Duties, Powers, and Responsibilities of Trustee Directors - Green v Wilden Pty Ltd - Case Study Example

DIRECTOR’S BREACH OF RESPONSIBILITY: GREEN -Vs- WILDEN PTY LTD [2009] Name: Unit: Course: Professor: Submission Date: DIRECTOR’S BREACH OF RESPONSIBILITY: GREEN -V- WILDEN PTY LTD [2009] Case Introduction This paper discusses an Australian case; Green v Wilden Pty Ltd that was decided in 2009. In this case, Wilden directors, Mr. Chesson and Mr. Denboer failed to disclose to the Green parties the particular source of the funds used to acquire additional units for the Balga Trust by Benrone and Callao. The Wilden directors also failed to disclose the attempts and reasons for the selling of the units to non-existing unit holders (Supreme Court of Western Australia, 2009 pg.10). It was found that the Wilden directors acted fraudulently and in contravention of the Green interests to consciously cause financial disadvantages to the Green Parties and cause financial gains to Benrone and Callao. The directors in this case passed units allotment and options to specific family companies in pursuit of collateral personal gains and, thus, the reason for failure to fully disclose the details of the transaction. The directors, therefore, acted in bad faith and their actions amounted to breach of duties and responsibilities. Their plea in favor of section 1318 of the Corporations Act to be fairly excused was fruitless as the trial judge disregarded the plea on grounds that their actions amounted to breach of fiduciary duties leading to fraud in equity and, therefore, infeasible to “ought to fairly excuse” under section 1318 of the Act (Wong, 2009 pg17). The directors also acted dishonestly. Duties, Powers, and Responsibilities of Trustee Directors The directors of a trustee in Australia have various duties and roles as enumerated in the Superannuation Industry (Supervision) Act of 1993 (SIS) and in the Corporations Act 2001. The director’s functions are also provided by the common law. They also have routine functions of ensuring successful operations for the trust in a proper business-like manner. These functions include supervisory and policy-making responsibilities (Marshall and Ramsay, 2012 pg 295-299, Ghosh, 2012 pg 24). According to the Superannuation Industry Act (SIS) under section 52, directors of a trustee have specific responsibilities as follows:- Directors ought to act honestly To exercise diligence, degree of care and skill of a superannuation entity prudent director To exercise powers, duties and responsibilities in the beneficiaries’ best interests Give priority to the beneficiaries’ interests in situations where conflict of interests exist To keep the assets’ fund separate To exercise fair practice in dealings with the various classes of beneficiaries involved in the trustee fund To refrain from actions that would hinder the proper exercise of the trustee powers and functions To formulate and provide a proper investment strategy, risk assessment report, the expected return, prospective cash flow, industry diversification, trustee liquidity, and the capability to discharge liabilities, both existing and prospective under all the Fund circumstances To formulate an effective strategy on management of reserves prudently To provide accessibility of important information by the beneficiaries (Heydon, 2014 pg 1015-1017, Langford and Ramsay, 2014 pg 108-127, Kutcher, 2012 pg 5, Carter and Prendergast, 2011 pg 18-19) In addition to the above duties and responsibilities, the legal framework in Australia provides various legal requirements for Trustee Directors regarding risk, insurance and investments. These include the following:- To put in proper use the information acquired by the virtue of being the Trustee’s officer, and not to use it for personal gains or to cause detrimental disadvantages to the Trustee members Not to use their position and powers as officers of the Trustee for personal gains or to gain advantage for another party, or to cause detrimental disadvantages to members To take proper and reasonable steps characteristic of a person in their position to ensure compliance with the Fund’s Trust Deed, the Law, the Trustee’s Constitution, and any other conditions applicable on the Trustee licences. (Heydon, 2014 pg 1015-1017, Langford and Ramsay, 2014 pg 108-127) Duties, Powers, and Responsibilities Breached by Directors in Green –v- Wilden Pty Ltd In Green v Wilden Pty Ltd, the director breached several duties and responsibilities and abused the powers conferred to them by the virtue of holding office as the directors of a trustee. Directors are required to provide accessibility to important information and give truthful details of their dealings to the beneficiaries. The Wilden directors, Mr. Chesson and Mr. Denboer breached this requirement by failing to disclose to the Green parties the particular source of the funds used to acquire additional units for the Balga Trust by Benrone and Callao. The Wilden directors also failed to disclose the attempts and reasons for the selling of the units to non-existing unit holders (Supreme Court of Western Australia, 2009 pg.10). In this case, they also violated the requirement to formulate and provide a proper investment strategy, risk assessment report, the expected return, prospective cash flow, industry diversification, trustee liquidity, and the capability to discharge liabilities, both existing and prospective under all the Fund circumstances as their actions contributed to increasing the financial risk for the Green parties (Kutcher, 2012 pg 13, Supreme Court of Western Australia, 2009 pg.10). Directors ought to act honestly and exercise powers, duties and responsibilities in the beneficiaries’ best interests. The Wilden directors breached these requirements by acting fraudulently and in contravention of the Green interests to consciously cause financial disadvantages to the Green Parties and cause financial gains to Benrone and Callao. The directors also breached the requirement to give priority to the beneficiaries’ interests in situations where conflict of interests exist and prioritized their own interests. This was indicated by the passing of units allotment and options to specific family companies in pursuit of collateral personal gains and, thus, the reason for failure to fully disclose the details of the transaction. As such the directors failed to exercise diligence, degree of care and skill of a superannuation entity prudent director. They also failed to exercise fair practice in dealings with the various classes of beneficiaries involved in the trustee fund by intentionally causing financial disadvantages to the Green parties. The directors, therefore, acted in bad faith and their actions amounted to breach of duties and responsibilities. These reasons explain why their plea in favor of section 1318 of the Corporations Act to be fairly excused was fruitless as the trial judge disregarded the plea on grounds that their actions amounted to breach of fiduciary duties leading to fraud in equity and, therefore, infeasible to “ought to fairly excuse” under section 1318 of the Act (Wong, 2009 pg17, Hazen and Hazen, 2012 pg 364-386, Supreme Court of Western Australia, 2009 pg.11). Court Ruling in Green –v- Wilden Pty Ltd Discussed Courts are tasked with the mandate to protect and uphold trusts. A trust can be varied by courts of equity that have the jurisdiction to do so and ensure the trust is beneficial to the infant beneficiaries. In relation to trusts, courts have been given inherent jurisdiction to enforce trustee’s obligations, appoint a trustee in circumstances where the trustee died and/or the settlor hasn’t appointed one yet, remove trustees from office, and generally the supervisory jurisdiction (White, 2010 pg 13-21, Hazen and Hazen, 2012 pg 364-386, Supreme Court of Western Australia, 2009 pg.10) In Green v Wilden Pty Ltd, the trial judge, Hasluck J found out that the directors failed to make full and candid disclosure of the information relating to the allotment of units and options in pursuit of collateral personal benefits. The defendants, Wilden directors Mr. Chesson and his colleague Mr. Denboer failed to disclose the attempts and the sources of funds for the acquisition of the additional units allotted to Callao and Benrone of the Balga Trust. It was also highlighted that there were no clear reasons as to why the units were sold to non-existing members instead of the existing unit holders. The failure to disclose relevant information to the beneficiaries by the directors amounted to breach of fiduciary obligations and the court ruled that the actions were in bad faith and not in the best interests of the beneficiaries (Supreme Court of Western Australia, 2009 pg.11). The court also found that the directors acted fraudulently with the purpose of causing disadvantages of financial nature to the Green interests and providing financial