O’Farrell v McCarthy (No 3)

The proceedings were commenced with the filing of a summons on 22 March 2023. It was mostly concerned with restraining the first defendant from expending monies which the first plaintiff believed had been improperly received or incurred by the first defendant.

An amended summons was filed on 5 April 2023. A points of claim document was filed by the plaintiffs on 5 August 2023.

The defendants filed a cross-summons on 8 September 2023 together with points of defence and a cross-claim.

The plaintiffs’ claim is supported by affidavits of Mr Brian O’Farrell dated 22 March 2023, 28 March 2023, and 22 May 2024. There is also an affidavit from Ms Laura Huggins dated 20 February 2025. The defendants rely on an affidavit of Mr Trevor McCarthy dated 12 January 2024. An earlier affidavit of Mr McCarthy, dated 27 April 2023, came into evidence through a tender of a bundle of documents by the plaintiffs (Exhibit 2).

Mr O’Farrell is the first plaintiff. Mr McCarthy is the first defendant. For convenience I will refer to them by their names.

Mr O’Farrell and Mr McCarthy are the two directors and shareholders of Talentpool Consulting Pty Ltd (TPC). They each own 50% of TPC.

TPC is the sole owner of Talentpool Recruitment Pty Ltd (Talentpool).

Subject to leave, Talentpool is both the second plaintiff and the second defendant (and cross-claimant). Similarly, TPC is both the third plaintiff and the third defendant (and cross-claimant).

The claims against Mr McCarthy can be separated into two parts: firstly, a personal claim by Mr O’Farrell for breach of an agreement, and secondly, derivative actions on behalf of Talentpool and TPC. Under the cross-claim, Mr McCarthy also wishes to obtain relief on behalf of these two companies.

The leave required for the derivative actions was deferred to the principal hearing by Kunc J on 5 April 2023. This applies to Talentpool and TPC as both potential plaintiffs and cross-claimants. In respect of the latter status however, I struck out the cross-claim on the first day of the hearing for reasons that I gave on 4 March 2025 (O’Farrell v McCarthy (No 2) [2025] NSWSC 171).

Mr McCarthy watched the proceedings, and gave his evidence, by audio-visual link (AVL) from Morocco. I gave leave for this course on 12 February 2025. Mr McCarthy now lives in the United Arab Emirates, or possibly Egypt. He is in Morocco to have some medical treatment. He suffers from a brace of hernias and a “spasmic” (presumably ‘spastic’) colon. He was due to have surgery on 10 March 2025.

Mr O’Farrell and Mr McCarthy are both from Ireland. I am not sure if they knew each other in Ireland but they became friends, or at least acquaintances, in Australia.

Mr O’Farrell came to Australia in 2011 to work for a recruitment company called Talent International. He was subject to a “457 visa”. I understand a 457 visa allows its holder, being a skilled worker, to work in an approved business in Australia for four years. In 2013, Mr O’Farrell wished to establish his own company in Australia but needed to transfer his visa to a new employer in order to remain in Australia.

In February 2008, Mr McCarthy registered Talentpool. He was the sole holder of the company’s 100 shares.

In late 2013, Talentpool employed Mr O’Farrell, possibly as a device to extend his 457 visa. Whatever the case, it seems Mr O’Farrell’s intention was to join Talentpool as a means of pursuing his business aspirations.

In June or July 2014, Mr McCarthy and Mr O’Farrell entered into an agreement generally referred to as a Shareholders Agreement (the Agreement). The precise date of the Agreement is unknown but there is no dispute that the Agreement was made and that it has continued, despite certain subsequent events, to govern the relationship between Mr McCarthy and Mr O’Farrell. I will return below to these events, and also to a ‘mid-hearing’ change in Mr McCarthy’s position concerning the Agreement.

The recitals to the Agreement state that 100% of the shares in Talentpool were owned by Mr McCarthy but that the purpose of the Agreement was to rearrange the shareholding in the company so that each party owned 50% of the shares. In other words, the company was to become jointly, and equally, owned by Mr McCarthy and Mr O’Farrell. These two persons became the directors of the company and formed its board.

Without diminishing the possible importance of other terms, I think it important to note the following:

Following the making of the Agreement, the company did well with both directors seemingly performing their duties as intended. Mr O’Farrell described his role as “to attract recruiters and clients, place candidates, and build overall revenue”. He described himself as the Executive Digital Recruiter. Mr O’Farrell said that Mr McCarthy “focused on the accountancy aspects of the business, such as managing payroll, working with our management accountants for tax compliance and preparation of yearly financial statements, and staff IT support when needed”.

Mr McCarthy, not inconsistently, described the respective roles of the directors in this way:

Mr McCarthy added:

In September 2015, Grant Thornton Australia Pty Ltd (Grant Thornton) was engaged to “act as the Company’s accountants, bookkeepers, and financial advisors”.

In November 2015, Mr McCarthy and Mr O’Farrell changed the structure of Talentpool so that it became totally owned by TPC. The shares in TPC were equally owned by Mr McCarthy and Mr O’Farrell. The structural change had no effect on the running of the business. As stated by Mr McCarthy:

In October 2016, Ms Huggins was employed by Talentpool as the Operations Manager. At the beginning of 2019 she became the Head of Operations and Finance. In her affidavit, Ms Huggins says that the change of title was “more to carry weight with clients as I had essentially always done this role”.

Ms Huggins’ employment with Talentpool was terminated by Mr McCarthy in December 2024. She had also started working on a part-time basis, in April 2023, in a company called Furthr, which is owned by Mr O’Farrell. She remains, now full-time, working for Furthr. She is the Head of Commercial Operations and Finance.

Although she was working effectively for both protagonists at the same time (from April 2023 to December 2024), and is currently working for Mr O’Farrell, no suggestion was made that her evidence, although supporting Mr O’Farrell, was improperly biased in his favour.

Besides receiving dividends from Talentpool, Mr McCarthy and Mr O’Farrell each received a salary. As at May 2020, the salary was $90,000 per annum.

In May 2020, Mr O’Farrell altered his involvement in the business. He effectively gave up his participation in the running of the business in order to concentrate on other business activities. He also stopped receiving his salary. He did, however, maintain his shareholding in TPC and continued to receive dividends.

According to the defence filed by Mr McCarthy, the events of May 2020 fundamentally influenced the applicability of the Agreement. Mr McCarthy asserted that on or about 22 May 2020:

In the course of his cross-examination, this exchange occurred:

The effect of the just quoted evidence was to switch the focus of Mr McCarthy’s case from the Agreement not being applicable, in whole or in part, to one of the interpretation of the Agreement. Mr McCarthy’s ‘new’ case was that the actions he took, as will be described below and which led to the litigation, were sanctioned by the Agreement. The estoppel point was not pursued. Mr Stapleton fairly conceded:

Returning to the history, Mr O’Farrell still continued to be involved in the business but at a much lesser level. There was considerable dispute about this level, Mr McCarthy asserting that Mr O’Farrell made very little contribution, and that he himself effectively took on the role as managing director and operator of the business.

In August 2020, Mr McCarthy left Australia, apparently for Ireland. It seems he did not return and has taken up residence in the Middle East. In 2022, Mr O’Farrell says he became concerned about the financial dealings of Talentpool. He says that he reviewed the draft 2022 financial statements together with the material contained in the Xero accounting software. He discovered that commencing on 22 February 2022 and ending on 24 March 2023, Mr McCarthy caused Talentpool to make 10 separate payments to a company called Dolphin Dream Consulting Pty Ltd (Dolphin). The total of the payments was $501,355.01.

Dolphin is wholly owned by Mr McCarthy. According to Mr McCarthy the payments were made “in part payment of management consulting services rendered to Talentpool” by him.

In addition to the consultancy payments, Mr O’Farrell also says that he identified a number of “wrongful payments” made to Mr McCarthy. These payments were generally referred to as unauthorised travel expenses and totalled $90,364.49.

The discovery of the consultancy payments and the travel expenses prompted Mr O’Farrell to file the summons on 22 March 2023. Orders made after the filing of the summons have taken on some importance in the case.

On 22 March 2023, Lindsay J made a number of orders including:

The email chain relating to the notification to Mr McCarthy of the orders made by Lindsay J indicates that Mr McCarthy was made aware of the orders before he made the final payment to Dolphin, from one of the accounts restrained by Lindsay J, in the sum of $124,998 (on 24 March 2023). Six emails referring to the orders were sent to Mr McCarthy before the payment was made. He said he was not aware of the orders, but it is clear that his email service was operating and being used by him at the time. I do not accept his denial about knowledge of the orders.

On 24 March 2023, Lindsay J continued Order 6, as set out above, until further order. The matter next came before the court, this time before Kunc J, on 28 March 2023.

Kunc J made freezing orders, including:

On 5 April 2023, Kunc J continued the freezing orders until further order.

On 27 February 2025, I varied the order concerning legal expenses so as to permit the expenditure of $90,000 in respect of the preparation for, and conducting of, the final hearing which commenced on 3 March 2025.

I observed in my decision on the variation application that Mr McCarthy was “almost certainly in breach of the freezing order”. The “almost” in my just quoted words was removed on the first day of the hearing when documents produced by Mr McCarthy revealed that since 18 May 2023, he had paid legal expenses totalling $130,993.45. In addition, the documents established that Mr McCarthy had allowed his cash assets to reduce to a figure about $100,000 less than that stipulated by Kunc J.

Mr McCarthy, other than denying his knowledge of the initial orders, which denial I have not accepted, has never otherwise sought to justify his final payment to Dolphin, his reduction of his assets to a value below that stipulated by Kunc J, and his more than tenfold exceeding of the limit placed on his legal expenses.

Mr McCarthy’s disregard, if not blatant ignoring, of court orders must have a significant effect on his credit. It was not suggested otherwise by his learned counsel, who more sought to reinstate Mr McCarthy’s credit by a comparison with Mr O’Farrell’s credit. Mr O’Farrell, in the witness box, often tried to put his own spin on questions he was asked. He did not succeed. Cross-examining counsel properly persisted in bringing Mr O’Farrell back to the topic at hand. Nevertheless, I did not think Mr O’Farrell was a dishonest witness. Much of what he said is consistent with the documentary evidence and with the evidence of Ms Huggins, the latter being unquestionably an honest witness.

As the case transpired, however, I think any credit issues were confined to the travel expenses claim. The consultancy payments dispute was I think determined by the terms of the Agreement.

As a result of the effective abandonment of the May 2020 memorandum of understanding (as influencing the legal relationship between Mr McCarthy and Mr O’Farrell), a good deal of evidence, in particular made up of WhatsApp messages, text messages and emails, became irrelevant.

However, the May 2020 memorandum of understanding was still important, said Mr McCarthy, to monies he was paid by Talentpool, in particular the payments to Dolphin.

The primary issues left to be determined were:

I will deal with each of these issues in turn.

There was no dispute that the monies were paid to Dolphin.

Mr McCarthy put his case in three ways:

Mr McCarthy, at para 73 of his affidavit, sets out the “additional tasks I was required to undertake”, perhaps amongst others, from May 2020. Mr O’Farrell conducted an analysis of these tasks, in particular compared to the work Ms Huggins was undertaking.

I accept that Mr McCarthy did have more to do after May 2020. But it is clear that from this time Ms Huggins also took on extra responsibilities. This can be seen from the responses she gave to the list of questions provided to her by Mr O’Farrell on 16 May 2024.

By May 2020, Ms Huggins was already playing a large part in management. There is an extensive list of her duties in the response to Question 7. In Question 8, Ms Huggins was asked if her duties decreased from May 2020. She responded:

After May 2020, Ms Huggins said that she looked “after the Company’s books and records including liaising with Grant Thornton, the ATO and various state governments including VIC and NSW”. Ms Huggins stated that she managed vendors, participated in the creation and maintenance of major contracts, participated in weekly sales meetings, assisted with IT issues and “on boarded” new contractors.

