Anderson v Canaccord Genuity Financial Ltd

[2023] NSWCA 294

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294

Hearing dates:

8 – 12, 15 – 17 May 2023

Decision date:

08 December 2023

Before:

Gleeson JA; Leeming JA; White JA

Decision:

In 2022/00048359:

1. Appeal allowed as against all respondents save the fifth respondent Acorn Capital Ltd and the sixth respondent Albany Capital Investors Pty Ltd.

2. Set aside orders 1 and 2 made on 7 February 2022, except insofar as order 2 enters judgment in favour of the fifth respondent Acorn Capital Ltd and the sixth respondent Albany Capital Investors Pty Ltd, and in lieu thereof enter judgment in favour of Mrs Anderson against each of the first, second, third and fourth respondents in the amount of $3,016,304.23.

3. Set aside orders 1, 3, 5, 11 and 13 made on 24 May 2022 (concerning the first, second, third and fourth respondents’ costs of the trial).

4. Cross-appeal dismissed.

5. Direct the parties to file and serve written submissions as to the costs of the appeal and costs at first instance not exceeding 10 pages, and any other materials in support of those submissions, on or before 2 February 2024, and written submissions in reply not exceeding 5 pages, or in the case of Mrs Anderson, 10 pages, on or before 16 February 2024, with a view to resolving the question of costs on the papers.

6. Any application for further orders to be made by notice of motion filed no later than 2 February 2024, together with affidavits and submissions in support, with the parties thereafter to supply affidavits and submissions in response and in reply in accordance with the timetable in order 5 above and with a view to the application being resolved on the papers.

In 2022/00173413:

1. Direct Mr Anderson to file a notice of appeal in accordance with the draft notice of appeal within 7 days of today, and dispense with the requirements as to service.

2. Appeal allowed.

3. Set aside order 12 made on 24 May 2022.

4. The first, second, third and fourth respondents to pay Mr Anderson’s costs of proceeding 2022/173413, and (to the extent that separate costs were incurred by Mr Anderson) to pay his costs in the Equity Division in respect of the application for a third party costs order.

Catchwords:

EQUITY – fiduciary duty – existence – whether employee owes fiduciary obligations to employer – whether employee recognised as accepted category of fiduciary – separate element as to whether employee’s conduct falls within scope of fiduciary obligation – whether open to Australian courts below the High Court to reject separate elements of existence and scope of fiduciary obligations of senior employees – Nottingham University v Fishel [2000] EWHC 221 (QB); [2000] IRLR 471 disapproved

EQUITY – fiduciary duty – knowing involvement in breach – level of assistance sufficient to render third party liable – extent of knowledge sufficient to render third party liable – circumstances when knowledge imputed to third party – scope of “fraud exception”

EQUITY – fiduciary duty – breach – causation – where loss of opportunity turned upon alleged further breach of trust by trustee to which fiduciary obligations were owed by employees – whether such further breach of trust stood in way of assessment of liability of fiduciaries and knowing assistants – whether proposition produces incoherence and leaves dishonest fiduciaries with a windfall – whether allegation of further breach of trust put to trustee – whether there was informed consent to any further breach of trust

EQUITY – fiduciary – breach – loss of a chance – whether any lost opportunity caused by breaches was so speculative that it was not valuable – assessment of loss of chance – discounts for future contingencies – appropriateness of “global” discount because future contingencies not independent – significance of paucity of evidence being a consequence of breaches of fiduciary duty – appropriateness of drawing inferences and resolving doubtful questions against fiduciary

Legislation Cited:

Corporations Act 2001 (Cth), ss 477, 763A, 766A, 911A

Environmental Planning and Assessment Act 1979 (NSW), Pt 3A

Evidence Act 2005 (NSW), s 140

Trustee Act 1925 (NSW), s 59

Uniform Civil Procedure Rules 2005 (NSW), r 36.16

Cases Cited:

ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65

Aerostar Maintenance v Wilson [2010] EWHC 2032 (Ch)

All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd (No 2) [2021] FCA 782; 154 ACSR 78

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43

Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58

Anderson v Canaccord Genuity Financial Ltd (No 2) [2022] NSWSC 649

Attorney-General v Blake [1998] Ch 439

Australian Executor Trustees (SA) Ltd v Kerr [2021] NSWCA 5; 151 ACSR 204

Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 266 FCR 147; [2018] FCA 751

Bale v Mills (2011) 81 NSWLR 498; [2011] NSWCA 226

Barnes v Addy (1874) LR 9 Ch App 244

Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341

Beach Petroleum NL v Johnson (1993) 43 FCR 1

Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408

Bilta (UK) Ltd (in liq) v Natwest Markets plc [2020] EWHC 546 (Ch); [2020] AII ER (D) 82

Bilta (UK) Ltd v Nazir (No 2) [2016] AC 1; [2015] UKSC 23

Biogen Inc v Medeva plc [1997] RPC 1

Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24

Boardman v Phipps [1967] 2 AC 46

Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49

Breen v Williams (1996) 186 CLR 71; [1996] HCA 57

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Browne v Dunn (1893) 6 R 67

Bugge v Brown (1919) 26 CLR 110; [1919] HCA 5

Calvo v Sweeney [2009] NSWSC 719

CCIG Investments Pty Ltd v Schokman [2023] HCA 21; 97 ALJR 551

Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36

Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421; [2016] FCAFC 186

Commonwealth v Bank of New South Wales (1949) 79 CLR 497; [1950] AC 235

Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8

Craig-Bridges v NSW Trustee and Guardian [2017] NSWCA 197

Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371; [1986] HCA 25

Deatons Pty Ltd v Flew (1949) 79 CLR 370; [1949] HCA 60

DEJ v Council of the New South Wales Bar Association [2021] NSWCA 72

Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 8) [2022] FCA 1404

Director General, Department of Education and Training v MT (2006) 67 NSWLR 237; [2006] NSWCA 270

Director of Public Prosecutions Reference No 1 of 1996 [1998] 3 VR 352

EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183

EFG Australia Ltd v Kennedy [1999] NSWSC 922

Elfic Ltd v Macks [2003] 2 Qd R 125; [2001] QCA 219

Environment Protection Authority v Wollondilly Abattoirs Pty Ltd [2019] NSWCCA 312

Falkingham v Hoffmans (a firm) (2014) 46 WAR 510; [2014] WASCA 140

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Francis v South Sydney District Rugby League Football Club Ltd [2002] FCA 1306

Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd (in liq) [2002] NSWCA 29; [2002] ATPR 41-864

Gregg v R [2020] NSWCCA 245; 355 FLR 348

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179; 129 ACSR 265

Hallmark Construction Pty Ltd v Harford [2020] NSWCA 41; 294 IR 359

Harstedt Pty Ltd v Tomanek (2018) 55 VR 158; [2018] VSCA 84

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157; [2001] FCA 1040

Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21

In Re Coomber; Coomber v Coomber [1911] 1 Ch 723

Investa Properties Pty Ltd v Nankervis (No 7) [2015] FCA 1004; 333 ALR 193

Jenyns v Public Curator (Qld) (1953) 90 CLR 113; [1953] HCA 2

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Kao Lee & Yip v Koo Hoi Yan & Ors [2003] 3 HKLRD 296; [2003] HKCFI 850

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68

Kramer v Stone [2023] NSWCA 270

Krishell Pty Ltd v Nilant (2006) 32 WAR 540; [2006] WASCA 223

Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11

Law Society of New South Wales v Foreman (1994) 34 NSWLR 408

Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248; 259 IR 384

Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23

Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20

Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32

Maritime Union of Australia v Fair Work Ombudsman [2015] FCAFC 120

Massoud v Nationwide News Pty Ltd; Massoud v Fox Sports Australia Pty Ltd (2022) 109 NSWLR 468; [2022] NSWCA 150

Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500; [1995] UKPC 5

Metal Manufactures Ltd v Johnston (2020) 3 QR 456; [2020] QCA 42

Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd [2020] NSWCA 223

Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) [2022] NSWCA 12; 398 ALR 658

Muriniti v Mercia Financial Solutions Pty Ltd [2021] NSWCA 180

Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1970) 122 CLR 628; [1971] AC 793

Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1

Nottingham University v Fishel [2000] EWHC 221 (QB); [2000] IRLR 471

Novoship (UK) Ltd v Mikhaylyuk [2015] QB 499; [2014] EWCA Civ 908

O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262

Oliver Hume South East Queensland Pty Ltd v Investa Residential Group Pty Ltd (2017) 259 FCR 43; [2017] FCAFC 141

Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; 285 ALR 63

Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31

QB4 Capital Pty Ltd v Guardian Securities Ltd [2023] FCAFC 72

Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550; [2019] NSWCA 211

Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324; 101 ACSR 415

Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; 101 ACSR 233

Re Hampshire Land Co [1896] 2 Ch 743

Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4

Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219

Singularis Holdings Ltd (in liq) v Daiwa Capital Markets Europe Ltd [2020] AC 1189; [2019] UKSC 50

Talacko v Talacko (2021) 272 CLR 478; [2021] HCA 15

United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; [1985] HCA 49

Vanderstock v Victoria [2023] HCA 30

Victoria University of Technology v Wilson [2004] VSC 33; 60 IPR 392

Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18

Western Sydney University v Thiab (2023) 111 NSWLR 241; [2023] NSWCA 57

Woolworths Ltd v Olson [2004] NSWSC 849; 184 FLR 121

Texts Cited:

M Gordon, Foreword to E Bant (ed), The Culpable Corporate Mind (Hart Publishing, 2023)

J Lehane, “Fiduciaries in a Commercial Context”, in P Finn (ed), Essays in Equity (Law Book Co, 1985) 95

Category:

Principal judgment

Parties:

In 2022/00048359:

Daniela Alejandra Anderson (Appellant)
Canaccord Genuity Financial Ltd (First Respondent)
Nicola Lesleigh Garrett (Second Respondent)
Samuel Mark Renauf (Third Respondent)
Falcon Prime Pty Ltd (Fourth Respondent)
Acorn Capital Ltd (Fifth Respondent)
Albany Capital Investors Pty Ltd (Sixth Respondent)
Ashington Capital Pty Ltd (in liquidation) (Seventh Respondent)
Ashington Management Pty Ltd (in liquidation) (Eight Respondent)

In 2022/00173413:

Craig Anthony Anderson (Appellant)
Canaccord Genuity Financial Ltd (First Respondent)
Nicola Lesleigh Garrett (Second Respondent)
Samuel Mark Renauf (Third Respondent)
Falcon Prime Pty Ltd (Fourth Respondent)
Acorn Capital Ltd (Fifth Respondent)
Albany Capital Investors Pty Ltd (Sixth Respondent)
Ashington Capital Pty Ltd (in liquidation) (Seventh Respondent)
Ashington Management Pty Ltd (in liquidation) (Eight Respondent)

Representation:

In both 2022/00048359 and 2022/00173413:

Counsel:
P S Braham SC and A Bhasin (Appellant)
J A Redwood SC and E Bathurst (First Respondent)
M Painter SC and T Bagley (Second and Third Respondents)
G Ng and R Sud (Fourth Respondent)
A S McGrath SC and J Jaffray (Fifth Respondent)
S Gray and A Cameron (Sixth Respondent)

Solicitors:
McLachlan Thorpe Partners (Appellant)
Clayton Utz (First Respondent)
Piper Alderman (Second and Third Respondent)
Corrs Chambers Westgarth (Fourth Respondent)
Moray & Agnew Lawyers (Fifth Respondent)
Kennedys (Sixth Respondent)

File Number(s):

2022/00048359; 2022/00173413

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity

Citation:

[2022] NSWSC 58; [2022] NSWSC 649

Date of Decision:

07 February 2022

Before:

Ward CJ in Eq

File Number(s):

2015/00285816

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant Mrs Daniela Anderson took an assignment of claims from two Ashington companies in liquidation. Her husband, Mr Craig Anderson, was formerly a director and substantial shareholder in the Ashington group of companies. The two companies had earned fees as the trustee and manager of two unlisted unit trusts, which invested in properties suitable for redevelopment and sale. In around September 2009, the loans which had enabled one of the properties (“Stonington”) to be acquired were in default, the lenders were threatening to enforce their rights, and the large superannuation fund investors which were majority unitholders were dissatisfied with the performance of the Ashington companies. The superannuation fund investors retained the fourth respondent (“PPB”) to represent their interests. Ashington employed the second and third respondents, Ms Nicola Garrett and Mr Samuel Renauf, to liaise with the superannuation fund investors and to effect an urgent refinance of the Stonington debt. Ashington granted a mandate to the first respondent (“Patersons”) to obtain short term finance for $11-15 million at a 30% annual return in order to buy out the existing lenders (“Stonington Capital Raising”). However, rather than proceeding in accordance with the mandate, Ms Garrett and Mr Renauf participated in developing a proposal for a new company to take over the roles of trustee and manager of the unit trusts, with funds being provided by the fifth and sixth respondents (“Acorn” and “Albany”). The Stonington Capital Raising never occurred. In December 2009, the Ashington companies ceased to be trustee of the two unit trusts, and subsequently ceased to be trustee and manager of those and other related trusts. Liquidators were appointed in 2011.

Following a lengthy trial in the Equity Division, it was held that Ms Garrett and Mr Renauf had acted dishonestly and fraudulently against their employer, but that they did not owe fiduciary obligations. It was also held that if the dishonest breaches of duty had been breaches of fiduciary duty, none of Patersons, PPB, Acorn and Albany had knowingly assisted in those breaches. Further, it was held that although Ms Garrett’s and Mr Renauf’s conduct had caused the Stonington Capital Raising to fail, damages and compensation were assessed at nil. Nominal damages were awarded against Ms Garrett and Mr Renauf, but otherwise Mrs Anderson’s claims were dismissed.

By a separate judgment, the primary judge made a third party costs order against Mr Anderson.

Mrs Anderson and Mr Anderson brought separate appeals from each of the judgments. After judgment was reserved, the appeals against the judgments in favour of Acorn and Albany were compromised.

There were three main issues on Mrs Anderson’s appeal. First, did Ms Garrett and Mr Renauf owe fiduciary obligations and was their conduct within the scope of those obligations. Secondly, did Patersons and PPB knowingly participate in any breaches of fiduciary duty by Ms Garrett and Mr Renauf. Thirdly, did the breaches of duty cause the Ashington companies to lose a valuable chance of earning trustee and management fees in the future.

The Court unanimously allowed each appeal, entered judgment in Mrs Anderson’s favour and set aside the third party costs order against Mr Anderson.

In respect of the first issue:

1. Authority binding on courts below the High Court holds that employees are an accepted category of fiduciary relationship: at [125]-[151].

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64; Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312; John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19, applied.

2. The scope of a fiduciary obligation will vary and must be separately addressed: at [152]-[166].

Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36; Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18; Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21, applied.

Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; 285 ALR 63; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6; Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179; 129 ACSR 265, followed and approved.

Nottingham University v Fishel [2000] EWHC 221 (QB); [2000] IRLR 471, disapproved.

Metal Manufactures Ltd v Johnston (2020) 3 QR 456; [2020] QCA 42, not followed.

Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408, explained.

3. Ms Garrett’s and Mr Renauf’s conduct by not pursuing the Stonington Capital Raising and instead seeking to replace Ashington as trustee and manager breached their fiduciary obligations: at [167]-[170].

In respect of the second issue:

4. It was sufficient that Patersons and PPB knew that Ms Garrett and Mr Renauf held senior positions within Ashington and were proposing something which was contrary to the mandate, antithetical to the interests of Ashington and to be kept secret from Mr Anderson. It was not to the point that they believed that the unitholders wanted Ashington’s removal: at [193]-[215], [263]-[285].

5. It was sufficient that the assistance provided by Patersons was of a critical step, namely, to secure a meeting with Acorn and subsequently Albany: at [216]-[226].

Harstedt Pty Ltd v Tomanek (2018) 55 VR 158; [2018] VSCA 84, applied.

Obiter consideration:

6. If an employee is on “a frolic of his own” the employee’s knowledge and conduct will not render the employer vicariously liable, but that is distinct from whether the knowledge of the employee is to be imputed to the employer for the purposes of liability as a knowing assistant in a dishonest and fraudulent breach of fiduciary duty. Equity only holds third parties who assist in a dishonest and fraudulent breach of fiduciary duty liable if they have sufficient knowledge of the breach. The notion at the core of the equitable principle is providing assistance to a fiduciary while having sufficient knowledge that the fiduciary is dishonestly and fraudulently breaching the fiduciary’s duty. Thus, at the core of the rules of attribution applicable for liability for knowing assistance is the state of mind of the natural persons who are regarded as providing the assistance. There is no general “fraud exception” to imputation of knowledge: at [230]-[262].

Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500; [1995] UKPC 5; Bilta (UK) Ltd (in liq) v Natwest Markets plc [2020] EWHC 546 (Ch); [2020] AII ER (D) 82; Aerostar Maintenance v Wilson [2010] EWHC 2032 (Ch); Gregg v R [2020] NSWCCA 245; 355 FLR 348; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68; Beach Petroleum NL v Johnson (1993) 43 FCR 1, considered and followed.

Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 266 FCR 147; [2018] FCA 751; All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Ltd (No 2) [2021] FCA 782; 154 ACSR 78, approved.

In respect of the third issue:

7. Equitable compensation could be assessed by taking into account future hypothetical events which might never occur, in this case by adopting a global approach by way of percentage discount, and by resolving doubtful questions against the parties whose actions have made the determination of loss problematic: at [349]-[414].

Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20; Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324; 101 ACSR 415; Australian Executor Trustees (SA) Ltd v Kerr [2021] NSWCA 5; 151 ACSR 204; Falkingham v Hoffmans (a firm) (2014) 46 WAR 510; [2014] WASCA 140, followed and applied.

Judgment

Key individuals, companies and trusts	[7]
Overview of events, conclusions at trial and issues arising on appeal	[20]
The ADF and ADF2	[28]
The acquisition of Stonington and the Investec facility	[46]
Events of late September and early October 2009	[62]
The Stonington Capital Raising	[62]
The invitation to Acorn	[74]
The Garrett plan	[79]
The “Go Forward” Corporate Structure Slide	[83]
The 8 October Swan email	[88]
Subsequent events	[90]
The period until 27 November 2009	[90]
The removal and winding up of Ashington and assignment of causes of action	[93]
Ms Garrett and Mr Renauf owed fiduciary duties (grounds 5 and 6)	[102]
Reasons of the primary judge	[103]
Two preliminary issues	[110]
The appellant’s submissions	[122]
The nature of the fiduciary duties owed by employees	[125]
Employees are an accepted category of fiduciaries	[129]
The scope of a fiduciary obligation	[152]
Application to the facts of this case	[167]
The claim against Patersons	[171]
The reasoning of the primary judge	[174]
The knowledge of Mr Doherty – the pleading point	[179]
The knowledge of Mr Doherty – the evidence	[188]
(a) Knowledge that Ms Garrett and Mr Renauf held senior positions	[193]
(b) Knowledge that the information must be kept secret from Mr Anderson	[201]
(c) Mr Doherty was told that the investors wanted Ashington’s removal	[205]
(d) Mr Doherty’s role as introducer	[207]
(e) The need to establish fraud in equity	[209]
(f) The assistance provided by Patersons	[216]
Assignability of claims (grounds 1-2, various grounds of the notices of contention of the first and fourth respondents)	[227]
The imputation of Mr Carolan’s knowledge to Patersons	[230]
The claim against PPB (grounds 23-26)	[263]
Causation – Notices of contention	[286]
PPB’s submissions on causation	[288]
Not put to Mr Anderson	[299]
The superannuation fund investors approved the Stonington Capital Raising	[306]
The submission produces incoherence and leaves dishonest fiduciaries and their accessories with a windfall	[309]
Ms Garrett’s and Mr Renauf’s breaches caused loss of a valuable opportunity	[315]
Mrs Anderson’s counterfactual	[325]
Overview of reason for accepting Mrs Anderson’s counterfactual	[331]
Loss	[334]
Reasons of the primary judge	[334]
Mrs Anderson’s challenge to the reasoning of the primary judge	[339]
Prospects of a successful timely Stonington Capital Raising	[349]
Would the superannuation fund investors have paid the uncalled capital?	[366]
Selling the Wylde Street property for some $18.5 million	[382]
Ashington not being removed as trustee	[385]
Valuation methodology	[386]
Broad agreement between Mrs Anderson and Patersons	[386]
Would the Stonington Capital Raising restore liquidity to the business?	[392]
The development of other properties, especially Double Bay	[396]
The establishment of AOF3	[404]
The likelihood of further funds	[407]
Assessing the value of the lost opportunity	[408]
Remaining grounds	[415]
Patersons’ direct breach of fiduciary obligations (grounds 38-42)	[416]
Breach of the Patersons Mandate (grounds 43-44)	[421]
Ms Garrett’s and Mr Renauf’s breach of the employment contract (grounds 6A and 6B; cross-appeal)	[424]
Costs appeal	[427]
Orders	[428]

1. THE COURT: The main issues of law in this appeal are whether dishonest breaches of duty by two senior employees were breaches of fiduciary duty and what levels of knowledge and assistance are required in order for third parties to be accountable to the employer, and the main issues of fact are whether the breaches caused any loss.

2. The appeal is brought from a very substantially adverse judgment in the Equity Division of this Court following a five week trial: Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58. The judgment is very long (2821 paragraphs, amounting to some 310,000 words). Much of what was in issue at trial is also in issue on appeal. That is principally because although the primary judge found that the second and third respondents, Ms Nicola Garrett and Mr Samuel Renauf, acted dishonestly and fraudulently in respect of a refinancing, her Honour found that they did not owe fiduciary obligations. Their dishonesty is unchallenged, but whether the duties they breached were fiduciary duties is at the forefront of this appeal, which well illustrates the significantly different remedies that are available against third parties involved in a breach of fiduciary duty in equity, as opposed to a breach of a contractual or tortious duty at common law.

3. The primary judge also found that the other respondents, who were alleged to have knowingly assisted in the breach of duty, lacked sufficient knowledge of what Ms Garrett and Mr Renauf were doing. None of the findings turned on her Honour’s assessment of any witness giving evidence. In many respects, this Court is in substantially the same position as the primary judge in reaching conclusions as to whether fiduciary duties were owed by Ms Garrett and Mr Renauf, and the state of mind of the other respondents. That is because neither Ms Garrett and Mr Renauf nor the principals of the other respondents gave evidence or were cross-examined.

4. Separately from the above, the primary judge found that while the breach of duty caused the loss of the opportunity for a critical refinancing to succeed, nonetheless there was no compensable loss, essentially because there was not shown to have been any value in the Ashington companies or their business immediately before the dishonest breaches of Ms Garrett and Mr Renauf. Accordingly, her Honour entered judgment for merely nominal damages of $100 against each of Ms Garrett and Mr Renauf. The appellant challenges the finding of no compensable loss, and by notice of contention or cross-appeal (in the case of Ms Garrett and Mr Renauf) most of the respondents challenge the finding of causation.

5. The magnitude of the judgment from which this appeal has been brought, and the size of the record (24,000 pages of documents tendered, 28 days of hearings, some 860 pages of written submissions at first instance and 450 pages on appeal) present challenges in providing our reasons for the conclusions we have reached. We are also conscious that her Honour’s judgment is readily available on CaseLaw and the first 1234 paragraphs constitute a largely uncontroversial narrative by reference to contemporaneous documents of the events giving rise to this litigation, and little would be gained by their repetition here. On the other hand, there are a small number of centrally relevant documents (mostly, emails) which are not fully reproduced in her Honour’s reasons. Accordingly, we have adopted the following approach:

1. first, to identify the key individuals, companies and trusts;

2. secondly, to give a very abbreviated overview of the events, her Honour’s conclusions, and the issues arising in this appeal. This will amount to a high level overview of the affairs of the Ashington companies, with some details of the structure of ADF and ADF2 and the acquisition of the Stonington property;

3. thirdly, to give a detailed account of the events of the last week of September 2009 and the first week of October 2009, when the dishonest breach of duty by Ms Garrett and Mr Renauf concerning the “Stonington Capital Raising” took place;

4. fourthly to provide an abbreviated higher level summary of subsequent events, which will need to be supplemented when dealing with pecuniary relief;

5. fifthly to deal with the principal issues in the appeal going to liability, namely, whether the duties breached by Ms Garrett and Mr Renauf were fiduciary duties, and whether other respondents knowingly assisted in those breaches;

6. sixthly, to deal with the issues of causation arising on the notices of contention and cross-appeal;

7. seventhly, to deal with the issues of loss (in so doing we will need to return to some matters of fact which were passed over when dealing with liability);

8. eighthly, to address the remaining issues, which are not dispositive in light of the conclusions already reached, and

9. ninthly, to formulate orders to resolve the principal appeal, the cross-appeal and the appeal as to costs.

6. We have adopted that course because it is the most concise and therefore the most transparent and readily comprehensible way to expose our reasons for resolving a very large appeal, which was heard in this Court over 8 full days.

Key individuals, companies and trusts

7. The appellant Mrs Daniela Anderson is the assignee of claims by the liquidator of two companies within the Ashington group of companies. Her husband, Mr Craig Anderson, was the managing director and major shareholder of the Ashington companies. He is now a discharged bankrupt, and the primary judge made a third party costs order against him: Anderson v Canaccord Genuity Financial Ltd (No 2) [2022] NSWSC 649, from which a separate appeal was brought and heard concurrently with the principal appeal.

8. Each of Ashington Capital Pty Ltd, Ashington Management Pty Ltd and Ashington Real Estate Pty Ltd was a wholly owned subsidiary of Ashington Group Pty Ltd. All are in liquidation. For most of the events relevant to this appeal, Ashington Capital was in fact a public company, Ashington Capital Ltd (it changed status to a private company in January 2010). Mr Anderson was a director and a 40.7% shareholder of Ashington Group. At material times, Mr Craig Minahan was also a director.

9. It seems that for some purposes there was no clear delineation between Ashington Capital, Ashington Management and other companies which were wholly owned by Ashington Group, all of which traded under the name “Ashington”. In particular, it appears that for the purposes of analysing whether Ms Garrett and Mr Renauf owed and breached a fiduciary duty, at least parts of the litigation has proceeded on the basis that nothing turns on any distinction between Ashington Capital and Ashington Management. For example, in the 116 pages excluding annexures of closing written submissions filed on the part of Ms Garrett and Mr Renauf, no point was raised on any distinction between the two companies in relation to the duties owed by the pair, and the test was framed in terms of whether either person could exercise a power or discretion “which would affect the interests of AMPL/ACPL in a legal or practical sense”, if so did they “agree or undertake … to act for or on behalf of or in the interests of AMPL/ACPL in the exercise of that power or discretion” and did they have a special opportunity to exercise a power or discretion “to the detriment of AMPL/ACPL thus rendering AMPL/ACPL ‘vulnerable to abuse’ by Garrett and Renauf of ‘their position’?”. The reasons of the primary judge reflect as much. We shall generally follow the course adopted by the primary judge and the participants at the time and often refer simply to “Ashington” to mean the companies in the group, except where it is necessary to refer to a particular company.

10. Broadly speaking, the Ashington companies conducted a business involving acquiring, redeveloping and selling high-end residential/commercial/retail properties, with the aim of generating large returns for substantial investors. Ashington Capital earned fees as the trustee, Ashington Management earned fees as the development manager, and Ashington Real Estate earned commission on the sale of the developed properties.

11. Ashington Capital was the trustee of two unlisted unit trusts, styled “Ashington Development Fund” and “Ashington Development Fund No 2” (“ADF” and “ADF2”). Most of the units in each trust were held by the trustees (or related entities) of industry superannuation funds. Ashington Capital was also the trustee of six further unit trusts, corresponding to the six properties which were the underlying assets to be developed and sold for profit as part of Ashington’s business. All of the units of each of these unit trusts were held by Ashington Capital itself, as trustee of one or other (and in one case, both) of ADF and ADF2. These six unit trusts, where the trust property was the land to be developed, and whose units were all held as assets of either or both of ADF and ADF2, were called the “sub-trusts”. In what follows, it will often not be necessary to distinguish the different capacities in which Ashington Capital acted, but sometimes it will be necessary to be quite clear as to whether Ashington Capital acted:

1. as trustee of a sub-trust, (ie as owner of the land, and entitled to be indemnified from the land in respect of liabilities properly incurred, and subject to fiduciary obligations to its 100% unitholder and susceptible to control by that unitholder);

2. as trustee of ADF or ADF2 (ie as legal owner of 100% of the units in each sub-trust, with the power to compel the trustee of the sub-trusts itself to take action, but subject to obligations owed to ADF and ADF2 unitholders most of which were external investors);

3. as owner of a minority of units in ADF and ADF2 as the trustee of two separate trusts, the beneficiaries of which appear to have been the officers and employees of Ashington.

12. In fact, the registered proprietor of at least two of the investment properties (the Project X Trust and the Stonington Trust) was The Trust Company of Australia, as custodian for Ashington Capital. It may be that one or more of the other parcels of land was also in the name of a custodian. Nothing turns on this, and we shall refer for simplicity to Ashington Capital having legal ownership of the land.

13. A separate company within the group, Ashington Capital Int Pty Ltd, was established to act as trustee and manager for a proposed new investment fund, the Ashington Opportunistic Fund No 3, which is only relevant to the quantification of loss.

14. The first respondent, Canaccord Genuity Financial Ltd, was formerly known as Patersons Securities Ltd and it will be convenient to refer to it as Patersons. Patersons was a stockbroking and financial services firm. It was engaged in September 2009 by Ashington Capital acting as trustee for ADF2 to raise some $11-15 million for the Stonington development project in Melbourne. We shall follow the language of the parties and the primary judge and refer to the “Stonington Capital Raising”, noting that this was proposed short term debt finance, repayable in six months, secured over the land but subordinate to the first ranking security of Westpac, with an interest rate of 30% per annum.

15. Messrs Martin Carolan and Paul Doherty were senior employees of Patersons, holding the roles of “Associate Director, Corporate Finance” and “Director, Institutional Dealing” respectively. Mr Doherty was based in Melbourne. More senior than either was Mr Raymond Shorrocks, who was Head of Corporate Finance in Sydney at the relevant time.

16. The second respondent, Ms Nicola Garrett, was, according to a draft contract supplied in May 2009 and her own description in drafts of a PowerPoint presentation created in early October 2009, the “Head of Funds Management” at Ashington. The draft contract had her reporting directly to the Managing Director, with a salary of $350,000, superannuation of 9% plus a “Sign on Fee” of 70% of salary. She was at all material times married to Mr Carolan of Patersons. The third respondent, Mr Samuel Renauf, was the “Head of Acquisitions” at Ashington Management from at least July 2009 until December of that year. Each had formerly worked for another property developer, Valad Property Group, immediately prior to working at Ashington. Ms Garrett and Mr Renauf made common cause and were represented by the same solicitors and counsel. The precise nature of Ms Garrett and Mr Renauf’s roles at the Ashington companies was in issue at trial and, to a lesser extent, on appeal. What is not in issue is that if and insofar as they owed fiduciary obligations to companies in the Ashington group, they dishonestly and fraudulently breached those obligations in connection with the Stonington Capital Raising.

17. The fourth respondent, Falcon Prime Pty Ltd, is an insolvency firm, and Messrs Peter Block, Brett Lord and Ian Carson were partners of that firm, with Mr Block also being a director. It was formerly known as PPB Pty Ltd and it will be convenient to refer to it by that name. That firm represented the superannuation funds which had acquired units in ADF and ADF2.

18. The fifth respondent, Acorn Capital Ltd, is a company based in Victoria engaged in investment activities, which employed Mr Robert Routley. On 1 September 2023, after this Court’s judgment had been reserved, the parties advised that Mrs Anderson and Mr Anderson had resolved their claims against Acorn, and orders were made by consent dismissing each appeal against Acorn and vacating all prior orders as to costs.

19. The sixth respondent, Albany Capital Investors Pty Ltd, is a company engaged in funds management, associated with the Alter family. It is also based in Melbourne. It was, according to its letterhead, at relevant times the holder of an Australian Financial Services Licence. Messrs Byron Ko and Neil Tremaine were relevant persons at Albany, with the former signing off as “Investment Director [of] the Pacific Group/Alter Family Office”. On the afternoon of 7 December 2023, after notification that judgment would be delivered had been given, the parties advised that Mrs Anderson and Mr Anderson had resolved their claims against Albany, and orders were made by consent dismissing each appeal against Albany and vacating all prior orders as to costs.

Overview of events, conclusions at trial and issues arising on appeal

20. Speaking generally, the case advanced and rejected at trial and maintained on appeal is that the respondents together took away the business of the Ashington group of companies by engineering the replacement of Ashington Capital as trustee and of Ashington Management as manager of each of ADF and ADF2 and the six sub-trusts.

21. At the forefront of the plaintiff’s case at trial was the claim that Ms Garrett and Mr Renauf acted in breach of fiduciary duty, in which breach each of Patersons, PPB, Acorn and Albany were knowingly involved, such that all are liable to Mrs Anderson as assignee from the liquidators of Ashington Capital and Ashington Management.

22. Once again speaking generally, it was alleged that when Ms Garrett was charged exclusively with managing an urgent refinancing of the Stonington sub-trust, for which Patersons held the mandate, she and Mr Renauf in breach of duties they owed as employees failed to progress that capital raising, but instead brought about the replacement of the Ashington companies as trustee and manager by other companies, from which they stood to benefit, financed by Acorn and Albany, and with the support of the superannuation investors represented by PPB. The breaches of duty by Ms Garrett and Mr Renauf were alleged to be breaches of fiduciary duty, and PPB, Acorn and Albany were said to be liable to those two Ashington companies for knowingly assisting Ms Garrett and Mr Renauf in their dishonest and fraudulent breach of fiduciary duty.

20. There were a number of other ways in which the respondents were sued. Ms Garrett and Mr Renauf and Patersons were also sued for breach of contract, and Patersons was also sued for breach of fiduciary duty owed directly by it to Ashington Capital and Ashington Management. Insofar as these claims were rejected at trial and form part of the appeal, they will be addressed in due course. But the main claim was for breach of fiduciary duty by Ms Garrett and Mr Renauf, knowingly assisted by each of the other active respondents.

21. Most of the plaintiff’s claims were rejected at trial. Simplifying somewhat, the primary judge found that Ms Garrett and Mr Renauf did not owe fiduciary obligations, but that if they did, they were breached in a way which was dishonest and fraudulent so as to engage the principles of knowing assistance in Barnes v Addy (1874) LR 9 Ch App 244. The entirety of the litigation has been conducted in accordance with what was confirmed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22, namely, that claims for knowing assistance require the plaintiff to establish a “dishonest and fraudulent design” on the part of the fiduciary, but do not require showing dishonesty on the part of the third party, because it suffices if the plaintiff proves knowledge of circumstances which would indicate, to an honest and reasonable person, circumstances which would “tell of fraud or breach of trust”, to use the language of Stephen J in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 412; [1975] HCA 8. (The position is different in England and Wales, as noted in Novoship (UK) Ltd v Mikhaylyuk [2015] QB 499; [2014] EWCA Civ 908 at [77].)

22. Her Honour found that Patersons did not assist, and further that it did not have knowledge of the breach of fiduciary duty, because Messrs Shorrocks and Doherty lacked sufficient knowledge, and the knowledge of Mr Carolan which would have been sufficient was not to be imputed to Patersons because he was acting on a frolic of his own in fraud of Patersons. There was no dispute that Acorn and Albany provided material assistance to the removal and replacement of Ashington, but her Honour once again found that neither company had sufficient knowledge that Ms Garrett and Mr Renauf were engaged in dishonest and fraudulent breaches of their fiduciary duties. The primary judge also found that PPB did not have sufficient knowledge of Ms Garrett’s and Mr Renauf’s breaches of duty.

23. An amended notice of appeal (filed on 19 September 2022), an amended notice of cross-appeal (filed 5 October 2022) and four notices of contention were before the Court. A separate appeal from the personal costs order was heard concurrently. The amended notice of appeal contained 66 grounds, which may be conveniently summarised as follows:

1. assignment of causes of action (grounds 1 – 4);

2. fiduciary duties owed by Ms Garrett and Mr Renauf to Ashington Capital and Ashington Management (grounds 5 – 6);

3. Ms Garrett and Mr Renauf’s contract of employment with the Ashington companies (grounds 6A – 6B);

4. accessorial liability of Patersons, PPB, Acorn and Albany for knowingly assisting Ms Garrett and Mr Renauf in breaching their fiduciary duties (grounds 7 – 22; 23 – 26; 27 – 32; 33 – 37);

5. vicarious liability of Patersons for Messrs Carolan and Doherty’s conduct in knowingly assisting Ms Garrett and Mr Renauf (grounds 14, 18 and 19);

6. fiduciary duties owed by Patersons to Ashington Capital and Ashington Management (grounds 38 – 42);

7. breach of Patersons Mandate by Patersons (grounds 43 – 44);

8. causation (grounds 45 – 47); and

9. quantification of loss and expert evidence (grounds 48 – 66).

27. The issues raised in the cross-appeal and notices of contention substantially overlap with those raised on appeal. However, some of the respondents contended additionally that the pursuit of a refinancing of Stonington itself involved a breach of trust, such that it could not be relied on by Mrs Anderson in establishing causation in equity. That argument will be considered further below.

The ADF and ADF2

28. The investments offered by the Ashington Group depended on a slightly complex structure of trusts and sub-trusts. In order to understand various aspects of the appeal, including the nature of the cashflow difficulties, the significance of the refusal of development approval to Double Bay, the significance of Ashington Capital’s breach of the Investec Stonington Facility, and the submissions advanced based on the absence of a trustee’s entitlement to be indemnified from trust assets, it is necessary to explain that structure in some detail.

29. It is not clear from the materials made available on appeal how many trusts Ashington Capital was trustee of, but there were at least ten which play a part in this appeal. Those ten trusts comprised:

1. the two unlisted unit trusts known as ADF and ADF2, the assets of which were 100% of the units in six further unit trusts and the entitlement to call for the unpaid parts of the purchase price of the units already issued;

2. the six unlisted unit trusts or sub-trusts which owned the land (or in the case of Stonington and Project X and perhaps others the land was owned by a custodian), with all of the units being issued to Ashington Capital as trustee of one or other (or in one case both) the ADF and ADF2,

3. the ADF Investment Trust and the ADF Investment Trust (No 2), on which trusts a minority of units of the ADF and the ADF2 trusts respectively were held, and which appear to have been for the benefit of Mr Anderson and/or the other owners of Ashington Group Pty Ltd and some employees.

30. The primary judge succinctly described the six sub-trusts at [36]-[37]:

A number of sub-trusts were established, each in respect of a particular property development project. Ashington Capital was the trustee of each of the various sub-trusts of ADF and ADF2. The sub-trusts below ADF were the Cross+ Trust; the Potts Point Trust; the 10 Wylde Street Trust; and the Project X Hotel Trust (in the last, ADF had a 25% interest) … The sub-trusts below ADF2 were the Stonington Trust and the Noosa Trust (and ADF2 had a 75% interest in the Project X Hotel Trust) …

Each of the sub-trusts of ADF was also an unregistered unit trust. Ashington Capital (as trustee of ADF) held 100% of the units in the Cross+ Trust, the Potts Point Trust and the 10 Wyl[d]e Street Trust, and 25% of the units in the Project X Hotel Trust. Ashington Capital (as trustee of ADF2) held the remaining 75% of the units in the Project X Hotel Trust.

31. The assets of each of the six sub-trusts were properties acquired with a view to their development and sale. They were:

1. the Cross+ Trust, which involved the purchase and redevelopment of the former Millennium Hotel in Kings Cross into a 78 room hotel, office suites, retail premises and a penthouse residential apartment;

2. the Potts Point Trust, which involved the purchase and development of the former Potts Point post office into a retail market, seven retail stores and 41 strata offices over five floors;

3. the 10 Wylde Street Trust, which involved a 38 serviced apartment complex in Potts Point;

4. the Project X Hotel Trust, which involved the Sir Stamford Hotel on Cross Street, Double Bay, for the redevelopment of which project approval under (former) Part 3A of the Environmental Planning and Assessment Act 1979 (NSW) was sought for a mixed-use five-star boutique hotel of 60-80 rooms, 40-50 apartments and retail space;

5. the Noosa Trust, which was a 50% interest in the Sheraton Noosa Hotel in Noosa as part of a joint venture with the Valad Property Group, with the intent of demolishing and rebuilding a mixed-use project incorporating retail, a boutique hotel and apartments;

6. the Stonington Trust, concerning a development site in Malvern, Melbourne, which is central to the events giving rise to this appeal, and which is addressed in detail below.

32. All those assets had been acquired using debt finance. A snapshot of the position at the time Stonington was being acquired can be found in the board papers for the meeting held on 26 February 2009, which included a “Debt Funding Table” with the following information:

1. Cross: Rolling bill facility from St George of $11.425m expiring 31 August 2009;

2. Post: Rolling bill facility from St George of $16.1m expiring 30 April 2009;

3. Wylde: Investec loan, $10.78m expiring 1 April 2009, with further facilities from Westpac of $37.44m and Investec of $5.03m to be agreed;

4. Double Bay: Loan from St George and NAB totalling $65m, expiring 31 December 2009;

5. Noosa: Loan from SunCorp of $65.52m expiring 31 October 2011 (of this an amount of $1m had expired);

6. Stonington: Loans from Westpac $23m and Investec $10m, both to be agreed, but terms of 6 months were contemplated.

33. We shall shortly address the acquisition of the Stonington site. It will be convenient to refer to the “Investec Stonington Facility” to distinguish Ashington Capital’s loan from Investec for that site from its loan for the site on Wylde St, Potts Point. It may also be convenient to note that, uniquely, Ashington Capital executed the Investec Stonington Facility not in its capacity as trustee of the Stonington Trust, but in its capacity as trustee of ADF2.

34. All of the units in the Cross+ Trust, the Potts Point Trust and the 10 Wylde Street Trusts were held by Ashington Capital as trustee of ADF. All of the units in the Noosa Trust and the Stonington Trust were held by Ashington Capital as trustee of ADF2. Uniquely, the units in the Project X Hotel sub-trust were held as to 25% by Ashington Capital as trustee for ADF and 75% by Ashington Capital as trustee for ADF2.

35. The principal investors in ADF and ADF2 were four large superannuation funds: Sunsuper Pty Ltd as trustee for Sunsuper Superannuation Fund; LUCRF Pty Ltd as trustee for LUCRF Super; Commonwealth Superannuation Corporation as trustee for Military Superannuation and Benefit Fund No 1 and HEST Australia Pty Ltd as trustee for the Health Employees Superannuation Trust Australia. It will be convenient to follow the nomenclature of the primary judge and refer to these unitholders collectively as the superannuation fund investors (in contradistinction to the minority Ashington unitholders) and where the particular investor unitholder matters, to refer to Sunsuper, LUCRF, Military Super and HESTA. HESTA only subscribed to units in ADF2; Sunsuper, LUCRF and Military Super were unitholders in both ADF and ADF2.

36. The primary judge recorded at [40] that ADF was constituted on 19 May 2006. As noted above, Ashington Capital was appointed the trustee. The units in ADF were held by the following entities: Sunsuper (as to $20 million), LUCRF (as to $15 million), Military Super (as to $10 million), Ashington Group (as to $2 million), Ashington Capital as trustee for ADF Investment Trust (as to $3 million), Lantern Super Pty Ltd (as to $100,000) and Henelait Pty Ltd (as to $100,000), totalling $50.2 million.

37. The primary judge recorded at [62] that ADF2 was constituted on 20 September 2007, and the units were held as follows: Sunsuper (as to $20 million), LUCRF (as to $15 million), Military Super (as to $15 million), Ashington Group (as to $2 million), HESTA (as to $25 million) and Ashington Capital as trustee for ADF Investment Trust (No 2) (as to $3 million), totalling $80 million. (Strictly, the units were substantially unpaid, and the dollar amounts recorded by her Honour appear to have reflected the total of the purchase price; because the units were issued at $1 per unit, the dollar amounts would thus also reflect the number of units issued.) In December 2008, a further 20,000,000 units were issued proportionately, also at $1 per unit, such that Sunsuper acquired an additional 5,000,000, LUCRF and Military Super an additional 3,750,000 each, and HESTA an additional 6,250,000 units. An additional 500,000 units were also issued to Ashington Group, and an additional 750,000 to Ashington Capital as trustee of the ADF Investment Trust (No 2).

38. Thus at all material times, the superannuation fund investors held 90% of the units of ADF, and 93.75% of the units of ADF2.

39. Ashington Capital as trustee of the ADF Investment Trust and Ashington Group were minority unitholders in ADF (between them holding approximately 10% of the units). The same companies in the same capacities held 6.25% of the units of ADF2, with 2.5% being held by Ashington Group and 3.75% being held by Ashington Capital as trustee for the ADF Investment Trust. These holdings became significant, because the superannuation fund investors complained that the Ashington companies did not provide further funds when the trustee called upon uncalled capital.

40. The trust deeds establishing the ADF and ADF2 entitled the trustee to issue partly paid units. If there were Uncalled Amounts in respect of a unit, the trustee had power to call on a unitholder to pay all or part of that Uncalled Amount on 14 days’ notice, provided that the same call was made on all other units in that class which were similarly partly paid. This entitlement was described as “capital” and, if the unit trust vehicle which was deployed were regarded as functionally equivalent to a company which had issued partly paid shares, “unpaid capital” would be an appropriate label. For present purposes, what matters is that Ashington Capital’s entitlement to call for the unpaid purchase price of the units it had issued was a valuable asset, and by the time Ashington Capital as trustee of the ADF2 agreed to borrow funds from Investec to complete the purchase of Stonington, it continued to be entitled to call for $10 million of “unpaid capital” from unitholders.

41. Further to the series of calls for the unpaid balance of the purchase price of the units, in November 2008 Ashington asked unitholders (via their asset consultants) to acquire additional units, proportionately to their existing entitlements, so as to increase the fund equity by $20 million, described as the “Additional Commitment”. The purpose was said to be to comply with the covenants for the finance obtained for the Double Bay Project. The superannuation fund investors were told that ADF2 was not “capitalised sufficiently to continue meeting this banking covenant” and that “it is not intended to draw on the majority of this increased commitment (as it is our intention to replace it by sale of a 50% interest in the project)”. It will be convenient to adopt the language of the primary judge and refer to the facility covenant as the “Project X Uncalled Capital Undertaking”. The reference was to cl 23.8 of a “Security Trust and Intercreditor Deed” dated 15 October 2008 which required that Ashington Capital as trustee of ADF2 “must ensure that at any given time it has a minimum Uncalled Capital or free cash of not less than A$15,000,000” less certain deductions.

42. The primary judge recorded at [90] that the request for further capital occurred on 10 November 2008 only a week after the 8^th drawdown for ADF2. There was contemporaneous disquiet amongst the external unitholders of this course, to which they nonetheless acceded. Significantly in order to explain a source of further investor dissatisfaction with Ashington, and relevant to some of the submissions made at trial and on appeal, the offer was made on terms including that:

(e) The Trustee will not make calls on the Pro-Rata Proportion of Members unless it has called up all the existing equity capital of the Fund (i.e. called up all unpaid amounts in respect of the existing partly paid units).

(f) If the Trustee makes a call, it will call up the same pro-rata proportion of each Member’s respective Pro-Rata Proportion (e.g. the Trustee may decided to call up 20% of each Member’s commitment).

43. To anticipate, a source of the investor dissatisfaction concerned the minority of units held by Ashington Capital. Ashington Capital had not directly contributed funds like the other unitholders (claiming it was entitled to offset its obligation against an entitlement to fees), and so when Ashington Capital sought to call upon the Additional Commitment, there was an issue whether “all the existing capital of the Fund” had been called up and also an issue whether the Additional Commitment on the part of Ashington Capital’s minority unitholding would be called on. There were also issues as to whether and if so how the “Terms of the Proposed Offer” bound unitholders.

44. The other thing to note is that by September 2009, most of the “unpaid capital” of the units in ADF2 had been called upon and paid by the superannuation fund investors. Calls had been made for 94% of the $100,000,000 in units issued, leaving only $6,000,000 unpaid. Of that amount, $5,625,000 was unpaid by the superannuation fund investors to which 93.75% of the units had been issued, and $375,000 was payable by Ashington companies ($150,000 by Ashington Group, and $225,000 by Ashington Capital as trustee of the ADF Investment Trust (No 2)).

45. The trustee was obliged to retire if directed to do so by resolution supported by a majority of 75% of unitholders (cl 14.4 of ADF Constitution, cl 14.2 of ADF2 Constitution).

The acquisition of Stonington and the Investec facility

46. The steps by which land in Malvern Victoria was acquired by Ashington Capital as trustee of the newly created Stonington Trust were uncontroversially described by the primary judge at [68]-[72].

47. Development consent had already been obtained for the construction of a master planned luxury residential development consisting of 14 apartments in a four-storey building, 12 duplex-style apartments over five mansion style dwellings and 50 townhouses and an existing heritage building known as “The Stables”. The vendor was Hamton JV (Malvern) Pty Ltd. The contract for sale was entered into on 28 May 2008, with a price of $46.5 million, a deposit of $4.65 million and a settlement date of 3 November 2008. The price and deposit were later varied by deed to $47,469,890 and $4,746,989. A subsequent variation, in December 2008, increased the deposit from $4,746,989 to $9,196,989, and extended the date for payment of the balance of the purchase price to 30 January 2009.

48. Contrary to what was contemplated in the board paper mentioned above, Ashington Capital obtained funding to acquire the land from three sources: from Westpac Banking Corporation pursuant to a facility agreement entered into on 18 November 2008, with the balance through two agreements entered into on the day of settlement (which ultimately was 25 February 2009), being a facility agreement with Investec, by which Investec provided mezzanine finance of $10 million, and vendor finance from Hamton for $2,621,103.

49. Ashington Capital was the borrower and Investec was the lender. However, and significantly, Ashington Capital borrowed from Investec not in its capacity as trustee of the Stonington Trust, but in its capacity as the trustee of ADF2, of which the units issued by it as trustee of the Stonington sub-trust were but one of the trust assets. By way of security, Ashington Capital granted Investec: (i) a first ranking fixed and floating charge over all the property, assets and undertakings of ADF2 with the exclusion of the units held by it in the Noosa Trust and Project X Hotel Trust and of the benefit of unitholder loans from ADF2 to the sub-trusts; (ii) a first ranking mortgage over all units in the Stonington Trust; and (iii) a guarantee by Ashington Capital as trustee for the Stonington Trust. Ashington Capital, once again as trustee for ADF2, also covenanted to maintain uncalled capital in that fund of $10 million and to make calls in amounts up to $10 million when directed to do so by Investec, with the funds to be paid immediately to Investec. This was referred to as “the Stonington Uncalled Capital Undertaking”. Ashington Capital also executed a power of attorney allowing Investec to make calls over the uncalled capital.

46. The facility was to be repaid within 6 months, by 25 August 2009.

47. Ashington’s “Quarterly Investor Report” for the quarter ending 31 March 2009 described the Stonington acquisition in the following terms:

The property settled in February 2009 with land finance provided by Westpac and Investec. Discussions have commenced with lenders to progress construction finance. The facility component provided by Investec was on unreasonable terms which were amended within 24 hours of settlement. Whilst there was no alternative but to accept the terms and settle we will be proposing to investors that the facility will be paid out with equity for a period of six months and be replaced with debt upon achieving sufficient presales.

52. By July 2009, Ashington Capital was in breach of its obligations to the superannuation fund investors and to Investec. Principally this came about because in June Ashington Capital had issued the 13^th drawdown notice and deployed payment from unitholders of $4,000,000 to pay interest owed to St George and NAB in respect of the Double Bay facility. The consequence was that less than $10,000,000 of uncalled capital remained available to Ashington Capital as trustee of ADF2, meaning that Ashington Capital was in breach of its covenant to maintain $10,000,000 of uncalled capital, and was unable to call upon $10,000,000 of capital if Investec required it to do so. The primary judge recorded at [234]-[236] some concerns on the part of the superannuation fund investors, and some statements by Ashington to the effect that Investec had waived the breach. However, in an internal email of 10 July 2009 to directors, the Chief Financial Officer, Mr Steel, summarised the breaches as follows:

… we are guilty of obtaining debt at the head trust level when the IM stated we would use only non recourse debt to fund projects.

And we are in breach of our covenants by not having enough Uncalled Capital to support both the DB and Investec covenants.

53. The Investec Stonington Facility incorporated by reference to an Investec document entitled “General Terms and Conditions December 2008 Version”, cl 6.1(b), which made it an “Event of Default” if there were a breach of any undertaking in the Investec Stonington Facility, including the Stonington Uncalled Capital Undertaking.

54. On 18 August 2009, Investec asked Ashington to prepare the documentation to draw down the remaining $6 million of uncalled capital, and transfer the funds to Investec. Later that day, Ashington made the 14^th drawdown for ADF2, and there was a meeting between PPB, Ashington and the superannuation investors.

55. On 19 August 2009, Investec wrote to Ashington Capital as trustee of ADF2 asserting ongoing breaches of the Investec Stonington Facility, demanding immediate payment of some $10.139 million and cancelling the facility. Its notice of default asserted that Ashington had breached its covenant to ensure that the aggregate of uncalled capital of ADF2 was not less than $10 million and not to make any calls upon unitholders including calls under uncalled additional equity without Investec’s written consent. In addition to demanding the debt of $10,139,331.51, Investec utilised its power of attorney to call for the $6 million in uncalled capital.

56. At the same time, Investec’s lawyers also wrote to Ashington Capital and its directors putting them on notice of the claims which Investec had against both Ashington Capital, in its personal capacity (as opposed to its capacity as trustee), and against the directors. Mr Bouris resigned as chairman and director of the Ashington companies shortly thereafter.

57. The consequence was that a default by Ashington Capital in respect of its obligations to Investec might entitle Investec to enforce security which affected assets outside the Stonington sub-trust. There was evidence at trial that this had been brought about because of a last minute change of stance by Investec, but nothing turns on this for present purposes. However, it was well appreciated that the ongoing default to Investec was a serious problem at the time. There is a revealing exchange of emails between Ms Garrett and her husband Mr Carolan on the afternoon of Friday 2 October 2009, at precisely the time when Patersons were to be seeking to fulfil the mandate to raise capital to replace Investec, reproduced by the primary judge at [570]. Under the subject line “Why is it so good”, Ms Garrett wrote to her husband in terms which appear to have been framed so that they might be used as a pitch to investors or lenders:

The Investec security arrangements Ashington entered into have the potential to impact on other assets in the Fund. Accordingly, it is critical to Ashington that it quickly replaces the Mezzanine Facility to ensure its other projects are quarantined from Investec action. The current Investec terms provide a 26 percent coupon and the Replacement Mezzanine terms have been made slightly more attractive to ensure a speedy response.

Is that enough? Basically Investec can come after the other assets coz Ash fukt up and now they need to move quickly...

58. Mr Carolan replied to this email, “Perfect!”

59. To similar effect, PPB advised its clients the superannuation fund investors on 21 August 2009 that “Investec has greater leverage as a result of the contagion which they can spread to the other assets in the Fund, most notably Double Bay, which is sensitive given the final stages of the planning approval process. We believe that enforcement of Investec’s securities may jeopardise the ability to secure the Part 3A planning approval for Double Bay”: see at [369]. (Whether or not that belief was well-founded is neither here nor there for the purposes of this appeal.)

60. The Westpac facility also expired on 26 August 2009, and a couple of days later the bank reserved its rights.

61. It is not necessary to summarise the responses to Investec’s demands and Investec’s further responses, which included a threat made on 9 September 2009 recorded by the primary judge at [417] that Investec would appoint receivers to Ashington Capital “this afternoon”. The superannuation fund investors formulated a proposal to seek to sell Stonington rapidly so as to repay Investec, but this seems not to have progressed, in part because they agreed to a 14 day moratorium shortly after the Stonington Capital Raising commenced. By way of alternative, Ashington sought to refinance the facility, something which is central to the events giving rise to the litigation.

Events of late September and early October 2009

The Stonington Capital Raising

62. The primary judge summarised, uncontroversially, the position at the beginning of September at [426]:

By early September 2009, therefore, the position was that the Investec Stonington Facility had expired, and the superannuation fund investors had not agreed to contribute additional equity to repay the Stonington facilities. Ashington decided to engage Patersons to raise mezzanine capital from alternative sources (the Stonington Capital Raising). Ms Garrett, who had previously worked at Patersons (before her employment at Valad) where she had reported directly to Mr Shorrocks, led discussions with Patersons about the Stonington Capital Raising.

63. On 11 September 2009, instructions were given to Ashington’s solicitors, Mallesons Stephen Jaques, to establish an electronic “dataroom”, access to which would be restricted by username and password to be provided by Mallesons on instructions from Ms Briggs at Ashington.

64. On 21 September 2009, Ms Garrett forwarded a draft term sheet for the Stonington Capital Raising, explaining its motivations thus:

the key message is that this is in effect a “money for jam” investment we have been put into a tight spot by Investec but the project itself is performing well.

65. Ms Garrett said that if it was not performing well then Westpac would not have offered to provide construction finance; and that the best comfort that the short term mezzanine provider gets that their money is safe is that not only is Westpac staying in but that it is “prepared to pony up a shitload of construction finance and they would not be continuing negotiations if they did not think we could complete on getting Asian investor to take on half the project”. The email said that Ashington had undertaken to repay the mezzanine facility before the construction finance arrangement was concluded with Westpac; and that “it is a great deal”.

