Australian Super Developments Pty Ltd v Marriner

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2005 2071

AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761)
Plaintiff
v
DAVID WELLESLEY MARRINER (AND OTHERS ACCORDING TO THE SCHEDULE ATTACHED)
Defendants

(BY ORIGINAL PROCEEDING)

DAVID WELLESLEY MARRINER
(AND OTHERS ACCORDING TO THE SCHEDULE ATTACHED)
Plaintiffs by Counterclaim
v
AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761)
(AND OTHERS ACCORDING TO THE SCHEDULE ATTACHED)
Defendants by Counterclaim

(BY COUNTERCLAIM)

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JUDGE:	SLOSS J
WHERE HELD:	Melbourne
DATES OF HEARING:	19, 20, 21, 29, 30 August, 2 September 2013
DATE OF JUDGMENT:	19 September 2014
CASE MAY BE CITED AS:	Australian Super Developments Pty Ltd v David Wellesley Marriner & Ors
MEDIUM NEUTRAL CITATION:	[2014] VSC 464

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TRUSTS AND TRUSTEES – joint venture – sale of joint venture project to one joint venturer - monies provided by joint venture vehicle were lodged as security with electricity supply company – before sale was completed bond monies were released to solicitor – Court of Appeal found that solicitor held bond monies on a ‘solicitor’s trust’ and that bond monies were disbursed by solicitor in breach of trust – Court of Appeal remitted issue of whether first defendant and or companies associated with him were liable for knowingly inducing or immediately procuring breach (or breaches) of trust – level of knowledge required for liability under principle in Eaves v Hickson

DEFENCES AND COUNTERCLAIMS – remitted by the Court of Appeal – common sub-stratum of facts for allegations of unconscionable conduct, misleading and deceptive conduct and estoppel – accounting entries were made to reflect the fact that bond monies lodged as security had been repaid – plaintiffs by counterclaim were unaware that bond monies debt was no longer in existence when sale and assignment took place – whether conduct of defendants by counterclaim was unconscionable – whether first plaintiff by counterclaim was under a ‘special disadvantage’ – whether defendants by counterclaim made representations about the assignment of bond monies debt – pleaded representations not made out – related counterclaim for estoppel also fails.

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APPEARANCES:

Counsel

Solicitors

For the Plaintiff and the Defendants by counterclaim

Mr N J O’Bryan AM SC
with

Mr A T Broadfoot

Holding Redlich

For the Defendant and the Plaintiffs by counterclaim

Mr P J Bick QC with

Mr R A Heath

Meerkin & Apel

Table of Contents

Paragraph
Introduction	[1]
Issues remitted by the Court of Appeal	[20]
Summary of conclusions	[23]
Factual narrative	[27]
Issues relating ASD’s claims	[230]
Are any of the findings of fact made by the original trial judge relevant, binding or to be regarded by the Court as having any significance at all for the determination of the remitted issues? (Issue (v))	[239]
When Wallace & Wallace received the third tranche bond monies, for whom did they hold them on trust? (Issue (i))	[251]
Whether Mr Marriner is liable for knowingly inducing or immediately procuring all or only some of the breaches of trust by Wallace & Wallace? (Issue (viii))	[261]
Are ‘knowingly induced’ and ‘immediately procured’ alternative bases for liability under the principle in Eaves v Hickson? (Issue (iii))	[284]
What knowledge and level of knowledge (if any) is required for inducing and/or procuring an innocent breach of trust? (Issue (ii))	[302]
What effect, if any, does the Briginshaw standard have on the standard of proof required to make good ASD’s allegation that Mr Marriner knowingly induced or immediately procured the breach(es) of trust by Wallace & Wallace? (Issue (vi))	[306]
Whether Mr Marriner had knowledge of circumstances that would have indicated the relevant facts to an honest and reasonable person? (Issue (iv))	[311]
When drawing inferences can the Court follow a path of reasoning that applies the concepts referred to in R v Lane? (Issue (vii))	[376]
Whether the various Marriner companies on whose letterhead the instructions to Wallace & Wallace were sent are also liable on the basis that Mr Marriner’s knowledge is to be attributed to them? (Issue (ix))	[380]
To the extent that some of the third tranche funds were applied to pay invoices addressed to ASD, or were spent on Laguna Quays, is ASD’s loss to be commensurately reduced? (Issue (x))	[381]
What is the proper construction of clause 10(d) of the 30 June 2000 Heads of Agreement? (Issue (xi))	[390]
Marriner parties’ defences and counterclaims	[391]
Did ASD engage in unconscionable conduct at common law or under s 51AA of the Trade Practices Act 1974 (Cth) or s 7 of the Fair Trading Act 1999 (Vic) (issue (xiv)) and was Mr Marriner relevantly under any ‘special disadvantage’ for the purposes of his claims of unconscionable conduct? (Issue (xv))	[399]
Whether the representations pleaded in pargraph 114 of the counterclaim were made and, if so whether they constituted misleading or deceptive conduct? (Issue (xii))	[498]
Whether Mr Marriner relied on any representations made that are permitted to be relied upon and if so what facts constituted any relevant act of reliance? (Issue (xiii))	[520]
Whether ASD is estopped by representation from pursuing the bond monies claim? (Issue (xvi))	[523]
Did the Deed of Assignment of Debt operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD’s primary claim, thereby disentitling ASD from making the bond monies claim? (Issue xvii)	[529]
Whether the terms of the sale agreements made on 13 November 2001 (and in particular, cls 2.3(b), 2.5(a) and 5.1 of the Deed of Assignment of Debt, and cls 7.8(a), 7.8(b) and 11.1 of the Share Sale Agreement preclude Mr Marriner and his associated companies from bringing the claims he now seeks to make? (Issue xviii)	[530]
Whether there is any basis for ASD’s directors and Mr Patience to be held liable to Mr Marriner and, if so, what are the facts relevant to each individual and what amount is each individual liable for and in respect of what causes of action? (Issue xix)	[531]
Ruling on documents sought to be tendered at the remitter hearing that were not included in the Court Book	[532]
Conclusion	[543]
Annexure 1: The corporate structure diagrams	N/A

HER HONOUR:

Introduction

The claims and counterclaims in this proceeding have their genesis in activities undertaken in the course of a joint venture conducted by interests associated with the first defendant, Mr David Wellesley Marriner, on the one hand and the Construction and Building Unions Superannuation Fund (‘CBUS’) on the other.

Between 1993, when the joint venture commenced, and 3 November 2000, when it was effectively dissolved, CBUS, Mr Marriner and companies associated with him, engaged in a number of property development projects as joint venturers. The plaintiff, Australian Super Developments Pty Ltd (‘ASD’) was the corporate vehicle through which the joint venture was conducted. At all relevant times, United Super Pty Ltd (‘United Super’), in its capacity as the trustee of CBUS, and Goldworthy Pty Ltd (‘Goldworthy’), a Marriner company, held equal interests in ASD.

During the period of the joint venture, Mr Marriner was the CEO and a director of ASD. The joint venture was conducted on the basis that Mr Marriner would contribute his expertise in property development and CBUS would provide funding in relation to the business ventures conducted by ASD.

Towards the end of 1999 or early 2000, CBUS grew increasingly disenchanted with aspects of Mr Marriner’s involvement in the joint venture projects and it sought to bring the joint venture to an end. In mid-2000, the parties agreed to sever their relationship. This was formalised and accomplished in a series of agreements made over a period of about 18 months, the first of which was a heads of agreement dated 1 November 2000. On 3 November 2000 their joint venture arrangement was effectively at an end, whereupon Mr Marriner and each of his appointees to the board of ASD, namely Mr Garry Weaven and Mr Ian Court, ceased to be directors of ASD.

One of the joint venture projects undertaken and ultimately operated by ASD was the development of a resort known as Laguna Quays in North Queensland. Laguna Quays had been operating at a loss for some years with no signs of improving in the short-term. In March 2000, Mr Marriner expressed interest in acquiring the resort. He submitted to the Board a proposal whereby interests associated with him would purchase the Laguna Quays project for $26.5 million, subject to certain terms. This proposal culminated in a heads of agreement being entered into on 30 June 2000 between ASD, Matelda Oaks Pty Ltd and SDA-Laguna Investments Pty Ltd (‘Matelda Oaks’ and ‘Laguna Investments’ respectively, both of which were wholly owned subsidiaries of ASD) and Laguna Australia Pty Ltd (‘Laguna Australia’, a Marriner company), whereby ASD agreed to sell the Laguna Quays project to Laguna Australia (’30 June 2000 Heads of Agreement’). Mr Marriner was not personally a party to the 30 June 2000 Heads of Agreement but he continued to play a key role in the Laguna Quays project.

Under cl 9 of the 30 June 2000 Heads of Agreement, ASD agreed to:

forthwith and at its own cost and expense complete or procure the completion of the capital works described in the budget set out in Annexure 4 provided always that the liability of [ASD] to complete such works shall not exceed A$4.7 million.

The 30 June 2000 Heads of Agreement was superseded by a further agreement made on 19 October 2001, recorded in a letter of that date and executed for and on behalf of ASD and Laguna Australia. The terms of the sale were finalised and documented on 13 November 2001 when formal sale agreements were entered into.[1] The completion date of the sale was extended and settlement of the sale and purchase of Laguna Quays and the associated transactions did not occur until 17 April 2002.[2]
[1]Marriner v Australian Super Developments Pty Ltd [2012] VSCA 171 (3 August 2012) (‘Court of Appeal’s Reasons’), 5 [10] – agreed fact.
[2]Australian Super Developments Pty Ltd v Marriner [2010] VSC 41 (26 February 2010) (‘Trial Judge’s Reasons’) 22 [60].

In 2005, some years after Mr Marriner and ASD had parted ways, ASD commenced this proceeding and raised numerous claims against Mr Marriner and some of his associated companies (the second to sixth defendants). Mr Marriner and his associated companies counterclaimed against ASD, United Super, and Mr Patience, who was the new CEO of ASD, and Messrs Willis, Wason and Frost, who were members of the ASD board at the relevant time for, among other things, misleading and deceptive conduct.

In essence, the proceedings brought by ASD at the original trial involved two main claims, each of which involved payments that were said by ASD to have benefited Mr Marriner and/or his associated companies by increasing the value of Laguna Quays, which he had agreed to buy: (1) claims arising from dealings with electricity bond monies and (2) a capital expenditure claim.[3]
[3]There were originally three claims, but one of these was resolved: see ibid 2 [4].

The bond monies claim

The bond monies claim related to a bank bond of $1.61 million that was required by the Mackay Electricity Board (later known as Ergon Energy), the provider of electricity to Laguna Quays, to ensure that the consumption of electricity at the resort would be maintained at levels sufficient to justify its initial investment. The arrangement in place with the Mackay Electricity Board was that the bond monies would be released over time, in three tranches, as and when the security was appropriately reduced. In 1999, the first tranche sum of $330,200 was released from the set-off account that had been established with the Bank of Queensland and paid to ASD. The second tranche, in the sum of $426,600, became available in the set-off account when the security was further reduced in late 2000. The third and final tranche sum of $853,200 became available in the set-off account when the security was further reduced in February 2001 and the bond was cancelled.

ASD claimed that because the $1.61 million paid into the set-off account in the name of LQ Management Pty Ltd (‘Laguna Management’) was provided by ASD for the specific purpose of securing the electricity bond, it gave rise to a Quistclose trust.[4] ASD alleged that Mr Marriner had induced or procured payments from the second and third tranches of the bond monies in breach of a Quistclose trust; and in the case of the third tranche bond monies, also in breach of a solicitor’s trust because the third tranche bond monies were held on a solicitor’s trust by ASD’s solicitors, Wallace & Wallace.
[4]Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.

The capital expenditure claim

Under the capital expenditure claim, ASD contended that, notwithstanding the mandate and limit imposed by the ASD board under cl 9 of the 30 June 2000 Heads of Agreement, Mr Marriner caused to be paid by ASD between December 1999 and 31 October 2000 sums totalling $5,524,890 for the ongoing works so that the limit of $4.7 million was exceeded by $824,890, without the approval of the ASD board.

The original trial

A trial was conducted before Justice Byrne (‘the original trial judge’) in August and September 2009. Reasons for judgment were delivered on 26 February 2010. Further reasons for the dismissal of the extensive counterclaim brought by the Marriner parties were delivered on 16 April 2010.[5] In general terms, the outcome of the trial was that ASD failed on the bond monies claim and succeeded in part on its capital expenditure claim. Relevantly, his Honour found that Mr Marriner caused ASD and Matelda Oaks to expend a total of $5,112,113 on capital works, which was $412,113 in excess of the $4.7 million limit, and his Honour proposed that there be judgment against Mr Marriner in that sum.[6]
[5]See Australian Super Developments Pty Ltd v Marriner (No 2) [2010] VSC 66 (16 April 2010) (‘Trial Judge’s Reasons (No 2)’).
[6]Trial Judge’s Reasons [2010] VSC 41 (26 February 2010), 56 [171].

The appeal and cross-appeal

Mr Marriner appealed against the orders of the original trial judge requiring him to pay $412,113 to ASD and dismissing his counterclaim for damages against ASD, United Super and the second to sixth respondents. ASD brought a cross-appeal, seeking an order that Mr Marriner pay the sum of $929,800 on the basis that his Honour should have awarded the entire amount claimed.[7]
[7]The amount claimed on the cross-appeal was $929,800, made up of the second tranche sum of $426,600 plus the third tranche sum of $853,200, which was said to be the amount to which the cross-appellants were entitled, minus the sum of $350,000 received from Wallace & Wallace by way of settlement, plus statutory interest.

On 3 August 2012, the Court of Appeal (Neave and Mandie JJA and Judd AJA) handed down its judgment allowing an appeal,[8] and setting aside orders made by the original trial judge which had required Mr Marriner to pay $412,113 to ASD. The Court allowed ASD’s cross-appeal in part and remitted several issues to be determined by a judge of the trial division.
[8]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012).

The issue on the cross-appeal where, as the Court of Appeal observed, ASD achieved ‘a measure of success’ concerned its claim that the third tranche bond monies were held on a solicitor’s trust by Wallace & Wallace.[9] The Court of Appeal found that the original trial judge had erred in holding that Wallace & Wallace were not liable for payments made in breach of the solicitor’s trust. The original trial judge, having found that there was no breach of the solicitor’s trust by Wallace & Wallace, did not proceed to deal with the issue of whether one or more of Mr Marriner and his associated companies were liable for the breach or breaches of trust which occurred as a consequence of the directions that were given by Mr Peter Jephson to Wallace & Wallace to disburse the third tranche bond monies to third party creditors, or for a payment of $80,000 which Mr Marriner is said to have directed Wallace & Wallace to pay to WS Group. The Court of Appeal held that the solicitors, as trustee, were ‘strictly liable for any breach of trust, even if the breach is entirely innocent’ and in those circumstances, the Court determined that the appropriate course was to remit this part of the case for determination by a judge in the trial division, the original trial judge having since retired.[10]
[9]Court of Appeal’s Reasons [2012] VSCA 290 (5 December 2012) (‘Court of Appeal’s Reasons (No 2)’), 2 [5].
[10]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 47 [147].

Mr Marriner also raised a number of affirmative defences to ASD’s claims in respect of both the bond monies and the excess capital expenditure, and brought associated counterclaims based on the same or similar facts, relying upon what the Court of Appeal described as a ‘complex web of facts and inferences’.[11] These affirmative defences and counterclaims were rejected at trial, but the Court of Appeal found that unfortunately, the original trial judge did not provide adequate reasons for rejecting them. Accordingly, the Court also remitted those issues for determination by a judge in the trial division.
[11]Ibid 102 [292].

The alleged liability of the Marriner companies, Goldworthy, Laguna Australia and Stage Design Pty Ltd (‘Stage Design’) for breaches of trust committed by Wallace & Wallace (including the applicability of any defences and related counterclaims) were also remitted for determination by a judge of the trial division.

On the question of costs, after hearing and receiving submissions, the Court of Appeal determined that the appropriate order would be to require the respondents to pay 80% of the appellants’ costs of and incidental to the appeal on a party and party basis, and to remit the question of the order which should be made in respect of the costs of the trial for determination by a judge in the trial division.[12]
[12]Court of Appeal’s Reasons (No 2) [2012] VSCA 290 (5 December 2012).

Issues remitted by the Court of Appeal

Against that background, on 3 August 2012 the Court of Appeal made orders as follows:

1.The appeal be allowed in the manner that follows.
2.The Orders made by the Honourable Justice Byrne on 16 April 2010 be set aside.
3.The cross-appeal be allowed in part.
4.The following issues be remitted to be determined by a judge of the Trial Division and, subject to any contrary order of that trial judge, on the basis of the evidence already adduced in the trial:
·     the liability of David Wellesley Marriner for the breaches of trust committed by Wallace & Wallace, including the applicability of any defences and related counterclaims;
·     the liability of Goldworthy Pty Ltd, Laguna Australia Pty Ltd, and Stage Design Pty Ltd for the breaches of trust committed by Wallace & Wallace, including the applicability of any defences and related counterclaims; and
·     liability for the costs of the hearing before the Honourable Justice Byrne.[13]

[13]Order made by the Court of Appeal, 3 August 2012.

Thus the Court of Appeal has remitted two principal questions for determination:

(1)Questions arising on the ASD claim in chief – namely, whether Mr Marriner and his associated companies are liable for the breaches of the ‘solicitor’s trust’ which the Court of Appeal found, arising from facts and circumstances that took place in 2000 and 2001 in respect of the third tranche of the electricity bond monies and alleged to involve a species of liability under the Eaves v Hickson[14] principle and (second limb) Barnes v Addy.[15]
(2)Questions arising on the Marriner parties’ counterclaim – in essence whether the Marriner parties were misled and deceived or Mr Marriner was otherwise the object of unconscionable behaviour on the part of the ASD/United Super group of defendants by counterclaim, in respect of the negotiations that occurred during the winding up of the joint venture and the sale of Laguna Quays to the Marriner parties in 2000 and 2001.

[14](1861) 30 Beav 136; 54 ER 840.

[15](1874) LR 9 Ch App 244.

I sought assistance from counsel for the respective parties in identifying the issues that were required to be determined on the remitter of the two principal questions.[16] As they were unable to reach consensus, I have prepared the following list of 19 issues by consolidating and synthesising the respective lists proffered by each of them.
[16]Thus far, no submissions have been made concerning the question of the costs of the original trial.

Issues relating to ASD's claims

(i) When Wallace & Wallace received the third tranche bond monies, for whom did they hold them on trust? (For ASD in their entirety or, as the Marriner parties contend, in part for ASD and in part for Laguna Airport?).

(ii) What level of knowledge is necessary for accessorial liability for inducing or procuring an innocent breach of trust?

(iii) Whether ‘knowingly induced’ and ‘immediately procured’ are alternative bases for accessorial liability, the former requiring knowledge and the latter not, or at least not requiring the same level or degree of knowledge?

(iv) Assuming that the test for ‘knowledge’ is the same as that for knowingly assisting a dishonest breach of trust (ie, the second limb of Barnes v Addy), whether Mr Marriner had knowledge of circumstances that would have indicated the relevant facts to an honest and reasonable person?

(v) Where the matter has been remitted so as to give each party an opportunity to fully ventilate the relevant issues before a judge in the trial division, are any of the findings of fact made by the original trial judge relevant, binding or to be regarded by the Court as having any significance at all for the determination of the remitted issues?

(vi) What effect, if any, does the Briginshaw standard have on the standard of proof required to make good ASD’s allegation that Mr Marriner knowingly induced or immediately procured the breach(es) of trust by Wallace & Wallace?

(vii) When drawing inferences, can the Court follow a path of reasoning that applies the concepts referred to in R v Lane[17] if the Court concludes a lie was told and that the motive for the lie was a realisation of guilt and fear of the truth, or whether such a path of reasoning depends on inapplicable criminal law principles?
[17][2011] NSWCCA 157 (14 July 2011), 25 [56] (Simpson J).

(viii) Whether Mr Marriner is liable for knowingly inducing or immediately procuring all of the breaches of trust by Wallace & Wallace? Alternatively, whether Mr Marriner is liable for knowingly inducing or immediately procuring only some of the breaches of trust?

(ix) Whether the various Marriner companies on whose letterheads the instructions to Wallace & Wallace were sent are also liable on the basis that Mr Marriner's knowledge is to be attributed to them, thereby fixing them with responsibility for procuring or inducing the breach of trust or alternatively, as knowing recipients of the third tranche funds?

(x) If ASD suffered loss, then to the extent that some of the third tranche funds were applied to pay invoices addressed to ASD, or were spent on Laguna Quays, is ASD’s loss to be commensurately reduced?

(xi) What is the proper construction of clause 10(d) of the 30 June 2000 Heads of Agreement?

Issues relating to the affirmative defences and counterclaims alleged by the Marriner parties

(xii) Whether the representations pleaded in paragraph 114 of the counterclaim were made and, if so, whether they constituted misleading or deceptive conduct?

(xiii) Whether the Marriner parties relied on any representations made that are permitted to be relied upon and if so what facts constituted any relevant act of reliance?

(xiv) Did ASD engage in unconscionable conduct at common law or under section 51AA of the Trade Practices Act 1974 (Cth) or section 7 of the Fair Trading Act 1999 (Vic)?

(xv) Whether Mr Marriner was relevantly under any ‘special disadvantage’ for the purposes of his claims of unconscionable conduct?

(xvi) Whether ASD is estopped by representation from pursuing the bond monies claim?

(xvii) Did the Deed of Assignment of Debt operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD’s primary claim, thereby disentitling ASD from making the bond monies claim?

(xviii) Whether the terms of the sale agreements made on 13 November 2001 (and in particular, clauses 2.3(b), 2.5(a), (b) and 5.1 of the Deed of Assignment of Debt, and clauses 7.8(a), (b) and 11.1 of the Share Sale Agreement) preclude Mr Marriner and his associated companies from bringing the claims they now seek to make?

(xix) Whether there is any basis for ASD's directors and Mr Ian Patience to be held liable to Mr Marriner and his associated companies and, if so, what are the facts relevant to each individual and what amount is each individual liable for and in respect of what causes of action?

Summary of conclusions

For the reasons which follow, I have found that ASD has made out its claim that Mr Marriner knowingly induced or procured the innocent breach of trust by Wallace & Wallace in paying the sum of $80,000 to WS Group on or about 22 May 2001. As that payment was directed by Mr Marriner personally, and did not purport to be undertaken on behalf of any associated company, there is no basis for fixing any of them with responsibility for procuring or inducing that breach of trust. Nor was any associated company a knowing recipient of those funds. Furthermore, as there was no clear evidence as to what the $80,000 paid to WS Group related to, save for general assertions that the money was spent on Laguna Quays and was legitimately incurred, I have rejected the Marriner parties’ defence that because the monies were spent on the resort ASD was benefited, and I am not satisfied that there is any proper basis for commensurately reducing the loss suffered by ASD.

I am not satisfied that ASD has made out its case in respect of the balance of the third tranche bond monies that Mr Jephson directed Wallace & Wallace to pay, including the sum of $86,500 that he directed be paid to the trust account of Larkins McCarthy, solicitors, in Colac.

I have also dismissed all of the affirmative defences and counterclaims brought by the Marriner parties. For the reasons set out below, I am not satisfied that Mr Marriner relevantly suffered from a special disadvantage in his dealings with ASD and was the subject of unconscionable conduct. Nor am I satisfied that ASD made the representations contended for by the Marriner parties and thereby engaged in misleading and deceptive conduct or that ASD was estopped by representation from acting as it did. It follows that the agreements made between the parties are effective according to their terms, with the result that ASD is not disentitled from making the bond monies claim and the Marriner parties are precluded from bringing the claims they now seek to make.

To date no submissions have been made concerning the third issue remitted by the Court of Appeal, namely liability for the costs of the hearing before the original trial judge. Logically, those costs will fall to be dealt with at the same time as submissions are made about the costs of the hearing of the remitted issues.

Factual narrative

Introduction

In order to decide the raft of issues raised on the remitter, it is necessary to set out the underlying factual framework in greater detail. In that regard, I note that while the orders made by the Court of Appeal left open the prospect that further evidence could be adduced, neither ASD nor the Marriner parties sought to do so and the hearing on the remittal proceeded on the basis of evidence that was adduced at the original trial. A Court Book was prepared containing the evidence (in chronological order) sought to be relied upon at the hearing of the remitted issues. There are two document tenders that at the conclusion of the hearing were left to be dealt with in my reasons. I set out my ruling on them at the end of these reasons.[18]
[18]See paragraphs [532]-[538] below.

In advance of the hearing of the remitted issues, extensive written submissions were filed by each of the parties and reply submissions were filed on behalf of ASD and the defendants on the counterclaim. At the hearing, Senior Counsel for the respective parties opened and presented their cases by simply referring to documents located in one or other of the many volumes of the Court Book, including witness statements that had been tendered at the trial and excerpts from the transcripts of the evidence given by those witnesses at the trial.[19] In some instances, additional notes or aide-memoires were also provided to the Court by way of elaboration of oral submissions. Reference was also made to findings made by the Court of Appeal and the parties handed-up an agreed summary of facts established by the decision of the Court of Appeal.
[19]The Court Book for the remitted hearing included:
(a) the witness statements of Mr Willis, Mr Wason, Mr Patience and Mr Frost that were filed on behalf of ASD; and
(b) the witness statements of Mr Whalley, Mr Jephson, Mr Blashki and Mr Marriner that were filed on behalf of the Marriner parties and the witness statement of Mr Penridge. (ASD called Mr Penridge to give evidence at the original trial but his witness statement (filed on behalf of the seventh to fourteenth defendants, the Wallace & Wallace parties) was tendered by the Marriner parties.)

Accordingly, as will be apparent, at the remitter hearing I did not have the benefit of seeing, or hearing evidence from, any of the witnesses who gave evidence before the original trial judge. The factual background set out below is taken from the myriad of documents, including the witness statements and transcripts of evidence given at the trial, summary of agreed facts and other materials to which reference was made in the submissions delivered at the resumed hearing.

The parties, associated persons and entities

The following description of the parties and associated persons and entities is taken from that set out in the original trial judge’s reasons (as adopted by the Court of Appeal and also by the parties on the remitter hearing).

The ASD parties and associated persons and entities

CBUS is a superannuation trust and at all relevant times it was subject to prudential regulation by the Australian Prudential Regulatory Authority. CBUS held the shares and units in ASD and the ASD trust from 1993 until 2000.

As noted above, at all relevant times, United Super, the firstnamed defendant by counterclaim, in its capacity as the trustee of CBUS, held CBUS’ interest in ASD. United Super’s directors included the third defendant by counterclaim, Ralph Willis (after 13 April 2000) and the fourth defendant by counterclaim, George Wason (after 5 September 1994).

United Super Investments Pty Ltd (‘USI’) was a wholly owned subsidiary of United Super which held the shares and units in ASD and the ASD Unit Trust after 2000 when the shares and, perhaps, the units, passed to it from United Super.

ASD, the plaintiff and firstnamed defendant by counterclaim, was at all material times the trustee of the ASD Unit Trust established in 1993 (under the name Staged Developments Australia Unit Trust). ASD was the proprietor of part of the land upon which Laguna Quays was conducted. Its shareholders and unit holders at all relevant times up to 2000 were Goldworthy and CBUS, each holding six shares and sixty units. Thereafter all the shares were held by USI. During the period 1999 to 2000, the board of directors of ASD comprised appointees of each of the two venturers:

· the Marriner appointees were Garry Arthur Weaven, Ian Robert Court and Mr Marriner himself until they resigned on 3 November 2000; and.

· the CBUS appointees were Barrie Frost, Mr Wason, Thomas John Supple Kane (to 28 January 2000) and Mr Willis (from 27 November 2000).

Mr Marriner was also the CEO of ASD until 3 November 2000 when he resigned and the office was taken over by Mr Patience.

Mr Graham Spence was the Laguna Quays project manager, whose responsibility was the maintenance of the project. He departed from Laguna Quays in August 2001.

Matelda Oaks, a wholly owned subsidiary of ASD, was the proprietor of part of the land upon which Laguna Quays was situated. It was the trustee of the Victorian Property Trust.

Laguna Investments, a wholly owned subsidiary of ASD, is a company whose responsibility was the Laguna Quays project.

Laguna Management, a wholly owned subsidiary of Laguna Investments, conducted the day-to-day operations of Laguna Quays as agent for Laguna Investments.

Mr Patience, the sixthnamed defendant by counterclaim was appointed as the chief executive officer of ASD on 17 November 2000, following Mr Marriner’s resignation.

The Marriner parties and associated persons and entities

The first defendant, Mr Marriner, was the CEO and a director of ASD from 1993 to 3 November 2000. He had for very many years engaged in property development.

Goldworthy, the secondnamed defendant (and secondnamed plaintiff by counterclaim), is a company controlled by Mr Marriner, of which he was its director. Goldworthy held shares and units in ASD and the ASD Unit Trust respectively for the Marriner interests.

Fulham Holdings, the sixthnamed defendant, is a Marriner company which took an assignment of the debt owed by Laguna Investments to ASD under the 13 November 2001 agreements.

Laguna Australia, the thirdnamed defendant, is a Marriner company wholly owned by Fulham Holdings. It was incorporated in April 2000 and ultimately became the purchaser of the real estate comprising the Laguna Quays project and the shares in Laguna Investments.

Laguna Australia Airport Pty Ltd (‘Laguna Airport’), the fourthnamed defendant, is another Marriner company which was incorporated in October 2000 as the corporate vehicle to own the airport which Mr Marriner wished to construct to service Laguna Quays and the surrounding area.

Stage Design, the fifthnamed defendant, was a wholly owned subsidiary of ASD until, under cl 10 of the November 2000 Heads of Agreement, its shares were to pass to Goldworthy.

Cumberland Management Pty Ltd (‘Cumberland Management’), a company wholly owned by ASD, was used by ASD for another joint venture project, the development of the Cumberland Lodge in Lorne, Victoria.

Mr Marriner was assisted in the day-to-day management of the Laguna Quays project by Mr Jephson, Mr Spence and Mr John Robert Whalley.

Mr Jephson and Mr Whalley were co-secretaries of ASD. Mr Jephson had worked in the Marriner organisation since about 1994. He joined the joint venture team of ASD in 1996 and served as company secretary of ASD, Laguna Investments, Laguna Management and Cumberland Management until he relinquished these positions on 19 January 2001. He was also company secretary of Laguna Australia from 5 February 2001 to 19 October 2001 and of Laguna Airport from 4 October 2000 to 19 October 2001. He was an employee of Stage Design, a Marriner company, from 22 January 2001 or thereabouts until on or about 19 November 2001.

Mr Whalley is a certified practising accountant. He had previously been employed as a manager in a Marriner company but was, at all relevant times, carrying on a private accountancy practice. Mr Marriner was one of his clients. Between 18 April and 16 July 2002, Mr Whalley was a director of Laguna Investments and Laguna Management. Mr Whalley also performed the role of company secretary for a number of entities:

· ASD (with Mr Jephson as co-secretary) between 17 September 1996 and 27 February 2001;

· Laguna Investments between 18 April 2002 and 6 November 2006;

· Laguna Management from 18 April 2002 to 6 November 2006;

· Laguna Australia from 9 April 2001 to 2 September 2008;

· Laguna Airport between 19 October 2001 and 2 September 2008;

· Stage Design from 17 September 1996 to 2 September 2008, and

· Cumberland Management and Fulham Holdings.

The Wallace & Wallace parties

Wallace & Wallace is a firm of solicitors in Mackay, North Queensland, which represented ASD in relation to Laguna Quays. Relevantly, Mr Paul Penridge, the fourteenth defendant, was a principal of Wallace & Wallace.[20]

Corporate structure – the relationship between the various joint venture parties

[20]Mr Penridge was the fourteenth defendant to the original proceeding, but having settled with the plaintiff he was not a party to the remitted proceedings.

On the first day of the hearing of the remitted issues, Senior Counsel for ASD handed-up three corporate structure diagrams: the first showing the relationship between the parties as they existed prior to the separation of the joint venture participants (ie, between February 1993 and November 2000); the second, as they existed post separation (ie, after November 2000), and the third, as they existed after the sale of Laguna Quays resort on 17 April 2002. For convenience, a copy of each of the diagrams appears in Annexure 1 to these reasons.

Relevance of the first and second tranche payments to the third tranche bond monies claims

The primary part of ASD’s claim that remains in dispute is whether Mr Marriner diverted funds held on trust for ASD for his own benefit, or for the benefit of the associated companies controlled by him, by inducing or procuring an innocent breach of trust by a trustee, namely Wallace & Wallace. While the remaining dispute concerns only the third tranche electricity bond monies, ASD nevertheless contends that the first and second tranches are relevant because:

(a) the facts surrounding the release of the first tranche funds demonstrate that Mr Marriner knew that the third tranche funds belonged to ASD; and

(b) the Court of Appeal made a number of statements of principle when considering the second tranche funds which are relevant to the legal arguments arising in relation to the third tranche.