Ms Huggins said she did not receive much assistance from Mr McCarthy. Overall, I am satisfied that although Mr McCarthy did take on extra tasks after May 2020, he was nevertheless dependent on Ms Huggins for much of the day-to-day operations of Talentpool. If his intention was to suggest that he ran the company single-handedly after May 2020, then I reject that suggestion.

The email of 22 May 2020 is entitled “Memorandum of understanding” and is from Mr McCarthy to Mr O’Farrell. It states:

At its highest, the memorandum supports the following:

Mr McCarthy specifically states in the email: “Our memorandum of understanding was this and nothing else.” There is nothing else in the email besides those matters set out in the previous paragraph. There is no permission to Mr McCarthy to set his own remuneration or to pay consulting fees, to himself or anyone else.

The memorandum of understanding therefore does not assist Mr McCarthy’s justification for the payments to Dolphin.

Turning to the Agreement, Mr McCarthy interpreted the Agreement in this way:

I disagree with Mr McCarthy’s interpretation of the Agreement. Dolphin may well have been the alter ego of Mr McCarthy, but it was still a separate entity. That is the very essence of a proprietary limited company. Being such an entity carries with it benefits, for example taxation rates, which separate it from its owner. In order to receive the payments, Dolphin, albeit through Mr McCarthy, had to contract to do so.

In addition, Dolphin was not simply a nominated recipient. It was the provider of a service in the form of work done by Mr McCarthy. Mr McCarthy himself states in his affidavit, at [91]:

Mr McCarthy is essentially saying that the payments made to him, via Dolphin, amounted to appropriate remuneration. Whether assessed at $150,000 per annum or $250,000 per annum, it cannot be said that such figures would not necessarily be seen as a reasonable remuneration. It might also be said that Mr McCarthy, with Mr O’Farrell having left the running of the business to him, was entitled to a raise in salary from the $90,000 he was receiving in 2020. But this is not the point. The point is that the payments to Dolphin were made specifically for consulting services and not as remuneration of an employee or a director.

Contractor payments are not salary payments. Dolphin was contracting with Talentpool for the provision of Mr McCarthy’s services to Talentpool. If there is any doubt about this issue it is disposed of by the invoices sent to Talentpool by Dolphin, all of which claim monies for “Management Consulting Services” and are stated to be “FOR Management Consulting”.

Even further, the response describing the payments in the points of defence refers to each payment as being “in part payment of management consulting services rendered to Talentpool by the First Defendant’s consultancy firm, Dolphin Dream Consulting.”

The contract is for more than $5,000 so falls under cl 4.7(e). The agreement to pay Dolphin also falls under (k), noting the definition of Associate which is quoted above.

It is perhaps arguable cl 4.7(i) is not contravened because consultancy services may fall within the course of business. What is clear is that the board never approved the payment of consulting fees.

There is no dispute that there was not a unanimous decision of the directors approving the agreement with Dolphin.

The next point to consider is whether the payments might be seen as just allowances paid to Mr McCarthy. Mr McCarthy put his receipt of the consultancy payments as qualifying him for relief under s 1318 of the Corporations Act. It was submitted that there was no loss to Talentpool because the monies paid to Dolphin were reasonable in quantity and would in any event have been paid to ‘somebody’ to do the work that was done by Mr McCarthy. Accordingly, there was no loss to the company. Counsel submitted:

In my view the claim is quite believable. Mr McCarthy, as he ultimately accepted, was bound by the Agreement. He chose to act in contravention of the Agreement by making substantial payments to Dolphin, but ultimately entirely for his own benefit. Section 1318 of the Corporations Act requires that the person has acted honestly. I do not think Mr McCarthy acted honestly. This is exemplified by him totally ignoring the Agreement, manipulating his adherence to the Agreement by initially claiming it had ceased to have any effect or was varied, and his effective contempt for court orders. The last payment to Dolphin was made after the court ordered that such a payment should not be made. As I have said, I do not accept that Mr McCarthy was unaware of the orders. That payment was certainly dishonest.

The question of just allowances was dealt with by the Victorian Court of Appeal in Hoh v Ying Mui Pty Ltd [2019] VSCA 203, from [295]-[297]:

Peden J, in Li v Perpetual Holdings Pty Ltd [2025] NSWSC 175 recently stated, at [107]:

If Mr McCarthy was otherwise entitled to receive the monies paid to Dolphin as a just allowance, that option is precluded by his dishonest conduct.

My above conclusions inevitably lead to a finding that the payments to Dolphin were in breach of the Agreement. It is also clear that Mr McCarthy, in making the payments, was diminishing the assets of Talentpool and, by acting unilaterally and in breach of the Agreement, was misappropriating company funds. This finding will have an ongoing effect on Mr O’Farrell’s application to bring a derivative action.

This claim is less straightforward. This was highlighted by the passion expressed by Mr McCarthy in his evidence in rejecting the validity of the allegations. I accept that this passion demonstrated a belief that he had not improperly incurred the travel expenses, and certainly not to the extent alleged.

The claim is derived from the evidence of Ms Huggins. On 1 June 2023, Ms Huggins sent Mr O’Farrell and Mr McCarthy an email which stated:

The attached document is in three parts. The first is headed “Travel & accommodation - Domestic Transactions” and refers to the period from 1 July 2019 to 31 July 2023. It lists a series of payments, mostly made by a Westpac credit card, totalling $32,806.70.

The second part is headed “Travel & accommodation - International Transactions” and is stated to refer to the period from 1 July 2019 to 28 June 2023. It comprises a list of payments made by Talentpool, totalling $33,072.16.

The third part is entitled “Entertainment Non Deductible Transactions” and covers the period from 1 July 2019 to 30 June 2022. The list of payments totals $24,485.63.

The three parts add up to $90,364.49.

Relying on the overall description of “reported expenses that are not associated with internal employees or contractor expenses”, Mr O’Farrell claims that these are expenses wrongly incurred by Mr McCarthy and charged to Talentpool.

Mr McCarthy said some of the expenses had nothing to do with him. For example, one of the payments to Avianca Lifemiles in 2019 related to Mr O’Farrell.

More significantly, counsel for Mr McCarthy outlined the path by which the claim came into being, stating that the claim had simply not been proved. It was “too uncertain and too vague”.

Mr McCarthy had a Westpac credit card (WCC). In his affidavit he described how he dealt with the use of the card and the expenses incurred at [110]-[114]:

In final submissions counsel for Mr McCarthy took me through this chain of events:

Mr O’Farrell, by email sent 20 February 2023, alleged: “Unsubstantiated travel expenses incurred by you totalling $150,992.09 during the financial years FY20 – FY22.”

On 31 May 2023, Mr O’Farrell emailed Ms Huggins asking questions about the expenses process. This led to Ms Huggins providing the Xero document I have referred to above, and in turn a claim made by Mr O’Farrell for the return of $90,364.49 “immediately” to Talentpool.

The next step was to look at the table of “Travel & accommodation – International Transactions” for the period 1 July 2021 to 30 June 2022. This is a different date range to the Xero document relied upon by Mr O’Farrell (1 July 2019 to 28 June 2023).

Next was an email from Mr Lau (from Grant Thornton), who emailed Mr McCarthy in these terms on 12 April 2023:

On 24 June 2023, Mr McCarthy emailed Ms Huggins, stating:

This email was said to raise two points:

Noting this uncertain background, I was then taken to the document produced by Grant Thornton setting out domestic and international travel expenses for the financial years 2020, 2021 and 2022. The total is $49,371.94.

