir Lawyers was for the BFA, being a personal debt of Mr Taouk.

(4)    Mr Taouk freely concedes on pages 9–10 of his affidavit (Ex 5) that the expenses were either personal expenses or expenses for matters unrelated to the MEA Group, save for one cheque for $2,420 which may not be wholly related to the MEA Group;

(5)    they were not bona fide debts or business expenses of the MEA Group;

(6)    Mr Taouk was using the Bank of Sydney Account as if it was his personal account.

I accept that submission.

62    The next question is the quantum of relief under s 558FF(1)(a)–(c). The benefit that Mr Taouk has received is the use of the Bank of Sydney Account as if it were his own. That, he has used company money to discharge someone else’s debts or for personal expenses. Thus, the starting point is the amount of the transfers of money being $165,187.99. Section 588FF(4) requires deduction of the “value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c)”. Subject to the matter in [61(4)] above, it is submitted that this value, in the circumstances of this case, is either nil or $2,420. I agree. Thus, the net amount claimed is in the range of $165,187.99 to $162,767.99 (being $165,187.99 less $2,420).

Uncommercial and insolvent transactions

Relevant legal principles

63    Section 588FB CA provides:

(1)    A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:

(a)    the benefits (if any) to the company of entering into the transaction; and

(b)    the detriment to the company of entering into the transaction; and

(c)     the respective benefits to other parties to the transaction of entering into it; and

(d)    any other relevant matter.

(2)    A transaction may be an uncommercial transaction of a company because of subsection (1):

(a)    whether or not a creditor of the company is a party to the transaction; and

(b)    even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

64    Section 588FC CA provides:

A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

(a)    any of the following happens at a time when the company is insolvent:

(i)    the transaction is entered into; or

(ii)    an act is done, or an omission is made, for the purpose of giving effect to the transaction; or

(b)    the company becomes insolvent because of, or because of matters including:

(i)    entering into the transaction; or

(ii)    a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

65    The term “insolvent” in s 588FC CA picks up the definition in s 95A CA:

(1)    A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

(2)    A person who is not solvent is insolvent.

66    In Kazar (in his capacity as the Liquidator Frontier Architects Pty Ltd (in liq) v Kargarian & Anor (2010) 81 ACSR 158, Flick J observed at [21]:

… The statutory phrase “as and when they become due and payable” makes it clear that “although the issue of prima facie insolvency must be determined as at a particular time, the determination calls for a degree of ‘forward looking’. The reference to ‘prospective liability’ in s 459D(1) is consistent with this”: Melbase Corporation Pty Ltd v Segenhoe Ltd [1995] FCA 1225; (1995) 17 ACSR 187 at 198 per Lindgren J. His Honour further observed that s 95A “states a ‘cash flow test’ rather than a ‘balance sheet test’ of insolvency”. See also: Cooper v Commissioner of Taxation [2009] NSWSC 880 at [20] per Hammerschlag J. The ability to pay debts as and when they become due, it has been said, “is a question of fact, to be decided as a matter of commercial reality in the light of all the circumstances. It is necessary to consider the company’s financial position in its entirety, including its activities, assets, liabilities, cash and money which it could procure by sale or on the security of its assets, and its ability to obtain financial assistance by way of loan or subscription for share capital”: Trinick (as liquidator of Australian Foods Co Pty Ltd (in liq)) v EM & RM Williams & Sons (A Firm) [2009] WASC 297 at [95] per Murphy J. See also: Lewis v Doran at [93] and [107] to [112], per Giles JA (Hodgson and McColl JJA agreeing).

67    Section 588FE(2) CA sets out the circumstances under which an insolvent transaction is a voidable transaction:

(2)    The transaction is voidable if:

(a)    it is an insolvent transaction of the company; and

(b)    it was entered into, or an act was done for the purpose of giving effect to it:

(i)    during the 6 months ending on the relation-back day; or

(ii)    after that day but on or before the day when the winding up began.

68    Section 588FE(3) CA sets out the circumstances under which an insolvent transaction, which is also an uncommercial transaction, is a voidable transaction.

(3)    The transaction is voidable if:

(a)    It is an insolvent transaction, and also an uncommercial transaction, of the company; and

(b)    It was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day.

69    In Kazar, Flick J observed at [17]–[19]:

[17]    … By way of example, in Parker v Tucker [2010] FCA 263 at [92], [2010] FCA 263; 77 ACSR 525 at 548, Gordon J concluded that a transaction was uncommercial in the circumstances, including the fact that the amount paid was “substantially less” than that originally paid and was paid by instalments with only a “limited amount ... paid up front”. “While not dealing exclusively with undervalue”, one commentator has said that “undervalue is at the heart of the section”: Keay, A, “Liquidators’ Avoidance of Uncommercial Transactions” (1996) 70 Australian Law Journal 390 at 397.

[18]    When considering when it may be expected that a reasonable person would not have entered into the transaction, Gordon J in Capital Finance observed that:

[129]    ... the principles to be applied may be summarised as follows:

(1)    as the express words of s 588FB make clear, it is an objective standard to determine if a transaction is uncommercial: ...;

(2)    four criteria are to be considered - the benefits enjoyed by the company (s 588FB(1)(a)), the detriment to the company (s 588FB(1)(b)), the respective benefits others received (s 588FB(1)(c)) and any other relevant matters (s 588FB(1)(d));

(3)    the objective criteria are not considered in some vacuum but by reference to “the company’s circumstances” which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors: ...;

and

(4)    for a transaction to be “uncommercial” it must result in “the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice” or where “the consideration ... lacks a ‘commercial quality’”: ... [citations omitted]

The objective standard was also referred to by Giles JA in Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243, 219 ALR 555 at 589 as follows:

Was the debt restructuring an uncommercial transaction?

[156] The definition of an uncommercial transaction in s 588FB(1) of the Law raises considerations similar to those material to breach of the directors’ duties. The question is objective, whether a reasonable person in the company’s circumstances would not have entered into the transaction, and free from the subjectivity involved in some of the directors’ duties... The curious introductory words, “it may be expected that a reasonable person ...”, were said in Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 not to qualify what a reasonable person would have done, but to emphasise the objective nature of the inquiry: at 366-7.

[157]    It must positively appear that the reasonable person would not have entered into the transaction ...

Hodgson and McColl JJA agreed with Giles JA.

[19]    Similarly, in Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535 (“Demondrille Nominees”), Foster, Lindgren and Madgwick JJ also referred to the necessity to prove the conferral of a benefit “of such magnitude that it could not be explained by normal commercial practice” as follows at 548:

Demondrille had, at Cornelis’ expense, obtained “a bargain of such magnitude that it could not be explained by normal commercial practice”. Using those words, the explanatory memorandum stated that it was transactions of such a kind at which s 588FB was aimed (explanatory memorandum, para 1044). On the facts found by the trial judge, the conclusion was inevitable that the transaction embodied in the agreement was an uncommercial transaction.

...

The purpose or object of the provisions with which we are concerned is to prevent a depletion of the assets of a company which is being wound up by, relevantly, “transactions at an under-value” entered into within a specified limited time prior to the commencement of the winding up: ...

See also: Strazdins v Tomazou [2010] SASC 262 at [65].

70    To a similar effect, Black J observed in the matter of Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [59]–[63]:

[59]    Section 588FB(1) of the Corporations Act provides that a transaction is an uncommercial transaction if it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the benefit or detriment to the company in entering the transaction, the benefit to other parties to the transaction and any other relevant matter. The Explanatory Memorandum to the Corporate Law Reform Bill 1992 noted that:

The provision is specifically aimed at preventing companies disposing of their assets or other resources through transactions which resulted in the recipient receiving a gift or obtaining a bargain of such commercial magnitude that it could not be explained by normal commercial practice.

[60]    Whether a reasonable person in the company’s circumstances would not have entered into the transaction is determined by an objective inquiry, by reference to the factors specified in s 588FB(1). In Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535 at 548; [1997] FCA 1220; 15 ACLC 1716, Foster, Lindgren and Madgwick JJ observed that s 588FB of the then Corporations Law sought to balance the interests of the unsecured creditors of a company being wound up and those who would otherwise be the beneficiaries of pre-winding up transactions entered into by the company and its purpose was:

To prevent a depletion of the assets of a company which is being wound up by, relevantly, “transactions at an under-value” entered into within a specified limited time prior to the commencement of the winding up: see explanatory memorandum, para 1014.

Their Honours also observed (at ACSR 548), by reference to the Explanatory Memorandum, that a transaction is uncommercial for the purposes of this section where there is a bargain “of such magnitude that it could not be explained by normal commercial practice”. That formulation was also adopted in Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369 at [14]- [15] and in Capital Finance Australia Ltd v Tolcher above at [129], where Gordon J also noted that the categories of “uncommercial transaction” are not closed; that the standard to be applied is an objective one, to be assessed by reference to the company’s circumstances, including the knowledge of those who were directing the company, such as its controlling director; and that a transaction will be “uncommercial” where the consideration lacks a commercial quality.

[61]    In Cussen v Sultan [2009] NSWSC 1114; (2009) 74 ACSR 496, Nicholas J observed (at [22]-[23]) that, in determining whether a transaction of a company is an uncommercial transaction:

[22]    Having identified the transaction, it becomes necessary to decide whether it is an uncommercial transaction of the company under s 588FB(1). The question to be asked is whether it was one which it may be expected that a reasonable person in the company’s circumstances would not have entered into, having regard to the matters specified under this provision. The matter must be looked at from the point of view of the company (Tosich Construction Pty Ltd (in liq) v Tosich (1997) 23 ACSR 466 at 473). In Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167 Hodgson JA (Spigelman CJ, Santow JA agreeing) held that the test was not so high as to require that the transaction be so unreasonable that no reasonable person would enter into it. He said:

The statutory language is that “it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction”. The word “may” is weaker than “must” or even “would”; and in my opinion one reason why something “may be expected” is that it is what normally happens. That is, it is not essential that it would always or necessarily happen. For that reason, what is normal commercial practice, while not decisive, is relevant to the question.

[23]    Accordingly, the court will look at the totality of the business relationship between the parties, and to what the parties under their relationship intended to effect, and how their intention was effected, in part or in whole, by the impugned transaction (VR Dye & Co para 40).

[62]    I am conscious that, in Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555; 54 ACSR 410 at [136], Giles JA (with whom Hodgson and McColl JJA agreed) observed that the description of an “uncommercial transaction” in s 588FB(1) directed primary attention to a balancing of benefit and detriment and only in the broadest sense involved undervalue and (at [154]) that a Court should be slow to pronounce upon the commercial justification of particular executive decisions. That observation appears to be directed particularly to the context where no straightforward comparison of the value of an asset and the consideration received can be undertaken. On the other hand, in Capital Finance v Tolcher above at [73], Lindgren J quoted Professor Andrew Keay’s observations as to the importance of undervalue in determining whether a transaction is an uncommercial transaction for the purposes of s 588FB in his article “Liquidators’ Avoidance of Uncommercial Transactions” (1996) 70 ALJ 390 at 397, as follows:

While not dealing exclusively with undervalue, undervalue is at the heart of the section [s 588FB], that is, if the company received less than what is reasonable from the transaction the liquidator may attack it. It is likely that in many cases Courts will be pre-occupied with comparing the value of what the company received in exchange for what it gave or vice a versa.

That passage was in turn cited by Nicholas J in Cussen v Sultan above at [19]. In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 82 ACSR 703 at [82], Young JA also recognised the relevance of the consideration received by the company in a transaction, albeit also observing that an assessment of the adequacy of consideration for the purposes of this section does [sic] did not require “exact equivalence” but only a fair equivalence between what is given and what is received.

[63]    The matters to which the Court is to have regard in determining whether a transaction is an uncommercial transaction, in the requisite sense that a reasonable person in the company’s circumstances would not have entered into the transaction, are specified in sub-paragraphs 588FB(1)(a)-(d) as any benefits to the company of entering into the transaction; the detriment to the company of entering into the transaction; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter. In the present case, Employ 96 received the benefit of obtaining professional services from DVT. On the other hand, it suffered the detriment of obtaining those services at double the usual rate that would be charged by DVT for the provision of those services. For the reasons set out below, in my view, the relevant circumstances were not of such a character that an agreement to pay double rates could be explained by normal commercial practice.

ET Family Bankstown properties

71    The question is whether a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the matters in section 588FB(1) CA. This raises the identical matters considered at [47] above. For the reasons expressed above, the liquidators submitted that the Court would be satisfied that the transfers of the Bankstown properties were uncommercial transactions. I accept that submission.

72    The next question is whether the transfers were an insolvent transaction. The relevant statutory question is whether ET Family became insolvent as a consequence of entering into the transaction (i.e., making the transfers). The test is set out at [65] above. In this respect, the Report as to Affairs recorded that ET Family had no other assets. After the transfers, ET Family had no assets to pay the creditors, including a substantial tax liability. It was the transfers that had the effect of ET Family becoming insolvent because it deprived itself of all assets from which it could meet its liabilities, and as such, was an insolvent transaction.

73    By reason of either s 588FE(2) or s 588FE(3) CA, the transaction is voidable. As a consequence, the Court can grant monetary relief by reason of s 588FF(1)(a) or (c) CA.

74    The quantum is in the range of $910,000 to $1,045,000 for the reasons expressed at [50] above.

MEA Group Cowra property

75    The question is whether a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the matters in s 588FB(1) CA. This raises the identical matters considered at [56] above. For the reasons expressed above, the liquidators submitted that the Court would be satisfied that the transfer of the Cowra property was an uncommercial transaction. I accept that submission.

76    The next question is whether the transfer was an insolvent transaction. The relevant statutory question is whether MEA Group became insolvent as a consequence of entering into the transaction (i.e., making the transfer). In this respect, the Report as to Affairs recorded that MEA Group had no assets. After the transfer, ET Family had no assets to pay the creditors, including a substantial tax liability. It was the transfer that had the effect of MEA Group becoming insolvent and thereby depriving itself of the ability to pay its liabilities, and as such, was an insolvent transaction.

77    By reason of either s 588FE(2) or s 588FE(3) CA, the transaction is voidable. As a consequence, the Court can grant monetary relief by reason of s 588FF(1)(a) or (c) CA.

78    For the reasons expressed at [58] above, the quantum is in the range of $2,250,000 to $2,350,000.

Statutory and Fiduciary Directors’ Duties

Relevant Legal Principles

79    Sections 180 to 183 CA provide four statutory duties owed by a director or other officer of a corporation. Each of the statutory duties are civil penalty provisions: see the table in s 1317E(1) CA.

80    Section 180 CA provides:

Care and diligence—directors and other officers

(1)    A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)    were a director or officer of a corporation in the corporation’s circumstances; and

(b)    occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Note:    This subsection is a civil penalty provision (see section 1317E).

Business judgment rule

(2)    A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a)    make the judgment in good faith for a proper purpose; and

(b)    do not have a material personal interest in the subject matter of the judgment; and

(c)    inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d)    rationally believe that the judgment is in the best interests of the corporation.

The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

Note:    This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—it does not operate in relation to duties under any other provision of this Act or under any other laws.

(3)    In this section:

business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

81    Section 181 CA provides:

Good faith—directors and other officers

(1)    A director or other officer of a corporation must exercise their powers and discharge their duties:

(a)    in good faith in the best interests of the corporation; and

(b)    for a proper purpose.

Note 1:        This subsection is a civil penalty provision (see section 1317E).

Note 2:        Section 187 deals with the situation of directors of wholly‑owned subsidiaries.

(2)    A person who is involved in a contravention of subsection (1) contravenes this subsection.

Note 1:        Section 79 defines involved.

Note 2:        This subsection is a civil penalty provision (see section 1317E).

82    Section 182 CA provides:

Use of position—directors, other officers and employees

(1)    A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a)    gain an advantage for themselves or someone else; or

(b)    cause detriment to the corporation.

Note:    This subsection is a civil penalty provision (see section 1317E).

(2)    A person who is involved in a contravention of subsection (1) contravenes this subsection.

Note 1:        Section 79 defines involved.

Note 2:        This subsection is a civil penalty provision (see section 1317E).

83    Section 183 CA provides:

Use of information—directors, other officers and employees

(1)    A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

(a)    gain an advantage for themselves or someone else; or

(b)    cause detriment to the corporation.

Note 1:    This duty continues after the person stops being an officer or employee of the corporation.

Note 2:    This subsection is a civil penalty provision (see section 1317E).

(2)    A person who is involved in a contravention of subsection (1) contravenes this subsection.

Note 1:        Section 79 defines involved.

Note 2:        This subsection is a civil penalty provision (see section 1317E).

84    There are similar fiduciary duties owed by a director.

85    The Amended Statement of Claim pleads the:

(1)    Statutory duties owed by Mr Taouk to ET Family at paragraph [30].

(2)    Fiduciary duties owed by Mr Taouk to ET Family at paragraph [31].

(3)    Statutory duties owed by Mr Taouk to MEA Group at paragraph [41].

(4)    Fiduciary duties owed by Mr Taouk to ET Family at paragraph [42].

86    The existence and content of such obligations was not in dispute.

87    Where a breach of fiduciary duty causes loss to the company, equitable monetary compensation may be ordered. In Tavistock Pty Ltd & Anor v Saulsman & Ors (1990) 3 ACSR 502, the Court held that it is “now widely accepted in Australia that the court has an inherent power to award equitable compensation to relieve against loss occasioned by breach of fiduciary duty” (at 510).

88    Equitable compensation is distinguishable from common law damages on several grounds, perhaps the most notable being that damages are assessed by reference to the value of the assets depleted by the defendant’s wrongdoing as at the date of restoration, rather than at the date of the defendant depriving the plaintiff of their use: Re Dawson [1966] 2 NSWR 211 at 216. Another difference between equitable compensation and common law damages is that factors such as foreseeability and remoteness, to which damages at common law are subject, are not relevant to equitable compensation: Daniels & Ors (formerly practicing as Deloitte Hoskins & Sells) v Anderson & Ors (1995) 37 NSWLR 438 at 491 per Clarke and Sheller JJA.

89    In the matter of Parker, In the matter of Purcom No 34 Pty Ltd (In Liq) (No 2) [2010] FCA 624, Gordon J summarised the relevant principles at [23]:

1.     It is a “cardinal principle of equity” that the remedy is “fashioned to fit the nature of the case and the particular facts”: Warman International Limited v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 559; see also Hill v Rose [1990] VR 129 at 143.

2.    Where a breach of fiduciary obligation occurs, compensation is available in equity to make good the loss (Nocton v Lord Ashburton [1914] AC 932) and the plaintiff must elect between the remedy of equitable compensation and account of profits: Nocton [1914] AC 932 at 956-957; Warman [1995] HCA 18; 182 CLR 544 at 558; R Meagher, D Heydon, M Leeming, Equity: Doctrines & Remedies (4th ed, 2002) at 837.

3.    Equitable compensation is assessed at the time of trial, with the full benefit of hindsight and common sense, not at the date of breach: Youyang Pty Limited v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [35]; Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 216; O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 273 and 276.

4.    The objective of equitable compensation is compensatory – to restore the principal to the position it was in prior to the breaches and to make good any loss caused by the fiduciary’s wrongful conduct: see [75] of the Reasons; Nocton [1914] AC 932 at 952; Re Dawson (deceased) [1966] 2 NSWR 211; O’Halloran 45 NSWLR 262 at 272-273. No element of penalty is involved: R Meagher, D Heydon, M Leeming, Equity: Doctrines & Remedies (4th ed, 2002) at 837-839.