66. Following an email from Ms Briggs that evening, stating that “[t]he contracting Ashington entity is wrong. I think that its probably ACL as trustee for ADF2 (as ADF2 currently holds the Investec debt)”, in subsequent drafts, Ashington Capital as trustee for the ADF2 was named as the party. The formulation of the final form of the mandate, which was executed on 29 September, is described comprehensively in the reasons at [479]-[501].

67. Ashington Capital as trustee of ADF2 retained Patersons to act as “Lead Manager” to a mezzanine finance facility, the essential terms of which were an amount of $11,000,000 (with the right to accept up to $15,000,000), with minimum investments of $2,000,000 per investor, and a coupon of 30% per annum payable at the end of a six month term. The Mandate stated that “[r]epayment is targeted for early January, however in the event of early repayment Ashington will pay the full six month coupon amount”. The security was to be second ranking behind $23,000,000 senior debt provided by Westpac. The “indicative timetable” in the mandate letter was for marketing of 1-2 weeks, investor due diligence of 2 weeks and loan documentation and financial close of a further week, which is to say a period of 4-5 weeks once marketing commenced. Significantly, Patersons were to have the “exclusive and unfettered right (but not with any obligation) to offer any and all of the Mezzanine Facility to any investor at its sole absolute discretion/direction”. Patersons were to be remunerated by a management fee of 1.5% of the gross amount raised plus a selling fee of 2.5% of the gross amount raised, from the latter of which any selling fees payable to third parties were to be paid. That reflects an amount of $440,000 less selling fees payable to third parties, assuming the minimum $11,000,000 was raised.

68. Patersons commenced what might be described as “pre-marketing” shortly thereafter. The essential terms of the mandate were described to their existing contacts, with clear statements that Ashington Capital had not yet signed off on the mandate (thus, for example, an email sent by Mr Carolan at 10.46am on 24 September 2009 reproduced the term sheet and then stated “PLEASE DO NOT GO OUT TO ANYONE UNTIL WE HAVE GIVEN THE OKAY …. ” (Emphasis in original)).

69. One aspect of the steps taken to implement the Patersons Mandate bears directly upon whether Ms Garrett and Mr Renauf owed fiduciary obligations. A few days before executing the Patersons Mandate, Ashington was also taking steps to provide lines of communication to investors, as well as to PPB, concerning the Stonington Capital Raising. On 25 September 2009, Mr Minahan sent an email to Mr Anderson, Ms Briggs, Ms Garrett, Mr Renauf and Mr Steel which included:

… Send an email to all relevant staff on Monday confirming that Nicki is point of contact going forward and that ALL investors/PPB communication is to be vetted by her and approved by her. Sam Renauf must be copied in on all correspondence.

70. That was treated by Ms Briggs, at least, as a directive from the board. Thus, in an email to Ms Garrett later that afternoon, she referred to a call she had received from Patersons, to which she had made no response, because:

CA has told me that you are the point of contact for all PPB/investor correspondence and so I won’t respond to his request and we can discuss on Monday. Just want to give you a heads up.

71. That was confirmed by a personal email from Mr Anderson on Monday 28 September. Mr Anderson was concerned that PPB “were getting frustrated that we didn’t appear to be helping the cause in little ways”, including by assisting Patersons to prepare for a weekly report that the firm provided each Friday to investors. Mr Anderson stated in his email in bold “I confirm all correspondence to investors and related parties will be generated by Nicki only.”

72. An insight into the state of play from the superannuation fund investors’ perspective is provided from an internal note by an employee of LUCRF, dated 1 October 2009:

Investec have still not taken any action (aside from exercising their power of attorney to issue a call directly to the investors) with regards to the non-repayment of their $10m debt facility on the Stonington project (matured on 25/08/2009). The investors’ offer to Investec of $1m of realised equity in Double Bay in return for Investec holding off action to allow Double Bay to receiving [sic] planning approval was viewed positively by Investec (but not formally accepted), however given the recent rejection of the Double Bay plans, the risk of Investec action is again a major threat.

Two new Ashington recruits, Nikki Garrett & Sam Renauf both formerly of Valad and both with experience in managing distressed properties, met with investors in Sydney on Tues 29/09/2009 and in Melbourne on Wed 30/09/2009 to present a proposal to raise $15m of mezzanine finance for the Stonington project that would allow repayment of the $10m Investec loan (plus penalty interest), the $2.6m vendor finance (plus penalty interest), circa $1m to unsecured creditors, and other costs. Nikki & Sam alluded to their successful track record and their strong relationship with high net-worth investors. They are confident that they will be able to deliver and execute their strategy within a four month timeframe and that their strategy will achieve recovery of all capital contributed by the original equity investors (which the original equity investors highly doubt). They also advise that their strategy has the support of Investec.

Nikki & Sam have proposed a 14-day standstill on PPB’s mandate of selling Stonington on behalf of investors, to allow Nikki & Sam to effectively promote their mezzanine finance facility to their high net-worth investors and then report back to the equity investors. The equity investors (including LUCRF) have given their approval to this 14-day standstill as it does not harm investor interests and can only lead to a more favourable outcome.

73. The 14 day moratorium seems to have been accepted, and lasted between 2 and 16 October 2009, which is the critical period during which the dishonest breach of duty was formulated and began to be implemented.

The invitation to Acorn

74. The Patersons Mandate was agreed on Tuesday 29 September 2009. On the morning of Wednesday 30 September at 10.44am, Mr Doherty wrote to Mr Routley, Head of Private Markets at Acorn, a boutique investment manager, with the heading “Investment Opportunity – Mezzanine Finance Facility”, attaching the term sheet and saying, “While this appears to be ‘too good to be true’, this is a solid project with an opportunity representing a low risk, high return financing arrangement for the prospective investor”.

75. Mr Routley’s response was almost immediate. At 11.01am he advised that he had “had a brief look. Unfortunately we can’t do pure debt, needs to have some equity convertibility”. Mr Doherty forwarded this to Mr Carolan, who replied with the question whether Mr Routley would “look at converting equity into an unlisted property fund? If so we can look at recutting the deal as a fall back option”. Mr Doherty explained in his affidavit that he understood Mr Carolan’s email to be a reference to whether Acorn might be able to invest if there was a form of conversion of debt into equity. Accordingly, at 11.34am, Mr Doherty sent a further email to Mr Routley asking him, “[i]f this converted into equity into an unlisted property fund would that be of interest?”, to which Mr Routley replied:

It would certainly allow us to do the deal but we would still be a low probability to complete. Our preference is to invest in the manager, in this case Ashington as it means we do not have to form a view on the quality of the underlying asset (we are not property experts) rather the competency of the management team.

76. Mr Routley’s response was swiftly forwarded that morning to Mr Carolan and in turn to Ms Garrett. In his email to Ms Garrett, Mr Carolan stated:

Have a look at the email below… Acorn would be a low probability to invest into the deal … however they might look at a direct investment into the manager. Let me know your thoughts… also waiting on Thorney.

77. Later that day, Mr Doherty and Mr Carolan exchanged emails confirming a meeting with a contact at an institutional client (to whom everyone referred as “Thorny” or “Thorney”) at 10.30am on Friday, 2 October 2009. It seems also that a meeting was arranged with Mr Routley that Friday afternoon, for Ms Garrett sent the following email to Mr Anderson and Mr Steel, copied to Mr Renauf and Ms Briggs:

Hi all

We have locked three excellent mezz meetings:

Thorny, 10.30 Friday

Acorn, 2.00 Friday

Lieberman, 3.30 Friday

We were shooting for tomorrow, but we need to meet with banks and we need to improve our story on feaso. To that end, Sarah will be in tomorrow from 9am working up required information (Scott we will need your expert assistance and Elizabeth if you can be on stand-by to turn into appropriate format, review etc).

We owe Paul Doherty and Marty a beer or five as they are calling in favours …

78. There is no reason to doubt that the assistance of Mr Doherty and Mr Carolan was essential to meeting potential investors. But it was also known at that time that Acorn would not be an investor in the mezzanine refinancing in the Patersons Mandate. To Ms Garrett’s knowledge, Acorn was not interested in investing in the terms of the Patersons Mandate, and there was only a low probability of it investing on a different basis. Mr Routley had said that Acorn’s real interest was to “invest in the manager”. The words are unambiguous. There was no suggestion in any of the materials that any of the members of Ashington Group might sell their shares or issue more to Acorn, and the sustained efforts to prevent Mr Anderson from learning of the plans are inconsistent with any such attempts. Rather, Mr Routley’s words must mean Acorn’s real interest was to replace either or both Ashington companies as trustee and manager with a new company in which it had equity.

The Garrett plan

79. Evidently on the afternoon of Friday 2 October 2009 (after the 14 day investor moratorium had been agreed) there was a conversation between Ms Garrett and Mr Paul Doherty. On that afternoon at 3.45pm, Ms Garrett sent the following email, with the subject “Private and Confidential”:

Hi Paul

Further to our discussion:

The Investec security arrangements [sic] Ashington entered into with respect the Stonington project have the potential to impact on other assets in the Fund. Accordingly, it is critical to the Existing Equity Investors in the Fund that Ashington quickly replaces the existing Mezzanine Facility. This was what prompted the original terms of the Replacement Facility. The Existing Equity Investors in the Ashington Funds have had concerns about the security arrangements adopted by Ashington and this now combined with the Double Bay decision has prompted them to investigate options to transfer key assets to a new Manager.

As a result, there is an opportunity for an incoming investor to:

- invest in the Stonington Project which in and of itself delivers an attractive return (2X equity multiple, 25% equity IRR and 24 month timeframe); and in so doing

- receive a significant equity interest in Newco (Newco will be established by the Existing Equity Investors in the Ashington Funds, it will replace Ashington as the Manager of these Funds and receive the fund management fees).

This process is in its early stages and is being managed by PPB and myself and Sam Renauf. It is highly confidential, so please ensure that this information is managed carefully.

1. The risks presented by the expired Westpac facility, the claim by Hamton to recover debt, the default in the $6 million senior debt facility of NAB and St George over the Double Bay property;

2. The likelihood and timing of the sale of Wylde Street;

3. The need to obtain construction finance for the Stonington development;

4. The risk that audited accounts for ADF and ADF2 could not be completed so as to be provided to financiers;

5. The risk of insolvent trading while any recapitalisation proposal was being considered;

6. The risk of cross-defaults and “intra-group contagion”;

7. The risk of default on any new mezzanine facility given its burdensome terms while a recapitalisation proposal was being considered, and

8. The risk that any recapitalisation would face such opposition and be too complicated and time-consuming to implement.

393. Patersons added:

There is a factual question on the appellant’s counterfactual as to whether, even if the Investec Facility was paid out, the unitholders would have met the call for the remainder of the $6 million of uncalled capital into ADF2, particularly in circumstances where it was envisaged, including on the appellant’s counterfactual, that this $6 million would be used to pay Ashington’s outstanding creditors as well as the $1.58 million in fees and commissions then owing to Ashington. This scenario expressly envisages the intermingling of trust money amongst the various subtrusts, a matter which had highly vexed the unitholders several months before and ultimately led to a loss of confidence in the trustee, as found by the primary judge at J[1562] (Red 5:992). Even if it is accepted the unitholders were legally required to meet the $6 million uncalled capital call, the timing of receipt of those funds from existing investors must at least be treated as a contingency. (Emphasis omitted.)

394. We have already addressed the sale of Wylde Street, and the likelihood of superannuation fund investors meeting the last call for unpaid capital. It is certainly true that a large number of contingencies stood in the way of returning liquidity to the business. But it is also true that they were linked. For example, if the Stonington Capital Raising were achieved, and Investec and Hamton paid out, then that is two fewer obstacles to obtaining construction finance for Stage 1 of Stonington, for which planning approval was already obtained and the costs estimate was $2.7 million with many lots pre-sold. It is also necessary to bear in mind that bank lenders tend to be reluctant to incur the cost and risk of enforcing their securities, especially when the security is over a property which needs to be developed in order to realise the greatest value. That is not what banks are good at doing. But for the breaches of duty by Ms Garrett and Mr Renauf, and with the Stonington Capital Raising completed, there is no reason to think that the banks would have enforced their securities any earlier, and good reason to think that they would have preferred to negotiate away the defaults by Ashington.

395. In short, the contingencies incorporated in this paragraph of Patersons’ submissions are real, and allowance should be made for them, but they are also dependent on one another.

The development of other properties, especially Double Bay

396. The third contingency was whether the remaining properties in ADF and ADF2 would be developed and sold, albeit with a 12 month delay. Patersons submitted that even with a delay, there was a not insignificant probability that the properties would not be profitably developed at all, especially the Double Bay property, for which there was no project approval. Patersons added:

There was an attempt by Mr Anderson in his affidavit to contend that there would have been a successful appeal to the Land and Environment Court, but the primary judge correctly regarded that as speculative (see J[1485] Red 4:965). Nor could any real prospects be ascribed to Ms Garrett’s throwaway line in an email (referred to at J[797]) of a potential JV partner with a buy-in price for $70 million. Such a possibility was not developed in any serious way by admissible evidence.

397. The result was Patersons’ submission that there was no more than a 30% chance that the Double Bay property would have been recapitalised and developed as envisaged in the discounted cash flow analysis performed by Mr Halligan.

398. Patersons correctly acknowledged the significance of the refusal of development approval to the Double Bay Project. This affected both existing trusts, and consequently affected the timing of establishing a third trust. It is certain that obtaining approval to redevelop the site would take more time and cost more money, and it is almost certain that any approval which was obtained would be less profitable than that which was refused on 28 September 2009.

399. There was force in the submissions advanced by other respondents about the significance of the refusal of project approval to Double Bay, because it was an event of default under the relevant facilities, as well as being “hugely significant” from an investment perspective. The result was to ascribe a low probability, of no more than 5%, to the bank lenders not enforcing their security. Thus for example it was said that:

The main reason for the justification of a 5% figure as being the realistic upper reach of the chance are the combination of the actions of the Double Bay financiers in appointing the receivers and also in the ongoing default on the Stonington Westpac facility. There’s no reason to think that either of those issues would have been solved by the Stonington capital raising, and there are very good reasons to conclude that it was almost a certainty that one or both of those financiers would have taken enforcement steps.

400. (That submission was made on behalf of Acorn, against which Mrs Anderson has subsequently settled her appeal. However, as explained above, Acorn made submissions on questions of quantification of loss on behalf of all respondents save Patersons, and thus we accept that it ought fairly be regarded as having been advanced by the other respondents with whom Mrs Anderson continues to be in dispute.)

401. By reference to events in January 2010 following the appointment of receivers on 24 December 2009, it was submitted that NAB and St George would have enforced their $65 million facilities over the Double Bay property, and that “it took a $22 million paydown from the incoming investor, Parissen, in January 2010 to hold those financiers at bay”. It was said to follow that:

Your Honours should therefore conclude that the Double Bay financiers would have enforced their securities in the counterfactual, as they in fact did, and that Ashington would not have been in a position to avoid or to resist that enforcement because it didn’t have the funds to do it.

402. The second and third respondents gave greater emphasis to the difficulty in establishing what would have occurred had the Stonington Capital Raising been achieved. They pointed to the expired $26 million facility with Westpac, and the Double Bay $65 million facilities which were also in default, and said that “[t]he Appellant cannot plausibly prove that a $15m refinance would have resolved $100m in defaulted debt”. They emphasised the unlikelihood of investors contributing further equity, and what they said was the probability that the Double Bay financiers would have sold the property, especially given the absence of any plan to redevelop Double Bay following the refusal of project approval. We do not disagree with much of this. However, aspects of the submission go too far. Mrs Anderson did not have to prove that the Stonington Capital Raising would have “resolved $100m in defaulted debt”. Mrs Anderson’s case is based on the loss of a chance. She had to prove that there was a chance that the Stonington Capital Raising would succeed, and that the superannuation fund investors would pay the remaining uncalled capital, and that Wylde Street would be sold, and that Ashington would have negotiated with the continuing bank lenders, notwithstanding the refusal of project approval for Double Bay. It is also important to bear in mind that the lost opportunity for which Mrs Anderson sues is not the opportunity of making profits from the acquisition and resale of the trust assets. Instead, it was the revenue streams from Ashington Capital and Ashington Management acting as trustee and manager of the unlisted unit trusts. And there is no reason to think that any of the properties held as assets of any of the relevant sub-trusts were incapable of development and sale. The questions were timing and profitability. Those questions were very important to the unitholders, and were also linked to the viability of Ashington’s efforts to establish future investment (to which we shall immediately turn), but did not of themselves stand in the way of Ashington Capital and Ashington Management earning fees.

403. We think a substantial discount should be given for these contingencies.

The establishment of AOF3

404. The fourth contingency was the establishment of AOF3. Patersons submitted that there was no more than a 20% chance of AOF3 being established even with a 12 month delay, having regard to (i) the limited progress which had been made in 2009, including as to potential properties; (ii) the imperative of Ashington focussing on its core business (ADF and ADF2) and restoring investor confidence and market reputation in the aftermath of any successful recapitalisation; (iii) the time and costs associated with roadshows, investor presentations, due diligence efforts on potential properties and preparation of marketing and information materials for investors; (iv) the past performance of the Ashington funds (and their management); and (v) the need to obtain debt finance in respect of any properties in circumstances where financiers would have been reluctant to extend any further finance to Ashington for a further fund in 2010 so soon after Ashington had recovered from the immediate crisis.

405. Patersons acknowledged that a three year delay in the development of AOF3 (after the core business had stabilised and market conditions improved) would be more realistic, but even so said that the chances of doing so were no better than even.

406. We think Mrs Anderson is entitled to compensation for loss which included the loss of the opportunity to obtain fees from AOF3, which was already being planned, for which there had been a roadshow in Asia, and which could use existing staff.

The likelihood of further funds

407. However, we do not think that Mrs Anderson is entitled to compensation based on cashflows from unforeseen funds beyond the two in existence and the third in active contemplation. This is too speculative.

Assessing the value of the lost opportunity

408. Acknowledging the appropriateness of a global discount, Patersons’ submission concluded:

Patersons submits that here the negative contingencies far outweigh any highly speculative positive contingencies, and this warrants a very significant global discount (in the order of at least 80-90%) being applied to the starting point valuation of $8 million (which already is generous to the appellant, as explained above). That results in a range of $800,000 to $1.6 million. A discount of at least 90% is certainly more consistent with a probabilistic assessment of the independent contingencies. For example, if one only had regard to the most optimistic and generous probabilities for the first two contingencies alone it would yield a probability of achieving the income streams on the plausible starting case of only 12% (40% multiplied by 30%). (Emphasis omitted.)

409. Patersons’ approach of adopting a “global” discount reflected an approach which was common to the appellant. A court when called upon to assess the value of an opportunity which is subject to multiple contingencies may have a choice. As Patersons submitted, “if the object of an opportunity is subject to multiple contingencies (as here), a court may assess those contingencies on a global basis, or alternatively, by assessing each contingency separately”, citing Falkingham v Hoffmans (a firm) (2014) 46 WAR 510; [2014] WASCA 140 at [288]. We agree. A global approach is appropriate in the present case, because the contingencies are not truly independent, and it is very difficult otherwise to assess the combined effect of partially independent contingencies. By way of example, it is quite clear that if the Stonington Capital Raising succeeded within the six week timeframe, that would bear upon the prospects of a prompt provision of uncalled capital by the superannuation fund investors, and thus diminish the possibility of secured creditors enforcing their security.

410. Doing the best we can having regard to all of the above, we would ascribe a discount of 85% to the $10.6 million starting point of the value of the business in September 2009. That reflects our view that the business was extremely likely to fail, by reason of one or more of the contingencies identified above. Although we think the Stonington Capital Raising would more likely than not have succeeded, and the superannuation fund investors would more likely than not have contributed the uncalled capital, and Wylde Street would have been sold, and there were reasonable prospects of a deal being done with Westpac to permit the Stage 1 of the development of Stonington proceeding, there is much greater doubt about what would have happened to the Double Bay property and the potential for AOF3 to be established. A discount of 85% reflects our view that there was in the order of a one in six chance of the business surviving. Another way of putting this is that we would be comfortably satisfied that the most likely outcome, by some margin, is that the business would not have survived so as to earn profitable fees. But those conclusions do not stand in the way of our view that Ashington Capital and Ashington Management lost a valuable outside chance, in the order of 15%, of surviving profitably.

411. We would add that our conclusions cohere with the finding by the primary judge, with which we agree, that the breaches of duty by Ms Garrett and Mr Renauf caused a valuable loss of opportunity, and avoid the seeming inconsistency of making such a finding but going on to assess the loss at nil.

412. We note for completeness that some submissions were made about the effect of the timing of knowing assistance. For example, it was said that if a third party only attained the requisite knowledge of the breaches of duty by Ms Garrett and Mr Renauf by mid November, then the assistance would not be causative of any loss for which it was required to account, because it was essential that there be a causal connection (O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262), but by mid November the Stonington Capital Raising would have failed to have been achieved in a timely fashion. So much may be accepted, but for the reasons already given, all respondents had the requisite knowledge by mid October.

413. For those reasons, we value the opportunity lost by reason of the breaches of duty by Ms Garrett and Mr Renauf in which the other respondents were knowingly involved at $1.59 million.

414. Prima facie, Mrs Anderson is entitled to judgment in the amount of $1.59 million against each of the first, second, third and fourth respondents. Mrs Anderson’s submissions proceeded on the basis that she was entitled to pre-judgment interest. Interest until 8 December 2023 is $1,426,304.23 (the calculations are attached to these reasons). We did not understand any respondent to contend that the liability of Ms Garrett and Mr Renauf to pay equitable compensation for breach of fiduciary duty of a dishonest and fraudulent kind, nor that of the other respondents for knowing involvement in those breaches, was an apportionable claim for the purposes of the proportionate liability legislation.

Remaining grounds

415. None of what follows is dispositive of any issue in the litigation, and (reflecting that fact), the parties’ submissions on these points were relatively brief. We shall adopt the same course.

Patersons’ direct breach of fiduciary obligations (grounds 38-42)

416. The primary judge rejected the claim that Patersons breached fiduciary duties owed directly to the Ashington companies. Her Honour found at [1871]:

In essence for the reasons put forward by Patersons, I have concluded that Patersons was not in a fiduciary relationship with the Ashington entities; and did not owe any of them fiduciary obligations. I see the relationship as a commercial one where Patersons was mandated to procure a financing outcome (though did not guarantee such an outcome) but was not a financial adviser as such. While Ashington may have had confidence in Patersons’ ability to raise capital for Stonington, the relationship was not one of trust, arising out of vulnerability on the part of Ashington. The relationship between Ashington Capital (the contracting party) and the other Ashington entities (to the extent a relationship existed), on the one hand, and Patersons, on the other, was an arms’ length relationship.

417. If Patersons owed a fiduciary duty directly to the Ashington companies, its breach was causative of the same loss as has been addressed above, and Patersons’ liability would be the same as its liability for knowingly assisting the breach of duty by Ms Garrett and Mr Renauf. Accordingly, nothing turns on this ground.