Mr McCarthy, under cross-examination, was anxious to explain the Grant Thornton document, which appears at p 340 of the Court Book. He gave this evidence:

Mr McCarthy’s explanation about the document is almost impossible to understand. Despite him expecting a “re-direct”, no questions were asked of him in re-examination and, perhaps more importantly, no affidavit evidence was sought from any person at Grant Thornton.

Finally, this submission was made:

The effect of me not having “a clear picture”, submitted Mr McCarthy, was that Mr O’Farrell had not proved that the travel expenses were unauthorised. At first sight, there is some attraction in this argument, in particular given that there do seem to be some payments that are not referable to Mr McCarthy and there is a fluctuating amount, as shown by the Grant Thornton document.

The difficulty for Mr McCarthy, however, is that the document primarily relied upon by Mr O’Farrell, namely the Xero print-out, carries with it the statement by Ms Huggins:

Once this document came into evidence, the evidentiary burden switched to Mr McCarthy to show that the document was not reliable.

The switching of an onus was explained by Gagelar J (as his Honour then was) in Henderson v Queensland (2014) 255 CLR 1; [2014] HCA 52 at [89]-[90]:

The Xero printout, together with Ms Huggins comment on it, is sufficient to raise the inference that Mr McCarthy charged personal expenses to Talentpool. Mr McCarthy was unable, either through Ms Huggins or otherwise, to impugn the document so as to render it unreliable. An exception relates to the Avianca Lifemiles entries in 2019 which may be referable to Mr O’Farrell, as well as Mr McCarthy.

Mr McCarthy’s reliance on the document from Grant Thornton has the deficiency that while it might come up with a different total, it is effectively unexplained. No evidence was forthcoming from any person at Grant Thornton which might explain the document. At best, the email from Mr Lau leaves matters in a ‘yet to be determined’ state.

The total of entries attributed to Avianca Lifemiles in 2019 is $4,165.28. It is not clear which of the two payments is attributable to Mr O’Farrell. Accordingly, I will halve the total to a figure of $2,082.64. I will deduct $2,082.64 from the total of $90,364.49, leaving $88,281.85, which I conclude are unauthorised travel expenses wrongly paid for by Talentpool.

Section 180 relates to the civil obligation of a director in respect of care and diligence in carrying out his duties. Section 181 concerns a director’s civil obligation to act in good faith “in the best interests of the corporation”.

The claim is straightforward. Mr McCarthy did not act in good faith or in the best interests of the company by contracting with Dolphin and incurring expenses without the approval of Mr O’Farrell. Under the Agreement, Mr O’Farrell was required to give consent to the formation of contracts such as that with Dolphin. By entering into the contract with Dolphin, Mr McCarthy was obtaining a profit without shareholder approval.

The parties seem to agree that an objective test is to be applied. Mr O’Farrell’s approach was that finding against Mr McCarthy in respect of the consultancy payments and the travel expenses would automatically result in a finding of breaches of these sections. Senior counsel for Mr O’Farrell stated:

Counsel for Mr McCarthy referred me to Alora Davies Developments 104 Pty Ltd v Raphael [2024] NSWSC 547, where Black J summarised the principles relating to ss 180 and 181 at [139]-[141]:

Mr Stapleton, on behalf of Mr McCarthy, submitted:

Mr Stapleton was submitting that his client was honest and acting in accordance with the way Mr McCarthy and Mr O’Farrell carried on the business. They both worked hard, were successful, but did so with little regard to the specific rules of the Agreement. There may be an element of pragmatic analysis in this approach, but it cannot go so far as to sanction blatant breaches of the Agreement, in particular where that agreement states, in the introduction to cl 4.7:

This instruction to the directors cannot be seen as a licence to act as they wished provided they were doing so in their perceived interests of the company. The part of the clause just quoted is a specific direction that each of the matters to which it pertains requires a unanimous vote. The Agreement does not in any way sanction the ‘casual’ means of operating suggested by Mr McCarthy.

My conclusions about Mr McCarthy’s credit and the breaches, in respect of the consultancy payments and the travel expenses, lead me to agree with Mr O’Farrell’s submission that breaches of ss 180 and 181 flow, effectively automatically.