boost and advantage to Benrone and Callao. It was further established that, despite the valuers being qualified enough, they had uncritically accepted the auditor’s figures and, therefore, their determinations were regarded as not being their own opinion. Thus, it was ruled that the vlue of the units be regarded as of no “force and effect”. The court also established that the proper valuation procedure as stipulated in clause 7.4 of the Trustees Act was not properly followed. This was a breach of the directors’ duty to ensure the procedure was followed and compliance with the clause observed to enhance the validity of the valuation figures in respect of the units and their respective trusts. His Honor, the judge concluded that the aforementioned breaches were inexcusable by clause 13.4 of the Trust Deed as well as section 75 of the Trustees Act (Supreme Court of Western Australia, 2009 pg.10, Wong, 2009 pg 17). The trial judge ordered the removal of Wilden as the Balga Trust trustee and the appointment of an insolvency practitioner as a new trustee. This was as a result of the breaches of trust occasioned by the Wilden directors. The court also revoked the issuance of additional units to Benrone and Callao declaring such issuance and the directors’ resolutions as “void and of no effect” as from the date of the issue. The repurchase value of the allotted units was also declared as of “no force and effect” and the court ordered the nomination of a new valuer. The court ordered that the aggrieved parties be awarded equitable damages of the amounts arrived at after the reconciliation of the account (Supreme Court of Western Australia, 2009 pg.12). The Wilden directors’ plea in favor of section 1318 of the Corporations Act to be fairly excused was fruitless as the trial judge disregarded the plea on grounds that their actions amounted to breach of fiduciary duties leading to fraud in equity and, therefore, infeasible to “ought to fairly excuse” under section 1318 of the Act (Wong, 2009 pg17). The judge observed that the directors had also acted dishonestly. References Carter, T., S. and Prendergast, R., M. 2011. Duties and Liabilities of Directors and Officers of Charities and Non-Profit Organizations, The Law Society of Upper Canada Emerging Issues in Directors’ and Officers’ Liability 2011, 1-59, Available at:- http://www.carters.ca/pub/article/charity/2011/tsc0329.pdf, Accessed 05/28/2017. Hazen, T., L and Hazen, L., L. 2012. Punctilios and Nonprofit Corporate Governance-A Comprehensive Look at Nonprofit Directors’ Fiduciary Duties, Journal of Business Law, 14(2), 347-416, Available at:- https://www.law.upenn.edu/journals/jbl/articles/volume14/issue2/Hazen14U.Pa.J.Bus.L.347(2012).pdf, Accessed 05/28/2017 Ghosh, D. 2012. Fixing the Fiduciary Obligation: The Prescription-Proscription Dichotomy, Canberre Law Review, 11(1), 24-32. Available at: http://www.austlii.edu.au/au/journals/CanLawRw/2012/3.pdf, Accessed 05/28/2017. Heydon, H., D. 2014. Modern Fiduciary Liability: The Sick Man of Equity? Trusts & Trustees, 20(10) 1006-1022, Available at: https://academic.oup.com/tandt/article-pdf/20/10/1006/4596495/ttu148.pdf,Accessed 05/28/2017 Kutcher, R., A. 2012. Breach of Fiduciary Duties, 1-49, Available at: http://apps.americanbar.org/abastore/products/books/abstracts/5310344_chap1_abs.pdf, Accessed 05/28/2017 Langford, R., T. and Ramsay, I., M. 2014. Conflicted Directors: What is Required to Avoid a Breach of Duty, 108-127, Available at: http://law.unimelb.edu.au/__data/assets/pdf_file/0006/1709502/13-Conflicteddirectors-whatisrequiredtoavoidabreachofdutyJnlEquity20142.pdf, Accessed 05/28/2017. Marshal, S. and Ramsay, I. 2012. Stakeholders and Directors’ Duties: Law, Theory and Evidence, UNSW Law Journal, 291-316, Available at: http://www.unswlawjournal.unsw.edu.au/sites/default/files/12_marshall_2012.pdf, Accessed 05/28/2017 Supreme Court of Western Australia: Wilden Pty Ltd -v- Green (2009) WASCA 38, Judgements http://decisions.justice.wa.gov.au/supreme/supdcsn.nsf/PDFJudgments-WebVw/2009WASCA0038/%24FILE/2009WASCA0038.pdf , Accessed 05/27/2017 White, R. W. 2010. Trusts- An Australian Perspective, 1-59, Available at: http://www.austlii.edu.au/au/journals/NSWJSchol/2010/10.pdf, Accessed 05/27/20017 Wong, S. 2009. Forgiving a Director’s Breach of Duty: A Review of Recent Decisions. [Online]. http://law.unimelb.edu.au/__data/assets/pdf_file/0006/1709772/58-stevenwong_essay_6_May_20091.pdf, Accessed 05/24/17. Read More