ASD alleges that Mr Marriner ‘immediately procured’ (in the case of the disbursement of $80,000 that Mr Marriner personally directed) or ‘knowingly induced’ (in respect of the balance) breach(es) of trust by directing, either personally or through his agents, that the trust funds held by Wallace & Wallace be used to pay the debts of Mr Marriner and his associated companies. That is, ASD contends that Mr Marriner is liable not only for the breach of trust constituted by his direction to pay the $80,000 but also for the breaches of trust directed by Mr Jephson, because (so it contends) Mr Jephson acted with Mr Marriner’s authority. ASD also submitted that associated companies controlled by Mr Marriner, namely Goldworthy, Laguna Australia and Stage Design, should be held liable to the extent of their involvement as Mr Marriner’s knowledge is to be attributed to them.[21]
[21]Laguna Airport is also mentioned in ASD’s pleading but it is not included in the remitter orders made by the Court of Appeal.

The original acquisition and development of Laguna Quays

Laguna Quays was located on the north Queensland coast about 25 km south of Proserpine Airport and near the township of Midge Point. The resort was constructed by persons unrelated to the joint venturers in the late 1980s/early 1990s at a cost of about $77 million.

Laguna Quays:

covered over 4,000 acres and included a 60 room five star lodge, 18 hole championship golf course, marina precinct with a leasehold harbour with 110 serviced berths, a water sports lagoon, swimming pool and tennis courts, convention centre, 12 condominiums, 300 serviced lots and substantial areas of undeveloped land.[22]

[22]See Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 62-63 [186] - agreed fact.

Since its opening in December 1992, the resort operation generated substantial trading losses.

In 1997, Village Roadshow Ltd (‘Village Roadshow‘) and ASD entered into a joint venture, as equal participants, to buy Laguna Quays. In March 1999, ASD acquired Village Roadshow’s interest for about $13 million.

ASD’s wholly owned subsidiary, Laguna Investments, was responsible for the Laguna Quays project. Laguna Management, which ultimately became a wholly owned subsidiary of Laguna Investments, conducted the day-to-day operations of the resort as its agent.

ASD group’s internal control procedures

Early in the life of the joint venture, the secretary of ASD conducted a review of the group’s internal control procedures and presented recommendations to the board of directors of ASD. At its meeting on 26 March 1998, the board of directors of ASD resolved to adopt certain recommendations ‘to improve current procedures and to keep directors informed of significant issues’. These included the following:

1.All purchases with an aggregate value in excess of $50,000, other than those covered by operational budgets, should be approved in advance by the Board.
2.…
3.All payments made by entities within the Group to be reviewed by a director or company secretary. In remote subsidiaries, this could [well be] done by the provision of reports together with a physical review of payment documentation on an unscheduled basis.
4.…
5.Details of all significant transactions to be reported to the Board, showing the party concerned, value, purpose, and allocation for each transaction. In this regard transactions will be considered significant if the value exceeds $50,000 or the transaction affects a unitholder or related party outside the [ASD] group.

The background to the electricity bond monies

The background to the establishment of the electricity bond and the bond monies claim is conveniently explained in the Court of Appeal’s reasons for judgment.[23] The bond monies claim related to a bank bond that the Mackay Electricity Board, the provider of electricity to Laguna Quays, required be established. The following facts relating to the bond monies claim (as stated in the decision of the Court of Appeal) are agreed between the parties.
[23]Ibid 6-9 [15]-[28].

[15]In 1997, ASD entered into a joint venture with Village Roadshow Ltd (‘Village Roadshow’) to acquire the Resort. Initially, ASD and Village Roadshow were equal participants in the joint venture, but ASD later became involved in negotiations to buy Village Roadshow out. The proposed sale was referred to the Board for approval on 11 March 1999.
[16]Village Roadshow had previously provided a bank bond of $1.61 million to secure payment of a sum which would become due to the Mackay Electricity Board (‘MEB’) if the Resort failed to consume a certain amount of electricity (‘the Bond’). At the Board meeting on 11 March 1999, Marriner informed Board members that $1.6 million would be required to cover the Bond and a further $400,000 was required to meet balance day adjustments (a total of $2 million).
[17]The Board agreed to seek $2 million from CBUS.[24] On the same day, the CBUS investment committee resolved as follows:
[24]Trial Judge’s Reasons [2010] VSC 41 (26 February 2010), 23 [63].
to approve a further $2 million for Laguna Quays from the ‘special project’ funding allocation of $30 million, to cover $400,000 in settlement adjustments on purchase of the property and $1.6 million to underwrite a performance bond favoring [sic] the MacKay Electricity Board.

[18]Initially it was agreed that ASD would give its solicitors Freehill Hollingdale & Page (‘Freehills’) a bank cheque for $1.6 million which was to be held by them until 12 May 1999. It would then be paid to Village Roadshow if Village Roadshow had not received return of the Bond, or to ASD if the Bond had been returned.[25]
[25]Ibid 22-23 [62].
[19]On 12 March 1999, $2 million was transferred from CBUS into the ASD bank account with the National Australia Bank (‘NAB’). These funds were held in ASD’s bank account until 15 March 1999, when $1.61 million was paid by cheque to Freehills. The trust account receipt issued by Freehills recorded this as a ‘Deposit to secure Bank G’tee To Mackay Electricity Authority’. On the same day, ASD recorded the payment to Freehills in its general ledger as a loan from ASD to Laguna Investments.
[20]There was then a two month delay. On 19 May 1999, Freehills wrote to DDH Graham, a merchant banker, advising that it would transfer $1.61 million into DDH Graham’s account so that it could arrange the issue of a new bond in favour of MEB in the name of Laguna Management. On the same day, Freehills wrote to MEB confirming that this would occur.
[21]On 21 May 1999, the Bond was issued by the Bank for Laguna Management in favour of MEB. The Bank provided a guarantee facility to Laguna Management in the sum of $1.61 million for 10 years. As security for this facility, a letter of set-off was provided by Laguna Management in respect of a new account opened in its name on 20 May 1999. (It will be recalled that Laguna Management had no income, assets or liabilities, but acted as agent for Laguna Investments.)[26]
[22]An amount of $1,615,903.77 was then deposited by DDH Graham into the new Laguna Management set-off account. This was recorded in ASD and Laguna Investment accounts as a loan from ASD to Laguna Investments to fund its operations under the joint venture. There was no evidence as to how it was treated in the books of CBUS.[27] His Honour described Laguna Management’s treatment of the bond moneys as follows.
It will be recalled that Laguna Management had a nil balance sheet and recorded no transactions in its profit and loss account. The balance in the Laguna Management account was not shown as an asset in the Laguna Management balance sheet on 30 June 1999. The balance sheet of Laguna Investments on that date shows as a non-current liability, unsecured loans of $7,930,261. This is in fact the balance on that date of the Laguna Investments loan account shown in the general ledger of ASD. It appears from the ledger that this balance includes the sum of $1.61m deposited with Freehills on 22 March.[28]

[23]Before the Bond was put in place, Marriner had negotiated an agreement with MEB to reduce progressively the amount required as security, if the consumption of electricity by the Resort was sufficient. It was agreed that the reduction would be made in three tranches.

[26]Ibid 24-25 [70].

[27]Ibid.

[28]Ibid 24 [69].

Release of the first tranche of bond monies

At the meeting of the ASD board held on 22 June 1999, Mr Marriner reported on Laguna Quays and presented plans for stage one of the development of the resort. His proposals included the ‘replacement of the existing airstrip with a new strip on the western side of the resort with a 1500 metre capacity.’ After discussion of the proposals at length, the ASD board approved certain works including ‘[a]cquisition of land on the western side of the resort for development of a suitable unsealed airstrip for the needs of the resort’. The minutes also record that the ASD board ‘noted that the Mackay Electricity Board had agreed to release $400,000 from the total deposit of $1.61 million’ and that ‘[t]hese funds would be applied in part to the cost of sealing a section of the Midge Point Road adjacent to the resort.’

Ultimately, on 2 December 1999, a first tranche of the electricity bond monies, in the sum of $330,170, was released on the instruction of Mr Jephson, who was then joint company secretary of ASD with Mr Whalley.[29] Mr Whalley stated that in the books of ASD, the release of the first tranche funds was treated as a partial repayment of an intercompany loan owed by Laguna Investments to ASD. The General Ledger for ASD, for Loan A/C 1-7080 ‘Loan [ASD]/Laguna’, for the year ended 30 June 1999 records that the closing balance of $7,930,261.42 included $1.61 million by way of the ‘Bank G’tee to MacKay Electricity Authority’. A further entry was made dated 2 December 1999, recording the crediting of the sum of $330,170 by way of ‘Laguna Quays – Refund of Portion of Bank G’tee to McKay E’, leaving a balance of $1,279,830. An extract from the Cash Receipts Journal for ASD records the relevant entries made to loan account 1-7080 (credit of $330,170) and ASD’s bank account upon the receipt of the refunded sum (debit of $330,170).
[29]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 8 [26] – agreed fact.

Earthworks undertaken by JJ McDonald

On 3 November 1999, a contract was entered into between Laguna Management and JJ McDonald & Sons Pty Ltd (‘JJ McDonald’) for the performance of earthworks at Laguna Quays resort, including the construction of an airstrip, airport, roads and the upgrade of existing roads and landscaping. The contract of works with JJ McDonald was signed by Mr Spence, an ASD employee, on behalf of Laguna Management.[30] The Court of Appeal noted:

The contract of works provided for a commencement date on 4 January 2000 and a completion date of 31 May 2000. It was not a lump-sum contract. There was a schedule of rates for particular equipment and an estimate of the cost of particular works. The scope of works included the construction of an airport and roads, the upgrade of existing roads and landscaping. The total estimated value of the works described in Schedule 1 of the contract was a little over $4.4 million. [31]

[30]Ibid 32 [90] – agreed fact.

[31]Ibid 62 [192] – agreed fact.

1999 Business Plan for ASD (including Laguna Quays)

One of the tasks performed by Mr Whalley, in consultation with Mr Marriner, was the development of a business plan for ASD and its presentation to the board of directors. At its meeting on 7 December 1999, the board of ASD resolved ‘[t]o adopt the business plan of [ASD] subject to inclusion of the Campbell Street, Hobart project.’[32]
[32]Ibid 62 [185] – agreed fact.

The 1999 business plan covered a number of projects in which ASD was involved or its involvement was proposed, including the Laguna Quays development. As the Court of Appeal noted:

The business plan included projected cash flows and budgeted profit and loss statements. Some of that information related to the Resort. When dealing with the major projects in the current year, the plan stated in relation to the Resort:
During the current year the Company [ASD] will undertake the first stage of rectification and development works including the following.
Repair to lodge roof to eliminate leaks
Repairs to below ground membrane to waterproof the lodge building
Waterproofing of Golf buggy store
Repairs to Concrete Bridge at Lagoon
Expansion of water storage capacity
Sealing of Midge Road
Develop health spa in the lodge building
Develop new airstrip on adjoining site
The total estimated cost of the above works is 4.7 million[33]

[33]Ibid 63 [188] (emphasis in original).

The Board subsequently resolved, on 21 March 2000, that ‘work on the airstrip be suspended pending further consideration by the Board based on more substantial evidence supporting the feasibility of the proposed investment.’[34]
[34]Ibid 74 [234] – agreed fact.

The 1999 business plan also recorded, in respect of Laguna Quays, and under the heading ‘strategy’, that ‘[t]he decision has now been taken to realise this asset in the short term.’ This strategic decision was made at a time when the resort was generating trading losses of at least $2.5 million in each financial year.

