Australian Super Developments Pty Ltd v Marriner

[2010] VSC 41

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 2071 of 2005

AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761) & ORS	Plaintiffs
v
DAVID WELLESLEY MARRINER & ORS	Defendants

AND BETWEEN:

DAVID WELLESLEY MARRINER & ORS	Plaintiffs by Counterclaim
v
AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761) & ORS	Defendants by Counterclaim

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATES OF HEARING:	18, 19, 20, 24, 25, 26, 27, 31 August and 1, 2, 3, 7, 8, 9, 10, 11, 14, 16 and 17, 18 September 2009
DATE OF JUDGMENT	26 February 2010
CASE MAY BE CITED AS:	Australian Super Developments Pty Ltd v Marriner
MEDIUM NEUTRAL CITATION:	[2010] VSC 41

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Trusts And Trustees – joint venture – sale of joint venture project to one joint venturer – monies lodged as security with electricity supply company – whether monies provided by joint venture vehicle to enable the project vehicle to provide security were monies held on trust for joint venture vehicle or as debt owing to joint venture vehicle

Legal Practitioners – solicitors – monies held by solicitor for client company disbursed upon direction – whether solicitor in breach of trust – whether first defendant caused breach of trust

Contract – contract for sale of joint venture project – term that vendor would fund certain capital works not exceeding $4.7million – whether limit exceeded – first defendant director of vendor company – whether first defendant in breach of directorial or fiduciary duties in incurring excess expenditure

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S Anderson SC with Mr A Broadfoot	Holding Redlich
For the Defendants	Mr P Bick QC with Mr R. Heath	Meerkin & Apel

HIS HONOUR:

Introduction

1. The secondnamed defendant by counterclaim, United Super Pty Ltd, was at all material times the trustee of the Construction and Building Unions Superannuation Fund (“C+BUS”).  Between 1993 and 2001 C+BUS and the first defendant, David Wellesley Marriner, or companies associated with him, engaged in a number of property development projects as joint venturers.  In general terms, Mr Marriner, who had for very many years engaged in property development, would provide his expertise and C+BUS would provide the funds for the development projects.  For this purpose a joint venture vehicle, the firstnamed plaintiff, Staged Developments Australia Pty Ltd, later called Australian Super Developments Pty Ltd (“ASD”) a company in which each of United Super, on behalf of C+BUS, and the secondnamed defendant, Goldworthy Pty Ltd, a Marriner company, held equal interest.  During the period of the joint venture, that is, from 1993 to 3 November 2000, Mr Marriner was the CEO and a director of ASD.

1. In 2000 C+BUS became disenchanted with aspects of Mr Marriner’s involvement in the projects and determined to bring the joint venture to an end.  As I indicated in the course of the trial, it is not necessary that I reach any conclusion or make any finding about criticisms made of Mr Marriner’s involvement in the joint venture projects other than the matters in issue in this proceeding, and I do not do so.  It is sufficient that I note that the parties in mid-2000 decided to sever their relationship and that they did so over the next 18 months or so in a series of agreements of which the first was a heads of agreement dated 1 November 2000.

1. One of the joint venture projects was the development of a resort at Laguna Quays in North Queensland.  As part of the separation process between the joint venturers, ASD, by heads of agreement dated 30 June 2000, agreed to sell this project to Laguna Australia Pty Ltd (“Laguna Australia”), a Marriner company, for $26.5m.  Negotiations, which involved the distribution of assets and liabilities between the joint venturers concerning other projects, continued for some time.  So far as the Laguna Quays project is concerned, the June 2000 heads of agreement were superseded by a further agreement contained in a letter dated 19 October 2001.  In fact, the terms of the sale were not finally settled and documented until 13 November 2001 when formal sale agreements were entered into.  Broadly speaking, the structure of the sale, as it was finally settled, was that the land on which the project stood and shares in the project company ASD – Laguna Investments Pty Ltd (“Laguna Investments”) were sold to Laguna Australia.  At that time, Laguna Investments was indebted to ASD for moneys advanced by C+BUS for the project.  As part of the sale, ASD assigned this debt to Fulham Holdings Ltd, another Marriner company, which became the parent of Laguna Australia.

1. This litigation concerns three claims made against Mr Marriner or his companies arising out of the winding up of the joint venture, insofar as it concerned the Laguna Quays project.  On day 7 of the trial the third claim, that for payment for services rendered to Laguna Australia by Graham Spence, an employee of ASD, was withdrawn, leaving only two claims.  Notwithstanding the complexity of the pleadings, these claims do not involve very much factual contest and the issues are fairly straightforward.  The amounts involved total some $1.5m.  A good deal of the difficulties of this trial and its length and, I would suppose, its significant cost, has been due in no small measure to the way the case was pleaded by both parties. 

1. It is convenient at this stage to introduce the many companies which played a part in the joint venture and in this litigation. 

1. United Super Pty Ltd, the second defendant by counterclaim, is the trustee of C+BUS.  Its 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).  C+BUS, as a superannuation trust is subject to prudential regulation by APRA.  It held the shares and units in ASD and the ASD trust from 1993 until 2000.

1. United Super Investments Pty Ltd (“USI”), 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.

1. Australian Super Development Pty Ltd (“ASD”),[1] formerly called Staged Developments Australia Pty Ltd, the plaintiff and first defendant by counterclaim was the vehicle for the numerous joint venture projects undertaken by Mr Marriner and C+BUS.  It was, at all material times, the trustee of the Staged Developments Australia Unit Trust, established in 1993.  It was the proprietor of part of the land upon which the Laguna Quays resort was conducted.  Its shareholders and unit holders at all relevant times up to 2000 were Goldworthy and C+BUS, each holding six shares and sixty units.  Thereafter all the shares were held by USI.  The board of directors during the period 1999 to 2000 comprised appointees of each of the two venturers.  The Marriner appointees were Gary Arthur Weaven, Ian Robert Court and Mr Marriner himself until they resigned on 3 November 2000.  The C+BUS appointees were Barry Frost, George Wason, Thomas John Supple Kane (to 28 January 2000) and Ralph Willis (from 27 November 2000). Mr Marriner was CEO of this company until 3 November 2000 when he resigned and the office was taken over by Ian Patience.

   [1]I shall refer to this company as ASD notwithstanding that it was, for the greater part of the period covered by this judgment, called Staged Developments Australia Pty Ltd and referred to at the trial during that period as SDA.

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

1. ASD – Laguna Investments Pty Ltd, formerly called SDA Laguna Investments Pty Ltd (“Laguna Investments”), a wholly owned subsidiary of ASD is a company whose responsibility was the Laguna Quays project.

1. Laguna Management Pty Ltd (“Laguna Management”), a wholly owned subsidiary of Laguna Investments conducted the day-to-day operations of the Laguna Quays resort as agent for Laguna Investments.

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

1. Fulham Holdings Ltd, 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. 

1. Laguna Australia Pty Ltd (“Laguna Australia”), the thirdnamed defendant is a Marriner company wholly owned by Fulham Holdings which was incorporated in April 2000.  This is the company which purchased the real estate comprising the Laguna Quays project and the shares in Laguna Investments. 

1. Laguna Australia Airport Pty Ltd (“Laguna Airport”), the fourthnamed defendant, is another Marriner company incorporated in October 2000 to own the airport which Mr Marriner wished to construct to service the Laguna Quays resort and the surrounding area. 

1. Stage Design Pty Ltd (“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.

1. Cumberland Management Pty Ltd, a company wholly owned by ASD, was used by it for another joint venture project, the development of the Cumberland Lodge in Lorne.

The Issues

1. As will appear, the issues in this case were pleaded in a very complicated way.  In an attempt to unravel these complexities and duplications I circulated among counsel on day 13, a draft list of the issues raised in the pleadings, as I saw them.  Counsel were invited to respond to this document pointing out any inaccuracies and omissions and they did so.  The summary of the claims and the defences which is set out in the paragraphs which follow and which forms the basis of my judgment is the product of counsel’s co-operation with respect to my draft, for which I am grateful.  In my judgment I refer to these claims and defences simply by the numbers given to them in these paragraphs.

The bond money claim

1. The facts underlying the first claim may be shortly stated.  In 1999 ASD was required by the Mackay Electricity Board to provide a bank bond in the sum of $1.61m to secure payment of a sum which would be due if the Laguna Quays development failed to consume a certain quantity of electricity.  This bond was provided by the Bank of Queensland on 20 May 1999.  The arrangement with the electricity board was that, if the consumption of electricity by the Laguna Quays resort was sufficient, this security might be reduced in three tranches – to $1,279,800 on 30 November 1999, to $853,200 on 30 November 2000 and, finally, to $426,600 on 30 November 2001.

1. The bank required funds to cover the bond which it issued to the electricity board.  These funds were sourced from C+BUS and were deposited for the purpose into a set-off account opened with the Bank of Queensland in the name of Laguna Management.  When the security was reduced in 1999, the first tranche of $330,200 was released from the set-off account and paid to ASD.[2]

   [2]Statement of claim, para 22;  defence para 22.

1. When the security was further reduced in late 2000, the second tranche sum of $426,600 became available in the set-off account.  By letter dated 24 October 2000 one, Peter Desmond Jephson, instructed the bank to pay this sum as follows:  $156,600 to JJ McDonald & Sons Engineering Pty Ltd and $270,000 to Cumberland Management.  It appears that the payment to Cumberland Management was to reimburse that company for payments made to JJ McDonald for work done on the Laguna Quays project.  It is alleged by ASD, and denied by Mr Marriner, that he directed Mr Jephson to instruct the bank to make these payments.

1. 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, LQ 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 from 22 January 2001 or  thereabouts until on or about 19 November 2001.[3]

   [3]Defence para, 23(b).

1. Upon the cancellation of the bond in early 2001, the third and final tranche of $853,300 became available.  The fate of this money is not at all in doubt.  On 14 February 2001 Mr Jephson sent a fax on Laguna Management letterhead to the bank instructing it to pay the money to Messrs Wallace & Wallace, a firm of solicitors in Mackay which represented ASD in relation to the Laguna Quays resort.  On 19 February 2000 and thereafter Mr Jephson directed Wallace & Wallace as to where the money should be paid and this was done.  In all, payments were made disposing of all of the third tranche funds, other than $555.34. 

1. It should be noted that, at the time of the disposal of the third tranche funds, Mr Marriner was no longer a director or CEO of ASD and Mr Jephson, who had given his instruction on Laguna Management letterhead, had resigned as secretary of that company some weeks earlier, on 19 January 2001. 

1. It is said on behalf of ASD that each of the second and third tranche funds was held on trust for the benefit of ASD and that its application was in breach of that trust.[4]  This is denied by the defendants, who contend that each of the funds was the property of Laguna Investments and that the money was available for use by that company for the purposes for which it was in fact applied.[5]

   [4]Statement of claim, para 26.

   [5]Defence, para 26.

1. It is at this point that we enter into the labyrinth which occupies some 60 paragraphs and 24 pages of the statement of claim through which counsel have assisted me to find a path.  The plaintiff, ASD, pleads its case with respect to this first claim in no less than nine alternative ways.  In essence, the claim falls into two parts;  the claim for misappropriation of the second tranche funds in about October 2000 and that with respect to the third tranche funds in February 2001.

A.       Second tranche funds - October 2000

(i)The disbursement of the funds by direction of Mr Marriner’s agent constituted a breach by Mr Marriner of the statutory duties he owed as director and officer of ASD pursuant to ss 180(1), 181(1) and 182(1) of the Corporations Act.[6]

[6]Statement of claim, paras 29 and 30.

(ii)The disbursement of the funds by direction of Mr Marriner’s agent constituted a breach by Mr Marriner of fiduciary duties which he owed to ASD.[7]

[7]Statement of claim, para 31.