Accordingly, I am satisfied that in respect of the consultancy payments and the travel expenses, Mr McCarthy acted in breach of his civil obligations under ss 180 and 181.

Mr O’Farrell is a person falling within the scope of s 236 of the Corporations Act. The finding that the payments to Dolphin were made contrary to the Agreement, and therefore that funds of Talentpool and TPC were accordingly reduced, is a powerful factor in favour of the granting of leave under s 237 of the Corporations Act. So much I think was conceded on behalf of Mr McCarthy. My findings in respect of ss 180 and 181 also significantly strengthen the appropriateness of giving leave for the derivative actions.

It is still necessary to examine the conditions for leave set out in s 237(2) of the Corporations Act. The two directors of TPC are opposed to each other in this litigation, and in particular, in respect of the payments to Dolphin. Having regard to their opposing positions it is unlikely that the company would be able to bring proceedings to recover the Dolphin payments or the travel expenses. I am therefore satisfied that it is probable that the company will not itself bring any proceedings.

I am also satisfied that Mr O’Farrell is acting in good faith. As a director of TPC he is naturally concerned that its assets are not improperly disbursed. This concern flows through to Talentpool which is owned by TPC.

It must be in the best interests of Talentpool and TPC that monies improperly taken from them are returned. The recovery of a large sum of money, the entitlement to which has been denied, of itself describes the serious question to be tried.

I am satisfied that the above factors make it appropriate to grant leave, notwithstanding that there was no compliance with s 237(2)(e)(i).

Accordingly, I give leave to Mr O’Farrell to bring derivative actions on behalf of TPC and Talentpool.

The purpose of the derivative actions is to return the consultancy fees and travel expenses to the companies. The findings in respect of these expenses leaves little doubt that they should be returned. As to which company should have the order, it probably is of little consequence, but ultimately I think the order should be made in favour of Talentpool. This is because Talentpool made the unauthorised payments. Talentpool will obviously be responsible to TPC for an accounting of the returned payments.

I will make orders in favour of Talentpool for the recovery of the two sums ($501,355.01 and $88,281.85). The orders, consistent with Order 5 sought in the amended summons, will be made pursuant to s 1317H of the Corporations Act.

This case is brought pursuant to ss 232 and 233 of the Corporations Act. The allegation is that Mr McCarthy’s improper receipt of the consultancy fees and the travel expenses lessened the assets of Talentpool thus reducing the monies available for distribution and for use by TPC in its operation of Talentpool.

The order sought under s 233(1)(e) is that Mr McCarthy’s shares in TPC be purchased by Mr O’Farrell “at a price reflecting the damage that has been done to the company by McCarthy”. Mr O’Farrell’s written submissions also refer to the submissions made in his contract case where he seeks personal damages.

The overlapping of breaches and damages, I think, gives rise to a need for caution to avoid any duplication of damages ordered against Mr McCarthy.

Returning to s 232, that Mr McCarthy’s conduct of the affairs of Talentpool was “contrary to the interests of the members as a whole”. The conduct is, of course, the dealings with the consultancy payments and the travel expenses.

Based on my above findings I have little difficulty in placing Mr McCarthy’s conduct within s 232. One of the problems with the orders sought under s 233 is assessing the value of the company. Mr O’Farrell’s closing submissions suggested that further orders would need to be made in respect of a valuation. Mr Stapleton, on behalf of Mr McCarthy, flagged this issue in opening submissions when he said:

Under the cross-claim, Mr McCarthy had also sought the purchase of the shares, obviously by him from Mr O’Farrell. It is sensible that one or other of Mr McCarthy and Mr O’Farrell are separated from TPC. Clearly, they cannot work together in the interests of the company.

I stopped Mr McCarthy from running his cross-claim. Accordingly, there is no order currently being sought whereby Mr McCarthy purchases Mr O’Farrell’s shares. For this reason, and more importantly because of my view about Mr McCarthy’s damaging conduct, the appropriate order will be in favour of Mr O’Farrell.

Because of the valuation difficulty signalled by both parties, I will hear further submissions on the appropriate way forward.

Mr O’Farrell's claim is for just under $1.5 million, being half of the value of Talentpool in 2021.

In written submissions the claim was stated simply:

The breach of contract relied upon for the damages case seems to have these bases:

The primary submission made by Mr McCarthy was I think properly characterised as a causation problem faced by Mr O’Farrell. It was submitted:

In Mr McCarthy’s written submissions, the current state of the companies was described as a “failed joint enterprise”. Taken with the above submission that the unauthorised payments could not be seen as the cause of the failure then, in turn, they could not give rise to the personal breach of contract damages sought by Mr O’Farrell.

I think it necessary to look a little closer at the current state of the companies and how they arrived in this state.

Talentpool started operating with both Mr McCarthy and Mr O’Farrell as directors and joint shareholders in the second half of 2014. TPC became the owner of Talentpool in October 2015. Ms Huggins was employed in October 2016. The enterprise was apparently successful. Mr McCarthy, in his affidavit, set out the following payments of dividends: $106,000 in 2017, $190,199 in 2018 and $160,000 in 2019.

From late 2019, Mr O’Farrell began to indicate a desire to pursue other interests. The discussions between the two directors led to the memorandum of understanding made on 22 May 2020. Although there is a dispute as to the extent, Mr O’Farrell’s involvement in the day-to-day running of the companies significantly decreased.

Again, based on Mr McCarthy’s affidavit, the revenue of Talentpool was $9,807,620 in 2020 and $15,233,895 in 2021. The corresponding net profit was $802,740 in 2020 and $2,083,099 in 2021. In respect of dividends for these two years, Mr McCarthy says that Mr O’Farrell received $160,000 in 2020 and $462,000 in 2021. The import of Mr McCarthy’s figures is that the company flourished under his stewardship and in the virtual absence of Mr O’Farrell.

Mr O’Farrell does not dispute the figures in the previous paragraphs but denies that any continuing success was due to Mr McCarthy’s efforts and that he, Mr O’Farrell, played no real part.

Mr McCarthy left Australia for Ireland in August 2020, apparently to care for his ailing father. He does not seem to have returned to Australia, but rather moved to the Middle East.

The companies do not seem to be currently operating with there being outstanding reporting and taxation obligations still to be complied with.

Mr McCarthy seems to blame the freezing orders for the company’s woes. He states in his affidavit, at [164]:

According to the questionnaire completed by Ms Huggins, whose evidence I have already stated I accept entirely, Ms Huggins performed a significant part of the administrative functions of the company and Mr McCarthy did not do very much at all, in particular as time went by. At Question 10 Ms Huggins gave this description of the participation of the directors after May 2020:

Ms Huggins later gave this explanation for the company’s apparent decline:

The question that now arises is whether or not the failure of the company was caused by the breach of contract, in particular relating to the consultancy payments and the travel expenses. Mr O’Farrell put causation in this way:

The case therefore seems to be that if the consultancy payments had not left Talentpool for the ‘pocket’ of Mr McCarthy then those funds (about $500,000) would have been used to strengthen and grow the enterprise. Mr McCarthy suggested that the $500,000 would not have been spent in this way but would rather have been distributed as a dividend to each of the directors.

Despite my general rejection of Mr McCarthy’s evidence, and case, I do think there is merit in his suggestion. This is because:

I intend to reject Mr O’Farrell’s personal claim for breach of contract. This is not only because I think there is a causation problem but because the remedy sought by Mr O’Farrell, as I read the amended summons, is limited to an order that Mr O’Farrell purchase Mr McCarthy’s shares in TPC. This is essentially the same order that arises from the oppression case, highlighting the duplication point that I made above.

The amended summons also seeks “damages”, but I am not sure precisely what is sought. I have also made the duplication and causation points above which I think extinguish any claim for damages, in particular if claimed by Mr O’Farrell personally.

I make the following declarations and orders: