FORMER DIRECTOR SUED FOR DAMAGES FOR IMPROPERLY USING HIS POSITION EVEN AFTER HIS RESIGNATION

Oliana Foods Pty Ltd v Culinary Co Pty Ltd (in liq) [2020] VSC 693 (21  October 2020) 

This case involves a claim seeking damages and other relief against a former director of a corporation when the former officer improperly used his position as director to gain advantage even after his resignation.

Facts:

Oliana pressed a number of claims seeking damages and other relief against Mr Floropoulos, namely:  breach of statutory duty claims based upon an allegation that Mr Floropoulos was a de facto director or officer of Oliana; breach of fiduciary duty claims based upon Mr Floropoulos owing fiduciary duties to Oliana by reason of his position as a de facto director and officer of Oliana, and by reason of his role and responsibilities in connection with securing an alternative supply of vegan cheese for the benefit of Oliana; and claims that Mr Floropoulos engaged in misleading or deceptive conduct and was involved in conduct of that character engaged in by Mr Hone and Culinary Co.

The dispute relates to the supply to and distribution by Oliana of vegan cheese products manufactured by a Greek company, Kremel AE (Kremel). Oliana’s claims are allegations that Mr Floropoulos: (a) was a de facto director, officer, and fiduciary of Oliana responsible for sourcing an alternate supplier of vegan cheese for Oliana to replace Oliana’s then long-term supplier who, so Oliana and Mr Floropoulos had discovered in March or early April 2016, was making a very substantial margin on the prices it charged Oliana when compared to the prices it paid its own Greek manufacturer; (b) travelled to Greece on behalf of Oliana in late May 2016, identified Kremel as a suitable alternative manufacturer/supplier of vegan cheese products, and negotiated and agreed a very favourable Kremel supply price for Kremel vegan cheese, but did not disclose this price to Mr Canzoneri or anyone else at Oliana; (c) with the co-operation and assistance of the fourth defendant, a solicitor, Mr Hone, interposed a company in between Kremel and Oliana (being the first defendant, Culinary Co) to obtain the supply of vegan cheese products direct from Kremel and on sell them to Oliana at a substantially marked-up price without Mr Canzoneri and Oliana’s knowledge; and (d) together with Mr Hone, conducted himself in a way that conveyed to Oliana that Culinary Co was ownership and otherwise linked to Kremel and that the Culinary Co supply price to Oliana was in fact the favourable Kremel supply price rather than the different undisclosed materially higher price set by Mr Floropoulos for Culinary Co that was designed to achieve an uplift for the benefit of Mr Floropoulos and Culinary Co without Mr Canzoneri’s or Oliana’s knowledge.

Mr Floropoulos relied upon, among other things:  his recorded resignation as a director in February 2016; alleged conversations said to have occurred with Mr Canzoneri prior to his trip to Greece in May 2016 about being able to obtain benefits for himself; a claimed absence of a fiduciary relationship; a claimed absence of misleading or deceptive conduct; an alleged absence of reliance by Oliana; and an alleged failure on the part of Oliana to establish that the conduct it relied on had caused it the loss claimed in any event.

Issue: Is Mr. Floropoulos a de facto director or officer of Oliana and if so, did he breach any duties of being a director or officer which makes him liable for damages?

Law:

• S9, 180, 181 and 182 of the Corporations Act 2001

Analysis

Although Mr Floropoulos was not a validly appointed director after 26 February 2016, the court concluded that the plaintiff  has established that he continued to be a director of Oliana within the meaning of that expression as used in s 9 of the Act after that date.  This is because he acted in the position of a director during that period, thereby satisfying the requirements of paragraph (b)(i) of the definition of ‘director’ — which, as the court have said, for convenience the court shall refer to as being a de facto director.

Sections 180,  181  and  182 of the Act apply to a director or other officer of a corporation and Mr Floropoulos was a director and officer of Oliana during the period earlier referred to.  Consequently Mr Floropoulos was subject to the statutory duties and obligations in ss  180,  181  and  182 of the Act during that period.

The Oliana Information was acquired because Mr Floropoulos was a director and officer of Oliana, which he had been since 2011.  As a director and officer of Oliana, a small proprietary limited company, Mr Floropoulos had been the person responsible for and heavily involved with the supply arrangements regarding vegan cheese and other products.  It was said that he also had particular responsibility in relation to Greek products.  Had he not been a director he would not have been in that role or acquired the Oliana Information, noting in this regard the evidence of Mr Canzoneri as to how Mr Floropoulos came to join Oliana as a director, which the court accepts.  It was because of his role as director and officer — including after 25 May 2016 when he negotiated and obtained the Kremel Supply Price — that he acquired the Oliana Information.  Indeed, putting the period after 26 February 2016 to one side for the moment, it was not suggested or submitted that such knowledge as was acquired before then had been acquired by Mr Floropoulos for any reason other than because he was a director or officer of Oliana.

Mr Floropoulos made improper use of at least the information regarding the MyCo Supply Price; the MyCo Cost Price; and the Oliana profit margins for the purpose of gaining an advantage for himself and Culinary Co and to cause detriment to Oliana.  Even if the MyCo Cost Price information were to be put to one side, it was not in dispute (and was established on the evidence) that he was aware of the MyCo Supply Price and Oliana profit margin information before 26 February 2016.

Conclusion: Mr Floropoulos breached the statutory duties under the Act that he owed to Oliana.

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