Mr Marriner’s offer to purchase the resort

In late March 2000, Mr Marriner, through his associated company Fulham Holdings, presented a proposal to representatives of ASD’s board to acquire the interest of ASD in the assets and undertaking of the resort for $26.5 million. As the original trial judge observed, ‘Mr Marriner did not share the pessimism of the board about the long-term prospects of the Laguna Quays project.’[35] A meeting was arranged on 16 May 2000, at the request of CBUS, to discuss Fulham Holdings’ proposal and the terms under which a sale might be concluded. The board of ASD received a report of the meeting at its board meeting later that day. The minutes of the board meeting note that Mr Marriner declared his interest in Fulham Holdings and Mr Weaven (who was a Marriner appointee) also declared his directorship in that company.
[35]Trial Judge’s Reasons [2010] VSC 41 (26 February 2010), 18 [45].

At its meeting on 16 May 2000, the ASD board authorised Mr Marriner ‘to proceed with detailed negotiation and documentation of the sale on the following terms’:

1.   The sale will be made to Fulham Holdings Ltd or nominee for the purchasers and will comprise all of the interests of [ASD] in the assets and undertaking of Laguna Quays, including
·   The lodge, golf course, condominiums, racquet club, plant and equipment, and other developed assets owned by [Victorian Property Trust];
·   Development land owned by [ASD];
·   Leasehold assets including the marina owned by [Laguna Investments];
·   The business of Laguna Quays Resort operated by [Laguna Management]

2.   Sale price of $26.5M;
3.   Initial deposit of $250k payable on signing;
4.   Balance of deposit payable on 1 July 2000, making total deposit equal to 20% of the sale price;
5.   Non recourse facility equal to 80% of the sale price secured by a first mortgage over Laguna assets to be provided by [ASD] to the purchaser for a term not exceeding 4 years
6.   Until all debt to CBUS has been extinguished [ASD] will hold security over the Lodge building, golf course, conference centre, airport, condominiums, together with all infrastructure necessary to their normal operation
7.   Payment of the balance of the purchase price on 30 June 2004, being 4 years after the date of sale. However, the purchaser will have the right to repay the balance in whole or in part at any earlier date with release of security to an equivalent value based on June 1999 valuation, subject to clause 5 above
8.   Interest on the balance to accrue from the date at a rate of 8%pa, payable half yearly in arrears. However, payment of interest accruing for the first 12 months will be made concurrently with the repayment of principal due on 30 June 2004
9.   Completion by [ASD] of works as set out in the current business plan of [ASD] not exceeding the budgeted cost of $4.7M including sealed airstrip to the west of the resort
10. CBUS and [ASD] approval will be required for any significant capital works affecting secured assets
11. Effective date of sale - 1 July 2000 (subject to documentation), after which the purchaser assumes responsibility for the trading losses (or profits) of the resort
(emphasis added)

As framed, the resolution of the ASD board authorised Mr Marriner on behalf of ASD to negotiate the sale of the resort with his associated company Fulham Holdings. The original trial judge described the act of the ASD board in entrusting to Mr Marriner ‘the role of conducting these negotiations with himself on behalf of the purchaser, Fulham Holdings’ as representing a ‘striking example of the readiness of the ASD Board to leave matters in the hands of Mr Marriner, even at a time when … CBUS was becoming disenchanted with his conduct of ASD projects’.[36]
[36]Ibid 18 [46].

Entry into the 30 June 2000 Heads of Agreement

These negotiations culminated in the parties entering into the 30 June 2000 Heads of Agreement. Under the 30 June 2000 Heads of Agreement, interests associated with Mr Marriner agreed to purchase from ASD, Laguna Investments and Matelda Oaks the assets of the resort for $26.5 million payable by four instalments: $250,000 on the signing, $2.4 million on 31 October 2000, $2.65 million on 28 February 2001 and the balance on 1 March 2001 by vendor finance repayable on 30 June 2004 and secured by mortgage over the real estate. That is, the parties agreed that all but $5 million of the purchase price would be funded by vendor finance.

The 30 June 2000 Heads of Agreement recited that Fulham Holdings ‘is presently in the process of being restructured upon the completion of which the shares in Fulham shall be owned by or controlled by interests associated with D W Marriner.’ Clause 9 of the agreement provided that ASD would, at its own expense, complete or procure the completion of certain capital works (described in Annexure 4 to the agreement) with a cost cap of $4.7 million. The development of a ‘new airstrip on adjoining site’ was listed as a component of the ‘Capital Works’ described in Annexure 4 and was expressly authorised as part of the 30 June 2000 Heads of Agreement. This is so, notwithstanding that, as noted above, the ASD board had passed a resolution on 21 March 2000 suspending work on the airstrip.

The Court of Appeal considered cl 9 of the 30 June 2000 Heads of Agreement, and in its reasons concluded that it ‘did no more than impose a limit on the extent to which ASD was liable to contribute, by way of advances made to to Laguna Investments, for the works described in Annexure 4’ and the 30 June 2000 Heads of Agreement ‘was not intended to, and did not, limit the works that [Mr] Marriner was authorised to undertake at the Resort.’[37]
[37]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 88 [275(1)] - agreed fact.

By cl 14 of the 30 June 2000 Heads of Agreement, Laguna Australia, a Marriner company, agreed to carry out at its own cost and expense not less than $3 million of capital expenditure on the project within 12 months of payment of the second instalment.

Clause 10 of the 30 June 2000 Heads of Agreement dealt with ‘Transfer of risk’ and provided that, subject to making payment of the first and second instalments of the price, Laguna Australia would be entitled to possession of the land and the business sold from 31 October 2000. In the meantime, the parties agreed by cl 12(a) that Laguna Australia would ‘proceed to further develop, subdivide and improve the assets hereby sold’ and that the ‘vendors’, a reference to ASD, Matelda Oaks and Laguna Investments, would do everything reasonably required to facilitate its proposals to do this.

Clause 10(d) of the 30 June 2000 Heads of Agreement provided that the proceeds of any bonds or sureties held by any authority should be applied toward the costs and expenses of converting to freehold such leasehold land as was part of Laguna Quays. At this time it was believed that there were a number of bonds and securities in place, apart from that in favour of the Mackay Electricity Board, discussed above. These other bonds, apparently thought to exceed $2 million, had been lodged by earlier owners of the Laguna Quays project with the Department of Natural Resources to secure performance of development obligations under the leases pursuant to which the Laguna Quays land was held.

Laguna Australia paid the first instalment of $250,000 that was due upon signing.

The sale of the airstrip and variation of the 30 June 2000 Heads of Agreement

At its meeting on 12 September 2000, the ASD board received a report about a meeting held between representatives of CBUS and Goldworthy on 28 August 2000 concerning the current joint venture arrangements and changes proposed by both parties. The Secretary, Mr Whalley, reported on Laguna Quays informing the board that ‘current work on the new airstrip was being undertaken by, and at the expense of, Laguna Australia (and not by [ASD]) in observance of the previously approved capital expenditure at the resort which was limited to $4.7 M in total.’

The minutes of the meeting held on 12 September 2000 also record that Mr Marriner emphasised the importance of continuing with construction of the airstrip. He believed it was vital to achieving a successful outcome to his negotiations with government and other relevant authorities. Further, he believed that ‘[i]n order that external funding be provided for completion of the airstrip it was essential…that the property be carved out from existing arrangements by sale of the property from [ASD] to Laguna Australia P/L (or its nominee).’

The ASD board accordingly resolved that the airstrip sited at 30 Kunapipi Road be sold to Laguna Australia or its nominee on the following terms:

1.The sale price to be the book value of the property as per valuation at 30 June 2000. In this regard the Board was informed that the value of the property at 30^th June was approx $750,000;
2.Settlement in full no later than 31 December 2000 with transfer of title upon settlement;
3.The purchaser commit not less than $3M in capital works on the airstrip in satisfaction of its obligations under the Heads of Agreement to spend this amount on improvements of the resort;
4. The purchaser to provide a right of access to the resort and its patrons on terms no less favourable than those applicable to neighbouring airports - Hamilton, Proserpine, and Mackay, until [sic] [ASD] (or its subsidiaries) remains the beneficial owner of the core assets of the resort.

The board further resolved to amend the 30 June 2000 Heads of Agreement ‘to reflect the sale of the airstrip property, including its removal from the properties identified in clause 8(d).’

The second instalment of the purchase price for Laguna Quays was due for payment by the Marriner interests on 31 October 2000. At the request of Mr Marriner, made in advance of the date for payment, the 30 June 2000 Heads of Agreement were varied ‘by changing, with effect from today, the date 31 October 2000 in clauses 1(b)(ii), 2 (b)(ii), 3, 5, 7 and 10(a) ... to 28 February 2001.’

At about this time Mr Marriner also incorporated Laguna Airport. It was envisaged that Laguna Airport would own the airport he wished to construct.

Outstanding payments due to JJ McDonald and the release of the second tranche of electricity bond monies

As noted earlier, late in 1999, JJ McDonald had entered into a contract with Laguna Management for the performance of earthworks at Laguna Quays resort.[38] By mid-October 2000, progress claims of $4,352,046.30 were outstanding and Dr Christopher Greig, the managing director of JJ McDonald, expressed concern and pressed for payment. Mr Marriner was aware that progress payments for the resort access road and airstrip works had not been made and that substantial amounts were owed to JJ McDonald.
[38]See paragraph [63] above.

Dr Greig met with Mr Marriner and raised directly with him JJ McDonald’s concerns regarding payment of outstanding invoices. Dr Greig presented a letter addressed to Laguna Management and ASD, setting out the amounts owed in respect of the construction of the airstrip and access road at Midge Point, and requested that both Laguna Management and ASD execute the letter to ‘provide us with some comfort in respect to performing further works under the said contract.’

The letter of comfort sought to require both Laguna Management and ASD to agree to certain arrangements for the payment of the debt currently owed in respect of works carried out pursuant to the contract and for further payments to cover works yet to be invoiced, namely:

· For works undertaken on and after 17 October 2000:
[Laguna] Management shall pay the sum of $90,000 per week in advance to cover direct costs incurred, as a prepayment for contract works undertaken after 16 October 2000 for a maximum period of 8 weeks.
The first advance payment will be made by EFT to J J McDonald and Sons Engineering Pty Ltd on 17 October 2000. The differential between the contract price schedule and the prepayment of direct costs shall be settled by 31 January 2001.
· For works completed up to and including 16 October 2000, [Laguna] Management and [ASD] agree to the following payment schedule:
....

The letter agreement was signed on 16 October 2000 by Dr Greig on behalf of JJ McDonald and by Mr Marriner for and on behalf of both Laguna Management and ASD. Before Mr Marriner committed to the arrangements set out in the letter of 16 October 2000, however, he apparently called Mr Jephson, on speakerphone, in the presence of Dr Greig to enquire whether there were available funds. The Court of Appeal noted in its reasons that the original trial judge accepted evidence given by Dr Greig about this conversation which he heard on speakerphone between Mr Marriner asked Mr Jephson.[39] The transcript of the evidence given by Dr Greig is not included in the Court Book for the remitter,[40] but the parties agree that during that telephone conversation Mr Marriner asked Mr Jephson if money was available to meet the debt to JJ McDonald.[41]
[39]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 31-32 [89].
[40]The content of the phone conversation is referred to in Trial Judge’s Reasons [2010] VSC 41 (26 February 2010), 34 [98]. The content of the conversation and the effect of the agreement was said by the parties in their agreed summary of facts prepared for the Court of Appeal to be contentious between them.
[41]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 39 [117] – agreed fact.