5.    Unlike common law damages, equitable compensation is not limited or influenced by common law principles of remoteness of damage, forseeability or causation: Hill v Rose [1990] VR 129 at 144; Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 556; O’Halloran 45 NSWLR 262 at 273.

6.    However, there does have to be some causal connection between the breach of fiduciary obligation and the loss for which compensation is recoverable. It is necessary for the plaintiff to establish that the loss would not have occurred but for the breach: O’Halloran 45 NSWLR 262 at 275-6. The necessary enquiry is whether the loss would have happened had there been no breach, not whether the loss was caused by or flowed from the breach: O’Halloran 45 NSWLR 262 at 276-277.

90    Breach of the statutory directors duties has its remedy in an award of compensation pursuant to s 1317H CA, which provides:

(1)    A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if:

(a)    the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and

(b)    the damage resulted from the contravention.

The order must specify the amount of the compensation.

(2)    In determining the damage suffered by the corporation or scheme for the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.

91    Perhaps the most comprehensive and convenient summary of the law relating to the statutory directors duties was set out by Santow J in Australian Securities and Investments Commission v Adler (2002) 168 FLR 253. At various passages in the judgment, his Honour dealt comprehensively with the principles relating to these sections: s 180 CA at [372]; ss 181, 182 and 183 at [458], [735] and [738]–[740].

Breach by Mr Taouk of the Statutory and Fiduciary Duties

92    In so far as it is relevant to the present case, Santow J expressly held in ASIC v Adler (at [458] that “causing a company to enter into an agreement which confers unreasonable personal benefits on a director is a breach of ss 180, 181 and 182” CA. It must follow that the same conduct would also be a breach of the equivalent fiduciary duties.

93    The plaintiffs rely on this proposition in relation to making of the Transfers of the Bankstown properties, the Cowra property, the ET Monetary Transfers and the MEA Group Monetary Transfers. Therefore, the damages pursuant to s 1317H CA or in equity in relation to:

(1)    The Transfers of the Bankstown properties and the Cowra property are their market values at the date of transfer; and

(2)    the ET Family Monetary Transfers and the MEA Group Monetary Transfers is the amount of the money transferred.

Relief Claimed

94    At [2] above, I summarised the relief sought by the plaintiffs in the further amended originating process filed with the leave of the Court granted on 14 April 2015. There are three or four aspects of the relief sought in the further amended originating process which call for comment.

95    First, in paras (4) and (16), the orders sought should more specifically refer to para (1)(c) of s 588FF.

96    Second, in paras (5) and (17), the orders sought should be confined to para (1)(a) of s 588FF.

97    Third, the orders sought in paras (8) and (20), namely, orders for damages pursuant to s 1324(10) CA are not, in my view, available as the Court has no power under s 1324 CA in these proceedings to grant injunctive relief restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing for the simple reason that no such relief is sought by the plaintiffs.

98    Fourth, s 185 CA provides, insofar as presently relevant, that:

Sections 180 to 184:

(a)    have effect in addition to, and not in derogation of, any rule of law relating to the duty or liability of a person because of their office or employment in relation to a corporation; and

(b)    do not prevent the commencement of civil proceedings for a breach of a duty or in respect of a liability referred to in paragraph (a).

It is, in consequence, open to a corporation to make a claim in equity against a director or officer for equitable damages for breach of fiduciary duty and to claim compensation under s 1317H CA against that person if the conduct in question also contravenes a civil penalty provision such as ss 180(1), 181, 182 or 183. What neither the equitable remedy nor s 1317H CA mandates is double recovery. In consequence, to the extent that each of the orders sought have areas of independent operation (by reason of differing principles of attribution/causation under the CA and in equity), the orders each have their own work to do. The orders to that extent are complementary. However, to the extent each order would catch amounts which would also be caught by the other, they cannot be enforced so as to produce double recovery: Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 at [39]; Grimaldi v Chameleon Mining NL & Anor (No 2) (2012) 200 FCR 296 at [641]: “While s 185 countenances cumulative remedies, it does not envisage double recovery”.

99    The orders I propose to make will take these various aspects of the relief claimed into account.

Associate:    

Dated:    8 May 2015