(iii)The disbursement of the funds by direction of Mr Marriner’s agent constituted a breach by Mr Marriner of a duty of care which he owed to ASD.[8]

[8]Statement of claim, para 32.

(iv)Mr Marriner knew that the funds were held by Laguna Management in trust for ASD.  His acts, through Mr Jephson, of directing the disbursement of these funds were acts of procuring and inducing or inducing and assisting a breach of this trust by Laguna Management.[9]

[9]Statement of claim, para 35 (the second tranche) and paras 47 and 48 (third tranche).

B.The third tranche funds – February 2001

(v)The third tranche standing in the Bank of Queensland set-off account in the name of Laguna Management was held by Laguna Management as trustee for ASD.  Mr Marriner, by his agent, procured or induced that company to pay the sum to Wallace & Wallace in breach of trust.[10]  He is therefore liable for inducing and assisting Laguna Management to commit a breach of trust.[11]

(vi)Wallace & Wallace received the third tranche funds as trustee for ASD and its disbursement of the money in accordance with the instructions of Mr Marriner’s agent was a breach of its trustee duties owed to ASD.[12]  Mr Marriner knowingly induced and procured Wallace & Wallace’s breach of trust.[13]

(vii)Mr Marriner knowingly assisted Wallace & Wallace to commit its breach of trust.[14]

(viii)The third tranche funds disbursed by Wallace & Wallace were paid, as to part, to Goldworthy, Laguna Australia, Laguna Airport and Stage Design, or to creditors of those companies in reduction of their liability to those creditors.  These companies are liable for the breach of trust by Wallace & Wallace as knowing recipients of the trust moneys.[15]

(ix)Goldworthy, Laguna Australia, Laguna Airport and Stage Design knowingly induced and assisted Wallace & Wallace to commit the breaches of trust by disbursing the third tranche funds as directed by Mr Marriner’s agent.[16] 

[10]Statement of claim, para 47.

[11]Statement of claim, para 48.

[12]Statement of claim, para 56.

[13]Statement of claim, para 61.

[14]Statement of claim, para 64.

[15]Statement of claim, para 70.

[16]Statement of claim, para 74.

1. It will be seen that claims (vi) to (ix) depend upon the fact that Wallace & Wallace acted in breach of trust or other duties owed by it to ASD.  Until recently, the solicitors were defendants to this proceeding and relief was sought against them for those breaches.  I was told that the claims against Wallace & Wallace have been resolved so that this part of the proceeding was struck out and Wallace & Wallace did not participate as a party in the trial.  Notwithstanding this, it remained part of the proofs of ASD that, in disbursing the third tranche funds in accordance with Mr Jephson’s instruction, Wallace & Wallace acted in breach of duties owed to ASD. 

1. When the case came on for hearing, the defence and counterclaim of the Marriner parties occupied 133 paragraphs.  In response to my urgings, at this late stage of the proceeding, that it could hardly be necessary to put in issue many well-documented and non-controversial allegations, counsel for the Marriner parties revised the document, and revised it again and again.  No less than six iterations were put forward.  While it is true that many of the denials and non-admissions disappeared, as did an unparticularised fraud allegation, each new version became more and more complicated, adding more and more defences and in many cases duplicating defences already raised.  The final draft which I gave leave to file on Day 16 of the trial has grown to 40 pages.  To the claim of misappropriation of the bond moneys in 2000 and in 2001 the defences run to 100 paragraphs as well as 30 paragraphs of counterclaim.  It is not clear whether this proliferation has been due to the ingenuity of counsel or to the desperation of the clients. 

1. There are no less than 17 affirmative matters raised in defence to the misappropriation claim:

(i)The money in the bank of Queensland set-off account in the name of Laguna Management was not money held by Laguna Management on trust for ASD.  It was money held by Laguna Management as agent for Laguna Investments and represented a loan from ASD to Laguna Investments.[17]  Laguna Investments was, therefore, beneficially entitled to it.[18]  Any  rights of ASD in respect of these moneys are those of an unsecured loan creditor.

[17]Defence, para 18-19.

[18]Defence, para 26(a), 39.

(ii)Mr Marriner and the Marriner parties were not responsible for the acts of Mr Jephson in:

(a)directing the bank to apply the second tranche funds as it did in October 2000;[19]

[19]Defence, para 26.

(b)directing the bank to release the bond and to pay the third tranche funds to Wallace & Wallace in February 2001;[20]

[20]Defence, para 45.

(c)directing Wallace & Wallace to apply the third tranche funds as they did in February 2001.[21] 

[21]Defence, paras 52, 53.

He was acting on behalf of ASD.

(iii)The proceeds of the second and third tranche funds were applied for certain capital works at the resort as was permitted by cl 9 of the June 2000 heads of agreement.[22]

[22]Defence, para 27(a).

(iv)By cl 10(d) of the June 2000 heads of agreement, any security held by an authority with respect to the Laguna Quays project was to be applied towards the costs of converting Crown leasehold land to freehold land.[23]  The work performed by JJ McDonald for which payment from the second tranche funds were made were freeholding costs.[24]

[23]Defence, para 26(c).

[24]Defence, paras 26(c), 28(c), 28(d), 47-48(a)(iii)-(iv), 47-8(b)(i)-(iv), 75C, 75D and 75E.

(v)The funds lodged with the Bank of Queensland were a debt of Laguna Investments to ASD, which debt was purchased or discharged by operation of cl 11 of the June 2000 heads of agreement.[25]

[25]Defence, paras 26(e), 40(d) and 102B(a).

(vi)By cl 11 of the June 2000 heads of agreement, the parties acknowledged the debt of approximately $10m owing by Laguna Investments to ASD in respect of the project.  The payment of the purchase price included the repayment of this debt.[26]

[26]Defence, paras 26(e) and 40(d).

(vii)At the time of the disbursement of the second tranche funds in favour of JJ McDonald, ASD was a debtor of JJ McDonald for work performed on the Laguna Quays project.  Since the disbursement reduced the indebtedness of ASD to JJ McDonald, the payments were for the benefit of ASD.  Insofar as the payments were greater than the ASD debt due to JJ McDonald, they were an advance to JJ McDonald on account of the works to be performed.[27]

[27]Defence, para 28(d).

(viii)The application of the second tranche funds had the effect of reducing the indebtedness of ASD to JJ McDonald.  It was therefore a benefit to ASD.[28]  Alternatively, if the payments were improper, ASD suffered no loss as a consequence. 

[28]Defence, paras 27(b), 28(b).

(ix)The claims against Goldworthy and Mr Marriner, being claims in respect of the management and operation of ASD and the Staged Developments Australia Unit Trust were released by cl 2(e) of the November 2000 heads of agreement.[29] 

(x)Pursuant to the cl 2(f) of the November 2000 heads of agreement, United Super is obliged to indemnify Goldworthy and Mr Marriner in respect of the claims of ASD against them, being claims in respect of moneys lent by C+BUS to ASD.[30]

(xi)Mr Marriner and Goldworthy are entitled to an indemnity from ASD and United Super against the claims of ASD pursuant to cl 8 in an agreement called the Unit Redemption and Share Acquisition Deed dated 3 November 2000.[31]

(xii)By the agreement of 19 October 2001 all claims between ASD and the Marriner parties were settled.[32] This included the liability of Laguna Investments to ASD in respect of the bond moneys.[33]

(xiii)Prior to the entering into of the 19 October 2001 agreement, ASD and United Super made certain representations to Laguna Australia which were false,[34] as a consequence of which Laguna Australia has suffered loss which it sets off against the ASD claims.[35]

(xiv)The representations caused Laguna Australia to assume that the subject-matter of the sale to it included the debt owed by Laguna Investments to ASD in respect of the bond money and that Fulham would later take an assignment of this debt.  ASD and United Super are estopped from denying these matters.[36]

(xv)The representations constituted misleading and deceptive conduct contrary to the Trade Practices Act 1974 (Cth) ss 51A and 52, and the Fair Trading Act 1999 ss 4(1) and (9)[37] as a consequence of which Laguna Australia has suffered loss.

(xvi)By an entry in the relevant accounts, on or about January 2002, the asset of ASD, being the debt owed by Laguna Investments to it, representing the second and third tranche funds, was changed to a third party receivable.  In the circumstances, this constituted unconscionable conduct in contravention of the Trade Practices Act s 51AA, the Fair Trading Act s 7 and the unwritten law.[38]  As a consequence, Laguna Australia and Fulham Holdings Ltd suffered loss which they set-off against the claims of ASD.[39]

(xvii)For a reason which is not altogether clear, Laguna Australia and Fulham are entitled to recover from ASD the sum of $1,279,200, being that part of the debt purchased by Laguna Australia which was removed by the January 2002 entry in the accounts.[40]

[29]Defence, paras 91D(a) and 91E-91F.

[30]Defence, paras 91D(d) and 91F(a).

[31]Defence, paras 91F(b) – 91F(c).

[32]Defence, para 91K.

[33]Defence, paras 91J – 91K, 102B.

[34]Defence, paras 114 - 16

[35]Defence, para 102E.  It seems likely that the pleaders intended to set off this loss against the entitlements of ASD.  But the reference to para 130A must be an error and, in any event, no loss is alleged in the pleading.

[36]Defence, paras 117 – 119.

[37]Defence, paras 122 – 125.

[38]Defence, para 126 – 129A. 

[39]Defence, para 102E.

[40]Defence, para 130A.

1. Adding to this, a reply and defence to counterclaim occupying 45 paragraphs and 36 pages, the pleadings occupy a total of 117 pages.  In a complicated case this might be warranted.  This is not, or ought not to be, such a case.  Moreover, this situation carries with it the risk that the occasional good point is lost among the numerous points with little prospect of success.

The capital expenditure claim

1. This claim, too, might have been straightforward.  Under the June 2000 heads of agreement, ASD sold the assets of the Laguna Quay project to Mr Marriner’s company, Laguna Australia.  The agreement contemplated that the sale was conditional upon certain events, which conditions might not be fulfilled for some months.  In the meantime, ASD would, at its cost, complete certain capital work with a cost limit of $4.7m and Mr Marriner remained as director of ASD and as CEO responsible for the project.

1. The case of ASD is that Mr Marriner spent ASD money on capital works outside his mandate.  The details of the sums spent are known.  The issue, then, might have been whether the payments fell within the mandate.  It is surprising that, of the many issues raised at the trial, this was not one. 

1. As pleaded, this claim falls into two parts.  On 3 December 1999 the ASD project manager, Graham Spence, on behalf of Laguna Management, executed an agreement with JJ McDonald for certain construction works including the construction of road works and an airstrip on land being part of and adjoining to the Laguna project site at a total estimated cost of $4,431,141.  It is not disputed that this bound Laguna Management.  What is said is that he did so upon instruction from Mr Marriner and that Mr Marriner failed to inform the board of ASD of the contract. 

1. The pleading then goes on to allege, that this failure by Mr Marriner was a breach of his statutory duties as director, a breach of a duty of care he owed ASD and a breach of fiduciary duties he owed to ASD.[41]  No loss or damage is alleged.  As to this, the Marriner defendants do not admit that the Mr Marriner failed to inform the board of the contract entered into with JJ McDonald and, say further, that he had no obligation to do so.[42]  This claim goes nowhere.

   [41]Statement of claim, para 79.

   [42]Defence, para 78.

1. The more serious part of the claim is that, notwithstanding the mandate and limit imposed by cl 9 of the 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 in the on-going works so that the limit of $4.7m was exceeded by $824,890.[43]  These payments include the two payments totalling $426,600 made out of the second tranche funds from the Bank of Queensland so that this claim and the first claim substantially overlap.  It is said that these payments in excess of $4.7m were made without the knowledge or approval of the board of directors of ASD and that they were for Mr Marriner’s benefit, inasmuch as they increased the value of the asset which his company was purchasing.  They, therefore, constituted breaches of his duties as a director pursuant to ss 180, 181 and 182 of the Corporations Act,[44] the fiduciary duties he owed to ASD[45] and his duty of care to ASD.[46]

   [43]Statement of claim, paras 84, 85.

   [44]Statement of claim, paras 87 - 88.

   [45]Statement of claim, para 89.

   [46]Statement of claim, para 90.

1. As to this second part of the claim:

(i)the Marriner defendants accept that under the June 2000 heads of agreement their mandate to spend money on capital expenditure was limited to $4.7m, but they say that this agreement was superseded by the agreement of 19 October 2001 and was effective to release all parties from their obligations and liabilities under the June 2000 heads of agreement.[47]

(ii)The Marriner parties deny that Mr Marriner without the knowledge or approval of the board of ASD instructed JJ McDonald to carry out the construction works in excess of the expenditure limit.[48]

(iii)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.[49]  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]   

[47]Defence, para 82, 86.

[48]Defence, para 83.

[49]Defence, para 84(a).

[50]Defence, para 84(d).

1. In addition to these defences, the Marriner defendants raise the defences which I have summarised in paragraph [29] parts (ix), (x), (xi) and (xii) above[51] and it may be that they set up the counterclaims summarised in parts (xiii), (xv) and (xvii) of that paragraph.

   [51]Defence, para 91B.

The Underlying Facts

1. In 1993, Goldworthy and United Super, as trustee for C+BUS, entered into a joint venture agreement as equal participants.  Under this agreement C+BUS was to provide the funds and Goldworthy the expertise in the business of property development and realisation.[52]  The vehicle adopted for the purpose was ASD, as trustee of the ASD Unit Trust.  In 1999 the directors were Mr Marriner, Mr Court and Thomas Kane as nominees of Goldworthy and Mr Frost, Mr Wason and Mr Weaven as nominees of C+BUS.

   [52]Statement of claim, paras 9 and 10.

1. At that time, Mr Marriner was described in the board minutes of ASD as its CEO and I accept this to be the case.  He was assisted in the day-to-day management of the Laguna Quays project by Mr Jephson the project manager, Graham Spence whose responsibility was the maintenance of the project, and John Robert Whalley.  Mr Whalley and Mr Jephson were also secretaries of ASD.

1. 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 2002 and 16 July 2002 Mr Whalley was a director of Laguna Investments and Laguna Management.  He was company secretary of ASD between 17 September 1996 and 27 February 2001;  of Laguna Investments between 18 April 2002 and 6 November 2006;  of Laguna Management from 18 April 2002 to 6 November 2006;  of Laguna Australia from 9 April 2001 to 2 September 2008;  of Laguna Airport between 19 October 2001 and 2 September 2008;  of Stage Design from 17 September 1996 to 2 September 2008;  and of Cumberland Management and Fulham Holdings.

1. The Laguna Quays project was conducted from 1997 by ASD in a joint venture with a Village Roadshow company using Laguna Investments as the joint venture vehicle.  In March 1999 ASD bought out the Village Roadshow interests, notably its shareholding in Laguna Investments, so that Laguna Investments became the wholly owned subsidiary of ASD.  Under the Village Roadshow/ASD joint venture, the day to day running of the resort was conducted by Laguna Management which had a bank account, entered into contracts, employed staff and received revenue with respect to the resort. As between Laguna Management and Laguna Investments these transactions were recorded in the annual accounts, not of Laguna Management, but of Laguna Investments.  This was explained by Mr Whalley as being appropriate, from an accounting point of view, because Laguna Management was indemnified in respect of the costs by Laguna Investments.  This practice continued after the exit of Village Roadshow and Laguna Management continued to act as agent for Laguna Investments; the Laguna Management accounts show no profit and loss transactions and no assets and liabilities.

1. At a meeting of directors of ASD held on 26 March 1998 certain financial control procedures were put in place 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.

…

1. By late 1999 or early 2000 the board of C+BUS was becoming unhappy with the way in which Mr Marriner was conducting the joint venture.  They took the position that he was operating the projects too independently and with a view to his own interests at the expense of those of C+BUS.  They were concerned, too, that expenditure was being incurred on activities which were not approved in accordance with the finance control procedures established in 1998 and, generally, that the projects were incurring operating losses and consuming excessive funds.  Mr Marriner disputed these allegations before me but I ruled that, since I was not required to make findings as to them except insofar as they bore upon the issues in this case, I should not receive evidence other than that they were concerns of the C+BUS Board.  I make no finding as to the correctness of these complaints.

1. The concerns about the viability of certain projects were, in part, directed to the Laguna Quays project.  In a business plan prepared for ASD by Mr Whalley and adopted by the board on 7 December 1999, it was decided to realise this asset in the short-term.  At the same time, the business plan recommended that certain rectification and development works be carried out with a total estimated cost of $4.7m.  This spending limit provides the background to the second claim in this proceeding – the capital expenditure claim.

1. Mr Marriner did not share the pessimism of the board about the long-term prospects of the Laguna Quays project.  In consultation with Mr Whalley, he prepared in March 2000 a proposal that Fulham Holdings purchase the project for $26.5m subject to certain terms.

1. A remarkable feature of this transaction is that Mr Marriner’s proposal to purchase the Laguna Quays project for $26.5m was placed before the C+BUS investment committee by Mr Wason on 28 March 2000.  The terms of the proposal included a provision that all but $5m would be funded by vendor finance.  The proposal concluded with a request on behalf of ASD that C+BUS approve the sale.  This proposal was before the ASD board on 16 May 2000 when it resolved that Mr Marriner proceed with detailed negotiation and documentation for the sale on certain specified terms.  It seems that the board had a very great confidence in Mr Marriner when it entrusted to him on behalf of ASD the role of conducting these negotiations with himself on behalf of the purchaser, Fulham Holdings.  This represents a striking example of the readiness of the ASD Board to leave the matters in the hands of Mr Marriner, even at a time when, as I was told, C+BUS was becoming disenchanted with his conduct of the ASD projects. 

1. In any event, these negotiations led to the entering into of heads of agreement on 30 June 2000, whereby Laguna Australia, a wholly owned subsidiary of Fulham Investments, would purchase from ASD, Laguna Investments and Matelda Oaks the assets of the resort for $26.5m payable by four instalments:  $250,000 on the signing, $2.4m on 31 October 2000, $2.65m 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.

1. The agreement provided, by cl 9, that ASD would at its own expense complete the capital works described in terms similar to the business plan referred to above with, again, a cost cap of $4.7m.  The purchaser, too, agreed in cl 14 to invest not less than $3m capital expenditure on the project within 12 months of payment of the second instalment.

1. By cl 10, the purchaser would, subject to making payment of the first and second instalments of the price, be entitled to possession of the land and the business sold from 31 October 2001.  In the meantime, the parties agreed by cl 12(a) that the purchaser would “proceed to further develop, subdivide and improve the assets hereby sold” and that the vendors would do everything reasonably required to facilitate this.

1. Finally, cl 10(d) 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 the Laguna Quays resort.  At this time it was believed that there were a number of bonds and securities in place, apart from that for $1.61m in favour of the Mackay Electricity Board.  These were bonds lodged by earlier owners of the project with the Department of Natural Resources to secure performance of its development obligations under the leases pursuant to which the Laguna Resort land was held.  They were thought to exceed $2m.

1. The purchaser duly paid the first instalment of $250,000. 

1. Although the June 2000 heads of agreement is a fairly informal document, I am satisfied that it was effective to bind the parties, although they agreed to execute such further documents as should be necessary to give effect to the transaction.

1. On 1 November 2000, the parties to the joint venture executed another heads of agreement winding up the joint venture.  This was to be achieved by Goldworthy transferring its shares in ASD and in the trust to USI, a company associated with C+BUS.  This agreement, which also dealt with a number of the joint venture projects, was formalised by a document entitled Unit Redemption and Share Acquisition Deed dated 3 November 2000.  Consequent upon the execution of this deed, Mr Marriner, Mr Weaven and Mr Court resigned as directors of ASD on that date.

1. Meantime, on 31 October 2000 the second instalment of the purchase price of the Laguna Quays resort was not paid.  This had the consequence that trading losses, then running at about $4m per annum, accrued to ASD.  Although its legal interest in the resort was only that of purchaser under the June 2000 heads of agreement, Laguna Australia and its CEO, Mr Marriner, continued to play an important ongoing role in the management and development of the resort. 

1. At this stage, the principal development activity was the work on the airstrip which was being carried out by JJ McDonald pursuant to a contract entered into with Laguna Management dated 3 December 1999 but not executed until late March 2000.  The Board was aware that an airstrip was being constructed but the escalating scope and cost of the work was not disclosed to it.  By the end of March 2000 the amount already due but unpaid to JJ McDonald for the work was in excess of $800,000.  The Board became concerned about the cost and on 21 March 2000 it resolved that the work be suspended pending further investigation.

1. Notwithstanding this, Mr Marriner pressed on with the work for the airstrip and associated work, justifying this to me by saying that it was to be at his expense.  If this was his intention, he did not act upon it.  On 16 October 2000 he signed a letter on behalf of ASD and Laguna Management agreeing with JJ McDonald a repayment plan for satisfaction of the existing liability for the work in the sum of over $4.3m, and for payment expected to fall due for the work in the future.[53]  Next, in April 2001, when he was asked by Mr Patience to explain the debt claimed to be owing to JJ McDonald by ASD, Mr Marriner responded that this was for works which were his responsibility under the June heads of agreement.  Later that month at a meeting with Mr Patience and Dr Greig, Mr Marriner responded to a similar query that the JJ McDonald claim was for works for which ASD was responsible under the $4.7m capital works arrangement. Furthermore, Mr Marriner in this proceeding seeks to charge the cost of this work to ASD. 

   [53]See paras [90] – [91] below.

1. Throughout 2001 the parties continued to negotiate fresh terms for the completion of the June 2000 sale of the Laguna Quays project to the Laguna Australia.  Various proposals were prepared and presented until, on 19 October 2001, ASD made an offer to sell the assets to Laguna Australia for $27.45m, representing $26.5m which had been agreed to in June 2000 and a further $950,000 which Laguna Australia had paid for the grant of certain freehold land which had previously been held as Crown leasehold.  This price was to be payable by a deposit of $1.05m of which $255,000 had previously been paid under the June 2000 heads of agreement and $800,000 had been paid by Mr Marriner’s interests for the airport land.  The balance of $26.4m was to be paid by Laguna Australia out of the proceeds of the sale by ASD of its interest in the Victoria Gardens project and the Regent Plaza project.  This offer was accepted by Laguna Australia and came into effect upon the approval by C+BUS on 23 October 2001.

1. The agreement contained in this letter was expressed to be binding on the parties and to supersede and be effective to terminate the June 2000 heads of agreement.[54]  The agreement contemplated that, in turn, it would be superseded by a formal contract of sale.[55]   The date for completion was 25 January 2001[56] upon which Laguna Australia would be entitled to possession of the resort.[57]

   [54]Clause 11(b).

   [55]Clause 11(a).

   [56]Clause 1.

   [57]Clause 4.

1. The formal documentation recording the sale of the Laguna Quays project to Laguna Australia was executed on 13 December 2001.  It comprised four agreements:

·A contract of sale of land by Matelda Oaks to Laguna Australia for $8.45m

·A contract of sale of land by ASD to Laguna Australia for $2.2m

·A sale by ASD to Laguna Australia of its shares in Laguna Investments, being all of the share capital of that company, for $10m

·An assignment by ASD to Fulham Holdings of the debt owed by Laguna Investments to ASD for $3m

The total of the purchase price as expressed in the agreements is $13,650,010, and the completion date is 8 February 2002.  It will be recalled that the agreed sale price under the 19 October 2001 agreement was $27.45m.  I was told that the sale under the agreements of 13 November 2001 also included a sale by ASD of its interest in the Victoria Gardens project, which interest was valued at $14m in the letter of 19 October, but the agreement for this was not in evidence. 

1. The completion date of the sale was extended from time to time and completion actually occurred on 17 April 2002.  The amount of the debt assigned to Fulham Holdings as at that date was fixed at $16,592,676.75.

The Bond Money Claims

1. By agreement dated 23 July 1983, the previous owner of the resort had been required by the Mackay Electricity Board to lodge a bond for $1.61m to secure an obligation to make payment to the board in the event that electricity consumption did not achieve a certain limit.  Upon the purchase by ASD of the interests of Village Roadshow it became necessary for ASD to provide this security.

1. The fate of the Village Roadshow bond is dealt with in cl 6.4 of the agreement dated 12 March 1999 pursuant to which Village Road Show interests sold their interests in the joint venture to ASD and associated companies for $13.3m.  Upon settlement the purchasers were to lodge with their solicitors, Freehill Hollingdale & Page, a bank cheque for $1.61m which sum was to be held in the Freehills trust account until 12 May 1999.  Upon that date this sum was to be paid to the vendors if the Village Roadshow bank bond had not been delivered to the vendors; or to ASD if the Village Roadshow bond had been so delivered.[58]

   [58]Clause 6.5.

1. Accordingly, on 11 March 1999, the day prior to the signing of the sale agreement, the directors of ASD resolved to seek $2m from C+BUS, $1.6m to satisfy the obligation under cl 6.5, and a further $400,000 to meet unspecified balance day adjustments.  On the same day, the C+BUS investment committee passed the following resolution:

It was resolved 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 the Mackay Electricity board.

1. On 12 March 1999 the sum of $2m was transferred to the ASD bank account.

1. There was some delay in lodging the agreed $1.61m with Freehills and the parties agreed to vary the terms of cl 6.5 to accommodate this.  On 15 March Freehills wrote to their client, ASD, advising receipt of the sum and stating that it would be banked on 22 March.[59]  The trust account receipt issued by Freehills recorded this as “Deposit to secure Bank G’tee to Mackay Electricity Authority”.  On that day, the sum is recorded in the ASD general ledger as a loan from ASD to Laguna Investments. 

   [59]No reason for this seven day delay in banking the cheque was given.

1. Two months elapsed before the new bond was put in place and the old Village Road Show bond released.  It appears that during this period Mr Marriner, on behalf of ASD, sought to negotiate with the electricity board more favourable terms than those under which the old bond had been provided.  He sought to persuade the board to accept a deposit of $1.61m as sufficient security.  He was to some extent successful:  the board insisted upon a bank bond but agreed to its reduction from time to time on certain conditions.  On 19 May 1999 Freehills had written to DDH Graham, a merchant banker,  advising that $1.61m would be transferred to its account so that it might arrange for the issue of a new bond in favour of the Mackay Electricity Board in the name of Laguna Management, and deliver it to Mr Whalley.  On the same day Freehills wrote to the electricity board confirming that the bond would be arranged by Laguna Management.  The new bond was issued by the bank on 21 May 1999 through the merchant banker.

1. The bank bond dated 21 May 1999 was issued by the Bank of Queensland for Laguna Management in favour of the electricity board.  The precise arrangement with the bank was that it granted to Laguna Management a guarantee facility in the sum of $1.61m for a period of 10 years.  The purpose of the loan was to:

Supply a Bank Guarantee in favour of Mackay Electricity Corporation or its successor.

1. The Bank accepted as security for this loan a letter of set-off provided by Laguna Management in respect of account No 70-178422.  This account was a new account in the name of Laguna Management opened on 20 May 1999 and into which was deposited by DDH the sum of $1,615,903.77.

1. 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.

1. It is clear that the sum standing in the Bank of Queensland set-off account is recorded in the books of account of ASD and Laguna Investments as a loan from ASD to Laguna Investments.  It is but an item in a running account recording the money advanced to Laguna Investments to fund its operations under the joint venture with respect to the Laguna Quays project.  There is no evidence as to how this money was treated in the books of C+BUS.

The ASD Trust Point

1. The fundamental question arising from this is whether the sum of $1.61m paid by ASD was so paid as a loan to be held as part of the general funds of Laguna Investments but in the expectation that it would be applied for the purpose of securing the bank bond, as the Marriner parties contended;[60] or whether it was funds held on trust for ASD for the purpose of securing the bank bond, as the ASD parties would have it.[61]  As pleaded, the trustee was Laguna Management.  The precise nature of this trust was explained and enlarged upon by counsel for ASD in their final address.  It was said that the trust was a Quistclose trust[62] for the purpose of securing the bank bond so that the funds never became part of the general funds of ASD available for the Laguna resort.  It was said, further, that if and when the funds were not required for that purpose they would be held on a second trust for the purposes of ASD.  In fact the funds, when received from ASD were applied in 1999  by Laguna Investments for the expected purpose;  it is the terms of the unpleaded second or ancillary trust which are said to have been breached in this case. 

   [60]Defence para 26(a), (c).

   [61]Statement of claim para 26, 34.

   [62]See Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.

1. The law with respect to transactions of this type is clear, notwithstanding that it may be difficult in its application to a given case.  The Quistclose trust arises where the mutual intention of the parties, that is, the intention of the settlor, ASD, and of the trustee, Laguna Investments, is that the funds form no part of the assets of the trustee.[63]  The intention is to be inferred from what the parties said and did and from the nature of the transaction and the circumstances attending their relationship.[64]

   [63]Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353, per Gibbs ACJ.

   [64]Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 503, per Gummow J.

1. The application of these principles to the transfer of money between corporations presents peculiar difficulties and these are compounded where the corporations are part of a corporate group with common directors.

1. It is worth noting at this stage that which was not contended for by any party before me.  No one suggested that the funds were held in trust for C+BUS as the party which provided them in the first place.[65]  No party suggested any scenario other than the suggested trust or a simple loan.[66]  It is not said that Laguna Investments was the trustee:  it is Laguna Management which is said to have breached its trustee duties.[67]  There was no evidence of any express contemporaneous statement by or on behalf of either of the suggested parties to the trust which indicated the existence of the trust.  It was simply understood by ASD and Laguna Investments that the money was required for and was in fact provided for the purpose of obtaining the bank bond. 

   [65]See paras [63] – [64] above.

   [66]Cf Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 503, per Gummow J.

   [67]Statement of claim, paras 35, 47.

1. Given the events that occurred between 9 March 1999 when the funds were received by ASD and 21 May 1999 when the bond was issued, it might be important to determine when it was that the suggested trust arose.  But there was no evidence or submission as to this.  For example, at the commencement of this period the funds were to be applied as contemplated by cll 6.4 and 6.5 of the sale agreement.[68]  There was no question, then, of the bond being reducible, so that the question as to the status of the funds to be released as a consequence did not arise.  It may be, too, that, at this time, the question whether the bond should be provided to Laguna Management or Laguna Investments had not arisen.  In any event, the funds did not pass from the control of ASD until about 19 May when the merchant banker arranged for the bond to issue in the name of Laguna Management.  By that time it was clear that all of the $1.61m was to be applied for the obtaining of the bond and, further, that the electricity board had agreed to permit the reduction of the bond from time-to-time.  It does not appear that, at that time or indeed at any time prior to the issue of the bond on 20 May 1999, anyone said anything or even turned their mind to the fate of any part of the funds which might be released as a consequence of a bond reduction.  It seems that the first mention of this appears in cl 10(d) of the heads of agreement of 30 June 2000. 

   [68]See para [63] above.

1. An important matter in this regard is the role of ASD.  It was the corporate vehicle used by C+BUS and the Marriner interests for the conduct of their many joint ventures.  The practice of ASD was that, when it required funds for one of these projects, it would normally make a request of C+BUS and this was dealt with by its finance committee.  The evidence of Mr Marriner was that these requests would normally be made informally to Mr Whalley, the chairman and secretary of C+BUS.  ASD was usually required to provide some justification for the funds requested and, for the purpose, would provide some indication of how the money was to be spent.  Such was the case in March 1999 when the $2m was provided.  It is therefore not surprising that the purpose for which the funds were provided was identified, as it was by both C+BUS and ASD.  Doubtless it was the expectation of both these parties that the funds would be so applied.  And if they were not, this would be a matter of concern for C+BUS rather than of ASD.  The evidence showed that the funds in the hands of ASD were commonly applied to whatever project had an urgent need for them.  This is how Mr Jephson, with Mr Marriner’s concurrence, managed the creditors of ASD and its various subsidiaries.  Having regard to this fairly cavalier attitude to the separate corporate identities comprising the ASD group, it would be the exception rather than the rule that money in the hands of one of the operating subsidiaries would be earmarked by ASD sufficiently to constitute a trust.  In these circumstances a clear indication of such intention would be required. 

1. Throughout the period from March to May 1999, Laguna Investments was a wholly owned subsidiary of ASD.  Its only directors, Mr Kane, Mr Weaven, Mr Marriner and Mr Frost were all directors of ASD.  It was the company through which ASD carried out the Laguna Quays project.  Mr Marriner, the CEO of ASD, was also the directing force behind decisions made by Laguna Investments for that project.  In these circumstances, it is not easy to draw a line between the two corporations and their decision-making with respect to this project.  The question whether money in the hands of Laguna Investments was held in trust for ASD would not, therefore, arise, except perhaps insofar as the financial control procedures established by the ASD Board on 26 March 1998 constrained the application of funds by Laguna Investments where the transaction exceeded $50,000.[69]

   [69]See para [42] above.

1. The sum of $1.61m in question was held by ASD in its bank account from 9 March to 15 March 1999.  On that day the funds were paid by cheque to Freehills, acting as solicitors for ASD and, perhaps, for all of the companies associated with it, and were banked on 22 March 1999.  On that day ASD recorded in its general ledger the payment to Freehills as a loan to Laguna Investments.  Although it was clear enough that the expectation of the parties was that the money was to be applied for the purpose of acquiring the bond, there is nothing to indicate a reservation by ASD of an equitable interest.  Rather the contrary.  The money is treated as a further loan on the running account.  The uncontradicted evidence of the accountants, Mr Whalley and Mr Blashki, was that, from an accounting point of view, the payment would not have been treated in this way if it were money paid on trust.

1. The conduct of Laguna Investments tends against the existence of the suggested trust.  The money did not pass through its hands;  it passed directly from Freehills to the merchant banker and then to the account, not in the name of Laguna Investments, but in the name of Laguna Management.  It was said that Laguna Management was acting as its agent.  But, if so, it was acting as an agent for an undisclosed principal:  the bank documents do not speak of agency;  nor does Laguna Management’s supply agreement with the electricity board.  It seems that Laguna Management became a customer of the electricity board as the successor of Aqua del Rey International Pty Ltd, the former operating company of the resort.  Finally, any inference of a trust intention is blurred by the fact that the money deposited in the set-off account by the merchant banker included sums other than the required $1.61m.  The amount of $1,615,905.77 was in fact deposited.  This sum might have included bank charges but there was no evidence of this.  I am not satisfied that there is here the intention necessary for the establishment of the suggested trust.

1. From all of this, I conclude that the sum of $1.61m standing in the set-off account in the name of Laguna Management was not held by it or by Laguna Investments on trust for ASD.  It was money lent in turn by C+BUS to ASD and by ASD to Laguna Investments, in each case with the expectation that it would be used for the obtaining of the bond.  Laguna Management held the set off account as agent for Laguna Investments.

1. I conclude also that, when the money or part of it was released, it was the property of Laguna Investments, subject to the right of ASD to call for repayment of its loan.

1. This conclusion carries with it the consequence that the causes of action based on breaches of trust by Laguna Management must fail.

1. These failed causes of action comprise claim (iv), the allegation that Mr Marriner procured or induced a breach of trust by Laguna Management by directing that the second tranche funds be applied in October 2000 in payment of the JJ McDonald account and in reimbursement of payments made to JJ McDonald by Cumberland Management.  They comprise, too, claim (v), the allegation that Mr Marriner procured or induced Laguna Management to breach its trust by paying the third tranche funds to Wallace & Wallace in February 2001 to be held by it for ASD.  This last claim had to address the further difficulty that it can hardly be a breach of trust for a trustee, Laguna Management, to pay its fund to the beneficiary, ASD.

The Application of the Second Tranche Funds

1. This is sufficient to dispose of claims (iv) and (v).  Nevertheless, in case claim (iv) may go further, and because this may bear upon claims (i), (ii) and (iii) I shall consider how the second tranche funds were dealt with.  It is clear that the funds totalling $426,600 were paid, as to $156,600 to JJ McDonald and as to $270,000 to Cumberland Management to recompense it for payments made to JJ McDonald. 

1. With respect to the payment to Cumberland Management, counsel for the Marriner parties said that this could not be a breach of trust by Laguna Management, as pleaded, because it was a payment to a creditor of ASD, so that ASD suffered no loss.

1. The real complaint about the disbursement of these funds is that they were made to JJ McDonald for the construction of the airstrip and associated work.  I will now set out in a little detail the history of these expenses.  I do this because it explains the complaints made by C+BUS in respect of the second tranche funds which are the subject of claims (i), (ii) and (iii).  Incidentally, it illustrates the casual manner in which Mr Marriner was accustomed to deal with funds under his control.

1. Sometime in late 1999 a contract was entered into with JJ McDonald for the performance of earth works at the Laguna Quays resort.  It is difficult to be more precise in describing this contract because a written agreement was not prepared and executed until late March 2000.  It is, however, dated 3 November 1999.  The contracting party in the document is Laguna Management, but it was probably acting as agent for Laguna Investments.  The contract describes the work as “for the provision of the Construction of Airstrip in relation to the project”  but it is apparent from the schedule that it involves much more.  The contract provided for payment for the work by a schedule of rates; it was not a fixed price contract.  The estimated cost of the work as appears in the contract schedules was of the order of $4m.  Neither Mr Marriner nor Mr Whalley, the two ASD directors who were asked about this document, professed very much knowledge about it.  It appears from the affidavit of Chris Greig of JJ McDonald that it was executed by Mr Spence on behalf of Laguna Management a week or so after the 21 March 2000 ASD board meeting which directed the work to stop pending “further consideration by the Board based on more substantial evidence supporting the feasibility of the proposed investment” in the airstrip, and at a time when nearly $1m cost had been incurred for the work carried out by JJ McDonald.

1. Notwithstanding the board’s direction, the work proceeded.  It seems that, as CEO of the project, Mr Marriner continued to direct JJ McDonald as to the work on the airstrip, including variations, so that by June 2000 when he entered into the heads of agreement to purchase the Laguna project, the status of the work as it appears in JJ McDonald’s progress claim 8 was that nearly $3.6m cost had been incurred against a current total estimate of over $7m.  Of this latter figure, about $5.5m was described as being for the airport and access roads and variations to these items. 

1. In the next progress claim, progress claim 9 for work performed in June 2000, the total estimated cost of the works when completed had increased to $11.75m, largely as a consequence of the estimated cost of the airport and associated works increasing to about $10m.  This claim was later reissued as two claims at the request of Mr Spence.  The first progress claim 9, addressed to Laguna Management, was for the airport and associated works alone and the other, addressed to ASD, was for other works at the resort.  This practice of issuing two claims and two invoices continued each month thereafter.  The splitting of the progress claims appears to have been a consequence of the fact that, on 30 June 2000, ASD and associated companies had agreed to sell the Laguna Quays project land and the shares in Laguna Investments to Marriner companies.  Since ownership of Laguna Management, as a wholly owned subsidiary of Laguna Investments, would also pass to the purchasers, it may have been intended that the cost of the airport and associated works should be borne by Laguna Management.  This is broadly consistent with Mr Marriner’s explanation for continuing with the airport work:  that it was at his own expense.[70]

   [70]See para [56] above.

1. The difficulty which then arose was that the split progress claims 9, 10 and 11 were not paid.  The unpaid amounts in early October 2000 totalled about $3.941m for the airport and associated works which were billed to Laguna Management and about $410,229 billed to ASD.  As a result of pressure from JJ McDonald, Mr Marriner signed a letter of agreement dated 16 October 2000 to cover these amounts and also ongoing work.  This letter is of interest for present purposes inasmuch as Mr Marriner signed on behalf of both Laguna Management and ASD, acknowledging them to be jointly and severally liable for all the payments which he agreed to make. 

1. Under the terms of this 16 October 2000 agreement Mr Marriner bound Laguna Management and ASD to pay the outstanding invoices by three payments and further to pay $90,000 per week in advance to cover the cost of the performance of work in the future.  Under this pre-payment arrangement Mr Jephson caused three payments of $90,000 to be paid by Cumberland Management.  These were made on 17 October 2000, 24 October 2000 and 31 October 2000.  These payments totalling $270,000 were apparently treated as inter-company loans from Cumberland Management.  

1. I return now to the second tranche funds.  On 24 October 2000 Mr Jephson, on Laguna Management letterhead, instructed the Bank of Queensland to transmit all of the available funds, $426,600, to ASD.  Later the same day, he modified this instruction so that $270,000 was to be paid direct to Cumberland Management and the balance to JJ McDonald and credited by it to its Laguna Management account. The payments were made on 30 November 2000.

1. What is said in the pleadings[71] is that Mr Marriner breached his statutory and fiduciary duties as director of ASD and was negligent in instructing Mr Jephson to direct the application of the second tranche funds in the way I have described. 

   [71]Statement of claim, paras 25-30.

1. It is contended that the payments were made from the second tranche funds without the knowledge and approval of the ASD board and that the payments were made for Mr Marriner’s own benefit or for that of his companies, to the detriment of ASD.  The facts that he owed the duties alleged and that he did not inform the board were not seriously in dispute, and I so find. 

1. As I indicated to counsel in the course of the trial the negligence allegation adds nothing to the case of C+BUS on this point and I say nothing more about it.

1. The question here is whether the payments were not for the benefit of ASD.  In the course of final address counsel for C+BUS said that Mr Marriner ought not to have entered into the agreement with JJ McDonald by signing the letter of 16 October 2000 for payment of the outstanding and future debts.  I am inclined to agree but this is not pleaded as a breach of duty.  Once this agreement was signed, ASD was liable to pay JJ McDonald a substantial sum.  The payments made by Cumberland Management and the payment from the second tranche funds had the effect of satisfying or reducing this liability.  And so, it was said, it could not be said to have been a payment adverse to the interests of ASD.  There is therefore no breach of the statutory or fiduciary duties of Mr Marriner by making these payments.  It may be more correct to say that ASD, for this reason, suffered no loss.  Either way, this, it was said, provides an answer to claims (i), (ii) and (iii).

1. The Marriner parties next take the rather unattractive position that Mr Marriner had no role in this; Mr Jephson was acting as a free agent for the benefit of Mr Marriner and his companies.  He was at all times prior to 19 January 2001 secretary of ASD and, as such, authorised to deal with its funds and to pay its creditors, subject only to  some constraint imposed by its constitution or a decision of the board.  The case of ASD was that Mr Marriner was very much a hands-on CEO and that I should reject his denials.  It was put, too, that Mr Jephson was in his evidence content to support his former employer. 

1. My impression of Mr Marriner’s manner of dealing with creditors and the money of companies under his control is that he was involved in every aspect of his various projects, including Laguna Quays.  It was he who planned the strategies required and he who actively participated in their implementation.  I am satisfied, however, that his eye was on the big picture rather than the fine detail and that this applied particularly to his dealings with his creditors.  So far as this project, at least, was concerned, creditors appear to have been an on-going problem.  This caused Mr Marriner to conduct his dealings with them with little regard to the niceties of corporate identity.  When money was required 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.  It seems, too, that Mr Jephson, whose task it was to deal with the creditors, was allowed to pursue, or at least not discouraged from pursuing, a similar approach.  As he put it in cross examination, “… it’s all money out of the same – out of the same group of companies.  That’s how I had to manage the cash flows of the companies”.  And it was consistent with Mr Marriner’s lack of concern for detail or, perhaps, by a conscious decision on his part not to know too much about these matters, that he gave Mr Jephson a fairly free rein.  While it is true that Mr Marriner took an active role in agreeing upon the payment schedule for the JJ McDonald debt, it is significant that he called Mr Jephson to enquire whether there were available funds, before he committed to the letter of 16 October 2000.  I accept the evidence of Dr Greig that, in this conversation which he heard on speakerphone Mr Marriner asked Mr Jephson whether the commitments in the letter would be able to be made of ASD and that Mr Jephson responded that he could see no reason why Mr Marriner should not sign the letter.  There is no evidence that Mr Jephson told Mr Marriner that he intended to make the weekly pre-payments from the second tranche funds or that Mr Marriner directed him to do this.  My impression of Mr Jephson is that he was a compliant participant in this, without troubling himself to know much beyond his particular task.

1. I must confess to considerable scepticism about this evidence.  I think it exceedingly unlikely that Mr Marriner did not have a good idea of what Mr Jephson was doing to keep the creditors at bay and that, on occasions, it was his decision whether a particular account should be paid and from what source the money should be drawn.  Ultimately, however, this is speculation. 

1. I was invited by counsel for C+BUS to treat Mr Marriner as an unreliable witness and to reject his evidence.  I was reminded that he was often evasive and was inclined to make self-serving speeches when in the witness box.  This I observed.  I observed, too, that he showed himself to be emotional and even outraged that this proceeding was brought against him.  I have already remarked at his cavalier approach to the niceties of corporate independence: he appeared to be content that money within his control be used for a purpose notwithstanding that the money was that of a company unconnected with that purpose. 

1. I am, however, confronted with the uncontradicted evidence of both Mr Marriner and Mr Jephson.  Notwithstanding my reservations, I will act upon this evidence.  I conclude that Mr Marriner did not direct Mr Jephson to apply the second tranche funds as he did.  Mr Jephson, having access to these funds, applied them to such of the creditors with whom he was dealing as he saw fit.  The claims against Mr Marriner which depend upon his responsibility for the acts of Mr Jephson, therefore, must fail.

1. Having reached these conclusions, it is not necessary that I consider the further numerous defences offered on behalf of the Marriner parties.  Nevertheless, in case the matter may go further and in deference to the submissions of counsel, I shall briefly venture my views upon them.

1. Defences (iii), (iv), (v) and (vi) all depend upon provisions of the June 2000 heads of agreement under which Laguna Australia agreed to purchase the Laguna Quays project.  The provisions are the following:

9        [ASD] to complete works

[ASD] shall forthwith and at its own cost and expense complete or procure the completion of the capitol 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.

10       Transfer of risk

…

(d)Any deposits, bond, guarantees or other sureties held by any authority with respect to Laguna Quays or its development shall be applied towards the costs and expenses of converting such crown leasehold land as is part of Laguna Quays to freehold title in the name of [Laguna Investments].

11Inter-Company Loan

The parties acknowledge that [Laguna Investments] is presently indebted to [ASP] 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.

1. The first of these defences[72] was that the expenditure of the second tranche funds in favour of JJ McDonald was for capital works described in annexure 4 of the heads of agreement which ASD was to carry out with a limit of $4.7m in accordance with cl 9.  This provision underlies the capital expenditure claim which I shall later deal with.[73]  The fundamental difficulty with this defence is that the $4.7m had been all but spent by the end of October 2000, as Mr Whalley’s lists demonstrate.[74]  There remained unspent only $14,487 of the $4.7M allowance.  Assuming all of the second tranche funds, $426,600, fell within cl 9, there is still an unprotected balance of $412,113.[75]

   [72]Defence (iii).

   [73]See paras [157]ff  above.

   [74]See para [161] below.

   [75]See para [164] below.

1. The next defence[76] relies upon cl 10(d).  Under this provision the proceeds of the bond money might be applied to “the costs and expenses of converting certain Crown leasehold land to freehold”.  Counsel for the Marriner parties then applied a very wide interpretation to the expression “freeholding costs”.  It includes, it was said, any costs incurred in satisfying planning requirements for the project and in demonstrating to the statutory authorities the viability and efficacy of the development plans proposed by Mr Marriner and his companies.  What was said was that these authorities would not support the application for freeholding or permit it to go ahead unless these matters had been attended to.  A good deal of time at trial and many documents were deployed on this topic.  I do not construe cl 10(b) in these wide terms.  To my mind, the costs and expenses involved in freeholding are limited to the direct costs incurred in purchasing the freehold land and the associated conveyancing and other costs.  The earthworks carried out by JJ McDonald in pursuit of Mr Marriner’s vision for the project certainly do not fall within freeholding costs. 

   [76]Defence (iv).

1. Defences (v) and (vi) are not easy to understand.  They depend upon the assertion that the security held by the Bank of Queensland was a debt owed to ASD by Laguna Investments.  I have in fact found this to be correct and that the proceeds of this security are likewise moneys owed to ASD.  The defences assert that the consideration of $26.5m for the sale of the Laguna Quays project which is to be paid by Laguna Australia to ASD includes this debt, and that the debt should be treated, pursuant to cl 11, as having been purchased by Laguna Australia or discharged.

1. There are many difficulties with these defences.  It will be recalled that the assumptions underlying my consideration of it include that Mr Marriner is liable to ASD for misapplying its trust money.  This being the assumption, cl 11 has no application because the second tranche funds do not represent a debt to ASD.  Next, cl 11 does not extinguish any debt.  It is that the purchase price, which was not paid pursuant to the June 2000 heads of agreement, has not been repaid in terms of cl 11.  There may be other difficulties with it,  but I decline to follow this defence further.

1. Defences (vii) and (viii) deal with the same or a very similar point.  It is said that ASD suffered no loss since the payments reduced its liabilities to its creditor JJ McDonald.  Again, I remind myself of the assumptions I must make before considering these defences.  The defences cannot raise a defence to the claim based on the payment to Cumberland Management.  If the Marriner parties wish to look at the substance rather than the form of that payment, they would also have to address the circumstances of the 16 October 2000 agreement with JJ McDonald under which Mr Marriner on behalf of ASD assumed this liability without board approval.

1. By the heads of agreement dated 1 November 2000 the two holding companies, USI and Goldworthy, agreed that ASD and the ASD Trust should pass to USI, thereby winding up the joint venture.  Other parties to this agreement were United Super and ASD itself.  The document provides in cl 1 that it binds USI, Goldworthy and United Super[77] until formal documentation is achieved.

   [77]See, also, cl 16.

1. In defences (ix) and (x), the Marriner parties rely upon cll 2(e) and 2(f) of this November 2000  heads of agreement.

2By not later than 3 November 2000 or such later date as USI and Goldworthy may agree (Operative Date) USI and Goldworthy must do everything necessary (including sign all documents) required so that:

…

(e)[ASD], USI and C+BUS release Goldworthy and each of David Marriner, Gary Weaven and Ian Court (the Nominated [ASD] Directors) from any liability it or they may have to them or any of them in respect of the management and operation of [ASD] and the Trust;

(f)C+BUS indemnifies Goldworthy and the Nominated [ASD] Directors against any liability that it or they may have to [ASD] or to any other person (including C+BUS) in respect of any liability owed by [ASD] to any person;

1. Clauses 2(e) and 2(f) are said to contain releases from his liability in respect of the claims for misappropriation of the second tranche funds.[78]  There is no substance in these contentions.  The November 2000 heads of agreement were superseded when the formal agreements were entered into two days later.  Next, the payments out of the second tranche funds relied upon were made on 30 November so that cl 2(e) at least, has no application to them.  Next, Mr Marriner who seeks to enforce these terms is not a party to the heads of agreement.  There may be other answers but I will not burden this judgment with a further consideration of these defences. 

   [78]Defences (ix) and (x) .

1. As mentioned above, the November 2000 heads of agreement were superseded when formal contracts dissolving the joint venture were entered into on 3 November 2000.  One of these contracts, the Unit Redemption and Share Acquisition Deed contains in cl 8 the following provision:

8        [ASD]  and USI Release

[ASD]  and USI together and each of them hereby release, discharge and holds harmless Goldworthy and the Goldworthy Nominated Directors against all claims, demands, losses, liabilities or damages which [ASD]  or USI has now or at any time hereafter may suffer or incur arising out of the conduct of the business of [ASD], The Trust, The Victorian Property Trust, Cumberland Resort, Mountain Maid Group, the Parkland Group or any other entity controlled by or in which [ASD] had an interest at any time since the formation of the trust.

Defence (xi) relies upon this release.

1. On its face, this release would not cover the claims presently made against Mr Marriner as a Goldworthy nominated director.  The misappropriations of the bond money, assuming as I must for present purposes, that it was money held on trust for ASD, are put as breaches of trust which Mr Marriner performed or with respect to which he acted in an accessorial capacity or which amounted to a breach of a director’s duty.  Clause 8 is directed to losses which ASD had suffered or might suffer “arising out of the conduct of the business” of ASD. 

1. The terms of cl 8 are not sufficient to cover the conduct alleged against Mr Marriner.  It is no part of the conduct of the business of a company for a director or an associated company to breach his or its statutory or fiduciary duties owed to the company or to procure or induce or assist others to do so or knowingly to receive the proceeds of the breach of trust.

1. ASD also relies upon the principle that, to be effective, a release of a trustee must be given by the beneficiary deliberately and advisedly with full knowledge of the circumstances.[79]  In the circumstances of this case, I think that Mr Marriner could not discharge this burden.

   [79]Farrant v Blanchford [1863] 1 DeGJ and SM 107 at 119-20; 46 ER 42 at 46-7 (Lord Westbury LC).

1. The next point taken by ASD is that its claims against Mr Marriner for breach of his duty as an officer of ASD cannot be released having regard to s 199C(2) of the Corporations Act.  It was suggested that section did not operate to prevent the parties entering into a release such as this.  I do not think this is correct.  I do not think that Mr Marriner has an answer to this point, at least with respect to claim (i) and, possibly, claim (ii).

1. By the end of 2001 ASD was chafing at the continuing failure of Laguna Australia to perform its obligations for the purchase of the Laguna Quays project.  Eventually in a letter dated 19 October 2001, by way of ultimatum, it made a final and non-negotiable offer to conclude the transaction on certain terms.  Laguna Australia accepted this offer.  By its acceptance, Laguna Australia agreed by cl 11 that the 19 October 2001 agreement was binding and that the June 2000 heads of agreement were cancelled.

1. Defence (xii) relies upon this agreement as amounting to mutual releases by the parties to the agreement.  The agreement contains no such term.  As pleaded, the release upon which Mr Marriner would rely is said to arise from the provisions of cll 3, 5, 6 and 11 of the 19 October 2001 agreement and to be implied.  In fairness to counsel for the Marriner parties, little was said in support of this defence.  I am not surprised.  I will content myself with stating only that the 19 October 2001 agreement contains no such release. 

1. I will now consider defences (xiii), (xiv) and (xv), each of which depends upon allegations of misleading and deceptive conduct by ASD and United Super prior to entering into the 19 October 2001 agreement.

1. The representation upon which the Marriner parties rely is that ASD and C+BUS had or would release all claims against Mr Marriner, Goldworthy, Laguna Australia and Fulham Holdings arising out of or relating to the Laguna Quays project.[80]  It is then said that ASD and C+BUS had no such intention.  This defence, to a large extent, depends upon a rather complicated conspiracy theory mounted on behalf of the Marriner defendants, a theory which also underlay the defences of estoppel[81] and that relating to unconscientious conduct.[82] 

   [80]Defence para 114(b).

   [81]Defence (xv).

   [82]Defence (xvi).

1. In brief, it was said that, at the time that C+BUS and ASD were agreeing the final arrangements for the sale of the Laguna project to Laguna Australia in September and October 2001, they had in mind that they would sue Mr Marriner or his companies to recover the bond money misappropriated and the excess capital expenditure which he had made.  They did not disclose this intention at the time.  He then caused his company to enter into the October 2001 agreement and the formal agreements entered into on 13 November 2001 to complete the sale, thinking that no such claim might be made.

1. There are many difficulties with this analysis.  Perhaps the most obvious is that I find that ASD and C+BUS were not guilty of this duplicity.  At the time the agreements were entered into in October and November 2001, their thinking was to look to the Bank of Queensland to recover the bond money on the basis that the bank had paid it out inappropriately.  Whatever might have been the strength of this contention, it was later seen as without prospect and attention shifted to Mr Marriner.  Much evidence was led about a reversal entry in the ASD accounts made in January 2002.  The evidence demonstrated that this entry was suggested by the auditors and for good reason.  The factual basis for these defences turns out to be totally insubstantial.

The Application of the Third Tranche Funds

1. My finding as to the non-existence of the suggested trust in respect of the bond moneys carries with it the rejection of claim (v), that Mr Marriner procured or induced the Bank of Queensland to pay the third tranche funds to Wallace & Wallace. 

1. Claims (vi), (vii), (viii) and (ix), arising out of the suggested breaches of trust by Wallace & Wallace, stand in a different light.  It is clear on the evidence that Wallace & Wallace received the third tranche funds pursuant to the ordinary trust obligation which a solicitor owes to their client.  This obligation was to deal with these funds in accordance with the directions of the client.  The evidence showed that the solicitors for ASD were Freehills but that Wallace & Wallace were retained for legal work with respect to the Laguna project, which required local expertise.  On 6 February 2001 Mr Penridge, a principal of Wallace & Wallace, at the direction of Mr Marriner, wrote to Ergon Energy, the successor to the Mackay Electricity Board, seeking cancellation of the bond and the release of the third tranche funds.  In this letter Mr Penridge described his firm’s position as acting on behalf of “the owners of Laguna Quays Resort”.  For what it is worth, he said in evidence that his understanding was that the owner, his client, was ASD.

1. The Wallace & Wallace trust records show that the third tranche funds of $853,200 were received on 21 February 2001.  The trust receipt for that sum bears a notation that it was credited to five files as follows: 

File Number	Amount
95925	6,367.09
96835	21,709.12
98444	2,928.87
96989	83,200.00
96978	738,944.92
$853,150.00[83]

[83]The small discrepancy between this total and the receipt was never explained.

These files and details of the application of the money were described by Mr Penridge as follows:

File 95925  -  This file is described as “Planning and Title Advices Club Villas”.  The sum was applied in payment of a Wallace & Wallace account dated 28 December 2000 addressed to Laguna Airport.

File 96835  -  This file is described as “Laguna Quays Airstrip Advices”.  The sum was applied in payment of a Wallace & Wallace account dated 29 December 2000 addressed to ASD.

File 98444  -  This file is described as “Laguna Australia Airport Pty Ltd purchased from ASD”.  The sum was applied in payment of a Wallace & Wallace account dated 16 January 2001 addressed to Laguna Airport C/- 189 Flinders Lane, Melbourne.

