| Pilmer v Duke Group Ltd | |
| Court: | High Court of Australia |
| Full Name: | Pilmer v Duke Group Ltd (In Liq) |
| Date Decided: | 31 May 2001 |
| Citations: | (2001) 207 CLR 165. |
| Judges: | McHugh, Gummow, Kirby, Hayne and Callinan JJ |
| Number Of Judges: | 5 |
| Decision By: | McHugh, Gummow, Hayne and Callinan JJ; Kirby J concurring in part |
| Prior Actions: |
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| Appealed From: | Supreme Court (SA) |
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.
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]
Australian jurisprudence in the matter, however, draws from the High Court's decision in Hospital Products Ltd v US Surgical Corporation[3] and subsequently in Breen v Williams,[4] [5] 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:
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[6] 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]
Kirby J agreed that the appeal should be allowed. However, he held that Breen did not exclude a fiduciary obligation:
He proceeded to summarize principles relating the nature of fiduciary obligations: