Andrew Shelton & Co Pty Ltd v Alpha Healthcare Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST

No. 2128 of 2000
F5247

ANDREW SHELTON & CO PTY LTD	Plaintiff
v
ALPHA HEALTHCARE LTD	Defendant

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JUDGE:	WARREN J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	21, 22, 25, 26 and 27 March 2002
DATE OF JUDGMENT:	27 June 2002
CASE MAY BE CITED AS:	Andrew Shelton & Co Pty Ltd v Alpha Healthcare Ltd
MEDIUM NEUTRAL CITATION:	[2002] VSC 248	Revised 28 June 2002

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BREACH OF CONFIDENCE – Idea – Entitlement to confidentiality – Authority – Whether sufficient novelty.

UNJUST ENRICHMENT – Benefit – Free acceptance.

RESTITUTION – Quantum – Assessment.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P. Vickery Q.C. with Mr P. Barber	Norton Gledhill
For the Defendant	Mr M. Thompson	Tress Cocks & Maddox

TABLE OF CONTENTS

The Proceeding................................................................................................................................... 2

Background Events............................................................................................................................ 2

Project Apple....................................................................................................................................... 2

The History of the Terms 1998-1999................................................................................................ 4

Developments After the Letter of Offer Between Australian Unity and Sun October 1999 6

The Meeting on 12 April 2000.......................................................................................................... 8

The Meeting on 13 April 2000........................................................................................................ 11

Events Post 13 April 2000................................................................................................................ 12

The Evidence for the Plaintiff........................................................................................................ 13

The Evidence for the Defendant................................................................................................... 16

Comparison of the Various Terms Documents.......................................................................... 23

(1) The Identification of the Purchaser..................................................................................... 24
(2) The Identification of the Vendor......................................................................................... 24
(3) The Identification of the Lessees of the Subject Hospitals.............................................. 24
(4) The Guarantors of the Leases.............................................................................................. 25
(5) The Hospitals to be the Subject of the Sale........................................................................ 25
(6) The Purchase Price................................................................................................................ 25
(7) Valuation................................................................................................................................ 26
(8) Method of Payment of Purchase Price............................................................................... 26
(9) Term of Lease......................................................................................................................... 27
(10) Lease Rental......................................................................................................................... 27
(11) Security.................................................................................................................................. 28
(12) The Requirement for Confidentiality............................................................................... 28
(13) Comparison of the Terms Presented on 12 and 13 April 2000 with Other Versions of Terms 28

The Plaintiff’s Claim........................................................................................................................ 29

The Claim for Breach of Confidence............................................................................................ 30

The Claim of Unjust Enrichment.................................................................................................. 34

Was an Enrichment or Benefit Conferred?.................................................................................. 42

Whether there was free acceptance............................................................................................... 46

The Restitution to be Made............................................................................................................ 46

HER HONOUR:

The Proceeding

The plaintiff claims damages based on breach of confidence, alternatively, restitution for unjust enrichment.

Background Events

The plaintiff, Andrew Shelton & Co Pty Ltd, ("The Shelton Company") is engaged in the business of providing financial consulting services and related services to various corporate and government entities involving, on occasion, substantial commercial transactions. The principal of the company is Andrew Shelton ("Shelton") who is the sole director of the Shelton Company.

Shelton has academic qualifications in economics and extensive experience both in Australia and overseas in banking, mergers and acquisitions.

Initially, Sun Healthcare Group Aust Pty Ltd ("Sun") was joined as the first defendant. It is a subsidiary of a United States based company, Sun Healthcare Group Inc ("Sun Inc"). The Australian entity, Sun, owned five acute care private hospitals in New South Wales and Queensland. On 28 June 2001 Sun was placed in liquidation. Hence, thereafter the claim against Sun was stayed pursuant to s.471B of the Corporations Act 2000.

The remaining defendant, Alpha Healthcare Limited ("Alpha") owned and operated eight private hospitals in New South Wales. Sun was a major shareholder in Alpha, owning almost 40 per cent of issued ordinary shares. It had an entitlement under convertible notes to increase the shareholding to over 50 per cent.

Project Apple

In 1998 a scheme for the merger of Sun and Alpha was devised known as "Project Apple". The merger was to be funded by the sale and lease‑back of hospitals owned by both Sun and Alpha. Bank of America was retained by Sun to arrange the funding of the merger. The Shelton Company was retained by Bank of America to assist it in Project Apple. The effect of the retainer was that Bank of America sub-contracted a large component of its financial advice work on Project Apple for Sun to the Shelton Company.

The retainer of the Shelton Company by Bank of America was initial oral and later reduced to writing consisting of a letter from Bank of America to Shelton dated 18 September 1998. Under the Bank of America retainer the Shelton Company was to be paid a retainer fee and a transaction fee. Later, Bank of America agreed to pay the Shelton Company an additional arrangement fee relating to the sale and lease‑back of particular hospitals of $300,000 together with an extra fee upon sale and lease-back of further hospitals.

As a result of the retainer, through 1998, Shelton, representing the Shelton Company, attended meetings with representatives of the bank. The meetings were attended, also, by one Chet Bradeen ("Bradeen"), the managing director of Sun. Shelton actively participated in these meetings where financial options were considered. The options contemplated at that time were a possible sale and lease-back with a United States based party or a sale and lease‑back with an Australian party. The latter proposal was put forward by Shelton. He suggested Australian Unity Funds Management ("Australian Unity") as a purchaser and lessor because it was contemplating the establishment of a specialist hospital trust.

Shelton met representatives of Australian Unity, namely one Craig Dunstan and one Paul Noonan. They expressed interest in meeting representatives of Sun. This led to Dunstan suggesting a confidentiality agreement with Sun concerning the Alpha hospital sale and lease-back proposal. Thereafter, Shelton introduced Australian Unity to Bradeen and others and meetings involving representatives of Sun, the bank and Australian Unity were held. Shelton participated in the meetings and made notes. The meetings culminated in a terms sheet for the sale and lease-back of all of Alpha’s private hospitals to Australian Unity being drawn by on about 25 September 1998 by Bank of America. An enhanced terms sheet was prepared about 29 October 1998. Fine tuning of the transaction continued until October 1999. Throughout that period Shelton was involved to some extent in the negotiation and preparation of the agreement with Australian Unity. At all times at this stage he was acting for Sun on the basis of his retainer with Bank of America.

I have stated thus far the broad background facts surrounding the involvement of Shelton and the Shelton Company. However, it is necessary to set out in some detail the involvement of Shelton and the Shelton company and, in particular, the history surrounding the development of the terms eventually resolved between Sun and Australian Unity.

The History of the Terms 1998-1999

Shelton gave evidence that he, together with Bank of America, prepared a draft terms sheet for the sale and lease-back of the Alpha hospitals to Australian Unity in early October 1998. The documentary evidence revealed that in fact on 25 September 1998 one Warren McInteer of Bank of America sent by facsimile to Sun and others, including Shelton and the Shelton Company, a document described as an "indicative terms sheet". McInteer stated in the fax that the indicative terms sheet was "more specific than the general discussions we have been having" and welcomed "detailed amendments where appropriate".

It appeared that the next step in the chain was the dispatch of an indicative terms sheet by one Craig di Giulio of Bank of America to Australian Unity on about 6 October 1998. So much appears from a fax in reply from Dunstan of Australian Unity to di Giulio dated 7 October 1998. There Dunstan referred to the "indicative terms of lease" and stated a desire by Australian Unity to proceed with discussions. There was no detailed evidence as to the contribution of Shelton to the drafting process of these terms up to this stage other than that on 8 October 1998 Shelton, then for Bank of America, sent to Bank of America a fax referring to amendments made to the terms sheet by McInteer that had been incorporated into the document.

On 29 October 1998 one Geoff Robb of Bank of America sent another terms document to Dunstan described as "an enhanced term sheet". There was no specific evidence of the participation of Shelton, if any, in the preparation of the latter set of terms. The next step was on 8 February 1999 when one David Rogers of Bank of America sent a fax to McInteer and others, including Shelton, attaching a revised terms sheet. A further draft was sent again on 12 February 1999. On 3 March 1999 Australian Unity informed Bank of America of its general acceptance of the terms sheet as it stood by that point save for the actual properties to be included, the purchase price, rental, rental adjustment and security deposit.

Shelton gave evidence that during March 1999 he was directly involved in the preparation and negotiation of the relevant rental adjustment clause. It was not entirely clear as to how this was so. In the event, on about 18 or 19 March 1999 another version of the terms sheet was sent by Bank of America to Australian Unity. On 29 March 1999 Australian Unity stated its general acceptance of that version. However, another version of the terms sheet was developed by 24 April 1999 for the purposes of a meeting between Bank of America, Sun and Australian Unity on 23 April 1999. The meeting was held and another version of the terms sheet was prepared ultimately on 29 April 1999. It was sent to Australian Unity by fax probably on about 29 April 1999 by Bradeen to Dunstan requesting the written agreement of Australian Unity to the terms and other matters. Negotiations continued.

It is apparent that between about September 1998 and March 1999 there seemed to be a deal of activity concerned with discussions, meetings and valuations. Shelton was active during this period but his role appeared to be largely one of organiser, facilitator and transmitter of information. As observed already there was no specific or independent evidence of his participation in the drafting process of the terms sheet beyond assertions by him as to his contribution.

On 6 May 1999 Bradeen requested, instead of the terms sheet advanced thus far, a signed heads of agreement from Australian Unity. The latter was prepared by solicitors. Shelton gave evidence that he was involved in discussions with the solicitors and other persons about the heads of agreement to be contained in a letter of offer although no specific evidence of such involvement was given. By June 1999 the involvement of Shelton increased. During June and July 1999 a number of draft letters of offer were prepared. Shelton made notations on the various drafts. However, his direct participation seemed limited. The changes made especially between late June and late July 1999 seemed to have been made by the lawyers acting for the respective parties. Shelton gave evidence of his conferring with the lawyer for Australian Unity and said changes were made to the letter of offer at the behest of Shelton. Those changes and their significance were not altogether apparent.

By early August 1999, Sun and Australian Unity had reached agreement in principle. On 6 August 1999 an agreed form of letter of offer was signed by Dunstan for Australian Unity and Bradeen for Sun. The letter of offer contained a confidentiality clause whereby the parties agreed to keep the terms of the letter of offer confidential to themselves (see clause 24) and a clause requiring that Australian Unity not make a similar offer directly to Alpha (see clause 22). The latter term was important because it precluded Australian Unity from putting an offer to Alpha except through Sun. Indeed, the negotiations involving Sun Inc., Sun, Bank of America and Australian Unity were carried out without the involvement of Alpha save for the dual role of Bradeen.

After 6 August 1999, certain steps, in particular, the finalisation of a valuation was embarked upon.

Developments After the Letter of Offer Between Australian Unity and Sun October 1999

On 14 October 1999 Sun Inc entered into an arrangement with creditors in the United States of America pursuant to the relevant bankruptcy provisions. Bank of America was the major creditor of both Sun Inc and Sun and it became concerned about potential conflicts of interest and the possible need for creditor approval of the transaction with Australian Unity. Bank of America informed Sun of these concerns on 16 November 1999. The requirement of creditor approval was unacceptable to Sun. Representatives of Sun, including Bradeen, told Bank of America representatives at a meeting in Sydney on 16 November 1999 of their attitude and left the meeting. Later on the same day of 16 November 1999, representatives of Sun, again including Bradeen, met Shelton and requested that the Shelton company continue as an advisor directly to Sun in the transaction with Australian Unity on essentially the same basis as already agreed between Sun and Australian Unity. After clearing the proposal with Bank of America, who condoned it, Shelton accepted the invitation from Sun.

On 23 November 1999 Shelton wrote to Bradeen confirming his terms of arrangement with Sun. In the letter of 23 November 1999 Shelton confirmed certain matters: the engagement of the Shelton Company to act as "financial adviser" with respect to the acquisition of interests in Alpha and the sale and lease‑back of Alpha hospitals to Australian Unity. The letter confirmed the undertaking by the Shelton Company of specified services: the valuation of changes of ownership and strategies, advice on commercial considerations, liaison with legal, taxation and accounting advisers, negotiating and assisting upon financial aspects of a sale and lease‑back transaction. Significantly, the letter of 23 November 1999 made no reference to the drawing of terms of the transaction or participation in that process. However, it was not plain sailing thereafter. On 16 December 1999 Bradeen requested that the Sun retainer of the Shelton company be put on hold because of financial uncertainties. Shelton renegotiated that he be paid a monthly fee by Sun of $10,000 effective from 1 December 1999 if the transaction or a similar transaction with Australian Unity eventuated. Bradeen agreed. Between December 1999 and March 2000 Shelton continued to work on the transaction with Australian Unity. However, by March 2000 Sun Inc was in such financial difficulties that its business and that of Sun were to be sold. Not deterred by events, on 17 March and 3 April 2000 Shelton recommended to Sun in writing that the sale and lease-back of the Alpha hospitals to Australian Unity should proceed. In early April 2000 Australian Unity confirmed that it wished to go ahead and continue with the transaction. By this stage Sun had resolved not to proceed. However, Sun as a major shareholder in Alpha, supported the prospect of the sale and lease-back of the Alpha hospitals. This opened the way for Australian Unity and Alpha to deal directly without the conduit of Sun. There followed some meetings that were critical to the plaintiff’s claim.

The Meeting on 12 April 2000

Bradeen invited Shelton to attend a meeting with Alpha representatives in Sydney on 12 April 2000. Bradeen told Shelton that the purpose of the meeting was to introduce the prospect of the transaction with Australian Unity to Alpha and to explain the benefits of the transaction to it. Present were Bradeen, Shelton, Mark Compton the managing director of Alpha, and Neil Hooper its finance director. The meeting lasted about one hour. Neither Compton nor Hooper had met Shelton before. They knew nothing about him. They did not know that Shelton would attend the meeting and were surprised by his presence. They did not know who he represented or acted for but presumed he was acting for Sun.

Up until this time, 12 April 2000, there had not been any independent initiative by Alpha itself to achieve a sale and lease-back of any of its hospitals.

The meeting was important because the Shelton company alleged that arising from events at and after this meeting it was retained by Alpha to advise it on a transaction with Australian Unity. It said, also, that it provided information to Alpha at this meeting and, thereafter, that was confidential to the Shelton company and that Alpha eventually used the information to its advantage in cementing an agreement with Australian Unity. There were different versions of events at the meeting. Nevertheless, there was agreement on certain matters.

On 12 April 2000 Shelton described the proposal that Alpha enter into a sale and lease-back proposal with Australian Unity. He said that the terms with Australian Unity were well advanced. Shelton said, also, that because Sun was no longer to be a party to the transaction there was an opportunity for Alpha to proceed with Australian Unity alone. He described the essential elements of the proposal. In this respect Shelton tabled the terms sheet as drafted at that stage and which contained the major terms and conditions of the proposed sale and lease-back transaction with Australian Unity. It contained a confidentiality term as follows:

"26. Confidentiality
Each party will keep the terms of this Offer and any transaction contemplated by this Offer confidential, except to the extent to which it needs to disclose details to related entities or its advisers and except where it is required to do so by law, in which case the parties agree to consult with each other prior to disclosure."

Shelton tabled a document entitled "Alpha Healthcare Limited Sale and Lease‑Back Proposal" dated 12 April 2000 and headed "Confidential". The document was referred to as "the Proposal". It contained on a separate page at the front of the document a claim of confidential information cast in the following terms:

"This presentation was prepared by Andrew Shelton & Co. Pty Limited (ACN 078 600 978) for the exclusive use of Alpha Healthcare Limited in order to indicate, on a preliminary basis, the feasibility of a possible transaction. The presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing. The presentation and its contents are confidential and must not be copied, reproduced or disclosed. The presentation does not purport to contain all the information that may be required to evaluate the proposal. The presentation and any forecasts therin [sic], are based on publicly available information and involved subjective judgement which may or may not be correct. No independent verification has been made on this information. Recipients should conduct their own independent review, investigations and analysis of the proposals before entering into any transaction."

The proposal identified the purchaser and lessor as Australian Unity, four specific Alpha hospitals, the inclusion of fixtures and fittings, the requirement for independent valuations of at least 95 per cent of the purchase price, the fact that independent valuations had been obtained from Arthur Andersen, the specific details of the valuations including a total valuation figure for the four Alpha hospitals of $30.78M, the option to Australian Unity to purchase another Alpha hospital being Westmead, the details of the creation of a trust as the purchasing vehicle and the broad funding provision, the terms of the lease and other intricate details of the transaction including the commercial imperatives driving Australian Unity to finalise the transaction.

Finally, the proposal ended with two pages describing the role and experience of the Shelton company and Shelton himself.

There was no dispute between the parties that the proposal was tabled and addressed by Shelton at the meeting on 12 April 2000. The information contained in the proposal and addressed by Shelton was said for the plaintiff to constitute the confidential information that was part of the plaintiff’s claim. Shelton said the proposal represented the culmination of work and information performed and accumulated over the preceding 18 month period. Shelton said that the concept of the sale and lease-back transaction between Alpha and Australian Unity was unique at that time in the Australian experience. It was asserted that the sale and lease-back concept as a method to raise capital to finance and re‑finance hospitals had never been used before in Australia. This novelty factor underlay the claim for breach of confidence by the Shelton company.

The meeting finished on the basis that the Alpha representatives would consider the proposal. Later on in the day of 12 April 2000 a meeting pre-arranged by Bradeen was convened and attended by Bradeen, Shelton and other financial and accounting consultants concerning the raising of funds by Alpha so that it could re‑pay its debt to Sun, which in turn could then re‑pay its debts to Bank of America. After this meeting discussions ensued between Bradeen and Shelton as to the payment of retainer fees to the Shelton company for its work on the sale and lease-back transaction. They agreed that the Shelton company should be paid by Alpha and that the payment ought consist of a monthly retainer fee of $10,000 as from that day, 12 April 2000, if Alpha proceeded with the transaction, plus a 1.5 per cent commission of the purchase price. There was an additional fee to be paid, if any hospitals were sold and leased back later in time. At the time of those discussions Bradeen was a director of Sun and, also, a director and representing a controlling shareholder of Alpha. However, he did not have authority to bind Alpha. Bradeen told Shelton he would urge Compton to agree to the fee structure as discussed. After the discussion Shelton believed he was or was to be retained by Alpha and paid fees if the transaction was completed with Australian Unity.

Further on in the day of 12 April 2000 Shelton said he was requested by Compton or by Bradeen at the behest of Compton to set up a meeting with Australian Unity. As a result, Shelton arranged a meeting with Noonan between Australian Unity and Alpha representatives the next day, in Melbourne, on 13 April 2000. Compton requested the meeting because Alpha was interested in pursuing the proposal with Australian Unity.

The Meeting on 13 April 2000

The meeting was convened on 13 April 2000 and attended by Compton, Hooper and Bradeen for Alpha and Dunstan, Noonan and one Simon Grant for Australian Unity. Shelton also attended. He believed he represented Alpha. Shelton was not expressly invited to attend the meeting but assumed that by virtue of the request by Compton that Alpha had resolved to proceed with Australian Unity and that he, Shelton, was required to assist Alpha in the transaction. He also formed this belief on the basis of his discussions with Bradeen on 12 April 2000 as to the fees to be paid to the Shelton company.

At the meeting on 13 April 2000 Bradeen told the Australian Unity representatives that Sun would not proceed with the transaction further but that Alpha was interested in proceeding alone. Bradeen said that he would withdraw from the meeting and that Shelton would represent Alpha thereafter. The Alpha representatives were silent when Bradeen said this. Bradeen left. Shelton then assumed the conduct of the meeting. He tabled the terms sheet provided to Compton on 12 April 2000. Detailed discussions ensued on valuation, the identify of the hospitals to be included in the transaction and its timing. The timing of the transaction was important to Australian Unity for commercial reasons.

Shelton explained the proposed terms of the transaction in even more detail than he had to Compton at the meeting the previous day on 12 April 2000. The meeting on 13 April 2000 concluded on the basis that the Alpha representatives said Alpha would proceed with the transaction subject to board approval. For its part, the Australian Unity representatives said the transaction would progress further. They requested the provision of further financial information to Australian Unity and the Alpha representatives agreed to do so.

Events Post 13 April 2000

After the meeting with Australian Unity, Alpha provided financial information to Shelton for him to forward to Australian Unity. He did so on 18 April 2000. On 19 April Bradeen told Shelton that a special board meeting of Alpha directors that day resolved to approve the sale and lease-back of four Alpha hospitals with Australian Unity. Communications followed thereafter between Bradeen and Shelton as to the fee to be paid to the Shelton company. Shelton said in evidence that Compton told him on 26 or 27 April 2000 that the fees would be payable if Alpha proceeded with the transaction. On 26 and 28 April 2000 Shelton sent various documents relating to those fees to Compton. However, in a letter dated 5 May 2000 Compton informed Shelton that the role of the Shelton company in the transaction should not be assumed. In the letter Compton referred, also, to his understanding that, in any event, the Shelton company was retained by Sun with respect to a proposal encompassing both the Sun and Alpha proposals, a reference to the original proposal. Shelton responded in writing on 8 May 2000 rejecting the position of Compton.

On 12 May 2000 Noonan of Australian Unity told Shelton that a formal offer would be sent shortly by Australian Unity to Alpha on similar terms to those of the terms sheet presented by Shelton at the meeting on 13 April 2000. Shelton immediately conveyed this information to Compton and suggested a meeting be arranged with underwriters.

On 15 May 2000 Compton wrote to Shelton stating that Alpha did not require the services of the Shelton company. The letter stated that the Shelton company proposal of the sale and lease-back of the Alpha hospitals to Australian Unity had been considered but that Alpha did not wish to engage the services of the Shelton company. Compton offered to reimburse the company for reasonable out of pocket expenses.

By this time the transaction between Alpha and Australian Unity was well advanced save for the completion of formal documents, legal due diligence and the independent valuation.

After the letter of Compton to Shelton on 15 May 2000 correspondence was exchanged between the two men. Shelton asserted an entitlement to payment of fees. Compton rejected any obligation. The exchange culminated in Compton, on behalf of Alpha, offering a fee in the order of $10,000 "in recognition of your endeavours before any formal arrangement was proposed". Shelton did not accept the offer and it lapsed thereafter. An invoice was forwarded by Shelton to Alpha on 16 June 2000. No moneys were paid by Alpha to the Shelton company.

On 3 July 2000 Australian Unit sent a letter of offer to Alpha. On 5 July 2000 Alpha announced the transaction to the market by way of a press release. It stated: "… We are the first listed private hospital group to move hospital real estate off our balance sheet in order to allow it to more appropriately reflect our role as a hospital operator". The transaction was obviously of considerable commercial significance to Alpha. On 27 and 31 October 2000 Alpha and Australian Unity executed contracts. The sale price for the Alpha assets was $26.02M.

The Evidence for the Plaintiff

The principal witness for the plaintiff was Shelton. He gave evidence essentially setting out events as described. He said, also, that he invested a large amount of time and effort into the transaction between November 1999 to July 2000. More significantly, he listed the work performed by him from 12 April 2000, when he was first introduced to Alpha, until 15 May 2000, when Compton rejected the services of the Shelton company. Shelton acknowledged that after 13 April 2000 he had limited contact with Compton and Hooper. He said that there were a number of telephone calls. He said, further, he provided financial information on 17 April 2000 to Australian Unity on behalf of Alpha in relation to the Mount Wilga Hospital. The provision of that information led to an increase in the sale price of approximately $380,000 although that hospital eventually was not included in the final transaction between Alpha and Australian Unity. Shelton was not challenged as to these attendances.

Bradeen also gave evidence for the plaintiff. His evidence was consistent with events as described. He corroborated the evidence of Shelton so far as he was involved. Bradeen said that he suggested to Compton that there may be a proposal that would benefit Alpha and that he, Bradeen, wished to meet Compton to discuss the proposal and that led to the meeting on 12 April 2000. Bradeen acknoweldged that he did not tell Compton who would attend the meeting for the reason that he wanted to focus on its purpose, that was, the sale and lease-back transaction. Bradeen said also, that most of the meetings with Australian Unity prior to 12 April 2000 were arranged by Shelton on his behalf and that he did not deal directly with Australian Unity. It was suggested to Bradeen that there was no reason prior to 12 April 2000 why Compton could not have contacted Australian Unity himself. Bradeen rejected the suggestion because he believed that Compton knew about the sale and lease-back proposal and the prospect of Australian Unity only because of the information provided by Shelton at the meeting on 12 April 2000. Bradeen said that in his capacity as a director of Alpha he attended a board meeting on 30 May 2000. He said that there was an acknowledgment at the meeting of an obligation on the part of Alpha to pay Shelton. However, there was a dispute as to the amount to be paid. Bradeen said that Compton was authorised by the Alpha board to negotiate a market rate of payment with Shelton. There was dispute among directors as to the amount said by some to be a range of $30,000 - $50,000. Bradeen did not accept the rate. In any event, the highest amount ever offered by Compton to Shelton was $10,000.

The plaintiff called Paul Noonan, formerly the portfolio manager of property for Australian Unity. He confirmed that one of his responsibilities was the establishment of a property trust for Australian Unity designated to health care. Noonan confirmed that he first met Shelton in late 1998 at a meeting between representatives of Australian Unity, Sun and Bank of America. Noonan said that at the meeting Shelton proposed a sale and lease-back transaction to Australian Unity of hospitals owned by Sun and other hospitals owned by Alpha. Noonan said that up until this meeting the prospect of a transaction with Alpha was not attractive to Australian Unity because it had limited hospitals available and its financial position was perceived as precarious. However, the proposal described by Shelton was potentially attractive to Australian Unity because the lease-back component of the transaction by Alpha would be guaranteed by Sun. Noonan said that at the time of the meeting neither he nor Australian Unity had any contact with Alpha.

Noonan described the development of the transaction during the period from November 1998 to October 1999. When Sun Inc encountered bankruptcy difficulties in the United States, Noonan described as pivotal the role played by Shelton in progressing a transaction involving Alpha, Sun and Australian Unity. Noonan described the efforts made by Shelton to maintain the transaction even after the development of the financial problems of Sun Inc. The evidence of Noonan corroborated the evidence of Shelton and Bradeen as to the events of the meeting on 13 April 2000. In particular, Noonan confirmed that the proposal put by Shelton to Compton and Dunstan at the meeting on 13 April 2000 was essentially the proposal that had been developed up to that point involving Alpha, Sun and Australian Unity, in particular, the original terms sheet. Noonan said that by April 2000 negotiations were well advanced due to the efforts of Shelton. He said, also, that because of the time and effort that had been expended up until April 2000 Australian Unity was prepared to purchase and lease-back the Alpha hospitals without the involvement of Sun. He acknowledged that by 13 April 2000 the great majority of work underlying the ultimate transaction had been done. Nonetheless, Noonan said that prior to April 2000 Australian Unity progressed negotiations in the belief that it would have Alpha and Sun as guarantors under the sale and lease-back arrangement. Ultimately, no guarantee was provided. Noonan said that some weeks after the meeting of 13 April 2000 Compton told him not to send documents to Shelton and that Shelton was not involved. Noonan said Compton told him that Australian Unity should deal directly with him, Compton.

Importantly, Noonan said that by the time of the consummation of the transaction between Alpha and Australian Unity in October 2000 little had changed from the proposal as put by Shelton to the meeting on 13 April 2000. Noonan estimated that 90 per cent of the work had been performed by April 2000. He described the differences as being constituted by the finalisation of the contract, some changes to the form of the letter of offer and the non-inclusion of the Alpha hospital at Mt Wilga whereby the number of hospitals to be sold and leased-back were reduced from four to three. The latter difference came out of the due diligence process that had always been part of the transaction as originally proposed.

Significantly, Noonan said that the role of Shelton in setting up the transaction and progressing the negotiations was critical. He said that without the efforts of Shelton Australian Unity would not have purchased any of the Alpha hospitals although he acknowledged that most of those efforts had been expended by April 2000.

The plaintiff also called Gregory John Keys, a chartered accountant and partner of Pricewaterhouse Coopers. He had extensive experience in corporate finance and investment banking. His expertise was not challenged and little contradictory expert evidence was called for the defendant. Keys was called as an independent expert to provide opinion upon the quantum of fees that would be charged in the market for investment banking services rendered by Shelton with respect to the sale and lease-back transaction between Alpha and Australian Unity. On the assumption that Shelton performed the work as described to Keys then he said that based upon industry practice and standards and his own experience certain conclusions could be reached. I address the evidence of Keys later in my reasons.

The Evidence for the Defendant

The evidence for the defendant was given by Compton the former managing director of Alpha from July 1999, Dunstan formerly a general manager of corporate strategy and acquisitions of Australian Unity and Neil Hooper the former general manager of finance at Alpha.

Compton was generally vague about events preceding April 2000. He said that his general understanding was that whilst there had been discussions between Sun and Australian Unity in 1999 and into 2000 they had not led to any agreement. Of course, Compton could not have been aware in any detailed manner of any discussions, negotiations or advice to Alpha prior to July 1999 because he did not become the general manager until that time. Furthermore, Alpha was excluded from discussions with Australian Unit save for the dual involvement of Bradeen. Properly, Compton did not purport to say anything about that period. Nevertheless, Compton was aware that Sun was substantially indebted to Bank of America. He was broadly aware that by late 1999 discussions had occurred between Sun and Australian Unity regarding the possible sale and lease-back of Sun and Alpha hospitals. Compton was aware also of the financial position of Alpha by 12 April 2000 and the potential for a sale and lease-back transaction to render Alpha wholly or largely debt free.

Compton acknowledged that there had not been any independent initiative on the part of Alpha to pursue a sale and lease-back transaction prior to 12 April 2000 except for the discussions he had with Bradeen and others in late 1999 just referred to. He acknowledged, also, that nothing had been finalised by way of a sale and lease‑back transaction prior to 12 April 2000. Compton acknowledged, further, that aside from Bradeen no other person on the part of Alpha had been involved in the negotation of a possible sale and lease-back of Alpha hospitals prior to 12 April 2000. In particular, Compton gave evidence that prior to April 2000 he had not engaged in direct discussions with either Noonan or Dunstan of Australian Unity about a possible sale and lease-back transaction.

Compton confirmed that as a result of a suggestion by Bradeen he met Shelton and that Shelton presented the proposal paper. Cmpton said that before 12 April 2000 he did not know the identity of the hospitals contemplated for sale and lease‑back nor the price. He also said, significantly, that the first detailed proposal for a sale and lease-back transaction that came to his knowledge was the proposal presented by Shelton on 12 April 2000. He said that Bradeen or Shelton proposed a meeting with Australian Unity and that he agreed. Compton recalled a meeting thereafter of he, Bradeen, Shelton, Hooper from Alpha, and Dunstan and Noonan from Australian Unity. He recalled, also, that the meeting was in Melbourne and that Bradeen left shortly after the meeting started. It is clear that the meeting recalled by Compton is that which occurred on 13 April 2000. Compton said that there was a discussion in general terms at the meeting of a sale and lease‑back proposal between Alpha and Australian Unity. He said that the Australian Unity representatives expressed interest in the proposal. He said that Alpha agreed to provide figures to Australian Unity. Compton said that after the meeting of 13 April 2000 concluded he indicated on behalf of Alpha that subject to the agreement of its board of directors and the negotiation of mutually acceptable terms Alpha would proceed towards finalising a transaction.

Compton said, also, that during the meeting of 13 April 2000 the sale price of the Mount Wilga Hospital was discussed. Compton was of the opinion that the performance of that hospital warranted a higher price. He said that after the meeting Shelton offered to pass on financial information to Alpha about Mount Wilga and he agreed to that course. Ultimately, the financial information led to an increase in the price contemplated allowing for the better performance of Mount Wilga. However, as already observed, Mount Wilga was eventually excluded from the final transaction between Alpha and Australian Unity. Nonetheless, the fact was that Alpha provided to Shelton sensitive commercial information. Compton said that he agreed to provide the information to Shelton because he in turn had agreed to act as a conduit of that information to Australian Unity. Compton said, further, that he was prepared to divulge the information to Shelton because Bradeen had been involved in the transaction for some time with Shelton. I reject the evidence of Compton in this respect. I am satisfied that he was prepared to provide sensitive commercial information to Shelton because he saw him as promoting the interests one way or another of Alpha in its dealings with Australian Unity. It was disingenuous of Compton to suggest otherwise.

In his evidence-in-chief Compton made no mention at all of the involvement or participation of Shelton in the meeting. Specifically, he did not refer to the tabling of the terms sheet and the explanation by Shelton of that document. I consider that Shelton had a better recollection of the meetings on 12 and 13 April 2000 an, insofar as there are any differences between the version given by Shelton and that by Compton, I prefer the evidence of Shelton.

In his evidence Compton said that a meeting of the Alpha board of directors was convened on 19 April 2000 where board members expressed interest in the proposal with Australian Unity. In particular, at the board meeting Compton tabled the documents he had received from Shelton and as presented at the meetings on 12 and 13 April 2000. Compton also acknowledged that after 13 April 2000 he, together with Hooper negotiated and entered into discussions with Australian Unity based upon the proposal presented by Shelton on 12 April 2000. Significantly, Shelton said that he was able to use the terms sheet to progress the transaction with Australian Unity. Indeed, Compton said that the service provided by Shelton at the meetings of 12 and 13 April 2000 brought to fruition the discussions with Australian Unity. He described it as "a natural turning point". Another board meeting of Alpha was convened on 26 April 2000. Compton said that he tabled at that meeting a draft agreement he had prepared with Australian Unity.

Compton acknowledged receipt of correspondence from Shelton concerning the subjects of retainer and fees but denied that he knew anything about such matters. Compton confirmed that he advised Shelton in writing on 15 May 2000 that Alpha did not require his services. Compton purported to distance himself and Alpha from any arrangement with or obligation towards the Shelton company in a number of ways. He said that the introduction of Alpha to Australian Unity was by Bradeen; that the concept of a sale and lease-back arrangement between Alpha and Australian Unity was first proposed by Bradeen; that Australian Unity was, in any event, an obvious target for a sale and lease-back transaction; that Shelton was not invited to the meeting with Bradeen and Alpha on 12 April 2000 and that the meeting was convened at the request of Compton with a view to approaching Australian Unity on a sale and lease-back proposal; that immediately after the meeting on 12 April 2000 he and Hooper met with Australian Unity and thereafter they dealt with Australian Unity extensively. Notably, he did not say that they dealt with Australian Unity exclusively.

Compton made no mention whatsoever in his evidence‑in‑chief about Shelton presenting at the meeting on either 12 or 13 April 2000, the term sheet and accompanying explanation and clarification by Shelton. It was as if Shelton said or did next to nothing. Compton said that he made the position clear to Shelton that there was no agreement between he and Alpha. He did not say when he, Compton, made the position "clear". He recited a course of correspondence between he and Shelton resulting in the offer of $10,000.

Compton also gave evidence challenging the alleged novelty of the concept of the sale and lease-back of the Alpha hospitals. Compton said that he started with Alpha in 1994 and held various positions. He said that the sale and lease-back concept, in his experience, was not novel in the hospital context. He said that he was aware from his own general knowledge that earlier in time Australian Unity had entered into a sale and lease-back arrangement with the Benchmark group. Compton said the arrangement provoked interest in the health sector as a method of raising funds. These matters were not proved in the usual formal way but merely asserted. However, the assertions were not objected to or the subject of cross‑examination.

Broadly, Hooper corroborated the evidence of Compton. Hooper was more expansive about the arrangements between Australian Unity and Benchmark. He said that the sale and lease-back arrangement between those parties was well-known in the private health care industry. Hooper said that at the meeting on 12 April 2000 Shelton provided the proposal document. Hooper said that the proposal document tabled by Shelton was similar to that which he believed to be the terms of the sale and lease-back arrangement between Australian Unity and Benchmark.

There were some minor differences between the evidence of Hooper and Compton vis‑à‑vis Shelton. Whereas Compton’s evidence ignored the presence of Shelton, Hooper acknowledged that at the end of the meeting on 13 April 2000 Shelton suggested that he send the information requested by Australian Unity. Hooper said that he and Compton agreed.

The defendant also called Craig Dunstan, who up until shortly before the trial was the general manager of corporate strategy and acquisitions of Australian Unity. Between 1995 and early 2002 Dunstan was the general manager of financial services at Australian Unity. He was the superior of Noonan. Dunstan gave evidence that from about 1997 onwards a strategy was developed at Australian Unity for the purchase and lease-back of health care facilities. Dunstan said that he developed the concept of a property trust for Australian Unity in the health care area. As a result he investigated the feasibility of a number of hospital sale and lease‑back proposals including that with Benchmark. Dunstan said that at this time the sale and lease-back concept was not novel but underdeveloped. He said that the sale and lease-back concept in the hospital area had particular financial, commercial and operational problems that meant the lease-back component of the transaction was not straightforward. Dunstan said that over a two year period commencing 1997 he investigated the sale and lease-back concept for Australian Unity at a cost of over $500,000.

Dunstan said that he first met Shelton at a meeting arranged by stockbrokers. The broker introduced Dunstan to Shelton at a meeting on 21 August 1998 as a person who could assist Dunstan in the investigation of the sale and lease-back concept for Australian Unity. Dunstan said Shelton told him he represented Sun which was the largest shareholder in Alpha. Dunstan said that on later occasions Shelton told him he was representing Sun and not Alpha.

Dunstan gave evidence that he received a term sheet by letter dated 29 October 1998 from Bank America. He said that the term sheet was a variation of a document produced previously by him, Dunstan. He said he drafted the terms following his involvement in the transaction involving Benchmark. However, Dunstan did not identify those parts of the term sheet that he said were his work. Furthermore, he did not produce document documents constituting his work on the alleged transaction between Benchmark and Australian Unity save for an issues paper said to reflect some terms in the draft lease-back arrangement with Benchmark and notes of discussions of meetings. They were unhelpful. Indeed, I was told very little about the details of the Benchmark transaction. However, in July 1999 Australian Unity settled the sale and lease-back transaction with Benchmark for the price of approximately $70M. Dunstan said he worked on the transaction for months and that the implementation of the final settlement involved many people from various disciplines.

Dunstan gave evidence that documents were sent by Bank of America to Australian Unity in late 1998 concerning hospital performance and valuations and other related matters. He said that in the first months of 1999 there was a further exchange between Bank of America and Australian Unity concerning the possible sale and lease‑back transaction.

Dunstan said that he attended a meeting with Bradeen, Shelton, Compton and Hooper in April 2000 which was clearly the meeting held on 13 April 2000. Dunstan said the purpose of the meeting was to consider a sale and lease-back transaction between Alpha and Australian Unity. He did not describe the role of Shelton at the meeting. He made no mention of Shelton at all. Dunstan said that after the meeting of 13 April 2000 he was engaged in long and serious discussions with Compton concerning the sale and lease-back of Alpha hospitals. Compton did not corroborate this evidence. Furthermore, Dunstan said that after the meeting on 13 April 2000 he had little contact with Shelton and dealt mostly with Compton and Hooper. He did not describe what contact, if any, he had with Shelton.

Dunstan also purported to give expert evidence as to the types and range of fees paid to persons who facilitate or arrange large scale commercial transactions. Dunstan gave examples of the types of fees paid by Australian Unity in certain transactions. He said it was usual for a facilitator to enter into a written agreement of retainer. Based on his experience Dunstan said an appropriate and reasonable fee in the circumstances of this case, if earned by Shelton, ranged between $100,000 and $200,000. Dunstan indirectly criticised the evidence of Keys as lacking proper instruction and understanding of the type of service actually performed by a facilitator in circumstances such as in the present case.

Comparison of the Various Terms Documents

The drafting of the terms of the sale and lease-back transaction ultimately involving Australian Unity involved many draft documents. There was little consideration and analysis of the development of the concept and the differences in drafts.

There were approximately five stages that the terms proposed on behalf of or by Alpha passed. The first phase commenced with the indicative terms sheet prepared by Bank of America on about 25 September 1998. The second phase was the enhanced terms sheet prepared on about 29 October 1998 described as "indicative lease terms". The third phase consisted of approximately four drafts of terms prepared during the period from about February 1999 through to March and April 1999. Work continued on drafts during May to July 1999 but the next significant development was the net phase. It was the fourth phase and consisted of the letter of offer prepared for Australian Unity to Sun on about 6 August 1999. The fifth phase was the terms document presented by Andrew Shelton to Compton and Hooper of Alpha at the meeting on 12 April 2000 and again presented to the Alpha representatives and the Australian Unity representatives, Dunstan and Noonan, on 13 April 2000. The final phase was the final offer made by Australian Unity and accepted by Alpha on about 3 July 2000.

Consideration of the five draft phases reveals that there were certain core aspects of each of the drafts. These core aspects related to the reference or identification of a purchaser, the identification of the vendor, the identification of the lessee of the subject hospitals, the identification of guarantors of the lessees of the proposed hospitals, the identification of the hospitals to be the subject of the sale, the purchase price, the requirement for valuation, the manner of payment of the purchase price, the term of the leases of the subject hospitals, the lease rental to be paid for the subject hospitals, the security to be provided with respect to the leases of the hospitals and a requirement, in some instances, of confidentiality of the terms. I turn to consider the six phases of the draft terms with respect to each of these core provisions.

(1) The Identification of the Purchaser

In each of the first three phases of the drafting of the terms, that is, up until the letter of offer dated 6 aug 1999, the identity of the purchaser was consistently unnamed. In the letter of 6 August 1999 the purchase was identified as Perpetual Trustee Company Limited as trustee of Australian Unity Healthcare Property Trust. Hence, by the time of the letter of offer of 6 August 1999 Australian Unity was the proposed purchaser of some Alpha hospitals. In the terms document presented by Shelton on 12 April 2000 the purchaser was identified as Australian Unity. Similarly, in the final terms agreed to on 3 July 2000, the purchaser was identified as Australian Unity.

(2) The Identification of the Vendor

In the first three phases of the terms, that is, up until the letter of offer of 6 August 1999 the vendor was nominated as Alpha or its subsidiaries. As of the letter of offer of 6 August 1999 the vendor was nominated as Sun. In the terms document presented by Shelton on 12 April 2000 the vendor was nominated as Alpha. In the final terms dated 3 July 2000 the vendor was nominated as Alpha and its related entities.

(3) The Identification of the Lessees of the Subject Hospitals

In each of the first four phases of the terms including the letter of offer of 6 August 1999 the lessee of the subject hospitals was identified as Alpha and its subsidiaries. In the terms document presented by Shelton on 12 April 2000 the lessee was described as Alpha. In the final terms dated 3 July 2000 the lessee was nominated as Alpha and its subsidiaries.

(4) The Guarantors of the Leases

In each of the first four phases of the terms, that is, up to and including the letter of offer of 6 August 1999 the guarantors of the subject leases was identified as Alpha and Sun Inc. In the terms document presented by Shelton on 12 April 2000 the guarantor was identified as Alpha solely. Similarly, in the final terms dated 3 July 2000 the only guarantor identified was Alpha.

(5) The Hospitals to be the Subject of the Sale

In the first two phases of the terms eight hospitals were proposed for sale with some variations. In the terms sheet dated 25 September 1998 eight hospitals were nominated including one known as "St Edmunds" together with an option on a lease‑back of any new hospitals of Alpha. In the enhanced terms sheet dated 29 October 1998 eight hospitals including St Edmunds were proposed together with an option over another specific Alpha Hospital, Westmead. By the time of the third phase of the draft terms, that is, during the drafts prepared from February to April 1999, the number of hospitals were reduced to seven, they being Berkeley Vale, Charles Wentworth, Bankstown, Illawarra, Mt Wilga, Hunters Hill and Lawrence Hargrave. The same seven hospitals were listed in the letter of offer of 6 August 1999. By the time of the terms document presented by Shelton on 12 April 2000 the number of hospitals had been reduced to four, namely, Berkeley Vale, Illawarra, Mt Wilga and Hunters Hill. There was also an option with respect to the Westmead Hospital. In the final terms dated 3 July 2000 the same hospitals were nominated save that Mount Wilga was deleted; there was also an option to purchase and lease-back the Westmead Hospital.

(6) The Purchase Price

The purchase price changed dramatically from the first draft set of terms through to the final terms. In the first two phases of the terms up to and including 29 October 1998 the purchase price was proposed as $85.40 million. This amount was quantified by way of approximately $70 million for the hospitals, land and licences, approximately $15 million for plant and equipment and approximately $16.2 million for a special building right-off. As is apparent, the purchase price of $85.40 million was in relation to eight hospitals including St Edmunds. By the time of the third phase of the terms prepared during the period from February to April 1999 the purchase price was reduced to $53 million being for seven of the earlier eight proposed hospitals, that is, excluding St Edmunds. The purchase price of $53 million was proposed in the letter of offer of 6 August 1999. By the time of the terms document presented by Shelton on 12 April 2000 the purchase price was reduced to $30.78 million being for four hospitals, that is, excluding Charles Wentworth, Bankstown and Lawrence Hargrave. By the time of the final terms agreed to by Alpha and Australian Unity on 3 July 2000 the purchase price was further reduced to $30.07 million being for the same hospitals (except Mount Wilga) together with the option to purchase and lease-back the Westmead Hospital.

(7) Valuation

In each of the first three phases of the draft terms there was no specific requirement for valuation save for references to current market values. By the time of the letter of offer of 6 August 1999 there was a requirement for a valuation of 95 per cent of the proposed purchase price. The valuation requirement was maintained through the subsequent drafts including the final terms signed on 3 July 2000.

(8) Method of Payment of Purchase Price

In each of the first three phases of the terms, that is, up until the letter of offer of 6 August 1999 there was no specification of the manner of payment of the purchase price. From the time of the letter of offer of 6 August 1999 through until the finalisation of the acceptance of the terms on 3 July 2000 the manner of payment was specified as the payment of the purchase price in cash or by way of two-thirds of the amount in cash and one-third by way of units on issue in the Australian Unity Trust.

During each of the first three phases of the drafting of the terms there was no requirement with respect to sale or disposition of units in the Australian Unity Trust. However, from the time of the letter of offer of 6 August 1999 onwards there was a requirement that Alpha sell the units in the Australian Unity Trust within six months of the date of the contract.

(9) Term of Lease

In the first set of terms prepared on about 25 September 1998 there was a proposal that the term of the lease be for a period of five years with further options of five years. From the time of the second phase, that is, the terms prepared on about 29 October 1998 the term of the lease was 15 years plus multiple terms of five years up to a maximum of 15 years. The proposed term of 15 years plus multiples of five years up to 15 years was maintained through until and including the acceptance of the final terms between Alpha and Australian Unity on 3 July 2000.

(10) Lease Rental

The lease rental throughout the drafting of the terms was connected to the amount of the purchase price. In the first two phases of the drafting of the terms, that is, up to and including 29 October 1998 the lease rental was 10.2 per cent of the purchase price equating to $8.711 million per annum. During the third phase of the terms prepared in the period February to April 1999 the lease rental was increased to 10.4 per cent of the purchase price and provision was made for periodic adjustments of rental including market reviews. In the letter of offer of 6 August 1999 the proposed lease rental was 10.4 per cent of the purchase price equating to $5.512 million together with the same adjustments and market reviews. In the terms presented by Shelton at the meeting on 12 April 2000 the rental was approximately 10.8 per cent of the purchase price being the specified sum of $3.325 million together with adjustments and reviews. Ultimately, in the final terms agreed between Alpha and Australian Unity on 3 July 2000 the rental was $3.375 million for the first year of the term and stipulated increases on an annual basis thereafter.

(11) Security

During each of the phases of the terms there was a requirement for the provision of security by the lessees of the hospitals to be leased back and in some instances additional security from Alpha. In the first phase, that is, the terms sheet of 25 September 1998 it was proposed that the lessees provide a fixed and floating charge over their assets and transfer hospital and bed licences at the end of the term of the lease. In the second phase of the terms, that is, those prepared on 29 October 1998 there was a requirement for a fixed charge over the assets of the lessees, a requirement for the transfer of the hospital and bed licences, and, importantly, a proposed charge by Alpha over 100 per cent of its shareholding in the subject lessee. The same security was proposed during the third and fourth phases of the terms including the letter of offer dated 6 August 1999. Importantly, in the terms document presented by Shelton on 12 April 2000 the requirement for third party security by Alpha by way of a charge over its shareholding in each of the lessees was dispensed with and the only security required was a first ranking fixed charge over the assets of the lessees and a requirement for the transfer of hospital and bed licences at the end of the lease. The same provision was contained in the final terms dated 3 July 2000.

(12) The Requirement for Confidentiality

During each of the first three phases of the terms there was not a specific requirement of confidentiality but each of the documents were marked "confidential". From the time of the letter of offer of 6 August 1999 through to and including the terms presented on 12 April 2000 and the final terms agreed on 3 July 2000 there was a specific provision subjecting the parties of the terms to confidentiality.

(13) Comparison of the Terms Presented on 12 and 13 April 2000 with Other Versions of Terms

On consideration of the various stages of the terms documents it is apparent that the terms went through a developmental process culminating in the final version of terms on 3 July 2000. By the time of the presentation of the terms sheet by Shelton on 12 April 2000 five substantive changes were made. First, the guarantor of the leases was Alpha alone compared with both Alpha and Sun Inc. Second, the hospitals to be sold and leased back were reduced to four in number and identified as Berkeley Vale, Illawarra, Mt Wilga and Hunters Hill together with an option over Westmead. However, in the ultimate contract, Mount Wilga was left out. Thirdly, the purchase price was stipulated as $30.78 million (although a reduction was inevitable given the number of hospitals to be sold). Fourthly, the rental under the leases was specified as $3.325 million representing about 10.8 per cent of the purchase price (although, again, a reduction was inevitable given the number of hospitals but the percentage of the purchase price actually increased). Fifthly, the security for the leases was limited to a first ranking fixed charge over the assets of the lessees without any further third party security. There were also the additional changes of the identification of the purchaser as Australian Unity and the vendor as Alpha. There were further changes throughout the drafting process such as the method of rent review under the leases. These differences were acknowledged by each of Shelton, Bradeen, Compton, Hopper and Dunstan.

The differences between the terms presented on 12 April 2000 and those agreed to between Alpha and Australian Unity on 3 July 2000 warrant consideration. They are few. The purchaser, vendor and guarantor were the same. The nominated hospitals were the same (save that Mount Wilga was ultimately excluded). The purchase price was similar being $30.07 million compared with $30.78 million, a difference of $710,000. The rental was $50,000 less in the first year but represented about 11.2 per cent of the purchase price compared with 10.8 per cent, an increase of about .4 per cent. The security requirement remained the same.

The Plaintiff’s Claim

Initially, the plaintiff claimed in contract, estoppel, breach of confidence, quantum meruit and the restitutionary cause of action based on unjust enrichment. During final addresses the plaintiff abandoned all claims except those based on breach of confidence and, in the alternative, restitution based on unjust enrichment. In essence, it was the case of the plaintiff that the work performed by Shelton between 1998 to 2000 developing the concept of the sale and lease-back transaction involving Alpha with Australian Unity was information provided in confidence. The plaintiff alleged that upon Alpha entering into the agreement with Australian Unity it did so unlawfully using information that the plaintiff disclosed to Alpha in confidence. In the alternative, it was the case of the plaintiff that upon Alpha entering into the contract with Australian Unity it was unjustly enriched by the use of the fruits of the plaintiff’s work entitling the plaintiff to restitution.

Essentially the case of the defendant was that Shelton was never asked to do any work for the benefit of Alpha and that any work he had performed was for the benefit of Sun by whom he had been retained. It was also the case of the defendant that the concept of the sale and lease-back transaction involving Alpha and Australian Unity, including the contents of the terms sheet tabled at the meetings on 12 and 13 April 2000, was not protected by confidence essentially because it was not novel.

I turn to consider each of the plaintiff’s claims in turn.

The Claim for Breach of Confidence

There was general agreement between the parties as to the elements necessary at law to constitute a claim for breach of confidence. The cause of action is based upon misuse of a sufficiently developed idea that is confidential because it is relatively secret and is communicated in circumstances importing an obligation of confidence and is used without authority. A convenient starting point is the judgment at first instance of Finn J in H.K. Frost Holdings v Darvall McCutcheon (1999) FCA 570.[1] The matter was complicated for various reasons but was concerned in part with an alleged idea that the plaintiff claimed was protected by confidence and wrongly used. The alleged idea was the creation of an Australian bicentennial art collection and the production of a calendar reproducing that collection. Finn J observed (at para [65]) on the subject of an idea:

"There is no real disagreement between the parties as to what are the essential ingredients to be proved to make out the actionable breach of confidence. The information in question – the ‘idea’ here – must be confidential in the sense of being ‘relatively secret’; it must be communicated in circumstances importing an obligation of confidence, this commonly being shown by proof that it was disclosed for a particular purpose only; there must be an unauthorised use of the information or of some part thereof; and, because confidentiality is claimed for an idea, the idea itself must be ‘sufficiently developed’: see generally Interfirm Comparison (Australia) v Law Society of New South Wales; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd; Talbot v General Television Corporation Pty Ltd, above; Smith Kline & French Laboratories (Aust) v Secretary, Department of Community Services and Health."

[1]See also, Interfirm Comparison (Australia) v Law Society of New South Wales (1975) 5 ALR 527; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd (1967) VR 37; Talbot v General Television Corporation Pty Ltd (1980) VR 224; Smith Kline & French Laboratories (Aust) Limited v Secretary, Department of Community Services and Health (1990) 22 FCR 73; Fraser v Thames Television Limited (1984) 1 QB 44; Moorgate Tobacco Co Limited v Phillip Morris (No. 2) (1984) 156 CLR 414; Seager v Copydex Limited (1967) 1 WLR 923.

Finn J accepted that an actionable breach of confidence had occurred (see para [66]).

For jurisdictional reasons that are not relevant in the present case an appeal against the judgment of Finn J in Frost Holdings was determined by the Victorian Court of Appeal in Darvall McCutcheon (a firm) v H.K. Forst Holdings Pty Ltd (in liq) [2002] VSCA 85. The court considered, in part, the subject of an idea in the context of the claim for breach of confidence. Chernov JA, with whom Ormiston and Callaway JJA agreed said (at p.25-24, para 55):

"There are two, seemingly alternative, bases on which equity grants, in appropriate circumstances, remedies for breach of confidential information where the subject of the confidence is an idea (which is of a confidence and which was communicated in confidence). One is that equity acts to protect the plaintiff’s right to have the confidence respected, more particularly, to have the information kept confidential and not misused – see for example, Boardman v Phipps; Talbot v General Television Corporation Pty Ltd; Moorgate Tobacco Co Ltd v Philip Morris Ltd (No. 2); Smith Kline & French Laboratories (Aust) Limited & Ors v Secretary, Department of Community Services and Health; F. Gurry "Breach of Confidence" The other basis is that equity regards information as akin to property and grants or withholds relief accordingly – see for example, Talbot; Fraser v Thames Television Ltd.
In Deta Nominees v Viscount Plastic Products Fullagar J suggested that the two versions to which reference has been made were but subdivisions of an equitable cause of action for breach of confidence. Which of the two bases becomes the foundation for the relief claimed will depend on the circumstances of the case. His Honour said:
‘Here, in equity, there are two sub-divisions, and both are compendiously called cases of confidence or ‘breach of confidence’:
(a)Cases where equity will intervene to protect what it regards as the property of a person.
(b)Cases where the analogy of property is not available, but where the circumstances are such that the conscience of a recipient or possessor of information is so affected as to make it ‘unconscionable’ on his part to publish or use the information; here equity will intervene on a basis analogous to the truly contractual situation in which the common law intervenes’."

Chernov JA continued (at p.25, para 59):

"It is apparent that one of the difficulties that faced the respondent in this claim was that there seemed to be little by way of novelty about the art collection aspect of the idea, there being nothing unique in the concept of a corporate sponsored art collection. Moreover, the event which it was to celebrate, namely, the Australian bicentenary, was also a well known public event. It seems unlikely, for example, that an idea of sponsoring an art collection that reflected themes of the Sydney Olympic Games or the Centenary of Federation could, without more, be regarded as ‘novel’. But what was proposed by the respondent could not be equated with a mere art collection based on such themes. Counsel pointed out that the concept as developed by the respondent went well beyond a mere corporate sponsored collection of Australian art which depicted themes that were suitable for the bicentenary celebration. The idea was a composite one, as described earlier, involving the commissioning of particular categories of Australian artists to produce artwork that highlighted Australian life that would be historically connected with the bicentenary. Importantly, said Mr Porter, it was an essential part of the idea that specially designed calendars would be produced for sale to the public. Such calendars had unique features which had been developed by the respondent. Furthermore, the mere fact that some changes were made to the proposal at the behest of the Bank was not relevant because, as Mr Porter pointed out, the idea was capable of being implemented in its original form.
In my view it was open to Finn, J. to conclude that, on the evidence before him, the idea was sufficiently developed and had sufficient uniqueness about it to be capable of being protected by equity in appropriate circumstances. Finn, J. did not err in concluding, in effect, that the Full Court would probably have been satisfied that it was reasonably arguable that the respondent’s idea had sufficient uniqueness about it and was sufficiently developed and articulated to be capable of being protected by equity."

It must be observed, also, that novelty as such is not a requirement of breach of confidence but it has been said that " … there must be some product of the human brain which suffices to confer a confidential nature upon the information": see CoCo v A.N. Clark (Engineers) Limited (1969) RPC 41, 47; Cranleigh Precision Engineering Limited v Bryant (1965) 1 WLR 1293, 1309-1310; also, Dean R, The Law of Trade Secrets, p.115ff. It has been held, further, that the combination of matters old or of common knowledge can nonetheless give rise to "inventive merit": see British Celanese Limited v Courtaulds Limited (1935) 52 RPC 171, 193; also Dean, The Law of Trade Secrets, ibid.

The plaintiff relied upon the fact that the original proposal and negotiations between Sun and Australian Unity were the subject of a condition of confidentiality. I accept that was so. The plaintiff also relied upon the fact that no-one at Alpha (other than Bradeen) had any knowledge of a proposed sale and lease-back transaction of any of its hospitals involving Australian Unity before 12 April 2002 when Shelton explained the proposal. I accept that was so. It was further submitted for the plaintiff that the information conveyed by Shelton to the Alpha representatives on 12 April 2000 was conveyed in circumstances of confidentiality. I accept that was so but I do not accept that the information commanded or warranted confidentiality for the purposes of a claim of breach of confidence. The plaintiff relied upon the fact that Alpha used the work of Shelton disclosed on 12 and 13 April 2000 without the plaintiff’s authority. Similarly, I accept that was so but not that it was entitled to assert authority.

Here the information constituted by the proposal presented on 12 and 13 April 2000 by Shelton was a sufficiently developed idea that may have been relatively secret and communicated in circumstances justifying confidentiality. Nonetheless, it was not information or an idea that was sufficiently novel. It was a concept known to Australian Unity, Alpha through Bradeen, Sun Inc., Sun and Bank of America and, apparently, to outsiders such as Benchmark. Insofar as Shelton presented an advanced idea or package on 12 and 13 April it was not his idea or package. It had been developed and refined by others. Furthermore, a party cannot render information confidential merely by claiming or asserting confidentiality. The party must have authority over the information. Here the plaintiff did not enjoy such authority.

Ultimately, the claim for breach of confidence came down to whether or not the idea conveyed by Shelton, both in writing and orally, on 12 and 13 April 2000 was an idea as considered by the cases. I cannot be satisfied that an idea quintessentially developed by Shelton was used by Alpha. I accept the evidence of Dunstan that the concept of a sale and lease-back of private hospitals was not novel or exclusive. So much can be concluded from the evidence of Dunstan as to the development of the concept by Australian Unity from 1998 onwards and, in particular, by the broadly described transactions between Australian Unity and Benchmark. It follows that the plaintiff has failed to establish an important ingredient of breach of confidence, namely, the novelty or exclusivity of the idea said to provide the foundation to the claim. There was no new idea as required by the authorities.

It follows that the claim for breach of confidence fails. I turn then to the alternative claim of the plaintiff of unjust enrichment.

The Claim of Unjust Enrichment

There was no dispute between the parties as to the applicable legal principles with respect to a claim for restitution based on unjust enrichment.

In the last 15 years or so much has been written about restitution and the necessary elements.[2] There has been much academic debate concerning whether or not free acceptance may serve a dual function within a claim for restitution based on unjust enrichment. That is, both as the measure of the enrichment and as the ground of restitution.
[2]See, for example, Birks, P, An Introduction to the Law of Restitution (revised 1989), p.100ff; Birks, P, “In Defence of Free Acceptance” in Burrows, A (ed), Essays on the Law of Restitution (p.103); also, Birks, P, Restitution – the Future (1992) p.53ff.

The first proposition has long been accepted, the second continues to be the subject of critical commentary. However, in Australia it seems at this time that free acceptance is a recognised restitutionary ground.

I turn first to the scholarly writing on the concept of free acceptance and then to the relevant case law. Goff and Jones, The Law of Restitution (5^th ed) (1998) clearly espoused the concept of free acceptance:

"A defendant, who is not contractually bound, may have benefited from services rendered in circumstances in which the court holds him liable to pay for them. Such will be the case if he freely accepts the services. In our view, he will be held to have benefited from the services rendered if he, as a reasonable man, should have known that the plaintiff who rendered the services expected to be paid for them, and yet he did not take a reasonable opportunity open to him to reject the proffered services. Moreover, in such a case, he cannot deny that he has been unjustly enriched." (Footnotes omitted)

Goff and Jones cited Brenner and Anor v First Artists’ Management Pty Ltd And Anor(1993) 2 VR 221, at 257-260 in support of the proposition. I consider that case later in my reasons. The learned authors continued (at p.19):

"If a principle of free acceptance is recognised, a defendant may be compelled to pay for services which he asserts, honestly if perversely, are of no benefit to him; or he may be indifferent, not caring one way or the other, whether the services are rendered or not … But in these exceptional circumstances, the burden should be on the defendant, who is not the reasonable man, immediately to tell the plaintiff that he is perverse, indifferent or that he has more important things to do with his money. If he does not do so, he cannot deny that he has gained a benefit.
It is true that few judges have explicitly adopted a principle of free acceptance. But the principle enshrined in that concept is the most satisfactory explanation of those decisions which recognised the plaintiff’s claim that his services, which had not been requested, had benefited the defendant."

Goff and Jones further gave consideration to the bestowment of an incontrovertible benefit by a plaintiff on a defendant. They observed (at p.25):

"The burden will always on the plaintiff to show that he did not act officiously, that the particular defendant has gained a realisable financial benefit or has been saved an inevitable expense and that it will not be a hardship to the defendant, in the circumstances of the case to make restitution."

Notwithstanding the principles stated by Goff and Jones in the fifth edition of their text the debate on the topic of restitution has continued.[3] Yet, most recently Professor Bryan[4] has conveniently articulated the key elements of unjust enrichment to be those of incontrovertible benefit and free acceptance. Incontrovertible benefit has been described as:

"A recipient has been incontrovertibly benefited by the performance of a service when no reasonable person could be heard to deny that the service constitutes an enrichment."[5]

[3]Jackman, I.M., The Varieties of Restitution (1998), see especially the forward of Gummow J to this text; Finn, P, "Equitable Doctrine and Discretion in Remedies" in Cornish, W.R. and Ors (ed.), Restitution Past, Present and Future Essays in Honour of Gareth Jones (1998); Birks, P, "Equity, Conscience and Unjust Enrichment" (1999) 23 MULR 1.

[4]Bryan, M., "Equity and Restitution" in Parkinson, P. (ed.) Principles of Equity (to be published 2002).

[5]Citing Monks v Poynice Pty Ltd (1987) 11 ACLR 637, 639; Municipality of Peel v Her Majesty the Queen in the Right of Canada (1993) 98 DLR (4^th) 140, 159, McLaughlin J.

Free acceptance has been described as:

"Restitution will be awarded where ‘the recipient of the services, as a reasonable person, should have realised that a person in the position of the provider of the services would expect to be paid for them and did not take a reasonable opportunity to reject those services."[6]

[6]Citing Brenner v First Artists’ Management Pty Ltd at 260.

Finally, Bryan has observed:

"The elements of free acceptance resemble those of the concept of equitable estoppel, and a claim for payment for freely accepted services may in some cases be brought in estoppel as an alternative to unjust enrichment. The principal differences between the two are, first, that it is not necessary for the service provider to have relied upon the recipient’s conduct in order to establish a claim to free acceptance, and, secondly, that relief in estoppel is not confined to ordering the recipient to pay for the value of the services received. The court can, in an appropriate case, fashion the relief so as to give effect to the remuneration that the service provider expected to receive from the performance of the work."[7]

[7]Citing Sabemo Pty Ltd v North Sydney Municipal Council (1977) 2 NSWLR 880; Angelopoulos v Sabatino (1995) 65 SASR 1; Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582; Waltons Stores (Interstate Limited) v Maher (1998) 164 CLR 387, 406; Giumelli v Giumelli (1999) 196 CLR 101.

In Roxborough v Rothmans of Pall Mall (2001) 76 ALJR 203 Gummow J (at 218 [73]) adopted the caution expressed by McHugh J in McGinty v Western Australia (1996) 186 CLR 140, 234 as to the application of "top down reasoning". Gummow J described this approach as one "by which a theory about an area of law is invented or adopted and then applied to existing decisions to make them conform to the theory and to dictate the outcome in new cases". Mindful of that caution it seems to me that in Australia the dual components of incontrovertible benefit and free acceptance are established. So much is borne out by consideration of the authorities.

The concept of free acceptance was considered by the High Court in Pavey & Matthews v Paul (1987) 162 CLR 221. In that case a licensed builder performed building work for one Paul following conversations over a six month period to the effect that the builder would do the work required by the owner and the owner would pay the builder a reasonable remuneration for that work based on industry rates. There was no written contract. Ultimately, the builder claimed moneys on a quantum meruit. Deane J, with whom Mason and Wilson JJ agreed (227) in this respect, Brennan and Dawson JJ dissenting, held that the right to cover on a quantum meruit is not based upon an implied contract as had been the view previously held.[8] Rather, Deane J held that where work has been performed and accepted by the defendant the true basis of a quantum meruit is established (see Deane J at 225ff; and Mason and Wilson JJ at 227).
[8]Turner v Blandin (1951) 82 CLR 463, 474.

In Pavey, Deane J considered the obligation of fair and just compensation for the benefit accepted (at 256):

"The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by law of the obligation to make restitution."

His Honour continued (at 256-7):

"To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. The circumstances in which the common law imposes an enforceable obligation to pay compensation for a benefit accepted under an unenforceable agreement have been explored in the reported cases and in learned writings and are unlikely to be greatly affected by the perception that the basis of such an obligation, when the common law imposes it, is preferably seen as lying in restitution rather than in the implication of a genuine agreement where in fact the unenforceable agreement left no room for one. That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary process of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case: see Muschinski v Dodds; Goff & Jones, Op. cit., p. 11ff. In a category of case where the law recognizes an obligation to pay a reasonable remuneration or compensation for a benefit actually or constructively accepted, the general concept of restitution or unjust enrichment is, as is pointed out subsequently in this judgment, also relevant, in a more direct sense, to the identification of the proper basis upon which the quantum of remuneration or compensation should be ascertained in that particular category of case."

Deane J, relevantly for present purposes, considered the case where a person performs unsolicited but accepted work (at 263):

"The tendency in some past cases to see the rationale of the right to recover remuneration for a benefit provided and accepted under an unenforceable contract as contract or promise rather than restitution has tended to distract attention from the importance of identifying the basis upon which the quantum of the amount recoverable should be ascertained. What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or ‘enrichment’ actually or constructively accepted. Ordinarily, that will correspond to the fair value of the benefit provided (e.g. remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied). In some categories of case, however, it would be to affront rather than satisfy the requirements of good conscience and justice which inspire the concept or principle of restitution or unjust enrichment to determine what constitutes fair and just compensation for a benefit accepted by reference only to what would represent a fair remuneration for the work involved or a fair market value of materials supplied. One such category of case is that in which unsolicited but subsequently accepted work is done in improving property in circumstances where remuneration for the unsolicited work calculated at what was a reasonable rate would far exceed the enhanced value of the property."

It follows from Pavey, therefore, that an obligation to make restitution will arise where there is no applicable genuine agreement and a benefit is derived at the expense of the plaintiff and accepted by the defendant. The approach has not been without criticism.[9]
[9]See S.J. Stoljar, The Law of Quasi-Contract, 2^nd ed. 185-95, 231-44; also, A.S. Burrows, "Free Acceptance and the Law of Restitution", (1988) 104 LQR 576.

However, in Brenner and Anor v First Artists’ Management Pty Ltd and Anor (1993) 2 VR 221 Byrne J followed Pavey. In Brenner an arrangement developed over time such that the plaintiffs were retained as manager of an entertainer. With the agreement of the plaintiffs the management arrangement changed so that a group of investors established an investment company to promote and control the particular entertainer. The plaintiffs were made directors of the promotion company by the investors. Another company and the plaintiffs were the managers of the entertainer. It transpired that different management arrangements were said to exist at varying times. The plaintiffs claimed remuneration for their management services based in contract, alternatively, on a quantum meruit. Byrne J found that there were no binding enforceable contracts between the relevant parties. However, the learned judge held that the plaintiffs were entitled to restitution for their services to the entertainer.

Byrne J cited the foundation of unjust enrichment as determined by Deane J in Pavey. His Honour found (at 260) that a benefit was conferred on the entertainer by the fact that the entertainer had a manager or managers, that the plaintiffs were the manager or managers, that the entertainer was thereby relieved of the worry of finding another manager and that the plaintiffs provided support and advice that contributed to the success of the entertainer. However, unlike the present case, in Brenner there was a request for the services of the plaintiff. Here there was none.

In Angelopoulos and Anor v Sabatino and Anor (1995-6) 65 SASR 1, the Full Court of the Supreme Court of South Australia considered the subject of unjust enrichment in a building context where a quantum meruit claim was brought. Doyle CJ with whom Duggan and Nyland JJ agreed applied Pavey’s case and observed (at 9):

"It seems to me that the decision of the majority in Pavey’s case makes two important points which are relevant to the present case. First, that a claim in restitution is not founded upon an implied agreement, and while facts which might support an implied agreement may be relevant to a claim in restitution, it is not necessary to search for something akin to an agreement or request from which a promise to pay might be applied. Secondly, there is a significant emphasis in the judgments of the majority upon the notion of acceptance of a benefit from the performance by the claimant of an action which confers a benefit or enrichment upon the other person. However, to my mind it is equally clear from the majority judgments that the existing case law in this area has not been overturned. As Deane J pointed out, unjust enrichment is a ‘unifying legal concept’ which explains the result reached in a variety of situations and not in itself a cause of action or a basis for recovery.
I am conscious of the fact that in Pavey’s case the court was dealing with an express contract which could not be enforced in terms. In the present case we are dealing with an anticipated or hoped‑for contract which did not come into being. However, the decision in Pavey’s case suggests that acceptance of a benefit is relevant as a basis for recovery in restitution. However, it is clear that more is involved than the simple fact of acceptance. The consideration of the judgments in Pavey’s case, and of other case law in this area, suggests that one must also consider the basis upon which the provider of the benefit acted, the choice which the recipient of the benefit had in deciding whether or not to accept the benefit and the conduct of the defendant, by which I mean the defendant’s knowledge of what the plaintiffs were doing and the basis upon which they did it.
Finally, I should add that I recognise that caution is required in applying Pavey’s case. Too sweeping an application of the notion of acceptance as a basis for a claim in restitution might unsettle aspects of the law of contract, the law of landlord and tenant (for example, relating to fixtures and fittings) and principles underlying the law of salvage, to mention just a few examples. In making this point I am conscious of significant academic writing in this area which writing, to my mind, demonstrates quite amply the need to integrate the decision in Pavey’s case into the existing case law while at the same time giving proper force to the emphasis placed upon the notion of acceptance."

Doyle CJ considered and applied, also, Brenner’s case and agreed with the approach in that case. Furthermore, the learned the Chief Justice observed (at 11):

"In an area of law such as this, one could range far and wide through cases decided in the past and through academic analysis of those decisions in the light of current theories of the law of restitution. But it seems to me that this case can be disposed of by focusing on the notion of acceptance and applying it in the light of principles to be derived from the past case law, an application which is to be informed and enlivened by the understanding that the underlying principle is that of unjust enrichment."

Returning for the moment to the debate on the proper components of unjust enrichment, the High Court revisited the topic of Roxborough v Rothmans of Pall Mall. There Gummow J (at p.217 para [72]) observed:

" … practical experience, suggest caution in judicial acceptance of any all-embracing theory of restitutionary rights and remedies founded upon a notion of ‘unjust enrichment’. To the lawyer whose mind has been moulded by civilian influences, the theory may come first, and the source of the theory may be the writing of jurists not the decisions of judges. However, that is not the way in which a system based on case law develops; over time, general principle is derived from judicial decisions upon particular instances, not the other way round."

Gummow J continued (at p.218, para [74]):

"Unless, as this Court indicated in David Securities Pty Ltd v Commonwealth Bank of Australia, unjust enrichment is seen as a concept rather than a definitive legal principle, substance and dynamism may be restricted by dogma. In turn, the dogma will tend to generate new fictions in order to retain support for its thesis. It also may distort well settled principles in other fields, including those respecting equitable doctrines and remedies, so that they answer the newly mandated order of things. Then various theories will compete, each to deny the others. There is support in Australasian legal scholarship for considerable scepticism respecting any all-embracing theory in this field, with the treatment of the disparate as no more than species of the one newly discovered genus.
On the other hand, the action to recover the moneys sought by the appellants after the failure of the purpose of funding Rothmans to renew its licence may be illustrative of the gap-filling and auxiliary role of restitutionary remedies. These remedies do not let matters lie where they would fall if the carriage of risk between the parties were left entirely within the limits of their contract. Hence there is some force in the statement by Laycock:
‘The rules of restitution developed much like the rules of equity. Restitution arose to avoid unjust results in specific cases – as a series of innovations to fill gaps in the rest of the law’." (Footnotes omitted)

Even more recently the New South Wales Court of Appeal adopted the concept of benefit and free acceptance in Damberg v Damberg (2001) 52 NSWLR 492. In that case Heydon JA, with whom Spigelman CJ and Sheller JA agreed, specifically cited[10] the relevant extracts of Goff and Jones, Law of Restitution (5^th ed) with respect to benefit and free acceptance in the context of a quantum meruit claim.
[10]Heydon JA cited at p.529-530, Goff and Jones at 18-19 and 63.

For my part I regard it as consistent with the law as applied in Australia when contemplating an unjust enrichment claim to be satisfied as to the two components of benefit and free acceptance. The nub of the dispute for the present purposes of the unjust enrichment claim was whether services in the nature of a benefit were provided by the Shelton company to Alpha from 12 or 13 April 2000 onwards and whether those services were freely accepted by Alpha.

Was an Enrichment or Benefit Conferred?

For the plaintiff it was contended that the plaintiff enriched or conferred a benefit on Alpha in five core ways.

First, the Shelton company, through Shelton, brought Alpha and Australian Unity together and introduced Compton and Hooper on the Alpha side to Dunstan and Noonan on the Australian Unity side. Bradeen said he arranged the meeting on 12 April 2000. I accept that evidence. Compton said he believed he asked Bradeen to arrange the meeting on 13 April. Bradeen was uncertain on the matter. Shelton could not remember whether he was asked to arrange the meeting or not but said that in any event he arranged it. I accept that in all likelihood Compton asked Bradeen to organise the meeting and one way or another Shelton did the arranging probably at the behest of Bradeen. It was the meeting on 12 April that led to the meeting on 13 April 2000 and the bringing together of Alpha and Australian Unity for the first time. I am satisfied that the introduction was brought about by the efforts of Bradeen not by Shelton. However, more occurred for the purposes of the ultimate contract between Alpha and Australian Unity than a mere introduction. I will return to this aspect shortly.

Secondly, it was said the Shelton company provided Alpha with an idea, namely, the sale and lease-back proposal. For the reasons already stated I do not consider that there was any idea as such and none that belonged to or was created by Shelton.

Thirdly, it was said that the Shelton company provided Alpha with a set of terms that were well-advanced incorporating matters not known to Alpha, that is, the four specific hospitals to be the subject of the sale, the contemplated price range and the necessary security for the transaction but not including a third party guarantee. Again, for the reasons stated the terms largely adapted the various terms developed in 1998 and 1999 and were apparently similar to those for the Benchmark transaction. The final offer was that acceptable to Australian Unity in the form it required and reflecting earlier work in 1998 to 1999. The terms were not devised by Shelton. He made some contribution but not a critical contribution. Nevertheless, the production of the terms document on both 12 and 13 April 2000 contributed to the ultimate consummation of the transaction between Alpha and Australian Unity. Furthermore, the imparting of the identity of the four specific hospitals, the price range and the security arrangements gave Alpha a start. To use the expression of Compton, it was a turning point. It was able to expedite its negotiations and eventual transaction with Australian Unity. In this respect I accept that the Shelton company enriched or conferred a benefit on Alpha.

Fourthly, it was said that the Shelton company assisted Alpha by way of the expertise and experience acquired by Shelton during his work in 1998 to 2000. It was said that his involvement was significant in the preparation of the earlier terms. For the reasons stated already I do not accept that was so. Nevertheless, I am satisfied that Shelton brought to the discussions and negotiations between Alpha and Australian Unity at a critical time a particular acumen, initiative and direction from which Alpha benefited. It benefited by way of achieving the expedition of negotiations to the point of agreement in principle on about 12 May 2000. In that sense, there was a limited enrichment or benefit conferred on Alpha.

Fifthly, it was said that the acquisition of the information provided by Shelton enabled Alpha to consummate the transaction with Australian Unity. Noonan went so far as to say that without Shelton the contract between Alpha and Australian Unity would not have been achieved. Dunstan rejected this view. He said that Australian Unity was interested in Alpha in any event. Similarly, Compton said that Shelton and the Shelton company did not contribute to the completion of the transaction between Alpha and Australian Unity save in a very peripheral way. However, there was a curious manner and timing that surrounded the dealings between Shelton and Alpha, in particular, Shelton and Compton.

Compton said that when Shelton attended the meeting on 12 April 2000 and gave his presentation he believed Shelton was working for Sun. Given that Compton was told by Bradeen that Sun was no longer in the picture the curiosity of Compton as to the role of Shelton ought have been aroused. By the conclusion of the meeting on 13 April 2000 I am satisfied that Compton and any other representative of Alpha realised that Shelton was purporting to do things for Alpha to facilitate a contract with Australian Unity. I am satisfied of this even more so after the meeting on 13 April 2000. The presence and activity of Shelton was obvious from the meeting on 13 April 2000. If Alpha did not want his presence or involvement its representatives should have told him so. Instead, Alpha, in particular through Compton, was content to let Shelton do the things he did on and after 13 April 2000 for the benefit of Alpha. What then was the benefit? It was the drawing and guiding of Alpha and Australian Unity to the point that by 15 May 2000 Australian Unity through Noonan told Shelton for Alpha that Australian Unity was ready to agree in principle to the transaction. Matters advanced thereafter to the offer on 3 July, the announcement on 5 July and the eventual signing of contracts in October 2000. How had the position changed between 12 April and mid May 2000?

The position had changed in two significant ways. The key players for Alpha and Australian Unity were brought together for the first time in the context of a prepared commercial scenario. They were introduced by Bradeen but it was the familiarity of Shelton with the parties present on 13 April 2000, his level of knowledge of relevant matters and his capacity to put an advanced commercial package to the parties that was critical. In my view, Shelton constituted the adhesive whereby Alpha and Australian Unity embarked on the path to their ultimate signing of a contract on 27 and 31 October 2000. Furthermore, on and after 13 April 2000 Shelton maintained the commercial momentum the parties needed. Alpha and Australian Unit took up the commercial scenario Shelton presented and proceeded quite rapidly to the stage of approval in principle. Compton and Dunstan said that the transaction between Alpha and Australian Unity would have eventuated regardless of Shelton and the Shelton company. The fact remains that until Shelton came into the picture, Alpha and Australian Unity were not engaged in direct negotiations. It was Shelton who facilitated that development. It remains, further, that Alpha and Australian Unity were not jointly contemplating a specific and detailed proposal until Shelton presented the scenario he did on 13 April 2000 and which he progressed to the benefit of Alpha until approval in principle was reached.

It was telling that Compton purported to sever ties with Shelton immediately Shelton advised him that Australian Unity had reached the in principle stage. It was telling, also, that at an Alpha board meeting Compton acknowledged that Shelton was entitled to payment for some services provided to Alpha. I regard Compton as having been disengenuous in saying that he offered Shelton $10,000 because he had done some things and it was, in any event necessary to make an offer as a gesture of good will. I do not accept Compton’s evidence so far as his treatment of Shelton and the Shelton company was concerned. Compton for Alpha freely accepted the services of Shelton and the Shelton company from 12 April 2000 onwards and, notwithstanding the attempted severance on 15 May 2000, Alpha enjoyed the benefit of those services by virtue of the commitment of Alpha and Australian Unity on 3 July 2000 and the execution of contracts in October 2000.

It follows that Alpha received a benefit from the services of the Shelton company provided on and after 12 April 2000. The next question, is whether those services were freely accepted.

Whether there was free acceptance

It follows from my findings as to the benefit conferred that Alpha freely accepted the services of the Shelton company from 12 April 2000. As stated already, if Alpha did not want Shelton or the Shelton company to be involved in any way then its representatives should have said so on 12 April 2000 or at the latest by 13 April 2000. Alpha should have returned the documents presented by Shelton to the meeting on 12 April 2000 and walked away. It did not. On the contrary, Alpha and its representatives made requests of Shelton and the Shelton company from 12 April onwards especially on and after 13 April 2000, and those requests were met. There was no suggestion of coercion, trickery or mistake. I am satisfied that Alpha knew on 12 and 13 April 2000 that Shelton provided information specifically prepared for Alpha. In this respect, Compton admitted that the terms sheet presented by Shelton on 12 and 13 April 2000 was the subject of the discussion by the Alpha board when it approved the proposed transaction on 19 April 2000. Furthermore, Compton admitted that it was those documents that provided the foundation or basis to the agreement eventually consummated between Alpha and Australian Unity. I am satisfied that Alpha freely and knowingly accepted the benefit of the services of the Shelton company. It follows that I am satisfied that Alpha was enriched by those services and that it would be unjust to allow Alpha to have that enrichment without making restitution to the Shelton company.

The Restitution to be Made

The principles to be applied in assessing the appropriate restitution to be made in the circumstances of unjust enrichment were conveniently summarised by Byrne J in Brenner (at 262-265). First, the task of the Court is to make an assessment of fair and reasonable compensation for the benefit of the services performed by a plaintiff and accepted by a defendant. Secondly, the Court is not engaged in a task of compensating for loss thus the actual cost or loss to the plaintiff in providing the subject services is not a primary consideration. Thirdly, where the subject services were provided in an industry where it is customary to pay for services on a commission basis, the Court may consider a reasonable commission and apply it as a measure of restitution subject to any appropriate adjustment.

In light of my findings the Shelton company is entitled to restitution. For the plaintiff it was said that the value of the work it performed is spent given the completion of the transaction between Alpha and Australian Unity. Thus, it was said, the most appropriate assessment is the market value of the services calculated by reference to the prevailing market rates for corporate financial advice.

Keys, for the plaintiff, said that the reasonable market rate for the work he was told the plaintiff had performed was between 1.75 per cent and 2.5 per cent of the contract price. That price was $26.02 million. Hence, on Keys’ evidence, the lower end of the scale being 1.75 per cent of the contract price equated to $455,350. Bradeen gave evidence that in his experience he would have expected to pay a commission in the order of 1.5 per cent thereby equating to a sum of $390,300. Keys’ assessment, as he openly acknowledged, was based on the premise that Shelton and the Shelton company performed services as he had been informed. Keys said he based his opinion on the assumption that the Shelton company had performed the services described by Shelton in a letter to Compton dated 19 April 2000. Specifically those services were described, as follows:

" … (i) advising on the financial considerations and dynamics of a Sale and Leaseback, (ii) negotiating the financial aspects of a Sale and Leaseback under your guidance [ie Alpha’] and (iii) liaising with the Company’s [Alpha’s] legal, taxation and accounting advisers to assist the Company [Alpha] finalise a Sale and Leaseback".

As I have found, the services of the Shelton company did not extend that far. It did not devise the original concept. It did not prepare the original terms sheet. Nevertheless, the Shelton company facilitated the transaction as I have described. Keys said that in his experience an adviser of the type of the Shelton company can be paid a facilitation fee and a success fee. He said that even where there is only one obvious purchaser (such as Australian Unity in the present case) there was a large difference between identification of a purchaser and the completion of an agreement. For the reasons I have stated already, Shelton played an important role in bringing the parties together in the context of a particular commercial scenario.

Dunstan gave evidence of his experience of work performed by and payments made to facilitators in substantial commercial dealings. Dunstan described fees paid in the order of about one per cent or less of the value of the subject transaction. The evidence of Dunstan was very general. He said that in his opinion a reasonable fee to have been paid to the plaintiff to perform the role of introduction and facilitation in the circumstances was between $100,000 and $200,000. No methodology was given for settling upon these amounts or as to how an assessment should be made as to which of the two amounts was applicable.

The evidence on both sides as to the assessment of restitution was not entirely satisfactory. On the one hand, I accept that Keys provided a genuine and appropriate assessment but that the assessment was based upon services not provided by the Shelton company to the extent about which Keys was informed. On the other hand, Dunstan gave an assessment based upon a lesser role than that actually performed by the Shelton company and, even then, based upon a vague and uncertain quantification. The services actually provided by the Shelton company lead, therefore, to a conclusion that it should receive an amount less than that assessed by Keys but more than that assessed by Dunstan.

Weighing all these matters up as best I am able in the circumstances I consider the Shelton company should receive restitution from Alpha in an amount equivalent to one per cent of the contract price of $26.02 million. It follows that I find that Alpha should pay to the Shelton company the sum of $260,200.00.

I will make orders accordingly.

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[2002] VSC 248

27 June 2002