418. In any event, we see no error in the primary judge’s conclusion. Mrs Anderson’s primary submission against the primary judge’s finding was that the relationship between Ashington and Patersons was akin to that of a financial adviser and their client. It was said that a relationship of this nature involved elements of trust, confidence and vulnerability, and gave rise to fiduciary obligations. The submission relied upon the High Court’s decision in Daly, which held that a stockbroking firm owed fiduciary duties to their client. Reliance was also placed upon Calvo v Sweeney [2009] NSWSC 719, where it was said at [219]:

There is no presumption that the relationship between a financial adviser and his client is not a fiduciary one. To the contrary, such a relationship is likely to involve elements of trust, confidence and vulnerability requiring undivided loyalty … Moreover, in the present case, Mr Sweeney was not only a financial adviser. Although not successful in raising capital, he undertook the role of a broker seeking to negotiate the raising of capital for commission. There is little to distinguish his position from that of a stockbroker engaged to buy or sell shares on behalf of his client, who owes fiduciary duties to the client in buying and selling (Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 384).

419. We do not accept Mrs Anderson’s characterisation of the relationship between Ashington and Patersons. True it is that Patersons was engaged as “lead manager” to assist Ashington in capital raising. But Ashington was a funds management business with significant experience with capital raisings. The relationship was fundamentally different from that of a financial adviser and retail or consumer client. An urgent, successful refinancing was critically important to Ashington, but that did not make the relationship different from any number of commercial relationships. We see no error on the part of the primary judge in characterising the relationship between Patersons and the Ashington entities as a commercial arms’ length relationship in which no fiduciary duties were owed.

420. The primary judge nevertheless considered whether there was any breach of the alleged fiduciary duty in the event that her Honour was wrong in concluding that Patersons did not owe any fiduciary duties. This was challenged on appeal. In circumstances where none of this can affect any order this Court makes, there is no good reason to make the assumption that, contrary to what has been determined by the primary judge and confirmed by this Court, Patersons did owe a fiduciary obligation, and then to consider whether her Honour’s analysis on breach was correct. There is no need for an appellate court to resolve every permutation presented by the parties’ appeals, especially those which turn on counterfactual assumptions which for multiple reasons cannot affect the outcome and can only prolong an already lengthy judgment: see Massoud v Nationwide News Pty Ltd; Massoud v Fox Sports Australia Pty Ltd (2022) 109 NSWLR 468; [2022] NSWCA 150 at [36]-[40] and [276]-[277].

Breach of the Patersons Mandate (grounds 43-44)

421. The Patersons Mandate provided by cl 3 that Patersons “will at all times act in good faith and in a professional and timely manner”. The primary judge rejected the plaintiff’s claim that Patersons had breached this express term of good faith at [1985]. This was because her Honour concluded that the knowledge and conduct of Mr Carolan was not attributable to Patersons. However, had his conduct been attributable to Patersons, then her Honour would have concluded that there was a breach of the express term because “Mr Carolan clearly was not acting in good faith to pursue the Patersons Mandate at a time when he was acting with Ms Garrett (and Mr Renauf) actively to undermine the proposed Stonington Capital Raising”.

422. On appeal, Mrs Anderson advanced three independent submissions against this finding. First, Mr Carolan’s knowledge and conduct was attributable to Patersons and amounted to a breach of the good faith term. Secondly, Mr Doherty’s knowledge and conduct was attributable to Patersons and amounted to a breach of the good faith term. Thirdly, independent of any attribution of Messrs Carolan and Doherty, Patersons had itself failed to perform the mandate because the employees to whom it had delegated the task had abandoned it.

423. But success on any of those bases would be to naught unless Mrs Anderson had acquired the right to sue Patersons for breach of contract from Ashington Capital, and the difficulty she faces here is that insofar as the right was trust property, it vested in the new trustee and was not property which the liquidator could sell, as the primary judge found at [1304] and [1309]. In order to escape that difficulty, Mrs Anderson submitted that it was necessary to consider the damage which arose from the particular breach of contract. If the alleged breach of the Patersons Mandate was of such a nature that the relief claimed would reflect loss to trust property, then she accepted that the chose in action vested in the new trustee. However, it was said that the alleged breach in this case was such that the only relief sought was damage caused to Ashington Capital and Ashington Management through the loss of fees, which was not trust property. The submission is not free from difficulty. It would seem to follow that the same breach of contract between trustee and financier would, insofar as it caused damage to trust property, be held by the new trustee, and insofar as it caused damage to the trustee in its personal capacity, would continue to be actionable by the former trustee. In circumstances where nothing turns on it in the present litigation, but it may be dispositive in some other case, it is preferable to leave its resolution to a case where it matters. This is an appropriate case to adhere to “the standard common law judicial technique of deciding no more than what needs to be decided”: Mann v Paterson Constructions at [76].

Ms Garrett’s and Mr Renauf’s breach of the employment contract (grounds 6A and 6B; cross-appeal)

424. The primary judge found that Ms Garrett and Mr Renauf had no binding contract of employment (at [1799]), yet found that an employment relationship existed at common law between each of Ms Garrett and Mr Renauf on the one hand and Ashington Management on the other: at [1955]. This relationship imported the usual obligations of good faith and honesty, which were breached by each of them by actively engaging in a process to effect the removal of the Ashington parties: at [1958], [1962]-[1964].

425. Both sides challenged this conclusion. Mrs Anderson submitted that the primary judge erred in finding an employment relationship in the absence of a contract of employment, contending that “the analysis of the existence of an employment relationship in the absence of a contract or any other rubric to support the relationship is incoherent”. Conversely, by their cross-appeal, Ms Garrett and Mr Renauf contend that the primary judge ought to have found that there was no contract in which to imply any contractual duties, that any implied contractual duty of good faith was limited to a duty to exercise Ms Garrett and/or Mr Renauf’s powers and discretions in good faith, and there was no breach of any implied contractual duty by Ms Garrett and Mr Renauf because either there was no contract, or the breach did not relate to the exercise of any relevant powers and discretions.

426. We have concluded that, contrary to the trial judge’s findings, Ms Garrett and Mr Renauf owed fiduciary obligations which they breached. Nothing relevantly turns on the various common law obligations which were raised by the parties, save for the award of nominal damages, which are no longer appropriate given the pecuniary relief available in equity. Further, the analysis by the primary judge on those common law duties would have been quite different if there were a subsisting fiduciary obligation. Still further, there is an unresolved question whether some of the implied contractual duties owed by employees have a fiduciary obligation as their basis: see ConcutPty Ltd v Worrell at [26]. All of those considerations suggest that this Court should refrain from resolving those issues.

Costs appeal

427. Finally, Mr Anderson by separate proceeding sought leave to appeal from a third party costs order made against him. It was common ground that leave was not required, in accordance with Muriniti v Mercia Financial Solutions Pty Ltd [2021] NSWCA 180. Although the parties exchanged full submissions on what is a very substantial judgment adverse to him, no useful purpose would be served summarising and resolving those submissions. The result of the main appeal is that in substance Mrs Anderson will have succeeded, and for that reason alone Mr Anderson will be entitled to having the costs order against him quashed and a favourable order in relation to the costs of the application for a special costs order.

Orders

428. The parties are entitled to be heard on the question of costs, both in this Court and at first instance, and the orders below will permit that to occur. It would appear that any security for costs which has been lodged by or on behalf of Mrs Anderson or Mr Anderson should be released and any orders which are consequential upon the costs orders made at first instance (such as order 1 made on 23 June 2022 quantifying the costs of PPB) should be set aside. Any orders which are agreed by all active remaining parties may be supplied to the Associate to Gleeson JA and may be made in chambers. If there are other outstanding matters which are not agreed, they should be the subject of a notice of motion to be filed no later than 2 February 2024 together with affidavit and submissions in support, with the affected parties to supply submissions and evidence bearing upon that motion in accordance with the timetable for the resolution of questions as to costs below. If any party is of the view that any unresolved issue should be the subject of a hearing, the submissions supplied should address whether there should be a further hearing.

429. The Court’s orders are as follows:

430. In 2022/00048359:

1. Appeal allowed as against all respondents save the fifth respondent Acorn Capital Ltd and the sixth respondent Albany Capital Investors Pty Ltd.

2. Set aside orders 1 and 2 made on 7 February 2022, except insofar as order 2 enters judgment in favour of the fifth respondent Acorn Capital Ltd and the sixth respondent Albany Capital Investors Pty Ltd, and in lieu thereof enter judgment in favour of Mrs Anderson against each of the first, second, third and fourth respondents in the amount of $3,016,304.23.

3. Set aside orders 1, 3, 5, 11 and 13 made on 24 May 2022 (concerning the first, second, third and fourth respondents’ costs of the trial).

4. Cross-appeal dismissed.

5. Direct the parties to file and serve written submissions as to the costs of the appeal and costs at first instance not exceeding 10 pages, and any other materials in support of those submissions, on or before 2 February 2024, and written submissions in reply not exceeding 5 pages, or in the case of Mrs Anderson, 10 pages, on or before 16 February 2024, with a view to resolving the question of costs on the papers.

6. Any application for further orders to be made by notice of motion filed no later than 2 February 2024, together with affidavits and submissions in support, with the parties thereafter to supply affidavits and submissions in response and in reply in accordance with the timetable in order 5 above and with a view to the application being resolved on the papers.

431. In 2022/173413:

1. Direct Mr Anderson to file a notice of appeal in accordance with the draft notice of appeal within 7 days of today, and dispense with the requirements as to service.

2. Appeal allowed.

3. Set aside order 12 made on 24 May 2022.

4. The first, second, third and fourth respondents to pay Mr Anderson’s costs of proceeding 2022/173413, and (to the extent that separate costs were incurred by Mr Anderson) to pay his costs in the Equity Division in respect of the application for a third party costs order.

432. By email sent on 6 December 2023 after the parties had been notified of delivery of judgment, Patersons said that it was not aware of the terms of the settlement between Mrs and Mr Anderson and Acorn, but sought to reserve the right to be heard on the effect of the settlement before any final orders were made. In light of the entitlement under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) to apply to set aside or vary a judgment or order within 14 days even if it has been entered, there is no need to delay the making of final orders. Patersons still has the right to be heard on the effect of the settlement, should it wish to do so, in which event it should apply in accordance with that rule within 14 days of today. In the ordinary course, it is desirable for courts to make orders at the time reasons for judgment are delivered: Kramer v Stone [2023] NSWCA 270 at [264].

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annexure

Amendments

31 July 2024 - inserted “the” in table of contents entry for [339] and corresponding heading, so it reads “Mrs Anderson’s challenge to the reasoning”

- deleted comma after “especially” in table of contents entry for [396] and corresponding heading

- replaced “were” by “was a” and “subsidiaries” by “subsidiary” in [8]

- replaced “ADFIT2” by “the ADF Investment Trust (No 2)” in [37] and [44]

- replaced “to” by “with” in [94], so it reads “Mr Carolan’s employment with Patersons”

- replaced “).” By “.)” in [113]’

- inserted “both” into quotation in [133]

- replaced “at 88” with “at [188]” in citation for Beach Petroleum in [141]

- replaced “is” by “are” in third sentence of [165], so it reads “which are outside the scope”

- replaced “receive” by “receiv[ing]” in quote in [191]

- deleted “of” in “something of which” in second sentence of [210]

- replaced “attribute” by “attributes” in first sentence of [249]

- replaced “Orders” by “Order” in citation for Ancient Order of Foresters in [262]

- replaced “affect” by “[e]ffect” in quotation in [276]

- inserted “[p]” in quotation in [291] so it reads “subparagra[p]hs”

- deleted “the” from [314], so it reads “Ground 1 of PPB’s notice of contention”

- deleted “a” from “as soon as a possible” in [332], so it reads “as soon as possible”

- missing closing parenthesis added in [337]

- replaced “(Emphasis altered)” by “(Emphasis omitted)” at end of quote in [352]

- inserted “to” in final sentence of [364], so it reads “indebtedness to the banks”

Decision last updated: 31 July 2024