Directors’ duties/fiduciary duties and knowing receipt

Case Note by Roslyn Kaye

Gerard Cassegrain & Co Pty Ltd (in liquidation) v Cassegrain [2013] NSWCA 455

In this appeal, the New South Wales Court of Appeal: (a) dismissed an appeal by two company directors who were found by the trial judge to have breached their directors’ duties; and (b) upheld an appeal by an individual alleged to have been in knowing receipt of monies transferred to her by the directors in breach of their fiduciary duties.

Background

In 2004, the two directors of the appellant company loaned the sum of $194,249 from a third party who was also their wife/daughter, Felicity Cassegrain.  In repayment of the loan, Felicity Cassegrain received shares held by the appellant company in two other companies.  The appellant company alleged that the shares were transferred at an undervalue.  Accordingly, it was alleged that the two directors had breached their directors’ duties and fiduciary duties, and that Felicity Cassegrain had been in knowing receipt of monies the subject of such breaches.

At trial

The trial judge held that the two directors had breached their duties by knowingly causing the appellant company to transfer the shares to Felicity Cassegrain at an undervalue, and by putting themselves in a position where their duties to the appellant company conflicted with the interests of their wife/daughter, Felicity Cassegrain.  Her Honour found that Felicity Cassegrain had been in knowing receipt of the monies.

The primary judge ordered that, inter alia, the appellant company be wound up, and an enquiry be held as to the existence and quantum of any loss to the appellant company by reason of the transfer of the shares, for the purpose of making an award of equitable compensation to be paid by the two directors and by Felicity Cassegrain.

On appeal

The Court of Appeal allowed Felicity Cassegrain’s appeal, on the basis that the pleadings had not sought equitable damages or statutory compensation against her.

The Court of Appeal dismissed the appeal brought by the two directors, and found further that no case was made out for the grant of relief from liability under section 1318 of the Corporations Act.

Finally, the Court held that it was appropriate for the trial judge to have ordered an enquiry to determine the quantum of equitable compensation to be awarded to the appellant company in respect of its losses occasioned by the transfer of the shares to Felicity Cassegrain.

By way of addendum, earlier in 2013, the New South Wales Court of Appeal heard a separate appeal pertaining to other breaches alleged against one of the directors of the appellant company and against Felicity Cassegrain.  The issues in that appeal related primarily to issue estoppels and limitation of actions.

Roslyn Kaye – CommBar profile