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Judgement of the High Court of Australia From Wikipedia, the free encyclopedia
Pilmer v Duke Group Ltd[1] is an Australian company law case concerning the adequacy of consideration paid for shares, as well as on the questions of duty of care and fiduciary duty owed by experts retained in such matters.
| Pilmer v Duke Group Ltd | |
|---|---|
| |
| Court | High Court of Australia |
| Full case name | Pilmer v Duke Group Ltd (In Liq) |
| Decided | 31 May 2001 |
| Citations | [2001] HCA 31, (2001) 207 CLR 165 |
| Case history | |
| Prior actions |
|
| Appealed from | Supreme Court (SA) |
| Court membership | |
| Judges sitting | McHugh, Gummow, Kirby, Hayne and Callinan JJ |
| Case opinions | |
| Decision by | McHugh, Gummow, Hayne and Callinan JJ; Kirby J concurring in part |
Kia Ora Gold Corporation NL was incorporated in South Australia in September 1954 and was listed on the Australian Stock Exchange. It carried on business principally as a gold mining company in Western Australia.
Western United Limited, originally formed in 1953, had an equal partnership with Kia Ora in the Marvel Loch mine, which was sold in 1987. After 1983, it changed its focus to concentrate on the provision of financial and mining services. Each company had a shareholding in the other, and both were under common control.
In 1987, Kia Ora made a takeover bid to purchase all shares of Western United Ltd, in consideration for either:
This valued WU Ltd at $3.95 to $4.40 a share, based on Kia Ora's market price of $1.10 a share. WU's shares then had a market price of $2.45 a share. Kia Ora's directors instructed the Perth office of Nelson Wheeler,[2] to do a report for its shareholders, and this valued WU Ltd at $3.22 a share, and it was reasonable to pay a premium to acquire WU Ltd. Kia Ora shareholders approved the takeover.
In 1988, Kia Ora entered into a reverse takeover for the assets of the Duke Group of companies, with Duke acquiring all the issued capital of Kia Ora. Upon completion, in July 1988 Kia Ora changed its name to The Duke Group Limited.
In July 1989 it was placed in liquidation by order of the Supreme Court of South Australia. The administrator subsequently sued Pilmer and other partners of Nelson Wheeler in all States, for breach of duty of care in contract and in tort, as well as in breach of fiduciary duty. The directors were also sued for breach of their fiduciary and statutory duty to the company by the administrator, and in cross-claim by Pilmer and his fellow partners.
Pilmer alleged that the directors breached their duty of care and fiduciary duties, in getting a report that was not reasonably accurate. Pilmer alleged the directors had a personal interest in the takeover outcome as they were substantial shareholders in WU Ltd, and this conflict of interest led to a fallacious report which wrongly stated the price was fair, as Australian Stock Exchange rules required. The Nelson Wheeler partners in offices outside Perth contended that each office constituted a separate partnership, and no national partnership existed — therefore no liability would fall on them for actions arising in the Perth office.
At trial, Mullighan J found:
On appeal to the Full Court of the Supreme Court of South Australia, Doyle CJ, Duggan and Bleby JJ, found:
Appeal was allowed.
The High Court discussed the nature of fiduciary duty, citing from jurisprudence of the Supreme Court of Canada.[1]: par. 71
The foundation and ambit of the fiduciary obligation are conceptually distinct from the foundation and ambit of contract and tort. Sometimes the doctrines may overlap in their application, but that does not destroy their conceptual and functional uniqueness. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently, the law seeks a balance between enforcing obligations by awarding compensation when those obligations are breached, and preserving optimum freedom for those involved in the relationship in question. The essence of a fiduciary relationship, by contrast, is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other.[3]
Australian jurisprudence in the matter, however, draws from the High Court's decision in Hospital Products Ltd v US Surgical Corporation[4] and subsequently in Breen v Williams,[5][6] and accordingly fiduciary obligations are proscriptive rather than prescriptive in nature; there is not imposed upon fiduciaries a quasi-tortious duty to act solely in the best interests of their principals. In that regard, the trial judge was correct in his interpretation of the law. In addition, it could not be shown that a conflict of interest existed with respect to NWP's dealings with Kia Ora:
83. The conflicting duty or interests must be identified. Conflict is not shown by simply pointing to the fact that there had been past dealings between the appellants and interests associated with the Kia Ora directors. The fact that dealings are completed will ordinarily demonstrate that any interest or duty associated with those dealings is at an end and no continuing duty or interest was identified here. Nor is it sufficient to say generally that there was a hope or expectation of future dealings. That will often be so. Most professional advisers would hope that the proper performance of the task at hand will lead the client to retain them again. No real or substantial possibility of conflict was demonstrated.[1]
Although it was not a crucial point in the appeal, the High Court also held that "the actual decision in re White Star Line Ltd[7] may be understood as turning on the fact that both parties to the transaction knew that the consideration offered and received was not worth the sum attributed to it."[1]: par. 37
Kirby J agreed that the appeal should be allowed. However, he held that Breen did not exclude a fiduciary obligation:
Although Breen was an invitation to enter new territory, this case is not. It is placed squarely in the middle of the kind of circumstance in which fiduciary obligations have been upheld on countless occasions: where the obligation of loyalty to the financial interests of identifiable persons who were specially vulnerable is abused by other persons entrusted with duties permitting them to make judgments, in effect, for others which called for the selfless pursuit of the interests of others, the independent performance of their duties and (if that be not possible) a refusal to be involved.[1]: par. 131
He proceeded to summarize principles relating the nature of fiduciary obligations:
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