Prior to the entry into the letter agreement, ASD had no liability for the works being undertaken by JJ McDonald, the original contract having been made with Laguna Management (probably acting as Laguna Investments’ agent), not with ASD.[42] Mr Marriner did not report to the ASD board that he had signed the letter agreement. Mr Marriner ceased to be both CEO and a director of ASD on 3 November 2000. Mr Patience became CEO shortly after. Mr Patience’s evidence was that he, and thus ASD, did not become aware of JJ McDonald’s claim for payment until about April 2001. Mr Patience said the directors of ASD had no knowledge of JJ McDonald’s work, and he could not find any record of the contract having been approved.
[42]Ibid 32 [90] – agreed fact.

On 17 October 2001, the day after Mr Marriner’s meeting with Dr Greig, Mr Jephson, as Company Secretary of ASD, sent a fax to the Cumberland Lorne Resort marked ’Attention: Luis Diamonon/Paul Staley’ requesting that they ’please make the following funds transfer today’ of $90,000 to JJ McDonald. The Cumberland Lorne Resort was another asset of the joint venture at that time but it otherwise had no relationship with Laguna Quays resort.

On 24 October 2000, Mr Jephson, in his capacity as the Company Secretary of Laguna Management, sent a letter by fax to Mr Simon Richards of the Bank of Queensland in relation to the Ergon Energy (formerly the Mackay Electricity Board) guarantee, requesting that he arrange to issue a new guarantee for $853,200, in place of the current one for $1,279,800 and liaise with Ergon Energy as necessary. Further, Mr Jephson said ‘[o]nce completed, the funds released from our deposit ($426,600) should immediately be transferred to the account of [ASD]…’. This sum of $426,600 is referred to elsewhere in these reasons as ‘the second tranche’ electricity bond monies.

A new guarantee for $853,200 was issued by the Bank of Queensland on 22 November 2000, at the request of Laguna Management, in favour of Ergon Energy.

Later that day, by a further letter dated 24 October 2000, Mr Jephson, in his capacity as the Company Secretary of Laguna Management, informed Mr Richards of the Bank of Queensland that ’we wish to vary our instruction regarding disbursement of funds‘. He requested that payment be made of $270,000 to the bank account of Cumberland Management Ltd, the subsidiary of ASD which made the earlier payments to JJ McDonald, and $156,600 to the bank account of JJ McDonald for works performed at the resort. On 30 November 2000, the payments were made in accordance with Mr Jephson’s instructions.

These matters were considered at the first trial and by the Court of Appeal. ASD claimed, and both Mr Marriner and Mr Jephson denied, that Mr Marriner directed Mr Jephson to instruct the Bank to make the above payments out of the second tranche. Mr Jephson’s evidence was that he did not discuss any of these payments with Mr Marriner or inform him of them and he had no reason to believe that Mr Marriner was ever aware of them at the time.

The original trial judge held that, contrary to ASD’s submissions, the bond monies were not held on a Quistclose trust for ASD and therefore Mr Marriner could not be held liable for knowingly inducing a breach of trust by Mr Jephson. His Honour also held that in any event, and notwithstanding reservations he had expressed in his reasons, he concluded that Mr Marriner did not direct Mr Jephson to apply the second tranche funds as he did and that Mr Jephson applied the funds to such of the creditors with whom he was dealing as he saw fit.

The Court of Appeal upheld the original trial judge’s finding that there had been no Quistclose trust. The Court of Appeal also held that the inference that Mr Jephson was acting under Mr Marriner’s instructions in making the payments to JJ McDonald and Cumberland out of the second tranche was ‘open on the evidence’, but not ‘compelling’.[43] The Court of Appeal referred to, among other things, Mr Marriner’s awareness of the amount owing to JJ McDonald, communications with Dr Grieg and the signing of the 16 October 2000 Agreement and Mr Marriner’s attitude that when he needed money for the project ‘he was content to take it from any company which had it available, leaving the detail to be picked up by the accounting staff in the inter-company loan accounts’[44] and had not discouraged Mr Jephson from taking this approach.
[43]Ibid 40 [121].
[44]Ibid 39 [117] citing Trial Judge’s Reasons [201] VSC 41 (26 February 2014) 33-34 [98].

In its decision on the ‘capital expenditure claim’, the Court of Appeal concluded that:

When paid to Cumberland Management and JJ McDonald, the second tranche bond moneys belonged to Laguna Investments, not ASD. That being so, there was no occasion to treat those amounts as ASD’s money and include them in any calculation of the amount, if any, spent by Marriner in breach of his duty owed to ASD.[45]

(The Court also found on the ‘capital expenditure claim’ that there was ‘no basis’ for the original trial judge to deduct an amount of $410,777 for repairs and maintenance from the total cost of the Annexure 4 works, in the absence of evidence establishing that such works fell outside the Annexure 4 works.)[46]

[45]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012) 88 [275(3)] – agreed fact.

[46]Ibid 89 [275(7)].

‘Divorce’ and termination of the joint venture in November 2000

On 1 November 2000, the parties to the joint venture entered into a heads of agreement whereby they effectively resolved to ‘divorce’ and terminate ASD as a joint venture company (‘November 2000 Heads of Agreement’).

Mr Marriner resigned as CEO and director of ASD on 3 November 2000 and he signed a Unit Redemption and a Share Acquisition Deed that same day. Under the deed, the shares in ASD held by Goldworthy were agreed to be sold to United Super, subject to certain conditions.[47] Consequent upon the execution of that deed, Mr Marriner’s associates, Mr Weaven and Mr Court, also resigned as directors of ASD effective on 3 November 2000. Under cross-examination, Mr Marriner conceded that he had no authority to act on behalf of ASD after 3 November 2000. However, through Goldworthy and Fulham Holdings, the purchaser of Laguna Quays resort under the 30 June 2000 Heads of Agreement, Mr Marriner continued to play an active role in the development of the resort, presumably with a view to maintaining or enhancing its value. Clause 12 of the 30 June 2000 Heads of Agreement enabled this.[48]
[47]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 56 [174] – agreed fact.
[48]Trial Judge’s Resaons [2010] VSC 41, 45 [137].

Following the entry into the November 2000 Heads of Agreement, Mr Marriner also ceased to be a director of Laguna Investments and Laguna Management on 3 November 2000.

In November 2000, ASD undertook a complete restructure of its management. On 17 November 2000, Mr Patience was appointed as the interim CEO of ASD.

Mr Jephson’s resignation from his roles with ASD on 19 January 2001

Mr Jephson resigned as secretary of Laguna Management on 19 January 2001.[49] He also ceased to be employed by ASD on that day, although he continued working for the Marriner Group until November 2001.
[49]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012) 9 [32] – agreed fact.

JJ McDonald’s continued insistence on payment

The next payment to JJ McDonald, due in December 2000, was not paid. Dr Greig wrote to Laguna Management by letter dated 5 February 2001 in relation to the contract for the construction of the airstrip and access road at Midge Point. The letter referred to the earlier letter of acknowledgment of debt and to recent discussions between Dr Greig and Mr Marriner. While some payments had been made, JJ McDonald was concerned about the non-payment of both the December 2000 Debt by the due date and the January Debt which was due for payment by the end of January 2001. The letter records that Mr Marriner had requested JJ McDonald to forbear from taking recovery action until the end of February 2001. Dr Greig stated that JJ McDonald was ‘prepared to consider that request, but only on the basis that this letter is executed in formal acknowledgement’ of certain matters listed, including:

Interest will accrue at the rate of 10% per annum (compounding monthly) …
…
As from the 28^th of February 2001, we will be entitled to make demand for and to issue legal proceedings, in respect to payment of the December Debt and the January Debt.

Mr Marriner signed the letter ‘for and on behalf of [Laguna] Management’ on 7 February 2001. However, by that point, Mr Marriner was no longer a director of Laguna Management and he had no authority to execute the letter on its behalf.

The February 2001 report on Laguna Quays

In February 2001, Mr Whalley prepared a ‘Confidential Report’ on Laguna Quays to the CEO and Directors of ASD and CBUS. In particular, the report informed the board that two of the three pre-conditions for the sale of Laguna Quays assets had been satisfied. The third, concerning the construction of the airstrip, was well advanced with an agreement in principle having been reached with the Whitsunday Shire Council for the sale of the Proserpine Airport to Laguna Australia. In the report under the heading ‘Funding required for airstrip works’, Mr Whalley noted that:

Funding of $5.0M is urgently required to meet commitments in relation to work carried out to date by contractors on the airstrip, and for work in progress. Such funding is sought for a period of 24 months and will be repaid from the proceeds of subdivision and sale of hangar allotments and other airport facilities.
It is proposed that Laguna Airport Australia P/L [sic] will provide a first mortgage over the airstrip site owned by the company by way of security for the loan.
Funds required to complete the initial airstrip will be sourced from a combination of airport land sales and equity investment.

Expenditure was undertaken in excess of the $4.7 million agreed to by the board of ASD

It is an agreed fact that, as the Court of Appeal noted:

The Marriner defendants accept that, by 1 February 2001, costs in the sum of $5,098,290 had been incurred and, further, that payments to JJ McDonald in the sum of $426,600 had been spent. They say, however, that, of these payments, $4.7m was in respect of capital works and that the balance was in respect of maintenance and repair costs.[50]

[50]Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 58 [179(iii)].

On 1 February 2001, Mr Spence, the senior project manager for Laguna Quays, provided Mr Patience with a breakdown of all expenditure on the Laguna Quays upgrade. In his report, Mr Spence identified numerous other contractors in addition to JJ McDonald who were undertaking works for the project, as well as works which may not have been included within the works specified in Annexure 4 to the 30 June 2000 Heads of Agreement.[51]
[51]Ibid 87 [273] – agreed fact.

In the Spence report, the breakdown of the expenditure for the airstrip included consultants’ fees to Queensland Airport Consultants – totalling $24,139.50, the subject of invoices nos 36, 39 and 49. In fact, however, these three invoices were not actually paid until later in February 2001 when the third tranche bond monies were released to Wallace & Wallace. (These invoices were listed in the ‘spreadsheet of payments required’ that Mr Jephson faxed to Mr Penridge on 19 February 2001 once he was advised that the third tranche funds were available.)

ASD becomes aware of JJ McDonald’s claim for payment

On 30 March 2001, Mr Marriner, in his capacity as Managing Director of Laguna Australia, wrote to Dr Greig to outline the steps that Laguna Australia had undertaken in order to meet the $3.8 million outstanding to JJ McDonald, in the shortest possible time. Mr Marriner stated that CBUS had been approached and had undertaken to provide facilities to Laguna Australia in connection with the restructure and he indicated that he also had every expectation that CBUS would approve an additional debt facility that Laguna Australia had sought in respect of the airport construction work. (Mr Marriner discussed this proposal with the Chairman of CBUS, Mr Willis, at a meeting on 23 March 2001 and formally presented it in a letter sent later that day.)

By about April 2001, Mr Patience became aware of the JJ McDonald claim. When Mr Patience spoke to Mr Marriner to ask him whether he knew anything about it, Mr Marriner said that the work had nothing to do with ASD and under the 30 June 2000 Heads of Agreement it was his responsibility.

Mr Patience met with Dr Grieg and Mr Marriner in mid-April. On this occasion, however, Mr Marriner said that the claim by JJ McDonald was for works that were to be done within the $4.7 million which ASD had to spend on the resort under the 30 June 2000 Heads of Agreement (which had not been completed). Mr Patience said that this explanation was the opposite of what Marriner had previously informed him – namely, that the work was his responsibility. Mr Marriner said that he would speak with Messrs Willis and Hewett of CBUS and sort out the issue.

When Mr Patience and Dr Grieg met again on 28 April 2001, Mr Patience was provided with a copy of JJ McDonald’s 16 October 2000 and 5 February 2001 letters. Mr Patience then spoke to Messrs Wason and Willis who informed him that they had no knowledge of JJ McDonald performing contract works for ASD in connection with Laguna Quays and the airstrip. Mr Spence informed Mr Patience that invoices had been received by him from JJ McDonald in 1999 and 2000 and that he had sent them to Mr Jephson who, he presumed, had organised for them to be paid.

ASD then pointed to Mr Marriner’s letter to Mr Frost on 18 October 2001 by way of response to his letter of 17 October and to complain about the restrictive deadlines imposed by ASD, he referred to the adjustment provision and said that he ‘remain[ed] concerned that [it] may not exactly reflect the intent that neither party should be liable for any undisclosed liabilities incurred by the other party.’ In his letter, Mr Marriner continued, by referring to a ‘telephone discussion Mr Patience and Mr Weaven’, and said that following that conversation he was ‘comforted that that intent can be fully reflected in the final legal documentation.’ ASD said that this letter makes clear that Mr Marriner’s concern at that time was not with the level of debt, which was fluctuating over time, but rather with ‘undisclosed’ liabilities incurred by the other party. Mr Marriner made no reference to the debt in respect of the bond monies and no concern was expressed about the level of indebtedness of Laguna Investments to ASD.

When Mr Marriner was cross-examined about the letter of 18 October 2001, he referred to an earlier dispute between Mr Whalley and Mr Patience over a GST adjustment issue and said that as a result of that, Mr Whalley ‘was paranoid on making sure that all of the debts and liabilities were covered and brought up together.’ In response to a question from his Honour, Mr Marriner added that he ‘wanted to be absolutely clear moving forward we had no concerns on any undisclosed liabilities and debts of the company.’ His Honour then elicited from Mr Marriner what he contended was said in the discussion conversation with Mr Patience and Mr Weaven (as noted above). ASD contended that what was said could not possibly amount to the express representation that is sought to be relied upon. Furthermore, ASD noted that the conversation between Mr Weaven and Mr Patience was not mentioned in the particulars given in the Marriner parties’ pleading, nor in Mr Marriner’s witness statement as the basis for the representation.

ASD submitted that the 19 October 2001 Letter Agreement was drafted in clear and categorical terms – the proposal as presented was expressed to be ‘final and not negotiable’ and it contained very comprehensive waivers and releases.[233]. Wallace & Wallace were representing the Marriner interests during the course of these negotiations and the settlement of the transaction. ASD also submitted that the Court of Appeal had rejected a submission made by the Marriner parties that the 19 October 2001 Letter Agreement contained any release relating to the bond monies claim, or any release of Mr Marriner or any other non-parties to it, and rejected Mr Marriner’s allegation of an implied release of all claims.[234]
[233]See paragraph 204 above.
[234]See Court of Appeal’s Reasons [2012] VSCA 171 (3 August 2012), 92-94 [283]-[284].

Similarly, ASD submitted the 30 June 2000 Heads of Agreement did not contain any representations of the kind pleaded nor did it provide a foundation upon which to imply them. The bond monies were mentioned in cl 10(d) of the agreement and cl 11 dealt with the ‘Inter-Company Loan’, and provided as follows:

The parties acknowledge that [Laguna Investments] is presently indebted to [ASD] in the sum of approximately $10 million. The parties further acknowledge that the purchase price payable pursuant to this agreement is inclusive of the repayment of that sum. The parties agree that they will confer as to the appropriate manner of dealing with that debt and agree that payment of the sum of $26.5 million, will be apportioned in repaying any such debt to [ASD] and thereafter the balance of such moneys shall be apportioned between the assets sold by the Vendors pursuant to this agreement.

Insofar as the representations were to be implied, the Marriner parties sought to imply them from the terms of the Heads of Agreement dated 31 October 2000 and the 30 June 2000 Heads of Agreement. They also sought to give commercial efficacy to the intentions of the parties to bring about the matters referred to in paragraph 113 of the counterclaim, namely ‘for the purpose of bringing to an end the 1993 Shareholders Agreement, the Joint Venture between United Super and Goldworthy in ASD and the other joint ventures and business arrangements between the [Marriner parties] of the one part and ASD of the other part, and for the purpose of selling and transferring all of ASD’s and United Super’s interest in and in relation to Laguna Quays.’ ASD said that neither of those documents provides a foundation for implying any of the pleaded representations.

ASD also pointed to the Deed of Assignment of Debt dated 13 November 2001. Therein the ‘Debt’ was clearly defined as ‘the full amount owing by the Debtor [Laguna Investments] to the Assignor [ASD] on the Completion Date.’ ASD submitted that no attempt was made at any point in the negotiations to either specify what the amount of the debt would be at the settlement or to provide that the debt be comprised of any particular component parts, including, for example, the so-called part that was referable to the original advance of the electricity bond monies. Furthermore, the deed in terms provided that it was for the assignor alone to calculate the amount of the debt – that is, under clause 2.3 it was for ASD to calculate the exact amount, deliver a statement to Mr Marriner, and then that statement would be conclusive as to the amount. Under clause 2.5(a), the assignee acknowledged that the debt was being acquired on an ‘as is where is’ basis and that ASD ‘does not make any statement, representation, warranty, promise, undertaking’. Furthermore, under clause 2.5(b), the assignee waived ‘to the fullest extent possible’ any possible cause of action in relation thereto. Clause 5.1 contained an entire agreement clause confirming that the deed constitutes the entire agreement between the parties and supersedes any prior representations, whether made orally or in writing.

In these circumstances, ASD submitted that the Court should find that the representations pleaded were not made out.

Conclusion on the pleaded representations

I am not satisfied that the pleaded representations were made. For the reasons advanced by the ASD parties as summarised above, I find that no clear and unambiguous representations to the effect alleged were made by them. Nor were any such representations made by them by silence or otherwise to the effect that ASD would not pursue Mr Marriner in respect of the second and third tranche bond monies. This is not a case where it can be said that ‘silence’ on the part of the ASD parties was such as reasonably to induce in the mind of Mr Marriner and his associated companies a belief or a particular state of mind which was known to be untrue, and in consequence of which the relevant Marriner companies entered into the sale agreement and have thereby suffered detriment. The position was that Mr Marriner knew from at least August 2001 that ASD was investigating what had taken place with the third tranche bond monies, and that it was an issue of some concern to the board. Yet once he delivered his explanation to the Chairman, by letter dated 5 September 2001, he took no steps directed to clarifying the position concerning the bond monies during the course of the negotiation of the sale agreements or in the lead up to the settlement. In effect, he was content to assume that all was well.

Furthermore, as ASD pointed out, when the documents were being drafted, Mr Marriner never queried the formulation of the ‘Debt’ the subject of the deed of assignment nor did he seek to clarify that the debt was comprised of any particular component parts, or to specify what the amount of the debt would be at the settlement. Neither Mr Whalley nor Mr Penridge raised any enquiry as to the amount of the debt or how it was arrived at, despite the fact that each was afforded an opportunity to do so.

That conclusion means that the Marriner parties’ misleading and deceptive conduct case and their estoppel case fall at the first hurdle.

Whether Mr Marriner relied on any representations made that are permitted to be relied upon and if so what facts constituted any relevant act of reliance?(Issue (xiii))

In his further reasons concerning the counterclaim, the original trial judge noted that ‘[r]eliance upon the representations is alleged in paragraph 115 to have been, not by Mr Marriner or Goldworthy or Laguna Airport or Staged Design, but by Laguna Australia and Fulham Holdings’ and the ‘estoppel is said to have affected Laguna Australia and Fulham Holdings and the misleading and deceptive conduct is said to have caused loss to Laguna Australia and Fulham Holdings’.[235] In those circumstances, his Honour observed it is ‘difficult to see how such a claim, if successful, could be effective as a set-off against a claim against any of the defendants to the ASD claims’.[236] I share that view.
[235]Trial Judge’s Reasons [No 2] [2010] VSC 66 (16 April 2010), 2 [6].
[236]Ibid 2-3 [6].

The Marriner parties effectively acknowledged the absence of any direct evidence of reliance for either their estoppel or misleading and deceptive conduct cases. They contended, however, that the absence of direct evidence does not necessarily preclude a finding of reliance, it being legitimate for the Court to draw an inference of reliance. They asserted that there was ‘ample evidence of reliance here and the reliance was exactly what ASD expected and hoped it would be.’ Then they pointed to what they said was the ‘obvious inference’ to be drawn, namely, that ‘in reliance upon the representations of the ASD parties, Laguna Australia and Fulham entered into the relevant agreements in November 2001.’

Certainly the Marriner parties entered into the agreements but I am not satisfied that they did so on the basis of and in reliance upon the alleged representations. Having found that those representations are not made out, and in circumstances where no direct enquiry was raised by Mr Marriner or his advisers as to the amount of the debt, its composition or how it was arrived at (despite being afforded an opportunity to do so), no proper foundation has been demonstrated that would permit the Court to draw an inference of reliance.

Whether ASD is estopped by representation from pursuing the bond monies claim?(Issue (xvi))

The estoppel by representation case suffers from the same essential difficulties as the misleading and deceptive conduct case. Even though I have found that the representations relied on have not been made out, lest the matter go further I shall deal briefly with the two assumptions that the Marriner parties plead were induced by those representations. In paragraph 117, they plead the relevant assumptions as follows:

[117]Further, as was at all material times well known to the defendants by counterclaim and each of them the representation induced in Laguna Australia the assumptions that:
(a)What was being sold for $27,450,000.00 to Laguna Australia was all of the interest of ASD and United Super as trustee of CBUS in Laguna Quays including the debt owed by [Laguna Investments] to ASD including the debt in respect of the Bank Guarantee deposit and release of the claims herein;
(b)Fulham as nominee of Laguna Australia to take the assignment of the debt owed by [Laguna Investments] to ASD would become entitled in place of ASD to the full benefit of the debt owed by [Laguna Investments] including in relation to the Bank Guarantee deposit.

Simply stated, it will be seen that the assumptions contended for by the Marriner parties suffer from the same basic flaws as the representations themselves. No proper foundation has been established for the Court to find that those assumptions were induced by the ASD parties.

In their written and oral submissions the Marriner parties relied upon the following passages from the judgment of Kerr LJ (delivering the judgment of the Court of Appeal, Oliver, Kerr and Lloyd LJJ) in K Locumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd,[237] dealing with the nature and effect of an estoppel by convention. In that case, the parties fell into ‘what may be described as a mutual mistake, each believing that the other was to take a certain step and neither being aware of the other’s erroneous belief; and the party seeking to set up the estoppel by convention did not act, or omit to act, in reliance upon anything said or done by his adversary.’[238] In those circumstances, their Lordships said:

All estoppels must involve some statement or conduct by the party alleged to be estopped on which the alleged representee was entitled to rely and did rely. In this sense all estoppels may be regarded as requiring some manifest representation which crosses the line between the representor and representee, either by statement or conduct. It may be an express statement or it may be implied from conduct, eg a failure by the alleged representor to react to something said or done by the alleged representee so as to imply a manifestation of assent which leads to an estoppel by silence or acquiescence. Similarly, in cases of so-called estoppels by convention, there must be some mutually manifest conduct by the parties which is based on a common but mistaken assumption. The alleged representor’s participation in this conduct can then be relied upon by the representee as a basis for this form of estoppel.[239]
…
There cannot be any estoppel unless the alleged representor has said or done something, or failed to do something, with the result that – across the line between the parties – his action or inaction has produced some belief or expectation in the mind of the alleged representee, so that, depending on the circumstances, it would thereafter no longer be right to allow the alleged representor to resile by challenging the belief or expectation which he has engendered. To that extent at least, therefore, the alleged representor must be open to criticism. [240]

[237][1985] 2 Lloyds Rep 28.

[238]As Samuels JA noted in Coghlan v H Lock (Australia) Ltd (1985) 4 NSWLR 158, 166-167 (‘Coghlan’).

[239]K Locumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd [1985] 2 Lloyds Rep 28, 34.

[240]Ibid 35.

The Marriner parties accepted that what is required over and above agreement itself is that the person sought to be estopped must have contributed in some active way towards engendering or perpetuating the mistaken belief about the basis on which the parties are conducting their dealings, thus making it unconscionable to allow that party to later resile from the stance he or she has taken. They acknowledged that, as McHugh JA pointed out in Coghlan, estoppel is not concerned with a self-induced mistake.[241]
[241]Coghlan (1985) 4 NSWLR 158, 177.

In the present case, the assumption that Mr Marriner made was effectively self-induced. In circumstances where he knew that ASD was investigating what had taken place with the bond monies, and he had provided a response to the Chairman, he chose to believe that his explanation had been accepted, and contented himself throughout the negotiations by apparently believing just that. However, his erroneous belief that his explanation had been accepted was not induced by the ASD parties, and it would have been a simple thing for him to have clarified what the position was had he wished to do so. Indeed, as I have noted, in circumstances where he now says he regarded the non-pursuit of the claim and the composition of the debt as being of real importance, the failure to make any, or any prudent enquiry, about these matters during the negotiations is telling.

It follows that, in my view, ASD is not estopped by representation from pursuing the bond monies claim.

Did the Deed of Assignment of Debt operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD’s primary claim, thereby disentitling ASD from making the bond monies claim?(Issue (xvii))

In circumstances where I have concluded that the Marriner parties’ claims concerning unconscionable conduct, misleading and deceptive conduct and estoppel by representation are not made out, the Deed of Assignment of Debt falls to be construed according to its terms. It follows, and I so find, that the Deed of Assignment of Debt did not operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD’s primary claim. The accounting entries that were made reflected the fact that the bond monies had been repaid, such that at the time of assignment, there was no longer any bond monies debt in existence between Laguna Investments and ASD.

Whether the terms of the sale agreements made on 13 November 2001 (and in particular, cls 2.3(b), 2.5(a), 2.5(b) and 5.1 of the Deed of Assignment of Debt, and cls 7.8(a), 7.8 (b) and 11.1 of the Share Sale Agreementpreclude Mr Marriner and his associated companies from bringing the claims he now seeks to make?(Issue (xviii))

Similarly, for the reasons set out above, I have found that the provisions of the Deed of Assignment of Debt and the Share Sale Agreement are effective according to their terms. Accordingly, I find that by their terms they preclude Mr Marriner and his associated companies from bringing the claims they now seek to make.

Whether there is any basis for ASD's directors and Mr Patience to be held liable to Mr Marriner and, if so, what are the facts relevant to each individual and what amount is each individual liable for and in respect of what causes of action?(Issue (xix))

Similarly, for the reasons set out above, I have not found any basis for ASD’s directors and Mr Patience to be held liable to Mr Marriner.

Ruling on documents sought to be tendered at the remitter hearing that were not included in the Court Book

‘Document D-328’

In the course of making their submissions, Senior Counsel for the Marriner parties sought to tender some additional documents. The first document, identified as ‘document D-328’, was produced in Court on 2 September 2013. It was a general ledger listing for Laguna Management as of 30 June 2001 and was referred to in Schedule C to Mr Whalley’s witness statement, entitled ‘Financial Documents relevant to the accounting of the Electricity Guarantee Monies’.

Document ‘D-328’ was omitted from the Court Book that the parties prepared for the hearing of the remitted issues. The transcript of the first trial records that reference was made to the documents in Schedule C to Mr Whalley’s witness statement and they appear to have been included as part of Exhibit 231 at the trial.[242]
[242]At the first trial, reference was made to Annexure C as follows:
MR BICK: … Annexure C is a list of financial documents in the court book relating to the bond moneys and annexure D consists of five documents which are referred to in the witness statement but are not in the court book, together with copies of those documents.
HIS HONOUR: They will also be part of exhibit 231.
Mr Bick QC later tendered the list of documents referred to in Mr Whalley’s witness statement that were not already marked as an exhibit.

The third page of Document ‘D-328’ contains a listing of what purport to be alterations made to the ledger of Laguna Management in 2002. It records a credit entry for 31 January 2002 in the sum of $1,610,000 with a reference of ‘P Lewis.’ Mr Bick submitted that this document provided evidence of the date of 31 January 2002 that is referred to in the Marriner parties’ pleading as the date on which the bond monies were ‘backed out’.

Senior Counsel for ASD, Mr O’Bryan SC, objected to the tender of document D-328, initially on wider grounds but he later revised that to (only) on grounds of relevance.

In my view, the document is conceivably of some relevance in establishing a basis for the Marriner parties’ contention that an adjustment was made to the general ledger of Laguna Management on 31 January 2002. Accordingly, I will overrule the objection.

‘JJ McDonald Expenditure-Summary’

On 21 August 2013, Mr Bick QC handed up a document summarising the evidence concerning the JJ McDonald expenditure. He said that it was an updated version of a document they had prepared for the trial before the original trial judge as an aid to his Honour knowing where the evidence was and what it said. He added that he had attached ‘some documents that were in the earlier court book but not in this court book, just for completeness’ and did not believe that any of this would be controversial. He continued by saying that the document was ‘simply a summary of the evidence that the original trial judge had before him’ and he did not wish to say any more about it, but added:

For completeness, perhaps I can tender that to get in the missing documents that are on the back. Perhaps if Your Honour could take the summary as an aid to understanding the evidence but receive it as tendered documents, the additional documents from the old court book that are attached.

The documents attached were 8 pages bearing what appeared to be Court Book references for the original trial.

Senior Counsel for ASD objected to their tender and submitted that if the documents were not tendered at trial, they were required to be proved. I indicated that I would not rule on the documents until counsel had consulted and worked out whether or not these documents were tendered as exhibits at the original trial. The following exchange then ensued:

MR BICK:Yes, certainly; I will do that, Your Honour. Nothing really turns on McDonald in this round in any event, Your Honour. Your Honour was told there was only one small McDonald payment out of the third tranche, from memory I think it is $1,500, and it's not a major issue.

MR O'BRYAN: Then I have a different objection. It is irrelevant.
HER HONOUR: I will leave this to be sorted out next week.

On 2 September 2013, as Mr Bick QC was closing the submissions made on behalf of the Marriner parties, I raised the matter of the proposed tender of the documents attached to the ‘JJ McDonald Expenditure-Summary’, whereupon Mr Bick QC sought to tender them. Mr O’Bryan SC then stated that he maintained his objection on the basis that the documents were not included in the original trial Court Book. Mr Bick QC responded, and the following exchange ensued:

MR BICK:The summary, Your Honour, we prepared to assist His Honour at trial as an aide-memoire, and it's put forward as no more than that now. In relation to documents attached to it, I'd have to look at them again and refresh my memory, Your Honour.
HER HONOUR: I won't rule on that until you have had another look at the document. But if you can identify - it would be helpful if you could identify where you contend the documents were part of the court book, if that's your case, and where you also, on the transcript, handed up the summary to Byrne J as an aide-memoire.

MR BICK: Yes.
HER HONOUR: And then I'll deal with that once you have had an opportunity to do that, I won't rule on it until you have done that.
MR O'BRYAN: Your Honour, just to clarify. It may have been in the documents before Byrne J but it was not tendered, is our understanding. It was not received in evidence before Byrne J and we object to it, Your Honour, on that basis.

The matter was not raised again during the remitter hearing. Nor was it sought to be raised by the parties following the conclusion of the hearing.

Perusal of the document reveals that it is an (updated) aide-memoire summarising the expenditure associated with work undertaken by JJ McDonald. As Senior Counsel for the Marriner parties acknowledged, there was only one small payment made to JJ McDonald out of the third tranche, and it is by no means a major issue on the remitter. The earlier version of the aide-memoire may have assisted the original trial judge but the updated version is not of obvious assistance on the remitter. Senior Counsel for the Marriner parties made no attempt to demonstrate its relevance, or to re-agitate the issue of whether the additional documents were tendered at the trial. In the circumstances, I will allow the objection to the tender of the (updated) aide-memoire and associated documents.

Conclusion

I will hear the parties on the precise form of the appropriate orders, including on the question of costs of the hearing before the original trial judge and on the remitter.

Annexure 1: The corporate structure diagrams
Diagram 1: Pre separation of JV – February 1993 – November 2000

Diagram 2: Post separation of JV – From November 2000

Diagram 3: Post sale of Laguna Quays Resort – 17 April 2002

SCHEDULE OF PARTIES

S CI 2005 2071
BY ORIGINAL PROCEEDING
BETWEEN:
AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761)	First Plaintiff
- and -
DAVID WELLESLEY MARRINER	First Defendant
GOLDWORTHY PTY LTD (ACN 007 348 754)	Second Defendant
LAGUNA AUSTRALIA PTY LTD (ACN 092 398 617)	Third Defendant
LAGUNA AUSTRALIA AIRPORT PTY LTD (ACN 094 660 616)	Fourth Defendant
STAGE DESIGN PTY LTD (ACN 060 623 903)	Fifth Defendant
FULHAM HOLDINGS LIMITED (ACN 006 558 158)	Sixth Defendant
BY COUNTERCLAIM
BETWEEN:
DAVID WELLESLEY MARRINER	First Plaintiff by Counterclaim
GOLDWORTHY PTY LTD (ACN 007 348 754)	Second Plaintiff by Counterclaim
LAGUNA AUSTRALIA PTY LTD (ACN 092 398 617)	Third Plaintiff by Counterclaim
FULHAM HOLDINGS LIMITED (ACN 006 558 158)	Fourth Plaintiff by Counterclaim
- and -
AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761)	First Defendant by Counterclaim
UNITED SUPER PTY LTD (ACN 006 261 623)	Second Defendant by Counterclaim
RALPH WILLIS	Third Defendant by Counterclaim
GEORGE WASON	Fourth Defendant by Counterclaim
BARRIE FROST	Fifth Defendant by Counterclaim
IAN PATIENCE	Sixth Defendant by Counterclaim

[2014] VSC 464

19 September 2014