File 96989  -  This file is that dealing with the purchase of land for the runway by Laguna Airport from Mr Erbacher.  In fact there were two contracts to purchase land from this vendor.  This file deals with the purchase of an area of about 11 hectares being part of Lots 16 and 33 which was required for the runway extension.  The purchase price was $82,000 and the sum $83,200 allocated to this file was paid into a separate trust account in the name of Erbacher in accordance with Mr Jephson’s instruction of 19 February as “settlement funds for Erbacher transaction”

Account 96978  -  this was described as the “General Advices File”.  The trust ledger for this file shows the client to have been ASD.  It was from this account that payments were made at Mr Jephson’s direction. 

1. For my present purposes, the position is that the third tranche funds were received by Wallace & Wallace for its clients ASD and Laguna Airport, and, with the possible exception of $86,500 which was paid to Mr Marriner’s solicitors in Colac, the funds were applied for the benefit of the Laguna Quays project.  

1. There is no doubt[84] that these funds, totalling $853,200, were dealt with by Wallace & Wallace as directed by Mr Jephson, except for one payment.  On 22 May 2001 the sum of $80,000 was applied at Mr Marriner’s own direction.  With respect to the authority to give the instruction it is necessary that I examine the chronology in a little detail. 

   [84]Mr Penridge was unable to point to a specific authorisation for the disbursement of five of the 39 payments, totalling $5,978.12, but no point was made of this.

1. On 13 February 2001, at 10.05am, Mr Jephson left a message for Mr Penridge that he would give authority to Ergon to send to Wallace & Wallace the money and that he would provide a list of accounts to be paid. 

1. On the same day, 13 February 2001, Ergon Energy wrote to the Bank of Queensland enclosing the bank bond for cancellation.  This letter was copied to Mr Jephson on behalf of ASD and to Mr Penridge.  On 14 February Mr Penridge forwarded his copy to Mr Jephson.

1. On 14 February 2001 Mr Jephson, on Laguna Management letterhead, faxed to the Bank of Queensland an instruction that the security lodged to support the bond be paid to Wallace & Wallace.

1. On 19 February 2001 Mr Jephson, on the letterhead of Stage Design Pty Ltd of 189 Flinders Lane, faxed to Wallace & Wallace details of the accounts to be paid. 

1. One month earlier, 19 January 2001, according to the ASIC historical extract, Mr Jephson had ceased to be secretary of ASD.  The evidence of Mr Jephson as to the circumstances of his ceasing to hold this office on this date was entirely unsatisfactory.  He had no recollection of how or when this was done or even of the reason for it.  On the same day he is shown to have ceased being an officer of a number of ASD companies. 

1. On 20 February 2001 the third tranche funds totalling $853,200 were received by Wallace & Wallace and treated in its accounts as follows –

o$31,005.08 to payment of its costs in respect of files 95825, 96835 and 98444, as directed by Mr Jephson’s fax of 19 February. 

o$82,300 to file 96989 for settlement of the Erbacher transaction, as directed by the same fax. 

o$738,994.92, being the balance, to file 96978.

1. The instructions given to Wallace & Wallace on 19 February 2001 as to the application of the funds held in respect of file 96978 were subsequently varied or further instructions were given on 28 February 2001, 8 March 2001, 22 March 2001, 27 March 2001, 4 April 2001, 5 April 2001, 10 April 2001, 18 May 2001 and 16 June 2001.  In each case the instruction was given by Mr Jephson, sometimes by fax from Stage Design letterhead, on two occasions by fax on Goldsworthy letterhead and on a number of occasions simply by his endorsement of an instruction to pay on a copy of the account to be paid. 

1. With respect to the $82,300 lodged to file 96989, the position is rather different.  The Erbacher purchase was not settled until some months later.[85]  On 22 May 2001 Mr Marriner directed Mr Penridge to pay $80,000 from this fund in payment of an account of WS Group, the consulting surveyors engaged on various aspects of the Laguna Quays project.  On 3 July 2001, when the time came to settle the Erbacher purchase, $82,000 was deposited in the Erbacher transaction account from an unknown source and this was paid out on 19 July 2001, presumably upon settlement.

   [85]The transfer of land is dated 26 June 2001.

1. Mr Jephson was, until 19 January 2001, the secretary of ASD.  Mr Whalley said that on that date he, Mr Jephson, ceased employment with ASD and that on 22 January he commenced employment with Stage Design.  Mr Whalley said, too, that by agreement between Mr Patience, the new CEO of ASD, and Mr Marriner, Mr Jephson “continued to provide administrative services at ASD to assist with the transition to new staff at ASD.  He also continued his role as company secretary of ASD.”  This was denied by Mr Patience, who said that he then had no authority to do any work for ASD or its subsidiaries.  I do not accept the evidence of Mr Whalley on this point.  It is clear from Mr Jephson’s evidence that upon his resignation as secretary of ASD he almost immediately took up employment with Stage Design and worked from its premises in Flinders Lane.  He did not provide services at ASD.  He ceased to be company secretary of ASD.  Mr. Patience’s evidence on this matter was not challenged.  I conclude that after 19 January 2001 Mr Jephson had no authority to act on behalf of ASD.  Mr Marriner, of course, had no such authority on 22 May 2001.

1. Following the entering into of the November 2000 heads of agreement, Mr Marriner on 3 November 2000 ceased to be a director of ASD, of Laguna Investments and of Laguna Management.  He was, however, through his companies, Goldworthy and Fulham Holdings, the purchaser of the Laguna Quays resort under the June 2000 heads of agreement.  He continued to play an active role in the development of the resort, presumably in the expectation that the value of the project which he had purchased would thereby be maintained or even improved. This was agreed to in cl 12 of the June 2000 heads of agreement.

1. I accept the evidence of Mr Penridge that he had for some time prior to January 2001 been accustomed to dealing with both Mr Marriner and Mr Jephson as agents for ASD and its subsidiaries with respect to financial matters concerning the Laguna Quays project.  The evidence showed that Mr Marriner as director and CEO of ASD was very active in the project and that Mr Jephson, as his financial controller, had wide powers and extensive authority with respect to the payment of its creditors.  In November 2000 Mr Penridge was advised that Mr Marriner was no longer a director of ASD.  The reason given was not that the joint venturers had decided to part company; it was that it was as a consequence of a difference between him and the ASD board.  Notwithstanding this, Mr Marriner continued to be responsible for the management of the Laguna Quays project, perhaps as a purchaser in expectation that the purchase would be completed or perhaps because he was the person best able to do this.  This is consistent with the manner in which the management had continued since the June 2000 heads of agreement.  ASD acquiesced in this arrangement.  After November, this state of affairs continued.  The only difference was that Mr Marriner was no longer a director of ASD.  He continued to give instructions with respect to the development.  The existing staff, including Mr Spence and Mr Jephson, continued as before.  ASD acquiesced in this. 

1. Following the entering into of the November 2000 heads of agreement,  Mr Patience was on 17 November 2000 appointed chief  executive officer of ASD.  He said that he set about severing the relationship with the Marriner interests.  The Marriner operation moved before Christmas 2000 to new premises in Flinders Lane and the ASD operation moved to Nauru House in Exhibition Street. Mr Jephson and Mr Whalley as co-secretaries were kept on at Nauru House.  It seems that there were difficulties between Mr Patience and Mr Jephson who resigned his offices as secretary on 19 January 2001. 

1. On 6 February Mr Patience sent a circular letter addressed to all suppliers, contractors and consultants of ASD.  It was in these terms:

Re: Approval for Expenditure

Following the changes at [ASD] I wish to advise that any commitment of expenditure by the company must be signed off by the writer.  Associated companies have approval to buy minor items for the day-to-day running of their business.

It is, however, in your interest, to ensure that the company is [an ASD] business.

He said that the letter was sent to all suppliers, debtors and creditors of ASD notwithstanding that it is not addressed to debtors or creditors.  He said he believed that one such letter was sent to Wallace & Wallace as it was a creditor.  Mr Penridge, however, said that he did not see it until about August 2001 when Mr Spence showed it to him.  I am not persuaded that a copy of this letter was sent to Wallace & Wallace on or about the date it bears.

1. Mr Penridge said, and I accept, that he had no knowledge that Mr Jephson or Mr Marriner’s authority had been withdrawn by ASD or that Mr Jephson had ceased to hold office with that company.  I find that ASD, itself, did not bring this to his attention.  Mr Patience’s letter of 6 February 2001, if it was sent to Wallace & Wallace does not constitute notice of this fact.  

1. Furthermore, there was nothing in Mr Jephson’s direction to pay that would put Mr Penridge on notice of any want of authority or suggest that the funds were being used for some inappropriate purpose. 

1. On 25 January 2001 Mr Jephson signed a statutory declaration in which he incorrectly described himself as secretary of ASD.

1. In these circumstances it is indeed remarkable that ASD brings a claim which includes an allegation that its solicitors committed breach of trust.  I remind myself that Wallace &Wallace are no longer parties to the proceeding so that I do not have the benefit of hearing argument from them.  I could, for example, well suppose that an argument might be presented that ASD was estopped from denying the authority of Mr Marriner or Mr Jephson at this time, or that, for some other reason, the fiduciary obligations of Wallace & Wallace to their client had not been breached.  But no such contention was pleaded on behalf of the Marriner parties and I say nothing of it.  Mr Penridge who was called as a witness by ASD said that he acted in good faith in accordance with the directions of a man whom he believed to be authorised by his client.  This was not contradicted and I accept his evidence as to this.  Counsel for C+BUS emphasised in final address that it was no part of their clients’ case that Wallace & Wallace had acted fraudulently or dishonestly.  I proceed on the basis that any breach of trustee duties by this party would have been innocent. 

1. It is at this point necessary to identify what is the basis and nature of the trust which was said to have been breached.  The statement of claim is unhelpful.  All that is said is that, when the third tranche funds were paid into the trust account, the funds were “impressed with a trust for the benefit of ASD”.[86]  The duty of Wallace & Wallace as trustee was to deal with the money in accordance with the direction of ASD and to account to ASD.[87] 

   [86]Statement of claim, para 49.

   [87]Statement of claim, para 51.

1. In the course of the trial, I sought to tease out the nature of this trust.  Was it a trust which arose from the receipt of funds which the recipient, Wallace & Wallace, knew were impressed with the Quistclose trust?  Was it a trust which a solicitor owes to the client with respect to money received for the client?  Counsel for C+BUS appeared uncertain about this and, in the end, said that it did not matter.  In each case, Wallace & Wallace were bound by their trustee obligations to disburse the money only in accordance with the direction of ASD in its capacity as beneficiary under the second or ancillary Quistclose trust or in its capacity as client under the solicitor’s trust.  I am not at all confident that this distinction can be put to one side in this way.  In the former case, ASD would have to establish the existence of the Quistclose trust and then, further, that Wallace & Wallace had the required knowledge that the funds received were impressed with that trust.  In the latter case, it is sufficient that the funds were received on trust for the client.  On the facts as I have found them, ASD has failed to establish the pre-condition to a breach by the solicitors of their obligations with respect to money coming into their hands impressed with a Quistclose trust.  The trust does not exist; the funds in the hands of Wallace & Wallace cannot be subject to such a trust. 

1. Nor is the position very much assisted by the fact that the Marriner parties do not plead to the allegation that the funds when received were impressed with a trust,[88] that the solicitors owed ASD trustee duties[89] or that the solicitors acted in breach of those duties.[90] 

   [88]Statement of claim, para 49;  defence, paras 49 – 51.

   [89]Statement of claim, para 51;  defence, paras 49 – 51.

   [90]Statement of claim, para 56;  defence, paras 54 – 58.

1. With considerable misgiving, therefore, I put the pleadings on this point to one side and address what I was told in final address was the real issue.  On behalf of ASD, it was said that the disbursement of the third tranche funds by Wallace & Wallace was not authorised by ASD and that Mr Marriner in various ways was responsible for this.  The position adopted by Mr Marriner was that, this may be the case, but that he had nothing to do with it.  Further defences were to the effect that he was entitled to cause the money to be disbursed by Wallace & Wallace as they did, because of arrangements in place between him and his companies on the one hand and ASD on the other.  Finally, he relied upon releases of various kinds.

1. I am troubled by the contention of ASD that Mr Jephson was not authorised to give the instruction to Mr Penridge on behalf of ASD which he gave on 19 February 2001.  It appears to be accepted by the Marriner parties that Mr Jephson’s instructions were not in fact authorised by ASD.  They do not seek to justify his conduct, contenting themselves with disavowing any involvement in it or responsibility for it.  Frankly, I am, in circumstances such as this, very reluctant to make a finding that a solicitor is in breach of trust, even an innocent breach of trust.  As I have mentioned, I did not have the benefit of argument on the point on behalf of Wallace & Wallace. 

1. Mr Penridge impressed me as a conscientious solicitor and an honest witness.  I accept his evidence.  I am satisfied that ASD who had previously authorised Mr Jephson and Mr Marriner to act generally on its behalf took no step to bring to his attention any change in that authority.  Their authority previously was not solely dependant upon the fact that they were director and secretary respectively of ASD and its associated companies.  In the circumstances ASD cannot now assert its solicitor is in breach of trust when he continued to act as it had instructed him to act in the past.   I find that the plaintiffs have not established a breach of solicitor’s trust by Wallace & Wallace or by Mr Penridge in disbursing the third tranche funds in accordance with Mr Jephson’s and Mr Marriner’s instructions. 

1. The claim against Mr Marriner for inducing a breach of this trust must therefore fail.

1. I now consider the position on the assumption that Wallace & Wallace were in breach of the solicitor’s trust in disbursing the third tranche funds in accordance with Mr Jephson’s directions.  For reason which I have ventured to set out in some detail,[91] I am unable to find that, in his dealings with the third tranche funds, Mr Jephson acted in accordance with Mr Marriner’s specific instruction.  He had a general mandate to pay creditors as and when necessary from such funds as were available within the ASD group of companies.  This is a further reason for my rejection of claims (vi) and (vii).

   [91]See para [97] above.

1. Claim (viii), the claim against Goldworthy, Laguna Australian, Laguna Airport and Stage Design, based on their inducing or assisting Wallace & Wallace to breach their trust, with respect to the third tranche funds, must also fail.  This case depends entirely upon the conduct of these companies with respect to the disbursements.  There was no evidence that these companies had any involvement in the disbursements other than having received accounts from creditors which were unpaid.  Cheques from Wallace & Wallace in payment for these accounts were sent directly to the creditors.  The case of inducing and assisting, then, by these companies is no stronger than that against Mr Marriner for the same conduct.  It must meet the same fate.

1. The final cause of action with respect to the third tranche funds is that Goldworthy, Laguna Australia, Laguna Airport and Stage Design, were knowing recipients of the proceeds of the breach of trust.[92]  The critical aspect of this claim is their guilty knowledge.  This must be the knowledge of Mr Marriner, as no other person or entity was suggested to have had such knowledge.  What then is said to be Mr Marriner’s knowledge?  I have found that he did not concern himself with matters such as the source of funds within the corporate group for payment of creditors.  He certainly knew that substantial sums were due to many if not most or all of the creditors which received payments from Wallace & Wallace.  He was doubtless content that the debts should be paid.  There is no evidence, however, that he knew that they were paid from the third tranche funds.  There is no evidence that he knew at the time of payment that these creditors had in fact been paid.  In these circumstances, the knowledge of the companies within the Marriner group, which benefited from the payments, cannot be greater than his.  This claim against those companies must therefore fail.

   [92]Claim (ix).

1. I mention at this point that Mr Marriner’s unauthorised instruction of 22 May 2001 directing Wallace & Wallace to apply $80,000 of ASD’s funds is not the subject of a separate claim.  I say nothing further about it.

1. I am now confronted once more with the numerous alternative defences offered on behalf of the Marriner parties on the assumption that claims (vi), (vii), (viii) and (ix) were otherwise made out.  I have considered these already in my consideration of the unsuccessful claims in respect of the second tranche funds.  It will serve no useful purpose that I consider them afresh in response to this claim.  I do not do so.

The Capital Expenditure Claim

1. This is the claim that Mr Marriner caused to be paid sums totalling $5,522,890 between December 1999 and 31 October 2000 for the Laguna Quays project and that, of this, only $4.7m was authorised.  The claim is therefore for an overpayment of $824,890.[93]  This amount is made up as follows:

   [93]See para [35] above.

Capital works expenditure incurred to 31 October 2000	5,096,290
Payment to Cumberland Management	270,000
Payment to JJ McDonald	156,600
5,522,890
Less authorised	4,700,000
Total	$824,390

1. The last two items represent the payments from the second tranche funds which I have already described.[94]  The expenditure of about $5m in the first item represents a large number of payments set out in two lists annexed to a letter prepared by Mr Whalley the secretary of ASD and sent to C+BUS by letter dated 2 November 2000.  The first list comprises payments made by ASD between 21 October 1999 and 13 October 2000 totalling $4,395,977.  The second is a list of payments made by Matelda Oaks as trustee of the Victorian Property Trust between 1 October 1999 and 30 June 2000 totalling $767,313.  No distinction for present purpose was drawn between these lists.  The total expenses were $5,096,290.

   [94]See para [ 21] above.

1. It will be recalled that by heads of agreement dated 30 June 2000, ASD and Matelda Oaks agreed to sell the Laguna Quays project to Laguna Australia for a total price of $26,500,000.[95]  The subject-matter of the sale was the real estate which was owned in part by ASD and in part by Matelda Oaks, and the shares in Laguna Investments which were held by ASD.  By cl 11 the parties agreed that the purchase price also included the repayment to ASD of an inter company loan owed to it by Laguna Investments and that the loan was approximately $10m.  The heads of agreement contemplated that the purchaser would enter into possession upon payment of the second instalment price on 31 October 2000.[96]  The balance of the price was to be paid as to a further 10% on 28 February 2001[97] and the balance on 1 March 2001 by vendor finance.[98]  The agreement contains in cl 9 the following:

9        [ASD] to complete works

[ASD]  shall 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.

[95]See para [47] above.

[96]Clause 10.

[97]Clause 1, 2.

[98]Clause 8.

Annexure 4 is in these terms:

Annexure 4 – Capital Works Budget

The Company will undertake the first stage of rectification and development works including the following:

·Repair of 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.

1. The matter is a little complicated by the fact that Mr Marriner was a director of ASD both before and in the months after the heads of agreement up to 3 November 2000.  He was also the CEO of ASD for the same period with very wide powers.  He was effectively the manager of the project and, indeed, still performed these functions after he had ceased to be director and CEO.  He was therefore in a delicate position inasmuch as he was acting for the vendor and the purchaser pending settlement of the sale.  And the sale was not settled on 31 October 2000 as contemplated; it did not occur until April 2002.  It will appear from what I have already written that Mr Marriner adopted a fairly cavalier attitude to matters such as separate corporate identity.  He was an enthusiast for the Laguna Quays project and he was prepared to spend much in pursuance of it.  Since ASD was well resourced, he was content to use these resources on the project, leaving it to others to attend to the detail.

1. The case presented on behalf of C+BUS accepted Mr Whalley’s lists of expenditure as having been expended for the capital works referred to in Annexure 4.  Mr Whalley’s covering letter, however, makes no such assertion.  He identifies in the lists items totalling $410,777 which are described as repair and maintenance costs.  He said that the balance of $4.68m representing capital costs lay within the $4.7m limit.

1. In their submissions counsel for C+BUS did not challenge the accuracy of Mr Whalley’s lists and I see no reason to take a different position.  The witness said that about $410,000 was spent by way of repair and maintenance costs upon the golf course, dams and the hotel lodge.  I see no reason to doubt his allocation of this expenditure.  Indeed, it is to some extent supported by the references to maintenance and repair items elsewhere in the correspondence.  This maintenance and repair expenditure is not included in the capital works budget. 

1. The remaining items, being the money spent from the second tranche funds, were applied directly or indirectly in payment to JJ McDonald after the time covered by Mr Whalley’s lists.  There is no evidence that the three payments of $90,000 made in October 2000 were applied to any particular activity on site.  Likewise the $156,600 paid directly to the contractor.  Given the nature of the work described in the JJ McDonald contract, I conclude that these payments were for capital works possibly works on the airstrip and roads.  I am satisfied that they were Annexure 4 works. 

1. I find, therefore, that Mr Marriner caused ASD and Matelda Oaks to expend a total of $ 5,112,113 on capital works.  This is  $412,113 in excess of the $4.7m limit.

1. I am satisfied that this excess was expended by Mr Marriner in breach of his statutory duty to ASD as a director.  The evidence shows that, in this respect, as in others Mr Marriner was primarily concerned to continue the development of the Laguna Quays project for his own benefit.  He was aware that expenditure beyond $4.7M was unauthorised.  The best that might be said for him in this context is the he failed to keep track of the expenditure.  He kept on spending so long as there was money available for him to use.  It mattered not that it was the money of ASD which he was spending as its director pursuant to cl 9 of the June 200 heads of agreement.  He had a conflict of interest in dealing with this money since he represented the vendor as well as the purchaser.  The heads of agreement permitted him to spend it, but his dual position required him to be meticulous in his exercise of this function.  The evidence shows that he was less than meticulous.  He put his interest as purchaser ahead of his interest as director of the vendor.

1. As I have indicated,[99] the Marriner parties, in addition, raise defences (ix), (x), (xi) and (xii) to this claim and, possibly, defences (xiii), (xiv) and (xvii).

   [99]See para [37] above.

1. Defences (ix) and (x) assert releases under cl 2(e) and (f) of the November 2000 heads of agreement which were executed on 1 November 2000.  I reject these defences for the reasons indicated above.[100]   There is the further difficulty that the second tranche funds were not disbursed until 30 November.  It is difficult to see the releases as being effective to release a liability which had not yet arisen.

   [100]See para [111] above.

1. Defence (xi) depends upon the construction of cl 8 of the Unit Redemption and Share Acquisition Deed of 3 November 2000 which I have set out above.[101]  The capital expenditure  claim  is pleaded as a breach by Mr Marriner of his statutory directorial duties, a breach of fiduciary duty and a breach of a duty of care.   For reasons already set out[102] I do not consider that cl 8 provides an answer to breaches of statutory or fiduciary duty.

   [101]See para [112] above.

   [102]See para [113] and [114] above.

1. By defence (xii) the Marriner parties assert the mutual releases which are said to be contained in the 19 October 2001 agreement.  For reasons which I have set out,[103] I do not find that these releases were given. 

   [103]See para [118] above.

1. Defences (xiii), (xv) and (xvii) relate to misleading and deceptive conduct, , estoppel and unconscientious behaviour which I have already dealt with in a different context.[104]  There is no substance in these defences.

   [104]See para [119] above.

Conclusions

1. It follows from this that I find that the claim against Mr Marriner, that he caused to be spent money on capital works in excess of the cap of $4.7m, has been made out.  The amount of this excess is $412,113.  I reject the various defences which he raises in answer to this claim.  Accordingly, I propose that there be judgment against him in the sum of $412,113. 

1. I will hear counsel further as to the terms of the judgment which should be given to give effect to this conclusion and as to costs. 

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