| Pilmer v Duke Group Ltd | |
|---|---|
| Court | High Court of Australia |
| Citation(s) | [2001] 2 BCLC 773 |
| Case opinions | |
| McHugh, Gummow, Kirby, Hayne and Callinan JJ | |
| Keywords | |
| Share | |
Pilmer v Duke Group Ltd [2001] 2 BCLC 773 is an Australian company law case concerning the adequacy of consideration paid for shares.
Contents |
In a takeover bid Kia Ora Gold Corp NL, since renamed Duke Group Ltd, offered $1.20 a share in Western United Ltd, and 5 shares in itself, or 4 shares for each Western United Ltd. This valued WU Ltd at $3.95 to $4.40 a share, based on the plaintiff's market price of $1.10 a share. Kia Ora's directors instructed accountants, Nelson Wheeler, 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. Then Kia Ora went insolvent, and was would up. The shareholders, including Mr 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 Judge found the report contained an absurd overvaluation of WU Ltd, that the accountants were incompetent, and the directors were conflicted, ordering almost $94m in damages.
The Full Court of South Australia, reversing the trial judge, it found that fiduciary duties were owed, and equitable compensation was the same as breach of contract damages, and both would be reduced by contributory negligence of Kia Ora. $117m was awarded, plus interest.
High Court found that accountants do not owe fiduciary duties to their clients. Even if there was, there would have been no substantial possibility of a conflict of interest. They were further sceptical that contributory negligence would apply to fiduciary breaches.
In the course of its judgment it held, ‘the actual decision in In re White Star Line Ltd[1] 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.’
Kirby J dissented and said that there was a fiduciary relationship.